|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
20-2530195
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
3000 Tannery Way
Santa Clara, California 95054
(Address of principal executive office, including zip code)
|
Title of each class
|
|
Trading Symbol(s)
|
|
Name of each exchange on which registered
|
Common stock, $0.0001 par value per share
|
|
PANW
|
|
New York Stock Exchange
|
Large accelerated filer
|
x
|
Accelerated filer
|
¨
|
Non-accelerated filer
|
¨
|
Smaller reporting company
|
¨
|
|
|
Emerging growth company
|
¨
|
|
|
|
|
|
|
Page
|
|
PART I - FINANCIAL INFORMATION
|
|
Item 1.
|
||
|
||
|
||
|
||
|
||
|
||
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
|
|
|
|
PART II - OTHER INFORMATION
|
|
Item 1.
|
||
Item 1A.
|
||
Item 2.
|
||
Item 6.
|
||
|
ITEM 1.
|
FINANCIAL STATEMENTS
|
|
April 30, 2019
|
|
July 31, 2018
|
||||
|
|
|
(As Adjusted)
|
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,314.9
|
|
|
$
|
2,506.9
|
|
Short-term investments
|
1,733.2
|
|
|
896.5
|
|
||
Accounts receivable, net of allowance for doubtful accounts of $0.8 and $1.2 at April 30, 2019 and July 31, 2018, respectively
|
407.5
|
|
|
467.0
|
|
||
Prepaid expenses and other current assets
|
261.9
|
|
|
268.1
|
|
||
Total current assets
|
3,717.5
|
|
|
4,138.5
|
|
||
Property and equipment, net
|
275.0
|
|
|
273.1
|
|
||
Long-term investments
|
669.9
|
|
|
547.5
|
|
||
Goodwill
|
1,027.3
|
|
|
522.8
|
|
||
Intangible assets, net
|
234.2
|
|
|
140.8
|
|
||
Other assets
|
337.9
|
|
|
326.2
|
|
||
Total assets
|
$
|
6,261.8
|
|
|
$
|
5,948.9
|
|
Liabilities, temporary equity, and stockholders’ equity
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
68.6
|
|
|
$
|
49.4
|
|
Accrued compensation
|
144.0
|
|
|
163.7
|
|
||
Accrued and other liabilities
|
178.5
|
|
|
124.6
|
|
||
Deferred revenue
|
1,449.6
|
|
|
1,213.6
|
|
||
Convertible senior notes, net
|
158.1
|
|
|
550.4
|
|
||
Total current liabilities
|
1,998.8
|
|
|
2,101.7
|
|
||
Convertible senior notes, net
|
1,414.7
|
|
|
1,369.7
|
|
||
Long-term deferred revenue
|
1,182.6
|
|
|
1,065.7
|
|
||
Other long-term liabilities
|
211.1
|
|
|
229.6
|
|
||
Commitments and contingencies (Note 10)
|
|
|
|
|
|
||
Temporary equity
|
1.1
|
|
|
21.9
|
|
||
Stockholders’ equity:
|
|
|
|
||||
Preferred stock; $0.0001 par value; 100.0 shares authorized; none issued and outstanding at April 30, 2019 and July 31, 2018
|
—
|
|
|
—
|
|
||
Common stock and additional paid-in capital; $0.0001 par value; 1,000.0 shares authorized; 95.9 and 93.6 shares issued and outstanding at April 30, 2019 and July 31, 2018, respectively
|
2,340.8
|
|
|
1,967.4
|
|
||
Accumulated other comprehensive loss
|
(7.2
|
)
|
|
(16.4
|
)
|
||
Accumulated deficit
|
(880.1
|
)
|
|
(790.7
|
)
|
||
Total stockholders’ equity
|
1,453.5
|
|
|
1,160.3
|
|
||
Total liabilities, temporary equity, and stockholders’ equity
|
$
|
6,261.8
|
|
|
$
|
5,948.9
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
April 30,
|
|
April 30,
|
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
|
|
(As Adjusted)
|
|
|
|
(As Adjusted)
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
278.4
|
|
|
$
|
218.1
|
|
|
$
|
790.5
|
|
|
$
|
607.7
|
|
Subscription and support
|
448.2
|
|
|
349.6
|
|
|
1,303.3
|
|
|
1,007.4
|
|
||||
Total revenue
|
726.6
|
|
|
567.7
|
|
|
2,093.8
|
|
|
1,615.1
|
|
||||
Cost of revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
78.0
|
|
|
68.9
|
|
|
233.7
|
|
|
190.4
|
|
||||
Subscription and support
|
126.9
|
|
|
91.0
|
|
|
357.3
|
|
|
270.2
|
|
||||
Total cost of revenue
|
204.9
|
|
|
159.9
|
|
|
591.0
|
|
|
460.6
|
|
||||
Total gross profit
|
521.7
|
|
|
407.8
|
|
|
1,502.8
|
|
|
1,154.5
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Research and development
|
139.1
|
|
|
99.6
|
|
|
380.8
|
|
|
290.4
|
|
||||
Sales and marketing
|
339.0
|
|
|
271.4
|
|
|
973.6
|
|
|
784.3
|
|
||||
General and administrative
|
62.3
|
|
|
82.1
|
|
|
192.6
|
|
|
201.1
|
|
||||
Total operating expenses
|
540.4
|
|
|
453.1
|
|
|
1,547.0
|
|
|
1,275.8
|
|
||||
Operating loss
|
(18.7
|
)
|
|
(45.3
|
)
|
|
(44.2
|
)
|
|
(121.3
|
)
|
||||
Interest expense
|
(20.6
|
)
|
|
(6.5
|
)
|
|
(63.9
|
)
|
|
(19.2
|
)
|
||||
Other income, net
|
18.2
|
|
|
8.6
|
|
|
47.2
|
|
|
18.3
|
|
||||
Loss before income taxes
|
(21.1
|
)
|
|
(43.2
|
)
|
|
(60.9
|
)
|
|
(122.2
|
)
|
||||
Provision for (benefit from) income taxes
|
(0.9
|
)
|
|
(2.8
|
)
|
|
0.2
|
|
|
7.0
|
|
||||
Net loss
|
$
|
(20.2
|
)
|
|
$
|
(40.4
|
)
|
|
$
|
(61.1
|
)
|
|
$
|
(129.2
|
)
|
Net loss per share, basic and diluted
|
$
|
(0.21
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.65
|
)
|
|
$
|
(1.42
|
)
|
Weighted-average shares used to compute net loss per share, basic and diluted
|
94.4
|
|
|
91.9
|
|
|
94.1
|
|
|
91.3
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
April 30,
|
|
April 30,
|
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
|
|
(As Adjusted)
|
|
|
|
(As Adjusted)
|
||||||||
Net loss
|
$
|
(20.2
|
)
|
|
$
|
(40.4
|
)
|
|
$
|
(61.1
|
)
|
|
$
|
(129.2
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
||||||||
Change in unrealized gains (losses) on investments
|
2.4
|
|
|
(1.9
|
)
|
|
8.1
|
|
|
(9.1
|
)
|
||||
Change in unrealized gains (losses) on cash flow hedges
|
0.2
|
|
|
(4.1
|
)
|
|
1.1
|
|
|
(0.7
|
)
|
||||
Other comprehensive income (loss)
|
2.6
|
|
|
(6.0
|
)
|
|
9.2
|
|
|
(9.8
|
)
|
||||
Comprehensive loss
|
$
|
(17.6
|
)
|
|
$
|
(46.4
|
)
|
|
$
|
(51.9
|
)
|
|
$
|
(139.0
|
)
|
|
Three Months Ended April 30, 2019
|
|||||||||||||||||
|
Common Stock
and
Additional Paid-In Capital
|
|
Accumulated
Other
Comprehensive Income (Loss)
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
|||||||||||
|
Shares
|
|
Amount
|
|
||||||||||||||
Balance as of January 31, 2019
|
93.7
|
|
|
$
|
1,941.5
|
|
|
$
|
(9.8
|
)
|
|
$
|
(859.9
|
)
|
|
$
|
1,071.8
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(20.2
|
)
|
|
(20.2
|
)
|
||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
|
2.6
|
|
||||
Issuance of common stock in connection with employee equity incentive plans
|
1.0
|
|
|
36.6
|
|
|
—
|
|
|
—
|
|
|
36.6
|
|
||||
Taxes paid related to net share settlement of equity awards
|
—
|
|
|
(3.6
|
)
|
|
—
|
|
|
—
|
|
|
(3.6
|
)
|
||||
Share-based compensation for equity-based awards
|
—
|
|
|
140.4
|
|
|
—
|
|
|
—
|
|
|
140.4
|
|
||||
Issuance of common and restricted common stock in connection with acquisition
|
1.2
|
|
|
224.2
|
|
|
—
|
|
|
—
|
|
|
224.2
|
|
||||
Temporary equity reclassification
|
—
|
|
|
1.7
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
||||
Balance as of April 30, 2019
|
95.9
|
|
|
$
|
2,340.8
|
|
|
$
|
(7.2
|
)
|
|
$
|
(880.1
|
)
|
|
$
|
1,453.5
|
|
|
Three Months Ended April 30, 2018
|
|||||||||||||||||
|
Common Stock
and
Additional Paid-In Capital
|
|
Accumulated
Other Comprehensive Income (Loss) |
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
|||||||||||
|
Shares
|
|
Amount
|
|
||||||||||||||
|
|
|
|
|
|
|
(As Adjusted)
|
|
(As Adjusted)
|
|||||||||
Balance as of January 31, 2018
|
91.8
|
|
|
$
|
1,575.9
|
|
|
$
|
(7.2
|
)
|
|
$
|
(757.3
|
)
|
|
$
|
811.4
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(40.4
|
)
|
|
(40.4
|
)
|
||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(6.0
|
)
|
|
—
|
|
|
(6.0
|
)
|
||||
Issuance of common stock in connection with employee equity incentive plans
|
1.1
|
|
|
29.4
|
|
|
—
|
|
|
—
|
|
|
29.4
|
|
||||
Taxes paid related to net share settlement of equity awards
|
—
|
|
|
(11.4
|
)
|
|
—
|
|
|
—
|
|
|
(11.4
|
)
|
||||
Share-based compensation for equity-based awards
|
—
|
|
|
117.9
|
|
|
—
|
|
|
—
|
|
|
117.9
|
|
||||
Temporary equity reclassification
|
—
|
|
|
5.8
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
||||
Balance as of April 30, 2018
|
92.9
|
|
|
$
|
1,717.6
|
|
|
$
|
(13.2
|
)
|
|
$
|
(797.7
|
)
|
|
$
|
906.7
|
|
|
Nine Months Ended April 30, 2019
|
|||||||||||||||||
|
Common Stock
and
Additional Paid-In Capital
|
|
Accumulated
Other
Comprehensive Income (Loss)
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
|||||||||||
|
Shares
|
|
Amount
|
|
||||||||||||||
Balance as of July 31, 2018 (as adjusted)
|
93.6
|
|
|
$
|
1,967.4
|
|
|
$
|
(16.4
|
)
|
|
$
|
(790.7
|
)
|
|
$
|
1,160.3
|
|
Cumulative-effect adjustment from adoption of new accounting pronouncement
|
—
|
|
|
—
|
|
|
—
|
|
|
(28.3
|
)
|
|
(28.3
|
)
|
||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(61.1
|
)
|
|
(61.1
|
)
|
||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
9.2
|
|
|
—
|
|
|
9.2
|
|
||||
Issuance of common stock in connection with employee equity incentive plans
|
3.0
|
|
|
70.5
|
|
|
—
|
|
|
—
|
|
|
70.5
|
|
||||
Taxes paid related to net share settlement of equity awards
|
—
|
|
|
(24.6
|
)
|
|
—
|
|
|
—
|
|
|
(24.6
|
)
|
||||
Share-based compensation for equity-based awards
