Q2 2024 Palo Alto Networks Inc Earnings Call

Walter Pritchard: I'm Walter Pritchard, Senior Vice President of Investor Relations and Corporate Development. Please note that this call is being recorded today, Tuesday, February 20th, 2024, at 1.30 p.m. Pacific time.

Senior Vice President of Investor Relations and corporate development.

Please note that this call is being recorded today Tuesday February 20th 2024 at 130 P M Pacific time.

Walter Pritchard: With me on today's call to discuss our second quarter results are Nikesh Arora, our chairman and chief executive officer, and Deepak Golecha, our chief financial officer. Following our prepared remarks, Lee Klarich, our Chief Product Officer, will join us for the question and answer portion. You can find the press release and other information to supplement today's discussion on our website at investors.paloaltonetworks.com. While there, please click on the link for quarterly results to find the Q2-24 supplemental information and the Q2-24 earnings presentation.

Arun Kumar: With me on today's call to discuss second quarter results are in a cash Aurora, our chairman and Chief Executive Officer, and Deepak <unk>, Our Chief Financial Officer. Following our prepared remarks, Lee Klarich, our chief product officer will join us for the question and answer portion.

Arun Kumar: You can find the press release and other information to supplement today's discussion on our website at investors <unk> Palo Alto networks Dot com, while there. Please click on the link for quarterly results to find that Q2 'twenty for supplemental information and the Q2 24 earnings presentation.

Walter Pritchard: During the course of today's call, we will make forward-looking statements and projections regarding the company's business operations and financial performance. These statements made today are subject to a number of risks and uncertainties that could cause our actual results to differ from those forward-looking statements. 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.

Arun Kumar: During the course of today's call, we will make forward looking statements and projections regarding the company's business operations and financial performance.

Arun Kumar: These statements made today are subject to a number of risks and uncertainties that could cause our actual results to differ from those forward looking statements. 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 presentation today.

Arun Kumar: 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.

Walter Pritchard: 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 and comparisons are on a fiscal year-over-year basis. We would also like to note that management is scheduled to participate in the Morgan Stanley TMT conference in March. I will now turn the call over to Nikesh. Thank you, Walter.

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

Arun Kumar: We would also like to note that management is scheduled to participate in the Morgan Stanley TMT Conference in March.

unknown: I will now turn the call over to the cash.

Cash: Thank you Walter and good afternoon, and thank you for joining us today for our earnings call.

Nikesh Arora: Good afternoon. And thank you for joining us today for our earnings. I am pleased to report another quarter in which we successfully executed our profitable growth strategy, driving a combination of top line growth, a significant expansion to non-GAAP operating margin, and strong pre-cash flow generation. Revenues grew 19% year-over-year, and RPA grew 22%, capturing the full value of our future revenues. Billings grew 16% a

Cash: I am pleased to report another quarter in which we successfully executed our profitable growth strategy.

Cash: Driving a combination of topline growth significant expansion in non-GAAP operating margin and strong free cash flow generation.

Cash: Revenues grew 19% area and our peer grew 22% capturing the full value of our future revenue.

Cash: Billings grew 16% year over year.

Nikesh Arora: Just as important as we focus on profitable growth, we again deliver substantial operating margin leverage and strong growth in free cash. Non-GAAP operating margins of 28.6% expanded nearly 600 basis points year-over-year, and we generated $2.9 billion in adjusted free cash flow over a trailing 12-month period. Our strong profitability drove non-GAAP EPS of $1.46, up 39% year-over-year, and our GAAP net income continued to grow meaningful Beyond our financial results, we achieved a number of notable milestones in Q2, worthy of the spotlight. We continue to drive large deals, including a steady stream of million-dollar-plus deals and success in our largest deals, with 10 transactions over $20 million in the quarter. Our 10 highest spending customers in Q2 increased their spend with us by 36% during the period.

Cash: Just as important as we focus on profitable growth, we again delivered substantial operating margin leverage and strong growth in free cash flow non.

Cash: non-GAAP operating margins of 28, 6% expanded nearly 600 basis points year over year, and we generated $2 9 billion and adjusted free cash flow on a trailing 12 month basis.

Cash: Our strong profitability drove non-GAAP EPS of $1 46 up 39% year over year and our GAAP net income continued to grow meaningfully even without one time items.

Cash: Beyond our financial results, we achieved a number of notable milestones in Q2 worthy of spotlighting.

Cash: We continue to drive larger deals, including a steady stream of million dollar plus deals and success in our largest deals with 10 transactions over $20 million in the quarter.

Cash: Our 10 highest spending customers in Q2 increased their spend with us by 36% of the period.

Nikesh Arora: I also wanted to update you on key achievements across our three platforms. In our network security business, we continue to see progress driving AR growth in our SaaS business; Q2 was our fifth consecutive quarter of 50% ARR growth. Additionally, more than 30% of our new SASE customers we signed in the second quarter were new to Palo Alto Networks, showing that we can win head-to-head in the market when leading with SaaS. We continue to drive innovation and network security, refreshing our high-end 75-inch series platform and investing in new OT security capabilities, which garnered a net new leadership position. In Prisma Cloud, we made significant investments in the first half of the year to drive new customers and saw this pay off in Q2 with our highest new ACV growth in five quarters. We continue to see strong trends in multi-module adoption, with approximately 30% growth in customers with two or more modules and approximately 60% growth in customers with three or more modules. Additionally, about a quarter of our customers are using five or more modules.

I also wanted to update you on key achievements across our three platforms and our network security business, we continue to see progress driving <unk> growth in our SaaS business.

Cash: Q2 was our fifth consecutive quarter of 50% IRR growth.

Cash: Additionally, more than 30% of our newest assay customers. We signed in the second quarter were new to Palo Alto networks, showing that we can win head to head in the market when leading with SaaS.

Cash: We continue to drive innovation in network security refreshing, our high end 75, and our <unk> platform and investing new Ot security capabilities, which garnered a net new leadership position for us.

Cash: And Prisma cloud, we have made significant investments in the first half of the year to drive new customers and saw this payoff in Q2 with our highest new ACB growth in five quarters. We continue to see strong trends in multi module adoption with approximately 30% growth in customers with two of our module that approximately 60% growth in customers with three or more modules.

Cash: Additionally, about a quarter of our customers are using five or more modules are external recognition. This market continued with Forrester research positioning us as a leader as cloud workload security wave report.

Nikesh Arora: Our external recognition of this market continued with Forrester Research positioning us as a leader in this cloud workload security wave. In Portex, XIM continues to be a significant catalyst for large transactions and growth across the board, as evidenced by ARR for XIM customers being more than five times higher than that of Cortex customers who have not yet adopted it. You've seen significant progress on the milestone of Ex-Im in Q2, including the most number of deals signed in a single quarter and bookings of over $90 million again this quarter. We've already displaced 19 different SIEM vendors to date, and with the confidence under our belt, we're now looking systematically at how we can accelerate this legacy SIEM to market. From a regional perspective, demand overall is healthy, but we did see softness in the U.S. federal government's market. We are positioned well for several large projects where we have the requisite certifications and one technical selection, but details are not closed. The situation started off towards the end of Q1, but worsened in Q2, and as a result, we had a significant shortfall in our U.S. federal government.

Cash: Importing.

Cash: <unk> continues to be a significant catalyst for large transactions and growth across the business.

Cash: This is evidenced by our <unk> customers being more than five times higher than that of cortex customers, who have not yet adopted a science.

Cash: <unk> seen significant progress in the milestones. The next time in Q2, including the most number of deals signed in a single quarter and bookings of over $90 million again this quarter we've.

Cash: We have already displaced 19 different sim vendors to date and the confidence under our belt. We're now looking systematically on how we can accelerate this legacy Sim to place displacement.

Cash: From a regional perspective demand overall is healthy.

Cash: We did see softness in the U S. Federal government market, we are positioned well for several large projects, where we had the requisite certifications and one technical selection, but these deals did not close the situations start off towards the end of Q1 or worsened in Q2 and as a result, we had a significant shortfall our U S. Federal government business. We expect this trend will continue.

Nikesh Arora: We expect this trend will continue into our Q3 and Q4, of setting the billing weakness in Fed was some non-product backlog that we shipped. With several leadership positions awarded in the second quarter, including an addition as a leader of the Gartner Endpoint Protection Magic Quadrant, we're now a recognized leader in 21 different categories across our three platforms. Five years ago, when we began our strategy, the industry believed building leadership across multiple categories wasn't possible. No one was talking about security platform. Instead, the word was best of breed.

Cash: Into our Q3 and Q4 offsetting the billing weakness in fed while some non product backlog that we shipped this quarter.

Cash: Okay.

Cash: With several leadership positions awarded in the second quarter, including the addition of the leader of the gardener endpoint production Mag protection Magic Quadrant, We're now a recognized leader in 21 different categories across our platform.

Cash: Five years ago, when we began our strategy the industry believed building leadership across multiple categories wasn't possible no. One was talking about security platform. Instead. The word was best of breed our success over the last five years has been driven by the shift to platform Ization.

Nikesh Arora: Our success over the last five years has been driven by the shift to platformization. We're committed to investing in innovation to extend our industry leadership position and platform. This unique leadership across our three markets is driving strong adoption of our platforms in our Target Global 2000 Market. As of Q2, 79% of the Global 2000 have transacted with us on at least two of our platforms, and 57% on all three. This is up from 73% in 47% two years ago.

Cash: We're committed to investing in innovation to extend our industry leadership position and platform.

Cash: This unique leadership across our key markets is driving strong adoption of our platforms and our target global 2000 market as of Q2, 79% of global 2000 have transacted with us on at least two of our platforms and 57% in all three this is up from 73% and 47% two years ago.

Nikesh Arora: In most of these accounts, while they have adopted products from multiple platforms, we are early in driving each of our platforms wall-to-wall. This is a major area of focus for us as we move forward, driving consolidation within our three platforms. We know this is the right strategy as we seek compelling economics and multi-platform wins.

Cash: In most of these accounts, while they have adopted products from multiple platforms, where early in driving each of our platforms. Wall-to-wall. This is a major area of focus for us as we move forward driving consolidation within all three platforms.

Cash: This is the right strategy as he compelling economics with multi platform wins.

Nikesh Arora: Our two platform customers have an average customer lifetime value that is more than five times that of our single platform. For our three-platform customers, that is more than 40 times larger. While we are driving platformization, I personally think we should be doing this faster. Not only is this showing up in our deal statistics, but as we have established the portion of our platform, and the position of our platforms, we are now seeing significant progress in consolidating vendors in our customer environment. We built our Zero Trust platforms through consistent architecture across our appliance, software, and SASE formfactor. Customers can now consistently manage security policy across these form factors and then leverage a consistent set of security subscriptions to consolidate network security capabilities. These capabilities, provided by point vendors, can include intrusion prevention, web proxies, URL filtering, SD-WAN, and DLP, just to name a few.

Cash: AI platform customers have an average customer lifetime value that is more than five times that of our single platform customers.

Cash: For our <unk> platform customers that is more than 40 times larger.

Cash: While we are driving platforms nation I personally think we should be doing this faster.

Cash: Not only is this showing up in our deals statistics, but as we have established the portion of our platforms.

Cash: Position of our platforms. We are now seeing significant progress in consolidating vendors in our customer environments.

Cash: We've built out zero trust platforms through consistent architecture across our appliance software and sassy form factors customers can now consistently managed security policy across these form factors and then leverage a consistent set of security subscriptions to consolidated network security capabilities.

Cash: Capabilities provided by point vendors can include intrusion prevention web proxies Euro filtering SD Wan and DLP just to name a few.

Nikesh Arora: In Q2, we saw zero-trust consolidation wins that included a large U.S. manufacturing company standardizing our network security platform in a $40 million transaction, replacing end-of-life competitive hardware, leveraging our security subscriptions, and removing a point competitor from the S&P 500. We were the only company with the right certifications across all these offerings that could support their broad geographic footprint. This deal was part of a consolidation and modernization effort across IT with positive ROI for the customer. We also had a seven-figure deal with a large law firm, expanding our firewall footprint in the new data center, and expanding their hybrid workforce initiatives with Prisma Act. As part of this, we won against other firewall and SSE competitors and also consolidated the URL filtering and VPN capability.

Cash: In Q2, we saw zero trust consolidation wins that included a large U S manufacturing company standardizing on our network security platform and a 40 million dollar transaction, replacing and apply a competitive hardware leveraging our security subscription that are moving appoint competitor competitor SSE.

Cash: We were the only company in the right certifications across all these offerings that could support that broad geographic footprint.

Cash: This deal was part of a consolidation and modernization effort across it.

