|
Delaware
|
001-35594
|
20-2530195
|
(State or other jurisdiction of
incorporation)
|
(Commission File Number)
|
(IRS Employer
Identification No.)
|
3000 Tannery Way
Santa Clara, California 95054
(Address of principal executive office, including zip code)
|
|
•
|
a lump sum cash payment equal to 12 months of her base salary as in effect as of the date of termination;
|
•
|
a lump sum cash payment equal to 100% of her target incentive payment for that fiscal year;
|
•
|
a lump sum cash payment equal to the amount payable for premiums for continued COBRA benefits for a period of 12 months; and
|
•
|
accelerated vesting of the greater of (i) 12 months vesting of then outstanding unvested time-based equity awards, or (ii) 50% of then outstanding unvested time-based equity awards.
|
|
PALO ALTO NETWORKS, INC.
|
|
|
By:
|
/s/ M
ARK
D. M
C
L
AUGHLIN
|
|
Mark D. McLaughlin
|
|
Chief Executive Officer
|
Re:
|
Terms of Employment
|
/s/ M
ARK
M
C
L
AUGHLIN
|
|
Mark McLaughlin, Chief Executive Officer
|
/s/ J
EAN
C
OMPEAU
|
|
Jean Compeau
|
|
Dated:
|
February 23, 2018
|
•
|
Fiscal second quarter revenue grows 28 percent year over year to $542.4 million; product revenue grows 20 percent year over year to $202.2 million; and subscription and support revenue grows 34 percent year over year to $340.2 million
|
•
|
Fiscal second quarter billings grow 20 percent year over year to $674.6 million
|
•
|
Deferred revenue grows 33 percent year over year to $2.0 billion
|
•
|
Announced PAN-OS 8.1 and new hardware:
This announcement included the introduction of PAN-OS
®
8.1, the PA-3200 series with three models, the PA-5280, the ruggedized PA-220R, and two new models of M-Series management appliances. PAN-OS 8.1 adds over 60 new features to our next-generation firewall, including more granular control of SaaS applications, expanded SSL decryption capabilities making it easier to secure encrypted traffic, and many features to simplify
|
•
|
Expanded capabilities to prevent successful cyberattacks in the cloud:
We announced expanded capabilities of our platform to provide customers operating hybrid and multi-cloud environments comprehensive, consistent security that easily integrates with their cloud infrastructure and workloads. This included extended protections to the Google
®
Cloud Platform in addition to enhanced capabilities for AWS
®
and Azure
®
environments, simplified and centralized management for all major clouds, and automated integrations for frictionless workflows in multi-cloud environments.
|
•
|
Launched Magnifier
behavioral analytics application:
This new cloud-based application, delivered through the Palo Alto Networks Application Framework, enables organizations to rapidly identify and prevent behavior-based threats. The application, along with the Palo Alto Networks Logging Service and Palo Alto Networks physical and virtual firewalls, enables customers to collect telemetry data and automate analysis to prevent threats while eliminating supplemental networking devices and costly on-premise logging servers.
|
•
|
Launched Logging Service in Europe:
This service, which mirrors the Logging Service previously announced in the U.S., enables customers to collect large amounts of their own security data from Palo Alto Networks devices, making large-scale log collection affordable while addressing data privacy and location concerns for many European organizations. All data sent to the Logging Service in Europe will be stored within a data center in the EU.
|
•
|
Achieved Amazon Web Services Networking Competency status:
This competency complements our Amazon
®
Web Services Security Competency, achieved in 2016, and recognizes that we provide proven technology and deep expertise to help customers adopt, develop, deploy and secure networks in AWS.
|
•
|
Launched global Cyber Range initiative and facilities:
Through our new Cyber Range initiative and facilities, cybersecurity professionals can build on their understanding of today’s most advanced threats; improve their internal team communications and processes; and enhance skills in identifying and preventing threats with real-time use of the Palo Alto Networks Next-Generation Security Platform. Our inaugural facility opened this quarter in Amsterdam with additional site openings planned throughout the year.
|
•
|
Announced the appointment of chief accounting officer:
Today the company announced that Jean Compeau, formerly senior vice president, accounting and corporate controller, has been named chief accounting officer with ongoing responsibility for accounting and tax functions. Ms. Compeau, who joined the company in 2012, has 20 years’ business experience, having held several senior accounting or corporate controller positions at various technology companies. She holds a B.A. degree in Business Economics from UCLA and is a certified public accountant (inactive) in California.
