Palo Alto Networks, Inc. (PANW) Q1 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call indicates strong financial performance and strategic growth plans, including AI and quantum preparedness, SASE growth, and impactful acquisitions like Chronosphere and CyberArk. Despite some lack of detailed guidance, the optimistic outlook on revenue growth, next-gen security ARR, and strategic acquisitions suggest a positive sentiment. The Q&A section supports this with management addressing key growth drivers and strategic initiatives, aligning with the positive sentiment from the earnings summary.

Key Financial Performance

RPO (Remaining Performance Obligation) Grew 24% year-over-year to $15.5 billion. This growth indicates long-term revenue predictability and scale of committed business. The growth was driven by stability in customer commitments and consistent contract durations.

NGS ARR (Next-Generation Security Annual Recurring Revenue) Increased by 29% year-over-year to $5.85 billion. This growth was broad-based, driven by software firewalls, SASE, and XSIAM. Adjusted for prior acquisitions, net new ARR grew over 20%.

Total Revenue Increased by 16% year-over-year to $2.47 billion. Product revenue grew 23% year-over-year, with 44% of product revenue coming from software form factors, up from 38% the previous year. Services revenue grew 14%.

Operating Margin Achieved 30.2%, expanding by 140 basis points year-over-year. This reflects improvements in gross margin and operational efficiency, including the use of AI in customer support.

Diluted Non-GAAP EPS Reached $0.93, exceeding the high end of guidance. This was driven by strong operational leverage and disciplined cost management.

Adjusted Free Cash Flow Increased by 17% year-over-year to $1.7 billion. This reflects strong execution and operational efficiency.

SASE ARR Grew 34% year-over-year to surpass $1.3 billion. This growth was driven by strong demand and the addition of new customers, including 1/3 of the Fortune 500.

Product Revenue Grew 23% year-over-year, with nearly half of the revenue driven by software form factors. This growth reflects increased adoption of software firewalls and new product launches.

Platformization Completed approximately 60 net new platformizations in the quarter, driven by strength in XSIAM. Platformizations more than doubled year-over-year, reflecting customer demand for integrated solutions.

You have reached the limit Upgrade to access full content

Get started

Operating Highlights

AI Security Platform (Prisma AIRS): Introduced Prisma AIRS 2.0, a comprehensive platform to secure AI, protecting autonomous agents and models. Early customer traction is strong, with AI deals doubling versus last quarter.

Software Firewalls: Product revenues grew 23% year-over-year, with nearly half of product revenues driven by software form factors. Over 12,500 customers now use software firewalls.

SASE: ARR grew 34% year-over-year, surpassing $1.3 billion. Approximately 6,800 customers, including 1/3 of the Fortune 500, are using SASE.

Quantum Security: Launched PAN-OS 12.1 Orion for quantum readiness and new fifth-generation firewalls optimized for quantum security.

U.S. Federal Market: Secured a $33 million SASE deal with a U.S. cabinet agency, displacing a major incumbent.

Telecom Sector: Closed a $100 million deal with a large U.S. telecom provider, including $85 million for XSIAM, the largest XSIAM deal to date.

AI and Cloud Enterprises: Acquisition of Chronosphere to address observability needs for AI and cloud enterprises, with Chronosphere achieving $160 million ARR and triple-digit growth.

Platformization: Completed 60 net new platformizations in Q1, driven by XSIAM, which more than doubled year-over-year.

Profitability: Achieved 30.2% operating margin, marking the second consecutive quarter above 30%.

AI-Driven Efficiency: Deployed AI in customer support, reducing case volume for three consecutive quarters and improving time to resolve for 11 consecutive quarters.

Acquisitions: Announced acquisition of Chronosphere for $3.35 billion to enhance observability capabilities and CyberArk to expand identity security.

AI and Quantum Readiness: Focused on AI security and quantum readiness, with partnerships like NVIDIA and IBM to secure AI and quantum computing environments.

Revenue Target: Raised ARR expectations from $15 billion to $20 billion by FY '30, driven by new markets and acquisitions.

You have reached the limit Upgrade to access full content

Get started

Risk or Challenges

AI-driven Cybersecurity Threats: The emergence of AI hackers and autonomous AI agents conducting large-scale cyberattacks poses a significant risk. These attacks exploit vulnerabilities in enterprise architectures, such as incomplete patches and fragmented security systems, leading to faster and more effective breaches.

