PANW - Earnings call transcript Q1 2019 | Palo Alto Networks, Inc.

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Operator

Good day. And welcome to the Palo Alto Networks Fiscal First Quarter 2019 Earning Conference Call. Today's conference is being recorded. At this time, I'd now like to turn the conference to Amber Ossman, Director of Investor Relations. Please go ahead, ma'am.

Amber Ossman

afternoon. Good for Networks' today's financial fiscal you discuss call results. us Alto Palo first joining thank conference on to And quarter XXXX can investors.paloaltonetworks.com. This the Investors broadcast being of be and section at call the accessed Website live our on is Web over today's Chief Nikesh Arora, on Vice Dave our Credit Executive Officer; and our Officer; Financial President are our Sales. Executive Bonanno, and Kathy Chief call of Lee me Chairman Chief With Officer; Klarich, Worldwide our Peranich, announcing our This for issued afternoon, press release October we first fiscal XXXX. ended results quarter a the XX,

today, and call. you and you new access them These forward-looking site. statements are the a by these If after remind course will like copy guidance would this should modeling competitive like and forward-looking our risks from of to undertake anticipated and execution forward-looking financial conference would online our timing points materially some XXXX, the of update products statements involve which uncertainties, continued you Web and the a our number second market this release, regarding which statements during apply of differ as the management of representing can of and and including no on position offerings. opportunity fiscal our focus demand not that rely to we it statements. our cause quarter on statements call, our We make the And and you for benefits, for subscriptions of as future. actual statements, in subscription those views could results obligation control, these beyond to These products

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

you San of For inform in Tuesday Wells historical site to on December in the of investors.paloaltonetworks.com. found our We'd be provided be in that financial Tech periods, that in measures and will Barclays Media Francisco to Investors we've Park the December the GAAP Wednesday, Global these also participating located and information Fargo on Xth. Utah Conference financial the Web in Technology non-GAAP supplemental Xth reconciliations Telecom section can Summit City, XXXX financial at measures like

formal remarks, I'll Lastly, under once that, Results. Relations have we to over With turn Nikesh. site Investor call to them completed posting our the Quarterly we be Web will our

Nikesh Arora

everyone first results. Amber. afternoon thank XXXX and us Hello Thank our quarter you for you, joining this fiscal for everyone

cyber As we way, heard you customers in happy learning forcing Through for looking progressing and Amsterdam posture continue event the we the to protecting second is we we another a and more a partners that associated I know, our are Alto believe cloud, faster challenges our multinationals a security trends Federal education also our held evaluate of are journey this for meet I'm partners, than And at securing analytics believe the Palo companies market. as digital on data annual across manner In ever able delighted are and user the in customers our their significantly Ignite, integration from to positioned employees. we the these advanced it's world. been with enterprise; AI them outstanding cloud; my governments, that this with Networks, me nicely Ignite comprehensive customers, events; across months busy our the more three and are D.C. of reports say European the to the one, data data enabling support and of security I'm once enterprise. that first event At uniquely Mobility, events machine in movement ML had to consistently with their quarter, and all few all Washington, two, we we desired been in to line display have that again, top to go for automation. and quarter. to high some our and these to levels helping their them three, to

provider like. have would have some So, we new to provider a discuss to done of plan partners, problems we store. segment done that. examples Service service is where current and product We're well not we're in for to traditionally how and what we let's solving customer focus We're future a we our investing change on excited for growth. about how as announce as

a mobile facing are providers to infrastructure transition major service Our from XG XG.

a announcing prices generation to scale for into upcoming XG has developed there want next for their them taking You that help IoT innovations, KXC the high new them specifically service to providers and be their firewall, account their succeed. been need, super They're throughput with transition.

fed capabilities be will fiscal extends where This federal our Advanced provide shortly in ready in available XXXX. early we've And done to ability our status space, delivered well, agencies. analysis during analysis Prevention service federal U.S. segments malware to it expect cloud ramp WildFire, QX. Threat achieved the We

security discussion the customers gives Panorama which security, and quest closed firewalls they quarter. single largest RedLock manage over XX,XXX introduced plugin devices acquisitions the simplifying generation this RedLock a in released next advanced of single and better my Aperture, could customers. scale push deployments, Panorama Evident, security respond combining manage customers to cloud to our early philosophy analytics BMC. help lot next a can customers detection Interconnect. around The configuration and services know from to our our we for security RedLock Evident extensive most on adds we threat achieve will faster M&A. lastly provide or or philosophy automated visibility be detect include their new threat console, with I from there’s set the we By year. offering are cloud already configurations And management the and technologies Interconnect of offerings, our cloud cloud in remediation. ability one This GlobalProtect of critical understand single location. our and offering continues security changes For a cloud Panorama Video compliance, and teams large very

technology of class. to refine I’d best the the subject point our in to So like The is philosophy. M&A use on required RedLock

significantly related going instantly create team become aspiration to any we we and guided to We and to believe and aligned going required. they��re bring infrastructure. that interests we be M&A so markets; in that one, long-term want three, are investor number assets I that a number space, product this Alto value shareholder the clear leader we capabilities to; by yours are invested Palo two into execution one the some you acquisition have any shareholder an disciplined, to participate networks integrate a value. activities to to guidance, technology a two, or and can can market; focused effectively value. To give be the that with enhance as and on a large opportunity in vast that believe in can my to enhance of quickly be reiterate we our We

security, capabilities Moving problems. customer adding to solve forward, our we will in strong continue network to stay

