SANTA CLARA, Calif.,
May 29, 2019 /PRNewswire/ -- Palo
Alto Networks (NYSE: PANW), the global cybersecurity leader,
announced today financial results for its fiscal third quarter
2019, ended April 30, 2019.
Total revenue for the fiscal third quarter 2019 grew
28 percent year over year to $726.6
million, compared with total revenue of $567.7 million for the fiscal third quarter 2018.
GAAP net loss for the fiscal third quarter 2019 was $20.2 million, or $0.21 per diluted share, compared with GAAP net
loss of $40.4 million, or
$0.44 per diluted share, for the
fiscal third quarter 2018.
Non-GAAP net income for the fiscal third quarter 2019 was
$130.1 million, or $1.31 per diluted share, compared with non-GAAP
net income of $100.0 million, or
$1.04 per diluted share, for the
fiscal third quarter 2018. A reconciliation between GAAP and
non-GAAP information is contained in the tables below.
"Our team continues to execute on our plan and deliver robust
results. The excitement around our new products is incredible and
will only grow once customers have a chance to experience it for
themselves," said Nikesh Arora,
chairman and CEO of Palo Alto Networks. "Both Twistlock and PureSec
will be important additions to helping protect our customers'
journey to the cloud. Combining their capabilities with Prisma, our
leading cloud security suite, is a huge win for all of our
customers."
In a separate news release issued today, the company announced
the proposed acquisitions of Twistlock, the leader in container
security, and PureSec, a leader in serverless security. The company
also announced PrismaTM, the industry's most complete
and comprehensive cloud security suite, earlier today.
Financial Outlook
Palo Alto Networks provides guidance based on current market
conditions and expectations.
For the fiscal fourth quarter 2019, we expect:
- Total revenue in the range of $795 to $805
million, representing year-over-year growth between 21
percent and 22 percent on an ASC 606 basis.
- Diluted non-GAAP net income per share in the range of
$1.41 to $1.42, using 100 to 102 million shares on an ASC
606 basis. This guidance includes the impact of approximately
$15 million in net expense, or
$0.12 per share, related to a full
quarter of the Demisto acquisition as well as the proposed
acquisitions of Twistlock and PureSec. It also includes the impact
of tariffs of approximately $2.5
million, or $0.02 per
share.
Guidance for non-GAAP financial measures excludes share-based
compensation-related charges (including share-based payroll tax
expense), acquisition-related costs, amortization expense of
acquired intangible assets, litigation-related charges (including
legal settlements), facility exit costs, non-cash charges related
to convertible notes, foreign currency gains (losses), and income
and other tax effects associated with these items, along with
certain non-recurring expenses. We have not reconciled diluted
non-GAAP net income per share guidance to GAAP net income (loss)
per diluted share because we do not provide guidance on GAAP net
income (loss) and would not be able to present the various
reconciling cash and non-cash items between GAAP net income (loss)
and non-GAAP net income, including share-based compensation
expense, without unreasonable effort. Share-based compensation
expense is impacted by the company's future hiring and retention
needs and, to a lesser extent, the future fair market value of the
company's common stock, all of which is difficult to predict and
subject to constant change. The actual amounts of such reconciling
items will have a significant impact on the company's GAAP net
income (loss) per diluted share.
Conference Call Information
Palo Alto Networks will host a conference call for analysts and
investors to discuss its fiscal third quarter 2019 results and
outlook for its fiscal fourth quarter 2019 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 1-888-254-3590 or
1-720-543-0302 and using conference ID 5632791. A live audio
webcast of the conference call, along with supplemental financial
information, will also be accessible from the "Investors" section
of our website at investors.paloaltonetworks.com. Following the
webcast, an archived version will be available on our website for
one year. A telephonic replay of the call will be available three
hours after the call, will run for ten days, and may be accessed by
dialing 1-888-203-1112 or 1-719-457-0820 and entering the passcode
5632791.
Forward-Looking Statements
This press release contains forward-looking statements that
involve risks and uncertainties, including statements regarding the
benefits and effectiveness of both Twistlock and PureSec's
technologies when integrated with Prisma and other technologies in
our existing platform, and our financial outlook for the fiscal
fourth quarter 2019. There are a significant number of factors that
could cause actual results to differ materially from statements
made in this press release, including: our limited operating
history; our ability as an organization to acquire and integrate
other companies, products or technologies in a successful manner;
risks associated with managing our rapid growth; the risks
associated with new products and subscription and support
offerings, including the discovery of software bugs; our ability to
attract and retain new customers; delays in the development or
release of new subscription offerings, or the failure to timely
develop and achieve market acceptance of new products and
subscriptions as well as existing products and subscription and
support offerings; rapidly evolving technological developments in
the market for security products and subscription and support
offerings; length of sales cycles; and general market, political,
economic and business conditions.
