Palo Alto Networks Inc

Previous wording

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. These statements include, but are not limited to, statements concerning: the cybersecurity landscape, our expectations regarding our platformization strategy and related progress and opportunities, long-term expectations regarding annual recurring revenue, product development strategy and expectations regarding artificial intelligence, expectations regarding our strategic partnerships, our expectations regarding drivers of and factors affecting growth in our business; statements regarding expected profitability, trends in billing, 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; our 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; our expectation that we will continue to expand our global presence; expectations regarding our revenues, including the seasonality and cyclicality from quarter to quarter; our expectation that we will increase 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 our expectations and intentions with respect to the products and technologies that we acquire and introduce; 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, inflation, interest rate levels, 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 current or potential litigation or regulatory developments involving us or affecting our industry; and other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements generally can be identi…

Excerpt shortened here; the source contains the full paragraph.

Current wording

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; 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…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

•Results of Operations. A discussion of the nature and trends in our financial results and an analysis of our financial results comparing the three and nine months ended April 30, 2024 to the three and nine months ended April 30, 2023.

Current wording

•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, 2024 to the three months ended October 31, 2023.

Previous wording

•Our network security platform, designed to deliver complete zero trust solutions to our customers, includes our hardware and software ML-Powered Next-Generation Firewalls, as well as a cloud-delivered Secure Access Service Edge (“SASE”). Prisma® Access, our Security Services Edge (“SSE”) solution, when combined with Prisma SD-WAN, provides a comprehensive single-vendor SASE offering that is used to secure remote workforces and securely enable the cloud-delivered branch. We have been recognized as a leader in network firewalls, SASE, SSE, and SD-WAN. Our network security platform also includes our cloud-delivered security services, such as Advanced Threat Prevention, Advanced WildFire®, Advanced URL Filtering, Advanced DNS Security, IoT/OT Security, GlobalProtect®, Enterprise Data Loss Prevention (“Enterprise DLP”), Artificial Intelligence for IT Operations (“AIOps”), SaaS Security API, SaaS Security Inline, and Artificial Intelligence (“AI”) Access Security. Through these add-on security services, our customers are able to secure their content, applications, users, and devices across their entire organization. Strata Cloud Manager, our network security management solution, can centrally manage our network security platform irrespective of form factor, location, or scale. Strata Cloud Manager includes the Strata Copilot which provides a natural language interface to simplify and accelerate platform management.

Current wording

•Our network security platform, designed to deliver complete zero trust solutions to our customers, includes our hardware and software ML-Powered Next-Generation Firewalls, AI Runtime Security, as well as a cloud-delivered Secure Access Service Edge (“SASE”). Prisma® Access, our Security Services Edge (“SSE”) solution, when combined with Prisma SD-WAN, provides a comprehensive single-vendor SASE offering that is used to secure remote workforces and securely enable the cloud-delivered branch. Prisma Access Browser extends SASE security and data protection to the endpoint, giving workers complete device freedom to access business applications securely using their browser. Our network security platform also includes our cloud-delivered security services, such as Advanced Threat Prevention, Advanced WildFire®, Advanced URL Filtering, Advanced DNS Security, IoT/OT Security, GlobalProtect®, 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 security services, our customers are able to secure their content, applications, users, and devices across their entire organization. Strata Cloud Manager, our network security management solution, can centrally manage our network security platform irrespective of form factor, location, or scale. Strata Cloud Manager includes the Strata Copilot which provides a natural language interface to simplify and strengthen network security.

Previous wording

•We enable cloud-native security through our Prisma Cloud Code to Cloud TM platform. As a comprehensive Cloud Native Application Protection Platform (“CNAPP”), Prisma Cloud secures multi- and hybrid-cloud environments for applications, data, and the entire cloud native technology stack across the full development lifecycle, from code to cloud. We also offer our VM-Series and CN-Series virtual firewalls for inline network security on multi- and hybrid-cloud environments.