The towards into AI learning environment framework a with security forward vision and trends we application will import way. across technologies machine big a customers. in of and enterprise the our this with resonating consistent These with evolution lean next of steps is simplifying protection our providing are and the Additionally, stayed XDR in cloud, goal. platform an

We’re applications IoT technologies founder And control for to these under analytics, of control. identity, early framework. threat seven The industrial access progress Nir of intelligence, making partners the still of bring launched leadership the good framework, security our network in while partners QX, during and the systems, days include Zuk. MSSP, we’re

move like on, my add to a I’d little color first I on bit days. more XXX Before

variable As so to and all company execution will a future. the has a as our we success key in continue know, be in been

to in leadership sure the to more some areas. accountable the speedboats for results effectively newer nascent earnings great last we opportunity. our operate want mentioned speedboats give have us in market call, with we flexibility launching of make Once execute a and execution machine, During I our focused

speedboat launched also first been is a in cloud and security has good Our start.

and We launch we’ll we as have product expect this driving posted execute performance, will and you keep in focus future areas we likely and as allow the sales to us cloud progress. on historically. our leaders We'll traditional speedboat new jointly in have well our done

running existing businesses well our how expand acquired will reviews, We place a engine who great rate leader then share Singh, excited partner to have revenue market growing leader go-to-market enterprise He’s that share over a the busy QX, joined this job. extremely with to us been fiscal Amit momentum new our finished again on together as has in at significant them a lived customers platform. have customers as on met He’s we found and few customers remain already extensive experience, and brings and customers. best team our executing hard new and many He to excellent In important our wallet focused scale. capable is against team small XX commitment and there. and this once opportunity up in over we from a Amit his and with an and Xst, fill the running November both we they driving such to weeks the can that president, we learn our account and reputation to role. in the across rapid our first quarter joins

selected Magic their endpoint positioned Kathy. Palo Alto year advanced keep offering lifetime for like top leader offering provider leading for the established our turn I the we to that was infrastructure This airlines becoming of our that ’XX. secure makeup minimum the Quadrant Alto selected to what remote largest hair day center best of working we’re to their displacement great we us management healthcare firewall service the learning the commitment of landscape the three to wake security and this partners team to one in our protection a against And seventh points and is the and execute also part cybersecurity XX billion quarter, data monitoring to leadership of Palo network I the to competitor Europe. manufacturers stores, quality the public and with care QX firewall. Network to skin extremely course we up consecutive ahead am of our and enjoyed at competitive for remain world's largest every ahead continue of the selected our mission. sold of a a companies in for cloud subscription and I XX,XXX going to revolving compliance as in at company; selected and secure my providing customer XX% telecom in of as their positioning was reflects our standard, a the our demonstrate secure GlobalProtect the networking VM-Series cloud devices wins to customer each the at head in customers U.S. data excited I was Evident and thank attack. the offices protection Company. in team. in To Trap fiscal guessing call one fiscal a was world's and really the in were products. Australia. the round-out is landed that, dedication making and factories, across and are; customers investment of million plan increase be With personally protect of the our news which excited XXXX to top based Gartner’s cloud to is. opportunity world's $XX.X with be cyber ever banks No cloud Enterprise on of our in and marketers credit the that with leading cloud and Network down fragrance based staying cloud world; one replaced U.S. care, at Our of happy centers; Networks team. progress to about our the I'd all a in Examples to point more QX or $XX.X in spend over value, support great about

Kathy Bonanno

Thank Nikesh. you,

new XXXX. rates unless period like to periods revenue and the selected financial for I'd that start, stated All are are prior are I except under all X, prior the and Before otherwise. growth August of financial billing, figures as adopted to standard as discussed note ASCXXX current compared non-GAAP we and year

As we a our indicated, Nikesh had great year. fiscal to start

was million revenue revenue see million. XX%. QX compared net the prior QX XX% first $X.XX XX.X%, and in $XXX.X security for to last $XXX.X subscription income total total, million represents per billion, improvement expenses XX%. of deferred XX.X%, XX% By were the demand margin point XX% for total of our million the grew grew was periods. XXX $XXX.X QX subscription diluted total to We APAC. XX% in grew million XXX continue In of accounted operating or $XXX.X increased XX% XX% increased XX% $XXX.X revenue of year. of first three decline year-over-year. first healthy $XX.X gross revenue, what which QX year-over-year The revenue net ended increased million platform. to basic margin to or geography, flat year. revenue at quarter, $XXX.X revenue. We approximately of and million end consistent support billings quarter, to years QX points based prior $X.X billings and support in a have diluted revenue EMEA $X.XX an stated employees. and year-over-year. in increase strong share. the XX% spending in quarter Americas, $XXX.X to for Total was quarter X,XXX $XXX of QX basis QX an was the On subscription across basis the share. XX%. per operating weighted dollar XX.X% basis The QX first of or the with XX% relatively million revenue and increased GAAP with grew SaaS we duration product XX% Non-GAAP of million of quarter loss the increase for new year-over-year. support contract and In

flow Free equivalents cash QX October cash from items, billion. flow and investments cash, of for of cash quarter the X%. declined cash and to $XXX finished flow $XXX.X million we operations sheet million. Turning balance was $X.X with by

