Q4 2021 Palo Alto Networks Inc Earnings Call
But our platform approach is working three.
Three years ago at our analyst day.
We set up the study as a company on three fundamental tenants one, but the network will transform with introduction of the cloud.
This has accelerated with the pandemic the sassy and virtual firewall is leading the transformation.
The only that we supplemented our firewall platform strategy with software capabilities like DLP, Iot SaaS visibility DNS security and SD Wan.
I was taken inside whilst the cloud is going to be big and it's here to stay.
We have now seven modules in our cloud security platform, which is being used by over 75 Fortune 100 company.
Now turning side was more AI and machine learning will be needed to support the automation of our security platforms and our security operating center, our cortex platform validates that all that for US every single day.
Underpinning this innovation strategy has been a.
Flurry of product releases involve network when I came to the company, we sat down and decided what we needed to do was to get our innovation and product strategy right.
Many cyber security companies have struggled to do is stay relevant you can see from this slide we've gone from 13 major releases to 29 this year tripling our product release capability for three years.
All of these 63 yard.
Releases 11 of these 64, sorry lateral these have been through acquisitions. The other 53 have been done through organic innovation in the company and this is not all we're going to see a lot more innovation coming down the pike as we unfold. This year, we will tell you more about this in the analyst day.
Yeah.
Our rapid pace of innovation is also being validated by the industry. If you look at this slide easily recognized by two in two categories for leadership in cybersecurity in FY 'twenty one.
We were awarded six different accolades to validate that our leaders in six different categories aspiration is to grow that category leadership over this year and hopefully getting to double digits by the end of this year. So our pace of innovation is alive and it continues.
Breaking down into the three different platform pillars, our network, driven pillar, which is being driven by safi and virtual firewalls.
I know at the beginning of the pandemic there was a huge debate like how long is the work from home trend going along well all I can tell you is it's far from over and she's going to become the norm hybrid work is about to become the norm and SaaS he's going to lead that transformation.
In this environment all applications are going to get access to every app from any location only Palo Alto networks can provides a comprehensive capability with a consistent network security across all of our platforms.
We saw phenomenal number of large deals in this category one of our largest deals was with a bank in the APAC region, where it's highly competitive and our customer spent over $10 million for Prisma access was a cornerstone of that strategy.
Off a phenomenal amount of growth in our SaaS product category, we've seen our customer count grew by 50% now it's almost 2500 customers.
Also 25% of these customers are net new to volatile networks. This is great not only on our firewall customers buying products about ours, but our many new product capabilities are allowing us to penetrate the customer base even further.
Beyond the initial amount of receiver Prisma access and our chassis category, we've realized customers want more capability recently announced autonomous digital endpoint monitoring expense management, sorry, Adam which is fast becoming a standard we realize that bundling the ADM capabilities and other capabilities around Prisma access allows us to uplift our prisma access.
Deals over time by 25%.
In addition to our SaaS leadership last quarter, we introduced our fourth generation hardware with high performance and attractively priced appliances.
The newly introduced <unk> 400.
10 times 10 times the performance of its predecessor will expand our presence in the enterprise branch SMB in international markets.
Most recently in our quarter, our U S convenience store chain that previously used us only as a corporate infrastructure deployed 400, PHP 400 series to 'twenty 300 stores.
Also on the high end of our hardware strategy. We're beginning to start seeing refreshes. This has been a trend which had been subdued people were holding back sweating their assets during the pandemic and be realized as the pandemic has eased up as companies are starting to come back to work. They have seen volumes go up they are not created more infrastructure as a result, we're seeing customers who are coming back.
Back even in a hybrid form starting to do refreshes in the hardware category, which has led to the hardware growth you saw this quarter, which was also underpinning some of the network driven growth our network platform driven goes for us it volatile over the last but not the least we continue to maintain a leadership position in our virtual firewalls. We recently launched our partnership with Google powering their new cloud ideas.
I am sorry.
As you can see continued acceleration of our software for our business and its multiple form factors have allowed us to deliver approximately 47% of our billings in the quarter or we even saw hardware growth accelerates we.
We finished our fiscal year 'twenty, one with our software firewalls in Prisma Sassy next generation security are at $425 million.
As you will see these numbers will add up to show that our engineers. They are for the quarter was north of 1180.
Moving to our cloud platform.
As you know we got this trend early investing three years ago, and the cloud Native security opportunity you might have all seen the flurry of activity from venture capitalists trying to flood the market a lot more cloud security companies, we're delighted that they're validating our strategy, but we think we're far ahead.
A key measure we use for understanding how well our prisma cloud services are performing is the consumption of our Prisma cloud service in Q4, we had 2 million credits consumed. This consumption is broadening beyond our initial modules of cloud workload protection and C. S. P M.
Last I am and last modules, we already have seen adoption by north of 100 customers in the quarter.
Or one quarter of the global although 2000 customers, our prisma cloud customers, but all customers growing at 47%.
We're also excited that with our <unk> acquisition, you have seen increased adoption of bridge crew as customers shift left without security, we're delighted with the results so far and the progress we're making in integrating britzka with Prisma cloud.
I mean could you see very large deals with Prisma cloud.