Current wording

•We deliver scalable and comprehensive security across the cloud application development lifecycle through our Code to Cloud TM platform, Prisma Cloud. As a comprehensive Cloud Native Application Protection Platform (“CNAPP”), Prisma Cloud secures multi- and hybrid-cloud environments for applications, data, generative AI (“GenAI”) ecosystem, and the entire cloud native technology stack across the full development lifecycle, from code to cloud. We also offer our VM-Series and CN-Series virtual firewalls for inline network security on multi- and hybrid-cloud environments.

Previous wording

•We deliver the next generation of security automation, security analytics, endpoint security, and attack surface management solutions through our Cortex portfolio. These include Cortex XSIAM, our AI-driven security operations platform, Cortex XDR® for the prevention, detection, and response to complex cybersecurity attacks, Cortex XSOAR® for security orchestration, automation, and response (“SOAR”), and Cortex Xpanse TM for attack surface management (“ASM”). These products are delivered as SaaS or software subscriptions.

Current wording

•We deliver the next generation of security operations capabilities that unifies standalone Security Information and Event Management (“SIEM”) tools, endpoint security, security automation, and attack surface management (“ASM”) capabilities on our Cortex platform. These include Cortex XSIAM®, for AI-driven security operations that replaces 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. These products are delivered as SaaS or software subscriptions.

Previous wording

•Unit 42 brings together world-renowned threat researchers with an elite team of incident responders and security consultants to create an intelligence-driven, response-ready organization to help customers manage cyber risk. Our consultants serve as trusted advisors to our customers by assessing and testing their security controls against the right 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 services and managed threat hunting services.

Current wording

•Unit 42® brings together world-renowned threat researchers with an elite team of incident responders and security consultants to create an intelligence-driven, response-ready organization to help customers manage cyber risk. Our consultants serve as trusted advisors to our customers by assessing and testing their security controls against the right 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.

Previous wording

For the third quarter of fiscal 2024 and 2023, total revenue was $2.0 billion and $1.7 billion, respectively, representing year-over-year growth of 15.3%. 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 April 30, 2024, 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.

Current wording

For the first quarter of fiscal 2025 and 2024, total revenue was $2.1 billion and $1.9 billion, respectively, representing year-over-year growth of 13.9%. 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, 2024, 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.

Previous wording

Our product revenue grew to $391.0 million, or 19.7% of total revenue, for the third quarter of fiscal 2024. Product revenue is derived from sales of our appliances, primarily our ML-Powered Next-Generation Firewall. Product revenue also includes revenue derived from software licenses of Panorama®, SD-WAN, and the VM-Series. 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 appliances 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-410, 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 physical appliances 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.

Current wording

Our product revenue grew to $353.8 million, or 16.5% of total revenue, for the first quarter of fiscal 2025, representing year-over-year growth of 3.7%. Product revenue is derived from sales of our appliances, primarily our ML-Powered Next-Generation Firewall. Product revenue also includes revenue derived from software licenses of Panorama®, SD-WAN, and the VM-Series. 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 appliances 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-410, 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 physical appliances 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.

Previous wording

Our subscription and support revenue grew to $1.6 billion, or 80.3% of total revenue, for the third quarter of fiscal 2024, representing year-over-year growth of 19.6%. Our subscriptions provide our end-customers with near real-time access to the latest antivirus, intrusion prevention, web filtering, modern malware prevention, data loss prevention, and cloud access security broker capabilities across the network, endpoints, and the cloud. When end-customers purchase our physical, virtual, or container firewall appliances, 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 appliances, end-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.

Current wording

Our subscription and support revenue grew to $1.8 billion, or 83.5% of total revenue, for the first quarter of fiscal 2025, representing year-over-year growth of 16.1%. Our subscriptions provide our end-customers with near real-time access to the latest antivirus, intrusion prevention, web filtering, modern malware prevention, data loss prevention, and cloud access security broker and AI security capabilities across the network, endpoints, and the cloud. Our subscriptions also include security operations, which enable customers to leverage the AI-driven 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, as well as ASM. Additionally, we offer MDR for Cortex subscriptions, powered by Unit 42’s elite expertise. When customers purchase our physical, virtual, or container firewall appliances, 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 appliances, 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.

