AI interpretation based on checked source excerpts. Issuer assertions and evidence limitations remain explicit.
Policy quality-scores-2: six equally weighted categories. The overall score requires full coverage. Missing inputs are not zero. Qualitative grades are sourced interpretations, not probabilities. 2/6 · 18/10/2026
Moat—
Insufficient evidence for every rubric criterion; no category score is inferred.
structural advantage · — · Unified management and complex deployments support a switching-cost hypothesis, but the passages do not establish a defensible relative advantage. Issuer-reported analyst recognition adds product credibility without proving a moat.
durability · — · Multiyear billing and growing RPO establish contractual visibility, not durable competitive protection across renewal cycles.
customer dependency · — · Deployment complexity suggests replacement friction, but customer dependence and realized switching costs remain unestablished.
erosion resilience · — · The passages establish demand growth but do not show how the competitive position withstands bundling, technological substitution or renewal pressure.
Pricing power—
Insufficient evidence for every rubric criterion; no category score is inferred.
realized pricing · — · No observed selling-price or discount outcomes are disclosed. Potential competitor price reductions and reported revenue growth cannot establish realized pricing.
retention · 2/4 · Indirect evidence is mixed: fiscal 2025 NGS ARR rose 32% and RPO rose 24%, multiyear subscriptions demonstrate committed demand, and deployments require substantial resources. These measures do not separate renewals from new customers, expanded offerings or acquisitions.
margin resilience · 1/4 · Resilience was weak in the observed period: quarterly gross margin fell from 72.9% to 67.6%, and nine-month gross margin fell from 73.5% to 71.5%. Acquisition amortization and higher hosting costs explain part of the decline; fiscal 2026 component inflation also actually reduced gross margin. This does not establish selling-price weakness.
contractual freedom · 2/4 · Multiyear upfront billing supports favorable collection terms, while experienced demands for deferred payments and enterprise customers' negotiating leverage constrain terms. Explicit repricing, escalation and unilateral renewal rights are absent.
Predictability100
Five consecutive annual periods. Equal weights: nondeclining revenue frequency; revenue-growth volatility (5–40pp); positive FCF frequency; FCF-margin volatility (3–20pp). Stability indicator, not a growth forecast.
- Nondeclining revenue years (%)
- 100.00
- Revenue growth volatility (pp)
- 4.65
- Positive FCF years (%)
- 100.00
- FCF margin volatility (pp)
- 2.21
Financial strength—
Missing required inputs: debtFcfGrade, netDebtEbitGrade. Equal-weight grades: debt/FCF (1–8x), net debt/earnings before interest and tax (0–5x), interest service (1–12x), current ratio (0.75–2x). Earnings use reported operating income, or reported pretax profit plus reported interest expense when operating income is unavailable. Interest service uses earnings/interest expense; if unavailable, it uses reported operating cash flow/cash interest paid, without relabeling cash paid as accrued expense. Nonpositive cash flow/earnings score 0 for their service component; reported zero interest with a positive numerator scores 100. Net cash scores 100 for net leverage. Missing disclosures remain unavailable. General nonfinancial-company rubric, not a credit rating; exceptional and nonoperating gains are not normalized out. IFRS finance-cost and cash-flow classifications retain their reported scope.
- interestCoverageGrade
- 100.00
- currentRatioGrade
- 9.68
- Current ratio (x)
- 0.87
Capital allocation—
Missing required inputs: operatingReturn. Three-year equal-weight indicators: pretax return on average invested capital (0–25%; equity + debt − cash, each year and its prior year), share-count growth (0–5%, lower better), share-based cost/revenue (2–20%, lower better), consolidated FCF/net income (0–1x). Return uses reported operating income or, if unavailable, EBIT calculated from reported pretax profit plus reported interest expense; exceptional/nonoperating gains are not normalized out. Share-based cost uses the reported cash-flow add-back or, if absent, separately reported recognized compensation expense; the latter never becomes an FCF adjustment. Nonpositive net income scores 0 for cash conversion; absent income/FCF stays unavailable. Nonpositive invested capital has no defined return and remains unavailable. Does not establish acquisition quality or buyback timing.
