PANW - Earnings call transcript Q3 2022 | Palo Alto Networks, Inc.

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Clay Bilby

Good day, everyone, and welcome to the Palo Alto Networks Fiscal Third Quarter 2022 Earnings Conference Call. I am Clay Bilby, Head of Palo Alto Networks Investor Relations. Please note that this call is being recorded today, Thursday, May 19, 2022 at 1:30 p.m. Pacific Time. With me on today's call are Nikesh Arora, our Chairman and Chief Executive Officer; and Dipak Golechha, our Chief Financial Officer.

Lee the join prepared Officer, Q&A in Product following session remarks. Chief Klarich, us will the Our

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

Events on from that click and provided involve the our factors no part materially of that the today's information information please to projections forward-looking our presentation information. conference presentation that and of supplemental in the could risk differ made our results to in other the and today. where differ actual the make provided cause call, as there, management While we in investor link for results to will cause earnings you'll filings. statements & assumes actual release current on as Networks the beliefs presentation. in Palo are and Alto could find are course today's uncertainty obligation and and statements Risks, forward-looking SEC of These In and based update harbor Presentations forward-looking uncertainties to statements this statements identified available safe presentation.

GAAP will as should performance non-GAAP also These with measures. financial not are accordance with measures in We prepared not or accordance in be financial measures considered superior for a prepared financial substitute non-GAAP to discuss and of GAAP.

now earnings of that like JPMorgan, is financial We to in the specifically Bank call to and have in all America Jefferies basis our investor included we with next the I participate Investors noted Please the our which in measures in over comparisons GAAP to are would to unless also year-over will website. upcoming note weeks. the also provide scheduled several a and appendix presentation the conferences turn of Nikesh. the can otherwise. reconciliations management note, and tables found on We the in release, which have non-GAAP be the and section between SEC filed

Nikesh Arora

and and thank a combination today strong our you call. saw time looking everyone, back our product business. strong next-generation security and earnings by Good security this Clay. driven you, uncertainty, commitments demand In cybersecurity and for and customer volatility us over past a for afternoon, network software. we years. Customers over several the to Thank security, geopolitical strong X years joining XX% again network we macroeconomic for our demand as and Palo security increased we over market of our our both capabilities XX% of metrics billings their growing our Alto offerings we expansion consolidate results. strategy saw continue to our grow is year-over-year. to team's growth line was We line highest with This network In in strong reported reported Networks financial the the RPO both top transition significant have last to billings to execution QX the with continue in as drive result the subscription of

ended security net Our at ARR billion, up year-over-year. XX% $X.XX QX

to revenue supply in achieve cash line performance translated despite enabled We were able that we flow operating into chain. that pleased conversion. top these and of challenges line ahead grew Our strong the were income non-GAAP bottom results

strength industry continue particular our strong transformation our the one's be Speaking for occasion of growth started with backdrop, widespread is and X-platform support this approach. all operations given teams in to trend geopolitical our and transformation, have expect and the and cyberattacks, environment cybersecurity, creating we execution rising the both challenges with to cloud continue areas global this supply our or sales, interest and and customers rates to risen it's of that across the have network strong. chain, the The that Coupled the infrastructure conflict and fortifying unique consolidation pandemic to the drive inflation, testing for I'm business. whether and execution. shown trend pleased us in

Ukraine events are terms with organizations. Ukraine everyone's Of course, of to This significant the expectations. us people not aggression We stand revenue to cybersecurity on been for geography overall and mind. Russian provide has of or have in against Ukrainian direct our of support the been working growth

For this Russia most our our quarter was revenue recent and combined well quarters, below X%. and Ukraine

Russian We that government over for of cyberattacks. new with December, defend sales and we're also all organizations indicators Since deployed have halted from in new attack protection complying and Russia X,XXX disruptive sanctions. we've destructive

conversations. interest As customer customers and activity. around this commercial and landscape government driving more mitigating ever-challenging you broader heightened might expect, nation-state from is we're in This seeing strategic Europe threat

We and an our market of continue opportunity. expanding for our customers to elevated partnership level look see this is

million-dollar-deal become continue with we strategy. sales transactions in X having us market, growth enterprise a and major QX the in up all The in this see transacted size core our see Cortex. on with our and of of in and multi-platform of share the success to was now signed has million-dollar this of tenet We the of increased our Strata, our evidence consolidating We our platforms average Global of quarter. customers within of deals XXXX XX% XX% number Prisma

penetrate XXXX. in the billion of in by our second million platforms. Gartner selling Global third XXXX Innovation which engine that $X market, We deals important number total the estimates an the XX% motion for by growth as increase our are over us deals we and will customers underpins end-user spending saw year-over-year. also Large is further with $XXX

trend customers consolidation appreciate of in our the With each market, X platforms. capabilities best-of-breed our vendor within the towards

they're into added quarter, to platforms. capabilities. X integrated for additional received This we X we the categories our Remember, recognition best-of-breed our all

the the effectively as industry. compete vendors independent as individual of against So well platforms in which benefit capabilities our our gets best-of-breed customer the

position response leader validated management, recognized acquisition of designation leader importance XXXX next with entered market, I'll to of an recognition We our this attack Prisma Cloud. Early cloud progress what provide the in in by and of security GigaOm. a X Forrester only outperforming received recognition. we in an surface and strong with categories, inaugural EDR. in from as you in our designations that recognized have workload platforms wave their through update last were Forrester starting we which made company quarter, performer as incident the we've Xpanse the was the on in

in see notable this continue by We strong and evidenced customer our which quarter, upsell momentum deals to for $X expansion This credit year-over-year growth large customers commitments, and existing customers and in grew million. of consumption, new driven XX% both expansion is XX north QX. drove which in

for to And security integrated enabling that drive Customers cloud scaled, us. I've provides, continue the growth. hyperscalers, yet platform across Cloud cloud Prisma high inherently of a Prisma looking to before, deliver customers choose all leadership as We us are said Cloud they customers security double-digit industry. are

that operating Our customers is recognizing means are that secure. the written increasingly in for is starts ensuring cloud the developer. with that the software This cloud securely

