Sign in
PA

Palo Alto Networks Inc (PANW)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 revenue rose 15% year over year to $2.289B, at the high end of guidance, and non-GAAP diluted EPS was $0.80, exceeding both guidance and consensus; GAAP diluted EPS was $0.37 [functions.GetEstimates*].
  • Next-Generation Security ARR crossed $5.09B (+34% YoY), with strong momentum in XSIAM, SASE and software firewalls; RPO grew 19% YoY to $13.5B .
  • Gross margin was 76% (product 78.4%, services 75.4%); non-GAAP operating margin was 27.4%, showing operating leverage as scale and efficiency programs (including AI) contributed .
  • Q4 FY25 guidance calls for revenue of $2.49–$2.51B and non-GAAP diluted EPS of $0.87–$0.89; FY25 guidance was raised on EPS and operating margin ranges vs prior quarter .
  • Stock-relevant catalysts: milestone NGS ARR> $5B, accelerating XSIAM (TTM bookings approaching $1B), and new AI security platform (Prisma AIRS) plus announced intent to acquire Protect AI (expands AI runtime security), all reinforcing platformization and AI narratives .

What Went Well and What Went Wrong

What Went Well

  • Platformization momentum: approximately 1,250 platformization customers within top 5,000; large multi-product deals including $90M (global consulting firm) and $46M (financial services) consolidating multiple products and displacing legacy SIEM/EDR vendors .
    “We crossed an important milestone of $5 billion in next-generation security ARR up 34% year-over-year” — Nikesh Arora .
  • XSIAM acceleration: ~270 customers with average ARR >$1M; ARR grew over 200% YoY; TTM bookings approaching $1B, positioning XSIAM as a disruptive AI-driven SOC platform .
  • Network security/SASE strength: product revenue +16% YoY; software firewall ARR +~20% YoY; SASE ARR +36% YoY with ~6,000 customers and 40% of new SASE customers net-new to PANW .

What Went Wrong

  • GAAP EPS declined YoY to $0.37 from $0.39 (higher tax provision vs prior-year tax benefit), despite non-GAAP EPS growth to $0.80 from $0.66 .
  • Contract duration decreased on both YoY and QoQ basis, and mix shifted further toward annual payments, which can pressure billings optics even as RPO and cash flow visibility improve .
  • April macro/geopolitical/tariff uncertainty temporarily affected customer activity late in the quarter, requiring sales execution through a more volatile backdrop .

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Revenue ($USD Millions)$1,984.8 $2,257.4 $2,289.0
GAAP Diluted EPS ($)$0.39 $0.38 $0.37
Non-GAAP Diluted EPS ($)$0.66 $0.81 $0.80
Total Gross Margin (%)—76.6% 76%
Product Gross Margin (%)——78.4%
Services Gross Margin (%)——75.4%
Non-GAAP Operating Margin (%)25.6% 28.4% 27.4%
RPO ($USD Billions)—$13.0 $13.5
NGS ARR ($USD Billions)—$4.78 $5.09

Segment revenue mix:

Segment Revenue ($USD Millions)Q3 2024Q2 2025Q3 2025
Product$391.0 $421.5 $452.7
Subscription & Support$1,593.8 $1,835.9 $1,836.3
Total$1,984.8 $2,257.4 $2,289.0

KPIs:

KPIQ3 2024Q2 2025Q3 2025
NGS ARR ($USD Billions)—$4.78 $5.09
RPO ($USD Billions)—$13.0 $13.5
Current RPO ($USD Billions)——$6.2
AI ARR ($USD Millions)——~$400

Estimates vs actuals (S&P Global consensus):

MetricQ3 2025 EstimateQ3 2025 ActualΔFY 2025 EstimateFY 2025 ActualΔ
Revenue ($USD Billions)$2.280*$2.289 Beat$9.186*$9.2215 Beat
Non-GAAP Diluted EPS ($)$0.772*$0.80 Beat$3.273*$3.34 Beat

Values retrieved from S&P Global*.

Guidance Changes

MetricPeriodPrevious Guidance (Q2 FY25)Current Guidance (Q3 FY25)Change
Revenue ($USD Billions)FY 2025$9.14–$9.19 $9.17–$9.19 Raised low end
Non-GAAP Operating Margin (%)FY 202528.0–28.5 28.2–28.5 Raised lower bound
Non-GAAP Diluted EPS ($)FY 2025$3.18–$3.24 $3.26–$3.28 Raised
Adjusted FCF Margin (%)FY 202537–38 37.5–38.0 Raised lower bound
NGS ARR ($USD Billions)FY 2025$5.52–$5.57 $5.52–$5.57 Maintained
RPO ($USD Billions)FY 2025$15.2–$15.3 $15.2–$15.3 Maintained
Revenue ($USD Billions)Q4 2025—$2.49–$2.51 New Q4 guide
Non-GAAP Diluted EPS ($)Q4 2025—$0.87–$0.89 New Q4 guide
NGS ARR ($USD Billions)Q4 2025—$5.52–$5.57 New Q4 guide
RPO ($USD Billions)Q4 2025—$15.2–$15.3 New Q4 guide