Our top three customers in Prisma cloud committed over $40 million to bookings this quarter.
The largest deal was $20 million in Prisma cloud the customer expanding cloud workload protection and C. S. P a and adding bridge crew for the entire cloud platform.
Including our marketplace, we haven't seen a series of Prisma cloud business finished FY 'twenty, one with air our of $300 million.
Moving on to cortex.
And cortex, we have 2900 customers for our <unk> and XOR products nearly doubling year over year.
We booked our very first over $10 million of follow on transaction for cortex in the pharma industry.
Driven by the platform approach our customer bought most of the platform. They want Xdr what network traffic analysis they bought XOR.
Today, we announced a CRE CLO this.
This expands our pioneering you see our service cloud and identity based threats, giving organizations a single console for holistic analysis.
Expanse continues to innovate as the leader in the emerging attack surface management space.
As well as delivering unique integrations with all of the portfolio.
In Q4 really is expanse capability that enables unknown cloud assets to be discovered and brought under management of Prisma cloud. We finished FY 'twenty, one and cortex, and GSE IRR of over $400 million.
And last but not the least.
We're very excited about unit 40 to 42 is a capability, where we can actually proactively support our customers.
This is how we go from being a peacetime company that provides products to our customers through a wartime ally when we are there for them when they need us we launched proactive capability last quarter and a unit forty-two team. Our business went up 11 <unk> in Q4 for the proactive services capability one of the key engagements. We are experiencing is ransomware readiness.
We have 39 natural readiness assessments, where we got engaged 300 more in the pipeline.
Overtime, we expect these service engagements to allow us to increase our product pull through to our customers.
You can see that our leadership signs where customers are integrating security and consolidating.
As a company we continue to focus on getting more presence and our customers are getting larger deals with them I'm delighted to say, we had 18 customers signed transactions over $10 million in the quarter.
We had our first customer has surpassed $100 million in their book of business during the fiscal year as the standardized for volatile networks across the entire enterprise.
And our military customers went up to 986 in Q4, approximately up 30% for the third quarter in a row.
The strategy is showing in our financial results.
See we saw revenue acceleration in Q4 to $1.2 billion.
You also saw that our billings went up to $1.8 billion $868 billion up 34%.
And our engineers billing.
118 billion was in access of our guidance also delighted that RF by 'twenty, one performance of a place that had an IRR of $734 million and revenue of $602 million.
Going into FY 'twenty two we're further aligned around our one follow ups networks strategy, where we see the benefit of being able to cross sell our platform.
Also I'm very delighted to say, we had our first $2 billion quarter ever and I can see the billings of $1.868, but if you look at the difference between our appeal and our revenue we actually did more than $2 billion of book business. This quarter. It's kudos to our team is not there in the field and our customers who trust us with their cyber security.
Okay.
During Q4, it is clear that we continue to see momentum in our business we.
We saw product revenue accelerated at Ballston hours. This is revenue, which we believe will sustain into Q1, because we are seeing the refresh come in and we didn't ship everything that we saw in our product business in Q4 were not able to.
We've also seen phenomenal growth in our cross platform adoption.
You can see that customers are 40 people sort of a customer's purchase all three of our platforms, 28% purchased two platforms and 29% purchase one platform. What's interesting is for customers that are required to have a platform deal size or three times the deal size for a single platform.
Also for global 1000 customers that required altria for platform.
It was a 14 times the deal sizes the largest single platform deals. So it's very interesting to watch our platform approach of consolidation is beginning to show signs of success as you were able to convince our customers that they should be deploying more than just one of our platform category.
It is clear to us that our transformation is working.
In September 2019 at Analyst day, we provided FY 'twenty two targets.
I was just released FY 'twenty two guidance materially exceeds the FY 'twenty targets, we set back in 2019 as you can see.
As Deepak will highlight our total company growth for revenue is the mid Twenty's ahead of our prior Crimson CAGR target for two years ago. Our business is transforming faster NDS is growing faster.
I look forward to sharing new guidance for you for the next phase of fall of networks for the next three years at our analyst day in September.
But it's clear that over the last few years, our product and strategic transformation to being an innovator in cybersecurity is working now we have to share the strategy over the next three years of how we continue to scale this business effectively and efficiently.
Multiple drivers give us conviction and objectives for FY 'twenty, two and beyond just to lay it out for you how do I see growth for FY 'twenty, two and how do I see a scaling into that growth. One I believe there's some pent up hardware demand are we going to see that come through in Q1, and the rest of FY 'twenty two.
We also launched new form factor hardware and we are very excited about the initial response by the customers for this new category of hardware.
We also continue to benefit from the cloud adoption around the industry and we think that benefit continues going into FY 'twenty two.
As I said work from home.
Is a new normal it's not something that's over I don't think the SaaS E. Train has left the station I think there are a lot of room to go not just for FY 'twenty two but also beyond.
And last but not the least I don't believe.
Manual processes can keep up with the accelerating pace of sophistication for cybersecurity. So I believe there is tremendous growth going forward, both for the cyber security industry and for Palo Alto networks and the scale front, we introduced the concept of speed boost three years ago. A speedboat model is working well, we continue to iterate and improve it for growth.