XXXX. Our in early trend observation acquire to of early this Bridgecrew led us

focused continue strong and developers. over its a QX. Prisma targeted consumption. our which strategy, capabilities consumption, see in amongst of and Prisma offerings of at driven Cloud portfolio X Cloud to approach million commitments to the Critical Cloud all deployment in credit is Cloud. Prisma from Code downloads we fastest We the Prisma building Cloud open reached have quarter reporting. out Cloud, terms of existing fifth X-figure of our Checkov to adopted success seen been also in in is our source we've modules this This to pillar including credit by of on Code leverages release, One developer offering,

Moving Cortex. on to

awards We QX, XX% We they Cortex in an approximately the achieved million of at product transactions and are customers with helping how ARR. each EMEA of nearly for automation in over record level business in Americas. and benchmarks. core. to with centers reimagine number shine customers XSOAR. In with $XXX strength in milestone saw grew Cortex XDR XDR QX, security and Cortex in established multiproduct QX a operation that supported their operate of transactions our Cortex continues and the important AI/ML and with areas with by we Xpanse industry

XXX% MITRE XDR detection recent evaluation. and the threat in recognized for quarter, This prevention was

last our as months, releases Forrester have with X a Wave. significant also in XDR EDR recognizing strong in the we recognized XDR of over progress its series the made performer

Xpanse to the be value AI at category around an a of progress is disrupting end our expect that that unique enable XSIAM delivering and surface Our recent with we the demand. XX After XSIAM, our over with be last Cortex the attack our alternative performance, co-design XX modern will to ultimately goal track this partners SIEM seeing plans. mainstream achieve of expect in in very management quarter our customers us and are offering we making on up in well releases XXX% transactions multibillion-dollar what inflection by a leverages SOC work now and limited ML. to months, shows initiate our to automation, with vision to

hybrid to adopt Moving ushers a trust to and least key security a privilege ZTNA X.X, we principles on security verification era zero week, to continuous made Last all trust call of inspection based like apps. industry workforce which on continuous SASE. access, in the across new

with Prisma of The pandemic to trust provide is the for zero SASE. zero accelerated exceptions. mantra adoption Our has Access

installed the continue across purchase opportunities SASE for first nature category. transactions saw in from demand. and significant innings, early this whom of as XX we're customers net engagements SASE is to continue the other addition significant with In Prisma new to their in in large success become transaction reinforcing see base, traction large for for investments Europe from particular ensure then we These in is significant customers we us. momentum signed global our further we our platforms. SASE to our momentum strong making SASE incremental EMEA,

our to platform. hardware and subscription services on Strata, Moving

consecutive both revenue strength and third We our the quarter, XX% growth. north of form portfolio, appliances software factors. saw across For we delivered hardware product

issues, dealing year. to As likely supply yet with another industry which unprecedented the all aware, chain you're are persist for is

industry. is maintain team allowing deftly these us managing times partners, to our the in better than with Our some lead

as with market year-over-year XX% we Palo XX% share are having share over both In we appliance this and cannot market In X command We share, X have points year-over-year. contribute added the helped #X nearly timely gains. deliver validated market, advantaged by in to we Dell'Oro, instances in according market being recognition points recognized factors. market market. Omdia of where supply momentum believe market competitors and hardware saw share share and where third-party the gains the up to has our VM for hardware, seen of than of Alto We more Networks VM in form

We transition. execute X Generation Generation continue on to to X our

Gen nearly We have X now appliance all models. released

solid rates subscriptions QX of our advanced Although new performance and saw Gen strong of in strong advanced early of uptake adoption growth rate. last and X, are their this quarter expect very CASB will appliance next-generation help we seeing threat the ahead for We released We're here. URL prevention demand customers adoption evaluation our drive Gen growth early market X subscription. and

our announced Cloud combination use of factor our of Palo it second the the security launch position to of Cloud Alto and a we network Lastly, the engineering Amazon industry-leading AWS leadership relationship with relationships Cloud security is hyperscalers. Web cloud. our of a hyperscaler innovation Next-Generation Google Networks' into Platform that with the fabric leverages with IDS differentiated network their last embed and scale, follows partnership marries cloud-native with ease brings of AWS This on This Firewall on our form the in Services. market July.

Platform security Firewall factors. will We results, our top to delivering Next-Generation platform. together, reason committed we exceptional also network and It targets appliance of QX security we growth prioritizing all on Innovations a it another the our maximizing as on Cloud expect the form an and are targets our maintain even Bringing during line customers specifically, saw is software we Google where drive intend our IDS of we while Day. September same gives to growing Cloud standardize the Firewall We focused further our and like that applications XXXX faster, protect to this pleased Cloud time, are on focus factor. very versus important and growth. profitability discipline, SaaS form growth. investments subscriptions this Analyst profitability for our competitors providers us we while on on believe Next-Generation on differentiators At licensing Firewall are primarily are cloud with to Cloud their AWS,

position We cybersecurity, for of a continue from to which see and broadening enabling strength. us is to demand grow invest

aspire As world-class we and returns our to a on as our growth today our of also proxy customers' as outstanding as to for we cybersecurity partner opportunity deliver well of the for be mission focus tomorrow, shareholders choice to cybersecurity execution.

