Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

September 9, 2013

 

 

PALO ALTO NETWORKS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-35594   20-2530195

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

  (IRS Employer
Identification No.)

3300 Olcott Street

Santa Clara, California 95054

(Address of principal executive offices, including zip code)

(408) 753-4000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02 Results of Operations and Financial Condition.

On September 9, 2013, Palo Alto Networks, Inc. (the “Company”) issued a press release announcing its financial results for its fiscal fourth quarter and fiscal year ended July 31, 2013. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

The information contained in this Item 2.02 and in the accompanying Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Act of 1933, as amended, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference in such filing.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit No.

  

Description

99.1    Press release dated as of September 9, 2013.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

PALO ALTO NETWORKS, INC.
By:  

/s/ Mark D. McLaughlin

  Mark D. McLaughlin
  President and Chief Executive Officer

Date: September 9, 2013


EXHIBIT INDEX

 

Exhibit No.

  

Description

99.1    Press release dated as of September 9, 2013.
EX-99.1

Exhibit 99.1

 

  LOGO

Palo Alto Networks Reports Record Fourth Quarter and Fiscal Year 2013 Financial Results

 

    Fiscal fourth quarter revenue grows 49 percent year-over-year to reach a record $112.4 million

 

    Fiscal year 2013 revenue grows 55 percent year-over-year to $396.1 million

 

    Adds over 1,000 new end-customers in fiscal fourth quarter and over 4,800 new end-customers in fiscal year 2013

 

    Deferred revenue grows 84 percent year-over-year and 14 percent sequentially to reach $249.2 million

SANTA CLARA, Calif., September 9, 2013 – Palo Alto Networks, Inc. (NYSE: PANW) today announced financial results for its fourth quarter and fiscal year ended July 31, 2013.

Total revenue for the fiscal fourth quarter grew 49 percent year-over-year to a record $112.4 million, compared with $75.6 million in the fiscal fourth quarter of 2012. GAAP net loss for the fiscal fourth quarter was $15.8 million, or $0.22 per diluted share, compared with a net loss of $4.6 million, or $0.18 per diluted share, in the fiscal fourth quarter of 2012.

Palo Alto Networks recorded fiscal fourth quarter non-GAAP net income of $4.7 million, or $0.06 per diluted share, compared with non-GAAP net income of $1.9 million, or $0.03 per diluted share, in the fiscal fourth quarter of 2012. Non-GAAP results for fiscal fourth quarter 2013 include $1.4 million of expenses related to IP litigation, which on a tax-effected basis was $0.01 per diluted share. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

“Demand was strong in the fourth quarter across all theaters and verticals resulting in 11 percent sequential revenue growth and 49 percent year-over-year growth,” said Mark McLaughlin, president and chief executive officer of Palo Alto Networks. “In fiscal 2013, we grew revenue by 55 percent and added over 4,800 customers as Palo Alto Networks continues to significantly outpace the competition and cement its position as the global leader in next generation security.”


For fiscal year 2013, total revenue grew 55 percent to $396.1 million, compared with $255.1 million in fiscal 2012. GAAP net loss was $29.2 million, or $0.43 per diluted share, in fiscal 2013, compared with net income of $0.7 million, or $0.00 per diluted share, in fiscal 2012. Non-GAAP net income for fiscal 2013 was $16.0 million, or $0.21 per diluted share, compared with non-GAAP net income of $14.7 million, or $0.14 per diluted share, in fiscal 2012. Non-GAAP results for fiscal year 2013 include $3.6 million of expenses related to IP litigation, which on a tax effected basis was $0.03 per diluted share.

Commenting on the company’s financial results in the fiscal fourth quarter, Steffan Tomlinson, chief financial officer of Palo Alto Networks, added, “We are pleased with our results for the fourth quarter and fiscal year 2013. In Q4’13, increasing demand for our appliances and contribution from our recurring subscription and maintenance services drove record revenue. Our hybrid SaaS revenue model contributed to an increase in deferred revenue by $29.9 million to $249.2 million at the end of fiscal 2013. During the quarter, we generated cash flow from operations of $41.7 million and we ended the quarter with approximately $436.9 million in cash, cash equivalents and investments.”