Additional risks and uncertainties that could affect our
financial results are included under the captions "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in our Quarterly Report on
Form 10-Q filed with the SEC on February 27, 2019, which is available on our
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 we make with the SEC from time to time. All
forward-looking statements in this press release are based on
information available to us as of the date hereof, and we do 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 press 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.
The presentation of these 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
historical 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 these reconciliations.
Non-GAAP net income and net income per share, diluted.
Palo Alto Networks defines non-GAAP net income as net income (loss)
plus share-based compensation-related charges, including
share-based payroll tax expense, acquisition-related costs,
amortization expense of acquired intangible assets,
litigation-related charges, including legal settlements, facility
exit costs, non-cash charges related to convertible notes, and
intellectual property restructuring-related charges. The company
also excludes from non-GAAP net income the foreign currency gains
(losses) and tax effects associated with these items in order to
provide a complete picture of the company's recurring core business
operating results. The company defines non-GAAP net income per
share, diluted, as non-GAAP net income divided by the
weighted-average diluted shares outstanding, which includes the
potentially dilutive effect of the company's employee equity
incentive plan awards and the company's convertible senior notes
outstanding and related warrants, after giving effect to the
anti-dilutive impact of the company's note hedge agreements, which
reduces the potential economic dilution that otherwise would occur
upon conversion of the company's convertible senior notes. Under
GAAP, the anti-dilutive impact of the note hedge is not reflected
in diluted shares outstanding. The company believes that excluding
these items from non-GAAP net income and net income per share,
diluted, 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.
Investors are cautioned that there are a number of limitations
associated with the use of non-GAAP financial measures as
analytical tools. 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, which is an important part of Palo Alto Networks
employees' compensation and impacts their performance. Furthermore,
these non-GAAP financial measures are not based on any standardized
methodology prescribed by GAAP, and 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, the global cybersecurity leader, is shaping
the cloud-centric future with technology that is transforming the
way people and organizations operate. Our mission is to be the
cybersecurity partner of choice, protecting our digital way of
life. We help address the world's greatest security challenges with
continuous innovation that seizes the latest breakthroughs in
artificial intelligence, analytics, automation, and orchestration.
By delivering an integrated platform and empowering a growing
ecosystem of partners, we are at the forefront of protecting tens
of thousands of organizations across clouds, networks, and mobile
devices. Our vision is a world where each day is safer and more
secure than the one before. For more information visit
www.paloaltonetworks.com.
Palo Alto Networks, Prisma, 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 millions,
except per share data)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 30,
|
|
Nine Months Ended
April 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
(As
Adjusted)(1)
|
|
|
|
(As
Adjusted)(1)
|
Revenue:
|
|
|
|
|
|
|
|
Product
|
$
|
278.4
|
|
|
$
|
218.1
|
|
|
$
|
790.5
|
|
|
$
|
607.7
|
|
Subscription and
support
|
448.2
|
|
|
349.6
|
|
|
1,303.3
|
|
|
1,007.4
|
|
Total
revenue
|
726.6
|
|
|
567.7
|
|
|
2,093.8
|
|
|
1,615.1
|
|
Cost of
revenue:
|
|
|
|
|
|
|
|
Product
|
78.0
|
|
|
68.9
|
|
|
233.7
|
|
|
190.4
|
|
Subscription and
support
|
126.9
|
|
|
91.0
|
|
|
357.3
|
|
|
270.2
|
|
Total cost of
revenue
|
204.9
|
|
|
159.9
|
|
|
591.0
|
|
|
460.6
|
|
Total gross
profit
|
521.7
|
|
|
407.8
|
|
|
1,502.8
|
|
|
1,154.5
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Research and
development
|
139.1
|
|
|
99.6
|
|
|
380.8
|
|
|
290.4
|
|
Sales and
marketing
|
339.0
|
|
|
271.4
|
|
|
973.6
|
|
|
784.3
|
|
General and
administrative
|
62.3
|
|
|
82.1
|
|
|
192.6
|
|
|
201.1
|
|
Total operating
expenses
|
540.4
|
|
|
453.1
|
|
|
1,547.0
|
|
|
1,275.8
|
|
Operating
loss
|
(18.7)
|
|
|
(45.3)
|
|
|
(44.2)
|
|
|
(121.3)
|
|
Interest
expense
|
(20.6)
|
|
|
(6.5)
|
|
|
(63.9)
|
|
|
(19.2)
|
|
Other income,
net
|
18.2
|
|
|
8.6
|
|
|
47.2
|
|
|
18.3
|
|
Loss before income
taxes
|
(21.1)
|
|
|
(43.2)
|
|
|
(60.9)
|
|
|
(122.2)
|
|
Provision for
(benefit from) income taxes
|
(0.9)
|
|
|
(2.8)
|
|
|
0.2
|
|
|
7.0
|
|
Net loss
|
$
|
(20.2)
|
|
|
$
|
(40.4)
|
|
|
$
|
(61.1)
|
|
|
$
|
(129.2)
|
|
Net loss per share,
basic and diluted
|
$
|
(0.21)
|
|
|
$
|
(0.44)
|
|
|
$
|
(0.65)
|
|
|
$
|
(1.42)
|
|
Weighted-average
shares used to compute net loss per share, basic and
diluted
|
94.4
|
|
|
91.9
|
|
|
94.1
|
|
|
91.3
|
|
|
|
|
|
|
|
|
|
(1)
|
Certain amounts have
been adjusted due to the company's adoption of the new revenue
recognition standard (ASC 606) as of August 1, 2018 using the full
retrospective method.
