Earnings call transcript Q3 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Walter Pritchard

[Starts Abruptly] 23, 2023, at 1:30 PM Pacific Time.

With me on today's call are Nikesh Arora, our Chairman and Chief Executive Officer; and Dipak Golechha; our Chief Financial Officer.

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

You can find the press release and other information to supplement today's discussion on our website at investors.paloaltonetworks.com, while there, please click on the link for Events and Presentations where you will find the investor presentation and supplemental information.

During the course of today's call, we will make forward-looking statements and projections regarding the company's business operations and financial performance. are risks today uncertainties. made statements subject and to These to We obligation them. assume no update press our release to the review Please and risks uncertainties. see recent and these filings SEC

should non-GAAP We press refer in release in of financial accordance most appendix for financial metrics not The prepared be the GAAP. and comparable measures. financial will the measures considered to investor the These directly also with and substitute a are measures presentation. GAAP reconciliations

on otherwise, a noted Unless all comparisons are year-over-year results fiscal specifically and basis.

also that management is We America at Global Xth. participating June of note the Technology Bank Conference on

now call will to Nikesh. I turn the over

Nikesh Arora

joining Thank for us. you

Unidentified Company Representative

Good day, everyone Difficulty] and welcome Alto [Technical Palo to

Nikesh Arora

us of bit you, afternoon, thank a today Walter. It's earnings Good joining and for call. little there. our repeat AI action everyone, Thank for a you

can bottom-line the performance quarter our delivered teams As once in again and have between top you a see, our environment. current macroeconomic balanced

and ahead XX%, billings QX, grew while XX% XX%. revenue at grew year-over-year RPO these In grew our of

operating income of profitability XX-month year-over-year, our quarter consecutive QX grew adjusted fourth while a we Our GAAP XX% both flow, and on basis. about non-GAAP cash achieved free trailing our

while business focus gotten deal we the have value about value continues backdrop, customers. talk our persist. been cost superior challenges, sharpen staying spending, and deal execution. the to the We've and this larger Against of ahead customers. overall our of scrutiny, our widespread macroenvironment. scrutiny, continue trends ahead Let's macro behavior our across more own to cautious of be Moreover, security a rigorous consciousness increased The with and swath outcomes to demonstrating

for as software hybrid SASE sustained teams transformations, This adoption, we is minor there transformation offer perspective, to customers cloud cost-savings significant go the long hardware work turn they cloud have and their and network continue albeit cycles firewalls. in be and with continue around part seen a demand most Network to undertaken with trend The change. they variations. automation, for technology a journeys. because down and modernization stack continues are of From and drive no

before, come Generative up and of As and regard. around a technology. to months, three interest in in ChatGPT have have to the theme last this platforms revived shared Needless consolidating the we AI the say, we well-positioned solutions in AI offer are as continues to

As associated its always interesting security we an -- AI data maintained, is outcomes data with in (ph). a interesting play used the ability and real-time problem an generate unfortunately deliver help being role have has security to threat AI superior and has to both in is potential for to AI security, a and problem near attacks

We today. have and about should these this continue more on work talk we problems, to

all other On limiting the -- in that over, are a we crisis hand, shift the and whilst chain but to its hardware underlying effects supply is growth the there crisis the industry created. see limited continue in

We a higher and deliver networking solutions in cloud the salient CapEx-constrained have seen higher form an than This appetite appetite particularly factors. software-based current is environment. for for

threat environment. to On and of the seventh takes a Unit newly illustrated approximately few in is team the resolve continues In and increased This vulnerability. security to no takes the threats, It recession XX Report. a days it contrast, front, to exploit there security cloud to the Cloud hours activity Threat findings seems six still only alert. the threat average discovered a advisory actor best connectivity recent be by drive our impending installment

to are sourced were While of properly those open-source over cloud X,XXX ensure a packages software software XXXX, malicious in typical versions version is packages customer's into clean a than less incorporated of a quarter circulated base.

mandates drive activity and This and Board company's as incremental additional customers. around incremental oversight to accountability is for alignment organizational not an focus the government at multiple governments. also our investment This but regulatory across and prevalent around sustained level Directors it's by of of cybersecurity. only requires and true create rise cybersecurity. bringing to continues orders interest executive Regulatory There's awareness are

On the macro front, customers anticipate that global slow. growth may

Some their cyber more lines are for This drive their security, capital looking in and into opportunity business. means focus, as and customers Within see and vendor consolidation. simplify grappling many bottom have efficiencies costs closely. are complex rising long watching an with architectures, come this and rosters to

industry-leading for highlighted outcome resistance. consolidation, and platform Five simplicity, met But us years customers. few some over allowed years, the architectures approach ago, our for and when continued the stack, modern and has has to a with to idea security better a much-needed take was our I option for solutions the three-platform last hold need provide

with I in engaging mentioned deals in of discussions scrutiny value earlier that us. robust and internally are more our and resulting customers

flexible We sheet allows work customers, engaging of strong CFO business maximize ahead continues medium-term of and enter seek us to of to The and topic also more the into deal departments. balance procurement continue A to us, with a our stay conversation relationships we some customers larger to terms. hard flow. cash while cost money cycles accommodate as longer-term become

efficiency Let's to operations. turn and

year, started with and in focused our less. efforts efforts we this we fiscal As our pivoted more doing

new into we our with business. responded chain is scale of to continue our at specifics, we can the but supply we Coupled have teams adapt better believe to to the and crisis, model our Dipak operating been able rhythm, margins found significantly. waning will drive say, it's Our we a effectively. have get suffice for

are customer-facing QX We for go-to-market operating our hiring as as and our flow cash efforts in to have increased addition which guidance our continue in margins this the hiring year. in streamlining we free achieved to and These margin expect well to innovation operating our for areas, key higher selective teams through efforts self-evident do.

about to this earlier. line to for who Alto together We our cybersecurity platformization robust individually in cybersecurity customers. had navigate see customers. drive customers key our cohesively part a been thesis and cybersecurity. Due talked products. need that, outcomes I works disparate of on our have we consolidation stitch to superior Networks continue that A Palo to burden with has the fine always We've reduce our portfolio both to to at

are think a of we We see approach this trend. in continue to the multi-year and benefits

the opportunity have have software, inherently data customers we have in HR from integration, to security and where to outcome the what superior software, seen benefits financial seamlessness, platforms We the integrity, do adapted or due done CRM orientation. to