Recent Highlights

 

    We introduced the Palo Alto Networks WF-500 appliance, the industry’s first platform designed to deliver a private cloud solution for timely and thorough detection, analysis, and prevention of advanced persistent threats (APTs).

 

    We announced that WildFire is capable of analyzing Android applications to identify advanced threats in Android applications running on smartphones and tablets.

 

    At VMworld, we announced support for the VMware NSX network virtualization platform which will allow organizations to unlock all the benefits of the software-defined data center, from operational efficiencies to greater agility, without compromising security.


Conference Call Information

Palo Alto Networks will host a conference call for analysts and investors to discuss its fiscal fourth quarter and fiscal year 2013 results and outlook for its fiscal first quarter of 2014 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) 383-8009 or (617) 597-5342 and entering the passcode 92185613. 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 40820925.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding continued 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 relatively 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 June 4, 2013 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, and, beginning in the fiscal fourth quarter 2013, tax adjustments related to the valuation allowance on deferred tax assets and interim tax cost associated with the implementation of our international structure. 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, including income tax and payroll tax, associated with share- based compensation 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 and related tax effects. 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. Starting in the fiscal first quarter of 2014, the company will report Non-GAAP results that exclude expenses related to IP litigation. 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 leading a new era in cybersecurity by protecting thousands of enterprise, government, and service provider networks from cyber threats. Unlike fragmented legacy products, our next-generation security platform safely enables business operations and delivers protection based on what matters most in today’s dynamic computing environments: applications, users, and content. Find out more at 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.


Media Contact:

Jennifer Jasper Smith

Head of Corporate Communications

Palo Alto Networks

408-638-3280

jjsmith@paloaltonetworks.com

Investor Relations Contact:

Chris Danne/Maria Riley

The Blueshirt Group

415-217-7722

ir@paloaltonetworks.com


Palo Alto Networks, Inc.

Preliminary Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

     Three Months Ended
July 31,
    Year Ended
July 31,
 
     2013     2012     2013     2012  

Revenue:

        

Product

   $ 65,456      $ 49,439      $ 243,707      $ 174,462   

Services

     46,929        26,203        152,400        80,676   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     112,385        75,642        396,107        255,138   

Cost of revenue:

        

Product

     16,505        12,533        63,412        44,615   

Services

     13,753        9,034        46,344        25,938   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     30,258        21,567        109,756        70,553   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total gross profit

     82,127        54,075        286,351        184,585   

Operating expenses:

        

Research and development

     17,627        11,746        62,482        38,570   

Sales and marketing

     59,635        37,721        199,771        115,917   

General and administrative

     11,748        8,852        42,719        26,207   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     89,010        58,319        304,972        180,694   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (6,883     (4,244     (18,621     3,891   

Interest income

     137        11        484        18   

Other expense, net

     (132     (77     (519     (1,110
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (6,878     (4,310     (18,656     2,799   

Provision for income taxes

     8,958        289        10,590        2,062   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (15,836   $ (4,599   $ (29,246   $ 737   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (15,836   $ (4,599   $ (29,246   $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.22   $ (0.18   $ (0.43   $ 0.00   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     70,936        25,919        68,682        19,569   
  

 

 

   

 

 

   

 

 

   

 

 

 


Palo Alto Networks, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended July 31,     Twelve Months Ended July 31,  
         2013             2012             2013             2012      

GAAP Net income (loss)

   $ (15,836   $ (4,599   $ (29,246   $ 737   

Share-based compensation expense

     14,146        6,552        43,876        13,925   

Share-based payroll tax expense

     152        —          1,287        —     

Loss on facility sublease

     262        —          262        —     

Income tax related to the above

     (4,801     (4     (10,933     (10

Other tax adjustments [a]

     10,785        —          10,785        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 4,708      $ 1,949      $ 16,031      $ 14,652   
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP net income (loss) per share, diluted

   $ (0.22   $ (0.18   $ (0.43   $ —     

Share-based compensation expense

     0.20        0.21        0.62        0.14   

Share-based payroll tax expense

     —          —          0.02        —     

Loss on facility sublease

     —          —          —          —     

Income tax related to the above

     (0.07     —          (0.16     —     

Other tax adjustments [a]

