Summary
Palo Alto Networks closed FY2025 Q2 with revenue of $2.26 billion, up 14.3% from the prior-year quarter. Gross profit was $1.66 billion, up 12.3%, while gross margin slipped to 73.5%, down 1.3 percentage points. Operating income jumped to $240.4 million, up 348.5%, and operating margin expanded to 10.6%, up 7.9 percentage points. Net income told a different story. It fell to $267.3 million, down 84.7%, and diluted EPS dropped to $0.38 from $2.44. The prior-year quarter included a large income tax benefit from a valuation allowance release, which the filing says drove the effective tax rate comparison.
On a year-to-date basis, revenue reached $4.40 billion, up 14.1%. Gross profit was $3.24 billion, up 12.5%. Operating income rose to $526.9 million, up 96.0%. Net income fell to $618.0 million, down 68.2%, and diluted EPS was $0.87, down from $2.74. The same tax item explains most of that decline. The MD&A points to the valuation allowance release in the prior-year period as the main reason for the effective tax rate increase.
The company's platformization push showed up in forward-looking metrics. Next-Generation Security ARR was $4.8 billion at January 31, 2025, up from $4.2 billion at July 31, 2024. Remaining performance obligations were $13.00 billion, up 20.4% from the prior-year quarter. Deferred revenue was $5.60 billion, up 13.9%. Cash generation was weaker. Operating cash flow for the quarter was $556.9 million, down 19.3%. For the six months, operating cash flow was $2.07 billion, down 6.7%. Capital expenditures were $47.5 million in the quarter, up 34.9%, and $91.6 million year to date, up 27.2%. Free cash flow, a non-GAAP measure, was $1,974.9 million for the six months, compared with $2,144.0 million in the prior-year period.
Management's discussion focuses on consolidation of point products and AI-driven security. The four sectors are network security, cloud security, security operations, and threat intelligence and advisory services. The company announced Cortex Cloud in February 2025, the next version of Prisma Cloud, bringing cloud detection and response and cloud native application protection onto the Cortex platform. NGS ARR now includes revenue from QRadar SaaS contracts, following the IBM QRadar asset acquisition. Revenue grew across the Americas, EMEA, and APAC, with the Americas contributing the largest increase because of its larger scale. Palo Alto Networks had end-customers in over 180 countries and counts almost all of the Fortune 100 and a majority of the Global 2000 among its customers.
Management's commentary centers on platformization, AI, and strategic partnerships rather than quarter-specific targets. The MD&A says revenue can vary by quarter because of seasonal and cyclical factors. The risk list is broad. It includes worldwide economic and geopolitical conditions, hostilities in Israel and the surrounding region, inflation, high interest rates, foreign exchange moves, supply chain disruptions, trade regulations, litigation or regulatory developments, and product vulnerabilities. The 2025 Notes add another near-term item. As of January 31, 2025, $534.2 million of principal remained outstanding, and holders may convert during the quarter ending April 30, 2025. After January 31, 2025, another $100.4 million was converted or submitted for conversion. The company also carries contingent consideration obligations tied to the IBM QRadar acquisition and expects potential payments through the fiscal quarter ending October 2028.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2025 | Q1 FY2025 | QoQ | Q2 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $2.26B | $2.14B | +5.5% | $1.98B | +14.3% |
| Gross profit | $1.66B | $1.58B | +4.6% | $1.48B | +12.3% |
| Gross margin | 73.5% | 74.1% | -0.6 pp | 74.7% | -1.3 pp |
| Research & development | $505.7M | $480.4M | +5.3% | $447.9M | +12.9% |
| Sales & marketing | $758.3M | $720.1M | +5.3% | $673.0M | +12.7% |
| General & administrative | $153.8M | $97.7M | +57.4% | $301.5M | -49.0% |
| Total operating expenses | $1.42B | $1.30B | +9.2% | $1.42B | -0.3% |
| Operating income (loss) | $240.4M | $286.5M | -16.1% | $53.6M | +348.5% |
| Operating margin | 10.7% | 13.4% | -2.8 pp | 2.7% | +7.9 pp |
| Net income (loss) | $267.3M | $350.7M | -23.8% | $1.75B | -84.7% |
| Net margin | 11.8% | 16.4% | -4.6 pp | 88.5% | -76.6 pp |
| Diluted EPS | $0.38 | $0.99 | -$0.61 | $4.89 | -$4.51 |
Risks
Unfavorable economic and geopolitical conditions, including inflation, high interest rates, trade disputes, tariffs, and conflicts such as hostilities in Israel and the surrounding region, could reduce sales, lengthen sales cycles, and increase component costs. MD&A also monitors China-Taiwan and U.S.-China tensions.