And productivity you also see our multiple platform success. We believe there is room for synergies as we get into a more cohesive sales motion as we start to see these things working.
There's also some products if you have not yet launched which you will see us launch during the course of the year and we hope as we launch those products there youre going to start seeing the benefits of our innovation and investments during this year and following years.
Turning to the cloud is well underway, but we also have much to go in terms of optimizing our cloud spend so we believe there's opportunity to create more.
Margin expansion over the long term. We also believe there is sustainable growth in cybersecurity industry.
We expect to see these drivers of our bulk topline combined with the continued moderate pace of investment in FY 'twenty two as you plan to add fewer employees in 'twenty two than we did in FY 'twenty one.
Part of this is our expectation that acquisitions will be incremental versus substantive in the coming year.
Beyond FY 'twenty, two we expect to grow operating income faster than revenue.
We will update investors further on this at our September 13th Analyst day.
Anywhere I started you can see why we're excited to talk about we've got next as we head into FY 'twenty two with that I will turn over the call to depot to talk about the details of our Q4 performance and our guidance.
Hello, everyone before I begin. Please note that all comparisons are on a year over year basis, unless specifically noted otherwise.
We delivered results ahead of our guidance across all metrics as we continue to grow and transform our business.
In Q4, we saw sequential revenue acceleration driven by strength in our hardware appliance business and then our next generation security portfolio.
We also continued to grow billings and our remaining performance obligations ahead of revenue as we build future predictability for the higher mix of recurring revenue.
As a reminder, billings as total revenue plus the change in total deferred revenue net of acquired deferred revenue.
In the fourth quarter of 2021, we delivered billings of $1.87 billion.
Up 34% and well ahead of our guided 22% to 23% growth.
Is are the deals with our large strategic customers grew and our total customer count expanded with over 2500 customers added in the quarter.
Q4 revenue of one point to $2 billion grew 28% and was above the high end of our guidance range growth was driven by strong demand across all geographies and major product areas.
Total deferred revenue in Q4 was five point O $2 billion, an increase of 32%.
<unk> performance obligation or <unk> was $5.9 billion increasing 36%.
We believe that all P O add meaningful insight into our backlog as it includes both prepaid and contractual commitments from customers.
By geography, Q4 revenue growth was strong across all regions.
<unk> grew 29% EMEA was up 25% and APAC grew 28%.
Our hardware appliance business accelerated in Q4, driving product revenue of $339 million growing 11% and contributing 28% of revenue.
Customer reaction to a refresh of the 400 series and 5400 series appliances was positive we saw strength overall in network and data center refresh and appliance pull through from customers standardizing on our platform.
Subscription revenue of $535 million increased 37%.
Support revenue of $345 million increased 35%.
In total subscription and support revenue of $880 million increased 36% and accounted for 72% of our total revenue.
Gross margin was 75, 3% up 100 basis points as compared to last year driven by improvements in both our product and services gross margin.
While the top line outperformed operating margin was 17, 5% down year over year as expected. Some pre COVID-19 expenses returned in the fourth quarter and we continue to hire top talent, adding head count in our go to market and engineering organizations, we ended the fourth quarter with $10473.
Employees.
Net income for the fourth quarter increased 12% to $162 million or $1.16 per diluted share.
Our non-GAAP tax effective effective tax rate was 22% GAAP net loss was $119 million or $1.23 per basic and diluted share.
For the full year billings of $5 four $5 billion grew 27% and total deferred revenue was five point of the $2 billion an increase of 32%.
Full year revenue of $4 to $6 billion grew 25% and operating margin of 18, 9% was up 130 basis points as COVID-19 related impacts led to lower operating expenses throughout the year.
Non-GAAP net income increased 27% to $614 million or $6, one $4 per diluted share.
Turning now to the balance sheet and cash flow statements. We finished July with cash equivalents and investments of $3.8 billion days sales outstanding was 74 days a decrease of seven days from year ago, driven by a combination of strong collections and improved billings linearity.
Cash flow from operations of $326 million free cash flow was $298 million as compared to $302 million last year with a margin of 24, 5% for.
For the full year free cash flow was.
1.39 billion was up 69% with a margin of 32, 6% adjusted free cash flow for the year was also $1 three $9 billion up 43% with a full year margin of 32, 6% cash.
Cash conversion remains an important part of our framework in supporting a total shareholder return.
Yeah.
Our firewall as a platform or FY <unk> billings grew 26%, reflecting another strong quarter as we continue to grow faster than the market.
We saw an increased contribution to firewall as a platform growth due to increased product demand a majority of firewall as a platform growth continues to be driven by software firewalls, including our VM series and Prisma Safi.
Next generation security or N G S are exited.
Exited the year at $1.18 billion exceeding our original guidance of 1.15 billion.
Within <unk>, we continue to see exceptional growth in our SaaS and software firewall portfolio as well as strength in Prisma cloud and cortex.
For <unk>, we were happy to have achieved results that were consistent with our fiscal year 'twenty one financial goals.
As we have gone through our fiscal year 'twenty to business planning and oriented the focus of the company around one Palo Alto networks, we wanted to ensure our metrics reflect this one Palo Alto networks strategy.
We believe our focus on Engie S. A our outgrowth and our transformation metrics are the best measures of progress on our strategy.
