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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, 2022
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number 001-35594
PALO ALTO NETWORKS, INC.
(Exact name of registrant as specified in its charter)  
 
Delaware20-2530195
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3000 Tannery Way
Santa Clara, California 95054
(Address of principal executive office, including zip code)
(408753-4000
(Registrant’s telephone number, including area code)
NA
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.0001 par value per sharePANW

The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerEmerging growth company
Non-accelerated filerSmaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No  
The number of shares outstanding of the registrant’s common stock as of May 12, 2022 was 99,635,390.


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, 2022July 31, 2021
(unaudited)
Assets
Current assets:
Cash and cash equivalents$2,419.9 $1,874.2 
Short-term investments1,454.7 1,026.9 
Accounts receivable, net of allowance for credit losses of $9.6 and $11.2 at April 30, 2022 and July 31, 2021, respectively
1,240.6 1,240.4 
Short-term deferred contract costs286.8 276.5 
Prepaid expenses and other current assets295.6 229.3 
Total current assets5,697.6 4,647.3 
Property and equipment, net355.6 318.4 
Operating lease right-of-use assets239.9 262.9 
Long-term investments714.7 888.3 
Long-term deferred contract costs480.3 494.6 
Goodwill2,731.3 2,710.1 
Intangible assets, net412.1 498.6 
Other assets468.5 421.4 
Total assets$11,100.0 $10,241.6 
Liabilities, temporary equity and stockholders’ equity
Current liabilities:
Accounts payable$108.0 $56.9 
Accrued compensation365.2 430.6 
Accrued and other liabilities375.4 329.4 
Deferred revenue3,152.9 2,741.9 
Convertible senior notes, net3,675.7 1,557.9 
Total current liabilities7,677.2 5,116.7 
Convertible senior notes, net 1,668.1 
Long-term deferred revenue2,706.5 2,282.1 
Long-term operating lease liabilities275.7 313.4 
Other long-term liabilities103.0 97.7 
Commitments and contingencies (Note 10)
Temporary equity 129.1 
Stockholders’ equity:
Preferred stock; $0.0001 par value; 100.0 shares authorized; none issued and outstanding at April 30, 2022 and July 31, 2021
  
Common stock and additional paid-in capital; $0.0001 par value; 1,000.0 shares authorized; 99.6 and 97.3 shares issued and outstanding at April 30, 2022 and July 31, 2021, respectively
2,066.3 2,311.2 
Accumulated other comprehensive loss(58.3)(9.9)
Accumulated deficit(1,670.4)(1,666.8)
Total stockholders’ equity337.6 634.5 
Total liabilities, temporary equity and stockholders’ equity$11,100.0 $10,241.6 
See notes to condensed consolidated financial statements.
- 3 -

Table of Content
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,
2022202120222021
Revenue:
Product$351.5 $288.9 $955.0 $780.9 
Subscription and support1,035.2 785.0 2,996.0 2,255.9 
Total revenue1,386.7 1,073.9 3,951.0 3,036.8 
Cost of revenue:
Product126.0 81.9 312.7 219.7 
Subscription and support314.5 248.7 913.7 696.3 
Total cost of revenue440.5 330.6 1,226.4 916.0 
Total gross profit946.2 743.3 2,724.6 2,120.8 
Operating expenses:
Research and development355.4 311.0 1,053.9 815.1 
Sales and marketing543.6 448.0 1,578.3 1,264.0 
General and administrative94.8 94.7 296.6 285.4 
Total operating expenses993.8 853.7 2,928.8 2,364.5 
Operating loss(47.6)(110.4)(204.2)(243.7)
Interest expense(6.8)(41.0)(20.5)(121.9)
Other income, net1.9 1.0 0.2 2.9 
Loss before income taxes(52.5)(150.4)(224.5)(362.7)
Provision for (benefit from) income taxes20.7 (5.3)45.8 16.9 
Net loss$(73.2)$(145.1)$(270.3)$(379.6)
Net loss per share, basic and diluted$(0.74)$(1.50)$(2.75)$(3.95)
Weighted-average shares used to compute net loss per share, basic and diluted98.9 96.9 98.2 96.1 

