Palo Alto Networks, Inc. · NASDAQ:PANW

Palo Alto Networks — Q2 2018 Earnings Presentation

25 slides from Palo Alto Networks's earnings presentation, Feb 26, 2018

  1. Slide 1: Q2 FY’18 Investor Presentation

    Q2 FY’18 Investor Presentation February 26, 2018

  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 that are based on our management’s beliefs and assumptions and on information currently available to management, including statements regard

  3. Slide 3: 3 | © 2018, Palo Alto Networks. All Rights Reserved.

    3 | © 2018, Palo Alto Networks. All Rights Reserved.

  4. Slide 4: Continuous evolution

    Continuous evolution SaaS Cloud & Virtualization z MASSIVE OPPORTUNITY FOR CYBERCRIMINALS Mobility & BYOD Internet of Things 4 | © 2018, Palo Alto Networks. All Rights Reserved.

  5. Slide 5: The challenge

    The challenge SPEED z Keep pace with business needs RISK Disjointed tools limit insights. BALANCING DISJOINTED TOOLS AND MANUAL EFFORTS 5 | © 2018, Palo Alto Networks. All Rights Reserved.

  6. Slide 6: Security in the digital age

    Security in the digital age z ANALYTICS AI IoT AUTOMATION DATA DRIVEN AUTOMATED CLOUD DELIVERED 6 | © 2018, Palo Alto Networks. All Rights Reserved.

  7. Slide 7: Palo Alto Networks Next-Generation Security Platform

    Palo Alto Networks Next-Generation Security Platform z z PREVENT FOCUS ON CONSUME SUCCESSFUL WHAT INNOVATIONS CYBERATTACKS MATTERS QUICKLY Operate with ease using Automate tasks using From our technologies best practices. analytics - focus on hunting and 3rd parties. threats. 7 | © 2018, Palo Alto N

  8. Slide 8: Palo Alto Networks Next-Generation Security Platform

    Palo Alto Networks Next-Generation Security Platform PALO ALTO NETWORKS 3RD PARTY PARTNER CUSTOMER APPS APPS APPS CLOUD-DELIVERED SECURITY SERVICES APPLICATION FRAMEWORK & LOGGING SERVICE NETWORK ADVANCED ENDPOINT CLOUD SECURITY PROTECTION SECURITY 8 | © 2018, Palo Alto Networks. All Rights Reserved

  9. Slide 9: Large and expanding addressable market

    Large and expanding addressable market Application Framework +$5Bn $24.0Bn Endpoint Security $5.2Bn $19.1Bn Endpoint Security Web Security $2.7Bn $4.4Bn Web Security $2.3Bn Network Security (Firewall, IPS, VPN) Network Security $16.1Bn (Firewall, IPS, VPN) $12.4Bn 2017 2020 Sources: IDC, Worldwide N

  10. Slide 10: 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 VM-Series Threat Prevention AutoFocus URL Filtering Support Aperture GlobalProtect Professional services Logging Service Appliances

  11. Slide 11: Continued strength of customer acquisition

    Continued strength of customer acquisition Q2’18 Customer count ~48,000 50,000 45,000 Q2’17 >37,500 40,000 Q2’16 35,000 >30,000 30,000 Q2’15 >22,000 25,000 Q2’14 20,000 >15,000 Q2’13 15,000 >10,000 Q2’12 >6,000 10,000 Q2’11 >2,500 5,000 - Note: Fiscal year ends July 31. 11 | © 2018, Palo Alto Networ

  12. Slide 12: Customer adoption of the Next-Generation Security Platform

    Customer adoption of the Next-Generation Security Platform Q2 FY’18 total customers: ~48,000 ~42,000 ~35,000 ~23,000 ~7,000 ~5,000 >2,200 Traps Cloud GlobalProtect WildFire URL Filtering Threat Prevention Adoption = # of customers who have purchased the subscription since inception. Customer count i

  13. Slide 13: Q2’18 top-25 customer buying behavior

    Q2’18 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 Q4'17 Q1'18 Q2'18 Federal Government

  14. Slide 14: Financial highlights

    Financial highlights Q2 FY’18 Y/Y Change 1H FY’18 Y/Y Change Billings(1) $674.6Mn 20.1% $1.3Bn 17.9% Revenue $542.4Mn 28.3% $1.0Bn 27.7% Gross margin %(2) 75.9% (270) bps 76.3% (270) bps Operating margin %(2) 20.5% 80 bps 19.8% 90 bps EPS(2) $0.97 $0.34 $1.72 $0.54 Deferred revenue $2.0Bn 33.2% $2.0

