Palo Alto Networks Reports Fiscal Second Quarter 2015 Financial Results
Total revenue for the fiscal second quarter grew 54 percent year-over-year to a record
"We delivered very strong second quarter results across all metrics, driven by continued high customer demand for our next-generation enterprise security platform that not only detects malicious activity, but also provides integrated and automated prevention capabilities. Given the increasing rate and severity of today's highly sophisticated cyber attacks, enterprises worldwide are turning to us to help them solve their most complex security challenges," said
"New customer additions and expansion in existing customers resulted in record billings, revenue and deferred revenue in the second quarter," said
Recent Highlights
- Introduced new hardware - We introduced the PA-3060, a new addition to the PA-3000 series, designed for mid-range data center environments.
- Continued threat research efforts - On the heels of finding the IOS-targeted WireLurker threat, our Unit 42 threat intelligence team revealed a "backdoor" contained in millions of Android mobile devices.
- Launched global user group - We launched Fuel, a global community established to drive knowledge and sharing of best practices among security professionals across industries.
- Participated in White House Cybersecurity Summit discussions - We engaged in dialogue on public/private sector threat information sharing practices, such as those already in process by the
Cyber Threat Alliance that we co-founded with several other security industry leaders, to improve protection for consumers and companies against cyber threats.
Financial Outlook
For the fiscal third quarter 2015,
- Total revenue in the range of
$219 to $223 million , representing year-over-year growth between 45 percent and 48 percent. - Diluted non-GAAP earnings per share in the range of
$0.19 to $0.20 using 87 to 89 million shares.
Guidance for non-GAAP financial measures excludes share-based compensation and related payroll taxes, amortization of acquired intangible assets, acquisition related expenses, discrete tax benefits, non-cash interest expense related to the company's convertible senior notes, and certain non-recurring expenses. The company has not reconciled diluted non-GAAP earnings per share guidance to GAAP net income (loss) per diluted share because the company does not provide guidance on GAAP net income (loss) or the various reconciling cash and non-cash items between GAAP net income (loss) and non-GAAP net income (loss). Items that impact these measures are out of the company's control and/or cannot be reasonably predicted. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures 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 the company's financial outlook for the fiscal third quarter of 2015 and the company's ability to continue to grow faster than the overall security market and capture significant market share. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including:
Additional risks and uncertainties that could affect
Non-GAAP Financial Measures
Non-GAAP financial measures 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 non-GAAP financial measures 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 the reconciliation.
Non-GAAP net income and diluted net income per share.
Billings.
Investors are cautioned that there are a number of limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, 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. Share-based compensation is an important part of
About
Palo Alto Networks, Inc. |
|||||||||||||||
Preliminary Condensed Consolidated Statements of Operations |
|||||||||||||||
(In thousands, except per share data) |
|||||||||||||||
(Unaudited) |
|||||||||||||||
Three Months Ended January 31, |
Six Months Ended January 31, |
||||||||||||||
2015 |
2014 |
2015 |
2014 |
||||||||||||
Revenue: |
|||||||||||||||
Product |
$ |
115,621 |
$ |
80,823 |
$ |
217,097 |
$ |
156,308 |
|||||||
Services |
102,034 |
60,245 |
192,904 |
112,940 |
|||||||||||
Total revenue |
217,655 |
141,068 |
410,001 |
269,248 |
|||||||||||
Cost of revenue: |
|||||||||||||||
Product |
30,640 |
20,221 |
59,781 |
38,175 |
|||||||||||
Services |
28,685 |
17,283 |
53,005 |
33,136 |
|||||||||||
Total cost of revenue |
