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    Palo Alto Networks Inc (PANW)

    Board Change

    Business Description

    Palo Alto Networks, Inc. is a cybersecurity company that empowers enterprises, organizations, service providers, and government entities to secure their users, networks, clouds, and endpoints through comprehensive cybersecurity solutions enabled by artificial intelligence and automation . The company offers a range of products, including appliances, software licenses, and subscription services, to provide real-time access to security capabilities across various environments . Palo Alto Networks also provides professional services such as incident response and risk management, and operates a two-tiered, indirect fulfillment model for sales through distributors and resellers .

    1. Subscription and Support Services - Provide real-time access to security capabilities across networks, endpoints, and the cloud, often purchased alongside firewall appliances.
    2. Appliances - Include the ML-Powered Next-Generation Firewall, which secures networks with advanced machine learning capabilities.
    3. Software Licenses - Cover Panorama, SD-WAN, and the VM-Series, offering comprehensive management and security for various network environments.
    4. CN-Series Container Firewalls - Secure containerized computing environments, ensuring protection across cloud-native applications.
    5. Professional Services - Offer incident response and risk management to help organizations manage and mitigate cybersecurity threats.

    Q4 2024 Summary

    Initial Price$144.44May 1, 2024
    Final Price$162.37July 31, 2024
    Price Change$17.93
    % Change+12.41%

    What went well

    • Strong growth and customer interest in AI-driven security products: Palo Alto Networks' XSIAM product achieved approximately $500 million in bookings in FY '24, more than doubling from the previous year. Additionally, over 1,000 customers have shown interest in their new AI Access offering, signaling significant potential for future growth in AI security.
    • Successful platformization strategy leading to increased ARR: The company added over 90 new platformizations in Q4, bringing the total to well over 1,000 platformized customers among its largest 5,000 customers. The average ARR per platformized customer is up over 10% since Q1, demonstrating the effectiveness of this strategy in driving growth.
    • Effective internal use of AI driving operational efficiencies: By implementing AI internally, Palo Alto Networks has reduced headcount in certain operations by 50%, and some of its best developers are now 40% more productive. This enhances operational efficiency and competitiveness.

    Q&A Summary

    1. RPO Growth Outlook
      Q: What gives confidence in RPO growth guidance?
      A: Nikesh Arora explained that the company expects RPO to grow by 19.5% in fiscal '25 due to a combination of factors, including a strong pipeline, acceleration in the second half, the IBM business acquisition, strength in XSIAM, and platformization efforts.

    2. AI Security Revenue
      Q: How fast can AI security products grow?
      A: Nikesh Arora noted that while it's early days, there is significant interest in their AI security suite, with about 1,000 customers interested in AI Access. He expressed confidence that these products will grow rapidly, highlighting that XSIAM achieved $500 million in bookings, showcasing potential for swift adoption.

    3. Free Cash Flow Margins
      Q: Implications of contract durations on free cash flow?
      A: Dipak Golechha stated that contract lengths remain consistent at three years, and operating margins have improved by 800 basis points since fiscal year '21. This improvement supports strong free cash flow generation despite deferred payments increasing from 6% to 30%.

    4. XSIAM Growth and IBM Acquisition
      Q: Where are XSIAM customers coming from?
      A: Nikesh Arora explained that almost every XSIAM sale replaces existing SIEMs, sometimes multiple ones. With the IBM QRadar acquisition, although some contracts won't be immediately recognized due to accounting treatments, the focus is on converting these customers to XSIAM, driving ratable revenue growth.

    5. Prisma Cloud Acceleration
      Q: What's driving Prisma Cloud's acceleration?
      A: Nikesh Arora mentioned that aggressive pricing from new players last year has stabilized. They've made product improvements and shifted to an ACV business model, resulting in customers adopting more modules. Platformization also helps drive growth in the cloud security business.

    6. Billing Mix Changes
      Q: Will billing mix shift toward annualized billings?
      A: Dipak Golechha indicated they expect a shift more toward annualized billings and away from financing, reducing friction in sales processes. Nikesh Arora added that they may do fewer PANFS deals, which will alter billing metrics but won't impact RPO or cash flow.

    7. Competitor's Outage Impact
      Q: How did the July outage affect demand?
      A: Nikesh Arora noted that the competitor's outage impacted tens of millions of users, prompting customers to consider Palo Alto's solutions. This event opened opportunities as customers reevaluated XDR options, benefiting their Cortex business.

    8. U.S. Federal Outlook
      Q: Outlook for federal business amid elections?
      A: Nikesh Arora stated they are approaching the federal market with muted expectations due to uncertainties around elections and budgets. They will continue pursuing renewals and new projects without trying to predict government actions.

    9. Platformization Growth
      Q: Source of growth in platformization strategy?
      A: Nikesh Arora highlighted that platformization is resonating with customers, with one-third of SASE customers being new to the company. Both new and existing customers are adopting the larger platform, helping drive toward their $15 billion revenue target faster.