As they pudding. say, the is in the proof

from but up You is by XXX% driving success and the by transactions valued larger board, we is here year-over-year of evidenced can increasing. quarter, in million, over by XX%, are transactions. $XX see our $X the are Across the million, booking platform respectively. $X at third signing and size transactions This XX%, million

of in trend similar a our see cohorts customers. We

look look Prisma, for success value expansion and growth is get ago. XX% and that largest with the three paths can as years product customers We and large convinces the XXX have from this a continuing in the amongst we've large up Cortex, this purchases we our We when platforms It at for the opportunity a we over Strata, trend. of all three XX% now When example, us XX% if bought we to platforms see base. continued year multiproduct a of our customers ago our to of see install around customers, we plus right. lifetime average Global customers outcomes last three impact XXXX, of years. at For XX% that the our steady seen see

three our starting platforms with network update now security. you I'll on

Security Trust Company. the We Network are Zero comprehensive

were the in significant named recent This Quadrant. seeing teams addition years. This customer recognition Magic Quadrants. for vendor a Edge proud and stronger in position, in SASE most quarter, as the leader in adoption have us our our named is to delivering SD-WAN, Gartner in and Gartner's to the Security industry be makes a only SSE we be SASE Magic leadership SD-WAN innovation to new This Service apt leader been

our category offering in Network platforms. in clear core network This our maintaining and a security the to Add in to markets leadership while firewalls, as our in our part our new number Trust share one to significant markets firewalls vendor market innovation leadership that, network leadership across only Zero are position virtual cohesive testament this we across leadership drive innovation and Security. position our with ability is of

Let's of one about remains all markets cybersecurity. within fastest-growing SASE talk of SASE. the

X,XXX QX. growing have is scale, ARR in Our At surpassed over we XX%. customers

across spread these territories large QX. in in of by as highlighted each major has deals three success Our geographies, all

of me notable wins. you these tell about three Let

million, First, beverage of global a includes $XX complete Access, a $XX employees. Prisma of ADEM, transaction of thousands which with for million SASE SASE tens company for a of SD-WAN, our north Experience or US included Management headquarters signed Prisma Autonomous Digital and that transformation

Second, a network its security modernize an technology an Japan-based eight-figure its to POC. network transaction after and extensive company signed

next-generation full standardizing and replaced and firewalls, firewalls standardized Zero a Network our Strategy. Trust other our driving customer SASE, legacy Before the its network capabilities, security on on

value Alto signed $XX fully of transaction, core seven-figure company adopted overall was customer In security an again, of Networks technology of nearly us broader we multiple network once a to subscriptions. transaction European Finally, as IoT a from in security our capabilities and factors. that bought added the deal the Palo network form SASE such total our part high because million

remember beginning and saw SASE sell more into we year, that our Drive fiscal SASE the sales sellers You sales mainstream signs the part saw our as offering. we us with all organization. at organization core that demand core efforts here SASE our might this combined of encouraging of we scaling our going could complex

enable XX% as organizations of of executing Security. quarter Networks with office QX. with creation of core was functions network we're center need our in delighted a flagship organization, SASE strong branch and a SASE releasing over our innovation, monitoring three-quarters automate QX operation reps participate IoT as report the complex improve highlighted capabilities Apps launch. integration by Prisma AI-powered their AIOps. the that improves and IT increasingly significantly This and to pipelines After we enter in combined to They to of for to

an continue of joined Moving we than hardware since is as around accelerating. CEO. clear us. There led and to software years, is to have the our is the increasing over software. multiple while cloud network And It I for Broader business. centered the appliance security future factors form to and to focus have lead why software shift expect been SASE, deliver to reasons are market many firewall

changing microenvironment, customers the their In appliance in often purchases. challenged fund CapEx budgets, are more which

software adoption. remain factors result, This form cloud-deliver to around their when initiatives tied strategic cloud especially interest a in true and high. As is

in by uptick our significant we saw Illustrating where offerings sustain. supply requests in VM-Series a beginning firewall is also customer chain pandemic. the Customer this, of interest to the saw virtual evaluation at we challenges evaluate sparked

more continue demand We and see and continue seeing to factors, form accelerate. software planning possibly to for net we replacements are trend appliance for deliver this however, primarily new and cloud

primarily VM-Series a from XX% to SASE, eight-figure appliance-centric public in are QX, a primary I so signed double far, million than VM-Series than This QX. year-over-year XX% agency strength, infrastructure. as the in where they an fully saw already moved we leveraged VM-Series with in including as more we Beyond covered their $X grew year over deals more deal model our and they bookings cloud over up it government

product Most our investors hardware. have revenue equated with

have has However, given been rapidly here, I the shifting. drivers this mentioned

our years up revenue. XX% product This Software of contributes is XX% ago. about now three from

trend more appliance over time as SASE our would expect and and We bookings recognized to Dipak transactions than you, on from VM-Series revenue, this are booking. continue remind as

development Given efficient training by broad I is powerful large significant models. mentioned, of of data. availability and in The large the driven with the computing advances AI, of about conversation in artificial renaissance as a there volumes language intelligence more

over and have we applications months. result, all launches the a innovation cycles some of last unique As of fastest the seen several

ensuing critical of years we we capabilities the network learning our as machine and AI part been have last Offerings At market. Networks, seven Palo driver the portfolio for been In of first innovation years. years, over years focused the of We many on and and Alto our been our security a capabilities our added introduced this technology accelerating efforts have has machine-learning across WildFire ago. and differentiation two

Advanced learning Advanced all we In and our where all learning advanced very nearly attacker. learning-powered prevention means never zero-day of Security, AI of introduced WildFire, been Advanced by XXXX, attacks. detection prevent at attacks used before new the then, have machine Prevention, DNS Threat harness attempt with seen zero-day in firewall, have Since first we subscriptions capabilities. filtering, security an industry's move detection to are even URL that for This next-generation in-line and the first overall attacks. machine line blocked machine

most expanded AI to applied to identify most medical signature discover IoT IoT we needs. short, AI IFRSD-RAN to we the included We SASE was one and really industry it's application the have recently and management well and secure application security had release AI devices prevention. of IoT both a Additionally, in of security phishing our OT leveraging in AI-powered security AI-powered as it to of the to autonomous Security as experience in addition today. cover been In digital network matured accelerating AI that stack the and

not driven tangible unique in domains, XXX machine analyze and investments objects are typical includes We a have million, files, customer these In new we other signals. ahead telemetry learning and differentiator nearly URLs, in a This XXX investments our million day, DNS products, in AI worldwide. only as connections, yes, but benefits.

