PANW - Earnings call transcript Q3 2019 | Palo Alto Networks, Inc.

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Operator

Good day, and welcome to the Palo Alto Networks Fiscal Third Quarter 2019 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to David Niederman, Vice President, Investor Relations. Please go ahead.

David Niederman

Good afternoon, and thank you for joining us today on today's conference call to discuss Palo Alto Networks' fiscal third quarter 2019 financial results. broadcast the the website Investors being be and at is on accessed section call live web over can investors.paloaltonetworks.com. This of our

Chairman Kathy on Chief our Officer; Chief me today's are Klarich, Arora, With Officer. call and Lee Executive our Bonanno, our Officer; Product Chief Financial Nikesh and

release issued for our the XX, fiscal afternoon, we announcing April This third XXXX. a press results quarter ended

can would access copy release, it on a of If like you you website. online our the

of customers modeling products; to remind and this timing forward-looking drive quarter ability subscription to that and proposed products us the products and from XXXX; our mixed metrics, our you position the including year will Twistlock regarding the course our outsized seasonality. fiscal acquisitions fiscal financial call, like make rates; of our and trends conference benefits and We'd shift demand statements, our during in management new our and financial offerings, points fourth investment in of statements those certain market including and our and full results, to for competitive operating growth guidance continued and and and PureSec; subscriptions; for opportunity

involve undertake of future. control, this we you rely after to them on statements And our obligation of these forward-looking not in today, These uncertainties, those statements. should statements beyond apply as the and of cause forward-looking differ as which representing to call. anticipated actual number from views some statements no These and materially which risks could a our are results by these update

our to filed XX, release and Form and the filed the results on X-K. on cause XX-Q SEC on to on few of earnings with website description detailed our factors with a For could that our a ago Form actual differ, report refer SEC minutes quarterly posted February XXXX, please more

to exclude certain are non-GAAP and certain call adjusted that expressed we charges. use please basis Also, have financial a on been note measures on this

For of information to measures these provided at our the reconciliations supplemental GAAP financial can located financial we found that of financial in non-GAAP the website section investors.paloaltonetworks.com. historical periods, be measures in Investors

I turn Nikesh. to And the call will with that, over

Nikesh Arora

and David, XXXX very as close be excited year marks today. call fiscal This to I'm for me for our here thank the company. joining Thanks, you, my quarter fourth us results. X with afternoon brings to third CEO this you everyone, my anniversary with call and earnings

accomplished primary Palo in our increase future foundation We've first setting to themes great poised impression cybersecurity importance my the and and impact leadership our more a to were industry. key and how the integration, my revolution also Alto how set to cloud call cloud furthering for Networks, cybersecurity was The globally, joined year, automation. I When deal organizations also the was this in growth. was in

that to all these to is pleased a delighted nearly than ever. across on imperatives stronger continue my progress am that report the trends do I'm have I made year job, we will so. after confidence and these in Moreover,

the X our briefly given on announcements I is enterprise, provide our in which area the focus securing securing finally, call, will strategic cloud, go through I and financials this most an will then and today's our On time my with spend areas, today; of update the Cortex. securing where future

quarter. to by $XXX of per to we another deliver. XX% solid our We Fiscal financials. revenues share continue QX million Starting represents growth year-over-year XX%, had and to yet transformation, team that I'm $X.XX. with increased the as non-GAAP our report of pleased earnings continues

three details the of into Diving areas. focus our

Let's first the about talk securing enterprise.

Network c-servs, the remains priority aspect security continue continue for of next-generation We around market. with world and top to companies this to the our see we offerings. and success outperform a firewall

quarter. this we've introduced had are significant quarter last products and well, performing number new Our wins a of

I'd a to Here's highlight. couple like

and signed a X of figure our in deals with Alto the in the an Networks, of is history to XX Palo quarter. largest revenues government We this This agency. contributed U.S. one deal strength product

with consumer million cases footprint and XX best-known of a customers, existing and of brands a our than combination Fortune new each refreshes. one use technology bought company. includes many expanded a We whom in XX the the also of This with more $X hardware company Fortune deals world, XXX finance

security safely and about it's were if excited firewalls. introduced lot our independent quickly DNS DNS for finally, that attached of DNS early be And a would to future while to next-generation gaining metrics traction. I a around attention. can share its say is success this optimistic early new its we it already We're getting subscription an start-up prospects. company, days service, offering, And

business continues core looking more customers security for their and with to in simplicity aware becoming be Our infrastructure. strong

continue firewalls you easier and expect way, the to We deploy it to make should services to from more secure most our add more here. in capability us

about talk let's Now the cloud. securing

We technology journey. and cloud to led this that progress tremendous over capabilities customers delivering has our security year. delivering broad clouds a comprehensive on of focused of in highly set configurations. to and This be focus by approach to enables speedboat continue plan set a the across cloud enable past We the our

cloud about your or journey. to application protect With cloud, in suite connect to container want service in this, branch customers Whether our the we announced data mobile and cloud applications, Prisma this you solutions to their Prisma. morning, computing, within worried protect are a delighted brings has are public security SaaS your your Prisma, help industry-leading introduce and our in the upcoming solution. offices to trends or a cloud, users single

products leading industry address across all deliver API-based, security fashion. will cloud to inline in vectors. an approach our cloud and SaaS, integrated It security is Prisma

it cloud. Prisma the to industry and journey over coming quarters years to We build the continue platform will the make leading for to on the

of is world. security We one believe Prisma the in cloud product already suite number the

surpassed X,XXX customers. and approximately Prisma billings billion run quarter, This rate $X.XX has