Cash: With positive ROI for the customer.

Cash: We also had a seven figure deal with a large law firm expanding our firewall footprint and the new data center and expanding the hybrid workforce initiatives with Prisma access as part of this one versus the other firewall and SFC competitors and also consolidated their euro filtering and VPN capabilities in.

Nikesh Arora: In Brisbane Cloud, we have built a go-to-cloud platform combining key best-of-breed capabilities that we have acquired or developed organically. A common architecture and user experience are spread across 12 modules. As our customers adopt multiple modules, they can consolidate a wide variety of vendors, including those in cloud security posture management, cloud workload protection, API security, SCA, or software composition analysis, and infrastructure as code security, amongst others. In Q2, we closed a seven-figure Prisma Cloud new logo deal with a financial services company, displacing multiple incumbent vendors. The customer is looking for a CNAP solution to support their multi-cloud journey. Prisma Cloud CNAP streamlines several previously deployed point solutions and tools.

Cash: In Brazil, the cloud via a build to core to cloud platform, combining key best of breed capabilities.

Cash: That we have acquired or developed organically.

Cash: A common architecture and ease of experience spreads across 12 modules.

Cash: As our customers adopt multiple modules they can consolidate a wide variety of vendors, including those in cloud security posture management cloud workload protection API security.

Cash: Our software composition analysis, and Infrastructure's code security amongst others in Q2, we closed a seven figure Prisma cloud new logo deal the financial services company displacing multiple incumbent vendors. The customer was looking for a <unk> solution to support their multi cloud journey. The prisma cloud seen a streamlined several previously deployed.

Cash: Point solutions and tools.

Nikesh Arora: We also closed a seven-figure Renew and Expand deal with a leading North American technology company where the customer intends to expand the use of Prisma Cloud to seven modules and also value the consolidation and standardization delivered through Prisma Cloud. Finally, by combining our Cortex platform with our autonomous security operations platform, XIM, we were able to establish our offering, which has enabled us to accelerate our platform value proposition with Cortana. A platform approach in the SOC is becoming a customer imperative, as point products, each with their own data stores, cannot have full context nor drive appropriate action without overly complex integrations and high personnel costs.

Cash: We also closed a seven figure renew and expand deal with a leading north American technology company with a customer intends to expand the use of Prisma cloud to seven modules and also value the consolidation and standardization delivered to Prisma cloud.

Cash: Lee and our cortex platform with autonomous security operations platform.

Speaker Change: I am.

Speaker Change: We were able to establish our <unk>.

Speaker Change: The offering which has enabled us to accelerate our platform value proposition with cortex.

Speaker Change: Our platform approach in the Sac is becoming a customer imperative as point products each with their own data stores cannot have full context, nor drive appropriate action without overly complex integrations and high people costs.

Nikesh Arora: In Q2, we saw consolidation wins that included a large insurance company that renewed the subscription and support on firewalls at the same time, and added Exxon and Expanse capability for a $25 million transaction. The Xi'an Choice displays the two leading EDR and SIM competitors in the market, enabling the customer to avoid the cost of adding other point products to their stock. Additionally, in Q2, we saw follow-on consolidation success for a Japanese manufacturing company that previously consolidated its network security across our SASE capabilities, leveraging Prisma Access in our DLP and CASPK. The customer then added XO to their SOC and expressed an interest in consolidating for them. In Q2, they acquired Exime in a mid-seven-figure deal.

Speaker Change: In Q2, we saw consolidation wins that include a large insurance company that renew their subscription and support and firewalls at the same time added excitement expanse capability for 25 million dollar transaction.

Speaker Change: The exciting choice displays with two leading edr and some competitors in the market enables the customer to avoid the cost of adding other point products in their stock.

Recently in Q2, you saw following consolidation success for the Japanese manufacturing company that previously consolidated that network security across SaaS capabilities, leveraging prisma access and our DLP and Casspi capabilities. The customer then added <unk> into their socks and expressed an interest in consolidating for them in Q2, we added <unk> in the mid seven figure deal.

Speaker Change: Neil.

Nikesh Arora: I don't know if you've had a chance to look at our guidance. Our guidance is not a consequence of a change in the demand. I'll click out.

Neil: I don't know if you've had a chance to look at our guidance. Our guidance is not a consequence of a change in the demand outlook out there our guidance is a consequence of us.

Nikesh Arora: Our guidance is a consequence of us driving a shift in our strategy of wanting to accelerate both our platformization and consolidation and activating our AI leadership. We believe this is the time for us to invest, given our leadership position in the market and our leadership position in platformization and consolidation. But before I talk about that more, as to how we intend to accelerate our growth prospects in the future and drive towards a much higher aspiration of $15 billion in ARR by 2030, I want to give you a candid view of where we see the cybersecurity market and the demand function out there. The demand story is no different from prior quarters, and the margin continues to get stronger. There are multiple drivers fueling this.

Neil: Driving a shift in our strategy and wanting to accelerate both our platform ization and consolidation and activating our AI leadership. We believe this is the time for us to invest given our leadership position in the market and our leadership position across black formalization and consolidation, but before I talk about that more as to how we intend to accelerate.

Neil: Our growth prospects in the future and drive towards a much higher aspiration of $15 billion in IRR by 2030, I want to give you a candid view of where we see the cyber security market and the demand function out there.

Neil: The demand story is no different from prior quarters and in the margin continues to get stronger.

Neil: There are multiple drivers fueling this the threat landscape continues to challenge our customers with increasing scale and sophistication of attacks.

Nikesh Arora: The threat landscape continues to challenge our customers with the increasing scale and sophistication of attacks. I'm personally getting calls from CEOs and members of boards that have had bad experiences, as well as those that have seen their peers adversely impacted. We're increasingly focusing on working with companies impacted by breaches, an important commitment as we continue to be the leader in this space. Last quarter, we offered 1,500 of our top customers an opportunity to get our free support during a breach.

Neil: I'm personally getting calls from Ceos and members of the boards that have had bad incidents.

Neil: As well as those that have seen their peers adversely impacted.

Neil: We're increasingly focusing on working with companies impacted by breaches and important commitment as we continue to be the leader in this space.

Neil: Last quarter, we offered 500 of our top customers an opportunity to get our pre support during a breach surprisingly.

Nikesh Arora: Surprisingly, 400 customers have signed up in the last 90 days out of 1,500 to get our help on this topic. Clearly, there is awareness and concern around cybersecurity as has never been before. Heightened geopolitical tensions are driving significant nation-state activity, with national infrastructure being targeted.

Neil: 400 customer has signed up in the last 90 days out of 500 to get our help on this topic clearly there is awareness and concern around cyber security as has never been before.

Neil: Heightened geopolitical tensions are driving significant nation state activity with national infrastructure being targeted successful breaches and ransomware attacks are being perpetrated across many industries that CPU repercussions for the bad actors, although we did see a.

Nikesh Arora: Successful breaches and ransomware attacks are being perpetrated across many industries with few repercussions for the bad actors, although we did see various law enforcement agencies this morning, after the weekend, shut down LockBit, which is a promising sign. The new SEC mandate requires prompt disclosure of material incidents, which often results in companies reporting those incidents before a full assessment can be done or incidents remediated. We see some companies making several disclosures in succession as they grapple with understanding the full extent of what they are facing. We see the results of these disclosure mandates recognizing the need for expedited action, security visibility, and remediation in the area. The part that is new, despite the many demand drivers we're seeing, is that we're beginning to notice customers are facing spending fatigue and cyber threats. This is new, as adding incremental point products is not necessarily driving a better security outcome.

Neil: Various law enforcement agencies. This morning over the weekend shutdown locked pit, which is a promising sign.

Neil: The new FCC mandate requires prompt disclosure materials incidents, which often result in companies reporting those incidents before a full assessment can be done or incidents immediate it.

Neil: We see some companies, making several disclosures of succession as they grapple with understanding the full extent or they're facing.

Neil: The results of these disclosure mandates recognizing the need for expedited action security visibility and remediation and deal with them.

Neil: The part that is new despite the many demand drivers we're seeing.

Neil: We're beginning to notice customers are facing spending fatigue and cybersecurity. This is Neil.

Neil: As adding incremental point products and not necessarily driving a better security outcome for them.

Nikesh Arora: This is driving a greater focus on ROI and total cost of ownership amongst most customers. There are also some key trends within the industry that I think are worth highlighting. Palo Alto Networks is unique in seeing gains in market share and hardware firewalls on the product. This market is changing rapidly, with us seeing some of our competitors who have introduced price increases begin to roll them back. Kumar's vantage point.

Neil: This is driving a greater focus on ROI and total cost of inertia amongst those customers.

Neil: But also some key trends within the industry that I think are worth highlighting.

Neil: I'll also networks is unique in seeing gains in market share in hardware firewalls are in the product space.

Neil: This market is changing rapidly with us seeing some of our competitors, who had introduced price increases begin to roll them back.

Neil: Tomorrow at this point we.

Nikesh Arora: We see the share shift happening in our favor because we see customers consolidating into our zero-trust platforms. As I mentioned, 30% of the net new network security customers for SASE were new to Palo Alto. Those are the customers who, over time, go ahead and consolidate their footprint and require our firewalls to be deployed to give them a consistent zero trust architecture. We see this as a promising trend. We intend to accelerate that opportunity, along with the incremental focus on ROI and TCO, with single product vendors having challenges articulating compelling value. They're also forced to have platformization now.

Neil: We see this share shift happening in our favor because we see customers consolidating into a zero trust platform customers as I mentioned, 30% net new network security customers for sassy or new to Palo Alto.

Neil: Those are the customers who over time go ahead and consolidate their footprint and require our firewalls to be deployed to give them a consistent zero Trust architecture, we see this as a promising trend we intend to accelerate that opportunity.

Neil: Along with the incremental focus on ROI and T. C. L. A single product vendors, having challenges and articulating compelling value.

Neil: They are also forced to have black formalization narrative.

Nikesh Arora: When they're not able to convince customers that their strategy is competitive, they resort to uneconomic pricing and putting pressure on transactions. We're beginning to see rogue behavior by some vendors in the space who are keen to retain their customers, primarily in the legacy vendor space and the startup. We intend to combat that by investing in this space and trying to accelerate platformization and consolidation for our customers. We're also seeing increased demand for AI, along with deploying AI in our products for big new CR customers asking us to help them protect against a successful and responsible deployment of AI in the infrastructure. Putting this all together, these trends in the market bolster our conviction that adopting platforms is the only viable strategy for customers and leveraging AI is imperative. We want to march faster to our aspiration to become the Salesforce of cybersecurity. Customers have adopted platforms in other markets across technology, and this will inevitably happen in cybersecurity. These industry trends set up conditions that favor leaders that can drive consolidation.

Neil: When they're not able to convince the customer that their strategy is competitive there many times resorting to on a dynamic pricing and putting pressure on transactions of this matter.

Neil: We're beginning to see rogue behavior by some vendors in this space, who are keen to retain their customers primarily in the legacy vendor space on the startup space, we intend to combat that with investing in this space and trying to accelerate lateralization consolidation for our customers.

Neil: We're also seeing increased demand for AI, along with applying AI and our products are beginning to see our customers asking us to help them protect for a successful responsible deployment of AI and then infrastructure.

Neil: Putting this all together these trends of the market bolster our conviction that adopting platforms is the only viable strategy for customers and leveraging AI is imperative.

Neil: You want to much faster to our aspiration to become the salesforce to become the service or the workday a cybersecurity.

Customers have adopted platforms in other markets across technology, and this will inevitably happen in cybersecurity. These.

Neil: These industry trends set up conditions that favor leaders that conduct consolidation, we intend to answer this challenge.

Nikesh Arora: We intend to answer this challenge. With all the promise that platformization holds, adoption is not always easy for many of our customers. Until now, we have primarily assumed that our customers adopt our platforms at their own pace. The crux of the challenge is around execution; customers face risk in executing or making significant changes to the environment, as well as economic exposure from these changes. The key friction points you've noticed include the challenge of replacing multiple products simultaneously, as well as issues around double playing while working through complex contracts.

Neil: Yeah.

Neil: With all of the promise that platform Ization holes adoption is not always easy for many of our customers until now.

Primarily assumed that our customers to adopt our platforms at their own pace. The crux of the challenge is around execution.

Neil: Customers face risk.

Neil: In executing.

Neil: Or making significant changes to their environments as well economic exposure from these changes here.

Neil: He friction points you've noticed include the challenge of replacing multiple products simultaneously as well as issues around double playing while working through complex contract terms.

