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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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20-2530195
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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4401 Great America Parkway
Santa Clara, California 95054
(Address of principal executive office, including zip code)
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.0001 per share
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New York Stock Exchange LLC
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Large accelerated filer
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x
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Page
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PART I
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Item 1.
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Item 1A.
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Item 1B.
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Item 2.
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Item 3.
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Item 4.
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PART II
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Item 9.
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Item 9A.
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Item 9B.
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PART III
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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PART IV
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Item 15.
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•
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our ability to maintain an adequate rate of revenue growth;
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•
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our business plan and our ability to effectively manage our growth;
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•
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trends in and expectations regarding revenue, costs of revenue, gross margin, cash flows, interest expense, and operating expenses, including future share-based compensation expense;
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•
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our expectations regarding future investments in research and development, customer support, and in our sales force, including expectations regarding growth in our sales headcount;
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•
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our ability to extend our leadership position in next-generation enterprise security;
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•
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our ability to timely and effectively scale and adapt our existing technology;
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•
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our ability to expand internationally;
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•
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the effects of increased competition in our market and our ability to offer differentiated products and compete effectively;
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•
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our ability to introduce new subscriptions, renew existing contracts, and increase sales to our existing customer base;
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•
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costs associated with defending intellectual property infringement and other claims;
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•
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the effects of seasonal trends and macroeconomic conditions on our results of operations;
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•
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the adequacy of our current facilities;
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•
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the sufficiency of our cash flow from operations with existing cash and cash equivalents to meet our cash needs for the foreseeable future;
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•
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future acquisitions of, or investments in, complementary companies, products, services, or technologies;
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•
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our ability to grow our installed end-customer base; and
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•
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our expectations regarding current and future product releases.
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ITEM 1.
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BUSINESS
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•
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Threat Prevention Subscription.
This service provides the intrusion detection and prevention capabilities of our platform. Our threat prevention engine blocks vulnerability exploits, viruses, spyware, buffer overflows, denial-of-service attacks, and port scans from compromising and damaging enterprise information resources. It includes mechanisms such as protocol decoder-based analysis, protocol anomaly-based protection, stateful pattern matching, statistical anomaly detection, heuristic-based analysis, custom vulnerability, and spyware phone home signatures.
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•
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URL Filtering Subscription.
This service provides the uniform resource locator (URL) filtering capabilities of our platform. The URL filtering database consists of millions of URLs across many categories and is designed to monitor and control employee web surfing activities. The on-appliance URL database can be augmented to suit the traffic patterns of the local user community with a custom URL database. URLs that are not categorized by the local URL database can be pulled into a separate, cache-based URL database from a very extensive, cloud-based URL database.
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•
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GlobalProtect Subscription.
This service provides protection for mobile users of both traditional laptop devices and mobile devices. It expands the boundaries of the physical network, effectively establishing a logical perimeter that encompasses remote laptop and mobile device users irrespective of their location. When a remote user logs into the device, GlobalProtect automatically determines the closest gateway available to the roaming device and establishes a secure connection. Windows and Apple laptops as well as mobile devices, such as Android phones and tablets and Apple iPhones and iPads, will stay connected to the corporate network whenever they are on a network of any kind. As a result, they are protected as if they never left the corporate campus. GlobalProtect ensures that the same secure application enablement policies that protect users at the corporate site are enforced for all users, independent of their location.
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•
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WildFire Subscription.
This service provides protection against targeted malware and advanced persistent threats. Its cloud-based analysis service provides a near real-time analysis engine for detecting previously unseen malware. The core component of this service is a sandbox environment that can operate on an end-customers' private cloud or our public cloud where files can be run and monitored for more than 100 behavioral characteristics that identify the file as malware. Once identified, preventive measures are automatically generated and delivered to all devices that subscribe to the service. By providing this as a cloud-based service, all of our end-customers benefit from malware found on any network.
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•
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Endpoint Software Subscription.
This service, called Traps, provides protection for Windows-based fixed and virtual endpoints, and is expected to be released in fiscal 2015. It protects against cyber attacks that aim to exploit software vulnerabilities through its unique capability of stopping the underlying exploit techniques and can prevent cyber attacks without relying on prior knowledge of the attack.
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•
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large networking vendors such as Cisco Systems, Inc. (“Cisco”) and Juniper Networks, Inc. (“Juniper”) that incorporate enterprise security features in their products;
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•
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large companies such as Intel Corporation (“Intel”), International Business Machines (“IBM”), and Hewlett-Packard Company (“HP”) that have acquired large network and endpoint security specialist vendors in recent years and have the technical and financial resources to bring competitive solutions to the market;
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•
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independent security vendors such as Check Point Software Technologies Ltd. (“Check Point”) and Fortinet, Inc. (“Fortinet”) that offer network security products and Symantec, Inc. (“Symantec”) that offers endpoint security products; and
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•
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small and large companies that offer point solutions that compete with some of the features present in our platform.
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•
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product features, reliability, performance, and effectiveness;
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•
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product line breadth, diversity, and applicability;
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•
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product extensibility and ability to integrate with other technology infrastructures;
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•
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price and total cost of ownership;
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•
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adherence to industry standards and certifications;
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•
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strength of sales and marketing efforts; and
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•
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brand awareness and reputation.
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ITEM 1A.
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RISK FACTORS
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•
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our ability to attract and retain new end-customers;
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•
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the budgeting cycles and purchasing practices of end-customers;
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•
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changes in end-customer, distributor or reseller requirements, or market needs;
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•
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changes in the growth rate of the enterprise security market;
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•
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the timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of our industry, including consolidation among our competitors or end-customers;
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•
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changes in mix of our products and services including increases in multi-year subscriptions and support and maintenance;
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•
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price competition;
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•
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deferral of orders from end-customers in anticipation of new products or product enhancements announced by us or our competitors;
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•
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our ability to successfully expand our business domestically and internationally;
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•
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the timing and costs related to the development or acquisition of technologies or businesses;
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•
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lack of synergy, or the inability to realize expected synergies, resulting from recent acquisitions;
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•
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our inability to complete or integrate efficiently any acquisitions that we have completed, or that we may undertake;
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•
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our ability to increase the size of our distribution channel;
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•
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decisions by potential end-customers to purchase enterprise security solutions from larger, more established security vendors or from their primary network equipment vendors;
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•
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changes in end-customer attach rates and renewal rates for our services;
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•
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timing of revenue recognition and revenue deferrals;
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•
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our ability to manage production and manufacturing related costs, global customer service organization costs, inventory excess and obsolescence costs, and warranty costs;
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•
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insolvency or credit difficulties confronting our customers, which could adversely affect their ability to purchase or pay for our products and services, or confronting our key suppliers, including our sole source suppliers, which could disrupt our supply chain;
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•
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any disruption in our channel or termination of our relationship with important channel partners, including as a result of consolidation among distributors and resellers of enterprise security solutions;
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•
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our inability to fulfill our end-customers’ orders due to supply chain delays or events that impact our manufacturers or their suppliers;
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•
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increased expenses, unforeseen liabilities, or write-downs and any impact on our results of operations from any acquisition consummated;
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•
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the cost and potential outcomes of litigation, which could have a material adverse effect on our business;
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•
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seasonality or cyclical fluctuations in our markets;
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•
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future accounting pronouncements or changes in our accounting policies, including the potential impact of the adoption and implementation of the May 2014 Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No. 2014-09 regarding revenue recognition;
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•
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the impact on our overall effective tax rate caused by any reorganization in our corporate structure or any changes in our valuation allowance for domestic deferred assets;
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•
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increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates, as an increasing portion of our expenses are incurred and paid in currencies other than the U.S. dollar;
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•
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political, economic and social instability, including continued hostilities in the Middle East and any disruption these events may cause to broader global industrial economy; and
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•
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general macroeconomic conditions, both domestically and in our foreign markets.
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•
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large networking vendors such as Cisco Systems, Inc. (“Cisco”) and Juniper Networks, Inc. (“Juniper”) that incorporate enterprise security features in their products;
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•
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large companies such as Intel Corporation (“Intel”), International Business Machines (“IBM”), and Hewlett-Packard Company (“HP”) that have acquired large network and endpoint security specialist vendors in recent years and have the technical and financial resources to bring competitive solutions to the market;
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•
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independent security vendors such as Check Point Software Technologies Ltd. (“Check Point”) and Fortinet, Inc. (“Fortinet”) that offer network security products and Symantec, Inc. (“Symantec”) that offers endpoint security products; and
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•
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small and large companies that offer point solutions that compete with some of the features present in our platform.
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•
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greater name recognition and longer operating histories;
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•
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larger sales and marketing budgets and resources;
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•
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broader distribution and established relationships with distribution partners and end-customers;
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•
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greater customer support resources;
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•
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greater resources to make acquisitions;
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•
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lower labor and development costs;
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•
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larger and more mature intellectual property portfolios; and
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•
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substantially greater financial, technical, and other resources.
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•
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competition from larger competitors, such as Cisco, Check Point, and Juniper, that traditionally target larger enterprises, service providers, and government entities and that may have pre-existing relationships or purchase commitments from those end-customers;
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•
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increased purchasing power and leverage held by large end-customers in negotiating contractual arrangements with us;
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•
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more stringent requirements in our worldwide support service contracts, including stricter support response times and penalties for any failure to meet support requirements; and
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•
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longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end-customer that elects not to purchase our products and services.
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•
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expenditure of significant financial and product development resources in efforts to analyze, correct, eliminate, or work-around errors or defects or to address and eliminate vulnerabilities;
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•
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loss of existing or potential end-customers or channel partners;
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•
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delayed or lost revenue;
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•
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delay or failure to attain market acceptance;
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•
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an increase in warranty claims compared with our historical experience, or an increased cost of servicing warranty claims, either of which would adversely affect our gross margins; and
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•
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litigation, regulatory inquiries, or investigations that may be costly and harm our reputation.
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•
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political, economic and social uncertainty around the world, in particular, macroeconomic challenges in Europe and continued hostilities in the Middle East;
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•
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greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;
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•
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the uncertainty of protection for intellectual property rights in some countries;
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•
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greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties;
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•
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risks associated with trade restrictions and foreign legal requirements, including the importation, certification, and localization of our products required in foreign countries;
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•
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greater risk of a failure of foreign employees, partners, distributors, and resellers to comply with both U.S. and foreign laws, including antitrust regulations, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, U.S. or foreign sanctions regimes and export or import control laws, and any trade regulations ensuring fair trade practices;
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•
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heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements;
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•
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increased expenses incurred in establishing and maintaining office space and equipment for our international operations;
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•
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greater difficulty in recruiting local experienced personnel, and the costs and expenses associated with such activities;
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•
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management communication and integration problems resulting from cultural and geographic dispersion;
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•
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fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business; and
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•
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general economic and political conditions in these foreign markets.
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•
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announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or our competitors;
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•
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price and volume fluctuations in the overall stock market from time to time;
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•
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significant volatility in the market price and trading volume of technology companies in general and of companies in our industry;
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•
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fluctuations in the trading volume of our shares or the size of our public float;
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•
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actual or anticipated changes in our operating results or fluctuations in our operating results;
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•
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whether our operating results meet the expectations of securities analysts or investors;
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•
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actual or anticipated changes in the expectations of securities analysts or investors;
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•
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litigation involving us, our industry, or both;
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•
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regulatory developments in the United States, foreign countries or both;
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•
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major catastrophic events;
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•
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sales of large blocks of our stock;
|
•
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departures of key personnel; or
|
•
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economic uncertainty around the world, in particular, macroeconomic challenges in Europe.
|
•
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a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;
|
•
|
the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;
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•
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the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
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•
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a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
|
•
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the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, our president, our secretary, or a majority vote of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
|
•
|
the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws, which may inhibit the ability of an acquiror to effect such amendments to facilitate an unsolicited takeover attempt;
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•
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the ability of our board of directors, by majority vote, to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquiror to amend the bylaws to facilitate an unsolicited takeover attempt; and
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•
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advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.
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ITEM 1B.
