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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 April 30, 2023
or
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number 001-35594
PALO ALTO NETWORKS, INC.
(Exact name of registrant as specified in its charter)  
 
Delaware20-2530195
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
3000 Tannery Way
Santa Clara, California 95054
(Address of principal executive office, including zip code)
(408) 753-4000
(Registrant’s telephone number, including area code)
NA
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.0001 par value per sharePANW
The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐Emerging growth company☐
Non-accelerated filer☐Smaller reporting company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐    No  ☒
The number of shares outstanding of the registrant’s common stock as of May 12, 2023 was 305,854,824.

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



- 2 -
Table of Contents
PART I
ITEM 1.    FINANCIAL STATEMENTS
PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
April 30, 2023July 31, 2022
(unaudited)
Assets
Current assets:
Cash and cash equivalents$1,992.9 $2,118.5 
Short-term investments1,965.3 1,516.0 
Accounts receivable, net of allowance for credit losses of $8.6 and $8.9 at April 30, 2023 and July 31, 2022, respectively
1,443.6 2,142.5 
Short-term deferred contract costs317.3 317.7 
Prepaid expenses and other current assets694.5 320.2 
Total current assets6,413.6 6,414.9 
Property and equipment, net341.7 357.8 
Operating lease right-of-use assets248.3 242.0 
Long-term investments2,709.8 1,051.9 
Long-term deferred contract costs503.6 550.1 
Goodwill2,926.8 2,747.7 
Intangible assets, net340.6 384.5 
Other assets686.1 504.7 
Total assets$14,170.5 $12,253.6 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$91.6 $128.0 
Accrued compensation344.7 461.1 
Accrued and other liabilities376.1 399.2 
Deferred revenue4,146.7 3,641.2 
Convertible senior notes, net3,682.1 3,676.8 
Total current liabilities8,641.2 8,306.3 
Long-term deferred revenue3,942.9 3,352.8 
Long-term operating lease liabilities264.5 276.1 
Other long-term liabilities89.5 108.4 
Total liabilities12,938.1 12,043.6 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock; $0.0001 par value; 100.0 shares authorized; none issued and outstanding at April 30, 2023 and July 31, 2022
— — 
Common stock and additional paid-in capital; $0.0001 par value; 1,000.0 shares authorized; 305.6 and 298.8 shares issued and outstanding at April 30, 2023 and July 31, 2022, respectively
2,708.2 1,932.7 
Accumulated other comprehensive loss(20.7)(55.6)
Accumulated deficit(1,455.1)(1,667.1)
Total stockholders’ equity1,232.4 210.0 
Total liabilities and stockholders’ equity$14,170.5 $12,253.6 
See notes to condensed consolidated financial statements.
- 3 -
Table of Contents
PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share data)
Three Months EndedNine Months Ended
April 30,April 30,
2023202220232022
Revenue:
Product$388.1 $351.5 $1,071.0 $955.0 
Subscription and support1,332.8 1,035.2 3,868.4 2,996.0 
Total revenue1,720.9 1,386.7 4,939.4 3,951.0 
Cost of revenue:
Product93.4 126.0 314.0 312.7 
Subscription and support381.4 314.5 1,088.9 913.7 
Total cost of revenue474.8 440.5 1,402.9 1,226.4 
Total gross profit1,246.1 946.2 3,536.5 2,724.6 
Operating expenses:
Research and development413.7 355.4 1,189.6 1,053.9 
Sales and marketing639.5 543.6 1,880.0 1,578.3 
General and administrative114.2 94.8 333.1 296.6 
Total operating expenses1,167.4 993.8 3,402.7 2,928.8 
Operating income (loss)78.7 (47.6)133.8 (204.2)
Interest expense(7.8)(6.8)(21.5)(20.5)
Other income, net60.1 1.9 137.5 0.2 
Income (loss) before income taxes131.0 (52.5)249.8 (224.5)
Provision for income taxes23.2 20.7 37.8 45.8 
Net income (loss)$107.8 $(73.2)$212.0 $(270.3)
Net income (loss) per share, basic$0.35 $(0.25)$0.70 $(0.92)
Net income (loss) per share, diluted$0.31 $(0.25)$0.63 $(0.92)
Weighted-average shares used to compute net income (loss) per share, basic303.9 296.7 302.0 294.7 
Weighted-average shares used to compute net income (loss) per share, diluted344.7 296.7 338.1 294.7 

