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    PANW
    Earnings call· Oct 2025(Q1 FY26)

    Palo Alto Networks Inc PANW

    Nov 19, 2025 Source

    Executive summary

    Palo Alto Networks Q1 FY26 — Strong Start with Platformization and Strategic Acquisitions

    Palo Alto Networks delivered a strong Q1 FY26, surpassing expectations across all key metrics driven by robust demand and continued customer platformization. The company is strategically expanding its market opportunity through the acquisitions of CyberArk and Chronosphere, aiming to address critical inflection points in identity and observability, particularly in the AI era. Management reiterated its long-term financial model, targeting 40%+ free cash flow margins by FY28.

    Highlights

    5

    • Remaining Performance Obligation (RPO) grew 24% year-over-year to $15.5 billion.

    • Next-Generation Security (NGS) ARR grew 29% year-over-year to $5.85 billion, exceeding the high end of guidance.

    • Total revenue reached $2.47 billion, representing 16% growth and exceeding the high end of the guided range.

    • Non-GAAP operating margin expanded 140 basis points year-over-year to 30.2%, marking the second consecutive quarter above 30%.

    • Adjusted free cash flow came in at $1.7 billion, up 17%.

    Concerns

    4

    • AI-driven cyberattacks

    • Enterprise AI security gap

    • Quantum computing breaking current encryption

    • Insider threat from AI agents

    Guidance & targets

    15
    CategoryTargetConfidence
    NGS ARR
    $6.11B to $6.14B
    high materiality
    High
    Remaining Performance Obligation (RPO)
    $15.75B to $15.85B
    high materiality
    High
    Revenue
    $2.57B to $2.59B
    high materiality
    High
    Diluted non-GAAP EPS
    $0.93 to $0.95
    high materiality
    High
    NGS ARR
    $7B to $7.1B
    high materiality
    High
    Remaining Performance Obligation (RPO)
    $18.6B to $18.7B
    high materiality
    High
    Revenue
    $10.50B to $10.54B
    high materiality
    High
    Operating Margin
    29.5% to 30%
    medium materiality
    High
    Diluted non-GAAP EPS
    $3.80 to $3.90
    high materiality
    High
    Adjusted Free Cash Flow Margin
    38% to 39%
    high materiality
    High
    Adjusted Free Cash Flow Margin
    40%+
    high materiality
    High
    Adjusted Free Cash Flow Margin (inclusive of acquisitions)
    at least 37%
    high materiality
    High
    ARR Target
    $20B
    high materiality
    High
    Product Revenue Growth
    approximately 17% to 18%
    medium materiality
    High
    Capital Expenditure (CapEx)
    $130M to $140M
    medium materiality
    High

    Operational metrics

    29
    NGS ARR
    $5.85B29% YoY
    Q1 FY26

    Exceeded the high end of guidance.

    Net New NGS ARR (adjusted for QRadar)
    20%YoY
    Q1 FY26

    Adjusting for $74 million contribution from QRadar acquisition in comparable prior period.

    SASE ARR
    $1.3B34% YoY
    Q1 FY26

    Fastest-growing SASE provider at scale.

    SASE Customers
    6,800
    Q1 FY26

    Includes leading technology companies like IBM and Oracle.

    Secure Browsers Sold
    7.5M
    Q1 FY26

    Crossed 7.5 million browsers sold.

    Secure Browser Bookings
    nearly quadrupledYoY
    Q1 FY26

    Strong momentum in secure browsers.

    Product Revenue Growth
    23%YoY
    Q1 FY26

    Fueled by growth in software firewalls and PAN-OS SD-WAN.

    Product Revenue from Software Form Factors
    44%up from 38% TTM Q1 FY25
    TTM Q1 FY26

    Nearly half of product revenues are driven by software form factors.

    Software Firewall Customers
    12,500
    Q1 FY26

    Maintains leading market position in software firewalls.

    AI Deals
    more than doubledvs last quarter
    Q1 FY26

    Early customer traction is strong, reflecting genuine market needs.

    XSIAM Customers
    470
    Q1 FY26

    Includes large referenceable customers in every major industry.

    XSIAM Average Customer ARR
    $1M
    Q1 FY26

    Average customer paying over $1 million in ARR.

    XSIAM Telemetry Processed
    15 petabytes
    daily

    Processing 15 petabytes of telemetry on a daily basis.

    XSIAM MTTR Reduction
    >60%
    Q1 FY26

    Over 60% of deployed XSIAM customers have reduced their median time to respond.

    Net New Platformizations
    60
    Q1 FY26

    Momentum driven by strength in XSIAM.

