- Fiscal third quarter revenue grew 15% year over year to
$2.0 billion
- Remaining performance obligation grew 23% year over year to
$11.3 billion
- Non-GAAP operating margin grew 200 bps year over year to
26%
SANTA
CLARA, Calif., May 20, 2024
/PRNewswire/ -- Palo Alto Networks (NASDAQ: PANW), the global
cybersecurity leader, announced today financial results for its
fiscal third quarter 2024, ended April 30,
2024.
Total revenue for the fiscal third quarter 2024 grew
15% year over year to $2.0
billion, compared with total revenue of $1.7 billion for the fiscal third quarter 2023.
GAAP net income for the fiscal third quarter 2024 was $278.8
million, or $0.79 per diluted share,
compared with GAAP net income of $107.8
million, or $0.31 per diluted
share, for the fiscal third quarter 2023.
Non-GAAP net income for the fiscal third quarter 2024 was
$454.9 million, or $1.32 per diluted share, compared with non-GAAP
net income of $359.4 million, or
$1.10 per diluted share, for the
fiscal third quarter 2023. A reconciliation between GAAP and
non-GAAP information is contained in the tables below.
"We are pleased with the enthusiastic response to
platformization from our customers in Q3. Platformization is a
long-term strategy that addresses the increasing sophistication and
volume of threats, and the need for AI-infused security outcomes,"
said Nikesh Arora, chairman and CEO
of Palo Alto Networks.
"We have remained disciplined in our execution while investing
in go-to-market and innovation," said Dipak
Golechha, chief financial officer of Palo Alto Networks. "We
delivered consistent, profitable growth yet again in Q3 and look
forward to executing against our strategic goals and financial
targets as we close out the year."
Financial Outlook
Palo Alto Networks provides guidance
based on current market conditions and expectations.
For the fiscal fourth quarter 2024, we expect:
- Total billings in the range of $3.43
billion to $3.48 billion,
representing year-over-year growth of between 9% and 10%.
- Total revenue in the range of $2.15
billion to $2.17 billion,
representing year-over-year growth of between 10% and 11%.
- Diluted non-GAAP net income per share in the range of
$1.40 to $1.42, using 345 million to 347 million shares
outstanding.
For the fiscal year 2024, we are updating guidance and
expect:
- Total billings in the range of $10.13
billion to $10.18 billion,
representing year-over-year growth of between 10% and 11%.
- Total revenue in the range of $7.99
billion to $8.01 billion,
representing year-over-year growth of 16%.
- Non-GAAP operating margin in the range of 26.8% to 27.0%.
- Diluted non-GAAP net income per share in the range of
$5.56 to $5.58, using 343 million to 344 million shares
outstanding.
- Adjusted free cash flow margin in the range of 38.5% to
39.0%.
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 related to our long-term
non-GAAP effective tax rate, 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 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 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 per diluted
share and GAAP net cash from operating activities.
Earnings Call Information
Palo Alto Networks will host
a video webcast for analysts and investors to discuss the company's
fiscal third quarter 2024 results as well as the outlook for its
fiscal fourth quarter and fiscal year 2024 today at 4:30 p.m.
Eastern time/1:30 p.m. Pacific time. Open to the public,
investors may access the webcast, supplemental financial
information and earnings slides from the "Investors" section of the
company's website at investors.paloaltonetworks.com. A replay will
be available three hours after the conclusion of the webcast and
archived for one year.
Forward-Looking Statements
This press release contains
forward-looking statements that involve risks, uncertainties, and
assumptions including statements regarding our platformization
strategy financial outlook for the fiscal fourth quarter 2024 and
fiscal year 2024. 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;
failure of our platformization product offerings; failure to
achieve the expected benefits of our strategic partnerships and
acquisitions; risks associated with managing our growth; risks
associated with new products and subscription and support
offerings; shifts in priorities or delays in the development or
release of new 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;
failure of our business strategies; rapidly evolving technological
developments in the market for security products and subscription
and support offerings; defects, errors, or vulnerabilities in our
products, subscriptions, or 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; 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 SEC on February 21,
2024, which is available on our 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 we make with the SEC from time to time. All
forward-looking statements in this press release are based on
information available to us as of the date hereof, and we do 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 and Other Key Metrics
Palo
Alto Networks has provided in this press 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 and other key metrics internally in analyzing
its financial results and believes that the use of these non-GAAP
financial measures and key metrics are helpful 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 or 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 operating margin. Palo Alto Networks
defines non-GAAP operating margin as non-GAAP operating income
divided by total revenue. The company defines non-GAAP operating
income as operating income 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, and restructuring and other costs. The company
believes that non-GAAP operating margin provides management and
investors with greater visibility into the underlying performance
of the company's core business operating results.