|
—
|
|
|
423.0
|
|
|
—
|
|
|
—
|
|
|
423.0
|
|
||||
Repurchase and retirement of common stock
|
(1.9
|
)
|
|
(330.0
|
)
|
|
—
|
|
|
—
|
|
|
(330.0
|
)
|
||||
Settlement of convertible notes
|
1.7
|
|
|
(12.2
|
)
|
|
—
|
|
|
—
|
|
|
(12.2
|
)
|
||||
Common stock received from exercise of note hedges
|
(1.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Issuance of common and restricted common stock in connection with acquisition
|
1.2
|
|
|
225.9
|
|
|
—
|
|
|
—
|
|
|
225.9
|
|
||||
Temporary equity reclassification
|
—
|
|
|
20.8
|
|
|
—
|
|
|
—
|
|
|
20.8
|
|
||||
Balance as of April 30, 2019
|
95.9
|
|
|
$
|
2,340.8
|
|
|
$
|
(7.2
|
)
|
|
$
|
(880.1
|
)
|
|
$
|
1,453.5
|
|
|
Nine Months Ended April 30, 2018
|
|||||||||||||||||
|
Common Stock
and
Additional Paid-In Capital
|
|
Accumulated
Other Comprehensive Income (Loss) |
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
|||||||||||
|
Shares
|
|
Amount
|
|
||||||||||||||
|
|
|
|
|
|
|
(As Adjusted)
|
|
(As Adjusted)
|
|||||||||
Balance as of July 31, 2017
|
91.5
|
|
|
$
|
1,599.7
|
|
|
$
|
(3.4
|
)
|
|
$
|
(668.5
|
)
|
|
$
|
927.8
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(129.2
|
)
|
|
(129.2
|
)
|
||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(9.8
|
)
|
|
—
|
|
|
(9.8
|
)
|
||||
Issuance of common stock in connection with employee equity incentive plans
|
3.1
|
|
|
53.0
|
|
|
—
|
|
|
—
|
|
|
53.0
|
|
||||
Taxes paid related to net share settlement of equity awards
|
—
|
|
|
(34.3
|
)
|
|
—
|
|
|
—
|
|
|
(34.3
|
)
|
||||
Share-based compensation for equity-based awards
|
—
|
|
|
376.9
|
|
|
—
|
|
|
—
|
|
|
376.9
|
|
||||
Repurchase and retirement of common stock
|
(1.7
|
)
|
|
(250.0
|
)
|
|
—
|
|
|
—
|
|
|
(250.0
|
)
|
||||
Temporary equity reclassification
|
—
|
|
|
(27.7
|
)
|
|
—
|
|
|
—
|
|
|
(27.7
|
)
|
||||
Balance as of April 30, 2018
|
92.9
|
|
|
$
|
1,717.6
|
|
|
$
|
(13.2
|
)
|
|
$
|
(797.7
|
)
|
|
$
|
906.7
|
|
|
Nine Months Ended
|
||||||
|
April 30,
|
||||||
|
2019
|
|
2018
|
||||
|
|
|
(As Adjusted)
|
||||
Cash flows from operating activities
|
|
|
|
||||
Net loss
|
$
|
(61.1
|
)
|
|
$
|
(129.2
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
||||
Share-based compensation for equity-based awards
|
417.5
|
|
|
373.1
|
|
||
Depreciation and amortization
|
111.6
|
|
|
68.0
|
|
||
Cease-use loss related to facility exit
|
4.1
|
|
|
41.1
|
|
||
Amortization of deferred contract costs
|
147.6
|
|
|
101.9
|
|
||
Amortization of debt discount and debt issuance costs
|
53.6
|
|
|
19.2
|
|
||
Amortization of investment premiums, net of accretion of purchase discounts
|
(13.0
|
)
|
|
0.6
|
|
||
Loss on conversions of convertible senior notes
|
2.6
|
|
|
—
|
|
||
Repayments of convertible senior notes attributable to debt discount
|
(67.1
|
)
|
|
—
|
|
||
Changes in operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
||||
Accounts receivable, net
|
63.8
|
|
|
71.8
|
|
||
Prepaid expenses and other assets
|
(164.4
|
)
|
|
(177.1
|
)
|
||
Accounts payable
|
23.2
|
|
|
(4.6
|
)
|
||
Accrued compensation
|
(22.7
|
)
|
|
(24.4
|
)
|
||
Accrued and other liabilities
|
(10.7
|
)
|
|
41.9
|
|
||
Deferred revenue
|
339.1
|
|
|
378.2
|
|
||
Net cash provided by operating activities
|
824.1
|
|
|
760.5
|
|
||
Cash flows from investing activities
|
|
|
|
||||
Purchases of investments
|
(2,426.6
|
)
|
|
(387.9
|
)
|
||
Proceeds from sales of investments
|
3.5
|
|
|
—
|
|
||
Proceeds from maturities of investments
|
1,506.8
|
|
|
531.0
|
|
||
Business acquisitions, net of cash acquired
|
(382.8
|
)
|
|
(370.1
|
)
|
||
Purchases of property, equipment, and other assets
|
(78.1
|
)
|
|
(86.6
|
)
|
||
Net cash used in investing activities
|
(1,377.2
|
)
|
|
(313.6
|
)
|
||
Cash flows from financing activities
|
|
|
|
||||
Repayments of convertible senior notes attributable to principal and equity component
|
(348.5
|
)
|
|
—
|
|
||
Payments for debt issuance costs
|
(3.7
|
)
|
|
—
|
|
||
Repurchases of common stock
|
(330.0
|
)
|
|
(259.1
|
)
|
||
Proceeds from sales of shares through employee equity incentive plans
|
70.3
|
|
|
52.6
|
|
||
Payments for taxes related to net share settlement of equity awards
|
(24.6
|
)
|
|
(34.3
|
)
|
||
Payment of deferred consideration related to prior year business acquisition
|
(1.3
|
)
|
|
—
|
|
||
Net cash used in financing activities
|
(637.8
|
)
|
|
(240.8
|
)
|
||
Net increase (decrease) in cash, cash equivalents, and restricted cash
|
(1,190.9
|
)
|
|
206.1
|
|
||
Cash, cash equivalents, and restricted cash—beginning of period
|
2,509.2
|
|
|
745.5
|
|
||
Cash, cash equivalents, and restricted cash—end of period
|
$
|
1,318.3
|
|
|
$
|
951.6
|
|
|
|
|
|
||||
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,314.9
|
|
|
$
|
949.0
|
|
Restricted cash included in prepaid expenses and other current assets
|
2.2
|
|
|
1.3
|
|
||
Restricted cash included in other assets
|
1.2
|
|
|
1.3
|
|
||
Total cash, cash equivalents, and restricted cash
|
$
|
1,318.3
|
|
|
$
|
951.6
|
|
|
|
|
|
||||
Non-cash investing and financing activities
|
|
|
|
||||
Equity consideration for business acquisitions
|
$
|
(225.9
|
)
|
|
$
|
—
|
|
Property and equipment acquired through lease incentives
|
$
|
—
|
|
|
$
|
37.8
|
|
|
Three Months Ended April 30, 2018
|
|
Nine Months Ended April 30, 2018
|
||||||||||||||||||||
|
As Previously Reported
|
|
Impact of Adoption
|
|
As Adjusted
|
|
As Previously Reported
|
|
Impact of Adoption
|
|
As Adjusted
|
||||||||||||
Condensed Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Product revenue
|
$
|
215.2
|
|
|
$
|
2.9
|
|
|
$
|
218.1
|
|
|
$
|
603.9
|
|
|
$
|
3.8
|
|
|
$
|
607.7
|
|
Subscription and support revenue
|
351.9
|
|
|
(2.3
|
)
|
|
349.6
|
|
|
1,011.1
|
|
|
(3.7
|
)
|
|
1,007.4
|
|
||||||
Total revenue
|
567.1
|
|
|
0.6
|
|
|
567.7
|
|
|
1,615.0
|
|
|
0.1
|
|
|
1,615.1
|
|
||||||
Total cost of revenue
|
159.9
|
|
|
—
|
|
|
159.9
|
|
|
460.6
|
|
|
—
|
|
|
460.6
|
|
||||||
Total operating expenses
|
458.8
|
|
|
(5.7
|
)
|
|
453.1
|
|
|
1,292.1
|
|
|
(16.3
|
)
|
|
1,275.8
|
|
||||||
Operating loss
|
(51.6
|
)
|
|
6.3
|
|
|
(45.3
|
)
|
|
(137.7
|
)
|
|
16.4
|
|
|
(121.3
|
)
|
||||||
Net loss
|
(46.7
|
)
|
|
6.3
|
|
|
(40.4
|
)
|
|
(145.6
|
)
|
|
16.4
|
|
|
(129.2
|
)
|
||||||
Net loss per share, basic and diluted
|
$
|
(0.51
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.44
|
)
|
|
$
|
(1.59
|
)
|
|
$
|
0.17
|
|
|
$
|
(1.42
|
)
|
|
July 31, 2018
|
||||||||||
|
As Previously Reported
|
|
Impact of Adoption
|
|
As Adjusted
|
||||||
Condensed Consolidated Balance Sheet
|
|
|
|
|
|
||||||
Accounts receivable, net
|
$
|
467.3
|
|
|
$
|
(0.3
|
)
|
|
$
|
467.0
|
|
Prepaid expenses and other current assets
|
261.3
|
|
|
6.8
|
|
|
268.1
|
|
|||
Other assets
|
206.8
|
|
|
119.4
|
|
|
326.2
|
|
|||
Accrued and other liabilities
|
107.0
|
|
|
17.6
|
|
|
124.6
|
|
|||
Deferred revenue
|
1,268.9
|
|
|
(55.3
|
)
|
|
1,213.6
|
|
|||
Long-term deferred revenue
|
1,096.0
|
|
|
(30.3
|
)
|
|
1,065.7
|
|
|||
Accumulated deficit
|
$
|
(984.6
|
)
|
|
$
|
193.9
|
|
|
$
|
(790.7
|
)
|
•
|
Identification of the contract, or contracts, with a customer.
|
•
|
Identification of the performance obligations in the contract.
|
•
|
Determination of the transaction price.
|
•
|
Allocation of the transaction price to the performance obligations in the contract.
|
•
|
Recognition of revenue when, or as, we satisfy a performance obligation.
|
|
Three Months Ended April 30,
|
|
Nine Months Ended April 30,
|
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
|
|
(As Adjusted)
|
|
|
|
(As Adjusted)
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Americas
|
|
|
|
|
|
|
|
||||||||
United States
|
$
|
464.3
|
|
|
$
|
358.0
|
|
|
$
|
1,314.8
|
|
|
$
|
1,030.0
|
|
Other Americas
|
33.5
|
|
|
29.7
|
|
|
108.2
|
|
|
80.3
|
|
||||
Total Americas
|
497.8
|
|
|
387.7
|
|
|
1,423.0
|
|
|
1,110.3
|
|
||||
Europe, the Middle East, and Africa (“EMEA”)
|
138.7
|
|
|
110.1
|
|
|
414.7
|
|
|
312.0
|
|
||||
Asia Pacific and Japan (“APAC”)
|
90.1
|
|
|
69.9
|
|
|
256.1
|
|
|
192.8
|
|
||||
Total revenue
|
$
|
726.6
|
|
|
$
|
567.7
|
|
|
$
|
2,093.8
|
|
|
$
|
1,615.1
|
|
|
Three Months Ended April 30,
|
|
Nine Months Ended April 30,
|
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
|
|
(As Adjusted)
|
|
|
|
(As Adjusted)
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
278.4
|
|
|
$
|
218.1
|
|
|
$
|
790.5
|
|
|
$
|
607.7
|
|
Subscription and support
|
|
|
|
|
|
|
|
||||||||
Subscription
|
258.8
|
|
|
192.0
|
|
|
739.8
|
|
|
544.3
|
|
||||
Support
|
189.4
|
|
|
157.6
|
|
|
563.5
|
|
|
463.1
|
|
||||
Total subscription and support
|
448.2
|
|
|
349.6
|
|
|
1,303.3
|
|
|
1,007.4
|
|
||||
Total revenue
|
$
|
726.6
|
|
|
$
|
567.7
|
|
|
$
|
2,093.8
|
|
|
$
|
1,615.1
|
|
•
|
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.