See notes to condensed consolidated financial statements.
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PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in millions)
Three Months EndedNine Months Ended
April 30,April 30,
2023202220232022
Net income (loss)$107.8 $(73.2)$212.0 $(270.3)
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on investments1.8 (14.6)7.5 (25.6)
Cash flow hedges:
Change in unrealized gains (losses)(17.7)(21.6)2.9 (38.2)
Net realized losses reclassified into earnings6.3 8.1 24.5 15.4 
Net change on cash flow hedges(11.4)(13.5)27.4 (22.8)
Other comprehensive income (loss)(9.6)(28.1)34.9 (48.4)
Comprehensive income (loss)$98.2 $(101.3)$246.9 $(318.7)

See notes to condensed consolidated financial statements.
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PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in millions)
Three Months Ended April 30, 2023
 Common Stock
and
Additional Paid-In Capital 		Accumulated
Other
Comprehensive Loss		Accumulated
Deficit		Total 
Stockholders’
Equity
 SharesAmount
Balance as of January 31, 2023302.4 $2,303.0 $(11.1)$(1,562.9)$729.0 
Net income— — — 107.8 107.8 
Other comprehensive loss— — (9.6)— (9.6)
Issuance of common stock in connection with employee equity incentive plans3.2 130.7 — — 130.7 
Taxes paid related to net share settlement of equity awards— (2.1)— — (2.1)
Share-based compensation for equity-based awards— 276.6 — — 276.6 
Balance as of April 30, 2023305.6 $2,708.2 $(20.7)$(1,455.1)$1,232.4 

Three Months Ended April 30, 2022
 Common Stock
and
Additional Paid-In Capital 		Accumulated
Other
Comprehensive Loss		Accumulated
Deficit		Total 
Stockholders’
Equity
 SharesAmount
Balance as of January 31, 2022295.4 $1,745.2 $(30.2)$(1,597.2)$117.8 
Net loss— — — (73.2)(73.2)
Other comprehensive loss— — (28.1)— (28.1)
Issuance of common stock in connection with employee equity incentive plans3.5 77.8 — — 77.8 
Taxes paid related to net share settlement of equity awards— (11.2)— — (11.2)
Share-based compensation for equity-based awards— 254.5 — — 254.5 
Balance as of April 30, 2022298.9 $2,066.3 $(58.3)$(1,670.4)$337.6 



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Nine Months Ended April 30, 2023
 Common Stock
and
Additional Paid-In Capital 		Accumulated
Other
Comprehensive Income (Loss)		Accumulated
Deficit		Total 
Stockholders’
Equity
 SharesAmount
Balance as of July 31, 2022298.8 $1,932.7 $(55.6)$(1,667.1)$210.0 
Net income— — — 212.0 212.0 
Other comprehensive income— — 34.9 — 34.9 
Issuance of common stock in connection with employee equity incentive plans8.6 199.7 — — 199.7 
Taxes paid related to net share settlement of equity awards— (17.5)— — (17.5)
Share-based compensation for equity-based awards— 843.3 — — 843.3 
Repurchase and retirement of common stock(1.8)(250.0)— — (250.0)
Balance as of April 30, 2023305.6 $2,708.2 $(20.7)$(1,455.1)$1,232.4 


Nine Months Ended April 30, 2022
 Common Stock
and
Additional Paid-In Capital 		Accumulated
Other
Comprehensive Loss		Accumulated
Deficit		Total 
Stockholders’
Equity
 SharesAmount
Balance as of July 31, 2021291.9 $2,311.2 $(9.9)$(1,666.8)$634.5 
Cumulative-effect adjustment from adoption of new accounting pronouncement— (581.9)— 266.7 (315.2)
Net loss— — — (270.3)(270.3)
Other comprehensive loss— — (48.4)— (48.4)
Issuance of common stock in connection with employee equity incentive plans10.1 137.0 — — 137.0 
Taxes paid related to net share settlement of equity awards— (39.8)— — (39.8)
Share-based compensation for equity-based awards— 789.8 — — 789.8 
Repurchase and retirement of common stock(3.1)(550.0)— — (550.0)
Balance as of April 30, 2022298.9 $2,066.3 $(58.3)$(1,670.4)$337.6 

