0. Good day, everyone, and welcome to Palo Alto Networks' Fiscal Second Quarter 2026 Earnings Conference Call.

I am Hamza Fodderwala, Senior Vice President of Investor Relations and Strategic Finance. 30 p.m.

Pacific Time. 2.

With me on today's call to discuss our fiscal second quarter results are Nikesh Arora, our Chairman and Chief Executive Officer, and Dipak Golechha, our Chief Financial Officer. Following our prepared remarks, Lee Klarich, our Chief Product and Technology Officer and board member, will join us for the question and answer portion.

3. You can find the press release and other information to supplement today's discussion on our website at investors.paloaltonetworks.com.

While there, please click on the link for quarterly results to find the Q2 '26 supplemental information and Q2 '26 earnings presentation. 4.

During the course of today's call, we will be making forward-looking statements and projections regarding the company's business operations and financial performance, as well as the company's recent acquisitions. These statements made today are subject to a number of risks and uncertainties that could cause our actual results to differ from these forward-looking statements.

Please review our press release and recent SEC filings for a description of these risks and uncertainties. We assume no obligation to update any forward-looking statements made in the presentation today.

5. This presentation contains non-GAAP financial measures and key metrics relating to the company's past and expected future performance.

Non-GAAP financial measures should not be considered a substitute for financial measures prepared in accordance with GAAP. The most directly comparable GAAP financial measures and reconciliations are in the press release and the appendix of our investor presentation.

6. Unless specifically noted otherwise, all results and comparisons are on a fiscal year-over-year basis.

I will now turn the call over to Nikesh. 7.

Thank you, Hamza. Good afternoon, and thank you, everyone, for joining us today for our earnings call.

8. We delivered a strong Q2, fueled by robust demand for cybersecurity and continued execution against our platformization strategy.

This led to strong organic results in Q2, with NGS ARR of 28%, revenue growth of 15%, excluding the impact of recently closed Chronosphere. 9.

We saw broad-based strength across our products, from SASE, software firewalls, and XSIAM to our emerging leadership in AI security with Prisma AIRS. We paired this growth with improving profitability, achieving a 30% plus operating margin for the third consecutive quarter.

10. We're excited to head into the second half of the year, having closed both the CyberArk and Chronosphere acquisitions, and I would extend a warm welcome to both teams.

Both companies continue to deliver record numbers in their most recent quarters, and we look forward to building on their momentum as we hit the ground running on our integration plans. 11.

These investments are a direct response to the inflections we see taking shape in the market. While it's still early, the initial feedback from our customers has been very encouraging.

12. We believe we're now entering the next phase of AI adoption.

Large enterprises are moving beyond experimentation and beginning to integrate foundational models into real workflows. As AI becomes embedded in day-to-day work, the central question that organizations face is shifting from capability to control.

That shift has meaningful implications for security. more agents, more infrastructure, more machine-to-machine activity, and new classes of risks that simply did not exist before.

In that environment, security cannot sit on the sidelines. Despite the current sentiment about AI and software, we firmly believe that security is an enabling layer that allows innovation to move forward safely and at scale.

14. As AI agents become autonomous employees, the old security playbook is not just slow; it's obsolete.

Security must operate in real time at the critical control points where decisions are made across network, endpoint, cloud, browser, and identity. This is where Palo Alto Networks operates.

As the AI becomes more embedded across the enterprise, those control points are converging. end-to-end attacks are now four times faster than a year ago, and in nearly a quarter of the cases, attackers were able to break in and exfiltrate data in under an hour.

The good news is that 90% of those breaches were preventable, caused by basic gaps in visibility and controls across multiple attack vectors. 16.

This is why we committed to our platformization strategy a few years ago. A platformized approach, built on a real-time data-driven model that gets smarter with scale, is the only way to secure the modern enterprise, and our results continue to prove that out.

17. In Q2, we delivered approximately 110 net new platformizations, a quarterly record outside of our seasonally strong Q4.

This brings our total platformization count to approximately 1,550, up 35%. 18.

The success of this strategy is also reflected in our best-in-class net retention rate amongst platformized customers. It stands at 119% with low single-digit churn.

This proves that once customers adopt our platform, they not only stay, but continue to invest more with us over time. 19.

This momentum isn't accidental; it's the result of a deliberate flywheel motion we've built. When we committed to our platformization strategy years ago, we're betting on a shift that has now become an industry standard.

This approach allows us to not only solve today's problems, but also provides the foundation to address new ones as they emerge. 20.

It starts by providing multiple clear landing paths. In network security, customers can begin with SASE, hardware or software firewalls, and now AI security with Prisma AIRS.

In the SOC, they can land on our Cortex platform via XDR, cloud security, or directly on to XSIAM. From any starting point, customer experience the superior outcomes of an integrated platform, which leads them to adopt more deeply across our ecosystem.

21. In a market changing this quickly, we believe our responsibility is to anticipate the next inflection and ensure our platform is ready.

That philosophy guides our strategic investments, and the results give us the confidence to continue. 22.

Our secure browser, for example, was one such early investment that is now accelerating our SASE business, with over 9 million licenses sold to date. Similarly, in AI security, Prisma AIRS, launched just a few quarters ago, and is already rapidly scaling with over 100 customers ending in Q2.

This is the discipline we now plan to apply to two large, established markets poised for inflection: identity and observability. If AI becomes the new interface for how work gets done, identity security will be required to create the permissions and boundaries that teams can trust.

As AI introduces unprecedented scale, observability is essential for building resilient systems that can operate reliably. By bringing our platformization discipline to these new pillars, we believe we can deliver even greater value to our customers and solidify our role as their trusted partner to navigate the complex security and data challenges of the AI era.