In the appendix.
Earnings Slide deck, we've included the fiscal year 'twenty, one result, and that second place that.
Our capital allocation priorities are unchanged and aligned with the optimization of longtime shareholder return.
We remain focused on investments for organic growth and targeted value creating acquisitions.
We didn't close any acquisitions in Q4 and at this time, we believe we have assembled the key pillars needed to execute on our platform strategy.
We expect to only incremental M&A activity in fiscal year 'twenty, two as compared to the recent past.
Under our share repurchase authorization during the quarter, we acquired approximately 846000 shares on the open market at an average price of approximately $388 for total consideration of $328 million.
Our board of directors authorized an additional $676 million to share repurchase increasing the remaining authorization.
Share repurchases to $1 billion expiring December 31st 2022.
Moving now to guidance and modeling points for the first quarter of 'twenty 'twenty, two we expect billings to be in the range of $1.29 to $1.31 billion, an increase of 19% to 21%.
Revenue is expected to be in the range of $1.190 to one point to $1 billion, an increase of 26% to 28%.
Q1 product revenue growth percentage to be in the low double digits. We are providing this transparency this quarter no.
GAAP EPS is expected to be in the range of $1.55 to $1.58.
Based on a weighted average diluted share count of approximately 101 to 103 million shares.
For fiscal year 2022, we expect billings to be in the range of $6 six to $6 six 5 billion, an increase of 21% to 22% revs.
Revenue is expected to be in the range of $5 to 75% to five $3 billion to $5 billion, an increase of $24.25 per cent.
We expect next generation security AOR to be 165 to $1.7 billion, an increase of 40% to 44%.
Product revenue growth per cent to be in the mid single digit to high single digit range year over year.
We expect operating margins to be in the range of $18, 5% to 19%.
Our non-GAAP EPS is expected to be in the range of $7.15 to 725 based on a weighted average diluted count of approximately 104 to 106 million shares.
Adjusted free cash flow margin is expected to be greater than 30% and we will report our P. O and recommend this is a tracking metric because it captures the full value of our contractual arrangements and this is good indicators of future revenue.
Additionally, please consider the following additional modeling points as.
As I mentioned earlier, we hired aggressively in the second half of fiscal year 'twenty, one supported by confidence in our fiscal year 'twenty two outlook for revenue and billings growth.
With expenses from this investment flowing into the first half of fiscal year 'twenty, two and some return of Covid expenses. We expect operating income will be shifted to the second half of the year in fiscal year 'twenty, two as compared to fiscal year 'twenty, one and we expect an approximate $43, 57% first half second half split.
During fiscal year 'twenty two.
We expect our non-GAAP tax rate to remain at 22% for Q1 and fiscal year 'twenty two.
Back to the outcome of future tax legislation.
We expect net interest and other expenses of $4 million to $5 million per quarter.
At fiscal year 'twenty, two diluted shares outstanding of 104 to one 6 million chance.
And for Q1, we expect capital expenditures of $35 million to $40 million for the fiscal year, we expect capital expenditures of $205 million to $215 million, which includes approximately $40 million related to our Santa Clara headquarters.
Finally, I would like to invite you to join us for our virtual analyst day on September 13th when the cash myself and others from our team will provide an update on our company and product strategy financial outlook and ESG plans.
In closing we are entering fiscal year 'twenty two with strong momentum, we're pleased with our operational execution and organic growth prospects as drivers of continued momentum.
With that I will turn the call back over to clay for the Q&A portion of the call.
It could be back to allow for broad participation I would ask that each person ask only one question.
First question will be from Socgen Korea Barclays for Keith Weiss of Morgan Stanley's fall socket you may ask your question.
Okay, great. Thank you clay thanks for taking my question here.
The cash maybe maybe for you lots of good stuff to hit on in the quarter, but maybe I'll just focus on next year's Billings guide to start it was great to see I think the guide of 21% to 22% billings growth next year, that's better than where you started fiscal 'twenty one in terms of billings growth expectations.
And of course subsequently beat can you just talk about what's going into that higher starting point for fiscal 'twenty two.
Maybe as part of that how you're thinking about overall security spending in the areas of Palo Alto to teach them. Thanks.
Well so again thanks for your question as you are as you know when we went into FY 'twenty. One we were all looking at what's happening with the pandemic and I'm trying to figure out how the pandemic was going to impact security spend how the pandemic was going to impact our customers coming back to work what we realized in the course of the last year that busy.
Must continue and that context customers have come back and realize this this way of working is fine not only way of working in terms of creating productivity and delivering those services, but also this way of working in terms of upgrading their infrastructure and of course staying ahead of the cyber security threat landscape. So in that context, we have a little more confidence.
Here, where we believe the customer is going to go of course.
The pandemic hopefully will ease itself out over the course of the next few quarters, but in that context, we feel a little more constant and therefore, we've been able to to understand what we can do as a business and share the guidance with you in terms of cyber security spend as I said the volumes of technology consumption have gone up and the pandemic not down.
I don't think this is a onetime blip that's going to normalize I think this is a new normal and that new normal needs to be protected and to be able to protect it effectively youre seeing customers are looking at consolidation strategies I shared with you the three platform purchases the two platform purchases.