|
|
|
April 30, 2019
|
|
July 31, 2018
|
||||||||||||||||||||||||||||
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||||||||||
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Money market funds
|
|
$
|
155.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
155.0
|
|
|
$
|
1,512.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,512.3
|
|
Commercial paper
|
|
—
|
|
|
27.0
|
|
|
—
|
|
|
27.0
|
|
|
—
|
|
|
52.0
|
|
|
—
|
|
|
52.0
|
|
||||||||
Corporate debt securities
|
|
—
|
|
|
15.0
|
|
|
—
|
|
|
15.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
U.S. government and agency securities
|
|
—
|
|
|
340.0
|
|
|
—
|
|
|
340.0
|
|
|
—
|
|
|
397.3
|
|
|
—
|
|
|
397.3
|
|
||||||||
Total cash equivalents
|
|
155.0
|
|
|
382.0
|
|
|
—
|
|
|
537.0
|
|
|
1,512.3
|
|
|
449.3
|
|
|
—
|
|
|
1,961.6
|
|
||||||||
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Certificates of deposit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.4
|
|
|
—
|
|
|
5.4
|
|
||||||||
Non-U.S. government securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20.0
|
|
|
—
|
|
|
20.0
|
|
||||||||
Commercial paper
|
|
—
|
|
|
19.5
|
|
|
—
|
|
|
19.5
|
|
|
—
|
|
|
22.3
|
|
|
—
|
|
|
22.3
|
|
||||||||
Corporate debt securities
|
|
—
|
|
|
269.8
|
|
|
—
|
|
|
269.8
|
|
|
—
|
|
|
139.8
|
|
|
—
|
|
|
139.8
|
|
||||||||
U.S. government and agency securities
|
|
—
|
|
|
1,443.9
|
|
|
—
|
|
|
1,443.9
|
|
|
—
|
|
|
709.0
|
|
|
—
|
|
|
709.0
|
|
||||||||
Total short-term investments
|
|
—
|
|
|
1,733.2
|
|
|
—
|
|
|
1,733.2
|
|
|
—
|
|
|
896.5
|
|
|
—
|
|
|
896.5
|
|
||||||||
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Corporate debt securities
|
|
—
|
|
|
271.3
|
|
|
—
|
|
|
271.3
|
|
|
—
|
|
|
153.6
|
|
|
—
|
|
|
153.6
|
|
||||||||
U.S. government and agency securities
|
|
—
|
|
|
398.6
|
|
|
—
|
|
|
398.6
|
|
|
—
|
|
|
393.9
|
|
|
—
|
|
|
393.9
|
|
||||||||
Total long-term investments
|
|
—
|
|
|
669.9
|
|
|
—
|
|
|
669.9
|
|
|
—
|
|
|
547.5
|
|
|
—
|
|
|
547.5
|
|
||||||||
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Foreign currency forward contracts
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Total prepaid expenses and other current assets
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Total assets measured at fair value
|
|
$
|
155.0
|
|
|
$
|
2,785.2
|
|
|
$
|
—
|
|
|
$
|
2,940.2
|
|
|
$
|
1,512.3
|
|
|
$
|
1,893.3
|
|
|
$
|
—
|
|
|
$
|
3,405.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Accrued and other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Foreign currency forward contracts
|
|
$
|
—
|
|
|
$
|
5.3
|
|
|
$
|
—
|
|
|
$
|
5.3
|
|
|
$
|
—
|
|
|
$
|
6.9
|
|
|
$
|
—
|
|
|
$
|
6.9
|
|
Total accrued and other liabilities
|
|
—
|
|
|
5.3
|
|
|
—
|
|
|
5.3
|
|
|
—
|
|
|
6.9
|
|
|
—
|
|
|
6.9
|
|
||||||||
Total liabilities measured at fair value
|
|
$
|
—
|
|
|
$
|
5.3
|
|
|
$
|
—
|
|
|
$
|
5.3
|
|
|
$
|
—
|
|
|
$
|
6.9
|
|
|
$
|
—
|
|
|
$
|
6.9
|
|
|
April 30, 2019
|
||||||||||||||
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
||||||||
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Commercial paper
|
$
|
27.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27.0
|
|
Corporate debt securities
|
15.0
|
|
|
—
|
|
|
—
|
|
|
15.0
|
|
||||
U.S. government and agency securities
|
340.0
|
|
|
—
|
|
|
—
|
|
|
340.0
|
|
||||
Total available-for-sale cash equivalents
|
$
|
382.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
382.0
|
|
Investments:
|
|
|
|
|
|
|
|
||||||||
Commercial paper
|
$
|
19.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19.5
|
|
Corporate debt securities
|
540.5
|
|
|
1.3
|
|
|
(0.7
|
)
|
|
541.1
|
|
||||
U.S. government and agency securities
|
1,843.2
|
|
|
1.6
|
|
|
(2.3
|
)
|
|
1,842.5
|
|
||||
Total available-for-sale investments
|
$
|
2,403.2
|
|
|
$
|
2.9
|
|
|
$
|
(3.0
|
)
|
|
$
|
2,403.1
|
|
|
July 31, 2018
|
||||||||||||||
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
||||||||
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Commercial paper
|
$
|
52.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
52.0
|
|
U.S. government and agency securities
|
397.3
|
|
|
—
|
|
|
—
|
|
|
397.3
|
|
||||
Total available-for-sale cash equivalents
|
$
|
449.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
449.3
|
|
Investments:
|
|
|
|
|
|
|
|
||||||||
Certificates of deposit
|
$
|
5.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5.4
|
|
Non-U.S. government securities
|
20.0
|
|
|
—
|
|
|
—
|
|
|
20.0
|
|
||||
Commercial paper
|
22.3
|
|
|
—
|
|
|
—
|
|
|
22.3
|
|
||||
Corporate debt securities
|
295.9
|
|
|
—
|
|
|
(2.5
|
)
|
|
293.4
|
|
||||
U.S. government and agency securities
|
1,110.6
|
|
|
—
|
|
|
(7.7
|
)
|
|
1,102.9
|
|
||||
Total available-for-sale investments
|
$
|
1,454.2
|
|
|
$
|
—
|
|
|
$
|
(10.2
|
)
|
|
$
|
1,444.0
|
|
|
Amortized Cost
|
|
Fair Value
|
||||
Due within one year
|
$
|
2,116.0
|
|
|
$
|
2,115.2
|
|
Due between one and three years
|
669.2
|
|
|
669.9
|
|
||
Total
|
$
|
2,785.2
|
|
|
$
|
2,785.1
|
|
|
Amount
|
||
Cash
|
$
|
250.0
|
|
Common stock (0.9 million shares)
|
214.7
|
|
|
Fair value of replacement equity awards
|
9.5
|
|
|
Total purchase consideration
|
$
|
474.2
|
|
|
Amount
|
||
Goodwill
|
$
|
387.8
|
|
Identified intangible assets
|
76.3
|
|
|
Cash
|
25.9
|
|
|
Net liabilities assumed
|
(15.8
|
)
|
|
Total
|
$
|
474.2
|
|
|
Fair Value
|
|
Estimated Useful Life
|
||
Developed technology
|
$
|
56.6
|
|
|
6 years
|
Customer relationships
|
19.7
|
|
|
6 years
|
|
Total
|
$
|
76.3
|
|
|
|
|
Amount
|
||
Goodwill
|
$
|
113.6
|
|
Identified intangible assets
|
54.8
|
|
|
Net liabilities assumed
|
(10.2
|
)
|
|
Total
|
$
|
158.2
|
|
|
Fair Value
|
|
Estimated Useful Life
|
||
Developed technology
|
$
|
48.6
|
|
|
4 years
|
Customer relationships
|
5.3
|
|
|
8 years
|
|
Trade name and trademarks
|
0.9
|
|
|
6 months
|
|
Total
|
$
|
54.8
|
|
|
|
|
Amount
|
||
Balance as of July 31, 2018
|
$
|
522.8
|
|
Goodwill acquired
|
504.5
|
|
|
Balance as of April 30, 2019
|
$
|
1,027.3
|
|
|
April 30, 2019
|
|
July 31, 2018
|
||||||||||||||||||||
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
||||||||||||
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Developed technology
|
$
|
259.9
|
|
|
$
|
(65.2
|
)
|
|
$
|
194.7
|
|
|
$
|
154.7
|
|
|
$
|
(38.2
|
)
|
|
$
|
116.5
|
|
Customer relationships
|
37.2
|
|
|
(3.2
|
)
|
|
34.0
|
|
|
12.2
|
|
|
(1.2
|
)
|
|
11.0
|
|
||||||
Acquired intellectual property
|
8.9
|
|
|
(5.0
|
)
|
|
3.9
|
|
|
8.9
|
|
|
(4.5
|
)
|
|
4.4
|
|
||||||
Trade name and trademarks
|
9.4
|
|
|
(9.4
|
)
|
|
—
|
|
|
8.5
|
|
|
(0.4
|
)
|
|
8.1
|
|
||||||
Other
|
2.2
|
|
|
(2.2
|
)
|
|
—
|
|
|
2.2
|
|
|
(2.2
|
)
|
|
—
|
|
||||||
Total intangible assets subject to amortization
|
317.6
|
|
|
(85.0
|
)
|
|
232.6
|
|
|
186.5
|
|
|
(46.5
|
)
|
|
140.0
|
|
||||||
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
In-process research and development
|
1.6
|
|
|
—
|
|
|
1.6
|
|
|
0.8
|
|
|
—
|
|
|
0.8
|
|
||||||
Total purchased intangible assets
|
$
|
319.2
|
|
|
$
|
(85.0
|
)
|
|
$
|
234.2
|
|
|
$
|
187.3
|
|
|
$
|
(46.5
|
)
|
|
$
|
140.8
|
|
|
Amount
|
||
Fiscal years ending July 31:
|
|
||
Remaining 2019
|
$
|
14.3
|
|
2020
|
56.9
|
|
|
2021
|
54.9
|
|
|
2022
|
50.4
|
|
|
2023
|
24.5
|
|
|
2024 and thereafter
|
31.6
|
|
|
Total future amortization expense
|
$
|
232.6
|
|
|
April 30, 2019
|
|
July 31, 2018
|
||||
Short-term deferred contract costs
|
$
|
125.8
|
|
|
$
|
113.2
|
|
Long-term deferred contract costs
|
251.8
|
|
|
224.8
|
|
||
Total deferred contract costs
|
$
|
377.6
|
|
|
$
|
338.0
|
|
|
Conversion Rate per $1,000 Principal
|
|
Initial Conversion Price
|
|
Convertible Date
|
|
Initial Number of Shares
|
||||
2019 Notes
|
9.0680
|
|
|
$
|
110.28
|
|
|
January 1, 2019
|
|
5.2
|
|
2023 Notes
|
3.7545
|
|
|
$
|
266.35
|
|
|
April 1, 2023
|
|
6.4
|
|
•
|
during any fiscal quarter commencing after the fiscal quarters ending on October 31, 2014 and October 31, 2018, for the 2019 Notes and 2023 Notes, respectively (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 applicable conversion price for the respective Notes on each applicable trading day (the “sale price condition”);
|
•
|
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 the applicable series 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 applicable conversion rate for the respective Notes on each such trading day; or
|
•
|
upon the occurrence of specified corporate events.
|
|
Nine Months Ended
|
||
|
April 30, 2019
|
||
2019 Notes principal converted and repaid in cash:
|
|
||
Allocated to liability component
(1)
|
$
|
403.4
|
|
Allocated to equity component
(2)
|
12.2
|
|
|
Total principal converted and repaid in cash
|
$
|
415.6
|
|
Loss on conversions of convertible senior notes
(3)
|
$
|
2.6
|
|
Shares of common stock issued in connection with conversion of convertible senior notes
(4)
|
1.7
|
|
(1)
|
Recorded as a reduction to convertible senior notes, net in our condensed consolidated balance sheets and calculated by measuring the fair value of a similar liability that did not have an associated convertible feature.
|
(2)
|
Recorded as a reduction to additional paid-in capital in our condensed consolidated balance sheets.
|
(3)
|
Represents the difference between the cash consideration allocated to the liability component and the net carrying amount of the liability component on the respective settlement dates. The amount is included in other income, net in our condensed consolidated statement of operations.
|
(4)
|
Shares of common stock issued to the holders for the conversion value in excess of the principal amount. These shares were fully offset by shares received from the corresponding exercise of the associated note hedges.
