Summary
Palo Alto Networks closed fiscal 2022 third quarter with revenue of $1.39 billion, up 29.1% from the prior-year quarter. Year-to-date revenue reached $3.95 billion, up 30.1%. Billings, a non-GAAP metric, were $1.7969 billion, up 39.7% from $1.2864 billion a year earlier. Remaining performance obligations were $6.90 billion, up 40.8%. Current deferred revenue was $3.15 billion, up 30.2%. Management said demand for the company's cybersecurity platform stayed strong across network security, secure access service edge, cloud security, and security operations. The company serves end-customers in over 170 countries, including almost all of the Fortune 100 and a majority of the Global 2000. Product news in the period included PAN-OS 10.2 Nebula, Prisma Access, and limited availability of Cortex XSIAM.
Profitability improved on a GAAP basis even as the company remained unprofitable. Gross profit was $946.2 million, up 27.3%. Gross margin slipped to 68.2% from 69.2% in the prior-year quarter, a decline of 1.0 percentage point. The operating loss narrowed to $47.6 million, and operating margin improved to negative 3.4% from negative 10.3%, an increase of 6.8 percentage points. The net loss narrowed to $73.2 million, or $0.74 per diluted share. The net loss narrowed 49.6%, and the per-share loss narrowed 50.7%. On a non-GAAP basis, net income was $193.1 million, or $1.79 per diluted share, compared with $139.5 million, or $1.38. The gap between GAAP and non-GAAP results stayed wide, largely because of share-based compensation and other items the company excludes.
Cash generation remained a strength. Operating cash flow for the quarter was $389.5 million, up 40.2% from the prior-year quarter. Year-to-date operating cash flow was $1.46 billion, up 24.1%. Non-GAAP free cash flow for the nine months was $1.3074 billion, compared with $1.0886 billion. Management said it balanced revenue growth, operating margin expansion, and free cash flow conversion, and it plans to keep that balance as it closes fiscal 2022 and looks to fiscal 2023.
Guidance points to continued growth. For the fiscal fourth quarter 2022, Palo Alto Networks expects billings of $2.32 billion to $2.35 billion, representing year over year growth of between 24% and 26%, diluted non-GAAP net income per share of $2.26 to $2.29, and revenue growth of between 25% and 27%. For the full fiscal year 2022, it expects billings of $7.106 billion to $7.136 billion, representing year over year growth of between 30% and 31%, diluted non-GAAP net income per share of $7.43 to $7.46, and adjusted free cash flow margin of 32% to 33%. The company also raised its full-year revenue outlook, which now stands at growth of approximately 29%. It does not reconcile non-GAAP guidance to GAAP because items such as share-based compensation are uncertain or out of its control.
Risks remain. The company called out supply chain challenges, including chip and component shortages, which have raised costs and lengthened lead times. COVID-19 could still affect customer spending, sales cycles, and payment terms. Competition, acquisition integration, and the convertible notes are other overhangs. The notes became convertible during the fiscal quarter ending July 31, 2022, and holders could require cash settlement of the $3.7 billion principal. Management believes operating cash flow, existing cash, investments, and financing sources are sufficient to meet cash needs. Managing rapid growth and expanding the product portfolio carry their own execution risk.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.39B | $1.32B | +5.3% | $1.07B | +29.1% |
| Gross profit | $946.2M | $911.6M | +3.8% | $743.3M | +27.3% |
| Gross margin | 68.2% | 69.2% | -1.0 pp | 69.2% | -1.0 pp |
| Research & development | $355.4M | $359.0M | -1.0% | $311.0M | +14.3% |
| Sales & marketing | $543.6M | $528.8M | +2.8% | $448.0M | +21.3% |
| General & administrative | $94.8M | $97.7M | -3.0% | $94.7M | +0.1% |
| Total operating expenses | $993.8M | $985.5M | +0.8% | $853.7M | +16.4% |
| Operating income (loss) | -$47.6M | -$73.9M | +35.6% | -$110.4M | +56.9% |
| Operating margin | -3.4% | -5.6% | +2.2 pp | -10.3% | +6.8 pp |
| Net income (loss) | -$73.2M | -$93.5M | +21.7% | -$145.1M | +49.6% |
| Net margin | -5.3% | -7.1% | +1.8 pp | -13.5% | +8.2 pp |
| Diluted EPS | -$0.74 | — | — | — | — |
Risks
Supply chain challenges, including chip and component shortages, have caused delays in acquiring inventory and increased costs compared to historic levels. MD&A states these challenges have in certain cases caused delays and increased costs, and product gross margin decreased for the three and nine months ended April 30, 2022 compared to the same periods in 2021 primarily due to higher product costs driven by supply chain challenges.
Ongoing global economic uncertainty, inflation, COVID-19, and geopolitical turmoil including Russia's invasion of Ukraine and related sanctions could reduce technology spending, lengthen sales cycles, and increase costs. MD&A notes COVID-19 has affected end-customer spending and could lead to delayed purchasing decisions and longer sales cycles.
The 2023 Notes and 2025 Notes became convertible effective May 1, 2022 through July 31, 2022, and if all holders convert, the company would be obligated to pay $3.7 billion in cash. Working capital was negative $1,979.6 million as of April 30, 2022, with current liabilities including $3.7 billion of convertible senior notes.
As a well-known security provider, the company may be a more attractive target for attacks, and the conflict in Ukraine may increase the risk of Russian cyberattacks. A breach or incident could harm reputation, create liability, and adversely impact financial results.
The enterprise security market is intensely competitive, with competitors including Cisco, Check Point, Fortinet, Zscaler, and Crowdstrike, some with greater resources, broader offerings, and ability to bundle or sell at zero or negative margins. Competitive pressures may result in price reductions, fewer orders, reduced revenue and gross margins, and loss of market share.
The company depends on hiring, integrating, training, and retaining qualified personnel, especially engineering and sales. Headcount increased from 10,473 at the end of fiscal 2021 to 11,870 at the end of the third quarter of fiscal 2022, placing strain on management and increasing competition for talent.
Substantially all revenue is generated through channel partners, including distributors and resellers. If channel partners fail to perform, or if they promote competitors' products, the company's ability to sell and distribute products and subscriptions will be limited.
Subscription and support revenue comprised 75.8% of total revenue in the nine months ended April 30, 2022, up from 74.3% in the nine months ended April 30, 2021. Because revenue is recognized over the service period, downturns in new or renewal contracts are not immediately reflected in operating results but will negatively affect future periods.
The company is subject to sanctions and export controls related to Russia's invasion of Ukraine, and noncompliance could subject it to liability. Changes in tax laws, trade agreements, and international regulations could also adversely affect operations.
SaaS KPIs
All quarters →Billings
Total deferred revenue
Summary, forecast, risks and KPIs are extracted from Palo Alto Networks Inc's SEC filings for Q3 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 2, 2026.