I'm in my two years of volatile finally seen customers wanting to consolidate and not deal with fragmentation. They're realizing this is a losing battle if you're gonna take points sliver products I'm trying to evade them yourselves now that's our bet has always been our bet, but it's not a bet, which is contingent on us having a platform you have to buy it all it's contingent on us being able to deliver.
Best of breed capabilities as I shared they've gone from two to six hopefully from six for double digit this year, which means we actually deliver best of breed capability to our customers even the older ones that so that's what gives us the confidence socket.
Thanks very much.
And our next question comes from Keith Weiss of Morgan Stanley with Robert ones after that.
Chase twice you May ask your question Sean. Thank you guys for taking the question and very nice quarter.
It's probably going to surprise a lot of guys in terms of the level of overall strength you saw in billings on Nextgen doing really well operating margins outperforming the guy property margins are performing probably is the biggest area of contention that gas that's coming into the print was product revenues theres a lot of worry about supply chain issues and supply chain.
Strange doesn't really seem like that impacted you you talk a little bit about product revenues heading into FY 'twenty. Two does this account for any the guy does it account for any supply chain issues on a go forward basis and this new level of for FY 'twenty to up mid to high single digit growth is that durable beyond FY 'twenty two or is this a period of catch up spend.
With that pent up demand around hardware you were talking about previously. Thank you. Okay. Thanks, a lot for your question I also want to thank you for a balanced out I thought you had a good assessment of our opportunities and challenges going into the quarter.
Like you said, we are seeing the pent up demand gets released we are seeing some impact of refreshes. We are seeing some impact of some of our new form factors. We've launched we're working diligently as I'm sure everyone is with our suppliers to make sure that we're able to bridge to supply and demand gap. So far we've been able to they live to make it through Q4.
Based on current visibility, we don't see challenges for Q1 going into it which is why we've given you a guide for Q1, and we will keep working with our suppliers I think the supply chain issue was going to.
So you mitigate itself in Q3 or Q4 timeframe anyway in the industry I think that you know when there is a there's a.
A supply issue a lot of the manufactured a lot of chip companies actually working twice as hard to try and bridge the gaps and we're also working out working hard with them to make sure. We're very transparent about our needs in the quarter. So so far we have.
Guided with the anticipation that we will be able to keep managing our supply chain and balance the way we have been able to manage for Q4 and in terms of your sustainability I would welcome you to the analyst day on September 13, and then we can talk more about it then.
Excellent sounds great guys. Thank you.
Our next question comes from Rob Owens with Piper Sandler with Brian Essex follows Rob you May ask your question.
Right and thank you for taking my question you talked a little bit in the prepared remarks about your success in the <unk> segment and I was wondering given all the noise in that segment and the cash if you could unpack a little bit where the competitive landscape is and why Palo Alto was winning at this point. Thanks.
Thanks, Rob look xdr is a competitive space is the new transform endpoint space, which has a lot of players and there were some legacy players in that space, who lost ground with some of the newer play.
Players in this space and we all know who they are and you know policy came out of the product, which was highly technically capable and competitive.
Third with you we have won various benchmarks and industry versus other players in this space. So we are seeing you know dogfights or got Pfizer whichever the right analogies in the customer space when we get in contention with it.
A competitor and it gets competitive and it becomes a question of can you deliver the xdr capability you want but I think over time, what's happening is that customers are looking at is a more expensive approach, saying it is not just about the edr part the endpoint, but it also needs to look at how do you commingled with the network traffic analysis, how do you put that together and minimizing the number of alerts.
They're getting from different parts of infrastructure as we just announced this morning, they've integrated cloud capability in there. So now you can take a look at your cloud.
Our state and take the alerts and the Florida State commingled out of their endpoint coming a lot of their NDA and try and see how do you minimize the alert and how do you see.
Correlation amongst all of those and it's not just that we introduce identity analytics. This morning to it. So I think over time. The xdr category is is hurtling towards what we used to be the same.
It's going to happen over time is xdr will engulf that space, but with a much more intelligent normalized point of view, where you can actually look at it and say this is valuable to me the Sim of the Pos what the data aggregation exercise and the intelligence. We're left with the customer to determine I think XD hours, bringing that next generation capability to the Sim or its costco reading prior.
That reducing your noise, giving you more relevant information, that's what's going to be the future. So that's why xdr, whilst competitive highly strategic and it's you know it behooves us because we have multiple pieces of the puzzle, where we actually have cloud security capabilities, we have.
Firewall capability not just in hardware, but across the virtual form factors, so being able to bring all that data makes sense of it and provide value to the song as well I think actually I was going I think we're well placed in that space.
Great. Thank you very much.
The next question comes from Brian Essex with Goldman Sachs with Michael tourists.
Mike It's Brian you May ask your question.
Great. Thank you for taking the question congrats on the results in cash.
One one quick question on <unk> business so.
Wanted to understand I guess, maybe on next Ngls overall.
Confidence in the guidance.
How much cushion is in that number I understand it's nice to see leading into took place that with with investment where are you investing for growth, particularly in sales and marketing and maybe to cap. It off management changes that we saw this quarter, particularly.