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in millions)
Three Months EndedNine Months Ended
April 30,April 30,
2022202120222021
Net loss$(73.2)$(145.1)$(270.3)$(379.6)
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on investments(14.6)(0.8)(25.6)(2.4)
Change in unrealized gains (losses) on cash flow hedges(13.5)(5.5)(22.8)(4.5)
Other comprehensive income (loss)(28.1)(6.3)(48.4)(6.9)
Comprehensive loss$(101.3)$(151.4)$(318.7)$(386.5)

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, 2022
 Common Stock
and
Additional Paid-In Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated
Deficit
Total 
Stockholders’
Equity
 SharesAmount
Balance as of January 31, 202298.5 $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 plans1.1 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, 202299.6 $2,066.3 $(58.3)$(1,670.4)$337.6 

Three Months Ended April 30, 2021
 Common Stock
and
Additional Paid-In Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated
Deficit
Total 
Stockholders’
Equity
 SharesAmount
Balance as of January 31, 202197.2 $2,429.8 $9.9 $(1,402.4)$1,037.3 
Net loss— — — (145.1)(145.1)
Other comprehensive loss— — (6.3)— (6.3)
Issuance of common stock in connection with employee equity incentive plans1.2 58.0 — — 58.0 
Taxes paid related to net share settlement of equity awards— (6.6)— — (6.6)
Share-based compensation for equity-based awards— 248.7 — — 248.7 
Repurchase and retirement of common stock(1.0)(350.0)— — (350.0)
Temporary equity reclassification— 161.2 — — 161.2 
Balance as of April 30, 202197.4 $2,541.1 $3.6 $(1,547.5)$997.2 



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Nine Months Ended April 30, 2022
 Common Stock
and
Additional Paid-In Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated
Deficit
Total 
Stockholders’
Equity
 SharesAmount
Balance as of July 31, 202197.3 $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 plans3.3 137.0 — — 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(1.0)(550.0)— — (550.0)
Balance as of April 30, 202299.6 $2,066.3 $(58.3)$(1,670.4)$337.6 


Nine Months Ended April 30, 2021
 Common Stock
and
Additional Paid-In Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated
Deficit
Total 
Stockholders’
Equity
 SharesAmount
Balance as of July 31, 202096.3 $2,259.2 $10.5 $(1,167.9)$1,101.8 
Net loss— — — (379.6)(379.6)
Other comprehensive loss— — (6.9)— (6.9)
Issuance of common stock in connection with employee equity incentive plans2.9 103.7 — — 103.7 
Taxes paid related to net share settlement of equity awards— (22.0)— — (22.0)
Share-based compensation for equity-based awards— 709.5 — — 709.5 
Repurchase and retirement of common stock(3.1)(850.0)— — (850.0)
Issuance of common and restricted common stock in connection with acquisitions1.3 340.7 — — 340.7 
Balance as of April 30, 202197.4 $2,541.1 $3.6 $(1,547.5)$997.2 

