Palo Alto Networks Reports Fiscal Third Quarter 2023 Financial Results
- Fiscal third quarter revenue grew 24% year over year to
$1.7 billion - Fiscal third quarter billings grew 26% year over year to
$2.3 billion - Remaining performance obligation grew 35% year over year to
$9.2 billion - Fourth consecutive GAAP net income positive quarter
Total revenue for the fiscal third quarter 2023 grew 24% year over year to
Non-GAAP net income for the fiscal third quarter 2023 was
"Our team again executed well in a market that continues to become more challenging," said
"We continued to demonstrate our commitment to profitable growth in Q3," said
Financial Outlook
For the fiscal fourth quarter 2023, we expect:
- Total billings in the range of
$3.15 billion to$3.20 billion , representing year-over-year growth of between 17% and 19%. - Total revenue in the range of
$1.937 billion to$1.967 billion , representing year-over-year growth of between 25% and 27%. - Diluted non-GAAP net income per share in the range of
$1.26 to$1.30 , using 326 million to 332 million shares outstanding.
For the fiscal year 2023, we are updating guidance and expect:
- Total billings in the range of
$9.18 billion to$9.23 billion , representing year-over-year growth of between 23% and 24%. - Total revenue in the range of
$6.88 billion to$6.91 billion , representing year-over-year growth of between 25% and 26%. - Diluted non-GAAP net income per share in the range of
$4.25 to$4.29 , using 322 million to 324 million shares outstanding. - Adjusted free cash flow margin in the range of 37.5% to 38.5%.
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, restructuring and other costs, non-cash charges related to convertible notes, foreign currency gains (losses), and income tax and other tax adjustments, along with certain non-recurring expenses and certain non-recurring cash flows. We have not reconciled diluted non-GAAP net income per share guidance to GAAP net income (loss) per diluted share or adjusted free cash flow margin guidance to GAAP net cash from operating activities because we do not provide guidance on GAAP net income (loss) or net cash from operating activities and would not be able to present the various reconciling cash and non-cash items between GAAP and non-GAAP financial measures because certain items that impact these measures are uncertain or out of our control, or cannot be reasonably predicted, including share-based compensation expense, without unreasonable effort. The actual amounts of such reconciling items will have a significant impact on the company's GAAP net income (loss) per diluted share and GAAP net cash from operating activities.
Earnings Call Information
Forward-Looking Statements
This press release contains forward-looking statements that involve risks, uncertainties, and assumptions including statements regarding our financial outlook for the fiscal fourth quarter 2023 and fiscal year 2023. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: developments and changes in general market, political, economic, and business conditions; risks associated with managing our growth; risks associated with new products and subscription and support offerings, including the discovery of software bugs; shifts in priorities or delays in the development or release of new subscription offerings, or the failure to timely develop and achieve market acceptance of new products and subscriptions as well as existing products and subscription and support offerings; rapidly evolving technological developments in the market for security products and subscription and support offerings; our customers' purchasing decisions and the length of sales cycles; our competition; our ability to attract and retain new customers; our ability to acquire and integrate other companies, products, or technologies in a successful manner; challenges associated with the global chip and component supply and other factors affecting the manufacture, delivery, and cost of certain of our products; the global impact of COVID-19; our debt repayment obligations; and our share repurchase program, which may not be fully consummated or enhance shareholder value, and any share repurchases which could affect the price of our common stock.
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 Quarterly Report on Form 10-Q 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 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. Palo Alto Networks defines non-GAAP net income as net income (loss) plus 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, restructuring and other costs, and non-cash charges related to convertible notes. The company also excludes from non-GAAP net income foreign currency gains (losses) and tax adjustments to provide a complete picture of the company's recurring core business operating results. The company defines non-GAAP net income per share, diluted, as non-GAAP net income divided by the weighted-average diluted shares outstanding, which includes the potentially dilutive effect of the company's employee equity incentive plan awards and the company's convertible senior notes outstanding and related warrants, after giving effect to the anti-dilutive impact of the company's note hedge agreements, which reduces the potential economic dilution that otherwise would occur upon conversion of the company's convertible senior notes. Under GAAP, the anti-dilutive impact of the note hedge is not reflected in diluted shares outstanding. The company believes that excluding these items from non-GAAP net income and net income per share, diluted, provides management and investors with greater visibility into the underlying performance of the company's core business operating results, meaning its operating performance excluding these items and, from time to time, other discrete charges that are infrequent in nature, over multiple periods.
Billings. Palo Alto Networks defines billings as total revenue plus the change in total deferred revenue, net of acquired deferred revenue, during the period. The company considers billings to be a key metric used by management to manage the company's business and believes billings provides investors with an important indicator of the health and visibility of the company's business because it includes subscription and support revenue, which is recognized ratably over the contractual service period, and product revenue, which is recognized at the time of hardware shipment or delivery of software license, provided that all other conditions for revenue recognition have been met. The company considers billings to be a useful metric for management and investors, particularly if sales of subscriptions continue to increase and the company experiences strong renewal rates for subscriptions and support.
