Palo Alto Networks Reports Fiscal Third Quarter 2015 Financial Results
Total revenue for the fiscal third quarter 2015 grew 55 percent year-over-year to a record
"We reported record revenue in the fiscal third quarter 2015 as we continue to expand market share with growth rates that significantly outpace the market. Our ongoing success is due to our natively integrated and highly automated enterprise security platform that delivers prevention capabilities at every step in the cyber-attack lifecycle," said
Recent Highlights
- Acquired CirroSecure - This acquisition expands the functionality of our enterprise security platform by providing additional security for SaaS applications and is expected to be available as a new subscription-based service in the second half of 2015.
- Introduced new AutoFocus threat intelligence offering - At Ignite, our annual user conference, we introduced our newest subscription service AutoFocus, which provides prioritized, actionable intelligence to help customers take quick, preventive action against targeted cyber threats. More than 750 customers have already submitted requests to enroll in the AutoFocus community access program.
- Positioned in the "Leaders" quadrant of
Gartner, Inc.'s April 2015 Magic Quadrant for Enterprise Network Firewalls - This is the fourth consecutive year in whichPalo Alto Networks has been recognized as a leader in the Magic Quadrant for Enterprise Network Firewalls report.[1] - Received Superior Security Score in head-to-head product test - In the
NSS Labs 2015 Next-Generation Intrusion Prevention System (NGIPS) test, our platform achieved the highest security efficacy ratings of any other offering tested when exposed to live (real-time) drive-by exploits.
[1]
Financial Outlook
For the fiscal fourth quarter 2015, we expect:
- Total revenue in the range of
$252 to $256 million , representing year-over-year growth between 41 percent and 44 percent. - Diluted non-GAAP earnings per share in the range of
$0.24 to $0.25 using 88.5 to 90.5 million shares.
Guidance for non-GAAP financial measures excludes share-based compensation and related payroll taxes, amortization of acquired intangible assets, acquisition related expenses, discrete tax benefits, non-cash interest expense related to our convertible senior notes, and certain non-recurring expenses. We have not reconciled diluted non-GAAP earnings per share guidance to GAAP net income (loss) per diluted share because we do not provide guidance on GAAP net income (loss) or the various reconciling cash and non-cash items between GAAP net income (loss) and non-GAAP net income (loss). Items that impact these measures are out of our control and/or cannot be reasonably predicted. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.
Conference Call Information
Forward-Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding our financial outlook for the fiscal fourth quarter of 2015, the expected timing of when we will offer CirroSecure as a new subscription-based service, our ability to continue to expand market share with growth rates that significantly outpace the market and continued leverage resulting from our hybrid-SAAS model. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: our limited operating history; risks associated with our rapid growth, particularly outside of
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
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.
Billings.
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
About
Palo Alto Networks, Inc. |
|||||||||||||||
Preliminary Condensed Consolidated Statements of Operations |
|||||||||||||||
(In thousands, except per share data) |
|||||||||||||||
(Unaudited) |
|||||||||||||||
Three Months Ended April 30, |
Nine Months Ended April 30, |
||||||||||||||
2015 |
2014 |
2015 |
2014 |
||||||||||||
Revenue: |
|||||||||||||||
Product |
$ |
121,524 |
$ |
84,128 |
$ |
338,621 |
$ |
240,436 |
|||||||
Services |
112,648 |
66,572 |
305,552 |
179,512 |
|||||||||||
Total revenue |
234,172 |
150,700 |
644,173 |
419,948 |
|||||||||||
Cost of revenue: |
|||||||||||||||
Product |
32,851 |
20,425 |
92,632 |
58,600 |
|||||||||||
Services |
31,544 |
19,285 |
84,549 |
52,421 |
|||||||||||
Total cost of revenue |
64,395 |
39,710 |
177,181 |
111,021 |
|||||||||||
Total gross profit |
169,777 |
110,990 |
466,992 |
308,927 |
|||||||||||
Operating expenses: |
|||||||||||||||