Nikesh Arora: Over the last six months, we have been quietly working to develop programs that enable us to help minimize and even share in the risk of our customers. You will see us tomorrow launching a significant number of platform offers to our customers to help drive the consolidation and platformization strategy. We believe we can build customer confidence in our platforms by approaching them well before their point product contracts expire. After we gain their contractual commitment, we offer an extended rollout period where we can demonstrate our ability to deliver these platform benefits. Customers can then start paying us after their obligation to legacy vendors. With the experience we've gained over the last six months, we believe now is the right time to exfoliate programs across our portfolio to drive this platformization. All these programs will have mechanisms to reduce customer friction, accelerate product deployment, help customers realize the value of our platforms, and consume new innovation sooner. While this is not an exhaustive list, I wanted to give you some examples.

Neil: Over the last six months, we have been quietly working to develop programs that enable us to help minimize and even share in the risk of our customer space you will see us tomorrow launching a significant number of platform offers to our customers to help drive the consolidation and platform Ization strategy. We believe we can build customer confidence in our platforms by approaching them well before.

Neil: Their point product contracts expire after began their contractual commitments. We have offered an extended rollout period, where we can demonstrate our ability to deliver these platform benefits customers can they start paying us off the obligation of the legacy vendors ends.

Neil: With the experience we've gained over the last six months. We believe now is the right time accelerate programs across our portfolio to drive this platform Ization Aldi.

Neil: All of these programs will have mechanisms to reduce customer friction explanate product deployment help customers realize the value of our platforms and consume new innovation sooner. While this is not an exhaustive list I wanted to give you some examples.

Nikesh Arora: We have begun to launch programs already that include legacy trade-ins, no-cost introductory offers, product add-ons, and incentives to accelerate estate standardization. Each of these programs has elements of reducing execution risk and dealing with the economic exposure that concerns our customers. In that sense, we must bear the cost of the transition through lower upfront financial outcomes, but we are convinced these will yield amazing outcomes for us in the mid to long term. We have developed these programs across all three platforms, and as I mentioned, we have announced a few, and we intend to announce more starting tomorrow, in addition to expanding some of the programs that we already have.

Neil: We have begun to launch programs already that include legacy trading no cost introductory offers and product add ons and incentives to accelerate estate standardization.

Neil: Each of these programs has elements of reducing execution risk and dealing with economic exposure that concern our customers in that sense. He must bear the cost of the transition to lower upfront financial outcomes, but we're convinced these will yield amazing outcomes for us in the mid to long term.

We have developed these programs across all three platforms and as I mentioned, we intend we announced a few and we intend to announce more starting tomorrow. In addition to expanding some of the programs that we already have.

Nikesh Arora: Given this is an investor call, and you're all focused on these numbers, I want to provide you with a high-level understanding of the aggregate impact we expect this will have in the medium term and long term. I will then have Deepak talk more about this in his section and explain this much more eloquently and elaborately. We expect a typical customer entering into a platformization transaction will not pay us for our technology for a period of time. As these programs ramp over the next year, we expect a change to our billings and revenue growth for the next 12 to 18 years. As customers move into the period where contracts and full billing and revenue contribution are made, we expect to see an acceleration in our top line.

Speaker Change: Given this is an investor call and you all focus these numbers I want to provide you a high level understanding of the aggregate impact. We expect this will have in the medium term or long term I will then have Deepak talk more about this in his section and explain this much more eloquently and elaborately.

Speaker Change: We expect a difficult customer entering into a platform ization transaction will not pay us for our technology for a period of time as these programs ramp over the next year, we expect a change to our billings and revenue growth for the next 12 to 18 months as customers move into the period, where contracts in full billing and revenue contribution we expect to see an acceleration of our top line metrics.

Nikesh Arora: Beyond this dip and acceleration of top-line metrics, we believe we can sustain higher growth rates for longer, driven by sticky and broad platform relationships with incremental customers, allowing us to aspire to a goal of $15 billion in next-generation security in 2030. We also expect to achieve our transformation to a business with greater than 90% recurring revenue and industry-leading non-GAAP operating margins in the low to mid-30s. As Deepak will explain, we believe we can do this in a financially prudent and strong way. Talking about bigger platforms and ARR aspirations cannot be done today without talking about AI. We have been working on AI for a long time as a company. However, we did accelerate our efforts with the arrival of generative AI. I personally believe AI is going to be one of the biggest inflection points in technology in over a decade and, more importantly, will significantly increase the total addressable market in cybersecurity. Goddard predicts that by 2027, $300 billion will be spent on AI software. The CIA juggernaut continues to bring several challenges along with it from a security perspective.

Speaker Change: Beyond this dip and exploration of topline metrics. They believe we can sustain high growth rates for longer driven by sticky and broad platform relationships with incremental customers, allowing us to aspire to golar $15 billion in next generation security.

Speaker Change: In 2030.

Speaker Change: We also expect to achieve our transformation to a business with greater than 90% recurring revenue and industry, leading non-GAAP operating margins in the low to mid thirties.

Speaker Change: As Vivek will explain we believe we can do this in a financially prudent and strong manner.

Speaker Change: Talking about bigger platforms and they are our aspirations cannot be done today without talking about AI.

Speaker Change: We have been working on AI for a long time as a company. However, we did accelerate our efforts with the arrival of generative yeah.

Speaker Change: I personally believe AI is going to be one of the biggest inflection points in technology in over a decade and likely more importantly to significantly increase the total addressable market in cybersecurity.

Speaker Change: Gartner predicts by 2027 $300 billion will be spent on AI software.

Speaker Change: Dci Juggernaut continues to bring several challenges along with it from a security perspective multiple vectors of attacks ranging from fishing to malware to nation state activity and inflected negatively due to AI. Furthermore, customers are evaluating dozens of copilots type offerings with end users for security is not necessarily front and center.

Nikesh Arora: Multiple vectors of attacks ranging from phishing to malware to nation state activity are inflected negatively due to AI. Furthermore, customers are evaluating dozens of co-pilot-type offerings with end users where security is not necessarily front end. We see three discrete opportunities to drive additional growth in cybersecurity through AI. And we have internally put pen to paper to understand these opportunities, and we're in the alpha or beta stages of many of these across our product capabilities. First, organizations are concerned about their employees' access to AI in an insecure way.

Speaker Change: We see three discrete opportunities to drive additional growth in cyber security through <unk>, and we have internally put pen to paper to understand this opportunity and we're in alpha or beta stages of many of these across our product capabilities.

Speaker Change: Organizations are concerned about their employees access to AI and insecure manner.

Nikesh Arora: Whether the consequences are unintended leakage of open source or other data models tampering or AI-driven phishing, we see an opportunity to add value across the growing volume of users we secure. We currently secure north of 100 million users and their access to applications, both in the public cloud and in the data center. We expect each of these users is an opportunity for us to deliver an AI security sub for them.

Speaker Change: As a consequence of unintended leakage open source other data models tampering, our AI driven fishing, we see an opportunity to add value across the growing volume of users be secure we currently secured north of 100 million users and their access to applications. Both in the public cloud and in the data Center. We expect each of these users is an opportunity for us.

Speaker Change: To deliver an AI security sub for them at least $3 billion to $5 billion opportunity over the next five years secondly organizations are increasingly deploying AI related workloads in the cloud just like they need to understand the overall security posture of the cloud as states and expeditiously identify and remediate issues. They must do this where AI related workloads. They believe this in itself.

Nikesh Arora: We believe it's a $3 to $5 billion opportunity over the next five years. Secondly, organizations are increasingly deploying AI-related workloads in the cloud, just like they need to understand the overall security posture of their cloud estates and expeditiously identify and remediate issues. They must do this for AI-related workloads. We believe this, in itself, is a $5 to $6 billion opportunity in the next five years. Lastly, network traffic will increasingly have an AI context, with interactions and transactions between applications and AI models. Our more than half a million installed firewalls are the perfect place to inspect this traffic.

Speaker Change: It's a $5 billion to $6 billion opportunity in the next five years Lastly network traffic will increasingly have an air context with interactions and transactions between applications and AI models are more than half a million installed firewalls is the perfect place to inspect this traffic. We believe this is a $5 billion to $6 billion opportunity in the next five years overall this combined therapy.

Nikesh Arora: We believe this is a $5 to $6 billion opportunity in the next five years. Overall, this combined $13 to $17 billion opportunity drives our conviction that investing in AI and maintaining our leadership can help us accelerate our growth towards $15 billion by 2030. Beyond the large opportunity, we also believe we are uniquely positioned to garner our fair share of the pie. Our proprietary data and large technology footprint are a significant advantage in driving AI. We've already seen the early benefits of this.

Speaker Change: To $17 billion of opportunity drives our conviction that investing in AI and maintaining our leadership can help us accelerate our growth towards $15 billion by 2000 2030.

Speaker Change: <unk> thousand 31.

Speaker Change: On the large opportunity. We also believe we are uniquely positioned to garner our fair share of the stamp our proprietary data and large technology footprint is a significant advantage driving outcomes.

Speaker Change: Yeah.

We've already seen the early benefits of this.

Nikesh Arora: AI in our newly developed product office. In Q2, RAI offerings, which include Exime, Autonomous Digital Experience Management, or ADEM, and AIOps, crossed $100 million in ARR miles per hour. We are possibly the first security companies to cost $100 million in ARR in AI security. This is above and beyond the AI capabilities we have embedded across all of our platforms, including our advanced subscriptions and our core-to-cloud platform. Our co-pilots are in alpha, and are in the hands of leading customers who are giving us feedback before we move to general availability. Looking forward, we have aggressive plans to roll out additional AI-based offerings by the end of this fiscal year. We have plans to offer three new product offerings, one to address each of the stamps I talked about.

Speaker Change: AI in our newly developed product offerings in Q2, our AI offerings, which include X time autonomous digital experience management, or <unk> and AI ops crossed $100 million in IRR milestone, we are possibly the first security companies to costs of $100 million. They are an AI security.

Speaker Change: This is above and beyond the capabilities, we have embedded across all of our platforms include our including our advanced subscriptions and our core cloud platforms.

Speaker Change: Our copilot sudden alpha are in the hands of leading customers, who are giving us feedback before we move to general availability looking forward, we have aggressive plans to rollout additional AI based offerings by the end of this fiscal year, we have plans to offer three new product offerings, one to address each of these dams I talked about.

Nikesh Arora: Before I wrap up and pass it on to Deepak, I'd like to summarize. We have established our platformization notion, our clear industry leadership position with our best-of-breed platform, and the industry trends convince us we're in the best position to capitalize on this early trend and now focus on the next phase of cybersecurity, which is going to be all about consolidation. One of the hardest things to do is to change a strategy that is working.

Speaker Change: Before I wrap up and pass it onto Deepak I'd like to summarize.

We have established our pack for amortization motion, a clear industry leadership position with our best of breed platforms and the industry trends convince us we're in the best position to capitalize on this early trend and now focus on the next phase of cyber security, which is going to be all about consolidation.

Speaker Change: One of the hardest things to do is to change the strategy that is working we have spent time understanding how to accelerate our strategy further be firmly believe as a management team that the changes we're making today are going to give us better prospects in the mid to long term and allow us to drive this consolidation much faster, whilst giving our customers better ROI and total cost of <unk>.

Nikesh Arora: We have spent time understanding how to accelerate our strategy further. We firmly believe as a management team that the changes we're making today are going to give us better prospects in the mid to long term and allow us to drive this consolidation much faster, whilst giving our customers better ROI and total cost of ownership. AI is an opportunity in the early stages; however, we are seeing signs that there is significant demand there.

Speaker Change: Ownership.

Speaker Change: AI is an opportunity early stages. However, we are seeing the signs that there is significant demand there.

Nikesh Arora: It will prove to be an inflection point for cybersecurity, and today will be marked as a day where we will see that inflection begin to take hold as we start to deliver more AI security products over the course of the rest of the year. We have confidence we can drive our top-line growth trajectory higher for longer ahead of the growth trajectory we talked about back in August, despite absorbing some short-term impacts. We have shown we run the business in a financially prudent manner, which we will continue to do as we accelerate this acceleration, hitting our original operating profitability and cash flow margin targets. With that, I will pass on to Deepak. Thank you, Nikesh. And good afternoon, everyone.

Speaker Change: It will prove to be an inflection point for cybersecurity and today will be Mark is a day, where we will see that inflection begin to take hold as we start to deliver more AI security products over the course of the rest of the year.

Speaker Change: We have confidence we can drive our topline growth trajectory higher for longer I headed the growth trajectory, we talked about back in August despite absorbing some short term impacts.

Speaker Change: We have shown we run the business in a financially prudent manner. She will continue to do as we digest fluctuation hitting our original operating profitably and cash flow margin targets with that I will pass on to Deepak.