GAAP accelerated results are target pass will to balanced we With look with we continue X intend call profitability over our in updating the delivered pleased to Dipak I first how talk have We in look We plans our to year so about fiscal far in more very profitability at that, X months on to growth, the forward XXXX. you quarters and to detail. near future. the in

Dipak Golechha

good and everyone. Thank you, Nikesh, afternoon,

continue midst of we demand results balance offerings again be strong breadth our ahead Our across all with across to guidance results In the our driven of solid the top well. by profitability line strength, metrics. of

of we our the and year With strength our full momentum outlook, this are raising again favorable guidance.

For portfolio. XX%. was growing above guidance was theaters, Americas billion, $X.XX growing supported XX% strength by up billion grew geography, our EMEA services XX% range. the JAPAC the ARR by XX%, this to and end QX, and $X.XX XX% By by Product with grew across revenue grew total of grew all growth XX%. high and balanced across balanced NGS of XX%

the ARR of metrics strong seeing on Cortex introduced all NGS our the and business We track going growth growing also well major our from QX as our SASE investments mix investors of helps NGS it's contributions as growth As we as we're within Prisma noted our as forward, growing offerings. of indicative Prisma believe one on of double-digit revenue. Cloud, we core and focus our this return offerings in saw recently with across earnings, NGS

selling our RPO with the pleased similar QX. XXXX, and our percentage us in as this of continued deferred recent an annual XX% quarter billion, increase maturity end was revenue of guidance also total organization of this obligation, ARR $X.X billings of again NGS with performance billion, delivered go-to-market increasing of XX%. above the high growth. current We well our guidance are the $X.X up confidence total Remaining the representing Total quarters. diversified of was billion, range. $X.X in RPO, in QX In a as Overall, portfolio-driven raise our or XX% in we to gives capabilities third for NGS performance as

these teams which Our of quarter. the result the again well drove metrics, in strength that executed see a we the QX, were call to There strength revenue. this factors lead in that very and few saw you line top out

In business, significant attached customers We've our subscriptions. NGS our make network strength use the firewall we commitments anticipate to their strength addition as our in upgrades subscriptions seen budget attached to saw security incremental and in overall they increases. to capacity

appliances having every was strong, to many proportion with with customers to Gen ship including early a the ability XX demand their in further chain small as newer supply seeing products from X we We're months. subscriptions updated brought sustained growing days consistent market last our for This software-based over hardware. XX% We of due in products. FWaaP the factors subscription XX estimate to around as they're Product capabilities. well, our the evaluating value have us to to conviction revenue well As again QX the exceeding architecture, X years, now to benefit form the refresh as gives cycle challenges. demand refresh customers look in our our X this with their only

of seeing to activity. commitments beginning earlier, also strong base platform, on customers noted refresh the hardware both and I making subscription we're our based demand our of signs As installed

a Our of billings Platform growth year period. Firewall grew accelerated on the the XX% as QX ago in top

XX%, continue Within this of our QX our mix in form We well quarter. FWaaP QX and at product to approximately ago strength with our factors. the software across offerings, year see our balanced the held business performance FWaaP line

driver XX%. across revenue the million subscription $XXX and increasing as to the In to income expenses quarter Product to share. $X.XX non-GAAP costs gross we incurred $X.XX $XXX $XXX accounted on revenue. supply to with revenue operating XX% XXX was Turning revenue details results. and chain total XX% year-over-year. were XX.X% for margins, chain-related up of support revenue components points. down the drove of XX%. was and or efficiencies XX.X% of pressure Despite XX%. basis margin continues as growing we additional by per Support total, XXX $XXX grew basis of million, the million XX% higher shipping. be offset was lower our operating expense points of Non-GAAP was supply margin The net business. for billion third costs for our million, Non-GAAP Subscription increased diluted gross We increased of able

GAAP million Our were basic XX%. losses tax was $X.XX share. non-GAAP and $XX rate per net effective or diluted

in Turning of and statement. shifted now the flow with equivalents associated cash sheet month billion. balance cash $X.X days to outstanding of Product investments during not was did finished resulting We and to X, shipments regard priorities, toward operations April and Cash We sales million. adjusted of a of generated With allocation XX.X%. flow free days. million, stock repurchase we from capital XX QX. cash $XXX margin flow $XXX subscription

expect cash XXXX. future have stated. We authorization to be share do flow repurchase authorization This our expires repurchases. December for $XXX currently as approximately on million of we share on use a However, current major XX, remaining previously

the acquisitions any remains focus. a stock-based close not management On M&A front, we Managing in compensation did QX.

we quarter, quarter-over-quarter. as approximately X points year-over-year percentage X and reduced of This by points revenue a SBC

will balancing to to reductions cybersecurity continuing success line while to continue discipline Key growth maintaining market against ongoing talent. acquire retain to our process talent. is for top balanced We and apply top this while and dynamics the bottom

moving Lastly, guidance and modeling to points.

the see to our for continue that outstrips portfolio. we appliance includes form well security very to as highlighted, portfolio. strengthen our This Nikesh next-generation factors customers near demand ability our demand our term across fulfill balanced in as from As

strong takes year in a 'XX, fiscal on supply that picture, half information guidance and best ago of Our were the today we Recall account factors. have QX into chain demand year the aggressively. other hiring we second the

goals. As around that considering margin comments be the investors comparison, move should beyond expansion medium-term we provided we

of quarter fourth XXXX. the for guidance our to Turning

in $X.XX an of expect to billion, billion of increase XX% billings XX%. to We range to $X.XX the be

