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Palo Alto Networks Reports Record Revenue on 70 Percent Year-over-Year Revenue Growth in its Fiscal Second Quarter 2013
- Fiscal second quarter revenue grows 70 percent year-over-year and 12 percent sequentially to reach a record $96.5 million
- Adds over 1,000 new end-customers in fiscal second quarter, reaching over 11,000 total end-customers
- Deferred revenue grows 92 percent year-over-year and 17 percent sequentially to reach $188.2 million

SANTA CLARA, Calif., Feb. 28, 2013 /PRNewswire/ -- Palo Alto Networks, Inc. (NYSE: PANW) today announced financial results for its fiscal second quarter of 2013 ended January 31, 2013.

Total revenue for the fiscal second quarter grew 70 percent year-over-year to $96.5 million, compared with $56.7 million in the fiscal second quarter of 2012. GAAP net loss for the fiscal second quarter was $2.6 million, or $0.04 per diluted share, compared with net income of $0.4 million, or $0.00 per diluted share, in the fiscal second quarter of 2012.

Palo Alto Networks recorded fiscal second quarter non-GAAP net income of $3.9 million, or $0.05 per diluted share, compared with non-GAAP net income of $2.5 million, or $0.04 per diluted share, in the fiscal second quarter of 2012. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

"Our growth continues to prove that Palo Alto Networks is transforming the enterprise network security space with high value, disruptive technology," said Mark McLaughlin, president and chief executive officer of Palo Alto Networks.  "During the quarter, we again added over 1,000 new customers for the fifth consecutive quarter. This rate of adoption plus continued strong expansion in our existing accounts reinforces our position as the global leader in next- generation enterprise network security."

Commenting on the company's financial results, Steffan Tomlinson, chief financial officer of Palo Alto Networks, added, "In the second fiscal quarter we delivered strong revenue growth and continued to improve our operating margin on a sequential basis, demonstrating our ability to substantially outgrow the competition while driving increased leverage.  Deferred revenue grew 92.2 percent year-over-year to reach $188.2 million, and we generated cash flow from operations of $34.5 million in the second fiscal quarter."     

Recent Highlights

  • Designated as a Leader in the Gartner 2013 Magic Quadrant for Enterprise Network Firewalls.
  • Expanded our partnership with Big Data market leader Splunk and initiated partnerships with information security leaders Mandiant and Bit9.
  • Awarded the Network Innovation Award for Next Gen Firewalls by the readers and editorial staff of TechTarget, a leading worldwide technology publication.

Conference Call Information

Palo Alto Networks will host a conference call for analysts and investors to discuss its fiscal second quarter of 2013 results and outlook for its fiscal third quarter of 2013 today at 4:30 p.m. Eastern time / 1:30 p.m. Pacific time. Open to the public, investors may access the call by dialing (866) 761-0749 or (617) 614-2707 and entering the passcode 28731212. A live audio webcast of the conference call along with supplemental financial information will also be accessible from the "Investors" section of the company's website at investors.paloaltonetworks.com. Following the webcast, an archived version will be available on the website for one year. A telephonic replay of the call will be available two hours after the call and will run for five business days and may be accessed by dialing (888) 286-8010 or (617) 801-6888 and entering passcode 35051992.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding continued revenue growth and overall momentum in the company's business. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: Palo Alto Networks' limited operating history, particularly as a new public company; risks associated with Palo Alto Networks' rapid growth, particularly outside of the U.S.; rapidly evolving technological developments in the market for network security products; and general market, political, economic and business conditions.

Additional risks and uncertainties that could affect Palo Alto Networks' financial results are included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the company's quarterly report on Form 10-Q filed with the SEC on December 10, 2012 which is available on the company's website at investors.paloaltonetworks.com and on the SEC's website at www.sec.gov. Additional information will also be set forth in other filings that the company makes with the SEC from time to time. All forward-looking statements in this press release are based on information available to the company as of the date hereof, and Palo Alto Networks does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

Non-GAAP Financial Measures

Palo Alto Networks has provided in this release financial information that has not been prepared in accordance with generally accepted accounting principles in the United States (GAAP). The company uses these non-GAAP financial measures internally in analyzing its financial results and believes that the use of these non-GAAP financial measures is useful to investors as an additional tool to evaluate ongoing operating results and trends and in comparing the company's financial results with other companies in its industry, many of which present similar 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. Palo Alto Networks defines non-GAAP net income as net income (loss) plus share-based compensation expense less the related tax effects. Non-GAAP diluted net income per share is defined as non-GAAP net income divided by the diluted weighted-average shares outstanding. Palo Alto Networks considers these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of share-based compensation expense so that management and investors can compare the company's "core business operating results," meaning its operating performance excluding not only share-based compensation but also, from time to time, discrete charges that are infrequent in nature, over multiple periods. The company also excludes from non-GAAP net income and non-GAAP diluted net income per share the tax effects associated with share-based compensation expense in order to provide a complete picture of the company's recurring core business operating results. Without excluding these tax effects, investors would only see the gross effect that excluding these expenses had on the company's operating results. There are a number of limitations related to the use of non-GAAP net income and non-GAAP diluted net income per share versus net income (loss) and diluted net income (loss) per share calculated in accordance with GAAP. First, non-GAAP net income and non-GAAP diluted net income per share exclude share-based compensation expense. Share-based compensation has been and will continue to be for the foreseeable future a significant recurring expense in the company's business. Second, share-based compensation is an important part of Palo Alto Networks employees' compensation and impacts their performance. Third, the components of the costs that Palo Alto Networks excludes in its calculation of non-GAAP net income and non-GAAP diluted net income per share may differ from the components that its peer companies exclude when they report their non-GAAP results of operations. Palo Alto Networks compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and non-GAAP diluted net income per share and evaluating non-GAAP net income and non-GAAP diluted net income per share together with net income (loss) and diluted net income (loss) per share calculated in accordance with GAAP. In the future, the company may also exclude non-recurring expenses and other expenses that do not reflect the company's core business operating results.

