Summary
Palo Alto Networks reported fiscal first quarter 2023 results for the period ended October 31, 2022. Revenue rose 25.3% year over year to $1.56 billion. Gross profit rose 27.1% to $1.10 billion, and gross margin expanded to 70.5%, up 1.0 percentage point. The company swung to an operating profit of $15.2 million and an operating margin of 1.0%, up 7.6 percentage points from the prior-year quarter. Net income was $20.0 million, and diluted EPS was $0.06, both up from a loss in the prior-year quarter. Billings, a non-GAAP metric, grew 27% year over year to $1.7 billion. Remaining performance obligations rose 38% to $8.3 billion.
Cash generation was a clear highlight. Operating cash flow was $1.24 billion, up 110.0% year over year, while capital expenditures were $39.6 million, up 14.5%. Free cash flow, a non-GAAP measure, was $1.2 billion. The balance sheet showed current deferred revenue of $3.74 billion, up 33.5% year over year, which points to steady subscription and support renewals. Non-GAAP net income was $266.4 million, or $0.83 per diluted share, compared with non-GAAP net income of $170.3 million, or $0.55 per diluted share, in the prior-year quarter. The company ended the quarter with end-customers in over 180 countries. Management noted that customers are increasing commitments to its security platforms to simplify their security architecture.
Operationally, Palo Alto Networks continued to push new products. In October 2022, the company announced general availability of Cortex XSIAM, its autonomous security operations platform. The MD&A said subscription and support revenue made up most of total revenue, while product revenue was the smaller piece. That mix keeps the business weighted toward recurring revenue. Supply chain challenges, including chip and component shortages, increased costs and lead times for certain product deliveries. Product gross margin fell because of higher costs tied to supply chain pressures, even as total gross margin improved. The company had almost all Fortune 100 companies and a majority of Global 2000 companies as customers, according to the filing. Research and development and sales and marketing expenses increased on personnel costs and headcount growth, while general and administrative expense decreased on lower professional services and acquisition-related costs.
Guidance points to continued growth. For the fiscal second quarter 2023, Palo Alto Networks expects total billings of $1.94 billion to $1.99 billion, which would represent year-over-year growth of between 21% and 24%, along with non-GAAP diluted net income per share of $0.76 to $0.78, using 320 million to 326 million shares. For the full fiscal year 2023, the company expects total billings of $8.95 billion to $9.10 billion, non-GAAP diluted net income per share of $3.37 to $3.44, using 325 million to 331 million shares, and an adjusted free cash flow margin of 34.5% to 35.5%. Management said the company is broadly raising full-year guidance while balancing growth with profitability and cash generation. Those targets rest on demand for its subscription and support offerings, which is where most revenue is booked.
Risks remain substantial. The company cited worsening economic conditions, including inflation, higher interest rates, slower growth, and foreign exchange fluctuations. COVID-19 could still disrupt customer spending, sales cycles, partners, suppliers, and employees. The global supply chain and semiconductor industry continue to face significant challenges, and the company has experienced chip and component shortages that caused delays and higher costs. Competition, new product development, acquisition integration, debt repayment obligations, and the share repurchase program are other named risks. The convertible notes can be converted by holders at any time during the fiscal quarter ending January 31, 2023, after the sale price condition was met, which could require a cash settlement. The company believes its cash flow and existing cash are sufficient to meet anticipated needs, but the macro backdrop remains uneven.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.56B | $1.55B | +0.8% | $1.25B | +25.3% |
| Gross profit | $1.10B | $1.06B | +4.1% | $866.8M | +27.1% |
| Gross margin | 70.5% | 68.3% | +2.2 pp | 69.5% | +1.0 pp |
| Research & development | $371.8M | $363.8M | +2.2% | $339.5M | +9.5% |
| Sales & marketing | $615.0M | $570.6M | +7.8% | $505.9M | +21.6% |
| General & administrative | $99.5M | $108.4M | -8.2% | $104.1M | -4.4% |
| Total operating expenses | $1.09B | $1.04B | +4.2% | $949.5M | +14.4% |
| Operating income (loss) | $15.2M | $15.4M | -1.3% | -$82.7M | +118.4% |
| Operating margin | 1.0% | 1.0% | -0.0 pp | -6.6% | +7.6 pp |
| Net income (loss) | $20.0M | $3.3M | +506.1% | -$103.6M | +119.3% |
| Net margin | 1.3% | 0.2% | +1.1 pp | -8.3% | +9.6 pp |
| Diluted EPS | $0.06 | $0.03 | +$0.03 | — | — |
Risks
Worsening economic conditions, including inflation, higher interest rates, slower growth, and geopolitical turmoil such as Russia's invasion of Ukraine, may reduce customer spending and increase costs. MD&A states these factors may adversely affect results, and risk factors note some customers delayed hardware refresh plans in Q1 FY2023.
In Q1 FY2023, some customers delayed hardware refresh plans and some larger sales transactions required additional internal customer approvals, which extended sales cycles. Large enterprise deals can have sales cycles over 12 months, delaying revenue recognition and increasing the risk of missed quarterly expectations.
Global semiconductor and component shortages have caused delays, increased lead times, and higher costs for chips and components. In Q1 FY2023, cost of product revenue increased 35.1% and product gross margin decreased to 63.6% from 69.9%, primarily due to supply chain challenges.
The 2023 and 2025 Notes are convertible from November 1, 2022 through January 31, 2023, and if all holders convert PANW would owe $3.7 billion principal in cash. Working capital was negative $2.46 billion as of October 31, 2022, due in part to the notes, creating liquidity and refinancing risk.
As a well-known security provider, PANW is a more attractive target for cyberattacks, and the Ukraine conflict may increase Russian cyberattacks on infrastructure and customers. A breach of its systems or third-party providers could harm reputation, cause customer losses, and lead to regulatory investigations and litigation.
PANW faces intense competition from Cisco, Check Point, Fortinet, Zscaler, Crowdstrike, and public cloud vendors, some with greater resources and broader product suites. Competitive bundling or zero-margin pricing could reduce prices, orders, revenue, and gross margins.
Headcount increased from 12,561 at the end of fiscal 2022 to 13,513 at the end of Q1 FY2023, straining management and culture while competition for engineering talent in the San Francisco Bay Area remains intense. Failure to hire, integrate, and retain skilled personnel could hurt growth and operating margins.
The effective tax rate was 41.9% in Q1 FY2023 and the provision for income taxes increased 16.1%, driven by U.S. taxes and a valuation allowance. Tax authorities may challenge intercompany arrangements, which could increase PANW's worldwide effective tax rate.
PANW expects to recognize approximately $2.0 billion of share-based compensation expense over about 2.5 years, excluding future grants. Additional equity issuance for stock plans, acquisitions, or note conversions could dilute stockholders and pressure GAAP profitability.
Substantially all revenue is generated through channel partners, including distributors and resellers, and agreements may generally be terminated with advance notice before each annual renewal. Failure or consolidation of channel partners could limit PANW's ability to sell products and subscriptions.
Sanctions on Russia and export controls may subject PANW to liability if not in full compliance, and international sales face risks from trade restrictions, tariffs, and economic challenges in EMEA and APAC. EMEA revenue grew 31.7% and APAC revenue grew 25.8% in Q1 FY2023, making these regions material.
SaaS KPIs
All quarters →Billings
Remaining performance obligation
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 FY2023 (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.