XX cloud deliver higher or believe last across deals most products we public The comprise in the Prisma six their than VMs quarter industry-leading figure we that the this are the Take VM more with alone. already right. series, own landscape,

third even which forms exciting $X.X more surpassed the in of $XXX won public that than What million, over RedLock, we run RedLock quarter. is cloud each basis billings XX is rate million deals, Prisma more over of this feat, the Global company, This them acquire a of. its in profile is its a XXXX. half rare and trajectory revenue X transform quarter to unheard the is months with and in

will Additionally, includes Google in next new interface, Cloud we're excited Cloud available and the the The platform be management shortly. cloud GlobalProtect about for Service. very enhancements version and our onboarding

global success XX,XXX one mobile the category, a the their largest world. of In this high-tech brand, users our at on quarter, companies GPCS car we XX,XXX consumer company the and securing at biggest in users mobile at leading users continued XX,XXX by in mobile

and security us of our the the winning a in success RedLock that Prisma us to will bolster suite confidence is The introduction this factor #X in in of making keep our space. key gives cloud ability

which the of to acquire Twistlock, Prisma its the for products suite. our announcement will today's in addition, intent category In security, is container best-of-breed best into bring

are customers. Containers both container private looking public and fastest-growing of security to of we're workloads, and cloud our forward the segments one to offering

also further proposed suite. serverless our provider security of a our will enhance leading We acquire PureSec, intent cloud acquisitions security. These announced to

third their in performance our I'm Other ability the March, report together, with doing already securing companies and the at We the month and end future key closed pleased of sales the exceptionally Demisto Demisto, of is focus me our well. to first examples Cortex. of acquire area, accelerate are operating acquisition to brings which to that

the on playbooks Demisto's allow solving multi-vendor are our them orchestration help capability, focus and and security operations further to They threat. customers most analytics, unique. automate their complex

February. This its also successor strong. of availability, In for of Cortex we first introduction end the quarter of quarter closed XX was and over pipeline at is of notable the deals, is the EDR. the XDR XDR

attacks to by endpoint integrating signal ratio security data prevent defenses their and noise network, to adapt reduce teams enables to future plaguing stop analysts. to sophisticated and the cloud XDR threats

of broadest attack evaluated. MITRE missed XDR. today, released the and Cortex provides against the results with coverage different testing and ATT&CK validating techniques of Traps earlier the fact, test Cortex out all capabilities MITRE's XDR XX recently from vendors attacks result confirmed that The In fewest Traps

wins a notable of Asia-based deal and world. the a XX,XXX in a including Cortex largest over the had one a with quarter, win We also health U.S. this major organization some with cities airline, employees; at XDR win insurance care with X-figure a

up, of with wrap quarter execution of rollout initial strong the we with and had enterprise a Cortex. solid cloud progress To on the

to see both to for to market continue leadership today's security our those tomorrow. We opportunity to the the of expand be platforms and needs one

and a help our in leader provides As would to the few simple, - observations to cybersecurity continue an end, my leading number world, one like we expand lead things. a make will as our customers. and integrated, reiterate One, the few company products that comes first year one to I

great a enterprise. building done best to the and their expanding I The world's into had company walked ability in the job secure firewall

the in areas, firewall year, become automation. the progress strengthening to business, which have important, and in tremendous not will last cloud equally, more Over addition if our made we

take we team Transitions us moves. This right has take team, will My time. me year make here right there to the happen. strategy But we're and no this the the than and have is time. making convinced right one better that also prepared

recurring products than have The customers cloud more annual of though SaaS-based a a annual SaaS consumption purchase are brilliance model. and the and model rather mechanisms new many In deals. delivery that, stream. The multi-year subscriptions different is revenue

revenue recurring be our business, our focus. evolve we stream As primary this will maximizing

billings, would total to is most expect performance. our importantly, demand trend which better products, impact While And for is this see we underlying matters. going a may margin this what

we some your notes, Reading watching you're internal making. that know I management moves the of are

we're should made in that being reasons. that a the moves right manner any for You making thoughtful know are leadership and

I the Rest extremely This I is are time teams. focused assured, area cybersecurity, build not an on. spent and me have how know and great might to vigilant while team in

to to the in our to believe one our poised confident lead company win. a the better is am stronger, quest our that strategy win year plans industry our ability are we in and and one addressable and more This are are enterprise we and our in time as roadmap, to focused, teams our our world. increasing security robust out, I product a execute number the increase to market

And with turn that, Kathy. over I'll to call the

Kathleen Bonanno

Nikesh. you, Thank

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

and quarter, recently add clip a base. focus third customers while this the our balancing profitability. existing at we new businesses a in acquired In to and maintaining healthy further expand on investments our continued did We

a revenue record QX, In XX% total $XXX.X grew million. to

XX% $XXX.X to The product XX% QX XX%. grew geography. grew APAC of the by growth at compared Looking prior revenue year. Americas grew and EMEA XX%, grew million

XX%. Support increased XX%. of of support increased $XXX.X million Our revenue. revenue share XX% $XXX.X subscription revenue $XXX.X increased SaaS-based subscription and for revenue XX% of million of In total, million accounted and total

but total increased the quarter dollar Turning net remains to $X.X at XX% deferred for revenue due cloud at million million approximately and billings business QX of fewer deferred Total billings X strength year-over-year. current of duration contract $XXX.X billings the in QX QX was to increase XX%. X were deals. revenue, $XXX.X the billings. our support years, subscription months declined billion, The of by an multi-year new XX%. up year-over-year of acquired and of end weighted

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

over in Our QX, spent fiscal a of $XX.X made quarter, this $XX.X a which top of all QX increase value in a million customers, minimum million XX% in of 'XX. purchase lifetime the XX

margin up net approximately basis XX employees. with of points ended year-over-year operating $X a was basis was recent points XX.X%, compared the a XX.X%, quarter and of third acquisitions. QX expense X,XXX of decline last to includes headwind which was associated our with year. XX million gross QX margin We

to $X.XX the quarter, Non-GAAP for grew or to declined GAAP basic share. diluted diluted per the share. XX% $XXX.X a loss On and basis net XX% per quarter third third net million by or income for million $XX.X $X.XX

tax QX XX%. effective was Our for rate non-GAAP

of cash cash balance $XXX.X items. sheet margin Free finished cash, flow April cash $X.X flow XX%. with flows million operations investments was QX Turning up XX%. of increased $XXX.X XX% and from to and equivalents of million, We at billion. a cash

cash XX XX.X%. period. expenditures the free up Adjusting decline of cash quarter Clara, days was was $XXX.X were of at in million, the charges year our Santa margin quarter the $XX.X a for prior associated with in in million. DSO during Capital X days, headquarters XX% a flow

