PALO ALTO NETWORKS, INC. SANTA CLARA, Calif., Sept. 9, 2014 /PRNewswire/ -- Palo Alto Networks, Inc. (NYSE: PANW) today announced financial results for its fiscal fourth quarter and fiscal year 2014 ended July 31, 2014.
Total revenue for the fiscal fourth quarter grew 59 percent year-over-year to a record $178.2 million, compared with $112.4 million in the fiscal fourth quarter of 2013. GAAP net loss for the fiscal fourth quarter was $32.1 million, or $0.41 per diluted share, compared with a net loss of $15.8 million, or $0.22 per diluted share, in the fiscal fourth quarter of 2013.
Palo Alto Networks recorded fiscal fourth quarter non-GAAP net income of $9.1 million, or $0.11 per diluted share, compared with non-GAAP net income of $5.5 million, or $0.07 per diluted share, in the fiscal fourth quarter of 2013. A reconciliation between GAAP and non-GAAP information is contained in the tables below.
"We delivered a record finish to fiscal year 2014 with fourth quarter revenue growth driven by continued rapid adoption of our unique enterprise security platform," said Mark McLaughlin, president and chief executive officer of Palo Alto networks. "Our platform is built from the ground up to solve the most complex security issues and provides tightly integrated and automated detection and prevention capabilities at enterprise-class performance levels. Our results demonstrate that enterprises around the world are turning to Palo Alto Networks as their strategic partner in the cyber security battle."
For fiscal year 2014, total revenue grew 51 percent to $598.2 million, compared with $396.1 million in fiscal year 2013. GAAP net loss was $226.5 million, or $3.05 per diluted share, in fiscal year 2014, compared with net loss of $29.2 million, or $0.43 per diluted share, in fiscal year 2013. Non-GAAP net income for fiscal year 2014 was $31.8 million, or $0.40 per diluted share, compared with non-GAAP net income of $18.2 million, or $0.24 per diluted share, in fiscal year 2013.
"We are pleased with our results for the fourth quarter and fiscal year 2014. In the fourth quarter, our land, expand, and retain strategy, combined with our hybrid SaaS revenue model, drove strong sales performance across product, subscription services, and support and maintenance. Our growth continues to substantially outpace that of our competitors and our addressable market - valued today at approximately $16 billion," said Steffan Tomlinson, chief financial officer of Palo Alto Networks. "Increasing adoption of our subscription services in the quarter contributed to non-GAAP gross margin expansion, both sequentially and year-over-year, as well as adjusted free cash flow of $44.1 million, an increase of 23 percent year over year."
Recent Highlights
-- Completed a private placement of convertible senior notes - On June 30,
2014, we completed a private placement of $575 million aggregate
principal amount of 0 percent Convertible Senior Notes due 2019.
-- Unveiled our new "Unit 42" threat intelligence team - This dedicated
team of highly qualified security experts is harnessing the collective
expertise of our hundreds of engineers and the unique visibility
provided by our enterprise security platform to identify new advanced
threats and vulnerabilities and share the valuable intelligence to help
our customers and the industry at large protect their computing
environments.
-- Established global distribution agreement with Westcon Group - Building
on our previously established relationship with Westcon in 20 countries,
this agreement includes plans to expand our relationship to more than 40
countries by the end of fiscal year 2016 and makes it even more
efficient for our resellers to get access to our products, support and
services.
Financial Outlook
Palo Alto Networks provides guidance based on current market conditions and expectations.
For the fiscal first quarter of 2015, Palo Alto Networks expects:
-- Total revenue in the range of $178 to $182 million, representing
year-over-year growth between 39 percent and 42 percent.
-- Diluted non-GAAP earnings per share of approximately $0.12 using 83 to
85 million shares.
Guidance for non-GAAP financial measures excludes stock-based compensation, amortization of acquisition-related intangible assets, acquisition expenses, discrete tax benefits, and other non-recurring expenses. The company has not reconciled diluted non-GAAP earnings per share guidance to net income (loss) per diluted share because the company does not provide guidance on net income (loss) or the various reconciling cash and non-cash items between GAAP net income (loss) and non-GAAP net income (loss). As items that impact these measures are out of the company's control and/or cannot be reasonably predicted, the company is unable to provide such guidance. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.
Conference Call Information
Palo Alto Networks will host a conference call for analysts and investors to discuss its fiscal fourth quarter and full year 2014 results and outlook for its fiscal first quarter of 2015 today at 4:30 PM Eastern time / 1:30 PM Pacific time. Open to the public, investors may access the call by dialing 1-866-515-2912 or 617-399-5126 and entering the passcode 85248539. 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 1-888-286-8010 or 617-801-6888 and entering the passcode 78312357.