Non-GAAP net income and net income per share,
diluted. Palo Alto Networks defines non-GAAP net income as
net income 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 related
to our long-term non-GAAP effective tax rate in order 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 considers these non-GAAP financial
measures to be useful metrics for management and investors for the
same reasons that it uses non-GAAP operating margin.
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 Palo Alto Networks
employees' compensation and impacts their performance. Furthermore,
these non-GAAP financial measures are not based on any standardized
methodology prescribed by GAAP, and 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 the
world's cybersecurity leader. We innovate to outpace cyberthreats,
so organizations can embrace technology with confidence. We provide
next-gen cybersecurity to thousands of customers globally, across
all sectors. Our best-in-class cybersecurity platforms and services
are backed by industry-leading threat intelligence and strengthened
by state-of-the-art automation. Whether deploying our products to
enable the Zero Trust Enterprise, responding to a security
incident, or partnering to deliver better security outcomes through
a world-class partner ecosystem, we're committed to helping ensure
each day is safer than the one before. It's what makes us the
cybersecurity partner of choice.
At Palo Alto Networks, we're committed to bringing together the
very best people in service of our mission, so we're also proud to
be the cybersecurity workplace of choice, recognized among
Newsweek's Most Loved Workplaces (2023, 2022, 2021), with a score
of 100 on the Disability Equality Index (2023, 2022), and HRC Best
Places for LGBTQ+ Equality (2022). For more information, visit
www.paloaltonetworks.com.
Palo Alto Networks, the Palo Alto Networks logo, and Precision
AI 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.
Any unreleased services or features (and any services or features
not generally available to customers) referenced in this or other
press releases or public statements are not currently available (or
are not yet generally available to customers) and may not be
delivered when expected or at all. Customers who purchase Palo Alto
Networks applications should make their purchase decisions based on
services and features currently generally available.
Palo Alto Networks,
Inc.
|
Preliminary
Condensed Consolidated Statements of Operations
|
(In millions, except
per share data)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
April 30,
|
|
April 30,
|
|
2024
|
|
2023
|
|
2024
|
|
2023
|
Revenue:
|
|
|
|
|
|
|
|
Product
|
$
391.0
|
|
$
388.1
|
|
$
1,122.8
|
|
$
1,071.0
|
Subscription and
support
|
1,593.8
|
|
1,332.8
|
|
4,715.2
|
|
3,868.4
|
Total
revenue
|
1,984.8
|
|
1,720.9
|
|
5,838.0
|
|
4,939.4
|
Cost of
revenue:
|
|
|
|
|
|
|
|
Product
|
77.9
|
|
93.4
|
|
243.5
|
|
314.0
|
Subscription and
support
|
435.7
|
|
381.4
|
|
1,242.0
|
|
1,088.9
|
Total cost of
revenue
|
513.6
|
|
474.8
|
|
1,485.5
|
|
1,402.9
|
Total gross
profit
|
1,471.2
|
|
1,246.1
|
|
4,352.5
|
|
3,536.5
|
Operating
expenses:
|
|
|
|
|
|
|
|
Research and
development
|
457.2
|
|
413.7
|
|
1,314.6
|
|
1,189.6
|
Sales and
marketing
|
718.7
|
|
639.5
|
|
2,052.2
|
|
1,880.0
|
General and
administrative
|
118.6
|
|
114.2
|
|
540.2
|
|
333.1
|
Total operating
expenses
|
1,294.5
|
|
1,167.4
|
|
3,907.0
|
|
3,402.7
|
Operating
income
|
176.7
|
|
78.7
|
|
445.5
|
|
133.8
|
Interest
expense
|
(2.3)
|
|
(7.8)
|
|
(8.0)
|
|
(21.5)
|
Other income,
net
|
76.8
|
|
60.1
|
|
231.8
|
|
137.5
|
Income before income
taxes
|
251.2
|
|
131.0
|
|
669.3
|
|
249.8
|
Provision for (benefit
from) income taxes
|
(27.6)
|
|
23.2
|
|
(1,550.6)
|
|
37.8
|
Net income
|
$
278.8
|
|
$
107.8
|
|
$
2,219.9
|
|
$
212.0
|
|
|
|
|
|
|
|
|
Net income per share,
basic
|
$
0.86
|
|
$
0.35
|
|
$
6.99
|
|
$
0.70
|
Net income per share,
diluted
|
$
0.79
|
|
$
0.31
|
|
$
6.27
|
|
$
0.63
|
|
|
|
|
|
|
|
|
Weighted-average shares
used to compute net income per share, basic
|
322.9
|
|
303.9
|
|
317.5
|
|
302.0
|
Weighted-average shares
used to compute net income per share, diluted
|
354.6
|
|
344.7
|
|
354.0
|
|
338.1
|
Palo Alto Networks,
Inc.