|
•
|
Total revenue in the range of $538 to $548 million, representing year-over-year growth between 25 percent and 27 percent. Product revenue in the range of $193 to $196 million, representing year-over-year growth between 18 percent and 19 percent.
|
•
|
Total billings in the range of $665 to $680 million, representing year-over-year growth between 22 percent and 25 percent.
|
•
|
Diluted non-GAAP net income per share in the range of $0.94 to $0.96 using 94.5 to 96.5 million shares; this includes an approximately $0.11 benefit from the new non-GAAP effective tax rate of 22 percent.
|
•
|
Total revenue in the range of $2.190 to $2.220 billion, representing year-over-year growth between 24 percent and 26 percent. Product revenue in the range of $810 to $820 million, representing year-over-year growth between 14 percent and 16 percent.
|
•
|
Total billings in the range of $2.715 to $2.770 billion, representing year-over-year growth between 18 percent and 21 percent.
|
•
|
A full-year weighted average non-GAAP effective tax rate of approximately 24 percent, which includes fiscal first quarter 2018 at the prior non-GAAP effective tax rate of 31 percent and the remainder of the year at the new, lower non-GAAP effective tax rate of 22 percent.
|
•
|
Using this tax range, diluted non-GAAP net income per share in the range of $3.84 to $3.91 using 94 to 96 million shares; this includes an approximately $0.36 benefit from the new full-year non-GAAP effective tax rate.
|
Palo Alto Networks, Inc.
|
|||||||||||||||
Preliminary Condensed Consolidated Statements of Operations
|
|||||||||||||||
(In millions, except per share data)
|
|||||||||||||||
(Unaudited)
|
|||||||||||||||
|
|
|
|
|
|
|
|
||||||||
|
Three Months Ended January 31,
|
|
Six Months Ended January 31,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
202.2
|
|
|
$
|
168.8
|
|
|
$
|
388.7
|
|
|
$
|
332.6
|
|
Subscription and support
|
340.2
|
|
|
253.8
|
|
|
659.2
|
|
|
488.1
|
|
||||
Total revenue
|
542.4
|
|
|
422.6
|
|
|
1,047.9
|
|
|
820.7
|
|
||||
Cost of revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
63.9
|
|
|
45.8
|
|
|
121.5
|
|
|
88.0
|
|
||||
Subscription and support
|
95.4
|
|
|
67.4
|
|
|
179.2
|
|
|
126.4
|
|
||||
Total cost of revenue
|
159.3
|
|
|
113.2
|
|
|
300.7
|
|
|
214.4
|
|
||||
Total gross profit
|
383.1
|
|
|
309.4
|
|
|
747.2
|
|
|
606.3
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Research and development
|
96.6
|
|
|
89.9
|
|
|
190.8
|
|
|
174.1
|
|
||||
Sales and marketing
|
265.0
|
|
|
226.7
|
|
|
523.5
|
|
|
446.8
|
|
||||
General and administrative
|
53.3
|
|
|
47.2
|
|
|
119.0
|
|
|
88.8
|
|
||||
Total operating expenses
|
414.9
|
|
|
363.8
|
|
|
833.3
|
|
|
709.7
|
|
||||
Operating loss
|
(31.8
|
)
|
|
(54.4
|
)
|
|
(86.1
|
)
|
|
(103.4
|
)
|
||||
Interest expense
|
(6.4
|
)
|
|
(6.1
|
)
|
|
(12.7
|
)
|
|
(12.1
|
)
|
||||
Other income, net
|
4.9
|
|
|
2.7
|
|
|
9.7
|
|
|
5.2
|
|
||||
Loss before income taxes
|
(33.3
|
)
|
|
(57.8
|
)
|
|
(89.1
|
)
|
|
(110.3
|
)
|
||||
Provision for income taxes
|
1.6
|
|
|
2.8
|
|
|
9.8
|
|
|
7.2
|
|
||||
Net loss
|
$
|
(34.9
|
)
|
|
$
|
(60.6
|
)
|
|
$
|
(98.9
|
)
|
|
$
|
(117.5
|
)
|
Net loss per share, basic and diluted
|
$
|
(0.38
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
(1.09
|
)
|
|
$
|
(1.30
|
)
|
Weighted-average shares used to compute net loss per share, basic and diluted
|
91.1
|
|
|
90.7
|
|
|
91.0
|
|
|
90.2
|
|
Palo Alto Networks, Inc.