About Palo Alto Networks

Palo Alto Networks™ is the network security company. Its innovative platform allows enterprises, service providers, and government entities to secure their networks and safely enable the increasingly complex and rapidly growing number of applications running on their networks. The core of Palo Alto Networks platform is its Next-Generation Firewall, which delivers application, user, and content visibility and control integrated within the firewall through its proprietary hardware and software architecture. Palo Alto Networks products and services can address a broad range of network security requirements, from the data center to the network perimeter, as well as the distributed enterprise, which includes branch offices and a growing number of mobile devices. Palo Alto Networks products are used by more than 11,000 customers in over 100 countries. For more information, visit www.paloaltonetworks.com.

Palo Alto Networks, "The Network Security Company," the Palo Alto Networks Logo, App-ID, GlobalProtect, and WildFire are trademarks of Palo Alto Networks, Inc. in the United States and in jurisdictions throughout the world. All other trademarks, trade names or service marks used or mentioned herein belong to their respective owners.

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,


2013

2012


2013

2012

Revenue:






Product

$    61,944

$    38,638


$  117,458

$    81,499

Services

34,555

18,045


64,975

32,297

Total revenue

96,499

56,683


182,433

113,796







Cost of revenue:






Product

16,636

10,248


31,052

20,558

Services

10,982

5,265


20,756

9,795

Total cost of revenue

27,618

15,513


51,808

30,353







Total gross profit

68,881

41,170


130,625

83,443







Operating expenses:






Research and development

15,495

8,514


28,807

16,362

Sales and marketing

45,796

25,612


88,403

47,980

General and administrative

9,747

5,768


18,703

10,925

Total operating expenses

71,038

39,894


135,913

75,267







Operating income (loss)

(2,157)

1,276


(5,288)

8,176







Interest income

116

2


214

4

Other expense, net

(60)

(566)


(230)

(1,030)

Income (loss) before income taxes

(2,101)

712


(5,304)

7,150

Provision for income taxes

512

288


824

2,610

Net income (loss)

$    (2,613)

$         424


$    (6,128)

$      4,540







Net income (loss) attributable to
  common stockholders

$    (2,613)

$               -


$    (6,128)

$               -







Net income (loss) per share attributable to
  common stockholders, basic and diluted

$      (0.04)

$        0.00


$      (0.09)

$        0.00







Weighted-average shares used to compute
  net income (loss) per share attributable to
  common stockholders, basic and diluted

67,651

17,192


67,225

16,948







Palo Alto Networks, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures - Fiscal Quarter

(In thousands, except per share amounts)

(Unaudited)














Three Months Ended January 31, 2013


Three Months Ended January 31, 2012


GAAP
Results


Adjustments


Non-GAAP
Results


GAAP
Results


Adjustments


Non-GAAP
Results

Net income (loss)

$         (2,613)


$           6,503

 (a) 

$           3,890


$             424


$          2,047

 (c) 

$          2,471













Net income (loss) attributable to common stockholders:












Basic

$         (2,613)


$           6,503

 (a) 

$           3,890


$                  -


$             695

 (e) 

$             695

Diluted

$         (2,613)


$           6,503

 (a) 

$           3,890


$                  -


$             837

 (e) 

$             837













Net income (loss) per share attributable to common stockholders:












Basic

$           (0.04)


$             0.10

 (a) 

$             0.06


$            0.00


$            0.04

 (e) 

$            0.04

Diluted

$           (0.04)


$             0.09

 (a) 

$             0.05


$            0.00


$            0.04

 (e) 

$            0.04













Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:












Basic

67,651


-


67,651


17,192


-


17,192

Diluted

67,651


9,833

 (f) 

77,484


17,192


5,335

 (f) 

22,527


























Six Months Ended January 31, 2013


Six Months Ended January 31, 2012


GAAP
Results


Adjustments


Non-GAAP
Results


GAAP
Results


Adjustments


Non-GAAP
Results

Net income (loss)

$         (6,128)


$        12,966

 (b) 

