On Thursday evening, Palo Alto Networks (PANW) released the firm's fiscal first quarter results. Palo Alto posted adjusted EPS of $1.64, and a GAAP loss of $1.06 per share. Both measures represent better than expected results. This adjusted result is good enough for earnings growth of 1%. The firm generated revenue of $1.247B. This was also a beat, and good for year over year growth of 32.1%. Just an FYI, the primary "adjustment" comes from $270.2M in share-based compensation-related charges. That and about $35M in tax related adjustments are almost entirely responsible for the tremendous gap between the firm's adjusted and GAAP earnings numbers.
Billings, reflective of future business already under contract, increased to $1,381.6B, which was up 27.8% from last year at this time. In order to derive billings because a lot of newer traders over the years have asked, simply start with the revenue number (in this case, $1.247B) and add total deferred revenue net of acquired deferred revenue (in this case $134.2M). Voila. You're there at $1,381.6B.
For the reporting period, "Subscription and Support" contributed revenue of $951.9B toward the whole. That comes to year over year growth of 34.3%. "Product" sales increased 24.5% to $295.5M. Cost of revenue added up to 30.6% ($291.7M) for Subscription and Support, while the cost of revenue for Product totaled $380.6M, actually exceeding the revenue generated from that direction. Total gross profit increased 25.2% to $866.2M.
For the fiscal second (current) quarter, Palo Alto expects to see revenue hit a range spanning $1.265B to $1.285B, which would be annual growth of 24% to 26%. Billings are seen in a range of $1.51B to $1.53B, also representing growth of 24% to 26%. Adjusted EPS is expected to land in between $1.63 and $1.66.
For the full year, the firm sees revenue in a range spanning from $5.35B to $5.4B, good for growth of 26% to 27%, and up from prior guidance of $5.28B to $5.33B. Full year billings are seen landing in between $6.675B and $6.725B, which would be growth of 22% to 23%. Full year adjusted EPS is expected to print in between $7.15 and $7.25. Adjusted free cash flow margin is expected to be around 32%/33% for the year.
Over the past three months, the firm's cash balance has grown, as have current assets, albeit to a lesser degree. Total assets are nearly flat over the same three months however, as there has been a decrease in long-term deferred contract costs. Current liabilities have grown significantly over the reporting period, largely due to growth in net convertible senior notes that were moved up from total liabilities. Total assets still outweigh total liabilities less equity, but I have to be honest. I do not love this balance sheet. Fact is... I don't even like it.
Readers will see Palo Alto opening on a gap higher for a second consecutive earnings release. Note that the gap from three months ago remains unfilled. While the shares have clung to the central trend line of our Pitchfork model for support throughout that entire period, I expect the shares to test a postnatal breakout of this Pitchfork's upper chamber.
Yes, cybersecurity is going to stay hot. Even the government is going to pay up for these services going forward. My favorite name in the space is Zscaler (ZS) , a name whose balance sheet I like better. Zscaler is still about two weeks away from reporting. While I would expect these to be dangerous times to stay short cybersecurity software firms for any length of time, I expect, if the shares are still trading close to $540 after this piece hits publication to at least day trade this name on Friday, and almost for sure, that I will be legging in from the short side.