filings.toolsItem 1. Financial Statements
120K characters. Original on sec.gov · Markdown
Item 1. Financial Statements
PALO ALTO NETWORKS, INC.
| CONDENSED CONSOLIDATED BALANCE SHEETS (in millions, except per share data) | |||||||||||
| April 30, 2026 | July 31, 2025 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 2,364 | $ | 2,269 | |||||||
| Short-term investments | 747 | 635 | |||||||||
| Accounts receivable, net of allowance for credit losses of $6 and $10 as of April 30, 2026 and July 31, 2025, respectively | 2,852 | 2,965 | |||||||||
| Short-term financing receivables, net | 591 | 715 | |||||||||
| Short-term deferred contract costs | 454 | 419 | |||||||||
| Prepaid expenses and other current assets | 705 | 520 | |||||||||
| Total current assets | 7,713 | 7,523 | |||||||||
| Property and equipment, net | 506 | 387 | |||||||||
| Operating lease right-of-use assets | 678 | 347 | |||||||||
| Long-term investments | 3,881 | 5,555 | |||||||||
| Long-term financing receivables, net | 779 | 1,002 | |||||||||
| Long-term deferred contract costs | 551 | 586 | |||||||||
| Goodwill | 21,902 | 4,567 | |||||||||
| Intangible assets, net | 7,283 | 763 | |||||||||
| Deferred tax assets | 2,380 | 2,424 | |||||||||
| Other assets | 593 | 422 | |||||||||
| Total assets | $ | 46,266 | $ | 23,576 | |||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 293 | $ | 232 | |||||||
| Accrued compensation | 680 | 608 | |||||||||
| Accrued and other liabilities | 760 | 846 | |||||||||
| Deferred revenue | 7,113 | 6,302 | |||||||||
| Short-term convertible senior notes | 160 | — | |||||||||
| Total current liabilities | 9,006 | 7,988 | |||||||||
| Long-term convertible senior notes | 1,192 | — | |||||||||
| Long-term deferred revenue | 6,492 | 6,450 | |||||||||
| Deferred tax liabilities | 259 | 89 | |||||||||
| Long-term operating lease liabilities | 719 | 338 | |||||||||
| Other long-term liabilities | 930 | 887 | |||||||||
| Total liabilities | 18,598 | 15,752 | |||||||||
| Commitments and contingencies (Note 11) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock; $0.0001 par value; 100 shares authorized; none issued and outstanding as of April 30, 2026 and July 31, 2025 | — | — | |||||||||
| Common stock and additional paid-in capital; $0.0001 par value; 2,000 shares authorized; 813 and 668 shares issued and outstanding as of April 30, 2026 and July 31, 2025, respectively | 24,608 | 5,292 | |||||||||
| Accumulated other comprehensive income (loss) | (13) | 48 | |||||||||
| Retained earnings | 3,073 | 2,484 | |||||||||
| Total stockholders’ equity | 27,668 | 7,824 | |||||||||
| Total liabilities and stockholders’ equity | $ | 46,266 | $ | 23,576 | |||||||
See notes to condensed consolidated financial statements.
- 2 -
PALO ALTO NETWORKS, INC.
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in millions, except per share data) | |||||||||||||||||||||||
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Product | $ | 594 | $ | 453 | $ | 1,542 | $ | 1,228 | |||||||||||||||
| Subscription and support | 2,408 | 1,836 | 6,528 | 5,457 | |||||||||||||||||||
| Total revenue | 3,002 | 2,289 | 8,070 | 6,685 | |||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Product | 167 | 101 | 371 | 277 | |||||||||||||||||||
| Subscription and support | 807 | 518 | 1,926 | 1,495 | |||||||||||||||||||
| Total cost of revenue | 974 | 619 | 2,297 | 1,772 | |||||||||||||||||||
| Total gross profit | 2,028 | 1,670 | 5,773 | 4,913 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 734 | 494 | 1,773 | 1,480 | |||||||||||||||||||
| Sales and marketing | 1,161 | 793 | 2,804 | 2,271 | |||||||||||||||||||
| General and administrative | 316 | 164 | 673 | 416 | |||||||||||||||||||
| Total operating expenses | 2,211 | 1,451 | 5,250 | 4,167 | |||||||||||||||||||
| Operating income (loss) | (183) | 219 | 523 | 746 | |||||||||||||||||||
| Interest expense | — | (1) | — | (3) | |||||||||||||||||||
| Other income, net | 27 | 93 | 282 | 261 | |||||||||||||||||||
| Income (loss) before income taxes | (156) | 311 | 805 | 1,004 | |||||||||||||||||||
| Provision for income taxes | 21 | 49 | 216 | 124 | |||||||||||||||||||
| Net income (loss) | $ | (177) | $ | 262 | $ | 589 | $ | 880 | |||||||||||||||
| Net income (loss) per share, basic | $ | (0.22) | $ | 0.39 | $ | 0.81 | $ | 1.33 | |||||||||||||||
| Net income (loss) per share, diluted | $ | (0.22) | $ | 0.37 | $ | 0.79 | $ | 1.24 | |||||||||||||||
| Weighted-average shares used to compute net income (loss) per share, basic | 801 | 665 | 729 | 659 | |||||||||||||||||||
| Weighted-average shares used to compute net income (loss) per share, diluted | 801 | 707 | 744 | 708 | |||||||||||||||||||
See notes to condensed consolidated financial statements.
- 3 -
PALO ALTO NETWORKS, INC.
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited, in millions) | |||||||||||||||||||||||
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net income (loss) | $ | (177) | $ | 262 | $ | 589 | $ | 880 | |||||||||||||||
| Other comprehensive income, net of tax: | |||||||||||||||||||||||
| Change in unrealized gains (losses) on investments | (31) | 32 | (32) | 24 | |||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||
| Change in unrealized gains (losses) | 3 | 30 | 26 | 21 | |||||||||||||||||||
| Net realized (gains) losses reclassified into earnings | (19) | — | (43) | 5 | |||||||||||||||||||
| Net change on cash flow hedges | (16) | 30 | (17) | 26 | |||||||||||||||||||
| Change in fair value of convertible senior notes attributable to instrument-specific credit risk | (12) | — | (12) | — | |||||||||||||||||||
| Other comprehensive income (loss) | (59) | 62 | (61) | 50 | |||||||||||||||||||
| Comprehensive income (loss) | $ | (236) | $ | 324 | $ | 528 | $ | 930 | |||||||||||||||
See notes to condensed consolidated financial statements.
- 4 -
PALO ALTO NETWORKS, INC.
| CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited, in millions) | |||||||||||||||||||||||||||||
| Three Months Ended April 30, 2026 | |||||||||||||||||||||||||||||
| Common Stock and Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| Balance as of January 31, 2026 | 703 | $ | 6,097 | $ | 46 | $ | 3,250 | $ | 9,393 | ||||||||||||||||||||
| Net loss | — | — | — | (177) | (177) | ||||||||||||||||||||||||
| Other comprehensive loss | — | — | (59) | — | (59) | ||||||||||||||||||||||||
| Issuance of common stock in connection with employee equity incentive plans | 5 | 126 | — | — | 126 | ||||||||||||||||||||||||
| Taxes paid related to net share settlement of equity awards | — | (16) | — | — | (16) | ||||||||||||||||||||||||
| Share-based compensation for equity-based awards | — | 648 | — | — | 648 | ||||||||||||||||||||||||
| Repurchase and retirement of common stock | (7) | (1,000) | — | — | (1,000) | ||||||||||||||||||||||||
| Issuance of common stock in connection with a business acquisition | 112 | 18,488 | — | — | 18,488 | ||||||||||||||||||||||||
| Replacement awards related to business acquisitions | — | 265 | — | — | 265 | ||||||||||||||||||||||||
| Balance as of April 30, 2026 | 813 | $ | 24,608 | $ | (13) | $ | 3,073 | $ | 27,668 | ||||||||||||||||||||
| Three Months Ended April 30, 2025 | |||||||||||||||||||||||||||||
| Common Stock and Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| Balance as of January 31, 2025 | 660 | $ | 4,421 | $ | (14) | $ | 1,968 | $ | 6,375 | ||||||||||||||||||||
| Net income | — | — | — | 262 | 262 | ||||||||||||||||||||||||
| Other comprehensive income | — | — | 62 | — | 62 | ||||||||||||||||||||||||
| Issuance of common stock in connection with employee equity incentive plans | 6 | 202 | — | — | 202 | ||||||||||||||||||||||||
| Taxes paid related to net share settlement of equity awards | — | (5) | — | — | (5) | ||||||||||||||||||||||||
| Share-based compensation for equity-based awards | — | 334 | — | — | 334 | ||||||||||||||||||||||||
| Settlement of convertible notes | 2 | — | — | — | — | ||||||||||||||||||||||||
| Settlement of note hedges | (2) | — | — | — | — | ||||||||||||||||||||||||
| Balance as of April 30, 2025 | 666 | $ | 4,952 | $ | 48 | $ | 2,230 | $ | 7,230 | ||||||||||||||||||||
- 5 -
| Nine Months Ended April 30, 2026 | |||||||||||||||||||||||||||||
| Common Stock and Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| Balance as of July 31, 2025 | 668 | $ | 5,292 | $ | 48 | $ | 2,484 | $ | 7,824 | ||||||||||||||||||||
| Net income | — | — | — | 589 | 589 | ||||||||||||||||||||||||
| Other comprehensive loss | — | — | (61) | — | (61) | ||||||||||||||||||||||||
| Issuance of common stock in connection with employee equity incentive plans | 11 | 264 | — | — | 264 | ||||||||||||||||||||||||
| Taxes paid related to net share settlement of equity awards | — | (125) | — | — | (125) | ||||||||||||||||||||||||
| Share-based compensation for equity-based awards | — | 1,315 | — | — | 1,315 | ||||||||||||||||||||||||
| Repurchase and retirement of common stock | (7) | (1,000) | — | — | (1,000) | ||||||||||||||||||||||||
| Issuance of common stock in connection with a business acquisition | 112 | 18,488 | — | — | 18,488 | ||||||||||||||||||||||||
| Replacement awards related to business acquisitions | 2 | 374 | — | — | 374 | ||||||||||||||||||||||||
| Settlement of warrants | 27 | — | — | — | — | ||||||||||||||||||||||||
| Balance as of April 30, 2026 | 813 | $ | 24,608 | $ | (13) | $ | 3,073 | $ | 27,668 |
| Nine Months Ended April 30, 2025 | |||||||||||||||||||||||||||||
| Common Stock and Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| Balance as of July 31, 2024 | 650 | $ | 3,821 | $ | (2) | $ | 1,350 | $ | 5,169 | ||||||||||||||||||||
| Net income | — | — | — | 880 | 880 | ||||||||||||||||||||||||
| Other comprehensive income | — | — | 50 | — | 50 | ||||||||||||||||||||||||
| Issuance of common stock in connection with employee equity incentive plans | 16 | 360 | — | — | 360 | ||||||||||||||||||||||||
| Taxes paid related to net share settlement of equity awards | — | (183) | — | — | (183) | ||||||||||||||||||||||||
| Share-based compensation for equity-based awards | — | 954 | — | — | 954 | ||||||||||||||||||||||||
| Settlement of convertible notes | 8 | — | — | — | — | ||||||||||||||||||||||||
| Settlement of note hedges | (8) | — | — | — | — | ||||||||||||||||||||||||
| Balance as of April 30, 2025 | 666 | $ | 4,952 | $ | 48 | $ | 2,230 | $ | 7,230 |
See notes to condensed consolidated financial statements.
- 6 -
PALO ALTO NETWORKS, INC.
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in millions) | |||||||||||
| Nine Months Ended April 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | 589 | $ | 880 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Share-based compensation for equity-based awards | 1,314 | 941 | |||||||||
| Deferred income taxes | 38 | (442) | |||||||||
| Depreciation and amortization | 514 | 259 | |||||||||
| Amortization of deferred contract costs | 410 | 344 | |||||||||
| Amortization of debt issuance costs | — | 1 | |||||||||
| Change in fair value of convertible senior notes and capped calls | 38 | — | |||||||||
| Change in fair value of contingent consideration liability | (120) | 20 | |||||||||
| Reduction of operating lease right-of-use assets | 54 | 48 | |||||||||
| Amortization of investment premiums, net of accretion of purchase discounts | (53) | (35) | |||||||||
| Unrealized foreign currency exchange (gains) losses, net | 9 | — | |||||||||
| Changes in operating assets and liabilities, net of effects of acquisitions: | |||||||||||
| Accounts receivable, net | 441 | 669 | |||||||||
| Financing receivables, net | 347 | 102 | |||||||||
| Deferred contract costs | (410) | (328) | |||||||||
| Prepaid expenses and other assets | (47) | 68 | |||||||||
| Accounts payable | 50 | 119 | |||||||||
| Accrued compensation | (42) | (49) | |||||||||
| Accrued and other liabilities | 11 | 34 | |||||||||
| Deferred revenue | 53 | 64 | |||||||||
| Net cash provided by operating activities | 3,196 | 2,695 | |||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of investments | (2,421) | (2,821) | |||||||||
| Proceeds from sales of investments | 3,399 | 830 | |||||||||
| Proceeds from maturities of investments | 1,824 | 1,208 | |||||||||
| Business acquisitions, net of cash and restricted cash acquired | (4,563) | (499) | |||||||||
| Purchases of property, equipment, and other assets | (337) | (160) | |||||||||
| Net cash used in investing activities | (2,098) | (1,442) | |||||||||
| Cash flows from financing activities | |||||||||||
| Repayments of convertible senior notes | — | (583) | |||||||||
| Proceeds from capped calls related to convertible senior notes | 10 | — | |||||||||
| Repurchases of common stock | (1,000) | — | |||||||||
| Proceeds from sales of shares through employee equity incentive plans | 264 | 361 | |||||||||
| Payments for taxes related to net share settlement of equity awards | (125) | (183) | |||||||||
| Payments of contingent consideration liability | (154) | — | |||||||||
| Net cash used in financing activities | (1,005) | (405) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 2 | — | |||||||||
| Net increase in cash, cash equivalents, and restricted cash | 95 | 848 | |||||||||
| Cash, cash equivalents, and restricted cash—beginning of period | 2,279 | 1,547 | |||||||||
| Cash, cash equivalents, and restricted cash—end of period | $ | 2,374 | $ | 2,395 | |||||||
| Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets | |||||||||||
| Cash and cash equivalents | $ | 2,364 | $ | 2,383 | |||||||
| Restricted cash included in prepaid expenses and other current assets | 6 | 12 | |||||||||
| Restricted cash included in other assets | 4 | — | |||||||||
| Total cash, cash equivalents, and restricted cash | $ | 2,374 | $ | 2,395 | |||||||
| Non-cash investing and financing activities | |||||||||||
| Equity consideration for business acquisitions | $ | (18,862) | $ | — | |||||||
| Contingent consideration for a business acquisition | $ | — | $ | (649) |
See notes to condensed consolidated financial statements.
- 7 -
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Palo Alto Networks, Inc. (the “Company,” “we,” “us,” or “our”), headquartered in Santa Clara, California, was incorporated in March 2005 under the laws of the State of Delaware and commenced operations in April 2005. Our cybersecurity platforms and services help enterprises, organizations, service providers, and government entities to secure their users, networks, clouds, endpoints, and identities by delivering comprehensive cybersecurity backed by artificial intelligence and automation.
On February 11, 2026, we acquired CyberArk Software Ltd. (“CyberArk”), an identity security company, forming our next-generation identity security platform. The condensed consolidated financial statements include the financial results of CyberArk prospectively from the date of acquisition. Refer to Note 7. Acquisitions for more information regarding our acquisition of CyberArk.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), consistent in all material respects with those applied in our Annual Report on Form 10-K for the fiscal year ended July 31, 2025, filed with the Securities and Exchange Commission (“SEC”) on August 29, 2025. The condensed consolidated financial statements include our accounts and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements are unaudited but include all adjustments of a normal recurring nature necessary for a fair presentation of our quarterly results. Our condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended July 31, 2025.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and the accompanying notes. We evaluate our estimates on an ongoing basis. Management estimates include, but are not limited to, the standalone selling price for our products and services, share-based compensation, fair value of assets acquired and liabilities assumed in business combinations, fair value of contingent consideration liability, fair value of convertible senior notes and capped calls, the assessment of recoverability of our intangibles and goodwill, valuation allowance against deferred tax assets, valuation of inventory and manufacturing partner and supplier liabilities, deferred contract cost benefit period, and loss contingencies. We base our estimates on assumptions, both historical and forward looking, that we believe are reasonable. Actual results could differ materially from those estimates due to risks and uncertainties.
Summary of Significant Accounting Policies
There have been no material changes to our significant accounting policies as of and for the nine months ended April 30, 2026, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 31, 2025, except for the update to the disclosure of our accounting policies as described below resulting from our recent acquisition of CyberArk. Refer to Note 7. Acquisitions and Note 9. Debt for additional information.
Convertible Senior Notes and Capped Calls
In connection with the CyberArk acquisition, we acquired CyberArk’s convertible senior notes and assumed certain capped call transactions CyberArk had previously entered into relating to the issuance of these convertible senior notes. The capped calls are expected to reduce the potential dilution to our common stock upon conversion of the convertible senior notes and/or offset our cash payments in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap.
