• Total Revenue: $2.26 billion, grew 14% year-over-year.
• Product Revenue Growth: 8% increase.
• Services Revenue Growth: 16% increase, with subscription revenue up 20% and support revenue up 8%.
• Geographical Revenue Growth: Americas up 13%, EMEA up 18%, JPAC up 17%.
• Gross Margin: 76.6%.
• Operating Margin: Ahead of internal targets, guidance raised for the year.
• Non-GAAP EPS: $0.81.
• GAAP EPS: $0.38.
• Adjusted Free Cash Flow: Over $509 million.
• Remaining Performance Obligation (RPO): $13 billion, grew 21%.
• Current RPO: $6.1 billion, grew 17%.
• Next-Generation Security Annual Recurring Revenue (NGS ARR): $4.78 billion, grew 37%.
• Large Deals: 74 accounts with transactions over $5 million, 32 accounts with transactions over $10 million.
• Guidance for Fiscal Year 2025: Revenue $9.14 billion to $9.19 billion, NGS ARR $5.52 billion to $5.57 billion, Operating Margin 28% to 28.5%, Non-GAAP EPS $3.18 to $3.24, Free Cash Flow Margin 37% to 38%.

• Warning! GuruFocus has detected 6 Warning Sign with PANW.

Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Palo Alto Networks Inc (NASDAQ:PANW) outperformed both top and bottom-line expectations for Q2 2025, with strong revenue and operating margin results.
• The company saw broad growth across its portfolio, with significant contributions from large international deals and strong performance in SASE, software firewalls, and XIM.
• Efficiency initiatives, including AI contributions, have allowed PANW to raise its operating margin and EPS guidance for the year.
• The company achieved a 37% growth in NGS ARR, driven by strength across advanced subscriptions, SASE, and Cortex.
• Palo Alto Networks Inc (NASDAQ:PANW) has made significant progress in its platformization strategy, with a notable increase in large platformization deals and customer adoption.

Negative Points

• Gross margins were slightly down due to the impact of newer SaaS offerings and one-time inventory costs.
• There was a noted decline in net new ARR growth over the last two quarters, despite positive trends in large platformization deals.
• The company faces challenges in managing deferred payments, which have increased significantly over the past few years.
• Some of the newer SaaS offerings have yet to achieve scale, impacting overall profitability.
• The transition to deferred payments in larger transactions poses a challenge in balancing cash flow optimization.

Q & A Highlights

Q: Can you discuss the drivers behind the strong free cash flow margins expected through fiscal 2027? A: Nikesh Arora, CEO, highlighted that the company's scale and efficiency in platform deals contribute to better profitability. Larger deals drive efficiencies in sales, marketing, and customer support. Dipak Golechha, CFO, added that the transition to deferred payments has provided more visibility into cash flow, with significant progress already made in this area.

Q: How does the proliferation of AI, particularly with DeepSeek, impact Palo Alto Networks and the security landscape? A: Nikesh Arora, CEO, noted that DeepSeek represents a pivotal moment for AI, driving experimentation across industries. He emphasized the importance of securing AI deployments with firewalls and ensuring data protection, suggesting that AI advancements will continue to drive demand for security solutions.

Q: How is AI being leveraged across Palo Alto Networks' platform to enhance security outcomes, particularly in cloud security? A: Lee Klarich, Chief Product Officer, explained that AI is used to improve detection and prevention in cloud security, enabling real-time security operations. The integration of AI across the platform enhances security outcomes and operational efficiency, leading to better win rates against point solution providers.

Q: What are the considerations for offering multi-year versus one-year billings and financing options in sales? A: Dipak Golechha, CFO, stated that deferred payments are typically requested in higher-end deals, while smaller transactions and hardware deals are usually paid upfront. The decision is part of the sales negotiation process, with guardrails in place to manage the transition and support platformization at scale.

Q: How does the integration of CNAPP into the Cortex platform accelerate adoption and platformization? A: Lee Klarich, Chief Product Officer, emphasized the importance of integrating CNAPP for real-time cloud security and SOC capabilities. This integration provides better context for automated actions and enhances security posture, ultimately leading to improved customer outcomes and streamlined offerings.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.