Deepak: Thank you and our cash and good afternoon, everyone.

Deepak Golecha: Given all that we have to talk about this quarter, I will do an abbreviated review of our Q2 results. You can refer to the press release and supplemental financial information on our website for our key numbers. For Q2, revenue of $1.98 billion grew 19%.

Deepak: Given all that we have to talk about this quarter I will do an abbreviated review of our Q2 results you can refer to the press release and supplemental financial information on our website for our key numbers.

Deepak: But Q2 revenue of $1 $98 billion grew 19%.

Deepak Golecha: Product revenue grew 11%, while total service revenue grew 22%, with subscription revenue growing 26%, and support revenue growing 14%. Moving on to geographies, we saw consistent revenue growth across all of our theaters, with the Americas growing 19%, EMEA growing 19%, and JPAC also growing 19%. We had some puts and takes during the quarter related to billings. As Nikesh mentioned, we saw weakness in the U.S. federal vertical related to some specific programs.

Deepak: Product revenue grew 11%, while total service revenue grew 22% with subscription revenue growing 26% and support revenue growing 14%.

Deepak: Moving on to geographies, we saw consistent revenue growth across all of our theaters with the Americas growing 19% EMEA up 19% and Jay pack also growing 19%.

We had some puts and takes during the quarter related to billings as the cash mentioned, we saw weakness in the U S federal vertical related to some specific programs.

Deepak Golecha: This U.S. federal weakness was a meaningful headwind to our billings in Q2 after we saw a slow start in the year to Fed. The impact of these federal bills on our revenue is significant as they are relatively shorter than our average contract term. At the same time, we saw a decrease in our non-product backlog, which offset the Fed weakness in our billing. We continue to see customers closely watching cash outlays around deals, which we discussed last quarter, although this trend played out largely as we expected 90 days ago. The remaining Performance Obligation, or RPO, was $10.8 billion, and the current RPO was $5.2 billion. You likely noticed that our GAAP EPS was $4.89, and GAAP Net Income was $1.75 billion. These benefited from a $1.5 billion release of a tax-related valuation allowance. This was a one-time item in fiscal year 24, which has been adjusted out of our non-GAAP results. This amount also does not impact our cash tax.

Deepak: U S federal weakness was a meaningful headwind to our billings in Q2. After we saw a slow start in the year to fed.

Deepak: The impact of these federal deals in our revenue as significant as they are relatively shorter than our average contract term.

Deepak: At the same time, we saw a decrease in our non product backlog, which offset the weakness in our billings.

Deepak: We continued to see customers closely watching cash outlays around deals, which we discussed last quarter. Although this trend played out largely as we expected 90 days ago.

Deepak: Remaining performance obligation or a Po was $10 $8 billion in current IPO was $5 2 billion.

Deepak: You likely notice that our GAAP EPS was $4 $8 million and GAAP net income was $1 $75 billion.

Deepak: <unk> benefited from a $1 5 billion release of a tax related valuation allowance.

Deepak: Allowance. This was a one time item in fiscal year, 'twenty, four which has been adjusted out of our non-GAAP results.

Deepak: This amount also does not impact our cash taxes.

Deepak Golecha: Our average duration on new contracts was relatively flat year-over-year, with average duration for new contracts remaining at approximately three years, while total contract duration was down slightly year-over-year. I did want to spend more time talking about our accelerated platformization and consolidation strategy and give you more of my perspective with some additional framing and detail through the financial lens. Nikesh talked about our programs to alleviate friction with customers. We believe that by moving from a deal-by-deal approach to a program-based and systematic approach, we can accelerate platformization with our customer base and drive vendor consolidation faster by mitigating platformization friction. This results in a number of business benefits for us, ranging from a faster capture of the customer estate and larger platform commitment to higher renewal and expansion rates and faster adoption of our new innovation. For the customer, they are able to execute on the platform deployment with lower risk and consolidate vendors while benefiting from a lower total cost of ownership and a better security posture.

Deepak: Our average duration of new contracts was relatively flat year over year with average duration for new contracts remaining at approximately three years, while total contract duration was down slightly year over year.

Deepak: I did want to spend more time talking about our accelerated path for amortization and consolidation strategy and give you more of my perspective, with some additional framing and detailed with a financial lens.

Deepak: <unk> talked about our programs to alleviate friction with customers, we believe that by moving from a deal by deal approach to a program based on the systemic systematic approach, we can accelerate platform ization with our customer base and drive vendor consolidations faster by mitigating pop formalization of friction.

Deepak: This results in a number of business benefits for us.

Deepak: Ranging from a foster captures the customer state and larger platform commitments.

Deepak: Higher renewal and expansion rates and faster adoption of our new innovations for.

Deepak: So the customer they are able to execute on the platform deployment with lower risk and consolidate vendors, while benefiting from a lower cost total cost of ownership and the better security posture.

Deepak Golecha: As Nikesh gave you the high-level trajectory in our pipeline, I wanted to help you understand how we think about the medium-term. Our platformization offers to drive consolidation effectively provide customers a period of the contract for free as part of their commitment. We expect we may see a period of 12 to 18 months of pressure on our top-line growth rates, notably billing.

Deepak: As the cash gave you the high level trajectory in our pop line I wanted to help you understand how we think about the medium term.

Deepak: Lots of amortization offers to drive consolidation effectively provide customers a period of the contract for free as part of that commitment.

Deepak: We expect we may see a period of 12 to 18 months of pressure on our top line growth rates, notably billings.

Deepak Golecha: Some of our platformization programs embed deferred payments into deal structures, which we have spoken about in the past. We expect this will persist through fiscal year 25 as we anniversary the rollout of these programs and result in billings below the target we provided in August of 2023. Beyond this period, we expect we can sustain higher growth than we provided in these targets in August. From an NGS ARR perspective, we expect less impact on our year-end metrics, and we expect we can continue to meet or exceed our target, which called for a 30% growth rate through fiscal year 26. As Nikesh noted, we are establishing a long-term target of $15 billion in NGS ARR in fiscal year 30.

Deepak: Some of our plot from Ization of programs embed deferred payments into deal structures, which we have spoken about in the past.

Deepak: We expect this will persist through fiscal year 'twenty five as we anniversary the rollout of these programs and result in billings below the target we provided in August of 2023.

Deepak: Beyond this period, we expect we can sustain higher growth than we provided in.

Deepak: And these targets in August.

Deepak: From an N G S. A R O perspective, we expect less impact on our year end metrics and we expect we can continue to meet or exceed our target, which calls for 30% growth rate through fiscal year 'twenty six.

Deepak: And the cash noted we are establishing a long term target of $15 billion of NDS era in fiscal year 13.

Deepak Golecha: Underlying this trend, we expect customers deploying our full set of platforms to have a higher make-up of NGS products. These offerings tend to be deeply installed in our customers' infrastructure, and once a customer deploys the platform, it's easier to continue to consolidate vendors and adopt new innovations. We expect this to drive a significant increase in our overall revenue mix that is recurring. From a revenue perspective, we expect to see less pressure on revenue as compared to billing.

Deepak: Underlying this trend we expect customers deploying a full set of platforms to have a higher makeup with NGF products.

Deepak: These offerings tend to be deeply instilled in our customers' infrastructure and once a customer deploys the platform, it's easier to continue to consolidate vendors and adopt new innovations. We expect this to drive a significant increase in our overall revenue mix that is recurring.

Deepak: From a revenue perspective, we expect to see less pressure on revenue as compared to billings generally we see a lagging changes in our revenue growth versus our billings growth and we expect that this will happen here as well.

Deepak Golecha: Generally, we see a lag in changes in revenue growth versus our billings growth, and we expect that this will happen here as well. As Nikesh mentioned, part of what gives us confidence to execute on the strategy, and especially to do so now, is our success in driving profitable growth. As we embark on a strategy that we expect will negatively impact the top line in the short term, we have significant confidence that our business scales well, and we can continue to see operating leverage from a number of drivers. As I have mentioned multiple times before, we scale well across every line item of our P&L, ranging from customer support, to cloud hosting, to sales and marketing, to G&A. And we've seen a significant payoff from focusing on internal efficiency across all areas of the business. Let me give you some specific examples for Q2.

Deepak: As Nick has mentioned part of what gives us confidence to execute on the strategy and especially to do so now is our success in driving profitable growth.

Deepak: As we embark on a strategy that we expect will negatively impact the top line in the short term, we have significant confidence that our business scale as well and we can continue to see operating leverage from a number of drivers.

Deepak: As I have mentioned multiple times before we scale well across every line item of our P&L.

Deepak: <unk> from customer support the cloud hosting sales and marketing to G&A.

Deepak: And we've seen significant payoff from focusing on internal efficiency across all areas of the business.

Deepak: Let me give you some specific examples in Q2.

Deepak Golecha: First, in cloud hosting, we signed a significant extension with our primary cloud provider. This contract is constructed to enable us to drive further margin benefits as we scale. Second, within GNA, we're progressing well on a significant employee experience program. This started by analyzing all of our service desk tickets across all channels and identifying all the manual responses needed to address requests. The combination of process re-engineering, automation, and AI is still in progress, but we have already seen positive savings and have a target of automating 90% of the more than 300,000 manual interventions.

Deepak: First and cloud hosting we signed a significant extension with our primary cloud provider. This contract is constructed to enable us to drive further margin benefits as we scale.

Deepak: Second within G&A, we're progressing well on our significant employee experience program.

Deepak: This started by analyzing all of our service desk hits across all channels and identifying all the manual responses needed to address requests.

Deepak: The combination of process reengineering automation and AI is still in progress, but we have already seen positive savings and have a target of automating 90% of the more than 300000 manual interventions by the end of Q2, we have roughly half the cost of our T. Any servicing we're now leveraging this program as a template.

Deepak Golecha: By the end of Q2, we have roughly halved the cost of our T&E servicing, and we are now leveraging this program as a template across other business areas. In short, whilst we've made a lot of progress, we still have significant opportunities on the profitability front. That gives us confidence that we can maintain our median term operating margin and free cash margin targets beyond this year. Specifically, we believe that we can expand our operating margins by 100 basis points beyond this year, in line with the operating margin guidance we gave in August of 28 to 29 percent.

Deepak: Across the other business areas.

Deepak: In short, whilst we made a lot of progress we still have significant opportunities on the profitability front.

Deepak: That gives us confidence that we can maintain our median some operating margin and free cash margin targets beyond this year.

Specifically, we believe that we can expand our operating margins by 100 basis points beyond this year in line with the operating margin guidance, we gave in August.

Deepak: 28% to 29%.

Deepak Golecha: And this can continue to support our medium-term free cash flow margin target of 37% plus. We expect that this will come despite us absorbing some billings impact, as we have both the benefit of some prior arrangements with deferred payments contributing, as well as efforts we have placed on optimizing the cash dynamics of our vendors. In short, I wanted to reiterate what Nikesh said, that it is important for us to be able to manage through this platformization acceleration in a financially prudent manner, and we have set ourselves up well to do this over the next 12 to 18 months. Now, moving on to the guidance for Q3. For the third quarter of 2024, we expect billings to be in the range of $2.30 to $2.35 billion, an increase of 2% to 4%. We expect revenue to be in the range of $1.95 to $1.98 billion, an increase of 13% to 15%. We expect non-GAAP EPS to be in the range of $1.24 to $1.26, an increase of $13 to $15. For the fiscal year, we expect billings to be in the range of $10.10 to $10.20 billion, an increase of 10% to 11%.

And this can continue to support our medium term free cash flow margin target of 37% plus.

Deepak: We expect that this will come despite us absorbing some billings impact as we have both the benefit of some prior arrangement or arrangements with deferred payments contributing as well as assets. We have placed on optimizing the cash dynamics of our vendor spending.

Deepak: In short I wanted to reiterate what Mike has said.

Deepak: It is important for us to be able to manage through this plot for amortization acceleration in a financially prudent manner and we have set ourselves up well to do this over the next 12 to 18 months.

Speaker Change: Now moving onto the guidance for Q3 and the year.

Speaker Change: For the third quarter of 2024, we expect billings to be in the range of $2 three zero to $2 $35 billion, an increase of two 4%. We expect revenue to be in the range of $1 95 to $1 nine $8 billion, an increase of 13% to 15%.

Speaker Change: We expect non-GAAP EPS to be in the range of $1 two four to $1 to $6, an increase of 13% to 15%.

Speaker Change: For the fiscal year, we expect billings to be in the range of $10, one zero to $10 two zero billion dollars, an increase of 10% to 11%.