|
|||||||||||||||
Reconciliation of GAAP to Non-GAAP Financial Measures
|
|||||||||||||||
(In millions, except per share amounts)
|
|||||||||||||||
(Unaudited)
|
|||||||||||||||
|
|
|
|
|
|
|
|
||||||||
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
January 31,
|
|
January 31,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
GAAP net loss
|
$
|
(34.9
|
)
|
|
$
|
(60.6
|
)
|
|
$
|
(98.9
|
)
|
|
$
|
(117.5
|
)
|
Share-based compensation related charges
|
136.3
|
|
|
131.8
|
|
|
265.2
|
|
|
247.4
|
|
||||
Acquisition related costs
|
—
|
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
||||
Amortization expense of acquired intangible assets
|
2.5
|
|
|
2.0
|
|
|
5.0
|
|
|
4.1
|
|
||||
Litigation related charges
(1)
|
3.0
|
|
|
3.0
|
|
|
6.1
|
|
|
6.1
|
|
||||
Facility exit costs
(2)
|
1.4
|
|
|
—
|
|
|
17.0
|
|
|
—
|
|
||||
Non-cash interest expense related to convertible notes
|
6.4
|
|
|
6.1
|
|
|
12.7
|
|
|
12.1
|
|
||||
Foreign currency loss associated with non-GAAP adjustments
|
1.0
|
|
|
0.6
|
|
|
1.5
|
|
|
0.4
|
|
||||
Income tax and other tax adjustments related to the above
(3)
|
(24.2
|
)
|
|
(24.0
|
)
|
|
(47.3
|
)
|
|
(42.5
|
)
|
||||
Non-GAAP net income
|
$
|
91.5
|
|
|
$
|
59.6
|
|
|
$
|
161.3
|
|
|
$
|
110.8
|
|
Income tax benefit from Tax Cuts and Jobs Act
(3)
|
(10.6
|
)
|
|
|
|
|
|
|
|||||||
Non-GAAP net income, excluding impact of Tax Cuts and Jobs Act
(3)
|
$
|
80.9
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
||||||||
GAAP net loss per share, diluted
|
$
|
(0.38
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
(1.09
|
)
|
|
$
|
(1.30
|
)
|
Share-based compensation related charges
|
1.46
|
|
|
1.42
|
|
|
2.86
|
|
|
2.69
|
|
||||
Acquisition related costs
|
0.00
|
|
|
0.01
|
|
|
0.00
|
|
|
0.01
|
|
||||
Amortization expense of acquired intangible assets
|
0.03
|
|
|
0.02
|
|
|
0.05
|
|
|
0.05
|
|
||||
Litigation related charges
(1)
|
0.03
|
|
|
0.03
|
|
|
0.07
|
|
|
0.07
|
|
||||
Facility exit costs
(2)
|
0.02
|
|
|
0.00
|
|
|
0.19
|
|
|
0.00
|
|
||||
Non-cash interest expense related to convertible notes
|
0.07
|
|
|
0.07
|
|
|
0.14
|
|
|
0.13
|
|
||||
Foreign currency loss associated with non-GAAP adjustments
|
0.01
|
|
|
0.01
|
|
|
0.02
|
|
|
0.00
|
|
||||
Income tax and other tax adjustments related to the above
(3)
|
(0.27
|
)
|
|
(0.26
|
)
|
|
(0.52
|
)
|
|
(0.47
|
)
|
||||
Non-GAAP net income per share, diluted
|
$
|
0.97
|
|
|
$
|
0.63
|
|
|
$
|
1.72
|
|
|
$
|
1.18
|
|
Income tax benefit from Tax Cuts and Jobs Act
(3)
|
(0.11
|
)
|
|
|
|
|
|
|
|||||||
Non-GAAP net income per share, diluted, excluding impact of Tax Cuts and Jobs Act
(3)
|
$
|
0.86
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
||||||||
GAAP weighted-average shares used to compute net loss per share, diluted
|
91.1
|
|
|
90.7
|
|
|
91.0
|
|
|
90.2
|
|
||||
Weighted-average effect of potentially dilutive securities
(4)
|
2.8
|
|
|
3.2
|
|
|
2.8
|
|
|
3.6
|
|
||||
Non-GAAP weighted-average shares used to compute net income per share, diluted
|
93.9
|
|
|
93.9
|
|
|
93.8
|
|
|
93.8
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Net cash provided by operating activities
|
$
|
243.7
|
|
|
$
|
214.3
|
|
|
$
|
517.8
|
|
|
$
|
417.8
|
|
Less: purchases of property, equipment, and other assets
|
25.6
|
|
|
44.7
|
|
|
57.8
|
|
|
65.6
|
|
||||
Free cash flow (non-GAAP)
|
$
|
218.1
|
|
|
$
|
169.6
|
|
|
$
|
460.0
|
|
|
$
|
352.2
|
|
Net cash used in investing activities
|
$
|
(36.1
|
)
|
|
$
|
(173.1
|
)
|
|
$
|
(88.5
|
)
|
|
$
|
(244.3
|
)
|
Net cash used in financing activities
|
$
|
(135.2
|
)
|
|
$
|
(119.2
|
)
|
|
$
|
(258.6
|
)
|
|
$
|
(146.5
|
)
|
(1)
|
Consists of the amortization of intellectual property licenses.