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UNRESOLVED STAFF COMMENTS
|
ITEM 2.
|
PROPERTIES
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
ITEM 5.
|
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|
|
High
|
|
Low
|
||||
Year Ended July 31, 2013
|
|
|
|
||||
First Quarter
|
$
|
72.61
|
|
|
$
|
53.27
|
|
Second Quarter
|
$
|
57.65
|
|
|
$
|
47.00
|
|
Third Quarter
|
$
|
62.19
|
|
|
$
|
50.29
|
|
Fourth Quarter
|
$
|
56.60
|
|
|
$
|
39.08
|
|
Year Ended July 31, 2014
|
|
|
|
||||
First Quarter
|
$
|
50.50
|
|
|
$
|
42.04
|
|
Second Quarter
|
$
|
64.92
|
|
|
$
|
40.36
|
|
Third Quarter
|
$
|
80.84
|
|
|
$
|
57.02
|
|
Fourth Quarter
|
$
|
85.78
|
|
|
$
|
57.47
|
|
Company/Index
|
7/20/2012
|
|
7/31/2012
|
|
7/31/2013
|
|
7/31/2014
|
||||||||
Palo Alto Networks, Inc.
|
$
|
100.00
|
|
|
$
|
107.55
|
|
|
$
|
92.11
|
|
|
$
|
152.19
|
|
NYSE Composite Index
|
$
|
100.00
|
|
|
$
|
101.34
|
|
|
$
|
123.19
|
|
|
$
|
138.23
|
|
NYSE Arca Tech 100 Index
|
$
|
100.00
|
|
|
$
|
101.35
|
|
|
$
|
127.39
|
|
|
$
|
154.80
|
|
ITEM 6.
|
SELECTED CONSOLIDATED FINANCIAL DATA
|
|
Year Ended July 31,
|
||||||||||||||||||
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
Selected Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
||||||||||
Product
|
$
|
340,143
|
|
|
$
|
243,707
|
|
|
$
|
174,462
|
|
|
$
|
84,800
|
|
|
$
|
36,789
|
|
Services
|
258,036
|
|
|
152,400
|
|
|
80,676
|
|
|
33,797
|
|
|
11,993
|
|
|||||
Total revenue
|
598,179
|
|
|
396,107
|
|
|
255,138
|
|
|
118,597
|
|
|
48,782
|
|
|||||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
||||||||||
Product
(1)
|
85,503
|
|
|
63,412
|
|
|
44,615
|
|
|
21,766
|
|
|
10,822
|
|
|||||
Services
(1)
|
74,125
|
|
|
46,344
|
|
|
25,938
|
|
|
10,507
|
|
|
4,812
|
|
|||||
Total cost of revenue
|
159,628
|
|
|
109,756
|
|
|
70,553
|
|
|
32,273
|
|
|
15,634
|
|
|||||
Total gross profit
|
438,551
|
|
|
286,351
|
|
|
184,585
|
|
|
86,324
|
|
|
33,148
|
|
|||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
||||||||||
Research and development
(1)
|
104,813
|
|
|
62,482
|
|
|
38,570
|
|
|
21,366
|
|
|
12,788
|
|
|||||
Sales and marketing
(1)
|
334,763
|
|
|
199,771
|
|
|
115,917
|
|
|
62,254
|
|
|
29,726
|
|
|||||
General and administrative
(1)
|
73,149
|
|
|
42,719
|
|
|
26,207
|
|
|
13,108
|
|
|
11,291
|
|
|||||
Legal settlement
|
141,173
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total operating expenses
|
653,898
|
|
|
304,972
|
|
|
180,694
|
|
|
96,728
|
|
|
53,805
|
|
|||||
Operating income (loss)
|
(215,347
|
)
|
|
(18,621
|
)
|
|
3,891
|
|
|
(10,404
|
)
|
|
(20,657
|
)
|
|||||
Interest expense
|
(1,883
|
)
|
|
(74
|
)
|
|
(36
|
)
|
|
(25
|
)
|
|
(1
|
)
|
|||||
Other income (expense), net
|
(4,930
|
)
|
|
39
|
|
|
(1,056
|
)
|
|
(1,623
|
)
|
|
(419
|
)
|
|||||
Income (loss) before income taxes
|
(222,160
|
)
|
|
(18,656
|
)
|
|
2,799
|
|
|
(12,052
|
)
|
|
(21,077
|
)
|
|||||
Provision for income taxes
|
4,292
|
|
|
10,590
|
|
|
2,062
|
|
|
476
|
|
|
56
|
|
|||||
Net income (loss)
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
|
$
|
737
|
|
|
$
|
(12,528
|
)
|
|
$
|
(21,133
|
)
|
Net income (loss) attributable to common stockholders, basic and diluted
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
|
$
|
—
|
|
|
$
|
(12,528
|
)
|
|
$
|
(21,133
|
)
|
Net income (loss) per share attributable to common stockholders, basic and diluted
|
$
|
(3.05
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.88
|
)
|
|
$
|
(1.78
|
)
|
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders, basic and diluted
|
74,291
|
|
|
68,682
|
|
|
19,569
|
|
|
14,201
|
|
|
11,901
|
|
(1)
|
Includes share-based compensation expense as follows:
|
|
Year Ended July 31,
|
||||||||||||||||||
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
Cost of product revenue
|
$
|
1,636
|
|
|
$
|
765
|
|
|
$
|
121
|
|
|
$
|
27
|
|
|
$
|
9
|
|
Cost of services revenue
|
9,434
|
|
|
3,586
|
|
|
653
|
|
|
179
|
|
|
46
|
|
|||||
Research and development
|
29,524
|
|
|
9,931
|
|
|
3,733
|
|
|
1,020
|
|
|
318
|
|
|||||
Sales and marketing
|
42,647
|
|
|
20,493
|
|
|
4,267
|
|
|
1,133
|
|
|
364
|
|
|||||
General and administrative
|
16,668
|
|
|
9,101
|
|
|
5,151
|
|
|
2,374
|
|
|
132
|
|
|||||
Total share-based compensation
|
$
|
99,909
|
|
|
$
|
43,876
|
|
|
$
|
13,925
|
|
|
$
|
4,733
|
|
|
$
|
869
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
July 31,
|
||||||||||||||||||
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
Selected Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
653,812
|
|
|
$
|
310,614
|
|
|
$
|
322,642
|
|
|
$
|
40,517
|
|
|
$
|
18,835
|
|
Investments
|
320,570
|
|
|
126,321
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Working capital
|
610,155
|
|
|
323,597
|
|
|
259,651
|
|
|
9,739
|
|
|
7,000
|
|
|||||
Total assets
|
1,478,466
|
|
|
585,606
|
|
|
407,804
|
|
|
91,172
|
|
|
38,119
|
|
|||||
Convertible senior notes, net
|
466,875
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Preferred stock warrant liability
|
—
|
|
|
—
|
|
|
—
|
|
|
2,068
|
|
|
491
|
|
|||||
Redeemable convertible preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
64,491
|
|
|
64,491
|
|
|||||
Common stock including additional paid-in capital
|
804,414
|
|
|
381,710
|
|
|
309,099
|
|
|
9,311
|
|
|
2,589
|
|
|||||
Total stockholders’ equity (deficit)
|
$
|
468,583
|
|
|
$
|
272,420
|
|
|
$
|
229,071
|
|
|
$
|
(71,454
|
)
|
|
$
|
(65,648
|
)
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Overview.
Discussion of our business and overall analysis of financial and other highlights in order to provide context for the remainder of MD&A.
|
•
|
Key Financial Metrics.
An analysis of our generally accepted accounting principles (GAAP) and non-GAAP key financial metrics, which management monitors to evaluate our performance.
|
•
|
Financial Overview.
Discussion of the nature and trends of components of our financial results.
|
•
|
Results of Operations.
An analysis of our financial results comparing fiscal
2014
and
2013
, and fiscal
2013
and
2012
.
|
•
|
Liquidity and Capital Resources.
An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and our ability to meet cash needs.
|
•
|
Contractual Obligations and Commitments.
Overview of contractual obligations, contingent liabilities, commitments, and off-balance sheet arrangements outstanding as of
July 31, 2014
, including expected payment schedule.
|
•
|
Critical Accounting Policies and Estimates.
A discussion of accounting policies that require critical estimates, assumptions, and judgments.
|
•
|
Recent Accounting Pronouncements.
A discussion of expected impacts of impending accounting changes on financial information to be reported in the future.
|
|
July 31,
|
||||||
|
2014
|
|
2013
|
||||
|
(in thousands)
|
||||||
Total deferred revenue
|
$
|
422,578
|
|
|
$
|
249,230
|
|
Cash, cash equivalents, and investments
|
$
|
974,382
|
|
|
$
|
436,935
|
|
|
Year Ended July 31,
|
||||||||||
|
2014
|
|
2013
|
|
2012
|
||||||
|
(dollars in thousands)
|
||||||||||
Total revenue
|
$
|
598,179
|
|
|
$
|
396,107
|
|
|
$
|
255,138
|
|
Year over year percentage increase
|
51.0
|
%
|
|
55.3
|
%
|
|
115.1
|
%
|
|||
Gross margin percentage
(5)
|
73.3
|
%
|
|
72.3
|
%
|
|
72.3
|
%
|
|||
Operating income (loss)
(1)(2)(3)(4)(5)
|
$
|
(215,347
|
)
|
|
$
|
(18,621
|
)
|
|
$
|
3,891
|
|
Operating margin percentage
|
(36.0
|
)%
|
|
(4.7
|
)%
|
|
1.5
|
%
|
|||
Billings (non-GAAP)
|
$
|
771,375
|
|
|
$
|
509,529
|
|
|
$
|
323,691
|
|
Cash flow provided by operating activities
|
$
|
88,406
|
|
|
$
|
114,519
|
|
|
$
|
77,368
|
|
Free cash flow (non-GAAP)
(6)
|
$
|
52,299
|
|
|
$
|
92,077
|
|
|
$
|
62,803
|
|
(1)
|
Includes share-based compensation expense of
$99.9 million
, $43.9 million, and $13.9 million for fiscal
2014
,
2013
, and
2012
, respectively.
|
(2)
|
Includes intellectual property litigation expense of
$11.3 million
, $3.6 million, and $0.7 million for fiscal
2014
,
2013
, and
2012
, respectively.
|
(3)
|
Includes legal settlement expense of
$141.2 million
, nil, and nil for fiscal
2014
,
2013
, and
2012
, respectively.
|
(4)
|
Includes acquisition transaction costs of
$4.4 million
, nil, and nil for fiscal
2014
,
2013
, and
2012
, respectively.
|
(5)
|
Includes amortization of Juniper intellectual property licenses of
$2.0 million
, nil, and nil for fiscal
2014
,
2013
, and
2012
, respectively.
|
(6)
|
Includes our cash payments of $75.0 million and $20.0 million in fiscal 2014 for the legal settlement with Juniper and the Mutual Covenant Not to Sue and Release Agreement with Fortinet, respectively.
|
•
|
Deferred Revenue.
Our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenue as of the period end. The majority of our deferred revenue balance consists of subscription and support and maintenance revenue that is recognized ratably over the contractual service period. We monitor our deferred revenue balance because it represents a significant portion of revenue to be recognized in future periods.
|
•
|
Cash Flow Provided by Operating Activities.
We monitor cash flow provided by operating activities as a measure of our overall business performance. Our cash flow provided by operating activities is driven in large part by sales of our products and from up-front payments for both subscriptions and support and maintenance services. Monitoring cash flow provided by operating activities enables us to analyze our financial performance without the non-cash effects of certain items such as depreciation, amortization, and share-based compensation costs, thereby allowing us to better understand and manage the cash needs of our business.
|
•
|
Free Cash Flow (non-GAAP).
We define free cash flow, a non-GAAP financial measure, as cash provided by operating activities less purchases of property, equipment, and other assets. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the purchases of property, equipment, and other assets, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. A limitation of the utility of free cash flow as a measure of our financial performance and liquidity is that it does not represent the total increase or decrease in our cash balance for the period. In addition, it is important to note that other companies, including companies in our industry, may not use free cash flow, may calculate free cash flow in a different manner than we do, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a comparative measure. A reconciliation of free cash flow to cash flow provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP, is provided below:
|
|
Year Ended July 31,
|
||||||||||
|
2014
|
|
2013
|
|
2012
|
||||||
|
(in thousands)
|
||||||||||
Cash Flow:
|
|
|
|
|
|
||||||
Cash flow provided by operating activities
|
$
|
88,406
|
|
|
$
|
114,519
|
|
|
$
|
77,368
|
|
Less: purchase of property, equipment, and other assets
|
36,107
|
|
|
22,442
|
|
|
14,565
|
|
|||
Free cash flow (non-GAAP)
(1)
|
$
|
52,299
|
|
|
$
|
92,077
|
|
|
$
|
62,803
|
|
Net cash used in investing activities
|
$
|
(320,348
|
)
|
|
$
|
(151,565
|
)
|
|
$
|
(14,565
|
)
|
Net cash provided by financing activities
|
$
|
575,140
|
|
|
$
|
25,018
|
|
|
$
|
219,322
|
|
(1)
|
Includes our cash payments of $75.0 million and $20.0 million in fiscal 2014 for the legal settlement with Juniper and the Mutual Covenant Not to Sue and Release Agreement with Fortinet, respectively.
|
•
|
Billings (non-GAAP).
We define billings, a non-GAAP financial measure, as total revenue plus the change in deferred revenue, net of acquired deferred revenue, during the period. Billings is a key measure used by our management to manage our business because billings drive deferred revenue, which is an important indicator of the health and visibility of our business. We consider billings to be a useful metric for management and investors, particularly as we experience increased sales of subscriptions and strong renewal rates for subscriptions and support and maintenance services, and monitor our near term cash flows. We believe that billings provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management. However, it is important to note that other companies, including companies in our industry, may not use billings, may calculate billings differently, may have different billing frequencies, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of billings as a comparative measure. A reconciliation of billings to revenue, the most directly comparable financial measure calculated and presented in accordance with GAAP, is provided below:
|
|
Year Ended July 31,
|
||||||||||
|
2014
|
|
2013
|
|
2012
|
||||||
|
(in thousands)
|
||||||||||
Billings (non-GAAP):
|
|
|
|
|
|
||||||
Total revenue
|
$
|
598,179
|
|
|
$
|
396,107
|
|
|
$
|
255,138
|
|
Add: change in total deferred revenue, net of acquired deferred revenue
|
173,196
|
|
|
113,422
|
|
|
68,553
|
|
|||
Billings (non-GAAP)
|
$
|
771,375
|
|
|
$
|
509,529
|
|
|
$
|
323,691
|
|
•
|
Product Revenue
.
The substantial majority of our product revenue is derived from sales of our appliances. Product revenue also includes revenue derived from software licenses of Panorama, Virtual Systems Upgrades, and the VM-Series. We recognize product revenue at the time of shipment, provided that all other revenue recognition criteria have been met. As a percentage of total revenue, we expect our product revenue to vary from quarter to quarter based on seasonal and cyclical factors.
|
•
|
Services Revenue
.
Services revenue is derived primarily from Threat Prevention, URL Filtering, GlobalProtect, and WildFire subscriptions and support and maintenance. We expect to release our Advanced Endpoint Protection in fiscal 2015. We anticipate revenue from our Advanced Endpoint Protection will begin ramping in the second half of fiscal 2015 with a more meaningful revenue contribution in fiscal 2016. Threat Prevention, URL Filtering, GlobalProtect, and WildFire subscriptions are priced as a percentage of the appliance’s list price. Our contractual subscription and support and maintenance terms are typically one to five years. We recognize revenue from subscriptions and support and maintenance over the contractual service period. As a percentage of total revenue, we expect our services revenue to vary from quarter to quarter and increase over the long term as we introduce new subscriptions, renew existing services contracts, and expand our installed end-customer base.
|
•
|
Cost of Product Revenue.