24. Let me share a few examples of how this strategy is translating into deeper, more strategic customer relationships.

First, a global automotive leader selected us for a major security transformation. Their goal was to modernize their security architecture and dramatically improve efficacy.

This resulted in an over $50 million deal, including $30 million for SASE and $20 million for XSIAM to run their global SOC. 25.

Similarly, a global technology supplier selected us for a transformation initiative for over $40 million, choosing XSIAM to modernize their security operations globally, while expanding their investment in SASE. 26.

Finally, a transaction with a leading IT services provider perfectly illustrates our flywheel. Building on existing investments, they committed for a $20 million expansion centered on XSIAM, and have now platformized across network security and security operations.

27. These aren't just transactions; they're architectural decisions.

When the stakes are highest, these wins validate that industry leaders are choosing the superior outcomes delivered by Palo Alto Networks. 28.

With that, let's dive deeper into the individual performance of our platforms, starting with our largest segment. 29.

Our network security business delivered a standout quarter, demonstrating the power of a platform designed to meet customers wherever they are in their hybrid journey. In Q2, our SASE business continued to go from strength to strength, surpassing the $1.5 billion ARR milestone while growing approximately 40% year-on-year, solidifying our position as the fastest-growing SASE provider at scale.

30. What's particularly telling is the shift we are seeing in the market.

Many early adopters of SASE who made choices 4 or 5 years ago during the pandemic are now finding that those early solutions are not comprehensive enough for today's threats and complexity. As a result, they're reconsidering their first-generation point products in favor of a platform approach that provides a single, unified architecture to secure their entire hybrid environment, from the data center to the cloud and their remote workforce.

31. A key driver of these wins is also our secure browser.

This stems from a strategic bet we made over two years ago with the acquisition of Talon. Our thesis was that the browser is the most critical, unmanaged edge where users, data, and now AI agents intersect.

The results show our customers agree. As of Q2, Prisma Browser has been adopted by over 1,500 customers, 10% of which are in the Global 2000, with an additional 2 million license seats sold in Q2.

32. This success has clearly not gone unnoticed.

It's encouraging to see others in the industry waking up to the idea that they must secure the browser layer, validating the importance of this increasingly critical control point. While many of these approaches simply extend existing architectures into the browser, we continue to believe the browser itself should function as a native security platform, architected for real-time control rather than retrofitted through extensions.

33. We also continue to see strong momentum in our software firewall business.

Last quarter, we called it our hidden gem; that was validated once again in Q2. Our ARR growth was approximately 25%, driven by the need to secure increasingly dynamic multi-cloud environments, a need that grows as AI workloads scale.

This was complemented by our strongest hardware performance in several quarters, with revenue up nearly 10%, driven in part by early adoption of our latest Gen 5 firewalls. adversaries are using a "harvest now, decrypt later" strategy, stealing encrypted data today to break in the future.

We've seen this become a C-level priority in our early customer conversations, and the broad interest in this topic was confirmed by nearly 5,000 attendees at our quantum summit last month. This is a critical part of our customer long-term roadmap, and we believe we are uniquely positioned to guide them through this coming architectural uplift and shift.

35. Now moving to Cortex.

Customers continue to partner with us on their AI SOC modernization. In Q2, XSIAM surpassed the $0.5 billion ARR milestone.

We welcomed almost 150 new customers, bringing our total base to over 600, paying an average of nearly $1 million in ARR. The key story here remains not just the growth, it's the outcomes.

Over 60% of our deployed customers are now achieving mean time to remediation of less than 10 minutes, a profound shift from the days or weeks they measured before. 36.

The success of XSIAM is a great example of our ability to identify a market inflection early, invest aggressively, and execute to scale. We made a bet on the AI-driven SOC well before it became an industry-wide theme, and the results are showing at scale in just 3.5 years after GA.

we are enabling our customers to build a workforce of autonomous AI agents. The key differentiator, and what makes this a real breakthrough, is where these agents can operate.

Unlike traditional security tools confined to their own ecosystem, our agents can securely extend into first- and third-party infrastructure. This means an agent can not only detect an issue in XSIAM, but then can go out and auto-remediate directly in a cloud console, an identity provider, or a firewall at machine speed.

This capability, already enabled by 200 XSIAM customers, is the key to delivering true enterprise-wide automation. 38.

This is a powerful example of how we use AI to create better security outcomes. That's only one part of our AI security strategy.

Over the last couple of years, we have expanded our AI security capabilities aligned to what our customers need as they deploy AI at scale, by bringing those capabilities together as part of a universal AI security platform, one designed to protect AI deployments across models, agents, and the environments in which they operate. It starts with Prisma AIRS to secure AI models and AI-powered applications across their lifecycle, from model scanning and red teaming to runtime defense.

We launched this platform just a few quarters ago, and its adoption has been remarkably strong. From Q1 to Q2, we more than tripled our customer count to over 100, while bookings also doubled during the same period.

With a nine-figure pipeline already materializing, it's clear the market has been waiting for a comprehensive platform to secure AI. 39.

At the same point, we're also seeing a new class of autonomous AI agents emerge, software that can perform tasks and interact with local systems on its own. This naturally extends security requirements to the endpoint.

This is why I'm excited to announce our intent to acquire Koi, a pioneer in securing the next major inflection point in security: the agentic endpoint. 40.

Koi will enhance our endpoint capabilities within XDR 2.0 while also becoming an integrated part of our universal AI security platform, extending security and governance to autonomous agents at the device layer. 41.

We are witnessing a dramatic shift in how software lives on the endpoint. Traditional security tools are often blind to the new AI layer of software, the massive rise of MCP servers, browser extensions, plugins, and ephemeral code that bypasses standard security controls.

This represents a significant unmanaged attack surface. 42.