AI analyze every attacks new models and see million before. have Our never data we day this that been X.X seen

attacks better insights how continue forms detecting and add a Difficulty] well. to X.X block them position to this foundation [Technical platforms about, and how do to attacks all attacks already base and new This in zero-day security the our prevent being and as to daily. these and better those we them take We better security our billion of actually know at use across is we across get network we customer to

demand Prisma the left to paramount. Moving competitors platform Within Cloud provide while point continue becoming to to our the to of connecting customer known shift otherwise products, continues only cloud core early right on the side Most data as towards to to is Cloud, this our strengthen. approach. side, in continues Prisma

success, cloud cloud to see workload management, usage As platform of offerings. and an of our continue we security protection example our strong posture

increasingly Customers CSP, modules WP. of XX% Prisma foundational these customers and standardizing Cloud using both are on MNC, with

new capabilities just a common core They these platform. vendor. only to This we enterprises time, will At increase XX% XXXX. continue ahead XX% need by buy the of to noted of that enterprises for of expect commitment this our capabilities, the in stay from same to quarter XXXX to but Gartner industry's the

track We our as to launch innovate module XXth cybersecurity. are on we

in high, we accepted addition driving unclassified DoD the ILX level ILX This cloud first platform. on and Provision Advisory to achieving or agencies have FedRAMP under industry Prisma Prisma Impact achieved other the Joint last Access by and status FedRAMP quarter comes a focused just X certifications authorization were reached for highest also the recently ready our including in Board Level Authorization. We're announced Cloud for certification we process. is for security

to up continue growth We steady were of year-over-year consumption Prisma Cloud credits, QX. see XX% in which in

steady the is platform Our growth. to key

of They're leverage at as new migrating cloud to workloads have see includes and currently business leveraging ten. increase clouds, the they their and strategy. new deploying customers consumption and IT new Prisma continue We workloads which we to This deploy public Cloud applications clouds, their modules hyperscale cloud strategically the also the core services. building in the of

issues and the in and for capabilities, Composition customers management number cloud reaches our across year-over-year, remediate customers applications before Prisma approach Analysis, more more detect now or The module efficient number security to sequence Software XX% it four more SCA they using Prisma is code modules production. our infrastructure modules core of as or as of leverage doubled. one almost have the Cloud two good, decision is or while five grew cloud our We in using Cloud

Palo Networks, belief business Now the on SOC a to which This has moving we net-new for Cortex. born need that to next-generation been the Alto all bring in a innovation was activities. related and the to business

endpoints, billion three announce in across we booking the born we and to focused ensuring years $X have Just management. Cortex a have that tax Cortex we capabilities surface automation, have was intensively last achieves firewall since like then ago. SOC months. XX and on We're industry-leading business delighted brought in XXXX milestone

application of in XDR to the surface climb capable of have of risen last one solutions. industry a technically management attack the most AI, charts we leading the In the player as automation, continue to four years,

particularly has the XX of of latest are that by deductions XXX% highest across conducted the We proud XDR Miter steps XDR efficacy, round had led prevention, and (ph) product in delivered fact and any consistently has quality in detection evaluations. security the of evaluation XXX%

our On back bookings built last Business have over to Cortex $X XX of in capabilities these months. hardware we the billion driving over

launched As the bookings in from as million I up XXXX. $XXX we business mentioned, when annual Cortex in it's

As together, we launched the which it few a called publicly autonomous three look our pulls in forward, center, to ago capabilities was months precursors Cortex, next-generation all XSIAM. security operations core these leading this

platform AI security slowly. XSIAM decade transformation SOC drive our operations offering. Cortex, next-generation like ago, new fastest-growing have autonomous totally on evolved is a now represents track around built XSIAM our significant is Our over us be on network to within opportunity AI-driven way fulfill we security for XSIAM security operations outcomes. to another paving the as vision security

commercial our followed by partner $XX We launch GA QX our early significant made achieving in to QX, has broadening bookings. in late million design our go-to-market success After and XSIAM. up commitments that with in

quarter, three we eight-figure sequentially as momentum transactions geographic This the deal established bookings of with product. quarterly theaters than major doubling signed more our XSIAM, and first this with for all across our

the what about broader XSIAM transformation. optimistic security XSIAM a prospects access center quarter give goal anticipated. at pipeline, we can center the based This product swath operation for million this our Palo security the remain what platforms we will seeing we from have fastest-growing budgets bookings on and we faster of achieved customers' in make achieve customers' are us see We of We're of our the of the originally of Alto one of confident it Networks. $XXX to in than we

IMTTR today's to wasn't bring our The slow an unacceptable. own our from environment Cortex customers. meantime years This core is to approach brings in own ago. in Not security, five approach. together us where also it days, of SOC to adversarial woefully outcomes only capabilities a heads XSIAM does outcome-based remediate were new the we AI-driven which came inspiration

to AI, down able we to were a continuing XXX alerts it using With seconds we and to responded and minute. compelling This from handful a is automation priority able security. that of of in stories respond high ones in just and events, are here, collect use of is to mind, detecting and incidents from over incidents most billions of then matter under the to outcome a one investigate AI insight in while in

accrue are over of with similar the the We the seeing day, across the of petabytes are along in a XSIAM. early journey customers and far a we benefits way. data processed on X.X So XDR us, that farthest state customer in

We models attacks. response. AI we apply then to smart automation detect the the From scoring this X,XXX investigation accelerate approximately here, to in leveraged

early respond are to or we able like to reductions days that customers just did. seeing are the indications down see We weeks meantime or to from hours minutes