- 3-year average dilution (%)
- 7.37
- 3-year average SBC / revenue (%)
- 14.30
- cashConversionGrade
- 100.00
Management50
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
capital discipline · 2/4 · Nine-month operating cash flow increased to $3.196 billion and disclosed free cash flow to $2.859 billion. Against that, substantial acquisition share issuance, rising compensation costs and $8.242 billion of noncancelable purchase commitments increase the burden on future execution. Acquisition returns and repurchase value creation are unestablished.
incentive alignment · 2/4 · Actual fiscal 2025 executive equity awards were performance-based, and implemented changes reduced maximum PSU payouts and adopted ARR/EPS measures. Maximum payouts remained 400%, prior awards' measures were revised, and non-GAAP EPS excludes recurring compensation costs. These establish mixed alignment; ownership amounts and complete performance hurdles are missing.
execution · 2/4 · Operating evidence demonstrates revenue growth, recurring-demand growth and cash generation, but recent profitability weakened amid acquisitions and higher costs. Execution is assessed from these outcomes rather than management's self-description; acquisition synergies remain unproven.
governance · 2/4 · Actual independent Audit Committee oversight, investor engagement and an unqualified internal-control opinion provide support. The classified board, restrictions on stockholder action and supermajority provisions weaken accountability. CyberArk's exclusion limits the control assessment's coverage.
Evidence
Strata Cloud Manager. SCM enables our customers to easily manage their Palo Alto Networks’ Network Security infrastructure—including NGFWs and SASE deployments—from the cloud, via one unified management interface.
Business / Strata Cloud Manager · Filed 29/08/2025
Deployments for large enterprise end-customers are also more complex, require greater product functionality, scalability, and a broader range of services, and are more time-consuming and resource-consuming.
Risk Factors / enterprise deployment complexity · Filed 03/06/2026
Our total revenue reached an impressive $9.22 billion, marking a 15% increase compared to the previous year.
Chair letter / fiscal 2025 revenue achievement · Filed 07/11/2025
This growth was further amplified by our Next-Generation Security Annual Recurring Revenue (NGS ARR), which grew to $5.58 billion, a 32% year-over-year increase, and our remaining performance obligations (RPO), which grew to $15.8 billion, a 24% increase from the prior year.
Chair letter / fiscal 2025 NGS ARR and RPO · Filed 07/11/2025
Backlog. Orders for subscription and support offerings for multiple years are generally billed upfront upon fulfillment and are included in deferred revenue.
Business / multiyear subscription billing · Filed 06/09/2024
End-user customers who have invested substantial resources in their existing infrastructure may prefer to continue purchasing from their existing suppliers rather than switch to our products and subscriptions.
Risk Factors / existing supplier infrastructure investment · Filed 10/09/2026
Our competitors may devote greater resources to the research and development, promotion and sale of products and services, offer lower pricing, and have broader product and service offerings and more mature intellectual property portfolios to gain business in a manner that discourages users from purchasing our products and subscriptions, including incorporating cybersecurity features into their existing products or services, product bundling, selling at zero or negative margins, and offering concessions.
Risk Factors / competitive pricing and bundling · Filed 10/09/2026
- 46 - Table of Contents Sales to large enterprise end-customers, which is part of our growth strategy, involve risks that may not be present, or that are present to a lesser extent, with sales to smaller entities, such as (a) longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end-customer that elects not to purchase our products, subscriptions, and support, and (b) increased purchasing power and leverage held by large end-customers in negotiating contractual arrangements.
Risk Factors / enterprise buyer negotiating power · Filed 03/06/2026
Our competitors may develop new or disruptive technologies, products, or services that are equal or superior to ours, more successfully incorporate AI into their products and achieve higher market acceptance of their AI solutions, or deliver products to market more quickly than we can.
