Palo Alto Networks Welcomes Its New CEO With a Beat and Raise

Palo Alto Networks (PANW 0.11%) announced solid fiscal third-quarter 2018 results on Monday after the market closed, detailing record revenue and increased guidance as the next-generation cybersecurity platform company continues to take market share from competitors. 

Of course, this wasn't entirely surprising; Palo Alto Networks technically pre-announced selected results late last week, as well as the appointment of its new CEO, who takes the helm this week.

With shares little changed in after-hours trading, let's dig deeper to better understand how Palo Alto kicked off the second half of its fiscal year and what investors should be watching in the coming months.

IMAGE SOURCE: GETTY IMAGES

Palo Alto Networks results: The raw numbers

DATA SOURCE: PALO ALTO NETWORKS *FOR THE QUARTER ENDED APRIL 30, 2018.

What happened with Palo Alto Networks this quarter?

• On an adjusted (non-GAAP) basis -- which excludes items like stock-based compensation -- net income was $95.1 million, or $0.99 per share, up from $0.61 per share in the same year-ago period.
• Both the top and bottom lines arrived well above Palo Alto's guidance provided last quarter, which called for revenue of $538 million to $548 million and adjusted earnings per share of $0.94 to $0.96.
• Product revenue grew 31.1% to $215.2 million, also above guidance for 18% to 19% growth. Subscription and support revenue grew 31.5% to $351.9 million.
• Billings grew 32.5% to $721 million, above guidance for 22% to 25% growth.
• Deferred revenue climbed 34% to $2.2 billion.
• Added roughly 3,000 new customers this quarter, bringing its total to approximately 51,000.
• Generated $241.3 million in cash flow from operations and free cash flow of $212.5 million.
• On June 1, 2018, it announced the appointment of former SoftBank and Google executive Nikesh Arora as its new CEO and chairman of the board, effective June 6, 2018. Current chairman and CEO Mark McLaughlin will transition to the role of vice chairman of the board.

What management had to say

"We delivered strong fiscal third quarter results with record revenue, deferred revenue and billings, while continuing to capture market share at rates that far outpace the competition," McLaughlin added. "Our Security Operating Platform utilizes software, the cloud and analytics to deliver increasingly better prevention through automation and ecosystem leverage, while dramatically reducing the complexity of the consumption model for customers."

Looking forward

For the fiscal fourth quarter of 2018, Palo Alto Networks anticipates revenue of $625 million to $635 million, or growth between 23% and 25%, assuming product revenue climbs between 16% and 17% to a range of $246 million to $249 million. Fiscal Q4 billings should arrive in the range of $815 million to $830 million, or growth of 22% to 24%.

Finally, Palo Alto now expects full fiscal-year 2018 revenue of $2.24 billion to $2.25 billion (up from $2.19 billion to $2.22 billion previously), or growth of between 27% and 28% from fiscal 2017. This new range assumes product revenue grows roughly 20% to a range of $850 million to $853 million (up from $810 million to $820 million before), with billings of $2.807 billion to $2.822 billion. On the bottom line, that should result in adjusted earnings per share of $3.86 to $3.89, narrowed from its previous range of $3.84 to $3.91.

All told, the market isn't reacting favorably to this news right away -- and that could be a consequence of both uncertainty surrounding its executive turnover and the stock's nearly 50% pop over the past year. But there's no denying that this was another exceptional quarter from Palo Alto Networks as its enormous, growing customer base continues to celebrate the effectiveness and relative simplicity of its industry-leading cybersecurity platform.