We identified this new threat vector early, and Palo Alto Networks has been a customer of Koi since summer of 2025. On my recent trip to Israel in December, Lee Klarich and I met with the Koi team and were immediately impressed by their foresight into the next generation of endpoint threats.

Since then, we've seen this risk pattern intensify, including security concerns that have been recently popularized by the widespread adoption of OpenClaw. We believe this is the latest example of what the future of an AI attack surface will look like, and that Koi will help our XDR platform remain well positioned to provide the most innovative security solutions to our customers.

43. After closing, Koi will also be able to provide unique extensions to Prisma AIRS and Prisma Browser to ensure that our customers have visibility to any AI software and browser that are only present on the endpoint, resulting in the most comprehensive visibility to the AI attack surface.

Over time, this will help ensure that the endpoint becomes more agentic, but customers will remain fully protected. 44.

Now, this focus on visibility is critical, but to act with precision, you first need to see with clarity. This is why a new level of observability is so essential, which brings me to Chronosphere.

deliver observability at a massive scale, proven in production today by many of the world's leading born-in-the-cloud and AI-native companies. During Q2 and after we closed the Chronosphere acquisition, we signed a multi-year, nine-figure expansion deal with a leading AI model provider, a testament to Chronosphere's ability to scale in the largest and most complex environments.

46. The momentum is clear in the numbers, with the company generating approximately $200 million in ARR as of Q2, well above our expectations.

The end-to-end observability platform is also gaining traction, with over 80% of new logos last year landing with multiple products, such as metrics, logs, and traces. By combining Chronosphere's deep visibility with the automated action of Agentix, we are enabling our customers to build the self-healing, autonomous enterprises of the future.

47. We have prevention, we have visibility, and we have automation.

Every action, whether by a human or an AI agent, is governed by an identity, which brings me to our next newest major pillar. 48.

We're delighted to have closed the acquisition of CyberArk early in Q3 and are ready to execute on what I believe is a massive opportunity in identity security. As many of you noticed earlier this month, CyberArk is coming off an exceptional December quarter with record net new ARR and 30% subscription ARR growth at scale.

We've been rigorously building and defining integration plans, and are moving fast to put these plans into execution. This includes aligning our go-to-market engines.

We're already well underway on detailed account planning and aligned sales incentives to ensure our teams are collaborating from day one. 49.

From a product perspective, the innovation roadmap here is massive. We aren't just looking at legacy IAM, which in our view is basic hygiene, but building a next-generation identity security platform that protects across humans, machines, and AI agents.

We also look forward to delivering machine identity and certificate lifecycle management to our 65,000-plus firewall customers. Longer term, we remain excited about the opportunity to address the growing needs of identity to secure AI agents.

We bought CyberArk because when AI agents start logging in at machine speed, logging in becomes the primary attack vector. We believe we are now the only company that can verify the "who" and secure the "what" simultaneously.

Given the momentum in the business currently and our innovation roadmap, we believe we are well positioned to become the largest identity security player over time. 50.

In summary, we continue to execute against our platformization strategy in Q2, with momentum building across multiple areas of the business. Our core innovation engine remains strong, with great traction in new products like AIRS and Agentix, and ready to put our integration plans into action with CyberArk and Chronosphere.

51. Before I hand over to Dipak, I want to take a few minutes to reflect on the recent advancements in AI.

We're seeing significant innovation in new agentic platforms targeted at the enterprise. While it's still early, it is causing some companies to reassess how their applications are built, how workflows are automated, and how decisions are made.

Longstanding assumptions about systems of record are being revisited, and perhaps even more so, the analytics layer built on top of them. in our case, it is real-time threat activity generated at the control point where our platforms operate and continuously refined through more than 30 billion attacks blocked daily and 15 petabytes of telemetry processed in our AI SOC.

That distinction matters. When we say precision AI, it is not AI layered onto a feature set; it is AI trained on our proprietary dataset and embedded directly at those critical control points.

unified, consistent, and real time. Because our platform sits at these control points, we see these shifts as they happen.

The data generated across network, cloud, identity, endpoint, browser continually informs our models, creating a feedback loop that compounds with scale. 54.

Scale is not enough. Sustaining leadership requires a willingness to adapt and challenge our own assumptions.

Technology cycles change, architectures evolve. Over the past 7.5 years, we've consistently aimed to invest ahead of inflection points in technology, even when the path is not fully defined.

Maintaining this discipline is vital to ensuring that we remain the digital guardian for our consumers, however their technology stack could evolve. 55.

With that, I will hand over the call to Dipak to review the quarterly results in detail.

Thank you, Nikesh, and good afternoon, everyone. 57.

As Nikesh noted, our strong Q2 results reflect the consistent execution of our platformization strategy coupled with a robust demand environment. The increasing adoption of our platforms is most evident in our next-generation security ARR, which grew 33% to $6.33 billion.

This includes a $200 million contribution from our recent acquisition of Chronosphere. On an organic basis, NGS ARR was up 28% year-over-year, and net new ARR was up 11% year-over-year.

58. This performance was driven by an acceleration in SASE and software firewall ARR, alongside continued momentum in XSIAM.

A key contributor to our software firewall growth in recent quarters is Prisma AIRS. As customers increase their AI deployments, they're looking for a trusted partner to secure this critical transformation.

Prisma AIRS directly addresses this need, and as Nikesh mentioned, it is scaling rapidly, with over 100 customers ending in Q2. 59.

Our remaining performance obligation, or RPO, grew 23% to $16.0 billion. This includes approximately $150 million of RPO from our Chronosphere acquisition.

It's important to note that RPO balances for Chronosphere can fluctuate from period to period given usage-based pricing, with ARR and revenue being more representative of business performance. Our current RPO, which represents near-term revenue realization, was $7.1 billion, representing 18% growth.

