Palo Alto Networks (NASDAQ:PANW) stock rose 4.1% in Tuesday’s extended trading session after the cybersecurity solution provider published better-than-expected third-quarter fiscal 2023 earnings. Non-GAAP earnings per share were $1.10, exceeding the Consensus Estimate of 92 cents. The bottom line increased 83% over the prior year’s non-GAAP earnings of 60 cents per share.

Palo Alto’s fiscal third-quarter revenue of $1.72 billion above the $1.71 billion Consensus Estimate. The top line increased by 24% over the previous year. Several deal wins and the growing use of Palo Alto’s Next-Generation Security platforms benefited the top line, which was driven by the hybrid work culture and the increased need for enhanced security.

The company’s outstanding quarterly success is a result of its continuous focus on product innovation, a move in its business model to subscription-based services, platform integration, and continued investments in go-to-market strategy.

Quarterly Specifications

Product revenues grew 10% year on year to $388.1 million, accounting for 22.6% of total revenues. Subscription and support sales increased 28.7% to $1.33 billion, accounting for 77.4% of total revenues.

Billings grew 26% year on year to $2.26 billion. Deferred sales totaled $4.15 billion at the conclusion of the fiscal third quarter. Palo Alto’s remaining performance obligation has increased by 35% year on year to $9.2 billion.

Palo Alto’s annualized recurring revenues for next-generation security were $2.57 billion in the reported quarter, up from $2.33 billion the previous quarter and $1.61 billion the year before.

Gross profits before taxes climbed by 29.7% to $1.31 billion. The non-GAAP gross margin increased by 320 basis points (bps) to 72.9%, owing mostly to a stronger software mix, lower supply-chain expenses, and some efficiencies in customer service.

Non-GAAP operating income increased by 60.8% to $406.7 million. Meanwhile, the non-GAAP operating margin increased by 540 basis points to 23.6%.

The Balance Sheet and Cash Flow

Palo Alto ended the fiscal third quarter with $3.96 billion in cash, cash equivalents, and short-term investments, up from $3.35 billion at the conclusion of the previous quarter. The corporation had $264.5 million in long-term operational lease liabilities as of April 30, 2023.

In the fiscal third quarter, PANW generated $432.1 million in operating cash flow and $400.9 million in non-GAAP adjusted free cash flow. Non-GAAP adjusted free cash flow margin was 23.3%.

Guidance for FY23 Has Been Raised

Palo Alto boosted its fiscal 2023 projection. Revenues for fiscal 2023 are now expected to range between $6.88 billion and $6.91 billion, up from a previous range of $6.85-$6.91 billion. This implies top-line growth of 25-26% from fiscal 2022.

PANW total billings are now expected to be in the $9.18-$9.23 range for fiscal 2023, representing a year-over-year growth of 23-24%. Previously, billings were predicted to be in the $9.10-$9.20 billion range, implying a 22-23% year-over-year growth.

Palo Alto anticipates non-GAAP earnings of $4.25-$4.29 per share, up from the previous forecast range of $3.97-$4.03 per share. The non-GAAP adjusted free cash flow margin expectation for fiscal 2023 has also been boosted from 36.5-37.5% to 37.5-38.5%.

Palo Alto anticipates sales of $1.937 billion to $1.967 billion in the fourth quarter of fiscal 2023, representing a 25-27% year-over-year increase. Total billings are expected to be between $3.15 billion and $3.20 billion, representing a 17-19% rise over the previous quarter. Non-GAAP earnings are expected to range between $1.26 and $1.30 per share.

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