|
Palo Alto
Networks, Inc.
|
Reconciliation of
GAAP to Non-GAAP Financial Measures
|
(In millions,
except per share amounts)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
April
30,
|
|
April
30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
(As
Adjusted)(1)
|
|
|
|
(As
Adjusted)(1)
|
GAAP net
loss
|
$
|
(20.2)
|
|
|
$
|
(40.4)
|
|
|
$
|
(61.1)
|
|
|
$
|
(129.2)
|
|
Share-based
compensation-related charges
|
145.8
|
|
|
123.1
|
|
|
436.0
|
|
|
388.3
|
|
Acquisition-related
costs(2)
|
2.9
|
|
|
13.3
|
|
|
20.0
|
|
|
13.3
|
|
Amortization expense
of acquired intangible assets
|
14.6
|
|
|
3.6
|
|
|
38.0
|
|
|
8.6
|
|
Litigation-related
charges(3)
|
3.1
|
|
|
3.1
|
|
|
9.2
|
|
|
9.2
|
|
Facility exit
costs(4)
|
4.1
|
|
|
23.8
|
|
|
4.1
|
|
|
40.8
|
|
Non-cash charges
related to convertible notes(5)
|
17.2
|
|
|
6.5
|
|
|
56.3
|
|
|
19.2
|
|
Foreign currency
(gain) loss associated with non-GAAP adjustments
|
0.5
|
|
|
(2.0)
|
|
|
0.6
|
|
|
(0.5)
|
|
Income tax and other
tax adjustments related to the above(6)
|
(37.9)
|
|
|
(31.0)
|
|
|
(110.6)
|
|
|
(80.7)
|
|
Non-GAAP net
income
|
$
|
130.1
|
|
|
$
|
100.0
|
|
|
$
|
392.5
|
|
|
$
|
269.0
|
|
|
|
|
|
|
|
|
|
GAAP net loss per
share, diluted
|
$
|
(0.21)
|
|
|
$
|
(0.44)
|
|
|
$
|
(0.65)
|
|
|
$
|
(1.42)
|
|
Share-based
compensation-related charges
|
1.48
|
|
|
1.30
|
|
|
4.45
|
|
|
4.15
|
|
Acquisition-related
costs(2)
|
0.03
|
|
|
0.14
|
|
|
0.21
|
|
|
0.15
|
|
Amortization expense
of acquired intangible assets
|
0.15
|
|
|
0.04
|
|
|
0.40
|
|
|
0.09
|
|
Litigation-related
charges(3)
|
0.03
|
|
|
0.03
|
|
|
0.10
|
|
|
0.10
|
|
Facility exit
costs(4)
|
0.04
|
|
|
0.26
|
|
|
0.04
|
|
|
0.45
|
|
Non-cash charges
related to convertible notes(5)
|
0.18
|
|
|
0.07
|
|
|
0.60
|
|
|
0.21
|
|
Foreign currency
(gain) loss associated with non-GAAP adjustments
|
0.01
|
|
|
(0.02)
|
|
|
0.01
|
|
|
(0.01)
|
|
Income tax and other
tax adjustments related to the above(6)
|
(0.40)
|
|
|
(0.34)
|
|
|
(1.18)
|
|
|
(0.88)
|
|
Non-GAAP net income
per share, diluted
|
$
|
1.31
|
|
|
$
|
1.04
|
|
|
$
|
3.98
|
|
|
$
|
2.84
|
|
|
|
|
|
|
|
|
|
GAAP weighted-average
shares used to compute net loss per share, diluted
|
94.4
|
|
|
91.9
|
|
|
94.1
|
|
|
91.3
|
|
Weighted-average
effect of potentially dilutive securities(7)
|
5.2
|
|
|
4.3
|
|
|
4.6
|
|
|
3.3
|
|
Non-GAAP
weighted-average shares used to compute net income per share,
diluted
|
99.6
|
|
|
96.2
|
|
|
98.7
|
|
|
94.6
|
|
|
|
|
|
|
|
|
|
(1)
|
Certain amounts have
been adjusted due to the company's adoption of the new revenue
recognition standard (ASC 606) as of August 1, 2018 using the full
retrospective method.
