Summary
Palo Alto Networks reported fiscal second quarter 2021 revenue of $1,016.9 million, up 24.5% from the prior-year quarter. Gross profit rose 21.5% to $709.3 million. Both revenue and gross profit rose, but the GAAP loss widened. Operating loss widened to $88.8 million. Net loss widened to $142.3 million, or $1.48 per diluted share. Non-GAAP net income was $154.2 million, or $1.55 per diluted share, compared with $120.3 million, or $1.19 per diluted share, a year earlier. Billings, a non-GAAP metric, were $1,214.7 million, up 21.6% from the prior-year quarter. Management said the SolarStorm attack highlighted the importance of cybersecurity and pointed to the company's bets in SASE, cloud, and AI. The company describes a three-platform strategy that spans network security, cloud security, and security analytics and operations.
Gross margin was 69.8%, down 1.7 percentage points from the prior-year quarter. Operating margin was -8.7%, down 2.3 percentage points. The quarter produced $364.5 million in operating cash flow, up 18.8% year over year. Capital expenditures were $32.1 million, down 34.6%. On a year-to-date basis, revenue reached $1,962.9 million, up 23.6%. Net loss year to date was $234.5 million, or $2.45 per diluted share. Operating cash flow for the six months was $899.4 million, up 69.0%, and capital expenditures were $61.7 million, down 35.9%. Free cash flow, a non-GAAP measure, was $837.7 million for the six months. Current deferred revenue was $2,289.7 million, up 30.3% from the prior-year quarter. Remaining performance obligations were $4.60 billion, up 39.4%. Deferred revenue represents amounts that have been invoiced but not yet recognized as revenue.
For fiscal third quarter 2021, management guided total billings of $1.22 billion to $1.24 billion, representing year-over-year growth of between 20% and 22%, and diluted non-GAAP net income per share of $1.27 to $1.29. Revenue growth for the quarter is expected to be between 21% and 22%. For fiscal year 2021, the company guided total billings of $5.13 billion to $5.18 billion, representing year-over-year growth of between 19% and 20%, along with revenue growth of between 22% and 23% and diluted non-GAAP net income per share of $5.80 to $5.90. Adjusted free cash flow margin for the full fiscal year is expected to be approximately 29%. The guidance includes net expenses and acquisition transaction costs related to the proposed Bridgecrew acquisition. The company also closed the Expanse and Sinefa acquisitions during the period. Those deals are meant to strengthen Cortex and Prisma Access. Management also raised full-year guidance.
The wider loss came as operating expenses grew across research and development, sales and marketing, and general and administrative functions. The company continues to invest in innovation and go-to-market capacity, and it expects operating expenses to increase in absolute dollars. Management flagged COVID-19 as a continuing risk. The pandemic could curtail end-customer spending, delay purchasing decisions, and lengthen sales cycles and payment terms. Some end-customers or channel partners could face credit or cash constraints. The company also faces execution risks around integrating Expanse, Sinefa, and Bridgecrew. Competition, new product launches, and the need to attract and retain end-customers remain ongoing concerns. Palo Alto Networks maintains a full valuation allowance for domestic and certain foreign deferred tax assets. The company also has convertible notes outstanding, and the sale price condition was met for the 2023 Notes during the quarter, which means holders may convert those notes in the fiscal quarter ending April 30, 2021.
Operationally, the company had end-customers in more than 170 countries as of January 31, 2021. It sells through a two-tiered indirect fulfillment model. The Americas drove the revenue increase in the quarter, according to the MD&A, while EMEA and APAC also grew. The company expects subscription and support revenue to increase over the long term as it adds new offerings and expands its installed base. It also expects gross margins to fluctuate because of cloud hosting costs, personnel costs, product mix, and manufacturing costs. Those factors are worth watching because gross margin fell in the quarter and operating expenses are rising.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.02B | $946.0M | +7.5% | $816.7M | +24.5% |
| Gross profit | $709.3M | $668.2M | +6.2% | $583.6M | +21.5% |
| Gross margin | 69.8% | 70.6% | -0.9 pp | 71.5% | -1.7 pp |
| Research & development | $266.7M | $237.4M | +12.3% | $185.4M | +43.9% |
| Sales & marketing | $427.4M | $388.6M | +10.0% | $374.9M | +14.0% |
| General & administrative | $104.0M | $86.7M | +20.0% | $76.2M | +36.5% |
| Total operating expenses | $798.1M | $712.7M | +12.0% | $636.5M | +25.4% |
| Operating income (loss) | -$88.8M | -$44.5M | -99.6% | -$52.9M | -67.9% |
| Operating margin | -8.7% | -4.7% | -4.0 pp | -6.5% | -2.3 pp |
| Net income (loss) | -$142.3M | -$92.2M | -54.3% | -$73.7M | -93.1% |
| Net margin | -14.0% | -9.8% | -4.2 pp | -9.0% | -5.0 pp |
Risks
The ongoing COVID-19 outbreak may continue to curtail end-customer spending, delay purchasing decisions, and lengthen sales cycles and payment terms. Management notes the full impact on operations and financial performance cannot be reasonably estimated at this time.
Sales to large enterprise end-customers involve longer sales cycles, in some cases over 12 months, and COVID-19 may further delay purchase decisions. This can increase the risk that substantial time and resources are spent on prospects that do not purchase.
For the six months ended January 31, 2021, three distributors individually represented 10% or more of total revenue and in aggregate represented 56.8% of total revenue. Two distributors also represented 42.4% of gross accounts receivable as of January 31, 2021, creating significant channel concentration.
Gross margin declined to 69.8% in the quarter ended January 31, 2021 from 71.5% in the prior-year quarter, and operating loss widened to $88.8 million from $52.9 million. Net loss also widened to $142.3 million from $73.7 million, and the company expects operating expenses to increase in absolute dollars.
PANW relies on sole-source manufacturing partners, primarily Flex, and limited component suppliers. COVID-19 has caused component and inventory delays, while tariffs have increased costs and may require further hardware price increases.
The sale price condition was met for the 2023 Notes during the quarter ended January 31, 2021, so holders may convert during the quarter ending April 30, 2021. The company may not have enough available cash or be able to obtain financing to settle conversions or repay the Notes.
Headcount grew from 8,014 at the end of fiscal 2020 to 9,038 at the end of the second quarter of fiscal 2021, intensifying management and operational demands. Competition for engineering talent in the San Francisco Bay Area is intense, and COVID-19-related hiring slowdowns could hurt retention.
PANW completed multiple acquisitions including CloudGenix, Crypsis, Sinefa, and Expanse, and has a proposed Bridgecrew acquisition. Integration may divert management attention, disrupt operations, and dilute stockholders.
The enterprise security market is intensely competitive, with competitors such as Cisco, Check Point, Fortinet, Zscaler, and Crowdstrike. Larger competitors may bundle products, offer concessions, or price aggressively, pressuring revenue and gross margins.
As a well-known security vendor, PANW may be a more attractive target for network attacks. A breach could harm its reputation, expose it to liability, and reduce customer and investor confidence.
SaaS KPIs
All quarters →Billings
Total deferred revenue
Summary, forecast, risks and KPIs are extracted from Palo Alto Networks Inc's SEC filings for Q2 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.