PANW - Earnings call transcript Q4 2022 | Palo Alto Networks, Inc.

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Clay Bilby

Good day, everyone, and welcome to Palo Alto Networks Fiscal Fourth 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, Monday, August 22, 2022, at 1:30 p.m. Pacific Time. With me on today's call are Nikesh Arora, our Chairman and Chief Executive Officer; Lee Klarich, our Chief Product Officer; and Dipak Golechha, our Chief Financial Officer.

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

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

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Nikesh Arora

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

the video, in to celebrate from XXth our see can anniversary we excited the you As IPO of July. were early

confidently be of as excited Our employees to continue engaged cybersecurity and partner we our on mission are choice. the

Moving of growth this our also rapidly for while saw very to ahead we made top of we QX, the investments and strong initially see we advantage transform the well balancing line that continue significant our delivered results, fiscal to with growing commitments, that guidance report profitability we cybersecurity. results year were 'XX. outlined to market I'm starting the take We and again in large opportunity to pleased company

billings we've line, years. was reported highest four growth XX% On of the the in top

of also a The rapidly team cybersecurity ARR We're us our grew our progress been as key our constant focus billion We grew this to report reaching XX%, ahead delighted RPO our metric one way the positioning $X.X we rate. develops. measure And revenue is exiting how innovator. has NGS growth of year.

the this We range quarter. intent with front, metric, we We high end QX business. always flow in to year fastest-growing adjusted provided. business, transform delivering to of margin Operating we same and had are the factors. internal FY of scale. range, security high billings the share software the it above GAAP to core end 'XX. When continue If would was market; time, businesses reach amongst cash cybersecurity in goal take the we've to grew the security guidance finished operating software XX% income major profitability a close a form for Today, coming from this we network our billion Within start-up, $X.X network on as to comes the achieve margin that an was to the Firewall of be expecting our independent in it achieved this in the started show free Platform XX%. to the a at profitability reporting business grew XX% that the

In of asked the full many markets forward, We've XXXX. to is technology we industry had in we're year the through the We our the the about guiding and our profitability supply we arguably executed most serve. macro us saw chain GAAP with it environment well the year, modest challenging impacting last fiscal you business year seen. margins. has gross conditions impacts Looking ever and how to this during

conditions eventually We will expect ease.

our improvement to won't be prior year fiscal we're of a seen assuming end For material planning, the 'XX.

have our anticipate We just come in and plan this a labor impact billings how you expect early, macroeconomic to exceptional know, duration. we in XX% There's QX favorable included some gross fade, in challenges inflation, is magic. develop guidance. demand, enterprise the as and and on our we've it's supply planned year. the over year debate conditions have it the sales, for is macro 'XX. Whilst year. growth. of QX there overall the out saw the second is environment inflationary most in it it other important the to our the We year however, is away next macro In With changes going nature marginal reflected pressures see fiscal on half some these fiscal QX. the of of impact a through hence, will persist with did, in to and as respect see margins. However, to we not in start pressures continuing product fiscal We on do And next

security our we we and saw commitments make the to with customers better deliver set important and products as increasingly constant give It out duration that is view for longer confidence are transformation large integrated them objectives to if outcomes. best-of-breed Alto have that First, ensure consolidate more the long-term we Palo they customers to This confirms us. validates will deals Networks.

Second, we saw driven of some of isolated by life customers extending the potentially instances macro forces. hardware

factor. It the could gains state hardware 'XX. customers by This counterbalanced share We margin. expect their into continue on some the our refreshing that FY continued and in is form

their efficiencies impacts. tied into majority customers customers, of desires to despite IT expected customers' of working. drive relationship our modernize and drive vast to move continue direct and cybersecurity, are cybersecurity, more Security on a around infrastructure with projects, something well short-term is heightened against here efforts Those while as investments we do to continue. Coupled transformational as Third, the needs. the secular cloud, expect need with persist positioned to spending their adapting new in to best awareness our we in macro customer their the to tailwinds way our deliver

part us Another in employees. have date, employees To to top trend rehired Program, and happy left the would greener many for more Alto have. people have significant like many desire Networks Over these we as expressed welcome companies. by have been back highlight returning Palo our Welcome to of return from of employees reached former Networks. pastures. funnel. who are XX% is peer performers Alto I Home Over the dozens from come period, already with coming Palo a the We're of number back engaged six-month with had to a seemingly to start-ups, next to out percentage XX% a largest to to

As we we as embark came fifth is on reflecting new CEO, fiscal year, from. worth Networks Palo my where Alto

a not customers, and the security we most comprehensive a for our while our easy, partner our has the to taking strategy relevant delivering see execution our becoming but in backed delivering We transformation of value and offerings better customers' to are build unwavering their them. shareholders. Our company cybersecurity been choice away resolve being innovation excellent path to increasing by for cybersecurity outcome largest and constant complexity

a years four different Just we were ago, company.

