Palo Alto Networks, Inc. revenue jumped on 29.0% and EBITDA Margin increased on 5.4 pp from -6.8% to -1.4%
09/06/2018 • About Palo Alto Networks, Inc. (
$PANW) • By InTwits
Palo Alto Networks, Inc. reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Palo Alto Networks, Inc. is a fast growth stock: FY2018 revenue growth was 29.0%, 5 year revenue CAGR was 41.8% at FY2018 ROIC -5.9%
- The company operates at negative EBITDA Margin: -1.4%
- Palo Alto Networks, Inc. motivates its personel by high Stock Based Compensation (SBC): average SBC/Revenue for FY2014-FY2018 was 24.2% while average EBITDA Margin was -8.2% for the sames years
- Palo Alto Networks, Inc. has medium CAPEX intensity: 5 year average CAPEX/Revenue was 5.8%. At the same time it's in pair with industry average of 7.4%
- CAPEX is quite volatile: $112m in FY2018, $163m in FY2017, $73m in FY2016, $34m in FY2015, $36m in FY2014
- The company has unprofitable business model: ROIC is -5.9%
- It operates with medium-size leverage: Net Debt/EBITDA is 3.7x while industry average is -0.5x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue surged on 29.0%. Revenue growth showed acceleration in FY18Q4 - it increased 29.3% YoY. Revenue decline was accelerating on average at -7.1 pp per annum in FY2014-FY2018. Despite revenue decline the EBITDA margin expanded. EBITDA Margin surged on 12.0 pp from 25.4% to 37.4% in 2018. EBITDA Margin grew at 6.7 pp per annum in the last 5 years.
Gross Margin decreased slightly on 1.3 pp from 72.9% to 71.6% in FY2018. SG&A as a % of Revenue decreased on 3.8 pp from 63.4% to 59.7% in FY2018. SG&A as a % of Revenue followed a declining trend at -2.1 pp per annum in the last 5 years. Stock Based Compensation (SBC) as a % of Revenue decreased on 5.1 pp from 26.9% to 21.9% in FY2018. During the last 5 years SBC as a % of Revenue topped in FY2016 at 28.5% and was declining since that time.
Net Income margin increased on 5.8 pp from -12.3% to -6.5% in FY2018. Net Income margin grew at 6.8 pp per annum in FY2014-FY2018.
Investments (CAPEX, working capital and M&A)
In FY2018 the company had CAPEX/Revenue of 4.9%. The company's CAPEX/Revenue increased slightly on 1.3 pp from 3.6% in FY2015 to 4.9% in FY2018. It's average CAPEX/Revenue for the last three years was 6.5%.
Accounts receivable as a % of Revenue decreased on 4.0 pp from 24.5% to 20.5% in FY2018. Accounts payable as a % of Revenue showed almost no change in FY2018.
Palo Alto Networks, Inc. has spent
$374m on M&A in FY2018 which accounts for 16.5% of revenue.
Return on investment
The company operates at negative ROIC (-5.9%) and ROE (-15.2%). ROIC increased on 7.5 pp from -13.4% to -5.9% in FY2018. ROE jumped on 10.9 pp from -26.2% to -15.2% in FY2018. ROE stuck to a growing trend at 9.7 pp per annum in FY2014-FY2018.
Leverage (Debt)
Company's Net Debt / EBITDA is 3.7x and Debt / EBITDA is . Debt surged on 266% while cash surged on 237%.
Palo Alto Networks, Inc. has no short term refinancing risk: cash is higher than short term debt (455.5%).
Average interest expence charged on company's debt was 1.5% in FY2018.
Management team
The company's CEO is Nikesh Arora. Nikesh Arora is a founder and has 1 year tenure with the company. CEO total compensation was
$139,425,107 in FY2018 which included
$1,018,268 salary. The company's CFO is Kathleen Bonanno "Kathy". Kathleen Bonanno "Kathy" has 1 year tenure at the company.
Insider ownership is 2.8%. Insider ownership didn't change in 2018.
The company has 5,348 employees. The number of employees surged on 17.2%. Average revenue per employee in FY2018 was
$425,037 and it jumped on 10.1%.
