Palo Alto Networks, Inc. · NASDAQ:PANW

Palo Alto Networks — Q3 2023 Earnings Presentation

35 slides from Palo Alto Networks's earnings presentation, May 23, 2023

1. Slide 1: Q3 Fiscal Year 2023 Earnings Call

   Q3 Fiscal Year 2023 Earnings Call May 23, 2023

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 statements related to our financial guidance for the fourth quarter of fiscal 2023 and fiscal year 2023 regarding total revenue, tot

3. Slide 3: Nikesh Arora, CEO & Chairman

   NIKESH ARORA CEO & CHAIRMAN NETWORKS

4. Slide 4: Balanced Top Line Performance

   Q3 Results Total Billings1 Remaining Performance Obligation Balanced $2.26B $9.2B +26% y/y +35% y/y Top Line NGS ARR2 Total Revenue Performance $2.57B $1.72B +60% y/y +24% y/y Operating Income (non-GAAP) EPS (non-GAAP) Significant $407M $1.10 +61% y/y +83% y/y Incremental Adj. Free Cash Flow (non-GAA

5. Slide 5: We Continue to See Platformization in Cybersecurity

   We Continue to See PLATFORMIZATION in Cybersecurity >$1M accounts in Q3’23 >$5M accounts in Q3’23 >$10M accounts in Q3’23 325 72 25 Number of accounts >$1M Number of accounts >$5M Number of accounts >$10M +29% Y/Y +62% Y/Y +136% Y/Y Total Bookings from Total Bookings from Total Bookings from account

6. Slide 6: Sustained Growth in Lifetime Value for our Largest Customers

   Sustained Growth in Lifetime Value for our Largest Customers +30% 3-year CAGR $63M 53% +32% y/y of G2000 customers1 who have purchased Strata, Prisma and Cortex +20 pts vs 33% of G2000 customers Q3’20 Q3’21 Q3’22 Q3’23 who have purchased Strata, Prisma and Cortex as of Q3’20 Average LTV for Top 200

7. Slide 7: We are the Comprehensive Zero Trust Network Security Company

   NETWORK SECURITY We are THE Comprehensive Zero Trust Network Security Company SASE FIREWALL Security Service Edge (SSE) NEW Network Firewall A LEADER A LEADER Gartner Magic Quadrant for Gartner Magic Quadrant for Security Service EdgeTM Network FirewallsTM SD-WAN VM Firewall A LEADER #1 MARKET SHARE

8. Slide 8: SASE Continues its Steady Growth

   PRISMA SASE SASE Continues its Steady Growth Success with large transactions was global in Q3 8-figure SASE deal with a US beverage company ~50% y/y Sustaining SASE1 ARR growth at scale 8-figure SASE deal with a US technology company >4,200 8-figure SASE deal with a JPAC electronics company Active SASE

9. Slide 9: Software is Driving our Network Security Business

   STRATA Software is Driving our Network Security Business Pandemic & supply chain constraints YTD VM-Series growing Fueled eval activity for VM-Series >40% y/y 1 VM-Series $1M+ deals up Software is now More than 2x 30% of product revenue a year ago driven by VMs and SASE 1 Based bookings from VM-seri

10. Slide 10: Significant Acceleration in AI-based Innovation in FY'22 & FY'23

    NETWORK SECURITY Significant Acceleration in AI-based Innovation in FY’22 & FY’23 Subscriptions FY’22 & FY’23 Acceleration WildFire + inline ML + Additional file formats + ML-based shell script analysis Adv. WildFire DNS Security + Advanced signatures + Additional attack coverage + 40% more threat cov

11. Slide 11: AI Drives Tangible Customer Outcomes at Scale

    NETWORK SECURITY AI Drives Tangible Customer Outcomes at Scale Good Data Drives AI + ML Deliver Attack Prevention Great AI Zero-Day Detection Happens Inline Each day we analyze Each day we detect Each day we block 750 million 1.5 million 8.6 billion new and unique objects new and unique attacks that

12. Slide 12: Differentiating as a Platform and Staying Ahead with Innovation

    PRISMA CLOUD We are Differentiating as a Platform and Staying Ahead with Innovation Customers are deploying Prisma Cloud as a platform Addressing unique vertical requirements of active customers1 use both 49% TM FedRAMP High Impact Level - Ready status CWPP & CSPM Our platform is Innovating ahead of

