Palo Alto Networks Reports Fiscal First Quarter 2013 Financial Results

    Palo Alto Networks Reports Fiscal First Quarter 2013 Financial Results

- Fiscal first quarter revenue grows 50 percent year-over-year and 14 percent
sequentially to reach a record $85.9 million

- Adds over 1,000 new end-customers in fiscal first quarter, reaching over
10,000 total end-customers

- Cash, cash equivalents and investments of $342.1 million with no debt

PR Newswire

SANTA CLARA, Calif., Dec. 6, 2012

SANTA CLARA, Calif., Dec. 6, 2012 /PRNewswire/ -- Palo Alto Networks, Inc.
(NYSE: PANW) today announced financial results for its fiscal first quarter of
2013 ended October 31, 2012.

Total revenue for the fiscal first quarter grew 50 percent year-over-year to
$85.9 million, compared with $57.1 million in the fiscal first quarter of
2012. GAAP net loss for the fiscal first quarter was $3.5 million, or $0.05
per basic and diluted share, compared with net income of $4.1 million, or
$0.00 per basic and diluted share, in the fiscal first quarter of 2012.

Palo Alto Networks recorded fiscal first quarter non-GAAP net income of $2.9
million, or $0.04 per basic and diluted share, compared with non-GAAP net
income of $5.6 million, or $0.01 per basic and diluted share, in the fiscal
first quarter of 2012. A reconciliation between GAAP and non-GAAP information
is contained in the tables below.

"We delivered a strong first quarter, achieving 14% sequential revenue growth
and expanding our customer base to over 10,000 customers," said Mark
McLaughlin, president and chief executive officer of Palo Alto Networks. "Our
performance demonstrates that our unique technology differentiation is
resonating with customers, and as a result, our growth continues to
significantly outpace the market."

"We also continue to build on our technology lead with innovative and
disruptive technology, which further differentiates us from the competition,"
continued McLaughlin.

Commenting on the company's financial results, Steffan Tomlinson, chief
financial officer of Palo Alto Networks, added, "In the first quarter we
delivered strong revenue growth while improving our gross margin and operating
margin on a sequential basis, demonstrating the leverage in our model. During
the quarter, we also generated cash flow from operations of $23.1 million and
we ended the quarter with approximately $342.1 million in cash, cash
equivalents and investments." 

Recent Highlights

  oAnnounced a strategic partnership with Citrix and expanded the Technology
    Partner Program by adding RSA, SafeNet, Swivel, Bradford Networks,
    RedSeal, Skybox Security, Lancope, Interface Masters, and Garland
    Technology.
  oExtended its lead in next-generation network security by launching four
    new products:

       oThe VM-Series – a virtualized next-generation firewall platform
         launched in collaboration with VMware that brings next-generation
         network security into the virtualized datacenter environment;
       oThe WildFire™ modern malware prevention subscription, which sets the
         bar for the market that until now has only been focused on detection;
       oThe PA-3000 Series – a new, midrange next-generation firewall
         hardware platform; and
       oThe M-100 appliance – a dedicated high-performance management
         appliance.

  oAppointed John Donovan, senior executive vice president of AT&T Technology
    and Network Operations, to its Board of Directors.

Conference Call Information

Palo Alto Networks will host a conference call for analysts and investors to
discuss its fiscal first quarter of 2013 results and outlook for its fiscal
second quarter of 2013 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)
700-0133 or (617) 213-8831 and entering the passcode 20601007. 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
atinvestors.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 48881099.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and
uncertainties, including statements regarding 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
new public company; risks associated with Palo Alto Networks' rapid growth,
particularly outside of the U.S.; 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 annual report on Form 10-K filed with the SEC on
October 4, 2012 and the company's final prospectus for its secondary public
offering filed with the SEC on October 18, 2012, both of which are 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. Non-GAAP diluted net income per share is
defined as non-GAAP net income divided by the diluted weighted-average shares
outstanding. 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 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 associated with share-based compensation expense 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. 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. 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 the network security company. Its innovative platform
allows enterprises, service providers, and government entities to secure their
networks and safely enable the increasingly complex and rapidly growing number
of applications running on their networks. The core of Palo Alto Networks
platform is its Next-Generation Firewall, which delivers application, user,
and content visibility and control integrated within the firewall through its
proprietary hardware and software architecture. Palo Alto Networks products
and services can address a broad range of network security requirements, from
the data center to the network perimeter, as well as the distributed
enterprise, which includes branch offices and a growing number of mobile
devices. Palo Alto Networks products are used by more than 10,000 customers in
over 100 countries. For more information, visitwww.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. 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
                                              October 31,
                                              2012        2011
Revenue:
Product                                       $ 55,514    $ 42,861
Services                                      30,420      14,252
Total revenue                                 85,934      57,113
Cost of revenue:
Product                                       14,416      10,310
Services                                      9,774       4,530
Total cost of revenue                         24,190      14,840
Total gross profit                            61,744      42,273
Operating expenses:
Research and development                      13,312      7,848
Sales and marketing                           42,607      22,368
General and administrative                    8,956       5,157
Total operating expenses                      64,875      35,373
Operating income (loss)                       (3,131)     6,900
Interest income                               98          2
Other expense, net                            (170)       (464)
Income (loss) before income taxes             (3,203)     6,438
Provision for income taxes                    312         2,322
Net income (loss)                             $ (3,515)   $  4,116
Net income (loss) attributable to             $ (3,515)   $      -
 common stockholders
Net income (loss) per share attributable to   $  (0.05) $   0.00
 common stockholders, basic and diluted
Weighted-average shares used to compute
 net income (loss) per share attributable to 66,813      16,715
 common stockholders, basic and diluted

