Palo Alto Networks Reports Fiscal Third Quarter 2014 Financial Results and Announces Settlement of Litigation with Juniper Networks
Total revenue for the fiscal third quarter grew 49 percent year-over-year to a record
"We reported record revenue in our third quarter driven by strong customer demand for our next-generation enterprise security platform. We achieved the highest rate of new customer acquisition in our history and now serve more than 17,000 customers globally to address their security needs and prevent increasingly sophisticated and complex cyber attacks from compromising an organization's critical assets," said
"Year-over-year revenue growth of 49 percent was driven by our land, expand and retain model, as product, recurring subscription and support revenue all delivered substantial growth," said
Recent Highlights
- Reached a settlement with
Juniper Networks , the terms of which provide that both parties will dismiss all litigation; both parties will license the patents at issue in all outstanding suits to each other for the life of the patents; both parties will also enter into a covenant not to sue each other for patent infringement for eight years; andPalo Alto Networks will payJuniper Networks a one-time settlement amount of approximately$175 million , consisting of$75 million in cash, approximately$70 million in shares of common stock and a warrant to purchase approximately$30 million of common stock. - Positioned in the "Leaders" quadrant of
Gartner, Inc.'s April 2014 Magic Quadrant for Enterprise Network Firewalls; this is the third consecutive year in whichPalo Alto Networks has been recognized as a leader in the Magic Quadrant for Enterprise Firewall report.1 - Completed the acquisition of
Cyvera Ltd. , a privately held cybersecurity company located inTel Aviv, Israel ; with the addition of Cyvera's unique endpoint protection capabilities to the company's security platform,Palo Alto Networks can provide protection across the enterprise, extending prevention technology from the network to the endpoint. - Strengthened our strategic partnership with
VMware by announcing a new reseller agreement and general availability of an integrated offering for automating and accelerating security deployments in the software-defined data center. - Announced a global managed security services agreement with
NTT Com Security (formerly Integralis) under whichNTT Com Security will provide its extensive implementation, integration, and managed security services around thePalo Alto Networks security platform.
Conference Call Information
Forward-Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding the settlement of the company's litigation with
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.
Free Cash Flow.
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
1 Gartner, "Magic Quadrant for Enterprise Network Firewalls", Greg Young, Adam Hils, Jeremy D'Hoinne; April 15, 2014. |
Palo Alto Networks, Inc. |
|||||||||||
Preliminary Condensed Consolidated Statements of Operations |
|||||||||||
(In thousands, except per share data) |
|||||||||||
(Unaudited) |
|||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||
2014 |
2013 |
2014 |
2013 |
||||||||
Revenue: |
|||||||||||
Product |
$ |
84,128 |
$ |
60,793 |
$ |
240,436 |
$ |
178,251 |
|||
Services |
66,572 |
40,496 |
179,512 |
105,471 |
|||||||
Total revenue |
150,700 |
101,289 |
419,948 |
283,722 |
|||||||
Cost of revenue: |
|||||||||||
Product |
20,425 |
15,855 |
58,600 |
46,907 |
|||||||
Services |
19,285 |
11,835 |
52,421 |
32,591 |
|||||||
Total cost of revenue |
39,710 |
27,690 |
111,021 |
79,498 |
|||||||
Total gross profit |
110,990 |
73,599 |
308,927 |
204,224 |
|||||||
Operating expenses: |
|||||||||||
Research and development |
27,837 |
16,048 |
71,983 |
44,855 |
|||||||
Sales and marketing |
83,995 |
51,733 |
228,095 |
140,136 |
|||||||
General and administrative |
23,718 |
