Summary
Palo Alto Networks reported fiscal first quarter 2021 revenue of $946.0 million, up 22.6% from $771.9 million a year earlier. Gross profit rose 20.6% to $668.2 million, while gross margin slipped to 70.6% from 71.8%. The company still posted an operating loss of $44.5 million, though that loss narrowed from $51.8 million. Operating margin was -4.7%, up from -6.7%. Net loss widened to $92.2 million from $59.6 million, and diluted EPS worsened to a loss of $0.97 from a loss of $0.62. The gap between GAAP and non-GAAP results remained wide. Non-GAAP net income was $158.1 million, or $1.62 per diluted share, compared with $104.8 million, or $1.05 per diluted share, a year earlier.
The mix continued to shift toward subscription and support, which the filing said grew faster than product revenue. Billings, a non-GAAP metric, rose to $1,082.8 million, a 20.7% increase. Current deferred revenue was $2.14 billion, up 28.9% from $1.66 billion. Remaining performance obligations were $4.40 billion, up 41.9%. Operating cash flow jumped 137.5% to $534.9 million, while capital expenditures fell 37.3% to $29.6 million. Free cash flow, a non-GAAP measure, was $505.3 million, compared with $178.0 million.
Management raised its full fiscal year 2021 guidance. For the full fiscal year, billings are expected to be $5.08 billion to $5.13 billion, representing growth of 18% to 19%. Non-GAAP diluted net income per share is guided to $5.70 to $5.80 on 99 million to 101 million shares. Adjusted free cash flow margin is expected to be approximately 29%. For the fiscal second quarter of 2021, billings are guided to $1.17 billion to $1.19 billion, growth of 17% to 19%, and non-GAAP diluted net income per share is guided to $1.42 to $1.44 on 98 million to 100 million shares. The full-year guidance includes the expected impact from the proposed acquisition of Expanse, Inc. The company expects Expanse to contribute approximately 100 basis points of billings growth, after acquisition accounting adjustments.
Risks remain tied to the pandemic and integration. COVID-19 may curtail end-customer spending, delay or defer purchasing decisions, and lengthen sales cycles and payment terms. Customers or partners could become credit or cash constrained and struggle to meet payment obligations. Palo Alto Networks also faces risks around acquiring and integrating companies, products, or technologies, including the proposed Sinefa and Expanse deals. New product and subscription offerings carry execution risk, including software bugs, market acceptance, and competitive pressure. The company continues to invest heavily in research and development, sales and marketing, and cloud infrastructure, which pressures GAAP profitability even as cash generation improves.
The company also highlighted product enhancements and industry recognition. It was named a leader in two Gartner Magic Quadrants and in Zero Trust. The proposed Expanse acquisition is intended to expand its security offerings. These efforts support the broader platform strategy across network, cloud, and security operations. Still, GAAP profitability remained negative, while non-GAAP net income was positive.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $946.0M | $950.4M | -0.5% | $771.9M | +22.6% |
| Gross profit | $668.2M | $660.0M | +1.2% | $554.2M | +20.6% |
| Gross margin | 70.6% | 69.4% | +1.2 pp | 71.8% | -1.2 pp |
| Research & development | $237.4M | $215.9M | +10.0% | $170.5M | +39.2% |
| Sales & marketing | $388.6M | $391.2M | -0.7% | $365.7M | +6.3% |
| General & administrative | $86.7M | $70.7M | +22.6% | $69.8M | +24.2% |
| Total operating expenses | $712.7M | $677.8M | +5.1% | $606.0M | +17.6% |
| Operating income (loss) | -$44.5M | -$17.8M | -150.0% | -$51.8M | +14.1% |
| Operating margin | -4.7% | -1.9% | -2.8 pp | -6.7% | +2.0 pp |
| Net income (loss) | -$92.2M | -$58.9M | -56.5% | -$59.6M | -54.7% |
| Net margin | -9.8% | -6.2% | -3.5 pp | -7.7% | -2.0 pp |
Risks
COVID-19 has caused and may continue to cause a global economic slowdown and potential recession, curtailing technology spending and lengthening sales cycles. Palo Alto Networks transitioned employees to remote work through the first quarter of fiscal 2021 and expects this to continue, which could hinder customer success, sales and marketing efforts, and forecasting.
Palo Alto Networks depends on sole source manufacturers, primarily Flex, and limited component suppliers concentrated in Asia, exposing it to manufacturing and logistics delays, component shortages, tariff-related cost increases, and COVID-19 disruptions that could prevent timely product shipments.
For the first quarter of fiscal 2021, three distributors individually represented 10% or more of total revenue and in the aggregate represented 57.5% of total revenue; as of October 31, 2020, two distributors represented 38.0% of gross accounts receivable, creating significant channel concentration risk.
The enterprise security market is intensely competitive, with larger competitors such as Cisco and Check Point and independent vendors such as Fortinet, Zscaler, and Crowdstrike able to bundle products, offer concessions, or sell at zero or negative margins, which could pressure pricing and gross margins.
Sales to large enterprise end-customers involve longer sales cycles, sometimes over 12 months, and the current economic slowdown has increased risks that substantial time and resources may be spent without a purchase, especially when large deals are delayed or require greater payment flexibility.
The company depends on highly skilled engineering and sales personnel amid intense competition, and it slowed hiring in the third quarter of 2020 due to COVID-19, which could adversely affect retention and its ability to ramp sales personnel to target productivity.
As a well-known security provider, Palo Alto Networks may be a more attractive target for network or data security attacks. A breach or perceived incident could harm reputation, reduce end-customer confidence, and require significant remediation costs.
The company has made numerous acquisitions, including Crypsis in the first quarter of fiscal 2021 and pending Sinefa and Expanse transactions, and integration may divert management attention, disrupt operations, dilute stockholders, or fail to realize anticipated synergies.
Subscription and support revenue comprised 74.9% of total revenue in the first quarter of fiscal 2021 and 70.0% in the first quarter of fiscal 2020, and because it is recognized ratably over one to five years, downturns in new or renewal contracts are not immediately reflected in revenue but will negatively affect future periods.
Most sales are on open credit, and the company has experienced demands for customer financing due to COVID-19 and competitor offerings. Increased customer financing or distributor and end-customer credit deterioration could lead to material losses.
Complex products and subscriptions may contain defects, errors, or vulnerabilities, or may falsely detect applications or threats, which could fail to secure networks, cause system failures, harm reputation, and lead to litigation or increased warranty costs.
The company has 2023 Notes and 2025 Notes outstanding and may not have enough cash or financing to repurchase Notes upon a fundamental change, settle conversions, or repay Notes at maturity, and future debt could limit such payments.
SaaS KPIs
All quarters →Billings
Free cash flow (non-GAAP)
Total deferred revenue
Summary, forecast, risks and KPIs are extracted from Palo Alto Networks Inc's SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.