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

- Fiscal year 2013 revenue grows 55 percent year-over-year to $396.1 million

- Adds over 1,000 new end-customers in fiscal fourth quarter and over 4,800 new end-customers in fiscal year 2013

- Deferred revenue grows 84 percent year-over-year and 14 percent sequentially to reach $249.2 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.

(Logo: http://photos.prnewswire.com/prnh/20130508/SF04701LOGO)

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."    

Recent Highlights

  • 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.

Forward-Looking Statements
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
July 31,


Year Ended
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

 

SOURCE Palo Alto Networks



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