Previous wording

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 new features and products are essential to meeting the needs of our end-customers and improving our competitive position. For example, in April 2024, we introduced new Cortex XSIAM features that enable security operations teams to identify and remediate cloud threats in real-time.

Current wording

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 new features and products are essential to meeting the needs of our end-customers and improving our competitive position. For example, in August 2024, we launched Prisma Access Browser, our SASE-native enterprise browser that enables security teams to manage security policies across web applications and devices; and in October 2024, we introduced new capabilities in our operational technology (“OT”) Security solution to protect OT remote operations, mitigate risk for critical OT assets and extend security into industrial environments. Additionally, we continue to make strategic investments that fit well within our long-term strategy. For example, in August 2024, we completed the acquisition of certain QRadar assets from International Business Machines Corporation (“IBM”), which we expect will help accelerate the growth of our Cortex business.

Previous wording

Our overall performance depends in part on worldwide economic and geopolitical conditions and their impact on customer behavior. Worsening economic conditions, including inflation, higher interest rates, slower growth, fluctuations in foreign exchange rates, supply chain disruptions, and other conditions, may adversely affect our results of operations and financial performance.

Current wording

Our overall performance depends in part on worldwide economic and geopolitical conditions and their impact on customer behavior. Worsening economic conditions, including inflation, high interest rates, slow growth, fluctuations in foreign exchange rates, supply chain disruptions, impacts of trade regulations, and other conditions, may adversely affect our results of operations and financial performance.

Previous wording

The hostilities in Israel and the surrounding region have increased the levels of 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 developing situation.

Current wording

The hostilities in Israel and the surrounding region have increased the levels of 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.

Previous wording

Subscription and support revenue increased for the three and nine months ended April 30, 2024 compared to the same periods in 2023 primarily 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.

Current wording

Subscription and support revenue increased for the three months ended October 31, 2024 compared to the same period in 2023 primarily 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.

Previous wording

Revenue from the Americas, Europe, the Middle East, and Africa (“EMEA”), and Asia Pacific and Japan (“APAC”), increased for the three and nine months ended April 30, 2024 compared to the same periods in 2023 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.

Current wording

Revenue from the Americas, Europe, the Middle East, and Africa (“EMEA”), and Asia Pacific and Japan (“APAC”), increased for the three months ended October 31, 2024 compared to the same period in 2023 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.

Previous wording

General and administrative expense was relatively flat for the three months ended April 30, 2024 compared to the same period in 2023. General and administrative expense increased for the nine months ended April 30, 2024 compared to the same period in 2023 primarily due to a litigation accrual of $180.5 million during the nine months ended April 30, 2024 relating to an ongoing patent infringement lawsuit.

Current wording

Cost of product revenue was relatively flat for the three months ended October 31, 2024 compared to the same period in 2023.

Previous wording

Cost of subscription and support revenue includes personnel costs for our global customer support and technical operations organizations, customer support and repair costs, third-party professional services costs, data center and cloud hosting service costs, amortization of acquired intangible assets and capitalized software development 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.

Current wording

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.

Previous wording

Cost of subscription and support revenue increased for the three and nine months ended April 30, 2024 compared to the same periods in 2023 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 $30.4 million for the three months ended April 30, 2024 compared to the same period in 2023, and increased $78.8 million for the nine months ended April 30, 2024 compared to the same period in 2023. Personnel costs grew $6.5 million for the three months ended April 30, 2024 compared to the same period in 2023, and grew $39.4 million for the nine months ended April 30, 2024 compared to the same period in 2023, primarily due to headcount growth. The increase in cost of subscription and support revenue for the three months ended April 30, 2024 was further driven by amortization of intangible assets from our recent acquisitions.