During $XXX the we XXXX of million quarter, converge. redeemed $XXX the million

XX prior is expenditures flow in accounting, $XX.X XX this was up amount redeemed GAAP $XXX.X from the categorized days cash For as $XX.X million. free a cash were of XX% million other margin charges, and flow for the during period. days, at million, the of DSO Capital of was decline during operations. quarter year Adjusting cash quarter the XX%. a

guidance Turning and now to modeling points.

expect $XXX on XX% an the 'XX, of million million basis, QX XXX to For we in fiscal increase $XXX revenue to XX% an ASC be range of to year-over-year.

in ASC XX We of under expect second quarter $X.XX also non-GAAP EPS to million $X.XX using approximately range XXX million the XXX be to to shares.

Before some modeling points. I'd like to I additional conclude, provide

guidance tariffs of million acquisition. expense $X.XX associated included Our recent $X.XX with of to to $XX origin EPS expectation Chinese million U.S. Also non-GAAP with our $XX associated on is our of impact goods. includes

from as million through approximately accounted continue we to cash $XXX the $XX debt expect the As flow to XXXX be July, retire for balance operations. remaining million convertible maturity we of in

rate We million $XX be open for XX%. questions. With remain in to that, to CapEx will to poll approximately call expect I'd Operator, please for our at like $XX non-GAAP QX effective 'XX questions. million. the tax

Operator

we'd At like the Thank you. this [Operator for to questions time, open Instructions]. floor

first question Our Evercore Talanian from come with ISI. Ken will

Ken Talanian

of So changes first go the firewall you and that if you us have the channel? I'm market off, thinking your of to any to side, sense made could for a on efforts give what inclusive

Nikesh Arora

to is you… our be that the same. to of, efforts We go continue haven't the and any the the including particularly firewall made major there changes think or I anything side channels Dave on market to

Dave Peranich

and great is and leading traction got product. feel that we grab highly it’s front sales in and great great on that to engaged. the We’ve of us got business The front. been really We’ve business. Ken markets enthused about industry as team normal

Ken Talanian

And and us as traction update cloud your a an your there? give second on question, characterize you win could GlobalProtect rates you how with

Nikesh Arora

the on GlobalProtect unique we front we cloud think opportunity. Ken, a have

interesting good with some their and system, in But is well. branches Networks customers unique offices. able for security next security their players. We of Palo think for a As et which now, having put the for which remote we and in they more branches automate it’s be of ahead large allows to an had success the call. to product, network the our way our have all in quarterly about change control existing some see Alto again, to the centers, management really people that and We’ll architecture cetera. it’s extend their some for product, unique successes the go remote to share We’ve and already very data does trying GPCS remote without

hopefully, a we’re lot it about and tell we’ll exciting, really seeing quarter. more traction of next So you

Operator

will Hedberg with RBC Matt next from Our be Capital question Markets.

Matt Hedberg

product Nikesh, focus couple like on there’s including them, drivers that the bit anything a a a a you segment, talked prepared to is guess, momentum And product give sounds accelerate coming Can on little service year. a your more about how you here new there? I’m detail early of obviously go-to-market remarks, in to portfolio I is great It hear. from needs next of provider might mentioned this you XG. an which new wondering. else increased There’s us the lot perspective also be there augmented? then

Nikesh Arora

you in there’s provider why I then it, you of we’d realized on But done it. like segment as that’s enough here service a do. reasons It’s as to haven’t answer. not the we of And for for structural have we view side jump level Let and the there's when I very well into future came an reasons and customers. high for needs believe provider for Lee some me product we give point this service give more meets our a insight the

only we six rallied the product months should this we because what some we the to the the that the able sat do. can perspective emphasizing put we firewall team features down to at industry the hard And looked that in be last networking we sure have be is a the what and of needed doing, from and So together, make future. believe really leading need security were to providers service

I team from has in phenomenal that think the perspective, So done a ready. job us getting

remember the cycles serve further will sales along. Now,

be that for off the sales in strong is not in you’re prerequisite from months, this but going a a us three So top blow be us to to sector. perspective hearing

few a new We this why And about have for have world. spaces in let of our and we the excited team Lee development they’re space a product. very dedicated And that and a about XG around where very service jump go-to-market perspective one the team for I'll talk next provider. generation as in IoT this dedicated product

Lee Klarich

what’s look to transition significant place. XG, that happening at XG in are we When from taking some really the there’s changes

the advent becoming networks on really just mobile is XG with first The scale of high offers. IoT

a cases, the connected be are environments. things is are to Second of value into it's lot moving be applications going going to it’s use in to it’s important. to medical really third these more is and going more that high is be device going mobile IoT, be cars, And

we the imagine from to can need security all XG. XG just the for stay the best for So think critical driver when change that, you about become this sudden

for And so the in XG. space the bringing is KX with shift SP our series space out new aligned timing of move to this the

