Summary
Palo Alto Networks reported total revenue of $1.98 billion for its fiscal third quarter, up 15.3% from $1.72 billion in the prior-year quarter. Revenue for the nine months was $5.84 billion, up 18.2%. Subscription and support revenue did most of the work in the quarter, reaching $1.6 billion and 80.3% of the total, a 19.6% increase. Product revenue of $391.0 million was essentially flat, up just 0.7%, as demand for the newer hardware generation offset declines in the older one. Billings, a metric the company watches closely, rose 3.4% to $2.33 billion. Chief executive Nikesh Arora credited the customer response to platformization, a long-term strategy aimed at consolidating security spending onto fewer vendors.
Profitability on a GAAP basis improved by a wide margin. Operating income was $176.7 million, up 124.5%, and operating margin rose to 8.9% from 4.6%. Gross margin climbed to 74.1% from 72.4%. Net income reached $278.8 million, or $0.79 per diluted share, compared with $107.8 million, or $0.31 per diluted share a year earlier. On a non-GAAP basis, net income was $454.9 million, or $1.32 per diluted share, against $359.4 million, or $1.10. Non-GAAP operating margin was 25.6%, up from 23.6%. The GAAP net income line for the nine months is inflated by a tax benefit from the release of a valuation allowance on deferred tax assets, which pushed year-to-date net income to $2.22 billion, or $6.27 per diluted share.
Cash generation held up. Operating cash flow for the quarter was $528.9 million, up 22.4%, and the nine-month figure reached $2.74 billion, up 16.1%. Free cash flow, a non-GAAP measure, was $2,635.5 million for the nine months. Capital expenditures were $37.4 million for the quarter and $109.4 million year to date, flat versus the prior-year period. Remaining performance obligations grew 22.8% to $11.3 billion, and current deferred revenue rose 20.9% to $5,014.9 million. Total deferred revenue on the balance sheet was $10,167.6 million. Cash, cash equivalents and investments stood at $6.4 billion.
Guidance points to slower growth ahead. For the fiscal fourth quarter, management expects total revenue growth of 10% to 11% and billings of $3.43 billion to $3.48 billion, growth of 9% to 10%. Diluted non-GAAP net income per share is guided to $1.40 to $1.42 on 345 million to 347 million shares. For the full fiscal year 2024, revenue growth is guided to 16%, and billings to $10.13 billion to $10.18 billion, growth of 10% to 11%. Full-year non-GAAP operating margin is guided to 26.8% to 27.0%, with adjusted free cash flow margin of 38.5% to 39.0%.
Several items carry risk. General and administrative expense jumped 62.2% for the nine months, mostly from a $180.5 million litigation accrual tied to a patent infringement lawsuit. Holders converted $661.8 million of principal on the 2025 Notes during the quarter, leaving $1.2 billion outstanding, and the company said it could settle that amount in cash if all holders convert in the next quarter. Commitments to purchase products, components, cloud and other services totaled $4.7 billion as of April 30, 2024. Management listed inflation, higher interest rates, supply chain disruption, and geopolitical tension in Israel and between the U.S. and China among the pressures that could affect results. The share repurchase program had $500.0 million available as of April 30, 2024.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2024 | Q2 FY2024 | QoQ | Q3 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.98B | $1.98B | +0.5% | $1.72B | +15.3% |
| Gross profit | $1.47B | $1.48B | -0.3% | $1.25B | +18.1% |
| Gross margin | 74.1% | 74.7% | -0.6 pp | 72.4% | +1.7 pp |
| Research & development | $457.2M | $447.9M | +2.1% | $413.7M | +10.5% |
| Sales & marketing | $718.7M | $673.0M | +6.8% | $639.5M | +12.4% |
| General & administrative | $118.6M | $301.5M | -60.7% | $114.2M | +3.9% |
| Total operating expenses | $1.29B | $1.42B | -9.0% | $1.17B | +10.9% |
| Operating income (loss) | $176.7M | $53.6M | +229.7% | $78.7M | +124.5% |
| Operating margin | 8.9% | 2.7% | +6.2 pp | 4.6% | +4.3 pp |
| Net income (loss) | $278.8M | $1.75B | -84.0% | $107.8M | +158.6% |
| Net margin | 14.1% | 88.5% | -74.4 pp | 6.3% | +7.8 pp |
| Diluted EPS | $0.79 | $4.89 | -$4.10 | $0.31 | +$0.48 |
Risks
MD&A states worsening economic conditions, including inflation, higher interest rates, slower growth, foreign exchange fluctuations, and supply chain disruptions, may adversely affect results; risk factors also cite hostilities in Israel and China-Taiwan/U.S.-China tensions. This could reduce sales, lengthen sales cycles, and alter customer spending.
Revenue growth was 18.2% for the nine months ended April 30, 2024, down from 25.0% in the prior-year period, and product revenue was flat for the quarter ended April 30, 2024 with a 0.7% increase. The risk factors note revenue growth rates in recent periods may not be indicative of future performance.
Billings increased 3.4% for the quarter ended April 30, 2024, down from 25.6% in the prior-year quarter, and increased 11.1% for the nine months ended April 30, 2024, down from 26.1% in the prior-year period. This deceleration may indicate reduced near-term visibility or demand.
Competitors include large companies such as Cisco and Microsoft, independent security vendors, startups, and cloud vendors; new and enhanced technologies including AI and machine learning continue to increase competition. Competitors may bundle security features, sell at zero or negative margins, or offer lower pricing.
Three distributors individually represented 10% or more of total revenue and in aggregate 46.1% of total revenue for the nine months ended April 30, 2024; two distributors represented 37.1% of gross accounts receivable as of April 30, 2024. Loss of or underperformance by these partners could materially reduce sales.
On January 31, 2024, a jury returned a non-willful infringement verdict against the company in the Centripetal Networks lawsuit for $151.5 million plus statutory interest, and the company accrued $180.5 million as of April 30, 2024. Finjan and Lionra patent infringement suits are also pending, and general and administrative expense increased for the nine months ended April 30, 2024 primarily due to the $180.5 million litigation accrual.
In April 2024, the company became aware of a command injection vulnerability in the GlobalProtect feature of certain PAN-OS software versions and is engaged in customer outreach, support, and remediation. As a security vendor, it may be a more attractive target for attacks.
AI is being incorporated into products and business operations; risk factors cite potential flaws, biased datasets, regulatory risk under proposed EU AI legislation, and unsettled intellectual property and data protection laws around AI. This could lead to legal liability, compliance costs, or reputational harm.
Most sales are on open credit, and customer financing and deferred payments have increased and will likely continue to increase; this negatively impacts short-term cash flows and exposes the company to non-payment risk, including customer insolvency. Past bankruptcies caused non-material losses.
As of April 30, 2024, $1.2 billion principal amount of 2025 Notes remained outstanding and all were convertible from May 1, 2024 through July 31, 2024; if all holders convert, the company would be obligated to pay $1.2 billion in cash. Subsequent to April 30, 2024, $123.2 million principal amount was converted or submitted for conversion.
Some key components come from limited sources; tariffs have increased costs and led to price increases on hardware, and manufacturing partners can terminate for convenience and are not obligated to fulfill supply requirements. Product gross margin could be harmed by excess inventory or supply shortages.
SaaS KPIs
All quarters →Billings
Remaining performance obligation
Non-GAAP Operating Margin
Summary, forecast, risks and KPIs are extracted from Palo Alto Networks Inc's SEC filings for Q3 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.