Financial and operational results
FY ended 07/31/2018
Palo Alto Networks, Inc. ($PANW) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 598 | 928 | 1,379 | 1,762 | 2,273 | 29.0% |
| Gross Profit | 439 | 677 | 1,009 | 1,285 | 1,628 | 26.7% |
| SG&A | 408 | 624 | 882 | 1,117 | 1,356 | 21.4% |
| EBITDA | -196 | -105 | -115 | -120 | -33 | |
| EBIT | -215 | -134 | -157 | -180 | -129 | |
| Interest expence | | | 23 | 25 | 30 | 20.8% |
| Tax | 4 | 9 | 20 | 23 | 18 | -21.3% |
| Net Income | -226 | -165 | -193 | -217 | -148 | |
| Stock Based Compensation | 99 | 219 | 393 | 475 | 497 | 4.7% |
Balance Sheet
|
|---|
| Cash | 654 | 376 | 734 | 744 | 2,507 | 236.8% |
| Accounts Receivable | 136 | 212 | 349 | 432 | 467 | 8.1% |
| Accounts Payable | 15 | 13 | 30 | 36 | 49 | 39.2% |
| Short Term Debt | 0 | 487 | 0 | 0 | 550 | |
| Long Term Debt | 467 | 0 | 500 | 525 | 1,370 | 161.0% |
Cash flow
|
|---|
| Capex | 36 | 34 | 73 | 163 | 112 | -31.5% |
| Acquisitions | 86 | 15 | | 91 | 374 | 312.5% |
Ratios
|
|---|
| Revenue growth | 51.0% | 55.1% | 48.5% | 27.8% | 29.0% | |
| EBITDA growth | 2,144.6% | -46.6% | 9.4% | 4.8% | -72.8% | |
|
|---|
| Gross Margin | 73.3% | 72.9% | 73.2% | 72.9% | 71.6% | -1.3% |
| EBITDA Margin | -32.8% | -11.3% | -8.3% | -6.8% | -1.4% | 5.4% |
| EBIT Margin | -36.0% | -14.4% | -11.4% | -10.2% | -5.7% | 4.5% |
| SG&A, % of revenue | 68.2% | 67.3% | 64.0% | 63.4% | 59.7% | -3.8% |
| SBC, % of revenue | 16.5% | 23.6% | 28.5% | 26.9% | 21.9% | -5.1% |
| Net Income Margin | -37.9% | -17.8% | -14.0% | -12.3% | -6.5% | 5.8% |
| CAPEX, % of revenue | 6.0% | 3.6% | 5.3% | 9.3% | 4.9% | -4.3% |
|
|---|
| ROIC | -35.6% | -13.4% | -12.8% | -13.4% | -5.9% | 7.5% |
| ROE | -61.1% | -31.6% | -26.2% | -26.2% | -15.2% | 10.9% |
| Interest expence / Average debt | | | 4.7% | 4.8% | 1.5% | -3.2% |
People
|
|---|
| Insider ownership | 2.8% | 2.8% | 2.8% | 2.8% | 2.8% | 0.0% |
| Employees | 1,722 | 2,637 | 3,795 | 4,562 | 5,348 | 17.2% |
| Revenue/Employee, th. $ | 347 | 352 | 363 | 386 | 425 | 10.1% |
Palo Alto Networks, Inc. ($PANW) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 502 | 546 | 568 | 658 | | 26.0% | 29.1% | 31.5% | 29.3% |
| EBITDA | -32 | -0 | -21 | 37 | | | | | |
| Net Income | -63 | -26 | -40 | -2 | | | | | |
Balance Sheet
|
|---|
| Cash | 843 | 915 | 949 | 2,507 | | 0.4% | 20.2% | 37.1% | 236.8% |
| Short Term Debt | 531 | 537 | 544 | 550 | | 4.9% | | | |
| Long Term Debt | 0 | 0 | 0 | 1,370 | | | -100.0% | -100.0% | 161.0% |
Ratios
|
|---|
| Gross Margin | 71.8% | 70.8% | 71.8% | 71.9% | | -2.7% | -2.4% | 0.5% | -0.9% |
| EBITDA Margin | -6.4% | -0.1% | -3.6% | 5.6% | | 2.5% | 9.4% | 4.2% | 7.7% |
| Net Income Margin | -12.6% | -4.7% | -7.1% | -0.3% | | 1.7% | 9.6% | 7.0% | 7.2% |
Peers in Communications Equipment
Below we provide Palo Alto Networks, Inc. benchmarking against other companies in Communications Equipment industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Ribbon Communications Inc. ($RBBN) | | | | 30.6% | 75.2% |
| Extreme Networks, Inc. ($EXTR) | | 6.4% | -4.4% | 13.2% | 64.4% |
