Palo Alto Networks, Inc. (NASDAQ:PANW) Q3 2023 Earnings Conference Call May 23, 2023 4:30 PM ET Company Participants Walter Pritchard - SVP, IR Nikesh Arora - Chairman & CEO Dipak Golechha - CFO Lee Klarich - Chief Product Officer Conference Call Participants Saket Kalia - Barclays Hamza Fodderwala - Morgan Stanley Brian Essex - JPMorgan Brad Zelnick - Deutsche Bank Andrew Nowinski - Wells Fargo Matt Hedberg - RBC Gabriela Borges - Goldman Sachs Adam Tindle - Raymond James Gregg Moskowitz - Mizuho Shaul Eya ...

Financial Performance - Total revenue for Q3 fiscal 2023 was $1.7 billion, a year-over-year increase of 24.1% compared to $1.4 billion in Q3 fiscal 2022[78]. - Total revenue for the three months ended April 30, 2023, was $1,720.9 million, representing a year-over-year increase of 24.1%[82]. - Product revenue reached $388.1 million, accounting for 22.6% of total revenue, with a year-over-year growth of 10.4%[79]. - Subscription and support revenue grew to $1.3 billion, representing 77.4% of total revenue, with a year-over-year increase of 28.7%[79]. - Billings for the three months ended April 30, 2023, totaled $2,256.2 million, reflecting a year-over-year increase of 25.6%[83]. - Revenue from the Americas for the three months ended April 30, 2023, was $1,179.2 million, a 24.3% increase from $948.7 million in the same period of 2022[95]. - Gross profit for the three months ended April 30, 2023, was $1,246.1 million, representing a gross margin of 72.4%, compared to 68.2% in the same period of 2022[95]. - Operating income for the three months ended April 30, 2023, was $78.7 million, compared to a loss of $(47.6) million in the same period of 2022[95]. - Net income for the three months ended April 30, 2023, was $107.8 million, compared to a loss of $(73.2) million in the same period of 2022[95]. - Total deferred revenue as of April 30, 2023, was $8,089.6 million, an increase from $6,994.0 million a year earlier[82]. Expenses and Costs - Research and development expenses for the three months ended April 30, 2023, were $413.7 million, representing 24.0% of total revenue[95]. - Total operating expenses for the three months ended April 30, 2023, were $1,167.4 million, compared to $993.8 million in the same period of 2022[95]. - Cost of subscription and support revenue increased by $66.9 million (21.3%) to $381.4 million for the three months ended April 30, 2023, compared to $314.5 million for the same period in 2022[98]. - Research and development expense rose by $58.3 million (16.4%) to $413.7 million for the three months ended April 30, 2023, compared to $355.4 million for the same period in 2022[103]. - Sales and marketing expense increased by $95.9 million (17.6%) to $639.5 million for the three months ended April 30, 2023, compared to $543.6 million for the same period in 2022[106]. - General and administrative expense increased by $19.4 million (20.5%) to $114.2 million for the three months ended April 30, 2023, compared to $94.8 million for the same period in 2022[107]. Cash Flow and Investments - Cash flow provided by operating activities for the nine months ended April 30, 2023, was $2,363.4 million, compared to $1,461.0 million in the previous year[86]. - Free cash flow (non-GAAP) for the nine months ended April 30, 2023, was $2,254.3 million, up from $1,307.4 million in the same period last year[86]. - Total cash, cash equivalents, and investments as of April 30, 2023, amounted to $6,668.0 million, compared to $4,686.4 million in the previous year[82]. - Cash provided by operating activities during the nine months ended April 30, 2023, was $2.4 billion, an increase of $902.4 million compared to $1.5 billion in the same period in 2022[119]. - Cash used in investing activities during the nine months ended April 30, 2023, was $2.4 