Palo Alto Networks, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• The company had a strong finish to the fiscal year, surpassing a $10 billion revenue run rate. Q4 bookings growth was the highest in 2.5 years, driven by platform deals, renewals, and upsells.
• RPO grew 24% year-over-year in Q4. Next-Generation Security ARR grew 32%, with net new ARR up double digits. Platform customers had a net retention rate of 120% with nearly 0 churn.
• Innovations included PAN-OS 12.1 Orion for quantum readiness and multicloud security, Prisma AIRS as the industry's most comprehensive AI security platform, and XSIAM modules like exposure management to proactively identify security gaps.
• Landmark deals were signed, with large multi-platform deals showing strong growth, such as a leading global consulting firm signing a $100 million deal in cloud security and SASE.

Segment Performance

• Network Security: Next-Generation Security (NGS) ARR reached $3.9 billion in Q4, up approximately 35% year-over-year. Over 60% of network security bookings are driven by software form factors across SASE and virtual firewalls. The next-generation network security business, including software form factors like SASE and software firewalls, is the largest and fastest-growing in its category.
• SASE: Fastest-growing product in network security, with ARR growing 35% year-over-year, more than twice the overall market growth. Over 6,300 SASE customers, accounting for 1/3 of the Fortune 500. Sold over 3 million licenses of Prisma Access Browser in Q4, with cumulative seat count over 6 million.
• Cortex and Cloud: XSIAM, the autonomous SOC platform, is the fastest-growing product, with over 400 customers and average ARR per customer over $1 million. Nearly 1/4 of XSIAM customers are in the Global 2000. Cortex XDR saw deals over $1 million grow 30% year-over-year. Cortex Cloud is gaining traction with FedRAMP high authorization, enabling real-time runtime security for cloud-native applications.

Guidance

• Fiscal Year 2026: NGS ARR expected to be $7.0 billion to $7.10 billion (26%-27% growth), remaining performance obligation $8.6 billion to $8.7 billion (17%-18% growth), revenue $10.47 billion to $11.525 billion (14% growth), operating margins 29.2%-29.7%, diluted non-GAAP EPS $3.75 to $3.85 (12%-15% growth), adjusted free cash flow margin 38%-39%.
• Q1 2026: NGS ARR expected $5.82 billion to $5.84 billion (29% growth), remaining performance obligation $15.4 billion to $15.5 billion (23% growth), revenue $2.45 billion to $2.47 billion (15% growth), diluted non-GAAP EPS $0.88 to $0.90 (13%-15% growth).
• Combined Palo Alto Networks and CyberArk targeting adjusted free cash flow of 40%+ in fiscal '28, the first full year post-integration.

Risks

• Risks related to forward-looking statements, including actual results differing from projections. Uncertainties in market competition, integration of CyberArk, and the impact of macroeconomic factors on business operations.

Q: Strategic view on security consolidation and Agentic AI.

A: Nikesh Arora stated that consolidation is driven by the need for better security outcomes, and Agentic AI accelerates the desire for consolidated data and security platforms to address rapid threats.

Q: Drivers of bookings growth and platformization benefit.

A: Nikesh Arora mentioned it's a combination of innovation, customer conviction in the platformization strategy, and the need for consolidated security to combat threats effectively.

Q: Enterprise browser momentum and browser wars.

A: Nikesh Arora discussed how the need to control browsers for Agentic tasks in enterprises is driving the importance of secure browsers, with Palo Alto Networks positioned to address enterprise browser security needs.

Q: Blended Cortex and Cloud numbers and security details.

A: Lee Klarich talked about the interconnectedness of cloud security elements, the strength of Cortex Cloud's thesis, and the execution needed to take customers through the transformational journey to Cortex Cloud