$           6,838


$          4,540


$          3,493

 (d) 

$          8,033













Net income (loss) attributable to common stockholders:












Basic

$         (6,128)


$        12,966

 (b) 

$           6,838


$                  -


$             788

 (e) 

$             788

Diluted

$         (6,128)


$        12,966

 (b) 

$           6,838


$                  -


$             957

 (e) 

$             957













Net income (loss) per share attributable to common stockholders:












Basic

$           (0.09)


$             0.19

 (b) 

$             0.10


$            0.00


$            0.05

 (e) 

$            0.05

Diluted

$           (0.09)


$             0.18

 (b) 

$             0.09


$            0.00


$            0.04

 (e) 

$            0.04













Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:












Basic

67,225


-


67,225


16,948


-


16,948

Diluted

67,225


10,430


77,655


16,948


5,459

 (f) 

22,407













(a) To eliminate share-based compensation expense of $8,754 offset by related tax effect of share-based compensation of $2,251 for the three months ended January 31, 2013

(b) To eliminate share-based compensation expense of $17,096 offset by related tax effect of share-based compensation of $4,130 for the six months ended January 31, 2013

(c) To eliminate share-based compensation expense of $2,050 offset by related tax effect of share-based compensation of $3 for the three months ended January 31, 2012

(d) To eliminate share-based compensation expense of $3,499 offset by related tax effect of share-based compensation of $6 for the six months ended January 31, 2012

(e) Includes the effect of participating securities under the two-class method for determining net income (loss) attributable to common stockholders

(f) Difference between weighted-average shares outstanding on a diluted basis under GAAP and non-GAAP due to application of the treasury stock method for dilutive shares













 

Palo Alto Networks, Inc.

Preliminary Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)





January 31,

July 31,


2013

2012

Assets



Current assets: 



Cash and cash equivalents

$    187,924

$    322,642

Short-term investments

149,520

-

Accounts receivable, net of allowance for doubtful accounts

68,586

45,642

Prepaid expenses and other current assets

20,644

13,373

Total current assets 

426,674

381,657




Property and equipment, net

25,980

20,979

Long-term investments

30,871

-

Other assets

6,624

5,168

Total assets 

$    490,149

$    407,804




Liabilities and stockholders' equity



Current liabilities: 



Accounts payable 

$      10,769

$         9,214

Accrued liabilities 

16,567

15,189

Accrued compensation

24,223

11,307

Deferred revenue

117,437

86,296

Total current liabilities 

168,996

122,006




Deferred revenue – non-current 

70,746

49,512

Other long-term liabilities

6,887

7,215




Stockholders' equity: 



Preferred stock

-

-

Common stock

7

7

Additional paid-in capital

329,680

309,092

Accumulated other comprehensive loss

(11)

-

Accumulated deficit 

(86,156)

(80,028)

Total stockholders' equity

243,520

229,071

Total liabilities and stockholders' equity

$    490,149

$    407,804




Palo Alto Networks, Inc.

Preliminary Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)





Six Months Ended
January 31,


2013

2012

Cash flows from operating activities



Net income (loss)

$      (6,128)

$      4,540

Adjustments to reconcile net income (loss) to
  net cash provided by operating activities:



Depreciation and amortization

4,468

2,474

Amortization of investment premiums, net of accretion of purchase discounts

822

-

Share-based compensation for equity based awards

17,030

3,499

Excess tax benefit from share-based compensation

(106)

-

Change in fair value of preferred stock warrants

-

958

Changes in operating assets and liabilities:



Accounts receivable, net

(22,944)

5,604

Prepaid expenses and other assets

(7,290)

(5,094)

Accounts payable

1,716

(1,165)

Accrued and other liabilities

17,640

5,657

Deferred revenue

52,375

30,653

Reimbursement of leasehold improvements

-

577

Net cash provided by operating activities

57,583

47,703




Cash flows from investing activities



Purchase of property, equipment, and other assets

(10,236)

(7,063)

Purchase of investments

(252,633)

-

Proceeds from sales of investments

13,491

-

Proceeds from maturities of investments

57,150

-

Net cash used in investing activities

(192,228)

(7,063)




Cash flows from financing activities



Excess tax benefit from share-based compensation

106

-

Changes in restricted cash

-

1,221

Proceeds from exercise of stock options 

2,554

469

Proceeds from settlement of note receivable

-

38

Repurchase of restricted common stock from employees

(35)

(63)

Payments of initial public offering costs

(2,698)

-

Net cash provided by (used in) financing activities

(73)

1,665




Net increase (decrease) in cash and cash equivalents

(134,718)

42,305

Cash and cash equivalents - beginning of period

322,642

40,517

Cash and cash equivalents - end of period

$   187,924

$    82,822




SOURCE Palo Alto Networks, Inc.

Media, Mike Haro, Director of Corporate Communications, Palo Alto Networks, 408-438-8628, mharo@paloaltonetworks.com; or Investor Relations, Chris Danne/Maria Riley, The Blueshirt Group, 415-217-7722, ir@paloaltonetworks.com