billion, an increase of $1.9 billion compared to $461.3 million in the same period in 2022[120]. - Cash used in financing activities during the nine months ended April 30, 2023, was $91.5 million, a decrease of $362.0 million compared to $453.5 million in the same period in 2022[122]. - The company has a share repurchase program with a total authorization of $3.3 billion, of which $750.0 million remained available for future repurchases as of April 30, 2023[116]. - The company entered into a new credit agreement in April 2023, providing for a $400.0 million unsecured revolving credit facility[115]. Operational Insights - The company had end-customers in over 180 countries, including almost all Fortune 100 companies and a majority of Global 2000 companies[78]. - The company operates a two-tiered, indirect fulfillment model, selling products through distributors to resellers and then to end-customers[78]. - The company expects subscription and support revenue to increase over the long term as new subscriptions are introduced and existing contracts are renewed[90]. - The company emphasized the importance of billings as a key metric for assessing business health and visibility, particularly in relation to subscription and support revenue[82]. - The company expects operating expenses to generally increase in absolute dollars while decreasing as a percentage of revenue over the long term as it scales its business[102]. Market and Product Development - The introduction of Zero Trust Network Access (ZTNA) 2.0 aims to address shortcomings in previous ZTNA products, enhancing security for remote workforces[76]. - Prisma Cloud serves as a comprehensive Cloud Native Application Protection Platform (CNAPP), providing security across the application lifecycle[77]. - The company continues to invest in innovation, enhancing Prisma SASE capabilities with artificial intelligence to improve security outcomes[79]. - The growth strategy focuses on extending technology leadership, expanding the customer base, and improving customer satisfaction[79]. Employee and Tax Information - The number of employees at the end of the period increased to 141, a decrease of 4.1% from 147 employees at the end of the same period in 2022[97]. - The number of employees in research and development increased by 646 (21.2%) to 3,693 as of April 30, 2023, compared to 3,047 as of the same date in 2022[103]. - The provision for income taxes for the three months ended April 30, 2023, was $23.2 million, a 12.1% increase from $20.7 million in the same period in 2022, with an effective tax rate of 17.7% compared to (39.4)% in 2022[111]. Interest and Risk Management - Interest expense for the three months ended April 30, 2023, was $7.8 million, an increase of 14.7% compared to $6.8 million for the same period in 2022[108]. - The company maintains a full valuation allowance for certain deferred tax assets, with a reversal of this allowance in certain jurisdictions being reasonably possible due to recent profitability[110]. - The primary objectives of the company's investment activities are to preserve principal, provide liquidity, and maximize income without significantly increasing risk[125]. - The portfolio includes cash, cash equivalents, and a variety of securities such as commercial paper, money market funds, and corporate debt securities[125]. - A sensitivity analysis indicated that a hypothetical 100 basis point increase in interest rates would result in a $42.3 million decline in the fair market value of the portfolio[125]. - Conversely, a hypothetical 100 basis point decrease in interest rates would lead to a $42.3 million increase in the fair market value of the portfolio[125]. - Losses from interest rate risk would only be realized if investments were sold prior to maturity[125].