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,
20222021
Cash flows from operating activities
Net loss
$(270.3)$(379.6)
Adjustments to reconcile net loss to net cash provided by operating activities:
Share-based compensation771.5 664.5 
Depreciation and amortization210.1 191.6 
Amortization of deferred contract costs261.1 208.3 
Amortization of debt discount and debt issuance costs5.4 106.5 
Amortization of operating lease right-of-use assets37.5 32.6 
Amortization of investment premiums, net of accretion of purchase discounts10.5 9.2 
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net
(0.1)301.3 
Deferred contract costs(257.1)(235.1)
Prepaid expenses and other assets
(98.9)(135.5)
Accounts payable
51.6 3.4 
Accrued compensation
(65.4)(72.7)
Accrued and other liabilities
(30.3)(64.4)
Deferred revenue
835.4 547.1 
Net cash provided by operating activities1,461.0 1,177.2 
Cash flows from investing activities
Purchases of investments(1,296.4)(1,494.1)
Proceeds from sales of investments289.2 36.7 
Proceeds from maturities of investments716.9 845.1 
Business acquisitions, net of cash acquired(17.4)(777.3)
 Purchases of property, equipment, and other assets
(153.6)(88.6)
Net cash used in investing activities(461.3)(1,478.2)
Cash flows from financing activities
Repurchases of common stock
(550.0)(850.0)
Proceeds from sales of shares through employee equity incentive plans
136.3 103.7 
Payments for taxes related to net settlement of equity awards
(39.8)(21.9)
Payments for debt issuance costs
 (0.2)
Net cash used in financing activities(453.5)(768.4)
Net increase (decrease) in cash, cash equivalents, and restricted cash546.2 (1,069.4)
Cash, cash equivalents, and restricted cash - beginning of period1,880.1 2,961.7 
Cash, cash equivalents, and restricted cash - end of period $2,426.3 $1,892.3 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents$2,419.9 $1,886.1 
Restricted cash included in prepaid expenses and other current assets6.4 5.2 
Restricted cash included in other assets 1.0 
Total cash, cash equivalents, and restricted cash$2,426.3 $1,892.3 
Non-cash investing and financing activities
Equity consideration for business acquisitions$(2.5)$(365.4)
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, service providers, and government entities to secure all users, applications, data, networks, clouds and devices with comprehensive visibility and context, continuously across all locations.
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, 2021, filed with the Securities and Exchange Commission (“SEC”) on September 3, 2021. Our condensed consolidated financial statements include our accounts and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Our condensed consolidated financial statements are unaudited but include all adjustments of a normal recurring nature necessary for a fair presentation of our quarterly results. Certain prior period amounts have been reclassified to conform to our current period presentation. 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, 2021.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and also on assumptions that we believe are reasonable. Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the economic environment such as the global impact of the coronavirus disease discovered in 2019 (“COVID-19”).
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, 2022, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 31, 2021, except for the change in our accounting policies due to our adoption of recently issued guidance. Refer to “Recently Adopted Accounting Pronouncements” below.
Recently Adopted Accounting Pronouncements
Acquired Contract Assets and Contract Liabilities
In October 2021, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that requires companies to apply revenue guidance to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination on the acquisition date, instead of measuring them at fair value. We early adopted this guidance in our first quarter of fiscal 2022 on a prospective basis. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
Debt with Conversion Options
In August 2020, the FASB issued authoritative guidance that simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instrument. The standard reduces the number of models used to account for convertible instruments and simplifies the classification of debt on the balance sheet.
We adopted this standard in our first quarter of fiscal 2022 using the modified-retrospective approach, under which financial results reported in periods prior to fiscal 2022 were not adjusted. The adoption of this standard resulted in an increase to convertible senior notes, net of $444.3 million, a decrease to accumulated deficit of $266.7 million, and a decrease to additional paid-in capital and temporary equity of $711.0 million upon adoption.
Below is the update to our Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended July 31, 2021 as a result of the adoption of the above guidance.
Business Combinations
We include the results of operations of the businesses that we acquire as of the respective dates of acquisition. We generally allocate the fair value of the purchase price of our acquisitions to the assets acquired and liabilities assumed based on their estimated
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fair values. The excess of the purchase price over the values of these identifiable assets and liabilities is recorded as goodwill. Additional information existing as of the acquisition date but unknown to us may become known during the remainder of the measurement period, not to exceed 12 months from the acquisition date, which may result in changes to the amounts and allocations recorded.