For convertible senior notes acquired from CyberArk, we have elected fair value option to simplify the accounting for embedded features that would otherwise require bifurcation from the debt-host and recognition as a separate derivative liability. These convertible senior notes are measured at fair value on a recurring basis through maturity or settlement. Changes in fair value included in earnings are recorded in other income, net on our condensed consolidated statements of operations, and changes in fair value attributable to instrument-specific credit risk are included in accumulated other comprehensive income (loss) (“AOCI”) in stockholders’ equity.
- 8 -
We account for capped calls as derivative assets, measured at fair value on a recurring basis through maturity or settlement. Capped calls are recorded in other assets on our condensed consolidated balance sheets. Changes in fair value are recorded in other income, net on our condensed consolidated statements of operations.
Recently Issued Accounting Pronouncements
Income Tax Disclosures
In December 2023, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that requires consistent categories and greater disaggregation of information in the effective tax rate reconciliation and additional disclosures of income taxes paid by jurisdiction. The standard is effective for our annual periods beginning in fiscal 2026 and could be applied either prospectively or retrospectively. We expect the adoption of this standard will result in disclosure of additional jurisdictional level tax information in our consolidated financial statements.
Expense Disaggregation Disclosures
In November 2024, the FASB issued authoritative guidance that expands annual and interim disclosure of specified information about certain costs and expenses in the notes to financial statements. The standard is effective for our annual periods beginning in fiscal 2028 and interim periods beginning in the first quarter of fiscal 2029, and can be applied either prospectively or retrospectively. Early adoption is permitted. We are currently evaluating the impact of this standard on our disclosures in the consolidated financial statements.
Measurement of Credit Losses for Accounts Receivable and Contract Assets
In July 2025, the FASB issued authoritative guidance that provides a practical expedient for estimating expected credit losses on accounts receivable and contract assets. The standard is effective for our annual and interim periods beginning in the first quarter of fiscal 2027 and will be applied on a prospective basis. Early adoption is permitted. We do not expect the adoption of this standard will have a material impact on our consolidated financial statements.
Accounting for Internal-Use Software
In September 2025, the FASB issued authoritative guidance that modernizes the accounting for internal-use software by eliminating project stage-based capitalization and clarifying the requirements, including probable-to-complete threshold, to commence the capitalization of software development costs. The standard is effective for our annual and interim periods beginning in the first quarter of fiscal 2029 and could be applied either prospectively or retrospectively. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.
Hedge Accounting Improvements
In November 2025, the FASB issued authoritative guidance that clarifies and improves the existing hedge accounting guidance to better reflect the economics of an entity’s risk management activities. The standard is effective for our annual and interim periods beginning in the first quarter of fiscal 2028 and will be applied on a prospective basis. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.
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, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Americas | |||||||||||||||||||||||
| United States | $ | 1,854 | $ | 1,425 | $ | 4,968 | $ | 4,169 | |||||||||||||||
| Other Americas | 164 | 105 | 403 | 305 | |||||||||||||||||||
| Total Americas | 2,018 | 1,530 | 5,371 | 4,474 | |||||||||||||||||||
| Europe, the Middle East, and Africa (“EMEA”) | 633 | 480 | 1,714 | 1,402 | |||||||||||||||||||
| Asia Pacific and Japan (“APAC”) | 351 | 279 | 985 | 809 | |||||||||||||||||||
| Total revenue | $ | 3,002 | $ | 2,289 | $ | 8,070 | $ | 6,685 |
- 9 -
The following table presents revenue for groups of similar products and services (in millions):
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Product | $ | 594 | $ | 453 | $ | 1,542 | $ | 1,228 | |||||||||||||||
| Subscription and support | |||||||||||||||||||||||
| Subscription | 1,632 | 1,234 | 4,400 | 3,659 | |||||||||||||||||||
| Support | 776 | 602 | 2,128 | 1,798 | |||||||||||||||||||
| Total subscription and support | 2,408 | 1,836 | 6,528 | 5,457 | |||||||||||||||||||
| Total revenue | $ | 3,002 | $ | 2,289 | $ | 8,070 | $ | 6,685 |
Deferred Revenue
During the nine months ended April 30, 2026 and 2025, we recognized approximately $4.9 billion and $4.4 billion of revenue pertaining to amounts that were deferred as of July 31, 2025 and 2024, respectively.
Remaining Performance Obligations
Remaining performance obligations were $18.4 billion as of April 30, 2026, of which we expect to recognize as revenue approximately $8.3 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, 2026 and July 31, 2025 (in millions):
| April 30, 2026 | July 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||||||||||||||||||||||||||
| Money market funds | $ | 944 | $ | — | $ | — | $ | 944 | $ | 1,206 | $ | — | $ | — | $ | 1,206 | |||||||||||||||||||||||||||||||
| Commercial paper | — | 535 | — | 535 | — | 169 | — | 169 | |||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | — | 2 | — | 2 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| U.S. government and agency securities | — | 75 | — | 75 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Total cash equivalents | 944 | 612 | — | 1,556 | 1,206 | 169 | — | 1,375 | |||||||||||||||||||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Certificates of deposit | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Commercial paper | — | 10 | — | 10 | — | 15 | — | 15 | |||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | — | 413 | — | 413 | — | 584 | — | 584 | |||||||||||||||||||||||||||||||||||||||
| U.S. government and agency securities | — | 27 | — | 27 | — | 6 | — | 6 | |||||||||||||||||||||||||||||||||||||||
| Non-U.S. government and agency securities | — | — | — | — | — | 3 | — | 3 | |||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | — | 13 | — | 13 | — | 22 | — | 22 | |||||||||||||||||||||||||||||||||||||||
| Total short-term investments | — | 463 | — | 463 | — | 630 | — | 630 |
- 10 -
| April 30, 2026 | July 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||
| Long-term investments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | — | 3,118 | — | 3,118 | — | 4,050 | — | 4,050 | |||||||||||||||||||||||||||||||||||||||
| U.S. government and agency securities | — | 39 | — | 39 | — | 164 | — | 164 | |||||||||||||||||||||||||||||||||||||||
| Non-U.S. government and agency securities | — | — | — | — | — | 26 | — | 26 | |||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | — | 724 | — | 724 | — | 1,315 | — | 1,315 | |||||||||||||||||||||||||||||||||||||||
| Total long-term investments | — | 3,881 | — | 3,881 | — | 5,555 | — | 5,555 | |||||||||||||||||||||||||||||||||||||||
| Prepaid expenses and other current assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward contracts | — | 64 | — | 64 | — | 58 | — | 58 | |||||||||||||||||||||||||||||||||||||||
| Total prepaid expenses and other current assets | — | 64 | — | 64 | — | 58 | — | 58 | |||||||||||||||||||||||||||||||||||||||
| Other assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward contracts | — | 1 | — | 1 | — | 3 | — | 3 | |||||||||||||||||||||||||||||||||||||||
| Capped calls related to convertible senior notes | — | 94 | — | 94 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Total other assets | — | 95 | — | 95 | — | 3 | — | 3 | |||||||||||||||||||||||||||||||||||||||
| Total assets measured at fair value | $ | 944 | $ | 5,115 | $ | — | $ | 6,059 | $ | 1,206 | $ | 6,415 | $ | — | $ | 7,621 | |||||||||||||||||||||||||||||||
| Short-term convertible senior notes | $ | — | $ | 160 | $ | — | $ | 160 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||
| Accrued and other liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward contracts | — | 5 | — | 5 | — | 4 | — | 4 | |||||||||||||||||||||||||||||||||||||||
| Contingent consideration | — | — | 124 | 124 | — | — | 276 | 276 | |||||||||||||||||||||||||||||||||||||||
| Total accrued and other liabilities | — | 5 | 124 | 129 | — | 4 | 276 | 280 | |||||||||||||||||||||||||||||||||||||||
| Long-term convertible senior notes | — | 1,192 | — | 1,192 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other long-term liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward contracts | — | 1 | — | 1 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Contingent consideration | — | — | 116 | 116 | — | — | 238 | 238 | |||||||||||||||||||||||||||||||||||||||
| Total other long-term liabilities | — | 1 | 116 | 117 | — | — | 238 | 238 | |||||||||||||||||||||||||||||||||||||||
| Total liabilities measured at fair value | $ | — | $ | 1,358 | $ | 240 | $ | 1,598 | $ | — | $ | 4 | $ | 514 | $ | 518 |
As part of our acquisition of certain QRadar assets from International Business Machines Corporation (“IBM”) on August 31, 2024, we agreed to make post-closing payments to IBM contingent upon customers entering into qualified new transactions through June 30, 2028. Payments related to the contingent consideration liability commenced in the fiscal quarter ended October 2025 and are expected to continue through the fiscal quarter ending October 2028. The estimated range of undiscounted contingent consideration is between $0.3 billion and $0.5 billion.
