Q4 2023 Palo Alto Networks Inc Earnings Call

Please review our press release and recent SEC filings for a description of these risks and uncertainties, we assume no obligation to update any forward looking statements made in the presentations today.

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

Unless specifically noted otherwise all results in comparisons are on a fiscal year over year basis.

We also note that management is participating in the Goldman Sachs Conference on September 7th.

With that I'll now turn the call over to the cash.

You Walter and good afternoon, everyone.

Thank you for spending your Friday afternoon, or perhaps are some part of your Friday evening with us.

As of Friday has definitely made up the topic de jour. These past two weeks and has made for some very interesting reading of all the analyst notes or weird.

Apologize to people, who are inconvenienced, but as we had mentioned.

In our press release, we wanted to give ample time to analysts to have one on one calls with us over the weekend and we have a sales conference that kicks off on Sunday, we want to make sure all of our information was disclosed out there. So again, we apologize for the unique Friday afternoon earnings call, but clearly they've enjoyed the attention well.

Let me go and just straightaway dive into our Q4 results.

We start off the air focusing on excellence in execution, we stayed true to that.

And delivered strong results in Q4 capping off a strong fiscal year 2023, where we met or exceeded our original top line guidance and significantly exceeded our profitability and cash flow guidance.

This year, indeed required clear focus across our company and we're all proud that our trees and delivered throughout the year and especially in Q4, our Q4 revenue grew 26%.

Our marking our <unk> consecutive quarter of revenue growth north of 20%. Our billings grew 18% of our very strong 44% growth in Q4, a year ago and our P. O grew 30% ahead of our revenue growth.

Q4, operating margins expanded by 760 basis points, driving $1 44, and non-GAAP earnings per share and we achieved 39% adjusted free cash flow margins for the year.

Our performance in Q4, it did not come as a surprise to us we've been investing in our next generation security portfolio for some time now to position ourselves in a leadership position for the future of the cyber security market. It is this next gen portfolio driving.

That is our go to transformation and enabling our leverage.

Lee and his team will expand on this in the forward looking portion of our program.

We achieved several important milestones in this quarter.

In our software and cloud based businesses this year.

Our combined sassy cortex, and cloud bookings were north of $1 billion in Q4.

Our cortex platform surpassed $1 billion in annual bookings last quarter, and we achieved the same milestone with sassy this quarter.

We also exceeded $500 million in Prisma cloud era.

These product performances are all contributed to the strong growth we continue to enjoy an N G. S. A R. R.

Remember that our NGL business is largely a capability new to us in the last five years and is primarily cloud delivered.

This quarter, we added more net new E. R. R than any other pure play cybersecurity company.

Our plot for amortization is continuing to drive large deal momentum.

One way to illustrate the traction of our next generation security capability across neck network security cloud security and sock automation. So look at the makeup of some of our largest deals when we deliver best of breed products that are also integrating the platforms. We help customers simplify their architectures lowered their cost of ownership and benefit from differentiated cross platform capabilities. This is a win win scenario.

Eight out of our top 10 deals saw significant contribution from our next generation security capabilities.

We're essentially next generation security deals here are some examples one.

A large industrial manufacturer signed a transaction with a total value of $45 million.

Our prism access expansion led the transaction, but also included significant commitments to Prisma cloud XOR and our Iot security offerings.

Customer success with Prisma access and our executive level engagement were keys to winning this additional opportunity a large professional services firm standardized on prisma access in a transaction exceeding $40 million securing their hundreds of thousands of users the completeness of our offering, particularly our strong capabilities in private access differentiate us from the competition by standardizing on Prisma access the cusp.

Consolidated legacy security offerings for many competitors to a single solution.

A large retailer also signed a landmark transaction for more than $40 million led by X I am in this deal we displaced the incumbent and Sim offering and also added our threat intelligence and attack surface management capabilities.

Rounding out the examples a large technology service provider chose our xdr in axon capabilities in a transaction worth over $30 million. This deal start as an independent evaluation of replacement for both endpoint security and they're saying this is the second quarter in a row reassigned an eight figure deal that was driven by a unique capability to provide both XT Arctic science competing.

Against separate competitors each of these categories.

This apple represents the success, we see across industries and regions as I mentioned, a critical part of our profitable growth formula is selling more to our largest customers in Q4, we saw larger deals grow faster than our overall business, notably we saw the number of deals greater than 20 million grow faster than our deals over 10 million as our go to market motion becomes more and more.

Increasingly successful in selling the platform and building the sort of trusted relationships required to close this quarter of a business.

Now for the surprise of this quarter.

Starting with cortex.

There are a number of things I'm excited about in this business as we ended this year.

We launched X I am the general availability last October and set an aggressive goal of booking north of $100 million in our first year. There is not over yet we've closed out the year, achieving $200 million in X I am.

This is strong validation that our outcome based value proposition and Exxon is as designating well the security organization that also sign that interest in applying AI to transform security operations, a very high level talk extensively about this in our forward looking section.

They've told us loud and clear that the legacy products barring their socks are no longer working and they need to reduce their mean time to remediation by an order of magnitude.

This becomes increasingly important with the new FCC rules detailing that all public companies will be required to report material breach. This believe reaches within four business days.

X I am is shaping up to be our fastest growing offerings outside our original next generation firewall releases Exxon transactions are large and long term, which helped to further our goal of evolving our customer relationships from vendor to partner.

As excited as we are about the early success of Exxon. We're also seeing strong growth across the entire family of cortex products, namely Xdr XOR and expense be crossed the 5000 customer milestone in cortex, as we continue to gain share in the market and see the opportunities for upsell to platform. Our average cortex deal size grew over 50% area, reflecting our.

Success in cross cortex adoption.

Moving onto the Nexstar of the quarter.

SaaS.

As he continues to become our standout offering we're seeing strong customer awareness and momentum following our new leadership position the Gartner <unk> magic quadrant last quarter.

If you recognize this quarter with a leadership position in the Forrester Zero Trust edge wave that was published earlier in the week, establishing Palo Alto networks as a clear industry leader in sassy.

We also have some breaking news on industry recognition very excited that Palo Alto networks has been recognized as the only repeat the only leader in Gardner's first single vendor Sassy Magic quadrant, just published on Wednesday.

A recent acceleration in external industry recognition. This contributed a customer momentum and we saw many new customer and large expansion transactions. In Q4. This included four transactions over $10 million and many seven figure deals that span numerous industries and regions.

Not to be left behind Prisma cloud.

When passed $500 million in IRR.

Our cloud security platform, where we believe all companies will eventually to managed security across multiple cloud applications and providers through a single platform.

This show strength.

Ensuring customers consume our capabilities after committing to the platform is vital in Q4, we saw steady consumption growth with credits consumed up by 45%.

We're also seeing strong growth in customer adoption of multiple modules. This quarter, we are showing our growth in customers that buy modules more as it's starting to become meaningful trend with customers up 179% area.

We continue to make significant organic investments at Prisma cloud and grow the platform through acquisitions belongs to see ICD security module last week based on technology from the cyber security acquisition. This is our 11th module and they continue to have the broadest cloud native application protection platform in the industry with capability spanning our customers' entire quote to cloud needs late.

Later on I'll call, you would get a chance to see our exciting developments and glimpse into our plans for the future.

Finishing when I started I couldnt be more proud of our performance in Q4 and the year. Our teams helped drive steady performance, enabling us to maintain a strong outlook through macro challenges by focusing on crisply executing our differentiated strategy.

We continue to drive black from Ization and capitalize on the opportunity the changing landscape presents through products like Exxon.

We continued with our go to market transformation. For example, we consolidated our SaaS sales team into our core a year ago and he has seen a strong outcome as you saw with some large transactions and opportunities across the pipeline.

We've continued to not hold back on investing in innovation to ensure we can capture share in a market that concert presents new opportunities Lastly, we successfully accelerated some of our efficiency initiatives a fiscal year as he saw the environment changed a lot parts of Florida Deepak to cover the detailed financial results and our 23 for guidance.

Thank you Dinesh and good afternoon, everyone.

Beyond providing the detailed results this quarter I also wanted to highlight some additional business insights through the Q4 numbers to help you understand our results and provide context for our go forward plans.

As the cash mentioned, we saw strength across our various metrics starting with the top line.

This was especially true in a N G S. A R R and R. P O.

N T. S. A are all grew 56% driven by strength across our portfolio.

P O grew 30% well ahead of our revenue growth.

Broadly the industry has experienced an increase in deal scrutiny as well as deal push outs. The environment has become more challenging this year and we started telling you about that at the beginning of our fiscal year.

We got ahead of this changing environment by Frontloading, our sales hiring for the year training our teams to address the tougher procurement processes and by having our sales management teams apply additional scrutiny to the pipeline earlier in the quarter.

As a result of these efforts we did not see a significant impact in Q4 from unexpected deal delays.

We did see however, see two impacts on the top line from the changing environment.

The rising cost of money has caused customers to hold onto that cash and more frequently seek deferred payments payment terms.

Third payment towns are delivered in the form of annual billing plans and through our pan of S financing capability the.

The percent of bookings that included deferred payments increased approximately 45% year over year.

Additionally, the proportion of our bookings and included billing plans more than doubled from Q3 to Q4.

This quarter to quarter increase negatively impacted our billings as compared to what we forecasted 90 days ago in our guidance.

As we see the shift in billing times a P. O is becoming a more important leading indicator for our business and as it's not impacted by billing comes as a reminder, op here represents the book business, we expect to recognize as revenue in future periods also all customers' purchases included an opco are noncancelable.

Second we have seen the market return to a more normalized growth rate in hardware based firewalls and I wanted to help further the collective understanding of this asset.

As many of you are aware there have been several factors that have impacted industry hardware revenue.

These include the Covid pandemic the reopening related.

Hardware demand catch up.

Post COVID-19 supply chain challenges price changes and backlog released following supply chain easing.

Fight these positive and negative fluctuations theres, a relatively consistent level of underlying hardware growth that is in the low to mid single digits and we see the industry returning to those levels.

This return to normalized appliance growth is also happening on the backdrop of on the backdrop of the broader transition from hardware to software and network security and growth of new security markets.

We are unique in being recognized as a leader across different network security form factors, including our software based Vms and our cloud delivered sassy.

Our firewall as a platform billings growth Captisol business across these form factors and group grew north of 20% in the last two years.

Within this business, we have seen the mix of software increase substantially.

Over the medium term this mixed transition to software and cloud and network security as well as the growth. We are seeing in the rest of our next generation security portfolio and driving an increase in our recurring revenue mix.

Our platform business model and our focus on efficiency drove significant improvements in operating margin in fiscal year 'twenty three.

Including 760 basis points of margin expansion in Q4.

This higher operating profitability strong bookings growth and interest income.

The baseline for our free cash flow at higher levels as we achieved 39% adjusted free cash flow margins in fiscal year 'twenty three.

The same dynamic of higher deferred payment plans not only had an impact on our top line, but also on a free cash flow as.

As I mentioned in my discussion of our P. O. It is noteworthy that we absorbed the impact of the higher mix of bookings with deferred payments tons in Q4 and fiscal year 'twenty, three and we were still able to exceed our cash flow margin targets for the year.

If you look on a multiyear basis, we've seen the proportion of our bookings that occur with deferred payment bonds increased over four times in the last two years, while we grew our free cash flow margins over the same period.

As I will talk about when I come back in the second half of the program. This gives us confidence we can maintain our free cash flow margins at a high baseline.

Moving onto the rest of the results.

Product revenue grew 24% in Q4, driven by the impacts we noted last quarter from your go to market motions and skews the contributing more renewable software revenue.

And in the past.

Total subscription and support revenue grew 27% with subscription revenue of $918 million growing 31% and support revenue of $528 million growing 20%.

We saw consistent revenue growth across all our theaters with the Americas growing 26% EMEA was also up 26% and Japan growing 24%.

Gross margin for Q4 was 77, 3% increase over 400 basis points year over year. This caps off a year, where gross margins expanded by 230 basis points as we saw a benefit from higher software mix and some scale synergies on our customer support spending.

Our operating margin expanded well over 700 basis points in Q4, and the 500 basis points in the year, we sold a higher gross margins and efficiency across all three operating expense lines as we accelerated some of our efficiency initiatives.

As happy as we are about the outcomes here with only part of the way through executing on these multi year efforts.

The result of all of this is that we continue to see strong non-GAAP EPS growth due to substantial operating leverage which also translated to strengthen GAAP, EPS, which more than doubled quarter to quarter.

We are now firmly GAAP profitable with GAAP net income of over $200 million in the quarter.

Turning to the balance sheet and cash flow statement.

We ended Q4 with cash equivalents and investments of $5 $4 billion. We had a 2023 convertible notes mature on July 1st 2023, and we settle the principal obligation with cash of $1 $7 billion.

We settled the accessing shares and had previously accounted for these in our non-GAAP diluted shares outstanding.

Q4 cash flow from operations was $414 million with total adjusted free cash flow of $388 million this quarter.