Inviting Vijay to join the company.
It plays into the investment in places that that remains a meaningful opportunity for you. Thanks.
Thanks, Brian you know as we went on the speedboat strategy. Our first job is to make sure that we had product market fit and in the early part of our strategy to be sure that'd be began to see product market fit which really I think Q4 2019 was when we started to see traction in this space we spend a majority.
Already in the last 18 months after that trying to make sure that our sellers were able to understand the power of all of the capabilities of baldor has to offer and we have some phenomenal results in terms of what percent of our core sales team can sell cortex can sell prisma and those numbers keep rising because theyre trying to make sure that our sales team was able to go fix the entire portfolio to work.
Customers and that's exactly why we had the success we have been able to share with you in terms of customers buying three platforms. Two platforms, one and we believe that opportunity is still further ahead in terms of us being able to penetrate our entire customer base with our cloud capabilities, our SAIC capabilities, our cortex capabilities. So we think there's more room to go we are.
First thing in more coverage and more capability, both in the United States and North America as well as in international markets.
That's one part of it in terms of the management change you know delighted that BJ Jenkins, who joined US about an hour. So he was the CEO of Barracuda networks, he understand security real well he's a very seasoned phenomenal sales leader and also get him. He's gonna come manage our teams drive that growth continually further I also shared with you that you know part of our success the company is.
Being driven by very large deals if you want to be the platform provider of choice, we have to be able to engage at the highest levels of our customers' organization and convince them of our not just portfolio approach, but it's best of breed capabilities, Amit Theres going to continue to do that he is working closely with BJ and Rick <unk>, our head of global sales and they're gonna partner together and try and address.
Yes, the needs of the customers from the top down which allows us more bandwidth more capability and more management strength in being able to do that so the sole part of the plan is to create the ability to go target customers at the highest levels and try and create large deals where they see a long term transformation of either cybersecurity partner of choice.
Great color. Thank.
Thank you.
Our next question comes from Michael Church of Keybanc with Jonathan Ho Helix.
Congrats on the quarter on both X C R.
Yeah, so on cortex, and on Prisma cloud and.
The impression a lot of us got last quarter was the competition was very tight.
'twenty significantly significant incremental investment there that was needed.
Sounds like those segments did well and you know he started up moderately in terms of margins for next year, but it just doesn't seem like you need any big shifts. So I think moving better than you expected or you're finding more streamlined ratable purchases.
Michael I'll give you a quick sense of how things are and I'm gonna have Lee jump in and give you a sense of the capability. We've built this year and capability are flying to build over the next 12 months, but there.
There's a sales part of go to market part of it which is working as I said in our top three customers committed over $40 million in public cloud spend I think many of the investors who have invested in new startups in cloud security. Their total air is not what we got from our top three customers. So I think we are seeing traction in the market. We are seeing residents and product market fit, but it's not a static market that mark.
As continually evolving they've gone from zero seven module, there's a lot more capability that people are looking for into next year, but I'm gonna have Lee jumping and share some of the trends and where we are investing in next year.
Yeah, absolutely look over the last 12 months, we've made tremendous amount of progress in both of these products. You can look at Prisma cloud are about halfway through the year. We introduced four new modules three of which have been built internally by the teams and one was the <unk> acquisition being integrated for micro segmentation, we've seen a lot of very good or.
Early customer adoption of those in and going forward I I anticipate we're going to start to see mainstream adoption across the installed base and new customers as well rich cruise is doing nicely as well with customers as they look more towards shift left in our in the not too distant future. We will have that come out as an integrated module Prisma cloud again.
Allowing us to more easily bring that to our existing install base.
Xdr look with the announcement this morning with XT or a threat at all I think it just shows the continued innovation pace of innovation that we're able to drive extending into cloud extending it to identity analytics, introducing the new forensics module and a whole host of other capabilities as well and as <unk> already alluded.
You're seeing us start to extend the analytics as well as the data aggregation layer two additional data sources and additional intelligence.
Our next question comes from Jonathan Ho William Blair with Brent Thill next Jonathan Please ask your question.
Excellent. Thank you.
Let me just go back to your comments around 2020 issue.
Essentially it's maybe a digestion year in terms of M&A, how can we think about sort of further leverage in terms of the acquisition. So as you've already made.
Is it accurate to think of 2022 years since I guess from here. Thank you.
Well Jonathan.
No.
We digest as we eat [laughter]. He took the 11 product capabilities and if you look at I N. G. O N G. S revenue, our NGL billing a lot of that India's billings from the majority of the acquisitions that you integrate it into our platform. So it's not like we have undigested parts. So far acquisitions, there are parts of our acquisitions, where we'd like to see more traction.
And we're putting more.
Wood behind.
The arrows, but for the most part I think the way to interpret it as Jonathan is that when you when I walked into years ago. There were many trends in the cyber security industry, where we were not a player where we're not a player in sassy. They were not a player in cloud security. We are not a full player in the xdr space and the song we needed to become a player and the cost and time required.
Build capability will take us four to five years that is where being able to look at the market scoured by the best in the market, which has already steams that you've already spent four to five years and Sean product market fit was the right approach today, we have to be very careful as we evaluate companies because pretty much in categories, where we think there is relevant trends.