The fair value of our contingent consideration liability is estimated using a discounted cash flow valuation technique. We consider the fair value of our contingent consideration liability to be a Level 3 measurement as we use unobservable inputs in determining discounted cash flows to estimate the fair value. The significant unobservable inputs include an estimate of future cash payments related to customers entering into qualified new transactions as well as a risk-adjusted discount rate used to present value the expected cash flows. A significant change in any of these assumptions could have a material impact to the fair value of our contingent consideration liability.
- 11 -
During the three months ended April 30, 2026, we reduced our estimate of future cash payments based on our quarterly assessment of assumptions, including the magnitude and likelihood of customers entering into qualified new transactions, the competitive industry environment, and current market conditions.
The following table presents a reconciliation of our contingent consideration liability (in millions):
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Contingent consideration liability at the beginning of the period | $ | 369 | $ | 665 | $ | 514 | $ | — | |||||||||||||||
| Initial valuation on the acquisition date | — | — | — | 649 | |||||||||||||||||||
| Change in fair value | (110) | 4 | (120) | 20 | |||||||||||||||||||
| Payments | (19) | — | (154) | — | |||||||||||||||||||
| Contingent consideration liability at the end of the period | $ | 240 | $ | 669 | $ | 240 | $ | 669 |
The total estimated fair value of our financing receivables approximates their carrying amounts as of April 30, 2026 and July 31, 2025. We consider the fair value of our financing receivables to be a Level 3 measurement as we use unobservable inputs in determining discounted cash flows to estimate the fair value.
4. Cash Equivalents and Investments
Available-for-sale Debt Securities
The following tables summarize the amortized cost, unrealized gains and losses, and fair value of our available-for-sale debt securities as of April 30, 2026 and July 31, 2025 (in millions):
| April 30, 2026 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Commercial paper | $ | 535 | $ | — | $ | — | $ | 535 | |||||||||||||||
| Corporate debt securities | 2 | — | — | 2 | |||||||||||||||||||
| U.S. government and agency securities | 75 | — | — | 75 | |||||||||||||||||||
| Total available-for-sale cash equivalents | $ | 612 | $ | — | $ | — | $ | 612 | |||||||||||||||
| Investments: | |||||||||||||||||||||||
| Commercial paper | $ | 10 | $ | — | $ | — | $ | 10 | |||||||||||||||
| Corporate debt securities | 3,521 | 20 | (10) | 3,531 | |||||||||||||||||||
| U.S. government and agency securities | 66 | — | — | 66 | |||||||||||||||||||
| Asset-backed securities | 734 | 4 | (1) | 737 | |||||||||||||||||||
| Total available-for-sale investments | $ | 4,331 | $ | 24 | $ | (11) | $ | 4,344 |
- 12 -
| July 31, 2025 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Commercial paper | $ | 169 | $ | — | $ | — | $ | 169 | |||||||||||||||
| Total available-for-sale cash equivalents | $ | 169 | $ | — | $ | — | $ | 169 | |||||||||||||||
| Investments: | |||||||||||||||||||||||
| Commercial paper | $ | 15 | $ | — | $ | — | $ | 15 | |||||||||||||||
| Corporate debt securities | 4,588 | 47 | (1) | 4,634 | |||||||||||||||||||
| U.S. government and agency securities | 170 | — | — | 170 | |||||||||||||||||||
| Non-U.S. government and agency securities | 29 | — | — | 29 | |||||||||||||||||||
| Asset-backed securities | 1,328 | 9 | — | 1,337 | |||||||||||||||||||
| Total available-for-sale investments | $ | 6,130 | $ | 56 | $ | (1) | $ | 6,185 |
Unrealized losses related to our available-for-sale debt securities are primarily due to interest rate fluctuations as opposed to credit quality. We do not intend to sell any of the securities in an unrealized loss position and it is not likely that we would be required to sell these securities before recovery of their amortized cost basis, which may be at maturity. We did not recognize any credit losses related to our available-for-sale debt securities during the three and nine months ended April 30, 2026 and 2025.
The following table summarizes the amortized cost and fair value of our available-for-sale debt securities as of April 30, 2026, by contractual years-to-maturity (in millions):
| Amortized Cost | Fair Value | ||||||||||
| Due within one year | $ | 1,073 | $ | 1,075 | |||||||
| Due between one and three years | 1,559 | 1,570 | |||||||||
| Due between three and five years | 2,064 | 2,064 | |||||||||
| Due between five and ten years | 102 | 102 | |||||||||
| Due after ten years | 145 | 145 | |||||||||
| Total | $ | 4,943 | $ | 4,956 |
Marketable Equity Securities
Marketable equity securities consist of money market funds and are included in cash and cash equivalents on our condensed consolidated balance sheets. As of April 30, 2026 and July 31, 2025, the carrying values of our marketable equity securities were $944 million and $1.2 billion, respectively. There were no unrealized gains or losses recognized for these securities during the three and nine months ended April 30, 2026 and 2025.
5. Financing Receivables
The following table summarizes our short-term and long-term financing receivables as of April 30, 2026 and July 31, 2025 (in millions):
| April 30, 2026 | July 31, 2025 | ||||||||||
| Short-term financing receivables, gross | $ | 661 | $ | 806 | |||||||
| Unearned income | (65) | (86) | |||||||||
| Allowance for credit losses | (5) | (5) | |||||||||
| Short-term financing receivables, net | $ | 591 | $ | 715 | |||||||
| Long-term financing receivables, gross | $ | 834 | $ | 1,079 | |||||||
| Unearned income | (47) | (69) | |||||||||
| Allowance for credit losses | (8) | (8) | |||||||||
| Long-term financing receivables, net | $ | 779 | $ | 1,002 |
- 13 -
The following table presents amortized cost basis of our financing receivables categorized by internal risk rating and year of origination (in millions):
| Internal Risk Rating**(1)** | April 30, 2026 | July 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year of Origination | Fiscal Year of Origination | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2024 | 2023 | 2022 | Total | 2025 | 2024 | 2023 | 2022 | 2021 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1 to 4 | $ | 95 | $ | 223 | $ | 553 | $ | 126 | $ | 5 | $ | 1,002 | $ | 261 | $ | 732 | $ | 242 | $ | 9 | $ | 18 | $ | 1,262 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 5 to 6 | 109 | 104 | 120 | 10 | — | 343 | 174 | 226 | 50 | — | — | 450 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7 to 10 | — | 25 | 9 | 4 | — | 38 | — | 4 | 14 | — | — | 18 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortized cost basis of financing receivables | $ | 204 | $ | 352 | $ | 682 | $ | 140 | $ | 5 | $ | 1,383 | $ | 435 | $ | 962 | $ | 306 | $ | 9 | $ | 18 | $ | 1,730 |
(1)Internal risk ratings are categorized as 1 through 10, with the lowest rating representing the highest quality.
There was no significant activity in allowance for credit losses during the three and nine months ended April 30, 2026 and 2025. Past due amounts on financing receivables were not material as of April 30, 2026 and July 31, 2025.
We sold financing receivables of $49 million and $54 million for the three and nine months ended April 30, 2026, respectively, and $28 million and $30 million for the three and nine months ended April 30, 2025, respectively. The associated gains and losses were not material.
6. Derivative Instruments
We are exposed to foreign currency exchange risk. Our sales contracts are primarily denominated in U.S. dollars. A portion of our operating expenditures are denominated in foreign currencies, making them subject to fluctuations in foreign currency exchange rates. We enter into foreign currency derivative contracts with maturities of 24 months or less, which we designate as cash flow hedges, to manage the foreign currency exchange risk associated with our revenue and operating expenditures.
As of April 30, 2026 and July 31, 2025, the total notional amount of our outstanding foreign currency forward contracts designated as cash flow hedges was $821 million and $964 million, respectively. Refer to Note 3. Fair Value Measurements for the fair value of our derivative instruments as reported on our condensed consolidated balance sheets as of April 30, 2026 and July 31, 2025.
As of April 30, 2026, unrealized gains and losses in AOCI related to our cash flow hedges were a net gain of $19 million, substantially all of which is expected to be recognized into earnings within the next 12 months. As of July 31, 2025, unrealized gains and losses in AOCI related to our cash flow hedges were a net gain of $40 million.
As of April 30, 2026 and July 31, 2025, the notional amount of our outstanding foreign currency forward contracts not designated as hedging instruments was $412 million and $504 million, respectively.
7. Acquisitions
Chronosphere, Inc.
On January 29, 2026, we completed our acquisition of Chronosphere, Inc. (“Chronosphere”), a privately-held observability technology company. The acquisition resulted in forming our observability platform. The total purchase consideration for the acquisition of Chronosphere was $3.0 billion, which consisted of the following (in millions):
| Amount | |||||
| Cash | $ | 2,842 | |||
| Fair value of replacement awards | 109 | ||||
| Total | $ | 2,951 |
As part of the acquisition, we issued $525 million of replacement equity awards, of which the portion attributable to services performed prior to the acquisition date was allocated to purchase consideration. The remaining fair value was allocated to future services and will be expensed over the remaining service periods as share-based compensation. The replacement equity awards included 2 million shares of our restricted common stock. These restricted common stock vest over a period of two to three years from the date of issuance.
