Palo Alto Networks, Inc. · NASDAQ:PANW
Palo Alto Networks — Q3 2017 Earnings Presentation
26 slides from Palo Alto Networks's earnings presentation, May 2017
Slide 1: Fiscal Third Quarter 2017 Investor Presentation
Fiscal Third Quarter 2017 Investor Presentation May 2017
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 that are based on our management’s beliefs and assumptions and on information currently available to management. Such forward-looking statem
Slide 3: Tectonic shifts create the perfect storm
Tectonic shifts create the perfect storm SaaS Cloud + Virtualization Massive opportunity for cybercriminals Mobility + BYOD Internet of Things 3 | © 2017 Palo Alto Networks, Inc. All Rights Reserved.
Slide 4: Preventing successful attacks
Preventing successful attacks 4 | © 2017 Palo Alto Networks, Inc. All Rights Reserved.
Slide 5: Prevention is possible with the real security platform
Prevention is possible with the real security platform Attached service WildFire Non-attached service Threat Prevention AutoFocus URL Filtering Aperture Traps VM-Series GlobalProtect * We expect LightCyber will become available as a subscription service towards the end of CY17 5 | © 2017 Palo Alto N
Slide 6: TAM 2017 – 2020
TAM 2017 – 2020 The opportunity – large and growing $24.0Bn $19.1Bn ($18.8Bn network, ($14.7Bn network, $5.2Bn endpoint) $4.4Bn endpoint) 2017 2020 Sources: IDC, Worldwide Network Security 2016–2020 Forecast, September 2016 IDC, Worldwide Web Security 2016–2020 Forecast, December 2016 IDC, Worldwide
Slide 7: 2016 Gartner magic quadrant
2016 Gartner magic quadrant Gartner “magic quadrant for enterprise network firewalls” Source: Gartner, magic quadrant for enterprise network firewalls, April 2016 7 | © 2017 Palo Alto Networks, Inc. All Rights Reserved.
Slide 8: The power of the hybrid-SaaS model
The power of the hybrid-SaaS model Product Recurring subscription and support revenue Attached Non-attached Hardware Perpetual Support subscriptions subscriptions Traps Threat Prevention VM-Series URL Filtering Support AutoFocus Appliances Panorama GlobalProtect Professional services Aperture Access
Slide 9: Q3'17 financial highlights
Q3’17 financial highlights Q3’17 Q3’16 Y/Y change Billings(1) $544.1Mn $486.2Mn 11.9% Revenue $431.8Mn $345.8Mn 24.9% Gross margin %(2) 76.4% 77.9% -150 bps Operating margin %(2) 18.4% 18.9%(3) -50 bps EPS(2) $0.61 $0.46(3) 32.6% Deferred revenue $1.6Bn $1.1Bn 50.8% Free cash flow margin %(2)(4) 37.
Slide 10: Top-25 customer buying behavior
Top-25 customer buying behavior Industry Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Federal Government Federal Government Media
Slide 11: Continued strength of customer acquisition
Continued strength of customer acquisition Customer Count 2nd highest Q3’17 quarter of new 45,000 >39,500 customer acquisition ever 40,000 Q3’16 >31,000 35,000 30,000 Q3’15 >24,000 25,000 Q3’14 >17,000 20,000 Q3’13 >12,500 15,000 Q3’12 >7,500 10,000 Q3’11 >3,500 5,000 - Note: Fiscal year ends July 3
Slide 12: Billings momentum
Billings momentum Annual billings(1) $Millions $1,906 $1,623 $1,333 $1,219 $771 $510 FY'13 FY'14 FY'15 FY'16 9M'16 9M'17 (1) Billings is a key financial metric defined as total revenue plus the change in total deferred revenue, net of acquired deferred revenue, during the period. See appendix for ca
Slide 13: Growth in deferred revenue
Growth in deferred revenue $Millions % of total Long-term deferred revenue $1,612 Short-term deferred revenue $1,499 $1,241 $727 $671 45% 45% $929 $537 43% $714 $388 42% $535 $290 41% $211 $828 $885 39% $704 55% 55% $541 57% $424 58% $324 59% 61% Q2'15 Q4'15 Q2'16 Q4'16 Q2'17 Q3'17 Note: Fiscal year
Slide 14: Market leading revenue growth