Cost of product revenue primarily includes costs paid to our third-party contract manufacturer. Our cost of product revenue also includes amortization of intellectual property licenses, product testing costs, allocated costs, warranty costs, shipping costs, and personnel costs associated with logistics and quality control. We expect our cost of product revenue to increase as our product revenue increases.
|
•
|
Cost of Services Revenue.
Cost of services revenue includes personnel costs for our global customer support organization, amortization of intangible assets acquired, allocated costs, and URL filtering database service fees. We expect our cost of services revenue to increase as our installed end-customer base grows.
|
•
|
Research and Development.
Research and development expense consists primarily of personnel costs. Research and development expense also includes prototype related expenses and allocated costs. We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services, although our research and development expense may fluctuate as a percentage of total revenue.
|
•
|
Sales and Marketing
.
Sales and marketing expense consists primarily of personnel costs including commission costs. We expense commission costs as incurred. Sales and marketing expense also includes costs for market development programs, promotional and other marketing costs, travel costs, professional services, and allocated costs. We continue to increase the size of our sales force and have also substantially grown our sales presence internationally. We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales and marketing organizations to increase touch points with end-customers and to expand our international presence, although our sales and marketing expense may fluctuate as a percentage of total revenue.
|
•
|
General and Administrative
.
General and administrative expense consists of personnel costs, professional services, and certain non-recurring general expenses. General and administrative personnel include our executive, finance, human resources, legal, and IT organizations. Professional services consist primarily of legal, auditing, accounting, and other consulting costs. We expect general and administrative expense to increase in absolute dollars due to additional costs associated with accounting, compliance, insurance, and investor relations, although our general and administrative expense may fluctuate as a percentage of total revenue.
|
•
|
Legal Settlement
.
Legal settlement expense consists of charges related to the settlement agreement with Juniper and the Mutual Covenant Not to Sue and Release Agreement with Fortinet, Inc. (“Fortinet”). Refer to the discussion under Note 9. Legal Settlement of Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to these matters.
|
|
Year Ended July 31,
|
||||||||||
|
2014
|
|
2013
|
|
2012
|
||||||
|
(in thousands)
|
||||||||||
Consolidated Statements of Operations Data:
|
|
|
|
|
|
||||||
Revenue:
|
|
|
|
|
|
||||||
Product
|
$
|
340,143
|
|
|
$
|
243,707
|
|
|
$
|
174,462
|
|
Services
|
258,036
|
|
|
152,400
|
|
|
80,676
|
|
|||
Total revenue
|
598,179
|
|
|
396,107
|
|
|
255,138
|
|
|||
Cost of revenue:
|
|
|
|
|
|
||||||
Product
|
85,503
|
|
|
63,412
|
|
|
44,615
|
|
|||
Services
|
74,125
|
|
|
46,344
|
|
|
25,938
|
|
|||
Total cost of revenue
|
159,628
|
|
|
109,756
|
|
|
70,553
|
|
|||
Total gross profit
|
438,551
|
|
|
286,351
|
|
|
184,585
|
|
|||
Operating expenses:
|
|
|
|
|
|
||||||
Research and development
|
104,813
|
|
|
62,482
|
|
|
38,570
|
|
|||
Sales and marketing
|
334,763
|
|
|
199,771
|
|
|
115,917
|
|
|||
General and administrative
|
73,149
|
|
|
42,719
|
|
|
26,207
|
|
|||
Legal settlement
|
141,173
|
|
|
—
|
|
|
—
|
|
|||
Total operating expenses
|
653,898
|
|
|
304,972
|
|
|
180,694
|
|
|||
Operating income (loss)
|
(215,347
|
)
|
|
(18,621
|
)
|
|
3,891
|
|
|||
Interest expense
|
(1,883
|
)
|
|
(74
|
)
|
|
(36
|
)
|
|||
Other income (expense), net
|
(4,930
|
)
|
|
39
|
|
|
(1,056
|
)
|
|||
Income (loss) before income taxes
|
(222,160
|
)
|
|
(18,656
|
)
|
|
2,799
|
|
|||
Provision for income taxes
|
4,292
|
|
|
10,590
|
|
|
2,062
|
|
|||
Net income (loss)
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
|
$
|
737
|
|
|
Year Ended July 31,
|
|||||||
|
2014
|
|
2013
|
|
2012
|
|||
|
(as a percentage of revenue)
|
|||||||
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|||
Revenue:
|
|
|
|
|
|
|||
Product
|
56.9
|
%
|
|
61.5
|
%
|
|
68.4
|
%
|
Services
|
43.1
|
%
|
|
38.5
|
%
|
|
31.6
|
%
|
Total revenue
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of revenue:
|
|
|
|
|
|
|||
Product
|
14.3
|
%
|
|
16.0
|
%
|
|
17.5
|
%
|
Services
|
12.4
|
%
|
|
11.7
|
%
|
|
10.2
|
%
|
Total cost of revenue
|
26.7
|
%
|
|
27.7
|
%
|
|
27.7
|
%
|
Total gross profit
|
73.3
|
%
|
|
72.3
|
%
|
|
72.3
|
%
|
Operating expenses:
|
|
|
|
|
|
|||
Research and development
|
17.5
|
%
|
|
15.8
|
%
|
|
15.1
|
%
|
Sales and marketing
|
56.0
|
%
|
|
50.4
|
%
|
|
45.4
|
%
|
General and administrative
|
12.2
|
%
|
|
10.8
|
%
|
|
10.3
|
%
|
Legal settlement
|
23.6
|
%
|
|
—
|
%
|
|
—
|
%
|
Total operating expenses
|
109.3
|
%
|
|
77.0
|
%
|
|
70.8
|
%
|
Operating income (loss)
|
(36.0
|
)%
|
|
(4.7
|
)%
|
|
1.5
|
%
|
Interest expense
|
(0.3
|
)%
|
|
—
|
%
|
|
—
|
%
|
Other income (expense), net
|
(0.8
|
)%
|
|
—
|
%
|
|
(0.4
|
)%
|
Income (loss) before income taxes
|
(37.1
|
)%
|
|
(4.7
|
)%
|
|
1.1
|
%
|
Provision for income taxes
|
0.8
|
%
|
|
2.7
|
%
|
|
0.8
|
%
|
Net income (loss)
|
(37.9
|
)%
|
|
(7.4
|
)%
|
|
0.3
|
%
|
|
Year Ended July 31,
|
|
|
|
|
|||||||||||||||
|
2014
|
|
2013
|
|
Change
|
|||||||||||||||
|
Amount
|
|
% of
Revenue
|
|
Amount
|
|
% of
Revenue
|
|
Amount
|
|
%
|
|||||||||
|
(dollars in thousands)
|
|||||||||||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Product
|
$
|
340,143
|
|
|
56.9
|
%
|
|
$
|
243,707
|
|
|
61.5
|
%
|
|
$
|
96,436
|
|
|
39.6
|
%
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Subscription
|
123,236
|
|
|
20.6
|
%
|
|
71,203
|
|
|
18.0
|
%
|
|
52,033
|
|
|
73.1
|
%
|
|||
Support and maintenance
|
134,800
|
|
|
22.5
|
%
|
|
81,197
|
|
|
20.5
|
%
|
|
53,603
|
|
|
66.0
|
%
|
|||
Total services
|
258,036
|
|
|
43.1
|
%
|
|
152,400
|
|
|
38.5
|
%
|
|
105,636
|
|
|
69.3
|
%
|
|||
Total revenue
|
$
|
598,179
|
|
|
100.0
|
%
|
|
$
|
396,107
|
|
|
100.0
|
%
|
|
$
|
202,072
|
|
|
51.0
|
%
|
Revenue by geographic theater:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Americas
|
$
|
396,626
|
|
|
66.3
|
%
|
|
$
|
247,616
|
|
|
62.5
|
%
|
|
$
|
149,010
|
|
|
60.2
|
%
|
EMEA
|
126,915
|
|
|
21.2
|
%
|
|
91,496
|
|
|
23.1
|
%
|
|
35,419
|
|
|
38.7
|
%
|
|||
APAC
|
74,638
|
|
|
12.5
|
%
|
|
56,995
|
|
|
14.4
|
%
|
|
17,643
|
|
|
31.0
|
%
|
|||
Total revenue
|
$
|
598,179
|
|
|
100.0
|
%
|
|
$
|
396,107
|
|
|
100.0
|
%
|
|
$
|
202,072
|
|
|
51.0
|
%
|
|
Year Ended July 31,
|
|
|
|
|
|||||||||||||||
|
2014
|
|
2013
|
|
Change
|
|||||||||||||||
|
Amount
|
|
Gross
Margin
|
|
Amount
|
|
Gross
Margin
|
|
Amount
|
|
Gross
Margin
|
|||||||||
|
(dollars in thousands)
|
|||||||||||||||||||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Product
|
$
|
85,503
|
|
|
|
|
$
|
63,412
|
|
|
|
|
$
|
22,091
|
|
|
|
|||
Services
|
74,125
|
|
|
|
|
46,344
|
|
|
|
|
27,781
|
|
|
|
||||||
Total cost of revenue
|
$
|
159,628
|
|
|
|
|
$
|
109,756
|
|
|
|
|
$
|
49,872
|
|
|
|
|||
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Product
|
$
|
254,640
|
|
|
74.9
|
%
|
|
$
|
180,295
|
|
|
74.0
|
%
|
|
$
|
74,345
|
|
|
0.9
|
%
|
Services
|
183,911
|
|
|
71.3
|
%
|
|
106,056
|
|
|
69.6
|
%
|
|
77,855
|
|
|
1.7
|
%
|
|||
Total gross profit
|
$
|
438,551
|
|
|
73.3
|
%
|
|
$
|
286,351
|
|
|
72.3
|
%
|
|
$
|
152,200
|
|
|
1.0
|
%
|
|
Year Ended July 31,
|
|
|
|
|
|||||||||||||||
|
2014
|
|
2013
|
|
Change
|
|||||||||||||||
|
Amount
|
|
% of
Revenue
|
|
Amount
|
|
% of
Revenue
|
|
Amount
|
|
%
|
|||||||||
|
(dollars in thousands)
|
|||||||||||||||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Research and development
|
$
|
104,813
|
|
|
17.5
|
%
|
|
$
|
62,482
|
|
|
15.8
|
%
|
|
$
|
42,331
|
|
|
67.7
|
%
|
Sales and marketing
|
334,763
|
|
|
56.0
|
%
|
|
199,771
|
|
|
50.4
|
%
|
|
134,992
|
|
|
67.6
|
%
|
|||
General and administrative
|
73,149
|
|
|
12.2
|
%
|
|
42,719
|
|
|
10.8
|
%
|
|
30,430
|
|
|
71.2
|
%
|
|||
Legal settlement
|
141,173
|
|
|
23.6
|
%
|
|
—
|
|
|
—
|
%
|
|
141,173
|
|
|
N/A
|
|
|||
Total operating expenses
|
$
|
653,898
|
|
|
109.3
|
%
|
|
$
|
304,972
|
|
|
77.0
|
%
|
|
$
|
348,926
|
|
|
114.4
|
%
|
Includes share-based compensation of:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Research and development
|
$
|
29,524
|
|
|
|
|
$
|
9,931
|
|
|
|
|
$
|
19,593
|
|
|
197.3
|
%
|
||
Sales and marketing
|
42,647
|
|
|
|
|
20,493
|
|
|
|
|
22,154
|
|
|
108.1
|
%
|
|||||
General and administrative
|
16,668
|
|
|
|
|
9,101
|
|
|
|
|
7,567
|
|
|
83.1
|
%
|
|||||
Total
|
$
|
88,839
|
|
|
|
|
$
|
39,525
|
|
|
|
|
$
|
49,314
|
|
|
124.8
|
%
|
|
Year Ended July 31,
|
|
|
|
|
|||||||||
|
2014
|
|
2013
|
|
Change
|
|||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Interest expense
|
$
|
1,883
|
|
|
$
|
74
|
|
|
$
|
1,809
|
|
|
2,444.6
|
%
|
|
Year Ended July 31,
|
|
|
|
|
||||||||
|
2014
|
|
2013
|
|
Change
|
||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||
|
(dollars in thousands)
|
||||||||||||
Other income (expense), net
|
$
|
(4,930
|
)
|
|
$
|
39
|
|
|
$
|
(4,969
|
)
|
|
NM
|
|
Year Ended July 31,
|
|
|
|
|
|||||||||
|
2014
|
|
2013
|
|
Change
|
|||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Provision for income taxes
|
$
|
4,292
|
|
|
$
|
10,590
|
|
|
$
|
(6,298
|
)
|
|
(59.5
|
)%
|
Effective tax rate
|
(1.9
|
)%
|
|
(56.8
|
)%
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
|
|||||||||||||||
|
2013
|
|
2012
|
|
Change
|
|||||||||||||||
|
Amount
|
|
% of
Revenue |
|
Amount
|
|
% of
Revenue |
|
Amount
|
|
%
|
|||||||||
|
(dollars in thousands)
|
|||||||||||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Product
|
$
|
243,707
|
|
|
61.5
|
%
|
|
$
|
174,462
|
|
|
68.4
|
%
|
|
$
|
69,245
|
|
|
39.7
|
%
