Palo Alto Networks (PANW Quick QuotePANW - Free Report) reported strong fourth-quarter fiscal 2022 results, wherein both earnings and revenues not only surpassed the respective Zacks Consensus Estimate but also improved year over year.

The company reported non-GAAP earnings of $2.39 per share, beating the Zacks Consensus Estimate of $2.28. The bottom line improved 49.4% from the year-ago quarter’s non-GAAP earnings of $1.60 per share.

Palo Alto’s fiscal fourth-quarter revenues of $1.60 billion surpassed the Zacks Consensus Estimate of $1.54 billion. The top line grew 27% from the year-earlier reported figure.

The top line was aided by several deal wins and increased adoption of Palo Alto’s Next-Generation Security (“NGS”) platforms due to the hybrid work culture and the heightened need for stronger security.

Palo Alto’s strong quarterly performance reflects its sustained focus on product innovation, a shift in its business model to subscription-based services, platform integration and continued investments in the go-to-market strategy.

Quarterly Details

Product revenues increased 20.2% year over year to $408.1 million and contributed 26.3% of total revenues. The company’s subscription and support revenues, which accounted for 73.7% of total revenues, improved 29.8% to $1.14 billion.

Billings jumped 44% to $2.69 billion. Deferred revenues at the end of the fiscal fourth quarter were $3.64 billion. Palo Alto’s remaining performance obligation climbed to $8.2 billion, reflecting a year-over-year surge of 40%.

Palo Alto’s NGS annualized recurring revenues (ARR) were $1.89 billion in the reported quarter compared with $1.18 billion in the year-ago quarter and $1.61 billion in the previous quarter.

The company’s non-GAAP gross profit increased 23.7% to $1.14 billion. However, non-GAAP gross margin contracted 210 basis points (bps) to 73.2%, primarily due to heightened costs associated with supply chain issues.

Non-GAAP operating income rose 52% to $323.2 million while non-GAAP operating margin expanded 330 bps to 20.8%.

Fiscal 2022 Highlights

PANW’s fiscal 2022 revenues grew 29% year over year to $5.50 billion and narrowly surpassed the Zacks Consensus Estimate of $5.49 billion. The company reported non-GAAP earnings of $7.56 per share, which outpaced the Zacks Consensus Estimate of $7.45 per share and grew 23.1% from the year-ago quarter.

In fiscal 2022, billings increased 37% to $7.47 billion.

Balance Sheet & Cash Flow

Palo Alto exited the fiscal fourth quarter with cash, cash equivalents and short-term investments of $3.63 billion, down from $3.87 billion at the end of the previous quarter. However, the company’s balance sheet does not carry any long-term debt.

PANW generated an operating cash flow of $523.7 million and a non-GAAP adjusted free cash flow of $484.5 million during the fourth quarter. Non-GAAP adjusted free cash flow margin came in at 31.2%.

During the fourth quarter, the company increased its share-repurchase authorization by $915 million.

For fiscal 2022, Palo Alto generated an operating cash flow of $1.98 billion and a non-GAAP adjusted free cash flow of $1.83 billion. Non-GAAP adjusted free cash flow margin came in at 33%.

Guidance

Buoyed by a strong fiscal fourth-quarter performance, Palo Alto provided its fiscal 2023 guidance. The company anticipates revenues of $6.85-$6.90 billion, suggesting growth of around 25% from the fiscal 2022 level.

Total billings are estimated to be $8.95-$9.05 billion for fiscal 2023, indicating a year-over-year increase of 20-21%. Palo Alto projects its non-GAAP earnings to be in the $9.40-$9.50 per share band.

Non-GAAP adjusted free cash flow margin is expected in the range of 33.5-34.5% for fiscal 2023.

For the first quarter of fiscal 2023, Palo Alto projects revenues between $1.535 billion and $1.555 billion, suggesting year-over-year growth of 23-25%.

Total billings are anticipated between $1.68 billion and $1.70 billion, indicating an increase of 22-23% from the year-ago quarter. Non-GAAP earnings are projected to be $2.03-$2.06 per share.

Zacks Rank & Key Picks

Palo Alto currently carries a Zacks Rank #2 (Buy). Shares of PANW have increased 15% in the past year.

Some other top-ranked stocks from the broader Computer and Technology sector are Clearfield (CLFD Quick QuoteCLFD - Free Report) , Silicon Laboratories (SLAB Quick QuoteSLAB - Free Report) , and Taiwan Semiconductor (TSM Quick QuoteTSM - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Clearfield's fourth-quarter fiscal 2022 earnings has been revised 10 cents north to 80 cents per share over the past 30 days. For fiscal 2022, earnings estimates have moved 36 cents north to $3.13 per share in the past 30 days.

Clearfield’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 33.9%. Shares of CLFD have soared 161.6% in the past year.

The Zacks Consensus Estimate for Silicon Laboratories’ third-quarter 2022 earnings has increased 22.9% to $1.02 per share over the past 30 days. For 2022, earnings estimates have moved 14.2% up to $4.18 per share in the past 30 days.

Silicon Laboratories’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 63.6%. Shares of SLAB have decreased 15.8% in the past year.

The Zacks Consensus Estimate for Taiwan Semiconductor's third-quarter 2022 earnings has been revised a penny southward to $1.69 per share over the past seven days. For 2022, earnings estimates have moved 41 cents north to $6.30 per share in the past 60 days.

TSM's earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 3.9%. Shares of the company have decreased 24% in the past year.