Fragmented Security Landscape: The current fragmented security environment, with multiple point products, creates friction and latency, which are detrimental to real-time cybersecurity. This fragmentation hinders the ability to detect and respond to threats effectively.

AI Security Gaps: Despite the rapid adoption of AI, 94% of organizations lack adequate security guardrails, exposing them to significant risks from AI-driven threats, including insider threats from autonomous AI agents.

Quantum Computing Risks: The potential for quantum computing to break current encryption standards poses a critical risk. Enterprises have limited time to achieve quantum readiness, and delays could expose them to vulnerabilities from nation-states with advanced quantum capabilities.

Integration Challenges from Acquisitions: The simultaneous acquisitions of CyberArk and Chronosphere could lead to integration challenges, potentially impacting operational efficiency and delaying the realization of synergies.

Economic and Cost Pressures: The high costs associated with AI infrastructure and observability solutions, as well as the need for continuous investment in innovation, could strain financial resources and impact profitability.

You have reached the limit Upgrade to access full content

Get started

Guidance & Outlook

Revenue Expectations: For Q2 FY26, revenue is expected to be in the range of $2.57 billion to $2.59 billion, representing a 14% to 15% increase. For FY26, revenue is projected to be in the range of $10.50 billion to $10.54 billion, reflecting a 14% growth.

NGS ARR Projections: NGS ARR is expected to reach $6.11 billion to $6.14 billion in Q2 FY26, a 28% increase. For FY26, NGS ARR is projected to be in the range of $7 billion to $7.1 billion, representing a 26% to 27% growth.

Operating Margins: Operating margins for FY26 are expected to be in the range of 29.5% to 30%. Adjusted free cash flow margin is projected to be 38% to 39% for FY26, with a long-term target of 40%+ by FY28.

Capital Expenditures: CapEx for Q2 FY26 is expected to be $130 million to $140 million, including a $90 million nonrecurring real estate CapEx.

Acquisitions and Integration: The CyberArk acquisition is expected to close in fiscal Q3 FY26, and the Chronosphere acquisition is anticipated to close in the second half of FY26. Both acquisitions are expected to contribute to long-term growth and innovation.

Product and Market Trends: The company anticipates continued growth in software firewalls, SASE, and AI security platforms. Software firewalls are expected to become a $1 billion opportunity, and the company is raising its ARR expectations to $20 billion by FY30.

Quantum and AI Security: The company is focusing on quantum-safe strategies and AI security innovations, including Prisma AIRS and AgentiX platforms, to address emerging threats and market needs.

You have reached the limit Upgrade to access full content

Get started

Shareholder Return Plan

Share Repurchase: We did not repurchase any shares in Q1. Our buyback strategy remains opportunistic. We have $1 billion in share repurchase authorization remaining through December 2026.

You have reached the limit Upgrade to access full content

Get started

Key Q&A

Q:What is Palo Alto's strategy to ensure success in an AI and quantum future?

A:Nikesh Arora emphasized that Palo Alto is aware of the two biggest technology trends, AI and quantum. The company believes the need for network inspection will persist as AI and quantum drive more data volume. Palo Alto is focusing on data-driven solutions, as evidenced by the success of XSIAM with 470 customers and an average ARR of $1 million per customer. Additionally, the company is preparing for quantum's impact on security infrastructure and sees its Chronosphere acquisition as a strategic move for observability.

Q:What is the significance of the Chronosphere acquisition for Palo Alto?

A:Nikesh Arora highlighted that Chronosphere is a top-tier observability platform capable of scaling to handle petabytes of data with low latency and cost efficiency. The acquisition positions Palo Alto to address the growing need for observability in AI-native companies and enterprises requiring real-time data insights. Chronosphere's capabilities align with Palo Alto's strategy to integrate observability with security, potentially creating a new business line similar to XSIAM.

Q:How does XSIAM capture spending from incumbents in the market?

A:Nikesh Arora explained that XSIAM not only captures the spending on incumbent SIEM providers but also consolidates multiple products like UEBA and email security into a single platform. This approach allows customers to save money while expanding Palo Alto's footprint in their security infrastructure.

Q:What are the key drivers behind Palo Alto's $20 billion fiscal 2030 NGS ARR target?

A:Nikesh Arora stated that the core business, including SASE and software firewalls, continues to show strength. The company also expects significant contributions from identity security (via CyberArk) and observability (via Chronosphere). While tuck-in acquisitions may occur, the primary growth will come from these three categories and the core business.

