Palo Alto Networks Reports Fiscal First Quarter 2017 Financial Results
Total revenue for the fiscal first quarter 2017 grew 34 percent year over year to
Non-GAAP net income for the fiscal first quarter 2017 was
"Our first quarter 2017 results underscore that our Next-Generation Security Platform uniquely solves customers' most complex security challenges," said
"In the first quarter fiscal 2017, we added well over 1,500 new customers and saw broad adoption of our Next-Generation Security Platform by our existing customer base. We are now privileged to serve more than 35,500 customers worldwide," commented
Recent Highlights
- Teamed with leading Service Providers in APAC – We recently signed agreements with leading service providers in APAC, helping partners reach new revenue sources.
Singapore Telecommunications Ltd. (Singtel) is offering its new Managed Advanced Threat Prevention Service, a unique managed security service that harnesses the expertise ofSingtel Managed Security Service and the technology of Palo Alto Networks Next-Generation Security Platform, including AutoFocus™ contextual threat intelligence, to protect large enterprise organizations against sophisticated cyberthreats. MeanwhileM1 Limited (M1) is offering Palo Alto Networks Next-Generation Firewall as part of its Cyber Security Solution to enterprise customers, delivering an industry-leading, carrier-grade, cloud-based "internet clean pipe" solution to protect the enterprise's network and architecture – without sacrificing effectiveness or performance. - Verified that Traps™ helps customers meet HIPAA and PCI cybersecurity compliance requirements – Our Traps™ advanced endpoint protection offering received independent verification from Coalfire Systems, a respected leader in cyber risk management and compliance services and a Qualified Security Assessor, that it meets specific cybersecurity requirements outlined by both Health Insurance Portability and Accountability Act (HIPAA) and the Payment Card Industry (PCI) Data Security Standard, concluding that organizations in the healthcare and financial sectors can replace legacy antivirus endpoint products with Traps™ while remaining compliant with federal law and industry standards.
- Continued cyber education efforts with new cybersecurity guides for C-suites and boards – In conjunction with industry experts, we published regionally tailored guides in both
France andAustralia designed to provide executives and directors practical advice on a range of cybersecurity issues, including compliance and breach avoidance, prevention and response. - Appointed
Mary Pat McCarthy to the board of directors – Ms. McCarthy joined our board and audit committee and brings more than 34 years of experience in financial and accounting matters. Ms. McCarthy has served in numerous senior leadership positions atKPMG LLP , most recently as vice chair, and on various other boards and audit committees.
Financial Outlook
For the fiscal second quarter 2017, we expect:
- Total revenue in the range of
$426 to $432 million , representing year-over-year growth between 27 percent and 29 percent. - Diluted non-GAAP net income per share in the range of
$0.61 to $0.63 using 93.5 to 95.5 million shares.
Guidance for non-GAAP financial measures excludes share-based compensation related charges, including share-based payroll tax expense, acquisition related costs, amortization expense of acquired intangible assets, litigation related charges including legal settlements, non-cash interest expense related to our convertible senior notes, foreign currency gains (losses) and income and other tax effects associated with these items, and certain non-recurring expenses. We have not reconciled diluted non-GAAP net income per share guidance to GAAP net income (loss) per diluted share because we do not provide guidance on GAAP net income (loss) and would not be able to present the various reconciling cash and non-cash items between GAAP net income (loss) and non-GAAP net income (loss), including share-based compensation expense, without unreasonable efforts. Share-based compensation expense is impacted by the company's future hiring and retention needs and, to a lesser extent, the future fair market value of the company's common stock, all of which is difficult to predict and subject to constant change. While the actual amounts of such reconciling items will have a significant impact on the company's GAAP net income (loss) per diluted share, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort.