Current wording

Cost of subscription and support revenue increased for the three months ended October 31, 2024 compared to the same period in 2023 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 $39.8 million for the three months ended October 31, 2024 compared to the same period in 2023. Personnel costs grew $11.3 million for the three months ended October 31, 2024 compared to the same period in 2023, primarily due to headcount growth. The increase in cost of subscription and support revenue was further driven by increased professional services expense.

Previous wording

Product gross margin increased for the three months ended April 30, 2024 compared to the same period in 2023 primarily due to lower other product costs and increased software revenue. Product gross margin increased for the nine months ended April 30, 2024 compared to the same period in 2023 primarily due to lower costs largely driven by an easing of supply chain challenges and increased software revenue.

Current wording

Product gross margin increased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to favorable hardware product mix and lower other product costs.

Previous wording

Subscription and support gross margin increased for the three and nine months ended April 30, 2024 compared to the same periods in 2023 primarily due to our growth in subscription and support revenue, which outpaced the subscription and support costs.

Current wording

Subscription and support gross margin decreased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to an increase in costs related to our cloud-based offerings.

Previous wording

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 April 30, 2024, we expect to recognize approximately $2.2 billion of share-based compensation expense over a weighted-average period of approximately 2.7 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.

Current wording

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, 2024, we expect to recognize approximately $2.2 billion of share-based compensation expense over a weighted-average period of approximately 2.5 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.

Previous wording

Research and development expense increased for the three and nine months ended April 30, 2024 compared to the same periods in 2023 primarily due to increased personnel costs, which grew $29.4 million for the three months ended April 30, 2024 compared to the same period in 2023, and grew $91.1 million for the nine months ended April 30, 2024 compared to the same period in 2023, largely due to headcount growth. The remaining increase in research and development expense was further driven by increased shared costs.

Current wording

Research and development expense increased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to increased personnel costs, which grew $49.0 million, largely due to headcount growth. The remaining increase in research and development expense was further driven by increased shared costs.

Previous wording

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. 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.

Current wording

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.

Previous wording

Interest expense primarily consists of interest expense related to our 0.75% Convertible Senior Notes due 2023 (the “2023 Notes”) and our 0.375% Convertible Senior Notes due 2025 (the “2025 Notes,” and together with “2023 Notes,” the “Notes”).

Current wording

Interest expense primarily consists of interest expense related to our 0.375% Convertible Senior Notes due 2025 (the “2025 Notes”).

Previous wording

Interest expense decreased for the three and nine months ended April 30, 2024 compared to the same periods in 2023 primarily due to conversions of the 2023 Notes prior to or upon maturity in July 2023. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Notes.

Current wording

Interest expense decreased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to early conversions of our 2025 Notes. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Notes.

Previous wording

Other income, net increased for the three and nine months ended April 30, 2024 compared to the same periods in 2023 primarily due to higher interest income as a result of higher interest rates and higher average cash, cash equivalent, and investment balances for the three and nine months ended April 30, 2024 compared to the same periods in 2023.

Current wording

Other income, net increased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to higher interest income as a result of higher average cash, cash equivalent, and investment balances for the three months ended October 31, 2024 compared to the same period in 2023. The increase was further driven by increased gains from our non-designated derivative instruments and investments, partially offset by increased foreign currency exchange losses for the three months ended October 31, 2024 compared to the same period in 2023.

Previous wording

Our benefit from income taxes for the three months ended April 30, 2024 was primarily driven by excess tax benefits from share-based compensation and the release of our valuation allowance on U.S. federal, U.S. states other than California, and United Kingdom deferred tax assets. Our benefit from income taxes for the nine months ended April 30, 2024 was primarily driven by the release of our valuation allowance on U.S. federal, U.S. states other than California, and United Kingdom deferred tax assets. Refer to Note 13. Income Taxes in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

Current wording

Our provision for income taxes for the three months ended October 31, 2024 and 2023 was primarily due to U.S. federal and state income taxes, withholding taxes, and foreign income taxes. Our effective tax rate decreased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to deferred tax benefits. During the three months ended October 31, 2023, our deferred tax benefits were significantly limited due to our valuation allowance on U.S. federal, U.S. states other than California, and United Kingdom deferred tax assets which was subsequently released in the second quarter of fiscal 2024. Refer to Note 13. Income Taxes in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

Previous wording

As of April 30, 2024, our total cash, cash equivalents, and investments of $6.4 billion were held for general corporate purposes. As of April 30, 2024, 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 expected to be material.