|
Reconciliation of
GAAP to Non-GAAP Financial Measures
|
(In millions, except
per share amounts)
|
(Unaudited)
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
April 30,
|
|
April 30,
|
|
2024
|
|
2023
|
|
2024
|
|
2023
|
|
|
|
|
|
|
|
|
GAAP operating
income
|
$
176.7
|
|
$
78.7
|
|
$
445.5
|
|
$
133.8
|
Share-based
compensation-related charges
|
290.0
|
|
293.5
|
|
874.6
|
|
871.0
|
Acquisition-related
costs(1)
|
2.8
|
|
7.4
|
|
10.1
|
|
19.5
|
Amortization expense
of acquired intangible assets
|
32.9
|
|
25.3
|
|
85.3
|
|
78.4
|
Litigation-related
charges(2)
|
5.5
|
|
1.8
|
|
185.9
|
|
5.4
|
Restructuring and
other costs(3)
|
—
|
|
—
|
|
—
|
|
(2.2)
|
Non-GAAP operating
income
|
$
507.9
|
|
$
406.7
|
|
$ 1,601.4
|
|
$ 1,105.9
|
Non-GAAP operating
margin
|
25.6 %
|
|
23.6 %
|
|
27.4 %
|
|
22.4 %
|
|
|
|
|
|
|
|
|
GAAP net
income
|
$
278.8
|
|
$
107.8
|
|
$ 2,219.9
|
|
$
212.0
|
Share-based
compensation-related charges
|
290.0
|
|
293.5
|
|
874.6
|
|
871.0
|
Acquisition-related
costs(1)
|
2.8
|
|
7.4
|
|
10.1
|
|
19.5
|
Amortization expense
of acquired intangible assets
|
32.9
|
|
25.3
|
|
85.3
|
|
78.4
|
Litigation-related
charges(2)
|
5.5
|
|
1.8
|
|
185.9
|
|
5.4
|
Restructuring and
other costs(3)
|
—
|
|
—
|
|
—
|
|
(2.2)
|
Non-cash charges
related to convertible notes(4)
|
0.8
|
|
1.8
|
|
2.9
|
|
5.3
|
Foreign currency loss
associated with non-GAAP adjustments
|
—
|
|
—
|
|
—
|
|
0.5
|
Income tax and other
tax adjustments(5)
|
(155.9)
|
|
(78.2)
|
|
(1,952.8)
|
|
(232.4)
|
Non-GAAP net
income
|
$
454.9
|
|
$
359.4
|
|
$ 1,425.9
|
|
$
957.5
|
|
|
|
|
|
|
|
|
GAAP net income per
share, diluted
|
$
0.79
|
|
$
0.31
|
|
$
6.27
|
|
$
0.63
|
Share-based
compensation-related charges
|
0.85
|
|
0.91
|
|
2.60
|
|
2.72
|
Acquisition-related
costs(1)
|
0.01
|
|
0.02
|
|
0.03
|
|
0.06
|
Amortization expense
of acquired intangible assets
|
0.09
|
|
0.07
|
|
0.24
|
|
0.23
|
Litigation-related
charges(2)
|
0.02
|
|
0.01
|
|
0.53
|
|
0.02
|
Restructuring and
other costs(3)
|
0.00
|
|
0.00
|
|
0.00
|
|
(0.01)
|
Non-cash charges
related to convertible notes(4)
|
0.00
|
|
0.01
|
|
0.01
|
|
0.02
|
Foreign currency loss
associated with non-GAAP adjustments
|
0.00
|
|
0.00
|
|
0.00
|
|
0.00
|
Income tax and other
tax adjustments(5)
|
(0.44)
|
|
(0.23)
|
|
(5.52)
|
|
(0.69)
|
Non-GAAP net income per
share, diluted
|
$
1.32
|
|
$
1.10
|
|
$
4.16
|
|
$
2.98
|
|
|
|
|
|
|
|
|
GAAP weighted-average
shares used to compute net income per share, diluted
|
354.6
|
|
344.7
|
|
354.0
|
|
338.1
|
Weighted-average
anti-dilutive impact of note hedge agreements
|
(9.5)
|
|
(19.3)
|
|
(11.4)
|
|
(17.3)
|
Non-GAAP
weighted-average shares used to compute net income per share,
diluted
|
345.1
|
|
325.4
|
|
342.6
|
|
320.8
|
|
|
(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, and a legal contingency charge.