Stepping are that to be fortunate more part back, on market of is we focused the resilient. technology

partnership definitely us Our their than year. has I more am the sophisticated. we and are our market through address environment. when with customers that this proud that is challenges on to started tough becoming more depend only The executed challenging team

customers is helping their consolidating focused strategy architectures, working. and simplify having capabilities on Our industry-leading vendors

Given see our reported growing in any portfolio we our some of benefit and this the topline in products you results quarter diverse are of portfolio moderating. others are faster Combined today. products, given

we significant We in AI to us. as are products will generative our and generative that are AI into begin three also embed investment opportunity see concerted ways There workflows. benefit

our by detection AI AI will today. core us our the further help I state-of-the-art products and ML spoke of that prevention generative and First, in advancing efficacy improve under-the-hood

Second, products. itself to engage how our customers with manifest and our

enterprise. and realize dataset in to coming experience will own Networks intuitive operations generative and benefits as our security processes significant language-driven large and a customers. actively multiple for leverage our three these and improve LLM are will telemetry more finally, Alto intend deploy to drive our employees efforts outcomes. cyber-secured in Palo which natural efficiency across proprietary provide AI, within it our pursuing efficiency NPS our We And to leverage will the and year products, the We drive

approach company's drive focus portfolio oral us leverage. Our enabled have and significant scale on efficiency to

not We are well ahead done. and schedule of we're here

fiscal As into plans, see opportunities baseline efficiency. the to incremental visibility we as our to leverage, see we guidance year continue we With a our continue levels to for build additional upon. execute operating in XXXX profitability our

our to to guidance. over will I of the Dipak the call details discuss turn that, QX With and

Dipak Golechha

you, and good Thank afternoon, everyone. Nikesh,

was revenue total of support and subscription revenue billion For XX%. revenue $XXX grew QX, XX%, growing with million, grew $X.XX XX%. growing million, revenue XX% Product grew and XX% $XXX revenue service of

all we the security, ARR Moving saw cloud, saw continues strength on results. our to XX%, all network next-generation to growing three EMEA of with security XX%. JPAC security, Americas The growth drive across theaters growing up NGS revenue With operations. We and capabilities our of growing $X.X security platforms, geographies, across and billion XX%, XX%. strength

up XX% performance RPO range. was QX delivered Total the and guidance our under end billings RPO. increasing billion, was obligation high We above of our deferred current Remaining XX% of billion, $X.X billion, RPO total $X.XX of an or $X.X revenue increase of XX%. in just half with

free our earnings share We was of year-over-year. strong cash XX% ahead non-GAAP with in XX-month growing $X.X Our per flow again year-over-year. QX flow trailing growing delivered cash significantly guidance, XX% adjusted of billion,

higher Moving rest highlights. XX.X% a supply software mainly margin Non-GAAP gross support. chain year-over-year, financial reduced XXX of some on basis in and by points to mix, was of efficiencies customer costs, the up driven the

Our year-over-year. XXX XX.X% basis non-GAAP increased margin operating of points

on addition improving headcount fiscal gross 'XX year contributed margin raising slower performance operating are to non-GAAP In our Based guidance. additions our operating QX, to in we leverage. margins, our

$X.XX million quarter the third for Non-GAAP diluted net grew or XX% $XXX to per income share.

was with net share. effective of per income in non-GAAP $XXX again $X.XX rate GAAP diluted we XX%, Our profitability or QX delivered GAAP million tax

and ended accounted XXXX previously mature in turning we with investments outstanding. to been our that reminding sheet excess It in of shares shares principal sheet July balance statement. X, worth of cash settle our settled The be the the non-GAAP balance diluted convertible Now will shares. our obligation and on for $X.X will flow have $X.X These equivalents billion. with on We expect is to QX and XXXX, cash billion. cash investors note

XX sequentially with stock-based basis year-over-year XXX $XXX declined flow flow of a basis, percentage free revenue. million compensation from points basis as points percentage was was operations as of of down QX adjusted cash a $XXX on by cash revenue compensation million this a total Stock-based quarter.

XXXX our profitable fiscal to optimally basis As benefit points and focus business annually our opportunities basis growth. in-depth on on remain forward, expansion year XXXX, profitability in investments we focused margin XX we the leading we Day plans and of this At fiscal Analyst points drive outlined in our look In to from XXXX. months balancing to scale. and efficiencies growing year to commitments, up we in capture XXX

a faced As effort this conviction influencing leverage. out 'XX, meaningful we supply came but In challenges that these we result, with chain plans of in significant started operating fiscal unexpectedly costs. drove higher

chain entered supply as saw was XXXX, the changing the we While uncertain environment. of we signs fiscal also year macroeconomic

it was to As of technology time Outside right focused growth accelerate accommodate our areas. to areas, leveraged our R&D sales in our efficiency headcount our such, to investment in medium-term business scale prospects. these the fuel our employed growth plans. we've We and other and critical additions

operating XXXX Additionally, a first continued the abate in result and an expansion The increasing increases challenges cash improve margin guidance operating has at supply chain through acceleration three year have significant through to flow free fiscal margin been and quarters to year. gross pace, margins. our the also helping of our to

year guidance you ahead now of see with XXX fiscal XXXX build our our XXXX baseline future. to implied were non-GAAP basis We operating year a our midpoint of back margins XXXX. in as fiscal in margin range, the As fiscal non-GAAP see but we points for nearly in operating the on year XXXX

guidance. Moving on to

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

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

to to EPS increase non-GAAP expect XXX, XX% We in the range an of XX%. of be XXX to

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

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

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

'XX expect fiscal to expect as of The operating product range the year in revenue of chain 'XX. margins challenges year fiscal supply to XX% see of fiscal the in to we we XX% We range 'XX we as year XX.XX%. growth exit XX% be normalize

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

to adjusted expect We profitable XXXX, including year flow and be be margins XX.X%, to cash free in GAAP to expect we our for XX.X% QX. fiscal

Additionally, following consider modeling the points. please

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

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

$XXX We QX million $XXX million. diluted outstanding shares expect to of

expect diluted million to of million expenditures We $XX to expect and million. $XXX year outstanding of million fiscal shares $XXX capital $XX we QX

for I turn will that, the With portion Q&A over back the call. to call Walter of the

Walter Pritchard

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

will Kalia with deck. question first don't Our muted. go come Why you're All Saket on from to from Morgan Saket, Hamza? Stanley of Barclays Hamza we Fodderwala right.