60. Total revenue was $2.59 billion and grew 15%.

Given the close of our Chronosphere acquisition came near the end of fiscal Q2, the revenue contribution was immaterial during the quarter. 61.

Product revenue was up 22%, with 45% of the product revenue coming from software form factors over the trailing 12 months, which is up from 38% in the trailing 12 months ending in Q2 '25. This was driven in part by strong demand for software firewalls, as noted earlier.

Our software growth was complemented by improving hardware demand, led by the adoption of our latest Gen 5 firewall appliances and SD-WAN. 62.

Total services revenue grew slightly above 13%. Within this, subscription revenue was up 14%, while support revenue grew 12%.

63. From a geographical perspective, we saw broad-based strength across all of our major theaters, with the Americas growing 14%, EMEA growing 17%, and JAPAC growing 17%.

64. Moving further down the income statement, our disciplined focus on profitability and operational leverage continued to deliver strong results in Q2.

Given the timing of the Chronosphere acquisition, the impact of this transaction to our P&L financials was immaterial. 65.

Our total gross margin for the quarter was 76.1%. Within this, product gross margin was 78.2%, an increase of 150 basis points year-over-year, driven by a higher software mix compared to last year.

As noted earlier, we did see improvement in our hardware business during Q2; therefore, on a sequential basis, the higher mix of hardware and product revenue resulted in a 180 basis point decrease to product gross margin versus Q1. 66.

The services segment delivered gross margin of 75.6%, down 100 basis points year-over-year. The year-over-year change in services gross margin reflects a positive mix shift towards our high-growth SaaS offerings, which remain in the earlier part of their scaling curve.

We continue to be pleased by the growth of our SaaS offerings and remain focused on driving efficiencies here. 67.

Now turning to the supply chain, we observed a marginal impact on product COGS this quarter from higher memory and storage pricing, but we believe we are well positioned to manage through these dynamics. First, our high and growing software mix provides a natural hedge.

Second, we will leverage our scale, deep supply chain expertise, and lessons learned through COVID and prior supply chain constraints. Third, pricing actions taking effect later this fiscal year will help offset corresponding cost increases.

We have proactively factored these considerations into our Q3 and full-year outlook. 68.

We delivered our third consecutive quarter of 30% plus operating margins, with Q2 operating margin of 30.3%, a 190 basis point expansion versus Q2 of last year. This strong expansion reflects our ability to drive consistent scale and efficiency across all OpEx line items.

69. Our diluted non-GAAP EPS reached $1.03, which once again came in above the high end of our guidance.

70. Q2 adjusted free cash flow was $502 million.

On a trailing 12-month basis, we generated $3.75 billion in adjusted non-GAAP free cash flow, representing a margin of 37.9%. 71.

Our cash and cash equivalents for the period was $7.9 billion, reflecting a $2.6 billion cash consideration for the Chronosphere acquisition. Given the recent close of our CyberArk acquisition, we expect a $2.3 billion cash outlay in Q3.

This results in total combined cash outlay of $4.9 billion. 72.

In connection with our acquisition of CyberArk, we guaranteed the payment obligations under CyberArk's convertible senior notes due 2030. The acquisition resulted in a make-whole fundamental change under the notes, and we will be making an offer to repurchase the notes in the coming days.

We also issued 112 million shares in consideration for the CyberArk acquisition. 73.

Before I turn to guidance, I also want to extend a warm welcome to the over 4,000 talented individuals from CyberArk and Chronosphere. We're thrilled to have them on board and excited to execute on our integration plans to unlock the full value of these acquisitions.

74. Our focus is on a frictionless onboarding experience for our new colleagues, and within just the first few days, we provided access to collaboration tools for every individual to work as one cohesive team.

We remain confident in our ability to deliver significant scale and leverage across every line of each of our financial statements. 75.

From an operational standpoint, integration is being executed with the same rigor that we apply to running our core business. We've established clear governance, defined work streams across all functions, including IT, finance, IT, HR, product, and go-to-market, and implemented measures to ensure continuity for customers, partners, and employees.

Our priority is maintaining business momentum while methodically bringing platforms, reporting structures, and operating rhythms together. 76.

Taken together, we believe this disciplined approach to integration reinforces our confidence in delivering sustained growth and operating leverage, enabling us to achieve our target of 40% free cash flow margin by fiscal 2028, and our longer-term goal of $20 billion in NGS ARR by fiscal 2030. 77.

Now let me take you through the guidance. 78.

Please note that our Q3 and full year 2026 guidance is inclusive of both the CyberArk and Chronosphere acquisitions, which have been aligned to our fiscal year and our definitions of certain non-GAAP metrics. This includes NGS ARR, which reflects only the subscription portion of CyberArk's ARR, and has been conformed to our standard revenue-based definition.

Our Q3 and full year 2026 guidance assumes reported NGS ARR for CyberArk will be approximately 2% to 3% lower than the equivalent under CyberArk's previous bookings-based ARR definition. Please see the appendix of our earnings presentation for more detail on the comparison of the two ARR definitions.

NGS ARR to be in the range of $7.94 to $7.96 billion, an increase of 56%. This includes a $1.47 billion contribution from M&A.

Remaining performance obligation of $17.85 to $17.95 billion, an increase of 32% to 33%. This includes a $1.6 billion contribution from M&A.

Revenue to be in the range of $2.941 to $2.945 billion, an increase of 28% to 29%. This includes a $340 million contribution from M&A.

Our fully diluted share count of 812 to 817 million shares, which accounts for the close of the CyberArk acquisition on February 11th. Diluted non-GAAP EPS to be in the range of 78 cents to 80 cents.

NGS ARR to be in the range of $8.52 to $8.62 billion, an increase of 53% to 54%. This includes a $1.52 billion contribution from M&A.

