Palo Alto Networks Reports Fiscal Second Quarter 2014 Financial Results

SANTA CLARA, Calif., Feb. 24, 2014 /PRNewswire/ -- Palo Alto Networks, Inc. (NYSE: PANW) today announced financial results for its fiscal second quarter of 2014 ended January 31, 2014.

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Total revenue for the fiscal second quarter grew 46 percent year-over-year to a record $141.1 million, compared with $96.5 million in the fiscal second quarter of 2013. GAAP net loss for the fiscal second quarter was $39.9 million, or $0.55 per diluted share, compared with a net loss of $2.6 million, or $0.04 per diluted share, in the fiscal second quarter of 2013.

Palo Alto Networks recorded fiscal second quarter non-GAAP net income of $7.8 million, or $0.10 per diluted share, compared with non-GAAP net income of $4.1 million, or $0.05 per diluted share, in the fiscal second quarter of 2013. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

"We reported very good Q2 results, driven by strong customer demand for our integrated and automated enterprise security platform," said Mark McLaughlin, president and chief executive officer of Palo Alto Networks. "Enterprises around the world are accelerating their investments in security to enable them to improve their business and protect them against the risks stemming from cyber attacks. We see evidence of this in continued new customer adoption and rapid expansion of our platform among existing customers. "

"Our business model is benefitting from higher attach rates of our SaaS-based subscription services, which, combined with continued strong product growth, contributed to record billings, revenue and deferred revenue," said Steffan Tomlinson, chief financial officer of Palo Alto Networks. "Non-GAAP gross margin, operating margin and free cash flow expanded both sequentially and year-over-year, and we finished the quarter with $501 million in cash, cash equivalents and investments."

Recent Highlights

• Awarded Global Partner of the Year by VMware, which underscores the nature of the strategic partnership we have developed with VMware to transform security for the software-defined data center.
• Completion of our first acquisition: Morta Security, which brings to our portfolio a team of cybersecurity experts and technologies that will enhance the detection and prevention capabilities of our platform.
• Delivery of PAN-OS 6.0, which raises the bar on helping our customers protect their networks from sophisticated cyber attacks with advanced threat detection and prevention capabilities, among 60+ additional feature enhancements.
• Unveiling of the PA-7050, which supports up to 120 Gbps, representing the most powerful next-generation firewall in the industry designed from the ground up to safely enable applications throughout enterprise networks – from the edge of the enterprise to the data center.

Conference Call Information

Palo Alto Networks will host a conference call for analysts and investors to discuss its fiscal second quarter of 2014 results and outlook for its fiscal third quarter of 2014 today at 8:00 a.m. Eastern time / 5:00 a.m. Pacific time. Open to the public, investors may access the call by dialing (877) 703-6104 or (857) 244-7303 and entering the passcode 10737720. 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 20172716.

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; 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 December 5, 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, tax adjustments related to the valuation allowance on deferred tax assets, expenses related to IP litigation, a payment for the mutual release of claims, and acquisition related costs. 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 and payroll 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 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.

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.

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