$X.XX to increase XX%. billion the an of revenue range XX% of to be in expect to $X.XX billion, We

to $X.XX the a on approximately based EPS average to of be million diluted shares. XXX weighted non-GAAP expect range in to We million count of $X.XX XXX

billings the we billion range in of $X.XXX of an be fiscal increase to For billion, $X.XXX year XXXX, XX% to expect to XX%.

an in billion revenue billion, expect approximately of $X.XX of XX%. to range to $X.XX We be the increase

of security ARR fourth XX% to very be in 'XX. to to We next-generation billion, of strong billion year expect XX% $X.XXX versus quarter a the performance $X.XXX increase an fiscal

full in expect continue QX We growth strength to XX%. revenue with of in product year

be non-GAAP margin XX.X% to operating expect to We XX%.

based shares. $X.XX diluted $X.XX million expect XXX the average EPS a in of million range non-GAAP We to be approximately to weighted to of XXX on count

fiscal absorbed 'XX. X.X% revenue ARR. in supply are the is we cash with to continue growth year of margin and adjusted XX%. the be rule growth QX is XX% for cash to expect a the midpoint 'XX, of for On started continue in an year. free was combination of XX fiscal project adjusted XX range midpoint flow We revenue our able called the exceed aspiration seen September X.X% year our of happy this higher stated ahead at NGS chain at out we've plan. We've prior the and The to guidance at our rule higher Along line, Based project and strong Analyst as year Day. beginning for guidance, on to to Achieving we XX% year the free the to flow our pleased costs top where for that basis, operating incremental we're same the profitability the margin. combines will which an than

following consider additional the points. Additionally, modeling please

year QX We to legislation. 'XX, subject the outcome fiscal to future and remain tax expect XX% of for non-GAAP at tax rate

and For of expect $X to interest million expenses net QX $X million. 'XX, we other

despite $XX million to the We're million million, of expenditures 'XX recognizing $XX Clara Santa structure. expenditures chain. strong to million, profitability year our not QX year and for capital we've profitability, importance increased but we shareholder this market and to top back, in deliver outlaid $XXX total commitment focused related 'XX Balancing includes Analyst costs also executing to fiscal and been of as made which million QX a $XX balancing only growth $XXX on line drivers expect focus is to cash able headquarters. We capital the in full related our of Stepping our fiscal expect on we're Day, we at we our supply in on conversion of return. capital our demand,

our billion year proxy make to line will to we through We're flow call. With XXXX the basis commitment to points can progress expansion margin Analyst our as will including billion over We expansion on year as September $X XXX outstanding achieving We deliver 'XX call margin revenue. whilst back to XX for points Clay in XXX top operating 'XX turn opportunity. that, for Q&A of on and balancing XXX well cash targets the of beyond and 'XX track our cybersecurity continue the shareholders portion $XX growth growth in returns we to fiscal opportunity continue the adjusted Day, believe basis fiscal execution. a I the of to of billings in to world-class as outlined

Clay Bilby

you, Fodderwala Thank Credit Great. Hamza first Dipak. with question will be [Operator Suisse, Instructions] of Winslow Phil to from The follow.

Phil Winslow

just on quarter Congrats of execution. great another

really jumped has us. where that million-plus Global deals in Now a $X platforms half of fact out jumped XXXX lot numbers the to really the a and X one, the growth XX% purchased in out, all nearly quarter

value competitive or cetera? hybrid out? the customers the at it SASE vendors Networks how playing are just the customer product they're well call just upside, the the what are Strata Prisma Now rate Palo strong versus an Nikesh, if of these the of dynamics firewall the you the selecting And increasingly revenues telling of as on-prem competitors? together, numbers count, accelerating traditional just put seeing portfolio, these about sort of why it X of the as context Is understanding all in et the trust they nature Alto value you cloud-native you zero

Nikesh Arora

accused beating you're it. Dude, fast. me speaking Phil, at I'm of

Phil Winslow

get That's why we along.

Nikesh Arora

your it yourself And everything we've evidence didn't that question, consolidating is, still cybersecurity have a because the for and of that you the best-of-breed you before. portfolio. never are they because been not for you you the submit company look, the them platform, its suggesting not people able demonstrate show only XX reason Thank products that, to best-of-breed. before are demanding this in have cybersecurity in a But they still happened would customers the Because best-of-breed. it's And will like we're saying something by we buy to sure which happened you we've something been is Phil. been if in we make kind best-in-class is important, to think we've demonstrate while track will I I deliver you years, It's said. it's able never our saying, last shown And to X.X capability. record with

So we're seeing that. This allows us to go back into customers.

As all you on. all you SASE. bought is EDR large In a just if tricks. bag on if customer our sales have you can teams to got very of if the it, you our to to imagine, you got SASE, customer sell, the If has is or bought case, XDR got move move got

don't you let me If talk on, security. you've going got about SASE, cloud want to security you cloud

If you buying somebody. do about don't have more cloud security or going you firewalls on to yet, replacing talk want

automate do that, you want to your don't you me SOC. you have help If

X very to that And because the and as run. can ability They get walk then into $X allowing have. look deals platforms, taking million of is they just Xs security to a a see demonstrate $X actually our just So deals we way large our they start the our and are of credibility typically platforms, it and platform and trying million business multitude by for at help us million giving they with that one them not of are single also cybersecurity next commitment And us there to them of our can thereby certainly deals. to XXs, demonstrate and think then a them the the approach. the opportunity can I across you all show capabilities, we're $X portfolio for the to make challenges to deals that that you more bid get us the their

it's we look, what So said.

Clay Bilby

Fodderwala Hamza by from followed Stanley Fatima of Next, Morgan Boolani.