Q:What is the expected impact of the Chronosphere and CyberArk acquisitions on margins and free cash flow?

A:Dipak Golechha stated that Palo Alto expects to maintain at least a 37% free cash flow margin in the interim and return to 40% by 2028. Chronosphere will be run independently with minimal integration costs, while CyberArk will undergo more integration to align with Palo Alto's sales and operational plans.

Q:What is the current state of AI adoption in security and its implications?

A:Lee Klarich noted that AI adoption is in the early stages, with enterprises running production pilots and early deployments. Security for AI is trailing behind AI adoption, but there is a growing awareness of the need to address both simultaneously. Recent attacks involving AI are driving urgency in securing AI deployments.

Q:What is Palo Alto's approach to quantum security and its readiness?

A:Lee Klarich explained that Palo Alto has been working on post-quantum security for several years, with capabilities like Orion already launched. The company is leveraging its broad visibility across hardware, software, and network stacks to provide quantum-safe solutions. Nikesh Arora added that customers are beginning to address quantum security, driven by concerns like 'harvest now, decrypt later' and the long-term effort required to upgrade infrastructure.

Q:What changes has Palo Alto made to its cloud security product, and how has it been received?

A:Lee Klarich stated that Palo Alto launched Cortex Cloud to secure the full lifecycle of cloud deployments, from code to runtime. The product has been well-received, with additional innovations like ASPM and a new cloud security agent improving efficiency and automation.

Q:How does AI impact network traffic and Palo Alto's traditional firewall and SASE businesses?

A:Lee Klarich explained that AI is driving an extraordinary increase in data volume and network traffic, particularly in AI platforms and enterprise deployments. This trend enhances the need for observability, application criticality, and security, benefiting Palo Alto's firewall and SASE businesses.

Q:What is the strategic importance of secure browsers for Palo Alto?

A:Nikesh Arora emphasized that secure browsers are becoming increasingly important as they are a major workspace for white-collar workers and a potential security threat vector. Palo Alto aims to deploy secure browsers widely to enhance security outcomes and integrate them into its SASE offerings.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the financial impact of the Chronosphere and CyberArk acquisitions beyond general margin and free cash flow expectations. Additionally, while they discussed the strategic importance of secure browsers and quantum security, they did not provide concrete timelines or detailed plans for these initiatives.

You have reached the limit Upgrade to access full content

Get started

Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

PANW Transcript

Palo Alto Networks, Inc. (PANW) Presents at UBS Global Technology and AI Conference 2025 Transcript

Neutral12-2

Palo Alto Networks, Inc. (PANW) Q1 2026 Earnings Call Transcript

Positive11-19

Palo Alto Networks, Inc. (PANW) Presents At Citi's 2025 Global Technology, Media And Telecommunications Conference Transcript

Neutral9-4

Palo Alto Networks, Inc. (PANW) Q4 2025 Earnings Call Transcript

Positive8-18

The earnings call reveals strong financial performance with record high revenue growth in key areas like software and services, a significant operating margin expansion, and a robust free cash flow margin. The Q&A section reinforces this with strategic insights into security consolidation, market share gains, and durable growth drivers. Despite some evasive responses, the overall sentiment is positive, driven by innovation, strategic partnerships, and optimistic guidance. The company's market cap isn't provided, but the positive indicators suggest a likely stock price increase in the 2% to 8% range.

PANW Slides

Palo Alto Networks Q3 2025 slides: Revenue up 15%, NGS ARR surpasses $5B milestone

2025-05-20

Palo Alto Networks Q4 FY25 slides: revenue growth accelerates, margins expand

2025-08-18

Palo Alto Networks Q1 2026 slides: Revenue beats expectations, strategic acquisitions expand TAM

2025-11-19

PANW Report

Palo Alto Networks Inc 10-Q

10-Q

2025-02-14

Palo Alto Networks Inc 10-Q

10-Q

2024-11-21

Palo Alto Networks Inc 10-K

10-K

2024-09-06

Palo Alto Networks Inc 10-Q

10-Q

2024-05-21

Frequently Asked Questions

Where does this earnings call transcript come from?

All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.

How soon is the transcript available after the earnings call ends?

Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.

Is the transcript edited or altered in any way?

No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.

Why do some answers appear as “Unclear” or “Inaudible”?

When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.

Who creates the AI Summary and Key Q&A highlights shown above the transcript?

They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.