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. Additionally, 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
At
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Preliminary Condensed Consolidated Statements of Operations |
|||||||
(In millions, except per share data) |
|||||||
(Unaudited) |
|||||||
Three Months Ended |
Nine Months Ended |
||||||
|
|
||||||
2023 |
2022 |
2023 |
2022 |
||||
Revenue: |
|||||||
Product |
$ 388.1 |
$ 351.5 |
$ 1,071.0 |
$ 955.0 |
|||
Subscription and support |
1,332.8 |
1,035.2 |
3,868.4 |
2,996.0 |
|||
Total revenue |
1,720.9 |
1,386.7 |
4,939.4 |
3,951.0 |
|||
Cost of revenue: |
|||||||
Product |
93.4 |
126.0 |
314.0 |
312.7 |
|||
Subscription and support |
381.4 |
314.5 |
1,088.9 |
913.7 |
|||
Total cost of revenue |
474.8 |
440.5 |
1,402.9 |
1,226.4 |
|||
Total gross profit |
1,246.1 |
946.2 |
3,536.5 |
2,724.6 |
|||
Operating expenses: |
|||||||
Research and development |
413.7 |
355.4 |
1,189.6 |
1,053.9 |
|||
Sales and marketing |
639.5 |
543.6 |
1,880.0 |
1,578.3 |
|||
General and administrative |
114.2 |
94.8 |
333.1 |
296.6 |
|||
Total operating expenses |
1,167.4 |
993.8 |
3,402.7 |
2,928.8 |
|||
Operating income (loss) |
78.7 |
(47.6) |
133.8 |
(204.2) |
|||
Interest expense |
(7.8) |
(6.8) |
(21.5) |
(20.5) |
|||
Other income, net |
60.1 |
1.9 |
137.5 |
0.2 |
|||
Income (loss) before income taxes |
131.0 |
(52.5) |
249.8 |
(224.5) |
|||
Provision for income taxes |
23.2 |
20.7 |
37.8 |
45.8 |
|||
Net income (loss) |
$ 107.8 |
$ (73.2) |
$ 212.0 |
$ (270.3) |
|||
Net income (loss) per share, basic |
$ 0.35 |
$ (0.25) |
$ 0.70 |
$ (0.92) |
|||
Net income (loss) per share, diluted |
$ 0.31 |
$ (0.25) |
$ 0.63 |
$ (0.92) |
|||
Weighted-average shares used to compute net income (loss) per share, basic |
303.9 |
296.7 |
302.0 |
294.7 |
|||
Weighted-average shares used to compute net income (loss) per share, diluted |
344.7 |
296.7 |
338.1 |
294.7 |
|
|||||||
Reconciliation of GAAP to Non-GAAP Financial Measures |
|||||||
(In millions, except per share amounts) |
|||||||
(Unaudited) |
|||||||
Three Months Ended |
Nine Months Ended |
||||||
|
|
||||||
2023 |
2022 |
2023 |
2022 |
||||
GAAP net income (loss) |
$ 107.8 |
$ (73.2) |
$ 212.0 |
$ (270.3) |
|||
Share-based compensation-related charges |
293.5 |
267.2 |
871.0 |
820.7 |
|||
Acquisition-related costs(1) |
7.4 |
— |
19.5 |
3.1 |
|||
Amortization expense of acquired intangible assets |
25.3 |
31.5 |
78.4 |
94.6 |
|||
Litigation-related charges(2) |
1.8 |
1.8 |
5.4 |
5.4 |
|||
Restructuring and other costs(3) |
— |
— |
(2.2) |
— |
|||
Non-cash charges related to convertible notes(4) |
1.8 |
1.8 |
5.3 |
41.8 |
|||
Foreign currency (gain) loss associated with non-GAAP adjustments |
— |
(2.3) |
0.5 |
(1.7) |
|||
Income tax and other tax adjustments(5) |
(78.2) |
(33.7) |
(232.4) |
(137.4) |
|||
Non-GAAP net income |
$ 359.4 |
$ 193.1 |
$ 957.5 |
$ 548.4 |
|||
GAAP net income (loss) per share, diluted |
$ 0.31 |
$ (0.25) |
$ 0.63 |
$ (0.92) |
|||
Share-based compensation-related charges |
0.91 |
0.84 |
2.72 |
2.64 |
|||
Acquisition-related costs(1) |
0.02 |
0.00 |
0.06 |
0.01 |
|||
Amortization expense of acquired intangible assets |
0.07 |
0.11 |
0.23 |
0.32 |
|||
Litigation-related charges(2) |
0.01 |
0.01 |
0.02 |
0.02 |
|||
Restructuring and other costs(3) |
0.00 |
0.00 |
(0.01) |
0.00 |
|||
Non-cash charges related to convertible notes(4) |
0.01 |
0.01 |
0.02 |
0.14 |
|||
Foreign currency (gain) loss associated with non-GAAP adjustments |
0.00 |
(0.01) |
0.00 |
(0.01) |
|||
Income tax and other tax adjustments(5) |
(0.23) |
(0.11) |
(0.69) |
(0.47) |
|||
Non-GAAP net income per share, diluted |
$ 1.10 |
$ 0.60 |
$ 2.98 |
$ 1.73 |
|||
GAAP weighted-average shares used to compute net income (loss) per share, diluted |
344.7 |
