10-QPeriod: Q3 FY2015

Palo Alto Networks Inc Quarterly Report for Q3 Ended Apr 30, 2015

Filed May 28, 2015For Securities:PANW

Summary

Palo Alto Networks, Inc. (PANW) reported a significant increase in total revenue for the third quarter of fiscal year 2015, reaching $234.2 million, a 55.4% year-over-year increase from $150.7 million in the prior year period. This growth was driven by strong performance across all revenue streams, including product revenue, subscription services, and support and maintenance services. The company's strategic focus on its next-generation security platform appears to be resonating with customers, as evidenced by the continued expansion of its customer base to over 24,000 entities. Despite the robust revenue growth, the company reported an operating loss of $36.7 million for the quarter, indicating ongoing investments in research and development and sales and marketing. However, cash flow from operations remains positive, demonstrating the company's ability to generate cash from its core business activities.

Financial Highlights

48 data points
Beta

Revenue

$234.20M

72.5% Gross Margin

Net Income

-$45.90M

-19.6% Net Margin

EPS (Diluted)

$-0.09

Total Assets

$1.78B

Cash & Equivalents

$454.10M

Free Cash Flow

$87.20M

Financial Statements
Beta
Revenue$234.20M
Cost of Revenue$64.40M
Gross Profit$169.80M
R&D Expenses$48.40M
Operating Expenses$206.50M
Operating Income-$36.70M
Interest Expense$5.70M
Net Income-$45.90M
EPS (Basic)$-0.09
Shares Outstanding (Basic)493.80M

Key Highlights

  • 1Total revenue for the three months ended April 30, 2015 was $234.2 million, a 55.4% increase year-over-year.
  • 2Services revenue demonstrated strong growth, with subscription services up 71.3% and support and maintenance up 67.3%.
  • 3Product revenue increased by 44.5% year-over-year, driven by demand for Next-Generation Firewalls.
  • 4The company expanded its customer base to over 24,000 end-customers across more than 140 countries.
  • 5Operating expenses, particularly in Research & Development and Sales & Marketing, increased significantly to support growth and innovation.
  • 6Net loss for the quarter was $45.9 million, compared to $146.6 million in the prior year, reflecting higher operating expenses but also significant legal settlement expenses in the prior year.
  • 7Cash flow from operations was positive at $239.0 million for the nine months ended April 30, 2015, up from $114.6 million in the prior year period.

Frequently Asked Questions

Palo Alto Networks is experiencing significant revenue growth, driven by both product sales (Next-Generation Firewalls) and, increasingly, by recurring revenue from subscription services (Threat Prevention, URL Filtering, WildFire, GlobalProtect) and support and maintenance contracts. The company reported a 55.4% year-over-year increase in total revenue for the three months ended April 30, 2015, with strong growth in all segments.

Palo Alto Networks reported an operating loss of $36.7 million for the three months ended April 30, 2015, and a net loss of $45.9 million for the same period. While the company is investing heavily in growth (R&D, Sales & Marketing), it has a history of net losses. However, the company is generating positive cash flow from operations, indicating that the core business is generating cash despite the reported net loss.

In June 2014, Palo Alto Networks issued $575 million in 0.0% Convertible Senior Notes due 2019. These notes can be converted into shares of common stock under certain conditions. As of April 30, 2015, the company noted that conditions were met for holders to convert during the fiscal quarter ending July 31, 2015, leading to a reclassification of the notes to current liabilities. The accounting for these notes involves separating liability and equity components and recording non-cash interest expense due to a debt discount.

The company maintains a strong liquidity position, with total cash, cash equivalents, and investments totaling $1.23 billion as of April 30, 2015. Cash flow from operating activities for the nine months ended April 30, 2015, was $239.0 million, a significant increase from the prior year. The company believes its current liquidity is sufficient for foreseeable future needs, though it may seek additional financing for future growth initiatives.