Remaining performance obligation of $20.2 to $20.3 billion, an increase of 28%, which includes a $1.6 billion contribution from M&A. Revenue to be in the range of $11.28 to $11.31 billion, an increase of 22% to 23%.

This includes a $760 million contribution from M&A. Operating margins to be in the range of 28.5% to 29%.

Diluted non-GAAP EPS to be in the range of $3.65 to $3.70 per share. Our fully diluted share count of 768 to 773 million shares, which accounts for the close of the CyberArk acquisition.

An adjusted free cash flow margin of 37%. 81.

We've included our typical modeling points in the presentation for your review, but I'd like to highlight a few now. First, note that under our accounting policy, the upfront portion of term licenses and any perpetual license revenue from CyberArk will be recognized as product revenue.

All of our Chronosphere revenue will be included in services. For Q3, we expect product revenue growth of 25%, and for the year, we expect product revenue growth in the low 20s.

82. With that, I will turn it back to Hamza for Q&A.

Okay. Thank you, Dipak.

We ask, please limit yourself to one question to allow for maximum time for Q&A. First, we've got Rob Owens from Piper Sandler, followed by Brad Zelnick from Deutsche Bank.

Great. Thank you, Hamza, and good afternoon, everyone.

Nikesh, looking back at 2018, 2019, there was a prevailing fear that cloud computing would render parts of the cybersecurity stack obsolete. At that time, you leaned in via M&A and repositioned the portfolio and obviously the business has tripled since that today.

Now we enter this AI era, and the narrative feels oddly similar. Could you compare the existential nature of this AI shift to what we saw in cloud, and maybe what areas you think will be obsolesced?

Then specifically, is M&A the primary lever again this time around, or does your starting position differ at Palo Alto from where you were, let's say, at the start of the cloud cycle? Thanks.

That's a long one question, Rob. Nice to see you again.

That's a that's a good question, Rob. Look, I think when we looked at in 2018, '19, we were you were trying to manage two challenges.

One challenge was: how do we get customers to get off on-prem to cloud and then deliver them cloud security? The other challenge was, how do we deliver services off the cloud that customers would accept because they're being delivered from the cloud?

That's kind of where, us, we had to refactor our entire security services in the firewall, delivered them from the cloud, which was a huge opportunity. We made a lot of acquisitions to deliver cloud security.

We fundamentally architected XSIAM at that point in time as a cloud-delivered SOC, which was generally not the prevailing trend. 86.

I think this time, I'm still confused why the market is treating AI as a threat to, at least, cybersecurity and I can't speak for all of software, because one thing we're definitely seeing that customers have figured out that they need to drive more consistency in their security stack to be able to respond faster using AI. You cannot respond fast if you've got 70 different vendors who have different data, different logs, different APIs running.

We are seeing a trend towards more consolidation, more platformization, and that's evident in what we said. We did our best number of platformizations this quarter than we've ever done barring a Q4, which is seasonally strong.

87. I think that's one trend we're seeing.

The other trend we are seeing is slow adoption on the enterprise side, slower than the consumer side of AI, but as that adoption is beginning to happen, we're beginning to hear conversations around security, which as you see with Prisma AIRS, we delivered 100-plus customers. This is much faster than we did in cloud security, people are adopting it faster.

From my perspective, AI is inevitable. It is going to be used by enterprises.

As enterprises start putting more critical functionality in the hands of AI, they will want control of AI agents or of their AI infrastructure, and that requires more security. 88.

I think, generally, it's a positive trend towards more security adoption. I particularly believe it's a bigger trend towards platformization and consistency of data and harmonization of data in the enterprise.

We're not collecting enough data right now to get good security outcomes.

All right. Thank you.

Thanks. Thank you, Rob.

Next, we have Brad Zelnick from Deutsche Bank, followed by Saket Kalia from Barclays.

Great. Thanks so much.

Nice to see everybody. Nikesh, I pay close attention to the acquisitions you make and the things that you tell us because you've proven very astute at identifying future opportunities.

As we think about XSIAM and the AI-driven SOC, I've heard investors concern lately that LLMs are going to kill SIEM tools. How do we think about the balance of opportunity and threat of LLMs doing a lot of the things that we relied upon SIEMs for?

Even if you're competitive from a product standpoint, is there a risk that you now face a new strong competitor for these modernization opportunities?

Look, I think, Brad, the LLMs are a net positive and additive to our capability to deliver security. LLMs are very useful for data classification when we're doing DLP, because we've relied on very traditional approaches towards exact matching data and trying to do DLP, and LLMs are much able to understand context, and say, "No, this definitely looks like something that is data that is restricted or PII."

I think there are certain examples where generative AI and LLMs are extremely useful. 94.

All the examples you see, they're really good at looking at patterns and finding gaps. You'll see in offensive security or red teaming, LLMs are being helpful.

I think the challenge that LLMs will face or do face in providing comprehensive security is: it's not the 95% of the time they're right, it's the 5% of the time they're not right you need to be right, right? This is like we're fighting bad guys who have to be right once, we have to be right 100 times, 100% of the time.

LLMs, until they get to 99, 99.9% accuracy, are not a threat to delivering security. They are tools that can be used to summarize capabilities.

There will be agentic actions that can be used to get a lot of the pre-work done from a precision AI perspective and get that data together. I think AI helps the cause.

Every security company is going to have to use AI to deliver the capabilities that they deliver today. 95.

I think it's not a secret. Every one of us is working hard.

Almost every security product has some version of a co-pilot that now runs in tandem with the product that helps you understand the pattern, understand the capabilities, and be able to answer questions faster. I don't think it's going to replace a security product anytime soon.

96. Don't forget about one more thing is, in most cases, our security products sit at edges and create new data and logs that didn't exist from everything that's around them.

