Palo Alto Networks Just Added More Customers Than Ever Before

Palo Alto Networks (PANW 0.84%) announced stronger-than-expected fiscal fourth-quarter 2017 results on Thursday after the market closed, demonstrating accelerated revenue growth and adding a record number of customers for its next-generation security platform. Palo Alto Networks also introduced strong financial guidance for the coming year.

Shares are up more than 5% in after-hours trading as of this writing. Let's take a closer look at what Palo Alto Networks accomplished over the past few months and what investors can expect going forward.

IMAGE SOURCE: GETTY IMAGES.

Palo Alto Networks results: The raw numbers

Data source: Palo Alto Networks. *For the quarter ended July 31, 2017.

What happened with Palo Alto Networks this quarter?

• On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation, Palo Alto generated net income of $85.5 million, or $0.92 per share, up from $60.3 million, or $0.66 per share in the same year-ago period.
• For perspective, last quarter, Palo Alto told investors to expect lower revenue of $481 million to $491 million and lower adjusted net income per share of $0.78 to $0.80.
• Product revenue grew 11.1%, to $212.3 million, while subscription and support revenue grew 41.5%, to $296.8 million.
• Billings increased 17% year over year, to $670.8 million, and deferred revenue grew 43%, to $1.8 billion.
• Added roughly 3,000 new customers, bringing Palo Alto's base to over 42,500.
• Generated cash flow from operations of $240 million, free cash flow of $190 million, and ended the quarter with $2.2 billion in cash, cash equivalents, and investments.
• Announced the GlobalProtect cloud service, which allows customers to extend the protection of Palo Alto's next-gen security platform to remote networks and mobile users.
• Announced the subscription Palo Alto Networks Logging Service, a cloud-based offering with enhanced logs generated by the company's security offerings.
• Announced the new Palo Alto Networks Application Framework, introducing a software-as-a-service model allowing the company, its developers, and customers to quickly build cloud-based security services through a suite of cloud APIs and services. The framework will start by including apps developed by more than 30 leading security organizations, with general availability scheduled for early 2018.

What management had to say

"We are pleased to have ended fiscal 2017 with a record fourth quarter, including market-leading revenue growth and the highest number of new customer additions recorded in a single quarter by the company," said Palo Alto Networks CEO Mark McLaughlin. "[Our] customer base grew to more than 42,500, and we delivered the largest product and features launch in our history."

Looking forward

For the fiscal first quarter of 2018, Palo Alto Networks expects revenue of $482 million to $492 million, or growth of between 21% and 24%, assuming product revenue of $170 million to $173 million. Palo Alto also sees billings this quarter in the range of $580 million to $600 million, good for growth of 12% to 16%. That should result in adjusted earnings per share of $0.67 to $0.69.

Finally, for the full fiscal year of 2018, Palo Alto Networks expects revenue to range from $2.125 billion to $2.165 billion, or growth of between 21% and 23%, assuming product revenue of $735 million to $750 million. Billings for the full year should be in the range of $2.64 billion to $2.70 billion, up between 15% and 18%.

Full-year adjusted earnings per share should arrive in the range of $3.24 to $3.34. For perspective -- and though we don't usually pay close attention to Wall Street's demands -- the midpoints of this guidance stands well above consensus estimates for fiscal 2018 revenue of $2.13 billion and earnings per share of $3.27.

In the end, this was as good a quarter as any investor could have asked for Palo Alto Networks as it sustains its growth momentum from an ever-increasing base. As a result, it's no surprise to see Palo Alto Networks stock rallying in after-hours trading.