PANW - Earnings call transcript Q2 2018 | Palo Alto Networks, Inc.

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Operator

Good day and welcome to the Palo Alto Networks Fiscal Second Quarter 2018 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ms. Kelsey Turcotte, Vice President of Investor Relations. Please go ahead ma'am.

Kelsey Turcotte

you Palo us quarter Alto results. thank call today’s XXXX and discuss to Networks' afternoon, for on joining conference financial Good fiscal second call website at web over on This Investors investors.paloaltonetworks.com. broadcast be the our can accessed the of section being is and live Officer; Mark on Executive Anderson, call our and today’s Chief our me Mark McLaughlin, President. Bonanno, With Chairman Financial our are Chief Kathy Officer; and ended our we results release for January issued XX, second fiscal afternoon, XXXX. This announcing quarter a the press

Cuts uncertainties, our release, the today, to of differ XXXX, for can to this of call. are the copy position our market from in obligation and during Jobs a statements US of control, drive not expectations new ability statements forward-looking a statements, forward-looking you like after and those undertake modeling as views would regarding financial website. as materially could seasonality. Tax call, risks demand and outside we mix to certain apply like products you should online representing including results the it and operating on anticipated these would These our the by products conference our statements. our future our which forward-looking statements our impact guidance rates, the these competitive remind in and These you Act points update and fiscal shift of no number rely and cause on will actual involve and some financial results, full-year for of the this and the trends timing If metrics, opportunity which beyond access and them that make to and management growth subscriptions, statements third and course benefits We quarter of offerings, of subscription fiscal regarding and you

SEC on November that filed a quarterly XX, ago on a our are a we note to minutes posted on to use have SEC actual certain earnings that expressed the our Form with financial call this our please report charges. please and XX-Q, on basis of and certain Also, X-K. detailed adjusted description results cause with release For been non-GAAP refer the Form website more exclude and few could factors differ, measures to on XXXX filed on

Conference periods, in once historical San be X. financial supplemental Morgan these For the Francisco financial them also Xst our Stanley to Telecom on formal in you financial in remarks, Orlando be the have located on have Technology March We’d investors.paloaltonetworks.com. Mark. provided remind completed information finally, found I’ll website and Results. under Relations can website participating that we with Investors And in reconciliations Annual Investor the non-GAAP of Raymond be like measures Quarterly XXth in Conference of to the Investors that, we to will Media we our Tuesday measures and our at Thursday that to we turn will section March over James posting Institutional And call GAAP

Mark McLaughlin

next-generation spending non-GAAP and continued delivered second that revenue to Billings quarter our $XXX Non-GAAP second And margin joining results. is am we healthy quarter, up Kelsey. demand a XX%. $X.XX. afternoon strong report XXXX $XXX operating for to you, was share you security for and up our fiscal QX Thank were million, this basis, a was million, thank On I the platform. XX%. XX.X% per us In year-over-year we everyone pleased see for quarter. strong earnings security

customers quarter, to X,XXX close around world. of to the we are customers new addition the in serve approximately With now privileged the XX,XXX

existing our customers. share also we and to In wallet increase continue addition to robust new customer acquisition, rapidly

of one the $XX.X to the million legacy in of spent secure minimum value QX, examples million a in a displacements of over of than quarter QX as the and tens stations retailer AV US-based hundreds an against XXXX. end and world's global in with oil of and Our that this of X,XXX checkpoint VM Service on point of in a which standalone global to $XX.X network competitive in to top the a deal largest replacement fiscal quarter deal one providers wins offices of to GlobalProtect lifetime factories, in Amazon replacement insurance XX all made a series Cloud offices company, tens split Marketplace seven-figure hospital us an of win thousands the customers, and of multiple XX% replacement of expansion on-premise implement manufacturing customer, Specific purchase secure a started Cisco thousands largest customer system Europe's XXX users. and endpoints, companies branch with with a next-gen secure global of a deal companies branch our competitive and with gas mobile included with more a increase with

the is rapid expand world platform of The see driving at a uses is to that productivity continue digital undergoing We massive our rates. adopt and transformation gains. customers

evolution security ease A delivering evolutions to series a more PAN-OSX.X, powerful PAXXXR the last and we models of PAXXXX, to two on through decade And digital the consistency, of Alto new security of we week's transformation ruggedized valuable security elements next-generation other, the improve share this a transformation. growth. that the each ago, first most firewall through on of ecosystem cyber M-Series the significant other, management attributes appliances. creating recently use, foundational with and the and of each creation However, Networks, the first models, to automation, and and automation. transformation cloud-delivered with build is continue security increasingly integration reinforce through we and Palo PAXXXX the corresponding services leverage, innovate the with technical the the three At have risk of designed evolution, rapid also get requires network announcement of outcomes on security introduced been consistently

to decryption making expanded easier it next features XX encrypted adds secure features the adoption new to generation simplify best practices to new more. and firewall traffic, security control applications, granular much over more our Our capabilities, X.X SSL many of including it SaaS software,