12,268 |
57,576 |
30,971 |
|||||||
Legal settlement [a] |
113,700 |
— |
133,700 |
— |
|||||||
Total operating expenses |
249,250 |
80,049 |
491,354 |
215,962 |
|||||||
Operating loss |
(138,260) |
(6,450) |
(182,427) |
(11,738) |
|||||||
Interest income |
272 |
133 |
619 |
347 |
|||||||
Other income (expense), net |
145 |
(157) |
11 |
(387) |
|||||||
Loss before income taxes |
(137,843) |
(6,474) |
(181,797) |
(11,778) |
|||||||
Provision for income taxes |
1,272 |
808 |
5,125 |
1,632 |
|||||||
Net loss |
$ |
(139,115) |
$ |
(7,282) |
$ |
(186,922) |
$ |
(13,410) |
|||
Net loss per share, basic and diluted |
$ |
(1.86) |
$ |
(0.10) |
$ |
(2.56) |
$ |
(0.20) |
|||
Weighted-average shares used to compute |
74,967 |
69,575 |
73,127 |
67,980 |
|||||||
[a] Represents legal settlement expenses, including expenses related to the Q3'14 legal settlement with Juniper. |
Palo Alto Networks, Inc. |
|||||||||||||||||
Reconciliation of GAAP to Non-GAAP Financial Measures |
|||||||||||||||||
(In thousands, except per share amounts) |
|||||||||||||||||
(Unaudited) |
|||||||||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||||||||
2014 |
2013 |
2014 |
2013 |
||||||||||||||
GAAP net loss |
$ |
(139,115) |
$ |
(7,282) |
$ |
(186,922) |
$ |
(13,410) |
|||||||||
Share-based compensation expense |
27,930 |
12,634 |
63,341 |
29,730 |
|||||||||||||
Share-based payroll tax expense |
1,267 |
1,135 |
3,887 |
1,135 |
|||||||||||||
Acquisition related costs |
3,681 |
— |
7,480 |
— |
|||||||||||||
Amortization expense of acquired intangible assets |
614 |
— |
679 |
— |
|||||||||||||
Legal settlement expense [a] |
113,700 |
— |
133,700 |
— |
|||||||||||||
Litigation expense [b] |
4,732 |
1,256 |
9,274 |
2,295 |
|||||||||||||
Income tax related to the above |
(4,079) |
(2,486) |
(8,769) |
(7,054) |
|||||||||||||
Non-GAAP net income |
$ |
8,730 |
$ |
5,257 |
$ |
22,670 |
$ |
12,696 |
|||||||||
GAAP net loss per share, diluted |
$ |
(1.86) |
$ |
(0.10) |
$ |
(2.56) |
$ |
(0.20) |
|||||||||
Share-based compensation expense |
0.36 |
0.17 |
0.85 |
0.42 |
|||||||||||||
Share-based payroll tax expense |
0.02 |
0.02 |
0.05 |
0.02 |
|||||||||||||
Acquisition related costs |
0.05 |
— |
0.10 |
— |
|||||||||||||
Amortization expense of acquired intangible assets |
0.01 |
— |
0.01 |
— |
|||||||||||||
Legal settlement expense [a] |
1.52 |
— |
1.83 |
— |
|||||||||||||
Litigation expense [b] |
0.06 |
0.02 |
0.13 |
0.02 |
|||||||||||||
Income tax related to the above |
(0.05) |
(0.04) |
(0.12) |
(0.10) |
|||||||||||||
Non-GAAP net income per share, diluted |
$ |
0.11 |
$ |
0.07 |
$ |
0.29 |
$ |
0.16 |
|||||||||
GAAP weighted-average shares used to compute net loss per share, diluted |
74,967 |
69,575 |
73,127 |
67,980 |
|||||||||||||
Weighted-average effect of potentially dilutive securities |
5,248 |
8,466 |
5,350 |
9,752 |
|||||||||||||
Non-GAAP weighted-average shares used to compute net income per share, diluted |
80,215 |
78,041 |
78,477 |
77,732 |
|||||||||||||
Revenue |
$ |
150,700 |
$ |
101,289 |
$ |
419,948 |
$ |
283,722 |
|||||||||
Change in deferred revenue, net of acquired deferred revenue |
43,191 |
31,121 |
118,552 |
83,496 |
|||||||||||||
Billings |
$ |
193,891 |
$ |
132,410 |
$ |
538,500 |
$ |
367,218 |
|||||||||
Cash flow provided by operating activities |
$ |
34,279 |
$ |
15,206 |
$ |
114,556 |
$ |
72,789 |
|||||||||
Less: purchase of property, equipment, and other assets |
5,896 |
6,359 |
31,379 |
16,595 |
|||||||||||||
Free cash flow |
$ |
28,383 |
$ |
8,847 |
$ |
83,177 |
$ |
56,194 |
|||||||||
[a] Represents legal settlement expenses, including expenses related to the Q3'14 legal settlement with Juniper. |
|||||||||||||||||
[b] Litigation expense represents expenses attributable to IP litigation, including our litigation with Juniper. |
Palo Alto Networks, Inc. |
|||||
Preliminary Condensed Consolidated Balance Sheets |
|||||
(In thousands) |
|||||
(Unaudited) |
|||||