Stock based compensation expense declined by 310 basis points as a percent of revenue sequentially on a year over year basis stock based compensation expense was down 220 basis points as a percent of revenue.

I'd like to provide the details of our fiscal year 2020 full guidance as well as guidance for Q1 before we move onto the broader forward looking section of the presentation. We will provide context for this guidance and talk about our medium term targets.

Overall, we are pleased with capped a strong year of growth and margins and look forward to more to come.

For the fiscal year 'twenty 'twenty four we expect billings to be in the range of 10, 9% to $11 billion, an increase of 19% to 20%. We expect N. G. S air ought to be in the range of $3 $95 billion to $4 billion, an increase of 34% to 36% we expect revenue to be in the range of $8 one five to eight.

Point $2 billion, an increase of 18% to 19% for.

For fiscal 'twenty, four we expect operating margins to be in the range of 25 25, 5%, we expect non-GAAP EPS to be in the range of 527 to <unk> 40, an increase of 19% to 22%.

We expect adjusted free cash flow margin to be 37% to 38%.

For the first fiscal quarter of 2024, we expect billings to be in the range of $2.05 billion to $2.08 billion, an increase of 17% to 19%.

We expect revenues to be in the range of $1 eight two to $1 eight $5 billion, an increase of 16% to 18% we.

We expect non-GAAP EPS to be in the range of one.

1.15 to 1.1, $7, an increase of 39% to 41%.

Additionally, please consider the following modeling points.

First we expect our non-GAAP tax rate to remain at 22% for the first quarter and fiscal year 2024 subject to the outcome of future tax legislation.

We also expect cash taxes in the range of $230 million to $280 million. This is an increase as compared to the $150 million in cash taxes in fiscal year 2023.

For the first quarter, we expect net interest and other in the other income of $50 million to $55 million. We expect first quarter diluted shares outstanding of 336 to 339 million shares.

Fiscal year 2024 of diluted shares outstanding of 338 to 343 million shares and we expect fiscal year 2020 for capital expenditures of $116 million to $170 million.

With that I'll pass it back to Walter to start a short Q&A covering what we have discussed up to this point.

Thanks Deepak.

Take about 15 minutes now.

A few questions we ask that each analyst only ask one question and we ask that we cover the topics that we're focused on thus far.

For the first question will go to Matt Hedberg from RBC with Rob Owens from Piper Sandler on deck. Please go ahead ma'am.

Great guys. Thanks for taking my questions, maybe cash with you the macro.

Good results in the quarter I Wonder if you could just talk a bit more broadly about some of the some of the broader trends that youre seeing there has been some.

Obviously, some comments from some competitors that are maybe a little bit different but just just broad brush strokes on high level demand trends.

I think as I said and as Deepak elaborated leg.

It's interesting.

The interest rates were higher Cfos are scrutinizing deals, which means you have to be better prepared to answer the question and show the business value that you bring to them or their cyber security products.

We are we are lucky that we have been focusing on our platform strategy. We can usually walk in and say here you consolidated the following five it doesn't cost you any more but you'll get a better outcome and you've got a modernized security infrastructure so from that perspective.

That strategy of ours is resonating, but there is more scrutiny. There are deals that go through multiple levels. There are some that get pushed their awesome they'll get council.

Got it just have to get more of the top of the funnel and as Deepak very clearly highlighted that.

Eventually end up and there was a conversation about the same way I used to pay you upfront 90 to understand the cost of money and is there a way either my cost has to be lower from you. So I can sort of account for the cost of money or you could allow me to pay your later from a deferred client perspective, those are really the two effects and I think the biggest and if I if I if I summarize.

Q4 for us.

Great execution, there's a lot of demand out there and.

The two things, which are sort of where different is one we saw the hardware so cycle start to normalize as much faster and it's not like we told you. So but we've been very consistent I think why don't you guys actually he was kind enough to cut and paste every time, you talked about hardware into their node, even very consistent that we think underlying hardware grows at single digits low.

A little bit single digits. So we've seen that mean reversion other than that honestly you just gotta go out there and get more stricter on execution. That's the outcome from a from a macro perspective.

Great. Thanks, guys. Congrats thanks, Matt next.

Next question Lee from stock until the end of Barclays with Brad Zelnick from Deutsche Bank on deck go ahead socket.

Okay great.

Thanks for taking my question here and nice end to the year to the team Deepak maybe for you <unk>.

Great to see the free cash flow margin for for next year I think a couple of things that we were all thinking about.

As we model next year, where cash taxes and the deferred payment plans that you referenced in your prepared commentary of course the profitability here is well ahead and also but maybe you could just talk talk us through some of the puts and takes you thought about within that free cash free cash flow margin guide for next year.

Yeah. So I I think thanks for the question, it's not that I think that the primary driver really is the stronger profitability right. So that's really what underpins a lot of the cash flow you know confidence. We've also seen benefits of higher interest rates on the cash that we have right now that also helps oh that's in.

The put and take them, but I would say you're right. We've absorbed the additional headwinds from deferred payment terms with mobile than the cash taxes and when you put all the different puts and takes we feel pretty confident of where we are.

Great. Thank you sorry.

Sorry to skip the order. They are we're going to go back to Rob Owens with Piper Sandler and then go to Brad Zelnick at Deutsche Bank Go ahead, Rob Thanks, Walter a D&O sockets much more interesting than I am but I wonder if you look on that question, just a little bit relative to deferred payments.

Is there a discounting when youre doing these multi year deals and when we actually see a longer term economic benefit as people start to move towards annual payments.

Given that the shift in the portfolio and what you guys are selling there should be no surprise. So if you could just comment on if there is a broader economic benefits to kind of moving to annual terms and understand that we will probably address the midterm guidance on that on the next portion of the call.

Rob I I'm going to give you a little macro flavor and then Deepak can jump in as well first of all your shirts are way better than sockets. So don't don't don't worry about that.

Look on the macro front the part I'm really excited about that Deepak and his team have basically navigated significant part of our business into annual billings effectively through these deferred payment plans right and we were able to hold our free cash flow in spite of those downward pressure and we think we're going to keep absorbing some of that as it goes in the end it's in.

Economic argument, that's like there's a cost of money I can take the money upfront and let the customers get a discount and I can go try and get a return on that cash or I can let them pay when they are ready to pay and I can extract a better economic outcome in that context, and I think it's important understand given our portfolio based approach.

Our customers defer.

Different products lend themselves to different discussion on cloud, we see a lot more of the shorter duration discussions because cloud is more of a consumptive event.

On X I am they want longer deals they don't want even three year. There was only one five year deals and one price locks. So there also is a counter effect, they're worried about inflation.

So if you put it altogether.

Deepak said, we're very comfortable with the way we've modeled it there there's definitely leavers that go in different directions, and our sort of aspiration and desire and hope is that we keep transitioning it seamlessly into more and more animal billings over time, while being able to hold these metrics and these outcomes for ourselves and you park them.

Yes.

Nick has mentioned it well the only comment that I would say is we were probably more focused on the economics of the the actual deferred payments versus the upfront you know I understand the argument is if you will more of a SaaS business. Then you don't have to make as much you know like discounts to pull the deal through.

Haven't really built that in right.

At this stage, we will see how that goes we're still going through the transformation.

And don't forget there's still a reasonable part of our business that still has to be paid upfront, which does the Arab isn't that right.

Alright, thank you.

Thanks, Rob we're going to take our last question. This segment from Brad Zelnick at Deutsche Bank. The IR team is available to take questions offline and we will return at the end of this program to take more questions from you. All go ahead, Brad. Thank you so much Walter and <unk>.

So many questions to ask but I'm going to keep it high level, new cash heading next week into sales kick offs youre going to once again rally the troops to perform even better next year popping a fantastic fiscal 'twenty three what are the highest level of messages that youre going to focus on to ensure that they really stepped up their game and can overachieve and do even better next year.

You know about instead of having worked in sales in and interact with the salespeople majority of my life sale.

Salespeople like to win.

And I think what has become apparent in in fiscal 'twenty three for our teams that that can that we can win in each of these categories. We were they were used to winning and firewalls I will tell you our win rates have gone up tremendously and savvy I mean, if we did $1 billion and sassy.

This past year.

Winning <unk> has been a phenomenal surprise and delight to all of us and literally I can't I'm, telling you what's gonna happen on Sunday every salesperson, who they'll say I won't be able to sell that product because product is selling the average ACD or million dollars hasnt happened in security before so I think the just generally enthusiasm towards all of these capabilities and solutions as kind of a key message.

Our team there are some structural changes like last year, we took the SaaS eat deem and merge that with a core team and you saw the outcomes and we managed to do that seamlessly without an impact to our business. If I go faster, we're doing that next year with cortex, we're taking our cortex team and making them part of core that's why depot talks about these in a constant ability to improve operating margins as we've hit.

So the scale economics in our business. We've hit scale everybody has to do these deals is no longer a firewall business. So our team's gonna do cross product deal. So the message really is we're winning in major categories God Windows deals. The messages cross platform is working for US. The messages you are now empowered and trained to sell everything and in a week to that every every every option.

Every year, we use the opportunity to tweak certain things, which have worked better.

Then the other so I.

I mean honestly like.

Sorry to drag you out on the Friday afternoon, but I think it's important for a few thousand people next week that we shared all these results with them and we just got caught in the trap of trying to get a board meeting done and do that on Sunday. So here, we are in Friday, but I'll ask you. If it gives you any comfort the bulk and me and the team are going to be working all Saturday and Sunday as well.

Awesome. Thank you.

Thanks, Brad and thanks, everybody for your questions. We will come back at the end of do more we're now going to move to the forward looking portion of our program and talk about our medium term update.

With that I'll pass it back over to the cash.

Okay.

Well, that's a wrap on our Q4 results are the reason we wanted to make sure you had the opportunity to enjoy our Friday evening celebrations in the context of our long term or midterm outlook from US was we wanted to make sure that you'd see our FY 'twenty for guidance in the context of where we believe we are.

And the next three to five year journey.

I think what's important to understand is that over the last five years. The cyber security Tam has continued to rise has grown at approximately 14% and.

I guess kind of twice the pace at which the market has grown.

Now the reasons for that are as we get down these transformations that are going on in the world or we get more and more reliant on e-commerce as we get more and more reliant on digital transformations movement is about and possibly now with the arrival of AI as a mainstream opportunity every one of US is trying to make sure. We grab that at both ends. So we will continue to see the pace.

<unk> of technology spend go up.

Sort of up or forward. Similarly, we're going to see the cyber security is going to get more than its fair share of growth. So from an opportunity perspective from what's going on in the market. We believe the cyber security market is robust and will continue to be so in.

In the next three to five years, having said that if you look deeper there are actually three things going on in that market. One there are new markets being created if you look at the last five years, we saw a sort of a surge in this concept called sassy is on SaaS. It come on come on mainstream everybody is out there trying to build this assay business, that's kind of a big thing.

As we had anticipated and talked about five years ago cloud continues to become bigger and bigger as companies go sign up with cloud service providers. They are beginning to go move their applications from on Prem or their hybrid clouds to the public cloud.

I understand that.

Approximately 80% of the application of the world are actually homegrown applications that youre working on on Prem data centers.

As we go forward we're seeing.

Enterprises take those obligations re imagined the rewrite them re architect them and move them to the public cloud and that work has to be done by 33 million developers around the world, which worked for these companies as they write new gold as they put together called by looking at open source and Gabbing stuff for me are there you know.

There is this real opportunity to make sure that that code that is written is written in such a way that is secure secured by design. So we will continue to see that cloud security part of the market growth. That's a market that has effectively been created last five years, coupled that with the arrival of Iot and Ot is mainstream opportunities we've seen them in that market has been sort of a new market.

Proximity, it's a 30 billion our market between those categories, which has been built in the last five years driving some of the cyber security opportunity.

Out of that in the underlying cybersecurity market. We also noticed that some markets have undergone transformation, we're seeing a large transformation of network security as people try and figure out how much to go on the public cloud how much live on their data center, how much harder to live life on the software deploy we're seeing that network security is a big need of all from a hardware only market.

To effectively a faster growing software part of the heart of the network security market not just that but we're also seeing is things like SD Wan, which are part of the networking time are now moving into cyber security because people, who want an integrated solution as a SaaS solution, but you're an SD Wan and your security protocols. So it's interesting there are markets.

To effectively a faster growing software part of the heart of the network security market not just that but we're also seeing is things like SD Wan, which are part of the networking time are now moving into cyber security because people, who want an integrated solution as a SaaS solution, but you're an SD Wan and your security protocols. So it's interesting there are markets.

<unk> undergoing inflection like network security the market of endpoint has gone through a huge influx of last five years. We've seen people go from endpoint protection to Edr and Xdr, we've seen an explosion of about 14 vendors at last count in the Edr Xdr space, but you can see clear leaders emerging which are down to two or three players in that space and there's a huge inflection going on.

There.