296.7 |
338.1 |
294.7 |
|||
Weighted-average dilutive effect of potentially dilutive securities(6) |
— |
46.4 |
— |
40.8 |
|||
Weighted-average anti-dilutive impact of note hedge agreements |
(19.3) |
(19.7) |
(17.3) |
(17.6) |
|||
Non-GAAP weighted-average shares used to compute net income per share, diluted |
325.4 |
323.4 |
320.8 |
317.9 |
(1) |
Consists of acquisition transaction costs, share-based compensation related to the cash settlement of certain equity awards, and costs to terminate certain employment, operating lease, and other contracts of the acquired companies. |
(2) |
Consists of the amortization of intellectual property licenses and covenant not to sue. |
(3) |
Consists of adjustments to restructuring and other costs. |
(4) |
Consists primarily of non-cash interest expense for amortization of debt discount and issuance costs related to the company's convertible senior notes. |
(5) |
Consists of income tax adjustments related to our long-term non-GAAP effective tax rate. During the nine months ended |
(6) |
Consists of potentially dilutive effect of employee equity incentive plan awards and convertible senior notes outstanding and related warrants in periods with GAAP net loss position as they are excluded from GAAP weighted-average shares. |
|
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Calculation of Billings |
|||||||
(In millions) |
|||||||
(Unaudited) |
|||||||
Three Months Ended |
Nine Months Ended |
||||||
|
|
||||||
2023 |
2022 |
2023 |
2022 |
||||
Total revenue |
$ 1,720.9 |
$ 1,386.7 |
$ 4,939.4 |
$ 3,951.0 |
|||
Add: change in total deferred revenue, net of acquired deferred revenue |
535.3 |
410.2 |
1,094.9 |
835.4 |
|||
Billings |
$ 2,256.2 |
$ 1,796.9 |
$ 6,034.3 |
$ 4,786.4 |
|
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Preliminary Condensed Consolidated Balance Sheets |
|||
(In millions) |
|||
|
|
||
(unaudited) |
|||
Assets |
|||
Current assets: |
|||
Cash and cash equivalents |
$ 1,992.9 |
$ 2,118.5 |
|
Short-term investments |
1,965.3 |
1,516.0 |
|
Accounts receivable, net |
1,443.6 |
2,142.5 |
|
Short-term deferred contract costs |
317.3 |
317.7 |
|
Prepaid expenses and other current assets |
694.5 |
320.2 |
|
Total current assets |
6,413.6 |
6,414.9 |
|
Property and equipment, net |
341.7 |
357.8 |
|
Operating lease right-of-use assets |
248.3 |
242.0 |
|
Long-term investments |
2,709.8 |
1,051.9 |
|
Long-term deferred contract costs |
503.6 |
550.1 |
|
|
2,926.8 |
2,747.7 |
|
Intangible assets, net |
340.6 |
384.5 |
|
Other assets |
686.1 |
504.7 |
|
Total assets |
$ 14,170.5 |
$ 12,253.6 |
|
Liabilities and stockholders' equity |
|||
Current liabilities: |
|||
Accounts payable |
$ 91.6 |
$ 128.0 |
|
Accrued compensation |
344.7 |
461.1 |
|
Accrued and other liabilities |
376.1 |
399.2 |
|
Deferred revenue |
4,146.7 |
3,641.2 |
|
Convertible senior notes, net |
3,682.1 |
3,676.8 |
|
Total current liabilities |
8,641.2 |
8,306.3 |
|
Long-term deferred revenue |
3,942.9 |
3,352.8 |
|
Long-term operating lease liabilities |
264.5 |
276.1 |
|
Other long-term liabilities |
89.5 |
108.4 |
|
Total liabilities |
12,938.1 |
12,043.6 |
|
Stockholders' equity: |
|||
Preferred stock |
— |
— |
|
Common stock and additional paid-in capital |
2,708.2 |
1,932.7 |
|
Accumulated other comprehensive loss |
(20.7) |
(55.6) |
|
Accumulated deficit |
(1,455.1) |
(1,667.1) |
|
Total stockholders' equity |
1,232.4 |
210.0 |
|
Total liabilities and stockholders' equity |
$ 14,170.5 |
$ 12,253.6 |
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SOURCE
Media Contact: Nicole Hockin, Senior Director, Corporate Communication, Palo Alto Networks, press@paloaltonetworks.com; Investor Relations Contact: Ryan Fenwick, Senior Manager, Investor Relations, Palo Alto Networks, ir@paloaltonetworks.com