but We captured strategy, of billings. made it the the position. X% our glimmers just next-generation There security have firewall are of our market reinvented and leadership market share up

tested, key position Cortex. When in industry, There we some traction become to native back leadership Our point and been software story a with had acquisition in GlobalProtect that SASE across step and in We company proved in of fledgling early, a we our not which was reproduced today. security early and made a have products multiple our had in network a categories. the stock to Cloud first firewalls virtual cybersecurity business and ourselves and security Services. the will has previously with part hypothesis, called we cloud precursor then took

as customers taken network as innovated believe to today, capabilities. our security forward architecture. far. our Cortex that as set and our the this on Cloud could cybersecurity us see Prisma anchor ambitious has transformation significantly in Fast their well you Now We journey platform out at

are We leader a recognized in categories across XX platforms. three our cybersecurity

offer XX% more our most a comprehensive common and helping market-leading contributed a our network security security, form of architecture than share accelerate In have also billings, now of security suite Next-generation factors three that growth. solution to the we subscriptions. across

make We in the capabilities assembled security. have nine Prisma in which native up and built, cloud modules now integrated is leader that Cloud,

in spend continues us XX%. the promise of annually transformation is three to security good our all over have million customers. we that X,XXX with the is XSIAM momentum Cortex, proof three seeing new operations is The in our in the with Global anchor The and number in products $X showing our is customers of which we customers products us revolutionized of of hold going Lastly, in to XXXX count have number millionaire with excess product are now purchased stead. that platforms working grow, now in that this the in

large three in many wins want transactions. customer we've While I had team highlight recently, a to

purchased is that transaction first a all and value. over products three $XX in company platforms The our a in of technology million

spending platform, Strata, that security million VMs company including services Prisma is our deploying network and across $XX Cloud Cortex. million. over professional financial a north spent of is company that $XX second services The standardized third And its and a Prisma adding in

predictability transformation primarily our driven a and business. four our our of support exceed outcomes and our One This in Subscription increase from greater revenues. is resulted support growth years over subscription has by our XX% in billings. of past mix next-generation the security the the now steady in of

next have from portion our represent greater our of a We revenue. year's customers commitments growing seen

our midpoint This to enter year further is QX. us visibility expect Increasing guidance. we of the gives in we number As that and drive the number growth. for confidence in is revenue future our at fiscal invest ability XX% XX% revenue over 'XX,

a in due be of revenue rate. FY growth while see All XX%, still next-generation security our doubled the traditional potential we security in revenue at in occurred has transformation, network At this growth our year rate than market form offerings, while XX%. to our of success the accelerated from We growth share have addressable more by estimate large to accelerated third has in 'XX 'XX, also of growing we market FY so as Despite this far our taken us. reported part factors fiscal our to significant 'XX parties. growth ahead appliance

market the business, we TAM we the our have transformed last still compared low the share September over in with revenue as As is only Analyst growth years, reaccelerate. technology. four to at X% seen our presented last have XXXX. other of categories Day X% significant we of we Even this leader approximately for the market growth and represent our

So to we grow. around share room our us that ability ample and growth numerous see There this drive there are continue to is gains. trends excite our

You see will day may soon there in be $X public trillion a consumed. cloud where

X% Our to in creating budgeted is There that observation far cloud of market are X.X this significant X% cybersecurity the companies Prisma that opportunity. cloud thus jobs are million allocate early a unfulfilled. worldwide security,

not hiring alerts center. view ops leverages overwhelming automation and security that the paradigm will is needed new Our alone a We of security and use and and that is AI volume automation. of growing counter in operations and efficiently employed heavily the that believe more attacks training is the effectively

and Cortex XSIAM We opportunity products specifically. are targeting products this our with

stay. to X surface the Lastly, coverage position knowledge We are have globally. our hybrid today, workers a just here strong of catching SASE is we more and loss offices with branch of in work There believe billion than opportunity. users

front us in the security our of each outlined. We have that mission of a harness opportunity platforms in have to clear we

who I As invite success this our the our 'XX. had more calls, update would on to QX, in give listens we build product from having will our FY to continue than outline Klarich, and team, me to sits detailed how a patiently figured, is help accomplishments in you you I we all rather Lee understand

Lee Klarich

Nikesh. Thank you,

challenges leading biggest and integrate number achieved, always operationalize yet In products As must Nikesh deploy, been security most this of cases, security they the need. outcomes. the overwhelming fully achieve that customers suboptimal has the across cybersecurity, highlighted, expensive to one to has of point never

in FY three We where been are and to software our 'XX integrated X approach, tightly one a our consistent completion bringing across delivering furthered which neared hardware position security hardware, rollout, of market-leading delivers architecture Gen us has capabilities on XXx for we models year over X. SASE. significant some delivers platforms. into in We performance security, have a network that Gen close

Prisma NGFW best-in-class operational of to And across tremendous consistent FY a cloud a form security XX% major cloud over services. NGFW introduced in three the saw Filtering advanced off cloud Advanced the next-gen X.X to adopt Threat manage factors factors, X. as security sales capabilities we we most now all introduced the establishing our of fiscal saw which hardware in and FY leverage. to perhaps a including in Across security management And Advanced rapid firmly customers we service. deliver three importantly, In hardware, Gen from result, a native in are service. console now in had 'XX, Prevention, Also deliver was all a SASE ML-powered As our 'XX, clouds, to major strong form consistent enabling QX and Zero and core nearly to the adoption experience able on subscriptions network ML-based ZTNA we set launches Filtering, 'XX, of our SASE approach start. user Trust. recent of launch, this URL most can see QX, and FY customers is also URL sales on single we software

number factors where our end we XXX. solution. security will of ended customers customers up, a While of customers other value form form customers two factor the and are adoption can 'XX. eightfold with platform at any receive ensure their This since network lifetime that full to best-in-class start up we 'XX FY $X is FY million believe truly The is also SASE want

factors customers all XXx customers with at seven look bought three platforms base, and broadly, security to X.X, than zero access security million in state-of-the-art customers those our form the ZTNA three introduced our network bring QX, we our Zero deliver only redefines purchased customer uncompromised more have one platform. have spend showcases In have exceptions. security. form network value of that of factor. More lifetime $XXX zero true of network in are security who This we which with when We network from all us, and that Trust trust value

our on momentum of seen on in number SASE a have customer significant FY We traction 'XX in fronts.