59,325 |
37,504 |
112,786 |
71,311 |
|||||||||||
Total gross profit |
158,330 |
103,564 |
297,215 |
197,937 |
|||||||||||
Operating expenses: |
|||||||||||||||
Research and development |
46,948 |
24,253 |
84,253 |
44,146 |
|||||||||||
Sales and marketing |
122,875 |
76,734 |
229,241 |
144,100 |
|||||||||||
General and administrative |
27,023 |
19,733 |
46,000 |
33,858 |
|||||||||||
Legal settlement |
— |
20,000 |
— |
20,000 |
|||||||||||
Total operating expenses |
196,846 |
140,720 |
359,494 |
242,104 |
|||||||||||
Operating loss |
(38,516) |
(37,156) |
(62,279) |
(44,167) |
|||||||||||
Interest expense |
(5,539) |
(14) |
(11,028) |
(22) |
|||||||||||
Other income (expense), net |
344 |
(170) |
685 |
235 |
|||||||||||
Loss before income taxes |
(43,711) |
(37,340) |
(72,622) |
(43,954) |
|||||||||||
Provision for (benefit from) income taxes |
(703) |
2,606 |
454 |
3,853 |
|||||||||||
Net loss |
$ |
(43,008) |
$ |
(39,946) |
$ |
(73,076) |
$ |
(47,807) |
|||||||
Net loss per share, basic and diluted |
$ |
(0.53) |
$ |
(0.55) |
$ |
(0.91) |
$ |
(0.66) |
|||||||
Weighted-average shares used to compute net loss per share, basic and diluted |
80,824 |
72,854 |
80,105 |
72,260 |
Palo Alto Networks, Inc. |
|||||||||||||||
Reconciliation of GAAP to Non-GAAP Financial Measures |
|||||||||||||||
(In thousands, except per share amounts) |
|||||||||||||||
(Unaudited) |
|||||||||||||||
Three Months Ended January 31, |
Six Months Ended January 31, |
||||||||||||||
2015 |
2014 |
2015 |
2014 |
||||||||||||
GAAP net loss |
$ |
(43,008) |
$ |
(39,946) |
$ |
(73,076) |
$ |
(47,807) |
|||||||
Share-based compensation expense |
56,881 |
21,000 |
95,356 |
35,411 |
|||||||||||
Share-based payroll tax expense |
3,727 |
2,355 |
4,781 |
2,620 |
|||||||||||
Acquisition related costs |
— |
3,799 |
— |
3,799 |
|||||||||||
Amortization expense of acquired intangible assets |
1,724 |
65 |
3,268 |
65 |
|||||||||||
Litigation related charges [a] |
3,065 |
22,653 |
6,130 |
24,542 |
|||||||||||
Non-cash interest expense related to convertible notes |
5,521 |
— |
10,999 |
— |
|||||||||||
Income tax and other tax adjustments related to the above |
(11,042) |
(2,156) |
(17,753) |
(4,690) |
|||||||||||
Non-GAAP net income |
$ |
16,868 |
$ |
7,770 |
$ |
29,705 |
$ |
13,940 |
|||||||
GAAP net loss per share, diluted |
$ |
(0.53) |
$ |
(0.55) |
$ |
(0.91) |
$ |
(0.66) |
|||||||
Share-based compensation expense |
0.68 |
0.29 |
1.16 |
0.47 |
|||||||||||
Share-based payroll tax expense |
0.05 |
0.03 |
0.06 |
0.04 |
|||||||||||
Acquisition related costs |
0.00 |
0.05 |
0.00 |
0.05 |
|||||||||||
Amortization expense of acquired intangible assets |
0.02 |
0.00 |
0.04 |
0.00 |
|||||||||||
Litigation related charges [a] |
0.04 |
0.31 |
0.08 |
0.34 |
|||||||||||
Non-cash interest expense related to convertible notes |
0.07 |
0.00 |
0.14 |
0.00 |
|||||||||||
Income tax and other tax adjustments related to the above |
(0.14) |
(0.03) |
(0.22) |
(0.06) |
|||||||||||
Non-GAAP net income per share, diluted |
$ |
0.19 |
$ |
0.10 |
$ |
0.35 |
$ |
0.18 |
|||||||
GAAP weighted-average shares used to compute net loss per share, diluted |
80,824 |
72,854 |
80,105 |
72,260 |
|||||||||||
Weighted-average effect of potentially dilutive securities [b] |
5,804 |
5,329 |
5,733 |
5,427 |
|||||||||||
Non-GAAP weighted-average shares used to compute net income per share, diluted |
86,628 |
78,183 |
85,838 |
77,687 |
|||||||||||
Revenue |
$ |
217,655 |
$ |
141,068 |
$ |
410,001 |
$ |
269,248 |
|||||||
Change in deferred revenue |
65,123 |
45,635 |
113,265 |
75,361 |
|||||||||||
Billings |
$ |
282,778 |
$ |
186,703 |
$ |
523,266 |
$ |
344,609 |
___________
[a] |
Litigation related charges during the three and six months ended January 31, 2015 includes the amortization of intellectual property licenses entered into as part of the settlement with Juniper. Litigation related charges during the three and six months ended January 31, 2014 includes expenses for legal services and the legal settlement with Fortinet of $20.0 million. |
[b] |
Non-GAAP net income per share, diluted, includes the potentially dilutive effect of our options, restricted stock units, 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 and six months ended January 31, 2015 by 0.6 million shares and 0.3 million shares, respectively. The potentially dilutive effect of the convertible notes for the three and six months ended January 31, 2014 was nil. |
