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)

February 24, 2014

 

 

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.)

4401 Great America Parkway

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 February 24, 2014, Palo Alto Networks, Inc. (the “Company”) issued a press release announcing its financial results for its fiscal second quarter ended January 31, 2014. 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 February 24, 2014.


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: February 24, 2014


EXHIBIT INDEX

 

Exhibit
No.

  

Description

99.1    Press release dated as of February 24, 2014.
EX-99.1

Exhibit 99.1

 

LOGO

Palo Alto Networks Reports Fiscal Second Quarter 2014 Financial Results

 

    Fiscal second quarter total revenue grows 46 percent year-over-year to reach a record $141.1 million

 

    Billings grow 50 percent year-over-year to reach record $186.7 million

 

    Recurring subscription and services revenue grows 74 percent year-over-year to reach a record $60.2 million

 

    Deferred revenue grows 72 percent year-over-year to reach a record $324.6 million

SANTA CLARA, Calif., February 24, 2014 – Palo Alto Networks, Inc. (NYSE: PANW) today announced financial results for its fiscal second quarter of 2014 ended January 31, 2014.

Total revenue for the fiscal second quarter grew 46 percent year-over-year to a record $141.1 million, compared with $96.5 million in the fiscal second quarter of 2013. GAAP net loss for the fiscal second quarter was $39.9 million, or $0.55 per diluted share, compared with a net loss of $2.6 million, or $0.04 per diluted share, in the fiscal second quarter of 2013.

Palo Alto Networks recorded fiscal second quarter non-GAAP net income of $7.8 million, or $0.10 per diluted share, compared with non-GAAP net income of $4.1 million, or $0.05 per diluted share, in the fiscal second quarter of 2013. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

“We reported very good Q2 results, driven by strong customer demand for our integrated and automated enterprise security platform,” said Mark McLaughlin, president and chief executive officer of Palo Alto Networks. “Enterprises around the world are accelerating their investments in security to enable them to improve their business and protect them against the risks stemming from cyber attacks. We see evidence of this in continued new customer adoption and rapid expansion of our platform among existing customers.”


“Our business model is benefitting from higher attach rates of our SaaS-based subscription services, which, combined with continued strong product growth, contributed to record billings, revenue and deferred revenue,” said Steffan Tomlinson, chief financial officer of Palo Alto Networks. “Non-GAAP gross margin, operating margin and free cash flow expanded both sequentially and year-over-year, and we finished the quarter with $501 million in cash, cash equivalents and investments.”

Recent Highlights

 

    Awarded Global Partner of the Year by VMware, which underscores the nature of the strategic partnership we have developed with VMware to transform security for the software-defined data center.

 

    Completion of our first acquisition: Morta Security, which brings to our portfolio a team of cybersecurity experts and technologies that will enhance the detection and prevention capabilities of our platform.

 

    Delivery of PAN-OS 6.0, which raises the bar on helping our customers protect their networks from sophisticated cyber attacks with advanced threat detection and prevention capabilities, among 60+ additional feature enhancements.

 

    Unveiling of the PA-7050, which supports up to 120 Gbps, representing the most powerful next-generation firewall in the industry designed from the ground up to safely enable applications throughout enterprise networks – from the edge of the enterprise to the data center.

Conference Call Information

Palo Alto Networks will host a conference call for analysts and investors to discuss its fiscal second quarter of 2014 results and outlook for its fiscal third quarter of 2014 today at 8:00 a.m. Eastern time / 5:00 a.m. Pacific time. Open to the public, investors may access the call by dialing (877) 703-6104 or (857) 244-7303 and entering the passcode 10737720. 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 20172716.


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; 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 5, 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, tax adjustments related to the valuation allowance on deferred tax assets, expenses related to IP litigation, a payment for the mutual release of claims, and acquisition related costs. Palo Alto Networks believes that excluding these items 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. 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 these items 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.

Billings. Palo Alto Networks defines billings as total revenue plus the change in deferred revenue during the period. The company’s management monitors billings because billings drive deferred revenue, which is an important indicator of the health and visibility of the company’s business. The company considers billings to be a useful metric for management and investors, particularly as sales of subscriptions increase and the company experiences strong renewal rates for subscriptions and support and maintenance.

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 Palo Alto Networks employees’ compensation and impacts their performance. In addition, the billings metric reported by the company includes


amounts that have not yet been recognized as revenue. The components that Palo Alto Networks excludes in its calculation of non-GAAP financial measures 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 these non-GAAP financial measures. 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 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 and the Palo Alto Networks Logo 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:

Kelsey Turcotte

Vice President of Investor Relations

408-753-3872

kturcotte@paloaltonetworks.com

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
January 31,
    Six Months Ended
January 31,
 
     2014     2013     2014     2013  

Revenue:

        

Product

   $ 80,823      $ 61,944      $ 156,308      $ 117,458   

Services

     60,245        34,555        112,940        64,975   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     141,068        96,499        269,248        182,433   

Cost of revenue:

        

Product

     20,221        16,636        38,175        31,052   

Services

     17,283        10,982        33,136        20,756   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     37,504        27,618        71,311        51,808   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total gross profit

     103,564        68,881        197,937        130,625   

Operating expenses:

        

Research and development

     24,253        15,495        44,146        28,807   

Sales and marketing

     76,734        45,796        144,100        88,403   

General and administrative

     39,733        9,747        53,858        18,703   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     140,720        71,038        242,104        135,913   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (37,156     (2,157     (44,167     (5,288