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Subscription
|
71,203
|
|
|
18.0
|
%
|
|
38,698
|
|
|
15.2
|
%
|
|
32,505
|
|
|
84.0
|
%
|
|||
Support and maintenance
|
81,197
|
|
|
20.5
|
%
|
|
41,978
|
|
|
16.4
|
%
|
|
39,219
|
|
|
93.4
|
%
|
|||
Total services
|
152,400
|
|
|
38.5
|
%
|
|
80,676
|
|
|
31.6
|
%
|
|
71,724
|
|
|
88.9
|
%
|
|||
Total revenue
|
$
|
396,107
|
|
|
100.0
|
%
|
|
$
|
255,138
|
|
|
100.0
|
%
|
|
$
|
140,969
|
|
|
55.3
|
%
|
Revenue by geographic theater:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Americas
|
$
|
247,616
|
|
|
62.5
|
%
|
|
$
|
161,873
|
|
|
63.4
|
%
|
|
$
|
85,743
|
|
|
53.0
|
%
|
EMEA
|
91,496
|
|
|
23.1
|
%
|
|
61,994
|
|
|
24.3
|
%
|
|
29,502
|
|
|
47.6
|
%
|
|||
APAC
|
56,995
|
|
|
14.4
|
%
|
|
31,271
|
|
|
12.3
|
%
|
|
25,724
|
|
|
82.3
|
%
|
|||
Total revenue
|
$
|
396,107
|
|
|
100.0
|
%
|
|
$
|
255,138
|
|
|
100.0
|
%
|
|
$
|
140,969
|
|
|
55.3
|
%
|
|
Year Ended July 31,
|
|
|
|
|
|||||||||||||||
|
2013
|
|
2012
|
|
Change
|
|||||||||||||||
|
Amount
|
|
Gross
Margin |
|
Amount
|
|
Gross
Margin |
|
Amount
|
|
Gross
Margin |
|||||||||
|
(dollars in thousands)
|
|||||||||||||||||||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Product
|
$
|
63,412
|
|
|
|
|
$
|
44,615
|
|
|
|
|
$
|
18,797
|
|
|
|
|||
Services
|
46,344
|
|
|
|
|
25,938
|
|
|
|
|
20,406
|
|
|
|
||||||
Total cost of revenue
|
$
|
109,756
|
|
|
|
|
$
|
70,553
|
|
|
|
|
$
|
39,203
|
|
|
|
|||
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Product
|
$
|
180,295
|
|
|
74.0
|
%
|
|
$
|
129,847
|
|
|
74.4
|
%
|
|
$
|
50,448
|
|
|
(0.4
|
)%
|
Services
|
106,056
|
|
|
69.6
|
%
|
|
54,738
|
|
|
67.8
|
%
|
|
51,318
|
|
|
1.8
|
%
|
|||
Total gross profit
|
$
|
286,351
|
|
|
72.3
|
%
|
|
$
|
184,585
|
|
|
72.3
|
%
|
|
$
|
101,766
|
|
|
—
|
%
|
|
Year Ended July 31,
|
|
|
|
|
|||||||||||||||
|
2013
|
|
2012
|
|
Change
|
|||||||||||||||
|
Amount
|
|
% of
Revenue
|
|
Amount
|
|
% of
Revenue
|
|
Amount
|
|
%
|
|||||||||
|
(dollars in thousands)
|
|||||||||||||||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Research and development
|
$
|
62,482
|
|
|
15.8
|
%
|
|
$
|
38,570
|
|
|
15.1
|
%
|
|
$
|
23,912
|
|
|
62.0
|
%
|
Sales and marketing
|
199,771
|
|
|
50.4
|
%
|
|
115,917
|
|
|
45.4
|
%
|
|
83,854
|
|
|
72.3
|
%
|
|||
General and administrative
|
42,719
|
|
|
10.8
|
%
|
|
26,207
|
|
|
10.3
|
%
|
|
16,512
|
|
|
63.0
|
%
|
|||
Total operating expenses
|
$
|
304,972
|
|
|
77.0
|
%
|
|
$
|
180,694
|
|
|
70.8
|
%
|
|
$
|
124,278
|
|
|
68.8
|
%
|
Includes share-based compensation of:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Research and development
|
$
|
9,931
|
|
|
|
|
$
|
3,733
|
|
|
|
|
$
|
6,198
|
|
|
166.0
|
%
|
||
Sales and marketing
|
20,493
|
|
|
|
|
4,267
|
|
|
|
|
16,226
|
|
|
380.3
|
%
|
|||||
General and administrative
|
9,101
|
|
|
|
|
5,151
|
|
|
|
|
3,950
|
|
|
76.7
|
%
|
|||||
Total
|
$
|
39,525
|
|
|
|
|
$
|
13,151
|
|
|
|
|
$
|
26,374
|
|
|
200.5
|
%
|
|
Year Ended July 31,
|
|
|
|
|
||||||||
|
2013
|
|
2012
|
|
Change
|
||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||
|
(dollars in thousands)
|
||||||||||||
Other income (expense), net
|
$
|
39
|
|
|
$
|
(1,056
|
)
|
|
$
|
1,095
|
|
|
NM
|
|
Year Ended July 31,
|
|
|
|
|
|||||||||
|
2013
|
|
2012
|
|
Change
|
|||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Provision for income taxes
|
$
|
10,590
|
|
|
$
|
2,062
|
|
|
$
|
8,528
|
|
|
413.6
|
%
|
Effective tax rate
|
(56.8
|
)%
|
|
73.7
|
%
|
|
|
|
|
|
July 31,
|
||||||
|
2014
|
|
2013
|
||||
|
(in thousands)
|
||||||
Working capital
|
$
|
610,155
|
|
|
$
|
323,597
|
|
Cash, cash equivalents, and investments:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
653,812
|
|
|
$
|
310,614
|
|
Investments
|
320,570
|
|
|
126,321
|
|
||
Total cash, cash equivalents, and investments
|
$
|
974,382
|
|
|
$
|
436,935
|
|
|
Year Ended July 31,
|
||||||||||
2014
|
|
2013
|
|
2012
|
|||||||
|
(in thousands)
|
||||||||||
Cash provided by operating activities
|
$
|
88,406
|
|
|
$
|
114,519
|
|
|
$
|
77,368
|
|
Cash used in investing activities
|
(320,348
|
)
|
|
(151,565
|
)
|
|
(14,565
|
)
|
|||
Cash provided by financing activities
|
575,140
|
|
|
25,018
|
|
|
219,322
|
|
|||
Net increase (decrease) in cash and cash equivalents
|
$
|
343,198
|
|
|
$
|
(12,028
|
)
|
|
$
|
282,125
|
|
|
Payments Due by Period
|
||||||||||||||||||
|
Total
|
|
Less Than 1
Year |
|
1 - 3 Years
|
|
3- 5 Years
|
|
More Than 5
Years |
||||||||||
|
|
|
(in thousands)
|
|
|
||||||||||||||
0.0% convertible senior notes due 2019
|
$
|
575,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
575,000
|
|
|
$
|
—
|
|
Operating lease obligations
(1) (2)
|
105,710
|
|
|
14,170
|
|
|
27,466
|
|
|
21,471
|
|
|
42,603
|
|
|||||
Purchase obligations
(3)
|
29,895
|
|
|
29,895
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total
(4)
|
$
|
710,605
|
|
|
$
|
44,065
|
|
|
$
|
27,466
|
|
|
$
|
596,471
|
|
|
$
|
42,603
|
|
(1)
|
Consists of contractual obligations from non-cancelable office space under operating leases.
|
(2)
|
Excludes proceeds from contractual sublease of $10.7 million, which consists of $2.6 million to be received in less than one year, $6.0 million to be received in one to three years, $2.1 million to be received in three to five years, and
nil
to be received in more than five years.
|
(3)
|
Consists of minimum purchase commitments of products and components with our independent contract manufacturer and original design manufacturers. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
|
(4)
|
No amounts related to Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 740-10, Income Taxes, are included. As of
July 31, 2014
, we had approximately
$4.5 million
of tax liabilities recorded related to uncertainty in income tax positions.
|
•
|
Persuasive Evidence of an Arrangement Exists.
We rely upon non-cancelable sales agreements and purchase orders to determine the existence of an arrangement.
|
•
|
Delivery has Occurred.
We use shipping documents or transmissions of product or service contract registration codes to determine delivery.
|
•
|
The Fee is Fixed or Determinable.
We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction.
|
•
|
Collectability is Reasonably Assured.
We assess collectability based on credit analysis and payment history.
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
July 31,
|
||||||
|
2014
|
|
2013
|
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
653,812
|
|
|
$
|
310,614
|
|
Short-term investments
|
118,690
|
|
|
109,007
|
|
||
Accounts receivable, net of allowance for doubtful accounts of $471 and $51 at July 31, 2014 and July 31, 2013, respectively
|
135,518
|
|
|
87,461
|
|
||
Prepaid expenses and other current assets
|
50,306
|
|
|
22,617
|
|
||
Total current assets
|
958,326
|
|
|
529,699
|
|
||
Property and equipment, net
|
48,744
|
|
|
32,086
|
|
||
Long-term investments
|
201,880
|
|
|
17,314
|
|
||
Goodwill
|
155,033
|
|
|
—
|
|
||
Intangible assets, net
|
47,955
|
|
|
1,358
|
|
||
Other assets
|
66,528
|
|
|
5,149
|
|
||
Total assets
|
$
|
1,478,466
|
|
|
$
|
585,606
|
|
Liabilities and stockholders’ equity
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
14,526
|
|
|
$
|
15,544
|
|
Accrued compensation
|
48,727
|
|
|
22,004
|
|
||
Accrued and other liabilities
|
25,000
|
|
|
14,609
|
|
||
Deferred revenue
|
259,918
|
|
|
153,945
|
|
||
Total current liabilities
|
348,171
|
|
|
206,102
|
|
||
Convertible senior notes, net
|
466,875
|
|
|
—
|
|
||
Long-term deferred revenue
|
162,660
|
|
|
95,285
|
|
||
Other long-term liabilities
|
32,177
|
|
|
11,799
|
|
||
Commitments and contingencies (Note 8)
|
|
|
|
|
|
||
Stockholders’ equity:
|
|
|
|
||||
Preferred stock, $0.0001 par value; 100,000 shares authorized; none issued and outstanding at July 31, 2014 and July 31, 2013
|
—
|
|
|
—
|
|
||
Common stock, $0.0001 par value; 1,000,000 shares authorized; 79,519 and 71,612 shares issued and outstanding at July 31, 2014 and July 31, 2013, respectively
|
8
|
|
|
7
|
|
||
Additional paid-in capital
|
804,406
|
|
|
381,703
|
|
||
Accumulated other comprehensive loss
|
(105
|
)
|
|
(16
|
)
|
||
Accumulated deficit
|
(335,726
|
)
|
|
(109,274
|
)
|
||
Total stockholders’ equity
|
468,583
|
|
|
272,420
|
|
||
Total liabilities and stockholders’ equity
|
$
|
1,478,466
|
|
|
$
|
585,606
|
|
|
Year Ended July 31,
|
||||||||||
|
2014
|
|
2013
|
|
2012
|
||||||
Revenue:
|
|
|
|
|
|
||||||
Product
|
$
|
340,143
|
|
|
$
|
243,707
|
|
|
$
|
174,462
|
|
Services
|
258,036
|
|
|
152,400
|
|
|
80,676
|
|
|||
Total revenue
|
598,179
|
|
|
396,107
|
|
|
255,138
|
|
|||
Cost of revenue:
|
|
|
|
|
|
||||||
Product
|
85,503
|
|
|
63,412
|
|
|
44,615
|
|
|||
Services
|
74,125
|
|
|
46,344
|
|
|
25,938
|
|
|||
Total cost of revenue
|
159,628
|
|
|
109,756
|
|
|
70,553
|
|
|||
Total gross profit
|
438,551
|
|
|
286,351
|
|
|
184,585
|
|
|||
Operating expenses:
|
|
|
|
|
|
||||||
Research and development
|
104,813
|
|
|
62,482
|
|
|
38,570
|
|
|||
Sales and marketing
|
334,763
|
|
|
199,771
|
|
|
115,917
|
|
|||
General and administrative
|
73,149
|
|
|
42,719
|
|
|
26,207
|
|
|||
Legal settlement (Note 9)
|
141,173
|
|
|
—
|
|
|
—
|
|
|||
Total operating expenses
|
653,898
|
|
|
304,972
|
|
|
180,694
|
|
|||
Operating income (loss)
|
(215,347
|
)
|
|
(18,621
|
)
|
|
3,891
|
|
|||
Interest expense
|
(1,883
|
)
|
|
(74
|
)
|
|
(36
|
)
|
|||
Other income (expense), net
|
(4,930
|
)
|
|
39
|
|
|
(1,056
|
)
|
|||
Income (loss) before income taxes
|
(222,160
|
)
|
|
(18,656
|
)
|
|
2,799
|
|
|||
Provision for income taxes
|
4,292
|
|
|
10,590
|
|
|
2,062
|
|
|||
Net income (loss)
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
|
$
|
737
|
|
Net income (loss) attributable to common stockholders, basic and diluted
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
|
$
|
—
|
|
Net income (loss) per share attributable to common stockholders, basic and diluted
|
$
|
(3.05
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
0.00
|
|
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders, basic and diluted
|
74,291
|
|
|
68,682
|
|
|
19,569
|
|
|