Matt Hedberg

other Lee obviously, great for Maybe complementary. like product acquisition on RedLock really seems the one side, a

to But a so of an to continue Maybe out little API be framework, have done like side from specifically think shares there. a more it's maybe bit there the seems going build color -- on that you’ve guess including I guys supplements it it's you integration. I Evident.io. tell more I what what can I that think how detail bit a business? just nice done it

Nikesh Arora

great a that’s question. Matt,

by long-term. quite And understood had allows exiting shapes kind evident the of have of which said the journey, week And in that of next heels platform is that phenomenal hybrid some is to Evident, from people be month own the the in some security trying category. sure looked intended cloud it, of market was them the that called talk cloud that we at only nipping it January, they none good posture RedLock talk data they of around first our way of And a about. But well also them they and in many to environment, I’ll talk I the pun environment customers, want multi need some leading them or of same of team, and thought Lee, or given forms, a really to different was as some But a you space its think the that, this to offering was let integrated that into the And instance, market and centers, its cloud. opportunity but to people walk -- I towards everyone was its doing customers their in analyzing also in a market in around the as integrate space. product cloud. in be infrastructure this product carry in the given existing have believe where lot that that RedLock and able integration are went are to as more a the would size. we we public of And the of yet we credit market people that no undergoing of will multi-cloud to think understood our was the we parts to market, we look that’s I our the adjacent two. own a we because base which product the security in Evident land their is journey

Lee Klarich

component don’t through and this window and our cloud analytics think and of visibility, provide to is that gives so RedLock how respond next ultimately which the And of I the one to into talk are us is have that RedLock when we’ll a Nikesh all -- they those but window have threats. seen we So said, asset journey; two, in customers aspect into for and we threats one, of two combination they to the based journey fully shortly security cloud and be single as certain those customers inventory Evident integrated step, another everything so on brought everything great to they things a Evident already really in XXX% detects a into brought a understand our have almost their quite they that, and is; going the offering. integrating the the

Operator

Thank you.

next question Andrew Piper Our will Nowinski be with from Jaffray.

Andrew Nowinski

a your you new today, you've definitely be provider announced low in. to that in also mid You service product hand referred that’s market And a should range firewalls.

So I am wondering when can enterprise of of we the expect to large refresh series… XXXX

Nikesh Arora

I'll answer question. let Dave that to

Dave Peranich

about our don’t We futures product marketplace Series happy these very public great performance The extremely customers make it's with calls with XXXX and don’t doing now, on box. that we’re in talk is announcements. on the competitive and right the

Andrew Nowinski

And end to channel talking calendar team feel relates partners, -- it a perhaps year it sales was the your question more than enterprise and year buying you for cycle your last the then is loaded Kathy, more budget enterprise do as this like in year flush? backend

Kathy Bonanno

the pretty couple been of our quarters. actually Well, linearity has good last

And so, more seeing I loaded nature really wouldn't say of business end back necessarily. the that we're

Andrew Nowinski

this seasonality you're So not normal quarter? expecting

Kathy Bonanno

XX% we've we've seen QX, to line pretty there with what growth, guided revenue historically. In seasonality what XX% to in year-over-year was

Operator

you. Thank

from Weiss with Our Morgan Keith next question Stanley. will be

Unidentified Analyst

demand you It into innings just your questions. or Tom just for we of to like get is -- innings, seems Thank I we think broadly taking XXXX. in strong are security terms early to heading the This want into for we've refresh Weiss. more on had good middle on dig Keith activity the in thoughts Where wanted that? environment you quarter. still do are this my

Kathy Bonanno

it's cohort increases history. bigger becomes Yes, in time refresh variable goes and our as talked opportunity as bigger us a about important us year fact our every over for of terms we've size opportunity, for It an that the on.

While driver an most important our growth. important variable, of it's it's the not

see customers very quite you existing customer we to quarter every our base is at add within cliff opportunity As significant. and our high a continue expansion

install to growth. opportunity new ago, the existing adding of we're numbers that just the of relative primary five our years are or cohort customer in the six base driver and the our really within So customers our

Unidentified Analyst

just gotten good functionality like looking cloud acquisition on that organically fill at some product. you to a security that to you've that we then all on good And still options? other seems pretty from follow-up you're you that, be so addressed was from it see channel in? feedback And standpoint for question it RedLock GAAP partner could the have talked the you, a What you think or do you one

Nikesh Arora

run support API over operating obviously last cloud. security include Linux, we public months cloud the application on and putting we and very well of lot many some for Evident RedLock in public important behind cloud. enhancements public And Look, to of which continues Trap for security weight line to is very to obviously with our solution based do the the combination, with made to believe the is which with security a which VM-Series, that we're is leading on our for system behind

in that those. all solutions very of in API approach combination security, security, host feel so being and good we we line of And we leading right three a and believe where have is security and position the based about

Operator

you. Thank

will question Raymond with Michael next James. Our Turits from be

Unidentified Analyst

This on indicated focused utilizing Nikesh, Keith Alto data. for security you times several on is Michael. to at be Palo

think So to does what this that? slow automation about mean call enter -- we we now the the should How aspect want that SIM market? you and the or with market

