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Last updated on April 16, 2014 at 21:24 EDT

Palo Alto Networks Reports 54 Percent Year-over-Year Revenue Growth in its Fiscal Third Quarter 2013

May 30, 2013

- Fiscal third quarter revenue grows 54 percent year-over-year to reach $101.3 million

SANTA CLARA, Calif., May 30, 2013 /PRNewswire/ — Palo Alto Networks, Inc. (NYSE: PANW) today announced financial results for its fiscal third quarter of 2013 ended April 30, 2013.

(Logo: http://photos.prnewswire.com/prnh/20130508/SF04701LOGO)

Total revenue for the fiscal third quarter grew 54 percent year-over-year to $101.3 million, compared with $65.7 million in the fiscal third quarter of 2012. GAAP net loss for the fiscal third quarter was $7.3 million, or $0.10 per diluted share, compared with net income of $0.8 million, or $0.00 per diluted share, in the fiscal third quarter of 2012.

Palo Alto Networks recorded fiscal third quarter non-GAAP net income of $4.5 million, or $0.06 per diluted share, compared with non-GAAP net income of $4.7 million, or $0.07 per diluted share, in the fiscal third quarter of 2012. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

“In our fiscal third quarter, we continued to gain market share, rapidly acquire new customers and extend our penetration within existing customers,” said Mark McLaughlin, president and chief executive officer of Palo Alto Networks. “Revenue grew 54 percent year-over-year despite a tough macroeconomic environment and, during the quarter, we added over 1,000 new end-customers for the sixth consecutive quarter.”

Commenting on the company’s financial results, Steffan Tomlinson, chief financial officer of Palo Alto Networks, added, “On a sequential basis in the fiscal third quarter, gross margin and operating margin improved and we grew deferred revenue 17% to reach $219.3 million. We also generated cash flow from operations of $15.2 million to end the quarter with $391.5 million in cash, equivalents and investments.”

Recent Highlights

  • Achieved Common Criteria Evaluation Assurance Level 4 (EAL 4+) certification; this expands our market opportunity by addressing the stringent certification requirements commonly demanded by certain federal, carrier, and financial organizations.
  • Announced availability of the GlobalProtect app for iOS in the App Store(TM) and for Android(TM) Mobile OS in GooglePlay(TM), empowering enterprise customers to extend next-generation firewall security policies to mobile users.
  • Published the inaugural publication of the Modern Malware Review, the first industry report to examine the behavior and lifecycle of bleeding-edge new malware, providing the industry and Palo Alto Networks customers’ valuable insights that are key to improving their cybersecurity posture.
  • Added Carl Eschenbach, President and Chief Operating Officer of VMware, to our Board of Directors.

Conference Call Information

Palo Alto Networks will host a conference call for analysts and investors to discuss its fiscal third quarter of 2013 results and outlook for its fiscal fourth quarter of 2013 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) 318-8620 or (617) 399-5139 and entering the passcode 98558915. 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 23767068.

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 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/A filed with the SEC on March 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 less the related tax effects. Non-GAAP diluted net income per share is defined as non-GAAP net income divided by the diluted weighted-average shares outstanding. 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. 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 network security company. Its innovative platform allows enterprises, service providers, and government entities to secure their networks and safely enable the increasingly complex and rapidly growing number of applications running on their networks. The core of the Palo Alto Networks platform is its Next-Generation Firewall, which delivers application, user, and content visibility and control integrated within the firewall through its proprietary hardware and software architecture. Palo Alto Networks products and services can address a broad range of network security requirements, from the data center to the network perimeter, as well as the distributed enterprise, which includes branch offices and a growing number of mobile devices. Palo Alto Networks products are used by more than 12,500 customers in over 100 countries. For more information, visit 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.

                      Palo Alto Networks, Inc.

    Preliminary Condensed Consolidated Statements of Operations

                (In thousands, except per share data)

                             (Unaudited)

                                     Three Months
                                       Ended          Nine Months Ended
                                    April 30,             April 30,
                                    ---------             ---------

                                     2013     2012          2013      2012
                                     ----     ----          ----      ----

    Revenue:

    Product                       $60,793  $43,524      $178,251  $125,023

    Services                       40,496   22,176       105,471    54,473
                                   ------   ------       -------    ------

    Total
     revenue                      101,289   65,700       283,722   179,496

    Cost of revenue:

    Product                        15,855   11,524        46,907    32,082

    Services                       11,835    7,109        32,591    16,904

    Total
     cost
     of
     revenue                       27,690   18,633        79,498    48,986
                                   ------   ------        ------    ------

    Total
     gross
     profit                        73,599   47,067       204,224   130,510

    Operating expenses:

     Research
     and
     development                   16,048   10,462        44,855    26,824

    Sales
     and
     marketing                     51,733   30,216       140,136    78,196

     General
     and
     administrative                12,268    6,430        30,971    17,355

    Total
     operating
     expenses                      80,049   47,108       215,962   122,375
                                   ------   ------       -------   -------

     Operating
     income
     (loss)                        (6,450)     (41)      (11,738)    8,135