Year Ended July 31,
|
||||||||||
|
2014
|
|
2013
|
|
2012
|
||||||
Net income (loss)
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
|
$
|
737
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
||||||
Change in unrealized gains (losses) on investments
|
(72
|
)
|
|
(15
|
)
|
|
—
|
|
|||
Reclassification adjustment for realized net gains on investments included in net loss
|
(17
|
)
|
|
(1
|
)
|
|
—
|
|
|||
Net change
|
(89
|
)
|
|
(16
|
)
|
|
—
|
|
|||
Comprehensive income (loss)
|
$
|
(226,541
|
)
|
|
$
|
(29,262
|
)
|
|
$
|
737
|
|
|
|
Redeemable Convertible
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Other
Comprehensive Loss
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity (Deficit)
|
||||||||||||||||||
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|||||||||||||||||||||
Balance as of July 31, 2011
|
|
41,084
|
|
|
$
|
64,491
|
|
|
19,751
|
|
|
$
|
2
|
|
|
$
|
9,309
|
|
|
$
|
—
|
|
|
$
|
(80,765
|
)
|
|
$
|
(71,454
|
)
|
Net income and comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
737
|
|
|
737
|
|
||||||
Conversion of redeemable convertible preferred stock into common stock upon initial public offering
|
|
(41,305
|
)
|
|
(67,517
|
)
|
|
41,305
|
|
|
4
|
|
|
67,513
|
|
|
—
|
|
|
—
|
|
|
67,517
|
|
||||||
Issuance of common stock from initial public offering, net of offering costs
|
|
—
|
|
|
—
|
|
|
5,617
|
|
|
1
|
|
|
215,374
|
|
|
—
|
|
|
—
|
|
|
215,375
|
|
||||||
Stock option exercises, net of unvested portion and excess tax benefit
|
|
—
|
|
|
—
|
|
|
1,044
|
|
|
—
|
|
|
2,422
|
|
|
—
|
|
|
—
|
|
|
2,422
|
|
||||||
Share-based compensation for equity based awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,837
|
|
|
—
|
|
|
—
|
|
|
13,837
|
|
||||||
Repurchase of unvested restricted common stock from terminated employees
|
|
—
|
|
|
—
|
|
|
(57
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Issuance of restricted common stock to employees
|
|
—
|
|
|
—
|
|
|
192
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Proceeds from settlement of note receivable
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
637
|
|
|
—
|
|
|
—
|
|
|
637
|
|
||||||
Exercise of preferred stock warrants
|
|
221
|
|
|
3,026
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Balance as of July 31, 2012
|
|
—
|
|
|
—
|
|
|
67,852
|
|
|
7
|
|
|
309,092
|
|
|
—
|
|
|
(80,028
|
)
|
|
229,071
|
|
||||||
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29,246
|
)
|
|
(29,246
|
)
|
||||||
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
(16
|
)
|
||||||
Stock option exercises, net of unvested portion and excess tax benefit
|
|
—
|
|
|
—
|
|
|
3,627
|
|
|
—
|
|
|
22,640
|
|
|
—
|
|
|
—
|
|
|
22,640
|
|
||||||
Issuance of common stock upon vesting of restricted stock units
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Issuance of common stock in connection with employee stock purchase plan
|
|
—
|
|
|
—
|
|
|
170
|
|
|
—
|
|
|
6,267
|
|
|
—
|
|
|
—
|
|
|
6,267
|
|
||||||
Share-based compensation for equity based awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43,704
|
|
|
—
|
|
|
—
|
|
|
43,704
|
|
||||||
Repurchase of unvested restricted common stock from terminated employees
|
|
—
|
|
|
—
|
|
|
(42
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Balance as of July 31, 2013
|
|
—
|
|
|
—
|
|
|
71,612
|
|
|
7
|
|
|
381,703
|
|
|
(16
|
)
|
|
(109,274
|
)
|
|
272,420
|
|
||||||
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(226,452
|
)
|
|
(226,452
|
)
|
||||||
Issuance of common stock in connection with legal settlement
|
|
—
|
|
|
—
|
|
|
1,544
|
|
|
—
|
|
|
113,332
|
|
|
—
|
|
|
—
|
|
|
113,332
|
|
||||||
Issuance of common stock in connection with acquisition
|
|
—
|
|
|
—
|
|
|
1,281
|
|
|
—
|
|
|
87,477
|
|
|
—
|
|
|
—
|
|
|
87,477
|
|
||||||
Issuance of restricted common stock in connection with acquisition
|
|
—
|
|
|
—
|
|
|
276
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Equity component of convertible senior notes, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
106,836
|
|
|
—
|
|
|
—
|
|
|
106,836
|
|
||||||
Purchase of convertible senior note hedges
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(110,975
|
)
|
|
—
|
|
|
—
|
|
|
(110,975
|
)
|
||||||
Issuance of warrants
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
78,258
|
|
|
—
|
|
|
—
|
|
|
78,258
|
|
||||||
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(89
|
)
|
|
|
|
(89
|
)
|
|||||||
Stock option exercises, net of unvested portion and excess tax benefit
|
|
—
|
|
|
—
|
|
|
3,645
|
|
|
1
|
|
|
35,132
|
|
|
—
|
|
|
—
|
|
|
35,133
|
|
||||||
Issuance of common stock upon vesting of restricted stock units
|
|
—
|
|
|
—
|
|
|
870
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Issuance of common stock in connection with employee stock purchase plan
|
|
—
|
|
|
—
|
|
|
319
|
|
|
—
|
|
|
12,869
|
|
|
—
|
|
|
—
|
|
|
12,869
|
|
||||||
Share-based compensation for equity based awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
99,774
|
|
|
—
|
|
|
—
|
|
|
99,774
|
|
||||||
Repurchase of unvested restricted common stock from terminated employees
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Balance as of July 31, 2014
|
|
—
|
|
|
$
|
—
|
|
|
79,519
|
|
|
$
|
8
|
|
|
$
|
804,406
|
|
|
$
|
(105
|
)
|
|
$
|
(335,726
|
)
|
|
$
|
468,583
|
|
|
Year Ended July 31,
|
||||||||||
|
2014
|
|
2013
|
|
2012
|
||||||
Cash flows from operating activities
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
|
$
|
737
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Share-based compensation for equity based awards
|
99,774
|
|
|
43,704
|
|
|
13,837
|
|
|||
Issuance of common stock for legal settlement
|
46,173
|
|
|
—
|
|
|
—
|
|
|||
Depreciation and amortization
|
19,419
|
|
|
9,892
|
|
|
6,134
|
|
|||
Amortization of investment premiums, net of accretion of purchase discounts
|
1,518
|
|
|
1,943
|
|
|
—
|
|
|||
Amortization of debt discount and debt issuance costs
|
1,826
|
|
|
—
|
|
|
—
|
|
|||
Change in fair value of common stock warrant
|
5,859
|
|
|
—
|
|
|
—
|
|
|||
Excess tax benefit from share-based compensation
|
(957
|
)
|
|
(6,762
|
)
|
|
(215
|
)
|
|||
Change in fair value of preferred stock warrants
|
—
|
|
|
—
|
|
|
958
|
|
|||
Loss on facility sublease
|
—
|
|
|
262
|
|
|
—
|
|
|||
Changes in operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
||||||
Accounts receivable, net
|
(47,949
|
)
|
|
(41,819
|
)
|
|
(15,965
|
)
|
|||
Prepaid expenses and other assets
|
(10,308
|
)
|
|
(8,865
|
)
|
|
(11,063
|
)
|
|||
Accounts payable
|
(1,100
|
)
|
|
5,830
|
|
|
3,779
|
|
|||
Accrued compensation
|
26,331
|
|
|
10,697
|
|
|
2,066
|
|
|||
Accrued and other liabilities
|
1,076
|
|
|
15,461
|
|
|
7,846
|
|
|||
Deferred revenue
|
173,196
|
|
|
113,422
|
|
|
68,553
|
|
|||
Reimbursement of cost of leasehold improvements
|
—
|
|
|
—
|
|
|
701
|
|
|||
Net cash provided by operating activities
|
88,406
|
|
|
114,519
|
|
|
77,368
|
|
|||
Cash flows from investing activities
|
|
|
|
|
|
||||||
Purchase of investments
|
(506,642
|
)
|
|
(345,324
|
)
|
|
—
|
|
|||
Proceeds from sales of investments
|
74,597
|
|
|
13,491
|
|
|
—
|
|
|||
Proceeds from maturities of investments
|
233,530
|
|
|
202,710
|
|
|
—
|
|
|||
Acquisition of business, net of cash acquired
|
(85,726
|
)
|
|
—
|
|
|
—
|
|
|||
Purchase of property, equipment, and other assets
|
(36,107
|
)
|
|
(22,442
|
)
|
|
(14,565
|
)
|
|||
Net cash used in investing activities
|
(320,348
|
)
|
|
(151,565
|
)
|
|
(14,565
|
)
|
|||
Cash flows from financing activities
|
|
|
|
|
|
||||||
Proceeds from borrowings on convertible senior notes, net
|
560,433
|
|
|
—
|
|
|
—
|
|
|||
Proceeds from issuance of warrants
|
78,258
|
|
|
—
|
|
|
—
|
|
|||
Purchase of convertible note hedges
|
(110,975
|
)
|
|
—
|
|
|
—
|
|
|||
Proceeds from exercise of stock options
|
33,730
|
|
|
14,765
|
|
|
1,956
|
|
|||
Proceeds from employee stock purchase plan
|
12,869
|
|
|
6,267
|
|
|
—
|
|
|||
Excess tax benefit from share-based compensation
|
957
|
|
|
6,762
|
|
|
215
|
|
|||
Proceeds from settlement of note receivable
|
—
|
|
|
—
|
|
|
637
|
|
|||
Payments of initial public offering costs
|
—
|
|
|
(2,698
|
)
|
|
—
|
|
|||
Proceeds from initial public offering, net of offering costs
|
—
|
|
|
—
|
|
|
215,375
|
|
|||
Change in restricted cash
|
—
|
|
|
—
|
|
|
1,221
|
|
|||
Repurchase of restricted common stock from terminated employees
|
(132
|
)
|
|
(78
|
)
|
|
(82
|
)
|
|||
Net cash provided by financing activities
|
575,140
|
|
|
25,018
|
|
|
219,322
|
|
|||
Net increase (decrease) in cash and cash equivalents
|
343,198
|
|
|
(12,028
|
)
|
|
282,125
|
|
|||
Cash and cash equivalents—beginning of period
|
310,614
|
|
|
322,642
|
|
|
40,517
|
|
|||
Cash and cash equivalents—end of period
|
$
|
653,812
|
|
|
$
|
310,614
|
|
|
$
|
322,642
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
||||||
Cash paid for income taxes
|
$
|
1,523
|
|
|
$
|
304
|
|
|
$
|
1,355
|
|
Cash paid for interest
|
$
|
44
|
|
|
$
|
58
|
|
|
$
|
23
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
||||||
Issuance of common stock in connection with acquisition
|
$
|
87,477
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Conversion of preferred stock into common stock
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
67,517
|
|
Issuance of preferred stock upon exercise of warrant
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,026
|
|
•
|
Persuasive Evidence of an Arrangement Exists.
We rely upon non-cancelable sales agreements and purchase orders to determine the existence of an arrangement.
|
•
|
Delivery has Occurred.
We use shipping documents or transmissions of product or service contract registration codes to determine delivery.
|
•
|
The Fee is Fixed or Determinable.
We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction.
|
•
|
Collectability is Reasonably Assured.
We assess collectability based on credit analysis and payment history.
|
•
|
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
|
•
|
Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.
|
•
|
Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.