Turning now points. to guidance and modeling

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

shares. the to $X.XX and million to to XXX range million related of expect acquisition We Demisto includes be to 'XX expenses using Twistlock QX in non-GAAP XXX acquisitions of $X.XX, and the which proposed EPS approximately PureSec the

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

to grow of shorter full year-over-year, expect includes which year XX% contract We impact billings the approximately lengths.

guidance $XX of $X.XX includes full Twistlock run QX EPS a proposed acquisitions of million rate Our approximately quarter Demisto attributable share, our non-GAAP of and the or net to PureSec. expense acquisition per and

includes Our origin to also QX tariffs guidance on attributable an impact expected EPS Chinese goods. U.S. $X.XX

would expenses, to of in $X.XX Excluding expect non-GAAP to these the acquisition tariff range be we and $X.XX. EPS

expect We million tax rate in with to XX%. in Clara. headquarters related be non-GAAP million $XX Santa to effective million our to QX at our QX will remain approximately $XX CapEx $XX approximately

to turning free Finally, cash flow.

with XXXX headquarters debt associated expect additional cash include we our to The onetime Santa free an adjusted the expected such of convertible margin the our For adjustments Clara. year, items in as cash in the and full XX%. continue flow approximately flow investment of settlement

cash these which can posted supplemental Investor financial is document, adjustments You in review on to Relations information flow our our website. free

call I'd that, questions. poll open to questions. like for With please the Operator, for

Operator

Instructions] Thank Keith go [Operator Morgan Stanley. you. We'll first Weiss with to

Keith Weiss

question. understating against of sort a Thank quarter. with impressive operating Excellent. really transition well guys Nikesh, the XX% And for revenue you That's solid might tough product I you truly comp. really growth number. think a be through taking

M&A I question The question ask you for Kathy. one on and strategy. you wanted the is to to one

bought, doing solutions are One been is companies like It individual have of I for, somebody really within that or like consolidate could sounds RedLock, the who effectively think demand you well. things for looking while doing the are security. individual a - investors

the sort of sort that that to suite Could the kind getting how to in to creating people progress catalyze sort a of portfolio, you you suite fit of the us and about across you've made and where that across or expect new talk activity of buy into acquisitions board? the

board us you Was of of indications sort as it then, of give is newer well just can new subscriptions or the in of the kind focused for for on kind terms some across Kathy, sort And shorter of on duration, the impacted? stuff? that where maintenance as both that just

Nikesh Arora

comment, Keith. thank your Thank you, for Thank question. for the you and you

- your Prisma question and the Let the today. launch of acquisitions me start talking around answering

started Evident, felt We As to for in so about we move there talking you know, a with only big and we going worked acquired getting ready the it. that how about RedLock. to capabilities, We were year a be ago cloud, complement owned Evident to needed is AWS. more we we

that had we've deals the where the minimis cybersecurity in unheard I And revenue space. RedLock the that's we've of de months week, X ago. within months seen X just customers close sheer success seen a of RedLock think last

You walk in.

and out the a customer walk week show you a with later You solution, purchase order. a

customers the the X market, And players, being and looked with And years emboldened X was offered the are were far So talking they Today, public who leader. journey that are ago, at not this there us by cloud containers. there's in customers Twistlock about you that's about making to the enough they're security solutions talking if cloud. cloud. this to you notion look if only

And to buy customers, still want talking best breed. they to of

that the for made team to Twistlock RedLock as us our that important acquire soon decision and integrate with So, possible. as it's

you see will Twistlock. integrating So RedLock us both and

serverless in to the by the then, the people the and PureSec, we at have decided far, is want talk it security time. and computing. leader And conversation at acquire serverless, market, to about looked next same is Serverless

buy serverless. don't public a integrated on containers as on-prem, sort SaaS, customers to or cloud have intend suite private public products this cloud, as of We cloud, or thereby possible integrate soon security offering piece to where fully

pieces in-line opposed where security perspective. with consolidation API, Aperture of cloud that's for offers. service Aperture also [indiscernible] as We've can integrated cloud security from a you so see SaaS a see the we And which just

are trading don't fast we and so buy have piece driving and hard keep So integrating. spend product a and to try customers integrations to time

billion $XX underpins $XX make $XX is billion problem spent and integrating That that's into it of platform billion with to acquisition these we been, billion a cloud as The billion services and sure this strategy a in $XX has to to that consolidating industry, $XXX for products cybersecurity and what relates product, the industry kind products. want cloud with the don't in it for as and relates security. Kathy? going make mistake we our providing

Kathleen Bonanno

question. Keith, on length Yeah. the contract And

we see As -- you of driving things in mentioned, did a that. contract decline length a X And or mentioned, months of we year-over-year. as are couple there

of mentioned Nikesh cloud The very this public had terrific our we in cloud mix prepared as growth that Prisma is quarter We remarks. in products. very One strong was strong. his our saw performance

business about excited there. of us really we're that the the for trajectory and So opportunity

Additionally, more annual that on that's we in revenue we - making focus sure primary our this have and doing recurring contracts, are year. focusing good our

is And so of some preference. customer it

to is trying structure Some annual recurring deals stream. that us revenue of to it maximize

And the so average things length our contract both of and think down, both results. we're terrific with pleased for are those, and business, things very are those we the really those combination of of driving the

Operator

go Stifel. Gur to We'll next Talpaz with

Gur Talpaz

taking Great, could on was Twistlock. thanks hoping bit expand a I And question a I question. Nikesh, my here on you the for have strategy.

