Summary
Palo Alto Networks posted fiscal third quarter 2023 revenue of $1.72 billion, up 24.1% from the prior-year quarter. Year-to-date revenue reached $4.94 billion, up 25.0%. The top line benefited from demand for the company's platforms, and management said the quarter was the fourth consecutive GAAP net income positive quarter. Billings were $2.26 billion, up 25.6% year over year. Remaining performance obligation was $9.20 billion, up 33.3%. Current deferred revenue was $4.15 billion, up 31.5%. Both deferred revenue and RPO increased year over year.
Profitability improved sharply. Gross margin was 72.4%, up 4.2 percentage points. Operating income was $78.7 million, a swing to a profit, and operating margin was 4.6%, up 8.0 percentage points. Net income was $107.8 million, or $0.31 per diluted share, up from a loss in the prior-year quarter. On a year-to-date basis, operating income was $133.8 million, net income was $212.0 million, and diluted EPS was $0.63. Non-GAAP net income was $359.4 million, or $1.10 per diluted share. Those non-GAAP figures exclude share-based compensation-related charges, acquisition-related costs, amortization of acquired intangibles, litigation-related charges, restructuring and other costs, and non-cash convertible note charges.
Cash generation remained a key support. Operating cash flow was $432.1 million in the quarter, up 10.9%, and $2.36 billion for the nine months, up 61.8%. Capital expenditures were $31.2 million in the quarter, down 18.5%, and $109.1 million year to date, down 29.0%. Free cash flow, a non-GAAP measure, was $2.25 billion for the nine months. The company ended the quarter with a broad customer base across more than 180 countries. Management continues to balance efficiency with investment in medium-term growth.
Guidance for the fiscal fourth quarter 2023 calls for billings of $3.15 billion to $3.20 billion and diluted non-GAAP net income per share of $1.26 to $1.30 using 326 million to 332 million shares outstanding. For the full fiscal year 2023, the company expects billings of $9.18 billion to $9.23 billion and diluted non-GAAP net income per share of $4.25 to $4.29 using 322 million to 324 million shares outstanding. It also guided adjusted free cash flow margin to 37.5% to 38.5% for the full fiscal year. Management said it is raising its cash flow margin and operating margin guidance for fiscal 2023.
Risks remain material. The company described a market that continues to become more challenging and cited worsening economic conditions, inflation, higher interest rates, slower growth, and foreign exchange fluctuations. Supply chain and semiconductor challenges are still causing increased costs and longer lead times for certain product deliveries. The 2023 Notes mature on July 1, 2023, and holders may convert the 2025 Notes during the fiscal quarter ending July 31, 2023. The company entered a new $400.0 million unsecured revolving credit facility in April 2023, and $750.0 million remained available for future share repurchases as of April 30, 2023. It also flagged risks tied to new products, software bugs, competition, acquisitions, debt repayment, and its share repurchase program. Those factors could pressure results even as the core business scales.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.72B | $1.66B | +4.0% | $1.39B | +24.1% |
| Gross profit | $1.25B | $1.19B | +4.8% | $946.2M | +31.7% |
| Gross margin | 72.4% | 71.8% | +0.6 pp | 68.2% | +4.2 pp |
| Research & development | $413.7M | $404.1M | +2.4% | $355.4M | +16.4% |
| Sales & marketing | $639.5M | $625.5M | +2.2% | $543.6M | +17.6% |
| General & administrative | $114.2M | $119.4M | -4.4% | $94.8M | +20.5% |
| Total operating expenses | $1.17B | $1.15B | +1.6% | $993.8M | +17.5% |
| Operating income (loss) | $78.7M | $39.9M | +97.2% | -$47.6M | +265.3% |
| Operating margin | 4.6% | 2.4% | +2.2 pp | -3.4% | +8.0 pp |
| Net income (loss) | $107.8M | $84.2M | +28.0% | -$73.2M | +247.3% |
| Net margin | 6.3% | 5.1% | +1.2 pp | -5.3% | +11.5 pp |
| Diluted EPS | $0.31 | $0.25 | +$0.06 | -$0.74 | +$1.05 |
Risks
MD&A states worsening economic conditions, including inflation, higher interest rates, slower growth, and foreign exchange fluctuations, may adversely affect results. Risk Factors also cite the uncertain geopolitical environment, Russia's invasion of Ukraine, China economic challenges, and a potential U.S. federal government debt default.
MD&A notes global supply chain and semiconductor challenges continue; chip and component shortages have caused delays and increased costs, and while availability improved in Q3 FY2023, the company is still incurring increased costs and increased lead times for certain product deliveries.
The $1.7 billion principal amount of 2023 Notes matures July 1, 2023 and must be paid in cash. The 2025 Notes are convertible from May 1 to July 31, 2023, and if all holders convert, the company would owe $2.0 billion principal in cash, requiring third-party financing if cash flows are inadequate.
Risk Factors state headcount grew from 12,561 at fiscal 2022 end to 13,979 at Q3 FY2023, straining management and resources. MD&A attributes higher operating expenses to headcount growth, and the filing cites intense competition for engineering personnel and high industry attrition.
Risk Factors state sales to large enterprise end-customers involve longer sales cycles, particularly during the current economic slowdown, in some cases over 12 months, plus budget constraints and multiple approvals. Failure to close an expected large deal in a quarter could materially harm results.
Risk Factors cite intense competition from Cisco, Check Point, Fortinet, Zscaler, Crowdstrike, and others. Larger competitors can bundle products, offer concessions, or sell at zero or negative margins, while smaller specialists can deliver focused security products more quickly.
Risk Factors state that as a well-known security provider, the company may be a more attractive target; the conflict in Ukraine may increase Russian cyberattacks, and the U.S. government has warned companies. An actual or perceived breach could cause reputational harm, lost sales, regulatory action, and significant remediation costs.
SaaS KPIs
All quarters →Billings
Remaining performance obligation
Summary, forecast, risks and KPIs are extracted from Palo Alto Networks Inc's SEC filings for Q3 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.