|
|
|
July 31, 2014
|
|
July 31, 2013
|
||||||||||||||||||||||||||||
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||||||||||
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Certificates of deposit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,822
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,822
|
|
U.S. government and agency securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,700
|
|
|
—
|
|
|
46,700
|
|
||||||||
Money market funds
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
131,845
|
|
|
—
|
|
|
—
|
|
|
131,845
|
|
||||||||
Total cash equivalents
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
133,667
|
|
|
46,700
|
|
|
—
|
|
|
180,367
|
|
||||||||
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Corporate debt securities
|
|
—
|
|
|
22,239
|
|
|
—
|
|
|
22,239
|
|
|
—
|
|
|
32,834
|
|
|
—
|
|
|
32,834
|
|
||||||||
U.S. government and agency securities
|
|
—
|
|
|
96,451
|
|
|
—
|
|
|
96,451
|
|
|
—
|
|
|
76,173
|
|
|
—
|
|
|
76,173
|
|
||||||||
Total short-term investments
|
|
—
|
|
|
118,690
|
|
|
—
|
|
|
118,690
|
|
|
—
|
|
|
109,007
|
|
|
—
|
|
|
109,007
|
|
||||||||
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Certificates of deposit
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Corporate debt securities
|
|
—
|
|
|
39,018
|
|
|
—
|
|
|
39,018
|
|
|
—
|
|
|
12,317
|
|
|
—
|
|
|
12,317
|
|
||||||||
U.S. government and agency securities
|
|
—
|
|
|
161,862
|
|
|
—
|
|
|
161,862
|
|
|
—
|
|
|
4,997
|
|
|
—
|
|
|
4,997
|
|
||||||||
Total long-term investments
|
|
—
|
|
|
201,880
|
|
|
—
|
|
|
201,880
|
|
|
—
|
|
|
17,314
|
|
|
—
|
|
|
17,314
|
|
||||||||
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Restricted cash
|
|
1,220
|
|
|
—
|
|
|
—
|
|
|
1,220
|
|
|
1,221
|
|
|
—
|
|
|
—
|
|
|
1,221
|
|
||||||||
Total other assets
|
|
1,220
|
|
|
—
|
|
|
—
|
|
|
1,220
|
|
|
1,221
|
|
|
—
|
|
|
—
|
|
|
1,221
|
|
||||||||
Total assets measured at fair value
|
|
$
|
1,220
|
|
|
$
|
320,570
|
|
|
$
|
—
|
|
|
$
|
321,790
|
|
|
$
|
134,888
|
|
|
$
|
173,021
|
|
|
$
|
—
|
|
|
$
|
307,909
|
|
|
July 31, 2014
|
||||||||||||||
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
||||||||
Certificates of deposit
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
Corporate debt securities
|
61,299
|
|
|
16
|
|
|
(58
|
)
|
|
61,257
|
|
||||
U.S. government and agency securities
|
258,376
|
|
|
45
|
|
|
(108
|
)
|
|
258,313
|
|
||||
Total
|
$
|
320,675
|
|
|
$
|
61
|
|
|
$
|
(166
|
)
|
|
$
|
320,570
|
|
|
July 31, 2013
|
||||||||||||||
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
||||||||
Certificates of deposit
|
$
|
1,822
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,822
|
|
Corporate debt securities
|
45,173
|
|
|
12
|
|
|
(34
|
)
|
|
45,151
|
|
||||
U.S. government and agency securities
|
127,864
|
|
|
8
|
|
|
(2
|
)
|
|
127,870
|
|
||||
Money market funds
|
131,845
|
|
|
—
|
|
|
—
|
|
|
131,845
|
|
||||
Total
|
$
|
306,704
|
|
|
$
|
20
|
|
|
$
|
(36
|
)
|
|
$
|
306,688
|
|
|
July 31, 2014
|
||||||||||||||||||||||
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
||||||||||||||||||
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
||||||||||||
Corporate debt securities
|
$
|
43,868
|
|
|
$
|
(58
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,868
|
|
|
$
|
(58
|
)
|
U.S. government and agency securities
|
142,490
|
|
|
(108
|
)
|
|
—
|
|
|
—
|
|
|
142,490
|
|
|
(108
|
)
|
||||||
Total
|
$
|
186,358
|
|
|
$
|
(166
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
186,358
|
|
|
$
|
(166
|
)
|
|
July 31, 2013
|
||||||||||||||||||||||
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
||||||||||||||||||
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
||||||||||||
Corporate debt securities
|
$
|
31,429
|
|
|
$
|
(34
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
31,429
|
|
|
$
|
(34
|
)
|
U.S. government and agency securities
|
15,926
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
15,926
|
|
|
(2
|
)
|
||||||
Total
|
$
|
47,355
|
|
|
$
|
(36
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
47,355
|
|
|
$
|
(36
|
)
|
|
Amortized Cost
|
|
Fair Value
|
||||
Due within one year
|
$
|
118,678
|
|
|
$
|
118,690
|
|
Due within one to two years
|
193,952
|
|
|
193,853
|
|
||
Due within two to three years
|
8,045
|
|
|
8,027
|
|
||
Total
|
$
|
320,675
|
|
|
$
|
320,570
|
|
|
Amount
|
||
Cash
|
$
|
90,170
|
|
Common stock (1,281,000 shares)
|
87,477
|
|
|
Total
|
$
|
177,647
|
|
|
Amount
|
||
Cash
|
$
|
6,930
|
|
Goodwill
|
144,906
|
|
|
Identified intangible assets
|
42,300
|
|
|
Accrued and other liabilities, net
|
(6,950
|
)
|
|
Long-term deferred tax liability, net
|
(9,539
|
)
|
|
Total
|
$
|
177,647
|
|
|
Fair Value
|
|
Estimated Useful Life
|
||
Developed technology
|
$
|
34,500
|
|
|
7 years
|
In-process research and development
|
7,600
|
|
|
N/A
|
|
Other
|
200
|
|
|
2 years
|
|
Total
|
$
|
42,300
|
|
|
|
|
Amount
|
||
Goodwill
|
$
|
10,127
|
|
Identified intangible assets
|
2,200
|
|
|
Net liabilities assumed
|
(1,982
|
)
|
|
Total
|
$
|
10,345
|
|
|
Fair Value
|
|
Estimated Useful Life
|
||
In-process research and development held for defensive purposes
|
$
|
1,900
|
|
|
3 years
|
Other
|
300
|
|
|
2 years
|
|
Total
|
$
|
2,200
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Impairment Loss
|
|
Net Carrying Amount
|
||||||
Balance as of July 31, 2013
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Goodwill acquired
|
155,033
|
|
|
—
|
|
|
155,033
|
|
|||
Balance as of July 31, 2014
|
$
|
155,033
|
|
|
$
|
—
|
|
|
$
|
155,033
|
|
|
July 31, 2014
|
||||||||||
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
||||||
Intangible assets with finite lives:
|
|
|
|
|
|
||||||
Developed technology
|
$
|
34,500
|
|
|
$
|
(1,643
|
)
|
|
$
|
32,857
|
|
Acquired intellectual property
|
6,546
|
|
|
(958
|
)
|
|
5,588
|
|
|||
In-process research and development held for defensive purposes
|
1,900
|
|
|
(370
|
)
|
|
1,530
|
|
|||
Other
|
500
|
|
|
(120
|
)
|
|
380
|
|
|||
Total intangible assets with finite lives
|
43,446
|
|
|
(3,091
|
)
|
|
40,355
|
|
|||
In-process research and development with indefinite lives
|
7,600
|
|
|
—
|
|
|
7,600
|
|
|||
Total purchased intangible assets
|
$
|
51,046
|
|
|
$
|
(3,091
|
)
|
|
$
|
47,955
|
|
|
July 31, 2013
|
||||||||||
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
||||||
Acquired intellectual property
|
$
|
1,546
|
|
|
$
|
(188
|
)
|
|
$
|
1,358
|
|
|
Fiscal Years Ending July 31,
|
||||||||||||||||||||||
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020 and Thereafter
|
||||||||||||
Developed technology
|
$
|
4,928
|
|
|
$
|
4,928
|
|
|
$
|
4,928
|
|
|
$
|
4,928
|
|
|
$
|
4,928
|
|
|
$
|
8,217
|
|
Acquired intellectual property
|
761
|
|
|
704
|
|
|
611
|
|
|
484
|
|
|
399
|
|
|
2,629
|
|
||||||
In-process research and development held for defensive purposes
|
633
|
|
|
633
|
|
|
264
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Other
|
250
|
|
|
130
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Total future amortization expense
|
$
|
6,572
|
|
|
$
|
6,395
|
|
|
$
|
5,803
|
|
|
$
|
5,412
|
|
|
$
|
5,327
|
|
|
$
|
10,846
|
|
|
July 31,
|
||||||
|
2014
|
|
2013
|
||||
Computers, equipment, and software
|
$
|
38,147
|
|
|
$
|
27,239
|
|
Leasehold improvements
|
21,258
|
|
|
10,176
|
|
||
Demonstration units
|
14,832
|
|
|
11,401
|
|
||
Furniture and fixtures
|
5,129
|
|
|
2,746
|
|
||
Total property and equipment
|
79,366
|
|
|
51,562
|
|
||
Less: accumulated depreciation
|
(30,622
|
)
|
|
(19,476
|
)
|
||
Total property and equipment, net
|
$
|
48,744
|
|
|
$
|
32,086
|
|
|
July 31,
|
||||||
|
2014
|
|
2013
|
||||
Accrued expenses payable
|
$
|
12,210
|
|
|
$
|
11,144
|
|
Other liabilities
|
12,790
|
|
|
3,465
|
|
||
Total accrued and other liabilities
|
$
|
25,000
|
|
|
$
|
14,609
|
|
•
|
during any fiscal quarter commencing after the fiscal quarter ending on
October 31, 2014
(and only during such fiscal quarter), if the last reported sale price of our common stock for at least
20
trading days (whether or not consecutive) during a period of
30
consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to
130%
of the conversion price for the Notes on each applicable trading day;
|
•
|
during the five business day period after any five consecutive trading day period (the "measurement period"), in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than
98%
of the product of the last reported sale price of our common stock and the conversion rate for the Notes on each such trading day; or
|
•
|
upon the occurrence of specified corporate events.
|
|
Amount
|
||
Liability:
|
|
||
Principal
|
$
|
575,000
|
|
Less: debt discount, net of amortization
|
108,125
|
|
|
Net carrying amount
|
$
|
466,875
|
|
|
|
||
Equity
|
$
|
(109,785
|
)
|
|
Amount
|
||
Amortization of debt issuance costs
|
$
|
166
|
|
Amortization of debt discount
|
1,660
|
|
|
Total
|
$
|
1,826
|
|
Effective interest rate of the liability component
|
4.8
|
%
|
|
Amount
|
||
Years ending July 31:
|
|
||
2015
|
$
|
14,170
|
|
2016
|
14,279
|
|
|
2017
|
13,187
|
|
|
2018
|
11,774
|
|
|
2019
|
9,697
|
|
|
2020 and thereafter
|
42,603
|
|
|
Committed gross lease payments
|
105,710
|
|
|
Less: proceeds from sublease rental
|
10,696
|
|
|
Net operating lease obligation
|
$
|
95,014
|
|
•
|
Mutual dismissal with prejudice of all pending litigation between the parties and general release of all liability for Palo Alto Networks and Juniper,
|
•
|
Cross-license between both parties for the patents-in-suit and associated family members and counterparts worldwide for the life of the patents, and
|
•
|
Mutual covenant not to sue for infringement of any other patents for a period of
eight years
.
|
|
Options Outstanding
|
|||||||||||
|
Number
of Shares |
|
Weighted-
Average Exercise Price |
|
Weighted-
Average Remaining Contractual Term (Years) |
|
Aggregate
Intrinsic Value |
|||||
Balance—July 31, 2013
|
10,033
|
|
|
$
|
11.74
|
|
|
7.8
|
|
$
|
373,228
|
|
Options granted
|
—
|
|
|
—
|
|
|
|
|
|
|||
Options forfeited
|
(558
|
)
|
|
14.62
|
|
|
|
|
|
|||
Options exercised
|
(3,645
|
)
|
|
9.25
|
|
|
|
|
|
|||
Balance—July 31, 2014
|
5,830
|
|
|
13.02
|
|
|
7.0
|
|
$
|
395,507
|
|
|
Options vested and expected to vest—July 31, 2014
|
5,698
|
|
|
$
|
12.92
|
|
|
7.0
|
|
$
|
387,122
|
|
Options exercisable—July 31, 2014
|
3,412
|
|
|
$
|
10.51
|
|
|
6.8
|
|
$
|
240,034
|
|
|
RSUs Outstanding
|
|||||||||||
|
Number
of Shares |
|
Weighted-
Average Grant-Date Fair Value Per Share |
|
Weighted-
Average Remaining Contractual Term (Years) |
|
Aggregate
Intrinsic Value |
|||||
Balance—July 31, 2013
|
2,241
|
|
|
$
|
54.36
|
|
|
1.5
|
|
$
|
109,675
|
|
RSUs granted
|
5,154
|
|
|
61.00
|
|
|
|
|
|
|||
RSUs vested
|
(870
|
)
|
|
55.03
|
|
|
|
|
|
|||
RSUs forfeited
|
(479
|
)
|
|
55.42
|
|
|
|
|
|
|||
Balance—July 31, 2014
|
6,046
|
|
|
$
|
59.84
|
|
|
1.4
|
|
$
|
488,880
|
|
RSUs vested and expected to vest—July 31, 2014
|
5,473
|
|
|
$
|
59.65
|
|
|
1.3
|
|
$
|
442,547
|
|
|
Number of shares
|
|
Balance at beginning of fiscal year
|
8,932
|
|
Authorized
|
3,223
|
|
RSUs granted
|
(5,154
|
)
|
Repurchased
|
28
|
|
Options forfeited
|
558
|
|
RSUs forfeited
|
479
|
|
Balance at end of fiscal year
|
8,066
|
|
|
Year Ended July 31,
|
||
|
2013
|
|
2012
|
Risk-free interest rate
|
1.0%
|
|
0.7% - 1.1%
|
Expected term
|
6 years
|
|
4 – 6 years
|
Volatility
|
50%
|
|
49% – 51%
|
Dividend yield
|
—%
|
|
—%
|
|
Year Ended July 31,
|
||||
|
2014
|
|
2013
|
|
2012
|
Risk-free interest rate
|
0.1%
|
|
0.1%
|
|
0.1%
|
Expected term
|
< 1 year
|
|
< 1 year
|
|
< 1 year
|
Volatility
|
40%
|
|
42%
|
|
46%
|
Dividend yield
|
—%
|
|
—%
|
|
—%
|
|
Year Ended July 31,
|
||||||||||
|
2014
|
|
2013
|
|
2012
|
||||||
Cost of revenue
|
$
|
11,070
|
|
|
$
|
4,351
|
|
|
$
|
774
|
|
Research and development
|
29,524
|
|
|
9,931
|
|
|
3,733
|
|
|||
Sales and marketing
|
42,647
|
|
|
20,493
|
|
|
4,267
|
|
|||
General and administrative
|
16,668
|
|
|
9,101
|
|
|
5,151
|
|
|||
Total
|
$
|
99,909
|
|
|
$
|
43,876
|
|
|
$
|
13,925
|
|
|
Year Ended July 31,
|
|||||||
|
2014
|
|
2013
|
|
2012
|
|||
Federal statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
34.0
|
%
|
Effect of:
|
|
|
|
|
|
|||