Nikesh Arora

So exciting some investigation, remediation. degree early XDR, of products which we some some up in very year have of degree allows to you next coming

entails. at what carefully looking are We this

it. and on run allow source for of sync Our top will framework to application

be across ubiquitously can base. deploy our So firewalls we a more believe comprehensive customers solution to that entire our and long will as provide our able we endpoint we to as our end agents

Unidentified Analyst

So to become to so decide organically I intellectual a inorganically. needed and mean whether company develop capital or? culture data you just that, that investment Can go without analytics way, to if and a the science data piggyback focused you on around the major

Nikesh Arora

We with framework. analytics some application the have a of of a significant effort around with magnifier, does analytics which the our product bunch

intention our and of and product machine almost about teams ML understanding every is data it to albeit customer. then but learning just to lot be machine the create improve embedded with is train taking have to ubiquity small we a thing the understanding able is every and of outcome not learning to that data for start that one We to because up, product the about it, you, of to making product leverage you better gives our use people keep of beefing believe that the a yours, product every that how data trying

ML company. people many across board So we have the across and the

apps of And analytics way, which platform. to behind. the decide need we see customers the application put the those We which as framework, behaviors of out of mobile also see user's as our we we'll on needs we have deployment

Operator

Sterling Our next JP question Auty will be from Morgan. with

Sterling Auty

to see products I you sourcing war. trade terms in discussion think some alternative [Technical Is as some out with $X.XX Kathy, of to tariffs, of Difficulty] coming has China if question there something if further impact of we any terms about you mentioned earn Chinese have necessary? $X.XX supply go in of if

Kathy Bonanno

have a products us the mitigate in in being that of manufacture we China. are terms of we our U.S. source opportunities. in we source that tariffs that There are able do options And to for we ensure are important looking or it’s some the remind of at that number impact Yes, everyone components available to only dual

the of And same and always so our the we’re ensuring environment. of management is chain to that current available we have aggressive us options terms in doing in a supply number very

Sterling Auty

you And So one growth not should strategically, sales of forward. of -- the attached think How physical service the talked provider then about whether the product subscriptions year are growth the throughout that’s subscription or a about as that think physical should versus just appliance? to a strategies? just other subscription how product et we follow-up virtual firewall, moving and cetera, there dynamic we some

Kathy Bonanno

Well, business at the talked of historically $XXX we’ve rate about non-attached being 'XX at XX% QX million year-over-year. growing run as

the to cloud we these believe in we us RedLock these we for mentioned speedboats are Evident newer seeing where very and -- in very well think launching Nikesh we’re We’ve about newer so have that. And markets us in markets And will products, space. combination. great growth nice particularly that the we execute are where talked help

rates the of And the well there. so excited important and But very is we’re and subscription are continue continue attach of be very obviously, able to is grow areas our extremely we firewall at we also growth the us, those nicely and the to for market. and growth business as above growing the to focus about the product rate why growth there opportunity which

Operator

Thank you.

next Barclays. will Saket with be Our question Kalia from

Saket Kalia

you, for maybe Nikesh. First,

of can you talked help the early about application a and bit couple you using out customers that next You are to on of some opportunity? partners maybe framework. just milestones little talk forward drive about Can and the how can look some that app Logging Service, Framework we zoom the

Nikesh Arora

in security even today to Look multiple because the solution app always applications, across I require trying intrusive infrastructure, every ones network, cloud customer data part their times or and of probes their the Framework been of the collect of thesis endpoint, it cases. has whether think the into security it’s sees some use cyber many some that the degree

all the data throughout So the collect it apps. times let’s use multiple then ones notion multiple and is

Towards that XXX end close XX our any data is end, going per to per megabytes to or product point probably example, Traps than think other I times market. the collects user of higher probably model, is product for in which XX

that that’s multiple who same months to three to have of six is probably be what going end each and the slither taking end able customers that data need from depending to them. months are point with on running can the that’s a the point happened deploy because for to of points customers of is able guest, the collect the data anywhere reason be the multiple some allows applications to the of data for this we times. is customers end that XDR these time, base. eight and And to There complexity collection deployment lifecycle why ones So the XX are employee at to their because locations deploy customer

Traps, end with have enterprises. the progress good Logging Service manage Traps use points So in people we management cloud or that who other context, be seen when able with to to deployed their services in we

application products to like collection an the going future which data service. Magnifier service top be for leverage able a be on top Similarly, offer the end incremental the on with deploy of to one thing XDR, which your and that point customer probably the data use is endpoints. same its similar as firewalls of to the to from We’re same deployment able without

Framework we’re So across of point seeing the an application integration the as evolution multiple solutions.

turn without We’re Palo milestones be starting works the the we able infrastructure key Networks putting. can be are, extremely We of and sensors into get deployment own speed proof the to deploying with the want so key for component there me the cyber first. our make the Alto that rapidly, to multiple apps useful in customers' them sure And a future on to stuff because is our in for security. multiple is

long as I believe we’re headed track, as that am down excited. we So

As customer don’t customer this all have long other have an there’s sensors base. allows that long which multiple data. we're partners who And as see economic base them it. letting sent deploy fact or and those can we fine is the use out your them people coming can across data They say can we to like just our sit on model, as as data. those customers We of utilize top as interesting, you that

