Palo Alto Networks lifts earnings guidance as it pursues profitable growth

Palo Alto Networks shares moved 7% higher in extended trading on Tuesday after the security hardware and software maker issued fiscal second-quarter earnings that topped Wall Street projections.

Here’s how the company did:

• Earnings: $1.05 per share, adjusted, vs. 78 cents per share as expected by analysts, according to Refinitiv.
• Revenue: $1.66 billion, vs. 1.65 billion as expected by analysts, according to Refinitiv.

The company’s revenue rose 26% year over year in the quarter, which ended Jan. 31, according to a statement. Net income came in at $84.2 million, or 25 cents per share, compared with a loss of $93.5 million in the year-ago quarter.

“Our focus on driving profitable growth is reflected in our Q2 results,” said Dipak Golechha, the company’s finance chief, was quoted as saying in the statement. “As a result, we are raising our cash flow margin and operating profitability targets as we remain focused on driving efficiency in our business.” The company has slowed down headcount growth, Golechha said on a conference call with analysts.

Palo Alto Networks has now posted three consecutive quarters of profitability following a decade of being in the red. It’s now three years ahead of profitability goals it laid out in 2021, CEO Nikesh Arora said on the call.

“We believe we now meet the criteria for inclusion in the S&P 500,” Golechha said.

The company called for fiscal third-quarter adjusted earnings of 90 cents to 94 cents per share on $1.695 billion to $1.725 billion in revenue. Analysts surveyed by Refinitiv had expected 78 cents in adjusted earnings per share on $1.74 billion in revenue.

Management pushed up its earnings guidance for the 2023 fiscal year. It called for $3.97 to $4.03 in adjusted per share. In November guidance was $3.37 to $3.44 in adjusted earnings per share. Analysts polled by Refinitiv had been looking for $3.42 in adjusted earnings per share. The company maintained its revenue guidance. Golechha said he expects income in the fiscal third and fourth quarters.

Customers have delayed or canceled projects, but most remain on track, Arora said. The company shifted some forecasted revenue to the fiscal fourth quarter from the fiscal third quarter, he said.

He said executives continue to see evidence of the cybersecurity market being resilient, while other sectors of the economy sag as central bankers increase interest rates.

During the quarter the company acquired startup Cider Security, which focused on software supply chain and application security for about $195 million. It’s the latest deal in a series that have helped Palo Alto Networks keep growing its top line in the nearly five years under Arora, costing the company over $3 billion to date.

Notwithstanding the after-hours move, so far Palo Alto Networks shares are up 20% so far this year, outperforming the S&P 500 index, which has risen 4% over the same period.

WATCH: It’s important to look at overall macro sentiment, says Palo Alto Networks’ Nikesh Arora