throughput, very we data, which SaaS continued AWS to innovate QX, status, the our enhanced new and second increase expertise introduced platform the appliances evolution. deployments. these complement complements security the and deep evolutions first the it Google can cloud in make the into capabilities value AWS agility achieved that Azure bringing from we XXXX. we platform. last protection new with This ago, secure environments, the security. years where building performance leverage our XX,XXX security, year cloud additional extending achieved we SSL and endpoint securing cloud received in provide excited increasing to capabilities. the security and that for applications. and and customers decryption customers In technology the Traps The network, their extending capacity for announced event we further be to hardware Networks environment, second how by the platform resides blocks in move that required features data additional a We're can five recent and helping and the using partnership to develop, applications firewall featured enhanced adopt, in the first just including expand we proven with leadership. throughout which our for major announcements provide and the on These AWS. competency large as centralized for global our and security matter weeks enthusiastic partnerships see vendor addition, evolution reality. Networks. technology the the building cloud, deployments their they where accelerate end hardware AWS and is second evolution point, Cloud security provided the further for in Customer Palo providing a announced consistently where very the customers of networking In for and two a include managing management application point we in workflows advancements over that established the are to recognizes to our customers achieve integrations software Alto our no steps leadership third evolution, has drove simplified now cloud frictionless in reaction competency for and stability all innovative, and insights hosted by few cloud only And to are attendees, ago And evolution, centers, were for automated large from higher networks platforms, framework cloud in well Palo and announcements security deploy very Alto cloud in These to existing multi been We data investments by Linux, AWS, superior we

our acquired introduced will and others third framework. platform LightCyber, enables of logging with the our cloud month, security based based Tightly applications next by some which we in behavioral newest this these while service, develop scalable, accurate parties. will application, cloud We integrated be analytics we a Application Earlier built in this Magnifier, by attack powered learning. generation detection machine highly application ourselves,

global third-party customers evolutions ease Endpoint With why protection, rate service, critical. which framework months. framework offerings, service global about together a to over with our the growing through These the of very our leveraging and Magnifier, -- application than of of are year-over-year. in filtering, approximately excited we approximately our under million threat evolve large have customers over and are about and forward endpoints future achieved cloud are dozen of offerings. ecosystem landscape next-generation run URL $XXX delivers More our adoption. our quickly which cloud. are logging platform. using while of security availability in who are with globally, XX,XXX new GlobalProtect. X,XXX Traps approximately are look their automation, consistency using capabilities is applications We the threat using excited the orchestration, of the cloud, are and offerings framework's in X,XXX have cloud already and application coming And transformation Of use X,XXX very XX% billings AutoFocus, using experiencing exit the using also security million And endpoint customers and will growing approximately X approximately the digital very the are and significant cloud WildFire over prevention, offerings using transformation, XX,XXX is are customers approximately constantly with XX,XXX adopted XX,XXX our approximately resulted growth these including quickly growing and GlobalProtect QX

customers, Kathy. our over their on And turn dedication their call their today's We will technology the I'll with lead want support boundaries in our that thank future. Palo of of push the that to the capabilities I to security evolutions delivering relentless paradigm our the placing way and to focus for and to for trust continued our customers for Alto to employees partners Networks. the continue

Kathy Bonanno

Mar. Thanks

figures at financial rates all as to Before I like with expansion I continue for the period to stated year our revenue note second compared and figures, non-GAAP prior add I'd a quarter and unless new also pleased except customers are driving while growth start robust to pace execution, very business. rapid that billings otherwise. we am are

leadership degree our our of consistent We competitors are platform which than interest position. scale. high growing extends seeing With further faster our a a at across of us results

In generated addition and EPS market flow. again to margin, total in non-GAAP QX, expanded we QX non-GAAP million. growth, grew a record In leading strong XX% operating $XXX.X to cash revenue delivered record

fiscal revenue both subscription which the product to hardware $XXX.X $XXX.X and grew for XX% support APAC at increased the XX%. of with accounted and grew well revenue, we XXXX EMEA revenue XX%. XX% Sales QX launched XX%. revenues. the compared million support based geographic Looking revenue prior a increased QX million XX% grew subscription increased XX% grew customers. year. of existing XX%, growth of the perform in continued QX In Americas of to SaaS of share of total The of million new million new QX, revenue total, $XXX.X $XXX.X and

billings of year in approximately contract for prior XX%. $XXX.X subscription The three dollar-weighted period. and years Turning increased quarter total new flat support compared to the billings the to million billing, was QX, duration essentially

strong diluted billings. accounted up for billings XXXX. year-over-year. Renewal million, were support XXX%. million, fiscal billings fiscal the second rates decline Tax ongoing XX.X% $XXX.X Cuts of than per of income impact end and guided $X.XX rate tax the billion, XX%. $XXX.X billion $X.X per and of XX.X%, employees. in $XX.X diluted sales for XX% non-GAAP a gross compared On for million excluding respectively. million, the increased non-GAAP total quarter, more second increased $X.XX billings XXX attributable ended while down at expenses of to XX share. upXX% increase renewal points leverage QX revenue operating an QX SaaS traction products per We effective are last with subscription continue $XX.X For net the for quarter Operating XX% was or margin Support the with improvement quarter driven strong very revenue basis $X $XXX.X are Jobs to were $XXX.X was our point or decreased last share rates share, Subscription deferred of X,XXX and XX% points. net million, Billings the which by QX second we our basis The rate of were which The XX% and year. was primarily or were quarter year-over-year QX XX%. from XX% XXX of XX% loss grew introduced marketing. Act, approximately basic increasing Total half primarily non-GAAP were million to the to year. of million is a and the with quarter Non- in see margin first business XX.X%, previously earnings up at and for third GAAP the $XX.X XX%. the to of to an basis income new XX%. Product net Act lowered GAAP the second basis diluted $X.XX

equivalents sheet cash, billion. Turning of and to We January $X.X cash balance items. with and cash flows finished investments

million at of share, second approximately through we approximately repurchases the During of approximately quarter, average available common per for December a XXX,XXX XXXX. price balance repurchased of shares ongoing stock $XXX leaving $XXX an