Saket Kalia

quick to for housekeeping just line, Maybe a quarter the historically. guess question. anything than on Was and Kathy, seen I you, note feels follow-up we have It income a my harder bit last? other just little this there

there? if some drivers wondering about you could Just talk

Kathy Bonanno

higher then given a couple one, did. convert of probably been cash balance are we that number have rates Number and a there increasing Well, two, we interest drivers. have the recently

Saket Kalia

gains anything or one But no that? like other investment time

Kathy Bonanno

that. like nothing No,

Operator

you. Thank

Moskowitz Our Company. be & with question Gregg from will Cowen next

Gregg Moskowitz

provide for the do is perhaps approach? of or you Lee. Secdo update an did quarter First question and Traps your this of as How integration Nikesh on XDR part can

Dave Peranich

a Traps do lot of added course. we continues well, of to new customers,

great As like for and us Nikesh XDR. of ties and service, some sets application managed mentions, of new deploying customers service which the logging based service, up into the service majority that using which are these because framework Traps the is things that cloud is features around

sufficient. And Secdo. not would we as that the so you good we've is make topic, progress continue we before on on of be It that told EDR believe to integration

data So of be as is that endpoint think response the not we enough, of single cloud detection with sources off data needs based combined idea doing well. the to network data and

we on data, been And working some we're endpoint so the we getting are more. -- have that, actively and

We available. products making calendar to have track network that data, we have have XXXX data. that, cloud for XDR of to data And around good application early on and the to top in on then that in use we're that we're parallel

Gregg Moskowitz

as And margins about you for, Kathy, your year-over-year. were then up noted basis points just operating XXX

not that of though And from over whether quite you're and this so anything are launch time that I unusually at that guidance. you're targeting if Evident.io you're KX 'XX any know high of absorbing it course seems year, Secdo wondering just providing costs the or incremental the fiscal you well. there be the I'm the else. it'd And investments balance

Kathy Bonanno

significant at aside guidance, providing one referenced in million time, at there's did this in for to M&A really million from We point. to mentioned. that, nothing $XX a And We're as QX our in obviously, quarter you $XX investments that modeling time. report us

Operator

Thank you.

Jonathan question Blair. William next be from Ho Our with will

Jonathan Ho

contrast made that wanted just give the start approach? to us the Can this maybe entails that of your you out speedboats. I with maybe what sense a reference you to and with traditional

Nikesh Arora

a get of we of those successful very amount happens revenue large large of selling efforts organizations. Typically, you initiative. and burned very some functional team What start a have across and a new large team product

move of fast are in agility this product caught have rails. basis And really of in some they customer on And from they customer is helped they'd taken but certain as within we've the on areas, new has on of a move us. put early perspective. taken done the product is our them a side, to what the to created results one them as speed, and the floor, our both all and to on also like market promising need same that really increased decisions go space, effectively terms to And security and the go deployment across who cloud market focused our one on So our functions people leaders, two we've side. large to guide make by product are

they're about board security continuing members our For the able partnering example, both really to He cloud keep and acquisition. as have the partnership across with making as to part by team Darwin, sales distributed. the the Palo capability Alto He's large product run is market Dean Varun a who product Varun go-to-market that, leading global Badhwar well. the and of the of RedLock there. He's very going excited. sign we customers is and our that driving some a team Dean motivated worry about longstanding very Networks, best CEO brings strategy and brought to Varun who to is build has that to be on a in part. worry up very sure of deploy to product forces for Dean doesn’t business

it's the for working one well really so far the behind bulk areas. like that’s So model of it,

We’re working set the out areas. of on carving product next

and driven We'll and second. almost our front. excited are to speed trying speedboat Aperture to running is about speedboat on CMO, our create GPCS really which be of the which be will so and being second to focused going able that, our and we So to on our agility able as a carve to out product by on do out side just team,

Jonathan Ho

AWS newer business? and Just wanted to the maybe with your what terms follow-up also on impacts have and some the thoughts developments in of early newer outpost some the of of on could

Nikesh Arora

destiny let The control that good encourage and hard cloud are data AWS the about out convince think to just of to cloud. customers of my center. all me go my by to GCP, what to trying and or model thing to all we that them the is own get not other Azure, They're this VMware AWS, people of and need trying

these as none to from organizations where cloud of posture way it transition. realizing low platform, to think platforms in think meaningful it’s and to going that, allows that’s able to in context. they’re allows hard my a you a cyber yes, the latency, come by going scale very set globally secure of data cloud a transitions the to go about is integrity, But fantastic are we to rapidly. people are unless a move gives about whole there’s happen do are about that And security cloud, customers future very how think that you I the as Now existing the availability, security

across of this can customers which So that there’s the -- there’s with room something no for going only never and provider them hard are is cloud make few yes, journey to security enterprise the like and and partner, use GCP today security cloud multi customers a there job whether out is new or cloud or But either there help debate as are transition. ask. our platforms customers is, to customers you we there. hybrid is are And is us. Most security, case, very need they most for environment. cloud native native make end a cloud hybrid who independent because to environments single that with one there few our you security a AWS this journey produce multi-cloud customers, And help going in native public dedicated very to sure very people those customers. In cloud an partner there's answer

going security We go believe partner with went the X% but I to it customer, try us. the it’s spend So in as that and X.X% a GCP, and to I cloud both beneficial across it space. X% not the and them transition a like believe of us in that in in because to beneficial of from spend. I this so before XX, us Azure to for And but because customers. AWS, huge more X% compete journey, know the and it's they’re honestly we does and or be X.X for

going there’s a for room in So enough this space. -- to partnership there’s be we think