Saket Kalia

now? me you hear Can Okay.

Walter Pritchard

Go ahead.

Saket Kalia

a lot good talk executing Sorry, challenging very environment. and maybe taking double-click unmute. of and so here much I in didn't things to I'd seen on Maybe the that to Thanks operating efficiency efficiency for the for the team to the what team Nikesh, you've creating is love can well? about, improvement maybe areas question team opportunities just is here a but nice going team what a new a margin the year. that what maybe the areas really and the finding is and Dipak you the baseline about question going next is, talk -- forward as are Thanks. job into

Nikesh Arora

but crisis the were all Dipak margins and impacts there Look, over Saket, chain Yeah. to perhaps supply by hardware. gross adverse driven as highlighted, some

the I is favor. mix in think our product

way than software they are software margins go more we gross the much, to on generally hardware given than are our firewalls are software from hardware profitable As much better for us.

resource a streamlining talked about driving are year as where as sales important. the been we Coupled environment has flipped for really real has I we last well what new making with Dipak sure our focused into as also hiring ROI macroeconomic force. stuff on that, utilization, been think He focus the it's on the

perspective. Saket, remember, driving have output you well our sure making of us heads as of SASE SASE more as from saved the outcome we with team efficiency terms and conversation integrated If around a in has core, hundreds which our

those been Dipak, to some have generally, did the drivers you add So something? but, want key of

Dipak Golechha

I all. it think you covered No,

as I our talked on think cloud. elements think well of the different think we've across before I We this Saket, right? And scale company, I all P&L. that's a

I cash chain to just the we bigger more, see to can as cloud-hosting ability the we the get and service think and we also the have cloud talked contract. mention I'll about, about, providers we back we our to trying supply OpEx better consumption negotiate and go talked

a we So of P&L, as company. all I across the scale pretty well think the areas

Nikesh Arora

And is I as there in the We and this think even is we a here said, of haven't think to of where goes, your potential impact opportunity question factored new in AI. Dipak this baseline. generative continued terms from

been in all industry, looking a we're we're the at processes, conversation it, understanding on really believe we you've there, there it, there. the working As we're is hearing but still

future get we as We some an the think will there opportunity organization. through go capabilities our be AI ahead and efficiency of implement in generative the to more from

sort business is I there icing is has application we on the for AI the continued the think is the Dipak the the nine been and So months there as over potential upside the of in generative next grow driving three continue years. to last top of both efforts what of

Saket Kalia

it. Got

Dipak Golechha

Saket. Thanks,

Walter Pritchard

deck. Fodderwala you. Thank from Hamza, Hamza with done. ahead. from The Stanley is Essex Well on Morgan Brian from next JP Morgan go question

Hamza Fodderwala

sort there were we that there's and But on lot your around trained opportunity data around. these of based clearly around guys. hear of this are seem Good about RSA security, been while can of for on. to lot question from last data at you month, can hope lot tell Hey, Nikesh a evening. and risks Lee be a what Maybe on Nikesh, you've a AI I thinking okay? models did Klarich the AI I around (ph) [indiscernible]. me

how the them So around to really customers, your I'm that conversations to are AI SOCs? the AI-based have you as curious with leverage their capabilities getting you comfortable of automate full

Nikesh Arora

Yeah.

two of there's think different parts it. I

is trained, pattern is AI happening. specific models as is by I going an being have Networks, at task using analysis used products, proprietary Networks proprietary force a look and mentioned, for in and perspective, this is while think, instance, real-time what security. Palo us model Palo of one In a by it all already go used Alto at case deploy This been is, XSIAM. we use using recognition, in where X,XXX happened built not our data telling us to I part we over LLM what a that's our Alto AI a getting look AI from look the for out this at

in Now Lee, to models, to you AI we can there own how that please? we using the elaborate every out model don't we'll understand know that conversational data. and our proprietary extent and can deploy did on public build working our open-source want intend you model it I are -- with we

Lee Klarich

was already seen of the early a where large confidential. has publicly the language some into been available made and used has even the examples language We've cases. course. data And how It's are seeing. of fed be Yes, models very understanding it data data though in of without with number will adoptions risks point public use -- enterprise out, there large we're in associated model as you them, the that particularly

clear is things like poisoning that, injection that data into sensitivity it's attacks, sensitivity of security taken prompt from there. So things and that have a There's perspective be to like also very there account.

help -- greater the evolve that account. and as At security capabilities to adoption, take enhance it's LLMs to product more important cases the usage into mentioned think of to in see drive use should help able more methodically carefully time little recognize challenges guide promise, little of the The security terms same efficiencies enterprise though, they offer earlier actually, business. the to we'll across also Nikesh what bit product tremendous is being and will to I say, need -- I so a a evolve and bit to

Nikesh Arora

Yeah.

are think the our cap I and internally highlighted. there it we doubt off, to of I generative AI preliminary analysis no there as is three months our for case XSIAM deploy with believe to for will that continue last AI. streams in proprietary use a our We think network security is there I models work lot these driving or over

and deploying So then. we'll the the AI few believe we months, over we it next later about that talk course more be will generative of

that Palo products, same within way But improve efficiencies run Alto an also the efficiency we time, the we of our to customer both has at efficacy our think drive opportunity Networks. significantly to the and

activity to build ask, new look you see AI our to think our using that adversaries I'll but didn't we're but least, we customers. have using and working I make work of And team last that such protect Generative attack Lee generative malware doing been to separately, generative is well any sure AI do try could hard the at lot which conducted you customers against terms have the impact is to and something AI. say, not his are adverse and there's a as in able of

Hamza Fodderwala

you. Thank

Walter Pritchard

question, Thanks for Hamza. your

Next by JPMorgan, Essex question at Bank. from go followed Zelnick ahead. is Brian, from Deutsche Brian Brad