To the extent we are creating proprietary data in security, that is not going to be replaced by an LLM. We're not a system of record, we're not a system of work; we are generating domain-specific data based on threats we see out in the environment, and then using that analytically to figure out how to customer should protect themselves.

Awesome. Super clear, super helpful.

Thank you.

Okay. Thank you, Brad.

Next, we have Saket Kalia from Barclays, followed by Meta Marshall from Morgan Stanley.

Great. Hey, thanks for taking my question here.

Congrats on closing Chronosphere and CyberArk. Nikesh, maybe on that point, I'd love to dig into the joint pipeline opportunity with CyberArk a little bit.

You have a big go-to-market machine that we can leverage here, I'm just kind of curious how you think that opportunity unfolds. Maybe relatedly, Dipak, for you, you gave some breadcrumbs earlier on CyberArk, or on inorganic, but wondered if you could help us bridge maybe how much ARR we can include for CyberArk this year as we kind of think about that build-up of organic versus inorganic.

Saket, the good news is that CyberArk has a phenomenal team out there in the field, does Palo Alto Networks. We have very carefully sort of been working with them after the close.

Both teams have been made aware of how to pursue joint opportunities together. We understand our pipeline, we understand their pipeline.

We've built a roadmap for overlapping pipeline where both customer has opportunities in the frame the next 3 to 6 months, and we've already armed the teams with plans as to how to address the joint opportunity. 101.

What's fascinating is, just anecdotally, just as you were informing the teams, we already have had CyberArk reps come tell us they have an opportunity for Palo Alto's products in their accounts, which they're particularly strong at. I know that Peter Jenkins, their president, was on a call over the weekend trying to help close a customer for CyberArk reps with Palo Alto capabilities.

It's happening in both directions. 102.

I think it's early days, but I think the opportunity is real. As the teams get to know each other, as they get to know each other's processes, I think we're going to see more and more momentum with both the teams.

It is going to be a bit of crawl, walk, run, because right now both our systems are different, we have to do this stuff manually. We have people helping us build sort of a central acceleration team, which drives both, but as CyberArk teams understand more and more of the Palo Alto products and the capability in the platforms, and as the Palo Alto teams understand the CyberArk capabilities, and also, as we work with CyberArk team to build the next generation of products that we've been sort of ideating with them recently, I think we're going to see continued momentum in both those pursuits.

Then if I can just take the breakout. Look, we're not breaking out every M&A deal that we do separately all the time.

However, just as a baseline, Saket, we did say that CyberArk NGS ARR was about $1.2 billion as of December 2025. I just said that in my prepared remarks that $200 million of ARR came from Chronosphere.

Then I've also guided what the total M&A contribution is, I think it's hopefully you'll agree that's a lot more than breadcrumbs to be able to allow you to do the math there.

Full English breakfast.

We'll take it. Thank you.

All right. Thank you, Saket.

Next, we have Meta Marshall from Morgan Stanley, followed by Josh Tilton from Wolfe Research.

Great. Thanks, and congrats on the quarter.

Maybe just a question for me on the SASE business. We saw nice reacceleration in that business in fiscal Q2.

Just any commentary about what you're kind of seeing driving some of that strength. Thanks.

Yeah. Your question, we're obviously very excited by seeing that business accelerate at scale.

I think Nikesh said it fairly well when he talked about sort of this notion of a first-gen adoption of customers that was tend to be more sort of point-product type adoption. They're trying to solve a particular problem, and the existing solutions at the time were pretty good at solving that one problem.

Now we're seeing both new customers as well as many of those customers come back and look for a more comprehensive solve. 109.

Their employees might all in one day show up to an office and work, work from home, and work while traveling. If they get three completely different experiences and application access and everything else, it doesn't work for them from a productivity perspective.

What we're able to do by delivering this as a platform is we can bridge how we apply network security from a hardware perspective, software perspective, SASE perspective, and even all the way down into the browser with Prisma Browser, all in a very consistent way, both for security outcomes as well as the end-user experience and the productivity they achieve. That is the overarching trend that I see in what's driving the business right now in SASE and the customer excitement about what we do.

Great. Thanks.

All right. Thank you, Meta.

Next, we have Josh Tilton from Wolfe Research, followed by John DiFucci from Guggenheim.

Thank you, guys. Maybe just a high-level one for me.

What are you guys seeing in regards to the volume of network traffic from your customers as they move more out of the experimentation phase and actually start to really adopt agents enterprise-wide? How, if at all, will that impact the demand for the broader network security suite, whether that's firewall or SASE?

It's too early to tell. I think if you look at the AI adoption in the enterprise, there is a surge of AI adoption in the coding space.

People using Cortex, Cursor, Claude Code, and equivalent. You're seeing a lot of that.

Those are very application-specific, and actually that fits exactly where Koi operates, because when you start doing coding and vibe coding off your desktop, you'll see MCP servers and clients spun up on edges, you'll see a whole bunch of code that is sitting at the edge, which is not visible to traditional XDR capability. That's why that was the solution we're using Koi, and that's where we saw they had traction, they had 40, 50 customers, and we were a customer of theirs, this is an unsolved problem in security, and this is kind of where all the action is from an enterprise adoption perspective.

114. Outside of that, there is now enterprise adoption that we're beginning to see where customers are running perhaps millions of tokens in one or two particular applications they're working with some of the LLM providers on, and that's where we see the traffic.

That traffic is again more within the network. I don't think it's traffic that networks cannot handle.

I think the challenge right now is consolidating that traffic. How do you get all the AI traffic to be in one place, you can understand it, provide visibility, look at the ability to control it, and be able to act on it?

I think that's going to be the next bastion as to how do we figure out the solution for all this traffic that is beginning to have a different nature in enterprise, and it needs different set of controls and tools. 115.