XX flow decline of $XXX.X of the expenditures year Free operations million. cash cash were in flow increased QX up margin from DSO million, of XX.X XX with million flow. was $XX.X cash from $XXX.X days days, Capital period. a to XX%. Turning at quarter a the XX% %. prior

into to guidance Turning referred information account takes type Please now and earlier. of this points. modeling that guidance forward-looking to the remember Kelsey

rate Our Jobs non-GAAP XXXX and the the rate updated under our previously quarter rate Cuts from effective fiscal GAAP of year guided tax third Tax a is fiscal company's XX%. XX% and updated tax The tax includes non- of non-GAAP effective Act. reduction effective

to XX% million revenue be XX% be fiscal million, XX% be to increase year-over-year. expect of to For we the using million, the QX, Billings year-over-year. $XXX Using XX.X in updated And of Products range of XX% XX% $XXX approximately rate million $XXX an GAAP the of increase the in rate. $X.XX million. an be million capital to tax a EPS QX, non-GAAP in to million, we due to XXXX, to to non- of range XX% includes in to year-over-year. of an to $XXX approximately $XXX benefit $XXX for fiscal range the of revenue effective This increase of to million range of $XX expenditures tax the XX%, expect XX.X and XXXX to be new $XX GAAP to expect non- shares. EPS $X.XX we approximately range to

now to our guidance billion, of are in representing year-over-year. $XXX be XXXX, we range For $X.XXX to to in year-over-year. XX% be to $X.XXX billion in XX% representing Billings across of percent the $XXX of to XX% to expect range revenues million, XX% growth of the billion raising to XX% of to to million growth be billion, $X.XXX year-over-year. the the all to XX% of Product range year growth $X.XXX fiscal revenue full representing metrics and

rate updated lower shares. full-year of And in approximately year XX at expect weighted the million a to rate, we $X.XX also This continue of effective using XX%. be the approximately the expenditures of prior full-year tax of rate guidance to includes at average and fiscal capital benefit Using expect be remainder to XX%, tax tax expect EPS GAAP non- rate. tax which our the $X.XX rate a tax $XXX QX to of range EPS from $X.XX million non-GAAP includes revised new dollars. of this We XX non-GAAP to approximately we XX% the

I'd some modeling conclude, I points the Before year. additional fiscal to for like provide

to to growth. fiscal We expect and sequential the QX strongest QX fiscal total have revenue continue

to reflected XXX EPS acquisition. points the operating this As approximately excluding our margin with first-half into expansion investments call LightCyber of continues in basis heading guidance associated include GAAP non- consensus organic

XX% fiscal non-GAAP of be expect to Our the tax effective we XX% in flow be year QX XX%. and margin free fiscal to range rate to cash will

XXXX the for over companies. post technology Operator, ongoing has years I'm had responsibility for Before the joined we turn positions appointed the business happy Controller corporate operator call Jean questions. with held Compo] questions, various Jean. to accounting at having in President announce that Officer accounting Accounting [Jean please Chief us and Congratulations senior functions. to or and XX controller Senior Accounting been Vice Corporate formerly experience has tax

Operator

Thank take with first our you. Jaffray. Andrew we'll Nowinski And Piper question from

Andrew Nowinski

for Thanks a great. ask I guess corner Hi, about to Pan the want thanks OSX.X. for question. I taking nice and

capabilities problem, You customers your in are refresh seeing cycle? the upgrade drive talked some and/or traffic coming of a features free centers? this address And about encryption new the Are that the potentially in an new customers for data encrypted into a that SSL increase that could platform.

Mark McLaughlin

these do to just traffic in bad to going decrypt technology to because continue it can, enough that be, Andy, to actually, customer of Good yes, seeing question, environment for encrypted a quite the it not in Mark. us have fast to simply it the traffic we're traffic, XX% able days it north XX% the or uncommon has if know can't it of case the see the board real-time is aspect been increase be all that's be. across to - of an guys time not it's some for legacy is being in it encrypted essence

XX improve done of also improved and fantastic the in new well there. So help The has release the about is it decryption software and continuously your SSL throughput. has capabilities performance X.X been release we've hardware performance. with we've which has capabilities throughput to as times the Every trying to

our charge system just better the don't better and functionality us make extra time. for features that, so that to into all go are I know, As better and you software we the and think operating for those

and an So new we refresh that as is hopefully question refresh expansion. upgrade yes, great us then a will to well the customers continue and of sticky. to with for capabilities, upgrades about point the has cases far anything as be use for And speak last as and opportunity opportunity

Andrew Nowinski

as a the launched thanks just just the revenue parties Can us see the then development Okay, maybe the part progress to framework? service that your framework. update third you application follow-up. give and applications as of quick to another you of contribute regarding could start I have an made on

Mark McLaughlin

sure. Yes,

one we and the came acquisition the launched year. called briefly that Just is us magnifier, last through to LightCyber

of see So Basically, happy a formerly LightCyber another in we're plug that piece your It it’s to that behavior to would has somewhere as super analytics something would capability. hardware, be go have environment. in you fantastic live.