Current wording

As of October 31, 2024, our total cash, cash equivalents, and investments of $7.5 billion were held for general corporate purposes. As of October 31, 2024, 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.

Previous wording

In June 2020, we issued the 2025 Notes with an aggregate principal amount of $2.0 billion. The 2025 Notes mature on June 1, 2025; however, under certain circumstances, holders may surrender their 2025 Notes for conversion prior to the maturity date. Upon conversion of the 2025 Notes, we will pay cash equal to the aggregate principal amount of the 2025 Notes to be converted, and, at our election, we will pay or deliver cash and/or shares of our common stock for the amount of our conversion obligation in excess of the aggregate principal amount of the 2025 Notes being converted. During the three and nine months ended April 30, 2024, holders of the 2025 Notes converted $661.8 million and $834.1 million, respectively, in aggregate principal amount of the 2025 Notes, which we repaid in cash. We also issued 4.6 million and 5.7 million shares of our common stock to the holders of the 2025 Notes during the three and nine months ended April 30, 2024, respectively, for the conversion value in excess of the principal amount of the 2025 Notes converted, which were fully offset by shares we received from the corresponding exercise of the note hedges. Subsequent to April 30, 2024, through the filing date of this Quarterly Report on Form 10-Q, $123.2 million in aggregate principal amount of the 2025 Notes was converted or had been submitted by the holders for conversion and will settle during the fiscal quarter ending July 31, 2024.

Current wording

In June 2020, we issued the 2025 Notes with an aggregate principal amount of $2.0 billion. The 2025 Notes mature on June 1, 2025; however, under certain circumstances, holders may surrender their 2025 Notes for conversion prior to the maturity date. Upon conversion of the 2025 Notes, we will pay cash equal to the aggregate principal amount of the 2025 Notes to be converted, and, at our election, we will pay or deliver cash and/or shares of our common stock for the amount of our conversion obligation in excess of the aggregate principal amount of the 2025 Notes being converted. During the three months ended October 31, 2024, we repaid in cash $319.0 million in aggregate principal amount of the 2025 Notes and issued 2.3 million shares of common stock to the holders for the conversion value in excess of the principal amount of the 2025 Notes converted, which were fully offset by shares we received from our exercise of the associated note hedges. Subsequent to October 31, 2024, through the filing date of this Quarterly Report on Form 10-Q, $106.0 million in aggregate principal amount of the 2025 Notes was converted or had been submitted by the holders for conversion and will settle during the fiscal quarter ending January 31, 2025.

Previous wording

The sale price condition for the 2025 Notes was met during the fiscal quarter ended April 30, 2024, and as a result, holders may convert their 2025 Notes during the fiscal quarter ending July 31, 2024. If all of the holders convert their 2025 Notes during this period, we would be obligated to settle the $1.2 billion principal amount of the 2025 Notes in cash. We believe that our cash provided by operating activities, our existing cash, cash equivalents, and investments, and existing sources of and access to financing will be sufficient to meet our anticipated cash needs should the holders choose to convert their 2025 Notes during the fiscal quarter ending July 31, 2024 or hold the 2025 Notes until maturity on June 1, 2025. As of April 30, 2024, $1.2 billion of our 2025 Notes remained outstanding. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Notes.