    10. Internal AI Efficiencies
      Q: How is AI improving internal operations?
      A: Nikesh Arora explained they've reduced employee support headcount by 50% using AI automation, with potential to reach an 80% reduction. Their best developers are 40% more productive using internal AI coding copilots, leading to significant operational efficiencies.

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    Nikesh AroraChief Executive Officer and ChairmanJune 2018Nikesh Arora has been the CEO and Chairman of Palo Alto Networks since June 2018. Previously, he was an angel investor and advisor to SoftBank Group Corp. He held leadership roles at SoftBank and Google, Inc. He holds degrees in Business Administration, Finance, and Electrical Engineering .
    Dipak GolechhaChief Financial OfficerMarch 2021Dipak Golechha became the CFO of Palo Alto Networks in March 2021. He joined the company in December 2020 as Senior Vice President, Finance. His past roles include senior advisor at Boston Consulting Group and President and CEO of Excelligence Learning Corporation. He holds degrees in Economics from Cambridge University .
    William "BJ" JenkinsPresidentAugust 2021William "BJ" Jenkins has been the President of Palo Alto Networks since August 2021. Before this, he was the President and CEO of Barracuda Networks, Inc. He also held leadership roles at EMC Corporation. He holds an engineering degree from the University of Illinois and an M.B.A. from Harvard Business School .
    Lee KlarichChief Product OfficerAugust 2017Lee Klarich has served as the Chief Product Officer since August 2017. He previously held various product management roles at Palo Alto Networks and worked at NetScreen Technologies, Juniper Networks, Excite@Home, and Packard Bell-NEC. He holds a Bachelor of Science degree in Engineering from Cornell University .
    Nir ZukChief Technology Officer and DirectorMarch 2005Nir Zuk is a co-founder of Palo Alto Networks and has been the CTO and a Director since March 2005. He was previously the Chief Security Technologist at Juniper Networks and CTO at NetScreen Technologies. He co-founded OneSecure, Inc. and worked at Check Point Software Technologies Ltd. He studied Mathematics at Tel Aviv University .

    Questions to Ask Management

    1. With your contract lengths remaining roughly consistent at three years, what implications do you see on free cash flow generation in both the short term and long term, and how might this affect your free cash flow margins?

    2. Given the shift towards RPO and ARR guidance and your expectation of a mix more towards annualized billings and away from financing, how do you anticipate this will impact your financial metrics, especially regarding operating margins and cash flow?

    3. Considering the potential uncertainties with the upcoming U.S. elections and their impact on federal budgets, how are you adjusting your expectations and strategies for your U.S. federal business in the coming quarters?

    4. Despite the acceleration in XSIAM bookings and the growth of your Cortex business to over $900 million in ARR, what challenges do you foresee in maintaining this growth trajectory, and how do you plan to address competition in the security operations platform market?

    5. As you implement AI to drive operating efficiencies within your own operations, what specific obstacles have you encountered, and how do you plan to overcome them to fully realize the potential cost savings and productivity gains?

    Share Repurchase Program

    Program DetailsProgram 1Program 2Program 3Program 4Program 5
    Approval DateFebruary 2019December 2020August 2021August 2022November 2023
    End Date/DurationDecember 31, 2025N/AN/AN/AN/A
    Total Additional Amount ($)1.0 billion 700.0 million 676.1 million 915.0 million 316.7 million
    Remaining Authorization ($)0.0 0.0 0.0 0.0 1.0 billion
    DetailsMay be suspended or discontinued at any time without prior notice N/AN/AN/AN/A

    Past Guidance

    Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: FY 2025 and Q1 2025
    • Guidance:
      • NGS ARR: $4.33 billion to $4.38 billion, increase of 34% to 36% .
      • Remaining Performance Obligation (RPO): $12.4 billion to $12.5 billion, increase of 19% to 20% .
      • Revenue: $2.10 billion to $2.13 billion, increase of 12% to 13% .
      • Non-GAAP EPS: $1.47 to $1.49, increase of 7% to 8% .