Conference Call Information
Forward-Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding our future financial and operating performance, including our financial outlook for the fiscal second quarter 2017, and the increasing importance of our platform's ability to provide high degrees of prevention, automation, leverage and security consistently. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: our limited operating history, which makes it difficult to predict future results; risks associated with managing our rapid growth; our limited experience with new product and subscription and support introductions and the risks associated with new products and subscription and support offerings, including software bugs; the failure to timely develop and achieve market acceptance of new products and subscriptions as well as existing products and subscription and support; rapidly evolving technological developments in the market for network security products and subscription and support offerings; length of sales cycles; and general market, political, economic and business conditions.
Additional risks and uncertainties that could affect our financial results are included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the
Non-GAAP Financial Measures and Other Key Metrics
The presentation of these non-GAAP financial measures and key metrics are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. A reconciliation of the company's historical non-GAAP financial measures and key metrics to their most directly comparable GAAP measures has been provided in the financial statement tables included in this press release, and investors are encouraged to review these reconciliations.
Non-GAAP net income and net income per share, diluted.
Billings.
Free cash flow.
Investors are cautioned that there are a number of limitations associated with the use of non-GAAP financial measures and key metrics as analytical tools. In particular, the billings metric reported by the company includes amounts that have not yet been recognized as revenue and free cash flow does not represent the total increase or decrease in our cash balance for the period. In addition, many of the adjustments to the company's GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in the company's financial results for the foreseeable future, such as share-based compensation, which is an important part of
About
Palo Alto Networks, Inc. |
|||||||||||
Preliminary Condensed Consolidated Statements of Operations |
|||||||||||
(In millions, except per share data) |
|||||||||||
(Unaudited) |
|||||||||||
Three Months Ended October 31, |
|||||||||||
2016 |
2015 |
||||||||||
(As Adjusted)(1) |
|||||||||||
Revenue: |
|||||||||||
Product |
$ |
163.8 |
$ |
147.7 |
|||||||
Subscription and support |
234.3 |
149.5 |
|||||||||
Total revenue |
398.1 |
297.2 |
|||||||||
Cost of revenue: |
|||||||||||
Product |
42.2 |
38.8 |
|||||||||
Subscription and support |
59.1 |
40.4 |
|||||||||
Total cost of revenue |
101.3 |
79.2 |
|||||||||
Total gross profit |
296.8 |
218.0 |
|||||||||
Operating expenses: |
|||||||||||
Research and development |
84.6 |
59.7 |
|||||||||
Sales and marketing |
220.3 |
159.5 |
|||||||||
General and administrative |
41.8 |
30.8 |
|||||||||
Total operating expenses |
346.7 |
250.0 |
|||||||||
Operating loss |
(49.9) |
(32.0) |
|||||||||
Interest expense |
(6.0) |
(5.8) |
|||||||||
Other income, net |
2.5 |
2.2 |
|||||||||
Loss before income taxes |
(53.4) |
(35.6) |
|||||||||
Provision for income taxes |
8.4 |
4.3 |
|||||||||
