Palo Alto Networks (NASDAQ:PANW) reported what executives described as a record fiscal third quarter, with results exceeding guidance across key metrics as the company cited stronger organic bookings, momentum from its platformization strategy and rising demand tied to artificial intelligence security needs.
Chairman and Chief Executive Officer Nikesh Arora said the quarter was “exceptional,” driven by traction in network security, Cortex XSIAM and Prisma AIRS, the company’s AI security offering. Chief Financial Officer Dipak Golechha said Palo Alto Networks delivered broad-based demand across platforms and geographies, along with early outperformance from recently acquired CyberArk and Chronosphere.
For the quarter, Golechha said total revenue rose 31% year over year to $3 billion. Product revenue was $594 million, while services revenue was $2.4 billion, with both categories growing 31%. Next-Generation Security annual recurring revenue, or NGS ARR, grew 60% year over year to $8.13 billion, including $1.63 billion from CyberArk and Chronosphere. Excluding those acquisitions, NGS ARR rose 28% to $6.5 billion.
Remaining performance obligation ended the quarter at $18.4 billion, up 36% year over year. Excluding CyberArk and Chronosphere, RPO grew 22%. Current RPO was $8.3 billion, up 34% year over year, or 17% excluding the acquisitions.
AI Security Becomes Central to Growth Narrative
Arora framed the quarter around a shift in the cybersecurity landscape as AI moves from experimentation to production across enterprises. He said recent advances in frontier AI systems, including models he referred to as “Mythos,” are compressing attack timelines and creating a need for faster, automated defense.
According to Arora, Palo Alto Networks’ Unit 42 researchers simulated a ransomware campaign from initial entry to data exfiltration in 25 minutes, while the typical enterprise still takes days to identify a breach. He said the speed mismatch makes legacy security approaches unsustainable.
Arora said the company is seeing strong customer engagement around AI-related defense. He said more than 1,200 customers have asked to meet with Palo Alto Networks on the topic, and the company has completed 800 meetings over the past six weeks. He also said the company has seen interest from more than 150 customers in its agentic endpoint security offering following the acquisition of Koi.
Prisma AIRS was highlighted as the fastest-growing product in the company’s history. Golechha said Palo Alto Networks had more than 300 Prisma AIRS customers at the end of Q3, up from about 100 at the end of Q2. Arora said the product has “clear visibility” toward $100 million in ARR within the next couple of quarters.
Network Security Posts Strong Quarter
The company’s network security business, its largest segment, delivered what executives called its strongest third-quarter performance in years. Golechha said network security accounts for roughly 70% of total revenue, and all form factors delivered sustained or accelerating growth in the quarter.
Next-generation firewall bookings grew nearly 40% year over year, which executives attributed in part to demand from AI data center builds and enterprise networking needs. Arora said the company is seeing early adoption from new classes of buyers, including sovereign infrastructure providers and AI labs, as AI deployments move beyond traditional hyperscalers.
Golechha said hardware, which represents approximately 10% of total revenue, delivered its best quarter in a decade. He also noted that Palo Alto Networks implemented a 10% hardware price increase in early April and is monitoring rising component costs, particularly memory and storage.
SASE ARR reached $1.6 billion, up 40% year over year. Golechha said the company has seen nearly 50 displacement wins totaling $200 million in contract value year to date. Secure Browser scaled to 11 million licenses, which Arora described as a fourfold increase.
CyberArk and Chronosphere Integration Progresses
Palo Alto Networks said it secured 110 net new platformizations during the quarter, including 20 from CyberArk and Chronosphere integrations. The company ended Q3 with about 2,280 platformized customers. Arora said these customers have 120% net retention and single-digit churn rates.
Chronosphere, the observability platform acquired by Palo Alto Networks, surpassed $300 million in ARR during the quarter. Golechha said that was more than a 50% increase from Q2 and exceeded expectations, driven by an existing large language model customer increasing consumption as it migrated from an incumbent vendor.
Arora also highlighted a leading frontier AI lab that has surpassed $200 million in ARR with Palo Alto Networks and relies on the company for observability across training and inference clusters. He said the company expects that relationship to continue growing as the customer completes its migration to Chronosphere.
CyberArk also exceeded internal benchmarks in its first quarter after closing, according to Arora. The company launched Idira, a next-generation identity platform aimed at securing human, machine and agentic identities. Golechha said joint go-to-market efforts have initiated about 1,000 cross-organization engagements between Palo Alto Networks and CyberArk sales teams.
Profitability, Cash Flow and Guidance
Total gross margin was 75.8%, including services gross margin of 75.1% and product gross margin of 78.8%. Non-GAAP operating margin was 21.3%, flat from the year-ago quarter. Adjusted free cash flow was $910 million, up 57% year over year. On a trailing 12-month basis, adjusted non-GAAP free cash flow was $4.08 billion, representing a 38.5% margin.
The company reported a GAAP net loss per share of $0.22, reflecting stock-based compensation and transaction and integration costs tied to acquisitions. Non-GAAP diluted earnings per share were $0.85, which Golechha said was $0.05 above the high end of guidance.
Palo Alto Networks repurchased $1 billion of stock during the quarter, buying back 6.8 million shares at an average price of $147.69. The company has $1 billion remaining under its existing repurchase authorization.
For the fourth quarter of fiscal 2026, the company expects:
- NGS ARR of $8.9 billion to $8.95 billion, representing 59% to 60% growth.
- RPO of $20.9 billion to $21 billion, representing 32% to 33% growth.
- Revenue of $3.345 billion to $3.355 billion, representing 32% growth.
- Non-GAAP diluted EPS of $0.96 to $0.98.
For the full fiscal year 2026, Palo Alto Networks raised its guidance and now expects revenue of $11.415 billion to $11.425 billion, up 24%, with non-GAAP diluted EPS of $3.77 to $3.79. The company also expects an adjusted free cash flow margin of 37.5% and operating margin between 28.9% and 29.2%.
Golechha said the company remains confident in reaching a 40% free cash flow margin in fiscal 2028, citing operating leverage and faster-than-expected progress on CyberArk integration synergies.
About Palo Alto Networks (NASDAQ:PANW)
Palo Alto Networks (NASDAQ: PANW) is a cybersecurity company founded in 2005 and headquartered in Santa Clara, California. The firm develops a broad suite of security products and services designed to prevent successful cyberattacks and protect enterprise networks, clouds, and endpoints. Built around a platform strategy, its offerings target threat prevention, detection, response and governance across hybrid and multi-cloud environments.
The company's product portfolio includes next‑generation firewalls as a core on‑premises capability, alongside cloud‑delivered security services and software for securing public and private clouds.
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