year, $X our active XX% QX, accelerated customer overall in deals by grew base in this up deals million QX also XX with SASE SASE $X Our alone. million XX% and over

is across Alto customers. our new in of these Networks. the many us the from base that to form new factors, large equally XX% our are important were While our deals see our coming This over customers net value QX installed as Palo competitiveness highlights new of SASE it they enables to SASE of solution and reach

cloud has their migrating workloads more their are multiple building They journey. in Additionally, are footprints, once land appliances. SASE hardware our and software in services we we we security the look customer, relatively see new and most needs. seeing consuming sophisticated applications, still cloud, are customers to early on cloud growing standardize With that customers the In adopting the clouds. this their with and an new to expansion come

activate those an grown and in of module XXX first way nine for running new this Cloud Infrastructure at We we making public a helped over frictionless adoption brought and end approach our our needs. stay have at X/X our on developers a acquisition customers, development. nearly consumed The code customers incredibly integrated cloud platform and deploying easy during This as set start more security security customers' modules growing number ninth six customers use to Bridgecrew comprehensive module our And to a XX% lines ahead moment with module. have our in than the of months the the four in fuel availability, issues fixing way through of needs IAC cloud. the January. modules of their first platform. of Our with to of of Prisma XX%. code has became detecting of the Code, already Prisma to any Cloud it of capabilities three fastest-growing to designed to modules and write that us Increasingly, using to of growth credits the delivers over

It's see closing opportunities that are announced like protection the for to customers the as workload on third-party in best we all to solution done organic at several Cloud. Cloud Prisma technology and We We Award SC yet. Prisma new cloud see modules we're great platform. expansion but look both development the continue X,XXX also and recognition to today, drive for of not external we'll continued

combining product and orchestration are surface categories journey, of and drove FY cross and our earlier platform traction, well increased across progress We key security as sales three larger in core automation, products our attack Cortex transactions. of We management. in 'XX saw offerings we significant our Cortex XDR, in executing

surpassed data well responses are models than data in complex then holistically. by that this QX. users Combined collecting required we not cybersecurity, also we applying truth Our $X automation. more to real to customer and AI rapid will the to manually to time. When don't are believe see security a innovation success, and is with million too useful rich networks, by Attackers envision customer and be applications we detect of path and success driven greater security meaningful is count X,XXX, outcomes source a to defend. AI The continued of the transactions future to signed all deliver in customer and clouds, be sources heavily a I XX that only leader also operations we attacks single normalizing automate determined in too and funded while way

to design product and partner results partners integrated The of fit. announced of of taking about of AI-based coming simplifying partners detection say a to kicked the program this number incredibly happy this are was ensure we strong this and automation we powering with purchase other first a design seven-figure good months. program off fully a our in SOC and data to I'm Earlier We market proving native are XSIAM, platform the encouraging, now level. to limited are customer design likely speeding year, had the most value AI-driven next a response. quality attack our And the and assumptions paid purchase

We of platform lead 'XX. up cloud-native are accomplished the to our advancing investments security first we last of a progressing stock We our in track several have set autonomous towards the not could on into in half without product all standing innovation. launch security, in our in have network fiscal and customers years in broader our the the

several the R&D enable grown has to in ambition three years, spending order platforms. with lead our Over last our the to

in this XX see You FY major releases, in reached nearly product which 'XX.

we into through platforms. leading went 'XX, most three FY in important prioritizing cybersecurity more ever move As a we of innovation. areas team committed are across process rigorous My our than to our investment

the R&D, Difficulty] I'm With continued investment [Technical confident in

Nikesh Arora

cybersecurity. [Technical highlighted We underway. have we the just as to including drivers as in Difficulty] financial sector 'XX. FY our I strong at about innovation talked about the all within you drivers targets forces play, technology well

We have and in continue traction our confidence execution platforms. we're to seeing the our across team's

expect talked to year last line strong in our since the for deliver Day. about we results, the continue Analyst with profile to We have

of fiscal costs For growth this increased XXX in supply XXXX, chain includes impacts. of QX free the this end year adjusted fiscal guidance XX% is operating high to basis and We at points achieving of inflationary intend to achieved After the for 'XX. fiscal while flow of end fiscal revenue year and profitability the XX% absorbing we 'XX project high predictability with continue 'XX, we over billings expansion and our margins deliver at guidance, our of will end that high guidance growth GAAP margins points basis margin cash the operating year in in of year increasing XX with mid-XXs. to our

our and belief to to pass split. confidence was we more also the we stock The our strategy. detail X-for-X today, also to With accessible QX guidance. in future QX ensure our help that, in company momentum 'XX fiscal results I the and discuss announced This as Dipak and our done have employees in Lastly, on of all as shares our year to well investors. stock split and will are a demonstrates the

Dipak Golechha

everyone. afternoon, year Thank you, Palo which quarter, Today, Nikesh, in and again another fiscal reported culminates a strong strong Alto Networks. we for good

booked Total or RPO of our saw range. by of $X.XX the Products the high XX% XX% about XX% range. guidance theaters billion, our the billion in to of revenue similar customers $X.XX grew $X.XX grew growing Remaining our was end above hardware positive, we across all By Lee quarter services billion increasing RPO, upgrade. geography, up grew deferred XX%, of up over XX% half Americas now quarters. strong growth portfolio. of XX%. product QX, XX% current end With mentioned, The refreshed, of was our For was the billion had high and been of XXXX, revenue QX XX%. the early Customer obligation, XX%, X. at In ARR RPO still majority with products JAPAC their of nearly across $X.X performance growing recent $X.XX QX with increase guidance in all grew of total EMEA Security was our Generation and to of an delivered Next-Generation with were we with and XX%. representing the fourth with billings as the orders XX% which reception billion, strength total of has phases