Hamza Fodderwala

anything from a little macro spending broadly, just slowly. willingness to more you're to point wondering environment? to different about thinking a to the opposed are that. sticking IT consolidate seeing a if to more Maybe the customers I'm standpoint, different consolidation around as macro fewer multiple I'll to hearing how from try of relation on the just And speak that, more pressures want on in theme, One, to you given products? vendors they're budgets

Nikesh Arora

than ago, Yes, if a with you believe when inflation commodity years about X stressing right The The budgets. years IT more not are IT hit, there tech budgets. about impacted and it today contrast compare industry Hamza, not Look, were impacted stressing it's is is budgets. great the not we concerns. what industry question. interestingly, or is budgets. worried oil about pandemic what seeing by CPG by pandemic about is now stressing IT industry IT ago The saw X.X about industries not, The industry we're the not

So it's funny.

it because companies. right than jobs more And services people If is now. is you be There's think industries constrained about there's felt, boom hired. to the even when see some in you'll it in it, the impact yet to felt need be a

our you it's perspective. economic revenue a We're when So sure Oil days. going going an or we has inflation listen, to at it's activity we're pandemic when the letters how CIOs hit, were getting and not back seeing away. I tell reduced $X not from to gone for saying, pressure will come from few back. the prices come were

So that point were they that described. scenario time, at you all in in

don't I worried fair want there's in we hear security they're seeing awareness we moment publicly, Clay? because don't way an were ever and more concern over I be to And be the said, about that scenario. I And as able seen. me, think discussion we going than but the as I'm trust on way the going more that it ransomware seen right cybersecurity, right too less big pandemic now fact as industry on to now a side, you're about flip in haven't what's that on but We it I've to speak. given tide optimistic, environment until

Clay Bilby

is Next Fatima Boolani from Citigroup.

Fatima Boolani

billings changes have bit. Financial a arm years And off that I flavors to contract some this your volumes contextualize think to some any also vehicle, we're unpack Alto then megadeal introduced I'd ask performance, the those on strength reconciling quarter? some the of Dipak. really of ago? era? dynamics, like you any we how the the on Dipak, maybe on that about just little Can So X from you question to just COVID get the bean-counting the that specifically realized discounts of peeling there the should Palo billings us Services outsized duration, And financing that commentary just to a thirdly, around you performance. giving

Dipak Golechha

question. A for couple of different questions there, the Fatima. Thanks

just let overall, start say, really quite me I billings off growth with would was So widespread. the

Our contract any a At around change not X They've a quarter, significant. month one remained can they that X, time. around like have bit years. given durations at little roughly or been

to a we're possible we that. We're significantly I to It's issues of, versus it's fluctuation same year. we've massively With was overall, changing this little that was very we've exposure really while. roughly the on not last at related But before. year's Nothing broad-based level it in respect had not that. really bit and which So PANFS, is the a that place that growing. get for seeing think had many the of

overall reconciling like don't of strength an I business. really It that's unpacked the is So like item. think

part your question. And third sorry, just of remind me the

Fatima Boolani

customers Just in generous I with think been you your era, or respect to payment flexible had COVID the terms. with

point discounts that maybe So rolling probably there are of impact of off. a was or X

in completely the of of if curious terms have out flushed been So I'm discounts. those just model

Dipak Golechha

No. Yes.

very, obviously discounts closely. our track very we So

We seen our significant changes haven't either. particularly really in discount anything

growth. pretty it would unpack becomes you I really model, as clear that the that broad-based it's say So

Clay Bilby

Okay.

Next Goldman question Essex Gray by followed Brian from Powell. Sachs of

Brian Essex

understand help in I cost a on Really some Could bit Dipak. of side. great results what's a have well. Congrats environment as little the us question Maybe nice you operating delivering on on on, for of me bean-counting going side the the bit well. for equation? Great. as a this job margin

are getting sustainable So gross from from margin that perspective, I then pricing guess you're is how perspective, and OpEx cost an And they? impact increases better a of measures? control it where

Dipak Golechha

capture year, pricing. the followed let took take really pricing chain So the off cost within pressures me internationally. the reasonably good. later in with, supply We realization area. fluid. just to did have environment obviously, are try monitor September been of impacts we start We which all X.X% We of last supply But on the good that and inflation. we'll remains pricing, time, the all future chain has We've that seen

every when really there, expenses like offset lot laser no it's sure had would we're comes incredible operating laser R&D, on an think just focus intense at that looking a travel We was leveraging There's scale owner, but scale back G&A, that, making silver purposefully looking every scale magic been the watching of, bullet. just is focused really to a on our able scrutiny it in a making a dollar, where acting the justifying because frankly. that when on execution, I and concern comes a single to We've focus. all to good focus just it sales, we're areas, that at headcount good with we've sure it single good in come marketing, to vengeance. scale that it. in It's

Brian Essex

I it sustainable? measures? is would lot back cost relatively a how in sustainable mean, for you are be flexible. of that T&E, imagine I And much would going it. But Got

Dipak Golechha

the sustainability as guidance. in our comfortable like very with we're reflected think I

we just of diligence forward, that need forward. with Going continue act to to kind going

Clay Bilby

Gray followed is next BTIG Saket by Powell Kalia. The from

Gray Powell

results. the on Okay. And great congratulations

a on should closer few we're consistently growing single-digit thinking been side. low yes, has XX range. the better, It product that So like product to the months question XX% quarters. ago, XX all last be much revenue to the in

price out about comp you in going a that growth how is of the there the fiscal earlier tougher revenue product product So year, helping creates forward? 'XX? increases 'XX anything revenue beyond called should think we in fiscal growth then sustainability that And this

Nikesh Arora

quarter. Gray, last this of said we first all,

And not the refresh told cycle, He a it has But people lasts been full typically firewalls obviously. more on in evals explanation because positively to product, it's look, XX these the need in yet speak interesting before come and causing why people as it's by does which surprised flow And when that, Lee We flow. traffic X, him me he to Gen months won't very through a I'll growth he let are seeing that. to to XX Internet Gen otherwise, we go have their calls. full in X grows.