     Interest
     income                           133        3           347         7

    Other
     expense,
     net                             (157)      (3)         (387)   (1,033)
                                     ----      ---          ----    ------

    Income
     (loss)
     before
     income
     taxes                         (6,474)     (41)      (11,778)    7,109

     Provision
     (benefit)
     for
     income
     taxes                            808     (837)        1,632     1,773

    Net
     income
     (loss)                       $(7,282)    $796      $(13,410)   $5,336
                                  =======     ====      ========    ======

    Net income (loss)
     attributable to
      common stockholders:

    Basic                         $(7,282)     $43      $(13,410)      $40
                                  =======      ===      ========       ===

    Diluted                       $(7,282)     $53      $(13,410)      $49
                                  =======      ===      ========       ===

    Net income (loss) per share
     attributable to
      common stockholders:

    Basic                          $(0.10)   $0.00        $(0.20)    $0.00
                                   ======    =====        ======     =====

    Diluted                        $(0.10)   $0.00        $(0.20)    $0.00
                                   ======    =====        ======     =====

    Weighted-average shares
     used to compute net income
     (loss) per share
     attributable to common
     stockholders:

    Basic                          69,575   18,459        67,980    17,238
                                   ======   ======        ======    ======

    Diluted                        69,575   24,888        67,980    23,020
                                   ======   ======        ======    ======

                                                                                            Palo Alto Networks, Inc.

                                                                     Reconciliation of GAAP to Non-GAAP Financial Measures - Fiscal Quarter

                                                                                    (In thousands, except per share amounts)

                                                                                                  (Unaudited)

                                Three Months Ended April 30,                                    Three Months Ended April 30,
                                          2013                                                          2012
                               -----------------------------                                   -----------------------------

                                        GAAP                      Adjustments                          Non-GAAP                  GAAP                    Adjustments              Non-GAAP
                                      Results                                                           Results                Results                                             Results
                                      -------                                                           -------                -------                                             -------

    Net income
     (loss)                                  $(7,282)                          $11,767      (a)                $4,485                  $796                            $3,874 (c)         $4,670
                                             =======                           =======                         ======                  ====                            ======             ======

    Net income (loss) attributable
     to
      common stockholders:

    Basic                                    $(7,282)                          $11,767      (a)                $4,485                   $43                            $1,355 (e)         $1,398
                                             =======                           =======                         ======                   ===                            ======             ======

    Diluted                                  $(7,282)                          $11,767      (a)                $4,485                   $53                            $1,654 (e)         $1,707
                                             =======                           =======                         ======                   ===                            ======             ======

    Net income (loss) per share
     attributable to
      common stockholders:

    Basic                                     $(0.10)                            $0.16      (a)                 $0.06                 $0.00                             $0.08 (e)          $0.08
                                              ======                             =====                          =====                 =====                             =====              =====

    Diluted                                   $(0.10)                            $0.16      (a)                 $0.06                 $0.00                             $0.07 (e)          $0.07
                                              ======                             =====                          =====                 =====                             =====              =====

    Weighted-average shares used to
      compute net income (loss) per
       share
      attributable to common
       stockholders:

    Basic                                     69,575                                 -                         69,575                18,459                                 -             18,459
                                              ======                               ===                         ======                ======                               ===             ======

    Diluted                                   69,575                             8,466      (f)                78,041                24,888                                 -             24,888
                                              ======                             =====                         ======                ======                               ===             ======

                                Nine Months Ended April 30,                                   Nine Months Ended April 30,
                                          2013                                                          2012
                               ----------------------------                                    ----------------------------

                                        GAAP                      Adjustments                          Non-GAAP                  GAAP                    Adjustments              Non-GAAP
                                      Results                                                           Results                Results                                             Results
                                      -------                                                           -------                -------                                             -------

    Net income
     (loss)                                 $(13,410)                          $24,733      (b)               $11,323                $5,336                            $7,367 (d)        $12,703
                                            ========                           =======                        =======                ======                            ======            =======

    Net income (loss) attributable
     to
      common stockholders:

    Basic                                   $(13,410)                          $24,733      (b)               $11,323                   $40                            $2,073 (e)         $2,113
                                            ========                           =======                        =======                   ===                            ======             ======

    Diluted                                 $(13,410)                          $24,733      (b)               $11,323                   $49                            $2,530 (e)         $2,579
                                            ========                           =======                        =======                   ===                            ======             ======

    Net income (loss) per share
     attributable to
      common stockholders:

    Basic                                     $(0.20)                            $0.37      (b)                 $0.17                 $0.00                             $0.12 (e)          $0.12
                                              ======                             =====                          =====                 =====                             =====              =====

    Diluted                                   $(0.20)                            $0.35      (b)                 $0.15                 $0.00                             $0.11 (e)          $0.11
                                              ======                             =====                          =====                 =====                             =====              =====

    Weighted-average shares used to
     compute net income (loss) per
     share attributable to common
     stockholders:

