Summary
Palo Alto Networks reported $3.00 billion of revenue in its fiscal third quarter, up 31.1% year over year. Gross profit rose 21.4% to $2.03 billion. The top line and gross profit grew, but the GAAP bottom line swung sharply. GAAP operating income turned into an operating loss of $183 million, down from the prior-year quarter. GAAP net income turned into a net loss of $177 million, also down from the prior-year quarter. Diluted GAAP EPS was -$0.22, down from the prior-year quarter. Gross margin fell 5.4 percentage points to 67.6%, and operating margin fell 15.7 percentage points to negative 6.1%. Those declines reflect heavy acquisition-related amortization, integration costs, and share-based compensation.
The demand picture was stronger. Next-Generation Security ARR reached $8.1 billion, up 60% year over year. Remaining performance obligations were $18.40 billion, up 36.3% from the prior-year quarter. Deferred revenue was $7.11 billion, up 23.6%. Those metrics suggest customers are still committing to longer contracts and larger platform deployments. Non-GAAP results also showed profitability. Non-GAAP operating income was $814 million, compared with $627 million in the prior-year quarter. Non-GAAP diluted EPS was $0.85, compared with $0.80.
Cash flow was a clear strength. Operating cash flow was $871 million, up 38.7% year over year. Capital expenditures were $83 million, up 22.1%. Adjusted free cash flow was $910 million, compared with $578 million. Trailing 12-month adjusted free cash flow margin was 38.5%, up 430 basis points year over year. For the first nine months of fiscal 2026, revenue rose 20.7% to $8.07 billion. GAAP operating income for the nine months fell 29.9% to $523 million. GAAP net income fell 33.1% to $589 million. Diluted GAAP EPS fell 36.3% to $0.79. Nine-month operating cash flow was $3.20 billion, up 18.6%, and nine-month capital expenditures were $337 million, up 110.6%.
Management tied the quarter to AI security demand. The company closed its acquisition of CyberArk on February 11, 2026, for total purchase consideration of $21.1 billion, including about $2.3 billion in cash and 112 million shares valued at $18.5 billion. It also added Chronosphere in January 2026, Koi on April 14, 2026, and Portkey on May 29, 2026. The deals broaden the company into identity security and observability, but they also raise integration risk and add amortization and acquisition costs.
Guidance points to continued growth. For the fiscal fourth quarter 2026, Palo Alto Networks guided revenue to $3.345 billion to $3.355 billion, up 32% year over year. It guided NGS ARR to $8.90 billion to $8.95 billion, up 59% to 60%, and RPO to $20.9 billion to $21.0 billion, up 32% to 33%. Diluted non-GAAP EPS is guided to $0.96 to $0.98 on 830 million to 840 million shares. For the full fiscal year 2026, the company guided revenue to $11.415 billion to $11.425 billion, up 24%. It guided NGS ARR and RPO to the same ranges, non-GAAP operating margin to 28.9% to 29.2%, diluted non-GAAP EPS to $3.77 to $3.79, and adjusted free cash flow margin to 37.5%.
Risks remain significant. The company cited worldwide economic and geopolitical conditions, hostilities in Israel, Iran, and the surrounding regions, trade regulations and tariffs, component shortages, and competition. It also flagged risks around integrating CyberArk and other acquisitions, retaining key personnel, customer purchasing decisions, sales cycles, product vulnerabilities, litigation and regulatory developments, convertible notes, and share repurchases. The GAAP loss shows how much of the current earnings picture depends on non-GAAP adjustments. Cash flow and RPO show the underlying business still expanding.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2026 | Q2 FY2026 | QoQ | Q3 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $3.00B | $2.59B | +15.7% | $2.29B | +31.1% |
| Gross profit | $2.03B | $1.91B | +6.2% | $1.67B | +21.5% |
| Gross margin | 67.5% | 73.6% | -6.0 pp | 72.9% | -5.4 pp |
| Research & development | $734.0M | $511.0M | +43.6% | $494.5M | +48.4% |
| Sales & marketing | $1.16B | $823.0M | +41.1% | $792.5M | +46.5% |
| General & administrative | $316.0M | $178.0M | +77.5% | $163.9M | +92.8% |
| Total operating expenses | $2.21B | $1.51B | +46.2% | $1.45B | +52.4% |
| Operating income (loss) | -$183.0M | $397.0M | -146.1% | $218.8M | -183.6% |
| Operating margin | -6.1% | 15.3% | -21.4 pp | 9.6% | -15.7 pp |
| Net income (loss) | -$177.0M | $432.0M | -141.0% | $262.1M | -167.5% |
| Net margin | -5.9% | 16.6% | -22.5 pp | 11.4% | -17.4 pp |
| Diluted EPS | -$0.22 | $0.61 | -$0.83 | $0.37 | -$0.59 |
Risks
The February 2026 CyberArk acquisition for $21.1 billion and the Chronosphere acquisition added substantial operations, approximately 4,166 employees from CyberArk, and a new identity security category; integration, retention, and synergy realization may disrupt existing operations and increase competition.
AI is being incorporated into products and operations, but AI advances may increase the speed and scale of vulnerability discovery and exploitation, reduce perceived value of certain cybersecurity solutions, and invite AI-native entrants; evolving AI regulation and IP uncertainty add legal and compliance risk.
Unfavorable economic and geopolitical conditions, including tariffs and changes in trade policy, export/import controls, inflation, interest rates, and hostilities in Israel, Iran, and the surrounding region, could reduce sales, lengthen sales cycles, and increase costs.
Hardware products rely on limited sources and manufacturing partners, and MD&A cites increased memory, storage, or other component shortages plus tariffs; these have disrupted or delayed product deliveries and increased costs.
Two distributors individually represented 10% or more of total revenue and 31% of total revenue in aggregate for the nine months ended April 30, 2026, and 29% of gross accounts receivable as of April 30, 2026; channel partner failure would limit distribution.
Intense competition from large platform vendors such as Alphabet, Cisco, and Microsoft, plus identity security incumbents following the CyberArk acquisition, could lead to price reductions, fewer orders, reduced revenue, and lower gross margins.
Current quarter gross margin was 67.6%, down 5.4 pp from 73.0% in the prior-year quarter, driven by higher amortization of intangibles from recent acquisitions and lower hardware margins; tariffs and mix could continue to pressure margins.
Current quarter operating income swung to a loss of $183 million from $219 million in the prior-year quarter, and operating margin fell 15.7 pp to -6.1%; operating expenses rose across R&D, sales and marketing, and G&A due to headcount growth, acquisitions, and share-based compensation.
Holders surrendered $153 million in aggregate principal amount of the 2030 Notes for conversion during the three and nine months ended April 30, 2026, leaving $1.1 billion outstanding; if sale price conditions are met, we could be required to settle principal and conversion excess in cash.
A substantial portion of sales orders and revenue historically occurs in the last few weeks of each fiscal quarter, and large enterprise sales involve longer cycles; delays or failure to realize large enterprise sales could cause revenue to fall below expectations.
The company must attract, retain, and motivate key technical, sales, and management personnel during the integration of CyberArk and Chronosphere; headcount increased to 21,491 employees as of April 30, 2026, and retention difficulties could disrupt business.
SaaS KPIs
All quarters →Remaining performance obligation
Free cash flow (non-GAAP)
Next-Generation Security ARR
Total customers
Summary, forecast, risks and KPIs are extracted from Palo Alto Networks Inc's SEC filings for Q3 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.