Summary
Palo Alto Networks reported fiscal first quarter 2022 revenue of $1.25 billion, up 31.9% year over year. Gross profit rose 29.7% to $866.8 million. The top line grew quickly, but GAAP profitability moved the other way. Operating loss widened to $82.7 million. Net loss widened to $103.6 million. Gross margin slipped 1.1 percentage points to 69.5%. Operating margin fell 1.9 percentage points to -6.6%. On a non-GAAP basis, net income was $170.3 million, or $1.64 per diluted share, compared with $158.1 million, or $1.62 per diluted share. The gap between GAAP and non-GAAP results reflects large share-based compensation and other adjustments that the company excludes from its non-GAAP measures.
Operational momentum was strong. Billings reached $1.4 billion, up 28% year over year. Remaining performance obligations were $6.0 billion, up 36.4%. Current deferred revenue was $2.80 billion, up 31.1%. Operating cash flow was $588.9 million, up 10.1%. Capital expenditures were $34.6 million, up 16.9%. Free cash flow, a non-GAAP measure, was $554.3 million, compared with $505.3 million in the prior-year quarter. Management pointed to strength in both the product and Next-Generation Security businesses. The company also said customer demand remained strong and cited recent innovations. Palo Alto Networks serves end-customers in over 170 countries, including almost all Fortune 100 companies and a majority of the Global 2000.
Guidance moved higher. For the fiscal second quarter 2022, the company expects total billings of $1.51 billion to $1.53 billion, representing year-over-year growth of 24% to 26%, and diluted non-GAAP net income per share of $1.63 to $1.66 on 105 million to 107 million shares. For the full fiscal year 2022, Palo Alto Networks raised guidance for most metrics. It expects total billings of $6.675 billion to $6.725 billion, representing year-over-year growth of 22% to 23%, and diluted non-GAAP net income per share of $7.15 to $7.25 on 106 million to 108 million shares. The company also guided adjusted free cash flow margin to 32% to 33% for the full fiscal year. These non-GAAP figures exclude share-based compensation, acquisition-related costs, amortization of acquired intangibles, litigation charges, non-cash convertible note charges, foreign currency gains and losses, and related tax effects.
Risks remain material. Supply chain constraints and global chip and component shortages have increased lead times and costs. COVID-19 could still pressure customer spending, delay purchasing decisions, and lengthen sales cycles and payment terms. Competition in cybersecurity is intense, and new product launches carry execution risk, including software bugs. The company also faces integration risk from acquisitions such as Gamma Networks. On the balance sheet, holders of the company's convertible senior notes may convert their notes during the fiscal quarter ending January 31, 2022. Palo Alto Networks said it believes its cash from operations, existing cash and investments, and available financing will be sufficient to meet its cash needs if holders choose to convert. The company had $1.0 billion remaining under its share repurchase authorization as of October 31, 2021.
The quarter showed a business scaling quickly, with revenue growth above 30% and a rising RPO balance. GAAP losses widened, however, as operating expenses grew faster than revenue. The company's non-GAAP profitability and cash generation remain the focus for investors. Management's raised full-year outlook suggests confidence in demand, but supply chain and macro risks could still affect results. The convertible notes overhang is worth watching.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.25B | $1.22B | +2.3% | $946.0M | +31.9% |
| Gross profit | $866.8M | $860.4M | +0.7% | $668.2M | +29.7% |
| Gross margin | 69.5% | 70.6% | -1.1 pp | 70.6% | -1.1 pp |
| Research & development | $339.5M | $325.3M | +4.4% | $237.4M | +43.0% |
| Sales & marketing | $505.9M | $489.8M | +3.3% | $388.6M | +30.2% |
| General & administrative | $104.1M | $105.7M | -1.5% | $86.7M | +20.1% |
| Total operating expenses | $949.5M | $920.8M | +3.1% | $712.7M | +33.2% |
| Operating income (loss) | -$82.7M | -$60.4M | -36.9% | -$44.5M | -85.8% |
| Operating margin | -6.6% | -5.0% | -1.7 pp | -4.7% | -1.9 pp |
| Net income (loss) | -$103.6M | -$119.3M | +13.2% | -$92.2M | -12.4% |
| Net margin | -8.3% | -9.8% | +1.5 pp | -9.8% | +1.4 pp |
Risks
MD&A reports global supply chain and semiconductor challenges increased, causing delays in acquiring chips, components, and inventory, higher costs versus historic levels, and longer lead times for product deliveries to end-customers. Risk factors also emphasize reliance on limited and sole source component suppliers and manufacturing partners such as Flex.
Risk factors and MD&A emphasize that ongoing COVID-19 and global economic uncertainty could cause end-customers to delay or defer purchasing decisions, lengthen sales cycles and payment terms, and create credit or cash constraints among end-customers and channel partners.
As of October 31, 2021, MD&A reports current liabilities included net carrying amounts of convertible senior notes of $3.7 billion and working capital was negative $2.3 billion. The Notes became convertible during the quarter ending January 31, 2022, and if all holders converted, PANW would be obligated to settle $3.7 billion principal in cash.
FY2022 Q1 revenue rose 31.9% to $1.25 billion, but operating loss widened to $82.7 million from $44.5 million and net loss widened to $103.6 million from $92.2 million. Risk factors note an accumulated deficit of $1.5 billion as of October 31, 2021 and anticipated increases in operating expenses.
Gross margin declined to 69.5% in FY2022 Q1 from 70.6% in FY2021 Q1, down 1.1 pp, and product gross margin fell to 69.9% from 73.8%. MD&A attributes the product gross margin decrease to product mix and higher materials costs from supply chain constraints.
Risk factors and MD&A note enterprise sales cycles can be lengthy, at times over 12 months, and COVID-19 has caused delays or deferrals of purchasing decisions and lengthened sales cycles. Reliance on shipments at the end of the quarter creates additional revenue timing risk.
Headcount increased from 10,473 at fiscal 2021 year end to 11,098 at October 31, 2021. Risk factors cite intense competition for engineering talent, high industry attrition, and dependence on senior management, especially in the San Francisco Bay Area.
Subscription and support revenue was 76.3% of total revenue in FY2022 Q1, up from 74.9% in FY2021 Q1. Because this revenue is recognized ratably over one to five years, declines in new or renewal contracts may not immediately appear in results but can affect future periods.
PANW acquired Gamma Networks in August 2021 to expand data loss prevention offerings. Risk factors describe acquisition integration risks including diversion of management attention, failure to realize synergies, and dilution from equity or debt financing.
Risk factors list intense competition from Cisco, Check Point, Fortinet, Zscaler, Crowdstrike, and others, with larger competitors able to bundle products, price aggressively, or leverage existing enterprise relationships. This could pressure pricing, revenue, and gross margins.
Substantially all revenue is generated through channel partners, including distributors and resellers. Failure or termination of these partners, their promotion of competitors products, or credit issues among partners could limit sales and harm operating results.
SaaS KPIs
All quarters →Billings
Remaining performance obligation
Free cash flow (non-GAAP)
Summary, forecast, risks and KPIs are extracted from Palo Alto Networks Inc's SEC filings for Q1 FY2022 (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 1, 2026.