|
(2)
|
Consists of charges related to the relocation of the company’s corporate headquarters during the three months ended October 31, 2017, including a cease-use loss of $15.4 million and accelerated depreciation, and charges related to the relocation of the company’s research and development center in Israel during the three months ended January 31, 2018, including a cease-use loss of $1.3 million and accelerated depreciation.
|
(3)
|
The company changed its non-GAAP effective tax rate from 31% to 22% in its second quarter of fiscal 2018 due to the reduction of the U.S. federal corporate income tax rate under the U.S. Tax Cuts and Jobs Act, which was enacted into law on December 22, 2017.
|
(4)
|
Non-GAAP net income per share, diluted, includes the potentially dilutive effect of employee equity incentive plan awards and convertible senior notes outstanding. In addition, non-GAAP net income per share, diluted, includes the anti-dilutive impact of the company’s note hedge agreements, which reduced the potentially dilutive effect of the convertible notes by 1.4 million shares and 1.4 million shares for the
three and six months ended
January 31, 2018
, respectively, and 0.9 million shares and 1.2 million shares for the
three and six months ended
January 31, 2017
, respectively.
|
Palo Alto Networks, Inc.
|
|||||||||||||||
Calculation of Billings
|
|||||||||||||||
(In millions)
|
|||||||||||||||
(Unaudited)
|
|||||||||||||||
|
|
|
|
|
|
|
|
||||||||
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
January 31,
|
|
January 31,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Total revenue
|
$
|
542.4
|
|
|
$
|
422.6
|
|
|
$
|
1,047.9
|
|
|
$
|
820.7
|
|
Add: change in total deferred revenue, net of acquired deferred revenue
|
132.2
|
|
|
139.0
|
|
|
223.2
|
|
|
257.8
|
|
||||
Billings
|
$
|
674.6
|
|
|
$
|
561.6
|
|
|
$
|
1,271.1
|
|
|
$
|
1,078.5
|
|
Palo Alto Networks, Inc.
|
|||||||
Preliminary Condensed Consolidated Balance Sheets
|
|||||||
(In millions)
|
|||||||
(Unaudited)
|
|||||||
|
|
|
|
||||
|
January 31, 2018
|
|
July 31, 2017
|
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
915.0
|
|
|
$
|
744.3
|
|
Short-term investments
|
720.7
|
|
|
630.7
|
|
||
Accounts receivable, net
|
365.1
|
|
|
432.1
|
|
||
Prepaid expenses and other current assets
|
209.4
|
|
|
169.2
|
|
||
Total current assets
|
2,210.2
|
|
|
1,976.3
|
|
||
Property and equipment, net
|
264.7
|
|
|
211.1
|
|
||
Long-term investments
|
722.3
|
|
|
789.3
|
|
||
Goodwill
|
238.8
|
|
|
238.8
|
|
||
Intangible assets, net
|
48.3
|
|
|
53.7
|
|
||
Other assets
|
143.2
|
|
|
169.1
|
|
||
Total assets
|
$
|
3,627.5
|
|
|
$
|
3,438.3
|
|
Liabilities, temporary equity, and stockholders’ equity
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
33.4
|
|
|
$
|
35.5
|
|
Accrued compensation
|
113.2
|
|
|
117.5
|
|
||
Accrued and other liabilities
|
83.6
|
|
|
79.9
|
|
||
Deferred revenue
|
1,088.8
|
|
|
968.4
|
|
||
Convertible senior notes, net
|
537.4
|
|
|
—
|
|
||
Total current liabilities
|
1,856.4
|
|
|
1,201.3
|
|
||
Convertible senior notes, net
|
—
|
|
|
524.7
|
|
||
Long-term deferred revenue
|
907.9
|
|
|
805.1
|
|
||
Other long-term liabilities
|
196.6
|
|
|
147.6
|
|
||
Temporary equity
|
33.5
|
|
|
—
|
|
||
Stockholders’ equity:
|
|
|
|
||||
Preferred stock
|
—
|
|
|
—
|
|
||
Common stock and additional paid-in capital
|
1,575.9
|
|
|
1,599.7
|
|
||
Accumulated other comprehensive loss
|
(7.2
|
)
|
|
(3.4
|
)
|
||
Accumulated deficit
|
(935.6
|
)
|
|
(836.7
|
)
|
||
Total stockholders’ equity
|
633.1
|
|
|
759.6
|
|
||
Total liabilities, temporary equity, and stockholders’ equity
|
$
|
3,627.5
|
|
|
$
|
3,438.3
|
|
Palo Alto Networks, Inc.
