Palo Alto Networks Conference Call Highlights

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Palo Alto Networks IncPANW
reported its third quarter earnings on Monday. Shares of the company are up 5 percent. Below are some key highlights from its conference call.
Financial Metrics:
• As a leading provider of end-to-end enterprise-class protection and prevention. • We are delivering growth rates well above the market and the competition by consistently demonstrating the differentiation and sustainability of our platform. • The scalability of our model and our team, and our ongoing growth potential. • This was evident in our Q1 results, which exceeded our own expectations. • In Q1, billings and revenue reached records again, with billings growing 52% year-over-year to $240 million and revenue growing 50% year-over-year to $192 million. • In the quarter, we also expanded our non-GAAP operating margin to 10.6% and delivered Q1 non-GAAP EPS of $0.15 per share. • Our growth is primarily being driven by three things. • First, at the most basic level, security continues to be a critical business imperative that must be addressed by every business in the world and this is driving increased security spend. • Second, in the security battle, prevention is the ultimate objective, and Palo Alto Networks integrated and automated next-generation security platform is unique and delivers unparallel prevention capabilities in the $16 billion addressable market opportunity. • And third, we believe we've successfully scaled a global sales coverage model with a powerful sales team and key distribution relationships in every geographic theater, providing our customers with security subject matter experts that are best-in-class, both before and after an order. • Our Q1 results reflect these long-term factors at work and also reflect the power of our land and expand strategy. • On the land side, we continue to acquire customers at a very fast pace and are now pleased to serve approximately 21,000 customers worldwide. • To make our top 25 customer list in Q1, a customer had to have spent a minimum of $6.1 million in lifetime value, up from $5.6 million last quarter • Almost, all of those customers made a purchase in the quarter as they replace legacy technology and point product solutions and favor of our next-generation enterprise platform. • Customers are switching to us and continue to make repeat purchases at a rapid pace because of our technology. We believe our platform provides customers with the most comprehensive protection and prevention in the market for all their security use cases, while each individual aspect offers • Also, in October, we expanded our partnership with VMware to provide our advanced security to the VMware's public cloud platform vCloud Air. • Enterprises can now apply the same rich set of security services available through VMware NSX and Palo Alto Networks across both public and private cloud environments. • We also enhance our GlobalProtect mobility offering, helping organizations control access to enterprise applications and data based on key policy criteria such as application, user and device. • And we announced the latest release of our VM-Series with support for Amazon AWS and KVM. • Our customers can now take advantage of the productivity and cost benefits of the cloud without compromising their security. • We were able to achieve all this in the quarter while at the same time delivering bottom line results in cash flow generation that continue to demonstrate the leverage we have in the business and the ability to expand it over time. • Given the strong start to the year, we remain confident in our continued growth and our ability to gain market share at a rapid rate. • Security is the top IT spending priority across organization of all sizes and our solution to customers' security problems is unique in the market. • We believe our highly integrated next-generation firewall, subscription services and advanced endpoint protection deliver best-in-class security at each point of the kill chain, and when used together, provide superior security at a superior total cost of ownership.
Financials:
• We're off to a strong start in our new fiscal year. • In the first quarter, we built upon the record billings and revenue we delivered in Q4 FY 2014, demonstrating the continued traction we have in the market with our powerful platform. • And we continue to drive leverage with both operating margin and free cash flow increasing on a sequential basis. • The power of our hybrid SaaS revenue model combined with our land, expand and retain sales strategy are key components of our business model. • Once again we saw new customer acquisition and expansion at existing customers drive robust growth in both the product and services side of our business, which led to outperformance in billings, revenue and deferred revenue. • Existing and new products are performing well in the market as our enterprise security platform continues to drive market share shift in our favor. • In Q1, total revenue grew 50% over the prior year and 8% sequentially to reach a new record of $192.3 million. • The geographic mix of revenue for Q1 was 69% Americas, 20% EMEA, and 11% APAC. • Our recurring services revenue of $90.9 million increased 72% over the prior year and 16% sequentially, and accounted for a 47% share of total revenue. • Looking at the two components of recurring service revenue, the first component is our SaaS-based subscription revenue of $43.7 million, which increased 76% over the prior year and 16% sequentially. • Support and maintenance revenue, the second component of recurring services, was $47.2 million, an increase of 69% over the prior year and 15% sequentially. • Billings in Q1 were $240.5 million, an increase of 52% year-over-year and 3% sequentially. • Growth in recurring services billings positively impacts deferred revenue. • Total deferred revenue in Q1 was $470.7 million, an increase of 69% year-over-year and 11% sequentially. • Short-term deferred revenue increased to $286.7 million, an increase of 67% year-over-year, and 10% sequentially. • Total gross margin for Q1 was 76.8%, an increase of 180 basis points compared to last year and 10 basis points sequentially. • Product gross margin was 75.1%, a decrease of 150 basis points year-over-year and 60 basis points sequentially. • For the quarter, research and development expense was 11.9% of revenue, increasing approximately $2.1 million sequentially to $22.8 million. This was primarily due to head count growth. • Sales and marketing expense for Q1 was 46.8% of revenue,
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Posted In: EarningsNewsGuidanceconference call
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