XX%. Our Firewall grew Platform as billings a

to in to FWaaP up billings, see We XX% increasing within continue an also our X mix software QX. points

for top down was and line expense the already of highlighted, margin incur gross metrics shipping. XXX continue beyond components non-GAAP as points basis additional Moving to I've XX.X% we year-over-year

chain Non-GAAP income the grew supply XX% fiscal goal pleased headwind $XXX fiscal million absorbing guided this or 'XX. XX%. fourth for per operating We're of have persist costs. margin 'XX share. the XX% to we net high $X.XX of Last fiscal achieved quarter expect for We our diluted by operating 'XX, XX.X% a to while March delivering of to QX, to year end higher-than-expected year margin for to

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

equivalents have billion. flow to shipments. days, it where with sheet and XX $X.XX days sales cash, Turning statement. late outstanding of would Days finished We QX investments the above quarter landed the several cash was now without of impact and balance

Our seen in free QX of XX% $XXX the with last line million. year, was XX.X% generated adjusted We what high cash to our year. operations XX% over be discounts to cash above flow flow the cash guide end 'XX. from We $XXX the million. flow achieved margins fiscal continue free we for have adjusted of for year

During $XXX QX, the on at a of XXX,XXX per average share million. approximately of approximately total we repurchased open consideration shares an market for price $XXX

Directors an future Additionally, additional refreshing our $X expiring our Board for of authorized $XXX billion million for authorization back XX, share repurchases December to XXXX. repurchase, share

front, On use in will we the SBC very our and the of SBC by top area fiscal area. revenue X% percent stock-based a QX. one compensation acquisition M&A in small attract focus expect retain quarter-to-quarter. as cybersecurity year-over-year remain approximately closed balance leverage 'XX talent to with this scale We in reduced we and a of as we

into plans, taking and price of also a very saw X. fiscal that worth on effect 'XX, flexibility our noting built degree business 'XX guidance that advantage ahead through activity. outcomes. in some from hardware same In to noting us ordering such was cases, is It's points. have modeling a customers August increase year during chain QX a some that we of especially execute plans of subscriptions of We've strong incorporating building this in took that we It developments flexibility supply approach as fiscal and year, moving worth Lastly, inflation. the labor our to used real-time the and allowed

happened commitments make some in saw quarter the also large 'XX. have fourth fiscal year that in customers We otherwise might

large of without this contracts some in QX, next think an we increase you note our have fiscal impact, very year, that few As in high of benefit XXs. for from been the in 'XX, billings to invoicing second have about In mid with multiyear would half a customers. billings strong the

guidance the XXXX. fiscal Turning to quarter of our for

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

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

$X.XX the to in X.XX%. non-GAAP be of We EPS to expect range

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

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

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

be range the revenue expect single-digit mid We high product year-over-year. to to in percent

at 'XX points we range provided fiscal consistent for of to our XX% fiscal and operating with expect We ahead margins the to is fiscal presented XX.X%, basis which Analyst targets 'XX fiscal in 'XX our the be range Day. during of -- growth the XX we year

We expect of EPS in the to range $X.XX. be non-GAAP to $X.XX

cash for fiscal We to XX.X%, expect flow to profitable year GAAP and XX.X% be expect to adjusted free be we XXXX. margin

'XX hope take which year those XX fiscal some today achieving our targets, of we in Regarding at reasons financial outlined call this have our we away objectives our we September confidence strong Day, Analyst the and from you behind confidence.

Additionally, please consider the following modeling points.

fiscal the income year operating expect the first in second XX% and to the of approximately XX% our half in of approximately We come half.

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

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

QX 'XX expect XXX We of shares. million million XXX to shares diluted outstanding

XXX to 'XX XXX million We outstanding of shares million shares. expect year fiscal diluted

decision expenditures And QX of million. X-for-X outstanding expenditures after business Shareholders of of additional September $XXX business our We our every our to Alto confidence million X. our the noted, of The by share in September we employees make the million Networks of $XX It And at was year finally, on receive business continued today stock. by shares accessible 'XX to momentum. close expect investors. for $XX underlying the September we capital a a record our of stock of to capital announced common close broader split fiscal two driven as XXXX supported group and X, also more is on XX, held to desire $XXX on XXXX will Palo expect million. Nikesh

basis stock the on September will portion back the call. Our turn on for a be of XX, I that, split-adjusted will XXXX. Q&A call With Clay trading to the over

Clay Bilby

that I Thank broad a allow for ask Great. person To would Dipak. participation, question. ask one each you, only

Rob with Stanley, Morgan Owens of Fodderwala Hamza from comes to question first follow. The

Hamza Fodderwala

question been mentioned A Dipak, you you really some high just changes Nikesh, excluding would lined seven, growth quick. in then say And you all? deals? guys XXs, sales in QX real for also did billings clarification of also reflect more early forward? eight-figure macro Did in have And duration set a that as about the that pull results. to the any then estimated commentary you do at the deals. the longer seeing nice you for cycle guidance mid Are

Nikesh Arora

the important time. it's sure of Yes. Yes, them. I efficiency large normalized we pull deals, forwards, keep to want just to some just the did understand, if had not next -- Dipak having was for of some we just We of say long-duration exceptional that, expectations that to year, XXs. that then mean end mid I that and because longer of deals. in you'd normalize some up some for make set duration the large was for high XX

not is So well. our in opposed you doing precautionary this part to as we're more that telling

to grown. $XX When been On happening largest over I last life did came, not the to for net we $XXX elongating was cycles or have deal the done the of us. end two the is the now as market we've front like This size deals the million, closer -- has three deal million. years. new This of deal have top at us been

deal it a lot obviously, POCs getting million and time longer more engaged. requires $XXX our customers' get So to validation takes from and a a place in

consistent. trend is that So

economic that change factors. We have in by not driven seen any

that your question. is So

little at saw, them and hardware of of As we've shared out effects transformation push a to longer said, assets a we little people sweating look seen some bit projects. I three the we

consolidation. away seen. go three can seen we've You not from see We've things them Those transformation.