We think not just there youre going to see a large inflection and effectively what is a 15 year old market called Sim and sock that market's been technology that has not been evolved for the last 15 years, it's primarily been a reactive technology, where if I am breached I need to figure out what to do and we collect a lot of data and analyze it that's no longer.

Going to work the arrival of AI derived the need for automation the need for a normalized data is actually going to force the market to inflect and that's something we'll talk about more and you saw already in our Q4 results are something like X sign which is targeted at that market is where the real opportunity is for that inflection to continue for that market to go through its own transformation outside of that.

There are still about 30 plus billion dollars in sort of steady cybersecurity segments as well as about $80 billion of services, which we think will also countries evolve in the next three to five years, so with that in mind I think it's important to think about where we were when we talked about the transformation of Palo Alto networks five years ago, where he said plow.

Is gonna be big AI is going to be big in the networks are going to have to start getting the imagine as we go towards the cloud so effectively cloud what's going to drive the cloud security market and the network transformation and AI and machine learning would have to start helping us do this transformation in the similar sock market now.

So what we saw over the last three to five years as well.

We at Palo Alto networks as well as to some degree different players in the industry started to look at the various piece parts of these markets say like this things need to start getting integrated because you've gone deliver great security outcomes without these things getting integrated. So this is the thing you know we talked about this we were told that market does not need platform. So we're told that.

Integration is not key customers can deal with the integration what we want is best of breed products. So we decided we're going to do bolt. We're gonna have phenomenal success of best of breed categories. In addition, we're going to make sure. Our best of breed products are integrated so in these three times in these three markets of network cloud and Salt operation, We're having as you said.

All of these point products starting to get integrated into the larger platform vision, we had and we saw the Tam continue to grow because these are all markets are undergoing transformation or rapid growth.

Now where we are today. We believe this is about $100 billion opportunity across these three platforms. So for us the opportunities grow its almost gone up two times from five years ago, where he believes is 100 billion dollar market today, which allows us to deliver the superior growth you've seen is a continued consolidation in the market that we've had at Bolivar networks, what's even more exciting but in there.

As markets will continue to drive future growth and you will see that because of the arrival of AI the need for more real time autonomous security. These markets will continue to drive opportunity.

It's the same pop here over the last five years as I said, we have been able to transform Palo Alto networks to get awareness today.

We actually prove that platforms are relevant and important in the space of cyber security. This imagine it it seems obvious now possibly to many of us, but five years ago, we had customers who had more cyber security vendors than they had IP vendors.

And there was a customer's responsibility to take these vendors deploy them across that infrastructure make them work together to deliver security outcomes Youre expecting 2000 customers out there in the global 2000 are possibly tens of thousands of customers, having security experts trying to stitch together their products made by fast growth cyber security companies, which are deeply technical.

And trying to figure out how to correlate what one vendor saw one set of alerts is telling you is another it just seemed like a problem that could not be solved but over the last five years, we've seen that starting to stitch. These together studying dig this disparage solutions with security trying to provide them in a common fabrics has actually allowed us to deliver better security outcomes.

And we've proven that by doing that in a way there each of those pieces work in a best of breed fashion are leading their own category, however that kind of better together in the platform. So the last three years. The last five years as he just shared in our Q4 results. We have been able to build a billion dollar business. The security operation under cortex, which was zero, we have been able to get a bill.

Sassy business in the last 12 months to be able to show that integration across this reward and hybrid network space is actually working not only that we actually build a 500 and then they are our cloud security business proving that again, the ability to stitch across the entire cloud development lifecycle is useful for our customers. So we think that we've established in this platform.

Is there going to be around are important and necessary and that is the way of doing security in the future not only that we also have proven that the last five years that.

You can teach an old new tricks, followed a networks, which was a single product in one lane, we had the best firewall technology in the world as well as had amazing services that work as a firewall, we have been able to take that and build multiple products across multiple security swim lanes and make them work better together and the only way you can do that and secure.

<unk> is you have to keep driving innovation you have to stay at the bleeding edge because you don't need your customers to be at the bleeding edge. It is our responsibility as a security company to make sure. We take all the innovation, we distill it we make it work in an integrated fashion and deliver to our customers at the fastest pace fossil because the bad actors are not waiting.

They're constantly looking for ways to get to our customers to get to penetrate their infrastructure and try and figure out how to extract data more gossip stores are possibly hold on Russell. So we have taken what was an amazing company in one category and actually build what we like to say is an innovation engine that allows us to stay at the leading edge. We also done that to be honest.

Not just by doing it ourselves because the fact that the cyber security industry has 3000 startups out there which are constantly funded because they're all working at a specialist way to solve a problem, which I believe is important for the end customer we have to be vigilant and make sure that we don't have.

Any issues in either building it for our customers or partnering or acquiring something that's out there that is important as part of the security fabric that being able to deliver to our customers. So.

As a team we're really excited that where we are in our sort of juncture today allows us to go forward and build an even better larger and a more compelling business for our shareholders and all of that to deliver phenomenal security outcomes for our customers across all these categories that we see inflicting as well.

Categories that we believe will be cleared in the next three to five years.

So with that in mind.

If you think about you know.

What's our view going forward for the next three to five years or possibly the next decade I would say the last five years, we saw that huge.

Technology trends underlying it of cloud and AI allowed us to create the stitching to bill what I would say the building blocks of billing alerts, whereas largest cyber security company actually prepares us phenomenally well for what we think lies ahead.

What we think lies ahead is the need for security to stop bad actors mid flight real time as it's happening. If you think about security today. The industry is only 30 or 40% real time, we know a bad you are all you know bad DNS you know how to stop your customers from something that is that we know what.

But we still aren't good at as an industry is being able to figure out unknown and stop them before they happen.

To do that it requires a fundamentally different way of thinking about security something we have been instead of <unk>.

Leading having a point of view on and that is the idea of having stitched products that work from an Duane the idea that as something that's happening you were able to analyze it real time on the fly and understand is good or bad it is reducing the noise of security in the industry by eliminating all these superfluous alerts.

You know the bad signal to noise ratio, so to get that right or to get security right. We will have to be more and more real time as an industry now we sit at a point, where everybody is talking about AI and actually that is the solution. The solution is to make sure you ingest large amounts of data you analyze them on the fly and you're able.

We'll deliver superior Security Act something we talked about just in our Q4 earnings call right. Before this you saw that everything we're doing and Exxon is driving has to that vision, but that's something that you have to make sure every platform that we have continues to grow and continues to get more and more ubiquitous with our customers at the same time also stitches. These things together. So we believe in the next five.

Five to 10 years, we're going to see this shift which is going to be.

Comparable it is going to be big is gonna be understandable, where we have to become more and more real time, it a little longer be about putting a bunch of sensors and thinking about hygiene and security policies it'll be about how do you stop a bad Act.

And we'll talk more about this because today the mean time to fix a bad act as we've talked to you about is in our earnings is.

Four to six days, that's not acceptable. This thing you'll have to go down to minutes and near real time. So that's a big shift we see that's going to drive a lot of the innovation in our industry, that's going to drive a lot of our strategy and our vision because we think we're on our way to be able to deliver that future to our customers as well as the world's largest cyber security company.

In that context, we talked about those three categories. We think those three got it is going to contribute even become bigger and if you look at it the biggest opportunity is a big Green circle, all security operations and automation because we think.

The current paradigm has broken the current paradigm is a reactive security paradigm is the paradigm with say less fire three more million people to solve security problems. No I don't think that's going to solve the problem what is going to solve the problem is let's call. It good data, let's analyze good data, let's find out the anomalous behavior less block it while it's happening so our customers have a better security outcomes.

That's where we're going to be going I'm going to have a phenomenal opportunity at Palo Alto networks to go ahead and address it 200 billion dollar market, which is primarily going to be a software based market, which has its own benefits across the board because it's a lower cost of ownership for our customers lower cost of integration for our customers. It's easy for us to go deploy and keep our customers all app.

So what is the best and current best in sort of best in class capability. So.

A teacher that is driven by software capability, a future that's driven by software solutions for security in the future, which has integration as part of sort of as part of it is a key tenet with the with the objective of delivering it real time autonomous security outcomes. So that's where we think the world is going that's where we'd like to be and we think we're best positioned.

<unk> in the industry to be able to deliver that future not only that to deliver great security outcomes to our customers.

So with that in mind, how are we gonna do this what are we going over the next few years, how is that going to translate into numbers that are loved by our shareholders shareholders. So it is really the five things part of it some of them, which we've been doing some things we're going to have to keep pivoting harder for example, one we want to maintain this notion of being an evergreen innovation company.

Our biggest insight is that if you want to lead in cyber security you always have to be on the bleeding edge because the bad actors are you always have to be scanning the market understanding where the world is going where technology is going to see what potential security risks are going to get created in the adoption of the technology and the deployment of that technology to make sure. We're ahead of the curve and Mr.

<unk> delivering security by design as it were not going to come in and try and bolt. It on afterwards as our customers have been through the transformation is to work with them and better our architectures with our customers. So as they go through their innovation journey, where it'll lockstep with them delivering security innovation.

I think the second part, which we talked about is we want to make sure that our platforms, which are now deployed instead of different stages or different amount of sort of capacity as our customers. They become ubiquitous if we want to make sure that our customers have guangdong platforms that allow them to look at it as a data problem is an AI problem.

Not have to stitch, our platform with five other other security solutions out there and trying to build their own outcomes because it's impossible for every customer to go to a security integration by themselves I think that the way the best analogy I can come up with.

Thank you the next decade, we will see.

Set up a standard.

Form for security out there just the way, we've seen platforms and CRM or we've seen platforms in HR as you've seen platforms and financial sort of software. We think it's time that in the next decade, we will see a security platform in our future with just works for our customers and the customers are not spending time integrating multiple vendors.

So I just think that's the only way we're going to get to the future that we need for real time and AI based security.

Third the.

The topic deserves everybody's talking about AI, we're talking about AI.

We are not talking about it we will demonstrate that we can deliver security outcomes in the vision in the future that security.

Needs using AI across Palo Alto networks, I will talk more about that.

So that's great we can build amazing products, but also as a company for our shareholders. We have to make sure that we can deliver all of this innovation to our customers both effectively and do you have to make sure that it's easy to consume and deploy for our customers and we're going to have to make changes as we go forward on how we actually go deliver all wonderful gave a really to all of our customers not just by ourselves.

But I shouldn't be working together with some of the bleeding edge partners in the world who are.

In this journey our partners are delivering these great security outcomes for our customers and last but not the least and most key things is we cannot do this unless and until our employees are fully bought into our strategy. Our vision feel excited every day to come to work and deliver a better security outcomes to our customers to make them secure and be their cyber security partner.

Choice, so with that let's take a quick look into each of these categories see how we're going to get there.

Now what it boils down to these five key strategic.

Sort of requirements of Directionless raw perspective innovation continued platform ization leveraging AI.

You know continue to transform our go to market capabilities and last but not the least again is to make sure. Our team is along with US every step of the way.

So.

Getting into the topic of innovation I think.

Very proud of the track record we have so far you know we've gone from 13 products slash acquisitions that we've integrated in 2019 to delivering 74 in 2023.

Sounds like a lot, but actually the 74 are delivered in an integrated fashion. So it actually improves the efficiency of security for our customer it actually makes it usability better it actually makes it much easier for us to deliver security outcomes. So really excited about that I think.

This whole AI revolution that we're undergoing or we're looking at with this thing is going to require us to keep investing looking at once again as to what capability AI is going to deliver across all of our products because we do collect the worlds most amount of security data. So we will keep driving innovation by underpinning more and more machine learning and AI under our platforms, we'll keep looking at how to do.

Liver more capability with the sensors that we have out there with our customers from innovation perspective, we've talked about this you know we are happy to make sure that we deliver innovation in security outcomes to our customers. It does not all have to be invented about auto we will constantly keep scanning the market to make sure that if there's something out there that our customers need to get and somebody else is doing really well.

It's our job to make sure we partner collaborate integrated or acquire to deliver the outcome that the customer needs from an innovation perspective, and last but not the least being at the bleeding edge of security being one of the largest players. It is our responsibility to make sure. We're looking at all new technologies to see how they're going to impact our customers and there are states, whether it's <unk>.

Or there's AI, because theres, a dark side die, it's our job working with our partners in the industry to make sure we deliver innovation and how to protect against yeah getting abused misused in the market. So I strongly believe for us to deliver on the next two to five year vision Apollo that works, we are going to have to continue to be an evergreen innovation company, which I think will give this.

Company longevity and sustainability for ever in the future and being the leader in cybersecurity.

We talked about back from Ization or you've heard that word you will keep hearing it to the next set of 45 minutes to our team because we believe that's the way to deliver security is resonating with our customers our customers are seeing it.

The team is going to show you some amazing UI I think youre going to start seeing not only just were talking about this sort of the next level of platform Ization, you'll start seeing a write off for me how are we actually bring it to life. So I cannot be more excited about some of the work we're doing on the product side stuff that we haven't shown anybody yet you are going to see it today, because it's important for us.