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 FY25)Current Period (Q3 FY25)Trend
Platformization strategyPlatformization cited as key differentiator; raised FY guidance; NGS ARR $4.5B (Q1 PR) . Q2: ~75 new platformizations; >1,150 total; success via GSIs and large deals .~1,250 platformizations; >$90M and $46M deals consolidating multiple products; continued large-deal momentum .Expanding breadth and deal size
XSIAM/AIOps SOCQ2: XSIAM surpassed $1B cumulative bookings; leadership validated; QRadar pipeline strong .~270 customers; ARR +200% YoY; TTM bookings approaching $1B; average ARR >$1M/customer .Accelerating adoption and scale
AI security (Prisma AIRS)Q2: Announced Cortex Cloud unifying cloud posture and SOC; increased cloud runtime focus .Introduced Prisma AIRS; intent to acquire Protect AI to bolster model scanning/red teaming; 8-figure pipeline .Product expansion into AI runtime
SASE/browserQ2: SASE bookings >50% growth; browser seats up 95% QoQ .SASE ARR +36% YoY; ~6,000 customers; 40% net-new; browser accounted for ~1/3 seats sold; ~3M license seats .Sustained high growth
Software firewallsQ2: SW firewall bookings +50%; ~70% of VM deployments in public cloud .ARR +~20% YoY; AI-driven cloud adoption inflecting demand .Strong demand, AI tailwinds
Macro/geopolitics/tariffsQ2: Manufacturing in TX mitigates tariffs; appliance gross margin impact was one-time .April uncertainty; teams executed; tariff impact immaterial; product GM expected high 70s/low 80s .Managed volatility
Cash flow/financingQ2: Deferred payments visibility; expect >37% adj FCF margin FY26–27 .Annual payments increasing; $578M adjusted FCF in Q3; reiterated >37% adj FCF margins in FY26–27 .High visibility and confidence

Management Commentary

  • “Our scale and platform breadth makes us a leading consolidator of choice in cybersecurity.” — Nikesh Arora .
  • “XSIAM is not only our fastest-growing product ever; it is now more impactful to our overall growth rate.” — Nikesh Arora .
  • “Product revenue grew 16% year-over-year… with software continuing to increase in the overall mix.” — Nikesh Arora .
  • “Total gross margin was 76%… product gross margin was 78.4%… services gross margin was 75.4%.” — Dipak Golechha .
  • “We surpassed the $5 billion mark in NGS ARR and ended the quarter at $5.09 billion.” — Dipak Golechha .

Q&A Highlights

  • XSIAM opportunity on QRadar base: IBM partnership is enabling on-prem QRadar customers to transition to cloud-delivered SOC (XSIAM), with large XSIAM deal sizes and average ARR >$1M/customer .
  • Product revenue drivers: core hardware steady mid-single-digit; software firewalls inflecting with AI/cloud adoption accelerating the hardware-to-software mix shift .
  • AI runtime security pull-through: securing AI models requires “AI firewall” envelopes, driving pull-through for software firewalls and accelerating NGS ARR mix .
  • Macro/tariff environment: April was anomalous; operational execution mitigated uncertainties; tariff impact immaterial given U.S. manufacturing footprint .
  • Platformization ARR concentration: achieving $15B NGS ARR target implies 60–70% from platform customers (2,500–3,500 platformizations) .

Estimates Context

  • Q3 FY25 revenue and non-GAAP EPS both beat S&P Global consensus (Revenue: $2.289B vs $2.280B estimate; EPS: $0.80 vs $0.772 estimate)* .
  • FY25 revenue and non-GAAP EPS beat consensus as well (Revenue: $9.2215B vs $9.186B; EPS: $3.34 vs $3.273)* .
  • With raised FY25 EPS and operating margin guidance, estimates are likely to drift higher; Q4 guide (revenue $2.49–$2.51B; non-GAAP EPS $0.87–$0.89) sets the stage for continued beats if execution holds .

Values retrieved from S&P Global*.

Key Takeaways for Investors

  • Platformization is translating into larger, multi-product deals and durable NGS ARR growth; milestone NGS ARR >$5B and RPO +19% YoY reinforce multi-year visibility .
  • XSIAM’s rapid scale (ARR +200% YoY; TTM bookings approaching $1B) positions PANW at the center of AI-driven SOC modernization; IBM QRadar base migration is a significant catalyst .
  • AI is a tailwind across products: software firewalls are inflecting with cloud AI adoption; Prisma AIRS plus Protect AI intent expands PANW’s addressable market in AI runtime security .
  • Operating leverage continues: 27.4% non-GAAP operating margin and improving efficiency (including AI-enabled internal tools) support sustained >37% adjusted FCF margin targets in FY26–27 .
  • Near-term trading: Q4 revenue/EPS guide implies continued strength; beats vs consensus in Q3 and raised FY EPS guide can support positive estimate revisions and sentiment [functions.GetEstimates*].
  • Watch items: GAAP EPS pressure from tax dynamics; decreasing contract duration and rising annual payments shift billings optics; macro/geopolitical volatility remains a factor though mitigated by execution .
  • Medium-term thesis: Consolidation narrative, AI-first product innovation, and expanding platform breadth (network, cloud, SOC, AI) underpin durable double-digit top line growth with Rule-of-50 characteristics .