Clay Bilby

Great.

Winslow Next to of Phil Sandler Piper Owens question follow. from with Rob

Rob Owens

the success into Prisma driving that's Cloud. right down factors you the and/or drill your in And guys differentiation biggest to what technical seeing now? are love success are Would

Nikesh Arora

just not are the are Let of an picture, in me in being clear of AWS clouds. around we're the like out ourselves there's multiple the sort that one. enough -- and of you cloud the dollars give in most is becoming And been look you or of sold cloud by service billions top that top providers, overarching elicit X large to Azure. likes capabilities. is customers We product Lee But very go what and end They're quickly, our in has world. GCP if and of hundreds kind our noticing of

we're So multi-cloud ourselves scenario. in seeing

multi-cloud So customers provider by normally it. and part driven one, somebody solution, That's one look multi-cloud that for cloud like that's development not us. service to causing typically is one a of

part platform harder for other it's us, from The is a looking is for point the solution, if customers looking but migrating a away for are approach. more most point solutions, customer

build of acquired where the Prisma cycle. sort we've left of used created life traditionally As life which run Lee build the you even Cloud the and extension connecting cycle. cycle, development on into the put the development life highlighted, in to which operates cycle to operate production. the run, Bridgecrew, we the side things By

who towards are seeing cloud solutions. are serious some cybersecurity taking Alto we point people So view Palo not chase a come to Networks in the and

Awards validated we If as industry, that at no there the the groups this SC Most morning. industry you have heard about look available. are solutions already platform

you do to So want technical add something, differentiation? Lee,

Lee Klarich

trained, well been You've Nikesh.

Nikesh Arora

right. All

Lee Klarich

add for that and in everything approach, that confidence his have only our actually, is said platform platform trust is deliver customers and to important it one do a Prisma critically we remarks. in I'll the but prepared using Cloud. combination Not we best And have from in Nikesh class. piece, the

Clay Bilby

Great.

Next, Phil follow. Suisse with Winslow to Credit of Adam

Philip Winslow

end to year. the a great on fiscal Congratulations

has had partners, competing been customers from coming we demand great for vendors. your Now growing message a a of have of that other speak been to Prisma access, on-premise amount quarter. increasing when It's firewall an obviously enterprises back

Palo not logos XX% new to your of your slides, services robust today us than in of Networks was QX the as point, Alto However, cloud set were that that more to Palo during to number lead they jumped Networks. new does. SASE out And do offer as Alto

So maybe Nikesh, could comment Lee, you if too.

you you and only from also If Access customers SASE firewall hearing what and but largely Alto not Palo to that forward base transition those are think what why? to on-premise is Prisma installed the opportunity of Networks here, monetize to vendors platform, competing potentially

Nikesh Arora

sell years them. Phil, picked I Palo they it life SASE problem think net new lot Alto. three have to deploy the the on year, them, I and appreciate to last now years years but they from way these say, as of And deliver, the of you ago, And ago, customers to go firewalls, we somebody our would has two firewalls ago, grown. our the up is bought number, still works end there's in are ability a XX% is five and

So they a bought at they when they like us, or they because execute somebody like to moment our solutions, have but they're not able them diluted. them before them bought

our a convince where to we them SASE is to comes that are now point right. solution it able So

it, on-prem Our hardware XX% solutions who over customers well. been security migrate understand they then Palo we're it's will simple is that, noticing then deployed putting solution And excitement because already but these we're some Alto these fabric security for time, put hardware days, bought a attach SASE of because to place. our their into as early noticing have then they have our of customers

have part XXX able capability. network most trust more comprehensive third-party driver is share to the basis the zero security to So a firewall of by points. taken deliver we think in XXX estimates And being market we us

As lifetime we have Lee $XXX security of highlighted, which with to spent north customers is and us, network million who value do. of hard have

Clay Bilby

Great.

is Tindle to Adam Raymond with Brian James of Essex Next follow.

Adam Tindle

Nikesh congrats portfolio, on NGS the on the success. Okay.

a to And but algorithm point. I'd under that million, at $X is this the billion that touch number, If amount profitability just I You're be going growth of now it certainly, the the you a that as about thought maybe now I for look guidance, over big dollar on any level kind go maybe the would invest fiscal where and profitability step profitability new maybe can to ARR Could in NGS to NGS better is function speak are on growth great. and you for a can added opportunity crossroads you and of 'XX. be harvest improve new opportunity of versus more same just 'XX scale. to of implies fiscal ARR, where this piece you $XXX it's is NGS and ARR which it at metrics new you at business level of the provide versus

