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Palo Alto (PANW) Q4 Earnings and Revenues Surpass Estimates

Zacks

Palo Alto Networks Inc. PANW reported fourth-quarter fiscal 2018 non-GAAP earnings of $1.28 per share, which improved 39% on a year-over-year basis and surpassed the Zacks Consensus Estimate of $1.17.

Palo Alto’s revenues of $658.1 million jumped 29% year over year, outpacing the Zacks Consensus Estimate of $632 million. For the fiscal year, the company reported total revenues of $2.3 billion, which grew 29% year over year.

The impressive results were mainly driven by a healthy demand environment, product strength and increasing adoption of the company’s next-generation security platforms. Management is optimistic about the continuous spending on security, which is backed by large-scale upgrade in IT infrastructure and transition to cloud.

Quarter Details

Product revenues increased approximately 26% to $267.6 million. The company witnessed a 32% surge in subscription and support revenues to $390.5 million. SaaS-based subscription revenues climbed 38% from the year-ago period. Support revenues increased 25% year over year.

Billings improved 29% year over year to $868.1 million.

Geographically, revenues from the Americas climbed 24% on a year-over-year basis. The figures from Europe, the Middle East and Africa were up 43% while the same from Asia Pacific rose 43%.

In the reported quarter, the company added nearly 3,000 customers, bringing the total count to 54,000. The company’s advancement in cloud security is evident from over 6,000 customers using its VM-Series, Aperture, Evident and GlobalProtect cloud service offerings.

Given the growth in the company’s cloud offerings, the company is gaining more from subscription services. Management notes that the company is benefiting from strong attached services revenues as well as non-attached subscriptions.

With Traps, the company now caters to more than 3,000 customers and protects over 5 million endpoints. Moreover, the company expects to expand its endpoint detection and response (EDR) capabilities with the acquisition of Secdo.

Palo Alto Networks, Inc. Price, Consensus and EPS Surprise

Palo Alto Networks, Inc. Price, Consensus and EPS Surprise | Palo Alto Networks, Inc. Quote

Operating Results

Palo Alto’s non-GAAP gross margin shrunk 110 basis points (bps) on a year-over-year basis to 76.2%. Non-GAAP operating expenses came in at $349.9 million or 53.2% of revenues, marking a year-over-year improvement of 40 bps.

Non-GAAP operating margin contracted 70 bps to 23% owing to $13.4 million operating expenses related to acquisitions.

Balance Sheet

Palo Alto exited the quarter under review with cash, cash equivalents and short-term investments of approximately $3.4 billion compared with $1.62 billion at the end of the previous quarter.

Receivables were $467.3 million compared with $361.8 million recorded in the previous quarter. Furthermore, the company’s balance sheet does not have any long-term debt.

It generated cash flow from operations of $277.9 million in the quarter. Free cash flow came in at $252.5 million.

Guidance

For the fiscal first quarter of 2019, Palo Alto anticipates revenues of $625-$635 million, up 25-27% year over year.

Non-GAAP effective tax rate for the current quarter is projected to be approximately 22%. Non-GAAP earnings per share are expected in the range of $1.04-$1.06.

Zacks Rank & Stocks to Consider

Palo Alto currently has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader Computer and Technology sector are Radware RDWR, Vishay Intertechnology VSH and Fortinet, Inc. FTNT, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Radware, Vishay and Fortinet is projected to be 19%, 9% and 16.8%, respectively.

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