Forward-Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding the company's financial outlook for the fiscal first quarter of 2015, growth trends, and 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; risks associated with Palo Alto Networks' rapid growth, particularly outside of the United States.; 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 3, 2014, 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 and related payroll taxes, acquisition related costs, litigation related charges including legal settlements, non-cash interest expense related to the company's convertible senior notes, and tax adjustments related to the valuation allowance on deferred tax assets and interim tax cost associated with the implementation of the company's international structure in fiscal fourth quarter of 2013. Palo Alto Networks believes that excluding these items provides management and investors with greater visibility into the underlying performance of the company's core business operating results, meaning its operating performance excluding these items and, from time to time, other 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 associated with these items 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.
Billings. Palo Alto Networks defines billings as total revenue plus the change in deferred revenue, net of acquired deferred revenue, during the period. The company's management monitors billings because billings drive deferred revenue, which is an important indicator of the health and visibility of the company's business. The company considers billings to be a useful metric for management and investors, particularly as sales of subscriptions increase and the company experiences strong renewal rates for subscriptions and support and maintenance.
Free Cash Flow. Palo Alto Networks defines free cash flow as cash provided by operating activities less purchases of property, equipment, and other assets. Adjusted Free Cash Flow is defined as Free Cash Flow further adjusted by the one-time $75 million cash payment related to our legal settlement with Juniper. The company considers Free Cash Flow and Adjusted Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the purchases of property, equipment, and other assets, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet.
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 Palo Alto Networks employees' compensation and impacts their performance. In addition, the billings metric reported by the company includes amounts that have not yet been recognized as revenue. The components that Palo Alto Networks excludes in its calculation of non-GAAP financial measures 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 these non-GAAP financial measures. 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 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 and the Palo Alto Networks Logo 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 July 31, Year Ended July 31,
--------------------------- -------------------
2014 2013 2014 2013
---- ---- ---- ----
Revenue:
Product $99,707 $65,456 $340,143 $243,707
Services 78,524 46,929 258,036 152,400
------ ------ ------- -------
Total revenue 178,231 112,385 598,179 396,107
Cost of revenue:
Product 26,903 16,505 85,503 63,412
Services 21,704 13,753 74,125 46,344
Total cost of revenue 48,607 30,258 159,628 109,756
------ ------ ------- -------
Total gross profit 129,624 82,127 438,551 286,351
Operating expenses:
Research and development 32,830 17,627 104,813 62,482
Sales and marketing 106,668 59,635 334,763 199,771
General and
administrative 15,574 11,748 73,149 42,719
Legal settlement - - 141,173 -
--- --- ------- ---
Total operating expenses 155,072 89,010 653,898 304,972
------- ------ ------- -------
Operating loss (25,448) (6,883) (215,347) (18,621)
Interest expense (1,848) (9) (1,883) (74)
Other income (expense),
net (5,595) 14 (4,930) 39
------ --- ------ ---
Loss before income taxes (32,891) (6,878) (222,160) (18,656)
Provision for (benefit
from) income taxes (833) 8,958 4,292 10,590
Net loss $(32,058) $(15,836) $(226,452) $(29,246)
======== ======== ========= ========
Net loss per share,
basic and diluted $(0.41) $(0.22) $(3.05) $(0.43)
====== ====== ====== ======
Weighted-average shares
used to compute 77,859 70,936 74,291 68,682
net loss per share, basic and diluted
Palo Alto Networks, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended July 31, Year Ended July 31,
--------------------------- -------------------
2014 2013 2014 2013
---- ---- ---- ----
GAAP net loss $(32,058) $(15,836) $(226,452) $(29,246)
Share-based
compensation expense 33,122 14,146 96,463 43,876
Share-based payroll tax
expense 938 152 4,825 1,287
Acquisition related
costs 329 - 7,809 -
Amortization expense of
acquired intangible
assets 1,453 - 2,132 -
Litigation related
charges [a] 9,937 1,350 160,384 3,645
Non-cash interest
expense related to
convertible notes 1,826 - 1,826 -
Loss on facility
sublease - 262 - 262
Income tax and other tax
adjustments related to
the above [b] (6,424) 5,462 (15,193) (1,592)
Non-GAAP net income $9,123 $5,536 $31,794 $18,232
====== ====== ======= =======
GAAP net loss per share,
diluted $(0.41) $(0.22) $(3.05) $(0.43)
Share-based
compensation expense 0.42 0.20 1.27 0.62
Share-based payroll tax
expense 0.01 0.00 0.06 0.02
Acquisition related
costs 0.00 0.00 0.11 0.00
Amortization expense of
acquired intangible
assets 0.02 0.00 0.03 0.00
Litigation related
charges [a] 0.13 0.02 2.16 0.05
Non-cash interest
expense related to
convertible notes 0.02 0.00 0.02 0.00
Loss on facility
sublease 0.00 0.00 0.00 0.00
Income tax and other tax
adjustments related to
the above [b] (0.08) 0.07 (0.20) (0.02)
Non-GAAP net income per
share, diluted $0.11 $0.07 $0.40 $0.24
===== ===== ===== =====
GAAP weighted-average
shares used to compute
net loss per share,
diluted 77,859 70,936 74,291 68,682
Weighted-average effect
of potentially dilutive
securities 5,092 5,739 5,281 8,768
Non-GAAP weighted-
average shares used to
compute net income per
share, diluted 82,951 76,675 79,572 77,450
====== ====== ====== ======
Revenue $178,231 $112,385 $598,179 $396,107
Change in deferred
revenue, net of
acquired deferred
revenue 54,645 29,926 173,196 113,422
------ ------ ------- -------
Billings $232,876 $142,311 $771,375 $509,529
======== ======== ======== ========
Net cash provided by
operating activities $(26,150) $41,730 $88,406 $114,519
Less: purchases of
property, equipment,
and other assets 4,728 5,847 36,107 22,442
Free cash flow $(30,878) $35,883 $52,299 $92,077
Add: cash paid for legal
settlement 75,000 - 75,000 -
Adjusted free cash flow $44,122 $35,883 $127,299 $92,077
======= ======= ======== =======
___________
[a] Includes expenses for legal
services and settlements,
including the legal settlement
with Fortinet of $20.0M in Q2'14,
the legal settlement with Juniper
of $121.2M in Q3'14, the mark-to-
market for the warrants issued as
part of the settlement with
Juniper of $5.9M in Q4'14, and
beginning in Q4'14, the
amortization of intellectual
property licenses entered into as
part of the settlement with
Juniper of $2.0M.