Risk Factors / disruptive technology and AI competition · Filed 10/09/2026
Three Months Ended April 30, Nine Months Ended April 30, 2026 2025 2026 2025 Amount % of Revenue Amount % of Revenue Amount % of Revenue Amount % of Revenue (dollars in millions) Revenue: Product $ 594 19.8 % $ 453 19.8 % $ 1,542 19.1 % $ 1,228 18.4 % Subscription and support 2,408 80.2 % 1,836 80.2 % 6,528 80.9 % 5,457 81.6 % Total revenue 3,002 100.0 % 2,289 100.0 % 8,070 100.0 % 6,685 100.0 % Cost of revenue: Product 167 5.6 % 101 4.4 % 371 4.6 % 277 4.1 % Subscription and support 807 26.8 % 518 22.7 % 1,926 23.9 % 1,495 22.4 % Total cost of revenue(1) 974 32.4 % 619 27.1 % 2,297 28.5 % 1,772 26.5 % Total gross profit 2,028 67.6 % 1,670 72.9 % 5,773 71.5 % 4,913 73.5 % Operating expenses: Research and development 734 24.5 % 494 21.6 % 1,773 22.0 % 1,480 22.1 % Sales and marketing 1,161 38.7 % 793 34.5 % 2,804 34.7 % 2,271 34.0 % General and administrative 316 10.5 % 164 7.2 % 673 8.3 % 416 6.2 % Total operating expenses(1) 2,211 73.7 % 1,451 63.3 % 5,250 65.0 % 4,167 62.3 % Operating income (loss) (183) (6.1) % 219 9.6 % 523 6.5 % 746 11.2 % Interest expense — — % (1) — % — — % (3) — % Other income, net 27 0.9 % 93 4.0 % 282 3.5 % 261 3.8 % Income (loss) before income taxes (156) (5.2) % 311 13.6 % 805 10.0 % 1,004 15.0 % Provision for income taxes 21 0.7 % 49 2.1 % 216 2.7 % 124 1.8 % Net income (loss) $ (177) (5.9) % $ 262 11.5 % $ 589 7.3 % $ 880 13.2 % (1) Includes share-based compensation as follows: Three Months Ended April 30, Nine Months Ended April 30, 2026 2025 2026 2025 (in millions) Cost of product revenue $ 2 $ 1 $ 4 $ 4 Cost of subscription and support revenue 50 32 114 95 Research and development 206 134 477 411 Sales and marketing 188 92 388 258 General and administrative 238 67 372 173 Total share-based compensation $ 684 $ 326 $ 1,355 $ 941 - 32 - Table of Contents IMPACT OF ACQUISITIONS On February 11, 2026, we completed our acquisition of CyberArk for a total purchase consideration of $21.1 billion.
MD&A / operating results and completed CyberArk acquisition · Filed 03/06/2026
Amortization of intangible assets increased $117 million and $109 million for the three and nine months ended April 30, 2026, respectively, compared to the same periods in 2025 as a result of our recent acquisitions.
MD&A / acquisition-related amortization costs · Filed 03/06/2026
Cloud hosting service costs, which support our cloud-based subscription offerings, increased $75 million and $171 million for the three and nine months ended April 30, 2026, respectively, compared to the same periods in 2025.
MD&A / cloud hosting cost increases · Filed 03/06/2026
For example, we experienced supply chain disruption and inflationary pressures during our fourth quarter of fiscal 2026, resulting in increased costs for memory and other components, which have negatively affected our gross margin and could continue to affect our gross margin.
Risk Factors / realized fiscal 2026 component cost pressure · Filed 10/09/2026
GAAP, is provided below: Nine Months Ended April 30, 2026 2025 (in millions) Free cash flow (non-GAAP): Net cash provided by operating activities $ 3,196 $ 2,695 Less: purchases of property, equipment, and other assets 337 160 Free cash flow (non-GAAP) $ 2,859 $ 2,535 Net cash used in investing activities $ (2,098) $ (1,442) Net cash used in financing activities $ (1,005) $ (405) - 31 - Table of Contents Results of Operations The following table summarizes our results of operations for the periods presented and as a percentage of our total revenue for those periods based on our condensed consolidated statements of operations data.
MD&A / operating cash flow and free cash flow reconciliation · Filed 03/06/2026
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In millions) Common Stock and Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total Stockholders’ Equity Shares Amount Balance as of July 31, 2023 617 $ 3,019 $ (43) $ (1,228) $ 1,748 Net Income — — — 2,578 2,578 Other comprehensive income — — 41 — 41 Issuance of common stock in connection with employee equity incentive plans 18 297 — — 297 Taxes paid related to net share settlement of equity awards — (26) — — (26) Share-based compensation for equity-based awards — 1,079 — — 1,079 Reclassification of deferred compensation liability to (from) equity — (5) — — (5) Repurchase and retirement of common stock (4) (567) — — (567) Replacement awards related to business acquisitions 1 27 — — 27 Settlement of convertible notes 14 (3) — — (3) Settlement of note hedges (14) — — — — Settlement of warrants 18 — — — — Balance as of July 31, 2024 650 3,821 (2) 1,350 5,169 Net income — — — 1,134 1,134 Other comprehensive income — — 50 — 50 Issuance of common stock in connection with employee equity incentive plans 18 370 — — 370 Taxes paid related to net share settlement of equity awards — (184) — — (184) Share-based compensation for equity-based awards — 1,314 — — 1,314 Reclassification of deferred compensation liability to (from) equity — (32) — — (32) Repurchase and retirement of common stock — — — — — Replacement awards related to business acquisitions — 3 — — 3 Settlement of convertible notes 14 — — — — Settlement of note hedges (14) — — — — Balance as of July 31, 2025 668 5,292 48 2,484 7,824 Net income — — — 307 307 Other comprehensive loss — — (119) — (119) Issuance of common stock in connection with employee equity incentive plans 13 292 — — 292 Taxes paid related to net share settlement of equity awards — (126) — — (126) Share-based compensation for equity-based awards — 1,787 — — 1,787 Reclassification of deferred compensation liability to (from) equity — (335) — — (335) Repurchase and retirement of common stock (7) (1,000) — — (1,000) Issuance of common stock in connection with business acquisition 112 18,488 — — 18,488 Replacement awards related to business acquisitions 2 374 — — 374 Settlement of warrants 27 — — — — Balance as of July 31, 2026 815 $ 24,772 $ (71) $ 2,791 $ 27,492 See notes to consolidated financial statements.