Nikesh Arora

three So I'm like growth make $X a big always or said we said, to never can XX%, XX% you guys It's time billion faster? that's grow harvest guys years confused. trying is number. Are I happy. Sometimes ago, you I'm saying sorry, you to

our sit won't billion You to course more now, $X.X you for are four and making get we've Since just personally XX% -- start they balance our we growth. and get money. is trying percentage up spend revenue aspirations. room demonstrated. say, We of with like highlighted, believe to there is terms there. as in so market the that's Like, R&D in far I cybersecurity much the came, growth I years, as Lee in we've growth

keep used I to were we most good to on at improved XX%. same we We're large So that three numbers. good more profile, think you fiscal operating and prudence. don't margin our years think every margin to We Could I balancing the we're investment for keep going our yet products use prudent, We ago. the such We're make a operating four do at taking It's has of at place. grow XX% for XX% spending obviously, extracting and as you And would that's bets or we showing to money we But that to. number. efficient to fiscally our growth. growing promised But XX%, of dollar about let going opportunity spend it we're growing time, the growth and sure in go make to language a that. lower? expect, want keep I the more range, Yes.

indicator I leading ARR think revenue. it's a is to understand also of important

revenue have come So you in and ARR on in day after costs then one. comes

$XXX yes, this So to negative. better, the operating million] I you think added of getting further our some are away But getting we new year. we're these impact areas still from see the cases positive margins until for in [$XXX million,

will flows next we ability which point to into basis give flows revenue, revenue, going the fueling that striking operating But hopefully margins, keep keep XX you is that balance. XXX As years. expanding over our expansion we're in the to the

Clay Bilby

Great.

Brian follow. Fatima Essex Goldman Boolani is of with to Sachs, Next

Brian Essex

results you've underlying of could consolidating, compared What some said series And Platform VM us behind Maybe, within what platform, could Firewall context to underlying My see. particularly expectations seeing about to business you as a great the year, congratulations single-digit high are on stages percentage the Nikesh, your great Where but are mid today? to growth? those and you're side, it reconcile guidance what seeing on sharing help revenue of is given assumptions cycle, the of you see revenue next your well. sounds that if as particularly revenue different product total got the the how what refresh accelerating. upside? It's early of like things traction product you're you

Nikesh Arora

thank going words. of had for from kind some similar know. And you the you thank you Brian, set the year benefited we Look, for Yes, into price and your as fiscal expectations you know, we the year. increases, question, last as

supply keep we they're where up. that in I our by We want to product And prudent. down, showing want to have philosophy up. were people trying there prices. to to settles anticipate benefited be don't scenario keep want when volatility chain driving you customers don't prices we're prices, sure,, some also increases pull-through Because just from We you in you and more increasing our cut don't because when revenue. tremendous We is to prices make because price activities stocking be supply chain were

of So price one normalization. factor that's is kind the

ordering factor second pull-in and constraints The because is chain by ahead. potential customers supply of

out, business. five you I've drive virtual The we more you firewalls, drive that to If But the focusing we the as I balance think are as better is number low transitioning in I Firewall more high single-digits. off are perhaps years we a ago, the the our still as Platform. again, from SASE, on told

is quarter. XX% of our our is software predictable from of As now next going coming We revenue highlighted, software. highlighted XX% that into we subscription

lot We we a It software our hardware of refreshes. lot advanced transforming So make lies drives its business of a this sure with It of base. love and our business. installed are trying we to capability. prevention It drives lots business. keep

and Cortex. in of Cloud putting ours. please into business hardware take we not and a are But and sure away, now making we the thrust we're with So at the favorite cautious balance don't our SASE that's same we're child the time, growth

Clay Bilby

Great.

Boolani from next. Next of with Kalia Citigroup Fatima Saket

Fatima Boolani

if Nikesh, tied I transactions. calculate of rough envelope XX% you math, a back billings to handful of roughly of for a had you, maybe your the

Palo do I norm as deals guardrails levered million deals, think given $XXX and around about you more the guidance the Alto, these of $XX bit Dipak deal large the your becomes especially as how sort put a So at scale? some with to put little million, larger together business dependency becoming head your to

Nikesh Arora

Let me back. lay

said we careful, mid-to-high XXs. were we all, of First

you were X,XXX to So It's will, we But of X% and of look, have not told X%. back if bringing you we X%, millionaire somewhere is X% XX%. it if But it's exactly part customers. envelope. also between math yes, the

millionaire I and us that you're large of think going to a largest between amount a numbers of of people between million There's customers lots there the X makes million, -- X that XXX customers, million are there's number the customers expect. cybersecurity, in and and lot of $X XXX.

deals we we don't a you balancing act So deals and at in every pretty much just terms Remember, is focus of it can we on. people take They expect what longer. away. of $XXX have Part what go number. deals million prioritize

in done it done We'll get get could QX. in QX. we So it

$XX one and the saying, a the million you it's deal has nine up discussing say to following for know typically $XXX, going not over customer wake that If in we have a it's months last happen what to becomes our deal, going been morning So it quarter. you happen.

phrase we're able a yet, job destroying Fatima in our credibility to waiting. the of them got from convinced I'm analysts Have not? to is our keep be or make is. that to able sure hungry to lot portfolio you more enough our to whatever pipeline right you away still or So have bring we in,

Fatima Boolani

train. bullet the on I'm

Nikesh Arora

good. Thank right, Fantastic. All you.

Clay Bilby

Great. right. All

from of Barclays Kalia with Thill next. Saket Brent question Next

Saket Kalia

for my maybe you. Echo congrats Dipak, on Great. Okay. very quarter. strong a

strong. was took which you mentioned guide approach your You very you FY with with 'XX the prepared remarks same in 'XX, obviously that FY did as

the you year, base the were next for when a at of very for higher which, guide thinking about year, for did you was as next of So is, that billings uncertainty we again, all question for macro kind of sort maybe think that 'XX? how contemplate about impact you strong

Dipak Golechha

it's prepared I Yes. to I tell scenarios what impacts already I that's already of the what's don't dissecting inflation-related, that's chain-related, Saket, -- think you, a what's and there's supply anything demand-related in different are our then macro, that really the making remarks. just mean, out what of question going I'm the just Nikesh work and think figuring the sure sure not methodically right, to the make prepared through like we're leadership and that really to and planning add annual and having course thinking through we we process, of the scenarios. nothing lot different it, team during I debates, try have enough of then beyond a remarks. just But flexibility and for

Clay Bilby

Great.