Not just to talk about it's being able to show you how are we going to deliver so you will see it.

And next level of integration and how we can deliver security outcomes, you'll see sneak peeks into how we're going to leverage AI copilot and each of our products and create the simplicity and usability that security has not had to be honest. So far so I couldn't be more excited about how our teams are going to keep driving more and more platform ization more.

More integration, where things are integrating best of breed vendors ISR.

That's our DIY or do it yourself or do it home is gonna be a thing of the past so now moving on to leveraging AI I talked about this but again no.

Clearly theres no no analyst day out there today that you cannot do must talk about AI. So.

I think this is different for us.

As a security company.

Always focused on figuring out how to leverage data.

We have north of 100 machine learning models that run today at Pollo and networks across our products. So this is not new news, but the way I think about it is.

You know, let's call all of that precision AI, that's AI, where I cannot afford for it to be wrong. If it's wrong lives matter. If it's wrong ransomware happens it is wrong bad actors get in so we have to be right, 100% of the time and to me. That's the definition of precision here and to deliver that future. We have to build a lot of our own models you have to train them you have to collect first party day.

We have to understand the data today, we collect approximately five petabytes of data, yes, five petabytes of data on behalf of our customers and analyze it for them to make sure. We can separate signal from noise and dig that signal and go create security outcomes for our customers, we stopped one and a half million net new attacks every day across our 60000 customers. So we know how.

To use AI and we believe we are uniquely positioned in the industry, given our presence and endpoints our presence in firewall our presence in the cloud our presence across the entire network security stack to be able to deliver those AI based outcomes to our customers and we're doubling down we're quadrupling down to make sure that precision AI is deployed across.

Every product of Palo Alto, and we opened up the floodgates of collecting good data with our customers for them to give them better security because we think that is the way we're going to solve this problem to get the real time security.

But let's not underestimate the opportunity generally they are put in front of us on a very personal basis I believe Jeremy I is amazing for data summarization for natural language interaction for doing all the things were there was an information decay between our products and our.

We feel great products by the time, they get to our customers. There's a lot of translation that happens between our product developers and the customer and sometimes the breaches happened because the customers don't fully understand our product because they cannot configure them rights all of those things can be eliminated if we can implement generative I effectively through our products so our customers.

Interact with our products and natural language. They don't have to have complex security understanding operate our products. They don't have to have complex security understand your fixed a problem. We can fix all of that if we in our company learn how to deliver generative AI based interfaces generally I based outcomes through our products and you know what our teams are going to show you.

Glimpse of that we have been working diligently over the last five months across the board I, followed that works and I couldn't be more excited about some of the stuff that you're going to see just after this from our product teams to give you a sneak peek at the same time, we're going to do it in a deliberate fashion, we're going to crawl walk run. We think we are on the right path, we're going to work in lockstep.

The industry, we have people analyzing and working with almost everybody out there we understand where the best of best in class L. M activity is we understand where technologies. We also understand what might be going in the next three to six months.

All I can say is that I.

The combination of precision.

And generally the eye is going to fundamentally change the way security. The outcomes are delivered to our customers because it'll take care of that complexity it'll take away. The the confusion the set of usability problems that you have a security and it will start helping deliver great outcomes to our customers I think it's just going to make our platform as amazing as we go forward.

On the go to market side.

No.

In the last five years, we have done a phenomenal job.

Ping of building the products that our customers need yet we have to make sure that every customer understands our capability every customer has a roadmap with us where we can take them to deliver real time security outcomes for that we need to kill Upskill our team in some areas, which we have been doing very effectively as you saw our team was able to do.

Some amazing results for Q4, and I think we're going to keep doing that we are going to go from being just a security vendor to being a solution partner for that we have to work harder with many players out there with something we've geared up to do all behind some amazing early success, we've got to figure out how to institutionalize that capability at Palo Alto networks, and that's something Vijay and his team are going to.

Focus very effectively on in the next three to five years, not just that as I said, we need to figure out how to deliver architectural outcomes to our customers. Our customers are tired of spending too much in cybersecurity and ending up with the same message and saying wait my security outcomes aren't getting much better, but I seem to be spending more money. It's important for us to work with every one of them to deliver those.

<unk> and architectural way so they understand the long term roadmap because I think it's fair to say that where we are today is not where we were five years ago. I think we have enough confidence in our customers to partner with us for the long term because they believe we're gonna be around or will it be at evergreen cybersecurity company and last but not the least I think it's very important as part of our go to market efforts.

We have a large team that delivers customer delight well I just think we're about to see a step change in customer delight with the application of generative. Yeah again, we've been working really hard you'll see a bit of a glimpse of that in some of the things that teams are going to show you and over the next possibly 369 months, you will see more and more capability delivered to our customers using that generally.

I frame work or predictive AI or precision frameworks I think in the next two five years that is going to fundamentally change what Palo Alto is able to do out there in the market.

And as I said you cannot do this without the best people to our employer brand has become phenomenal in the last five years as we continue to deliver a great innovation great outcomes people want to come work at Palo Alto networks people want to be part of the success of being the cyber security partner of choice for our customers. So we can all.

We do this we can only deliver our strategy. If you have the best team. We will continue to attract the best we continue to empower them to make sure that they can deliver great outcomes for our customers. We plan to keep doing that over the next three to five years. Because we believe this is a mission driven opportunity. It's an opportunity that allows us to make the world a better place by making sure that our customers can be secure.

Sure.

Yeah.

So as I said you will notice the next two to five years, we will continue to transform Palo Alto networks from where we are to where we would like to be we will continue to focus on the demand function at the top we believe the market isn't continuing to inflect as I said in the area of security operations. It is highly likely that some of the other steady areas are going to see some inflection as well.

We're going to continue to relent relentless innovation and keep making our platforms more ubiquitous we're going to make sure that we can deliver the amplification from a go to market teams and also we're going to make sure that we have the best team in the industry to deliver solutions to our customers I couldnt be more excited about the prospects of policy networks I couldn't be more.

Of that we are seeing tremendous success in our software driven capabilities. I think we are going to continue be able to transform this company from where we started the hardware vendor to a software delivered security with real time security outcomes. I believe we are we will continue the best cyber security partner of choice for our customers with that I would have had to really because he's going to.

Show you, some really cool stuff, which is hopefully going to.

Excited about our ability to deliver the Fisher we've talked about.

Thank you Kash.

Now the second we're going to go into more detail on our three leading platforms, but first I want to share some context, after all where cyber security company, what's happening in the threat landscape.

And I'll just give you the really obvious answer it's bad the threat landscape is intensifying eight trillion dollars of costs due to cyber crime attackers are becoming very sophisticated with the tools. They use whether that's automation attack into supply chain et cetera.

And just the sheer volume.

Is off the charts.

Growing about 20 ex since 2011 to over a billion new malicious programs.

This is incredible so clearly that is a challenge.

But it's even more challenging than that.

It wasn't that long ago. When it took an attacker on average about 44 days from initial compromise to ex filtration.

Now 44 days is basically the time period that a organization would have to detect disrupt and potentially prevent the breach from happening.

So in 44 days it goes down to hours, which is what we're now starting to see hasn't.

That is a huge problem that requires a very different approach, but on average the industry is able to respond to remediate attacks and about six days.

That doesn't work.

And even more challenging now with the SEC, new rules of being able to disclose within four days.

None of the math adds up.

Now before we get comfortable and to solving these problems Theres one more challenge coming attackers have recognize the power of AI just as much as everyone else's recognize the power of AI to do good things, whether its fried G. P. T. A warm G P T or other use of AI.

It is clear this is going to become the next major tool used by attackers to watch more attacks more sophisticated attacks.

And faster attacks.

So we have to innovate.

And we recognize that health networks was built for innovation from day one.

And today, we have over 4400 product engineering and other experts that are building and driving innovation and you see just how fast we ramp that over the last several years.

In part by being able to scale our organization across three main R&D centers in the world.

In addition to this organic innovation engine we've built.

We look at about 250 private companies every year.

To identify the absolute best teams the absolute best technology.

Become part of Palo Alto networks in order to further drive our innovation engine.

And we combine these two together and we will continue to combine them together to have the best.

Innovation capability.

And then we combine that with AI.

We recognized early how important AI would be to our innovation and over the last several years, we have been infusing AI into our products.

In very unique ways to solve very challenging problems that only a I can.

And from this foundation.

We're only going to do more and better we're going to accelerate our pace of innovation, even further we're going to leverage our proven playbook.

Around M&A.

Are you able to augment what we do organically.

And we are going to take our capabilities in AI and turn that into an AI first company.

And why I'm, so confident in our ability to leverage AI is we've built the right data foundation, we've combined that with the right architecture and we've leveraged amazing set of expertise across all of that we collect more data per customer than anyone else security data relevant data for AI, we combine that.

With an architecture that over the last several years, we've been migrating every product into a cloud based architecture, because we know that that sets us up to use AI in everything we do.

And today I have a team of over 150 AI experts.

Did I can leverage across all three of our platforms to identify and drive even more AI capabilities and innovation.

That's how we do innovation.

How the industry does innovation is very different.

The industry tends to look at this in the context of point products every time, there's a new need there is a new point product.

This leads to incredible.

<unk>.

Four and customers think about having to stitch all of this together.

Yeah. It does create a large security market of about $210 billion, but it means that there's an incredible opportunity for disruption.

And for a disruptive and innovative approach.

Which is why we've taken our platform oriented approach because we recognize that the only way to achieve the real time security outcomes that our customers need is by integrating natively all of those capabilities into a set of very focused platforms.

Around Zero Trust co.

Code to cloud and security operations.

In a moment, we'll go into detail on that.

Last and certainly not least point.

Not all platforms are created equally.

I shared with you how we think about innovation because that is so fundamental to the outcomes of our platforms.

In addition to that our platforms are designed to be as comprehensive as possible.

It doesn't mean, we do everything but it means that we do all of the core set of capabilities necessary such that we can then selectively integrate and enable third party technology to complement the platforms.

Everything we do is integrated.

It's designed to solve hard problems through integration that cannot otherwise be solved with point products.

And that combination enables our platforms to be real time.

And enable real time security outcomes for our customers.

So with that.

Let's start our first deep dive with our zero Trust platform.

It's very clear in the network security market.

What's happening.

The point product approach that we've been fighting.

Fighting for so long as the company.

Is getting harder and harder to sustain.

There's more technology is more capabilities needed who's capable as are needed across a broader attack surface with the advent of hybrid cloud.

And hybrid work.

The only way to solve this is with a platform and we're going to share that in a second.

In addition, the next set of trends is going to further propel the need for plot for amortization as password list becomes common as quantum becomes common as b Y O D becomes enabled across enterprise and all of these.

There's going to be a decision do you want to try to enable them across 25, and 30 different standalone point products.

Where do you want to enable them on a single platform.

Answer is obvious and clear.

And that is why we are well positioned.

To take advantage of the opportunity in front of us across all of network security, whether it's zero Trust platform and you go into more detail is it not austral leader of our network Security Zero Trust platform team or not.

Thank you Lee.

Before I talk about network security first talk about the evolution of network security.

The next book 60 has become increasingly complex.

In the past when users, but predominantly in the office and applications in the data center.

Network security was delivered by centralized firewall.

Data Center virtualization.

Migration to the cloud the quiet inspection of traffic linked to the cloud.

And many organizations had suffered fireworks.

And the D hybrid workforce and protecting remote branches. Many enterprises deployed our cloud delivered stack sassy.

As you can see many organizations today have three distinct and disparate stacks.

It leads to complexity of architecture.

Poor operational experience.

Inconsistent security and poor user experience.

What if you could take a radically different and new approach.

Any user.

Cause any location.

Actually any application and data.

By unified security stack.

Which means we have one platform with a set of security services and ensure that users across all locations have consistent user experience.

Administrators can now offer policies and a centralized man.

This is enterprise wide zero trust.

Over the last five years, we've developed a zero trust platform with best in class products.

Three key components.

Network silly enforcement points hardware firewall software firewall and cloud delivered Kathy.

Second cloud delivered services they ran consistently across all form factors of network security.

And management it provides configuration flagging of policies monitoring and analytics.

And each of these three components to ensure that we can provide our customers near real time security.

Better operational outcomes, and a simplified and consistent user experience.

And I'll talk about the components of the platform.

First the networks, particularly important points the foundations hardware.

Hardware firewalls suffered firewalls and sassy being a leader in next generation firewall now for over a decade.

Gartner Magic Quadrant leader 11 times.

And then he only window, that's a leader in both SP and SD Wan and makeup the sassy market, but also a leader in zero Trust.

Next let's talk about cloud delivered security services all the years as Lee mentioned, the attackers have become more and more sophisticated the old approach of signature and databases is not working been working on using AI and the power of machine learning to ensure that we can provide our customers with protection against attacks.

And they have never seen before and ensuring that they can provide near real time security.

