Palo Alto(US:PANW)2023-05-23 16:00Financial 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].