Summary
Palo Alto Networks reported strong top-line growth for its fiscal 2024 second quarter. Revenue rose to $1.98 billion, up 19.3% from the prior-year quarter. Gross profit increased to $1.48 billion, up 24.1%. Gross margin was 74.7%, up 2.9 percentage points from the prior-year quarter. Operating income was $53.6 million, up 34.3%. Operating margin was 2.7%, up 0.3 percentage points. Net income jumped to $1.75 billion, up 1974.7%, and diluted EPS was $4.89, up 1856.0%. The net income figure was heavily affected by a large income tax benefit from the release of a valuation allowance on U.S. federal, some state, and United Kingdom deferred tax assets.
Cash generation was mixed. Operating cash flow was $690.0 million, down 0.7% from the prior-year quarter. Capital expenditures were $35.2 million, down 8.1%. Deferred revenue (current portion) rose to $4.92 billion, up 24.7%. Remaining performance obligations reached $10.80 billion, up 22.7%. On a year-to-date basis, revenue was $3.85 billion, up 19.7%. Operating cash flow for the six months was $2.22 billion, up 14.7%. Capital expenditures for the six months were $72.0 million, down 7.6%. Year-to-date gross margin was 74.8%, up 3.6 percentage points.
The company continued to push its platform strategy. Management highlighted PAN-OS 11.1 Cosmos, announced in November 2023, and Cortex XSIAM 2.0, which includes a bring-your-own machine learning framework. Palo Alto Networks serves end-customers in over 180 countries, including almost all of the Fortune 100 and a majority of the Global 2000. The company uses a two-tiered, indirect fulfillment model. Management did not provide specific revenue or EPS guidance for the next quarter or the full fiscal year. The MD&A instead describes long-term expectations. Subscription and support revenue should increase over time. Operating expenses should generally increase in absolute dollars and decrease over the long term as a percentage of revenue. Share-based compensation expense is expected to be recognized over a weighted-average period of approximately 2.8 years.
Risks remain substantial. The filing cites worldwide economic and geopolitical conditions, including inflation, higher interest rates, slower growth, foreign exchange fluctuations, and supply chain disruptions. Hostilities in Israel and the surrounding region have increased uncertainty, though the company currently does not expect significant business disruption. Tensions between China and Taiwan and between the U.S. and China could hurt future results. A litigation accrual related to an ongoing patent infringement lawsuit affected general and administrative expense. The 2025 Notes are convertible, and if holders choose to convert, the company would be obligated to settle the principal amount in cash. Management believes existing cash, cash equivalents, investments, and operating cash flow are sufficient to meet those obligations. The share repurchase program expires on December 31, 2024.
The quarter had strong revenue growth, margin expansion, and a large GAAP profit. The profit was boosted by the tax valuation allowance release, so operating income and operating margin give a cleaner view of the core business. Forward visibility improved with deferred revenue and RPO growth. Cash flow was roughly flat for the quarter but higher year to date. The main watch items are the patent litigation, convertible note conversions, and macroeconomic pressures.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.98B | $1.88B | +5.2% | $1.66B | +19.3% |
| Gross profit | $1.48B | $1.41B | +5.0% | $1.19B | +24.1% |
| Gross margin | 74.7% | 74.8% | -0.1 pp | 71.8% | +2.9 pp |
| Research & development | $447.9M | $409.5M | +9.4% | $404.1M | +10.8% |
| Sales & marketing | $673.0M | $660.5M | +1.9% | $625.5M | +7.6% |
| General & administrative | $301.5M | $120.1M | +151.0% | $119.4M | +152.5% |
| Total operating expenses | $1.42B | $1.19B | +19.5% | $1.15B | +23.8% |
| Operating income (loss) | $53.6M | $215.2M | -75.1% | $39.9M | +34.3% |
| Operating margin | 2.7% | 11.5% | -8.8 pp | 2.4% | +0.3 pp |
| Net income (loss) | $1.75B | $194.2M | +799.5% | $84.2M | +1974.7% |
| Net margin | 88.5% | 10.3% | +78.1 pp | 5.1% | +83.4 pp |
| Diluted EPS | $4.89 | $0.56 | +$4.33 | $0.25 | +$4.64 |
Risks
On January 31, 2024, a jury returned a verdict of non-willful infringement against the company in the Centripetal Networks lawsuit for a lump sum of $151.5 million plus statutory interest, with $176.8 million accrued. General and administrative expense increased 152.5% for the three months ended January 31, 2024 compared to the same period in 2023 primarily due to a litigation accrual of $176.8 million.
For the six months ended January 31, 2024, three distributors individually represented 10% or more of total revenue and in the aggregate represented 46.4% of total revenue. As of January 31, 2024, three distributors individually represented 10% or more of gross accounts receivable and in the aggregate represented 46.6%.
As of January 31, 2024, $1.8 billion of 2025 Notes remained outstanding, and effective February 1, 2024 through April 30, 2024 all of the 2025 Notes are convertible. If all holders convert, the company would be obligated to pay the $1.8 billion principal amount in cash.
The risk factor states revenue growth rates were 19.7% and 25.5% for the six months ended January 31, 2024 and 2023, respectively, and that past growth may not be indicative of future performance. MD&A reported total revenue year-over-year percentage increase of 19.3% for Q2 FY2024 versus 25.7% for Q2 FY2023, and billings year-over-year percentage increase of 15.7% versus 26.2%.
The company is continuing to develop and deploy AI into many products and solutions and into business operations; AI algorithms may have flaws, training data may be insufficient or biased, and evolving regulations may create legal liability and increased costs. MD&A highlighted new AI-driven offerings such as Cortex XSIAM 2.0 and PAN-OS 11.1 Cosmos.
The company operates globally and cites inflation, higher interest rates, slower growth, fluctuations in foreign exchange rates, supply chain disruptions, and geopolitical turmoil including hostilities in Israel and Russia's invasion of Ukraine as factors that may reduce sales, lengthen sales cycles, and alter customer spending. MD&A states it is monitoring inflationary pressures and China-Taiwan and U.S.-China tensions.
The company has business operations in Israel and intends to continue growing its presence there; the hostilities in Israel and the surrounding region have increased economic and political uncertainty. MD&A states it currently does not expect significant business disruption but is actively monitoring the situation.
The company depends on manufacturing partners, primarily Flex, and limited sources for key components; tariffs have increased costs and the company has raised prices on hardware products. MD&A noted cost of product revenue decreased 12.2% for Q2 FY2024 compared to prior year primarily due to easing supply chain challenges, but the risk remains.
The company has experienced demands for customer financing and deferred payments due to macroeconomic conditions, and customer financing activities have increased and will likely continue to increase. Increases in deferred payments negatively impact short-term cash flows and subject the company to risk of non-payment.
The company's Q2 FY2024 benefit from income taxes was primarily driven by the release of a valuation allowance on U.S. federal, U.S. states other than California, and United Kingdom deferred tax assets; MD&A states it will continue to realize related tax benefits for the remainder of fiscal 2024 in amounts much less than that recorded during the three and six months ended January 31, 2024. Risk factor cites exposure to greater than anticipated tax liabilities.
SaaS KPIs
All quarters →Billings
Summary, forecast, risks and KPIs are extracted from Palo Alto Networks Inc's SEC filings for Q2 FY2024 (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.