Deepak Golecha: We expect NGS ARR to be in the range of $3.95 to $4 billion, an increase of 34% to 35%. We expect revenue to be in the range of $7.95 to $8 billion, an increase of 15% to 16%. We expect operating margins to be in the range of 26.5 to 27%, an increase of 240 to 290 basis points year over year.

Speaker Change: We expect N G S air ought to be in the range of $3 $95 billion to $4 billion, an increase of 34% to 35%. We expect revenue to be in the range of $7 $95 billion to $8 billion, an increase of 15% to 16%.

Speaker Change: We expect operating margins to be in the range of 26.5% to 27% an increase of 240 to 290 basis points year over year.

Walter Pritchard: And we expect non-GAAP EPS to be in the range of 5.45 to 5.55 and an increase to 23% to 25%; we expect adjusted pre-cash flow margin to be 38 to 39%. In the interest of time and to answer as many of your questions as possible, we've included the modeling points in the appendix of our earnings presentation. With that, I will turn the call back over to Walter for the Q&A portion of the call. Thanks. We'll now proceed with Q&A. Please, in the interest of time, ask only one question with no follow-up.

And we expect non-GAAP EPS to be in the range of 5.45 to 555, an increase of 23% to 25%.

Speaker Change: We expect adjusted free cash flow margin to be 38% to 39%.

Speaker Change: In the interest of time and to get as many of your questions as possible. We have included the modeling points in the appendix of our earnings presentation.

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

Walter: We will now proceed with Q&A.

Walter: Please in the interest of time ask only one question with no follow ups. Our first question will come from Hamzah <unk> from Morgan Stanley followed by Brian Essex from J P. Morgan. Please go ahead with your question.

Hamza Fodderwala: Our first question will come from Hamza Fodderwala from Morgan Stanley, followed by Brian Essex from JPMorgan. Hamza, please go ahead with your question. Good afternoon.

Hamzah: Good afternoon, Thanks for taking my question.

Nikesh Arora: Thanks for taking my question. I just wanted to clarify, Nikesh, your comment on spending fatigue. What exactly were you referring to there, just given you also said demand was quite good? And then just the billing is cut. It seems like it's a function of some bundling, discounting, as well as lower duration. Any way to quantify that at all?

Hamzah: So just wanted to clarify you catch your comment on on spending fatigue, what exactly were you referring to there just given you also said demand was quite good and then.

Hamzah: <unk>.

Hamzah: The billings cut it seems like it's a function of.

Some bundling discounting as well as lower duration any way to quantify that at all thank you.

Nikesh Arora: Thank you. Hey, thanks Hamza. Thanks for the question. Yeah, I think I want to make sure there's no confusion in our characterization of spending fatigue. For the last few years, most of our customers have ended up spending more on cyber security. As a consequence, they feel like my budget for cybersecurity keeps going up by double digits every year because I'm trying to protect against every new threat vector, yet you see the number of breaches continues to rise. So a customer was sitting down and said, "If I spend more money, can you show me how I get a lower total cost of ownership across my enterprise? How do I spend less on the services that I have to deploy?"

Speaker Change: Hey, Thanks Hamzah. Thanks for the question, Yeah, I think I want to make sure there's no.

Speaker Change: Confusion in our characterization of spending fatigue over the last few years most of our customers have ended up spending more on cyber security than a 19th.

Speaker Change: As a consequence, they're feeling like my budget for cyber security keeps going up in double digits every year, because I'm trying to protect against every threat vector yet you'll see the number of breaches continues to rise so our customer sitting down and saying if I spend more money in a show me how I get a lower total cost of ownership across my enterprise, how do I spend less on the <unk>.

Speaker Change: Does that have to deploy and how do we get better ROI. So I think it's more about optimizing their current cyber security budgets as opposed to there being no day back demand continues to be very strong customers are demanding to get more for the amount of money. They are allocated to cybersecurity, that's where black formalization and consolidation kicks in.

Deepak Golecha: And how do I get better ROI? So I think it's more about optimizing their current cybersecurity budgets, as opposed to there being no demand. Demand continues to be very strong, and customers are demanding to get more for the amount of money they have allocated to cybersecurity. That's where platformization and consolidation kicks in, in terms of trying to quantify duration versus. So just to be clear, Hamza, from a billings perspective, part of the billings guidance is related to the Fed, which we talked about in the prepared remarks. Part of it is also because of the platform initiatives, the platformization initiatives per se. But also, part of it is we just expect there to be more deferred payments, like annual billings, things like that, as we roll out these programs.

Speaker Change: In terms of trying to quantify duration versus.

Speaker Change: So just to be clear hamzah from a billings perspective part of the billings guidance is related to the fed, but we talked about in the end.

In the.

Speaker Change: Paired remarks part of it is also because of the platform initiatives.

Speaker Change: Amortization initiative per se, but also part of it is we just we just expect that to be more deferred payments like annual billings things like that as we as we rollout. These programs that's what makes it up.

Brian Essex: Great, thank you, Hamza. Next question from Brian Ethics at J.P. Morgan, followed by Saket Kalia at Barclays. Brian, go ahead.

Speaker Change: Great. Thank you Hamzah next question is from Brian Essex with J P. Morgan followed by socket Kelly at Barclays for Bryan Go ahead, yes, Thanks, Walter and maybe to follow up on <unk> question, maybe for Deepak one thing that caught my ear was the comment about discounting or offering a free period upfront for a certain period of time.

Nikesh Arora: Yeah, thanks, Walter. And maybe to follow up on Hamza's question, maybe for Deepak, one thing that caught my ear was the comment about, you know, discounting or offering a free period up front for a certain period of time. I wanted to get a sense of what kind of headwind within that billing's guidance is attributable to some of that discounting, and should we be looking at other metrics like, you know, average TCV or annualized TCV to get a sense of once those contracts hit a normal run rate, what would a normalized, you know, growth rate look like? Thanks, Brad. Hey, let me jump in here.

Brian Essex: Wanted to get a sense of what kind of headwind within that billings guidance is attributable to some of that discounting in should we be looking at other metrics like.

Brian Essex: Average GCB, our annualized <unk> to get a sense of once those contracts had a normal run rate what would a normalized.

Brian Essex: The growth rate look like.

Speaker Change: Thanks, Brian Hey, let me jump in here sure.

Nikesh Arora: Let me clarify in terms of the notion of discounting. What's happening today is when I go to a customer and say, listen, I'd like to replace your estate with the entire platform. The customer says, wait, wait a minute. I have this vendor for IPS, this for SD-WAN, this for SSC, and I got half my firewalls from another vendor. They all expire at different points in time.

Brian Essex: Clarify in terms of the discounting notion what's happening today is when I go to a customer and say listen I'd like to replace who have stayed with the entire platform. The customer says wait wait a minute I got this vendor for Ips. This for SD Wan this for SSE and I got half buy firewalls from another vendor they all expire at different points of time, I'd love to deploy zero Trust, but.

Nikesh Arora: I'd love to deploy zero trust, but it's going to take me two, three years as the end of life for these vendors approaches, and I'm scared that if I rip and replace this at this point in time, it's going to create execution risk. Not just that, it's going to create economics. So the propositions we're going to customers is, listen, let's lay out a two-year, three-year cybersecurity consolidation and platformization plan. We'll start implementing it today. You pay us when they're done. So, what it is is more of a, you know, sort of like, you can use our services until you have to keep paying the other vendor; we'll take it from there, but that's taking away a lot of the economic exposure and the execution risk for our customers. Now, you can call that a discount, or you can call that a free offer.

Brian Essex: It's going to take me two or three years as the end of life of these vendors happen and I'm scared that if I rip and replace this at this point in time is going to create execution risk not just that youre going to get economic risk.

Brian Essex: The propositions, we're going to customers is less and less lay out a two year three year cyber security.

Brian Essex: Solid Asian and platform Ization plan will go start implementing today you pay us when they are done.

Brian Essex: So what it is is more of a.

Brian Essex: Sort of like you can use our services until you have to keep paying the other vendor will take it from there, but that's taking away a lot of the economic exposure and the execution risk for our customers now you can call it discount or you can call that a free offer RF.

Nikesh Arora: Our estimate is approximately, it works out about six months worth of free product capabilities for our customers on a rolling basis. I think in about 12 months, as our offers start lapping each other, we should go back to the growth rate we've been talking about, and I think the right metric in that time frame is to look at RPF. Thank you. Thank you, Brian. Next question is from Andy Nowinski at Wells Fargo, followed by Gabriela Borges at Golden Saks. Go ahead, Andy.

Brian Essex: Estimate is approximately it works out about six months worth of free product capabilities to our customers on a rolling basis I think in about 12 months as our offer started lapping each other we should go back to our growth rate, we've been talking about and I think the right metric and the time frame is to look at RPM.

Speaker Change: Thank you great. Thank you Brian next question from Andy Nowinski at Wells Fargo, followed by Gabriela Borges with Goldman Sachs Go ahead Andy.

Andrew James Nowinski: Thank you. Um, I wanted to ask about US federal spending. You said it was soft in Q2, Nikesh, and I think it's going to remain soft for the next six months. But you know, given your comments about how nation state activity targeting the national infrastructure was increasing, I guess, why do you think there's a disconnect between that trend? And were those comments specific to your Palo Alto customers in the US Fed, or more broad? And that is part of it is particular to us, as you're aware, there was a large program; we were part of down selected to be the only vendor. We'd expected, we staffed it to make sure we could implement it, and we could get the orders that program didn't materialize at the pace and at the spending levels we'd expected. We saw it glimpsed in Q1 towards the end, we saw it not show up in Q2, and we have its staff for Q3 and Q4. Remember, Fed is a lower duration number, so it has a much more significant impact on revenue because Fed pays you on an analyzed basis as opposed to on a TCV basis.

Andrew James Nowinski: Thank you I wanted to ask about the U S federal spending.

Andrew James Nowinski: Spending you said it was soft in Q2, and our cash and I think it's going to remain soft for the next six months, but given your comments about how nation state activity targeting the national infrastructure was increasing I guess why do you think theres a disconnect between that trend and do.

Andrew James Nowinski: With those comments specific to your Palo Alto customers in the U S fed or more broad based.

Speaker Change: Look part of it is particular to US as you are aware there was a large program. We were part of down selected to be the only vendor we had expected with staff there to make sure we could implement it and we could get the orders that program didn't materialize at the pace and at the.

Speaker Change: The spending levels, we'd expected we saw an early glimpse in Q1 towards the end you saw it not show up in Q2, and we have it staff for Q3 and Q4 remember Fad is a lower duration number. So it has as much more significant impact to revenue because fed basically on an annualized basis as opposed to on a TCE basis, So you're seeing the impact of that to our revenue.

Nikesh Arora: So you're seeing the impact of that on our revenue for Q3 and Q4 and some of the billings missed in Q2, which we had to make up with shipping from non-product backlog. So that's kind of what happens. The Fed business is one that's bitten twice shy, so we're being very cautious about how we expect it to come back or not in the second half of the year.

Speaker Change: <unk> for Q3, and Q4 and some of the billings Miss in Q2, which we had to make up with the shipping from not probably backlog. So that's kind of what happened the fed business.

Speaker Change: You know once bitten twice shy so we're being very cautious about how we expect it to come back or not in the second half of the year. So it's more pertinent to that.

Nikesh Arora: So it's more pertinent to that as opposed to a broader comment around the federal space. And don't forget, the Fed, in general, is not a next-generation security adopter because they're usually slower on cloud services than they are on traditional cybersecurity products. Thanks. Thanks, Andy.

Speaker Change: As opposed to a broader comment around the federal space.

Speaker Change: And don't forget that as you know in general is not a next generation security adopter because they are usually slower on cloud services and they are on traditional.

Speaker Change: So I have a security product.

Saket Kalia: Apologies. We're going to go back to Saket Kalia from Barclays and then go to Gabriela Borges from Goldman. Great. Hey, thanks, guys. Nikesh, maybe you could just touch on the platformization item a little bit deeper. You know, I almost think about these as ramping contracts. And you tell me if that's off.

Speaker Change: Makes sense. Thanks, Thanks, Andy apologies, we're going to go back to Sochi, Kelly from Barclays and then go to Gary Heller barges from Goldman go ahead Sachin.

Sochi: Okay, Great Hey, Thanks, guys. The cash maybe for you just to just to touch on the platform as Asian item, a little bit deeper I almost think about pieces ramping contracts and you tell me if that's off but specifically as you look at the second half maybe putting the the mechanics of the ramp.

Nikesh Arora: But specifically, as you look at the second half, maybe putting the mechanics of the ramp aside, how do you sort of feel about sort of underlying demand with metrics like ACV or bookings? And and what percentage of your book of business do you sort of expect to shift to this ramping structure? Does that make sense?