Research and development |
48,486 |
27,837 |
132,739 |
71,983 |
|||||||||||
Sales and marketing |
131,026 |
83,995 |
360,267 |
228,095 |
|||||||||||
General and administrative |
26,989 |
23,717 |
72,989 |
57,575 |
|||||||||||
Legal settlement |
— |
121,173 |
— |
141,173 |
|||||||||||
Total operating expenses |
206,501 |
256,722 |
565,995 |
498,826 |
|||||||||||
Operating loss |
(36,724) |
(145,732) |
(99,003) |
(189,899) |
|||||||||||
Interest expense |
(5,631) |
(13) |
(16,659) |
(35) |
|||||||||||
Other income (expense), net |
(55) |
430 |
630 |
665 |
|||||||||||
Loss before income taxes |
(42,410) |
(145,315) |
(115,032) |
(189,269) |
|||||||||||
Provision for income taxes |
3,525 |
1,272 |
3,979 |
5,125 |
|||||||||||
Net loss |
$ |
(45,935) |
$ |
(146,587) |
$ |
(119,011) |
$ |
(194,394) |
|||||||
Net loss per share, basic and diluted |
$ |
(0.56) |
$ |
(1.96) |
$ |
(1.47) |
$ |
(2.66) |
|||||||
Weighted-average shares used to compute net loss per share, basic and diluted |
82,320 |
74,967 |
80,828 |
73,127 |
Palo Alto Networks, Inc. |
|||||||||||||||
Reconciliation of GAAP to Non-GAAP Financial Measures |
|||||||||||||||
(In thousands, except per share amounts) |
|||||||||||||||
(Unaudited) |
|||||||||||||||
Three Months Ended April 30, |
Nine Months Ended April 30, |
||||||||||||||
2015 |
2014 |
2015 |
2014 |
||||||||||||
GAAP net loss |
$ |
(45,935) |
$ |
(146,587) |
$ |
(119,011) |
$ |
(194,394) |
|||||||
Share-based compensation related charges |
64,175 |
29,197 |
164,312 |
67,228 |
|||||||||||
Acquisition related costs |
349 |
3,681 |
349 |
7,480 |
|||||||||||
Amortization expense of acquired intangible assets |
1,725 |
614 |
4,993 |
679 |
|||||||||||
Litigation related charges [a] |
3,065 |
125,905 |
9,195 |
150,447 |
|||||||||||
Non-cash interest expense related to convertible notes |
5,610 |
— |
16,609 |
— |
|||||||||||
Foreign currency loss associated with an acquisition related tax liability |
514 |
— |
514 |
— |
|||||||||||
Income tax and other tax adjustments related to the above |
(9,025) |
(4,079) |
(26,778) |
(8,769) |
|||||||||||
Non-GAAP net income |
$ |
20,478 |
$ |
8,731 |
$ |
50,183 |
$ |
22,671 |
|||||||
GAAP net loss per share, diluted |
$ |
(0.56) |
$ |
(1.96) |
$ |
(1.47) |
$ |
(2.66) |
|||||||
Share-based compensation related charges |
0.76 |
0.38 |
1.99 |
0.90 |
|||||||||||
Acquisition related costs |
0.00 |
0.05 |
0.00 |
0.10 |
|||||||||||
Amortization expense of acquired intangible assets |
0.02 |
0.01 |
0.06 |
0.01 |
|||||||||||
Litigation related charges [a] |
0.04 |
1.68 |
0.11 |
2.06 |
|||||||||||
Non-cash interest expense related to convertible notes |
0.07 |
0.00 |
0.21 |
0.00 |
|||||||||||
Foreign currency loss associated with an acquisition related tax liability |
0.01 |
0.00 |
0.01 |
0.00 |
|||||||||||
Income tax and other tax adjustments related to the above |
(0.11) |
(0.05) |
(0.33) |
(0.12) |
|||||||||||
Non-GAAP net income per share, diluted |
$ |
0.23 |
$ |
0.11 |
$ |
0.58 |
$ |
0.29 |
|||||||
GAAP weighted-average shares used to compute net loss per share, diluted |
82,320 |
74,967 |
80,828 |
73,127 |
|||||||||||
Weighted-average effect of potentially dilutive securities [b] |
5,711 |
5,248 |
5,618 |
5,350 |
|||||||||||
Non-GAAP weighted-average shares used to compute net income per share, diluted |
88,031 |
80,215 |
86,446 |
78,477 |
|||||||||||
Revenue |
$ |
234,172 |
$ |
150,700 |
$ |
644,173 |
$ |
419,948 |
|||||||
Change in deferred revenue, net of acquired deferred revenue |
68,047 |
43,190 |
181,312 |
118,551 |
|||||||||||
Billings |
$ |
302,219 |
$ |
193,890 |
$ |
825,485 |
$ |
538,499 |
___________
[a] Litigation related charges during the three and nine months ended April 30, 2015 includes the amortization of intellectual property licenses entered into as part of the legal settlement with
[b] Non-GAAP net income per share, diluted, includes the potentially dilutive effect of options, restricted stock units, and convertible senior notes outstanding. In addition, Non-GAAP net income per share, diluted, includes the anti-dilutive impact of the company's note hedge agreements, which reduced the potentially dilutive effect of the convertible notes for the three and nine months ended April 30, 2015 by 1.3 million shares and 0.6 million shares, respectively. The potentially dilutive effect of the convertible notes for the three and nine months ended April 30, 2014 was nil.