13. Slide 13: Consistent Growth for Prisma Cloud

    PRISMA CLOUD Consistent Growth for Prisma Cloud3 Growth in multi-module adoption customers1 ‘Shift left’ is accelerating +90% y/y +37% +55% y/y 1 in 5 y/y Prisma Cloud active customers2 are using Cloud Code Security Capabilities 2+ 3+ 4+ modules modules modules 1 Multi-module adoption customers is b

14. Slide 14: Cortex Achieves $1B Bookings Milestone

    CORTEX Cortex Achieves $1B Bookings Milestone XDR XSOAR XPANSE XSIAM Highest Quality LEADER LEADER Defining a new category Detections KuppingerCole Security Orchestration GigaOM Attack Surface The autonomous security platform MITRE ATT&CK Round 4 Automation & Response Leadership Management Radar for

15. Slide 15: XSIAM on Track to Be Our Fastest Growing New Offering

    CORTEX Our Next-Gen SOC Platform, XSIAM is on Track to Be Our Fastest Growing New Offering Q1’23 Q2’23 Q3’23 Q4’23 and beyond Early Establishing Launch Mainstream Growth Success Momentum Putting Cortex at the center of our Success in all 3 customer’s SOC $30M geos transformation In cumulative bookin

16. Slide 16: XSIAM is Bringing AI-Driven Outcomes to its Early Customers

    CORTEX XSIAM is Bringing AI-Driven Outcomes to its Early Customers The Palo Alto Networks Automated SOC Early Customer Results 36 B Events Events >3.5 PB/day of data ingested1 Alerts / 133 Alerts Incidents 7 Incidents 1,000+ AI models applied to detect 125 Automated attacks Automated / 8 Manual Manu

17. Slide 17: Positioned to Continue to Deliver Profitable Growth

    Positioned to Continue to Deliver Profitable Growth Diverse Focused Making portfolio on executing strategic enables us to through a investments while address broad challenging delivering opportunity backdrop profitability ahead of schedule We are THE largest data and AI-based pure-play cybersecurity c

18. Slide 18: Dipak Golechha, Chief Financial Officer

    DIPAK GOLECHHA CHIEF FINANCIAL OFFICER NETWORKS

19. Slide 19: Q3'23 Top-line Trends

    Q3’23 Top-line Trends Total Revenue Next-Gen Security ARR Total Revenue Total Revenue (y/y) Next-Gen Security ARR Next-Gen Security ARR (y/y) Total Billings Remaining Performance Obligation Total Billings Total Billings (y/y) Remaining Performance Obligation Remaining Performance Obligation (y/y) Fi

20. Slide 20: Continuing our Focus on Delivering Profitable Growth

    Continuing our Focus on Delivering Profitable Growth Non-GAAP Earnings Per Share1 Trailing 12 Month Adjusted Non-GAAP Free Cash Flow Non-GAAP Earnings Per Share Trailing 12-month Adjusted Non-GAAP Free Cash Flow Non-GAAP Earnings Per Share (y/y) Trailing 12-month Adjusted Non-GAAP Free Cash Flow (y/y

21. Slide 21: Q3 Metrics

    Q3 Metrics Q3’23 Q3’23 Guidance (as of 2/21/23) Actual Total Billings $2.20B-$2.25B $2.26B 22%-25% yr/yr 26% yr/yr Total Revenue $1.695B-$1.725B $1.72B 22%-24% yr/yr 24% yr/yr Product Revenue $388M 10% yr/yr Remaining Performance Obligation $9.2B 35% yr/yr Next-Gen Security ARR $2.57B 60% yr/yr Gros

22. Slide 22: We Have Accelerated Our Delivery of Profitable Growth in FY23

    We Have Accelerated Our Delivery of Profitable Growth in FY23 FY’23 Non-GAAP Operating Margin Q3’23 | 23.6% Baseline for FY’24 FY’23 Non-GAAP Operating Margin 23.1% Guidance has Q2’23 | 22.8% FY’23 Non-GAAP Operating Margin Guidance1 improved by 400 bps 21.0% since the beginning of Q1’23 | 20.6% the

23. Slide 23: Q4 Fiscal 2023 Guidance

    Q4 Fiscal 2023 Guidance Q4’23 Total Billings $3.15B - $3.20B 17%-19% yr/yr Total Revenue $1.937B - $1.967B 25%-27% yr/yr EPS (Non-GAAP)1 $1.26 - $1.30 58%-63% yr/yr 1 A reconciliation of forward-looking non-GAAP earnings per share to the corresponding GAAP measures has not been provided as it is not