Andy Jefferies next. Nowinski is Thill with of Brent Next

Joseph Gallo

some that there there's first You have why result. know rate Maybe but I quarter, the fiscal as on your the for F half? follow-up maybe duration Joe last XQ, any on it's relates but guidance it that in just would growth XQ? Brent. Congrats billings just to the reason about question. talk the know to a prudence, I Appreciate is extra and

Dipak Golechha

also So a I talked to August did how We it you've normalize deals. ultimately, about X. think for got large on again, some price take increase we

the beginning think, ahead XX% the fiscal again, trying of guide. and sure not fiscal make year of to we're that getting at the be skis. the year just is prudent our mean to we're I XX% I

of ahead higher think I we've guided still think a yes, little -- I bit in specifically, and QX, but consensus.

at. pretty feel the So pipeline, I look think good the all we metrics about that we

Nikesh Arora

market Important to overall understand the context.

cycles which which companies being a cutting life EPS got companies reducing are guidance, There warning companies potential deal guidance. are You've smaller. which are customer are

that both the are scenario. prepared upside So sure downside for to make we trying and we're

it's I in that be to market. prudent fair for think us

Clay Bilby

Okay, great.

Next, with next. Fishbein got of we've Andy Joel Fargo Nowinski Wells

Andy Nowinski

Great.

this just comp guidance, higher I particularly extend congrats a year. want of on my First, and the quarter light great the have much to in billings you

of solutions. beyond So for a on or other competitors your about to Prisma SASE SASE their ask none win question, I firewalls solutions offer because to have wanted your rates

most Prisma your with in of advantage competitive So the portfolio that's seeing sustainable driving rest logos if you're your growth new be might actually that I'm wondering SASE.

Nikesh Arora

enterprise historically, a is up the SASE, we the XX. the leader, the This say you to do just deal two? a with about Andy, vendors. years deals head-to-head with has I I'd think go third. we or see party. ago, could two part one What at And with. guess to ago, most who let's industry -- happened getting to have right? three of were Two two largest last head-to-head take didn't become of not or we out two X.X years in it -- force actually reckon doesn't vendor in rarely years the look Very is. years ago, the if until showing second say, lot we a a We've

out in Now and to our we next deals of is year deals. six think out we're XX five aspiration be XX of to XX

the half win big growing we're can numbers deals we'll we if that we be like in, this did hopefully, what, know You year. at

of we we in think SASE are age So coming business. our

that decision with that can that have public the actually the the believe only player we technically. Zero We where a SASE want we early Trust strategy the deliver the other on public driven company play We enterprise when have We think made that a solution are to edge. come time, remote to in redundancy. lot hardware, a of same integrate the seeing deploy access across respect for At the customers better market. cloud. on solutions. cloud a we software your We technical architectures have to solution We're and

AWS. to switch hot we down, goes GCP So

As market we the the with in today. business to down AWS SASE so goes you hot give SLA level the GCP, switch in highest

Clay Bilby

All right.

Joel Truist Next, Keith Fishbein got of Securities, Bachman. followed we've by

Joel Fishbein

Fed to in federal just on the of update. spending, probably just is love a It to I but there's around government's would since Zero not SLED follow position Alto a disposing deal rhetoric, lot with seems it, Palo the Nikesh, strategy like the lot Trust to wanted and spending particularly and up an pull of that get spending. a environment

Nikesh Arora

Joel, administration happens appreciate, place. when comes new into typically a as what you'll

year other. months, we're orders The months, implementation, they six time then six of The to two. get spend next if lot executive the getting write they first we know each into lucky in a and

market. Fed have great the alignment yes, So of in signs seen we

executive cybersecurity. towards seen more align to some have orders awareness We good around

more looking you it Board. how is to know, conversation relevant As make at a SEC it and also the

the all signs in, are in in right months. fiscal Fed comes The X.X So the the headed close direction. for next year

year So better in hopefully QX Trust Fed think some we SASE cloud. I year for and be next Zero should and around spending, And should see especially activity a around that.

Clay Bilby

All right.

Keith is Gregg Moskowitz to Next with Bachman, follow. BMO the

Keith Bachman

a acceleration was to And potential Great. you the wondering conversation want how I Cortex. Cortex growth bring in Lee, and metrics around particularly think caused I of in could. if sneak you you're could just with a coming the second, I ask in about does XSIAM for clarification, Lots Dipak, into good just thinking in one growth the if here. actually half, And that I in first Cortex? an

pricing billings Or the when of year we For and in duration this around billings compare in thinking FY neutral duration you 'XX? kind that assuming be guide, last about are any to assumptions you that guide should to year? 'XX 'XX

Lee Klarich

course take of good we is more -- across year it another I It Cortex believe longer transformation. The And I'm play continue Xpanse. fully And we'll journey. to saw out. just I I start very that a the and for to play innovation -- that the but will going I see think the products as it about value across of don't think multiyear question, being fairly the truly years ran, bit with see encouraged exciting the come. XSIAM, program to the that customers provide. FY quick be but architectural sets in that being It's see design they over given partner that there's by When we hopefully, Yes. a it's journey, the going hit. Keith. to it XGR, that Thanks next year, to three the what little traction and but need a for continue driven those I will and traction 'XX XSOAR we've and anticipate a out we're for to the drive as product foundation of of

Keith Bachman

Great. Okay.

