PANW Q3 2025: $90M XSIAM Cloud Deal Spurs ARR Growth
- Strong XSIAM Transformation: The shift from on‑premise to cloud-based solutions via XSIAM is driving large, transformative deals – including a notable $90 million deal – and positioning the product as a potential game changer in cybersecurity with rapid year‑over‑year ARR acceleration.
- AI‐Driven Product Innovation: The accelerated adoption of AI is fueling a robust move toward cloud‑delivered, software‐focused security products. This trend is bolstering product revenue growth as customers increasingly demand integrated, AI‑enhanced security solutions.
- Platformization Expansion: With 1,250 platformization deployments already in place and expectations that these customers will account for 60–70% of next‑generation security ARR, the company is well on track toward achieving its long‑term $15 billion ARR target.
- On-premises to cloud transition risks: The conversion from legacy on-premise security solutions to cloud-delivered XSIAM remains uncertain, and delays or hesitancy in this shift could impede next-generation ARR growth.
- Reliance on accelerated AI adoption: Heavy dependence on rapid AI and cloud security adoption exposes the company if market momentum slows or customers delay embracing these new solutions, potentially affecting revenue mix transformation.
- Geopolitical and economic uncertainties: Recent volatility and supply chain issues highlighted during the quarter raise concerns that renewed geopolitical or tariff-related disruptions could dampen customer spending and pipeline stability.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Up ~15% from $1,984.8M in Q3 2024 to $2,289.0M in Q3 2025 | The 15% growth in total revenue was driven by broad-based gains in both product and subscription/support segments, as well as geographic expansion fueled by continued investments in sales and innovation. This builds on previous strong revenue performance observed in earlier periods. |
Product Revenue | Up 15.8% from $391.0M in Q3 2024 to $452.7M in Q3 2025 | Product revenue increased by 15.8%, reflecting robust demand for Palo Alto Networks’ new generation hardware products and accessories, along with price adjustments on on‑premise software licenses—a trend consistent with earlier period improvements. |
Subscription and Support Revenue | Up ~15.2% from $1,593.8M in Q3 2024 to $1,836.3M in Q3 2025 | The 15.2% rise in subscription and support revenue reflects continued strong customer adoption, renewals, and new subscriptions, paralleling the growth drivers seen in previous periods when enhanced service offerings led to significant gains. |
Americas Revenue | Up 12.5% from $1,359.6M in Q3 2024 to $1,529.2M in Q3 2025 | The 12.5% increase in the Americas is attributed to stable demand and efficient execution in the largest region, underpinned by ongoing sales force investments—a strategy that has produced steady gains in past periods. |
EMEA Revenue | Up 20.5% from $399.2M in Q3 2024 to $480.9M in Q3 2025 | The 20.5% YoY jump in EMEA revenue was driven by closing of large deals and targeted sales initiatives, mirroring the region’s strong performance in previous quarters where substantial deal wins contributed to accelerated growth. |
APAC Revenue | Up 23.4% from $226.0M in Q3 2024 to $278.9M in Q3 2025 | The robust 23.4% growth in APAC revenue reflects significant investments in the global sales force and successful closure of large contracts (including deals over $50M), supporting a trend seen in earlier periods where APAC growth outpaced other regions. |
Operating Income | Up 23.8% from $176.7M in Q3 2024 to $218.8M in Q3 2025 | The 23.8% increase in operating income stems from revenue growth coupled with improved cost management and operational efficiencies (e.g., reductions in operating expense as a percent of revenue), continuing trends observed in prior quarters where platformization and efficiency initiatives boosted margins. |
Net Income | Down 6% from $278.8M in Q3 2024 to $262.1M in Q3 2025 | The 6% decline in net income is largely due to the absence of favorable one-time tax benefits that had inflated prior period earnings (e.g., Q2 2024’s $1.5B tax benefit), highlighting a shift to a more normalized comparison of operational performance in Q3 2025. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
NGS ARR | FY 2025 | $5.52B to $5.57B (31% to 32%) | $5.52B to $5.57B (31% to 32%) | no change |
Remaining Performance Obligation (RPO) | FY 2025 | $15.2B to $15.3B (19% to 20%) | $15.2B to $15.3B (19% to 20%) | no change |
Revenue | FY 2025 | $9.14B to $9.19B (14%) | $9.17B to $9.19B (14%) | raised |
Operating Margins | FY 2025 | 28% to 28.5% | 28.2% to 28.5% | raised |
Diluted Non-GAAP EPS | FY 2025 | $3.18 to $3.24 (12% to 14%) | $3.26 to $3.28 (15%) | raised |
Adjusted Free Cash Flow Margin | FY 2025 | 37% to 38% | 37.5% to 38% | raised |
NGS ARR | Q4 2025 | $5.03B to $5.08B (33% to 34%) | $5.52B to $5.57B (31% to 32%) | raised |
Remaining Performance Obligation (RPO) | Q4 2025 | $13.5B to $13.6B (19% to 20%) | $15.2B to $15.3B (19% to 20%) | raised |
Revenue | Q4 2025 | $2.26B to $2.29B (14% to 15%) | $2.49B to $2.51B (14% to 15%) | raised |
Diluted Non-GAAP EPS | Q4 2025 | $0.76 to $0.77 (15% to 17%) | $0.87 to $0.89 (16% to 19%) | raised |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q3 2025 | $2.26B to $2.29B | $2,289.0 million | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Cloud Transformation via XSIAM | Emphasized the role of XSIAM in driving cloud transformation, integrating with Prisma Cloud/Cortex and underpinning network security innovations. | Focused on transitioning customers from on‑premise solutions to cloud‑delivered SOC platforms via XSIAM, with a specific emphasis on the strategic IBM partnership to secure large, high‑value deals. | Shift from a broad transformation narrative to leveraging strategic partnerships (IBM) for high‑value cloud transition deals. |
AI-Driven Product Innovation | Focused on using AI for security operations and platformization, integrating AI copilot tools in customer support and development, and driving improvements across products. | Continued emphasis on AI innovation with a stronger narrative on XSIAM’s rapid growth, the evolution toward Agentic AI, and new product launches like Prisma AIRS with acquisition intents to bolster AI model scanning capabilities. | Continued strong focus on AI with an evolution toward autonomous AI and dedicated AI security products, reinforcing its pivotal role in future growth. |