Convertible Senior Notes
Prior to August 1, 2021, our convertible senior notes were separated into a liability and an equity component. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that did not have an associated convertible feature, using a discounted cash flow model with a risk-adjusted yield. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the notes as a whole. This difference represented a debt discount that was amortized to interest expense using the effective interest method over the term of the notes. The equity component was not remeasured as it continued to meet the conditions for equity classification. Transaction costs related to the issuance of the notes were allocated to the liability and equity components using the same proportions as the proceeds from the notes. Transaction costs attributable to the liability component were netted with the liability component and amortized to interest expense using the effective interest method over the term of the notes. Transaction costs attributable to the equity component were netted with the equity component of the notes in additional paid-in capital. Upon the notes becoming convertible, the net carrying amount of the liability component was classified as a current liability and a portion of the equity component representing the conversion option was reclassified to temporary equity. The portion of the equity component classified as temporary equity was measured as the difference between the principal and net carrying amount of the notes, excluding debt issuance costs.
Upon adoption of the new debt guidance on August 1, 2021, our convertible senior notes are accounted for entirely as a liability and measured at their amortized cost. Transaction costs related to the issuance of the notes are netted with the liability and are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the term of the notes. Refer to Note 9. Debt for additional information.
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,
2022202120222021
Revenue:
Americas
United States$887.2 $683.1 $2,557.5 $1,950.3 
Other Americas61.5 49.3 173.8 138.4 
Total Americas948.7 732.4 2,731.3 2,088.7 
Europe, the Middle East, and Africa (“EMEA”)269.5 211.0 755.5 590.6 
Asia Pacific and Japan (“APAC”)168.5 130.5 464.2 357.5 
Total revenue$1,386.7 $1,073.9 $3,951.0 $3,036.8 
The following table presents revenue for groups of similar products and services (in millions):
Three Months Ended April 30,Nine Months Ended April 30,
2022202120222021
Revenue:
Product$351.5 $288.9 $955.0 $780.9 
Subscription and support
Subscription639.8 473.8 1,836.6 1,363.5 
Support395.4 311.2 1,159.4 892.4 
Total subscription and support1,035.2 785.0 2,996.0 2,255.9 
Total revenue$1,386.7 $1,073.9 $3,951.0 $3,036.8 
Deferred Revenue
During the nine months ended April 30, 2022 and 2021, we recognized approximately $2.2 billion and $1.6 billion of revenue pertaining to amounts that were deferred as of July 31, 2021 and 2020, respectively.
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Remaining Performance Obligations
Revenue expected to be recognized from remaining performance obligations was $6.9 billion as of April 30, 2022, of which we expect to recognize approximately $3.6 billion over the next 12 months and the remainder thereafter.
3. Fair Value Measurements
We categorize assets and liabilities recorded or disclosed at fair value on our condensed consolidated balance sheets based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.
Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.
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The following table presents the fair value of our financial assets and liabilities measured at fair value on a recurring basis as of April 30, 2022 and July 31, 2021 (in millions):
April 30, 2022July 31, 2021
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalents:
Money market funds$923.0 $ $ $923.0 $124.2 $ $ $124.2 
Certificates of deposit  50.0  50.0  150.4  150.4 
Commercial paper 17.9  17.9     
Corporate debt securities 3.9  3.9  1.0  1.0 
U.S. government and agency securities     116.3  116.3 
Total cash equivalents923.0 71.8  994.8 124.2 267.7  391.9 
Short-term investments:
Certificates of deposit 205.5  205.5  12.4  12.4 
Commercial paper 11.0  11.0     
Corporate debt securities 351.4  351.4  208.9  208.9 
U.S. government and agency securities 826.7  826.7  762.1  762.1 
Non-U.S. government and agency securities60.1 60.1 43.5 43.5 
Total short-term investments 1,454.7  1,454.7  1,026.9  1,026.9 
Long-term investments:
Certificates of deposit     5.0  5.0 
Corporate debt securities 393.2  393.2  180.7  180.7 
U.S. government and agency securities 242.9  242.9  674.1  674.1 
Non-U.S. government and agency securities     28.5  28.5 
Asset-backed securities 78.6  78.6     
Total long-term investments 714.7  714.7  888.3  888.3 
Prepaid expenses and other current assets:
Foreign currency forward contracts 0.3  0.3  4.1  4.1 
Total prepaid expenses and other current assets 0.3  0.3  4.1  4.1 
Other assets:
Foreign currency forward contracts     0.1  0.1 
Total other assets:     0.1  0.1 
Total assets measured at fair value$923.0 $2,241.5 $ $3,164.5 $124.2 $2,187.1 $ $2,311.3 
Accrued and other liabilities:
Foreign currency forward contracts$ $31.6 $ $31.6 $ $6.4 $ $6.4 
Total accrued and other liabilities 31.6  31.6  6.4  6.4 
Other long-term liabilities:
Foreign currency forward contracts 1.0  1.0  0.5  0.5 
Total other long-term liabilities 1.0