Palo Alto Networks Inc Q2 FY2025 earnings call

• Platformization progress: Over 1,150 platformizations in top 5,000 customers, with two-platform and three-platform customers growing. Q2 had ~75 new platformizations vs ~45 year ago.
• SaaS and software firewall: SASE was fastest growing form factor, with over 5,600 Sassy customers and over 23 million seats. Prisma Access Browser had strong growth, with ~$30 million in bookings and 95% quarter-over-quarter seat growth. Software firewall bookings grew 50%, with AI runtime security capability introduced.
• Cortex and cloud security: Announced Cortex Cloud, an end-to-end cloud security platform. XIM surpassed $1 billion cumulative bookings, and QRadar related bookings were over $100 million. DSP integration with Prisma Cloud saw strong early adoption.

In Q2, Palo Alto Networks saw broad growth across the portfolio. RPU was strong, with NGS ARR growing 37% to $4.78 billion. Total revenue was $2.26 billion, up 14%. RPO grew 21% to $13 billion. Product revenue had growth, with software contributing significantly. SaaS bookings grew well north of 50%, and SASE was a fast-growing form factor. XIM surpassed $1 billion cumulative bookings. Firewall appliance market was stable, expected to grow low to mid-single digits. Geographically, all theaters had double-digit growth, with large deals in EMEA and JPAC.

• Fiscal 2025: NGS ARR expected $5.52-$5.57B (+31-32%), RPO $15.2-$15.3B (+19-20%), revenue $9.14-$9.19B (+14%), operating margin 28-28.5%, non-GAAP EPS $3.18-$3.24 (+12-14%), adjusted free cash flow margin 37-38%.
• Third quarter 2025: NGS ARR $5.03-$5.08B (+33-34%), RPO $13.5-$13.6B (+19-20%), revenue $2.26-$2.29B (+14-15%), non-GAAP EPS 76-77 cents (+15-17%).

• Risks related to actual results differing from forward-looking statements.
• Cybersecurity threats evolving, including bad actors using AI to accelerate attacks.
• Challenges with deferred payments and cash flow timing, though management is confident in free cash flow generation.

Q: Saket Kalia asked about free cash flow margins and deferred payments.

A: Nikesh Arora said platform deals are efficient, and Dipak Golechha mentioned deferred payments have given more visibility.

Q: Hamza Fodderwala asked about AI proliferation and security.

A: Nikesh Arora discussed Deepseek's impact, noting AI requires firewalls around it.

Q: Brian Essex asked about cloud security win rates.

A: Nikesh Arora and Lee Klarich talked about leveraging platformization to enable agentic security and better win rates.

Q: Gabriela Borges asked about salespeople determining multiyear vs one-year billings.

A: Dipak Golechha said it's part of sales negotiation, with guardrails in place.

Q: Andy Nowinski asked about NetNewARR decline.

A: Dipak Golechha said transitions of old attaches to cloud-delivered advanced subscriptions led to prior growth, but newer products drive platformizations.

Q: Matt Hedberg asked about security foundation for agent rollout.

A: Lee Klarich and Nikesh Arora discussed multiple facets of securing agentic platforms, including AI environment security and XIM's role in agentic activity.