We've also expanded from T services five years ago to seven ensuring customers can consolidate point products onto the platform. In addition, we have developed new services like <unk> and AI ops.

Or autonomous digital experience management provides customers segment by segment visibility from user to application, helping them understand exactly what's going on at every segment along the way.

And with AI operations, they can automate many of the complex tough for customers.

Ensure that they using synchrony with best practices configuration with best practices and ensuring that we are able to predicting it may not have seen before.

Now as you can see we've had some great success with different capabilities of our platform.

However, even to come on the market.

Hardware firewall to secure data centers in campuses.

Their firewall to secure cloud networks, and Safi to secure hybrid works and remote branches. These for the most part have acted as three distinct markets and customer for the most part have made independent decisions.

I believe but not an inflection point.

With unified management across the entire net book Skinniest, It really changed the way how customers buy how customers deploy and how customers operate network security.

I'll show you a glimpse of a unified management can be excited about.

Okay.

As you can see.

As it entered visibility here.

Users can be anywhere.

In campuses in branches remote workers on the go.

In applications that are sitting alleyway data centers public cloud SaaS.

And Patrick Flynn to all the important points hardware firewall software firewalls, and sassy and you have a complete comprehensive view of all the tests and the entire networks. They could you state the data risk posture and the experience.

Now the pet landscape is constantly changing and we always have new vulnerabilities that show up and published often.

And many times network administrators Wanna know exactly if what happens for a particular by Liberty.

It is the antibody is affected by it or not.

Now with this unified management began easily search for a given vulnerability and once they understand like in this case that we have compromised, but it's a little bit he with a single click we can get remediation of best practices and mixing that we can apply these best practices across the entire network Skinniest state which means.

Hardware firewall, a software firewall and because my fatty.

That's the power of having complete end to end visibility of the entire estate.

Now, let me talk to you about on Netbooks cyclical pilot.

The power of generative AI, the ensuring that customers can use our platform to the best of its capabilities optimizing security optimizing configuration and optimizing their operations. This is what youll see when you come to the copilot as you can see they tell you all the activity that happened in the last 24 hours.

And now as you can see we have 140000 users to have a good experience. When I was 10000 users have a degraded experience now rather than a point and click to understand what's going on we can engage with the copilot with natural language and after copilot exactly what's happening for those 10000 users.

And behind the scenes the power of AI and ml and getting data from all sources endpoint cloud I didn't do the engine applications network enforcement points.

We can tell the customer that the users are having do you get it experienced exiting a junior application.

Not only that we can also give root cause which is because their authorization failures open 90th in ticket on their behalf with all the relevant information.

Let's take an example next about our network and Mr. Huang wanting to know exactly what other risky applications being accessed in the organization.

Again, you're going to all the important points hardware firewalls software parabolic fashion, we can give a summarized view of all six risky applications. In this case now once you noted applications. The next step would be what is the policy and you can apply to block access does this key application.

And using best practices being able to give them the right policy integration.

The customer to review the policy changes or apply them.

And once they apply them.

All the enforcement points, making sure the customer is not protected.

You can see with the power of the unified management the power of the copilot with changing the week network security is deployed operated on a manage on an ongoing basis super exciting.

To wrap things up.

We have almost 700 customers today, using our platform and over the next few years, we expect many more customers to use the platform to get the power of zero trust to be a power of ensuring that they have consistency across the entire sickly estate to get unprecedented visibility.

At the same kind of seen customers use and adopt more of our selling services. The last two years that number has increased and we continue to see a 10 customers consolidating their point products onto the platform to make sure that they get the netbook effect of data and simplify their operations.

In summary <unk>.

Oh Trust can only be delivered to a platform centric approach, it's very hard to do it with point products and display solutions.

We'll continue to integrate more and more of the services onto the platform and we'll continue to give them a delightful experience to our customers the power of AI.

Accordingly.

Thank you.

So clearly huge opportunity in network security the zero Trust platform.

Now turning our attention to the cloud.

Cloud is just.

Absolutely gone through an incredible transformation today, there's over 500 million cloud native applications deployed there's 33 million developers that are constantly pushing new capabilities and new applications.

Nearly all enterprises are multi clouds.

That is just an amazing starting point when you think about what is going on.

And at the same time, there's a.

Tremendous amount of innovation happening because of the cloud and a lot of it's being driven through the ability to leverage open source, that's being combined with custom code that's being combined with Infrastructure's code all of that just enables this speed this dynamic nature of the cloud.

And it all needs to be secured.

And very much like the rest of enterprise cyber security.

The industry approach has been a whole bunch of point products that customers are somehow expected to stitch together.

We have a different approach.

We believe that all of these capabilities should be modules natively integrated and delivered in a platform.

And when we get this right.

We can not only secure in real time.

But we can then fix at source so the issue doesn't happen again.

And to go into more details on how we're able to achieve that is orchestra leader of our Prisma cloud code to cloud platform. Okay.

Thankfully.

Likely mentioned, we live in an App economy. The average enterprise today uses over 100 application central commercial and some for internal use with a <unk> co development I expect this trend to continue.

Before we talk about securing the apps first let's talk about how these applications and assembled in the cold face. Some custom code a whole bunch of open source code gets deployed using infrastructure as code and ultimately it moves through the pipeline goes into the run time and construct what we call. The application. The key thing to note here is that <unk>.

Everything that happens in cold fees gets multiplied in cloud and single infrastructure in this corner open source.

Component can get deployed across hundreds of thousands of workloads and application component what.

What is true for infrastructure in the application layer is also true for the security risk and risk like an open source vulnerability secret pipeline risk introducing the code fees gets multiplied in the run time, where now you have hundreds of thousands of containers and application components running that.

Risk the attackers has more ways than ever before to exploit this risk and cause a data breach.

Now there are two approaches to solving this problem.

One approach is what the industry has always done which is to have a point product for problem and the cold face that are about half a dozen different tools to scan security posture and infrastructure led you have yet another set of tools and finally in the run time, you have tools for cloud workload protection network security and application.

Security.

Now this is not the right approach to solving this problem for two reasons number one each of those tools lagged the context. So the customers have to stitch all of that together and the second thing is like Lee described in a 33 million developers and a really few security professionals, who understand code in cloud.

This is a battle that the security teams simply can't won't win with this specific approach, we believe theres a better approach and that's the approach that we had been steadfast in executing over the last four years and that has an integrated go to cloud platform approach that can help customers prevent risks and breaches, India Israel time.

Prisma cloud does that today by scanning security vulnerabilities at each phase of the application lifecycle and also have run time protection.

Revenge breaches in run time.

Our strategy is resonating well with the customers and analysts community across different component parts as well as the entirety of the platform.

Our typical customer start their journey in the infrastructure layer, where we have now 2068% of the customers. When we're securing over 4 billion cloud assets then they shift left when do you want to prevent the risk from happening to begin with what we have today, 20% of our customers and we are scanning millions of CT assets and five.

Finally customers want defense in depth and they weren't active prevention and protection technology in the cloud runtime should a bad actor caused a data breach where today, we have 54% of the customers that we're scanning 13 million plus containers.

Let's see the entirety of the Prisma cloud platform with a quick demo.

What you see here is a quote to cloud dashboard that gives the security practitioners visibility across the entire application pipeline. What you see here is as the core assets in the cloud assets have growing so the security risk for example in the cold face Youre seeing a whole bunch of security risk that Prisma cloud is already scan.

The typical enterprise uses multiple tools just to do the security of the code.

And the cloud fees using a whole bunch of security scans that Prisma cloud has done should things fall through the crack and go into production.

The key thing to remember here is that a risk introducing the coface gets multiplied in the cloud twenty's risk in the code got to be 2000 in cloud.

Now typically the security practitioner it takes months and months to resolve these 2000 issues because they don't have the context I don't have the flexibility to fix the root cause of the problem. Let me show you how prisma cloud does that.

So I clicked on the 2000 and security risk what you see here is a quote to cloud security graph.

We're facing the 2000 and security risk back to the two problems are.

In the cold phase more specifically these are the two lakh Fuji components that the developers introduced that as a security risk that led to those 2000 problems you can see that those two thousands this belonged to a single application and like I described our customers using multiple application. So now the customers tens of thousands of different risk with a single click of a button.

Prisma cloud is able to fix the root cause of the issue as you will see that momentarily, we're able to upgrade the latest version of the lock Fuji invoke the pipeline reduced the risk at each stage of the application lifecycle and now you see that the 2000 risk would reduce to zero with a single click option. So that was the first.

Demo the key thing to remember here is anytime there is a risk in the cloud you have to trace it back to the cloud and we're the only platform that can do that today.

The second demo I want to show and that's something we've been working on which was a D. I co pilot. So let me show you how I E. I copilot experience is going to look like.

<unk> is going to show you all the things that it has done for you.

Since you last logged in the user at this time I was going to ask the question around how many locked for shell vulnerabilities do I have in my environment through a simple natural language processing. It was able to understand the question was able to render a similar graph as you can see that our 1000 cloud risk for lock for shell.

Is it back to the one source problem.

The user is able to interact with the co pilot get little bit more definition of these problems and finally, just like you saw in the first demo article pilot two to go out and fix all this problem with a single click.

The key thing I want you to remember about the security co pilot is that it is a resource multiplier for you that are not enough security professionals and the co pilot is going to help you burned down the risk and prevent breaches and cloud.

As I wrap this let me tell you the opportunity ahead of us the average customer today doubled their credit consumption within a year and quadrupled in two years by growing from two to five to eight modules, we have a natural land and expand motion with that existing customers when.

When you add that with the new customers that we're going to be adding and enough headroom that we have an installed base the opportunity in front of us is massive.

The last thing I'll leave you with is the.

The market in front of US is huge prisma cloud as the clear leader in the space and we have the right strategy and division.

When this market. Thank you al Alright, Thank you Oscar.

Again, clearly huge opportunity.

Lab security with our unique approach and what we're driving really excited with where we are and what we're working on.

And now for our third platform, our AI driven <unk> platform.

This is <unk>.

A market that I believe is ready for a fundamental transformation.

Most of the technologies that companies use.

Our or were developed 15 in some cases 20 years ago.

That clearly does not work they were not designed for an attacker sophistication that we see today. They were not designed for real time detection and automation remediation. These tools were not designed for supply chain attacks. These tools were not designed.

For the advent of attack AI being used by our adversaries.

We have to re imagine security operations from the ground up.

And in doing this leveraging data leveraging AI leveraging automation.

As core tie.

Tightly integrated foundational aspects to how an entire SEC ops platform functions within the sock.

And this is the journey that we've been on for the last several years building. This platform refining it's developing the capabilities necessary and then refining it again.

Until we reach the point where are today.

Where we have a set of leading products and an incredible platform delivering incredible outcomes to take advantage of this entire security operations market in front of us.

And to share more details.

I'm joined from our Tel Aviv R&D center by going into think who leads our entire cortex product organization go ahead.

Thank you Lee.

Let's take a deeper look.

Why existing silica architecture doesn't work.

With a growth of sophisticate the alerts multiple tools were accreted each one designed to solve a specific problem.

This leads to an extremely fragmented song.

Very hard to manage it is the customer responsibility.

We integrate.

Those tools into a human driven workflow.

The result of that so.

That's acuity outcome low code Peninsular although these shortage.

Unable to resolve those incident to lead times.

So what is required to deliver real time, so could you bridge.

We need to replace the struggling with architecture with a unified single floor or architecture.

We need to replace multiple products to collect data with a single data platform and final detection tools within the engine that is trained on the full dataset.

And then automation should be natively integrated into the flu rather than being places an afterthought.

Five years ago, we recognize the criticality of data AI and automation for the future of cyber security.

We built three amazing products.

Each of them became a leader in its respective category.

And we continue to innovate in each of those categories to maintain our leadership.

This drove codecs to become a billion dollar business for us.

It also brought us into fathers of customers' security operation centers.

60 or extend the video market.

And this is the best AI tool for endpoint prevention, and real time detection of all security threats.

Codecs XOR is the best in class security tool for automated threat response.

Codex expand.

We're actively manage the attack surface and reduce them.

But to harness the full potential of AI and automation in order to build real time so.

Requires more than that.

We use an integrated AI driven architecture.

That re imagined the legacy 20 years old soak architecture from the ground up.

And this is what we brought to the market with axiom.

Last year.

So.

What happens is legacy soak in how it has changed.

Axiom, let's look at that.

In order to detect attacks silo tools just get alerts.

But we're leaving it at an equal unfortunately, looking at anomalies or alert in a solution might be suspicious.

There are many of them.

Each of them look at the world from a very narrow standpoint.

And the result is that high volume followed with overwhelmed.

This means that suck gives up on reviewing all those alerts and eventually the socket missing the important ones.

We didn't say M customer no longer needs to review of confidence in them.

And try to connect the dots themselves.

Thanks, I am collect large amounts of data and uses AI to analyze little confidence signals keeps them together with real data and get enough context to resolve most of them are dramatically presenting the user only relevant to them and with a full context for each of those instances.

