Summary
Palo Alto Networks reported fiscal second quarter 2026 revenue of $2.594 billion, up 14.9% year over year. Gross profit was $1.909 billion, up 15.1%. Operating income reached $397 million, up 64.7%. Net income was $432 million, up 61.8%, and diluted EPS was $0.61, up 60.5%. Gross margin was 73.6%, up 0.1 percentage points. Operating margin was 15.3%, up 4.6 percentage points. The company said Next-Generation Security ARR grew 33% year over year to $6.3 billion. RPO rose 23% to $16.0 billion. Current deferred revenue was $6.248 billion, up 11.6%. Non-GAAP net income was $732 million, or $1.03 per diluted share, compared with $566 million, or $0.81 per diluted share. Non-GAAP operating margin was 30.3%, and the press release noted a third straight quarter of 30%-plus non-GAAP operating margins.
Cash generation was mixed. Operating cash flow for the quarter was $554 million, down 0.5% year over year. Year-to-date operating cash flow was $2.325 billion, up 12.5%. Capital expenditures were $170 million in the quarter, up 254.2%, and $254 million year to date, up 176.1%. The 10-Q reported non-GAAP free cash flow of $2.071 billion for the first half. That measure is separate from operating cash flow and subtracts purchases of property, equipment, and other assets. The higher capital spending reflects continued investment in infrastructure to support cloud-based subscription offerings and business growth.
Operationally, management pointed to platformization and AI security as key drivers. Platformizations are accelerating because of AI, and customers want to both modernize and normalize their cybersecurity stack. AI security adoption was steady and strong, and the company expects it to be a long term trend. The acquisitions of Chronosphere on January 29, 2026 and CyberArk on February 11, 2026 expanded the portfolio into observability and identity security. CyberArk consideration was $2.3 billion in cash and 112 million shares of common stock. The installed base includes more than 70,000 customers and end-customers in over 180 countries. Management said it is deploying the same operational playbook across CyberArk and Chronosphere and looks forward to driving integration value after close.
Guidance points to a larger scale in the next two periods. For the fiscal third quarter 2026, management guided revenue growth of 28% to 29% year over year. NGS ARR is expected at $7.94 billion to $7.96 billion, up 56%. RPO is expected to grow between 32% and 33%. Diluted non-GAAP EPS is guided at $0.78 to $0.80 on 812 million to 817 million shares. For fiscal year 2026, revenue growth guidance is 22% to 23%. NGS ARR guidance is $8.52 billion to $8.62 billion, up 53% to 54%. RPO is guided to grow 28%. Non-GAAP operating margin guidance is 28.5% to 29.0%. Diluted non-GAAP EPS guidance is $3.65 to $3.70 on 768 million to 773 million shares. Adjusted free cash flow margin guidance is 37%. The company said it has not reconciled non-GAAP guidance to GAAP because certain items are uncertain or out of its control.
The risk list is broad. Integration of CyberArk and Chronosphere carries execution risk, including failure to achieve expected benefits and synergies, difficulty retaining key personnel, and disruption to business relationships. Other company-specific risks include platformization product failures, competition, rapidly evolving technology, delays in new product releases, long sales cycles, and defects or vulnerabilities in offerings. Macro and geopolitical risks include inflation, high interest rates, slow growth, foreign exchange fluctuations, supply chain disruptions such as memory or component shortages, tariffs, export controls, and retaliatory trade actions. The 10-Q also cites hostilities in Israel, tensions between China and Taiwan, and between the U.S. and China. Financing and capital return risks include debt repayment obligations and a share repurchase program that may not enhance shareholder value.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2026 | Q1 FY2026 | QoQ | Q2 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $2.59B | $2.47B | +4.9% | $2.26B | +14.9% |
| Gross profit | $1.91B | $1.84B | +4.0% | $1.66B | +15.1% |
| Gross margin | 73.6% | 74.2% | -0.6 pp | 73.5% | +0.1 pp |
| Research & development | $511.0M | $528.0M | -3.2% | $505.7M | +1.0% |
| Sales & marketing | $823.0M | $820.0M | +0.4% | $758.3M | +8.5% |
| General & administrative | $178.0M | $179.0M | -0.6% | $153.8M | +15.7% |
| Total operating expenses | $1.51B | $1.53B | -1.0% | $1.42B | +6.6% |
| Operating income (loss) | $397.0M | $309.0M | +28.5% | $240.4M | +65.1% |
| Operating margin | 15.3% | 12.5% | +2.8 pp | 10.7% | +4.7 pp |
| Net income (loss) | $432.0M | $334.0M | +29.3% | $267.3M | +61.6% |
| Net margin | 16.6% | 13.5% | +3.1 pp | 11.8% | +4.8 pp |
| Diluted EPS | $0.61 | $0.47 | +$0.14 | $0.38 | +$0.23 |
Risks
The CyberArk acquisition completed on February 11, 2026 for $2.3 billion in cash and 112 million shares, and the Chronosphere acquisition completed on January 29, 2026, substantially expand scope and create integration and retention risk. The filing states anticipated benefits and synergies may not be realized as expected or within the anticipated time frame.