Financial statements / stockholders' equity and share issuance · Filed 10/09/2026
The following table presents details of the aggregate future non-cancelable purchase commitments under these agreements as of July 31, 2026 (in millions): Fiscal years ending July 31, Total 2027 2028 2029 2030 2031 2032 and Thereafter Cloud $ 7,686 $ 143 $ 1,218 $ 1,329 $ 1,398 $ 1,725 $ 1,873 Manufacturing 370 370 — — — — — Other 186 129 34 13 10 — — Total $ 8,242 $ 642 $ 1,252 $ 1,342 $ 1,408 $ 1,725 $ 1,873 Additionally, we have a $81 million minimum purchase commitment with a cloud hosting service provider through September 2027 with no specified annual commitments.
Commitments and Contingencies / noncancelable purchase commitments · Filed 10/09/2026
For fiscal 2025, 100% of our named executive officers’ equity compensation awards were performance-based, with different performance targets than the cash incentive plan awards.
Chair letter / fiscal 2025 executive equity compensation · Filed 07/11/2025
Maximum payout opportunity for the fiscal 2025 PSUs was set at 400% of target payout, and the maximum payout opportunity for the fiscal 2023 and fiscal 2024 PSUs was reduced by 33%, from 600% to 400% of target payout.
Executive Compensation / implemented PSU payout reductions · Filed 07/11/2025
•New Performance Measures. Adopted an equal weighting of NGS ARR and Non-GAAP EPS as the new financial performance measures, in place of annual billings growth, and aligned all remaining performance periods for the fiscal 2023 and fiscal 2024 PSUs to utilize the new financial measures.
Executive Compensation / adopted performance measures · Filed 07/11/2025
Many of the adjustments to our GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future, such as share-based compensation, which is an important part of our employees' compensation and impacts their performance.
Appendix A / recurring costs excluded from non-GAAP measures · Filed 07/11/2025
Our restated certificate of incorporation and amended and restated bylaws include provisions that, among other things: •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 restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws; - 35 - Table of Contents •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.
Risk Factors / classified board and stockholder rights · Filed 10/09/2026
In fiscal 2025, our Lead Independent Director participated in 14 meetings with investors representing 35% of our outstanding shares, while offering meetings to investors representing 45% of our outstanding shares (each, as of June 30, 2025).
Corporate governance / completed lead independent director engagement · Filed 07/11/2025
Each member of the Audit Committee meets the independence criteria prescribed by the applicable rules and regulations of the SEC for audit committee membership and is an “independent director” within the meaning of applicable listing standards of Nasdaq.
Corporate governance / Audit Committee independence · Filed 07/11/2025
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 31, 2026, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated September 10, 2026 expressed an unqualified opinion thereon.
Independent auditor report / internal control opinion · Filed 10/09/2026
Our assessment of the effectiveness of our internal control over financial reporting as of July 31, 2026 excluded CyberArk, which we acquired on February 11, 2026.
Controls and Procedures / CyberArk assessment exclusion · Filed 10/09/2026
The scope of products, subscriptions, and support offerings that contribute to NGS ARR will generally increase over time as we introduce or acquire new next-generation products, subscriptions, and support offerings.
MD&A / NGS ARR scope expansion · Filed 10/09/2026
Most of our sales are made on an open credit basis, and we have also experienced demands for customer financing and deferred payments due to, among other things, macro-economic conditions.
Risk Factors / experienced customer financing and deferred-payment demands · Filed 10/09/2026
Our products and services have been recognized as leading in 25 categories by third-party industry analysts firms that perform independent assessments of these categories.
Business / issuer-reported analyst category recognition · Filed 29/08/2025
