Company Update (NYSEARCA:PANW): Palo Alto Networks Inc Reports Fiscal Third Quarter 2016 Financial Results

Palo Alto Networks Inc (NYSE:PANW), the next-generation security company, today announced financial results for its fiscal third quarter 2016 ended April 30, 2016.

Total revenue for the fiscal third quarter 2016 grew 48 percent year over year to a record $345.8 million, compared with total revenue of $234.2 million for the fiscal third quarter 2015. GAAP net loss for the fiscal third quarter 2016 was $70.2 million, or $0.80 per diluted share, compared with GAAP net loss of $45.9 million, or $0.56 per diluted share, for the fiscal third quarter 2015.

Non-GAAP net income for the fiscal third quarter 2016 was $38.5 million, or $0.42 per diluted share, compared with non-GAAP net income of $20.5 million, or$0.23 per diluted share, for the fiscal third quarter 2015. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

“Our record fiscal third quarter 2016 results continue to underscore the market demand for our unique Next-Generation Security Platform as more than 31,000 new and existing customers are working with Palo Alto Networks to solve their most difficult security needs,” said Mark McLaughlin, president and chief executive officer of Palo Alto Networks. “Security has never been more critical than it is today, and our platform delivers natively integrated and highly automated prevention outcomes, allowing us to continue to significantly outpace the competition as we further establish ourselves as the leader in cybersecurity.”

“Robust new customer additions and expansion in existing accounts resulted in market-leading, year over year growth as customers increased their investments in our Next-Generation Security Platform, with particular strength in our subscription services,” said Steffan Tomlinson, chief financial officer of Palo Alto Networks. “We continue to balance growth and profitability and once again delivered record revenue, billings and cash flow, with cash flow from operations margin of 49 percent and free cash flow margin of 44 percent.”

Recent Highlights

  • Received industry analyst recognition Our WildFire™ cloud-based threat intelligence offering was recognized by Forrester Research as a leader among automated malware analysis providers in the “The Forrester Wave™: Automated Malware Analysis, Q2 2016.”
  • Extended breach prevention to multi-cloud environments and SaaS applications – With the introduction of PAN-OS® 7.1 operating system, which included more than 50 feature enhancements, we extended our security capabilities for all major cloud environments, including Microsoft® Azure™, to provide visibility, control and threat prevention to protect customer data regardless of where it resides.
  • Joined forces with PwC – Together with PwC’s Cybersecurity and Privacy practice, we will design a next-generation security framework to serve as a guide for customer organizations to establish a breach prevention-oriented security architecture. This framework incorporates the latest advances in security technology and addresses the modern threat landscape.
  • Entered global agreement with BT – Our Next-Generation Security Platform will be integrated into BT’s global portfolio of security services, enabling BT customers worldwide to benefit from the combination of our breach prevention-focused platform and the global reach and scale of BT’s security services.
  • Recognized as 2016 best place to work in the Bay Area – We were ranked first in the 2016 Bay Area Best Places to Work, an awards program presented by the San Francisco Business Times and the Silicon Valley Business Journal.

Financial Outlook

Palo Alto Networks provides guidance based on current market conditions and expectations.

For the fiscal fourth quarter 2016, we expect:

  • Total revenue in the range of $386 to $390 million, representing year over year growth between 36 percent and 37 percent.
  • Diluted non-GAAP net income per share in the range of $0.48 to $0.50 using 91 to 93 million shares.

Guidance for non-GAAP financial measures excludes share-based compensation and related payroll taxes, acquisition related costs, amortization expense of acquired intangible assets, litigation related charges including legal settlements, non-cash interest expense related to our convertible senior notes, the foreign currency gains (losses) and tax effects associated with these items, and certain non-recurring expenses. We have not reconciled diluted non-GAAP earnings per share guidance to GAAP net income (loss) per diluted share because we do not provide guidance on GAAP net income (loss) or the various reconciling cash and non-cash items between GAAP net income (loss) and non-GAAP net income (loss). Share-based compensation expense is impacted by the Company’s future hiring and retention needs, as well as the future fair market value of the Company’s common stock, all of which is difficult to predict and subject to constant change. The actual amount of share-based compensation in the fiscal fourth quarter of 2016 will have a significant impact on the Company’s GAAP net income (loss) per diluted share. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort. (Original Source)

Shares of Palo Alto are falling nearly 9% to $135.50 in after-hours trading. PANW has a 1-year high of $200.55 and a 1-year low of $111.09. The stock’s 50-day moving average is $143.20 and its 200-day moving average is $154.87.

On the ratings front, PANW has been the subject of a number of recent research reports. In a report issued on May 20, Pacific Crest analyst Rob Owens assigned a Buy rating on PANW, with a price target of $190, which implies an upside of 31.3% from current levels. Separately, on May 16, Nomura’s Frederick Grieb maintained a Buy rating on the stock and has a price target of $200.

According to, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Rob Owens and Frederick Grieb have a total average return of 12.8% and 12.7% respectively. Owens has a success rate of 60.3% and is ranked #317 out of 3869 analysts, while Grieb has a success rate of 64.6% and is ranked #273.

Overall, 19 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $192.83 which is 33.3% above where the stock opened today.

Palo Alto Networks, Inc. engages in the provision of network security solutions. It offers network security functions which include threat protection, firewall, intrusion detection system, intrusion prevention system and uniform resource locator filtering. The company was founded by Nir Zuk, Rajiv Batra and Yuming Mao in March 2005 and is headquartered in Santa Clara, CA.

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