     0.15        —          0.16        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income per share, diluted

   $ 0.06      $ 0.03      $ 0.21      $ 0.14   
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Weighted-average shares used to compute net income (loss) per share, diluted

     70,936        25,919        68,682        19,569   

Weighted-average effect of potentially dilutive securities: Employee stock options

     5,739        9,602        8,768        6,737   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non - GAAP Weighted-average shares used to compute net income per share, diluted

     76,675        35,521        77,450        26,306   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

[a] Other tax adjustments are related to the valuation allowance on deferred tax assets and interim tax cost associated with the implementation of the international structure.


Palo Alto Networks, Inc.

Preliminary Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

     July 31,     July 31,  
     2013     2012  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 310,614      $ 322,642   

Short-term investments

     109,007        —     

Accounts receivable, net

     87,461        45,642   

Prepaid expenses and other current assets

     22,617        13,373   
  

 

 

   

 

 

 

Total current assets

     529,699        381,657   

Property and equipment, net

     32,086        20,979   

Long-term investments

     17,314        —     

Other assets

     6,507        5,168   
  

 

 

   

 

 

 

Total assets

   $ 585,606      $ 407,804   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 15,544      $ 9,214   

Accrued and other liabilities

     14,609        15,189   

Accrued compensation

     22,004        11,307   

Deferred revenue

     153,945        86,296   
  

 

 

   

 

 

 

Total current liabilities

     206,102        122,006   

Deferred revenue – non-current

     95,285        49,512   

Other long-term liabilities

     11,799        7,215   

Stockholders’ equity:

    

Common stock

     7        7   

Additional paid-in capital

     381,703        309,092   

Accumulated other comprehensive loss

     (16     —     

Accumulated deficit

     (109,274     (80,028
  

 

 

   

 

 

 

Total stockholders’ equity

     272,420        229,071   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 585,606      $ 407,804   
  

 

 

   

 

 

 


Palo Alto Networks, Inc.

Preliminary Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

     Year Ended July 31,  
     2013     2012  

Cash flows from operating activities

    

Net income (loss)

   $ (29,246   $ 737   

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

    

Depreciation and amortization

     9,892        6,134   

Amortization of investment premiums, net of accretion of purchase discounts

     1,943        —     

Share-based compensation for equity based awards

     43,704        13,837   

Loss on facility sublease

     262        —     

Excess tax benefit from share-based compensation

     (6,762     (215

Change in fair value of preferred stock warrants

     —          958   

Changes in operating assets and liabilities:

    

Accounts receivable, net

     (41,819     (15,965

Prepaid expenses and other assets

     (8,865     (11,063

Accounts payable

     5,830        3,779   

Accrued and other liabilities

     26,158        9,912   

Deferred revenue

     113,422        68,553   

Reimbursement of leasehold improvements

     —          701   
  

 

 

   

 

 

 

Net cash provided by operating activities

     114,519        77,368   

Cash flows from investing activities

    

Purchase of property, equipment, and other assets

     (22,442     (14,565

Purchase of investments

     (345,324     —     

Proceeds from sales of investments

     13,491        —     

Proceeds from maturities of investments

     202,710        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (151,565     (14,565

Cash flows from financing activities

    

Proceeds from initial public offering, net of offering costs

     —          215,375   

Excess tax benefit from share-based compensation

     6,762        215   

Changes in restricted cash

     —          1,221   

Proceeds from exercise of stock options

     14,765        1,956   

Proceeds from employee stock purchase plan

     6,267        —     

Proceeds from settlement of note receivable

     —          637   

Payments of initial public offering costs

     (2,698     —     

Repurchase of restricted common stock from terminated employees

     (78     (82
  

 

 

   

 

 

 

Net cash provided by financing activities

     25,018        219,322   

Net increase (decrease) in cash and cash equivalents

     (12,028     282,125   

Cash and cash equivalents - beginning of period

     322,642        40,517   
  

 

 

   

 

 

 

Cash and cash equivalents - end of period

   $ 310,614      $ 322,642