Summary
Palo Alto Networks closed fiscal 2023 with fourth quarter revenue of $1.95 billion, up 26.0% from $1.55 billion in the prior-year quarter. Full-year revenue was $6.89 billion, up 25.3% from $5.50 billion. Gross profit rose 36.7% to $1.45 billion in the quarter and 31.7% to $4.98 billion for the year. Gross margin was 74.1% in the quarter, up 5.8 percentage points, and 72.3% for the full year, up 3.5 percentage points. Those gains came from a favorable hardware product mix, more software revenue, and subscription and support revenue growth that outpaced costs in that segment.
Operating income was $253.5 million in the quarter, up from $15.4 million a year earlier. For the full year, operating income was $387.3 million, up from a prior-year operating loss. Operating margin was 13.0% in the quarter, up 12.0 percentage points, and 5.6% for the year, up 9.1 percentage points. Net income reached $227.7 million in the quarter, up from $3.3 million a year earlier, and $439.7 million for the full year, up from a prior-year net loss. Full-year diluted earnings per share was $1.28, up from a loss per diluted share a year earlier. Non-GAAP net income was $482.5 million, or $1.44 per diluted share, in the quarter, against $254.1 million, or $0.80 per diluted share, a year earlier.
Billings grew 18% year over year to $3.2 billion in the quarter, and full-year billings grew 23% to $9.2 billion. Remaining performance obligations were $10.6 billion, up 29.3%. Current deferred revenue was $4.67 billion, up 28.4%. Management tied the pipeline to platformization. CEO Nikesh Arora pointed to customer reception for XSIAM, the AI-based security automation platform, and said billings for the quarter did not fully capture the strength visible in remaining performance obligations and next-generation security ARR.
Operating cash flow was $414.1 million in the quarter, down 20.9% from $523.7 million a year earlier. Full-year operating cash flow was $2.78 billion, up 39.9%. Capital expenditures were $37.2 million in the quarter, down 5.1%, and $146.3 million for the year, down 24.1%. Non-GAAP free cash flow was $2,631.2 million for fiscal 2023, against $1,791.9 million for fiscal 2022. The quarterly dip in operating cash flow against a strong full year shows how much of the collections landed earlier in the fiscal year, while the fourth quarter still carried heavy spending.
Guidance for the fiscal first quarter 2024 calls for billings of $2.05 billion to $2.08 billion, year-over-year growth of 17% to 19%, and diluted non-GAAP net income per share of $1.15 to $1.17, growth of 39% to 41%. For the full fiscal year 2024, management guided billings of $10.9 billion to $11.0 billion, growth of 19% to 20%, diluted non-GAAP net income per share of $5.27 to $5.40, growth of 19% to 22%, and adjusted free cash flow margin of 37% to 38%. The company does not reconcile its non-GAAP guidance to GAAP, citing uncertainty around share-based compensation and other items.
Risks in the filing include worsening economic conditions, inflation, higher interest rates, foreign exchange swings, supply chain disruption, and tensions between China and Taiwan and between the U.S. and China. The 2025 Notes, with $2.0 billion of principal outstanding, met a sale price condition, so holders may convert during the quarter ending October 31, 2023, and the company would settle that full principal in cash if all holders convert. During fiscal 2023 the company repaid $1.7 billion of the 2023 Notes and issued 11.4 million shares for conversion value above principal, offset by shares from note hedges. Share repurchase authorization of $750.0 million remained available as of July 31, 2023, and the program expires December 31, 2023.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2023 | Q3 FY2023 | QoQ | Q4 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.95B | $1.72B | +13.5% | $1.55B | +26.0% |
| Gross profit | $1.45B | $1.25B | +16.1% | $1.06B | +36.7% |
| Gross margin | 74.0% | 72.4% | +1.6 pp | 68.3% | +5.8 pp |
| Research & development | $414.4M | $413.7M | +0.2% | $363.8M | +13.9% |
| Sales & marketing | $664.0M | $639.5M | +3.8% | $570.6M | +16.4% |
| General & administrative | $114.6M | $114.2M | +0.4% | $108.4M | +5.7% |
| Total operating expenses | $1.19B | $1.17B | +2.2% | $1.04B | +14.4% |
| Operating income (loss) | $253.5M | $78.7M | +222.1% | $15.4M | +1546.1% |
| Operating margin | 13.0% | 4.6% | +8.4 pp | 1.0% | +12.0 pp |
| Net income (loss) | $227.7M | $107.8M | +111.2% | $3.3M | +6800.0% |
| Net margin | 11.7% | 6.3% | +5.4 pp | 0.2% | +11.4 pp |
| Diluted EPS | $0.67 | $0.31 | +$0.36 | $0.03 | +$0.64 |
Risks
MD&A says worsening economic conditions, including inflation, higher interest rates, slower growth, and foreign exchange fluctuations, may adversely affect results. It also notes ongoing supply chain disruption and increased costs from inflationary pressures and is monitoring China-Taiwan and U.S.-China tensions.
The filing adds a specific AI risk factor, noting that PANW has incorporated and continues to deploy AI into many products and may face flawed algorithms, biased or insufficient training data, evolving regulation such as proposed EU AI rules, IP infringement claims, and higher compute costs.
Hardware products rely on limited-source and sole-source components, with supplier manufacturing concentrated in Asia. The company says it continues to experience supply chain disruption and increased costs from inflationary pressures and is monitoring China-Taiwan and U.S.-China tensions.
For fiscal 2023, three distributors each represented 10% or more of total revenue and together accounted for 49.7% of total revenue. As of July 31, 2023, two distributors represented 10% or more of gross accounts receivable and together accounted for 37.6%.
PANW faces intense competition from large diversified vendors such as Cisco and Microsoft, independent security vendors such as Crowdstrike and Zscaler, and cloud vendors, some of which can bundle security features, sell at zero or negative margins, or offer lower pricing.
Sales to large enterprise customers involve longer sales cycles and resource commitments before a purchase, and PANW historically receives a substantial portion of orders and revenue in the last weeks of each fiscal quarter, so delays can cause quarterly revenue to fall below expectations.
The company has increased customer financing and deferred payment arrangements, which it says negatively impact short-term cash flows and expose it to non-payment risk, including insolvency, if economic conditions weaken.
All 2025 Notes were convertible effective August 1, 2023 through October 31, 2023; if all holders converted, PANW would be obligated to pay the $2.0 billion principal amount in cash. MD&A says the company believes available cash and cash flow are sufficient but the obligation could strain liquidity or require third-party financing.
The company is subject to GDPR, CCPA, and other evolving privacy laws, with potential fines up to 4% of annual worldwide turnover under GDPR and compliance costs from data transfer challenges and new U.S. state privacy laws going into effect by January 1, 2026.
Subscription and support revenue was 77.1% of total revenue in fiscal 2023, and because revenue is recognized over one to five years, a decline in new or renewal contracts may not be fully reflected in current results but will negatively affect future revenue.
SaaS KPIs
All quarters →Billings
Remaining performance obligation
Summary, forecast, risks and KPIs are extracted from Palo Alto Networks Inc's SEC filings for Q4 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.