| Optical Cable Corporation ($OCC) | | -11.3% | -12.2% | -0.8% | 37.0% |
| ParkerVision Inc ($PRKR) | | | 37,601.2% | -97.5% | 35.0% |
| Network-1 Technologies, Inc. ($NTIP) | | 34.6% | 292.9% | -74.7% | 34.4% |
| |
|---|
| Median (66 companies) | | -0.4% | 7.3% | 5.1% | 2.8% |
|---|
| Palo Alto Networks, Inc. ($PANW) | | 55.1% | 48.5% | 27.8% | 29.0% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| F5 Networks, Inc. ($FFIV) | 82.1% | 82.7% | 83.1% | 83.1% | 83.3% |
| Radware Ltd. ($RDWR) | 82.1% | 82.4% | 81.8% | 81.3% | 82.2% |
| Radcom Ltd. ($RDCM) | 63.2% | 76.8% | 69.6% | 71.8% | 74.0% |
| Casa Systems, Inc. ($CASA) | | 70.8% | 69.1% | 73.4% | 73.4% |
| NetScout Systems, Inc. ($NTCT) | 78.7% | 79.2% | 65.6% | 70.2% | 72.4% |
| |
|---|
| Median (67 companies) | 41.4% | 41.3% | 43.7% | 41.0% | 40.5% |
|---|
| Palo Alto Networks, Inc. ($PANW) | 73.3% | 72.9% | 73.2% | 72.9% | 71.6% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Network-1 Technologies, Inc. ($NTIP) | 35.5% | 33.7% | 50.6% | 37.8% | 42.8% |
| InterDigital, Inc. ($IDCC) | 50.8% | 58.1% | 73.6% | 67.3% | 41.9% |
| EchoStar Corporation ($SATS) | 25.7% | 39.7% | 40.3% | 38.1% | 37.4% |
| Ubiquiti Networks, Inc. ($UBNT) | 34.7% | 25.5% | 37.3% | 34.3% | 32.8% |
| Ituran Location and Control Ltd. ($ITRN) | 32.4% | 30.5% | 29.9% | 29.9% | 30.4% |
| |
|---|
| Median (65 companies) | 5.6% | 6.1% | 5.9% | 6.5% | 5.4% |
|---|
| Palo Alto Networks, Inc. ($PANW) | -32.8% | -11.3% | -8.3% | -6.8% | -1.4% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Resonant Inc. ($RESN) | | | 132.5% | 124.8% | 245.2% |
| ViaSat, Inc. ($VSAT) | 22.8% | 26.5% | 26.7% | 33.0% | 32.1% |
| Applied Optoelectronics, Inc. ($AAOI) | 31.5% | 30.1% | 19.0% | 17.5% | 26.9% |
| EchoStar Corporation ($SATS) | 19.7% | 43.8% | 39.9% | 30.9% | 26.5% |
| Finisar Corporation ($FNSR) | 11.3% | 11.9% | 9.4% | 9.7% | 16.8% |
| |
|---|
| Median (65 companies) | 2.2% | 2.2% | 1.9% | 1.8% | 1.6% |
|---|
| Palo Alto Networks, Inc. ($PANW) | 6.0% | 3.6% | 5.3% | 9.3% | 4.9% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| F5 Networks, Inc. ($FFIV) | 33.9% | 40.8% | 43.1% | 46.9% | 47.9% |
| Ubiquiti Networks, Inc. ($UBNT) | 61.4% | 31.5% | 41.5% | 38.5% | 39.1% |
| Motorola Solutions, Inc. ($MSI) | -16.1% | 18.9% | 26.4% | 39.5% | 35.3% |
| Ituran Location and Control Ltd. ($ITRN) | 50.9% | 46.8% | 50.1% | 48.5% | 35.1% |
| Casa Systems, Inc. ($CASA) | | | 43.2% | 39.7% | 21.9% |
| |
|---|
| Median (70 companies) | 2.1% | 2.3% | 2.4% | 2.2% | 0.7% |
|---|
| Palo Alto Networks, Inc. ($PANW) | -35.6% | -13.4% | -12.8% | -13.4% | -5.9% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Extreme Networks, Inc. ($EXTR) | | | -2.2x | -1.5x | 7.1x |
| ViaSat, Inc. ($VSAT) | 3.4x | 2.5x | 3.2x | 2.5x | 5.8x |
| CommScope Holding Company, Inc. ($COMM) | 2.3x | 9.6x | 4.3x | 4.6x | 4.4x |
| Inseego Corp. ($INSG) | | | | | 3.9x |
| Finisar Corporation ($FNSR) | -0.3x | 0.2x | -0.5x | 1.6x | 3.8x |
| |
|---|
| Median (46 companies) | -0.7x | -0.7x | -0.9x | -0.7x | -0.1x |
|---|