Net loss |
$ |
(61.8) |
$ |
(39.9) |
|||||||
Net loss per share, basic and diluted |
$ |
(0.69) |
$ |
(0.47) |
|||||||
Weighted-average shares used to compute net loss per share, basic and diluted |
89.8 |
85.1 |
|||||||||
(1) |
Certain amounts have been adjusted as a result of the Company's change in accounting policy for sales commissions. Refer to Appendix A for more information. |
Palo Alto Networks, Inc. |
|||||||||||
Reconciliation of GAAP to Non-GAAP Financial Measures |
|||||||||||
(In millions, except per share amounts) |
|||||||||||
(Unaudited) |
|||||||||||
Three Months Ended October 31, |
|||||||||||
2016 |
2015 |
||||||||||
(As Adjusted)(1) |
|||||||||||
GAAP net loss |
$ |
(61.8) |
$ |
(39.9) |
|||||||
Share-based compensation related charges |
116.5 |
75.2 |
|||||||||
Amortization expense of acquired intangible assets |
2.1 |
2.1 |
|||||||||
Litigation related charges |
3.1 |
3.1 |
|||||||||
Non-cash interest expense related to convertible notes |
6.0 |
5.8 |
|||||||||
Foreign currency gains associated with non-GAAP adjustments |
(0.2) |
(0.8) |
|||||||||
Income tax and other tax adjustments related to the above |
(14.5) |
(14.7) |
|||||||||
Non-GAAP net income |
$ |
51.2 |
$ |
30.8 |
|||||||
GAAP net loss per share, diluted |
$ |
(0.69) |
$ |
(0.47) |
|||||||
Share-based compensation related charges |
1.28 |
0.86 |
|||||||||
Amortization expense of acquired intangible assets |
0.02 |
0.02 |
|||||||||
Litigation related charges |
0.03 |
0.04 |
|||||||||
Non-cash interest expense related to convertible notes |
0.07 |
0.07 |
|||||||||
Foreign currency gains associated with non-GAAP adjustments |
0.00 |
(0.01) |
|||||||||
Income tax and other tax adjustments related to the above |
(0.16) |
(0.17) |
|||||||||
Non-GAAP net income per share, diluted |
$ |
0.55 |
$ |
0.34 |
|||||||
GAAP weighted-average shares used to compute net loss per share, diluted |
89.8 |
85.1 |
|||||||||
Weighted-average effect of potentially dilutive securities(2) |
3.4 |
5.6 |
|||||||||
Non-GAAP weighted-average shares used to compute net income per share, diluted |
93.2 |
90.7 |
|||||||||
Net cash provided by operating activities |
$ |
203.3 |
$ |
146.7 |
|||||||
Less: purchases of property, equipment, and other assets |
20.9 |
19.5 |
|||||||||
Free cash flow |
$ |
182.4 |
$ |
127.2 |
|||||||
Net cash used in investing activities |
$ |
(71.2) |
$ |
(263.5) |
|||||||
Net cash provided by (used in) financing activities |
$ |
(27.1) |
$ |
16.8 |
|||||||
(1) |
Certain amounts have been adjusted as a result of the Company's change in accounting policy for sales commissions. Refer to Appendix A for more information. |
(2) |
Non-GAAP net income per share, diluted, includes the potentially dilutive effect of employee equity incentive plan awards and convertible senior notes outstanding. In addition, non-GAAP net income per share, diluted, includes the anti-dilutive impact of the Company's note hedge agreements, which reduced the potentially dilutive effect of the convertible notes for the three months ended October 31, 2016 and October 31, 2015 by 1.5 million shares and 1.8 million shares, respectively. |
Palo Alto Networks, Inc. |
|||||||
Calculation of Billings |
|||||||
(In millions) |
|||||||
(Unaudited) |
|||||||
Three Months Ended |
|||||||
October 31, |
|||||||
2016 |
2015 |
||||||
Total revenue |
$ |
398.1 |
$ |
297.2 |
|||
Add: change in total deferred revenue |
118.8 |
90.8 |
|||||
Billings |
$ |
516.9 |
$ |
388.0 |
Palo Alto Networks, Inc. |
|||||||||||
Preliminary Condensed Consolidated Balance Sheets |