Brian Essex

you maybe thank nice afternoon, on question. good If a well. and looks to could couple see comments, cash up that that. in improvement, guidance to. as how margin guided could it's cash margin -- progression like it's that on Core flow And Saga's of Yeah. is? bit to down layers up peel We if a flow previously taking Hey, little margin here, you the drivers good CapEx tick it noticed operating you lower back for I follow of and than go sustainable

remain forward? for wondering, forward, to gap we as operating lean should that valuation, flow at just look and that as guess, metric margins forecast foundational of a going how So going consistent cash we As is of I on that? sustainable relatively margins operating kind margins between kind

Dipak Golechha

Yeah.

for thanks the Brian, So question.

long Let makes cash. is that like in your the term your margins operating off biggest is Then me over comes foundation to that up At strength you down. and bookings. least start then really your your really then can the the on do driver the just with billings base just

different multiple do rates are a other the we that into year, when but level. the were at There came recognize interest factors,

We have generation. be that earn for we income. cash a believe had our interest we our not the to benefit continue a but of fundamentally, that higher of predictors We're rates, interest will of that, tailwind lot We've interest rates. cash deployed

not have least, do but last we then And PanFS.

pretty We different have we numbers? Frankly, a with and drivers line the able really we're what the in that's certain what amount of delivering do assumed our and to business beginning drivers, that we comfortable with are those at but do of financing. year, feel on those on we structural the our broadly been and

Brian Essex

you. Great. Thank

Walter Pritchard

Brian. Great. Thanks,

by Next ahead, Nowinski Andrew question from Wells Fargo. Brad. Brad Go Zelnick Bank, at at followed Deutsche

Brad Zelnick

and to typically M&A, What's large much feel is Thanks the innovation. like us it you can doing remind you it's a nice that, so and both Great. to later hurdle but knock on and through Dipak the you Nikesh, to about think for transformative the your about great like naturally now. comes a Nikesh, having opportunity just how I deal like my in call, which And question right M&A? such related job, competitors required the question entire team. feel grown

straight, can about product? the focus and a how have Just of set priority to a integrated deeply much talk record to a it you is

Nikesh Arora

Yeah, Brian.

think, asking that I of transformational first all, M&A. amused you're I'm for

I think years. I somehow the last Alto we been Networks like have transformation a through at feel for going Palo already five

me that the we've through Let the grown like product I'd built we've two by the parts. built team. It pretty Palo team that a built, be and is It One, Alto Cortex delivered innovation of in of entire notion Networks was it different M&A was to internally. going our one much talk which myth platforms XSIAM homegrown. designed, about to because is our fastest of and by now bust the

Palo of being think say Networks built I a Alto it's So the to fastest-growing platforms some disservice that at was acquired. to them

firewalls by next-generation driven that our product or built business. part, virtual our entirely firewall firewalls we the for is SASE SASE the security our homegrown, or product as using capabilities well as Similarly, our most

front. been XSOAR So I say, in capabilities, portfolio I automation auxiliary out building security our it's or auxiliary be where with felt think focused management. to majority capabilities we where of on would purpose and M&A tax be assertive needed the has And our cloud whether around we there in

we're to with that we need the So platforms comfortable very bottom we and three done. have what line, get

been capability I and clear product solve take very problems look that capability, acquisition they're more at. product sure make from looking we where about think attach can our we can we for for we've customers an perspective, that and

incremental consistent is perspective, find that my we added will view from on it. that trend, is which something So capability, M&A industry an tech interesting, do we

think of this a transform transform where to and I innovation from based execution. our and to company I it can is on transformational our continued think M&A, we have it balance

I think to will do continue that. we

particularly think I the cheap is yet. don't market

Alto comfortable there the up we continue with we think feel If and and I to it for to you as take we dual on kind end And M&A, try double-edge if have the of One, to the players stronger think continue some missteps Networks. very has our get belt, and I amount under I were feel very of we'll get the in large now. our transformation and industry. go at out situation. balance grow look it's Palo for in as sheet. a of comfortable very, position look Alto committing cash Palo execution with value I a we

a tough the enterprise I just And not businesses. job comprehended minute market. our I which was and have think up to been brought heads by from believe a because our down ago, AI one opportunities the is it's keep executing fully And things it most keep I of think

generally undergo AI. as Alto both well we Palo think Networks an transformation industry months months next the to a at are over as software I XX XX going generative as to we enterprise embrace

real on in I that's the it And the And us. opportunity history. challenge and front of there of right get side think out we're the people half think hopefully, wrong. of will I

Brad Zelnick

You're Thank doing job, great keep Nikesh. a you, it up.

Walter Pritchard

Wells next Andy, ahead. followed RBC. Thanks for Brad. is go Andy from Nowinski by question from the Fargo, Matt Hedberg question, The from

Andrew Nowinski

great Thank you. And Okay. on congrats a quarter.

you. customer million an $X and talked to yet vendor and we I single those an large environment, potentially seeing would headwinds of with if that single you improves? this as of and with reseller an consolidation macro to So macro view every you seem to as consolidation important defy growth could point sort drive nearly in can constrained deals deals trends you says this inflection you nearly million in guess large when elongation those see acceleration of the spending every sales cycles, in $XX they're massive relates it

Nikesh Arora

Andy? improvement, macro a predicting you Are

Andrew Nowinski

hope so. certainly I

Nikesh Arora

It Well, hard to the don't there. is is not view think first the any and macro you I leave look, I want impression foremost, that hard. with out

paying resellers, taking things you're the rightsizing are from are Customers attention true. to I people that are some are important. are deals. industry focusing more longer, think other from Customers spending hearing is everything time in deals, some

Some are financing. looking for

Some want annually. to pay

the about all the true that So in you are talked effects industry.

