Palo Alto Networks IncPANW
Palo Alto Networks Inc Stock Compensation Disclosure
Equity Award Plans
Share-Based Compensation Plans
Equity Incentive Plans
Our 2021 Equity Incentive Plan (our “2021 Plan”) became effective in December 2021 and replaced our 2012 Equity Incentive Plan (our “2012 Plan”). Our 2021 Plan provides for the granting of stock options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance shares (“PSAs”), performance-based stock units (“PSUs”) and performance stock options (“PSOs”) to our employees, directors, and consultants. Upon effectiveness of the 2021 Plan, the 2012 Plan was terminated and no further awards will be granted under the 2012 Plan. Awards that were outstanding upon such termination remained outstanding pursuant to their original terms, and any subsequent expiration, cancellation or forfeiture of awards under our 2012 Plan are returned to our 2021 Plan.
The majority of our equity awards are RSUs, which generally vest over a period of four years from the date of grant. Until vested, RSUs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.
Our PSUs generally vest over a period of to four years from the date of grant. The number of PSUs eligible to vest is determined based on the level of achievement against certain performance conditions, market conditions, and a combination thereof.
During the year ended July 31, 2023, we granted 1.8 million shares of PSUs with both service and market conditions. The market conditions are satisfied when the price of our common stock is equal to or exceeds stock price targets of $116.67, $133.34, $150.00, and $166.67 based on the average closing price for 30 consecutive trading days during the - or -year period following the date of grant. Once a market condition is met, its corresponding one-fourth of the awards vest on each anniversary date of the grant date, subject to continued service. As of July 31, 2025, all stock price targets for these PSU awards have been met, and the related shares will vest when the underlying service conditions are satisfied.
During the year ended July 31, 2023, we granted 1.5 million shares of PSUs, which contain service and market conditions. The service conditions are satisfied after a period of five years. The market condition is measured based on our total shareholder return (“TSR”) relative to the TSR of the companies listed in the Standard & Poor’s 500 index.
During the years ended July 31, 2025, 2024, and 2023, we granted 3.4 million, 4.2 million, and 3.2 million shares of PSUs, respectively, which contain service, performance and market conditions. The service conditions are satisfied over a period of to three years. For PSUs granted during the year ended July 31, 2025, the performance conditions are based on an average of next-generation security annualized recurring revenue and non-GAAP net income per diluted share. For PSUs granted during the years ended July 31, 2024 and 2023, the performance conditions are based on revenue growth or billing growth. The market condition is measured based on our TSR relative to the TSR of the companies listed in the Standard & Poor’s 500 index. As of July 31, 2025, we have approved an additional 2.7 million shares of PSUs, which will be granted upon the performance condition being established during the next two years.
We have also granted PSOs with both service and market conditions. The market condition for PSOs granted in the fiscal years 2018 and 2019 requires the price of our common stock to equal or exceed $49.63, $66.17, $82.71, and $99.25 based on the average closing price for 30 consecutive trading days during the -, -, -, and seven-and-a-half-year periods following the date of grant in fiscal year 2018 and 2019, respectively. Once a market condition is met, its corresponding one-fourth of the PSOs vest on each anniversary date of the grant date, subject to continued service. The maximum contractual term of our outstanding PSOs is seven and a half years from the date of grant, depending on vesting period. As of July 31, 2025, all of our outstanding PSOs have been fully vested.
We net-share settle equity awards held by certain employees by withholding shares upon vesting to satisfy tax withholding obligations. The shares withheld to satisfy employee tax withholding obligations are returned to our 2021 Plan and will be available for future issuance. Payments for employees’ tax obligations to the tax authorities are recognized as a reduction to additional paid-in capital and reflected as financing activities on our consolidated statements of cash flows.
A total of 55.8 million shares of our common stock are reserved for issuance pursuant to our equity incentive plans as of July 31, 2025.
2012 Employee Stock Purchase Plan
Our 2012 Employee Stock Purchase Plan was adopted by our board of directors and approved by the stockholders on June 5, 2012, and was effective upon completion of our initial public offering. On August 29, 2017, we amended and restated our 2012 Employee Stock Purchase Plan (our “2012 ESPP”) to extend the length of our offering periods from 6 to 24 months.
Our 2012 ESPP permits eligible employees to acquire shares of our common stock at 85% of the lower of the fair market value of our common stock on the first trading day of each offering period or on the purchase date. If the fair market value of our common stock on the purchase date is lower than the first trading day of the offering period, the current offering period will be cancelled after purchase and a new 24-month offering period will begin. Under our 2012 ESPP, each 24-month offering period consists of four consecutive 6-month purchase periods, with purchase dates on the first trading day on or after February 28 and August 31 of each year. Participants may purchase shares of common stock through payroll deductions of up to 15% of their eligible compensation, subject to purchase limits of 3,750 shares per six-month purchase period and $25,000 worth of stock for each calendar year. Shares purchased under our 2012 ESPP during the fiscal years ended July 31, 2025, 2024 and 2023 were 1.9 million, 2.2 million and 2.3 million, at an average exercise price of $106.99 per share, $80.32 per share, and $69.15 per share, respectively.