|
(3)
|
Consists of adjustments
to restructuring and other costs.
|
(4)
|
Consists of non-cash
interest expense for amortization of debt 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 three and nine months ended April 30, 2024, it included
a tax benefit from a release of our valuation allowance on U.S.
federal, U.S. states other than California, and United Kingdom
deferred tax assets. During the nine months ended April 30, 2023,
it included a tax benefit from a release of tax reserves related to
uncertain tax positions resulting from a tax settlement.
|
Palo Alto Networks,
Inc.
|
Preliminary
Condensed Consolidated Balance Sheets
|
(In
millions)
|
|
|
April 30,
2024
|
|
July 31,
2023
|
|
(unaudited)
|
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
1,373.7
|
|
$
1,135.3
|
Short-term
investments
|
1,516.7
|
|
1,254.7
|
Accounts receivable,
net
|
1,715.4
|
|
2,463.2
|
Short-term financing
receivables, net
|
572.3
|
|
388.8
|
Short-term deferred
contract costs
|
337.0
|
|
339.2
|
Prepaid expenses and
other current assets
|
403.7
|
|
466.8
|
Total current
assets
|
5,918.8
|
|
6,048.0
|
Property and equipment,
net
|
350.3
|
|
354.5
|
Operating lease
right-of-use assets
|
369.7
|
|
263.3
|
Long-term
investments
|
3,504.4
|
|
3,047.9
|
Long-term financing
receivables, net
|
882.5
|
|
653.3
|
Long-term deferred
contract costs
|
511.2
|
|
547.1
|
Goodwill
|
3,372.7
|
|
2,926.8
|
Intangible assets,
net
|
407.9
|
|
315.4
|
Deferred tax
assets
|
2,291.9
|
|
23.1
|
Other assets
|
321.4
|
|
321.7
|
Total assets
|
$
17,930.8
|
|
$
14,501.1
|
Liabilities and
stockholders' equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
108.9
|
|
$
132.3
|
Accrued
compensation
|
385.9
|
|
548.3
|
Accrued and other
liabilities
|
412.6
|
|
390.8
|
Deferred
revenue
|
5,014.9
|
|
4,674.6
|
Convertible senior
notes, net
|
1,162.5
|
|
1,991.5
|
Total current
liabilities
|
7,084.8
|
|
7,737.5
|
Long-term deferred
revenue
|
5,152.7
|
|
4,621.8
|
Deferred tax
liabilities
|
503.0
|
|
28.1
|
Long-term operating
lease liabilities
|
369.8
|
|
279.2
|
Other long-term
liabilities
|
352.7
|
|
86.1
|
Total
liabilities
|
13,463.0
|
|
12,752.7
|
Stockholders'
equity:
|
|
|
|
Preferred
stock
|
—
|
|
—
|
Common stock and
additional paid-in capital
|
3,530.7
|
|
3,019.0
|
Accumulated other
comprehensive loss
|
(55.4)
|
|
(43.2)
|
Retained earnings
(accumulated deficit)
|
992.5
|
|
(1,227.4)
|
Total stockholders'
equity
|
4,467.8
|
|
1,748.4
|
Total liabilities and
stockholders' equity
|
$
17,930.8
|
|
$
14,501.1
|
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SOURCE Palo Alto Networks, Inc.