Interest income

     187        116        347        214   

Other expense, net

     (371     (60     (134     (230
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (37,340     (2,101     (43,954     (5,304

Provision for income taxes

     2,606        512        3,853        824   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (39,946   $ (2,613   $ (47,807   $ (6,128
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (39,946   $ (2,613   $ (47,807   $ (6,128
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.55   $ (0.04   $ (0.66   $ (0.09
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     72,854        67,651        72,260        67,225   
  

 

 

   

 

 

   

 

 

   

 

 

 


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,
 
     2014     2013     2014     2013  

GAAP net loss

   $ (39,946   $ (2,613   $ (47,807   $ (6,128

Share-based compensation expense

     21,000        8,754        35,411        17,096   

Share-based payroll tax expense

     2,355        —          2,620        —     

Acquisition related costs

     3,864        —          3,864        —     

Payment for mutual release of claims

     20,000        —          20,000        —     

Litigation expense [a]

     2,653        390        4,542        1,039   

Income tax related to the above

     (2,156     (2,413     (4,690     (4,568
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 7,770      $ 4,118      $ 13,940      $ 7,439   
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP net loss per share, diluted

   $ (0.55   $ (0.04   $ (0.66   $ (0.09

Share-based compensation expense

     0.29        0.12        0.47        0.24   

Share-based payroll tax expense

     0.03        —          0.04        —     

Acquisition related costs

     0.05        —          0.05        —     

Payment for mutual release of claims

     0.27        —          0.28        —     

Litigation expense [a]

     0.04        —          0.06        0.01   

Income tax related to the above

     (0.03     (0.03     (0.06     (0.06
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income per share, diluted

   $ 0.10      $ 0.05      $ 0.18      $ 0.10   
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP weighted-average shares used to compute net loss per share, diluted

     72,854        67,651        72,260        67,225   

Weighted-average effect of potentially dilutive securities

     5,329        9,833        5,427        10,430   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     78,183        77,484        77,687        77,655   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

[a] IP litigation expenses are attributed to ongoing IP litigation with Juniper

 

     Three Months Ended
January 31,
     Six Months Ended
January 31,
 
     2014      2013      2014      2013  

Revenue

   $ 141,068       $ 96,499       $ 269,248       $ 182,433   

Change in deferred revenue

     45,635         27,775         75,361         52,375   
  

 

 

    

 

 

    

 

 

    

 

 

 

Billings

   $ 186,703       $ 124,274       $ 344,609       $ 234,808   
  

 

 

    

 

 

    

 

 

    

 

 

 


Palo Alto Networks, Inc.

Preliminary Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

     January 31, 2014     July 31, 2013  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 261,867      $ 310,614   

Short-term investments

     176,345        109,007   

Accounts receivable, net

     86,090        87,461   

Prepaid expenses and other current assets

     30,985        22,617   
  

 

 

   

 

 

 

Total current assets

     555,287        529,699   

Property and equipment, net

     45,735        32,086   

Long-term investments

     63,105        17,314   

Other assets

     24,899        6,507   
  

 

 

   

 

 

 

Total assets

   $ 689,026      $ 585,606   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 10,341      $ 15,544   

Accrued and other liabilities

     20,425        14,609   

Accrued compensation

     29,713        22,004   

Deferred revenue

     202,330        153,945   
  

 

 

   

 

 

 

Total current liabilities

     262,809        206,102   

Deferred revenue - non-current

     122,261        95,285   

Other long-term liabilities

     19,512        11,799   

Stockholders’ equity:

    

Common stock

     7        7   

Additional paid-in capital

     441,475        381,703   

Accumulated other comprehensive gain (loss)

     43        (16

Accumulated deficit

     (157,081     (109,274
  

 

 

   

 

 

 

Total stockholders’ equity

     284,444        272,420   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 689,026      $ 585,606   
  

 

 

   

 

 

 


Palo Alto Networks, Inc.

Preliminary Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

     Six Months Ended January 31,  
     2014     2013  

Cash flows from operating activities

    

Net loss

   $ (47,807   $ (6,128

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation and amortization

     7,082        4,468   

Amortization of investment premiums, net of accretion of purchase discounts

     747        822   

Share-based compensation for equity based awards

     38,729        17,030   

Excess tax benefit from share-based compensation

     (674     (106

Changes in operating assets and liabilities:

    

Accounts receivable, net

     1,371        (22,944

Prepaid expenses and other assets

     (6,207     (7,290

Accounts payable

     (4,387     1,716   

Accrued and other liabilities

     16,062        17,640   

Deferred revenue

     75,361        52,375   
  

 

 

   

 

 

 

Net cash provided by operating activities

     80,277        57,583   

Cash flows from investing activities

    

Purchase of property, equipment, and other assets

     (25,483     (10,236

Purchase of investments

     (249,803     (252,633

Proceeds from sales of investments

     6,630        13,491   

Proceeds from maturities of investments

     129,096        57,150   

Acquisitions, net of cash

     (10,102     —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (149,662     (192,228

Cash flows from financing activities

    

Excess tax benefit from share-based compensation

     674        106   

Proceeds from exercise of stock options

     14,085        2,554   

Proceeds from employee stock purchase plan

     5,988        —     

Repurchase of restricted common stock from employees

     (109     (35

Payments of initial public offering costs

     —          (2,698
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     20,638        (73

Net decrease in cash and cash equivalents

     (48,747     (134,718

Cash and cash equivalents - beginning of period

     310,614        322,642   
  

 

 

   

 

 

 

Cash and cash equivalents - end of period

   $ 261,867      $ 187,924