- 14 -
We have accounted for this transaction as a business combination and allocated the purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values, as presented in the following table (in millions):
| Amount | |||||
| Goodwill | $ | 2,364 | |||
| Identified intangible assets | 565 | ||||
| Cash | 57 | ||||
| Net liabilities assumed | (35) | ||||
| Total | $ | 2,951 |
Goodwill generated from this business combination is primarily attributable to the assembled workforce and expected post-acquisition synergies from integrating the Chronosphere observability platform into our business. The goodwill is not deductible for U.S. income tax purposes.
The following table presents details of the identified intangible asset acquired (in millions, except years):
| Fair Value | Estimated Useful Life | ||||||||||
| Developed technology | $ | 300 | 5 years | ||||||||
| Customer relationships | 255 | 6 years - 10 years | |||||||||
| Trade name and trademarks | 10 | 1 year | |||||||||
| Total | $ | 565 |
CyberArk Software Ltd.
On February 11, 2026, we completed our acquisition of CyberArk, an identity security company, forming our next-generation identity security platform. CyberArk shareholders received $45.00 in cash and 2.2005 shares of our common stock for each CyberArk share. The total purchase consideration for the acquisition of CyberArk was $21.1 billion, which consisted of the following (in millions):
| Amount | |||||
| Cash | $ | 2,308 | |||
| Common stock (112 million shares) | 18,488 | ||||
| Fair value of replacement awards | 265 | ||||
| Total | $ | 21,061 |
As part of the acquisition, we issued $945 million of replacement equity awards, of which the portion attributable to services performed prior to the acquisition date was allocated to purchase consideration. The remaining fair value was allocated to future services and will be expensed over the remaining service periods as share-based compensation.
- 15 -
We have accounted for this transaction as a business combination and allocated the purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values, as presented in the following table (in millions):
| Amount | |||||
| Goodwill | $ | 14,802 | |||
| Identified intangible assets | 6,279 | ||||
| Cash and cash equivalents | 743 | ||||
| Accounts receivable, net of allowance for credit losses | 312 | ||||
| Short-term and long-term investments | 1,217 | ||||
| Net assets acquired | 61 | ||||
| Convertible senior notes | (1,303) | ||||
| Deferred revenue | (776) | ||||
| Deferred tax liabilities | (274) | ||||
| Total | $ | 21,061 |
Goodwill generated from this business combination is primarily attributable to the assembled workforce and expected post-acquisition synergies from incorporating the CyberArk next-generation identity security platform into our business. Substantially all of goodwill is deductible for U.S. income tax purposes.
The following table presents details of the identified intangible asset acquired (in millions, except years):
| Fair Value | Estimated Useful Life | ||||||||||
| Developed technology | $ | 2,537 | 5 years - 7 years | ||||||||
| Platform renewals | 3,500 | 12 years - 14 years | |||||||||
| Customer contracts | 219 | 2 years | |||||||||
| Trade name | 23 | 1 year | |||||||||
| Total | $ | 6,279 |
For the three and nine months ended April 30, 2026, transaction costs related to CyberArk acquisition were $41 million and $56 million, respectively, which were primarily included in general and administrative expense on our condensed consolidated statements of operations.
In connection with our acquisition integration strategy, we initiated a plan to optimize the combined entity’s workforce for a total estimated cost of $59 million. The activities associated with this plan are expected to be substantially completed by the end of fiscal 2027. Employee severance costs are recognized upon notification. If service beyond the minimum retention period is required, expense is recognized ratably over the future service period. During the three and nine months ended April 30, 2026, we made cash payments of $12 million under the plan. As of April 30, 2026, a liability of $12 million related to the employee severance was included in accrued compensation on our condensed consolidated balance sheets.
The following table summarizes employee severance charges related to the CyberArk acquisition (in millions):
| Three and Nine Months Ended April 30, 2026 | |||||||||||||||||
| Cash Compensation | Share-based Compensation | Total | |||||||||||||||
| Cost of subscription and support revenue | $ | 2 | $ | — | $ | 2 | |||||||||||
| Research and development | 1 | — | 1 | ||||||||||||||
| Sales and marketing | 13 | 16 | 29 | ||||||||||||||
| General and administrative | 8 | 1 | 9 | ||||||||||||||
| Total | $ | 24 | $ | 17 | $ | 41 |
- 16 -
Koi Security Ltd.
On April 14, 2026, we completed our acquisition of Koi Security Ltd. (“Koi”), a privately-held endpoint posture management company. We expect the acquisition to add agentic endpoint security capabilities to our security operations platform and enhance Prisma® AIRS™. The total purchase consideration for the acquisition of Koi was $231 million, substantially all of which is comprised of cash.
As part of the acquisition, we issued $61 million of replacement equity awards, which was allocated to future services and will be expensed over the remaining service periods as share-based compensation. The replacement equity awards included 0.3 million shares of our restricted common stock. These restricted common stock vest over a period of three years from the date of issuance.
We have accounted for this transaction as a business combination and allocated the purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values, as presented in the following table (in millions):
| Amount | |||||
| Goodwill | $ | 169 | |||
| Identified intangible assets | 35 | ||||
| Cash and restricted cash | 20 | ||||
| Net assets acquired | 7 | ||||
| Total | $ | 231 |
Goodwill generated from this business combination is primarily attributable to the assembled workforce and expected post-acquisition synergies from integrating Koi’s technology into our platforms. The goodwill is deductible for U.S. income tax purposes.
The following table presents details of the identified intangible asset acquired (in millions, except years):
| Fair Value | Estimated Useful Life | ||||||||||
| Developed technology | $ | 35 | 5 years |
Portkey, Inc.
On April 30, 2026, we entered into a definitive agreement to acquire Portkey, Inc., a privately-held AI Gateway company (“Portkey”), in exchange for total consideration of $140 million in cash and replacement awards, subject to adjustments. We expect the acquisition will enhance the capabilities of Prisma AIRS. Refer to Note 17. Subsequent Events for additional information.
Additional Acquisition-Related Information
Since the date of acquisitions, the combined net impact of the Chronosphere and CyberArk acquisitions on our condensed consolidated statements of operations was revenue of $388 million and $391 million and operating loss of $523 million and $524 million for the three and nine months ended April 30, 2026, respectively.
The following unaudited pro forma financial information summarizes the combined results of operations for Palo Alto Networks, Chronosphere, and CyberArk, as though the companies were combined as of the beginning of our fiscal 2025 (in millions):
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Total revenue | $ | 3,043 | $ | 2,621 | $ | 8,917 | $ | 7,598 | |||||||||||||||
| Net income (loss) | $ | 8 | $ | (2) | $ | 134 | $ | (178) |
The unaudited pro forma financial information for the three and nine months ended April 30, 2026 and 2025 combines the historical results of Palo Alto Networks and Chronosphere for these periods with the historical results of CyberArk for the three and nine months ended March 31, 2026 and 2025, respectively. The unaudited pro forma financial information include adjustments attributable to our acquisition of Chronosphere and CyberArk, including amortization of acquired intangible assets, stock-based compensation expense from assumed replacement equity awards, acquisition-related transaction costs, employee severance costs under the workforce optimization plan, and income tax impact. The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of our fiscal 2025 or of the results of our future operations of the combined business.
- 17 -
Additional information related to our acquisitions, such as that related to income tax and other contingencies, existing as of the acquisition date 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.
