Palo Alto Networks, Inc. Q1 FY2026 earnings call

• Strong Q1 performance with RPO up 24%, NGS ARR up 29%, and total revenue up 16%. Exceeded guided metrics across the board. • Platformization driving large deals, including a $33 million SASE deal with a U.S. cabinet agency and a $100 million deal with a large U.S. telecom provider. • SASE had phenomenal quarter with ARR growth 34% and over 6,800 customers. • XSIAM continued strong trajectory with 470 customers and average ARR over $1 million. • Launched Prisma AIRS 2.0 for AI security, integrated with Protect AI, and expect growth with CyberArk acquisition. • Quantum readiness strategy launched, including PAN-OS 12.1 Orion for inventory, fifth generation firewalls for protection, and cipher translation for acceleration. • Launched AgentiX for autonomous AI agents in security operations. • Acquisitions of CyberArk and Chronosphere in progress, with Chronosphere to remain largely stand-alone post-close.

In Q1, remaining performance obligation (RPO) grew 24% to $15.5 billion. NGS ARR ended the quarter at $5.85 billion, achieving 29% growth. Total revenue reached $2.47 billion, up 16%. Product revenue grew 23% year-over-year, with 44% of trailing 12-month product revenue from software form factors. Services revenue grew 14%. Geographically, Americas grew 14%, EMEA up 18%, and JAPAC grew 22%. SASE ARR grew 34% year-over-year, surpassing $1.3 billion in Q1 with approximately 6,800 customers. XSIAM had approximately 470 customers with an average customer paying over $1 million in ARR.

• For Q2 2026, expect NGS ARR in range of $6.11 billion to $6.14 billion (28% increase), RPO $15.75 billion to $15.85 billion (21%-22% increase), revenue $2.57 billion to $2.59 billion (14%-15% increase), diluted non-GAAP EPS $0.93 to $0.95. • For FY 2026, expect NGS ARR $7 billion to $7.1 billion (26%-27% increase), RPO $18.6 billion to $18.7 billion (17%-18% increase), revenue $10.50 billion to $10.54 billion (14% increase), operating margins 29.5%-30%, diluted non-GAAP EPS $3.80 to $3.90, adjusted free cash flow margin 38%-39%. • Reiterate 40% plus adjusted free cash flow margin target for FY 2028 inclusive of CyberArk and Chronosphere acquisitions.

• Risks associated with forward-looking statements, where actual results may differ from projections. • Uncertainties related to the integration of acquisitions like CyberArk and Chronosphere, including timing and potential impact on financials. • Risks around the adoption and integration of new technologies such as AI and quantum, which may not proceed as expected.

Q: Brad Zelnick asked about disrupting yesterday's Palo Alto to ensure success into AI and quantum future.

A: Nikesh Arora responded about persisting through technology waves, core business of bit inspection not going away, XSIAM success, and quantum's impact on infrastructure.

Q: Robbie Owens asked about Chronosphere's convergence and applicability to large AI natives.

A: Nikesh Arora said Chronosphere's engineers are top-notch, ability to scale observability at low cost, and potential with born-in-the-cloud companies.

Q: Saket Kalia asked about XSIAM capturing incumbent spend.

A: Nikesh Arora said capturing incumbent spend and consolidating products, with Lee Klarich adding on SOAR and other categories.

Q: Matthew Hedberg asked about confidence in raising NGS ARR target.

A: Nikesh Arora cited core business strength, software firewalls, CyberArk, and Chronosphere contributions.

Q: Tal Liani asked about impact of acquisitions on dilution and synergies.

A: Nikesh Arora said Chronosphere will run independently, CyberArk integration progressing, and synergies expected by FY '26 end.

Q: Brian Essex asked about quantum readiness timing and technology advantage.

A: Lee Klarich said urgency due to harvest now decrypt later, nation-states, and multiyear effort; technology advantage from early work and visibility across stacks.

Q: Joseph Gallo asked about cloud security product changes.

A: Lee Klarich updated on Cortex Cloud, ASPM, and AgentiX integration in cloud security.

Q: Joshua Tilton asked about network traffic volume in agentic future.

A: Lee Klarich said AI increases data movement and observability needs, Nikesh Arora talked about identity security and CyberArk's role.

Q: Patrick Colville asked about Chronosphere deal rationale and penetrating new buyers.

A: Nikesh Arora said CIOs/CEOs understand observability importance, Chronosphere solves scalability and cost, and Martin will run the business.

Q: Fatima Boolani asked about Chronosphere's impact on Cortex and XSIAM.

A: Nikesh Arora said Chronosphere is adjacent TAM, not in-sourcing, and connects security and observability data.

Q: Gregg Moskowitz asked about secure browser pervasiveness and monetization.

A: Nikesh Arora said browsers are important entry point, growing deployment impacts SASE numbers, and strategic for future security outcomes.