Palo Alto Networks, Inc. |
|||||||
Preliminary Condensed Consolidated Balance Sheets |
|||||||
(In thousands) |
|||||||
(Unaudited) |
|||||||
January 31, 2015 |
July 31, 2014 |
||||||
Assets |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ |
342,983 |
$ |
653,812 |
|||
Short-term investments |
332,074 |
118,690 |
|||||
Accounts receivable, net |
135,251 |
135,518 |
|||||
Prepaid expenses and other current assets |
51,196 |
50,306 |
|||||
Total current assets |
861,504 |
958,326 |
|||||
Property and equipment, net |
52,639 |
48,744 |
|||||
Long-term investments |
463,908 |
201,880 |
|||||
Goodwill |
155,402 |
155,033 |
|||||
Intangible assets, net |
45,856 |
47,955 |
|||||
Other assets |
93,475 |
66,528 |
|||||
Total assets |
$ |
1,672,784 |
$ |
1,478,466 |
|||
Liabilities and stockholders' equity |
|||||||
Current liabilities: |
|||||||
Accounts payable |
$ |
14,001 |
$ |
14,526 |
|||
Accrued compensation |
53,158 |
48,727 |
|||||
Accrued and other liabilities |
23,436 |
25,000 |
|||||
Deferred revenue |
324,479 |
259,918 |
|||||
Total current liabilities |
415,074 |
348,171 |
|||||
Convertible senior notes, net |
476,872 |
466,875 |
|||||
Long-term deferred revenue |
211,364 |
162,660 |
|||||
Other long-term liabilities |
53,413 |
32,177 |
|||||
Stockholders' equity: |
|||||||
Preferred stock |
— |
— |
|||||
Common stock |
8 |
8 |
|||||
Additional paid-in capital |
924,634 |
804,406 |
|||||
Accumulated other comprehensive income (loss) |
221 |
(105) |
|||||
Accumulated deficit |
(408,802) |
(335,726) |
|||||
Total stockholders' equity |
516,061 |
468,583 |
|||||
Total liabilities and stockholders' equity |
$ |
1,672,784 |
$ |
1,478,466 |
Palo Alto Networks, Inc. |
|||||||
Preliminary Condensed Consolidated Statements of Cash Flows |
|||||||
(In thousands) |
|||||||
(Unaudited) |
|||||||
Six Months Ended January 31, |
|||||||
2015 |
2014 |
||||||
Cash flows from operating activities |
|||||||
Net loss |
$ |
(73,076) |
$ |
(47,807) |
|||
Adjustments to reconcile net loss to net cash provided by operating activities: |
|||||||
Share-based compensation for equity based awards |
95,291 |
38,729 |
|||||
Depreciation and amortization |
12,917 |
7,082 |
|||||
Amortization of investment premiums, net of accretion of purchase discounts |
1,510 |
747 |
|||||
Amortization of debt discount and debt issuance costs |
10,999 |
— |
|||||
Excess tax benefit from share-based compensation arrangements |
(1,271) |
(674) |
|||||
Changes in operating assets and liabilities |
|||||||
Accounts receivable, net |
267 |
1,371 |
|||||
Prepaid expenses and other assets |
(32,435) |
(6,207) |
|||||
Accounts payable |
(1,897) |
(4,387) |
|||||
Accrued compensation |
4,431 |
7,709 |
|||||
Accrued and other liabilities |
21,753 |
8,353 |
|||||
Deferred revenue |
113,265 |
75,361 |
|||||
Net cash provided by operating activities |
151,754 |
80,277 |
|||||
Cash flows from investing activities |
|||||||
Purchases of investments |
(587,273) |
(249,803) |
|||||
Proceeds from sales of investments |
1,999 |
6,630 |
|||||
Proceeds from maturities of investments |
109,921 |
129,096 |
|||||
Acquisition of business, net of cash acquired |
— |
(10,102) |
|||||
Purchases of property, equipment, and other assets |
(12,035) |
(25,483) |
|||||
Net cash used in investing activities |
(487,388) |
(149,662) |
|||||
Cash flows from financing activities |
|||||||
Proceeds from exercise of stock options |
15,743 |
14,085 |
|||||
Proceeds from employee stock purchase plan |
7,791 |
5,988 |
|||||
Excess tax benefit from share-based compensation arrangements |
1,271 |
674 |
|||||
Repurchases of restricted common stock from terminated employees |
— |
(109) |
|||||
Net cash provided by financing activities |
24,805 |
20,638 |
|||||
Net decrease in cash and cash equivalents |
(310,829) |
(48,747) |
|||||
Cash and cash equivalents - beginning of period |
653,812 |
310,614 |
|||||
Cash and cash equivalents - end of period |
$ |
342,983 |
$ |
261,867 |
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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, 408-753-3872, kturcotte@paloaltonetworks.com, or Chris Danne/Maria Riley, The Blueshirt Group, 415-217-7722, ir@paloaltonetworks.com