XX of are industry able weeks and deliver sort changes, there to market in not the highlighted, XX up our supply share people but to firewalls. keep are we to As chain who of

going drawn some incidents to we through has go making POs life X competitors buying are because to have up for Palo technology market these able away is the to to Networks. X-year something because our and isolated customers to to Alto not share are chosen which certain have Alto They're others and you're decision where a best of here that share seen and a Networks have Palo gains basically you're which market And gains. We that, product do switch to way not stay. measure

share want Lee, the you So the think give explanation? And to increased cycle, of gains, the market do combination your refresh I volume.

Lee Klarich

Yes.

I are now misunderstandings reality need in would of the that But you these that, everyone the reach be move think that is, the users these cloud death the of bandwidth-type of cloud, that sort generally applications have hardware. higher to the with all applications. one is running of to the thought and applications

And so upgrade to be higher secure to able connectivity. the infrastructure bandwidth need firewall to a that triggers

it a office more are we showing of more And more and the trend as and requirements, more sales back hybrid well. and companies is so especially are the that, hardware out where toward up workforce pandemic actually and employees toward a positive moving to come hardware as

Nikesh Arora

capabilities, example. I'll but... in the give cloud you We're our an primarily with

Lee Klarich

think links, companies situation now and XX-gig unusual an I X-gig pair a don't at A main just had of for kind pair our to have order links we the few We that's to years of give headquarters. ago, of you do. to magnitude a Yes. Internet an of

Nikesh Arora

headquarters. in So we've to despite cloud, to us our moving our had upgrade firewalls the

Gray Powell

Makes of a sense. lot

Clay Bilby

by Kalia Next question from Barclays Saket Michael of Turits. followed

Saket Kalia

Nikesh, you. the to going from Great. angle. billings, back acceleration. to great see the at it to for look Okay. maybe just a different Again, Maybe

some You've some them value. that of higher attached might subscriptions be talked new about

Can those how of driving attached in much course, billings core are as well. firewall of got that newer there billings billings as the well talk Of sort subscriptions the you've to that to NGS you line. just each as NGS acceleration, some of those

Nikesh Arora

Well, for question. Saket, thanks your

we with our seen you. billing NGS You've ARR share

that which is clearly continues XX% see that our scale So XX%, big range, it's the transparent. a to at grow billings. that, number And contributor quite you in to

highlighted at that that Cortex being number. hit XX% product Our ARR contributes billings. $XXX million in also We've to

So I subscriptions clearly, X. that mix. it's have When for we entire a in used X us now milestone ago, XX came we And to reached we years that as identified, you have rightfully run.

persist continue attach going is which that should we to significant is So you we sell in that the are. will on, expect hardware rates clearly, there as growth a current that

growth more our and giving higher nice a ends lift drives subscription billings. So rate of with on which attach services up hardware a higher

Clay Bilby

Next, Michael KeyBanc Roger we've by Turits of got Boyd. followed

Michael Turits

Great.

Dipak, I'll and ask the you labor So front. I wage think, on

out raising side, existing corporations, have shortages we've some Given for wages customers. hiring the there their that large some some seen on freezes, are

A, hiring need? what terms skilled So in are many doing environment increasing And how you people to that in in that of exactly wage around you labor? doing you maintain then are B, as order costs

Nikesh Arora

the see. a is in said in this we're expecting as become going to freezes And months. view hiring So were market is that, It's anecdotally. current XX this labor Michael, as we personal as we people very seeing labor my as anecdotally, to X market next to the you Having market. at easier many haven't hired seen, you've point tight

this make XX the already for they're to I've cash next market the about to they go We say, to take going start right. to stock able to people hold anecdotally is to competitors their The were to rationalization money do really because because If whose don't months. stock causing expect seen losing ago, people X start-ups and on we it were to to trying up I wait, be losing you want months stop were think move. hiring start-ups. into market people in the to raise prices XX

So the in to going our I actually, is bit. a labor ease that little think up opinion, perspective, from market

very degree of around to companies of in we caused is being we're get people the because there. expect trying We who come some fact and wage work some Silicon are which Valley, to tech live inflation, that large

degree personally on off the wages, don't charts. So inflation factored we our to be of our have it's planning some think I into but going

Michael Turits

Dipak, hit Gray Lee, Nikesh. but got first, I'd thanks I on product, but for for answering, so Thanks you thought you answering. hit

Nikesh Arora

That's right, problem. no all

Dipak Golechha

just to like I'll at company. We've recently is Welcome comment factor they program. Home people one a overall add that wages look a had choose when is one the maybe

a gains culture company success of guys remarkably equally important realize showed people the that's that Yes. of to as I a think video the Well, gains We've continue is of is lot actually back, lot will than the what leave. a couple was of we'll it. bringing and quarters important ago, And that. you as find we We been grass that potentially remarkable when and them more successful. greener. they short-term the a always do then had ultimately not leave

Clay Bilby

Next is Nowinski. of by followed Andy Roger Boyd UBS

Roger Boyd

quarter. on Congrats the

back going Just to the macro conversation.

a think noted in you larger couple I EMEA. of deals

cycles you're pulling any sense some environment? threat forward commentary whether the around of given on Just seeing maybe any curious and what demand you're sales of

