Palo Alto Networks Reports Fiscal First Quarter 2013 Financial Results

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Santa Clara, CA , December 06, 2012

Palo Alto Networks, Inc. (NYSE: PANW) today announced financial results for its fiscal first quarter of  2013 ended October 31, 2012.

Fiscal first quarter revenue grows 50 percent year-over-year and 14 percent sequentially to reach a record $85.9 million
Adds over 1,000 new end-customers in fiscal first quarter, reaching over 10,000 total end-customers
Cash, cash equivalents and investments of $342.1 million with no debt
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Total revenue for the fiscal first quarter grew 50 percent year-over-year to $85.9 million, compared with $57.1 million in the fiscal first quarter of 2012. GAAP net loss for the fiscal first quarter was $3.5 million, or $0.05 per basic and diluted share, compared with net income of $4.1 million, or $0.00 per basic and diluted share, in the fiscal first quarter of 2012.

Palo Alto Networks recorded fiscal first quarter non-GAAP net income of $2.9 million, or $0.04 per basic and diluted share, compared with non-GAAP net income of $5.6 million, or $0.01 per basic and diluted share, in the fiscal first quarter of 2012. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

"We delivered a strong first quarter, achieving 14% sequential revenue growth and expanding our customer base to over 10,000 customers," said Mark McLaughlin, president and chief executive officer of Palo Alto Networks. "Our performance demonstrates that our unique technology differentiation is resonating with customers, and as a result, our growth continues to significantly outpace the market."

"We also continue to build on our technology lead with innovative and disruptive technology, which further differentiates us from the competition," continued McLaughlin. 

Commenting on the company's financial results, Steffan Tomlinson, chief financial officer of Palo Alto Networks, added, "In the first quarter we delivered strong revenue growth while improving our gross margin and operating margin on a sequential basis, demonstrating the leverage in our model. During the quarter, we also generated cash flow from operations of $23.1 million and we ended the quarter with approximately $342.1 million in cash, cash equivalents and investments."   

Recent Highlights
Announced a strategic partnership with Citrix and expanded the Technology Partner Program by adding RSA, SafeNet, Swivel, Bradford Networks, RedSeal, Skybox Security, Lancope, Interface Masters, and Garland Technology.
Extended its lead in next-generation network security by launching four new products:
The VM-Series – a virtualized next-generation firewall platform launched in collaboration with VMware that brings next-generation network security into the virtualized datacenter environment;
The WildFire™ modern malware prevention subscription, which sets the bar for the market that until now has only been focused on detection;
The PA-3000 Series – a new, midrange next-generation firewall hardware platform; and
The M-100 appliance – a dedicated high-performance management appliance.
Appointed John Donovan, senior executive vice president of AT&T Technology and Network Operations, to its Board of Directors.
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Conference Call Information
Palo Alto Networks will host a conference call for analysts and investors to discuss its fiscal first quarter of 2013 results and outlook for its fiscal second quarter of 2013 today at 4:30 p.m. Eastern time / 1:30 p.m. Pacific time. Open to the public, investors may access the call by dialing (866) 700-0133 or (617) 213-8831 and entering the passcode 20601007. A live audio webcast of the conference call along with supplemental financial information will also be accessible from the "Investors" section of the company's website at investors.paloaltonetworks.com. Following the webcast, an archived version will be available on the website for one year. A telephonic replay of the call will be available two hours after the call and will run for five business days and may be accessed by dialing (888) 286-8010 or (617) 801-6888 and entering passcode 48881099.

Forward-Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding momentum in the company's business. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: Palo Alto Networks' limited operating history, particularly as a new public company; risks associated with Palo Alto Networks' rapid growth, particularly outside of the U.S.; and general market, political, economic and business conditions.

Additional risks and uncertainties that could affect Palo Alto Networks' financial results are included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the company's annual report on Form 10-K filed with the SEC on October 4, 2012 and the company's final prospectus for its secondary public offering filed with the SEC on October 18, 2012, both of which are available on the company's website at investors.paloaltonetworks.com and on the SEC's website at www.sec.gov. Additional information will also be set forth in other filings that the company makes with the SEC from time to time. All forward-looking statements in this press release are based on information available to the company as of the date hereof, and Palo Alto Networks does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

Non-GAAP Financial Measures
Palo Alto Networks has provided in this release financial information that has not been prepared in accordance with generally accepted accounting principles in the United States (GAAP). The company uses these non-GAAP financial measures internally in analyzing its financial results and believes that the use of these non-GAAP financial measures is useful to investors as an additional tool to evaluate ongoing operating results and trends and in comparing the company's financial results with other companies in its industry, many of which present similar non-GAAP financial measures.

Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. A reconciliation of the company's non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included in this press release, and investors are encouraged to review the reconciliation.

Non-GAAP net income and diluted net income per share. Palo Alto Networks defines non-GAAP net income as net income (loss) plus share-based compensation expense less the related tax effects. Non-GAAP diluted net income per share is defined as non-GAAP net income divided by the diluted weighted-average shares outstanding. Palo Alto Networks considers these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of share-based compensation expense so that management and investors can compare the company's "core business operating results," meaning its operating performance excluding not only share-based compensation but also discrete charges that are infrequent in nature, over multiple periods. The company also excludes from non-GAAP net income and non-GAAP diluted net income per share the tax effects associated with share-based compensation expense in order to provide a complete picture of the company's recurring core business operating results. Without excluding these tax effects, investors would only see the gross effect that excluding these expenses had on the company's operating results. There are a number of limitations related to the use of non-GAAP net income and non-GAAP diluted net income per share versus net income (loss) and diluted net income (loss) per share calculated in accordance with GAAP. First, non-GAAP net income and non-GAAP diluted net income per share exclude share-based compensation expense. Share-based compensation has been and will continue to be for the foreseeable future a significant recurring expense in the company's business. Second, share-based compensation is an important part of Palo Alto Networks employees' compensation and impacts their performance. Third, the components of the costs that Palo Alto Networks excludes in its calculation of non-GAAP net income and non-GAAP diluted net income per share may differ from the components that its peer companies exclude when they report their non-GAAP results of operations. Palo Alto Networks compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and non-GAAP diluted net income per share and evaluating non-GAAP net income and non-GAAP diluted net income per share together with net income (loss) and diluted net income (loss) per share calculated in accordance with GAAP. In the future, the company may also exclude non-recurring expenses and other expenses that do not reflect the company's core business operating results.

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About Palo Alto Networks
Palo Alto Networks™ is the network security company. Its innovative platform allows enterprises, service providers, and government entities to secure their networks and safely enable the increasingly complex and rapidly growing number of applications running on their networks. The core of Palo Alto Networks platform is its Next-Generation Firewall, which delivers application, user, and content visibility and control integrated within the firewall through its proprietary hardware and software architecture. Palo Alto Networks products and services can address a broad range of network security requirements, from the data center to the network perimeter, as well as the distributed enterprise, which includes branch offices and a growing number of mobile devices. Palo Alto Networks products are used by more than 10,000 customers in over 100 countries. For more information, visit www.paloaltonetworks.com.

Palo Alto Networks, "The Network Security Company," the Palo Alto Networks Logo, App-ID, GlobalProtect, and WildFire are trademarks of Palo Alto Networks, Inc. in the United States. All other trademarks, trade names or service marks used or mentioned herein belong to their respective owners.