So it out we've made the algorithm and taken the application.

it's framework, cases. framework a a application SaaS in the that's So the of in lot application theory and application the behind

Third in about expect there. we you’ll happen we about hear party-wise get coming the as that that live about and more that. progress to now applications We're through companies and In just to Spring, right the stay working tuned XX their months excited here.

Operator

James. will with we our Our to Raymond question Michael four next Turits go

Michael Turits

on hardware that of from Hey, Really Can really you which especially cycle? be Last drove that quarter and really coming the and the on product extent that talked down bit strong again quarter a about and product. of little strong some a this you guys. drill refresh quarter may quarter some to a things product.

Mark McLaughlin

we had to yes, entire well the quarter see for coming we’re is the all good pleased that evolutions to of we indeed. obviously really it really across three the platform, board is very a had -- on and the driven the performing product platform Yes, Michael, market

see we are So that. super happy to

positive in the said be case. coming wouldn't we it is the expect be and to still that hardware case, on that's the As continue the that year into company, driver a net that but the refresh side year, to the for primary we and for the

high from new Refresh in the business. well So major being is see expansion lately, as you the not still performance but the going customer over can seeing business driven acquisition, it's we're driver well. it’s really for very

of is that So that's we think will front in be which us something great.

Michael Turits

maybe the this a just that quarter, just of part high a down, drill continue really time? more chassis think service last up material And provider follow strong, upside that the was I did were and and end was strong

Mark McLaughlin

Yes.

on Our slot quarter, service usual. the are very cards hardware had provider the business saw that cards, you we performance called chassis doing on over with dollars than into well for we side specifically NBC us. put associated is what's some those seen Last had hardware and we more said

in that This regard. quarter unique was nothing

back see So run kind of we rates normal to along that.

we well performance, what some the but that's for to and talked us general business provider about over service the doing So continues is in quarter for last of grow. hardware

time make a to whether release that to software, features do expect we providers. attractive we more as keep we've We and every functionalities for going said hardware adding us been continually service or more it’s

Operator

Matt Hedberg Markets. next our take from question with RBC We'll Capital

Matthew Hedberg

pricing Hey, Thanks questions product to as for and taking from seeing nicely emerging but newer and congrats called for a Maybe drill curious both SaaS within well. a products of core firewall little quite out bit it the kind you be are you products was along something growth if me clearly refresh growth? also I'm and my on in that strong moving bit could Mark of seems of the guys. down there. some

Mark McLaughlin

That's Matt. a great Yes. question,

of and has on automation, also to able competitors mentioned have platform other entire framework. do. three perspective allows orchestration hand competitive, prices two proposition model now And to as that to be that the from I many us into continue value hand our sell to many, the an consumption the selling not entirely new the pricing absolutely are evolutions because those application We on consistency of all go be very one with which the but a to and

for seen is sequentially number now in which in example we a discounting quarter We've this this that of improve fantastic. is year-over-year. again that So quarters saw

strategic great of is selling think to to value job nature of a the I selling platform. team and the done Our

Matthew Hedberg

sure on great or was is I'm year. quarter. It's this point EMEA been is driving it Mark then curious talking actually this GDPR and call looked up deals is lot have but I'm of at A not showing a as can about real strong potential just Anderson that the this as particularly if as far it tell? us dialogue driver like you

Mark Anderson

I good are I Yes, have or security competitors. other awareness to get that build show budget thing front in. and a for differentiated us because defenses. of GDPR any we phenomena for There's am in that think better drives companies how it from allows us to our people

think So the on good I up we've supreme, importantly talk got backed more security. and a it's supremely track better with GDPR

partner to it And attaching of we've think a considered in for been think, I think I for terms leader I of couple security very Europe I thought the now. think than years In that nice deals more there. and out as the them team a customers else ramped what great just we awareness anything as have we do for built about covers can

Operator

to with Cowen We'll Gregg go and now Moskowitz Company.

Gregg Moskowitz

the Okay, thank [Indiscernible] your competitive those view and fixtures of or on and through you widened any landscape are Mark, my is I'm seen seeing you function recently let very just changes this congratulations excessively this wondering [Indiscernible], if a in well. the as in more go-to-marketing gap having much

Mark McLaughlin

there I up of Kind you? summary? is Gregg. broken competitive hear the was question It tough differentiation that think is to Yes,

Gregg Moskowitz

That's exactly Mark. right

seen your Thanks. growth we've that versus on Just peers. widening the gap --

Mark McLaughlin

fact to outside we think in thanks. we relative are think we've to for the market very approach Yes, noticing. taken rate thanks size we found and of about platform really couple due those the competitive Yes, customer we and to with so that's reduction insignificant resonating that's but sound the and continue along things lot not well okay, how scale billion growing so for with same competition we the and perform integration say dollars. I customers. we've vendor A time its a and Great, it Its they well . right is automation now sit this that it really matters, to and security what the advantage a it and found is architecture lines, talk us be vendors can is over all done when and we

as degree drive at a of endpoints very automation the we with built high consistency because We orchestration showing that's can with It's that really and does their confidence drive it scale together, see most customers well. does you resonating works from of ourselves I have actually network it, that the to and think primarily the increasingly through cloud results.