do So I you standpoint? view understand kind is to you as alongside of as from container what existing natural a of is, fit a what environments, ecosystems see a policy want management natural already extension you this did networking i.e., do

then And environments to plan about DevSecOps can one it plays? the taking currently Twistlock further, you attack step where you talk how

Nikesh Arora

and to in sentence should know me give to answer I three technically, that going Gur, your I So only to and otherwise. you're I question, it jump then try throw because have always two, known Lee

you world, I have that tell you is In shift will cloud to different. world left. the But cloud the

entire That’s why is it think process. and DevSecOps We Twistlock Twistlock important. where and is And we think why deploy plays I have bill, goes run go the DevSecOps because that's important. to to that's

has has Twistlock solution. solution. a on-prem an SaaS RedLock

at can How public private So to I You both expect cloud. allows environments, us far, this cloud because logically us far, look am so in to and Gur? present be so both good? doing

Gur Talpaz

doing Yes. You're great.

so So far, good.

Nikesh Arora

ground I'm hand take to over high it the and Now to Lee. going

Lee Klarich

appreciate I that.

PaaS think component way whether about to architectures. cloud they're the them. VMs, with maybe increasingly this a think cloud different services I are Infrastructure-as-a-Service, of multiple with foundational is, that's these architected underpinning And sort of applications, being containers increasingly services,

of into of see combine emerging is those together And the the allows as single application, time, secured, the bill at designed, a the and suite with RedLock course, to cloud to component and, their PureSec that Twistlock security all entirety perspective. of able serverless a customer powerful capability stage a how one to that to core Serverless left as key being from bring the is it's architected shift cloud run also very of way from together but integrated the that, a elements. platform of together all for able we're

Gur Talpaz

job Nice Thank helpful super you. Nikesh. I it. Lee. That's appreciate

Operator

to go Citi. We'll next with Walter Pritchard

Walter Pritchard

Hi, thanks.

Just a question for you, Nikesh.

concern the may I side, one guess On here. that arise product

it You've cloud a like largely feels done lot strategy inorganic. of M&A, your is

remain building Or down without future? new of up this these should seat-building products the into of having money the that you come spend the organically to able the and either road going convinced products be culture of to do kind - M&A? keep I on needs address How to some

Nikesh Arora

you a that's of Walter, our question. But at think, firewalls, we're I doing really, in look firewalls. business good really fair core if

subscription. DNS a innovating. are a as-a-service, had security as teams We Our

in Hopefully, quarters. some upcoming able on are more be shall we working more about things. We share interesting them to

we innovation on That's for in is where business where capabilities developing. core and capabilities But firewall other going are our our it strength. sure have around there

thousands, capability. on not of hundreds working have capability security firewall engineers, our and networking core We if

rated test and We as mentioned, which I MITRE's number Traps in vectors capability as of we also attack Secdo, concerned. far bills unmissed was are had the best as with endpoint around

Cloud how core question, that have all are Alto make an of will asking you cloud? Palo we clearly, networks was transition area to So where capability. the the

have we Do capability. the core

we time, the the XXX to using are evident I With contingent Twistlock for didn't the fair them to same have team it's the security, container want who we used to wait. core want for we to at customers create wait. think having RedLock ordered cloud, and the but didn't say

the which security. in want thing. same vulnerability want our steps They customers the the early capability at launching full the for time, also, capability They scanning container containers. We entire want a RedLock, is best-of-breed. towards But

incumbent became and Twistlock. imperative we So of RedLock it this combination that create and

the that force. And sales good crossed fact million two honestly, this RedLock quarter able run we're have go our done deploy if $XXX think, in we price means our paid versus we -- across a the product for you take back it and rate must to to it because quarters, entire that and deal

we cloud capability. have Yes,

sales We have it force. in our

have in We our it RedLock team.

teams RedLock, revenue We team. and be have and Twistlock and and to to it create be able our our put our and able capability PureSec core Twistlock, more together, product. this should cloud in the in We use to team go sales

a cloud I and enough now, right out in enough Because think is which to not customers. security, not is unserved. TAM of salespeople going over demonstrating there products. the $X those of are There product billion There are

a really be land to being the able now, products them. there people question enough to demonstrating their it's a being and these of to grab, able going out sort able and enterprise, well who have in customer, solve to deploy right understand product to of the So

Walter Pritchard

a year? just duration Is the of thinking duration are And as that X as goes? products we of this maybe would as simple it subscriptions go streams, to firewalls about side. to follow-up to over then, going we to are Kathy, versus us time kind year the going that X to on a be out are revenue the duration sort the And Great. attached model the go unattached of mix kind see as

Kathleen Bonanno

X other business be as they way time, products, buy towards we buy customers to to SaaS I tends wanting and will correct cloud-based that becomes the Walter, more our you're subscription-based, over our Yeah. see and SaaS more more think that duration. year the

So over time, happen. I will do shift that think that,

revenue sure annual just preserve wants of and that deals He year, hand. that the Nikesh this been focused we've on and and though, the stream, we're raising making recurring to his in. quarter, that this business rest jump also is In doing very

Nikesh Arora

to I'm going in, Walter. jump

look, underlying I interest, excited And the the in I like the are all trust number. we and were We make fundamentals you I not fact it like right that me, billings anything buy left, customer stated getting us. they of sure guys think, center our we services number. to to missing know about we tell that want business will billings strong. you continue the more security from be to the

that The two is unattached we're you're clearly is the one product effect, happening, which effects shorter seeing duration are seeing better-than-expected growth and those. that

is, force And our are business. with trying We've honest, to to we be less and and business the out to we do going bundle doing business new large customers more told them and go then, second to sales of like new discounts. that get multi-year existing deals

that many as over can't more not consequence that we not calculate our I long - that. deals explicit in I we're time, doing it way said past. than think better consequence, many way do I the look an many, will margins many, a impact discounts billings -- that that And as be the at And do expect, of a as mechanically saying, we themselves. the with should as As large you to have that used in