See notes to condensed consolidated financial statements.
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PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
Nine Months Ended
April 30,
20232022
Cash flows from operating activities
Net income (loss)
$212.0 $(270.3)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Share-based compensation for equity-based awards820.3 771.5 
Depreciation and amortization212.9 210.1 
Amortization of deferred contract costs297.4 261.1 
Amortization of debt discount and debt issuance costs5.3 5.4 
Reduction of operating lease right-of-use assets36.7 37.5 
Amortization of investment premiums, net of accretion of purchase discounts(34.4)10.5 
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net
699.3 (0.1)
Deferred contract costs(250.5)(257.1)
Prepaid expenses and other assets
(496.3)(98.9)
Accounts payable
(36.3)51.6 
Accrued compensation
(119.2)(65.4)
Accrued and other liabilities
(78.7)(30.3)
Deferred revenue
1,094.9 835.4 
Net cash provided by operating activities2,363.4 1,461.0 
Cash flows from investing activities
Purchases of investments(4,461.4)(1,296.4)
Proceeds from sales of investments875.0 289.2 
Proceeds from maturities of investments1,503.6 716.9 
Business acquisitions, net of cash acquired(204.5)(17.4)
Purchases of property, equipment, and other assets
(109.1)(153.6)
Net cash used in investing activities(2,396.4)(461.3)
Cash flows from financing activities
Repurchases of common stock
(272.7)(550.0)
Proceeds from sales of shares through employee equity incentive plans
198.7 136.3 
Payments for taxes related to net share settlement of equity awards
(17.5)(39.8)
Net cash used in financing activities(91.5)(453.5)
Net increase (decrease) in cash, cash equivalents, and restricted cash(124.5)546.2 
Cash, cash equivalents, and restricted cash - beginning of period2,124.8 1,880.1 
Cash, cash equivalents, and restricted cash - end of period $2,000.3 $2,426.3 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents$1,992.9 $2,419.9 
Restricted cash included in prepaid expenses and other current assets7.4 6.4 
Total cash, cash equivalents, and restricted cash$2,000.3 $2,426.3 
See notes to condensed consolidated financial statements.