[b] Includes the tax effects of
the exclusions listed above as
well as the adjustment related to
the valuation allowance on
deferred tax assets and interim
tax cost associated with the
implementation of the
international structure of $10.8M
in Q4'13.
Palo Alto Networks, Inc.
Preliminary Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
July 31, 2014 July 31, 2013
------------- -------------
Assets
Current assets:
Cash and cash equivalents $653,812 $310,614
Short-term investments 118,690 109,007
Accounts receivable, net 135,518 87,461
Prepaid expenses and other
current assets 50,306 22,617
------ ------
Total current assets 958,326 529,699
Property and equipment, net 48,744 32,086
Long-term investments 201,880 17,314
Goodwill 155,033 -
Intangible assets, net 47,955 1,358
Other assets 66,528 5,149
Total assets $1,478,466 $585,606
========== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $14,526 $15,544
Accrued compensation 48,727 22,004
Accrued and other
liabilities 25,000 14,609
Deferred revenue 259,918 153,945
------- -------
Total current liabilities 348,171 206,102
Convertible senior notes,
net 466,875 -
Long-term deferred revenue 162,660 95,285
Other long-term liabilities 32,177 11,799
Stockholders' equity:
Preferred stock - -
Common stock 8 7
Additional paid-in capital 804,406 381,703
Accumulated other
comprehensive loss (105) (16)
Accumulated deficit (335,726) (109,274)
-------- --------
Total stockholders' equity 468,583 272,420
Total liabilities and
stockholders' equity $1,478,466 $585,606
========== ========
Palo Alto Networks, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Year Ended July 31,
-------------------
2014 2013
---- ----
Cash flows from operating activities
Net loss $(226,452) $(29,246)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Share-based compensation
for equity based awards 99,774 43,704
Issuance of common stock
for legal settlement 46,173 -
Depreciation and
amortization 19,419 9,892
Amortization of investment
premiums, net of accretion
of purchase discounts 1,518 1,943
Amortization of debt
discount and debt issuance
costs 1,826 -
Change in fair value of
common stock warrant 5,859 -
Excess tax benefit from
share-based compensation (957) (6,762)
Loss on facility sublease - 262
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Accounts receivable, net (47,949) (41,819)
Prepaid expenses and other
assets (10,308) (8,865)
Accounts payable (1,100) 5,830
Accrued compensation 26,331 10,697
Accrued and other
liabilities 1,076 15,461
Deferred revenue 173,196 113,422
------- -------
Net cash provided by
operating activities 88,406 114,519
Cash flows from investing activities
Purchase of investments (506,642) (345,324)
Proceeds from sales of
investments 74,597 13,491
Proceeds from maturities of
investments 233,530 202,710
Acquisition of business,
net of cash acquired (85,726) -
Purchase of property,
equipment, and other
assets (36,107) (22,442)
Net cash used in investing
activities (320,348) (151,565)
Cash flows from financing activities
Proceeds from borrowings on
convertible senior notes,
net 560,433 -
Proceeds from issuance of
warrants 78,258 -
Purchase of convertible
note hedges (110,975) -
Proceeds from exercise of
stock options 33,730 14,765
Proceeds from employee
stock purchase plan 12,869 6,267
Excess tax benefit from
share-based compensation 957 6,762
Payments of initial public
offering costs - (2,698)
Repurchase of restricted
common stock from
terminated employees (132) (78)
---- ---
Net cash provided by
financing activities 575,140 25,018
Net increase (decrease) in
cash and cash equivalents 343,198 (12,028)
Cash and cash equivalents -
beginning of period 310,614 322,642
Cash and cash equivalents -
end of period $653,812 $310,614
======== ========
SOURCE Palo Alto Networks, Inc.