Operator

JPMorgan. And go to with next Auty we'll Sterling

Sterling Auty

transitioning deal, shouldn't kind you that your question lined to in really flow an weigh Boy, of if on a after just until X answer, year had of I succeed begs it that through more that triangulate everything up, towards start the growth different annual does contract versus process? question cash but a

Nikesh Arora

Look, if overnight, everything happened yes.

going core orderly and over there's be as to non-attached as our proportion manage the I business. transition think time to rises we business our an continue long-term of

flow margins? our Yes. So will improve Will our Yes. it cash change? yes, profile

business, a and a that's business, hardware-focused a long-term transition becomes business And how very subscription from a to that been business. has you which SaaS-oriented

Kathleen Bonanno

and we're But add flows. financially that us better this that is the it's ultimately I'll on believe for just improve will because in cash focused long we the our doing reason run

Nikesh Arora

saying, Sterling, Palo asked every Networks a become question Alto enjoy X the businesses that month ratable to business? you become the has you me will in talked business this I SaaS does a - will When months, last so enjoy? when SaaS multiples analyst can

businesses a and enjoy multiple have a Well profile. SaaS financial certain

cake have it and too. So eat you can't your

me to to transition. want that, going You involve transition it's a to

Sterling Auty

That's of fair follow-up the the terms in in business One enough. quarter.

support was how one perhaps that revenue and was question pops mind some of at lower product things close? support growth, caused the linearity timing and the just loaded a were And just you on that that in more revenue Looking able revenue to to the is, the quarter? back-end that

Kathleen Bonanno

Well, couple of was And to a keep growth, year-to-year mind XX%, keep and year-over-year. there support in it revenue one quarter-to-quarter. is, well, about just are to thing pretty from can One, in support includes which strong services, vary things mind. professional

have revenue support business, is those lot we non-attached, And continue subscription got then of concept non-attached the attached that we've don't the to offerings. billings coming from our other thing and grow those which now same as a of our to now from coming

in another when keep just to you that's So consider mind thing support.

Operator

Ken And ISI. from we'll go next Talanian Evercore to

Ken Talanian

Hi, thanks the for taking question.

should non-attached And acquisitions? to over your happy you're the we we like ratable you these a ratable pace given year surpass So how so, about see you to sales the or subscriptions additional from the at which more we move to XX% are how business, of more but next soon move billings? may getting see think subscription

Nikesh Arora

will we're the beginning to cloud guidance perform. forward Ken, all I to you our security those way tell on topics. is give going business is can you not But you Well, see

you million quarter. rate, we rate said very, think as it's can way this run at growth $XXX has run imagine. rate Prisma billings robust a very company And over growing gone ahead already growth rates, I of the

higher required will that have growth more which shift hope changes will that impacting in continue, mix ratable, which it. is cash of create more the flow of profile those rates and terms We duration business the have with will of billing, impact make proportion our associated overtime shorter to a the which

don't But expect I in the this to happen short order.

a I that growth process. think company. people And growing industry, take the from overall we be at of take time reasonable rate the But you're you that of this to of as that us this hopefully, in amount rate we're happens going X.X time. growth if the roughly the is share clearly, must other times a enjoying taking

Ken Talanian

to Understood. made packaging, the the changes you of And with launch the or any pricing, branding? for the Prisma have the cloud-focused go-to-market products

Nikesh Arora

notion we by Look, cloud having speedboats successful introduced go And sales across across not lost process, very our paying what Yes. on customer sure sell is to a focus that team early that speedboats. and I make focused mentioned, has and we functional the non-SaaS people of the core have of dedicated having to specialists have can basis customer on in organization our making this been accounts was success this make is notion partner team, as which and our ahead sure the who dedicated with people services, and by dividends. to had,

We on that continue track.

We teams. have dedicated

and learned are our all who speedboat. a We've this Prisma consolidated now as have We customers GPCS to products. from year the combined the cloud products looking going public the as are suite at last make cloud these of the that speedboats Prisma, into journey to

which speedboat. and of rest So by on speedboat our the the on acceleration same who that at put have driving is of we into degree cloud are Prisma we the products, people the cloud one them speedboat, public all same were the led public

business. lost to large So yes, on from expense we want don't have core our because focus a go-to-market of the smaller, faster, changes get the and made we growing in side business perspective,

Ken Talanian

much. very Thanks Understood.

Operator

we'll next Piper to Jaffray. Andrew go And with Nowinski

Andrew Nowinski

for the you question. Thank Great. taking

growth in geographic some I the changes leadership know unchanged. you made sales the perspective, US US, a from relatively your remained yet in maybe So

EMEA However, slow. did growth in

North team in more the So sales made. new America EMEA as color wondering in has can slowdown on leadership any if just any you provide as well the changes

Nikesh Arora

I correlation change a going made didn't figure out I draw trying you're worse. and to got think change changed. make We've was was. We where a and to Look, the there, things nothing there,

So I'm what implication not sure is. the

confident had Europe the There targets. across marching -- a slowdown, EMEA. third seasonal seem annual they like continue to will vis-a-vis, seasonal board towards quarters was a Look, feels their third team challenged. be We that quarter the there

quarter. in will upcoming they for what were to So not quarter up do hopefully, they make able the this

a QX more were part to felt we knocking up hired was the the because lot people next and not of we have opportunity In in last ramp doors. terms we which in of the quarter, U.S., enough had year we we expect that

I motivated. the be don't the had except the The is motivated focus excited delivering of team change to for as quarters. think and of team, that much the leadership fact an strong. on And new that keep more terms in continue has of to is the performance they team Americas The We the in mentioned, business. impact

Andrew Nowinski

effect obviously I U.S. I wondering is in was in Or there changes growth in EMEA the link? think changes I'm any the fairly I asking a just is their there needed sector you - positive any guess made had to abnormality EMEA?