8. Goodwill, Intangible Assets and Other Long-Lived Assets
Goodwill
The following table presents details of our goodwill during the nine months ended April 30, 2026 (in millions):
| Amount | |||||
| Balance as of July 31, 2025 | $ | 4,567 | |||
| Goodwill acquired | 17,335 | ||||
| Balance as of April 30, 2026 | $ | 21,902 |
Purchased Intangible Assets
The following table presents details of our purchased intangible assets as of April 30, 2026 and July 31, 2025 (in millions):
| April 30, 2026 | July 31, 2025 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||||||||||||||||||||
| Developed technology | $ | 3,387 | $ | (458) | $ | 2,929 | $ | 536 | $ | (274) | $ | 262 | |||||||||||||||||||||||
| Customer relationships and platform renewals | 4,364 | (240) | 4,124 | 609 | (123) | 486 | |||||||||||||||||||||||||||||
| Customer contracts | 219 | (27) | 192 | — | — | — | |||||||||||||||||||||||||||||
| Acquired intellectual property | 24 | (11) | 13 | 24 | (9) | 15 | |||||||||||||||||||||||||||||
| Trade name and trademarks | 33 | (8) | 25 | — | — | — | |||||||||||||||||||||||||||||
| Other | — | — | — | 1 | (1) | — | |||||||||||||||||||||||||||||
| Total purchased intangible assets | $ | 8,027 | $ | (744) | $ | 7,283 | $ | 1,170 | $ | (407) | $ | 763 |
The following table summarizes amortization expense of our intangible assets included in costs and expenses (in millions):
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Cost of product revenue | $ | 37 | $ | — | $ | 37 | $ | — | |||||||||||||||
| Cost of subscription and support revenue | 146 | 29 | 197 | 88 | |||||||||||||||||||
| Sales and marketing | 97 | 14 | 125 | 41 | |||||||||||||||||||
| Total intangible assets amortization | $ | 280 | $ | 43 | $ | 359 | $ | 129 |
The following table summarizes estimated future amortization expense of our intangible assets subject to amortization as of April 30, 2026 (in millions):
| Fiscal years ending July 31, | |||||||||||||||||||||||||||||||||||||||||
| Total | Remaining 2026 | 2027 | 2028 | 2029 | 2030 | 2031 and Thereafter | |||||||||||||||||||||||||||||||||||
| Future amortization expense | $ | 7,283 | $ | 281 | $ | 1,078 | $ | 986 | $ | 906 | $ | 889 | $ | 3,143 |
Other Long-lived assets
During the nine months ended April 30, 2026, we purchased 14.5 acres of land adjacent to our headquarters in Santa Clara, California, for $91 million to accommodate future expansion of our headquarters. This amount was recorded in property and equipment, net on our condensed consolidated balance sheet as of April 30, 2026.
- 18 -
9. Debt
Convertible Senior Notes, Note Hedges, and Warrants
In June 2020, we issued $2.0 billion aggregate principal amount of 0.375% Convertible Senior Notes due 2025 (the “2025 Notes”). The 2025 Notes were converted prior to or settled on the maturity date of June 1, 2025 in accordance with their terms.
Concurrent with the issuance of the 2025 Notes, we entered into separate convertible note hedge transactions (the “2025 Note Hedges”) with respect to our common stock for an aggregate payment of $371 million. The 2025 Note Hedges expired upon maturity of the 2025 Notes. Any shares of our common stock that were receivable by us under the 2025 Note Hedges are excluded from the calculation of diluted earnings per share as they are antidilutive.
Separately, but concurrently with the issuance of our 2025 Notes, we entered into transactions whereby we sold warrants (the “2025 Warrants”) to acquire 40 million shares of our common stock with a strike price of $68.08 per share, subject to anti-dilution adjustments, for aggregate proceeds of $203 million. The 2025 Warrants were exercisable over 60 scheduled trading days beginning September 2025. The shares that were issuable under the 2025 Warrants are included in the calculation of diluted earnings per share when the average market value per share of our common stock for the reporting period exceeds the strike price of the 2025 Warrants.
During the nine months ended April 30, 2026, we net settled all of the 2025 Warrants with the issuance of 27 million shares of our common stock with a fair value of $5.6 billion. The number of net shares issued was determined based on the number of 2025 Warrants exercised multiplied by the difference between the strike price of the 2025 Warrants and their daily volume-weighted-average stock price.
2030 Convertible Senior Notes and Capped Calls
2030 Convertible Senior Notes
In February 2026, in connection with the acquisition of CyberArk, we entered into a supplemental indenture (the “Supplemental Indenture”) to the Indenture, dated as of June 10, 2025 (together with the Supplemental Indenture, the “Indenture”), between CyberArk, as issuer, and U.S. Bank Trust Company, National Association, as trustee, governing CyberArk’s $1.25 billion aggregate principal amount of 0.0% Convertible Senior Notes due 2030 (the “2030 Notes”). As a result of our acquisition of CyberArk and pursuant to the Supplemental Indenture, the 2030 Notes are no longer convertible into ordinary shares of CyberArk. The conversion feature has been modified such that each $1,000 principal amount of the 2030 Notes are exchangeable for a combination of (i) approximately 4.3161 shares of our common stock, which is the effective initial conversion rate, and (ii) cash of $88.2630, subject to adjustment under the Indenture. These modifications result in the 2030 Notes being exchangeable initially for 5.4 million shares of our common stock with an effective initial conversion price of approximately $211.24 per share of common stock, subject to adjustments, and an initial cash amount of $110 million. The 2030 Notes are unsecured, unsubordinated obligations and the Indenture does not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our subsidiaries. The 2030 Notes mature on June 15, 2030.
We may redeem for cash all or, subject to certain limitations, any portion of the 2030 Notes, at our option, on or after June 20, 2028 and on or prior to the 31st scheduled trading day immediately preceding the maturity date if the last reported sale price of our common stock has been at least $280.75 per share for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on and including the trading day preceding the date on which we provide notice of redemption. Any redemption of the 2030 Notes will be at a price equal to 100% of the principal amount of the 2030 Notes, plus accrued and unpaid special interest, if any, up to, but excluding, the redemption date. If we call any or all of the 2030 Notes for redemption, holders may convert such 2030 Notes called for redemption at an increased conversion rate at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date.
Holders of the 2030 Notes may surrender their 2030 Notes for conversion at their option at any time prior to the close of business on the business day immediately preceding February 15, 2030 under the following circumstances:
-
during any calendar quarter commencing after the calendar quarter ended on September 30, 2025 (and only during such calendar quarter), if the last reported sale price of our common stock is greater than or equal to $280.75 per share of our common stock on each applicable trading day for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter (the “sale price condition”);
-
during the five business day period immediately after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the 2030 Notes for each trading day of the measurement period was less than 98% of the aggregate of (i) the product of the last reported sale price of our common stock on each such trading day and the conversion rate for the 2030 Notes on each such trading day and (ii) $88.2630; or
-
upon the occurrence of specified corporate events as described in the Indenture.
- 19 -
On or after February 15, 2030, holders may surrender all or, subject to certain limitations, any portion of their 2030 Notes for conversion at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, and such conversions will be settled upon the maturity date.
Upon any conversion of the 2030 Notes, holders of the 2030 Notes will receive cash equal to the aggregate principal amount of the 2030 Notes to be converted, and, at our election, cash or a combination of cash and shares of our common stock for any amounts in excess of the aggregate principal amount of the 2030 Notes converted. The conversion rate will be subject to adjustment in connection with certain events. Holders of the 2030 Notes who convert their 2030 Notes in connection with certain corporate events that constitute a “make-whole fundamental change” under the Indenture are, under certain circumstances, entitled to an increase in the conversion rate for a certain period of time. Additionally, following the occurrence of a corporate event that constitutes a “fundamental change” under the Indenture, holders of the 2030 Notes may require us to repurchase for cash all or a portion of the 2030 Notes at a repurchase price equal to 100% of the principal amount of the 2030 Notes plus accrued and unpaid special interest, if any, up to, but excluding, the fundamental change repurchase date.
Our acquisition of CyberArk constituted both a “make-whole fundamental change” and a “fundamental change” under the Indenture. In connection with the make-whole fundamental change, holders had the option to convert all or a portion of their 2030 Notes at an increased conversion rate equal to a combination of approximately 5.5690 shares of our common stock and $113.8860 in cash per $1,000 principal amount (the “make-whole conversion right”). We elected cash settlement as the settlement method for any 2030 Notes surrendered during the make-whole fundamental change period, and certain holders of the 2030 Notes surrendered $153 million in aggregate principal amount of the 2030 Notes during the make-whole fundamental change period for conversion. In connection with the fundamental change, holders had the right to tender all or a portion of their 2030 Notes for cash (the “repurchase right”) pursuant to our offer to purchase in accordance with the obligations under the 2030 Notes. No holders exercised the repurchase right to tender their 2030 Notes. The make-whole conversion right and repurchase right resulting from our acquisition of CyberArk expired on March 20, 2026.
As of April 30, 2026, the 2030 Notes surrendered by the holders during the make-whole conversion period were classified as a current liability on our condensed consolidated balance sheets. The related fair value of $160 million was estimated based on the sum of the daily conversion values computed from our stock price during the 30 consecutive trading days between March 24, 2026 and May 5, 2026. The 2030 Notes surrendered for conversion during the make-whole conversion period were settled in cash for $160 million on May 7, 2026.
As of April 30, 2026, the remaining 2030 Notes with an aggregate principal amount of $1.1 billion were classified as a long-term liability on our condensed consolidated balance sheets since the sale price condition was not met during the calendar quarter ended March 31, 2026. The related fair value of $1.2 billion was determined based on the closing trading price per $100 of the 2030 Notes as of the last day of trading for the period. The fair value of the 2030 Notes is primarily affected by the trading price of our common stock and market interest rates.
For the three and nine months ended April 30, 2026, changes in fair value of 2030 Notes included in earnings were a loss of $37 million, and changes in fair value attributable to instrument-specific credit risk included in AOCI were a loss of $12 million.