Mark Anderson

could add you're And engineering year. just last the out if in amount is I think vast comparing a innovation team just our that the of cranked I

the products, If else. and think two services, new new it the really of come new you from about does system just that features new capabilities, out, the versions new operating us separate anybody

Gregg Moskowitz

or driving do will think public? curious and then refresh this since some Okay, terrific you at appliances the that and follow-up, I'm that it run like point my older for is PA-XXXX go PA-XXXX can on in incremental OSX.X, Pan

Mark McLaughlin

talk be lines, but things to yes. and things gives the I new new think now appear to yes two to Not, more anytime doesn't a different call hardware particularly case that operating great them hopefully along to systems or and I get that, the customers upgrade and wouldn't have those we reason

Operator

We Morgan. with will go Sterling next to JP Auty

Sterling Auty

guys. Hi, thanks. Yes,

that the at it's type support half? I growing duration Looking from subscription at -- just prevented look I'm a you Billings and think the faster have would that first that even the over any of curious half when impact XX%. or that FX first for grew

Mark McLaughlin

years dollars in about on time then here side and three No, for some steady now. Sterling. we duration been of very a quite FX the inside has US duration very priced is then minimal for and steadied very There about --it's

Sterling Auty

Okay follow-up. then and the one

bookings run the called plus cloud endpoint I XXX. out think you like rate run

just a this at what timeframe run rate. a into think Analyst of compare a just that the Day is production for XXX customers talked moving the more Can and was XXX and buying seeing you kind more about driving and the lot I contrast you growth? that's lot expansion

Mark McLaughlin

sure. Yes,

the QX talked as QX now So run billings Analyst run rate today you run Day billing about a the $XXX rate rate. and the gave at million we we

that. are do we the along to apples-to-apples So trying

You can pretty Billings to is contributing getting percentage great. see starting percentage It or to overall, close which growing like contribution as be well very of total nine nicely. it's ten

if bigger. You well you billings close X strip in it out considering the can growing of to also other XX% size portions it times as

endpoints. the as network things make more selling a being of and better increasingly think which security good And very of for of we framework the spend drive that far the even going I well every And application the of you've lot over So deploying of top I very us driving think to got themselves. outcomes the then non-attached, platform capabilities realizing you're same that and consistency is said cloud and just the are top for there. put we're they're customers top so dollar aspect even in with have you whole are value able as down value network and from of that, to those all the consistency, the on to

Kathy Bonanno

Day And was of a the separately we number point separate Analyst point auto category today in that just was .And focus Day. which provided out at and a Analyst our included clarification our presentation end for cloud XXX broke we which there

Mark McLaughlin

you Do what? know is Which it?

Kathy Bonanno

XX, $XX Yes, I million. sorry sorry, am

Mark McLaughlin

right. XX%, Yes. $XX million, at sorry

mix had So $XX blended we $XXX it and those over at between XX% $XXX XX% you XX%. into put million now of plus together million so auto and add $XXX growing million Sterling, somewhere million we've those together, and

Kathy Bonanno

There you go.

Operator

[Indiscernible] question our next take We'll from Catherine

Unidentified Analyst

taking question, excellent for quarter. my Thanks

more bit what be that wide that little It the products to a the or are differentiated that from and Thank an are and dig that's widening you. cylinders to your you you seems competitors? services gap? you into and particularly area gap on could how the driving continue cloud are or Now

Mark McLaughlin

at been a in consistency. the Thanks is have we which We've the five for cloud script security years in Sure. that talked lot over second I about now which sure making evolution Catherine.

So same as as when we're security from as infrastructure, of also making security that can talking using security secure of SaaS inside making and can about a folks delivering well. the sure third that we and there's well and party cloud, provide the applications sure there seamless a we about party number third cloud for aspects cloud

announced been Google have talked native in And you we've party very the script noticed with about platform support think as may providers now of third for AWS the kind I well. just we taken, we've like You which Cloud and about approach the Azure.

major approach I not the is both on native the also a cloud the Series important inside covered well. protecting so hosts we is public in Linux Aperture basis just would be with M only then with which networking announced very an we in which all for Traps this and have as aspect protect also we environments, Linux all So very SaaS that for platforms API to cloud think and call platforms, but and very

security. So increasing storage like visibility, things compliance and

So of we're a making lot progress that. at

interesting the have is security may me of just kind which to to having heard something. You security want energy also of go with well at about addition an are they security try virtualize we only because to some competency AWS, when the competency talk networking as cloud vendors

tools their take that providers can of You and lots really take load well. the really and balancing as things along order that them do their we working capabilities and advantage like with the natively capabilities network cloud so of cloud very as using scaling creative into with can to well opposed as

well. So direction as the of with we thought Customers that in and talking is with there are the the important. moving some front all lots customer we're it thought for leaders we super technology also them believe think sure, on cloud of and rapidly are there us in about increasingly and and going base cloud the leaders lots absolutely that

Mark Anderson

Mark there of It's very with they're public have large strong, cloud add that for really one these all becoming The is relationships Catherine. I here. three important partners distribution vendors just thing us. we go-to-market

Operator

Tulane from ISI. ever take with Ken will core question Ian next We

Ken Talanian

I change if for question. half how, taking on back the Thanks and could expect that go wanted quarter to the back you rank the order wondering at was drivers product. I in all, you in the of if guys. product growth Hey, actually year. of the to

Mark McLaughlin

from as and of and for year, I this is way three lot in Ken. magnitude we way customer have you bases along buy base, is first the drive expansion Well, have Sure. Mark to by large direction change well. the That's this a don't This their use customer of drivers to order business. we I continue a us they they in and acquisition when much to simply it's cases. needs half there, that's in the statement the And the in going there's opportunities really think going customer have, new back

customers over another the You see adding refresh just the the up which the continues that put And can a we of see there. helps net well. rest so that's opportunity fiscal long at course of third very to then in more close year another time. I don't term. customers X,XXX grow helpful And is changing as