Dipak Golechha

Recall question no your price pricing, ones that changes significant we answer that we've have pricing to on X, was on no the just a about increase additional beyond and hardware. announced. duration did and our then X% already duration And on August

Clay Bilby

Right, by Hedberg. Gregg Moskowitz, Matt Mizuho Securities, followed

Gregg Moskowitz

acquisitions. Nikesh, come new also So 'XX? But spoke Lee curious more incremental of year, about mentioned about a in multiples you to the 'XX having thinking you're generally you your valuation relates beginning if a period, moderate for modules several earlier, how more I'm opportunities at will, period, it fiscal and fiscal as in, M&A

Nikesh Arora

M&A So acquisitions today, acquisition or ago an we make it's integrate because over where of that harder make -- sure three opportunities of a idea can to complementary do had canvas years overlapping strategy. a the Is blank four it is canvas we now have is balance product various to than it acquisition in we with where we consistent go that to we it was outlined our terms time. or could wide such acquisition an we or it

opportunity out of amount the reduces that the there. So

go-to-market said, billion. always opposed see, acquisitions or we're I've as from because $X.X area have you ARR as very our -- to focused As can NGS, acquisitions we product on

to than we ability from our the product have go We stuff good good here. better if sell stuff get

lookout and continue to scan the So think I on market. stay the will we

are teams large the mindset not looking great in attach acquiring to can that mindset our We we in of product the capabilities. of for deals. complementarily We're

the effort billion, been don't now did has part million. $XX something cap. million, $XX of it north the market shows $XX we I terms our if was the it. and But $X.X keep think market ever So we it's up, our in do scanning first a cap significant we'll When market million, of again,

a rationalized, they is, it. remember kind market the is We're bit has what company that's small it's kind the of probably imagine people haven't The neighbor's think of estate house -- like for public private their can and scale a house, bit the you jumping the the the think what and It's last markets sold now. to not worth. is -- like forget at, real we how it's market opportunity at relative right So the I about what yet.

So of longer until a value to people security into true realize the going acquisitions it's little be before their market house, again. come

Clay Bilby

by RBC Powell. Hedberg, followed Matt Great. Gray

Matt Hedberg

from congrats about is as team, SASE approach perspective things you success impressive. and customers the the wondering, to have now and I'm your doing shy XX,XXX customers. believe there higher you're a year, firewall The of are you drive cross-sell? on I even results. portfolio of just go-to-market obviously X,XXX fiscal SASE that Nikesh

the about obviously growth? kind curious driving maybe what top more Just cross-sell how been even you has of think

Nikesh Arora

team team, a management have question. spent is a we our we the specialists. X And lot you for the what to are is It's into we've this core It's field doing the we great sales And training time for thank something year So about. question. running sales camps SASE in we've has everybody and SASE. merged have X what our out of done going last to for used weeks fiscal thinking been into boot them

opportunity sellers there's uncovered way a only So actually field a way we're and go X,XXX -- our team, converting customer. our to which team entire sure across core get be the security make network we into amplification SASE every first to SASE can is team

linchpin a come XX SASE to SASE's market to invited network strategy. vendors to think will in is our think we two our the of years. we hope going the we're very, So And five share. age. very this large to one be the market we be next disproportionate and security who win every We in is We say towards think of opportunity,

Clay Bilby

Great. Yes. Right.

from the for with day Our BTIG. last question Powell Gray

Gray Powell

All strong the congratulations on right. And results.

I'll lot longer for any And NGS sales earnings then stick I that in reported cycles, talking the guess particularly consideration ARR space, And seeing I terms a mean I'd companies yes, portfolio? theme. with curious, that of they're How about have there, in pipeline? SASE the you really So security be was Prisma the like does macro the play deals. into complex guidance. a more of impact SASE Are particularly other larger, in that

Nikesh Arora

get a the It’s Look, longer SASE your first work I complex said, using is Prisma And delves actually actually Alto SASE. does not SASE SASE -- buying laptop bolting network re-architecting and foremost, how in your just take security your large on. Gray, it customers just It's to into access. longer if Palo as and done. you're deals take because or

trouble. BTIG's of kind access it's So your laptop doesn't in important get because to infrastructure if

as network a becomes security as much it play a So play.

So teams take a little longer to get done. it

part concerns, it's organization. an will, takes So the macroeconomic you a I process, think transformation less the really if of do the agreeing little doing longer. to that's kind technology as of so it That's what

a In bunches terms next are a and in of tailwinds. There secular into our pipeline obviously We guidance, the year. are whole there. takes of of look, there's have going sense puts going that

so they we'll supply great go we'll just various a have they a product deal, all deals, But they're deal wings. be all all that inflation, they're and to big management As have Fatima chain, big to in don't in some binary come are these place. waiting if job right? guess balance larger, we asked, to our You there's that come we couldn't cycles, didn't did factors, Yes, the investments. every of in, bunch hustle. If what, some do balance done deals as deals, still in, you've got

better think our prudent think across the might if I us. is for we look, think factors be you across So of we some them these where all guidance of balance,

be worse. deliver to presented margin, you. can Some guidance as the the we of on them think we But may

Clay Bilby

will Nikesh Q&A. Great. remarks. for our his it I'll closing turn conclude back Thanks. That to over

Nikesh Arora

for attention this most many upcoming We seeing and make us. after and With want I who conferences. first partners to are. we of us go well Palo Alto of as of customers, employees as calls forward course, look great also all, to your thank and that Networks. place questions for all, separate the our thank in everyone, you, of our Well, you joining your that,

Palo Alto Networks (PANW) 23 Aug 222022 Q4 Earnings call transcript