Sochi: Aside how do you sort of feel about sort of underlying demand with metrics like the ECB or bookings and what percentage of your book of business do you sort of expect a shift sort of this ramping structure that makes sense. Yeah. Yeah that makes a lot of sense I think part of what we're noticing socket is that we'd like to like to go from best of breed compare.

Nikesh Arora: Yeah, that makes a lot of sense. I think part of what we're noticing, Saket, is that we'd like to go from best of breed comparative behavior with legacy vendors or newer vendors and go straight to platform competition. Because we've noticed that we have a higher win rate on platform deals, we have a higher win rate in consolidation plays, as opposed to best of breed head-ons, which end up costing more time and energy. And you see a lot of, I call it rogue behavior, where people start trying to desperately hold on to customers. So we are trying to shift our goal to market towards a consolidation play and a platform play. I think, as I said earlier, the right number to look at in this context is RPO.

Sochi: To be here with legacy vendors or newer vendors and go straight to platform competition, because we've noticed that they have a higher win rate on platform deals we have a higher win rate and consolidation plays as opposed to best of breed headphones, which ended up costing more time and energy and you see varied.

Sochi: Like all the rules behavior, where people start trying to desperately hold onto customer. So we are trying to shift our go to market towards the consolidation play and a platform play.

Speaker Change: I think as I said too.

Earlier or the right number to look at it in this context is our P. O. The underlying demand is strong our book of business is strong our pipeline is strong.

Nikesh Arora: The underlying demand is strong. Our book of business is strong. Our pipeline is strong. But there is nothing going on on the demand side.

Speaker Change: There is nothing going on on the demand side is just that we see this pushing out of the billings towards later parts as we get more and more consolidation offers and platform offers out there to give you. An example, maybe acquire talent we made talent three to every sassy customer.

Nikesh Arora: It's just that we see this pushing out of the billings towards later parts as we get more and more consolidation offers and platform offers out there. To give you an example, we acquired Talon. We made Talon free to every SASE customer, right?

Nikesh Arora: Instead of trying to upsell that to every SASE customer and run the risk of running into POCs and other secure browsers, we've decided to give it away free for the next 12 months until the customer's renewal comes up. Now, that has a billing impact over the 12-month time frame and a revenue impact. However, at the end of 12 months, all these will be renewed because our aspiration is to get 50% of our customers to use the Enterprise Browser. It's one of the best products we've acquired. It has tremendous market traction. When we acquired it, there were 100 POCs in place going on at customers.

Speaker Change: Right.

Speaker Change: And trying to upsell that every Saturday customer and run the risk of running the P. O sees other secure browsers, we've decided to give it away free for the next 12 months until the customers' renewal comes up now that hasnt billing impact in the 12 months timeframe and revenue impact. However at the end of 12 months. The oldies will be renewed cause our aspiration is to get 50% of our customers to use it.

Speaker Change: Enterprise browser is one of the best products, we required it has tremendous market traction when we acquired it there were 100 P. O season plays going on at customers and we told them listen if you're part of a customer to use it is.

Nikesh Arora: And we said, listen, if you're a Palo Alto customer, just use it. It's part of our product. It's part of the license. You don't have to pay us more. You don't have to do a new contract.

Speaker Change: As part of our product as part of the licensing you don't have to pay US more you don't have to do a new contracts what that does it allows us to penetrate a market segment, which will end up being competitive we ended up getting some share and spend the rest of our lives trying to create more traction and more market share and the features that great is pre our incident response offer be never had 400 fortune two.

Nikesh Arora: What that does is it allows us to penetrate a market segment which would end up being competitive. We end up getting some share and spend the rest of our lives trying to create more traction and more market share in the future. It's great.

Nikesh Arora: It's free. Our incident response offer. We never had 400 Fortune 2000 customers dealing with us in incident response. We launched an offer. In 90 days, we got 400 customers. We gave them 250 hours for free, right?

Speaker Change: Customers dealing with US an incident response.

Speaker Change: We launched an offer in 90 days, you've got 400 customers, we give them 250 hours rate right. That's 100000 hours of breach consulting for free but that drives a future business for us where they become our cyber security partner of choice. So we're trying to seed ourselves into our customers' platform and consolidation strategies. So we don't have to keep fighting on individual breach.

Nikesh Arora: That's 100,000 hours of breach consulting for free, but that drives future business for us where they become our cybersecurity partner of choice. So we're trying to seed ourselves into our customers' platform and consolidation strategies so we don't have to keep fighting on an individual breacher, individual best of breed deal every time we go to a customer. Makes sense. Thanks, guys. Great. Thanks, Saket. We're going to go next to Gabriela Borges with Fatima Boolani from Citi on deck. Hi, good evening.

Speaker Change: Individual best of breed deal every time, we go to a customer.

Speaker Change: Makes sense. Thanks, guys great. Thanks, Okay. We're going to go next to Gabriela Borges with the team of Bologna from city on deck.

Gabriela Borges: Thank you. Nikesh, I wanted to ask you how you think about the risk of potentially cannibalizing the customers that are willing to pay full price today as you implement the bundling strategy? And then how do you think about- If you find them, let me know.

Gabriela Borges: Hi, Good evening. Thank you next question.

Gabriela Borges: How you think about the risk.

Gabriela Borges: Potentially cannibalizing that companies that are willing painful.

Gabriela Borges: Hey.

Gabriela Borges: Our bundling strategy and then how do you think behind them, let me know.

Nikesh Arora: Okay. Sorry. Go ahead. Please ask the question. How do you- Yeah, it's also a long-term question of how do you think about maybe catalyzing a race to the bottom with pricing pressures? So as you think about Ram Steel, technology that maybe was $100 today or a year from now, by the time you get to renewal, it's no longer $100 because you've created pricing competition or you've created a competitive response. I think there are two answers.

Speaker Change: Sorry go ahead. Please ask the question how do you yes.

Speaker Change: So long as some question on how do you think about maybe cannibalizing.

Speaker Change: From a bottom with pricing pressure.

Speaker Change: As you think about ramp deals technology that may be worth $100 today or a year from now by the time you get your Neal It's no wonder why the $100 because you've created I think competition I can create a competitive fun.

Speaker Change: I think theres two answers, yes, that'd be answer two parts of the question I think this is to think about it as a price war is the wrong way to think about it.

Nikesh Arora: Let me answer two parts of the question. I think this is that thinking about it as a price war is the wrong way to think about it. Actually, we're averting a price war by driving platformization, and I'll explain how. First of all, you know, all of our customer deals are discussed, negotiated, and POC. So it's very rarely that we have a customer who does not understand the value of what they're offering. Because in a competitive market, we have a price; our competitors, normally rational competitors, have a price.

Speaker Change: Actually a verdict, where averting a price war by driving a platform Ization approach that I explained how first of all.

Speaker Change: All of our customer deals are discussed negotiated POC. So it's very rarely that we have a customer who does not understand the value of what they're offering because it's a competitive market. We have a price competitor, who normally rational competitors have a price. So we don't think that we're cannibalizing a full price paying customer we possibly I think what we are doing Gabriel is that.

Nikesh Arora: So we don't think that, you know, we're cannibalizing a full price paying customer, possibly. I think what we are doing, Gabriela, is that we're avoiding the unintended consequence where a customer says, oops, I have no time left. Because what happens, customers with all the right intentions will say, I'll renew, I'll buy Palo Alto in 12 months from now when my current contract goes away. They take a little while to analyze, and when they get to six months, oh my God, if I'm not able to deploy you in six months, I'm going to have an exposure. So I'm going to go try and get a renewal.

Speaker Change: We're avoiding the unintended consequence, where customers say oops I have no time left because what happens is customers with all the right intentions will say I'll renew all by Palo Alto in 12 months from now when my current contract goes away they take a little while analyzing them to get to six months Oh, My God, if I'm not able to deploy in six months I'm going to have an exposure, so I'm going to try and get it.

Nikesh Arora: When they're trying to get a renewal, the other vendors know this is not going to be their business for too long, so that's when irrational pricing behavior. It's not when they execute early and deploy early.

Speaker Change: Aneel when they're trying to get a renewal the other vendors know this is not going to be their business for too long. So that's when irrational pricing behavior happens, it's not when they execute early and deploy early so actually with averting the last minute.

Nikesh Arora: So actually averting the last minute race to the bottom, like you called it, by making sure our customers don't have to worry about the execution risk and trying to get renewals and trying to get the best pricing in the last. Thank you. Great, thanks, Gabriela. Next up is Fatima Boolani from Citi. And after that, Roger Boyd from UBS.

Speaker Change: Race to the bottom like you called it by making sure our customers don't have to worry about the execution risks and trying to get renewals I'm trying to get best pricing the last six months.

Speaker Change: Thank you.

Speaker Change: Great. Thanks, Kevin next up is Fatima <unk> from Citi and after that Roger Boyd from UBS.

Fatima Boolani: Hey, good afternoon. Thanks for taking my question. Nikesh, on the platformization strategy, I was hoping you could drill into what the catalyst was for this to be a mid-year change. You know, what were you hearing from customers where you said, we've got to pull the trigger in the middle of the year because it's admittedly atypical? And as a related note, when you're rolling this out, if you've got customers who are not paying you for six months, how are salespeople going to get compensated for that free, freemium sort of stance to retake? So just how are you protecting, I guess, the peace of the go-to-market organization as it relates to the new strategy? Thank you. Deepak did warn me that this one would take a little bit of explaining.

Fatima: Good afternoon, and thanks for taking my question.

Fatima: Cash on the platform migration strategy I was hoping you could drill into what the.

Fatima: Catalyst one spreads to be in mid year, it changed and what we're hearing from customers, where he said we've got to pull the trigger in the middle of the year, because it's admittedly a typical and as a related note when you're rolling this out if you've got customers who are not paying you for six months, how our salespeople are going to get compensated for that free.

Fatima: Premiums short in stature, taking so just how are you protecting against the piece of the go to market organization as it relates to the new strategy. Thank you.

Fatima: Deepak did warn me this one will take a little bit of explaining and so let me. Let me let me go back to what socket set for simplicity purposes think about it a ramp deal.

Nikesh Arora: And so, let me go back to what Saket said. For simplicity purposes, think about a wrap deal. Trust salespeople still get paid on TCB. Right, so they're still going to do a three-year deal or a five-year deal. We're not doing six-month or 12-month deals. So you'll see that in our RPO. You'll still see us doing ramp deals where the first six months may not be charged, but the next four and a half years are, the next two and a half years are. So those people will get paid on the TCV deals like they get paid today. That's not a problem.

Fatima: Our salespeople still get paid on D. C V.

Fatima: Alright, so theres still going to do a three year deal or a five year deal. We're not doing six month 12 month deals. So you'll see that in our Rps, you'll still see us doing ramp deals for the first six months may not be charged but the next four and a half years. This on extra and hop here is it sore salespeople will get paid on the D. C deals like they get paid today alright, that's not a problem I think that's the best.

Nikesh Arora: I think that's the best way to think about it. And I'm sorry; there was another part that I missed. The impetus, Fatima, is fascinating.

Fatima: The way to think about it.

Speaker Change: And I'm sorry, there was another part that I missed I apologize for not being.

Finally, the impetus for the most fascinating who we are and we managed to double our business. The last five years and for us to get to a double from here and more we've had to we've had to step back and say what do we do we got 21 categories, where we're best in breed and realize we're still fighting best of breed deals, while we should be selling the plot for amortization strategy.

Nikesh Arora: We managed to double our business in the last five years, and for us to get to a double from here and more, we've had to step back and say, "What do we do?". We got 21 categories where we're best in breed, and we realized we're still fighting for best of breed deals while we should be selling the platformization strategy. And we realized selling the platformization strategy, which we have been for the last six months, as we said, we've been trialing this out, we've been running this play for the last six months, and we discovered when we go in with a platform approach, we win more often than if we go in with the best of breed. Otherwise, we get whittled down on price, XDR to XDR or SASE to SASE. But the moment we go up with that, it's like, well, that's a lot of risk. I have got to replace everything in the next six months. I'm not willing to commit.

Speaker Change: And we realized selling the blood from Ization strategy, which we have been for the last six months as we said we've been Trialing. This out we've been running this play for six months or discovering when we go in with a platform approach we win more often than if you go into the best of breed all it.

Speaker Change: Otherwise, we get whittled down in price ex yard of Xdr SaaS at SSE and we'd go next I am with Xdr ASM in next door, then we don't get a little downer price with customer sees PTC or value and the ROI of doing the entire replacement together, but the moment. We go out but that is like lots of a lot of risk I gotta replace everything in the next six months and not willing to commit lets go one at a time.