    XSIAM Platformizations
    more than doubledYoY
    Q1 FY26

    Affirming customers are actively moving towards simplicity and integration.

    Customers with NGS ARR over $5M
    170about 50% YoY growth
    Q1 FY26

    Reinforces target of $20 billion in NGS ARR by FY30.

    Customers with NGS ARR over $10M
    50about 50% YoY growth
    Q1 FY26

    Reinforces target of $20 billion in NGS ARR by FY30.

    Total Gross Margin
    76.9%
    Q1 FY26

    Reflects disciplined focus on profitability.

    Product Gross Margin
    80.2%50 bps YoY increase
    Q1 FY26

    Reflected significant sequential improvement.

    Services Gross Margin
    76.2%70 bps sequential increase
    Q1 FY26

    Demonstrated positive margin trajectory.

    Operating Margin
    30.2%140 bps YoY expansion
    Q1 FY26

    Second consecutive quarter above 30%.

    Cash and Investments Balance
    over $10B
    end of Q1 FY26

    Cash and cash equivalents at the end of the first quarter.

    Share Repurchase Authorization Remaining
    $1B
    through December 2026

    Buyback strategy remains opportunistic; no shares repurchased in Q1.

    Americas Revenue Growth
    14%YoY
    Q1 FY26

    Broad-based strength across all major theaters.

    EMEA Revenue Growth
    18%YoY
    Q1 FY26

    Broad-based strength across all major theaters.

    JAPAC Revenue Growth
    22%YoY
    Q1 FY26

    Broad-based strength across all major theaters.

    Customer Support Case Volume Reduction
    3 consecutive quarters
    Q1 FY26

    Driven by AI deployment in global customer support organization.

    Customer Support Time to Resolve Reduction
    11 consecutive quarters
    Q1 FY26

    Driven by AI deployment in global customer support organization.

    Industry KPIs

    9
    MetricValueDetails
    Capacity CAPEX$130M-$140MUSD
    Revenue growth$2.47BUSD
    Arr net new arr$5.85BUSD
    Rpo current rpo$15.5BUSD
    Bookings billingsnearly quadrupled
    Customer account count6,800customers
    Large deal new logo metrics170customers
    Operating FCF margin rule of 4030.2%%
    Ai product adoption monetizationmore than doubled

    Orderbook & backlog

    2
    Remaining Performance Obligation (RPO)$15.5Bend of Q1 FY26

    24% YoY growth

    Key indicator of long-term revenue predictability and scale of committed business.

    Current Remaining Performance Obligation (cRPO)$6.9Bend of Q1 FY26

    16% YoY growth

    Reflects near-term revenue realization.

    Product announcements

    4
    ProductTypeDetails
    Prisma AIRS 2.0launch
    PAN-OS 12.1 Orionlaunch
    Fifth generation of firewallslaunch
    AgentiXlaunch

    Deals & partnerships

    8
    Protect AIAcquisition of AI security platform.

    Acquisition of Protect AI is now fully integrated into Prisma AIRS 2.0, enhancing AI security capabilities.

    CyberArkAcquisition for identity security.

    Integration plans remain fully on track, with overwhelming shareholder support received. Aims to democratize identity security and make identity the next platform for Palo Alto Networks.

    ChronosphereAcquisition for observability solution.$3.35B

    Total consideration of $3.35 billion in cash and replacement equity awards. Co-founders and employees will join Palo Alto Networks. Chronosphere is expected to remain largely stand-alone post-close. Acquisition includes Calyptia, a data pipeline provider, which will integrate with XSIAM.

    NVIDIACollaboration to secure AI factory.

    Collaboration with NVIDIA to secure the AI factory with Prisma AIRS on BlueField.

    Glean, IBM, Factory, ServiceNowIntegrations for securing AI workflows.

    Tight integrations with platforms like Glean, IBM, Factory, and ServiceNow in securing the exploding number of agentic AI workflows.

    IBMDeepening partnership for Quantum-safe readiness and remediation service.

    To deliver a complete end-to-end solution for Post-Quantum Cryptography (PQC) migration.

    U.S. cabinet agencySASE deal.$33M

    Displaced a major SASE incumbent as the agency needed a platform to provide unified visibility across both their firewall estate and remote endpoints.

    large U.S. telecom providerXSIAM deal.$100M

    Customer chose Palo Alto Networks to consolidate their disparate point products based on the platform's ability to deliver materially faster mean time to respond.

    Risks & headwinds

    4
    AI-driven cyberattackscurrent

    First reported case of an AI agent autonomously conducting a large-scale nation-state cyber attack.

    Mitigation: Platformization, real-time visibility and security, Prisma AIRS, AgentiX.