April 30, 2014 |
July 31, 2013 |
||||
Assets |
|||||
Current assets: |
|||||
Cash and cash equivalents |
$ |
234,790 |
$ |
310,614 |
|
Short-term investments |
133,180 |
109,007 |
|||
Accounts receivable, net |
114,789 |
87,461 |
|||
Prepaid expenses and other current assets |
33,686 |
22,617 |
|||
Total current assets |
516,445 |
529,699 |
|||
Property and equipment, net |
48,488 |
32,086 |
|||
Long-term investments |
103,902 |
17,314 |
|||
Goodwill |
155,086 |
— |
|||
Intangible assets, net |
49,613 |
1,358 |
|||
Other assets |
6,853 |
5,149 |
|||
Total assets |
$ |
880,387 |
$ |
585,606 |
|
Liabilities and stockholders' equity |
|||||
Current liabilities: |
|||||
Accounts payable |
$ |
24,641 |
$ |
15,544 |
|
Accrued liabilities [a] |
142,823 |
14,609 |
|||
Accrued compensation |
29,188 |
22,004 |
|||
Deferred revenue |
231,227 |
153,945 |
|||
Total current liabilities |
427,879 |
206,102 |
|||
Deferred revenue – non-current |
136,707 |
95,285 |
|||
Other long-term liabilities |
36,636 |
11,799 |
|||
Stockholders' equity: |
|||||
Preferred stock |
— |
— |
|||
Common stock |
7 |
7 |
|||
Additional paid-in capital |
575,293 |
381,703 |
|||
Accumulated other comprehensive gain (loss) |
61 |
(16) |
|||
Accumulated deficit |
(296,196) |
(109,274) |
|||
Total stockholders' equity |
279,165 |
272,420 |
|||
Total liabilities and stockholders' equity |
$ |
880,387 |
$ |
585,606 |
|
[a] Includes an accrual for the Q3'14 legal settlement with Juniper. |
Palo Alto Networks, Inc. |
|||||
Preliminary Condensed Consolidated Statements of Cash Flows |
|||||
(In thousands) |
|||||
(Unaudited) |
|||||
Nine Months Ended April 30, |
|||||
2014 |
2013 |
||||
Cash flows from operating activities |
|||||
Net loss |
$ |
(186,922) |
$ |
(13,410) |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|||||
Depreciation and amortization |
11,638 |
7,221 |
|||
Amortization of investment premiums, net of accretion of purchase discounts |
1,180 |
1,445 |
|||
Share-based compensation for equity based awards |
66,685 |
29,608 |
|||
Excess tax benefit from share-based compensation |
(758) |
(177) |
|||
Changes in operating assets and liabilities: |
|||||
Accounts receivable, net |
(27,220) |
(45,847) |
|||
Prepaid expenses and other assets |
(7,926) |
(5,991) |
|||
Accounts payable |
8,965 |
3,347 |
|||
Accrued and other liabilities [a] |
130,362 |
13,097 |
|||
Deferred revenue |
118,552 |
83,496 |
|||
Net cash provided by operating activities |
114,556 |
72,789 |
|||
Cash flows from investing activities |
|||||
Purchase of property, equipment, and other assets |
(31,379) |
(16,595) |
|||
Purchase of investments |
(316,911) |
(310,683) |
|||
Proceeds from sales of investments |
6,630 |
13,491 |
|||
Proceeds from maturities of investments |
198,080 |
117,150 |
|||
Acquisition of business, net of cash acquired |
(85,726) |
— |
|||
Net cash used in investing activities |
(229,306) |
(196,637) |
|||
Cash flows from financing activities |
|||||
Excess tax benefit from share-based compensation |
758 |
177 |
|||
Proceeds from exercise of stock options |
25,431 |
11,195 |
|||
Proceeds from employee stock purchase plan |
12,869 |
6,267 |
|||
Repurchase of restricted common stock from employees |
(132) |
(71) |
|||
Payments of initial public offering costs |
— |
(2,698) |
|||
Net cash provided by financing activities |
38,926 |
14,870 |
|||
Net decrease in cash and cash equivalents |
(75,824) |
(108,978) |
|||
Cash and cash equivalents - beginning of period |
310,614 |
322,642 |
|||
Cash and cash equivalents - end of period |
$ |
234,790 |
$ |
213,664 |
|
[a] Includes an accrual for the Q3'14 legal settlement with Juniper. |
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SOURCE
Media, Jennifer Jasper Smith, Head of Corporate Communications, Palo Alto Networks, 408-638-3280, jjsmith@paloaltonetworks.com, or Investor Relations, 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