The grouping this injury incidents.

But it really ties them risk for them.

I am provides a full picture of you to the anomalies.

Now the analyst.

To respond very quickly to leave us.

How do we do these metrics.

Let me use our new product your eye to explain the key elements that differentiate it for him.

On the rest of the product in the market.

It starts with the data.

We ingest normalized stitched together pent up bytes of data.

From Doosan and hundreds of data sources.

To recreate the full story.

Each and every event in your environment.

These teach reached dataset feet.

And sophisticated engine with over 3000 model.

That produce high confidence alerts the group's those alerts into incidents.

Signed a risk score to each and every incident.

And then.

Integrate natively built automation to resolve most of the incidents, leaving only a small number of incident for human review and resolution like.

Like the co pilots you saw for both network security and cloud security, our new cortex, you I, we incorporate the copilot with an early alpha testing starting next month, we started working with Palo Alto networks Sock as our first partner as we design and build cortex and excel.

Palo Alto is the largest security vendor and as such we have a lot of assets that we need to protect.

We know what to do prefer job, we collect a lot of data.

Over one trillion events are collected every months 75 terabytes everyday.

With cortex, Palo Alto networks talk can protect its network with a small team working on stomach chips.

Resolving with less than one minute incident resolution.

This is not a ROIC this is relying on technology and AI and automation to achieve the right security outcomes.

So when we launch exceed them.

We wanted to see how this plays with customers.

And.

The early indications are remarkable.

Customers are able to ingest a lot more data than before.

Which provides them with broader coverage for the attack surface.

Even though they just a lot more data product generates a lot less false positive.

And those two positive alerts are being grouped together.

Prioritize by AI delay.

Delivering much much superior security outcomes little coverage shifting.

Shifting the median time to response from D.

Two hours as.

As we look forward, we see tremendous opportunity in drawing cortex and axiom.

We continue to win and gain market share with our best of breed products 60 are excellent expense.

Is there a basis to absolute customers to the full HCM solution. Each of those customers is a candidate he is becoming.

Prospect to move through the food platform makes them.

We demonstrate this over the past 12 months and being able to convert a lot of the customers have used part of the platform to become a full platform users.

But the most exciting part.

When we look at where we can expand axiom.

Really the arrow AI and automation is just beginning.

Sam is quickly becoming the largest security data platforms.

And the technology, we built with AI and automation could.

Could be the basis to expand what we can deliver with axiom.

Two new modules within the Sac and across the entire security landscape.

Thank you all and back to you.

Awesome. Thank you go ahead.

Clearly an incredible opportunity.

And cortex, and specifically with X I am as we think about the journey ahead wherever you're going to transform.

Security operations.

And just absolutely incredible amazing ways.

And with that context across our three platforms. Let me now turn it over to P. J to share with you how we take all of this wonderful stuff to market.

P J.

Thanks, Wei and it's great to be here with all of it.

I couldn't be more excited to talk about our go to market transformation that will allow us to take full advantage of the product innovation and you heard about.

I just had my two year anniversary at Palo Alto networks, and the evolution of this go to market organization and stuck with our customer needs and product innovation has been incredible.

To understand how we can best serve our customers we need to understand how organizations are tackling cyber security challenges today.

On average large companies have 75, plus security solutions.

This leads to fragmentation and growing complexity.

Customers try to stitch together all of these individual products and data.

To add to this they are dealing with overlapping vendor solutions that don't talk to each other.

Many customers are buying cyber security and this way they.

They recognize how unwieldy and then effective it is and they need our help.

This is a call to action for our industry to do a better job in helping our customers and have Palo Alto networks. We will do this through three key go to market transformation.

First we are transitioning from a transactional vendor to a true strategic partner guiding customers on their transformation journey.

Customers are looking to us for direction on how to secure their enterprises and keep their employees and end user customers safe.

Second we are transforming from selling point products two architected outcomes in partnership with our customer's most trusted ecosystem solution providers.

Our customers ecosystem partners will become even more important as we work with them to create more value through new services enjoying offerings.

Third we are moving from a reactive help model where customers only call us when they need us to a more collaborative model, where we are proactively driving success for every customer with a minute together mentality.

Palo Alto networks is well positioned to help our customers through these three key chefs and we've made significant headway on each of these fronts.

In the past our go to market motion focused on tactical domain experts solving very specific product requirements.

These conversations often revolved around price and they were transactional in nature.

Today C suite executives are engaging us more and more.

They are looking to transform their entire business understand security strategy and deliver better security outcomes.

We now have a seat at the table for key architectural decisions and ongoing multiyear roadmap engagement.

Our 3000 integrated sellers are set up to scale and have these strategic conversations with our customers.

Our ecosystem is also playing a critical role as we move from selling products to architect the outcomes.

Five years ago, we sold a single product primarily hardware firewalls as part of a larger partner delivered motion.

Most of our partners, we're focused on transactional fulfillment of customer orders.

Today, we are deeply embedded with strategic partners across all routes to market and are co leading the sales motions with our partners to deliver joint solutions.

We have 150 $10 million plus strategic partners today in our ecosystem.

In the future, we're going to continue to strengthen our sell together motion by building integrated offerings with a shared focus on improving client outcomes. Our top 30 partners will become even more important.

Looking to drive $10 billion plus of business with them.

Delivering the best security outcomes means that our customers post sales experience must also undergo a shift.

As I said to an end it together model, allowing them to be successful faster and get the most value from our solutions.

Although we have consistently achieved a 90 plus percent <unk> score, we aren't stopping there continuous.

This improvement is the goal.

As part of our strategic focus on AI, we will leverage AI to resolve customer issues more quickly.

With AI enabled in product support we plan to reduce our mean time to resolve for calls by over 65%.

We also plan to scale, our global network of 300, plus fully certified professional service partners in order to further expand our ability to deploy our products with speed and agility.

And last but not least we will increase adoption by staying with our customers throughout their entire journey.

We have a 600 plus person customer success team with deep expertise, helping to build customers for life.

You've heard this from others today, but it bears repeating we.

See massive opportunity add for Palo Alto networks, and our go to market model is transforming to meet it head on.

You can see in the chart, we're already well on our way with our global 2000 customers with 54% of our customers on the journey across all three platforms.

And we have great potential to extend our breath by selling the full portfolio across our installed base and our platform depth by covering our customers smaller state.

I'll end, where I started with a reflection on the opportunity and unprecedented ability to help our customers secure and transform their business.

Palo Alto network platforms are the best in the industry and we have a world class go to market organization uniquely positioned to bring them to our customers and partners.

Our go to market model is ready to scale and deliver real time security outcomes for every customer through the power of our platforms.

Thank you everyone and back over to you D box.

As you heard from the cash about our strategy Lee and his team on products and BJ around go to market. We have the entire company pointed in the same direction.

I now wanted to bring this all together to help you understand why we are confident that we can capitalize on our opportunity and translated into financial results that will drive superior total shareholder return.

We'll go to all four of the primary drivers of T. S L, including revenue growth profitability cash conversion and capital structure.

First on the topline you heard about our Tam from the cash we have proven over the last five years that we target in the largest and most attractive parts of the market.

We've been able to capitalize on an expanding opportunity taking share from within existing market and positioning ourselves in new markets to drive further growth potential.

I'll share today stands at just 7% of our addressable market, which is lower than the share of leaders in many other markets outside of the cyber security industry.

As we plot the course to the larger time that noncash outlined over the next five years, we continue to see the opportunity to gain share and our <unk>.

<unk> markets and continue to fuel above market growth to Palo Alto networks.

Looking at this through the product lens Lee and his team outlined our platform leadership in all three areas and showed you. The innovation plans that teams have to continue to lead our market.

From my seat at the company innovation is our lifeblood and we will continue to spend aggressively on R&D.

We do not focus on driving leverage to the bottom line, but rather we redeploy any savings we identify to invest in additional innovation.

Our customers expect us to continue innovating and we've consistently shown a strong return from these innovation investments.

This includes recognition of our innovations such as the Gartner single then the sassy leadership position that we mentioned today.

We expect our innovations to show through in financial outcomes in each platform and the company overall.

In network security.

Our investments across form factors.

Especially software based and cloud delivered enable us to further our market position and sustain our growth in FY billings.

Our market share in our software base. The end business is approximately two times what it is in hardware.

And sassy, we believe that we are the number two player in this fast growing market.

And cloud security the growth algorithm is leveraging product and go to market capabilities to drive credit consumption ahead of the growth rate customers are deploying cloud public cloud.

Along the way we are confident we can increase multi module consumption to solidify our position as the definitive code to cloud leader.

And cortex, we have a solid business with xdr, XO and expands competing in attractive individual product markets. We've.

We've seen a shrinking number of players in the xdr market and have steadily added several hundred customers per quarter.

Adding customers across cortex is important to allow us to drive larger more strategic deals in the future, where we can further cross sell our products, including X I am.

Sam is truly game changing innovation, where we are selling outcomes and I'm confident the momentum will be get momentum here. After a very strong launch of the product in the first year.

It should be clear from Bj's presentation that we've invested in building a large dedicated go to market organization and are transforming how we engage with the market.

Transformation here has been a non stop effort and has driven growth in the number of large deals each quarter.

On the back of the core tenants P. J covered we see the opportunity to continue to drive more strategic relationships with customers that can result in eight and even nine figure relationships.

At the same time that we have seen these large deal outcomes, we've consistently improved the productivity of our core apps as they collectively become better at selling the broader portfolio.

As in the cash mentioned sassy has been a big success here.

Additionally, we have seen standout growth from new ecosystem partners, including the cloud service providers and global system integrators.

Not only has our business transacted through these channels increased but more importantly, so has our success leveraging these partners as influences.

We have the product portfolio that makes us an attractive partner for these players along with the scale to make the investments to support the success of these Thomas.

Bringing this together on the topline.

As the cash noted we're targeting growth of 17% to 19% in revenue and the billings over the next three years, which is ahead of the cyber security market growth rates.

We see hardware as a percentage of our total revenue decreasing to approximately 10% with engie S. A our AR exiting fiscal year 'twenty six above 55% of our fiscal year 'twenty six revenue.

A P O remains an important metric as it captures the full value of our customer contracts independent of payment terms and we expect growth of 25% annually through fiscal year 'twenty six. Additionally.

Additionally, we see about two thirds of our revenue in fiscal year 'twenty six driven by current appeal entering the year highlighting the increase in predictability of our revenue profile.

Now moving to the cost side and first with gross margin.

As I, hopefully and BJ have impressed upon you we have significant advantages inherent in building and delivering platforms. There are characteristics of our platform business model the benefit gross margins.

A higher software mix and on network security business helps contribute to a high gross margin something we saw in fiscal year 'twenty three on.

On the cloud delivered side, most notably and sassy and cortex, we've aligned with public service providers to enable us to instantly leverage their scale and delivery capability as well as take advantage of the ongoing innovations inefficiencies.

As we grow we see improvements in our unit economics.

Lastly in customer support with multiple scale products in each of our platforms and common customer support needs, we see leverage within our platforms and across the company.

Above and beyond these platform benefits as we talked about earlier in fiscal year 'twenty three we accelerated some efficiency initiatives that contributed to higher gross margins.

Also saw a normalization of the supply chain during fiscal year 'twenty three.

Starting in 'twenty three we have increased our investments around generative AI to leverage this technology and customer support for efficiency and that a medium term customer outcomes.

While we see these platform leverage and efficiency opportunities and gross margins. We also leave room to invest in new cloud based offerings, which generally have some scale gross margins in their initial phases.

For this reason, we expect a relatively steady gross margin in fiscal year, 'twenty six as compared to fiscal year 'twenty three.

Moving onto operating expenses, we see similar benefits from being a platform company across our major functional areas.

At the top of this list is the sales productivity improvements already discussed it.

It's important to reinforce my point around the platform benefits in R&D.

Choose to redeploy those resources to ensure we are leaning into innovation instead of driving overall financial leverage in R&D.

Our fiscal year 'twenty three focus on accelerated efficiency did yield benefits in terms of leveraging opex.

Expect to continue many of these initiatives.

Want to highlight is the consolidations sales specialists similar to customer support. We also have generative AI initiatives to both improve outcomes across sales and marketing and G&A functions, but we expect will contribute sufficiency in fiscal year 'twenty four and beyond.

Translating this to operating margins.

While some may see a 500 basis point improvement in one year as a milestone milestone achievement from our 2021 analyst day, we simply see that see this as a new beginning as we see many opportunities to drive this higher.

We look for non-GAAP operating margins in the range of 28% to 29% in fiscal year 'twenty six with a long term opportunity for those to be in the low to mid thirties as we further scale our platforms and gain confidence in the power of AI and other business transformations.

We're also committed to growing non-GAAP EPS on a compounded rate greater than 20% from fiscal year 'twenty three to 26.

Moving onto cash flow.

Recall that in fiscal year, 'twenty, one, we guided to 33% free cash flow margins and.

In front of that guidance, we spent considerable effort looking at our entire business end to end.