Nikesh Arora

deals some every in we've forward they're quarter, because get to hit trying seen Look, Yes. quotas. pulled our sometimes with salespeople

trying something because in they're possible. quickly get to the compromised situation, sorted they're customer Sometimes a as

do budgets has to parts the government. one for of becomes with August different becomes December of expiring it those moments. that in world. Sometimes federal the

is unusual retaliation. to they are activity focused to on They to best their had of seeing fortify answer the heightened which nation that have that Having have have with people around sure better, worry in nation they see go war defenses become the case worried it, in but trying that past. about to that, make understand haven't NATO, defenses should now are to members and we as a any got petition activity it. not perhaps trying said especially is. where But think they are not said, as they've robust I about So sure seen from They're topic. states, their their we attack make proximity they the surfaces to we as

Clay Bilby

Nowinski Rob next, by Wells Andy And followed right. got we've Owens. Fargo All from

Andy Nowinski

All right. a quarter. on great Congrats

guidance net should next-gen we new question ARR. So net very factors a significantly than that X% consider might there Obviously, new growth Other regarding your I a XX%. with other are quarter, about conservatism, that cause was decelerate that up will year-end? any ARR to ARR in your QX. suggests new in decline fiscal and ARR your Yet had net also strong your about

Nikesh Arora

lens. the I from look side other Andy, it of at the

a happy ago, and a board lens we the across we board story to guidance the markets the The Analyst a upping what the for in our wonderful too that full of had had upping the place other says, Day year guidance QX. long way quarter. We're and great We're ahead side of not be. to fiscal be seems promised across for to

Clay Bilby

right. All

Next, we've Ho. by followed got Jonathan Rob Sandler Piper of Owens

Rob Owens

Great. script see advantages here. the into supply wondering little both to well as prepared Q&A the it well? bit How of do is in you've if you Where an as a that could chain alluded was some as down I drill you advantage? sustainable

Nikesh Arora

think terms a here Rob, of being ordering of think, puts has us. spend worked able of opportunity trying far understand in who forward. in out to real the of And the is I deliver to and I firewalls lot experts Dipak time for terms so team a takes that's

are different industry We most no out businesses than is the backlog. have there. the been We're most growth, shipping across hardware in basically to building board able hardware heard you've businesses as that which deliver XX%

During the categories. than we what we have backlog ship forth moves with or can it and more started different back depending year, on we in

sort million. think and find. have the of out that is terms their million, to it think you're the product, And million what doing to a scale $XXX-plus orders from already teams of $XX scope way cost perspective, of is need they go about other $XX that marching the in probably and So semiconductor of if I

of So billions in of hundreds industry. semiconductors a a million looking we're year, in $XXX for dollar

So the industry box in of just the the back entire the the that I falls some that I truck. our truck. off players of need need other joke

trucks we're find the a to good chasing boxes. So doing job

Dipak Golechha

like, in gives like, just is portfolio across to the discipline down feel comes thing our pretty the So of the if lot I can of what and really and proud part of the think, like, that's our the guidance add of most and board, most every the confidence what a is of it going And I people much I been execution execution us just add we only would people. the that quality the across forward.

Clay Bilby

Blair got we've followed William Ho Matt Jonathan Next, of by Hedberg.

Jonathan Ho

Cloud? question calls. of Prisma drive for to should drivers pace seeing are he to demand? on any some this these specific coming How adoption we you of think to Lee And for the keeps emerge make One there accelerated sure about

Lee Klarich

Yes.

Nikesh Arora

Thanks, Jonathan, for keeping him busy.

Lee Klarich

cloud. are that drivers. that Jonathan. secure Appreciate are in some the workloads Cloud actually the and rise that one. goes there's to capabilities hand you needed you, it. consumption companies That's that of Thank But hand continues consumption different obvious the the Look, have to to moving with most recognition security that of it secure to probably environment. the obvious cloud all

just takes back of the whole that. to prepared run platform important in with also already ends that shows and we've X cloud the is whole being up modules. introduced. how a look understanding that using. said as within And base that module really adopt them or different for a go And to ago, Prisma to these platform driving and only find in unique to work those Nikesh try seeing adopt to the it whole them Security can choice adoption, customers. that Cloud Code integrate from And do as a X simple but and we're you leading our made security what up And where which the that's remarks, the maybe their ease then which Do them of then new If X existing being years or not of just customers security deliver installed today, vendors a the and capabilities. capabilities capabilities are high-value they secure environments. industry or with really fastest-growing his And the new expansion cloud products to then they're the new was new and X new way together bunch many lot module the that customer out best-of-breed they is a a driving ability businesses the different just do Cloud, they patch of operate point they get to is of cloud and can as into

Clay Bilby

folks, for sticking question. with one Thanks, right. All

of Our by question RBC Ben next, from a Hedberg Matt followed Bollin.

Matt Hedberg

So obviously, manifest automation, here. one out Lee I SOAR? huge landscape in we'll there itself how have does another maybe there's challenging. And Does threat attach platform today? your And even experts. obviously, Lee. Lee, important going Actually, very more beyond orchestration even shortage for security maybe make capabilities for the talent is keep that that a

Lee Klarich

I'll Matt. you said. Great what Yes. question, actually reverse

customers of to it the that significant value operationalized. key on realizing with a are has benefit security adopt that able ease toward in can platforms is which shortage first be being The top

quarter new, so organization. to automating is focus example And high-value people a the need then an I'll most automating point. manual And about we an top and the go finding accomplish. being quantify we remaining repetitive tasks, like within track to through those automate. will so build give workflow able number typical we've us, of own of much the A for to the that our hours on it's you not that are about muscle that every an the cycles IT actually of, savings, Automation repetitive XSOAR the workflows automate incremental layer tasks how then workflows, do tasks. We been start of manual We quarter put actually of this. becomes what to engine workflows hours toward and it's through that that able XX,XXX automation then that manual reallocate then recognizing starting manual next and those. where

