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
SANTA CLARA, Calif., Sept. 9, 2013 /PRNewswire/ — 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.”
-- 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.
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.
Palo Alto Networks, Inc. Preliminary Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) Three Months Ended Year Ended July 31, 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 ======== ========
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