Palo Alto Networks — 2026Q2 earnings

reported 2026-06-02

EPS $0.85 vs $0.80 est — beat

next session -5.6% (close 2026-06-02 → 2026-06-03)

Source

Summary

Palo Alto Networks' fiscal Q3 2026 (quarter ended April 30, 2026) is a quarter whose headline growth rates lean hard on two acquisitions that closed inside the period. CyberArk and Chronosphere supplied $388 million of the $3.0 billion of revenue and $1.6 billion of the $8.1 billion Next-Generation Security ARR balance; on the call management put the organic growth rates at 28% for NGS ARR and 22% for RPO, against 60% and 36% headline. That organic-versus-acquired breakout is being retired — guidance moves to total company only from here. Underneath the beat, GAAP swung to a net loss, non-GAAP operating margin was flat year over year, and rising memory and storage component costs are now an explicit input to the outlook, partly hedged by a hardware mix that has roughly halved as a share of revenue since fiscal 2021.

Earnings call

Earnings call webcast ↗

Transcript ↗

Review

From the report

A beat on the non-GAAP line, with a large share of the growth bought rather than built: the two acquisitions that closed in the quarter supplied $388 million of revenue and $1.6 billion of the NGS ARR balance, while GAAP swung to a net loss and the full-year revenue guide sits at 24% growth.

Total revenue grew 31% year over year to $3.0 billion, of which $388 million came from the CyberArk and Chronosphere acquisitions. show quote

“Total revenue for the fiscal third quarter 2026 grew 31% year over year to $3.0 billion. This includes $388 million from CyberArk and Chronosphere.”
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Next-Generation Security ARR, the company's headline growth metric, reached $8.1 billion at 60% year-over-year growth — with $1.6 billion of that balance contributed by CyberArk and Chronosphere. show quote

“Next-Generation Security ARR for the fiscal third quarter 2026 grew 60% year over year to $8.1 billion. This includes $1.6 billion in NGS ARR from CyberArk and Chronosphere.”
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The quarter's beat is a non-GAAP figure: non-GAAP net income of $684 million, or $0.85 per diluted share, sits against a GAAP net loss of $177 million, or ($0.22) per diluted share, versus GAAP net income of $262 million a year earlier. show quote

“GAAP net loss for the fiscal third quarter 2026 was $177 million, or ($0.22) per diluted share, compared with GAAP net income of $262 million, or $0.37 per diluted share, for the fiscal third quarter 2025. Non-GAAP net income for the fiscal third quarter 2026 was $684 million, or $0.85 per diluted share, compared with non-GAAP net income of $561 million, or $0.80 per diluted share, for the fiscal third quarter 2025.”
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Cash generation was the cleanest line in the release: adjusted free cash flow of $910 million against $578 million a year earlier, with the trailing 12-month adjusted free cash flow margin at 38.5%, up 430 basis points. show quote

“Adjusted free cash flow for fiscal third quarter 2026 was $910 million, compared with adjusted free cash flow of $578 million, for the fiscal third quarter 2025. Trailing 12-month adjusted free cash flow margin of 38.5% was up 430 basis points year over year.”
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The fiscal 2026 outlook puts full-year revenue at $11.415 billion to $11.425 billion, representing 24% year-over-year growth, and full-year non-GAAP operating margin at 28.9% to 29.2%. show quote

“For the fiscal year 2026, we expect: • Next-Generation Security ARR of $8.90 billion to $8.95 billion, representing year-over-year growth of 59% to 60%. • Remaining performance obligation of $20.9 billion to $21.0 billion, representing year-over-year growth of 32% to 33%. • Total revenue in the range of $11.415 billion to $11.425 billion, representing year-over-year growth of 24%. • Non-GAAP operating margin in the range of 28.9% to 29.2%.”
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From the call

Management's own organic numbers are the part of the story the headline rates hide — and the disclosure that produced them is being retired. Non-GAAP operating margin was flat year over year, and the hardware component cost cycle is now an explicit watch item already priced into the outlook.

Excluding the CyberArk and Chronosphere acquisitions, management put organic Next-Generation Security ARR growth at 28% and organic RPO growth at 22%. show quote

“Our organic NGS ARR and RPO rose 28% and 22%, respectively.”
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The core-versus-acquired breakout that made that organic split visible is being discontinued — the CFO said guidance moves to total company only from here. show quote

“This quarter and last, we provided a breakout of performance for both our core business and our recent acquisitions. Our intention was always to make this a one-time in nature and move our disclosures closer in line to how we run the business, therefore, we'll be moving to total company guidance moving forward.”
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Non-GAAP operating margin was flat versus the year-ago quarter despite the revenue beat. The transcript here is the company's own posted FactSet corrected transcript, which flags the spoken figure of 21.3% as an error and prints the corrected 27.1% inline — the reason this review cites it rather than a machine transcription. show quote

“These dynamics paired with the continued operating efficiency resulted in non-GAAP operating margin of 21.3% (sic) [27.1%] in Q3, flat versus Q3 of 2025.”
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The CFO named rising component costs, specifically in memory and storage, as a live supply-chain watch item. show quote

“Turning to the supply chain, we are closely monitoring rising component costs, particularly in memory and storage.”
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He framed the revenue mix shift as a natural hedge against that cost pressure: hardware is now about 10% of total revenue against 20% in fiscal year 2021. show quote

“Hardware today accounts for approximately 10% of our total revenue compared to 20% in fiscal year 2021.”
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A 10% hardware price increase was already taken in early April, and management said both that pricing action and the rising component costs are reflected in the Q4 and fiscal 2026 outlook. show quote

“As a reminder, we implemented a 10% price increase on hardware in early April. The impact of pricing and rising component costs are reflected in our Q4 and fiscal 2026 outlook.”
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as of 2026-08-25