Current wording

The sale price condition for the 2025 Notes was met during the fiscal quarter ended October 31, 2024, and as a result, holders may convert their 2025 Notes during the fiscal quarter ending January 31, 2025. If all of the holders convert their 2025 Notes during this period, we would be obligated to settle the $646.6 million principal amount of the 2025 Notes in cash. We believe that our cash provided by operating activities, our existing cash, cash equivalents, and investments, and existing sources of and access to financing will be sufficient to meet our anticipated cash needs should the holders choose to convert their 2025 Notes during the fiscal quarter ending January 31, 2025 or hold the 2025 Notes until maturity on June 1, 2025. As of October 31, 2024, $646.6 million of our 2025 Notes remained outstanding. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the 2025 Notes.

Previous wording

In February 2019, our board of directors authorized a $1.0 billion share repurchase program. In December 2020, August 2021, August 2022, and November 2023, our board of directors authorized additional $700.0 million, $676.1 million, $915.0 million, and $316.7 million increases to this share repurchase program, respectively, bringing the total authorization under this share repurchase program to $3.6 billion. Repurchases will be funded from available working capital and may be made at management’s discretion from time to time. As of April 30, 2024, $500.0 million remained available for future share repurchases under this repurchase program. The repurchase authorization will expire on December 31, 2024, 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.

Current wording

In February 2019, our board of directors authorized a $1.0 billion share repurchase program. In December 2020, August 2021, August 2022, November 2023, and August 2024, our board of directors authorized additional $700.0 million, $676.1 million, $915.0 million, $316.7 million and $500.0 million increases to this share repurchase program, respectively, bringing the total authorization under this share repurchase program 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, 2024, $1.0 billion remained available for future share repurchases under this repurchase program. The repurchase authorization will expire on December 31, 2025, 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.

Previous wording

We have entered into various non-cancelable operating leases, primarily for our facilities, with original lease periods expiring through the fiscal year ending July 31, 2036, with the most significant leases relating to our corporate headquarters in Santa Clara, California. As of April 30, 2024, we have total operating lease obligations of $432.3 million recorded on our condensed consolidated balance sheet.

Current wording

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, 2024, we have total operating lease obligations of $452.5 million recorded on our condensed consolidated balance sheet.

Previous wording

As of April 30, 2024, our commitments to purchase products, components, cloud and other services totaled $4.7 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.

Current wording

As of October 31, 2024, our commitments to purchase products, components, cloud and other services totaled $4.6 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.

Previous wording

The following table summarizes our cash flows for the nine months ended April 30, 2024 and 2023:

Current wording

The following table summarizes our cash flows for the three months ended October 31, 2024 and 2023:

Previous wording

Cash used in investing activities during the nine months ended April 30, 2024 was $1.3 billion, a decrease of $1.1 billion compared to the same period in 2023. The decrease was primarily due to a decrease in purchases of investments, partially offset by an increase in net cash payments for business acquisitions and a decrease in proceeds from sales and maturities of investments during the nine months ended April 30, 2024.

Current wording

Cash used in investing activities during the three months ended October 31, 2024 was $543.8 million, an increase of $414.8 million compared to the same period in 2023. The increase was primarily due to an increase in cash payments for a business acquisition and a decrease in proceeds from sales and maturities of investments, partially offset by a decrease in purchases of investments during the three months ended October 31, 2024.

Previous wording

Cash used in financing activities during the nine months ended April 30, 2024 was $1.2 billion, an increase of $1.1 billion compared to the same period in 2023. The increase was primarily due to early repayments of our 2025 Notes and an increase in cash used to repurchase our common stock during the nine months ended April 30, 2024.

Current wording

Cash used in financing activities during the three months ended October 31, 2024 was $219.7 million, an increase of $177.9 million compared to the same period in 2023. The increase was primarily due to an increase in cash used for early repayments of our 2025 Notes, partially offset by a decrease in cash used to repurchase our common stock which did not recur during the three months ended October 31, 2024.

Previous wording

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, 2023 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.

Current wording

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, 2024 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, except for the update as described below resulting from our recent acquisition of certain IBM QRadar assets.