|
|
|
(2)
|
Consists of
acquisition transaction costs, share-based compensation related to
the cash settlement of certain equity awards, and costs to
terminate certain employment and operating lease contracts of the
acquired company.
|
|
|
(3)
|
Consists of the
amortization of intellectual property licenses.
|
|
|
(4)
|
Consists of charges
related to the relocation of the company's corporate headquarters
(cease-use loss of $15.4 million and accelerated depreciation
during the three months ended October 31, 2017, and additional
cease-use losses of $23.8 million and $4.1 million during the
three months ended April 30, 2018 and April 30, 2019,
respectively) and charges related to the relocation of the
company's research and development center in Israel (cease-use loss
of $1.3 million and accelerated depreciation during the three
months ended January 31, 2018).
|
|
|
(5)
|
Consists primarily of
non-cash interest expense related to the company's convertible
senior notes. Also includes a non-cash loss of $2.6 million
during the nine months ended April 30, 2019, related to early
conversions of the convertible notes during the period.
|
|
|
(6)
|
The company changed
its non-GAAP effective tax rate from 31% to 22% in its second
quarter of fiscal 2018 due to the reduction of the U.S. federal
corporate income tax rate under the U.S. Tax Cuts and Jobs Act,
which was enacted into law on December 22, 2017.
|
|
|
(7)
|
Non-GAAP net income
per share, diluted, includes the potentially dilutive effect of
employee equity incentive plan awards and convertible senior notes
outstanding and related warrants. In addition, non-GAAP net income
per share, diluted, includes the anti-dilutive impact of the
company's note hedge agreements, which reduced the potentially
dilutive effect of the convertible notes by 0.8 million shares
and 0.8 million shares for the three and nine months ended
April 30, 2019, respectively, and 2.2 million shares and 1.6
million shares for the three and nine months ended April 30,
2018, respectively.
|
Palo Alto
Networks, Inc.
|
Preliminary
Condensed Consolidated Balance Sheets
|
(In
millions)
|
(Unaudited)
|
|
|
|
|
|
April 30,
2019
|
|
July 31,
2018
|
|
|
|
(As
Adjusted)(1)
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
1,314.9
|
|
|
$
|
2,506.9
|
|
Short-term
investments
|
1,733.2
|
|
|
896.5
|
|
Accounts receivable,
net
|
407.5
|
|
|
467.0
|
|
Prepaid expenses and
other current assets
|
261.9
|
|
|
268.1
|
|
Total current
assets
|
3,717.5
|
|
|
4,138.5
|
|
Property and
equipment, net
|
275.0
|
|
|
273.1
|
|
Long-term
investments
|
669.9
|
|
|
547.5
|
|
Goodwill
|
1,027.3
|
|
|
522.8
|
|
Intangible assets,
net
|
234.2
|
|
|
140.8
|
|
Other
assets
|
337.9
|
|
|
326.2
|
|
Total
assets
|
$
|
6,261.8
|
|
|
$
|
5,948.9
|
|
Liabilities,
temporary equity, and stockholders' equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
|
68.6
|
|
|
$
|
49.4
|
|
Accrued
compensation
|
144.0
|
|
|
163.7
|
|
Accrued and other
liabilities
|
178.5
|
|
|
124.6
|
|
Deferred
revenue
|
1,449.6
|
|
|
1,213.6
|
|
Convertible senior
notes, net
|
158.1
|
|
|
550.4
|
|
Total current
liabilities
|
1,998.8
|
|
|
2,101.7
|
|
Convertible senior
notes, net
|
1,414.7
|
|
|
1,369.7
|
|
Long-term deferred
revenue
|
1,182.6
|
|
|
1,065.7
|
|
Other long-term
liabilities
|
211.1
|
|
|
229.6
|
|
Temporary
equity
|
1.1
|
|
|
21.9
|
|
Stockholders'
equity:
|
|
|
|
Preferred
stock
|
—
|
|
|
—
|
|
Common stock and
additional paid-in capital
|
2,340.8
|
|
|
1,967.4
|
|
Accumulated other
comprehensive loss
|
(7.2)
|
|
|
(16.4)
|
|
Accumulated
deficit
|
(880.1)
|
|
|
(790.7)
|
|
Total stockholders'
equity
|
1,453.5
|
|
|
1,160.3
|
|
Total liabilities,
temporary equity, and stockholders' equity
|
$
|
6,261.8
|
|
|
$
|
5,948.9
|
|
|
|
|
|
|
|
|
|
(1)
|
Certain amounts have
been adjusted due to the company's adoption of the new revenue
recognition standard (ASC 606) as of August 1, 2018 using the full
retrospective method.
|
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SOURCE Palo Alto Networks, Inc.