Q2 Fiscal Year 2023 Earnings Call Safe Harbor This presentation contains “forward-looking” statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are based on our management’s beliefs and assumptions and on information currently available to management, including statements related to our financial guidance for the third quarter of fiscal 2023 and fiscal year 2023 regarding total revenue, total billings, Next-Gen Security ARR, product revenue, non-GAAP op ...

Palo Alto Networks, Inc. (NASDAQ:PANW) Morgan Stanley Technology, Media & Telecom Conference March 7, 2023 3:55 PM ET Company Participants Nikesh Arora - Chairman & CEO Conference Call Participants Hamza Fodderwala - Morgan Stanley Hamza Fodderwala All right. Well, good afternoon, everybody. My name is Hamza Fodderwala, U.S. Cybersecurity Analyst here at Morgan Stanley. And we're really pleased to have the CEO of Palo Alto Networks, Nikesh Arora with us. Before I begin, just for some important disclosures, ...

Palo Alto Networks, Inc. (NASDAQ:PANW) JMP Securities Technology Conference March 7, 2023 1:00 PM ET Company Participants Nikesh Arora - Chairman & Chief Executive Officer Conference Call Participants Trevor Walsh - JMP Securities Trevor Walsh Good morning, everyone. Really happy to be hosting our keynote presentation for the day today on day two of our conference. And really happy to welcome Nikesh Arora, CEO and Chairman of Palo Alto Networks to the stage to have a conversation with us. Welcome. Nikesh Ar ...

Financial Data and Key Metrics Changes - Revenue for Q2 2023 was $1.66 billion, representing a 26% year-over-year growth, with product revenue growing 15% and service revenue growing 29% [33] - Non-GAAP operating income increased by 55% year-over-year, with a non-GAAP operating margin exceeding 22%, up over 440 basis points year-over-year [5][34] - Non-GAAP EPS was $1.05, growing 81% year-over-year, while GAAP net income was $84 million, marking the third consecutive quarter of GAAP profitability [35][36] Business Line Data and Key Metrics Changes - Next-Generation Security (NGS) ARR reached $2.3 billion, growing 63% year-over-year, with strength across all three platforms: Network security, Cloud security, and Security operations [33][34] - The number of deals closed over $1 million grew nearly 20% year-over-year, with the value of these transactions growing nearly 60% [12] - The number of deals greater than $5 million grew 84%, and those greater than $10 million grew over 140% [12] Market Data and Key Metrics Changes - Revenue growth was observed across all regions, with the Americas growing 22%, EMEA up 35%, and JPAC growing 32% [33] - The company raised guidance for billings and next-generation security metrics, indicating strong demand for software-based and cloud-delivered capabilities [10][11] Company Strategy and Development Direction - The company is focused on transforming its business to software-based and cloud delivery offerings, aiming for sustained high revenue growth [30] - There is a strong emphasis on efficiency and operational improvements, with a lower headcount growth expected compared to previous years [8] - The company is investing in innovation, with a significant R&D budget of approximately $1 billion, which is two to five times that of pure-play peers [15][16] Management's Comments on Operating Environment and Future Outlook - Management noted a tougher macro environment, with some customers showing signs of a slight slowdown, but emphasized the resilience of cybersecurity [6][7] - The company is optimistic about its position in the market, expecting to strengthen its market share through disciplined growth and consolidation [10][11] - Management expressed confidence in achieving GAAP profitability and improving operating margins, raising guidance for fiscal year 2023 [31][32] Other Important Information - The company ended Q2 with cash equivalents and investments of $6.2 billion, indicating strong liquidity [36] - Stock-based compensation as a percentage of revenue decreased year-over-year, reflecting effective management of compensation costs [37] Q&A Session Summary Question: Insights on SASE competitive dynamics - Management highlighted that the SASE market has evolved significantly, with a focus on Zero Trust and cloud transformations driving demand [43][44] Question: Customer conversations around AI and consolidation - Management noted a surge in customer interest in AI, with discussions shifting towards real-time, proactive security solutions [48][49] Question: Managing customer payment terms and financial circumstances - Management confirmed that they are effectively managing cash flow margins while supporting customers with flexible payment options [52][53] Question: Dynamics between revenue growth, billings, and deferred revenue - Management explained that the higher mix of software in expectations leads to more predictable revenue, despite the growth in billings [64][67] Question: Cortex competitive dynamics and pricing - Management indicated that the XDR market is competitive but emphasized their strong position and the importance of data for effective security outcomes [70][72] Question: Execution in cloud security amidst market challenges - Management stated that they remain the largest player in cloud security and are focused on convincing customers of the need for a consolidated platform [96][99] Question: GSI opportunities and channel development - Management reported increased engagement with GSIs, highlighting the potential for transformation projects and partnerships [102][103]

Q2 Fiscal Year 2023 Earnings Call Safe Harbor This presentation contains “forward-looking” statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are based on our management’s beliefs and assumptions and on information currently available to management, including statements related to our financial guidance for the third quarter of fiscal 2023 and fiscal year 2023 regarding total revenue, total billings, Next-Gen Security ARR, product revenue, non-GAAP op ...