Nikesh Arora: Let's go one at a time. When we go one at a time, I get whittled down on price with a legacy. Great, thanks Fatima. Next up we have Roger Boyd, and after that, it'll be Jonathan Ho from Liam Blair.

Speaker Change: No one at a time I get a little down in price over the legacy vendor.

Speaker Change: Great. Thanks for the team next up we have Roger Boyd and after that it'll be Jonathan Ho from William Blair.

Roger Boyd: Great, thanks for taking the questions. Another follow-up on platformization, but as you get more accommodative on some of these offerings, more aggressive on discounting, what are you expecting to see from a contract duration perspective? It sounds like the focus is going to be on RPO, but are you expecting to see contract duration actually extend in exchange for some of this economic flexibility? I think that's a great question.

Roger Boyd: Great. Thanks for taking the questions. Another follow up on on the platform innovation, but as you get more accommodative on some of these offerings are more aggressive on discounting what are you expecting to see from a contract duration perspective. It sounds like the focus is going to be an RPI, but are you expecting to see contract duration actually extend.

Roger Boyd: In exchange for some of this economic flexibility.

Speaker Change: I think that's a great question I think the way to think about it is that we still have two parts of our business will still have the regular part of our business, which is still going and competing best of breed. They expect that business to continue to remember this platform ization really applies to where customers have the opportunity to consolidate and platform is there are still many who are in different parts of their cyber security journey or the I T journey.

Nikesh Arora: I think the way to think about it is that we still have two parts to our business. We'll still have the regular part of our business, which is still going and competing best of breed. We expect that business to continue. Remember, this platformization really applies to where customers have the opportunity to consolidate and platformize. There are still many who are in different parts of their cybersecurity journey or their IT journey. So to the extent that, we are dealing with a customer who's willing to consolidate with us. You will see contract durations go up because we're not going to do this if you're not going to get a commitment for a three to five-year deal because it does not behoove us to do those deals.

Speaker Change: So to the extent that we.

Speaker Change: We are dealing with the customers willing to consolidated with US you will see contract durations go up because we're not going to do this if you're not going to get a commitment for three to five year deal because it doesn't behoove us to do those deals. If you don't see a long term commitment of the customer because we are going to be consolidating multiple security products for them and working with them to implement them across the enterprise.

Nikesh Arora: If you don't see a long-term commitment from the customer, because we are going to be consolidating multiple security products for them and working with them to implement them across the enterprise. Great, thank you. Next question is Jonathan Ho from William Blair. And after that, we've got Adam Borg from Steve.

Speaker Change: Great. Thank you next question, Jonathan Ho from William Blair and after that we've got Adam Borg from Stifel Great.

Jonathan Ho: Great, thank you for taking my question. I guess one thing I'm trying to understand a little bit better is, you know, does this ability to standardize on the platform give you something similar to what Microsoft has done with their E5 bundling to sort of, you know, sort of force customers or package in very attractive terms for customers to switch? And I guess, how does that, you know, maybe play out in terms of, you know, customers' willingness to commit to a single vendor platform? Thank you. That's a great question, Jonathan.

Jonathan Ho: Great. Thank you for taking my question I guess, what I'm trying to understand a little bit better is this ability to standardize on the platform gives you something similar to what Microsoft has done with <unk> bundling to sort of sort of <unk> customers are packaged and very attractive terms for customers to switch and I guess how does that.

Jonathan Ho: To be playing out in terms of customers' willingness to commit to a single vendor platform. Thank you.

Speaker Change: That's a great question Jonathan.

Nikesh Arora: Very apt question. Look, it allows us to do a much better job of putting stuff together across our portfolio, as opposed to having to do each of these deals on an individualized basis. So you're bang on about the idea that this consolidation benefits us and allows us to drive towards that platform much faster. That's helpful.

Speaker Change: Very apt question look it allows us to have much to do a much better job of putting stuff together across our portfolio as opposed to having to do each of these deals on an individualized basis. So you're bang on the idea that this consolidation benefits us and allows us to drive towards that platform much faster. That's helpful. I think it also gives us financial.

Nikesh Arora: I think it also gives us financial flexibility in terms of pricing deals. That's also very, very important, very true. But I'll give you an example, okay?

Speaker Change: Flexibility in terms of pricing deals. That's also very very important very true, but I'll give you. An example, right. This this morning as the phone and the customer is trying to buy an Iot capability independently that Iot capability is going to cost them north of $5 million, we only have a firewall.

Nikesh Arora: Just this morning, I was on the phone, and the customer is trying to buy an IoT capability. Independently, that IoT capability is going to cost them north of $5 million. They only have a firewall.

Nikesh Arora: We allowed them to activate IoT off our firewalls, which cost us a lot less than $5 million, but that allowed them to consolidate. And now, when the renewal comes up in six months or 12 months, they're going to be able to renew for a higher amount. So that degree of flexibility that we can offer our customers, but they don't have to end up spending more and building yet another vector that they have to go consolidate in the future is what we're trying to drive. Thanks, Adam, or. Next up is Keith Bachman from BMO, followed by Taliani at B of A. Hi. Thank you. You've confused me, Walter.

Speaker Change: We allowed them to activate Iot off our firewalls, which caused us a lot less than $5 million, but that allowed them to consolidate and know when the renewal comes up in six months of trauma theyre going to be able to renew for a higher amount. So that degree of flexibility that we can offer our customers, but they don't have to go end up spending more and building yet another vector that they have to go consolidate.

Speaker Change: The future is what we're trying to drive to it.

Great. Thanks, Adam.

Speaker Change: Sure.

Speaker Change: Next up is.

Speaker Change: Keith Bachman from BMO, followed Vitale Ani at Bofa.

Keith Bachman: Hi, Thank you you confuse me Walter.

Keith Bachman: I think, Deepak, for you, you mentioned we certainly have the Billings Guide for Q3 and then applied for Q4, something like 10%. And you indicated that this was going to be a 12 to 18-month sort of impact as you try to anniversary. Consolidating spend, but is there any kind of, you know, trough or any way to think about FY25? I mean, is it still double-digit billings growth that we should be thinking about or any kind of metrics on how you think about the six to, or, excuse me, 12 to 18 month impact where you're trying to anniversary the program? Yeah, our aspiration is that towards the second half of 25, we should revert back to our original expectations of mid to high double digit growth. But as I said, so 12 to 18 is obviously, you know, we have to go experience these programs to see how they persist.

Keith Bachman: Right.

Vitale Ani: Thank you for you [laughter].

Speaker Change: For U E.

Speaker Change: You mentioned, we certainly have the billings guide for Q3, and then implied for Q4, something like 10% and you indicated that this was going to be a 12 to 18 months sort of impact as you try to anniversary.

Speaker Change: Consolidating spend but is there any kind of.

Speaker Change: Trough or any way to think about FY 'twenty five I mean is it still double digit billings growth that we should be thinking about or any.

Speaker Change: Kind of metrics on how you think about the six to eight or excuse me 12 to 18 months impact where you're trying to anniversary the the program.

Speaker Change: Our aspiration is that towards the second half of 'twenty five we should revert back to our original expectations of mid to high double digit growth.

Speaker Change: But as I said, so 12 to 18 is obviously you know we have to go experience. These programs to see how the persist but at some point in time, they will start to lap and give us better upside in the larger size deals that we are able to do.

Deepak Golecha: But at some point in time, they will start to lap and give us better upside in the larger-size deal that we're. I just want to make one more point in this context. One of the things that I think should not be lost, as Deepak has said, we have maintained our absolute free cash flow guidance for the year and absolute EPS guidance for the year. So we believe we can make all this happen while holding our earnings and free cash flow confidence. Yeah, noted. Great. Thanks. Next, we're going to go back to Adam Borg, and then we're going to go to Taliani for B of A.

Speaker Change: Okay, Alright, I just wanted to make one more point sorry on this context, one of the things that I think it.

Speaker Change: It should not be lost with depot has said we have maintained our absolute free cash flow guidance for the year and absolute EPS guidance for the year. So we believe we can make all this happen wireless phone holding our earnings and free cash flow constant.

Speaker Change: Yeah noted.

Speaker Change: Great. Thanks next next we're going to go back to onboard and then we're going to go to tally on it from Bofa.

Adam Charles Borg: Awesome. Thanks, Walter. Thanks, everyone, for taking the question. Maybe just on XIM, it was good to see the traction there. Maybe talk more about the displacement opportunity that you saw in the quarter. I think you talked about replacing up to 19 different vendors since being introduced, and talk more about how you plan to further penetrate that as part of this broader platformization approach. Thanks. Thanks, Adam.

Speaker Change: Thanks, Walter and thanks, everyone for taking the question maybe just on <unk>.

Tally: Good to see the traction there are maybe talk more about the displacement opportunity that you saw in the quarter I think you talked about replacing displacing up to 19 different vendors.

Tally: Since being introduced and talk more about how you plan to further penetrate that as part of this broader platform visitation approach. Thanks, Thanks, Adam It's Adam.

Nikesh Arora: So, Adam, we've displaced 19 unique different XIM vendors. And the reason that's relevant for us is that it tells us that our platform has capability that spans multiple use cases and different types of products in the market. It's not like we only replace one kind of XIM.

Tally: We've.

Adam Charles Borg: Displays 19 unique different Sim vendors and the reason that's the relevant for US is that tells us that our platform has capability that spans multiple use cases and different types of products in the market. It's not like we only replace one kind of thing we have been able to replace different kinds of Sim, which offer different capabilities in our customers.

Nikesh Arora: We have been able to replace different kinds of XIM, which offer different capabilities to our customers. And we still believe this is the fastest and best cybersecurity product that has been created. We are north of 65 customers now in nine months. As we said, we have signed the largest number of deals this quarter, and on a deal-per-deal basis, we did $90 million in TCV.

Adam Charles Borg: And we still believe this is the fastest and best cyber security product that has been created we are north of 65 customers now in nine months.

Adam Charles Borg: As we said here that I signed the largest number of deals this quarter and on a on a deal for deal basically at that $90 million an M. P. C. V. So we're really excited about it this does resonate with our customers. We are launching tomorrow and offered a replace endpoints for our customers who are stuck with legacy endpoints, which is one of the things that.

Nikesh Arora: So we're really excited about it. This does resonate with our customers. We are launching tomorrow an offer to replace endpoints for our customers who are stuck with legacy endpoints, which is one of the things that holds us back from being able to deploy XIM.

Adam Charles Borg: Those back and being able to deploy <unk>. We've also announced support of other non legacy vendors that they have in their infrastructure. So our customers have been asking for that so we can support some of the other leading edge xdr capabilities in the market. So we are making a concerted play to be able to be the sort of choice is a radically different and better.

Nikesh Arora: We've also announced support for other non-legacy vendors that they have in their infrastructure. So our customers have been asking for that so we can support some of the other leading-edge XDR capabilities in the market. So we are making a concerted play to be able to be the SOC of choice. It is radically different and better than most other SIMs out in the marketplace.

Adam Charles Borg: Than most others seems out of the marketplace. So we are putting in a considered effort very excited about where we are with it.

Nikesh Arora: So we are putting in a concerted effort. We're excited about where we are with it. Great, thanks. Thanks a lot, Adam. Next up is Tal Liani from Viva, followed by Brad Zelnick of Deutsche Bank. Hi.

Adam Charles Borg: Great. Thanks, Thanks, a lot Adam next up Teleonomy from Bofa, followed by Brad Zelnick of Deutsche Bank.

Tal Liani: First, just a clarification. You spoke about discounting or pricing. Is there any product where you see more discounts than others?

Adam Charles Borg: Hi.

Teleonomy: First just a clarification you spoke about discounting or pricing is there any product, where you see more discounting than others.

Nikesh Arora: Is it on the legacy firewall side, or do we see it on SASE or Cortex? Or should we look at it as a complete kind of pricing for the platform? I think the best analogy is Jonathan's analogy, which is the bundling of multiple things into one capability, more like a, I don't want to call it that one, more like one of the other vendors has a certain bundling philosophy. I think it's more like that than it is about individual product characteristics, because it's not about if you buy SASE, I'll make it cheaper. If you buy XT, I'll make it cheaper for you.

Teleonomy: Is it on the legacy firewall side or do we see it on the SaaS EUR cortex.

Teleonomy: Or should we look at it as a complete panel.

Pricing.

Teleonomy: For the platform I think the best the best analogy as Jonathan's analogy.

Teleonomy: Which is the bundling of multiple things into one capability more like a you know a.

Teleonomy: I don't want to call it that one [laughter] more like what are the other vendors has a certain certain bundling philosophy I think it's more like that than it is about individual product categories. Because it's not about you know if you buy a SaaS he I'll make it cheaper if you buy xdr, making sure. It's about if you commit to my network security platform. The combined whole of it will be much better T. C L.