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 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Palo Alto Networks, Inc. (the “Company,” “we,” “us,” or “our”), headquartered in Santa Clara, California, was incorporated in March 2005 under the laws of the State of Delaware and commenced operations in April 2005. We empower enterprises, organizations, service providers, and government entities to secure their users, networks, clouds, and endpoints by delivering comprehensive cybersecurity backed by artificial intelligence and automation.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), consistent in all material respects with those applied in our Annual Report on Form 10-K for the fiscal year ended July 31, 2022, filed with the Securities and Exchange Commission (“SEC”) on September 6, 2022. Our condensed consolidated financial statements include our accounts and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements are unaudited but include all adjustments of a normal recurring nature necessary for a fair presentation of our quarterly results. Our condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended July 31, 2022.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and the accompanying notes. We base our estimates on assumptions, both historical and forward looking, that we believe are reasonable. Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the current economic environment.
Summary of Significant Accounting Policies
There have been no material changes to our significant accounting policies as of and for the nine months ended April 30, 2023, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 31, 2022.
Stock Split Effected in the Form of a Stock Dividend (“Stock Split”)
On September 13, 2022, we executed a three-for-one stock split of our common stock, effected in the form of a stock dividend. The par value per share of our common stock remains unchanged at $0.001 per share after the Stock Split. All references made to share or per share amounts on the accompanying condensed consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the Stock Split.
2. Revenue
Disaggregation of Revenue
The following table presents revenue by geographic theater (in millions):
Three Months Ended April 30,Nine Months Ended April 30,
2023202220232022
Revenue:
Americas
United States$1,105.2 $887.2 $3,153.8 $2,557.5 
Other Americas74.0 61.5 213.1 173.8 
Total Americas1,179.2 948.7 3,366.9 2,731.3 
Europe, the Middle East, and Africa (“EMEA”)332.1 269.5 981.5 755.5 
Asia Pacific and Japan (“APAC”)209.6 168.5 591.0 464.2 
Total revenue$1,720.9 $1,386.7 $4,939.4 $3,951.0 
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The following table presents revenue for groups of similar products and services (in millions):
Three Months Ended April 30,Nine Months Ended April 30,
2023202220232022
Revenue:
Product$388.1 $351.5 $1,071.0 $955.0 
Subscription and support
Subscription838.1 639.8 2,417.5 1,836.6 
Support494.7 395.4 1,450.9 1,159.4 
Total subscription and support1,332.8 1,035.2 3,868.4 2,996.0 
Total revenue$1,720.9 $1,386.7 $4,939.4 $3,951.0 
Deferred Revenue
During the nine months ended April 30, 2023 and 2022, we recognized approximately $2.9 billion and $2.2 billion of revenue pertaining to amounts that were deferred as of July 31, 2022 and 2021, respectively.
Remaining Performance Obligations
Remaining performance obligations were $9.2 billion as of April 30, 2023, of which we expect to recognize as revenue approximately $4.5 billion over the next 12 months and the remainder thereafter.
3. Fair Value Measurements
The following table presents our financial assets and liabilities measured at fair value on a recurring basis as of April 30, 2023 and July 31, 2022 (in millions):
April 30, 2023July 31, 2022
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalents:
Money market funds$879.5 $— $— $879.5 $1,205.2 $— $— $1,205.2 
Certificates of deposit — — — — — 155.3 — 155.3 
Commercial paper— 369.0 — 369.0 — 69.1 — 69.1 
Corporate debt securities— 21.0 — 21.0 — 19.5 — 19.5 
U.S. government and agency securities— 49.9 — 49.9 — 10.0 — 10.0 
Non-U.S. government and agency securities— — — — — 5.1 — 5.1 
Total cash equivalents879.5 439.9 — 1,319.4 1,205.2 259.0 — 1,464.2 
Short-term investments:
Certificates of deposit— 194.1 — 194.1 — 116.4 — 116.4 
Commercial paper— 617.9 — 617.9 — 79.0 — 79.0 
Corporate debt securities— 824.5 — 824.5 — 505.0 — 505.0 
U.S. government and agency securities— 324.4 — 324.4 — 798.2 — 798.2 
Non-U.S. government and agency securities— — — — — 17.4 — 17.4 
Asset-backed securities— 4.4 — 4.4 — — — — 
Total short-term investments— 1,965.3 — 1,965.3 — 1,516.0 — 1,516.0 
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April 30, 2023July 31, 2022
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Long-term investments:
Corporate debt securities— 2,140.0 — 2,140.0 — 761.2 — 761.2 
U.S. government and agency securities— 33.6 — 33.6 — 118.2 — 118.2 
Non-U.S. government and agency securities— 55.8 — 55.8 — — — — 
Asset-backed securities— 480.4 — 480.4 — 172.5 — 172.5 
Total long-term investments— 2,709.8 — 2,709.8 — 1,051.9 — 1,051.9 
Prepaid expenses and other current assets:
Foreign currency forward contracts— 22.5 — 22.5 — 2.4 — 2.4 
Total prepaid expenses and other current assets— 22.5 — 22.5 — 2.4 — 2.4 
Other assets:
Foreign currency forward contracts— 5.4 — 5.4 — 0.7 — 0.7 
Total other assets— 5.4 — 5.4 — 0.7 — 0.7 
Total assets measured at fair value$879.5 $5,142.9 $— $6,022.4 $1,205.2 $2,830.0 $— $4,035.2 
Accrued and other liabilities:
Foreign currency forward contracts$— $18.8 $— $18.8 $— $32.4 $— $32.4 
Total accrued and other liabilities— 18.8 — 18.8 — 32.4 — 32.4 
Other long-term liabilities:
Foreign currency forward contracts— 4.4 — 4.4 — 0.8 — 0.8 
Total other long-term liabilities— 4.4 — 4.4 —