It's not really impacting the network-level traffic yet. I say yet, because as adoption grows, I fully expect you can't build $600 billion worth of data centers and not expect traffic to grow, and can't expect that not to happen.

I think that's going to happen. The data centers being built.

It's early days, and consumer activity is far outstripping enterprise for the moment, but we expect enterprise will surely and slowly get on that bandwagon.

Super helpful. Thank you.

Thank you, Josh. Next, we have John DiFucci from Guggenheim, followed by Gabriela Borges from Goldman Sachs.

Thanks.

Thank you for taking my question. Nikesh, I agree with you, everything you said.

Thank you, John. I'm going to sleep better tonight.

Next question.

You can stop now. It's good.

Great question.

I don't always agree with you, but I really do on this.

I really do.

I agree with you on everything you're saying about AI, it's positive effects on security. I actually really like the acquisitions you've done here.

If AI is going to be good for security, and I think it will in both cases, both you need to secure AI, also I could be a hacker if I wanted to be. If that's the case, when are we going to see it?

Because it doesn't show up in the numbers. Not that it doesn't show up in your numbers yet, it doesn't show up in anybody's numbers yet, really.

Maybe a couple, but not really. Is this

Look, I think, John, the best analogy I can give you is look at cloud security. You didn't see cloud security numbers for a while, because typically cloud adoption in enterprise is lagged the consumer, and then even then, it was literally a 2-year cycle, a 3-year cycle before enterprise fully got all their application and workloads moved onto the cloud.

I expect right now if you look at it, you tell me how many enterprise AI apps are you using which are driving tremendous amounts of throughput? I can't think of anything but coding apps.

122. Now coding apps are not resource-intensive on your infrastructure; they're resource-intensive on the endpoint.

The endpoint capability and LLMs are where all the action is. I think it's early days.

What I'm heartened by the fact is that our number of customers with Prisma AIRS is kind of following the same trajectory as XSIAM. The volume isn't there, because the throughput's not coming through LLMs right now.

123. I think it's early days.

Look, you have to have one of two beliefs, John. You have to be in one camp or the other.

Either you have to believe that the $600 billion of data centers that are being built are going to be consumed. If you believe that, which most people seem to do, then that consumption is going to be 80/20: 80% consumer, 20% enterprise.

Those data centers yet to be built. 124.

I think what is happening is we're all laying the groundwork right now. There's a bit of a sort of an arms race to try and see who can get the AI security sort of platform up and running as quickly as we can, and you can see innovation is happening in every direction.

That's why you see us, we bought Protect AI, which is now well integrated. We made an AI firewall.

Now we're making Koi. We see that that's where the action is.

The next question is going to be how do you consolidate all the AI traffic in one place? You're seeing the piece parts being built mid-flight.

I think you just have to be a bit patient.

Okay. I'm not always patient, but I will try it.

Thank you. All right.

Thank you, John.

All right, John. Thank you for the question.

Next, we have Gabriela Borges from Goldman Sachs, followed by Adam Tindle from Raymond James.

Hey, good afternoon. This one is for Lee.

It's a CyberArk question, but it's a product-based CyberArk question. If we think about CyberArk historically being strong for privileged users at the high end, what is the technical lift that has to be done to make that technology more accessible for every user?

I'm curious what you've learned in the last six months also from your customer base on the method to securing agentic identity between PAM, IGA, and IAM. Any learnings from the last six months would be curious to hear.

Thanks so much.

Yeah. Thanks, Gabriela.

Good question. First, let me start with the first question.

I think just the general space of privileged access management has largely been a more sort of sophisticated category, and as such the more sort of security-conscious enterprises have been the biggest adopters. There's already sort of a transformation under foot of sort of this notion of modern PAM and moving to just-in-time controls and zero standing privileges and things like that.

Part of that is actually improving security, but part of it actually is also about making it easier for the end user to actually interact with these systems. That's already happening.

Further, we have ideas for how we can leverage integrations between CyberArk and, for example, Prisma Browser, in terms of: how do we integrate capabilities in the place where the user is already doing work, in order to make it even easier for them to take advantage of these capabilities? There's already a lot of progress, and we have more ideas for how we're going to continue to make that easier, we can drive broader adoption across existing customers, but also make it easier for non-customers to adopt.

Then ultimately, I think that leads to the broader sort of full human identity solution that we're excited about. 131.

Now, as that is happening, yes, there is the agentic identity sort of market that is rapidly forming. Look, my view on agentic identity is it's going to have sort of aspects of machine identity and privileged users sort of wrapped into one.

This is partly why I think CyberArk is well suited for being able to go after this because of their leadership in both of those foundational spaces. Then it's: how do we adapt, add to, and then optimize for agentic use cases?

Again, some of that will be sort of a standalone CyberArk from an identity platform perspective, and some of it will be how we think about that in concert with Prisma AIRS, where we already have hooks into the AI infrastructure and will have again integration opportunities to be able to bring solutions to our customers.

That makes sense. Thank you.

All right. Thank you, Gabriela.

Next, we have Adam Tindle from Raymond James, followed by Shaul Eyal from Cowen.

Thanks, Hamza. Nikesh, in your comments, you talked about with Chronosphere a nine-figure expansion deal with a leading AI provider.

I just want to pick on that and just ask about the key attributes that help Chronosphere get that level of commitment. Were you displacing an existing vendor, the timing for that, the rationale for it, and maybe even the pipeline beyond that?

Just a quick clarification, Dipak, just because I know this is coming up in after hours after you talked about ARR in total. I think investors are stripping out the $1.47 billion from Q3 NGS ARR and looking like organic net new NGS ARR is down a lot.

I think there's probably some flaws to that, but just want to toss that out there to have you clear the air. Thanks.

All right, Adam. First things first.

