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Palo Alto (PANW) Q3 Earnings and Revenues Beat Estimates

Zacks

Palo Alto Networks PANW reported third-quarter fiscal 2020 non-GAAP earnings of $1.17 per share, which surpassed the Zacks Consensus Estimate by 28.6%. However, the bottom line declined 10.7% year over year.

The company’s revenues of $869.4 million improved 20% year over year. Moreover, the figure beat the Zacks Consensus Estimate of $829 million.

The top line was primarily driven by several deal wins and increasing adoption of the company’s next-generation security platforms, attributable to the rise in remote work environment and need for stronger security. Growing traction in Prisma and Cortex offerings also acted as a tailwind.

However, revenues were affected by the negative impact of sales incentives related to Next-Generation Security products, which continued from the prior fiscal year.

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

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

Palo Alto Networks, Inc. price-consensus-eps-surprise-chart | Palo Alto Networks, Inc. Quote


Quarterly Details

Product revenues grew approximately 1% to $280.9 million.

The company’s subscription and support revenues improved 31% to $588.5 million, driven by a 37% increase in SaaS-based subscription revenues and 24% rise in support revenues. This segment of Palo Alto’s business constituted 68% of total revenues in the fiscal third quarter.

Further, billings improved 24% year over year to $1.02 billion. Deferred revenues rose 28% to $3.4 billion.

During the reported quarter, Palo Alto continued to acquire new customers — adding more than 2,500 customers— and increase wallet share with existing customers.

Region wise, revenues from the Americas climbed 19% while Europe, the Middle East and Africa, and Asia Pacific revenues rose 24% and 15%, respectively.

Margins

Additionally, Palo Alto’s gross margin contracted 130 basis points (bps) on a year-over-year basis to 75.2%.

Non-GAAP operating margin contracted 450 bps to 16.4% due to a headwind of about $3 million in net expenses related to the recent acquisition.

Balance Sheet

Palo Alto exited the fiscal third quarter with cash, cash equivalents and short-term investments of approximately $2.2 billion compared with $3.5 billion at the end of the preceding quarter.

The company’s balance sheet does not have any long-term debt.

It generated cash flow from operations of $169.9 million compared with $306.9 million in the previous quarter. Free cash flow came in at $83.6 million.

Guidance

For fourth-quarter fiscal 2020, Palo Alto anticipates revenue growth of 14-15% year over year between $915 million and $925 million. Billings growth is anticipated between 13% and 14%, ($1.19 billion-$1.21 billion).

Non-GAAP earnings per share are estimated in the range of $1.37-$1.40, taking into account approximately $8 million of net expenses related to the acquisition of CloudGenix.

For fiscal 2020, the company estimates billings to grow approximately 18% year over year.

Revenues for the fiscal year are estimated between $3.37 billion and $3.38 billion, suggesting an improvement of 16-17% year over year.

Non-GAAP earnings per share are estimated in the band of $4.78-$4.81.

Zacks Rank & Stocks to Consider

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

Coupa Software COUP, Workday WDAY and Okta OKTA are some better-ranked stocks in the broader computer and technology sector. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Workday, Okta and Coupa Software are set to report quarterly results on May 27, May 28 and Jun 8, respectively.

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