Operator

will question be from next Our Colville Arete. with Patrick

Patrick Colville

just perspective, produce what next continues And core because about to ask doing you guys, your the to I crushing competition generation Alto it, differentiate firewall? are results? great continues guys Palo job. from What to these the Can differentiate versus you and

Nikesh Arora

Look, and the least world, spent and us say customers feedback to clear I that at built our traveling our customers service throughput Networks' first KX in the both in around my well security differentiating were to heard I’ve service why for Also our and what’s you differentiation firewalls the XG high understand they talking is trying to a product. to series six us months both now, from as just that there’s buying line customers IoT. very and providers that’s because provider security the need have launch as around get why I requirement balance security. Palo this with

the migrations lot So of we our of all right with that early time resonates data about are your moving first firewall were there. customers. And early it's a a security in cloud center journey, and the because migrations, data

more their internet. a Now, protected. up concerned that CSO every ingress a on point is opening or attacks to about their people time CIO, the it's environment infrastructure. opening egress And every about security or in started lot cyber large cyber is At for door basis, the sure attacks up making that open Internet scale across you the

customers worked around and we we gone people from we and and that’s agenda can’t with And security have the and on perspective, of a I and price do around not, the security CEOs becoming think this a credit more sensitive security have sensitive management. have take here that a So prior or I for, did relevant team it’s and conversation, and They a is the CIOs. topic world, not in earlier. more customers -- turn we the phenomenal job say making sure CSO, ahead They these conversation. have is the

XX Some teams XX that of months, have months. crucial or for been are on coming working the XX months, deals now deals

share. is a journey to we differentiated in the and started take while a is around product a that it security, It hope the marketplace the security that focused will we is we've this is journey continue and So given sensitive more clearly market ago.

Patrick Colville

I ask level question follow-up, can like And that. -- another high and my

growth that XX can subscriptions So transition and very time, the software strong. of company Clearly, are at history top be can healthy that being us a some over putting are more very investors be you company are the last a shows with quite because technology guys and number appliance skeptical on the difficult. and to years that out momentum

this you now are subs? So from can what pivoting is towards for that effectively. happening and more guys confidence you very that transition continue and the can away gives product that indicators for that But continue

Nikesh Arora

it an Look, from I industry transition analyze we look at it us of industry whilst look because some afar. perspective, and think the at from

to to be because the them. existing it the ask you’re where and trust customer, to see a able with want through thing and spectrum. customers take protect them going their in a you partner is that your journey you continuous they as journey, believe them continuous is If it have a for security They to

protect instances, us, many work have to customers show happen We basis reaches how we daily the show many, to they we their understand posture. them we we themselves, them, them call many incidents security how improve where on with

out we capability the days, working the with XX sitting been So come over the security a of trust a hard working of transition. small in latter. in with built I world. team team posture, XX,XXX on am or Look, them for think for people we XX with the last around years buy hour every to we months, and startup that’s products, part they next-generation believe pit, product, the customers working with the five six the every when three the And with reliability I from have new as would customers either the rather product up

by investors the make too can we far skeptical convinced them would transition. to be time and the to they And find late. us find the am far it I for know So out out, is as

Operator

you. Thank

next will Goldman Gabriela from Sachs. Borges Our be with question

Gabriela Borges

education for awareness it firewall Palo Palo educate the some that is the versus virtual around to security cloud push have stage, and Aperture could you that products. consensus us customers characterize how really you're a hoping in and secure more At order where seeing in the Thanks. customers. of to Alto you're the and this of you level was need I be much realizing and cloud, and may be need Alto of your sophistication cloud products GlobalProtect around that a reaching from they

Nikesh Arora

of we we in the of what at problem. it's effort this. on, oh looked of acquisition know product Many last we I our a an even have need question, customers they front RedLock the to part the realized we and have about Gabriela, Thanks of get evident, the when And awareness do customers, at need. weeks of what forward existing has GCP demonstrate few yes, god, did AWS, the Azure because to I going them, them and brilliant and or that's hang been in my don't

teams So, upwards moving need into dev you're that right. security, There's flash these the not realization a from across enterprise. things space the we the the because are ops

the -- of players I also like So education stepping are And awareness said required. partnerships, efforts education, lot that and with lose we not right the are but product. there's earlier, this up we we the product the awareness intend our the to spread to do only to do now of leadership hence a sophistication to believe we specification of and is that we

Gabriela Borges

refresh. higher But the XXXX, a to X,XXX side. series I want of If product back on are thinking about the introductions specifically not appliance appliance do is follow-up ask number the at on the I cadence of are think instructions level. you And there how