|
|
April 30, 2019
|
|
July 31, 2018
|
||||||||||||||||||||
|
2019 Notes
|
|
2023 Notes
|
|
Total
|
|
2019 Notes
|
|
2023 Notes
|
|
Total
|
||||||||||||
Liability component:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Principal
|
$
|
159.4
|
|
|
$
|
1,693.0
|
|
|
$
|
1,852.4
|
|
|
$
|
575.0
|
|
|
$
|
1,693.0
|
|
|
$
|
2,268.0
|
|
Less: debt discount and debt issuance costs, net of amortization
|
1.3
|
|
|
278.3
|
|
|
279.6
|
|
|
24.6
|
|
|
323.3
|
|
|
347.9
|
|
||||||
Net carrying amount
|
$
|
158.1
|
|
|
$
|
1,414.7
|
|
|
$
|
1,572.8
|
|
|
$
|
550.4
|
|
|
$
|
1,369.7
|
|
|
$
|
1,920.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Equity component (including amounts classified as temporary equity)
|
$
|
30.4
|
|
|
$
|
315.0
|
|
|
$
|
345.4
|
|
|
$
|
109.8
|
|
|
$
|
315.0
|
|
|
$
|
424.8
|
|
|
Three Months Ended April 30,
|
|
Nine Months Ended April 30,
|
||||||||||||||||||||||||||||||||||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||||||||||||||||||||||||||||||||||
|
2019 Notes
|
|
2023 Notes
|
|
Total
|
|
2019 Notes
|
|
2023 Notes
|
|
Total
|
|
2019 Notes
|
|
2023 Notes
|
|
Total
|
|
2019 Notes
|
|
2023 Notes
|
|
Total
|
||||||||||||||||||||||||
Contractual interest expense
|
$
|
—
|
|
|
$
|
3.3
|
|
|
$
|
3.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9.6
|
|
|
$
|
9.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Amortization of debt discount
|
1.6
|
|
|
14.7
|
|
|
16.3
|
|
|
5.7
|
|
|
—
|
|
|
5.7
|
|
|
7.6
|
|
|
43.6
|
|
|
51.2
|
|
|
17.1
|
|
|
—
|
|
|
17.1
|
|
||||||||||||
Amortization of debt issuance costs
|
0.3
|
|
|
0.5
|
|
|
0.8
|
|
|
0.8
|
|
|
—
|
|
|
0.8
|
|
|
1.0
|
|
|
1.4
|
|
|
2.4
|
|
|
2.1
|
|
|
—
|
|
|
2.1
|
|
||||||||||||
Total interest expense recognized
|
$
|
1.9
|
|
|
$
|
18.5
|
|
|
$
|
20.4
|
|
|
$
|
6.5
|
|
|
$
|
—
|
|
|
$
|
6.5
|
|
|
$
|
8.6
|
|
|
$
|
54.6
|
|
|
$
|
63.2
|
|
|
$
|
19.2
|
|
|
$
|
—
|
|
|
$
|
19.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Effective interest rate of the liability component
|
4.8
|
%
|
|
5.2
|
%
|
|
|
|
4.8
|
%
|
|
—
|
%
|
|
|
|
4.8
|
%
|
|
5.2
|
%
|
|
|
|
4.8
|
%
|
|
—
|
%
|
|
|
|
Initial Number of Shares
|
|
Aggregate Purchase
|
|||
2019 Note Hedges
|
5.2
|
|
|
$
|
111.0
|
|
2023 Note Hedges
|
6.4
|
|
|
$
|
332.0
|
|
|
Initial Number of Shares
|
|
Strike Price per Share
|
|
Aggregate Proceeds
|
|||||
2019 Warrants
|
5.2
|
|
|
$
|
137.85
|
|
|
$
|
78.3
|
|
2023 Warrants
|
6.4
|
|
|
$
|
417.80
|
|
|
$
|
145.4
|
|
|
Amount
|
||
Fiscal years ending July 31:
|
|
||
Remaining 2019
|
$
|
17.8
|
|
2020
|
73.2
|
|
2021
|
67.2
|
|
|
2022
|
63.0
|
|
|
2023
|
60.1
|
|
|
2024 and thereafter
|
227.7
|
|
|
Committed gross lease payments
|
509.0
|
|
|
Less: proceeds from sublease rentals
|
11.2
|
|
|
Net operating lease obligation
|
$
|
497.8
|
|
|
Amount
|
||
Fiscal years ending July 31:
|
|
||
Remaining 2019
|
$
|
—
|
|
2020
|
8.0
|
|
|
2021
|
27.3
|
|
|
2022
|
47.5
|
|
|
2023
|
57.5
|
|
|
2024 and thereafter
|
165.0
|
|
|
Total other purchase commitments
|
$
|
305.3
|
|
|
Stock Options Outstanding
|
|
PSOs Outstanding
|
||||||||||||||||||||||
|
Number of Shares
|
|
Weighted-Average Exercise Price Per Share
|
|
Weighted-Average Remaining Contractual Term
(Years) |
|
Aggregate Intrinsic Value
|
|
Number of Shares
|
|
Weighted-Average Exercise Price Per Share
|
|
Weighted-Average Remaining Contractual Term
(Years) |
|
Aggregate Intrinsic Value
|
||||||||||
Balance—July 31, 2018
|
1.0
|
|
|
$
|
13.29
|
|
|
3.1
|
|
$
|
199.8
|
|
|
1.2
|
|
|
$
|
198.50
|
|
|
7.0
|
|
$
|
—
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
2.6
|
|
|
$
|
191.97
|
|
|
|
|
|
||||
Exercised
|
(0.6
|
)
|
|
$
|
13.07
|
|
|
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
||||
Forfeited
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
||||
Balance—April 30, 2019
|
0.4
|
|
|
$
|
13.54
|
|
|
2.5
|
|
$
|
122.7
|
|
|
3.8
|
|
|
$
|
193.98
|
|
|
6.5
|
|
$
|
206.9
|
|
Exercisable—April 30, 2019
|
0.4
|
|
|
$
|
13.54
|
|
|
2.5
|
|
$
|
122.7
|
|
|
3.8
|
|
|
$
|
193.98
|
|
|
6.5
|
|
$
|
206.9
|
|
|
Nine Months Ended
|
|
|
April 30, 2019
|
|
Volatility
|
35.6% - 36.5%
|
|
Dividend yield
|
—
|
%
|
Risk-free interest rate
|
3.1% - 3.2%
|
|
Weighted-average grant-date fair value per share
|
$56.44 - $59.64
|
|
|
RSAs and PSAs Outstanding
|
|
RSUs and PSUs Outstanding
|
||||||||||||||||
|
Number of Shares
|
|
Weighted-Average Grant-Date Fair Value Per Share
|
|
Number of Shares
|
|
Weighted-Average Grant-Date Fair Value Per Share
|
|
Weighted-Average Remaining Contractual Term
(Years)
|
|
Aggregate Intrinsic Value
|
||||||||
Balance—July 31, 2018
|
0.3
|
|
|
$
|
160.85
|
|
|
6.7
|
|
|
$
|
160.20
|
|
|
1.6
|
|
$
|
1,335.2
|
|
Granted
(1)(2)
|
—
|
|
|
$
|
—
|
|
|
3.0
|
|
|
$
|
206.85
|
|
|
|
|
|
||
Vested
|
(0.2
|
)
|
|
$
|
166.07
|
|
|
(2.1
|
)
|
|
$
|
156.83
|
|
|
|
|
|
||
Forfeited
|
—
|
|
|
$
|
—
|
|
|
(0.6
|
)
|
|
$
|
159.19
|
|
|
|
|
|
||
Balance—April 30, 2019
|
0.1
|
|
|
$
|
148.54
|
|
|
7.0
|
|
|
$
|
181.14
|
|
|
1.5
|
|
$
|
1,738.8
|
|
(1)
|
For
PSA
s and
PSU
s, shares granted represents the aggregate maximum number of shares that may be earned and issued with respect to these awards over their full terms.
|
(2)
|
Includes
0.3
million RSUs granted under the assumed RedLock Plan and Demisto Plan with a weighted-average grant-date fair value of
$219.25
per share.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
April 30,
|
|
April 30,
|
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
Cost of product revenue
|
$
|
1.3
|
|
|
$
|
1.7
|
|
|
$
|
4.3
|
|
|
$
|
5.5
|
|
Cost of subscription and support revenue
|
17.2
|
|
|
15.1
|
|
|
52.9
|
|
|
50.9
|
|
||||
Research and development
|
45.1
|
|
|
35.4
|
|
|
129.6
|
|
|
108.4
|
|
||||
Sales and marketing
|
54.5
|
|
|
50.7
|
|
|
169.2
|
|
|
155.2
|
|
||||
General and administrative
|
20.1
|
|
|
20.8
|
|
|
75.7
|
|
|
60.2
|
|
||||
Total share-based compensation
|
$
|
138.2
|
|
|
$
|
123.7
|
|
|
$
|
431.7
|
|
|
$
|
380.2
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
April 30,
|
|
April 30,
|
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
|
|
(As Adjusted)
|
|
|
|
(As Adjusted)
|
||||||||
Net loss
|
$
|
(20.2
|
)
|
|
$
|
(40.4
|
)
|
|
$
|
(61.1
|
)
|
|
$
|
(129.2
|
)
|
Weighted-average shares used to compute net loss per share, basic and diluted
|
94.4
|
|
|
91.9
|
|
|
94.1
|
|
|
91.3
|
|
||||
Net loss per share, basic and diluted
|
$
|
(0.21
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.65
|
)
|
|
$
|
(1.42
|
)
|
|
Three and Nine Months Ended
|
||||
|
April 30,
|
||||
|
2019
|
|
2018
|
||
Convertible senior notes
|
7.8
|
|
|
5.2
|
|
Warrants related to the issuance of convertible senior notes
|
11.6
|
|
|
5.2
|
|
RSUs and PSUs
|
7.0
|
|
|
6.1
|
|
Options to purchase common stock, including PSOs
|
4.2
|
|
|
1.2
|
|
RSAs and PSAs
|
0.1
|
|
|
0.4
|
|
ESPP shares
|
0.1
|
|
|
0.1
|
|
Total
|
30.8
|
|
|
18.2
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
April 30,
|
|
April 30,
|
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
Interest income
|
$
|
18.3
|
|
|
$
|
6.7
|
|
|
$
|
51.7
|
|
|
$
|
17.7
|
|
Foreign currency exchange gains (losses), net
|
(0.1
|
)
|
|
2.7
|
|
|
(1.3
|
)
|
|
0.9
|
|
||||
Other
|
—
|
|
|
(0.8
|
)
|
|
(3.2
|
)
|
|
(0.3
|
)
|
||||
Total other income, net
|
$
|
18.2
|
|
|
$
|
8.6
|
|
|
$
|
47.2
|
|
|
$
|
18.3
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Overview.
A 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.
A summary of our
generally accepted accounting principles (“GAAP”)
and non-
GAAP
key financial metrics, which management monitors to evaluate our performance.
|
•
|
Results of Operations.
A discussion of the nature and trends in our financial results and an analysis of our financial results comparing the
three and nine months ended
April 30, 2019
to the
three and nine months ended
April 30, 2018
.
|
•
|
Liquidity and Capital Resources.
An analysis of changes in our balance sheets and cash flows, and a discussion of our financial condition and our ability to meet cash needs.
|
•
|
Contractual Obligations and Commitments.
An overview of our contractual obligations, contingent liabilities, commitments, and off-balance sheet arrangements outstanding as of
April 30, 2019
, including expected payment schedules.
|
•
|
Critical Accounting Estimates.
A discussion of our 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.
|
•
|
Secure the network through our Next-Generation Firewalls, available as physical appliances, virtual appliances called VM-Series, or a cloud-delivered service called Prisma Access (
formerly GlobalProtect cloud service
), and Panorama management delivered as an appliance or as a virtual machine for the public or private cloud. This also includes security services such as WildFire, Threat Prevention, URL Filtering, GlobalProtect, and DNS Security that are delivered as SaaS subscriptions to our Next-Generation Firewalls.
|
•
|
Secure the endpoints through our Traps advanced endpoint protection software, delivered as a light-weight software agent with cloud or on-premise management capabilities.
|
•
|
Secure the cloud through our Prisma cloud security offerings, such as Prisma Public Cloud (
formerly RedLock
) for infrastructure monitoring and compliance in public clouds, Prisma Access (
formerly GlobalProtect cloud service
) for securing access to the cloud for mobile and branch office workers, and Prisma SaaS (
formerly Aperture
) for protecting SaaS applications, as well as VM-Series for in-line protection of workloads in public and private clouds and Traps for host-based public cloud infrastructure protection. These products are delivered as software or SaaS subscriptions.
|
•
|
Secure the future of security operations through our Cortex open and integrated AI-based continuous security platform with applications and services such as AutoFocus, Cortex XDR (
formerly Magnifier
), Demisto, and Cortex Data Lake (
formerly Logging Service
) that are delivered as SaaS subscriptions.
|
|
April 30, 2019
|
|
July 31, 2018
|
||||
|
|
|
|
||||
|
(in millions)
|
||||||
Total deferred revenue
(1)
|
$
|
2,632.2
|
|
|
$
|
2,279.3
|
|
Cash, cash equivalents, and investments
|
$
|
3,718.0
|
|
|
$
|
3,950.9
|
|
(1)
|
The amount for fiscal 2018 has been adjusted due to our adoption of the new revenue recognition standard. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
|
Three Months Ended April 30,
|
|
Nine Months Ended April 30,
|
||||||||||||
|
2019
|
|
2018
(1)
|
|
2019
|
|
2018
(1)
|
||||||||
|
|
|
|
|
|
|
|
||||||||
|
(dollars in millions)
|
||||||||||||||
Total revenue
|
$
|
726.6
|
|
|
$
|
567.7
|
|
|
$
|
2,093.8
|
|
|
$
|
1,615.1
|
|
Total revenue year-over-year percentage increase
|
28.0
|
%
|
|
32.5
|
%
|
|
29.6
|
%
|
|
29.5
|
%
|
||||
Gross margin
|
71.8
|
%
|
|
71.8
|
%
|
|
71.8
|
%
|
|
71.5
|
%
|
||||
Operating loss
|
$
|
(18.7
|
)
|
|
$
|
(45.3
|
)
|
|
$
|
(44.2
|
)
|
|
$
|
(121.3
|
)
|
Operating margin
|
(2.6
|
)%
|
|
(8.0
|
)%
|
|
(2.1
|
)%
|
|
(7.5
|
)%
|
||||
Billings
|
$
|
821.9
|
|
|
$
|
724.7
|
|
|
$
|
2,432.9
|
|
|
$
|
1,993.3
|
|
Billings year-over-year percentage increase
|
13.4
|
%
|
|
32.7
|
%
|
|
22.1
|
%
|
|
26.1
|
%
|
||||
Cash flow provided by operating activities
|
|
|
|
|
$
|
824.1
|
|
|
$
|
760.5
|
|
||||
Free cash flow (non-GAAP)
|
|
|
|
|
$
|
746.0
|
|
|
$
|
673.9
|
|
(1)
|
These amounts have been adjusted due to our adoption of the new revenue recognition standard and new guidance related to the presentation of restricted cash and cash equivalents in the statement of cash flows. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
•
|
Deferred Revenue.
Our deferred revenue primarily consists of amounts that have been invoiced but have not been recognized as revenue as of the period end. The majority of our deferred revenue balance consists of subscription and support 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.
|
•
|
Billings.
