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SEC filingPalo Alto Networks reported 31% YoY revenue growth to $3.0B, but GAAP operating loss of $(183)M due to acquisition costs and elevated expenses.
For the third quarter of fiscal 2026, Palo Alto Networks reported total revenue of $3.0 billion, a 31% increase year-over-year (YoY) from $2.3 billion. This growth was broad-based, with product revenue up 31% to $594 million and subscription and support revenue up 31% to $2.4 billion. The company experienced strong demand across its portfolio, including contributions from the recent CyberArk acquisition. Gross margin contracted to 67.6% from 72.9%, pressured by higher amortization of intangible assets from acquisitions and increased cloud hosting costs. GAAP operating income swung to a loss of $(183) million compared to income of $219 million in the prior year, driven by a surge in operating expenses—particularly share-based compensation ($684 million vs $326 million) and acquisition-related costs. Net loss was $(177) million versus net income of $262 million. Despite GAAP losses, cash generation remained robust: free cash flow for the nine-month period was $2.86 billion, up 13% from $2.54 billion.
Product revenue grew 31% YoY, driven by software licenses and the CyberArk acquisition, though product gross margin declined to 71.9% from 77.8% due to higher amortization and hardware margin compression. Subscription and support revenue grew 31% YoY, with subscription revenue up 32% and support up 29%. The subscription and support gross margin fell to 66.5% from 71.8%, primarily due to increased amortization ($117 million in Q3) and cloud hosting costs ($75 million increase). The revenue mix continued to shift toward subscriptions, which represented 80.2% of total revenue, consistent with the prior year. Geographically, Americas grew 32%, EMEA 32%, and APAC 26%, with the Americas contributing the largest absolute increase.
The MD&A does not provide explicit numerical guidance for future periods. Management highlighted ongoing investments in innovation (e.g., Prisma AIRS, identity security) and expects operating expenses to increase in absolute dollars but decrease as a percentage of revenue over the long term as the business scales. Key strategic priorities include platformization, expanding the customer base, and integrating acquisitions (CyberArk, Koi, Portkey). The company anticipates continued growth in NGS ARR and remaining performance obligations ($18.4 billion as of April 30, 2026). Risks include macroeconomic uncertainties, trade policy, and integration challenges. No specific revenue or margin guidance was issued.
As of April 30, 2026, Palo Alto Networks held $2.364B in cash and equivalents, $4.628B in marketable securities (short-term $0.747B, long-term $3.881B), for total liquidity of ~$7.0B. Total debt was $1.352B, consisting of $0.160B short-term and $1.192B long-term convertible notes assumed in the CyberArk acquisition. The company had no outstanding borrowings under its $400M revolving credit facility. Shareholders' equity ballooned to $27.668B, primarily from $18.488B of common stock issued for CyberArk and $1.315B of share-based compensation.
Total non-cancelable purchase commitments reached $8.529B, dominated by cloud hosting services ($8.092B) with significant long-dated obligations ($3.598B beyond fiscal 2030). Manufacturing commitments ($0.246B) are concentrated in fiscal 2026-2027. Additionally, a $92M minimum cloud purchase commitment exists through September 2027. Remaining performance obligations (RPO) were $18.4B, of which 45% ($8.3B) is expected to be recognized in the next 12 months.
The board increased the share repurchase authorization by $1.0B to $5.1B in March 2026, with $1.0B remaining after $1.0B in repurchases (7M shares at ~$147.70) during Q3 FY2026. No dividends were declared. Debt increased by $1.352B net, largely from the CyberArk acquisition ($1.303B fair value of notes assumed), with $153M of 2030 Notes surrendered for conversion but not yet settled. Capital expenditures were $0.337B for the nine months, including $91M for land acquisition adjacent to headquarters.
Palo Alto Networks reports as a single operating segment. Revenue disaggregation shows Americas contributed $2.018B (67%) of total $3.002B in Q3, EMEA $0.633B (21%), APAC $0.351B (12%). Product revenue was $0.594B (20%), subscription revenue $1.632B (54%), and support $0.776B (26%). The recent acquisitions of Chronosphere and CyberArk are expected to reshape the revenue mix going forward.
Operating cash flow (OCF) of $3,196M significantly exceeded net income of $589M, indicating strong cash generation relative to earnings. Key non-cash adjustments include $1,314M in share-based compensation, $514M depreciation, and $410M deferred contract cost amortization. Working capital provided $403M, led by collections of accounts receivable ($441M) and financing receivables ($347M), partially offset by deferred contract costs.
Capex rose to $337M (from $160M), an intensity of ~10.5% of OCF. While free cash flow is not explicitly stated, OCF minus capex yields $2,859M. However, note that large investing outflows included $4,563M for business acquisitions (primarily CyberArk), which are not recurring capex.
Share repurchases totaled $1,000M, funded by operating cash flow. No dividends were paid. Financing also included $264M from employee stock plans, partially offset by $125M in tax withholdings.
Investing cash flow was heavily impacted by the $4,563M acquisition, while financing saw a $1,000M buyback. The prior year had no repurchases. The deferred tax adjustment swung from -$442M to +$38M, affecting OCF comparability. Overall, core cash generation remains healthy, supporting growth and shareholder returns.