|
|||||||
Preliminary Condensed Consolidated Statements of Cash Flows
|
|||||||
(In millions)
|
|||||||
(Unaudited)
|
|||||||
|
|
|
|
||||
|
Six Months Ended January 31,
|
||||||
|
2018
|
|
2017
|
||||
Cash flows from operating activities
|
|
|
|
||||
Net loss
|
$
|
(98.9
|
)
|
|
$
|
(117.5
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
||||
Share-based compensation for equity based awards
|
256.5
|
|
|
240.6
|
|
||
Depreciation and amortization
|
43.4
|
|
|
28.0
|
|
||
Cease-use loss related to facility exit
|
16.7
|
|
|
—
|
|
||
Amortization of debt discount and debt issuance costs
|
12.7
|
|
|
12.1
|
|
||
Amortization of investment premiums, net of accretion of purchase discounts
|
0.6
|
|
|
1.4
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable, net
|
67.0
|
|
|
(37.3
|
)
|
||
Prepaid expenses and other assets
|
(39.0
|
)
|
|
(3.8
|
)
|
||
Accounts payable
|
(6.4
|
)
|
|
0.2
|
|
||
Accrued compensation
|
(4.3
|
)
|
|
5.3
|
|
||
Accrued and other liabilities
|
46.3
|
|
|
31.0
|
|
||
Deferred revenue
|
223.2
|
|
|
257.8
|
|
||
Net cash provided by operating activities
(1)
|
517.8
|
|
|
417.8
|
|
||
Cash flows from investing activities
|
|
|
|
||||
Purchases of investments
|
(372.5
|
)
|
|
(562.7
|
)
|
||
Proceeds from maturities of investments
|
341.8
|
|
|
384.0
|
|
||
Purchases of property, equipment, and other assets
|
(57.8
|
)
|
|
(65.6
|
)
|
||
Net cash used in investing activities
|
(88.5
|
)
|
|
(244.3
|
)
|
||
Cash flows from financing activities
|
|
|
|
||||
Repurchases of common stock
|
(259.1
|
)
|
|
(170.1
|
)
|
||
Proceeds from sales of shares through employee equity incentive plans
|
23.4
|
|
|
23.6
|
|
||
Payments for taxes related to net share settlement of equity awards
|
(22.9
|
)
|
|
—
|
|
||
Net cash used in financing activities
|
(258.6
|
)
|
|
(146.5
|
)
|
||
Net increase in cash and cash equivalents
|
170.7
|
|
|
27.0
|
|
||
Cash and cash equivalents - beginning of period
|
744.3
|
|
|
734.4
|
|
||
Cash and cash equivalents - end of period
|
$
|
915.0
|
|
|
$
|
761.4
|
|
Non-cash investing and financing activities
|
|
|
|
||||
Property and equipment acquired through lease incentives
|
$
|
37.8
|
|
|
$
|
—
|
|
(1)
|
Cash provided by operating activities for the six months ended January 31, 2018 includes the receipt of an upfront cash reimbursement of $38.2 million from the company’s landlords during the three months ended October 31, 2017, in connection with the exercise of their option to amend the lease payment schedules and eliminate the rent holiday periods under certain of the company’s lease agreements. The upfront cash reimbursement will be applied against rental payments due in fiscal years 2018 through 2020 under the amended lease agreements.
|