We define billings as total revenue plus the change in total deferred revenue, net of acquired deferred revenue, during the period. We consider billings to be a key metric used by management to manage our business given our hybrid
SaaS
revenue model, and believe billings provides investors with an important indicator of the health and visibility of our business because it includes subscription and support revenue, which is recognized ratably over the contractual service period, and product revenue, which is recognized at the time of shipment, provided that all other conditions for revenue recognition have been met. We consider billings to be a useful metric for management and investors, particularly if we continue to experience increased sales of subscriptions and strong renewal rates for subscription and support offerings, and as we monitor our near-term cash flows. While 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, 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. We calculate billings in the following manner:
|
|
Three Months Ended April 30,
|
|
Nine Months Ended April 30,
|
||||||||||||
|
2019
|
|
2018
(1)
|
|
2019
|
|
2018
(1)
|
||||||||
|
|
|
|
|
|
|
|
||||||||
|
(in millions)
|
||||||||||||||
Billings:
|
|
|
|
|
|
|
|
||||||||
Total revenue
|
$
|
726.6
|
|
|
$
|
567.7
|
|
|
$
|
2,093.8
|
|
|
$
|
1,615.1
|
|
Add: change in total deferred revenue, net of acquired deferred revenue
|
95.3
|
|
|
157.0
|
|
|
339.1
|
|
|
378.2
|
|
||||
Billings
|
$
|
821.9
|
|
|
$
|
724.7
|
|
|
$
|
2,432.9
|
|
|
$
|
1,993.3
|
|
(1)
|
These amounts have been adjusted due to our adoption of the new revenue recognition standard. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
•
|
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 subscription and support offerings. 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 profitability and liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures. 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:
|
|
Nine Months Ended April 30,
|
||||||
|
2019
|
|
2018
|
||||
|
|
|
|
||||
|
(in millions)
|
||||||
Free cash flow (non-GAAP):
|
|
|
|
||||
Net cash provided by operating activities
(1)
|
$
|
824.1
|
|
|
$
|
760.5
|
|
Less: purchases of property, equipment, and other assets
|
78.1
|
|
|
86.6
|
|
||
Free cash flow (non-GAAP)
(1)
|
$
|
746.0
|
|
|
$
|
673.9
|
|
Net cash used in investing activities
|
$
|
(1,377.2
|
)
|
|
$
|
(313.6
|
)
|
Net cash used in financing activities
|
$
|
(637.8
|
)
|
|
$
|
(240.8
|
)
|
(1)
|
The amount for fiscal 2018 has been adjusted due to our adoption of new guidance related to the presentation of restricted cash and cash equivalents in the statement of cash flows. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
|
Three Months Ended April 30,
|
|
Nine Months Ended April 30,
|
||||||||||||||||||||||||
|
2019
|
|
2018
(1)
|
|
2019
|
|
2018
(1)
|
||||||||||||||||||||
|
Amount
|
|
% of Revenue
|
|
Amount
|
|
% of Revenue
|
|
Amount
|
|
% of Revenue
|
|
Amount
|
|
% of Revenue
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Product
|
$
|
278.4
|
|
|
38.3
|
%
|
|
$
|
218.1
|
|
|
38.4
|
%
|
|
$
|
790.5
|
|
|
37.8
|
%
|
|
$
|
607.7
|
|
|
37.6
|
%
|
Subscription and support
|
448.2
|
|
|
61.7
|
%
|
|
349.6
|
|
|
61.6
|
%
|
|
1,303.3
|
|
|
62.2
|
%
|
|
1,007.4
|
|
|
62.4
|
%
|
||||
Total revenue
|
726.6
|
|
|
100.0
|
%
|
|
567.7
|
|
|
100.0
|
%
|
|
2,093.8
|
|
|
100.0
|
%
|
|
1,615.1
|
|
|
100.0
|
%
|
||||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Product
|
78.0
|
|
|
10.7
|
%
|
|
68.9
|
|
|
12.1
|
%
|
|
233.7
|
|
|
11.2
|
%
|
|
190.4
|
|
|
11.8
|
%
|
||||
Subscription and support
|
126.9
|
|
|
17.5
|
%
|
|
91.0
|
|
|
16.1
|
%
|
|
357.3
|
|
|
17.0
|
%
|
|
270.2
|
|
|
16.7
|
%
|
||||
Total cost of revenue
(2)
|
204.9
|
|
|
28.2
|
%
|
|
159.9
|
|
|
28.2
|
%
|
|
591.0
|
|
|
28.2
|
%
|
|
460.6
|
|
|
28.5
|
%
|
||||
Total gross profit
|
521.7
|
|
|
71.8
|
%
|
|
407.8
|
|
|
71.8
|
%
|
|
1,502.8
|
|
|
71.8
|
%
|
|
1,154.5
|
|
|
71.5
|
%
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Research and development
|
139.1
|
|
|
19.1
|
%
|
|
99.6
|
|
|
17.5
|
%
|
|
380.8
|
|
|
18.2
|
%
|
|
290.4
|
|
|
18.0
|
%
|
||||
Sales and marketing
|
339.0
|
|
|
46.7
|
%
|
|
271.4
|
|
|
47.8
|
%
|
|
973.6
|
|
|
46.5
|
%
|
|
784.3
|
|
|
48.5
|
%
|
||||
General and administrative
|
62.3
|
|
|
8.6
|
%
|
|
82.1
|
|
|
14.5
|
%
|
|
192.6
|
|
|
9.2
|
%
|
|
201.1
|
|
|
12.5
|
%
|
||||
Total operating expenses
(2)
|
540.4
|
|
|
74.4
|
%
|
|
453.1
|
|
|
79.8
|
%
|
|
1,547.0
|
|
|
73.9
|
%
|
|
1,275.8
|
|
|
79.0
|
%
|
||||
Operating loss
|
(18.7
|
)
|
|
(2.6
|
)%
|
|
(45.3
|
)
|
|
(8.0
|
)%
|
|
(44.2
|
)
|
|
(2.1
|
)%
|
|
(121.3
|
)
|
|
(7.5
|
)%
|
||||
Interest expense
|
(20.6
|
)
|
|
(2.8
|
)%
|
|
(6.5
|
)
|
|
(1.1
|
)%
|
|
(63.9
|
)
|
|
(3.1
|
)%
|
|
(19.2
|
)
|
|
(1.2
|
)%
|
||||
Other income, net
|
18.2
|
|
|
2.5
|
%
|
|
8.6
|
|
|
1.5
|
%
|
|
47.2
|
|
|
2.3
|
%
|
|
18.3
|
|
|
1.1
|
%
|
||||
Loss before income taxes
|
(21.1
|
)
|
|
(2.9
|
)%
|
|
(43.2
|
)
|
|
(7.6
|
)%
|
|
(60.9
|
)
|
|
(2.9
|
)%
|
|
(122.2
|
)
|
|
(7.6
|
)%
|
||||
Provision for (benefit from) income taxes
|
(0.9
|
)
|
|
(0.1
|
)%
|
|
(2.8
|
)
|
|
(0.5
|
)%
|
|
0.2
|
|
|
—
|
%
|
|
7.0
|
|
|
0.4
|
%
|
||||
Net loss
|
$
|
(20.2
|
)
|
|
(2.8
|
)%
|
|
$
|
(40.4
|
)
|
|
(7.1
|
)%
|
|
$
|
(61.1
|
)
|
|
(2.9
|
)%
|
|
$
|
(129.2
|
)
|
|
(8.0
|
)%
|
(1)
|
Certain amounts have been adjusted due to our adoption of the new revenue recognition standard. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
(2)
|
Includes share-based compensation as follows:
|
|
Three Months Ended April 30,
|
|
Nine Months Ended April 30,
|
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
|
|
|
|
|
|
|
||||||||
|
(in millions)
|
||||||||||||||
Cost of product revenue
|
$
|
1.3
|
|
|
$
|
1.7
|
|
|
$
|
4.3
|
|
|
$
|
5.5
|
|
Cost of subscription and support revenue
|
17.2
|
|
|
15.1
|
|
|
52.9
|
|
|
50.9
|
|
||||
Research and development
|
45.1
|
|
|
35.4
|
|
|
129.6
|
|
|
108.4
|
|
||||
Sales and marketing
|
54.5
|
|
|
50.7
|
|
|
169.2
|
|
|
155.2
|
|
||||
General and administrative
|
20.1
|
|
|
20.8
|
|
|
75.7
|
|
|
60.2
|
|
||||
Total share-based compensation
|
$
|
138.2
|
|
|
$
|
123.7
|
|
|
$
|
431.7
|
|
|
$
|
380.2
|
|
|
Three Months Ended April 30,
|
|
|
|
|
|
Nine Months Ended April 30,
|
|
|
|
|
||||||||||||||||||
|
2019
|
|
2018
(1)
|
|
Change
|
|
2019
|
|
2018
(1)
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||||
Product
|
$
|
278.4
|
|
|
$
|
218.1
|
|
|
$
|
60.3
|
|
|
27.6
|
%
|
|
$
|
790.5
|
|
|
$
|
607.7
|
|
|
$
|
182.8
|
|
|
30.1
|
%
|
(1)
|
This amount has been adjusted due to our adoption of the new revenue recognition standard. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
|
Three Months Ended April 30,
|
|
|
|
|
|
Nine Months Ended April 30,
|
|
|
|
|
||||||||||||||||||
|
2019
|
|
2018
(1)
|
|
Change
|
|
2019
|
|
2018
(1)
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||||
Subscription
|
$
|
258.8
|
|
|
$
|
192.0
|
|
|
$
|
66.8
|
|
|
34.8
|
%
|
|
$
|
739.8
|
|
|
$
|
544.3
|
|
|
$
|
195.5
|
|
|
35.9
|
%
|
Support
|
189.4
|
|
|
157.6
|
|
|
31.8
|
|
|
20.2
|
%
|
|
563.5
|
|
|
463.1
|
|
|
100.4
|
|
|
21.7
|
%
|
||||||
Total subscription and support
|
$
|
448.2
|
|
|
$
|
349.6
|
|
|
$
|
98.6
|
|
|
28.2
|
%
|
|
$
|
1,303.3
|
|
|
$
|
1,007.4
|
|
|
$
|
295.9
|
|
|
29.4
|
%
|
(1)
|
These amounts have been adjusted due to our adoption of the new revenue recognition standard. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
|
Three Months Ended April 30,
|
|
|
|
|
|
Nine Months Ended April 30,
|
|
|
|
|
||||||||||||||||||
|
2019
|
|
2018
(1)
|
|
Change
|
|
2019
|
|
2018
(1)
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||||
Americas
|
$
|
497.8
|
|
|
$
|
387.7
|
|
|
$
|
110.1
|
|
|
28.4
|
%
|
|
$
|
1,423.0
|
|
|
$
|
1,110.3
|
|
|
$
|
312.7
|
|
|
28.2
|
%
|
EMEA
|
138.7
|
|
|
110.1
|
|
|
28.6
|
|
|
26.0
|
%
|
|
414.7
|
|
|
312.0
|
|
|
102.7
|
|
|
32.9
|
%
|
||||||
APAC
|
90.1
|
|
|
69.9
|
|
|
20.2
|
|
|
28.9
|
%
|
|
256.1
|
|
|
192.8
|
|
|
63.3
|
|
|
32.8
|
%
|
||||||
Total revenue
|
$
|
726.6
|
|
|
$
|
567.7
|
|
|
$
|
158.9
|
|
|
28.0
|
%
|
|
$
|
2,093.8
|
|
|
$
|
1,615.1
|
|
|
$
|
478.7
|
|
|
29.6
|
%
|
(1)
|
These amounts have been adjusted due to our adoption of the new revenue recognition standard. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
|
Three Months Ended April 30,
|
|
|
|
Nine Months Ended April 30,
|
|
|
|
|
||||||||||||||||||||
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||||
Cost of product revenue
|
$
|
78.0
|
|
|
$
|
68.9
|
|
|
$
|
9.1
|
|
|
13.2
|
%
|
|
$
|
233.7
|
|
|
$
|
190.4
|
|
|
$
|
43.3
|
|
|
22.7
|
%
|
Number of employees at period end
|
99
|
|
|
92
|
|
|
7
|
|
|
7.6
|
%
|
|
99
|
|
|
92
|
|
|
7
|
|
|
7.6
|
%
|
|
Three Months Ended April 30,
|
|
|
|
Nine Months Ended April 30,
|
|
|
|
|
||||||||||||||||||||
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||||
Cost of subscription and support revenue
(1)
|
$
|
126.9
|
|
|
$
|
91.0
|
|
|
$
|
35.9
|
|
|
39.5
|
%
|
|
$
|
357.3
|
|
|
$
|
270.2
|
|
|
$
|
87.1
|
|
|
32.2
|
%
|
Number of employees at period end
|
1,114
|
|
|
895
|
|
|
219
|
|
|
24.5
|
%
|
|
1,114
|
|
|
895
|
|
|
219
|
|
|
24.5
|
%
|
(1)
|
The amounts for fiscal 2018 have been adjusted due to our adoption of the new revenue recognition standard. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
|
Three Months Ended April 30,
|
|
Nine Months Ended April 30,
|
||||||||||||||||||||||||
|
2019
|
|
2018
(1)
|
|
2019
|
|
2018
(1)
|
||||||||||||||||||||
|
Amount
|
|
Gross Margin
|
|
Amount
|
|
Gross Margin
|
|
Amount
|
|
Gross Margin
|
|
Amount
|
|
Gross Margin
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||
Product
|
$
|
200.4
|
|
|
72.0
|
%
|
|
$
|
149.2
|
|
|
68.4
|
%
|
|
$
|
556.8
|
|
|
70.4
|
%
|
|
$
|
417.3
|
|
|
68.7
|
%
|
Subscription and support
|
321.3
|
|
|
71.7
|
%
|
|
258.6
|
|
|
74.0
|
%
|
|
946.0
|
|
|
72.6
|
%
|
|
737.2
|
|
|
73.2
|
%
|
||||
Total gross profit
|
$
|
521.7
|
|
|
71.8
|
%
|
|
$
|
407.8
|
|
|
71.8
|
%
|
|
$
|
1,502.8
|
|
|
71.8
|
%
|
|
$
|
1,154.5
|
|
|
71.5
|
%
|
(1)
|
These amounts have been adjusted due to our adoption of the new revenue recognition standard. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
|
Three Months Ended April 30,
|
|
|
|
|
|
Nine Months Ended April 30,
|
|
|
|
|
||||||||||||||||||
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||||
Research and development
|
$
|
139.1
|
|
|
$
|
99.6
|
|
|
$
|
39.5
|
|
|
39.7
|
%
|
|
$
|
380.8
|
|
|
$
|
290.4
|
|
|
$
|
90.4
|
|
|
31.1
|
%
|
Number of employees at period end
|
1,336
|
|
|
899
|
|
|
437
|
|
|
48.6
|
%
|
|
1,336
|
|
|
899
|
|
|
437
|
|
|
48.6
|
%
|
|
Three Months Ended April 30,
|
|
|
|
|
|
Nine Months Ended April 30,
|
|
|
|
|
||||||||||||||||||
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||||
Sales and marketing
(1)
|
$
|
339.0
|
|
|
$
|
271.4
|
|
|
$
|
67.6
|
|
|
24.9
|
%
|
|
$
|
973.6
|
|
|
$
|
784.3
|
|
|
$
|
189.3
|
|
|
24.1
|
%
|
Number of employees at period end
|
3,194
|
|
|
2,599
|
|
|
595
|
|
|
22.9
|
%
|
|
3,194
|
|
|
2,599
|
|
|
595
|
|
|
22.9
|
%
|
(1)
|
The amounts for fiscal 2018 have been adjusted due to our adoption of the new revenue recognition standard. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
|
Three Months Ended April 30,
|
|
|
|
|
|
Nine Months Ended April 30,
|
|
|
|
|
||||||||||||||||||
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||||
General and administrative
|
$
|
62.3
|
|
|
$
|
82.1
|
|
|
$
|
(19.8
|
)
|
|
(24.1
|
)%
|
|
$
|
192.6
|
|
|
$
|
201.1
|
|
|
$
|
(8.5
|
)
|
|
(4.2
|
)%
|
Number of employees at period end
|
760
|
|
|
636
|
|
|
124
|
|
|
19.5
|
%
|
|
760
|
|
|
636
|
|
|
124
|
|
|
19.5
|
%
|
|
Three Months Ended April 30,
|
|
|
|
Nine Months Ended April 30,
|
|
|
||||||||||||||||||||||
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||||
Interest expense
|
$
|
20.6
|
|
|
$
|
6.5
|
|
|
$
|
14.1
|
|
|
216.9
|
%
|
|
$
|
63.9
|
|
|
$
|
19.2
|
|
|
$
|
44.7
|
|
|
232.8
|
%
|
|
Three Months Ended April 30,
|
|
|
|
Nine Months Ended April 30,
|
|
|
||||||||||||||||||||||
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
||||||||||||||||||
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||||
Other income, net
|
$
|
18.2
|
|
|
$
|
8.6
|
|
|
$
|
9.6
|
|
|
111.6
|
%
|
|
$
|
47.2
|
|
|
$
|
18.3
|
|
|
$
|
28.9
|
|
|
157.9
|
%
|
|
Three Months Ended April 30,
|
|
Change
|
|
Nine Months Ended April 30,
|
|
Change
|
||||||||||||||||||||||
|
2019
|
|
2018
|
|
Amount
|
|
%
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(dollars in millions)
|
||||||||||||||||||||||||||||
Provision for (benefit from) income taxes
|
$
|
(0.9
|
)
|
|
$
|
(2.8
|
)
|
|
$
|
1.9
|
|
|
(67.9
|
)%
|
|
$
|
0.2
|
|
|
$
|
7.0
|
|
|
$
|
(6.8
|
)
|
|
(97.1
|
)%
|
Effective tax rate
|
4.3
|
%
|
|
6.5
|
%
|
|
|
|
|
|
|
(0.3
|
)%
|
|
(5.7
|
)%
|
|
|
|
|
|
|
April 30, 2019
|
|
July 31, 2018
|
||||
|
|
|
|
||||
|
(in millions)
|
||||||
Working capital
(1)(2)
|
$
|
1,718.7
|
|
|
$
|
2,036.8
|
|
Cash, cash equivalents, and investments:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,314.9
|
|
|
$
|
2,506.9
|
|
Investments
|
2,403.1
|
|
|
1,444.0
|
|
||
Total cash, cash equivalents, and investments
|
$
|
3,718.0
|
|
|
$
|
3,950.9
|
|
(1)
|
The amount for fiscal 2018 has been adjusted due to our adoption of the new revenue recognition standard. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
(2)
|
The net carrying amount of the 0.0% Convertible Senior Notes due 2019 (the “2019 Notes”) was classified in current liabilities in our condensed consolidated balance sheets as of