State taxes, net of federal tax benefit
|
1.3
|
|
|
1.0
|
|
|
9.7
|
|
Change in valuation allowance
|
(20.0
|
)
|
|
(7.3
|
)
|
|
(85.4
|
)
|
Foreign income at other than U.S. rates
|
(12.1
|
)
|
|
(62.4
|
)
|
|
17.2
|
|
Share-based compensation
|
(3.2
|
)
|
|
(16.1
|
)
|
|
66.6
|
|
Preferred stock warrant liability
|
—
|
|
|
—
|
|
|
12.3
|
|
Meals and entertainment
|
(0.3
|
)
|
|
(2.0
|
)
|
|
11.9
|
|
Other, net
|
(2.6
|
)
|
|
(5.0
|
)
|
|
7.4
|
|
Total
|
(1.9
|
)%
|
|
(56.8
|
)%
|
|
73.7
|
%
|
|
July 31,
|
||||||
|
2014
|
|
2013
|
||||
Deferred tax assets:
|
|
|
|
||||
Accruals and reserves
|
$
|
38,372
|
|
|
$
|
23,461
|
|
Research and development and foreign tax credits
|
8,741
|
|
|
4,702
|
|
||
Net operating loss carryforwards
|
32,282
|
|
|
2,170
|
|
||
Share-based compensation
|
17,715
|
|
|
10,619
|
|
||
Gross deferred tax assets
|
97,110
|
|
|
40,952
|
|
||
Valuation allowance
|
(89,309
|
)
|
|
(37,659
|
)
|
||
Total deferred tax assets
|
7,801
|
|
|
3,293
|
|
||
Deferred tax liabilities:
|
|
|
|
||||
Fixed assets and intangible assets
|
(15,040
|
)
|
|
(2,937
|
)
|
||
Other deferred tax liabilities
|
(565
|
)
|
|
—
|
|
||
Total deferred tax liabilities
|
(15,605
|
)
|
|
(2,937
|
)
|
||
Total
|
$
|
(7,804
|
)
|
|
$
|
356
|
|
|
Year Ended July 31,
|
||||||||||
|
2014
|
|
2013
|
|
2012
|
||||||
Unrecognized tax benefits at the beginning of the period
|
$
|
6,561
|
|
|
$
|
2,630
|
|
|
$
|
1,972
|
|
Additions for tax positions taken in prior years
|
428
|
|
|
585
|
|
|
9
|
|
|||
Reductions for tax positions taken in prior years
|
—
|
|
|
(3
|
)
|
|
—
|
|
|||
Additions for tax positions related to the current year
|
3,396
|
|
|
3,349
|
|
|
649
|
|
|||
Settlements
|
—
|
|
|
—
|
|
|
—
|
|
|||
Lapse of statute of limitations
|
—
|
|
|
—
|
|
|
—
|
|
|||
Unrecognized tax benefits at the end of the period
|
$
|
10,385
|
|
|
$
|
6,561
|
|
|
$
|
2,630
|
|
|
Year Ended July 31,
|
||||||||||
|
2014
|
|
2013
|
|
2012
|
||||||
Net income (loss) used to compute net income (loss) per share:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
|
$
|
737
|
|
Less: undistributed earnings allocated to participating securities
|
—
|
|
|
—
|
|
|
(737
|
)
|
|||
Net income (loss) attributable to common stockholders, basic and diluted
|
$
|
(226,452
|
)
|
|
$
|
(29,246
|
)
|
|
$
|
—
|
|
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
|
|
|
|
|
|
||||||
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders, basic and diluted
|
74,291
|
|
|
68,682
|
|
|
19,569
|
|
|||
Net income (loss) per share attributable to common stockholders, basic and diluted
|
$
|
(3.05
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
0.00
|
|
|
Year Ended July 31,
|
|||||||
|
2014
|
|
2013
|
|
2012
|
|||
Options
|
5,830
|
|
|
10,033
|
|
|
4,116
|
|
RSUs
|
6,046
|
|
|
2,241
|
|
|
—
|
|
ESPP shares
|
95
|
|
|
114
|
|
|
—
|
|
Convertible senior notes
|
5,214
|
|
|
—
|
|
|
—
|
|
Warrants related to the issuance of convertible senior notes
|
5,214
|
|
|
—
|
|
|
—
|
|
|
Year Ended July 31,
|
||||||||||
|
2014
|
|
2013
|
|
2012
|
||||||
Revenue:
|
|
|
|
|
|
||||||
Product
|
$
|
340,143
|
|
|
$
|
243,707
|
|
|
$
|
174,462
|
|
Services
|
|
|
|
|
|
||||||
Subscription
|
123,236
|
|
|
71,203
|
|
|
38,698
|
|
|||
Support and maintenance
|
134,800
|
|
|
81,197
|
|
|
41,978
|
|
|||
Total services
|
258,036
|
|
|
152,400
|
|
|
80,676
|
|
|||
Total revenue
|
$
|
598,179
|
|
|
$
|
396,107
|
|
|
$
|
255,138
|
|
|
Three Months Ended
|
||||||||||||||
|
Oct. 31,
2013
|
|
Jan. 31,
2014
|
|
Apr. 30,
2014
|
|
Jul. 31,
2014
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
75,485
|
|
|
$
|
80,823
|
|
|
$
|
84,128
|
|
|
$
|
99,707
|
|
Services
|
52,695
|
|
|
60,245
|
|
|
66,572
|
|
|
78,524
|
|
||||
Total revenue
|
128,180
|
|
|
141,068
|
|
|
150,700
|
|
|
178,231
|
|
||||
Cost of revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
17,954
|
|
|
20,221
|
|
|
20,425
|
|
|
26,903
|
|
||||
Services
|
15,853
|
|
|
17,283
|
|
|
19,285
|
|
|
21,704
|
|
||||
Total cost of revenue
|
33,807
|
|
|
37,504
|
|
|
39,710
|
|
|
48,607
|
|
||||
Total gross profit
|
94,373
|
|
|
103,564
|
|
|
110,990
|
|
|
129,624
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Research and development
|
19,893
|
|
|
24,253
|
|
|
27,837
|
|
|
32,830
|
|
||||
Sales and marketing
|
67,366
|
|
|
76,734
|
|
|
83,995
|
|
|
106,668
|
|
||||
General and administrative
|
14,125
|
|
|
19,733
|
|
|
23,717
|
|
|
15,574
|
|
||||
Legal settlement (Note 9)
|
—
|
|
|
20,000
|
|
|
121,173
|
|
|
—
|
|
||||
Total operating expenses
|
101,384
|
|
|
140,720
|
|
|
256,722
|
|
|
155,072
|
|
||||
Operating loss
|
(7,011
|
)
|
|
(37,156
|
)
|
|
(145,732
|
)
|
|
(25,448
|
)
|
||||
Interest expense
|
(8
|
)
|
|
(14
|
)
|
|
(13
|
)
|
|
(1,848
|
)
|
||||
Other income (expense), net
|
405
|
|
|
(170
|
)
|
|
430
|
|
|
(5,595
|
)
|
||||
Loss before income taxes
|
(6,614
|
)
|
|
(37,340
|
)
|
|
(145,315
|
)
|
|
(32,891
|
)
|
||||
Provision for (benefit from) income taxes
|
1,247
|
|
|
2,606
|
|
|
1,272
|
|
|
(833
|
)
|
||||
Net loss
|
$
|
(7,861
|
)
|
|
$
|
(39,946
|
)
|
|
$
|
(146,587
|
)
|
|
$
|
(32,058
|
)
|
Net loss per share, basic and diluted
|
$
|
(0.11
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
(1.96
|
)
|
|
$
|
(0.41
|
)
|
|
Three Months Ended
|
||||||||||||||
|
Oct. 31,
2012 |
|
Jan. 31,
2013 |
|
Apr. 30,
2013 |
|
Jul. 31,
2013 |
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
55,514
|
|
|
$
|
61,944
|
|
|
$
|
60,793
|
|
|
$
|
65,456
|
|
Services
|
30,420
|
|
|
34,555
|
|
|
40,496
|
|
|
46,929
|
|
||||
Total revenue
|
85,934
|
|
|
96,499
|
|
|
101,289
|
|
|
112,385
|
|
||||
Cost of revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
14,416
|
|
|
16,636
|
|
|
15,855
|
|
|
16,505
|
|
||||
Services
|
9,774
|
|
|
10,982
|
|
|
11,835
|
|
|
13,753
|
|
||||
Total cost of revenue
|
24,190
|
|
|
27,618
|
|
|
27,690
|
|
|
30,258
|
|
||||
Total gross profit
|
61,744
|
|
|
68,881
|
|
|
73,599
|
|
|
82,127
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Research and development
|
13,312
|
|
|
15,495
|
|
|
16,048
|
|
|
17,627
|
|
||||
Sales and marketing
|
42,607
|
|
|
45,796
|
|
|
51,733
|
|
|
59,635
|
|
||||
General and administrative
|
8,956
|
|
|
9,747
|
|
|
12,268
|
|
|
11,748
|
|
||||
Total operating expenses
|
64,875
|
|
|
71,038
|
|
|
80,049
|
|
|
89,010
|
|
||||
Operating loss
|
(3,131
|
)
|
|
(2,157
|
)
|
|
(6,450
|
)
|
|
(6,883
|
)
|
||||
Interest expense
|
(40
|
)
|
|
(7
|
)
|
|
(18
|
)
|
|
(9
|
)
|
||||
Other income (expense), net
|
(32
|
)
|
|
63
|
|
|
(6
|
)
|
|
14
|
|
||||
Loss before income taxes
|
(3,203
|
)
|
|
(2,101
|
)
|
|
(6,474
|
)
|
|
(6,878
|
)
|
||||
Provision for income taxes
|
312
|
|
|
512
|
|
|
808
|
|
|
8,958
|
|
||||
Net loss
|
$
|
(3,515
|
)
|
|
$
|
(2,613
|
)
|
|
$
|
(7,282
|
)
|
|
$
|
(15,836
|
)
|
Net loss per share, basic and diluted
|
$
|
(0.05
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.22
|
)
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
ITEM 9B.
|
OTHER INFORMATION
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
1.
|
Consolidated Financial Statements
|
2.
|
Financial Statement Schedules
|
3.
|
Exhibits
|
By:
|
/s/ M
ARK
D. M
C
L
AUGHLIN
|
|
Mark D. McLaughlin
|
|
Chief Executive Officer and President
|
Signature
|
|
Title
|
|
Date
|
|
|
|
||
/s/ M
ARK
D. M
C
L
AUGHLIN
|
|
Chief Executive Officer, President and Director, (Principal Executive Officer)
|
|
September 18, 2014
|
Mark D. McLaughlin
|
|
|
||
|
|
|
|
|
/s/ S
TEFFAN
C. T
OMLINSON
|
|
Chief Financial Officer (Principal Accounting and Financial Officer)
|
|
September 18, 2014
|
Steffan C. Tomlinson
|
|
|
||
|
|
|
||
/s/ N
IR
Z
UK
|
|
Chief Technical Officer and Director
|
|
September 18, 2014
|
Nir Zuk
|
|
|
||
|
|
|
||
/s/ A
SHEEM
C
HANDNA
|
|
Director
|
|
September 18, 2014
|
Asheem Chandna
|
|
|
||
|
|
|
||
/s/ J
OHN
M. D
ONOVAN
|
|
Director
|
|
September 18, 2014
|
John M. Donovan
|
|
|
||
|
|
|
|
|
/s/ C
ARL
E
SCHENBACH
|
|
Director
|
|
September 18, 2014
|
Carl Eschenbach
|
|
|
||
|
|
|
|
|
/s/ J
AMES
J. G
OETZ
|
|
Director
|
|
September 18, 2014
|
James J. Goetz
|
|
|
||
|
|
|
||
/s/ C
HARLES
J. R
OBEL
|
|
Director
|
|
September 18, 2014
|
Charles J. Robel
|
|
|
||
|
|
|
||
/s/ D
ANIEL
J. W
ARMENHOVEN
|
|
Director
|
|
September 18, 2014
|
Daniel J. Warmenhoven
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
Form
|
|
Incorporated by Reference
|
|
Filing Date
|
||
|
File No.
|
|
Exhibit
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Restated Certificate of Incorporation of the Registrant.
|
|
10-K
|
|
001-35594
|
|
3.1
|
|
October 4, 2012
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of the Registrant.
|
|
10-K
|
|
001-35594
|
|
3.2
|
|
October 4, 2012
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Shareholders Agreement between the Registrant, Cyvera Ltd. and the shareholders named therein, dated March 22, 2014.
|
|
10-Q
|
|
001-35594
|
|
4.1
|
|
June 3, 2014
|
|
|
|
|
|
|
|
|
|
|
|
4.3
|
|
Warrant to Purchase Stock by Juniper Networks, Inc.
|
|
8-K
|
|
001-35594
|
|
4.1
|
|
June 4, 2014
|
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Indenture between the Registrant and U.S. Bank National Association, dated as of June 30, 2014.
|
|
8-K
|
|
001-35594
|
|
4.1
|
|
July 1, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.1*
|
|
Form of Indemnification Agreement between the Registrant and its directors and officers.
|
|
S-1/A
|
|
333-180620
|
|
10.1
|
|
July 9, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.2*
|
|
2005 Equity Incentive Plan and related form agreements under 2005 Equity Incentive Plan.
|
|
S-1/A
|
|
333-180620
|
|
10.2
|
|
July 9, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.3*
|
|
2012 Equity Incentive Plan and related form agreements under 2012 Equity Incentive Plan, as amended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4*
|
|
2012 Employee Stock Purchase Plan and related form agreements under 2012 Employee Stock Purchase Plan, as amended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.5*
|
|
Employee Incentive Compensation Plan.
|
|
10-K
|
|
001-35594
|
|
10.16
|
|
October 4, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.6*
|
|
Offer Letter between the Registrant and Mark D. McLaughlin, dated July 21, 2011, as amended.
|
|
S-1
|
|
333-180620
|
|
10.6
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.7*
|
|
Offer Letter between the Registrant and Steffan C. Tomlinson, dated January 17, 2012.
|
|
S-1
|
|
333-180620
|
|
10.7
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.8*
|
|
Letter Agreement between the Registrant and Nir Zuk, dated December 19, 2011.
|
|
S-1
|
|
333-180620
|
|
10.8
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.9*
|
|
Letter Agreement between the Registrant and Rajiv Batra, dated December 19, 2011.
|
|
S-1
|
|
333-180620
|
|
10.9
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.10*
|
|
Letter Agreement between the Registrant and René Bonvanie, dated December 19, 2011.
|
|
S-1
|
|
333-180620
|
|
10.10
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.11*
|
|
Offer Letter between the Registrant and Charles J. Robel, dated June 9, 2011.
|
|
S-1
|
|
333-180620
|
|
10.12
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.12*
|
|
Offer Letter between the Registrant and Daniel J. Warmenhoven, dated February 14, 2012.
|
|
S-1
|
|
333-180620
|
|
10.13
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.13*
|
|
Offer Letter between the Registrant and Mark F. Anderson, dated May 23, 2012.
|
|
S-1/A
|
|
333-180620
|
|
10.16
|
|
July 9, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.14*
|
|
Offer Letter between the Registrant and John M. Donovan, dated September 14, 2012
|
|
8-K
|
|
001-35594
|
|
10.1
|
|
September 20, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.15*
|
|
Offer Letter between the Registrant and Carl Eschenbach, dated May 9, 2013.
|
|
8-K
|
|
001-35594
|
|
10.1
|
|
May 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
10.16
|
|
Lease between the Registrant and Santa Clara Office Partners LLC, dated October 20, 2010, as amended.
|
|
S-1
|
|
333-180620
|
|
10.14
|
|
April 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.17
|
|
Amendment No. 2 to Lease between the Registrant and Santa Clara Office Partners LLC, dated July 2, 2013.