  15. Slide 15: Billings by type

    Billings by type $Millions FY’12-FY’17 CAGR Product 33% $2,293 Subscription 62% Support 57% $1,906 $715 $580 $1,271 $1,219 $1,078 $867 $342 $391 $771 $656 $348 $510 $217 $380 $493 $324 $396 $136 $214 $130 $670 $711 $76 $497 $78 $340 $334 $387 $170 $244 FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 1H'17 1H'18

  16. Slide 16: Deferred revenue & contract duration

    Deferred revenue & contract duration $Millions % of total $1,997 $1,773 $1,499 $908 45% $805 $1,241 45% $671 Q2 FY’18 45% Contract length: $929 $537 ~3.0 years 43% $714 $388 42% $290 $1,089 41% $968 $828 55% $704 55% $541 55% $424 57% 58% 59% Q4'15 Q2'16 Q4'16 Q2'17 Q4'17 Q2'18 Short-term deferred r

  17. Slide 17: Revenue by type

    Revenue by type $Millions FY’12-FY’17 CAGR Product 32% $1,762 Subscription 70% Support 64% $1,378 $502 $1,048 $350 $928 $821 $551 $307 $222 $357 $598 $232 $213 $352 $396 $135 $256 $123 $255 $81 $671 $709 $71 $493 $42 $39 $340 $333 $389 $174 $244 FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 1H'17 1H'18 Produc

  18. Slide 18: Leverage at scale

    Leverage at scale $Millions FY’17 Op margin(1): 20.1% FY’17 FCF margin(1): 40.0% $705 $586 $460 $355 $352 $319 FY’12 Op margin(1)(2): 7.2% $271 FY’12 FCF margin(1): 24.7% $207 (3) $153 $155 $128 $99 $63 $70 (2) $39 $18 FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 1H'17 1H'18 (1) (1) Operating income Free cas

  19. Slide 19: U.S. Tax Cuts and Jobs Act (TCJA) impact on EPS

    U.S. Tax Cuts and Jobs Act (TCJA) impact on EPS Reported TCJA Non-GAAP ETR Non-GAAP EPS Non-GAAP EPS benefit per TCJA excl. TCJA Q2 FY’18 $0.97 $0.11 22% $0.86 Note: Q2 FY’18 non-GAAP EPS excluding the impact of the TCJA was $0.86. The lower effective tax rate (ETR) from 31% to 22% contributed an $0

  20. Slide 20: Appendix

    _— Appendix

  21. Slide 21: Calculation of billings

    Calculation of billings $Millions Billings: FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 1H'17 1H'18 Q2'17 Q2'18 Total revenue $ 255.1 $ 396.1 $ 598.2 $ 928.1 $ 1,378.5 $ 1,761.6 $ 820.7 $ 1,047.9 $ 422.6 $ 542.4 Add: change in total deferred revenue, net of acquired deferred 68.6 113.4 173.2 291.0 527.1 531

  22. Slide 22: GAAP to non-GAAP reconciliations

    GAAP to non-GAAP reconciliations $Millions Non-GAAP gross profit and gross margin: 1H'17 1H'18 Q2'17 Q2'18 $ % $ % $ % $ % GAAP gross profit and gross margin $ 606.3 73.9% $ 747.2 71.3% $ 309.4 73.2% $ 383.1 70.6% Share-based compensation related charges 32.1 3.9% 41.6 3.9% 17.8 4.3% 23.0 4.3% Amort

  23. Slide 23: GAAP to non-GAAP reconciliations (cont’d)

    GAAP to non-GAAP reconciliations (cont’d) $Millions Non-GAAP operating income and operating margin: FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 $ % $ % $ % $ % $ % $ % GAAP operating loss and operating margin (1) $ 3.9 1.5% $ (9.9) (2.5%) $ (196.2) (32.8%) $ (99.8) (10.8%) $ (157.3) (11.4%) $ (179.8) (10.2%

  24. Slide 24: GAAP to non-GAAP reconciliations (cont’d)

    GAAP to non-GAAP reconciliations (cont’d) Non-GAAP net income per share, diluted: 1H'17 1H'18 Q2'17 Q2'18 GAAP net loss per share, diluted $ (1.30) $ (1.09) $ (0.67) $ (0.38) Share-based compensation related charges 2.69 2.86 1.42 1.46 Acquisition related costs 0.01 - 0.01 - Amortization expense of

  25. Slide 25: GAAP to non-GAAP reconciliations (cont’d)

    GAAP to non-GAAP reconciliations (cont’d) $Millions Free cash flow (non-GAAP): FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 1H'17 1H'18(1) Q2'17 Q2'18 Net cash provided by operating activities $ 77.6 $ 121.3 $ 89.4 $ 352.8 $ 658.6 $ 868.5 $ 417.8 $ 517.8 $ 214.3 $ 243.7 Less: purchases of property, equipment

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