Nikesh Arora

listening I call. to Head is this Europe hope of our

Kathleen Bonanno

Wow. No.

Nikesh Arora

We in delivers sure and quarter the he make growth no to quarters. strong. upcoming this going changes intend retain make his to He's Europe. He's in rate

Operator

next go Keirstead Bank. We'll to Karl with Deutsche

Karl Keirstead

of questions the you think Palo of a RPO you. disclosed as or got disclosing for think just fundamental it? might backlog might your have I last it would value? that Networks, couple billings, Qs. Alto mind And be health Nikesh measure you Kathy. two less Kathy, useful you if number more your I've Thank do of was in describing,

Kathleen Bonanno

Yes. number. and provided that billings the difference number at in number on be that It's disclosed and the And The this call deferred a which grew earnings us, can we will for quarter. year-over-year. not you the math number, nicely do XX% on our it between is again Q current massive the revenue

a monitoring have been metric over And years analysts and asking that's of a years. us about most been that think number the have I for

continuing think with is that focus so to important, revenue along growth, And obviously. number our that I on

Karl Keirstead

Got it.

Okay. second then, as a Great. just Kathy. question, And

cash margin adjusted for guidance year. the of full the on flow free XX% Just

flow the through this fiscal X first free of that adjusted cash year, to would think close months out to margin XX%. I average be

So why below maybe would dip to end be? you year, that touch Thanks. cash would fourth for a at to And bit, full the on need if flow margin wondering quite quarter your just free you XX%. I'm up to could XX% even

Kathleen Bonanno

that Yes. the making did We in about talk quarter. adjustments the we're

But to in quarter, more commissions So have quarter. additionally, in to QX we the the expense be adjustments will that number. particular that expense tend more

of And full so guidance the with year comfortable XX%. we're

Operator

Capital to we'll Owens Rob with And go next Markets. KeyBanc

Rob Owens

question. taking for my thanks And Great.

for a results landscape product yet the that impressive saw general the product If paint looks strength you continue and the you what to put look you security revenue I up kind most weaker you of little mean was can side. in again, vendors, at like? QX in on

terms just seeing you're of in curious there? like, looks levels So sales the discounting out cycles, Thanks. demand landscape of what what and also of kind

Kathleen Bonanno

Yeah.

The and are growth as did have competitive those job good new remain market. in time that we thrilled And mentioned, with we teams, the products a product introduced products. very that. number, So sales obviously we we're a our doing selling really over very see strong

we're for Nikesh take to of products as that the it improvement, seems terms a lot that be some that, for of of we convincing. there's in seeing majority selling. There doesn't significant the cycle that our vast terms demand overall, for change wouldn't sales We're and in said, cloud products cycles sell. a lot say the sales I been of selling But of

Rob Owens

you. Great, thank

Operator

Kalia And we'll to next Capital. Barclays Saket go with

Saket Kalia

Kathy, thanks taking for touched I it's questions here. very revenue the And some that you my the examples We on attached customer of refresh. kind optimizing number. maybe Great, for you're of on think subscription. clear product

thinking more just little can firewall health of going a and refresh in sort But about forward? broadly bit talk of that quarter, the how you're about the trend you

Kathleen Bonanno

X Yes. Well, to refresh, they talk tend when people about ways. different it about talk in

share that we going somebody is with we that's the firewall if take new to how land-and-expand, talk the market most market is how customers right? they - firewalls refresh, time, I'll That's replacing refreshing in our on go new about And their of and general is just get So firewalls. just all One on and both. refresh, are and of firewall a right? and old continue

is refresh talk own other our people refresh. The internal that about

customers sort driving lot are in own those quarter our asked X, and replacing get the And having that our is So that of we year they is that firewalls. question a about their a growth reached life as a X firewalls,

have larger the in said quarter, a us think refresh us portion quarter, of in that, - front we've quarter, we every sizes a but but as numbers portion and larger driver of last the our And opportunity the of contributes than because that cohort it over number primary certainly, more cohorts time. is And this it's just in behind of for we growth. a not our number in get of quarters,

Yet we share refresh opportunity still to we are market own both very our the the very we're refresh us focused getting and future. as -- encouraged in on that opportunity. take we We continue that opportunity and think on general are internal opportunity. it's opportunity, a great focused And don't for refresh

Saket Kalia

the some it. Got Nikesh. for in February, the were it. you, in quarter, Got beginning the a Maybe early channel follow-up there of program. changes I know in

that and I think portfolio. sort models of partners different models the sell of adjustments some different RedLock for or broader sort for

you about impacted quarter? bit And quarter? the how, if up talk at a Can little April just those feedback in of the all, you this what's as been wrapped channel from sort the

Nikesh Arora

And is place is a I but and Look, the for possibilities happy evaluated think both the bit of where prior various we we of this quarter. landed not quarter, us. it's noise, channel where channel, which a there to was the

also just future customers sold and deploy channels which products, these you be our not current Azure through the end because actually of SaaS capabilities. AWS, If products these cloud up is our but basically understand when go marketplaces having to channels, cloud public GCP to

other go and public a products. present an and there, different off deployment from accessories have sales activation the and And perspective. marketplaces we be and tools cloud They to the providers which model to requires to find

We that. refer room to enabled that to we be able for channel customers made marketplace. our to So

things As selling a way used customers The way things result, are consume be hardware in to We're think are referral which to they money. opposed buy and is way to the happy. their product. the And they get want whichever making I able it, economics past, been process. And to they've continued more it. channel's to as are stable,

Operator

And we'll Wells Winslow with Fargo. next go to Phil

Phil Winslow

guys Hey, - question. strong on particularly thank to the on sorry, product the Congrats my particularly for year, a taking product on start side. the

Cortex. of you feeling the you're on an at focus of on Prisma, spent to but give of wanted on progression Cortex particularly then the about usage look and how a time there wondering data lake? hydration update Just product We've just you us Cortex, also call applications. if And the if hub, and could it lot