Revenue Performance - Total revenue for Q2 fiscal 2023 was $1.7 billion, a year-over-year increase of 25.7% compared to $1.3 billion in Q2 fiscal 2022[79] - Total revenue for the three months ended January 31, 2023, was $1,655.1 million, representing a year-over-year increase of 25.7%[85] - The year-over-year percentage increase in total revenue for the six months ended January 31, 2023, was 25.5%[85] - Total deferred revenue increased to $7,554.0 million as of January 31, 2023, compared to $6,994.0 million a year earlier[85] Product and Subscription Revenue - Product revenue reached $352.9 million, accounting for 21.3% of total revenue, with a year-over-year growth of 14.6%[81] - Subscription and support revenue grew to $1.3 billion, representing 78.7% of total revenue, with a year-over-year increase of 29.1%[82] - Product revenue increased to $352.9 million for the three months ended January 31, 2023, up 14.6% from $308.0 million in the same period of 2022[95] - Subscription and support revenue reached $1,302.2 million for the three months ended January 31, 2023, a 29.1% increase from $1,008.9 million in the same period of 2022[96] Profitability and Margins - Gross margin improved to 71.8% for the three months ended January 31, 2023, up from 69.2% in the same period last year[85] - Gross profit for the three months ended January 31, 2023, was $1,188.9 million, which is 71.8% of total revenue, compared to $911.6 million or 69.2% of total revenue in the same period of 2022[92] - Operating income for the three months ended January 31, 2023, was $39.9 million, a significant recovery from an operating loss of $(73.9) million in the prior year[85] - Net income for the three months ended January 31, 2023, was $84.2 million, compared to a loss of $(93.5) million in the same period of 2022[92] Expenses and Cost Management - Total operating expenses for the three months ended January 31, 2023, were $1,149.0 million, which is 69.4% of total revenue, compared to $985.5 million or 74.8% of total revenue in the same period of 2022[92] - Research and development expenses increased to $404.1 million for the three months ended January 31, 2023, a 12.6% rise from $359.0 million in the same period of 2022[105] - Sales and marketing expenses grew to $625.5 million for the three months ended January 31, 2023, an increase of 18.3% from $528.8 million in the same period of 2022[108] - General and administrative expenses increased to $119.4 million for the three months ended January 31, 2023, up 22.2% from $97.7 million in the same period of 2022[109] Cash Flow and Investments - Free cash flow (non-GAAP) for the six months ended January 31, 2023, was $1,853.4 million, compared to $956.2 million in the same period last year[90] - Cash flow provided by operating activities for the six months ended January 31, 2023, was $1,931.3 million, up from $1,071.5 million in the prior year[90] - The company reported a total cash, cash equivalents, and investments balance of $6,167.5 million as of January 31, 2023, compared to $4,686.4 million a year earlier[85] - Cash used in investing activities rose to $2.5 billion for the six months ended January 31, 2023, an increase of $2.0 billion (396.3%) compared to $504.2 million in the same period in 2022[121] Market Presence and Strategy - The company had end-customers in over 180 countries, including almost all Fortune 100 companies and a majority of Global 2000 companies[79] - The company’s growth strategy includes expanding its customer base and enhancing technology leadership to drive recurring revenues[82] - The company operates a two-tiered, indirect fulfillment model, selling products through distributors to resellers and then to end-customers[79] - The company emphasizes the importance of innovation and timely development of new features to meet customer needs and improve competitive position[82] Challenges and Risks - The company continues to face supply chain challenges, including chip and component shortages, impacting costs and delivery times[83] - A hypothetical 100 basis point increase in interest rates would result in a $46.8 million decline in the fair market value of the investment portfolio as of January 31, 2023[128] - The company maintains a full valuation allowance for certain deferred tax assets, which has caused a disproportionate relationship between the effective tax rate and other jurisdictional measures[114]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________ FORM 10-Q _____________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-35594 PALO ALTO NETWORKS, INC. (Exact name of registrant as spec ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________ FORM 10-K _____________________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-35594 Palo Alto Networks, Inc. (Exact name of registrant as specified in it ...