    Enterprise AI security gapcurrent

    94% of organizations embracing AI transformation still lack necessary security guardrails.

    Mitigation: Prisma AIRS 2.0, identity security (CyberArk integration) to provide essential privilege controls.

    Quantum computing breaking current encryptionby 2029

    Enterprises have less than 5 years to get their states to quantum readiness; quantum computing expected to be commercialized by 2029.

    Mitigation: Comprehensive quantum-safe strategy (PAN-OS Orion, Gen 5 firewalls, cipher translation), IBM partnership for PQC migration.

    Insider threat from AI agentscurrent/future

    AI agents will become a problematic insider threat if not secured.

    Mitigation: Prisma AIRS as essential circuit breaker layer, CyberArk integration for identity security to prevent agent identity impersonation.

    What to watch in Q2 FY26

    5

    CyberArk acquisition close

    fiscal Q3 FY26
    CurrentIntegration planning on track, shareholder support received.
    TargetAcquisition closes.

    Why it matters

    Critical for PANW's expansion into identity security and achieving long-term financial targets.

    I am pleased to announce our CyberArk integration plans remain fully on track, and we're proud to have received overwhelming shareholder support for the acquisition, which is now expected to close in fiscal Q3.

    Q&A highlights

    6

    How will Palo Alto Networks disrupt itself to remain a winner in the AI and quantum future, beyond just smart M&A?

    Nikesh highlighted that network inspection remains critical as AI drives more data volume. He pointed to XSIAM's success in data-driven security and the proactive quantum-safe strategy. He emphasized that the company aims to be an 'evergreen' technology company by positioning products in key technology trends, noting that the need for bit inspection technologies will not go away.

    “I don't think I know any company in recent history in cybersecurity, which has an average ARR per customer of $1 million on a product category.”

    asked by Brad Zelnick · answered by Nikesh Arora

    2 min read5 chapters

    Detailed Narrative

    01

    AI Threat Landscape and Platformization

    The threat landscape is rapidly evolving due to AI, with autonomous AI agents already conducting cyberattacks, as evidenced by a recent nation-state attack. This reality necessitates a paradigm shift from fragmented security to platformization, as AI exposes architectural cracks and demands real-time visibility and security. Palo Alto Networks' platform approach aims to provide a seamless cyber data strategy, reducing latency in detection and remediation, which is critical against fast-moving AI attackers.

    02

    Strategic Acquisitions and Market Expansion

    The company is making strategic acquisitions, including CyberArk for identity security and Chronosphere for observability, to expand its total addressable market (TAM) and address AI-driven inflection points. These acquisitions are expected to contribute to the raised FY30 ARR target of $20 billion, up from $15 billion, by leveraging Palo Alto Networks' go-to-market scale and integrating best-in-class technologies. Chronosphere, with over $160 million in ARR and triple-digit growth, is seen as a key entry into the observability market, which is crucial for AI-era compute at gigawatt scale.

    03

    Quantum Security Initiative

    Palo Alto Networks has launched a comprehensive quantum-safe strategy to address the threat of quantum computing breaking current encryption. This includes PAN-OS 12.1 Orion for automated cryptographic risk inventory, new fifth-generation firewalls optimized for quantum security, and unique cipher translation capabilities to make legacy systems quantum-safe immediately. A deepened partnership with IBM will deliver an end-to-end Post-Quantum Cryptography (PQC) migration service, highlighting the urgency for enterprises to achieve quantum readiness within five years.

    04

    XSIAM and AgentiX Momentum

    Cortex's XSIAM continued its strong trajectory in Q1, now serving approximately 470 customers with an average ARR of over $1 million per customer, processing 15 petabytes of telemetry daily. Over 60% of deployed XSIAM customers have reduced their mean time to respond (MTTR) from days/weeks to minutes. The company also announced AgentiX, which brings powerful AI agents directly to enterprise security challenges, aiming to transform security operations by deploying autonomous AI agents for enhanced speed, efficiency, and control, addressing alert fatigue and talent shortages.

    05

    Software Firewalls and SASE Growth

    Software firewalls are emerging as a 'hidden gem,' now accounting for 44% of trailing 12-month product revenues, up from 38% in Q1 FY25, and growing 23% year-over-year. This growth is driven by increasing cloud workloads and AI transformation, with over 12,500 software firewall customers. SASE also had a phenomenal quarter, with ARR growing 34% year-over-year to surpass $1.3 billion, making Palo Alto Networks the fastest-growing SASE provider at scale with approximately 6,800 customers, including one-third of the Fortune 500.

    AI-generated summary of the company’s earnings call. Not investment advice.