Clay Bilby

followed Cleveland Adam Next Research of up, Bollin Tindle. by Ben

Ben Bollin

could think about Dipak supply the that because changed you what evolved the has in chain chain how have of how seen you any around or and think quantify supply Nikesh, impact over or several the I on on in your table was quarters? thoughts hoping last strategy the we've you left has you longer-term And quarter guidance? was of

Nikesh Arora

suppliers in just next every you as our the art quarter, the imagine, what can the this around the look, over of and with Well, the longer the quarter teams items. fluid partners quarters is, environment, but see frame. Dipak And and despite that that, X as characterized hard things keep again, depending even work possible as moving lead it to times on even of not a and time

whole with X have plans show for it. X has just-in-case We required gone look until doesn't industry partners. because robust stuff months the have part integrate to from we the So understand the JIT at you the because to go Remember, We lying up got you can inventory. around inventory. our for months

moved. bunch So of focused whole there's that's And our executing stuff as that we a there's that Dipak a a on highlighted, can deliver way team numbers. phenomenal in

and backlog things that will keep best what consistent address you with be why guess is demand is, industry. telling we our challenge supply and that trying to as problem. what guys a available on is not reasonable that's the an this sight This likely have on work demand, if we quarterly the of what been terms to in Hence, all basis. of what our get terms line promising, of is have we a we're In guidance we're a

the things just perspective, point we're we at point make have that that track. to much from think I in there. we supply are time, Like on this has with too right At time, that So out some stuck want sure stuff to in and not abate.

goes forecasting, Gen the Gen lot which of So understanding customers more into a map, likely to understanding cycles understanding X. of customers, that order there's work or road predicting, X product our refresh

long-term figure to trying it of stuff supply, some be time, lot into of increases price ordering a math a a get stuck my that that. a are people stuck don't more a not the big a because sure many going there's too make perspective, a going definitely, pendulum lot sense price, lot are. point high a lot do planning, of stuff. balance just a too we lot in of out is there and view is much what that consequences to to of we're this and we at doesn't with shift we're to And that's take a We've supply. at So with have because From held there genius will supply

so watch very We're a making price our we've we're discounts. we to that sure And that our moderated. with have increase. hangover. keeping we're order So them going been don't We careful much

that, that does works Okay. Does it? think you better? help like I that

Ben Bollin

It does.

Clay Bilby

Okay.

Next Raymond Thill. followed we've by got James Adam Brent Tindle of

Adam Tindle

talk I time it's profit since you're Okay. to comments. GAAP all you in in GAAP The wanted thesis. side is near to Nikesh, the now leverage? and across metrics. the almost of challenge why part future prepared my And momentum your seeing question it's double this profit show admit a as But alluded just myself, is, but to flip

on to market further You the winning. portfolio gas given could step the and go even is

capital comments future. to is developed scarce. some And are You're having human engine clearly add success in Dipak, hiring R&D cash in has any of for showing products wanted to because your increased that And yet substituting there's if that differentiation. this level the you margin

what So internal ROI better aggressive investment a do the a more to that has incremental with cash than strategy?

Nikesh Arora

interesting. of it's Look, kind

focused quarters I the great the you you are fourth we in out to quarter sure the into introduced field been QX, clearly we've of the and down deliver. one his that because If want of we've which amount product force. our there that team sharing make look is asked past products Lee And slow the on we in at, with larger introduction to teams delivering actually

keep said probably larger we think driving pipeline. as we think script to to and I of more that, see, Dipak pipeline he in you X my our go-to-market and And we and it We our said counting, twice. have, we I from product need think don't the a traverse to lot was gets wrote product customers. sizes, in Having capabilities. that So efficiency the make larger fuel sure as deal need I times we

a sending message. he's So clearly

for We right are managing with profitability. the growth aspiration

we able not bought me, to feel time the and go be right north We to I when am I opportunity there's billion the with if that companies portfolio. trust So I of need to build overinvest. XX product was $X.X did when shy an

you charge we better that and balance. think see go we right feel make I we're But on in our going have as leaving cash? we table, are out go we line at growth And money So that we're if the invest. all it. time sustain shareholders. our value growth, ample the will if now, is do But to we we over to will striking of to expectations with sure our with in expectations. key feel for growth And we generate plan What our those resources free most

Dipak Golechha

a it's think I Look, what to said. going think world-class echo but problem Nikesh to just have, I I'm

ROI total what shareholder we we boundaries the determine in really of committed I and and what return we've balance do the within think let everything then to.

Clay Bilby

from Last Jefferies. Great. Okay. Thill Brent question for of today

Brent Thill

give through Nikesh, at you on Is cycle, can there GX right it's an XX%, Is days. ballpark that the refresh at percentage us now? where on a through you on mentioned you'd this put there early easy you're XX%?

Nikesh Arora

Lee?

Lee Klarich

the biggest of Yes. the hardware Gen just the end of about introduced X was ago It's number. a low a February. X chunk question. great It's toward Remember, months

So was the June last platforms first but set was round broader the of ago. year, of actually few just a months

refreshes nature. XX And much customers. interest early Nikesh seen good on said, this. very innings XX, these are as in and adoption XX, months So early from We've very we're

Clay Bilby

With I remarks. Great. to the turn right. All portion of over our that, today. conclude back closing his it Q&A now we'll will Nikesh call for

Nikesh Arora

say you world. be time. I us quarter. you both to allowing to just doing job I And taking you employees thank partners, the want for also next our their our thank a the cybersecurity want See phenomenal of our customers employees, guys Look, for to partners, all our around for to

Palo Alto Networks (PANW) 20 May 222022 Q3 Earnings call transcript