Palo Alto Networks Reports Record Revenue on 70 Percent Year-over-Year Revenue Growth in its Fiscal Second Quarter 2013

Palo Alto Networks Reports Record Revenue on 70 Percent Year-over-Year Revenue
                   Growth in its Fiscal Second Quarter 2013

- Fiscal second quarter revenue grows 70 percent year-over-year and 12 percent
sequentially to reach a record $96.5 million

- Adds over 1,000 new end-customers in fiscal second quarter, reaching over
11,000 total end-customers

- Deferred revenue grows 92 percent year-over-year and 17 percent sequentially
to reach $188.2 million

PR Newswire

SANTA CLARA, Calif., Feb. 28, 2013

SANTA CLARA, Calif., Feb. 28, 2013 /PRNewswire/ --Palo Alto Networks, Inc.
(NYSE: PANW) today announced financial results for its fiscal second quarter
of 2013 ended January 31, 2013.

Total revenue for the fiscal second quarter grew 70 percent year-over-year to
$96.5 million, compared with $56.7 million in the fiscal second quarter of
2012. GAAP net loss for the fiscal second quarter was $2.6 million, or $0.04
per diluted share, compared with net income of $0.4 million, or $0.00 per
diluted share, in the fiscal second quarter of 2012.

Palo Alto Networks recorded fiscal second quarter non-GAAP net income of $3.9
million, or $0.05 per diluted share, compared with non-GAAP net income of $2.5
million, or $0.04 per diluted share, in the fiscal second quarter of 2012. A
reconciliation between GAAP and non-GAAP information is contained in the
tables below.

"Our growth continues to prove that Palo Alto Networks is transforming the
enterprise network security space with high value, disruptive technology,"
said Mark McLaughlin, president and chief executive officer of Palo Alto
Networks. "During the quarter, we again added over 1,000 new customers for
the fifth consecutive quarter. This rate of adoption plus continued strong
expansion in our existing accounts reinforces our position as the global
leader in next- generation enterprise network security."

Commenting on the company's financial results, Steffan Tomlinson, chief
financial officer of Palo Alto Networks, added, "In the second fiscal quarter
we delivered strong revenue growth and continued to improve our operating
margin on a sequential basis, demonstrating our ability to substantially
outgrow the competition while driving increased leverage. Deferred revenue
grew 92.2 percent year-over-year to reach $188.2 million, and we generated
cash flow from operations of $34.5 million in the second fiscal quarter." 

Recent Highlights

  oDesignated as a Leader in the Gartner 2013 Magic Quadrant for Enterprise
    Network Firewalls.
  oExpanded our partnership with Big Data market leader Splunk and initiated
    partnerships with information security leaders Mandiant and Bit9.
  oAwarded the Network Innovation Award for Next Gen Firewalls by the readers
    and editorial staff of TechTarget, a leading worldwide technology
    publication.