The company faces intense competition from large platform vendors such as Alphabet, Cisco, and Microsoft, cloud hyperscalers, and specialized cybersecurity peers, and the CyberArk acquisition increases competition by adding entry into the identity security category. The filing warns this could lead to price reductions, fewer orders, and lower revenue and gross margins.
The filing expands AI-specific risk, noting AI is being incorporated into products and operations and that flaws, biased datasets, regulatory changes, and intellectual property claims could cause reputational harm, legal liability, and increased computing costs. E.U. AI regulation and emerging rules in other jurisdictions are cited.
For the six months ended January 31, 2026, three distributors individually represented 10% or more of total revenue and in aggregate 42% of total revenue. As of January 31, 2026, three distributors represented 46% of gross accounts receivable. Failure of these channel partners would limit sales and distribution.
The company guaranteed CyberArk's $1.25 billion 0.00% Convertible Senior Notes due 2030 and may need cash to settle conversions, repurchase notes upon a fundamental change, or repay at maturity. Failure to do so would cause a default, and other debt may limit cash payments.
Hardware products depend on limited-source components, some outside the United States, making the company susceptible to supply shortages, logistics delays, tariffs, and trade regulations. MD&A notes cost of product revenue increased 14% for the quarter due to higher tariff costs and increased hardware demand, and cites risk of memory or other component shortages.
Global economic and geopolitical uncertainty, including hostilities in Israel, Russia-Ukraine sanctions, inflation, interest rates, trade disputes, and tariffs, may reduce sales, lengthen sales cycles, lower subscription duration and value, and increase component costs. MD&A says the company is monitoring China-Taiwan and U.S.-China tensions.
Most sales are on open credit, and customer demands for financing and deferred payments can negatively impact short-term cash flows and increase non-payment risk, especially in weakened markets. The filing notes past non-material bankruptcy losses could increase with global economic conditions.
The company depends on large enterprise customers with lengthy and complex sales cycles and historically receives a substantial portion of orders in the last few weeks of each fiscal quarter. Delays from purchase orders, logistics, inventory, or trade compliance could cause revenue to fall below expectations.
Privacy and data protection obligations, including GDPR, CCPA, HIPAA, E.U.-U.S. DPF challenges, and new U.S. state laws, impose compliance costs and enforcement risk. Tax authorities may challenge intercompany arrangements, and the One Big Beautiful Bill Act is cited as potentially affecting tax obligations.
The company faces patent infringement claims, including the Centripetal Networks case where a $114 million lump-sum damages judgment plus statutory interest is on appeal as of the filing. It must also indemnify customers and channel partners against infringement claims.
The filing states growth strains management and requires continued improvement of systems and controls, and failure to attract, retain, and motivate key technical, sales, and management personnel could harm the business. Headcount increased from 16,068 to 17,027 employees from the end of fiscal 2025 to the end of the second quarter of fiscal 2026.
As a well-known security provider, the company may be a more attractive target, and a network or data security incident could harm reputation and create liability. The filing references the November 2024 authentication bypass vulnerability in certain PAN-OS software versions and related remediation efforts.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Total customers
Summary, forecast, risks and KPIs are extracted from Palo Alto Networks Inc's SEC filings for Q2 FY2026 (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.