Market leading revenue growth Annual revenue by type $Millions Subscription $1,378 Support $1,253 Product $357 $978 $399 $928 $213 $350 $251 $598 $357 $222 $247 $123 $396 $135 $71 $671 $81 $497 $493 $480 $340 $244 FY'13 FY'14 FY'15 FY'16 9M'16 9M'17 Note: Fiscal year ends July 31. 14 | © 2017 Palo A
Slide 15: Hybrid-SaaS model: expanding operating margins
Hybrid-SaaS model: expanding operating margins Annual operating income(1) $Millions Operating income 25.0% (1) Operating margin 19.7% 18.0% 18.7% 20.0% 16.5% 15.0% 11.5% 9.9% $271 $234 10.0% $176 $153 5.0% $70 $39 0.0% FY'13 FY'14 FY'15 FY'16 9M'16 9M'17 (1) Non-GAAP financial measure, which also re
Slide 16: Hybrid-SaaS model: strong free cash flow generation
Hybrid-SaaS model: strong free cash flow generation Annual free cash flow(1) (3) $Millions 42.5% 42.5% (3) 45.0% (3) Free cash flow 41.1% (1) 40.0% Free cash flow margin 34.4% 35.0% 30.0% 25.0% (2) 21.4% 25.0% (3) $586 (3) 20.0% $515 (3) $415 15.0% $319 10.0% $128 (2) 5.0% $99 0.0% FY'13 FY'14 FY'15
Slide 17: Appendix
Appendix
Slide 18: Calculation of billings
Calculation of billings $Mn Billings: FY’13 FY’14 FY’15 FY’16 9M’16 9M’17 Q3’16 Q3’17 Total revenue $ 396.1 $ 598.2 $ 928.1 $ 1,378.5 $ 977.7 $ 1,252.5 $ 345.8 $ 431.8 Add: change in total deferred revenue, net of acquired 113.4 173.2 291.0 527.1 355.5 370.1 140.4 112.3 deferred revenue Billings $ 5
Slide 19: GAAP to Non-GAAP reconciliations
GAAP to Non-GAAP reconciliations $Mn Non-GAAP gross profit and gross margin: Q3'16 Q3'17 $ % $ % GAAP gross profit and gross margin $ 250.9 72.6% $ 308.1 71.4% Share-based compensation related charges 13.6 3.9% 16.7 3.8% Amortization expense of acquired intangible assets 1.9 0.5% 2.2 0.5% Litigation
Slide 20: GAAP to Non-GAAP reconciliations
GAAP to Non-GAAP reconciliations $Mn Non-GAAP operating income and operating margin: FY'13 FY'14 FY'15 FY'16 $ % $ % $ % $ % GAAP operating loss and operating margin(1) $ (9.9) (2.5)% $ (196.2) (32.8)% $ (99.8) (10.8)% $ (157.3) (11.4)% Share-based compensation related charges 45.1 11.4% 101.3 16.8%
Slide 21: GAAP to Non-GAAP reconciliations
GAAP to Non-GAAP reconciliations Non-GAAP net income per share, diluted: Q3’16 Q3’17 GAAP net income (loss) per share, diluted(1) $ (0.73) $ (0.67) Share-based compensation related charges 1.27 1.30 Acquisition related costs - 0.03 Amortization expense of acquired intangible assets 0.02 0.03 Litigat
Slide 22: GAAP to Non-GAAP reconciliations
GAAP to Non-GAAP reconciliations $Mn Free cash flow (non-GAAP): FY'13 FY'14 FY'15 FY'16 Net cash provided by operating activities(1) $ 121.3 $ 89.4 $ 352.8 $ 658.6 Less: purchases of property, equipment, and other assets 22.4 36.1 33.8 72.5 Free cash flow (non-GAAP)(1) $ 98.9 $ 53.3 $ 319.0 $ 586.1
Slide 23: GAAP to Non-GAAP reconciliations
GAAP to Non-GAAP reconciliations $Mn Free cash flow (non-GAAP): 9M’16 9M’17 Q3’16 Q3’17 Net cash provided by operating activities(1) $ 471.3 $ 629.0 $ 170.3 $ 211.2 Less: purchases of property, equipment, and other assets 56.2 114.2 19.3 48.6 Free cash flow (non-GAAP)(1) $ 415.1 $ 514.8 $ 151.0 $ 16
Slide 24: Impact of change in accounting policy for sales commissions
Impact of change in accounting policy for sales commissions $Mn, except per share amounts Consolidated Statements of Operations – GAAP impact FY’13 FY’14 FY’15 FY’16 9M’16 Q3’16 Operating loss $ 8.7 $ 19.1 $ 33.7 $ 32.8 $ 10.1 $ 6.1 Provision for income taxes - - - (0.4) - - Net loss $ 8.7 $ 19.1 $
Slide 25: Impact of early adoption of new accounting guidance
Impact of early adoption of new accounting guidance $Mn, except per share amounts Consolidated Statements of Cash Flows – GAAP impact FY’13 FY’14 FY’15 FY’16 9M’16 Q3’16 Q1’17 Net cash provided by operating activities $ 6.8 $ 1.0 $ 2.5 $ 0.5 $ 0.7 $ 0.2 $ 0.2 Net cash provided by (used in) financing
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