A total of 41.5 million shares of our common stock are available for sale under our 2012 ESPP as of July 31, 2025. On the first day of each fiscal year, the number of shares in the reserve may be increased by the lesser of (i) 12.0 million shares, (ii) 1% of the outstanding shares of our common stock on the first day of the fiscal year, or (iii) such other amount as determined by our board of directors.
Assumed Share-Based Compensation Plans
In connection with our acquisitions, we have assumed equity incentive plans of certain acquired companies (collectively “the Assumed Plans”). The equity awards assumed in connection with each acquisition were granted from their respective assumed plans. The assumed equity awards will be settled in shares of our common stock and will retain the terms and conditions under which they were originally granted. No additional equity awards will be granted under and forfeited awards will not be returned to the Assumed Plans. Refer to Note 8. Acquisitions for more information on our acquisitions and the related equity awards assumed.
Stock Option Activities
The following table summarizes the stock option and PSO activity under our stock plans during the years ended July 31, 2025, 2024, and 2023 (in millions, except per share amounts):
| 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, 2022 | 0.1 | $ | 9.23 | 0.5 | $ | 6.7 | 15.9 | $ | 32.42 | 3.2 | $ | 809.3 | |||||||||||||||||||||||||||||||||||
| Exercised | (0.1) | 9.23 | (3.1) | 31.70 | |||||||||||||||||||||||||||||||||||||||||||
| Balance—July 31, 2023 | — | $ | — | 0.0 | $ | — | 12.8 | $ | 32.60 | 2.2 | $ | 1,184.6 | |||||||||||||||||||||||||||||||||||
| Exercised | — | — | (3.2) | 32.42 | |||||||||||||||||||||||||||||||||||||||||||
| Balance—July 31, 2024 | — | $ | — | 0.0 | $ | — | 9.6 | $ | 32.66 | 1.2 | $ | 1,244.9 | |||||||||||||||||||||||||||||||||||
Exercised(1) | — | — | (8.2) | 32.65 | |||||||||||||||||||||||||||||||||||||||||||
| Balance—July 31, 2025 | — | $ | — | 0.0 | $ | — | 1.4 | $ | 32.76 | 0.5 | $ | 197.0 | |||||||||||||||||||||||||||||||||||
| Exercisable—July 31, 2025 | — | $ | — | 0.0 | $ | — | 1.4 | $ | 32.76 | 0.5 | $ | 197.0 | |||||||||||||||||||||||||||||||||||
(1)Includes 1.3 million shares withheld by us to satisfy the exercise price and tax withholding requirements.
The intrinsic value of options exercised during the years ended July 31, 2025, 2024, and 2023 was $1.2 billion, $358.5 million, and $237.7 million, respectively.
RSU and PSU Activities
The following table summarizes the RSU and PSU activity under our stock plans during the years ended July 31, 2025, 2024, and 2023 (in millions, except per share amounts):
Unvested RSUs | Unvested PSUs | ||||||||||||||||||||||||||||||||||
| Number of Shares | Weighted-Average Grant-Date Fair Value Per Share | Aggregate Intrinsic Value | Number of Shares | Weighted-Average Grant-Date Fair Value Per Share | Aggregate Intrinsic Value | ||||||||||||||||||||||||||||||
| Balance—July 31, 2022 | 29.5 | $ | 57.75 | $ | 2,456.9 | 6.2 | $ | 53.19 | $ | 513.7 | |||||||||||||||||||||||||
Granted(1) | 11.5 | 84.52 | 7.1 | 71.44 | |||||||||||||||||||||||||||||||
Vested(2) | (13.9) | 55.47 | (2.6) | 56.36 | |||||||||||||||||||||||||||||||
| Forfeited | (3.0) | 64.03 | (0.8) | 68.48 | |||||||||||||||||||||||||||||||
| Balance—July 31, 2023 | 24.1 | $ | 71.30 | $ | 3,013.0 | 9.9 | $ | 64.32 | $ | 1,242.3 | |||||||||||||||||||||||||
Granted(1) | 8.5 | 137.76 | 4.3 | 91.39 | |||||||||||||||||||||||||||||||
Vested(2) | (11.8) | 68.63 | (3.2) | 57.28 | |||||||||||||||||||||||||||||||
| Forfeited | (2.8) | 84.12 | (1.0) | 68.54 | |||||||||||||||||||||||||||||||
| Balance—July 31, 2024 | 18.0 | $ | 102.59 | $ | 2,924.4 | 10.0 | $ | 77.95 | $ | 1,624.2 | |||||||||||||||||||||||||
Granted(1) | 6.0 | 189.45 | 3.8 | 201.59 | |||||||||||||||||||||||||||||||
Vested(2) | (8.6) | 97.00 | (1.2) | 64.65 | |||||||||||||||||||||||||||||||
| Forfeited | (2.2) | 115.94 | (3.2) | 92.11 | |||||||||||||||||||||||||||||||
| Balance—July 31, 2025 | 13.2 | $ | 143.33 | $ | 2,284.7 | 9.4 | $ | 140.92 | $ | 1,635.4 | |||||||||||||||||||||||||
(1)For PSUs, shares granted represent the aggregate maximum number of shares that may be earned and issued with respect to these awards over their full terms.