being double out And we like time, and for there to quarter. shut the day first recognize book you us next this quarter, our been towards of tell end I'll hunting what, at And this quarter. able working literally, are the doors the we've Dipak we anything

field. this there in out We big our are hit out We're quarter. the to there. teams executing We're have number a

our that' business the of as we know customers done July the that. We year see QX hard by means around appreciate, there can that's have fact ended to any finishes July as July run probably the XX. know that in XX, Palo of It's which a of world we at for know no part world the is the date you our our get that we magic to There's quarter as no end on been year, end So our Alto budget year-end quarter, created XX. July XX. we

improve So ahead what of able continuing hoping that to ahead we're to and us We're of getting we're it is our execute us conversion doing be going allow it. rigorously getting rate. is to to

up to on Our down we've that as down conversion down, more number keep and we're pipeline, rates Street. And trying our make therefore, our guess That's you that's pipeline you still the heads macro dug is going to said, the allows execute. to what? been rate what and your to the You hard, trying are do. keep I've conversion promised

Andrew Nowinski

up Nikesh. good Keep work. Thanks, the

Walter Pritchard

from at Goldman. followed RBC Hedberg Gabriela next Go ahead, is Borges at Great. question Matt. by Thanks, The Andy. Matt

Matt Hedberg

full SIM deals budgets results. have right you outstanding again Or generally you've SIM TAM now. team, vendors? exist noted the are success to Walter. didn't previously? congrats large Mike, the with generating XSIAM, new with on I far seeing, replacing or that you guess, curious this essentially access Nikesh Lee, legacy you're of Thanks, these I'm some actually seen are you

Nikesh Arora

or specifics, jump Matt, but these tell I'll is about some you a a the legacy let and data of in So deals one of of Lee I'll store. a replacement every SIM talk what

XSIAM without products. do we our addition, In sell endpoint not

source So to single Palo XSIAM you our to is truth way only have to to deploy we Alto source XDR data normalized the because of -- deploy believe endpoint good have products. Cortex buy

go that, And security the in showed cross of outcomes. how correlate and great use I then that we we drive AI as go funnel can

in was and existing will remediate designed we when trying happens, is the SOC every case, it. how tell So to go out figure a It the breach to industry are you, upside breach happened replacing far an down. But vendor. I so understand to how

highlighted times, as those days in out are most and are I remediation attacks And modern six in under hours. now and XX

cases with So and hours, a to gone in if have have you the you after days, you've actors got to a six up XX SOC infrastructure allows bad a seen happened in out come what first you this mismatch. But where it is can driven of we plus transformation? the use that the That XX key some that we've of in problem. highlight some customers where have, Lee, what's you

Lee Klarich

core the three XSIAM so elements -- SIM also -- nearly SOC is Look, The there's how this well. tools the as replacing to other Yeah. in is replacing happening.

around is first The data.

into different specifically a AI large and of X.X is amounts data being across driving saw, ingested designed XSIAM you lake. to key ingest the is Data petabytes to As good an be day is AI and data analyzed. data able sources to

on be able is that That is driving is then This even to able XSIAM something in meantime allows detect the attacks that drive is the And the we be, to SIM industry data, in down automation designed from of seeing. in what days, minutes. integration meantime real-time. just and you're that past the remediation Second not many into detection do. natively AI-based down drive that the was to the to cases, us three well to traditional be used how to analytics hours

we that seeing, deployed the an how in XSIAM. when amazing And all we in quickly own operationalized of outcomes we saw XSIAM SOC the deployments our so we're seeing are it's

Nikesh Arora

on what has existing equation the has value is I'll add only cost think last is I the that SOCs in tremendously. years, last and XX -- sorry, thing the the over Matt, this diverged happened

lot they're people it. getting in money out large adequate of and stores not data getting So a security and collecting spending not data out are they're value of of it outcomes adequate

a is gap -- think really days that and built very this I us. So -- that it and we've early fill is product, been for we've gap something now and big try is

the $XXX thought that time in was spend million you fact than think that. we'll the aggressive I that less get to

down, of the executing a which in there's that building, we feeling us out trying have to our there, heads means our think customers to potential good and again, keep but I it. keep I have keep solve problems are us, tells about front a huge presenting keep

Matt Hedberg

that seems Thanks. Certainly way.

Walter Pritchard

Thanks, Matt.

at Goldman Borges Adam James ahead. Gabriela, on go from Sachs Our next question Gabriela with you from Raymond deck. Tindle

Gabriela Borges

to Prisma, afternoon. the those Good also about in or of line growth you. incentives Thank as ask of of Nikesh. upfront cloud catalyze Thank customers be strategy give by growth product-led you. you adoption? wanted well? think tools seem balance then versus to top-down Either DevOps driven given product growth DevSecOps, And you that respect the to I Lee to about think specifically how for some your that balance with security how you about right

Nikesh Arora

Yeah. Lee, and go ahead question. that answer

Lee Klarich

they time with all trying and Prisma there's are a Every cybersecurity out there's challenge need, products. the spend integrator product system customers integrator become than actually point they So new more proliferation the getting time security the to set then deterrent from fundamental the a value one sort solutions. the the was this point of of products. enterprise system challenges in of be that to And of Cloud address we've new

taken we many can pre-integrated location. with platform so deliver building approach the a Prisma Cloud, same we've of where And different capabilities from the unique

side, and same buy for as it having did then level of they the Prisma when need. credit that adopt customers simply makes capacity from much of platform sort the that system use Cloud the it really a a as to easy the of and they the need we to single at on of we a side procurement also it, time, adoption call side it approached technical I'll Now and,

engage them -- go every our attention how additional more guided more so having terms us module And transaction to of and use allowed of in opposed we product and and capabilities to and enabling a the the to new we've customer. of it's adoption they in to more with product how works need as back as services focus turn customers on them into with a easily adoption,

saw the XX% modules up more going in but as or or then four doubling what how four case Nikesh of you showed, almost are the working. more more And shows two more that about of year-over-year credit year-over-year, is from usage also year-over-year new well number three there or the or or customers

Walter Pritchard

Gabriela. Thanks, Great.