We already have a product so acquiring anything in that space would require us to spend a lot more time integrating figuring out what to do their customers. We'd have two competing products and I is principally as you don't believe in having two products in the same category because that creates confusion destroys the strategy increasing yeah lots of unnecessary kerfuffle in the organization. So that's why our opportunities.
To go expand in categories and limited they've decided at some places we want to play and we want to play to win that's someplace that you aren't going to play and we're not gonna paint identity. So it doesn't matter it doesn't open space and there are companies out there. We're not playing there were playing in cloud security, but it will be a very aggressive for playing in automating the sock providing capabilities on the stock or playing that referral business and there we believe.
I have a huge complement of capabilities and as you saw from the slide we're building lots lots of organic capability digital did 53 product releases last few years. These all.
Showing up hopefully in the billings that youre seeing that we are able to provide more capabilities more subscription customers. That's the way I would interpret the the M&A answer and it doesn't mean, we might tuck in a product company here are there, yes, but it also means that we're not looking for substantive acquisitions at this current point in time.
Excellent. Thank you.
Our next question comes from Brent Thill of Jefferies with carry Paul after that Brent you May proceed.
And the cash you mentioned that the SaaS E train has barely less distinction I am curious if you could just.
I'll elaborate on that comment and talk through kind of the next.
Next couple are stations that you expect to land in there.
Train.
Thank you Brent.
If you I think a pandemic is partly to two a M.
Alain will give credit to the fact that the sassy train is moving fast.
The last two years, what you've seen as customers go commit to a large cloud purchase they get involved in the development process of the cloud persistent and then they start to move their workloads to the cloud as if we can do that because theres ears of mpls or data center spend which is going on with customers realize I don't need to bring all that traffic back home I need to start take the traffic would have.
Go where the data is whether it's in the public cloud or my data center and those kind of you know traffic routing splitting capabilities require you to have pushed that routing to the edge put SD Wan in there. It also requires you to have security at the edge now.
The majority of our customers who have security in the data center with our firewalls can easily take that capability pushing to the edges up I'll also keep a virtual prisma access without having to change their policy infrastructure allows them to be consistent across all form factors. All applications. All devices is actually true zero Trust and if you saw your leader in the Zero Trust quadrant by you know.
Pretty much every bells, everyone else in the industry behind so from that context to deliver crude zero trust with US asking solution. We think we've reached a great position. We are also aggressively supplemented that with software capabilities and I'm pretty sure every company out there in the Fortune 500, and Fortune 100.
All going through that journey as we speak I don't think that market is saturated by any means shape or form and it's not just a security play actually is a fundamental network play people are shifting their traffic taking away from the Mpls work do a more cloud delivered security in a cloud delivered network one for GCB AWS Azure or others are providing the underlying.
Network capability in addition to our security capability.
Our next question comes from Gray Powell with <unk> with Matthew Hedberg up next.
Great.
Congratulations on the good results and thanks for thanks for taking the question.
So you can see on my side I mean, we've heard that Palo Altos implemented some price increases on the appliance side of the of the dishes.
Just talk about what Youre doing there is that correct. How widespread are the price increases and does that have any sort of pull through on attached subscriptions and support.
So Greg what has happened is with the supply chain issues that we saw in the industry, we've seen pretty much every player in the industry tweak their pricing for.
For the upcoming year, and we've done something similar in the low single digits.
From a price increase perspective, but as you know the net yield is contingent on a competitive situation, where the customer pays what discounts will be negotiated with them. So usually typically you don't see the yield fully dropped the European L. A it will have some pull through to our numbers as in windows price changes are affected into the field, but it's low single digits.
It's just consistent with the supply chain issues that the industry is seeing.
Understood that's really helpful. Thank you.
And our next question comes from Matthew Hedberg, RBC with Joel Fishbein next Matthew Please proceed.
Hey, guys. Thanks for taking my question, Hey, Nick Congrats on the quarter.
And off the call.
Talking about all the cyber threats these days on the cyber risks.
I'm just curious from your perspective, as we head into the U S. Federal budget season, how do you think about that impacting your business is it is it is this you're saying that even more so next year just kind of wondering about the cadence of a federal cyber funding was you know the federal year end is September so I think it's too late for them to have any material impact.
This fiscal year I think they are busy trying to come up with a new government in place with change and a lot of people in the administration that they usually it takes it takes in the first year of administration. It takes a few weeks months to work through those changes. So I think we're gonna see stuff happened in the next fiscal year for the government and they have great intentions, they want to make sure that the cyber security posture.
Of the country of infrastructure is improved you've seen some executive orders in that regard, there's a very positive mindset in terms of leaning in and solving many of these problems I'm, hoping that that leads to positive impact from the cybersecurity industry.
Thank you.
Our next question comes from Joel Fishbein of Trust Securities with Keith Bachman Opex.
You May proceed. Thank hany cash just wanted to follow up on one of the themes that you talked about during the call and that is vendor consolidation is something that we've been looking for for a long time, what do you think the catalyst is there for that and you know how are you positioned.
Considering your new ideas and when they're part of that those two markets.
