Palo Alto Networks, Inc. · NASDAQ:PANW

Palo Alto Networks — Q2 2024 Earnings Presentation

33 slides from Palo Alto Networks's earnings presentation, Feb 20, 2024

  1. Slide 1: Q2 Fiscal Year 2024 Earnings Call

    Q2 Fiscal Year 2024 Earnings Call February 20, 2024 | ©2024 © 2024Palo PaloAlto AltoNetworks, Networks,Inc. Inc.AllAllrights rightsreserved. reserved.

  2. Slide 2: Safe Harbor

    Safe Harbor This presentation contains “forward-looking” statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including expectations regarding our platformization strategy and programs, financial guidance for the third quarter of fiscal 2024 and fiscal

  3. Slide 3: | © 2024 Palo Alto Networks, Inc. All rights reserved.

    | © 2024 Palo Alto Networks, Inc. All rights reserved.

  4. Slide 4: 8th Consecutive quarter of Operating Margin Expansion

    8th Consecutive quarter of Operating Margin Expansion Focused Execution Against Continued Operating Top-Line Targets Leverage in Q2’24 Total Revenue Remaining Performance Obligation Operating Income (non-GAAP) Operating Margin (non-GAAP) $1.98B $10.8B $564M 28.6% +19% y/y +22% y/y +50% y/y +580 bps

  5. Slide 5: Q2 business highlights - continued consolidation & innovation

    Q2 business highlights - continued consolidation & innovation Palo Alto Networks 368 10 +36% >$1M Accounts >$20M Accounts Top 10 Q2 customers increased their PANW LTV2 by 36% in Q2 Network Security Cloud Security Security Operations +50% Highest new >5x ARR SASE ARR1 y/y ACV³ growth with XSIAM 5th c

  6. Slide 6: PANW has validated Platformization in the Cybersecurity Industry

    PANW has validated “Platformization” in the Cybersecurity Industry Network Security Platform Cloud Security Platform Security Operations Platform Best-in-class Zero Trust Platform across Comprehensive, cloud-native platform to Breakthrough outcomes for SOC by unifying Hardware, Software & SaaS secur

  7. Slide 7: Success of our Platformization approach is evident by growing adoption

    Success of our “Platformization” approach is evident by growing adoption 2 Platform G2K customers1 3 Platform G2K customers1 79% % of G2K customers with 2+ platforms 57% % of G2K customers with 3 platforms Average LTV per Average LTV per >$2M G2K customer with 2 platforms >$18M G2K customer with 3 p

  8. Slide 8: Platformization is leading to vendor Consolidation

    Platformization is leading to vendor “Consolidation” Network Security Prisma Cloud Security Operations Capability to consolidate Capability to consolidate Capability to consolidate 4-7 3-8 3-7 vendors vendors vendors Secrets CI/ SCA IaC Scanning CDS CD API EDR NTA ITDR TIP Cloud-Delivered Security S

  9. Slide 9: Taking Stock & Looking Forward

    Taking Stock & Looking Forward: ➔ Activating our Accelerated Platformization & Consolidation Strategy ➔ Activating our AI Leadership Strategy Marching to $15Bn in ARR by 2030 | ©2024 © 2024Palo PaloAlto AltoNetworks, Networks,Inc. Inc. All rights reserved.

  10. Slide 10: State of the Cybersecurity Market - Q2'24 update

    State of the Cybersecurity Market - Q2’24 update Cybersecurity demand is strong Industry Dynamics Share shifts are happening in Overwhelming scale and sophistication of attacks in Hardware Firewall with consolidation to Zero Trust Single-category vendors are being forced to provide Platformization N

  11. Slide 11: 2-3 yr Platformization advantage - we need to accelerate consolidation

    2-3 yr Platformization advantage - we need to accelerate consolidation! Points of Customer Friction Accelerated Platformization & Consolidation Program illustrative example Initiate Close Platform Implementation & Economic Incumbent Vendor PANW deal PANW deal operationalization complete consideratio