Next Gregg by go up, James; followed Raymond ahead. Adam, Tindle, Mizuho. Moskowitz, Adam

Adam Tindle

be revenue. up commitment really Thanks. operating around Good the distracting that afternoon. about questions just Okay. progression and acknowledging a a is start tomorrow, important would in point. product of the by really I to that I'm come might is thinking being want impressive margin baseline If some to

I XX% in fiscal the QX, you year-over-year guided think you year previously and grew to XX%. had

saw I that But if XX%. correctly, you're to think slides now to raising in XX% I the

puts And we what's of acceleration anything So we about and in comments? in don't get 'XX, in driving despite takes so of product revenue ourselves? and that terms to the we can the think revenue cautionary as increase about QX think product Thanks. ahead fiscal

Nikesh Arora

Yeah, Adam.

One we two is, I will highlighted that our you become product has XX% as of software parts are it. to revenue. think appreciate, there

a becomes a of from for dollar firewalls value you get So our revenue. some revenue. for dollar amortized some SD-WAN, hardware of for software, revenue you don't for we you get part a product dollar In dollar software part our firewall, when our an -- book is which of part get there and we

deliver of be to have to in run billings harder we able revenue context the product So software. to on

so They as I as I at had as is the expected. But XX% as mentioned, expected. strong our This the time, the this far. a for same we'd mentioned, tailwind XX% not we is not quarter. grew firewalls grew year virtual At at hardware,

balances base in But coming now, of other last they favor off for each of software year. low a So balance in out.

result, we been revenue have our to product a able as improve guidance. So

software to of now So at triple able product because has time obviously, of deliver to the services revenue. comes cost work our had revenue some to it be

give a in on So draw where I you that's a the about context think which side from the other overall, there's and it the partial one think and revenue. product should been side

for it growing day. is RPO of revenue just revenue, our given up saving ahead rainy lot means way future we However, of are a a

Dipak Golechha

that that No, is other for some raining to just reality. simply maybe does I in area. we world-class about have team factors, get his that Nikesh only -- of add mean talked to remarks, supply would thing dynamics but supply ahead chain really have that The been chain the with the I able a

And seeing. the so some you're of that explain may variability

Walter Pritchard

Great. Thank Adam. you,

up, from Next Moskowitz Eyal Cowen. Gregg from followed by Mizuho, Shaul

Gregg Moskowitz

Thank hear me? you. Can you

Nikesh Arora

Yes.

Gregg Moskowitz

All Lee Nikesh or for on right. follow-up generate I have a AI.

AI were cat even game LLM you to vendors the likely of scales faster more cause vendors but and on security out? comments of Alto do the and the perhaps this between in it over some mouse other helpful, your tilt time? ultimately favor So gen think Palo attackers, playing Or an and see how do you is will

Nikesh Arora

imagine much to of of fingers Can customer people is to of fingertips amazing support look, so about and One customer generative at Alto Palo right? rep questions having their the twofold, my answer in information, access you Alto information far can Well, first I I of is to the Can all so and to can. give much they a faster. that's sales ability amounts AI its think imagine information their access course, having I tip access foremost, benefit Palo summarize faster. I data at

information now as plethora suddenly of my for in the a I to Can directly start copilots customers every to that showcasing you're emerge product. seeing imagine industry

AI. generative that benefit So to I obvious an become think is of going

it customers to Now whether lot But for own having on important it's sharing your of a called a need you're your one data. relies principle forget, that you don't lot it from information of using that customers, your very data.

to have clean that. data have processes You and all your

definitely if helps. it Secondly, security the in you're business,

largest the in the world, data data. If you have lake of security

their it that perspective, already business a a have favors they I built of back strategy. a of have data strategy, on the of who from and data-led people the So think as lot part

a UI I not company, consumer been Internet, in industry, you've just any worry something to have specific about. think to especially you security if

travel If with UI, better booking just a and have something you're to takes you data operator a people's other something about. or makes worry

So I think from data. companies favors amounts of that perspective, which have tremendous it

thousands have and XX,XXX cost. billion second important there is million, up if spend I think $XX of in dollars support million, or customers to I my people, deploying understand, spend thing LM I at saving also leverage. the I go $XX is more, million $XX can

doesn't and you're take based you go of away $XX and generative If and cost. entire a your behoove to create $XX running and million, small pay go a of AI it out company million LM cost project probably to out

resources. who So the are that able generative Does their I drive limited think enterprise, people it scale efficiencies to to AI allowing also benefits faster of using grow them across business much help? with

Gregg Moskowitz

Thanks, does. It Nikesh.

Walter Pritchard

question. our And from Gregg. Thanks, Cowen Shaul Great. Eyal last

Shaul Eyal

asking I competitive focus to landscape, want Nikesh, CNAPP with team. on about I actually, know the front. want back, to the M&A. go specifically maybe Congrats, a about I afternoon. was Brad Good ask but

is, change? So specifically as think or about it you think do my Thank you you anything might Do how for the is product front? the right maybe CNAPP that. that stands, it? comprehensive be of Any now, you augmenting question thinking on

Lee Klarich

internally, recent amongst most we just that months seen good secret of That's out been we do than a other there. we any adoption capabilities do more one native We've by few very focus application doesn't mean ago. seen delivering the is. team. delivered scanning that. far That with building but early We've amount platform a There's tremendous everything, the there that most protection on we've comprehensive cloud far of organically the solution

security, acquisition Prisma cyber time, we're in our new available At latest Cloud the the to the couple where we become all also of to on a months same that expect delivering of module of next customers.

of And how Prisma the absolutely technology -- past talked Cloud, leveraged of key Nikesh about to we've M&A build true. so some is in areas which the the help

an be I now, the balance and continue that. good new those at about security together And of very to have them right how and we're innovations. cloud feel deliver ability to We organically shown successful and we deliver also capabilities new capabilities bringing both how

Shaul Eyal

you. Thank

Walter Pritchard

that, Q&A remarks. With question. pass the closing to conclude of Nikesh I'd the portion for for back we'll you Thank it the his call, and like to

Nikesh Arora

thank everybody, very to for Have seeing hard a you wonderful again our take our in who us. thank help a opportunity that, I much know, worked to results. events. fashion, very Well, you achieve around us to you partners at look again, Not joining very thank world. day. Thank employees also We our of to want customers as of forward you many the the the and once dedicated to you. a all only big all of investor upcoming an all

Palo Alto Networks (PANW) 23 May 232023 Q3 Earnings call transcript