PANW faces intense competition from large platform vendors such as Cisco, Microsoft, and Alphabet and independent security vendors such as Fortinet, CrowdStrike, Zscaler, and Wiz. Competitive pressure may cause price reductions, fewer orders, and reduced revenue and gross margins.
Substantially all revenue is generated through channel partners. For the six months ended January 31, 2025, three distributors each represented 10% or more of total revenue and 44.9% in aggregate, while as of January 31, 2025 three distributors each represented 10% or more of gross accounts receivable and 47.6% in aggregate.
Subscription and support revenue was 82.4% of total revenue in the six months ended January 31, 2025 versus 81.0% in the prior-year period, and revenue is recognized over one to five years. Customers have no obligation to renew and may renew for shorter terms or less economically beneficial terms, so sales declines may not immediately appear in revenue.
As a security vendor, PANW is an attractive target and its products may contain defects or vulnerabilities. The filing cites the April 2024 command injection vulnerability in the GlobalProtect feature of certain PAN-OS versions, which required security advisories, software updates, and customer remediation.
The filing states revenue growth rates were 14.1% and 19.7% for the six months ended January 31, 2025 and 2024, respectively, and that recent growth rates may not be indicative of future performance. Total revenue grew 14.3% year over year in the quarter, compared with 19.3% in the prior-year quarter.
The company is embedding AI into products and operations, but AI algorithms may have flaws, training data may be biased, and evolving AI regulation and IP/license uncertainty could create legal liability, reputational harm, and higher computing costs.
Future growth depends on expanding deployments with existing customers, especially large enterprises, through platformization. Large enterprise sales have longer sales cycles, greater customer leverage, and more complex deployments, and costly efforts to attract new customers may not succeed.
In the Centripetal Networks lawsuit, a jury returned a verdict of non-willful infringement and a judgment issued on October 3, 2024 assessed a lump sum damages amount of $113.6 million, which is currently on appeal. Additional patent infringement cases are disclosed in the filing.
Total gross margin decreased to 73.5% in the three months ended January 31, 2025 from 74.7% in the prior-year period, and subscription and support gross margin decreased due to higher cloud hosting costs. Product gross margin also decreased for the quarter primarily due to an increase in inventory reserves.
The 2025 Notes mature on June 1, 2025, and $534.2 million principal remained outstanding as of January 31, 2025. Holders may convert during the quarter ending April 30, 2025, requiring cash settlement, and failure to repurchase or pay could cause defaults.
The August 31, 2024 acquisition of certain IBM QRadar assets included contingent consideration obligations of $664.9 million as of January 31, 2025, with potential payments through fiscal October 2028. Revaluation or excess payments could adversely affect cash flows and operating results.
Operating cash flow was $2.07 billion for the six months ended January 31, 2025, down $149.5 million or 6.7% compared with the prior-year period. Customer financing and deferred payment demands due to macroeconomic conditions can delay collections and increase non-payment risk, pressuring short-term cash flows.
SaaS KPIs
All quarters →Summary, forecast, risks and KPIs are extracted from Palo Alto Networks Inc's SEC filings for Q2 FY2025 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.