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Palo Alto Networks, Inc. Makes It 7 Straight

By Steve Symington - Feb 26, 2016 at 5:11PM

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The network security specialist beat expectations yet again for its fiscal second quarter. Here's what investors need to know.

 

Image source: Palo Alto Networks.

Palo Alto Networks (PANW 1.11%) just reported fiscal second-quarter 2016 results, and in doing so managed to exceed expectations for the seventh consecutive time. Let's take a closer look at what the next-gen security company accomplished in its latest quarter.

Palo Alto Networks results: The raw numbers

 

Fiscal Q2 2016 Actuals

Fiscal Q2 2015 Actuals

Growth (YOY)

Revenue

 $334.7

 $217.7

 54%

Adjusted Net Income

 $36.3

 $16.9

 114.8%

Adjusted EPS

 $0.40

 $0.19

 110.5%

Data source: Palo Alto Networks.

What happened with Palo Alto Networks this quarter?

  • Both the top and bottom lines exceeded Palo Alto's guidance, which called for revenue of $314 million to $318 million, and adjusted earnings per share of $0.38 to $0.39.
  • Revenue included 47% year-over-year growth in product sales to $169.9 million, and 61.4% growth from services to $149.5 million.
  • Billings climbed 62.3% year over year to $459 million.
  • Based on generally accepted accounting principles (GAAP), Palo Alto Networks' net loss widened to $62.5 million, or $0.72 per share, compared to a GAAP net loss of $43 million, or $0.53 per share in last year's fiscal second quarter. Keep in mind in these early stages, Palo Alto Networks consciously forgoes bottom-line GAAP profitability in favor of investing to gain market share and drive top-line growth.
  • That said, Palo Alto remains cash-flow positive. Cash flow from operations doubled from the same year-ago period to $153.8 million, and free cash flow rose 93% to $136.4 million.
  • Palo Alto Partnered with Proofpoint to share intelligence and create automated and coordinated protection solutions for sophisticated network attacks.
  • Announced a separate partnership with Mirantis to make Palo Alto's platform available as a virtual network function within Mirantis OpenStack.

What management had to say 
Palo Alto CEO Mark McLaughlin stated:

We are proud to now be serving more than 30,000 customers globally who are rapidly adopting the prevention capabilities of our Next-Generation Platform to achieve superior security, simplify their networks and greatly improve total cost of ownership. Security is a critical aspect of the digital age and a strategic priority embedded in all technology decisions for enterprises and organizations around the world.

"During the quarter we saw broad adoption of all aspects of our Next-Generation Security Platform with particular strength in our subscription services," added Palo Alto CFO Steffan Tomlinson. "Our results demonstrate our commitment to balancing high growth and profitability as well as the increasing strength in free cash flow from our hybrid-SaaS model."

Looking forward 
For the current quarter, Palo Alto expects revenue of $335 million to $339 million, good for growth in the range of 43% to 45%. Meanwhile, fiscal third-quarter adjusted earnings per diluted share should be $0.41 to $0.42, up from adjusted EPS of $0.23 per share in the same year-ago period. In addition, Palo Alto anticipates quarterly free cash flow margin of roughly 40%. By contrast -- and while we don't lend much credence to Wall Street's short-term demands -- analysts' consensus estimates called for fiscal Q3 revenue near the low end of Palo Alto's guidance range, but also higher adjusted earnings of $0.45 per share.

That's not necessarily surprising considering Palo Alto's history of outperformance. But as the company just extended that history to seven straight quarters and shows no signs of slowing down in the near future, I think Palo Alto shareholders have every reason to be happy with its performance today.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Palo Alto Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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