So Joel I think look my personal view and I'm new to the industry, even though ive been here for three years is I didn't think there are many options in the industry to consolidate cyber security spend I think there were some phenomenal players in the market, who had amazing capability in their lean into assembly and what you've done in the last few years is build multiple swim.
<unk>, where you can buy the product and using that suddenly or you can buy a product that connects across cell Assembly and that's what we are proving without prisma cloud with our SaaS strategy and a firewall strategy for adding more software capabilities. So.
I'm going to tell you about my book I think we're well positioned for the consolidation around a minute majority of our platforms. At the same time, you don't have to buy it all from US if you don't want to we still integrated with other players in the market. If your infrastructure. So design or you actually have infrastructure players that you deployed in terms of correlating that to identity and endpoint well we are an endpoint.
Or is the new endpoint play, where we do both edr capabilities NXT all capabilities. So as you see the transformation of leave from the traditional endpoint vendors to the xdr vendors. We have a play there in terms of identity I think they had any market will exist I think there are players in the market for the member I didn't know he was about two factor authentication of valley.
They didn't who you are once you're in the network when you get past the initial identity checks here back in our network flow Youre backing our firewall to back in our cloud instances. So we do participate normally participate offering being validated at the point in which we can get that information to integrating with existing at any players in the market I don't know if the investors want me to go buy it on any player and make it better.
Because there are some very good I don't think there's that much.
Thank you.
And our next question is from Keith Bachman with BMO with Venmo and.
Keith you May proceed.
Thank you very much the cash I wanted to flush out a little bit on the consolidation theme, but in a different direction. If you could just talk about your SaaS he wins and is there some common themes within.
The SaaS a win as SSE wins, where you're winning and why.
On the other side, where you're not winning and what I'm trying to understand as part of that theme is.
How are you winning new concession within your installed base versus perhaps even getting into some new customers.
It might turn into something more for Palo Alto, but if you could just talk about some common trends within your SaaS environment, Yeah, Keith I'm going to I'm going to lean on lead to tell you about a why we win where we win but as I said in my prepared remarks, 25% of our Prisma access customers are net new to Palo Alto and this would typically be a customer who's got a deep life deploying firewalls, which cannot.
Give them extended SaaS firewall keep assessing capabilities they'd like to eventually replace those firewalls, but their midlife firewall. So they will go with us on Saturday with us at least the hope and anticipation that we can go back and reverse into that without a hardware overtime as those firewalls from their competitors come to end of life sleep John jump in yeah.
I think the.
There's been a significant change in the market in terms of what customers realize they need from <unk>.
Sort of thinking about users employees that are off the network and sort of thinking like a nice to have like maybe I can connect into some sort of a subset of applications. Some of the time and that will be acceptable to the new realities of the hybrid workforce, where it's very clear that employees need to be able to access all applications all of the time.
And and for the enterprise there needs to be a full security stack to protect those that connectivity and that shift really favors our position with Christmas assay, our ability to secure all applications our ability to provide true enterprise tested enterprise grade security and to do it in a way that is consistent with what <unk>.
Many of our customers already have deployed for in their campus environments branch office environments et cetera, and as Nick has mentioned that that trend can come from two different directions. It can come from our existing customer who was really happy with us and who is extending out to SaaS or vice versa customers that come in with chassis and then can extend into the campus and branch office environments.
And our next question our last question for today comes from Ben Bold, even research ban you may ask your question.
Good evening, everyone. Thanks for taking the question.
When you look at recent performance, even if the forward outlook.
How do you think about your your share performance your share gains.
Versus wallet share expansion within your customers.
Then.
Nick can you talk a little bit about maybe within the networking, but what other I E. Silos do you feel like are dominating.
Spend into security as a whole thank you.
Thanks, Ben look.
You saw we highlighted that one of our customers became our first customer to spend $100 in there with us.
And we have few who were just short of that so it wasn't the only one who's getting there. So I think part of that gives you a sense of consolidation of spend and us getting a higher share of wallet, but I'd like to see it as us providing the capabilities to our customers who was able to do everything with us. They don't have to go and go stitch together multiple vendors because today there is a very high cost.
Switching security.
Because the cost is butler ability right, we're getting all the stitching for our customers at least giving them the ability that they can go to secure the enterprise and go do other stuff in terms of your question about where different parts of idea probably contributing I think there is a large network contribution around the whole SaaS he topic, because that's it effectively not just a security play at all.
Also happens to be a network play and that's where you'll see and you'll find many times that our firewalls or procure either by the network team or the security team. So you'll see that the whole network security space. There is a back and forth between whether it comes on network budget or the the security budget I didn't the same thing in the cloud people havent quite figured out.
That the cloud requires its own capability from a security perspective, and we're seeing that being baked into budget, but very often the debt that capabilities coming out of the cloud spend where we're also able to go get credits from the public cloud Csp's.
To have the customer pay for that capability.
Does that answer your question.
And with that we will conclude the Q&A portion of our call today I will now turn it back over to the cash for his closing remarks.
Well I just want to say thank you everyone for joining US today, we look forward to seeing you at our upcoming investor events, and especially our analyst day I do want to take a moment to say. Thank you. Thank you. Thank you to our employees our partners our customers and everyone who made these results possible I wonder if I have a great day.
Yeah.