Platformization Expansion and Dependency Risks | Detailed progress in expanding the platformization strategy with a significant increase in the number of deals and customer engagement, aiming for thousands of platformizations by fiscal 2030; dependency risks were not explicitly addressed. | Reported over 19 new platformization deals in Q3 with total numbers around 1,250 among top customers; while dependency risks were again not explicitly discussed, the focus remained on driving ARR through platformization. | Expansion momentum remains strong with consistent positive sentiment; dependency risks remain low on the radar. |
Hardware to Software (On‑Prem to Cloud) Transition Challenges | Addressed the hardware-to‑software shift as part of a broader network security transformation with steady growth in software firewall adoption and increased cloud volumes supporting this transition. | Emphasized the transition from legacy on‑premise SIEM to modern cloud‑delivered SOC platforms like XSIAM, highlighting challenges with outdated architectures while noting large deals that validate the transformative opportunity. | Increased emphasis on the urgency and scale of the transition, with a more detailed focus on overcoming legacy challenges to capture cloud opportunities. |
ARR Growth Dynamics | Highlighted a decline in net new ARR due to transitions and older attach shifts; meanwhile, net new ARR from new products and platformization was starting to show robust growth, though concerns were noted. | Reported that while advanced subscription ARR remained consistent, new market offerings such as XSIAM now drive a rapid acceleration in ARR growth, shifting the composition toward future‑oriented products. | A clear shift from concerns over declining net new ARR to a focus on rapid acceleration driven by new products, underscoring a positive long‑term outlook. |
Strategic Partnership Dynamics | Praised the IBM partnership as a spectacular collaboration that enabled large modernization transactions and significant ARR gains, with strong go‑to‑market synergy. | Mentioned the IBM partnership in the context of supporting the on‑premise to cloud transition, though with less emphasis compared to previous calls, indicating a less prominent but still important role. | A reduced emphasis on the IBM partnership compared to previous periods, though it remains a strategic enabler; sentiment is more subdued but continues to support transformation efforts. |
Margin Performance and Gross Margin Pressure | Discussed margin pressures due to emerging SaaS offerings and one‑time hardware costs, while highlighting improved operating efficiencies and a focus on profitable growth. | Reported strong margins with a total gross margin of 76% and product margins in the high 70–low 80% range; improvements were attributed to efficiency initiatives and strategic moves like transitioning manufacturing, maintaining confidence despite minor cost pressures. | Overall strong margin performance with improved operating leverage in Q3, reinforcing a more confident and efficient cost structure compared to the previous period. |
Geopolitical and Supply Chain Uncertainties | Not mentioned during Q2, with no reference to these uncertainties in earlier calls. | Addressed as a transient issue in April 2025 due to geopolitical tensions and anticipated supply chain shocks; although they caused brief pauses in customer decision making, the situation stabilized quickly and execution continued as “business as usual”. | Emerges as a new topic in Q3 with temporary concerns noted but managed effectively, suggesting that while external factors can impact near‑term operations, the company’s resilience mitigates long‑term risk. |
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Platform ARR
Q: What ARR percentage comes from platform customers?
A: Management noted that about 60%-70% of next‐generation ARR derives from platform customers, which is key to reaching the $15 billion ARR target. -
Revenue Mix
Q: What drove product revenue growth this quarter?
A: They explained that while hardware grew at 5%-8%, a growing shift toward software—now approaching 40% of the mix—has boosted overall product revenue, driven largely by AI and cloud-delivered solutions. -
AI Imperative
Q: How does AI drive next-gen ARR growth?
A: Management emphasized that enhanced AI firewalls and cloud delivery are accelerating the transition from legacy hardware toward software, creating significant tailwinds for next-generation ARR. -
AI Evolution
Q: How will the AI portfolio evolve?
A: They described an evolving strategy from traditional cloud posture to run-time security, integrating both organic innovation and targeted acquisitions like Protect.AI to stay ahead in the fast-changing AI market. -
On-Prem Upgrade
Q: How are on-prem customers upgrading?
A: Management highlighted that transitioning on-prem solutions to cloud-delivered SIEM models is a major opportunity, enabling large, transformative deals on the path to their ARR target. -
Geopolitical Impact
Q: Did geopolitical tensions affect performance?
A: Despite a brief market pause due to tariffs and supply chain concerns in April, management reported that conditions have normalized, with strong Q4 pipeline expectations. -
Secure Browser
Q: Why is the enterprise browser gaining traction?
A: The secure browser, when integrated into the broader platform, not only enhances traditional security but also simplifies delivering secure AI capabilities, driving strong adoption. -
Acquisition Value
Q: Are recent acquisitions among the best?
A: Management believes that acquisitions enhancing data-driven security—like those strengthening their AI and SIEM offerings—will unlock larger TAM opportunities over the long term. -
Threat Intelligence
Q: What role does threat intelligence play now?
A: They stressed that threat intelligence is shifting from static indicators to dynamic sharing of attack techniques, critical for powering proactive, AI-based security systems.