  12. Slide 12: Q3'24 - Launching Accelerated Platformization and Consolidation

    Q3’24 - Launching “Accelerated Platformization and Consolidation” Network Security Cloud Security Security Operations Drive Zero Trust consolidation Drive further ‘shift left’ adoption Incentivizing customer migration by offering ZT Architecture services into AppSec with targeted from legacy EDR to C

  13. Slide 13: Short-term impact will drive superior longer-term financial outcomes

    Short-term impact will drive superior longer-term financial outcomes Short term investments1… Superior long term financial outcomes Billings Growth(1) $15B NGS ARR in FY’30 Revenue Growth(1) >90% Recurring Revenue2 in 2030 Further upside potential from AI 1 Illustrative (not to scale) 2 Recurring Reve

  14. Slide 14: Activating our AI Leadership Strategy

    Activating our AI Leadership Strategy | ©2024 © 2024Palo PaloAlto AltoNetworks, Networks,Inc. Inc. All rights reserved.

  15. Slide 15: $300B will be spent on AI software

    AI: Most significant inflection point in cybersecurity - the next new TAM Impact of AI on cybersecurity Phishing emails have increased 10 fold in 12 months, $300B driven by AI will be spent Nation-states observed attempting to use AI for attacks on AI software by 20271 AI-driven malware created in a f

  16. Slide 16: Our proprietary data and large footprint position us well to capture this AI TAM

    Our proprietary data and large footprint position us well to capture this AI TAM Large enterprises will struggle with Our data and footprint is an employees accessing AI in an $3-5B advantage insecure manner FY’30 TAM1 >6.1 PB of data ingested daily XSIAM & XDR The majority enterprises will need to

  17. Slide 17: We surpassed $100M in AI-First ARR

    We surpassed $100M in AI-First ARR with more offerings on the way by Q4 Our AI offerings are ramping quickly With new offerings to address AI TAMs on the horizon >$100M AI ARR from: AIOps Cortex XSIAM ADEM AI Embedded across our platforms AI Access AI SPM AI FW Network Cloud Security Security Security

  18. Slide 18: March to $15B NGS ARR in 2030 - The way forward

    March to $15B NGS ARR in 2030 - The way forward Platformization is established -- It’s time to maximize our advantage by driving vendor consolidation in our customers Accelerated consolidation -- Requires us to invest in our customers to drive improved ROI and TCO AI is a brand new opportunity and w

  19. Slide 19: | © 2024 Palo Alto Networks, Inc. All rights reserved.

    | © 2024 Palo Alto Networks, Inc. All rights reserved.

  20. Slide 20: Q2'24 Metrics

    Q2’24 Metrics Q2’24 Q2’24 Guidance (as of 11/15/23) Actual Total Billings $2.335B-$2.385B $2.35B 15%-18% yr/yr 16% yr/yr Total Revenue $1.955B-$1.985B $1.98B 18%-20% yr/yr 19% yr/yr Product Revenue $391M 11% yr/yr Remaining Performance Obligation $10.8B 22% yr/yr Next-Gen Security ARR $3.49B 50% yr/

  21. Slide 21: Illustrating the top-line benefits of accelerated platformization & consolidation

    Illustrating the top-line benefits of accelerated PLATFORMIZATION & Consolidation Our Accelerated Platformization Program1… …Drives business objectives illustrative example Incumbent Vendor Initiate Close Platform Implementation & Economic PANW deal operationalization complete considerations begin PA

  22. Slide 22: Accelerated Platformization drives long term growth, and a stable & recurring business

    Accelerated PLATFORMIZATION drives long term growth, and a stable & recurring business NGS ARR Trajectory1 Recurring Revenue Trajectory1,2 $15B >90% 79% $3.95B $6.5B to $4.0B FY’24 FY’25 FY’26 FY’27 FY’28 FY’29 FY’30 FY’23 FY’24 FY’25 FY’26 FY’27 FY’28 FY’29 FY’30 NGS ARR Guidance (Low-High) ARR Med