    Basic                                     67,980                                 -                         67,980                17,238                                 -             17,238
                                              ======                               ===                         ======                ======                               ===             ======

    Diluted                                   67,980                             9,752      (f)                77,732                23,020                                 -             23,020
                                              ======                             =====                         ======                ======                               ===             ======

    (a) To eliminate share-based compensation expense of $12,634 and share-based payroll tax of $1,135 offset by related income tax effect of $2,002 for the three
     months ended April 30, 2013

    (b) To eliminate share-based compensation expense of $29,730 and share-based payroll tax of $1,135 offset by related income tax effect of $6,132 for the nine
     months ended April 30, 2013

    (c) To eliminate share-based compensation expense of $3,874 offset by related income tax effect of $0 for the three months ended April 30, 2012

    (d) To eliminate share-based compensation expense of $7,373 offset by related income tax effect of $6 for the nine months ended April 30, 2012

    (e) Includes the effect of participating securities under the two-class method for determining net income (loss) attributable to common stockholders

    (f) Difference between weighted-average shares outstanding on a diluted basis under GAAP and non-GAAP due to application of the treasury stock method for dilutive
     shares

                           Palo Alto Networks, Inc.

               Preliminary Condensed Consolidated Balance Sheets

                                (In thousands)

                                  (Unaudited)

                                        April 30,           July 31,

                                                 2013               2012
                                                 ----               ----

    Assets

    Current assets:

    Cash and cash equivalents                $213,664           $322,642

    Short-term investments                    148,033                  -

    Accounts receivable, net of
     allowance for doubtful
     accounts                                  91,489             45,642

    Prepaid expenses and other
     current assets                            19,538             13,373
                                               ------             ------

    Total current assets                      472,724            381,657

    Property and equipment, net                29,500             20,979

    Long-term investments                      29,767                  -

    Other assets                                6,786              5,168

    Total assets                             $538,777           $407,804
                                             ========           ========

    Liabilities and stockholders' equity

    Current liabilities:

    Accounts payable                          $12,810             $9,214

    Accrued liabilities                        15,578             15,189

    Accrued compensation                       19,662             11,307

    Deferred revenue                          133,968             86,296
                                              -------             ------

    Total current liabilities                 182,018            122,006

    Deferred revenue - non-current             85,336             49,512

    Other long-term liabilities                 7,542              7,215

    Stockholders' equity:

    Preferred stock                                 -                  -

    Common stock                                    7                  7

    Additional paid-in capital                357,289            309,092

    Accumulated other
     comprehensive income                          23                  -

    Accumulated deficit                       (93,438)           (80,028)
                                               ------             ------

    Total stockholders' equity                263,881            229,071

    Total liabilities and
     stockholders' equity                    $538,777           $407,804
                                             ========           ========

            Palo Alto Networks, Inc.

    Preliminary Condensed Consolidated Statements of Cash Flows

                 (In thousands)

                   (Unaudited)

                                         Nine Months
                                            Ended
                                         April 30,
                                         ---------

                                         2013       2012
                                         ----       ----

    Cash flows from operating activities

    Net income (loss)                $(13,410)    $5,336

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

    Depreciation and amortization       7,221      4,193

    Amortization of investment
     premiums, net of accretion
     of purchase discounts              1,445          -

    Share-based compensation for
     equity based awards               29,608      7,350

    Excess tax benefit from
     share-based compensation            (177)         -

    Change in fair value of
     preferred stock warrants               -        958

    Changes in operating assets and liabilities:

    Accounts receivable, net          (45,847)    (9,119)

    Prepaid expenses and other
     assets                            (5,991)    (9,251)

    Accounts payable                    3,347      5,079

    Accrued and other liabilities      13,097      3,834

    Deferred revenue                   83,496     49,397

    Reimbursement of leasehold
     improvements                           -        701
                                          ---        ---

    Net cash provided by
     operating activities              72,789     58,478

    Cash flows from investing activities

    Purchase of property,
     equipment, and other assets      (16,595)   (11,281)

    Purchase of investments          (310,683)         -

    Proceeds from sales of
     investments                       13,491          -

    Proceeds from maturities of
     investments                      117,150          -
                                      -------        ---

    Net cash used in investing
     activities                      (196,637)   (11,281)

    Cash flows from financing activities

    Excess tax benefit from
     share-based compensation             177          -

    Changes in restricted cash              -      1,221

    Proceeds from exercise of
     stock options                     11,195      1,477

    Proceeds from employee stock
     purchase plan                      6,267          -

    Proceeds from settlement of
     note receivable                        -        637

    Repurchase of restricted
     common stock from employees          (71)       (63)

    Payments of initial public
     offering costs                    (2,698)      (703)
                                       ------       ----

    Net cash provided by
     financing activities              14,870      2,569

    Net increase (decrease) in
     cash and cash equivalents       (108,978)    49,766

    Cash and cash equivalents -
     beginning of period              322,642     40,517

    Cash and cash equivalents -
     end of period                   $213,664    $90,283
                                     ========    =======

SOURCE Palo Alto Networks, Inc.


Source: PR Newswire