Capped Calls
In connection with our acquisition of CyberArk, on February 11, 2026, we entered into amendments to the capped call transactions that CyberArk purchased from certain financial institutions in connection with the issuance of the 2030 Notes. Under the amendments, we assumed the rights and obligations of CyberArk with respect to the capped call transactions, and modified the capped calls to require the delivery of shares of our common stock in lieu of ordinary shares of CyberArk. The capped calls have a strike price of approximately $211.24 per share, subject to certain adjustments, which corresponds to the effective initial conversion price of our 2030 Notes. The capped calls have cap prices ranging from approximately $287.21 to $291.44 per share, subject to certain adjustments. In connection with exercising the capped calls, we may elect that the capped calls be settled either entirely in cash or a combination of our common stock and cash. The capped calls are separate transactions from the 2030 Notes, and holders of the 2030 Notes do not have any rights with respect to the capped calls.
The capped calls cover shares of our common stock underlying the 2030 Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 2030 Notes. In April 2026, we elected to terminate portions of the capped calls in exchange for $10 million in cash in connection with the $153 million in aggregate principal amount of the 2030 Notes surrendered by certain holders during the make-whole conversion period.
As of April 30, 2026, the fair value of the outstanding capped calls was $94 million, determined using the Black-Scholes option pricing model and observable inputs including price of our common stock, volatility, remaining contractual term, and risk-free interest rate. For the three and nine months ended April 30, 2026, change in fair value of capped calls was a loss of $1 million.
- 20 -
Revolving Credit Facility
On April 13, 2023, we entered into a credit agreement (the “Credit Agreement”) with certain institutional lenders that provides for a $400 million unsecured revolving credit facility (the “Credit Facility”), with an option to increase the amount of the Credit Facility by up to an additional $350 million, subject to certain conditions. The Credit Facility matures on April 13, 2028.
The borrowings under the Credit Facility bear interest, at our option, at a base rate plus a spread of 0.000% to 0.375%, or an adjusted term Secured Overnight Financing Rate plus a spread of 1.000% to 1.375%, in each case with such spread being determined based on our leverage ratio. We are obligated to pay an ongoing commitment fee on undrawn amounts at a rate of 0.090% to 0.150%, depending on our leverage ratio. The interest rates and commitment fees are also subject to upward and downward adjustments based on our progress towards the achievement of certain sustainability goals.
As of April 30, 2026, there were no amounts outstanding and we were in compliance with all covenants under the Credit Agreement.
10. Leases
In April 2026, we entered into three lease amendments to extend the lease terms of our current corporate headquarters in Santa Clara, California for a period of twelve years through July 2040. The leases contain rent holiday periods, scheduled rent increases, lease incentives, and renewal options which allow the lease terms to be extended through July 2052. Lease payments under the three lease amendments, net of lease incentives such as rent holidays and tenant improvement allowances, are approximately $469 million over the extended lease term through July 2040. The amendments resulted in an increase of $262 million in our right-of-use assets in exchange for new operating lease liabilities.
11. Commitments and Contingencies
Purchase Commitments
We have entered into various non-cancelable agreements with cloud hosting service providers, under which we are committed to minimum or fixed purchases of certain cloud hosting services. In addition, in order to reduce manufacturing lead times and plan for adequate supply, we have entered into agreements with manufacturing partners and component suppliers to procure inventory based on our demand forecasts. Other purchase obligations include non-cancellable subscription agreements and other commitments in the normal course of business. The following table presents details of the aggregate future non-cancelable purchase commitments under these agreements as of April 30, 2026 (in millions):
| Fiscal years ending July 31, | |||||||||||||||||||||||||||||||||||||||||
| Total | Remaining 2026 | 2027 | 2028 | 2029 | 2030 | 2031 and Thereafter | |||||||||||||||||||||||||||||||||||
| Cloud | $ | 8,092 | $ | — | $ | 449 | $ | 1,295 | $ | 1,352 | $ | 1,398 | $ | 3,598 | |||||||||||||||||||||||||||
| Manufacturing | 246 | 94 | 152 | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Other | 191 | 42 | 109 | 21 | 10 | 9 | — | ||||||||||||||||||||||||||||||||||
| Total | $ | 8,529 | $ | 136 | $ | 710 | $ | 1,316 | $ | 1,362 | $ | 1,407 | $ | 3,598 |
Additionally, we have a $92 million minimum purchase commitment with a cloud hosting service provider through September 2027 with no specified annual commitments.
Litigation
We are subject to legal proceedings, claims, tax matters, and litigation arising in the ordinary course of business, including, for instance, intellectual property and patent litigation. We accrue for contingencies when we believe that a loss is probable and that we can reasonably estimate the amount of any such loss.
Legal matters could include speculative, substantial, or indeterminate monetary amounts. Significant judgment is required to determine both the likelihood of there being a loss and the estimated amount of a loss related to such matters, and we may be unable to estimate the reasonably possible loss or range of loss. The outcomes of outstanding legal matters are inherently unpredictable, and could, either individually or in aggregate, have a material adverse effect on us and our results of operations. To the extent there is a reasonable possibility that a loss exceeding any amounts already recognized may be incurred, we will either disclose the estimated additional loss or state that such an estimate cannot be made.
- 21 -
The following matters arose in the ordinary course of business.
Centripetal Networks, Inc. v. Palo Alto Networks
On March 12, 2021, Centripetal Networks, Inc., filed a lawsuit against us in the United States District Court for the Eastern District of Virginia. The lawsuit alleges that our products infringe multiple Centripetal patents. We successfully challenged certain of these patents, which were found unpatentable by the U.S. Patent and Trademark Office (“PTO”). The case went to jury trial on January 22, 2024, on four patents. On January 31, 2024, the jury returned a verdict of non-willful infringement with a lump sum amount of $152 million, plus statutory interest. After post-trial motions, a judgment was issued on October 3, 2024 affirming infringement on three patents, reversing infringement on the fourth patent, and subsequently, reducing the damages amount to $114 million. We posted a surety bond that was agreed upon by the parties and approved by the court. This bond prevents execution of the judgment while appeals are pending. In addition, Centripetal filed infringement contentions on certain of their patents in the European Patent Office and Unified Patent Court in Germany, to which we filed appropriate legal challenges. Those matters are still pending.
As of April 30, 2026 and July 31, 2025, we accrued $150 million and $146 million based on the judgment and estimated interest, which is recorded in other long-term liabilities on our condensed consolidated balance sheets. The corresponding interest charge was $1 million and $4 million for the three and nine months ended April 30, 2026, respectively. We recorded a charge of $2 million and a release of $40 million for the three and nine months ended April 30, 2025, respectively. These amounts are included in general and administrative expense on our condensed consolidated statements of operations.
Finjan, Inc. v. Palo Alto Networks
On November 4, 2014, Finjan, Inc., filed a lawsuit against us in the United States District Court for the Northern District of California. The lawsuit alleges that our products infringe multiple Finjan patents. The complaint requests injunctive relief, monetary damages, and attorneys’ fees. On March 21, 2025, the judge issued an order granting summary judgment of non-infringement on all remaining patents at issue. Plaintiff filed a Notice of Appeal on April 21, 2025. We are unable, at this time, to reasonably estimate a possible loss or potential range of loss, if any.
Eire OG Innovations. v. Palo Alto Networks
On April 3, 2024, Eire OG Innovations filed a lawsuit against us in the United States District Court for the Eastern District of Texas asserting infringement of multiple patents, certain of which were subsequently dismissed. The parties have resolved all pending matters between them as of December 2025. The amount paid by us to resolve these matters was not material.
12. Stockholders’ Equity
Share Repurchase Program
In February 2019, our board of directors authorized a $1.0 billion share repurchase program, which is funded from available working capital. Our board of directors subsequently authorized additional increases to this share repurchase program, bringing the total authorization to $4.1 billion. On March 10, 2026, our board of directors authorized an additional $1.0 billion increase to our share repurchase program, bringing the total authorization under this share repurchase program to $5.1 billion (our “current authorization”). The expiration date of our current authorization was extended to December 31, 2026, and our repurchase program may be suspended or discontinued at any time. Repurchases may be made at management’s discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchase techniques, 10b5-1 trading plans, or a combination of the foregoing.
During the three and nine months ended April 30, 2026, we repurchased and retired 7 million shares of our common stock under our current repurchase authorization for an aggregate purchase price of $1.0 billion, including transaction costs, at an average price of $147.70 per share. The total price of the shares repurchased and related transaction costs are reflected as a reduction to common stock and additional paid-in capital on our condensed consolidated balance sheets. We did not repurchase shares of our common stock during the three and nine months ended April 30, 2025.
As of April 30, 2026, $1.0 billion remained available for future share repurchases under our current repurchase authorization.