Palo Alto Networks, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures - Fiscal Quarter
(In thousands, except per share amounts)
(Unaudited)
                 Three Months Ended October 31, 2012  Three Months Ended October 31, 2011
                 GAAP     Adjustments       Non-GAAP  GAAP     Adjustments       Non-GAAP
                 Results                    Results   Results                    Results
Net income       $        $       (a) $       $        $       (b) $  
(loss)           (3,515)  6,463            2,948    4,116   1,446            5,562
Net income
(loss)
attributable to
common
stockholders:
Basic            $        $       (a) $       $     $      (c) $   
                 (3,515)  6,463            2,948     -      105              105
Diluted          $        $       (a) $       $     $      (c) $   
                 (3,515)  6,463            2,948     -      128              128
Net income
(loss) per share
attributable to
common
stockholders:
Basic            $       $      (a) $      $       $      (c) $   
                 (0.05)   0.09             0.04     0.00    0.01             0.01
Diluted          $       $      (a) $      $       $      (c) $   
                 (0.05)   0.09             0.04     0.00    0.01             0.01
Weighted-average
shares used
tocompute net
income (loss)
per share
attributable to
common
stockholders:
Basic            66,813   -                 66,813    16,715   -                 16,715
Diluted          66,813   11,016      (d) 77,829    16,715   5,273       (d) 21,988

(a) To eliminate share-based compensation expense of $8,342 offset by related
tax effect of share-based compensation of $1,879 for the three months ended
October 31, 2012
(b) To eliminate share-based compensation expense of $1,449 offset by related
tax effect of share-based compensation of $3 for the three months ended
October 31, 2011
(c) Includes the effect of participating securities under the two-class method
for determining net income (loss) attributable to common stockholders
(d) Difference between weighted-average shares outstanding on a diluted basis
under GAAP and non-GAAP due to application of the treasury stock method for
dilutive shares

Palo Alto Networks, Inc.
Preliminary Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
                                                    October 31,   July 31,
                                                    2012          2012
Assets
Current assets:
Cash and cash equivalents                           $  174,473   $ 322,642
Short-term investments                              147,084       -
Accounts receivable, net of allowance for doubtful  56,369        45,642
accounts
Prepaid expenses and other current assets           16,813        13,373
Total current assets                               394,739       381,657
Property and equipment, net                         22,965        20,979
Long-term investments                               20,567        -
Other assets                                        6,026         5,168
Total assets                                       $  444,297   $ 407,804
Liabilities and stockholders' equity
Current liabilities:
Accounts payable                                   $   10,290 $   9,214
Accrued liabilities                                14,743        15,189
Accrued compensation                                16,171        11,307
Deferred revenue                                    101,412       86,296
Total current liabilities                          142,616       122,006
Deferred revenue– non-current                     58,996        49,512
Other long-term liabilities                         6,896         7,215
Stockholders' equity:
Preferred stock                                     -             -
Common stock                                        7             7
Additional paid-in capital                          319,352       309,092
Accumulated other comprehensive loss                (27)          -
Accumulated deficit                                (83,543)      (80,028)
Total stockholders' equity                          235,789       229,071
Total liabilities and stockholders' equity          $  444,297   $ 407,804

Palo Alto Networks, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                                                       Three Months Ended
                                                       October 31,
                                                       2012         2011
Cash flows from operating activities
Net income (loss)                                      $  (3,515) $  4,116
Adjustments to reconcile net income (loss) to
 net cash provided by operating activities:
Depreciation and amortization                          2,053        1,150
Amortization of investment premiums, net of accretion  316          -
of purchase discounts
Share-based compensation for equity based awards       8,284        1,449
Change in fair value of preferred stock warrants       -            404
Changes in operating assets and liabilities:
Accounts receivable, net                               (10,727)     (5,602)
Prepaid expenses and other assets                      (3,830)      (2,661)
Accounts payable                                       1,076        736
Accrued and other liabilities                          4,819        2,096
Deferred revenue                                       24,600       18,904
Net cash provided by operating activities              23,076       20,592
Cash flows from investing activities
Purchase of property, equipment, and other assets      (4,015)      (2,732)
Purchase of investments                                (168,475)    -
Net cash used in investing activities                  (172,490)    (2,732)
Cash flows from financing activities
Changes in restricted cash                             -            1,221
Proceeds from exercise of stock options               1,534        287
Repurchase of restricted common stock from employees   (24)         (59)
Payments of initial public offering costs              (265)        -
Net cash provided by financing activities              1,245        1,449
Net increase (decrease) in cash and cash equivalents   (148,169)    19,309
Cash and cash equivalents - beginning of period        322,642      40,517
Cash and cash equivalents - end of period              $ 174,473   $ 59,826





SOURCE Palo Alto Networks, Inc.

Website: http://www.paloaltonetworks.com
Contact: Media Contact, Mike Haro, Director of Corporate Communications, Palo
Alto Networks, +1-408-438-8628, mharo@paloaltonetworks.com, or Investor
Relations Contact, Chris Danne/Maria Riley, The Blueshirt Group,
+1-415-217-7722, ir@paloaltonetworks.com
 
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