April 30, 2019
and July 31, 2018, respectively. Refer to Note
9
. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
|
Nine Months Ended April 30,
|
||||||
2019
|
|
2018
|
|||||
|
|
|
|
||||
|
(in millions)
|
||||||
Net cash provided by operating activities
(1)
|
$
|
824.1
|
|
|
$
|
760.5
|
|
Net cash used in investing activities
|
(1,377.2
|
)
|
|
(313.6
|
)
|
||
Net cash used in financing activities
|
(637.8
|
)
|
|
(240.8
|
)
|
||
Net increase (decrease) in cash, cash equivalents, and restricted cash
(1)
|
$
|
(1,190.9
|
)
|
|
$
|
206.1
|
|
(1)
|
The amount for fiscal 2018 has been adjusted due to our adoption of new guidance related to the presentation of restricted cash and cash equivalents in the statement of cash flows. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
|
Payments Due by Period
|
||||||||||||||||||
|
Total
|
|
Less Than
1 Year |
|
1-3 Years
|
|
3-5 Years
|
|
More Than
5 Years |
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
(in millions)
|
|
|
||||||||||||||
0.0% Convertible Senior Notes due 2019
(1)
|
$
|
159.4
|
|
|
$
|
159.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
0.75% Convertible Senior Notes due 2023
|
1,693.0
|
|
|
—
|
|
|
—
|
|
|
1,693.0
|
|
|
—
|
|
|||||
Operating lease obligations
(2)
|
509.0
|
|
|
73.3
|
|
|
132.1
|
|
|
109.9
|
|
|
193.7
|
|
|||||
Purchase obligations
(3)
|
434.6
|
|
|
137.3
|
|
|
27.3
|
|
|
105.0
|
|
|
165.0
|
|
|||||
Total
(4)
|
$
|
2,796.0
|
|
|
$
|
370.0
|
|
|
$
|
159.4
|
|
|
$
|
1,907.9
|
|
|
$
|
358.7
|
|
(1)
|
The 2019 Notes mature on July 1, 2019. Refer to Note
9
. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
(2)
|
Consists of contractual obligations from our non-cancelable operating leases. Excludes contractual sublease proceeds of
$11.2 million
, which consists of
$5.6 million
to be received in less than one year and
$5.6 million
to be received in one to three years. Refer to Note
10
. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on our operating leases.
|
(3)
|
Consists of minimum purchase commitments of products and components with our manufacturing partners and component suppliers, as well as minimum purchase commitments for our use of certain cloud services with third-party providers. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
|
(4)
|
No amounts related to income taxes are included. As of
April 30, 2019
, we had approximately
$69.7 million
of tax liabilities recorded related to uncertainty in income tax positions.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
•
|
our ability to attract and retain new end-customers or sell additional products and subscriptions to our existing end-customers;
|
•
|
the budgeting cycles, seasonal buying patterns, and purchasing practices of our end-customers;
|
•
|
changes in end-customer, distributor or reseller requirements, or market needs;
|
•
|
price competition;
|
•
|
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 and strategic partnerships entered into by and between our competitors;
|
•
|
changes in the mix of our products, subscriptions, and support, including changes in multi-year subscriptions and support;
|
•
|
our ability to successfully and continuously expand our business domestically and internationally;
|
•
|
changes in the growth rate of the enterprise security market;
|
•
|
deferral of orders from end-customers in anticipation of new products or product enhancements announced by us or our competitors;
|
•
|
the timing and costs related to the development or acquisition of technologies or businesses or strategic partnerships;
|
•
|
lack of synergy or the inability to realize expected synergies, resulting from acquisitions or strategic partnerships;
|
•
|
our inability to execute, complete or integrate efficiently any acquisitions that we may undertake;
|
•
|
increased expenses, unforeseen liabilities, or write-downs and any impact on our operating results from any acquisitions we consummate;
|
•
|
our ability to increase the size and productivity of our distribution channel;
|
•
|
decisions by potential end-customers to purchase security solutions from larger, more established security vendors or from their primary network equipment vendors;
|
•
|
changes in end-customer penetration or attach and renewal rates for our subscriptions;
|
•
|
timing of revenue recognition and revenue deferrals;
|
•
|
our ability to manage production and manufacturing related costs, global customer service organization costs, inventory excess and obsolescence costs, and warranty costs;
|
•
|
insolvency or credit difficulties confronting our end-customers, which could adversely affect their ability to purchase or pay for our products and subscription and support offerings, or confronting our key suppliers, including our sole source suppliers, which could disrupt our supply chain;
|
•
|
any disruption in our channel or termination of our relationships with important channel partners, including as a result of consolidation among distributors and resellers of security solutions;
|
•
|
our inability to fulfill our end-customers’ orders due to supply chain delays or events that impact our manufacturers or their suppliers;
|
•
|
the cost and potential outcomes of litigation, which could have a material adverse effect on our business;
|
•
|
seasonality or cyclical fluctuations in our markets;
|
•
|
future accounting pronouncements or changes in our accounting policies, including the impact of the adoption and implementation of the Financial Accounting Standards Board’s new standard regarding revenue recognition;
|
•
|
increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates, as an increasing amount of our expenses is incurred and paid in currencies other than the U.S. dollar;
|
•
|
political, economic and social instability caused by the referendum in June 2016, in which voters in the
United Kingdom (the “U.K.”)
approved an exit from
the European Union (the “E.U.”)
and the U.K. government subsequently notified the E.U. of its withdrawal, which is commonly referred to as “Brexit,” continued hostilities in the Middle East, terrorist activities, and any disruption these events may cause to the broader global industrial economy; and
|
•
|
general macroeconomic conditions, both domestically and in our foreign markets that could impact some or all regions where we operate.
|
•
|
large companies that incorporate security features in their products, such as
Cisco Systems, Inc. (“Cisco”)
and
Juniper Networks, Inc. (“Juniper”)
, or those that have acquired, or may acquire, large network and endpoint security vendors and have the technical and financial resources to bring competitive solutions to the market;
|
•
|
independent security vendors, such as
Symantec Corporation
,
Check Point Software Technologies Ltd. (“Check Point”)
,
Fortinet, Inc.
, and
FireEye, Inc.
, that offer a mix of network and endpoint security products; and
|
•
|
small and large companies that offer point solutions and/or cloud security services that compete with some of the features present in our platform.
|
•
|
greater name recognition and longer operating histories;
|
•
|
larger sales and marketing budgets and resources;
|
•
|
broader distribution and established relationships with distribution partners and end-customers;
|
•
|
greater customer support resources;
|
•
|
greater resources to make strategic acquisitions or enter into strategic partnerships;
|
•
|
lower labor and development costs;
|
•
|
larger and more mature intellectual property portfolios; and
|
•
|
substantially greater financial, technical, and other resources.
|
•
|
end-customers with a December 31 fiscal year-end choosing to spend remaining unused portions of their discretionary budgets before their fiscal year-end, which potentially results in a positive impact on our revenue in our second fiscal quarter;
|
•
|
our sales compensation plans, which are typically structured around annual quotas and commission rate accelerators, which potentially results in a positive impact on our revenue in our fourth fiscal quarter;
|
•
|
seasonal reductions in business activity during August in the United States, Europe and certain other regions, which potentially results in a negative impact on our first fiscal quarter revenue; and
|
•
|
the timing of end-customer budget planning at the beginning of the calendar year, which can result in a delay in spending at the beginning of the calendar year potentially resulting in a negative impact on our revenue in our third fiscal quarter.
|
•
|
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;
|
•
|
increased purchasing power and leverage held by large end-customers in negotiating contractual arrangements with us;
|
•
|
more stringent requirements in our worldwide support contracts, including stricter support response times and penalties for any failure to meet support requirements; and
|
•
|
longer sales cycles, in some cases over 12 months, 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 subscriptions.
|
•
|
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;
|
•
|
loss of existing or potential end-customers or channel partners;
|
•
|
delayed or lost revenue;
|
•
|
delay or failure to attain market acceptance;
|
•
|
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
|
•
|
litigation, regulatory inquiries, or investigations, each of which may be costly and harm our reputation.
|
•
|
political, economic and social uncertainty around the world, macroeconomic challenges in Europe, terrorist activities, and continued hostilities in the Middle East;
|
•
|
greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;
|
•
|
the uncertainty of protection for intellectual property rights in some countries;
|
•
|
greater risk of unexpected changes in foreign and domestic regulatory practices, tariffs, and tax laws and treaties, including regulatory and trade policy changes adopted by the current administration or foreign countries in response to regulatory changes adopted by the current administration;
|
•
|
risks associated with trade restrictions and foreign legal requirements, including the importation, certification, and localization of our products required in foreign countries;
|
•
|
greater risk of a failure of foreign employees, channel 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, which non-compliance could include increased costs;
|
•
|
heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements;
|
•
|
increased expenses incurred in establishing and maintaining office space and equipment for our international operations;
|
•
|
management communication and integration problems resulting from cultural and geographic dispersion; and
|
•
|
fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business and related impact on sales cycles.
|
•
|
announcements of new products, subscriptions or technologies, commercial relationships, strategic partnerships, acquisitions or other events by us or our competitors;
|
•
|
price and volume fluctuations in the overall stock market from time to time;
|
•
|
news announcements that affect investor perception of our industry, including reports related to the discovery of significant cyberattacks;
|
•
|
significant volatility in the market price and trading volume of technology companies in general and of companies in our industry;
|
•
|
fluctuations in the trading volume of our shares or the size of our public float;
|
•
|
actual or anticipated changes in our operating results or fluctuations in our operating results;
|
•
|
whether our operating results meet the expectations of securities analysts or investors;
|
•
|
actual or anticipated changes in the expectations of securities analysts or investors, whether as a result of our forward- looking statements, our failure to meet such expectations or otherwise;
|
•
|
inaccurate or unfavorable research reports about our business and industry published by securities analysts or reduced coverage of our company by securities analysts;
|
•
|
litigation involving us, our industry, or both;
|
•
|
actions instituted by activist shareholders or others;
|
•
|
regulatory developments in the United States, foreign countries or both;
|
•
|
major catastrophic events;
|
•
|
sales or repurchases of large blocks of our common stock or substantial future sales by our directors, executive officers, employees and significant stockholders;
|
•
|
sales of our common stock by investors who view the
Notes
as a more attractive means of equity participation in us;
|
•
|
hedging or arbitrage trading activity involving our common stock as a result of the existence of the
Notes
;
|
•
|
departures of key personnel; or
|
•
|
economic uncertainty around the world, in particular, macroeconomic challenges in Europe.
|
•
|
establish that our board of directors is divided into three classes, Class I, Class II and Class III, with three-year staggered terms;
|
•
|
authorize 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;
|
•
|
provide our board of directors with the exclusive right 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;
|
•
|
prohibit our stockholders from taking action by written consent;
|
•
|
specify that special meetings of our 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;
|
•
|
require 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;
|
•
|
authorize our board of directors to amend our bylaws by majority vote; and
|
•
|
establish advance notice procedures with which our stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting.