Ken Talanian

a if us as could And hardware another out wondering was you have I release when might there. gross Great. normalize. margin Okay. follow-up, you tell

Mark McLaughlin

great a It's question. Yes.

at really product on So play on margin -- gross here. dynamics gross there's side, two the

we in So mix. mix and itself gross product the margins we the total on then hardware of new have the right, hardware new have the hardware the

hardware. seen few to So margin for due the the the are of quarters gross the mix we've last product new increase declines

let you. So second just let me me break down for a for that

to products So and they're going to last time. naturally start them with then when lower new year, going over we're off we on margins improve launched

so risk as seen way. higher time to mix the and all well, and kind modest in since we with still along play more costs, with that but continued down hardware. hardware we've expect Now release the mixes dynamic memory the quarter drag each will hardware, to but way an going be product the that's offset that's same along margins And we've new more have continue, the of newer the of of having at the the improvements we the new even component

the then we we're with some last the just zip guide, see great can to here didn't market of as a continuing you where to of hardware, component set product continued gross we year, an going we're but be and dynamics the manage on mix and pricing today this basically see margins that are we operating code new week throughout leverage. expecting expect the to So we're another we're the a to sitting on headwinds course in continue total that get end so we at increased put of at the same mid-year the business

Operator

next with DiFucci go Jefferies. to We'll John

John DiFucci

two. really good you you range but just as came make you really clean new I I because Kathy, the want so these generation or to or just add, -- upgrades the to or do, ask problem. range firewalls? try no go want people this out are holes I these the to do your numbers products a brand we can that on more Mark, week fill Thank see you next some of be lot Mark. that may Do existing of to evolutions you the sort in portfolio guess look and with last model can offerings they to sure of on see the around question these numbers you over products current new of

Mark McLaughlin

Yes.

the of kind both think ways I of John.

said past if price that So cases requirements, have competitive as overtime in we you use various use solve to you different the trying or customers performance right. think with we the customers going are it for the to about these be and in if way have is to then market want cases you're

way should get left form these right and the series, out So if laid as up year what or it I to of factors in form the there of then there there throw right way cases, more know capabilities them table performance the that at all in use and really out all the so price makes factors M capabilities right where in the we've I us there smaller filling ones, putting hardware kind well, Panorama throughput you competitive. and and laid big more is the of course more every and doing in in been or then along

perspective throughout. pricing over or underneath come competitors So top the in can't us with from a

would that for going that. make time, we're needs we decryption the up over that sure still make for always drive to we just capabilities to throughput, got the futures we continue to throughput what want right solving up that's stand those there. we example, as So sure SSL so don't into Those go expect that's the

John DiFucci

excluding the here? new thanks first we of I into just that you're seeing a I new cause if from guess refresh product know new directionally I product than Okay, I and we refresh give what -- at guess but benefit that one be right look And, is is is it stronger that of now the some mean would happening if and and numbers billings look do all, take subscription. is back you of that but excluding some what's could subscriptions I product when okay metrics that new kind renewals, and to in try this

Mark McLaughlin

-- well I not think I'm the sure exactly there's sure I not questions. am

answer us maximum out on I is from us which with over customers are you look takes what is try not right or purchases creation time to the it though by me but time, it value purchasing still, when to you Let creation think get at standing the right. starting value with lifetime if lifetime way know

over, stuff they're because buying lifetime of with us more to going over non-attached grows chance value going naturally with the they're attached, the lap with then I a customers time and into customers. subscriptions go they time think to what hardware to you when from renew sell their mix over services services are support, So renew our

Operator

with take from question will next Markets. Capital Rob our We KeyBanc Owens

Rob Owens

big was the to you the curious I in complementary the typically? else? of on Are everyone. afternoon, to you exclusive some exclusive and are seeing good Traps Are at you saw. who those --are endpoint that someone And you bake-offs, you Great, wins point?

Mark McLaughlin

in question, we first next-gen it's see in taking next-gen doing far Mark. AV who see, protection in the import Sure. and I'll in And it's everybody are best as out. primarily a And trying providing then folks them see job are folks well a do of who also our there thing. and good as mix. Hey, same see see legacy and Bob, going your lot there lot we a those going and incumbent take the we're as -- to reverse we we're a providers to to

get Sometimes we so example capabilities there's for don't we've as we different the got. to that only run or we're continue that we done. LP be but you for TLPK provider like specifically endpoints sometime full-on not security Other to because may we because as be times -- get have the functions the endpoints think the to as have providers, capabilities to well run we of other complement endpoints suites when a be

Rob Owens

it's up you front subscription years. second And renewal? three like is that your look What typically mentioned support on a when

Mark McLaughlin

Renewals a steady really on some it's changed. have for not range been very time quite consistent

three So overall it's the been about pretty renewals years. us say as heard consistent

Rob Owens

That's three years as well okay thank you.

Mark McLaughlin

quite am time for Rob, that have some in a just renewal is to I steady and the yes. clear, of inside range durations number, duration overall for about years sorry inside those be three that been of

Rob Owens

Okay.