|
|
10-K
|
|
001-35594
|
|
10.17
|
|
September 25, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
Form
|
|
Incorporated by Reference
|
|
Filing Date
|
||
|
File No.
|
|
Exhibit
|
|
||||||
10.18
|
|
Lease between the Registrant and SI 34 LLC, dated September 17, 2012
|
|
10-K
|
|
001-35594
|
|
10.16
|
|
October 4, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.19
|
|
Lease between the Registrant and SI 34 LLC, dated September 17, 2012
|
|
10-K
|
|
001-35594
|
|
10.16
|
|
October 4, 2012
|
|
|
|
|
|
|
|
|
|
|
|
10.20**
|
|
Manufacturing Services Agreement between the Registrant and Flextronics Telecom Systems Ltd., dated September 20, 2010.
|
|
S-1
|
|
333-180620
|
|
10.15
|
|
April 6, 2012
|
10.21*
|
|
Amendment to Restricted Stock Agreement, dated as of March 8, 2013, by and between the Registrant and Nir Zuk.
|
|
8-K
|
|
001-35594
|
|
10.1
|
|
March 11, 2013
|
|
|
|
|
|
|
|
|
|
|
|
10.22*
|
|
Amendment to Restricted Stock Agreement, dated as of March 8, 2013, by and between the Registrant and Rajiv Batra.
|
|
8-K
|
|
001-35594
|
|
10.2
|
|
March 11, 2013
|
|
|
|
|
|
|
|
|
|
|
|
10.23
|
|
Settlement, Release and Cross-License Agreement, dated May 27, 2014, by and between the Registrant and Juniper Networks, Inc.
|
|
8-K
|
|
001-35594
|
|
10.1
|
|
May 28, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.24
|
|
Share Purchase Agreement between the Registrant, Cyvera Ltd., Palo Alto Networks Holding B.V., the shareholders of Cyvera Ltd. and Shareholder Representative Services LLC, dated March 22, 2014.
|
|
10-Q
|
|
001-35594
|
|
10.1
|
|
June 3, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.25
|
|
Amendment No. 1 to the Share Purchase Agreement between the Registrant, Cyvera Ltd., Palo Alto Networks Holding B.V., the shareholders of Cyvera Ltd. and Shareholder Representative Services LLC, dated April 9, 2014.
|
|
10-Q
|
|
001-35594
|
|
10.2
|
|
June 3, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.26
|
|
Purchase Agreement, dated June 24, 2014, by and among the Registrant and J.P. Morgan Securities LLC, RBC Capital Markets, LLC and Citigroup Global Markets Inc., as representatives of the initial purchasers named therein.
|
|
8-K
|
|
001-35594
|
|
10.1
|
|
June 26, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.27
|
|
Form of Convertible Note Hedge Confirmation.
|
|
8-K
|
|
001-35594
|
|
10.2
|
|
June 26, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.28
|
|
Form of Warrant Confirmation.
|
|
8-K
|
|
001-35594
|
|
10.3
|
|
June 26, 2014
|
|
|
|
|
|
|
|
|
|
|
|
10.29*
|
|
Letter Agreement between the Registrant and Wilson Xu, dated September 4, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.1
|
|
List of subsidiaries of the Registrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.1
|
|
Power of Attorney (contained in the signature page to this Annual Report on Form 10-K)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1†
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2†
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS††
|
|
XBRL Instance Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
Form
|
|
Incorporated by Reference
|
|
Filing Date
|
||
|
File No.
|
|
Exhibit
|
|
||||||
101.SCH††
|
|
XBRL Taxonomy Schema Linkbase Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL††
|
|
XBRL Taxonomy Calculation Linkbase Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
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101.DEF††
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XBRL Taxonomy Definition Linkbase Document.
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101.LAB††
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XBRL Taxonomy Labels Linkbase Document.
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101.PRE††
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XBRL Taxonomy Presentation Linkbase Document.
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*
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Indicates a management contract or compensatory plan or arrangement.
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**
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Registrant has omitted portions of the relevant exhibit and filed such exhibit separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 406 under the Securities Act of 1933, as amended.
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†
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The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Annual Report on Form 10-K, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.
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††
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XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections.
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Participant:
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Address:
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Grant Number
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Date of Grant
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Vesting Commencement Date
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Number of Shares Granted
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Exercise Price per Share
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$
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Total Exercise Price
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$
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Type of Option
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Incentive Stock Option
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Nonstatutory Stock Option
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Term/Expiration Date
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PARTICIPANT
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PALO ALTO NETWORKS, INC.
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Signature
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By
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Print Name
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Title
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Address
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Participant:
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Address:
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Grant Number
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Date of Grant
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Vesting Commencement Date
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Number of Restricted Stock Units
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PARTICIPANT
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PALO ALTO NETWORKS, INC.
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Signature
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By
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Print Name
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Title
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Residence Address
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Participant:
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Address:
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Grant Number
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Date of Grant
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Vesting Commencement Date
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Total Number of Shares Granted
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PARTICIPANT
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PALO ALTO NETWORKS, INC.
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Signature
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By
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Print Name
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Title
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Address
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Participant:
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Address:
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Grant Number
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Date of Grant
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Required Holding Period
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(If Under the 102 Capital Gains Track)
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Vesting Commencement Date
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Number of Restricted Stock Units
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PARTICIPANT
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PALO ALTO NETWORKS, INC.
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Signature
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By
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Print Name
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Title
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Residence Address
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i.
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With respect to any 102 Award, unless permitted and to the extent allowable by the provisions of Section 102 and any rules or regulation or orders or procedures promulgated thereunder and under the Plan and/or the Israeli Appendix, an Eligible 102 Participant shall not sell or release from trust any Share received upon the vesting of any 102 Award and/or any share received subsequently following any realization of rights, including without limitation, bonus shares, until the lapse of the Required Holding Period. Notwithstanding the above, if any such sale or release occurs during the Required Holding Period, the sanctions under Section 102 and under any rules
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ii.
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Notwithstanding anything to the contrary, the Trustee shall not release any Shares allocated or issued upon vesting of 102 Awards prior to the full payment of the Eligible 102 Participant’s tax liabilities arising from 102 Awards or until the Trustee has ensured the payment of the tax liabilities arising from 102 Awards which were granted to him and/or any Shares allocated or issued upon vesting of such Awards.
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iii.
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The Eligible 102 Participant hereby undertakes to release the Trustee from any liability in respect of any action or decision taken and executed in good faith in relation with the Plan, or any 102 Awards or Share granted to the Eligible 102 Participant thereunder.
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iv.
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All benefits arising from the 102 Awards, including share dividends (bonus shares) shall be deposited with the Trustee for the duration of the Required Holding Period, and the provisions of Section 102 shall apply to such benefits.
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(a)
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the Plan is established voluntarily by the Company and it is discretionary in nature;
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(b)
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the grant of the Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been granted in the past;
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(c)
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all decisions with respect to future Restricted Stock Units or other grants, if any, will be at the sole discretion of the Company;
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(d)
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the Restricted Stock Unit grant and Participant’s participation in the Plan shall not be interpreted as forming an employment or service contract with the Company, the Employer, or any Parent or Subsidiary;
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(e)
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Participant is voluntarily participating in the Plan;
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(f)
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the Restricted Stock Units and the Shares subject to the Restricted Stock Units are not intended to replace any pension rights or compensation;
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(g)
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the Restricted Stock Units and the Shares subject to the Restricted Stock Units, and the income and value of same, are not part of normal or expected compensation for any purposes, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-
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(h)
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the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;
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(i)
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no claim or entitlement to compensation or damages shall arise from forfeiture of the Restricted Stock Units resulting from the termination of Participant as a Service Provider (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or rendering services or the terms of Participant’s employment or service agreement, if any), and in consideration of the grant of the Restricted Stock Units to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company, any Parent or Subsidiary or the Employer, waives Participant’s ability, if any, to bring any such claim, and releases the Company, any Parent or Subsidiary and the Employer from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
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(j)
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for purposes of the Restricted Stock Units, Participant’s status as a Service Provider will be considered terminated as of the date Participant is no longer actively providing services to the Company or any Parent or Subsidiary (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or rendering services or the terms of Participant’s employment or service agreement, if any) and Participant’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will not be extended by any notice period (
e.g.
, Participant’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where Participant is employed or rendering services or the terms of Participant’s employment or service agreement, if any); the Administrator shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes of Participant’s Restricted Stock Unit grant (including whether Participant may still be considered to be providing services while on a leave of absence);
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(k)
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the Restricted Stock Units and the benefits evidenced by this Award Agreement do not create any entitlement to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
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(l)
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Participant acknowledges and agrees that neither the Company, the Employer nor any Parent or Subsidiary
shall be liable for any foreign exchange rate fluctuation between Participant’s local currency and the United States Dollar that may affect the value of the Restricted Stock Units or of any amounts due to Participant pursuant to the settlement of the Restricted Stock Units or the subsequent sale of any Shares acquired upon settlement.
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1.
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The Awards shall be granted to me under the provisions of the 102 Capital Gains Track according to Section 102(b)(2) and 102(b)(3) of the Israeli Income Tax Ordinance and shall be held by the Trustee.
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2.
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I am familiar with and understand the provisions of Section 102 in general, and the tax arrangement under the Capital Gains Track in particular, and agree to comply with such provisions, as amended from time to time. Therefore, I agree that Awards granted to me, and the ordinary shares that may be derived from such Awards, will be held or controlled by the Trustee for at least the duration of the Required Holding Period, as determined in Section 102.
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3.
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I agree to the trust deed signed between the Company and the Trustee.
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4.
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I understand that any release of such Awards or ordinary shares from trust (including any sale) prior to the lapse of the Required Holding Period, will result in taxation at my marginal tax rate, including social security and health tax contributions.
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5.
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I authorize the Company, the Employer, or their agents, to provide the Trustee with any information required for the purpose of administrating the grant of the Awards.
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6.
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I declare that I am a resident of the state of Israel for tax purposes and agree to notify the Company and/or the Employer upon any change in the residence address and acknowledges that if I cease to be an Israeli resident or if my engagement with the Company or the Employer is terminated, the Awards and underlying ordinary shares shall remain subject to Section 102, the Trust Agreement and the applicable equity plan and grant document.
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7.
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I understand that the beneficial tax treatment under the Capital Gains Track is subject to compliance with certain terms and conditions. If such terms and conditions are not complied with I understand that my Awards may be subject to a different tax arrangement and may be subject to taxation at my marginal tax rate, in addition to deductions of appropriate social security and health tax contributions.
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8.
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I have had the opportunity to obtain the advice of counsel prior to accepting this letter.
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(1)
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Participant’s participation in the Plan does not constitute an acquired right;
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(2)
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The Plan and Participant’s participation in it are offered by the Company on a wholly discretionary basis;
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(3)
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Participant’s participation in the Plan is voluntary; and
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(4)
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The Company and any of its Parent and Subsidiaries are not responsible for any decrease in the value of any Shares acquired under the Plan.
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(1)
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La participación del Beneficiario en el Plan no constituye un derecho adquirido;
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(2)
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El Plan y la participación del Beneficiario en él es ofrecido por la Compañía de manera completamente discrecional;
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(3)
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La participación del Beneficiario en el Plan es voluntaria; y
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(4)
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La Compañía y su Padre y sus Subsidiarias no son responsables por ninguna disminución en el valor de las Acciones adquiridas en virtud del Plan.
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19.
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Adjustments, Dissolution, Liquidation, Merger or Change in Control
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Re:
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Confirmatory Employment Letter with Updated Change in Control Protection
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/s/ M
ARK
D. M
C
L
AUGHLIN
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Mark D. McLaughlin
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President, Chief Executive Officer
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/s/ WILSON XU
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Wilson Xu
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Dated: September 5, 2014
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Name of Subsidiary
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Jurisdiction of Incorporation
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Palo Alto Networks (Australia) Pty Ltd
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Australia
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Palo Alto Networks (Brasil) Ltda.
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Brazil
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Palo Alto Networks (Canada) Inc.
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Canada
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Palo Alto Networks (Germany) GmbH
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Germany
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Palo Alto Networks (Malaysia), LLC
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Delaware
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Palo Alto Networks (Mexico) S. de R.L. de C.V.
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Mexico
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Palo Alto Networks (Netherlands) B.V.
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Netherlands
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Palo Alto Networks (Norway) AS
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Norway
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Palo Alto Networks (Singapore) PTE. LTD.
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Singapore
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Palo Alto Networks (UK) Limited
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United Kingdom
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Palo Alto Networks Belgium B.V.B.A.
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Belgium
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Palo Alto Networks FZ LLC
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United Arab Emirates
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Palo Alto Networks Godo Kaisha
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Japan
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Palo Alto Networks International, Inc.
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Delaware
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Palo Alto Networks Korea, Ltd.
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South Korea
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Palo Alto Networks, L.L.C.
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Delaware
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PAN C.V.
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Netherlands
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PAN LLC
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Delaware
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Cyvera Ltd., d/b/a Palo Alto Networks (Israel) Ltd.
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Israel
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Cyvera, Inc.
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Delaware
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Morta Security, Inc.
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Delaware
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Palo Alto Networks (India) Private Limited
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India
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Palo Alto Networks Holding B.V.
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Netherlands
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Palo Alto Networks (Singapore) Holding Company Pte. Ltd.
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Singapore
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/s/ M
ARK
D. M
C
L
AUGHLIN
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Mark D. McLaughlin
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President, Chief Executive Officer and Director
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/s/ S
TEFFAN
C. T
OMLINSON
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Steffan C. Tomlinson
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Chief Financial Officer
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/s/ M
ARK
D. M
C
L
AUGHLIN
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Mark D. McLaughlin
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President, Chief Executive Officer and Director
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/s/ S
TEFFAN
C. T
OMLINSON
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Steffan C. Tomlinson
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Chief Financial Officer
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