Conference Call Information

Palo Alto Networks will host a conference call for analysts and investors to
discuss its fiscal second quarter of 2013 results and outlook for its fiscal
third 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)
761-0749 or (617) 614-2707 and entering the passcode 28731212. 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 35051992.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and
uncertainties, including statements regarding continued revenue growth and
overall 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.; 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 10, 2012 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. 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, 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 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 11,000 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 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         Six Months Ended
                           January 31,                January 31,
                           2013          2012         2013         2012
Revenue:
Product                    $  61,944   $  38,638  $ 117,458   $  81,499
Services                   34,555        18,045       64,975       32,297
Total revenue              96,499        56,683       182,433      113,796
Cost of revenue:
Product                    16,636        10,248       31,052       20,558
Services                   10,982        5,265        20,756       9,795
Total cost of revenue      27,618        15,513       51,808       30,353
Total gross profit         68,881        41,170       130,625      83,443
Operating expenses:
Research and development   15,495        8,514        28,807       16,362
Sales and marketing        45,796        25,612       88,403       47,980
General and administrative 9,747         5,768        18,703       10,925
Total operating expenses   71,038        39,894       135,913      75,267
Operating income (loss)    (2,157)       1,276        (5,288)      8,176
Interest income            116           2            214          4
Other expense, net         (60)          (566)        (230)        (1,030)
Income (loss) before       (2,101)       712          (5,304)      7,150
income taxes
Provision for income taxes 512           288          824          2,610
Net income (loss)          $  (2,613)  $        $  (6,128) $  
                                         424                       4,540
Net income (loss)                        $                    $     
attributable to            $  (2,613)    -        $  (6,128)   -
 common stockholders
Net income (loss) per
share attributable to      $   (0.04) $         $          $   
 common stockholders,                   0.00        (0.09)      0.00
basic and diluted
Weighted-average shares
used to compute
 net income (loss) per    67,651        17,192       67,225       16,948
share attributable to
 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 January 31, 2013  Three Months Ended January 31, 2012
                 GAAP     Adjustments       Non-GAAP  GAAP     Adjustments       Non-GAAP
                 Results                    Results   Results                    Results
Net income       $     $            $      $     $             $   
(loss)                   6,503       (a)               2,047      (c)  2,471
                 (2,613)                    3,890     424
Net income
(loss)
attributable to
common
stockholders:
                 $     $            $      $     $            $   
Basic                    6,503       (a)               695       (e)   
                 (2,613)                    3,890      -                       695
                 $     $            $      $     $            $   
Diluted                  6,503       (a)               837       (e)   
                 (2,613)                    3,890      -                       837
Net income
(loss) per share
attributable to
common
stockholders:
                 $     $            $      $     $            $   
Basic                    0.10      (a)               0.04       (e)  
                 (0.04)                     0.06      0.00                      0.04
                 $     $            $      $     $            $   
Diluted                  0.09      (a)               0.04       (e)  
                 (0.04)                     0.05      0.00                      0.04
Weighted-average
shares used to
compute net
income (loss)
per share
attributable to
common
stockholders:
Basic            67,651   -                 67,651    17,192   -                 17,192
Diluted          67,651   9,833       (f) 77,484    17,192   5,335       (f) 22,527
                 Six Months Ended January 31, 2013    Six Months Ended January 31, 2012
                 GAAP     Adjustments       Non-GAAP  GAAP     Adjustments       Non-GAAP
                 Results                    Results   Results                    Results
Net income       $     $              $      $     $             $   
(loss)                   12,966     (b)                 3,493      (d)  8,033
                 (6,128)                    6,838     4,540
Net income
(loss)
attributable to
common
stockholders:
                 $     $              $      $     $            $   
Basic                    12,966     (b)               788       (e)   
                 (6,128)                    6,838      -                       788
                 $     $              $      $     $            $   
Diluted                  12,966     (b)               957       (e)   
                 (6,128)                    6,838      -                       957
Net income
(loss) per share
attributable to
common
stockholders:
                 $     $            $      $     $            $   
Basic                    0.19      (b)               0.05       (e)  
                 (0.09)                     0.10      0.00                      0.05
                 $     $            $      $     $            $   
Diluted                  0.18      (b)               0.04       (e)  
                 (0.09)                     0.09      0.00                      0.04
Weighted-average
shares used to
compute net
income (loss)
per share
attributable to
common
stockholders:
Basic            67,225   -                 67,225    16,948   -                 16,948
Diluted          67,225   10,430            77,655    16,948   5,459       (f) 22,407
(a) To eliminate share-based compensation expense of $8,754 offset by related tax effect
of share-based compensation of $2,251 for the three months ended January 31, 2013
(b) To eliminate share-based compensation expense of $17,096 offset by related tax effect
of share-based compensation of $4,130 for the six months ended January 31, 2013
(c) To eliminate share-based compensation expense of $2,050 offset by related tax effect
of share-based compensation of $3 for the three months ended January 31, 2012
(d) To eliminate share-based compensation expense of $3,499 offset by related tax effect
of share-based compensation of $6 for the six months ended January 31, 2012
(e) Includes the effect of participating securities under the two-class method for
determining net income (loss) attributable to common stockholders
(f) 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)
                                                 January 31,   July 31,
                                                 2013          2012
Assets
Current assets:
Cash and cash equivalents                        $  187,924  $  322,642
Short-term investments                           149,520       -
Accounts receivable, net of allowance for        68,586        45,642
doubtful accounts
Prepaid expenses and other current assets        20,644        13,373
Total current assets                            426,674       381,657
Property and equipment, net                      25,980        20,979
Long-term investments                            30,871        -
Other assets                                     6,624         5,168
Total assets                                    $  490,149  $  407,804
Liabilities and stockholders' equity
Current liabilities:
Accounts payable                                $   10,769 $     9,214
Accrued liabilities                             16,567        15,189
Accrued compensation                             24,223        11,307
Deferred revenue                                 117,437       86,296
Total current liabilities                       168,996       122,006
Deferred revenue– non-current                  70,746        49,512
Other long-term liabilities                      6,887         7,215
Stockholders' equity:
Preferred stock                                  -             -
Common stock                                     7             7
Additional paid-in capital                       329,680       309,092
Accumulated other comprehensive loss             (11)          -
Accumulated deficit                             (86,156)      (80,028)
Total stockholders' equity                       243,520       229,071
Total liabilities and stockholders' equity       $  490,149  $  407,804

Palo Alto Networks, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                                                   Six Months Ended
                                                   January 31,
                                                   2013           2012
Cash flows from operating activities
Net income (loss)                                  $   (6,128) $   4,540
Adjustments to reconcile net income (loss) to
 net cash provided by operating activities:
Depreciation and amortization                      4,468          2,474
Amortization of investment premiums, net of        822            -
accretion of purchase discounts
Share-based compensation for equity based awards   17,030         3,499
Excess tax benefit from share-based compensation   (106)          -
Change in fair value of preferred stock warrants   -              958
Changes in operating assets and liabilities:
Accounts receivable, net                           (22,944)       5,604
Prepaid expenses and other assets                  (7,290)        (5,094)
Accounts payable                                   1,716          (1,165)
Accrued and other liabilities                      17,640         5,657
Deferred revenue                                   52,375         30,653
Reimbursement of leasehold improvements            -              577
Net cash provided by operating activities          57,583         47,703
Cash flows from investing activities
Purchase of property, equipment, and other assets  (10,236)       (7,063)
Purchase of investments                            (252,633)      -
Proceeds from sales of investments                 13,491         -
Proceeds from maturities of investments            57,150         -
Net cash used in investing activities              (192,228)      (7,063)
Cash flows from financing activities
Excess tax benefit from share-based compensation   106            -
Changes in restricted cash                         -              1,221
Proceeds from exercise of stock options           2,554          469
Proceeds from settlement of note receivable        -              38
Repurchase of restricted common stock from         (35)           (63)
employees
Payments of initial public offering costs          (2,698)        -
Net cash provided by (used in) financing           (73)           1,665
activities
Net increase (decrease) in cash and cash           (134,718)      42,305
equivalents
Cash and cash equivalents - beginning of period    322,642        40,517
Cash and cash equivalents - end of period          $  187,924    $  82,822

SOURCE Palo Alto Networks, Inc.

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