Nikesh Arora

make I -- mentioned, an of One integral we're offering. the very which Traps of now, Cortex announced lake, as look, parts quarter part Well, to there we as XDR clear combination, two data last which Cortex. Traps our we requires is the are right that includes XDR going

market, coincidentally. validated XDR beats morning, and hands-down. got it product is this leading but any product now the this, the in We felt it We believe EDR

those you the have believe traditional we a market, the of many we been product. but competitive So just have product, displacing a in know legacy vendors not better

in the our weeks it that that seeing over We've in growth, done done. the we're deals deployed since about And we're for pipeline seeing market. announced it in that X in XX we've Cortex the XDR we and deals

going very QX. have We pipeline to a healthy

and Prisma. a Cortex the XDR, to public applying are did to so we did speedboat we cloud We just concept way -

have to in being requires data deal we Cortex cases. the data the every XDR and and lake deploy deployed So lake, of Cortex lots hopes those Traps from Cortex is Cortex deal, XDR every

automation a Cortex In of prepared because that, Demisto even business end. addition to SOAR a in perspective, they plan had had it only quarter, customers we Demisto this look is any numbers at now month only about from past for their our part has though at surpassed own

Demisto, customers fact QX. Just one Demisto. really into going is about about that by we core sheer team to our expect And got continue our every excited that of excited and trend

integrated Prisma quarter capabilities the both are VM and hub Cortex on hub generally, Cortex reporting. Aperture or are data well Cortex Demisto the whether that lake, it's as the of we as to the launching perspective So actually integrations the of between this use of a XDR, products, from integrated Cortex, we Many create our perspective. bullish, some some

Phil Winslow

thanks guys. Great,

Operator

go to with And Raymond Michael we Turits next will James.

Michael Turits

margins we Hey line year, looks top But cash declining first from product. EBIT a what billings from look as I the of begin as strong a really flow guys, we have they then, evening. would next these of think trajectory lot to dilution margin think And the what we side, for should that bottom? on into since Obviously, revenue before good should we assume current acquisitions? everything of coming

Kathleen Bonanno

we'll account into which provide contract earlier. point look, at that the for the we're ready do year, issue when to Well, provided length discussed guidance guidance takes We've that so. full we

So about. one of margin, on an this either We've we've been guidance despite organic our year, improved is the been framework. well, metrics. the can on you we're provide has But those not margins ready the framework on long-term basis, see, which within that, to what operating fact operating

very profitability, on wouldn't the expect at line we're line. we're we're continuing on that top And so working And focused I to change. that time, growing bottom the same that to focused ensure towards

Michael Turits

even make fairly And GlobalProtect sure then, about do ask proxy applications, specific and it, Zscaler. moving you to feel to certain I with And about order you How Cloud wanted it's that firewall you're to be for with area you that Services, to them competing necessary, an the perhaps, on Nikesh, do competition? competition to do see more in in potentially basis?

Nikesh Arora

question to do friend, defer to I Lee, rather him my let answer, going this the though even I'm I'm it. can butcher I'd but sure

Lee Klarich

GlobalProtect fundamental Prisma able Service, Access. is about that, now fundamentally, something works. that do secure you need architected and to Access be the look, is consistent, to clearly, which of firewall how advantage which - and We is we've we foundation is been service, and how to with is a all to it unique have applications. way Cloud We very And distinct that, next-gen believe a in Prisma Yes. we talked the

the today around one the GCP out as near Access supporting will we to key Prisma announcement Number extend locations we be mentioned foundation As are Access. the a going That launch to of cloud in to Prisma Prisma, couple there a public in XXX-plus world. enhancements future. with are is coming

perspective, from believe we'll pure we network the side performance performance be of at So best a service. latency the

management entire that that soon we to we'll to that to from along go configuration to to it, support onboarding, service with a second, And cloud, who monitoring. the able the will announced cloud done have want we through be service for customers management such be

Michael Turits

everybody. Thanks Okay.

Operator

And Jefferies. go John next with to DiFucci we'll

John DiFucci

to worry and follow-up RPO on had to your guidance just Thank largely answered. focus appreciate been which you. about My I questions a lot. makes current billings, a really sense for not us have total that really Kathy. Kathy,

trying Just differences get any we see of might ahead. going ahead to

because in quarter, billings billings renewals. would previously, have upon little to me sort little might a we might whereas every volatility a that revenue more deferred long-term seems current flowed now annual lumpy current It smoothly of more that into see be

would I all as have over out want should to remain the all too get sense? they Does at don't more time, just that And current cute trend about more been smooths sort the billings same but lumpy make sales of as this, a maybe are and little annually. billed

Kathleen Bonanno

Yeah.

We us, a I think mix are great was changes which makes over that, did obviously. that quarter, thing this happening sense. The in see great products time. gradually in cloud really for strength our

of expect we've that assuming going an for rest I It'll strength and happen time. And guided to the to continue so overnight transition. be it's gradually over think right strength. that not But you're we're it, absolutely there,

John DiFucci

Great, Thank much. very okay. you

Kathleen Bonanno

Yeah.

Operator

next to Boolani go UBS. with we'll And Fatima

Fatima Boolani

pillars sort given question Prisma But pricing the had I'm solution can different afternoon. Thank of a the has you purchased four an of each potentially you if all wondering a Prisma and the front. clarify models, portfolio Good for regarding a you Prisma. on Nikesh, ton if nothing. within models go-to-market sense or question. your to amalgamate for security makes I It cloud, the taking

of going And diversity about that's sort given you that an all to And then the deal, the Kathy. for have models are a the how revenue I within follow-up portfolio? extent offering pricing of