  23. Slide 23: Executing in a financially prudent way to our original profitability targets

    Executing in a financially prudent way to our original profitability targets Operating Margin & Free Cash Flow margin at or above Q4’23 medium term update¹ 19% 17% Op. Margin Expansion enhances FCF visibility FY’23 FY’24 FY’25 FY’26 FY’27 FY’28 Revenue Growth Forecast Revenue Growth Medium Term Target

  24. Slide 24: Q3 & Fiscal Year 2024 Guidance

    Q3 & Fiscal Year 2024 Guidance - Maintaining EPS & Free Cash Flow Q3 FY’24 FY 2024 Guidance (as of 2/20/24) Guidance (as of 2/20/24) Total Billings $2.30B - $2.35B $10.10B - $10.20B 2% - 4% yr/yr 10% - 11% yr/yr Next-Gen Security ARR $3.95B - $4.00B 34% - 35% yr/yr Total Revenue $1.95B - $1.98B $7.9

  25. Slide 25: Q&A

    Q&A | ©2024 © 2024Palo PaloAlto AltoNetworks, Networks,Inc. Inc. All rights reserved.

  26. Slide 26: Appendix

    Appendix | ©2024 © 2024Palo PaloAlto AltoNetworks, Networks,Inc. Inc. All rights reserved.

  27. Slide 27: Modeling Points

    Modeling Points ● Q3’24 and FY’24 non-GAAP effective tax rate: 22% ● FY’24 Cash taxes of $230M - $280M ● Q3’24 net interest and other income of ~$70M ● Q3’24 diluted shares outstanding 347 – 351 million ● FY’24 diluted shares outstanding 345 – 347 million ● Q3’24 capital expenditures of $50M – $55M ●

  28. Slide 28: Calculation of Billings

    Calculation of Billings $ In millions Billings: Q223 Q224 Total revenue $1,655.1 $1,975.1 Add: change in total deferred revenue, net of acquired deferred revenue 374.0 372.1 Total billings $2,029.1 $2,347.2 Fiscal year ends on July 31. 28 | © 2024 Palo Alto Networks, Inc. All rights reserved.

  29. Slide 29: GAAP to Non-GAAP Reconciliations – Gross Margin

    GAAP to Non-GAAP Reconciliations – Gross Margin $ In millions Non-GAAP gross profit and gross margin: Q223 Q224 $ % $ % GAAP gross profit and gross margin $1,188.9 71.8% $1,476.0 74.7% Share-based compensation-related charges 39.4 2.5% 40.2 2.1% Amortization expense of acquired intangible assets 19.0

  30. Slide 30: GAAP to Non-GAAP Reconciliations – Operating Margin

    GAAP to Non-GAAP Reconciliations – Operating Margin $ In millions Non-GAAP operating income and operating margin: Q223 Q224 $ % $ % GAAP operating income and operating margin $39.9 2.4% $53.6 2.7% Share-based compensation-related charges 298.6 18.1% 296.8 15.1% Acquisition-related costs⁽¹⁾ 12.1 0.7%

  31. Slide 31: GAAP to Non-GAAP Reconciliations – EPS

    GAAP to Non-GAAP Reconciliations – EPS Non-GAAP net income per share, diluted: Q223 Q224 GAAP net income per share, diluted $0.25 $4.89 Share-based compensation-related charges 0.94 0.88 Acquisition-related cost⁽¹⁾ 0.04 0.02 Amortization expense of acquired intangibles assets 0.07 0.08 Litigation-re

  32. Slide 32: GAAP to Non-GAAP Reconciliations – Adjusted Free Cash Flow

    GAAP to Non-GAAP Reconciliations – Adjusted Free Cash Flow $ In millions TTM TTM Free cash flow and adjusted free cash flow (non-GAAP): Q224 Q223 Q224 Net cash provided by operating activities $690.0 $2,844.5 $3,062.2 Less: purchases of property, equipment, and other assets 35.2 155.4 140.4 Free cash

  33. Slide 33: Thank You

    Thank You paloaltonetworks.com | ©2024 © 2024Palo PaloAlto AltoNetworks, Networks,Inc. Inc.AllAllrights rightsreserved. reserved.

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