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Palo Alto Networks Inc (PANW)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $2.26B, up 14% YoY and above the high end of guidance; non-GAAP diluted EPS was $0.81, GAAP diluted EPS $0.38, with non-GAAP operating margin at 28.4% .
  • Management raised FY 2025 non-GAAP operating margin guidance to 28.0%-28.5% and non-GAAP EPS (post-split) to $3.18-$3.24; FY revenue guidance inched up to $9.14-$9.19B, while NGS ARR and RPO targets were maintained .
  • Platformization momentum and AI-driven demand underpinned broad strength across SASE, software firewalls, and Cortex/XSIAM; NGS ARR reached $4.78B (+37% YoY) and RPO hit $13.0B (+21% YoY) .
  • Notable catalysts: launch of Cortex Cloud (code-to-cloud-to-SOC), major international deals (largest ever in EMEA and JPAC, each >$50M), and FedRAMP High across platforms; near-term narrative centers on AI-enabled platforms driving consolidation and profit leverage .

What Went Well and What Went Wrong

What Went Well

  • Broad-based execution: “growth across regions and demand for our platforms” with revenue above high end of guidance; Americas +13%, EMEA +18%, JPAC +17% .
  • Platformization/AI momentum: “strong business performance [...] fueled by customers adopting technology driven by the imperative of AI,” and raised operating margin/EPS for the year .
  • Product strengths: SASE customers >5,600 with >23M seats; Prisma Access browser bookings >$30M and seats +95% QoQ; software firewalls bookings +50%; XSIAM cumulative bookings surpassed $1B; QRadar-related bookings >$100M .

What Went Wrong

  • Gross margin pressure: 76.6% gross margin, down slightly due to newer SaaS offerings not yet at scale and onetime inventory/product transition costs; management expects non-repeat in 2H .
  • ARR scrutiny: Analyst concern on net new ARR dynamics; management cited lapping prior-year attaches and strength shifting to newer products/platformization .
  • Hardware growth remains modest: Appliance market expected to grow 0%-5%, reinforcing the strategic shift to software-driven network security .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Total Revenue ($USD Millions)$1,975.1 $2,138.8 $2,257.4
GAAP Diluted EPS ($USD)$2.44 $0.99 $0.38
Non-GAAP Diluted EPS ($USD)$0.73 $1.56 $0.81
Non-GAAP Operating Margin %28.6% 28.8% 28.4%
Gross Margin %N/AN/A76.6%
Revenue YoY Growth %N/A14% 14%

Segment breakdown:

Segment RevenueQ2 2024Q1 2025Q2 2025
Product ($USD Millions)$390.7 $353.8 $421.5
Subscription & Support ($USD Millions)$1,584.4 $1,785.0 $1,835.9
Total ($USD Millions)$1,975.1 $2,138.8 $2,257.4

Key KPIs:

KPIQ1 2025Q2 2025
NGS ARR ($USD Billions)$4.5; +40% YoY $4.78; +37% YoY
Remaining Performance Obligation ($USD Billions)$12.6; +20% YoY $13.0; +21% YoY
Current RPO ($USD Billions)N/A$6.1
Adjusted Free Cash Flow ($USD Millions)N/A$509
SASE Customers (#)N/A>5,600
Seats Protected (#)N/A>23,000,000

Actual vs prior guidance (Q2 2025):

MetricPrior Guidance (Q1 2025)Actual Q2 2025
Revenue ($USD Billions)$2.22–$2.25 $2.26 (2.257) — beat high end
Diluted non-GAAP EPS ($USD)$1.54–$1.56 $0.81 (post-split)

Note: EPS guidance and reported EPS were affected by the 2-for-1 stock split; Q2 presentation retrospectively adjusts share/per-share amounts .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Billions)FY 2025$9.12–$9.17 $9.14–$9.19 Raised
Non-GAAP Operating Margin %FY 202527.5%–28.0% 28.0%–28.5% Raised
Diluted non-GAAP EPS ($USD)FY 2025$6.26–$6.39 (pre-split) $3.18–$3.24 (post-split) Raised (post-split; see split note)
NGS ARR ($USD Billions)FY 2025$5.52–$5.57 $5.52–$5.57 Maintained
RPO ($USD Billions)FY 2025$15.2–$15.3 $15.2–$15.3 Maintained
Adjusted FCF Margin %FY 202537%–38% 37%–38% Maintained
Revenue ($USD Billions)Q3 2025N/A$2.26–$2.29 New
Diluted non-GAAP EPS ($USD)Q3 2025N/A$0.76–$0.77 New
NGS ARR ($USD Billions)Q3 2025N/A$5.03–$5.08 New
RPO ($USD Billions)Q3 2025N/A$13.5–$13.6 New