|||||||||||
(In millions) |
|||||||||||
(Unaudited) |
|||||||||||
October 31, 2016 |
July 31, 2016 |
||||||||||
(As Adjusted)(1) |
|||||||||||
Assets |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ |
839.4 |
$ |
734.4 |
|||||||
Short-term investments |
550.6 |
551.2 |
|||||||||
Accounts receivable, net |
346.5 |
348.7 |
|||||||||
Prepaid expenses and other current assets |
129.4 |
139.7 |
|||||||||
Total current assets |
1,865.9 |
1,774.0 |
|||||||||
Property and equipment, net |
125.0 |
117.2 |
|||||||||
Long-term investments |
708.4 |
652.8 |
|||||||||
Goodwill |
163.5 |
163.5 |
|||||||||
Intangible assets, net |
41.7 |
44.0 |
|||||||||
Other assets |
102.0 |
106.7 |
|||||||||
Total assets |
$ |
3,006.5 |
$ |
2,858.2 |
|||||||
Liabilities, temporary equity, and stockholders' equity |
|||||||||||
Current liabilities: |
|||||||||||
Accounts payable |
$ |
29.2 |
$ |
30.2 |
|||||||
Accrued compensation |
59.0 |
73.5 |
|||||||||
Accrued and other liabilities |
48.4 |
39.2 |
|||||||||
Deferred revenue |
758.1 |
703.9 |
|||||||||
Convertible senior notes, net |
506.2 |
— |
|||||||||
Total current liabilities |
1,400.9 |
846.8 |
|||||||||
Convertible senior notes, net |
— |
500.2 |
|||||||||
Long-term deferred revenue |
601.5 |
536.9 |
|||||||||
Other long-term liabilities |
85.8 |
79.4 |
|||||||||
Temporary equity |
61.4 |
— |
|||||||||
Stockholders' equity: |
|||||||||||
Preferred stock |
— |
— |
|||||||||
Common stock and additional paid-in capital |
1,542.2 |
1,515.5 |
|||||||||
Accumulated other comprehensive income (loss) |
(1.9) |
1.0 |
|||||||||
Accumulated deficit |
(683.4) |
(621.6) |
|||||||||
Total stockholders' equity |
856.9 |
894.9 |
|||||||||
Total liabilities, temporary equity, and stockholders' equity |
$ |
3,006.5 |
$ |
2,858.2 |
|||||||
(1) |
Certain amounts have been adjusted as a result of the Company's change in accounting policy for sales commissions. Refer to Appendix A for more information. |
Palo Alto Networks, Inc. |
|||||||||||
Preliminary Condensed Consolidated Statements of Cash Flows |
|||||||||||
(In millions) |
|||||||||||
(Unaudited) |
|||||||||||
Three Months Ended October 31, |
|||||||||||
2016 |
2015 |
||||||||||
(As Adjusted)(1) |
|||||||||||
Cash flows from operating activities |
|||||||||||
Net loss |
$ |
(61.8) |
$ |
(39.9) |
|||||||
Adjustments to reconcile net loss to net cash provided by operating activities: |
|||||||||||
Share-based compensation for equity based awards |
114.2 |
72.9 |
|||||||||
Depreciation and amortization |
13.6 |
9.2 |
|||||||||
Amortization of investment premiums, net of accretion of purchase discounts |
0.7 |
0.8 |
|||||||||
Amortization of debt discount and debt issuance costs |
6.0 |
5.7 |
|||||||||
Excess tax benefit from share-based compensation arrangements |
(0.2) |
(0.2) |
|||||||||
Changes in operating assets and liabilities: |
|||||||||||
Accounts receivable, net |
2.2 |
16.0 |
|||||||||
Prepaid expenses and other assets |
10.1 |
7.3 |
|||||||||
Accounts payable |
1.8 |
5.2 |
|||||||||
Accrued compensation |
(14.5) |
(27.0) |
|||||||||
Accrued and other liabilities |
12.4 |
5.9 |
|||||||||
Deferred revenue |
118.8 |
90.8 |
|||||||||
Net cash provided by operating activities |
203.3 |
146.7 |
|||||||||
Cash flows from investing activities |
|||||||||||
Purchases of investments |
(285.7) |
(512.5) |
|||||||||
Proceeds from sales of investments |
— |
124.4 |
|||||||||
Proceeds from maturities of investments |
235.4 |
144.1 |
|||||||||
Purchases of property, equipment, and other assets |
(20.9) |
(19.5) |