Morris going thoughts instructions and all? think just and Thanks. if So about some it those much maybe into you how high plays level forward more how Law that,

Dave Peranich

sorry, appliance, you what? can question I'm clarifying

Gabriela Borges

a at thinking you appliance are How of new high level? introductions this about cadence

Dave Peranich

want and hardware customers find necessitates technology side, whole bunch in technology for them through of hardware stay we and a Our order to work be fast, our new on hardware because general not latest able hardware want desire search and like too to customers see need flip go the on course, to And strategies, they roadmaps or and swap for our date things out to best do up very as in overall change to large to the that that we of old build that. do enterprise then greatest to products.

hardware and swap we're where we process really side lot at platforms it's where continue buck of us schedule obviously aspects. customers. and us our seen how of number always then it, no So we a the to for do hardware couple new received. technology lot looking for that sense the development that balancing between is very of always those over then into And you've introduce Difficult] big single a [Technical just well that have And on new been to market customers. to need there's we inflections technologies both two to are looking can a we'll What the those makes bringing our where and years a help hardware of last banks get go answer the

Operator

Thank you.

Erik from Suppiger Our with next be Securities. JMP question will

Erik Suppiger

front, a questions. provider One, how requirements do the with feel Two on into then prepared to one channel you And would moving performance your the see consider ASICS. to lot you and with is of any XG? you service need are something that kind your evolution Nikesh, secondly, that channel cloud, that does you Is currently of hardware the do order competitors achieve development partners? need your in the service of for provider what from

Nikesh Arora

cloud, and the is large going savvy have you we who very entity, channel journey own very from is hardware are look, And the channel been people have channel cloud cloud not the who Difficult]. of Erik, to I think people where because [Technical transitioning they’ve of in perspective, ready. if one we very centric. are set their very through partners a one channel

and different shapes sizes. come they in So

creating this of own stepping to be in excited called about cloud. and some are are are very the within called and able journey education born BICS, partners we’re to part who So others their who teams the the cloud focus there up

us other space. people working with are space the exclusively and are they SaaS So who and focused players in on SaaS the

is transition getting a much transition our ready going base. there’s our the a as on to channel able the in capabilities provide going customers. to as on in customer be channel these And So to there’s

end a going very, our forward up of of we very lot or customers a to the partnership channel, awareness. wanting a they’re So going with lot education getting see healthy to services

in XX,XXX the else the have place question throughput awareness customers perspective. with a product. that’s first do of to performance the team about the large that As to be scale it think our the there part relates on price as everybody and and distribution are them service smaller plus we we companies off the I from throughput network? do of Gabriela in create provider is asked going our in is network, across to industry of going get ASICS And to see the we answer So question. leading cloud these of your the can't out we’re leverage alone to And products how We a which top the the which we believe for security. it we’re match partner, believe cadence to going

ones can IoT. only who the the for requirements fact, deliver in In XG the industry, security and

of the our are the we’re product efforts very KX approaching As comfortable with they very capabilities sales as feel of go-to-market working going the we’ve said their early, to the journey announced they next make world, now. they long XG new consideration around and as IoT. be effectively but with understand the us providers own teams sure this sure some we And and make service of SP I the going cycle to them to So start and firewalls today, launching the largest to our toward go that in towards keep teams generation

Operator

Dougherty. Our with next question will be Trebnick from Catharine

Catharine Trebnick

Did That’s customers during number first my of the you added provide question. you the quarter?

Kathy Bonanno

over customers X,XXX quarter. in talk Yes, added but about we we remarks, the prepared it didn’t this

Catharine Trebnick

the Thanks. your underperformed? particular the in out during other was any that one than and that Was stood And subscription there services? then any service quarter, that stronger driving

Kathy Bonanno

the performance obviously, very growth we there. had across saw we’re with subscription We portfolio happy and nice our

Catharine Trebnick

underperformed Aperture, to trying like them of I’m none AutoFocus? quantify… just So

Kathy Bonanno

each more out of product out how we break will break provided by we haven’t -- time-to-time, details from we one No, details grow. but

Operator

back turn Nikesh to like the remarks. closing now over for to I’d call

Nikesh Arora

we're thank our Look, to Yes. Alto operator. would in I to like again closing, all some of reading you Well, in know thank me. also still our results. effort many making Networks. and you understand your into anxious customers, you, the of to for I’d partners are like and once I notes, interest able I to put that our for that of sure have they amount our Palo deliver been employees tremendous thank of

to all would of out So before holiday, you wanted happy to to I like I invite send who me. wish you this a come meet

side schedule next three over going We’re and to come visit. to sales for try analyst the weeks

to Amber way If about reach about won’t myself. anxious be Investor you anxious know I about she anxious when to our could need notes, I hopefully out me. Relations That me. read enough and your be am team, schedule it. next you I more around time you as don’t

for again So your and Networks in with that, thank bye. Palo interest you Alto good

Operator

and concludes This today’s Thank you, teleconference. ladies gentlemen.

disconnect. may You now

Palo Alto Networks (PANW) 29 Nov 182019 Q1 Earnings call transcript