(2)Includes time-based vesting for PSUs.
The aggregate fair value, as of the respective vesting dates, of RSUs vested during the years ended July 31, 2025, 2024, and 2023 was $1.6 billion, $1.6 billion, and $1.3 billion, respectively. The aggregate fair value, as of the respective vesting dates, of PSUs vested during the years ended July 31, 2025, 2024, and 2023 was $220.7 million, $377.7 million, and $218.9 million, respectively.
Shares Available for Grant
The following table presents the stock activity and the total number of shares available for grant under our equity incentive plans as of July 31, 2025 (in millions):
| Number of shares | |||||
| Balance—July 31, 2024 | 26.2 | ||||
| Authorized | 6.0 | ||||
| RSUs and PSUs granted | (9.8) | ||||
| RSUs and PSUs forfeited | 5.5 | ||||
| Shares withheld for taxes | 1.4 | ||||
| Balance—July 31, 2025 | 29.3 | ||||
Share-Based Compensation
We record share-based compensation awards based on estimated fair value as of the grant date. The fair value of RSUs and PSUs not subject to market conditions is based on the closing market price of our common stock on the date of grant.
The fair value of the PSUs subject to market conditions is estimated on the grant date using a Monte Carlo simulation model. The following table summarizes the assumptions used and the resulting grant-date fair value of our PSUs subject to market conditions granted during the years ended July 31, 2025, 2024, and 2023:
| Year Ended July 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Volatility | 43.5% - 47.6% | 40.8% - 43.4% | 38.3% - 44.8% | ||||||||||||||
| Expected term (in years) | 1.0 - 2.9 | 0.9 - 2.9 | 1.0 - 5.0 | ||||||||||||||
| Dividend yield | — | % | — | % | — | % | |||||||||||
| Risk-free interest rate | 3.7% - 4.5% | 4.4% - 5.3% | 3.2% - 4.1% | ||||||||||||||
| Grant-date fair value per share | $264.51 - $305.83 | $173.46 - $310.61 | $45.89 - $140.21 | ||||||||||||||
The expected volatility is based on the historical volatility of our common stock. The expected term is based on the length of each tranche’s performance period from the grant date. The dividend yield assumption is based on our current expectations about our anticipated dividend policy. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with maturities that approximate the expected term.
The fair value of PSOs was estimated on the grant date using a Monte Carlo simulation model, which predicts settlement of the PSOs midway between the vesting term and the contractual term. No PSOs were granted during the years ended July 31, 2025, 2024, and 2023.
The fair value of shares issued under our 2012 ESPP are estimated on the grant date using the Black-Scholes option pricing model. The following table summarizes the assumptions used and the resulting grant-date fair values of our ESPP:
| Year Ended July 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Volatility | 34.3% - 43.3% | 39.6% - 50.0% | 38.6% - 44.7% | ||||||||||||||
| Expected term (in years) | 0.5 - 2.0 | 0.5 - 2.0 | 0.5 - 2.0 | ||||||||||||||
| Dividend yield | — | % | — | % | — | % | |||||||||||
| Risk-free interest rate | 3.9% - 4.8% | 4.6% - 5.5% | 3.3% - 5.2% | ||||||||||||||
| Grant-date fair value per share | $45.43 - $74.81 | $32.81 - $66.66 | $24.39 - $37.03 | ||||||||||||||
The expected volatility is based on a combination of implied volatility from traded options on our common stock and the historical volatility of our common stock. The expected term represents the term from the first day of the offering period to the purchase dates within each offering period. The dividend yield assumption is based on our current expectations about our anticipated dividend policy. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with maturities that approximate the expected term.
The following table summarizes share-based compensation included in costs and expenses (in millions):
| Year Ended July 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Cost of product revenue | $ | 5.1 | $ | 7.3 | $ | 9.8 | |||||||||||
| Cost of subscription and support revenue | 127.0 | 121.0 | 123.4 | ||||||||||||||
| Research and development | 550.5 | 525.5 | 488.4 | ||||||||||||||
| Sales and marketing | 359.5 | 300.8 | 335.3 | ||||||||||||||
| General and administrative | 258.0 | 124.1 | 130.4 | ||||||||||||||
| Total share-based compensation | $ | 1,300.1 | $ | 1,078.7 | $ | 1,087.3 | |||||||||||
As of July 31, 2025, total compensation cost related to unvested share-based awards not yet recognized was $2.2 billion. This cost is expected to be amortized over a weighted-average period of approximately 2.5 years. Future grants will increase the amount of compensation expense to be recorded in these periods.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.