|||||||||
Net cash used in investing activities |
(71.2) |
(263.5) |
|||||||||
Cash flows from financing activities |
|||||||||||
Repurchases of common stock |
(50.0) |
— |
|||||||||
Proceeds from sales of shares through employee equity incentive plans |
22.7 |
16.6 |
|||||||||
Excess tax benefit from share-based compensation arrangements |
0.2 |
0.2 |
|||||||||
Net cash provided by (used in) financing activities |
(27.1) |
16.8 |
|||||||||
Net increase (decrease) in cash and cash equivalents |
105.0 |
(100.0) |
|||||||||
Cash and cash equivalents - beginning of period |
734.4 |
375.8 |
|||||||||
Cash and cash equivalents - end of period |
$ |
839.4 |
$ |
275.8 |
|||||||
(1) |
Certain amounts have been adjusted as a result of the Company's change in accounting policy for sales commissions. Refer to Appendix A for more information. |
Appendix A
Change in Accounting Policy
(Unaudited)
Effective
The following tables present the changes to financial statement line items as a result of the accounting change for the periods presented in the Company's preliminary condensed consolidated financial statements (in millions, except per share data):
October 31, 2016 |
July 31, 2016 |
||||||||||||||||||||||
Computed under Prior Method |
Impact of Commission Adjustment |
As Reported |
As Previously Reported |
Impact of Commission Adjustment |
As Adjusted |
||||||||||||||||||
Preliminary Condensed Consolidated Balance Sheets |
|||||||||||||||||||||||
Prepaid expenses and other current assets |
$ |
75.4 |
$ |
54.0 |
$ |
129.4 |
$ |
84.8 |
$ |
54.9 |
$ |
139.7 |
|||||||||||
Other assets |
53.6 |
48.4 |
102.0 |
64.6 |
50.1 |
114.7 |
|||||||||||||||||
Other long-term liabilities |
85.0 |
0.8 |
85.8 |
79.4 |
— |
79.4 |
|||||||||||||||||
Accumulated deficit |
$ |
(785.0) |
$ |
101.6 |
$ |
(683.4) |
$ |
(726.6) |
$ |
105.0 |
$ |
(621.6) |
|||||||||||
Three Months Ended October 31, 2016 |
Three Months Ended October 31, 2015 |
||||||||||||||||||||||
Computed under Prior Method |
Impact of Commission Adjustment |
As Reported |
As Previously Reported |
Impact of Commission Adjustment |
As Adjusted |
||||||||||||||||||
Preliminary Condensed Consolidated Statements of Operations |
|||||||||||||||||||||||
Sales and marketing |
$ |
217.7 |
$ |
2.6 |
$ |
220.3 |
$ |
158.3 |
$ |
1.2 |
$ |
159.5 |
|||||||||||
Operating loss |
(47.3) |
(2.6) |
$ |
(49.9) |
(30.8) |
(1.2) |
(32.0) |
||||||||||||||||
Provision for income taxes |
7.6 |
0.8 |
8.4 |
4.3 |
— |
4.3 |
|||||||||||||||||
Net loss |
$ |
(58.4) |
$ |
(3.4) |
$ |
(61.8) |
$ |
(38.7) |
$ |
(1.2) |
$ |
(39.9) |
|||||||||||
Net loss per share, basic and diluted |
$ |
(0.65) |
$ |
(0.04) |
$ |
(0.69) |
$ |
(0.45) |
$ |
(0.02) |
$ |
(0.47) |
|||||||||||
Weighted-average shares used to compute net loss per share, basic and diluted |
89.8 |
— |
89.8 |
85.1 |
— |
85.1 |
|||||||||||||||||
This change in accounting policy does not affect the Company's balance of cash and cash equivalents and, as a result, did not change net cash flows from operating, investing, or financing activities or materially impact any individual line items in the Company's preliminary condensed consolidated statement of cash flows for the three months ended
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SOURCE
Media Contact: Jennifer Jasper Smith, Head of Corporate Communications, Palo Alto Networks, 408-638-3280, jjsmith@paloaltonetworks.com or Investor Relations Contact: Kelsey Turcotte, Vice President of Investor Relations, Palo Alto Networks, 408-753-3872, kturcotte@paloaltonetworks.com