Look, Chronosphere is a highly scalable solution, and its scalability is dependent on a net new architecture designed for observability, which is different from what the current incumbents in the space have. That scalability allows them to deliver those capabilities at approximately half the price, if not more, or less than some of the other players out there.

They are displacing another vendor in that space. 136.

They have been partnering with a large language model over the last six months or so, and they have passed every technical hurdle, which allowed them to make a commitment to Chronosphere. We expect the full transformation over the next 6 to 12 months, sort of the full transition from the other vendor.

Part of the $200 million ARR is from one of those large LLM vendors. We expect that to continue to grow.

137. In addition to that, they have other customers who are significant customers, and they are going to pursue significant customers over the next 3 to 6 months in partnership with us.

That's why we bought the company, because of its scalability, because of capability from a technical as well as a commercial perspective. Lee can talk more about product capabilities that we're going to give it, but we hope that that will allow it to be a full sort of full-scale replacement option for both DIY—many, many customers do DIY in that situation—as well as being able to compete effectively with some of the big observability players out there.

Yeah. Look, I'll just give you a high level.

They've built something very unique for that very high end of the market, scalability and the economic aspects, even the start of some of the AI analytics and that will complement with Agentix. The next phase is going to be: how do we build out a lot of sort of enterprise sort of off-the-shelf kind of features that make it just really easy to do integrations, to basically replace existing incumbent infrastructure, whether that's commercial products or open source?

We think, in both cases, Chronosphere will scale down into that large enterprise segment very nicely.

Then, Adam, just on your question on NGS ARR, just to be clear, our organic NGS ARR is roughly in line with consensus for Q3 and we've reiterated the full year. Maybe folks just haven't fully appreciated that Chronosphere is closed before Q2, but we will make sure that's all cleared up.

Thank you.

Okay. Looks like Shaul is not here, next we'll go with Adam Borg at Stifel, followed by Gregg Moskowitz from Mizuho.

Great. Thanks so much for taking the question.

Maybe, Nikesh, you talked about a little bit in the prepared remarks about the quantum opportunity, talked about a little bit last quarter. Love to hear more about kind of early learnings from kind of the discussions with the customers from the panel a few weeks back, and ultimately how you think about the opportunity in the coming years.

Thanks so much.

Look, as part of the CyberArk deal, we've acquired Venafi. I'm going to have Lee talk about a new capability we're building called the next-generation trust subscription, plus our quantum capability.

We have been in discussion with 100 customers who are experimenting or beta customers of the product. We have tremendous feedback for them.

Our quantum capability is not just for Palo Alto firewalls; it actually looks at the enterprise capabilities, we have actually integrated 10 other vendors' worth of quantum data into our quantum sub. I'm going to let Lee talk about the sub.

In both of these cases, whether it's cryptography and PQC or certificates and managing that, the alternative is largely a very manual, sort of human-centric, repetitive kind of task approach. It's either some poor person or people that have to constantly sort of manually go look at certificates, look at the renewal dates and ages and everything like that and then redo them manually, or we can do it through technology.

The same is true with quantum cryptography. It's either a lot of manual consultation going through and trying to figure out what exists, or we can use technology.

What in both cases we figured out, obviously Venafi in one case that will be joining the team and then the NetSec team is: how do we use technology, largely our next-gen firewalls, but not only our next-gen firewalls, other data sources as well, to do that discovery, to be able to technologically discover everything that is needed, and then through automation to then also be able to automate the process of remediation. This has obviously security benefits, but it also has reliability and uptime benefits as well, because you have to remember in both of these cases, these are fundamental to how production systems operate.

Okay. Thank you.

We will end it here with Gregg Moskowitz from Mizuho.

All right, last question. Thank you, Hamza.

Closing Palo Alto's two largest ever acquisitions within a couple of weeks of each other, it's exciting, the potential is tremendous, but it could also add an unprecedented amount of stress on the management team, engineering, go-to-market teams, etc. Nikesh, how do you keep everyone's eye on the ball, yourself included, and not be subject to execution or distraction issues?

Thanks.

Gregg, these acquisitions, at least in the case of Chronosphere, has been in the works the last 2 or 3 months, and CyberArk has been in the works the last 7 months. I've visited their Boston facilities, spent days there with them, Lee and I were in Israel with the team and spent time with them.

CyberArk just didn't come upon us this week. It has been in the works for the last many 6 or 7 months.

148. As you might have read, we had worked with the management team to fully understand what role every employee at CyberArk was going to have.

We were able to, on the date of close, inform every employee what their role in the future joint organization was going to be, what their plans are, give OKRs, give targets to every one of them. They all have that within the first 48 hours.

It's not like we've been waiting. 149.

There are some systems transitions that we have to do in the case of CyberArk, which the teams are working hard, fast, and furious on. We have the option to plan what they need to be, we have our eye on the ball, that's our job, right?

From a CyberArk perspective. 150.

Chronosphere is, honestly, other than the fact that the price tag was big, but it's still a 250-people engineering team that does observability, which is fundamentally different from anything we've done. The only point of product interaction is they're working hard with the Cortex team to figure out how to incorporate Agentix into their platform so they can have agents solve the observability problem not just sort of being an observability company.

151. Separate to that, because they are sort of whale hunters, they go after big observability clients, we are able to selectively and surgically help them on a client-by-client basis to help them drive what they need to do.

This is our 32nd or 33rd acquisition between the two of them. We have a lot of lessons from prior acquisitions which we have brought to bear.

Our teams have been working really hard for the last many months, and we have been actually adding capacity at our end to make sure we can handle some of these transitions that are required.

Terrific. Thank you.

Thanks, Gregg.

All right, that concludes the Q&A portion of this call. I'll pass it back to Nikesh for any closing remarks.

I just want to say thank you to all of our customers, to all of our employees around the world, thank you to all of you for joining us on our conference call. We will see you guys next quarter.