Palo Alto Networks, Inc. |
|||||||
Preliminary Condensed Consolidated Balance Sheets |
|||||||
(In thousands) |
|||||||
(Unaudited) |
|||||||
April 30, 2015 |
July 31, 2014 |
||||||
Assets |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ |
454,123 |
$ |
653,812 |
|||
Short-term investments |
368,850 |
118,690 |
|||||
Accounts receivable, net |
150,523 |
135,518 |
|||||
Prepaid expenses and other current assets |
67,013 |
50,306 |
|||||
Total current assets |
1,040,509 |
958,326 |
|||||
Property and equipment, net |
59,546 |
48,744 |
|||||
Long-term investments |
408,465 |
201,880 |
|||||
Goodwill |
155,402 |
155,033 |
|||||
Intangible assets, net |
43,885 |
47,955 |
|||||
Other assets |
76,625 |
66,528 |
|||||
Total assets |
$ |
1,784,432 |
$ |
1,478,466 |
|||
Liabilities, temporary equity, and stockholders' equity |
|||||||
Current liabilities: |
|||||||
Accounts payable |
$ |
14,661 |
$ |
14,526 |
|||
Accrued compensation |
53,467 |
48,727 |
|||||
Accrued and other liabilities |
28,535 |
25,000 |
|||||
Deferred revenue |
365,384 |
259,918 |
|||||
Convertible senior notes, net |
481,960 |
— |
|||||
Total current liabilities |
944,007 |
348,171 |
|||||
Convertible senior notes, net |
— |
466,875 |
|||||
Long-term deferred revenue |
238,506 |
162,660 |
|||||
Other long-term liabilities |
54,601 |
32,177 |
|||||
Temporary equity |
93,040 |
— |
|||||
Stockholders' equity: |
|||||||
Preferred stock |
— |
— |
|||||
Common stock |
8 |
8 |
|||||
Additional paid-in capital |
908,867 |
804,406 |
|||||
Accumulated other comprehensive income (loss) |
140 |
(105) |
|||||
Accumulated deficit |
(454,737) |
(335,726) |
|||||
Total stockholders' equity |
454,278 |
468,583 |
|||||
Total liabilities, temporary equity, and stockholders' equity |
$ |
1,784,432 |
$ |
1,478,466 |
Palo Alto Networks, Inc. |
|||||||
Preliminary Condensed Consolidated Statements of Cash Flows |
|||||||
(In thousands) |
|||||||
(Unaudited) |
|||||||
Nine Months Ended April 30, |
|||||||
2015 |
2014 |
||||||
Cash flows from operating activities |
|||||||
Net loss |
$ |
(119,011) |
$ |
(194,394) |
|||
Adjustments to reconcile net loss to net cash provided by operating activities: |
|||||||
Share-based compensation for equity based awards |
155,498 |
66,685 |
|||||
Depreciation and amortization |
20,273 |
11,638 |
|||||
Amortization of investment premiums, net of accretion of purchase discounts |
2,308 |
1,180 |
|||||
Amortization of debt discount and debt issuance costs |
16,610 |
— |
|||||
Excess tax benefit from share-based compensation arrangements |
(518) |
(758) |
|||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
|||||||
Accounts receivable, net |
(15,005) |
(27,220) |
|||||
Prepaid expenses and other assets |
(30,885) |
(7,926) |
|||||
Accounts payable |
(3,896) |
8,965 |
|||||
Accrued compensation |
4,750 |
6,792 |
|||||
Accrued and other liabilities |
27,543 |
131,043 |
|||||
Deferred revenue |
181,312 |
118,551 |
|||||
Net cash provided by operating activities |
238,979 |
114,556 |
|||||
Cash flows from investing activities |
|||||||
Purchases of investments |
(666,471) |
(316,911) |
|||||
Proceeds from sales of investments |
7,000 |
6,630 |
|||||
Proceeds from maturities of investments |
200,798 |
198,080 |
|||||
Business acquisitions, net of cash acquired |
— |
(85,726) |
|||||
Purchases of property, equipment, and other assets |
(21,862) |
(31,379) |
|||||
Net cash used in investing activities |
(480,535) |
(229,306) |
|||||
Cash flows from financing activities |
|||||||
Proceeds from exercises of stock options |
23,136 |
25,431 |
|||||
Proceeds from employee stock purchase plan |
18,213 |
12,869 |
|||||
Excess tax benefit from share-based compensation arrangements |
518 |
758 |
|||||
Repurchases of restricted common stock from terminated employees |
— |
(132) |
|||||
Net cash provided by financing activities |
41,867 |
38,926 |
|||||
Net decrease in cash and cash equivalents |
(199,689) |
(75,824) |
|||||
Cash and cash equivalents - beginning of period |
653,812 |
310,614 |
|||||
Cash and cash equivalents - end of period |
$ |
454,123 |
$ |
234,790 |
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SOURCE
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