24. Slide 24: Fiscal Year 2023 Guidance

    Fiscal Year 2023 Guidance : Initial FY 2023 Guidance FY 2023 FY 2023 (8/22/22) Guidance as of 2/21/23 Guidance as of 5/23/23 Total Billings $8.95B - $9.05B $9.10B - $9.20B $9.18B - $9.23B +20%-21% yr/yr +22%-23% yr/yr +23%-24% yr/yr Next-Gen Security ARR $2.60B - $2.65B $2.75B - $2.80B $2.80B - $2.8

25. Slide 25: Modeling Points

    Modeling Points ● Q4’23 and FY’23 non-GAAP effective tax rate: 22% ● Q4’23 net interest and other income of $50M – $55M ● Q4’23 diluted shares outstanding 326 – 332 million ● FY23 diluted shares outstanding 322 – 324 million ● Q4’23 capital expenditures of $35M – $40M 1 A reconciliation of forward-l

26. Slide 26: @paloalto

    @ paloalto

27. Slide 27: Appendix

    @ paloalto

28. Slide 28: Investor Links and Resources

    Investor Links and Resources Analyst Day Videos | Sept 2021 (single click access to each executive’s presentation) Presenter | Video replay link Duration Nikesh Arora, CEO & Chairman | Where We Are & Looking Ahead 18:34 Lee Klarich, Chief Product Officer | Market Needs & Our Platforms 40:42 Anand Osw

29. Slide 29: Calculation of Billings

    Calculation of Billings $ In millions Billings: Q322 Q422 Q123 Q223 Q323 Total revenue $1,386.7 $1,550.5 $1,563.4 $1,655.1 $1,720.9 Add: change in total deferred revenue, net of acquired deferred revenue 410.2 1,134.6 185.6 374.0 535.3 Total billings $1,796.9 $2,685.1 $1,749.0 $2,029.1 $2,256.2 Fisc

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

    GAAP to Non-GAAP Reconciliations – Gross Margin $ In millions Non-GAAP gross profit and gross margin: Q322 Q323 $ % $ % GAAP gross profit and gross margin $946.2 68.2% $1,246.1 72.4% Share-based compensation-related charges 36.3 2.7% 42.4 2.4% Amortization expense of acquired intangible assets 26.0

31. Slide 31: GAAP to Non-GAAP Reconciliations – Operating Margin

    GAAP to Non-GAAP Reconciliations – Operating Margin $ In millions Non-GAAP operating income and operating margin: Q322 Q123 Q223 Q323 $ % $ % $ % $ % GAAP operating income (loss) and operating margin ($47.6) -3.4% $15.2 1.0% $39.9 2.4% $78.7 4.6% Share-based compensation-related charges 267.2 19.2%

32. Slide 32: GAAP to Non-GAAP Reconciliations – Operating Margin

    GAAP to Non-GAAP Reconciliations – Operating Margin $ In millions Non-GAAP operating income and operating margin: FY'21 FY'22 $ % $ % GAAP operating loss and operating margin ($304.1) -7.1% ($188.8) -3.4% Share-based compensation-related charges 936.5 22.0% 1,072.0 19.5% Acquisition-related costs⁽¹⁾

33. Slide 33: GAAP to Non-GAAP Reconciliations – EPS

    GAAP to Non-GAAP Reconciliations – EPS Non-GAAP net income per share, diluted: Q322 Q422 Q123 Q223 Q323 GAAP net income (loss) per share, diluted ($0.25) $0.01 $0.06 $0.25 $0.31 Share-based compensation-related charges 0.84 0.78 0.87 0.94 0.91 Acquisition-related cost⁽¹⁾ 0.00 0.01 0.00 0.04 0.02 Amo

34. Slide 34: GAAP to Non-GAAP Reconciliations – Adjusted Free Cash Flow

    GAAP to Non-GAAP Reconciliations – Adjusted Free Cash Flow $ In millions TTM TTM TTM Free cash flow and adjusted free cash flow (non-GAAP): Q322 Q323 Q321 Q322 Q323 Net cash provided by operating activities $389.5 $432.1 $1,510.9 $1,786.8 $2,887.1 Less: purchases of property, equipment, and other as

35. Slide 35: Thank you

    Thank you paloaltonetworks.com

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