A view of cash flow and understanding all the drivers.

We've now had two years operating in this manner.

We're confident we can sustain a high cash conversion focusing on areas such as best in class working capital management low Capex business models.

Our topline growth and underlying improvement in operating margin form the foundation of our strong cash generation. There are all the factors impacting cash flow that I want to highlight and that we have already included in our forward looking guidance.

First with the rising cost of money, we have seen more customers asking for deferred payments over the last three years, but especially in the last 12 months as we previously talked about.

Also our ryzen GAAP profitability and some changes in U S tax law, we see rising tax cash taxes.

This has all been included in our forward looking guidance.

I wanted to double click on the impact of deferred payments for a moment.

We've already seen this have a significant effect on our cash flow.

In the second half of fiscal year, 'twenty, along with a pandemic, we launched Palo Alto Networks' financial services or panic to.

The east customers' challenges with short term cash flow issues.

As I mentioned with the rising cost of money in the last year we've.

We've seen this trend Goldman.

Panna fast and deferred payments allow us to drive success partnering with our customers on long term transformation of their security architectures, while working with their cash flow constraints.

The amount of bookings with deferred payments was up four acts in the fourth quarter as compared to three years ago.

This impacted our reported cash flow in the last three years, yet we have maintained our strong cash generation.

As we look to the next three years, we expect this impact to continue and have accounted for this in our medium term targets.

A byproduct of the rise in deferred payments is greater predictability of our cash flow over time. For example, we now expect about a $1 billion in cash flow from deals entered into in prior years, where payments will now come in fiscal year 'twenty four.

This $1 billion is twice what it was and contributions of our fiscal year 'twenty free cash flow when we entered the year.

Summarizing cashflow and confident we can maintain a baseline of 37% and free cash flow margins over the next three years after accounting for the factors I noted.

This and the revenue growth targets I covered should keep us on the aspirational PA to rule of 60 economics in our business. This.

This combination of top line and cash generation puts us in Iraq peer group and allows us the flexibility to navigate the changing environment.

Finally, I'll cover the capital structure structure as the lost tenants and P. S O.

With all the opportunities ahead of us organic investment in our business to drive growth will remain our number one priority we have ample cash generation to make these investments.

From here, we have three capital allocation priorities as we've done previously we will continue to balance things.

Our first capital allocation priority is our M&A strategy.

We have successfully acquired companies that are early leaders in adjacent and emerging cyber security markets.

Many times these are markets in which we have had an early organic efforts, but we see external innovation that can significantly accelerate our time to market.

We target companies that are cheap that have achieved product market fit with teams that can accelerate their innovation inside Palo Alto networks.

Revenue is not a focus for us, but we do ensure that we have a solid plan to accelerate the trajectory of our business.

We've used $2 $5 billion in cash over the last five years, assuming the strategy successfully.

Secondly, we manage the capital structure that gives us flexibility.

For example, we use our balance sheet is a competitive advantage with pan of fast and deferred payments.

We repaid our 2023 convertible debts in July and have another convert coming due in about two years, which we also plan to settle for cash.

Beyond the enabling reasonable flexibility in our capital structure. We are also focused on minimizing dilution and.

Reducing our organic stock based compensation expense as a percent of revenue by at least 300 basis points over the next three years.

Lastly, we will use share buybacks opportunistically something that you've seen from us over the last five years as we've repurchased nearly $4 billion cumulatively.

In concluding my section on bringing it altogether I wanted to bring together the financial targets I've covered.

As Nick has mentioned at the outset, we're focused on an evergreen innovation led approach that will continue to fuel our transformation into a software and AI driven cyber security company.

I am more excited than ever about our growth prospects over the next several years and our plans to continue to do this profitably benefiting from our platform business model.

I hope my excitement comes through today and you can clearly see the drivers of our confidence in these targets from the various presentation.

With that we'll now transitions, taking your questions and I will hand, the call back to Walter to manage this.

Walter.

We will now take questions on the entire program, we're going to start first with Hamzah photo Waller for Morgan Stanley and go next to Andrew Nowinski from Wells Fargo. Please go ahead.

Hi.

Alrighty.

Can you Amy.

Hi, Scott.

I'm already telling.

Dialing in for Hamzah. Thank you so much for taking my question today and really congrats on the great quarter and you didn't mention that.

I think very large opportunity for the company going forward.

I know that you broke down.

The gross margins as well as.

Operating margin impact that.

Let us know how we should think about the company's investment for AI going forward are there any upfront capex or a margin hit that we should consider a little bit more. Thank you so much.

Hi, yes. Thank you very much for your question.

But it's early days in AI as I mentioned.

On the precision AI side, we have been using it we have been using it across our products. There's no incremental costs, it's embedded in our current product development capabilities on the generative AISI I'd say you saw a sneak peek of all the Copilots. The good news is all of those things should generate positive outcomes for us either in terms of incremental.

Modules of customers would like to buy to enable certain functionality or possibly reduce cost from our capabilities to deliver much superior customer support so I think.

At this point in time I would not.

In baking any incremental sort of.

Spend expectations in our forecast as it relates to the implementation of AI.

Deepak has given you guidance that we can continue to see operating leverage in our operating margin clearly some of that is driven by expectations and AI, but I'd say.

We're being we're being normal about it we're not overtly aggressive nor are we orderly conservative around it and hopefully there'll be upside in that if and when we start to see the fruits of deploying it effectively across Palo Alto networks.

Great. Thank you next we are going to the androgen whiskey from Wells Fargo with Brian Essex from Jpmorgan go.

Go ahead Andrew.

Thanks Walter.

And congrats on a nice quarter as well so I wanted to ask about zero Trust, that's clearly a top priority and and really it seems like it's the only architecture, that's capable of stopping a sophisticated attack and you showed how it requires hardware and software and SaaS components.

You know if we think about zero trust demand continuing to ramp going forward why would firewall demand drop.

I think you said the 10% of total revenue in fiscal 'twenty six if.

If it's such a critical component of the of your Zero Trust offering.

It's important to understand I didn't we didn't save all dropped 10, Brazil revenue everything else is growing really fast I think it's important it sounds like its not growing as fast as everything else. Yeah look one of the last five years I've always been offset hardware question I've been trying to avoid it for five years unsuccessfully. So thanks again, Andrew only took one question to <unk>.

Get through it I think it's important to understand.

And as we start to move into the cloud people started coming the notion of software firewalls.

And then with this whole pandemic thing in remote work and distributed network became a real thing. So what are you seeing is that there are different form factors, which are really good in different circumstances against the public cloud you can put a software firewall use vms in various scenarios when throughput becomes really important hardware still the best option and I don't think the whole world.

It's going to end up only in the public health by the way. We also sell firewalls to the cloud providers believe it or not they need firewalls in their data centers. Because eventually Republic also runs at our data center. So I think in that context. The demand for hardware is not going to go away I think what uninsured you beautifully that youre going to end up with all the form factors at most of our customers and the.

The key is these things need to work better together I think if you go today there are many customers who have a palo alto firewall and our firewalls from another vendor now.

Now if we can give them sassy, we can give them software firewall. There is no reason that they should be on two hardware vendors. When they were a single software vendor in a single chassis winter. So I think the point we want to highlight here is there is a further consolidation opportunity in the firewall space driven by the zero trust needs as well as the UI that unearned gave you a sneak peek.

And so I think that's the way to think about it.

We like hardware is great.

Thanks, Greg.

Great. Thanks, Andy next question gives me from Brian Essex of J P. Morgan, followed by William or Jonathan Ho with William Blair Go ahead.

Brian .

Thank you Walter and thanks for taking the question Kash. Thank you for making this a better Friday night and some of those conspiracy theories floating around and but.

We have five and a half thousand people dialed in Brian that makes up for like the last six earnings calls we've had.

Maybe there's a bear here.

Yes, so I just wanted to touch on the security code pilot Prisma cloud co pilot Sam I would imagine these work best with your platform products, but to what extent, we partner with other vendors how you incentivize the use of Palo Altos platform.

With these products in mind, and when we get metrics to help us assess any improvement it actually is a co pilots and AI tools may drive.

And.

When we might expect general availability I know, that's a lot but yeah.

Let me let me tell you I think we've all heard of this concept called hallucination or the idea that it doesn't give you the perfect answer all the time right now and I'd.

I'd say, we're working really hard to see how do we reduce the EDA right in the answers to the copilot. It comes up with because in security, we can't afford wrong answer so.

Our teams are working really hard what we've discovered and the processes that irrespective of which Ella let me deployed you need better knowledge to articles and eat better integration of the UI. So our teams are busy doing a lot of non regrettable work and you saw them give you some sort of a glimpse into what the art of the possible could be I would say sometime before the end of the year, we will start testing.

It has a bunch of customers to get real feedback from customers.

I think the best way to think about it as like the examples you saw like Securities complicated you Island Securities also complicate if you don't know where to look sometimes it's right. There you just don't know where to look if you can ask that question you the answer that improves the productivity of all of our customers.

<unk> improves the configuration capability of all of our customers. It improves our ability to provide real time customer support to our customers. So I think theres lots of advantages done right.

And I'd say, it's almost like you know people often overestimate the short term and underestimate the long term. That's why we gave you a three year forecast I think it may you know, we may get to three months or six months wrong, but we're not get a three or five year round three to five years from now the world will be different you are it will be 50% natural language will be generating tons of efficiency from people using.

Driven tools I think that's the opportunity and you don't get that if you don't work hard now.

Fair enough.

You very much. Thanks, Brian next is Jonathan Ho from William Blair and after that we're gonna have Gabriela Borges from Goldman Sachs Go ahead Jonathan.

Thank you and let me Echo my congratulations as well just terms of your comments around reducing vendor sprawl and platform consolidation. If this has been a significant goal for the industry for some time. So what do you think it will be different this time and how can you sort of sustained innovation across such a large set of products. Thank you.

Well, Jonathan I think you if you saw I think Deepak Lee myself all of US have made this point so that b J around the fact that without innovation.

We are out of the game.

We launched 74 different capabilities last year.

And I think they'll probably do more next year than 70 for it but I think what's interesting what youre seeing is the.

74, many of these are existing point products in the industry, which you're relaunching by adapting them to our platforms and the reason it's going to work. This time, Jonathan because it's working well one of the deals we talked about the SaaS you deal with a large professional services organization, we consolidated seven lenders.

Right.

Our exciting deals, which totaled $200 million consolidate on average three to seven vendors on the salt. So it's working now of course I'm already in the sock I'm consolidated seven I go to my customers wanting somebody saying listen you got the other five things hanging around look I've got these five new modules and X I am why do you want to do five new.

Vendors and solutions, we don't talk to each other right. So I think what we have and opportunities once it's kind of like I think I like to call. It land and expand I think were landed with our platforms. We used the language sassy, Mr. Landa firewalls, Norway, and saying listen you have a hardware while we have our SaaS is this beautiful UI. It brings it all together what do you clean up the rest of the infrastructure I think.

It's it's an evolution in the industry.

Thank you.

Five years ago as an idea we're seeing it actually happened you're seeing us put distance between ourselves and single product vendors in many categories. Because people are seeing the power of the platform that is just the opportunity and that's something BJ lead. He brought me and the gang have to execute on them. It's just relentless execution doesn't need it.

Yes.

Great.

One is.

Prior attempts to do this generally required a tradeoff for the customer and it was the.

The the capabilities that were delivered on their attempts to do a platform, we're not industry, leading and so the customer has to make a tradeoff between you know that.

Your worst capabilities, but in one place or best in class capabilities, and that's a hard tradeoff in cyber security that is one thing that we're not asking our customers to do we're making sure that everything we do is industry leading on its own. The second thing we're doing is making sure that when we integrate it.

They are actually integrated together and solving hard problems that can't be solved as standalone capabilities, So where it's not just about consolidation of the let's say clear value, it's about delivering technical outcomes through the integration that cannot be achieved otherwise.

Alright. Thank you Jonathan next we're going to go to Gabriela Borges from Goldman Sachs and after that Roger Boyd UBS go ahead Gabriele with your question.

Thank you Michael.

Hum.

Hum.

What oh.

She asked cross Wow.

So how could a firewall refresh cycle.

About the conversations we're having with customers on the platform.

And true to what Microsoft of coming up on those kind of questions.

The Chinese.

Hum.

On to the financials.

Juan Pablo and.

Microphone two.

Thank you Kenny.

Thanks for your question I.

I think all of this starts with what we ended with as we get to sell I think the best products in the industry and we deliver better customer outcomes, we have three.

Primary.

Consolidation motions, one has been around our network security services on the firewall, but also in the SaaS.

And actually we have within that now we have customers with bassi and are going back and getting the network firewall business. So our core reps tend to focus on that.

They are the account owner, but and represent the whole portfolio.

The second motion is we talked about code to cloud and we usually land with workload protection or posture management, and then branch out into other modules offer that to either ship left or.

The platform for the customer in cloud security.