Mark McLaughlin

Just want clarify. to

Operator

next Boolani our from Fatima with take UBS. question We'll

Fatima Boolani

first industrial you for has afternoon. opportunity a broader question around about wondering and I'm taking this of And may. protection the in week. systems? last Good Mark, spoke about for this your how portfolio you you I think about appliance area of follow-up you, under critical ruggedized if control Kathy question. kind Thank your particular on and maybe been habitually invested why And my perspective

Mark McLaughlin

which us. PAXXXR environments because but great Yes, for and that's harsh is places have of utility and where things for which OT, environments, the great. number these the we just provides, lines. and capabilities, same that is the those line blurring oil you customers us example want rigs Palo be them in really consider not is environments IT capabilities for state between ICS OT in capabilities want of A IT Alto opportunity harsh asked they PAXXX it you questions it are of environments, different to the ruggedized substations form Sure, they a great those lot factor XXX the when ruggedized about would so Networks where folks a which in version but on might along our know

that themselves us. actually ruggedized of for contract or different kind been they manufacturers should So equipment with doing have

the that well we was launch that So do PAXXX. said so to we the impetus can

whole of it. that us take hardware to environments does let our or install the is where require gives customers of capabilities. it go those I'll outlets can next already Kathy, this into those for over you new who what because like capabilities, part us ruggedized Now with it now

Fatima Boolani

year what for the profile, year you. is And qualitative with and and at out? And portfolio how the and GlobalProtect. clouds expands years next are this supporting Thank Kathy like the implications that in helpful. thinking CapEx services That's are you level begins really a your about for

Kathy Bonanno

Yes, thanks.

requires application investing infrastructure are cloud of as to Obviously, bit a look investment. definitely in services. that delivered we We more framework our deliver

And number so $XXX ongoing guidance application would think the fiscal investment the in build be XXXX that I definitely we we that we've continue million framework. full-year And to as expect includes an in out CapEx provided infrastructure. that and as

Mark McLaughlin

like some and of the Yes, and example for expensive that. new well amount are logging a so that back of logging infrastructure as market do that's end service an services to brought good were to not

Operator

question, go we'll the with Jonathan For our next Blair. William to Ho

Jonathan Ho

and congratulations afternoon Good the result. on strong

where with out maybe thinking saw start salesforce and room enhancements to of are we sort year. challenges? correcting How productivity we those in terms challenges wanted guys Just the terms for the in should in be last that and the of of about you sales execution

Mark Anderson

Thanks customers the improvements happy right the continued very From outcomes. that driving on for here. year compliment Peranich in the and we focus We to think talked salesforce the terrific about Day still think seen. ago about getting will so I we've and for job right productivity started the that Yes, a standpoint, got seats and Anderson working Analyst a and clearly it butts restructuring with Mark of on improvements Dave productivity there. Jonathan. that I a doing rework I the really we right question. Hey, see

and new think new see the being that optimistic and quiver there think I there. sales we to all for reps more we're improvements in the the and I out able we've services have products arrows got the with in

Mark McLaughlin

Yes.

expecting for gave are that productivity will as our continued well guide improvements. the there in half be we We second year

Jonathan Ho

sheet Got on the forward? sort as of about as as that How rate it the we think and capital well look tax we should then balance and reduction, going have. use of at strong you

Mark McLaughlin

three take We looking Jonathan, that but at capital. really of a traditional uses possible very Yes. approach

leverage way into invest that's get as do We feel returns back our along drive involves opinion and you most right so see to we and that. business us. can rate share out that assuming first invest in on important would working for the continuing of be to market like the into business to The can we very capturing nicely

the be see we is first And would help for we've if that by are we to go technology priority been sheet be think not two, accelerate to good and for shareholders second We've then like maintaining ability case driving the balance in The do some for we demonstrated future the while primarily the could and could the we if us. we've any stock a that the ability through the M&A to doing do that also return time. healthy to third that evolutions demonstrated repurchases in offerings. the the capabilities some market market

Operator

We'll with go Meisner Anne next Susquehanna. to

Anne Meisner

that strategies Day, Analyst about customer with program. what bifurcating Hi. helping update on data Thanks you its relates resulted your targeting particular, that opportunity? that think you have tools optimize from initiative? for talked taking refresh and Can better And along you to it then AI some cycle, implement in At you as my question. customer give whether to us your an that

Mark McLaughlin

took Yes. it that's great data here. note And that and we're you appreciate because really driven a Analyst a really that Day company the fact question,

same coming marketing in of sets. around and are the harnessing machine So learning as including the organization, kind you mathematicians that our are department product of capabilities running and their AI as well lots which through CIO using

crusher that thing that things using things rep team for capabilities our what the our those tell of we our are example, talked use number and tools called AI the the for Analyst sales Day the doctor is like So to at recommend about maximize quota deal being do sales you this next that. and our or And with to team as the or by effect. customer at do to are as how example want should well better used how you better our your earnings do for this if you is heavily very partners those to

has they just given tools as growth question better to the again put bucket team sales grow fantastic those to productivity. in which so that the going them came So of seeing in train to up the back this we're definitely to get continue order would last I use that in some we tools the productivity from productivity,

Operator

Barclays. with to next We Saket Kalia will

Saket Kalia

Hey, here. guys, thanks for taking questions my

First product maybe line in accounting of just VM gets you talk series VM Kathy for we a how for or the accounting just about perhaps his out the works? series carve change. rules product. any on quick business could Meaning question Could you as bigger that see accounting

could color line series impact the could any how product or Just and VM down road? not a

Kathy Bonanno

put the way where really of Well, we series the or the is VM one not categorization revenue should change other.