Nikesh Arora

your whether question, aspects, products new parts it's scenario. of bought and Look, to offices CASB cloud journey scenario there and branches that public it's has the individual whether the been the the journey competitors have goes gone remote that cloud customers for you're different right have whether and or Thanks towards enable it GPCS it's when or different Fatima. the

yourself. products, products And shouldn't between which have that our security these have multiple interdependencies to are part thesis creates for there because you is of

of it's public of their expect on morning, how because you do containers, there alighted application, exact amount the to should Whilst just can as we that consistency, to whether in we cloud, public and cloud announced Twistlock be the - haven't because you and deploy on acquisition the we're terms private us ways not still cloud, be to pricing you PureSec customers distinguish think different opposed should serverless, purely based volume transfer cloud it it. the we the this of

make directly will better market to should piece available cohesity lot have benefits believe expect in of Having the cases. But So products in still compete their market, the integrated our in individual we in product products just than realities in people our to the the forms very that, see you - are will us. the individual competitive more all said obviously, some for given with a and pricing. buying most because we

Fatima Boolani

And you, financial two ones. enough. for Fair just Kathy,

We of that's wondering above contribution Thank And revenue the it impact for in jump as the me? and the can you I'm from from understanding have recent but if expense OpEx seasonal speak an sales the in as you. to acquisitions, billings quarter. totality of marketing well the the acquisitions this recent

Kathleen Bonanno

line for remarks, our our revenue Yeah. line in of them top explicitly. for increase guidance bottom with We prepared those, acquisition and the impacts and our do have, although as mentioned the EPS, called and we expense guidance associated reflects I haven't both out in

your was the part what On question? the - second sorry, of

Fatima Boolani

jump than quarter… marketing sales and in seasonal Higher the

Kathleen Bonanno

Yeah.

that Americas really reflects to the marketing been change in it drive and teams, of any don't coverage. big sales hiring in think sales I business we mentioned, in particular Our sort more that have Nikesh as

And right? line particular, takes in result top a revenue for in to actually those expenses while it so

as more change we math over get even time, and we'll So those hopefully, that as see reps Americas the that up number cover we and see get ramp higher, again. --

Fatima Boolani

Great, thank you.

Kathleen Bonanno

Yeah.

Operator

final And question Capital Matt Markets. our with RBC Hedberg comes from

Matt Hedberg

for Nikesh. Thanks in. One guys. for squeezing me Hi,

clearly, of firewall taking to talk sales the to that the firewall from But you and you're versus base? can product portfolio, general you some avoid continue about expand Your rotating to remained steps as sort over - peers. momentum results strong, cloud-based your motion of over core

Nikesh Arora

mean by away or... Can I'm you rotating sorry. what you clarify over do

Matt Hedberg

of products of lot exciting guess, know of of a overlay are you I sort But yearning things are sort side. the a that And can firewall customers sure for? core cloud that there despite the do maintain toys you've themes. there's new I of momentum probably got lot a all to shiny on yes, the I'm lot in Well,

Nikesh Arora

whilst This business. not more cover Cortex. our of business. is core drive core to to us Look, reps disclose, in but This able quarter, and cloud. more the we existing be is not more a for Prisma. going our quota-carrying This to coverage more, coverage This last accounts for lot -- for added not we're for across is more drive purely to not in

think who guys that every you us remember this product I strong of - I don't growth XX% said show across but have product quarter. said it, quarter, seen As you one growth

our the eye So not off clearly, taking we're ball.

of being rumors in traction not firewalls are what The like money overstated. pays understand from. It's market. are are not We firewalls. the the understand comes where We the buying bills. And we dead seeing out the people

So firewall. we a is think still that continuing - still on the strong continuing trend

continue hire We reps. to

penetrate try firewall a We more continue accounts from to and perspective.

know, We our capability also you more firewalls. working, as in are to add

our not price firewall do things So up the in average because less. firewall for us, customer, they more the can per for just goes

rapidly. growth It focused maintain are that. on So to we our rates to it's going us adding core growth have to understand in we the growing in more not happen just solid requires industry, and rate by that a maintain them we and business, product the

Matt Hedberg

just of That's about assume But legacy talk in able XDR those one them vendors? some great. also the coming deals super lot one to maybe in where the is share helpful. are players. of from I deals -- EDR are last quarter then a of take on And able are particular. some next-gen the XX you Can maybe you from?

Nikesh Arora

has the come behavior analytics, endpoint to the to paved Look, the process to in form have at minds just and not is an one able between but vendors and that the stuff what's happening endpoint non-signature-based good need do that the that the thing -- network. endpoints evolution in what itself capability to the alarms cloud endpoints able needs of of the customers being way being being happened understand and in is customers EDR triage the able protection, in evolution,

says, reducing endpoint up ratio if to reducing XDR into what, [Technical the signal this And has this all being ration out about to from revolution bought your next Difficulty] an firewall takes noise comes are So your into is across triage the you and it the guess noise level of vision that slot. signal able one perspective, to

please, vendors in come terms of way Now opening Palo and networks the paving but of EDR the also work how EDR Networks. hey, not are them for us the in Tell Alto about the door together. on just saying, virtues EDR,

We customers. have candidates natural us Traps They customers. go thousands already you're and of Traps for to say, to are look,

You're already firewall customers.

easier. You will life the make of which deploying be your should XDR capability, softs

announced APIs Demisto well integrated think quarter. we very this - XDR I Cortex we our into

that even is So happening.

we more. are integrate more beginning So and to

compete opening door the us are in to to we them acceleration expect you trying and with in hand-to-hand -- yes, more and for vis-à-vis us can So EDR focus more combat. is existing put vendors,

Operator

At Nikesh comments. hand over or any this to Arora additional time, I back call to closing for would like the

Nikesh Arora

is afternoon. say very time much to this thank you Well, all for your do want I

As this a of you more the to reminder, customers X,XXX at next look I Austin, year in we and will meeting ahead. in Ignite forward be partners hosting week months over Texas.

who our keep do. to all And employees to everyone. QX hard have going, quarter to want hard you this and let's of really also give I work. all thank work we a say for Thanks, shout-out your

Operator

That thank today's participation. conference. does your you We conclude for

Palo Alto Networks (PANW) 29 May 192019 Q3 Earnings call transcript