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025 and Q1 2025
    • Guidance:
      • Fiscal Year 2025:
        • NGS ARR: $5.42 billion to $5.47 billion, increase of 28% to 30% .
        • RPO: $15.2 billion to $15.3 billion, increase of 19% to 20% .
        • Revenue: $9.10 billion to $9.15 billion, increase of 13% to 14% .
        • Operating Margins: 27.5% to 28% .
        • Non-GAAP EPS: $6.18 to $6.31, increase of 9% to 11% .
        • Adjusted Free Cash Flow Margin: 37% to 38% .
      • First Fiscal Quarter of 2025:
        • NGS ARR: $4.33 billion to $4.38 billion, increase of 34% to 36% .
        • RPO: $12.4 billion to $12.5 billion, increase of 19% to 20% .
        • Revenue: $2.10 billion to $2.13 billion, increase of 12% to 13% .
        • Non-GAAP EPS: $1.47 to $1.49, increase of 7% to 8% .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024 and FY 2024
    • Guidance:
      • Q4 2024:
        • Billings: $3.43 billion to $3.48 billion, increase of 9% to 10% .
        • Revenue: $2.15 billion to $2.17 billion, increase of 10% to 11% .
        • Non-GAAP EPS: $1.40 to $1.42, decrease of 1% to 3% .
      • Fiscal Year 2024:
        • Billings: $10.3 billion to $10.18 billion, increase of 10% to 11% .
        • NGS ARR: $4.05 billion to $4.10 billion, increase of 37% to 39% .
        • Revenue: $7.99 billion to $8.1 billion, increase of 16% .
        • Operating Margins: 26.8% to 27.0%, increase of 270 to 290 basis points year-over-year .
        • Non-GAAP EPS: $5.56 to $5.58, increase of 25% to 26% .
        • Adjusted Free Cash Flow Margin: 38.5% to 39% .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024 and FY 2024
    • Guidance:
      • Fiscal Year 2024:
        • Billings: $10.10 billion to $10.20 billion, increase of 10% to 11% .
        • NGS ARR: $3.95 billion to $4 billion, increase of 34% to 35% .
        • Revenue: $7.95 billion to $8 billion, increase of 15% to 16% .
        • Operating Margins: 26.5% to 27%, increase of 240 to 290 basis points year-over-year .
        • Non-GAAP EPS: $5.45 to $5.55, increase of 23% to 25% .
        • Adjusted Free Cash Flow Margin: 38% to 39% .
      • Q3 2024:
        • Billings: $2.30 billion to $2.35 billion, increase of 2% to 4% .
        • Revenue: $1.95 billion to $1.98 billion, increase of 13% to 15% .
        • Non-GAAP EPS: $1.24 to $1.26, increase of 13% to 15% .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Cisco Systems, Inc. ("Cisco") - Large company incorporating security features in their products .
    • Microsoft - Large company incorporating security features in their products .
    • Alphabet - Large company incorporating security features in their products .
    • Check Point Software Technologies Ltd. ("Check Point") - Independent security vendor offering a mix of security products .
    • Fortinet, Inc. ("Fortinet") - Independent security vendor offering a mix of security products .
    • CrowdStrike Holdings, Inc. ("CrowdStrike") - Independent security vendor offering a mix of security products .
    • Zscaler, Inc. ("Zscaler") - Independent security vendor offering a mix of security products .
    • Wiz, Inc. ("Wiz") - Independent security vendor offering a mix of security products .

    Latest news

    Recent developments and announcements about PANW.

    Corporate Leadership

      Board Change

      ·
      Dec 12, 2024, 9:52 PM

      Right Honorable Sir John Key, Mary Pat McCarthy, and Nir Zuk were elected as Class I directors of Palo Alto Networks, Inc. at the Annual Meeting held on December 10, 2024. They will serve until the 2027 Annual Meeting of Shareholders or until their successors are duly elected and qualified .

    Financial Reporting

      Earnings Report

      ·
      Nov 20, 2024, 9:42 PM

      Palo Alto Networks (PANW) Earnings Release Summary

      On November 20, 2024, Palo Alto Networks announced its financial results for the fiscal first quarter of 2025, which ended on October 31, 2024. Here are the key highlights from the earnings release:

      • Revenue Growth: The company reported a 14% year-over-year increase in total revenue, reaching $2.1 billion compared to $1.9 billion in the same quarter of the previous year .

      • Net Income: GAAP net income for the quarter was $350.7 million, or $0.99 per diluted share, up from $194.2 million, or $0.56 per diluted share, in the fiscal first quarter of 2024. Non-GAAP net income was $544.9 million, or $1.56 per diluted share, compared to $466.3 million, or $1.38 per diluted share, in the previous year .

      • Next-Generation Security ARR: The annual recurring revenue for Next-Generation Security grew 40% year-over-year to $4.5 billion .

      • Remaining Performance Obligation: This metric increased by 20% year-over-year to $12.6 billion .

      • Stock Split Announcement: The board of directors approved a two-for-one forward stock split, which will be effective after the close of trading on December 13, 2024. Trading on a split-adjusted basis is expected to begin on December 16, 2024 .

      • Financial Outlook: For the fiscal second quarter of 2025, Palo Alto Networks expects:

        • Next-Generation Security ARR between $4.70 billion and $4.75 billion, representing growth of 35% to 36%.
        • Remaining performance obligation between $12.9 billion and $13.0 billion, representing growth of 20% to 21%.
        • Total revenue in the range of $2.22 billion to $2.25 billion, representing growth of 12% to 14%.
        • Diluted non-GAAP net income per share between $1.54 and $1.56 .

      These results highlight Palo Alto Networks' strong performance and strategic focus on platformization, which the company believes will continue to drive growth and innovation in the cybersecurity market .