10-QPeriod: Q1 FY2018

Palo Alto Networks Inc Quarterly Report for Q1 Ended Oct 31, 2017

Filed November 21, 2017For Securities:PANW

Summary

Palo Alto Networks Inc. (PANW) reported its first quarter fiscal year 2018 results, ending October 31, 2017, showcasing continued revenue growth driven by its subscription and support offerings. Total revenue increased by 27.0% year-over-year to $505.5 million, with subscription and support revenue growing 36.2% to $319.0 million, now representing 63.1% of total revenue. Despite this top-line growth, the company reported a net loss of $64.0 million for the quarter, an increase from the prior year's loss of $56.9 million. This loss is influenced by significant investments in sales and marketing, which increased by 17.4% to $258.5 million. The company highlighted a strong operating cash flow of $274.1 million, demonstrating effective cash generation from its business operations. However, the balance sheet shows a significant shift with the reclassification of convertible senior notes into current liabilities due to a met conversion condition, alongside a substantial increase in current liabilities. Investors should monitor the company's ability to manage its increasing operating expenses and the potential impact of convertible note conversions on its capital structure.

Financial Highlights

48 data points
Beta

Revenue

$501.80M

71.8% Gross Margin

Net Income

-$63.20M

-12.6% Net Margin

EPS (Diluted)

$-0.12

Total Assets

$3.49B

Cash & Equivalents

$842.60M

Free Cash Flow

$274.00M

Financial Statements
Beta
Revenue$501.80M
Cost of Revenue$141.30M
Gross Profit$360.50M
R&D Expenses$94.20M
Operating Expenses$414.00M
Operating Income-$53.50M
Interest Expense$6.30M
Net Income-$63.20M
EPS (Basic)$-0.12
EPS (Diluted)$-0.12
Shares Outstanding (Basic)545.40M

Key Highlights

  • 1Total revenue grew 27.0% year-over-year to $505.5 million.
  • 2Subscription and support revenue increased by 36.2% to $319.0 million, representing 63.1% of total revenue.
  • 3Product revenue grew 13.9% to $186.5 million.
  • 4Net loss widened to $64.0 million ($0.70 per share) from $56.9 million ($0.63 per share) in the prior year period.
  • 5Operating expenses increased by 21.0% to $418.4 million, driven by higher sales and marketing investments.
  • 6Cash flow from operating activities was strong at $274.1 million, up from $203.5 million year-over-year.
  • 7Convertible senior notes were reclassified as current liabilities due to the company's stock price meeting a conversion condition.

Frequently Asked Questions

Palo Alto Networks experienced a 27.0% year-over-year revenue increase to $505.5 million. This growth is primarily driven by its subscription and support revenue, which grew 36.2%. The company believes its hybrid SaaS model, which emphasizes recurring revenues from its growing installed base, supports sustainable growth.

The increase in net loss from $56.9 million to $64.0 million is attributable to increased operating expenses, particularly in sales and marketing, which rose by 17.4% to $258.5 million. The company is investing heavily in expanding its sales force and marketing efforts to drive future growth.

The company generated a robust $274.1 million in cash flow from operating activities, an increase of $70.6 million compared to the prior year. This indicates strong operational cash generation. Total cash, cash equivalents, and investments stood at $2.3 billion as of October 31, 2017, providing a solid liquidity position.

The $575 million in convertible senior notes were reclassified from long-term liabilities to current liabilities because the company's common stock price met a specific condition ('sale price condition') during the quarter. This condition allows noteholders to convert their notes into shares of common stock during the fiscal quarter ending January 31, 2018. This reclassification signals a potential for future dilution if conversions occur and highlights a significant upcoming event for the company's capital structure.