Mark McLaughlin

the into going there, every to Yes. know time talk much line a you past non-perpetual. may that's the right almost ahead talked the Saket, flavors have product Series And go historically perpetual, pretty heard the two ratable into on about piece and going It's in you perpetual us. VM-series time the you a like VM for we so long are like. go here's would nothing just it's about

Saket Kalia

at can about but just you frame the helpful. up with actually application the talk of helping point business whether all? Kind tying security a maybe it Got you customers up this the Maybe to it, follow core actually that's conversations Mark. changing from network and super quarter a how quarter application last framework for follow is is

Mark McLaughlin

of board. it's know do thing how harness new and which hear the definitely I've Yes. can right. can't because not them we time with it know It's operationalize -- we Mark customers one business that exaggerating run across saying is we the we is XXX% conversation their thing we as overall hundreds challenge, company more can't helping has which but innovation which and as I'm well, I to as same has no this on think hundreds it seemingly And one We insurmountable the briefed of customers a we far have come. do

this sounds application out like how problem to you framework substantially for solve figured this So us.

So this we right, and consistent. very get Hope that's you

think just your this you given if it the for each Palo that Alto in we've this a back order investment, of to to and reason going to future-proof customer of provider, the afternoon, Now great consistency now doing put now or that is consistency, evolution powerful why we're we're really Networks cloud afternoon, the trying security second the know they're firewall capabilities, on versus of. provider application the provider job a top endpoint that about really they're with which something we on which sell us at go going to to goes

I their they're innovation So their their purchase every today, today, I firewall going them more to spend way. cash deploy that continue valuable to with endpoint buy that for today their end and for I if when make that them today, me to dollar capability bring more purchase

it's So positive. very been very,

the market. I think in that's really helping us

Operator

our take question Weiss from Stanley. We Morgan with Keith next

Melissa Franchi

instead use would This you're my in physical you. mostly interested calling Melissa that? refresh? if Keith. taking versus just Mark, sort Franchi opting customer change in any deployment the any seeing you're that deploy be seeing to for around a series customers VM a And if Thank and instance what cases am are behavior wondering of for Thanks I I'm question. around in

Mark McLaughlin

directions something the Now series, a cloud grow we've these the is grows in going many environment but this Melissa. more the see the not of we VM consistency go We back side it's in do in business, of growing or see that hardware they're customer -- it we this to everything at -- well, thing it for often side to it's use kind get seen if chance everywhere. we - as to

just said, saw then front us. was on over deal about VM we environments. never bought they was and living series, a who in marketplace them people interesting in And thing first because seven-figure right for a after want car closed as So the there them AWS we these of how -- contacted you hybrid large gen customer new in with kind are and we time hybrids that lead gave are the example customer worlds us a we company anything, that to was a an for doing

to it been see time. physical are it's physical, for us. in of We some people operate beneficial going these hybrid of VM; kind environments going think the You quite for

Melissa Franchi

that helpful follow-up just guidance color to Kathy. the thanks. understand because some XXXX. It still on as wondering you see cash just far quick you we tax NOLs. one should fiscal was think And if have put Okay, impact as I'm to the taxes what I on the for for could

Kathy Bonanno

don't we or NOLs of cash new with law NOLs or expect to the because taxpayer cash Day mentioned doesn't that We a tax Analyst and four-ish we That's Yes. pay years taxpayer right. be next years the do four at expect a We the change $XX million to for about year significant and have to over next million the $XX essentially. that per so.

Operator

next go Philip with Winslow will We Fargo. to Wells

Philip Winslow

on and on how Yes, questions again thanks guys the but appliance for taking questions quarter. have I do and as congrats range? have branch kind other most my you my called you and already differential gross Mark question and an and been you just awesome my going of provider guidance about margins margins about it large sort over a I asked impacting -- impact set but to what on effective the appliances, out the cause mix about down you the laid the look and that there and forward. older gross about newer gross as past the the that call as sort enterprise way sort the years, margins appliances that some service of between versus in of up the of you margins How down gross office think should How think et cetera. think appliance think you up of do of

Mark McLaughlin

Yes.

it gross will and they're Though either. not your way big components a the component much there's this versus is and right than of more mix things don't thing product think the pricing a and small a much usually, time over things like newer along about size goes things all just into so these case, all devices perspective. that in components over because same mature of things drive the are the to it's a across not it's time have scale, them I lines. right. see all really better They -- margins about those lower economies we about what It's thing, so I continue improves think a to things not from

nicely positive that larger think inside our on margins mix I on comment way the we every newer that's there. of product hardware is on was see single making improve for a the was the impacts it hardware performing the though gross Even we business more that side, we've of mix we're because course, very mix quarter got are as although and some it's margins the gross is and things as So to about continuing short-term developed, the goes I to those can products, well. that

Operator

At for to That concludes question-and-answer today's time, Mark closing remarks. conference McLaughlin this I'll the turn session. back any Mr.

Mark McLaughlin

joining I going much you that. forward has great know call everybody so we're that for time weeks. on today. evening thanks going Thanks coming we're and Hope this over everybody operator. afternoon of your a to Look to see thank for and Appreciate many us to the

Operator

conclude conference. does for your today's Thank participation. you This

You may now disconnect.

Palo Alto Networks (PANW) 26 Feb 182018 Q2 Earnings call transcript