- 22 -
13. Equity Award Plans
Restricted Stock Unit (“RSU”) and Performance-Based Stock Unit (“PSU”) Activities
The following table summarizes the RSU and PSU activity under our stock plans during the nine months ended April 30, 2026 (in millions, except per share amounts):
| Unvested RSUs | Unvested PSUs | ||||||||||||||||||||||||||||||||||||||||||||||
| Number of Shares | Weighted-Average Grant-Date Fair Value Per Share | Aggregate Intrinsic Value | Number of Shares | Weighted-Average Grant-Date Fair Value Per Share | Aggregate Intrinsic Value | ||||||||||||||||||||||||||||||||||||||||||
| Balance—July 31, 2025 | 13 | $ | 143.33 | $ | 2,285 | 9 | $ | 140.92 | $ | 1,635 | |||||||||||||||||||||||||||||||||||||
| Granted(1)(2) | 14 | $ | 178.55 | 4 | $ | 186.49 | |||||||||||||||||||||||||||||||||||||||||
| Vested(3) | (6) | $ | 140.04 | (3) | $ | 150.47 | |||||||||||||||||||||||||||||||||||||||||
| Forfeited | (2) | $ | 153.49 | (2) | $ | 142.73 | |||||||||||||||||||||||||||||||||||||||||
| Balance—April 30, 2026 | 19 | $ | 169.21 | $ | 3,450 | 8 | $ | 156.51 | $ | 1,461 |
(1)For PSUs, shares granted represent the aggregate maximum number of shares that may be earned and issued with respect to these awards over their full terms.
(2)Includes 7 million RSUs assumed in connection with the acquisitions of Chronosphere, CyberArk, and Koi, with weighted-average grant-date fair value of $176.20, $165.30, and $161.59 per share, respectively, for the nine months ended April 30, 2026.
(3)Includes time-based vesting for PSUs.
Our RSUs generally vest over a period of four years from the date of grant. Until vested, RSUs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.
Our PSUs generally vest over a period of one to four years from the date of grant. The number of PSUs eligible to vest is determined based on the level of achievement against certain performance conditions, market conditions, and a combination thereof.
During the nine months ended April 30, 2026, we granted 3 million shares of PSUs that contain service, performance, and market conditions. The service conditions are satisfied after a period of one to three years. The performance conditions are based on an average of next-generation security annualized recurring revenue and non-GAAP net income per diluted share, subject to certain adjustments. The market condition is measured based on our total shareholder return (“TSR”) relative to the TSR of the companies listed in the Standard & Poor’s 500 index. As of April 30, 2026, we have approved 3 million shares of PSUs, which will be granted upon the performance condition being established during the next two fiscal years.
The fair value of the PSUs subject to market conditions is estimated on the grant date using a Monte Carlo simulation model. The following table summarizes the assumptions used and the resulting grant-date fair value of our PSUs subject to market conditions granted during the nine months ended April 30, 2026 and 2025:
| Nine Months Ended April 30, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Volatility | 36.6% - 42.6% | 43.5% - 47.6% | |||||||||||||||||||||
| Expected term (in years) | 1.0 - 3.0 | 1.0 - 2.9 | |||||||||||||||||||||
| Dividend yield | 0.0 | % | 0.0 | % | |||||||||||||||||||
| Risk-free interest rate | 3.6% - 3.9% | 3.7% - 4.5% | |||||||||||||||||||||
| Grant-date fair value per share | $226.06 - $261.62 | $264.51 - $305.83 |
Performance Stock Option (“PSO”) Activities
We have granted PSOs with both service and market conditions. The market conditions were achieved when certain stock price targets were met. As of April 30, 2026 and July 31, 2025, all of our outstanding PSOs have been fully vested. The maximum contractual term of our outstanding PSOs is seven and a half years from the date of grant in fiscal year 2018 and 2019.
- 23 -
The following table summarizes the PSO activity under our stock plans during the nine months ended April 30, 2026 (in millions, except per share amounts):
| Number of Shares | Weighted-Average Exercise Price Per Share | Weighted-Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||||||||||||||||||||||||||||||
| Balance—July 31, 2025 | 1 | $ | 32.76 | 0.5 | $ | 197 | |||||||||||||||||||||||||||||||||||||||||
| Exercised | (1) | $ | 32.76 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance—April 30, 2026 | — | $ | — | 0.0 | $ | — | |||||||||||||||||||||||||||||||||||||||||
| Exercisable—April 30, 2026 | — | $ | — | 0.0 | $ | — |
Share-Based Compensation
The following table summarizes share-based compensation included in costs and expenses (in millions):
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Cost of product revenue | $ | 2 | $ | 1 | $ | 4 | $ | 4 | |||||||||||||||
| Cost of subscription and support revenue | 50 | 32 | 114 | 95 | |||||||||||||||||||
| Research and development | 206 | 134 | 477 | 411 | |||||||||||||||||||
| Sales and marketing | 188 | 92 | 388 | 258 | |||||||||||||||||||
| General and administrative | 238 | 67 | 372 | 173 | |||||||||||||||||||
| Total share-based compensation | $ | 684 | $ | 326 | $ | 1,355 | $ | 941 |
During the three and nine months ended April 30, 2026, the vesting of certain equity awards was accelerated in connection with our acquisitions of CyberArk and Koi; as a result, we recorded share-based compensation of $177 million, including $1 million in cost of subscription and support revenue, $36 million in sales and marketing expense, and $140 million in general and administrative expense on our condensed consolidated statements of operations.
As of April 30, 2026, total compensation cost related to unvested share-based awards not yet recognized was $3.6 billion. This cost is expected to be amortized over a weighted-average period of approximately 2.6 years.
14. Income Taxes
Our income taxes primarily consist of U.S. and foreign income taxes and our effective tax rates differ from the U.S. statutory tax rate primarily due to our CyberArk acquisition and excess tax benefits from share-based compensation.
For the three months ended April 30, 2026, our provision for income taxes reflected an effective tax rate of negative 13.5% and for the nine months ended April 30, 2026, our provision for income taxes reflected an effective tax rate of 26.8%. For the three and nine months ended April 30, 2025, our provision for income taxes reflected effective tax rates of 15.6% and 12.3%, respectively. Our effective tax rates for the three and nine months ended April 30, 2026 were impacted by our CyberArk acquisition and decreased excess tax benefits from share-based compensation as compared to the same periods in 2025.
15. Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by basic weighted-average shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by diluted weighted-average shares outstanding during the period giving effect to all potentially dilutive securities to the extent they are dilutive. We compute the dilutive effect of shares issuable upon conversion of our convertible senior notes using the if-converted method, and the dilutive effect of warrants related to the issuance of convertible senior notes and equity awards under our employee equity incentive plans using the treasury stock method.
- 24 -
The following table presents the computation of basic and diluted net income (loss) per share of common stock (in millions, except per share data):
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net income (loss) | $ | (177) | $ | 262 | $ | 589 | $ | 880 | |||||||||||||||
| Weighted-average shares used to compute net income (loss) per share, basic | 801 | 665 | 729 | 659 | |||||||||||||||||||
| Weighted-average effect of potentially dilutive securities: | |||||||||||||||||||||||
| Convertible senior notes | — | 6 | — | 9 | |||||||||||||||||||
| Warrants related to the issuance of convertible senior notes | — | 25 | 8 | 25 | |||||||||||||||||||
| Employee equity incentive plans | — | 11 | 7 | 15 | |||||||||||||||||||
| Weighted-average shares used to compute net income (loss) per share, diluted | 801 | 707 | 744 | 708 | |||||||||||||||||||
| Net income (loss) per share, basic | $ | (0.22) | $ | 0.39 | $ | 0.81 | $ | 1.33 | |||||||||||||||
| Net income (loss) per share, diluted | $ | (0.22) | $ | 0.37 | $ | 0.79 | $ | 1.24 |
The following securities were excluded from the computation of diluted net income (loss) per share of common stock as their effect would have been antidilutive or issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the applicable period (in millions):
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Employee equity incentive plans | 30 | 4 | 6 | 5 | |||||||||||||||||||
Our 2030 Notes and capped calls were also excluded from the calculation of diluted net income (loss) per share as the effect would have been antidilutive.
16. Other Income, Net
The following table sets forth the components of other income, net (in millions):
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Interest income | $ | 71 | $ | 93 | $ | 285 | $ | 266 | |||||||||||||||
| Foreign currency exchange gains (losses), net | (14) | (8) | (41) | (14) | |||||||||||||||||||
| Change in fair value of convertible senior notes | (37) | — | (37) | — | |||||||||||||||||||
| Change in fair value of capped calls | (1) | — | (1) | — | |||||||||||||||||||
| Other, net | 8 | 8 | 76 | 9 | |||||||||||||||||||
| Total other income, net | $ | 27 | $ | 93 | $ | 282 | $ | 261 |
17. Subsequent Events
Portkey, Inc.
On May 29, 2026, we completed the acquisition of Portkey. This acquisition will be accounted for as a business combination in the fourth quarter of fiscal 2026.
- 25 -
Previous: Cover and table of contents · Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations