Palo Alto Networks lifts guidance after revenue jumps 31%
The cybersecurity firm raised its full-year revenue outlook to $11.3 billion after third-quarter sales climbed to $3.0 billion.
Palo Alto Networks (PANW) reported a sharp acceleration in growth as acquisitions fueled a 31% year-over-year increase in third-quarter revenue to $3.0 billion. The cybersecurity firm also raised its full-year guidance, citing stronger-than-expected demand for its next-generation security offerings.
The results marked a notable inflection after revenue growth had hovered near 15-16% in the prior two quarters. The surge was driven by the integration of recent acquisitions, including CyberArk and Chronosphere, which contributed $388 million in revenue and $1.6 billion in next-generation security annual recurring revenue (NGS ARR) during the quarter.
Revenue for the period ended April 30 rose 31% from a year earlier, while non-GAAP earnings came in at $0.85 a share, down from $1.03 in the prior quarter due to higher acquisition-related costs and tax adjustments. Non-GAAP operating income increased to $814 million, though operating margin compressed to 27.1% from 30.3% in the prior quarter, reflecting $198 million in acquisition-related costs, up from $24 million in the second quarter.
NGS ARR, a key growth metric, jumped 60% year over year to $8.1 billion, including the $1.6 billion contribution from acquisitions. Remaining performance obligation (RPO), a measure of future revenue, grew 36% to $18.4 billion, with $1.8 billion tied to the acquisitions. The company also disclosed a $38 million adjustment for the change in fair value of convertible notes and capped calls, a new item in its non-GAAP adjustments.
Despite the margin pressure, cash flow performance remained strong. Adjusted free cash flow margin reached 38.5% on a trailing 12-month basis, up 430 basis points from a year earlier, driven by higher operating cash flow of $4.2 billion. Goodwill surged to $21.9 billion from $6.9 billion in the prior quarter, reflecting the CyberArk acquisition, while intangible assets rose to $7.3 billion from $1.2 billion.
The company raised its full-year revenue guidance to $11.28–$11.31 billion, implying 22–23% growth, up from its prior outlook. NGS ARR guidance for the third quarter was lifted to $8.90–$8.95 billion, representing 59–60% growth, while non-GAAP operating margin guidance for the year was narrowed to 28.9–29.2%. Adjusted free cash flow margin guidance remained unchanged at 37.5%.
Palo Alto Networks also reported a GAAP operating loss of $183 million, compared to a $219 million profit a year earlier, as acquisition-related costs and amortization of intangibles weighed on results.