You know with cortex, we have three outstanding solutions that we land with we either win with XD are or.

If a customer focused on automation extra.

Or is it starting place for us.

Surface management with expanse.

And many of our first wins with X I am had been leveraging that installed base to deliver a full stock transformation.

Again on the surprising side, though many of our extra I am wins. We also didn't have an installed base and cortex and the customer jumped completely oh, we have specialists in those areas in both the code to cloud and in cortex, and so the core team works with those specialists to run those consolidation plays also.

Great. Thanks next question is going to come from Roger Boyd at UBS, followed by Patrick Kozel from Scotiabank. Roger go ahead with your question.

Great. Thanks for the question and not happy Friday.

Nick as you mentioned, you're now extending the cortex of the core sales force and I'm wondering how you think about the repeatability of the success you've seen with the SaaS. Yeah, I think you mentioned last quarter, 80%.

<unk> contribution from the core reps and within a year of selling that product.

But if I think about SaaS versus cortex, and chassis, maybe benefiting by being a little closer to the core network operation function, That's alright firewalls.

How do you think about that as a challenge.

Core up showing cortex.

Any thoughts there would be great. Thanks.

The whole idea originally was to have sales specialist because we were in the early stages of our products. We were trying to build them out we had lots of changes we want to make sure. They were trained at available as extra resources. So think about it you know we did a $44 million of X I am deal everybody was involved the core of all of them and we'll let that.

It'll go that's a lot of money of commission for the core wrap if he or she can understand X XI and so I'll tell you BJ and I are going to have this wonderful sales conference starting Sunday I promise you every one of those guys will be lined up for the science session because they want to learn more about it because the deal size deal sizes equal to one dollar for the companies equal dollar for the salesperson and they're all very smart people.

So they're going to gravitate towards where the real businesses I think you know.

And when you can get salespeople lean in to learn something it creates a great outcome and also guess what I mean, it's not like people suddenly woke up yesterday that became gore-tex, especially as they used to sell cyber security before they just got did a good job of embracing and getting trained so our products are at a point, where we believe they're mature we understand the differentiation in the market that is reputation out there in the market.

We have people in the back who can stand up Youll see I think we can do this I think we showed that it says hey, we can do this I think we do there's a cortex. The cloud things slightly different cloud is still early in the customer and from an adoption perspective, it's a consumptive model. It's a E. D are our model so that it lends itself to a slightly a different sales motion in there we're not going to be in a hurry to merge that but I think from a cortex prospect.

It's not just merging the team is opening up the floodgates for 3000 people to sell it.

That's the way we think about it.

Great. Thank you Roger next question from Patrick Colville at Scotiabank, followed by Michael tourists. Keith go ahead Patrick.

Yeah.

Patrick are you on.

Alright, we're going to go to Michael <unk> at Keybanc and will be followed by Kelley Oni think of America.

Hey, guys.

And.

So it's sort of a question for Deepak.

So you have the 10% bogey out there for hardware.

Hardware and the out year.

How should we think about product, which is a broader category at this point both in terms of how that ramps over the years.

What other products or categories might falls into that SD Wan has been in their portions of P. M series. So how should we think about that mine dynamic way.

So I think obviously, you've got the technical side of what's Watson products.

There's the EMS does SD Wan as are all of those different things that are in that I think a lot of it will depends on what customers want in terms of the network.

Security architecture.

We believe that the software side of product continues to grow faster, we'd been talking about that a lot I think last quarter, we talked about how 30% of product revenue was what was software, but honestly, we're not guiding the product anymore.

And I think the reason for that is because it's not as relevant.

One of the things that I think we should tell you is that we're in the process of reexamining how to classify the revenue to make it much more easier for you guys to think about it.

Because the product was the artifact of hardware. It comes from a 1919 or 1937 1970. Thank you.

<unk> be requirement that has to be physically tangible and I think with the emergence of SaaS companies that become sort of hard to do that so I think we're going to take a look at that and I didn't want to do it on a Friday night and add.

And one more excited before he has to think about so as the year progresses, we'll find a better way of letting you would think about our revenue, which is more measurable and more trackable and possibly more.

Predictable for you guys, but.

Yeah. This is like product we'd have to tell you the percent of product. That's not hardware every time to tell you how to split between hardware and software I think it suffices to say, we're looking at it as a business across the board. We look at RPM, We look at you know our.

Revenue, obviously, we look at margin, we look at free cash flow, which are the numbers, we're guiding to and that's what we manage on a on a sort of day to day basis to run the business.

Just in case, you weren't thinking about our workload, we do appreciate not having to rebuild the models.

[laughter].

I was hoping one of you guys are going to show with a glass of wine at least but.

Oh My T shirt on this as close as I'm going to get Alright, that's good.

Alright, Thanks, Michael for your question, we're actually going to go back to Patrick Colville, who I understand is now connected from Scotiabank and then we'll go to Italiana. He from Bank of America. Patrick go ahead of.

Thanks, Walter I never thought it was gonna here, the cure for them and love on an earnings call. So a really quality way to suppress the Friday evening deep.

The pass another one for you I mean, you've said lots of like Juicy metrics with us a standout metric to me at least was Palo Alto guiding to was it 17% to 19% billings KBR to fiscal 'twenty six.

I mean, clearly implicit in that is the firm's consolidation message you see resonating with customers.

Which we see as well, but so what.

What I wanted to ask is in the billings targets.

You mentioned, new M&A philosophy, but just wanted to double click you know does that billings target need.

Steady stream of tuck in acquisitions.

And then also would paolo to ever do a transformative deal I mean, what would kind of change your mind back to do a transformative deal.

Let me start with the second question first.

If you don't think we've transformed the company in the last five years I don't know that I don't know what else to do to make you happy okay.

I'm, sorry, it's Friday night, I'm going home [laughter]. So I think we've been doing trials on weather for the last five years and what we've shown you is transformative in itself and I'm just you know in part Jeff.

I don't look you don't need me to buy businesses for you guys. Your shareholder just Martin you can do it yourself unless theres a huge levers that we can prove that something we can take one plus one and make that do possibly doing a half for you guys. It's not it's not sensible for us to do and so far we've looked at everything in the world. We look at everything every day, we see what how housing is off.

So far we havent felt compelled because we have a lot of work to do ourselves I mean, if he'd been busy integrating a transformative acquisition will miss the next five trends because we're busy so.

That's how we think about it it gives you some insight as to how to think about it as it relates to tuck in acquisitions, I think the better way to see it. It goes back to what I said look there are technologies out there. There are other people are working on a we are not the only security company in the world, We're not working on everything and if something becomes irrelevant something becomes an important feature that we think.

As needed by our customers and we haven't been working on it it behooves us to go out and garner required which as I said so.

Should you expect us to maintain a rhythm around how we acquire companies yes.

But you should understand we have a five year track record of doing that responsibility doing it judiciously doing it in a way that we integrated the acquisition do you know whether regenerative l'oreal.

Uh huh.

And pretty much most of the ones you bought in the last.

Five years have really not contributor on day, one to the IRR or revenue because they've been mostly big deck acquisitions. So I think that's the way to think about it if that helps.

Very clear. Thank you Patrick next question from <unk> Bank of America, followed by Joe Gallo at Jefferies. Go ahead with your question Hi.

I wanted to ask about the synergy between the various components of next generation security.

When you talk about Prisma cloud Prisma access and cortex, and even firewalls don't.

Talk about the synergy to our customer are these the same customers that they have benefits of buying multiple solutions from you or are you addressing conceptually different customers with different products and kind of addressing.

Addressing the entire market. Thank you.

Now you've got that you've got the question of the the evening Award Oh.

In the last five years, we went out and they used our various products to do the land we sold sassy, where it was needed we sold hardware firewalls over needed. It was full software for all of us are needed.

17 out of our customers in some way shape or form have all of these things.

I think the next step in our evolution is going back to them and saying listen you have the hardware firewalls. It worth way better with sassy you want to integrate this across as a network security platform, that's where we have to show value. He started to see glimpses of that uninsured U.

Cloud.

X D or is a combination of endpoint and firewall data that has been expanded to all the data do you have an X I am across your entire states. So now here, we're offering capabilities that Splunk has rolfing capability that few radar as they're often capability the clinical and central have in X I am right. So we're doing that to your question.

You should expect us to say listen you have X I am if you had prisma cloud it would work a lot better.

If you have X D R.

Whose protection NXT arrows protection as you work a lot better so you'll start to see us selectively start to create demonstrate value across our platforms. So it's a great question I think but it needs to customers need to be evolved to that because everybody has a bunch of products out there and not everybody lined up at the same day for end of life. So I think you're right you should see more of that from.

The next three to five years.

Thank you.

For many of the large deals that you saw in the presentation.

It's not just looked at as a solution acquisition costs, we put together for that customer not only the solution acquisition costs and a better security outcomes you get we talk about their operating costs are they have to train their people how many people do they need to operate these solutions in the environment.

And the savings they get so that when they go to justify an eight figure deal with their CFO , they're talking about reducing our capital and operating costs with better security outcomes and I think we hit on this in his earlier answers there hasnt been a company that's really been able to do that before in this industry and when you can buy.

When those two.

It's what helped us in a tough economic environment to continue to close larger and larger deals with those customers.

Great Great. Thank you next up we have Joe Gallo from Jefferies and our final question will come from Adam Borg with Stifel Go ahead Joe.

Hey, guys. Thanks for the question and Great results and appreciate the long term framework just wanted to drill into the visibility into fiscal 'twenty. Four guidance you guys just put up 18% billings growth, which is incredible and a 44% comp I imagine that had some backlog benefit, though now youre guiding to an acceleration in billings next year relative to <unk>.

As an opening guide we would presume to be conservative so what underpins the confidence in that especially if you have hardware and duration headwinds. Thanks. So first of all Joe.

Great job on CNBC today navigating the questions about ourselves. So thank you very much.

On your question.

We we have conviction in some of the platforms like you know, let's start with the our favorite one today like Exxon came out of left field.

It did two of them and it all for US you would we like where we would have been happy at 100.

For our fiscal year. It came in at 200, so part of what Youre seeing is that there are some products, where we have tailwind.

I think the part where we're sort of normalizing for is the.

Now normally for the Barclays sort of we said to you. The part that we're careful about is the hardware normalization, which we'd been anticipating or always positively surprised every quarter. It finally came home in spades in Q4. So I think the forecast we have is what we represent to our board. That's what we are saying we're going to go do that so we're telling you now are we going to try.

And work hard to go beat it Yeah of course, that's what we do every time, there's lots of puts and takes so you know based on the puts and takes based on where we are in different products based on what plans. We have to launch different things. This is our best estimate as of now I would've done give it our best to go out and deliver it I think that's the best way to describe how we think about our numbers, yes of course, there's hardware headwinds others.

Sassy tailwind I don't know if you saw we became the only vendor in southeast part right and a single vendor sort of SD Wan plus SSE. So.

Some good deal wins, we have customers pay attention to these kinds of things.

Alright last question from Adam Borg with Stifel Go ahead Adam.

Awesome. Thanks, everyone for fitting me in and all the color Tonight, maybe just for any cash or P. J just on the federal vertical talk of some large deals in the quarter, maybe just talk about the opportunity that you're seeing especially as we head into the fiscal year and stood up for the government that next quarter. Thanks, So much.

I think.

Cashless credit even before I came on board there was large investment in our federal team and the knowledge that.

With many of the federal directives.

The budget being put in and obviously some of the geopolitical events.

It was a opportunity for the company and so we're seeing the benefits of many of those forward investments and we're going to continue to invest there. There's obviously large scale projects that are occurring we had one last year.

Announces our largest deal of the year there.

There.

Those take a long time to mature and we're involved in many of them. So I feel like we have a great opportunity going forward in that space.

Are there specific ones, obviously out there that we're looking to.

We've got some first orders and gain momentum with them and I think we'll be talking more about that in the coming quarters.

Great. Thanks, again, alright, thanks, Alan for your question with that we're going to close it out and I'm going to pass it back into cash for some closing remarks.

Thank you Walter I, just want to take the opportunity one more time to thank all of you I know this was a unique one you'll you'll be telling your future. You know monkeys are that youre going to mentor and the analyst community may be talking about that one Friday afternoon call, which follows the hosted auto there are sort of misdirected sense of.

I'm trying to get you guys to go do this over the weekend for us. So we really appreciate taking the time.

Apologize for taking up some of your Friday.

We will be available tomorrow, and they asked for some of you who've been kind enough to schedule time with doctors, who would want to make sure you get all your questions answered it would be remiss of me not to both acknowledge and thank our employees, which is what makes all of this happened in all of our partners out there who help us deliver the Delaware just capability and of course I also want to thank my entire management team for that.

They make a really really good FY 'twenty I'm, saying what has been a yet another set of different ear and that's I don't think I've had a normal here in the last five years, but in the pandemic and supply chain and inflation in money and there. So I look forward to possibly a normal year next year and again once again. Thank you very very much for all your support and your indulgence.