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SEC filingRevenue grew 15% YoY to $2.6B, driven by platformization and subscription growth, with operating margin expanding to 15.3%.
For the three months ended January 31, 2026, Palo Alto Networks reported total revenue of $2.594 billion, a 15% increase year-over-year, driven by broad-based growth across product and subscription offerings. Product revenue rose 22% to $514 million, benefiting from increased software license sales and demand for next-generation hardware. Subscription and support revenue grew 13% to $2.080 billion, reflecting continued adoption of cloud-delivered security services and platform consolidation. Gross margin remained stable at 73.6% (vs. 73.5% prior year), with product gross margin improving 160 bps to 77.6% due to a favorable mix shift toward software and lower inventory charges, while subscription and support gross margin was flat at 72.6%. Operating income surged 65% to $397 million, expanding operating margin by 470 bps to 15.3%, as revenue growth outpaced operating expense increases. Net income rose 62% to $432 million, with net margin improving to 16.7% from 11.8%. The effective tax rate increased to 21.3% from 17.7% due to reduced excess tax benefits from share-based compensation. For the six-month period, revenue reached $5.068 billion (+15% YoY), operating income $706 million (+34%), and net income $766 million (+24%). Free cash flow (non-GAAP) for six months was $2.071 billion, up from $1.975 billion, reflecting strong cash generation from operations.
Product revenue growth of 22% YoY outpaced subscription and support growth of 13%, driven by a 22% increase in product revenue for both the quarter and six-month periods. Product revenue mix improved to 19.8% of total revenue (from 18.7% a year ago), supported by software license momentum. Subscription revenue ($1.404B, +14% YoY) grew faster than support revenue ($676M, +12% YoY), consistent with the shift toward cloud-based subscriptions. By geography, Americas revenue grew 14% to $1.712B, EMEA 17% to $560M, and APAC 17% to $322M, with all regions contributing to overall growth. NGS ARR, a key operating metric, increased to $6.3 billion from $5.6 billion at July 31, 2025, underscoring the success of the platformization strategy.
The MD&A highlights strategic investments in innovation and platform expansion, including the acquisitions of Chronosphere (observability) and CyberArk (identity security), completed in January and February 2026, respectively. Management expects operating expenses to increase in absolute dollars but decrease as a percentage of revenue over the long term as the business scales. Share-based compensation expense is anticipated to be approximately $2.9 billion over a weighted-average period of 2.6 years. While no specific numerical guidance is provided, the company emphasizes continued growth in NGS ARR, RPO ($16.0B vs. $15.8B at July 31, 2025), and free cash flow generation. Macroeconomic uncertainties, including geopolitical tensions and inflation, are monitored but not expected to cause significant near-term disruption. The outlook remains focused on platformization, recurring revenue growth, and margin expansion.
As of January 31, 2026, Palo Alto Networks held $4.2B in cash and cash equivalents and $3.7B in short- and long-term investments, totaling $7.9B in liquid assets. The company has no debt outstanding, with a shareholders' equity of $9.4B. Deferred revenue stands at $12.4B, reflecting strong subscription and support revenue. Remaining performance obligations (RPO) total $16.0B, with $7.1B expected to be recognized within 12 months.
The company has significant purchase commitments totaling $6.8B, primarily for cloud hosting services ($6.4B) with smaller commitments for manufacturing ($198M) and other obligations ($145M). Additionally, there is a separate $104M minimum purchase commitment with a cloud provider through September 2027. The timing of these commitments: $284M within the next year, $1.7B in 1-3 years, and $4.8B beyond 3 years. The contingent consideration liability for the QRadar acquisition is valued at $369M, with potential undiscounted payments between $0.4B and $0.6B through 2028.
Palo Alto Networks has a $4.1B share repurchase authorization, with $1.0B remaining as of January 31, 2026. No buybacks occurred in the first half of fiscal 2026. The company has not paid dividends. All convertible notes matured in June 2025, and the associated warrants were settled via net share issuance (27M shares). The company has a $400M undrawn revolving credit facility. Capital expenditures during the period included $91M for land adjacent to headquarters, and total non-cash investing activities included $254M for property and equipment (from the cash flow statement, not explicitly in notes).
While no operating segments are reported, the Notes provide revenue disaggregation by geography and product/service. For the three months ended January 31, 2026, Americas generated $1.7B (66% of total), EMEA $560M (22%), and APAC $322M (12%). Product revenue was $514M (20%), subscription $1.4B (54%), and support $676M (26%). Total revenue grew 15% year-over-year.
CFO of $2.325B significantly exceeds net income of $766M, indicating strong cash conversion and non-cash charges like share-based compensation ($671M) and depreciation ($180M). Capex increased to $254M (10.9% of CFO), up from $92M (4.5%) in the prior year, reflecting higher investment in property and equipment. The company generated substantial free cash flow (CFO minus capex = $2.071B), though not explicitly stated. Working capital was a net use, primarily due to a $344M decline in deferred revenue and a $206M increase in deferred contract costs, partially offset by a $864M decrease in accounts receivable. Investing activities generated $332M net cash after significant purchases of investments ($1.925B) offset by sales/maturities ($4.425B) and business acquisitions ($2.578B). Financing activities used $106M, driven by tax payments ($109M) and contingent consideration ($135M), partially offset by equity plan proceeds ($138M). No share repurchases or dividends were reported. Overall, cash generation remains robust, with CFO growth outpacing capex needs.