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
ITEM 6.
|
EXHIBITS
|
Exhibit
Number
|
|
Exhibit Description
|
|
Incorporated by Reference
|
||||||
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
||||
|
|
|
|
|
|
|
|
|
|
|
10.1
**
|
|
Amended and Restated Flextronics Manufacturing Services Agreement, by and between the Registrant and Flextronics Telecom Systems Ltd., dated April 1, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
*
|
|
Demisto, Inc. 2015 Stock Option Plan, as amended.
|
|
S-8
|
|
333-230663
|
|
99.1
|
|
April 1, 2019
|
|
|
|
|
|
|
|
|
|
|
|
10.3
*
|
|
Offer Letter between the Registrant and Lorraine Twohill, dated April 10, 2019.
|
|
8-K
|
|
001-35594
|
|
10.1
|
|
April 15, 2019
|
|
|
|
|
|
|
|
|
|
|
|
10.4
*
|
|
Offer Letter between the Registrant and Rt Hon Sir John Key, dated April 10, 2019.
|
|
8-K
|
|
001-35594
|
|
10.2
|
|
April 15, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Schema Linkbase Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Calculation Linkbase Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Definition Linkbase Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Labels Linkbase Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Presentation Linkbase Document.
|
|
|
|
|
|
|
|
|
*
|
Indicates a management contract or compensatory plan or arrangement.
|
**
|
Certain portions of this exhibit have been omitted as the Registrant has determined (i) the omitted information is not material and (ii) the omitted information would likely cause harm to the Registrant if publicly disclosed.
|
†
|
The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10‑Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Palo Alto Networks, Inc. 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 Quarterly Report on Form 10‑Q, irrespective of any general incorporation language contained in such filing.
|
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PALO ALTO NETWORKS, INC.
|
|
|
By:
|
/s/ K
ATHLEEN
B
ONANNO
|
|
|
Kathleen Bonanno
|
|
|
Chief Financial Officer
|
|
|
(Duly Authorized Officer and Principal Financial Officer)
|
|
PALO ALTO NETWORKS, INC.
|
|
|
By:
|
/s/ J
EAN
C
OMPEAU
|
|
|
Jean Compeau
|
|
|
Chief Accounting Officer
|
|
|
(Duly Authorized Officer and Principal Accounting Officer)
|
(a)
|
Flextronics represents and warrants to Customer that:
|
PALO ALTO NETWORKS, INC.
:
|
|
FLEXTRONICS TELECOM SYSTEMS LTD.
:
|
||
Signed:
|
[***]
|
|
Signed:
|
[***]
|
|
|
|
|
|
Print Name:
|
[***]
|
|
Print Name:
|
[***]
|
|
|
|
|
|
Title:
|
[***]
|
|
Title:
|
[***]
|
“Affected Inventory Costs”
|
shall mean: (i) 110% of the Cost of all affected Inventory and Special Inventory in Flextronics’s possession and not returnable to the vendor or reasonably usable for other customers, whether in raw form or work in process, less the salvage value thereof, (ii) 105% of the Cost of all affected Inventory and Special Inventory on order and not cancelable, (iii) any vendor cancellation charges incurred with respect to the affected Inventory and Special Inventory accepted for cancellation or return by the vendor, (iv) the then current fees for any affected Product, and (v) expenses incurred by Flextronics related to labor and equipment specifically put in place to support the purchase orders and Forecasts that are affected by such reschedule or cancellation (as applicable).
|
“Affiliate”
|
shall have the meaning set forth in Section 4.3
|
“Aged Inventory”
|
shall mean any Inventory and/or Special Inventory for which there has been zero or insignificant consumption for such Inventory and/or Special Inventory during the prior 180 days.
|
“Approved Vendor List” or “AVL”
|
shall mean the list of suppliers currently approved to provide the Materials specified in the bill of materials for a Product
|
“Confidential Information”
|
shall mean (a) the existence and terms of this Agreement and all information concerning the unit number and fees for Products and Inventory/Special Inventory; (b) the Specifications; and (c) any other information that is marked “Confidential” or the like or, if delivered verbally, confirmed in writing to be “Confidential” within 30 days of the initial disclosure. Confidential Information does not include information that (i) the receiving party can prove it already rightfully knew at the time of receipt from the disclosing party without restrictions on use or disclosure; (ii) has come into the public domain without breach of this Agreement by or other fault of the receiving party; (iii) was received by the receiving party from a third party that had the right to disclose such information and discloses it without restrictions on its use of disclosure; (iv) the receiving party can prove it independently developed without use of or reference to the disclosing party’s Confidential Information; or (v) is disclosed with the prior written consent of the disclosing party.
|
“Cost”
|
shall mean the cost represented on the bill of materials supporting the most current fees for Products at the time of cancellation, expiration or termination, as applicable.
|
“Customer Controlled Materials”
|
shall mean those Materials provided by Customer or by suppliers with whom Customer has a commercial contractual or non-contractual relationship.
|
“Customer Controlled Materials
Terms” |
shall mean the terms and conditions that Customer has negotiated with its suppliers for the purchase of Customer Controlled Materials.
|
“Customer indemnities”
|
shall have the meaning set forth in Section 9.1.
|
“Damages”
|
shall have the meaning set forth in Section 9.1.
|
“Disputes”
|
shall mean any disputes, differences, controversies and claims arising out of or relating to the Agreement
|
“Economic Order Inventory”
|
shall mean Materials purchased in quantities, above the required amount for purchase orders, in order to achieve price targets for such Materials.
|
“Excess Inventory”
|
shall mean all Inventory and Special Inventory possessed or owned by Flextronics that is not required for consumption to satisfy the next 180 days of demand for Products under the then-current purchase order(s) and Forecast.
|
“Environmental Regulations”
|
shall mean any hazardous substance content laws and regulations including, without limitation, those related to the EU Directive 2002195/EC about the Restriction of Use of Hazardous Substances (RoHS).
|
“Fee List”
|
shall have the meaning set forth in Section 3.5.
|
“Flextronics Controlled Materials”
|
shall mean those Materials designated as “Flextronics Controlled” in a bill of materials agreed to by the parties.
|
“Flextronics-Supplied Critical Component”
|
shall mean the custom Materials required by Customer and supplied by Flextronics, as set forth in Exhibit 3 and as revised through mutual agreement between the parties from time to time.
|
“Flextronics Indemnities”
|
shall have the meaning set forth in Section 9.2.
|
“Force Majeure”
|
shall have the meaning set forth in Section 15.8.
|
“Inventory”
|
shall mean any Materials that are used to manufacture Products that are ordered pursuant to a purchase order from Customer.
|
“Lead Time(s)”
|
shall mean the Materials Procurement Lead Time plus the manufacturing cycle time required from the delivery of the Materials at Flextronics’s facility to the completion of the manufacture, assembly and test processes.
|
“Long Lead Time Materials”
|
shall mean Materials with Lead Times exceeding the period covered by the accepted purchase orders for the Products.
|
“Materials”
|
shall mean components, parts and subassemblies that comprise the Product and that appear on the bill of materials for the Product
|
“Materials Procurement Lead
Time” |
shall mean with respect to any particular item of Materials, the longer of(a) lead time to obtain such Materials as recorded on Flextronics’s MRP system or (b) the actual lead time, if a supplier has increased the lead time but Flextronics has not yet updated its MRP system.
|
“Minimum Order Inventory”
|
shall mean Materials purchased in excess of requirements for purchase orders because of minimum lot sizes available from the supplier.
|
“Monthly Charges”
|
shall mean a total aggregate 1.0% monthly charge for finance carrying costs and storage and handling charges, in each case measured as a percentage of the Cost of the Inventory and/or Special Inventory and/or of the fees for the Product affected subject to the charge per month until such Inventory and/or Special Inventory and/or Product is returned to the vendor, used to manufacture Product or is otherwise purchased by Customer.
|
“Obsolete Inventory”
|
shall mean Inventory or Special Inventory that is any of the following: (a) removed from the bill of materials for a Product by
|
|
an engineering change; (b) no longer on an active bill of material for any of Customer’s Products; or (c) on-hand Inventory and Special Inventory that are not required for consumption to satisfy the next 180 days of demand for Products under the then-current purchase order(s) and Forecast.
|
“ODM Products”
|
shall mean those Products designated as “ODM Products” by the parties (as opposed to those Products designed as EMS or “Other” Products). The parties agree that the
[***]
Products and the
[***]
Products are at the time of the Effective Date the only ODM Products, as set forth on Exhibit 3.
|
“Product”
|
shall have the meaning set forth in Section 2.1.
|
“Production Materials”
|
shall mean Materials that are consumed in the production processes to manufacture Products including without limitation, solder, epoxy, cleaner solvent, labels, flux, and glue. Production Materials do not include any such production materials that have been specified by Customer or any Customer Controlled Materials.
|
“Special Inventory”
|
shall mean any Long Lead Time Materials and/or Minimum Order Inventory and/or Economic Order Inventory.
|
“Specifications”
|
shall have the meaning set forth in Section 2.1.
|
“Work”
|
shall have the meaning set forth in Section 2.1.
|
item_number
|
item_name
|
revision
|
quantity
|
manufacturer_1
|
manufacturer_item_number_1
|
[***]
|
[***]
|
1
|
1
|
[***]
|
[***]
|
[***]
|
[***]
|
1
|
8
|
[***]
|
[***]
|
[***]
|
[***]
|
00A
|
1
|
[***]
|
[***]
|
[***]
|
[***]
|
1
|
4
|
[***]
|
[***]
|
[***]
|
[***]
|
1
|
1
|
[***]
|
[***]
|
[***]
|
[***]
|
00A
|
1
|
[***]
|
[***]
|
[***]
|
[***]
|
00A
|
1
|
[***]
|
[***]
|
[***]
|
[***]
|
00A
|
1
|
[***]
|
[***]
|
[***]
|
[***]
|
00A
|
1
|
[***]
|
[***]
|
[***]
|
[***]
|
00A
|
1
|
[***]
|
[***]
|
[***]
|
[***]
|
00A
|
1
|
[***]
|
[***]
|
(i)
|
inbound transportation of faulty Goods from the collection point to the Flextronics repair centre, and
|
(ii)
|
outbound transportation of the repaired Goods to the designated return delivery point.
|
5.2.
|
Materials Planning
.
|
a
|
Quarterly
. On or prior to the Effective Date, Customer will provide Flextronics with all information and data regarding historical defect rates for the Goods,
estimated
repair forecasts based on history, forward looking production forecasts and any other information reasonably requested by Flextronics that is relevant to Flextronics’s Materials planning. Customer will update such information on a quarterly basis. Customer acknowledges that Flextronics will rely on such data and Flextronics’s own repair history in creating its forecasts and managing Materials inventory levels.
|
b
|
New Product.