Split note: PANW effected a two-for-one stock split after Dec 12, 2024; Q2 2025 share/per-share amounts are retroactively adjusted .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q2 2025)Trend
AI/technology initiativesQ1: Platformization conviction; guidance raised . Q3: Crossed $5B NGS ARR; platform breadth highlighted .AI imperatives fueling cloud/infrastructure modernization; early internal AI efficiencies; launched Cortex Cloud .Accelerating
PlatformizationQ1: Platformization progress; raised FY guidance . Q3: Scale/platform breadth as consolidator .>1,150 platformizations; # of 2 platform customers +50% QoQ; 3-platform customers up 3x YoY .Broadening adoption
SASEPrior detail limited.Fastest-growing form factor; bookings well >50%; >5,600 customers; >23M seats; Secure browser seats +95% QoQ .Strengthening
Software firewallsPrior detail limited.Bookings +50%; ~70% VM deployments in public cloud; first 7-figure AI firewall transaction .Strengthening
Cloud security/Cortex CloudQ1: NGS ARR includes QRadar SaaS .Introduced Cortex Cloud (CDR+CNAPP on Cortex/XSIAM); code-to-cloud-to-SOC runtime protection .Strategic integration
IBM QRadar partnershipQ1: QRadar SaaS included in ARR definition .QRadar-related bookings >$100M; strong pipeline .Strong contribution
Regional trendsQ3: Largest deals ever in EMEA/JPAC (> $50M each) .Double-digit revenue growth across all theaters; notable large international deals .Broad-based
Federal market—Stable federal business; FedRAMP High across platforms .Stable with compliance tailwinds
Tariffs/manufacturing—Texas facility and foreign trade zone to mitigate tariffs; appliance manufacturing in U.S. .Mitigation actions
R&D/operations AI—Internal copilots: 50% faster case resolution; contract labor -50% by FY25; developer copilots deployed .Efficiency scaling

Management Commentary

  • Nikesh Arora (CEO): “In Q2, our strong business performance was fueled by customers adopting technology driven by the imperative of AI, including cloud investment and infrastructure modernization... It reaffirms our faith in our 2030 plans and our $15 billion NGS ARR goal.”
  • Dipak Golechha (CFO): “As we drive leverage from our scale and see early benefits from AI-related efficiency initiatives, we again delivered profitable growth. We expect this will continue and, as a result, we are raising operating margins and EPS for the year.”
  • Nikesh Arora on platformization: “We delivered approximately 75 new platformization in Q2... 2 platform customers grew over 50%... 3 platform customers up 3x year-over-year... XSIAM momentum.”
  • Lee Klarich (CPO) on Cortex Cloud: A unified code-to-cloud-to-SOC platform enabling runtime protection and reduced MTTR via XSIAM .

Q&A Highlights

  • Free cash flow durability and deferred payments: Management detailed rising visibility (FY25 ~$1.4B scheduled deferred payments; >41% of expected adj. FCF), with trend manageable given upfront appliance/smaller bookings; guided adj. FCF margin ≥37% through FY27 .
  • AI security impact and platform advantage: AI-enabled platformization improves outcomes and efficiency versus point solutions; runtime shift (hard “shift right”) in cloud security where XDR/SOC integration matters .
  • Margins: Gross margin pressure from scaling SaaS and onetime inventory write-offs (~40 bps hardware impact); expectation of normalization in 2H; operating margins ahead of internal targets .
  • QRadar/IBM partnership: “Spectacular” partnership driving large deal inroads; QRadar-related bookings >$100M in Q2 .
  • Federal and geography: Stable federal renewals; largest deals ever in EMEA/JPAC (> $50M each) in Q2 .

Estimates Context

  • S&P Global Wall Street consensus for Q2 2025 revenue and EPS was unavailable at time of analysis due to data access limits. As context, management stated revenue growth was above the high end of guidance for the quarter .
  • Post-split EPS presentation complicates direct comparisons across periods; management disclosed retrospective adjustment for share/per-share amounts .

Key Takeaways for Investors

  • AI-enabled platformization is the core growth and consolidation thesis, with visible traction across SASE, software firewalls, and Cortex/XSIAM; expect continued ARR/RPO strength anchored by large multi-platform deals .
  • Profit leverage remains a focus: raised FY operating margin and EPS guidance; internal AI initiatives (support/developer copilots, reduced contract labor) underpin multi-year margin expansion potential .
  • Near-term stock catalysts: Cortex Cloud launch, international large deals, and FedRAMP High authorizations; revenue and EPS beats versus guidance support sentiment .
  • Watch gross margin trajectory in 2H as SaaS offerings scale and onetime inventory charges fade; monitor net new ARR composition amid platformization shifts .
  • Hardware/appliance growth likely low-single digits as mix shifts to software/cloud; sustained share gains and refresh cycles can stabilize product revenue contribution .
  • QRadar partnership is translating into bookings and pipeline strength; combined with XSIAM momentum, PANW’s SOC position is improving against point solutions .

Sources: Q2 2025 8-K press release and exhibits , Q2 2025 earnings call transcript , related press releases (results, Cortex Cloud, board appointments) , and prior quarter releases (Q1 2025, Q3 2025) .