Within
ten business days of Customer’s notice that a new Product will be introduced to the Services performed under this RSA Addendum and receipt of estimated repair forecasts, forward looking production forecasts and any other information reasonably requested by Flextronics that is relevant to Flextronics’s Materials planning, Flextronics shall create and provide to Customer a bill of Materials for the planned repair of such Product as well as applicable documentation for Materials management with appropriate planning and procurement inspection to support the Services to be performed on such Product (collectively “Repair Planning BOM”). Upon providing Customer with the Repair Planning BOM, Flextronics will allow one week for Customer to review and provide changes to such documentation. After the completion of such review period, Flextronics shall proceed with planning and purchasing such Materials based on Customer’s historical repair data and Customer’s updated Repair Planning BOM, as applicable.
|
(a)
|
In the event there is no forecast (or insufficient data to reasonably create a forecast) 180 days anticipated demand is assumed to be the same as the previous 180 days usage.
|
(b)
|
Flextronics will use reasonable procurement and inventory planning practices to prevent and reduce Excess Inventory from accumulating.
|
(c)
|
Excess Inventory will be reviewed on a quarterly basis. This does not include Consigned Materials or FGI/DGI/WIP of the Good itself.
|
(d)
|
Customer to purchase material on order or material on hand rendered obsolete or excess through a Customer engineering change order.
|
(e)
|
Flextronics will perform Excess Inventory analysis every three months and will provide to Customer by the end of the first week of Customer’s 1
st
and 3
rd
quarter.
|
(f)
|
Materials deemed as Excess Inventory or obsolete will be sold to Customer on a quarterly basis at [***]. Cost is defined as the Flextronics MAUC (Moving Average Unit Cost) as calculated in BaaN at the time the quarterly Excess Inventory Report was generated.
|
(g)
|
Customer’s review of the quarterly Excess Inventory report and any subsequent transfer of inventory and/or payments will occur within 30 days of Flextronics’ submission of the quarterly analysis to Customer. Any line of the Excess Inventory report not challenged reasonably and in good faith for identified reasons by the end of the thirty (30) Calendar days from receipt of the Excess Inventory report will be understood as confirmed by Customer.
|
(h)
|
For a reasonable period of time not to exceed thirty (30) days after Flextronics notifies Customer of the Excess Inventory, Flextronics shall use commercially reasonable efforts to return the Excess Inventory to Customer vendors and to allocate the Excess Inventory to alternate programs if applicable.
|
(i)
|
Once Flextronics has exhausted commercially reasonable efforts to return the Excess Inventory to Customer Vendors and to allocate applicable Excess Inventory to alternate programs, Customer shall buy back any remaining Excess Inventory at that time.
|
(j)
|
Payment terms associated with excess and obsolete inventory will be the same as those established elsewhere in this agreement.
|
(k)
|
Customer may elect to have Flextronics physically retain excess or obsolete inventory even after sale to Customer for the possibility that there may be future demand for this inventory.
|
(l)
|
Flextronics will hold said inventory free of charge as a consigned inventory so long as the sum of such inventory remains physically reasonable in size and not to exceed one third of the total space allocated to Customer’s inventory.
|
(m)
|
In the event that consigned excess or obsolete inventory exceeds these limitations Flextronics may elect to charge a reasonable storage fee, with 30 days advance notification to Customer.
|
(n)
|
Upon termination of this agreement Flextronics shall be entitled to sell to Customer all turnkey component inventory at Flextronics [***].
|
(o)
|
The following part purchase categories will be excluded from the before-mentioned “
Excess Inventory”
calculations:
|
(ii)
|
Last time buy (LTB): Purchases to support forecast requirements through the end of a product’s service contract made in direct response to notification from a supplier or Customer that a part’s EOL date has been identified.
|
1.
|
Flextronics is responsible for procuring standard packaging materials in accordance with Customer’s specifications to enable it to ship the Goods. Flextronics will drive demand with vendors and keep three weeks of stock according to historical data provided by the Customer.
|
2.
|
Flextronics will invoice Customer on a monthly basis for the actual use of these materials for all devices that were shipped or scrapped in the given period. If Customer switches materials to be used, then obsolete stock will be refunded by Customer at cost price.
|
6.
|
WARRANTIES
|
7.
|
LIABILITY AND INDEMNIFICATION
The indemnities at Section 9 of the MSA shall apply to the Services performed under this Repair Services Addendum mutatis mutandis.
|
8.
|
MISCELLANEOUS
|
9.
|
Except as specifically provided herein, the terms and conditions of the MSA shall apply to the Repair Services.
|
a.
|
Adherence to a
[***]
business day TAT SLA from receipt of defective goods to completion of functional finished goods and notification to Customer that the device is complete through pack out and ready for pick up.
|
b.
|
Third party ODM RMA and RTV process management and timely warranty credit tracking (for example
[***]
)
|
c.
|
Flextronics
[***]
product line to be repaired by the service centers, as of a mutually agreed upon date.
|
d.
|
PCBA repair
|
e.
|
Elimination of Flextronics warranty credit recovery by PANW / current repair
vendor-
|
f.
|
Reduced transportation, consolidation and warehousing process costs through elimination inbound
[***]
into
[***]
|
g.
|
Regular reporting in accordance with section J (Reporting) below
|
h.
|
Single point of contact program management to reduce partner management complexity
|
i.
|
Option to integrate comprehensive demo pool program management at an additional cost
|
j.
|
Option to integrate service parts logistics support at an additional cost
|
k.
|
Adherence to
[***]
.
|
A.
|
Operation and space
|
1)
|
Flextronics will provide material handling equipment and trained manpower to provide the services described from Flextronics [***] and [***] facilities.
|
2)
|
The Flextronics Facilities will include appropriate security conditions.
|
3)
|
Upon reasonable advanced notice, Flextronics will permit Palo Alto Networks, Inc. (PANW) during normal business hours on business days to enter the Flextronics Facility, for stock counting and inventory purposes only, provided that PANW complies with Flextronics’s and/or its subcontractor’s security policies and is at all times escorted by a representative of Flextronics.
|
4)
|
The hours of operation for each Flextronics Facility shall be established locally in accordance with PANW’s requirements, excluding holidays. After hours support will be provided as required by PANW, upon reasonable advanced notice given to Flextronics and at an additional cost to be agreed on in writing by the parties.
|
5)
|
All Product shall be stored in accordance with industry standard.
|
B.
|
Information System
|
(a)
|
Electronic Data Interchange (EDI):
(Development of EDI signals is not included in this scope of services)
|
(b)
|
Computerized Warehouse Management System:
|
(i)
|
Inventory tracking by Customer and Purchaser part number, serial number, case number, piece quantity, pallet quantity, receipt date, ship date;
|
(ii)
|
Goods pull on a First in First out (FIFO) basis (based on receiving date), except as specifically requested by the Customer.
|
(iii)
|
Weekly Customer reports summarizing receipts, shipments, inventory balances, WIP and raw materials for the prior week;
|
(iv)
|
Inventory categories for inventory "on hold", "damaged", and "available". Inventory in the "on hold" or "damaged" category will be tracked and reported separately from "available” inventory and will be blocked from pull and shipment while in these categories;
|
(v)
|
Ability to move inventory from one category to another while retaining original receipt information.
|
C.
|
In-bound transportation services
|
1.
|
PANW may use the services of Flextronics or its sub-contractors to transport the Goods from their Depots to Flextronics Facility.
|
2.
|
In the event that PANW does not use Flextronics or its sub-contractors to transport the Goods
,
PANW will provide shipment information regarding the transportation directly into Flextronics Facility.
Customs documents must be provided by the carrier.
|
D.
|
Repair and Refurbishment
|
E.
|
Warehouse Services
|
1.
|
If Flextronics does not provide the “in-bound freight forwarding service”, PANW shall ensure that Flextronics receives a minimum of twelve (12) hours advanced notice of shipments scheduled for delivery to the Flextronics Facility.
|
2.
|
Within 24 hours of physical receipt, Flextronics will provide email notification of devices received into the repair centers. Such notification shall include the following information
|
(a)
|
Stock receipt note;
|
(b)
|
Date received;
|
(c)
|
Part numbers and quantity received;
|
(d)
|
In-bound serial number capture
|
3.
|
Flextronics will check the Goods against shipping documents and report any discrepancies in quantity of the Goods within 24 hours of delivery of defective goods.
|
F.
|
Handling out
|
1.
|
A packing slip, prepared by Flextronics will accompany the shipment and it will provide the following information:
|
(a)
|
Part number and Model number;
|
(b)
|
Quantity disbursed;
|
(b)
|
Number of pallets/boxes;
|
(c)
|
Location in the Flextronics Facility; and
|
(d)
|
Date disbursed
|
(e)
|
Serial number
|
G.
|
Out-bound transportation services
|
H.
|
Inventory Management (raw material or finished goods)
|
1.
|
Flextronics agrees to maintain Goods and Materials at the Flextronics Facility within an orderly and organized system, drawing from available stock on First in First out (FIFO) basis, based on receipt date into the inventory location.
|
2.
|
The inventory levels will be reported to Customer via on-line access EDI, e-mail or auto-fax as agreed between parties and locations will be noted in Flextronics’s computerized inventory system.
|
3.
|
Flextronics will perform routine cycle counting and reconciliation of Finished Goods inventory on a weekly basis and will report the following: stock balances, stock movement and stock held in quarantine.
|
4.
|
Flextronics will report monthly cycle counting metrics to Palo Alto Networks. Flextronics shall increase cycle count activities by [***]% at the deficient facility(s) when Flextronics fails to meet cycle count accuracy Key Performance Indicators, as defined in the paragraph following this, for [***] consecutive months. The increase activity shall continue through a “Cure” period defined as one month or until KPI is met for a period of [***] days.
|
5.
|
Inventory accuracy cycle count Key Performance Indicator. Flextronics will be held to a Key Performance Indicator for cycle counts to an accuracy of [***]% by count.
|
6.
|
Occasionally, but only during Standard Business Hours, Palo Alto Networks shall have the right to require physical stock (part) checks of Goods and Material. Additionally, Palo Alto Networks (or representative) reserves the right to observe Flextronics cycle counting activities.
|
7.
|
Flextronics will provide the full visibility of Goods movement and stock situation (inventory in transit and stock in hub), from the time of receipt at the Flextronics Facility until Goods are delivered to the Depot, provided that Flextronics has been provided appropriate information from Customer to perform every service from the time of receipt at the Flextronics Facility until Goods are delivered to the Depot.
|
I.
|
Value Added Services
|
2.
|
Monthly liability report listing all turnkey and consigned raw materials on hand and on order with associated cost to Customer (consigned materials at [***]).
|
3.
|
Weekly submission to Palo Alto Networks Quality Dept. detailed repair data for each device repaired in accordance with [***], or other formally approved means.
|
•
|
Transport charges to and from Flextronics Facilities will be borne by PANW
|
•
|
Quarterly Business Reviews shall include review of services, pricing, changes to business, goals and objectives, etc.
|
•
|
PANW will provide a matrix that will identify a threshold for maximum material costs by model / SKU. When material costs will exceed that threshold, Flextronics will notify PANW and provide the necessary details and await direction from customer.
|
•
|
Disposition decision should be provided within 48 hours, and the volume of units that require a disposition decisions are less than [***]% of a current month’s returns.
|
•
|
Parts installed on the unit BEFORE it exceeded the repair limit threshold will be billed to PANW. Also, the charges associated with the repair activity as defined by the pricing matrix for Simple or Complex Repairs will be billed even though a decision to scrap the unit is made by PANW
|
•
|
Certificates of destruction will be provided from each repair facility at no cost. The certificate must provide a serial number for all finished goods and drives.
|
•
|
Customs clearance and trade compliance support will be provided by Flextronics [***] service center and will be billed at a rate of [***] per shipment by origin, if requested by the customer.
|
•
|
[***]
|
•
|
Flextronics will provide Hi-Pot testers at [***]
|
•
|
Pricing shall be based on volume of Goods successfully repaired and shipped from the corresponding Service Center location in a given month in accordance with the Standard Repair Services Pricing Matrix agreed upon between the parties and as amended from time-to-time upon written agreement. As of the Effective Date, the current Standard Repair Services Pricing Matrix is below for illustrative purposes. All pricing contained in this agreement is in USD. Both Flextronics repair sites will invoice Palo Alto Networks in USD
|
Service Center Location
|
Fixed Monthly [***] Fee
|
Activity Based Per Unit Fees
(Applied as Required) |
[***]
|
[***]
|
|
Complex Repairs – Requiring diagnostic times for trouble shooting and PCBA R&R
|
[***]
|
$
[***]
|
PCBA Repair
To include up to 1 BGA
|
|
$
[***]
|
ECO Upgrade < 1hr labor
|
|
$
[***]
|
|
|
|
[***]
|
[***]
|
|
Complex Repairs – Requiring diagnostic times for trouble shooting and PCBA R&R
|
[***]
|
$
[***]
|
PCBA Repair
To include up to 1 BGA
|
|
$
[***]
|
ECO Upgrade < 1hr labor
|
|
$
[***]
|
Combined Fixed Fee Monthly
Totals:
|
$
[***]
|
|
•
|
Warehouse/transit insurance and product liability insurance outside the terms of this RSA Addendum.
|
•
|
Transport charges to and from Flextronics Facilities.
|
•
|
Customs Import or Export charges, clearance charges, duty and taxes.
|
•
|
Provision of pallets, if required.
|
•
|
Packing materials including cartons, pallets, tape, foil and labels (such charges will be billed separately in monthly invoice with reference to the serial numbers and type of special repair).
|
•
|
Screening or technical support staff.
|
•
|
Quality audits outside of normal repair
|
•
|
Customer work areas and offices.
|
•
|
Service outside normal business hours (Monday-Friday 8 hour shifts).
|
•
|
EDI development.
|
•
|
Raw materials required for repair.
|
/s/ N
IKESH
A
RORA
|
Nikesh Arora
|
Chief Executive Officer and Director
|
/s/ K
ATHLEEN
B
ONANNO
|
Kathleen Bonanno
|
Chief Financial Officer
|
/s/
N
IKESH
A
RORA
|
Nikesh Arora
|
Chief Executive Officer and Director
|
/s/ K
ATHLEEN
B
ONANNO
|
Kathleen Bonanno
|
Chief Financial Officer
|