Nikesh Arora: It's about if you commit to my network security platform, the combined whole of it will be a much better TCO and ROI for you, and I'll take the execution risk. You know, remember the exit ARR for me is going to be no different than it is today. Got it. I think that's why I don't like the word discounting or reduced pricing. The exit ARR will be consistent with what I would get today.

Teleonomy: And our life for you and I'll take the execution risk you don't remember the exit IRR for me, it's going to be no different than it is today.

Speaker Change: Got it.

Speaker Change: And I think that's why I don't like the word discounting or reduce pricing the exit IRR will be consistent with what I would get today I would end up taking the execution risk away from the customer.

Nikesh Arora: I would end up taking the execution risk away from that. Great. Thank you, Tal. Next up, we have Brad Zelnick from Deutsche Bank. And after that, Matt Hedberg from RBC.

Speaker Change: Great. Thank you Tal next up we have Brad Zelnick from Deutsche Bank, and after that Matt Hedberg from RBC.

Brad Alan Zelnick: Great. Thanks, so much I wanted to ask another question from a go to market perspective, just extending on <unk> question.

Brad Alan Zelnick: Great, thanks so much. I want to ask another question from a go-to-market perspective, just extending Fatima's question. Nikesh, how do you align the channel to execute on this platformization strategy, where for you to win, somebody else has to lose? And their economics are typically a function of present-day billings, not LTV. And then also, just extending on that, you've talked about BSIs as a real strategic opportunity for you. Where do they fit into this platform?

Speaker Change: Excuse me.

Brad Alan Zelnick: How do you align the channel to execute on this platform.

Brad Alan Zelnick: Formulation strategy where for.

Brad Alan Zelnick: For you to win somebody else has to lose and their economics are typically a function of present day billings not LTV and then also just extending on that you've talked about <unk> as a real strategic opportunity for you where do they fit into this platform.

Nikesh Arora: I've got to practice the word, platformization strategy. Thank you. I know it's a new word, only introduced five years ago when you didn't believe us, but now we've got to worry about consolidation. Thank you, Brad. Yeah, when I start to have fun with you, I start forgetting your questions.

Brad Alan Zelnick: Or am I got to practice a word yes.

Speaker Change: <unk> strategy. Thank you I know, it's a new word only introduced five years ago. When you didn't believe us, but now that we've got to worry about consolidation. Thank you Brad.

Speaker Change: So [laughter].

Speaker Change: When I start to make fun with you. They start forgetting your question. So like the two of your S. Ear channel question. So two parts of it. It's a great question first of all channel does get concept be compensated in PCB.

Nikesh Arora: So like, the two parts of your essay, your channel questions, so two parts to it. It's a great question. First of all, channel does get a constant pay compensator and TCV. So I think part of what we said is our deals are 40 times when they use all three platforms compared to a single platform, and these are north of 20,000 using two platforms, right? Our top 10 customers spent 36% more with us than everybody else. And that's all a function of as deal sizes grow, as we do, the platformization of deal size is going to get bigger. The channel gets paid on TCV. So the channel has a lot of incentives to help us drive this platformization. I think you hit on a very important point about SIs.

Speaker Change: So look.

Speaker Change: Look I think part of what we said is our deals are 40 times, where they use all three platforms compare to a single platform deal.

Speaker Change: These are north of 20000 use two platforms right. Our top 10 customers spent 36% more with us than everybody else and that's all a function of as the deal sizes. As we do this platform ization of the deal size is going to get bigger the channel gets paid on T series. So the channel has a lot of incentive to help US drive this spot for amortization I think you hit on a very important point around that size we have been.

Nikesh Arora: We have been working really hard over the last six months with our SI partners to help activate them, and we're actually trying to get in front of their engagements with customers as opposed to wait for their RFPs. We have very strong relationships with almost every SI out there. It's been a concerted effort.

Working really hard in the last six months with our Si partners to help activate and we're actually trying to get in front of their engagements with customers as opposed to wait for the Rfps you have very strong relationships with almost every S. I out there has been a considered effort. We've just heard Kristy friedrichs, who was the CEO of new relic to drive our partnerships issue partnership officer. So we are putting.

Nikesh Arora: We've just hired Christy Fredericks, who is the CEO of New Relic, to drive our partnerships and to achieve partnerships. So we are putting a lot of attention and focus on it, and we're positively enthused about the traction we're getting with the SIs. The thing about it is that the SIs are new to this business in the last three to five years. They used to have cybersecurity businesses, but they really doubled down and focused on it. You can take your favorite SI, and they all have very strong practices in cybersecurity.

Speaker Change: A lot of attention and focus on it and we're positively enthused about the traction we're getting with ESI to think about it yes I was on mute this business on a three to five years. They they used to have cybersecurity businesses, but to really double down and focus on it you can take your favorite aside they all have a very strong practice in cyber security and they would much rather.

Nikesh Arora: And they would much rather partner with one large player or a few large players than the entire gamut of 3,000 cybersecurity companies that are out there. So it fits their aspirations; it fits our aspirations of getting ahead of it. They are a critical part of this platformization approach because these platform offers actually spin out a lot more services revenue than individual best of breed offers. Thank you. Great, thanks. Next up is Matt Hedberg from RBC, followed by Joe Gallo from Jefferies.

Or partner with one large player or a few large players in the entire gamut of 3000 cyber security companies that are out there. So it fits their aspirations that fits our aspirations are getting ahead of it. They are a critical part of this plot for amortization approach because this platform offers actually spin out a lot more services revenue than individual best of breed offers.

Speaker Change: Thank you.

Speaker Change: Great. Thanks next up is Matt Hedberg from RBC, followed by Joe Gallo from Jefferies.

Matt Hedberg: Great, thanks, Walter. You know, one of the important points Nikesh made is, despite all these changes, free cash flow margins are unchanged for fiscal 24 and the midterm targets. I guess the question for Deepak is, I just wanted to make sure I understood why that's the case.

Matt Hedberg: Great. Thanks Walter.

Matt Hedberg: One of the important points cashew made us. Despite all these changes free cash flow margins are unchanged for fiscal 'twenty four and the midterm targets I guess the question for deep pockets I just want to make sure I understood why that's the case it sounds like you said it was prior arrangements and optimizing vendor payments first of all did I get that right now.

Deepak Golecha: It sounds like you said it was prior arrangements and optimizing vendor payments. First of all, did I get that right? And I guess, secondly, when we get into 25, you know, are there other variables that we think of that could potentially change that margin target or, you know, the kind of confidence level that that margin target can hold into next year? So, whilst we're not guiding to next year, we're pretty confident in our free cash flow margins, as I said in my prepared remarks going forward. Just to be clear, the thing that buttresses our free cash flow margin the most is our operating margin.

Matt Hedberg: And I guess secondly, when we get into 'twenty five.

Matt Hedberg: The other variables that we think that could potentially change that margin target or kind of confidence level that that margin target can hold at the end of next year.

Matt Hedberg: So whilst we're not guiding to next year, we're pretty confident in our free cash flow margin as I said in my prepared remarks going forward.

Matt Hedberg: Just to be clear the thing that buttresses, our free cash flow margin. The most is our operating margin. Okay. So we do expect that to continue to increase and that's kind of like one part of it. We secondly, we've got more business thats coming off prior contracts that we've signed so we have visibility to that we know when that when they're going to come.

Deepak Golecha: Okay, so we do expect that to continue to increase, and that's kind of like one part of it. Secondly, we've got more business that's coming off prior contracts that we've signed, so we have visibility into that. We know when they're going to come in. We also have some incremental focus on factors that impact our cash flow, for example, vendor payment terms.

Matt Hedberg: As an incremental focus on factors that impact our cash flow for.

Matt Hedberg: For example than the payment terms, but when we put that all together, we're pretty confident on the cash flow side.

Deepak Golecha: But when we put that all together, we're pretty confident on the cash flow side. Great. Thank you. And we'll take our final question from Joe Gallo at Jefferies. Go ahead, Joe.

Matt Hedberg: Great. Thank you and we'll take our final question is from Joe Gallo at Jefferies. Go ahead, Joe Hey, guys. Thanks for the question I appreciate the candor and the cash on <unk> T and it's logical but given your discounting comments can you just give an update on the competitive environment.

Joe Gallo: Hey, guys, thanks for the question. I appreciate the candor, Nikesh, on Spensity, and it's logical. But given your discounting comments, can you just give an update on the competitive environment on win rates or any metrics you're tracking, particularly in SASE? Have you seen several vendors enter the market, several noting large eight-figure wins? You've certainly made eight-figure deals look easy over time, but, you know, what gives you confidence that this is not competitive, and this is more of a short-term hiccup? First of all, I would not classify this as a short-term hiccup.

Joe Gallo: On win rates or any metrics, you're tracking, particularly in SaaS, yet you've seen several vendors enter the market shuttle, noting large eight figure wins.

Joe Gallo: Certainly made eight figure deals look easy overtime, but what gives you confidence. This is not competitive and this is more of a short term hiccup.

First of all I would not classify this as a short term hiccup I know you guys would love life that was linear leaf nice in quarters and moved up in a beat and raise percentage basis I'm trying to get this done in the next three to five years will be become even a bigger a larger platform and cybersecurity if I step back and look at what we've done.

Nikesh Arora: I know you guys would love a life that was linearly nice in quarters and moved up in a beat-and-raise percentage basis. I'm trying to get this done in the next three to five years, where we become even a bigger, a larger platform in cyberspace. If I step back and look at what we've done in the last five years, we established the notion of the platform in cybersecurity. It wasn't a notion that existed before.

In the last five years and established a notion of the platform and sub security wasn't a notion that existed.

Nikesh Arora: I'm trying to accelerate the deployment of this notion because I believe competitive advantage and products in this industry last for two to three years. At this point in time, I believe we have the largest competitive advantage across our platforms in the market, starting with our XIM product and our SOX space. We think that is a 15-year-old legacy space which we should get quickly and go and deploy as quickly as we can across the board and take away any friction in the process. On network security, we did not have zero trust offers in the marketplace.

Joe Gallo: I'm trying to accelerate the deployment of that notion because I believe competitive advantage in product in this industry lost two to three years at this point in time I believe we have the largest competitive advantage across our platforms in the market starting with our <unk> product and our sock space. We think that is a 15 year old legacy space, which we should get.

Quickly and go and deploy as quickly as we can across the board and take care of any friction in the process on network security. We did not have network security Zero Trust offers in the marketplace. We are starting to see where a customer bought $40 million of SaaS and then came and replace the older firewall with us in the last six months right. So we are seeing the customers showed that.

Nikesh Arora: We are starting to see where a customer bought $40 million of SASE and then came and replaced all their firewalls with us for the last six months, right? So we are seeing customers show that behavior. We're trying to take all the friction out of the way they can make that happen. Now, if I break it down into the three categories we're in, I think in network security, you'll see more and more zero trust offers that hardware, software, and SASE have to combine. There are very few vendors in the space who can do that today, so they're trying to hold on to their legacy position.

Joe Gallo: We're trying to take all the friction out of the way they can make that happen now if I break it down into the three categories. We're in I think network security, you'll see more and more zero Trust offers their hardware software and SaaS and have to combine.

Joe Gallo: There's very few vendors in the space, who can do that today, so they're trying to hold on to the legacy position where.

Nikesh Arora: We're accelerating combination across that category. You can make your own judgments as to which vendors are going to benefit, which ones are not going to benefit as much. In the SOC space, there is only one option: deploy AI in your SOC. The average technology in the SOC space is 13 to 15 years old, right? That was not made for AI. It was not ready for AI.

Joe Gallo: Accelerating combination across that category you can make your own judgment as to which vendors are going to benefit which ones are not going to benefit as much in the sock space. There is only one often deploy AI in your sock. The average technology in the Sox basis 13 to 15 years old right that was not made for you. It was not very far out it doesn't matter, who you buy it doesn't matter.

Nikesh Arora: It doesn't matter who you buy. It doesn't matter what gets acquired. What is important is that you can actually have an AI-delivered data lake that delivers you the capability the next time. In the cloud, it's a new space. We're beginning to see what's fascinating for us, our best cloud customers are the ones who are delivering SaaS software to their customers. So you take the large platform players, they use our cloud security because they understand the need to have an integrated cloud platform.

Joe Gallo: What gets acquired what is important is that you can actually have an AI deliver data lake that delivers you the capability of X sight when cloud, it's a new space and we're beginning to see what's fascinating is for us our best cloud customers are the ones, who are delivering SaaS software to their customers.

Joe Gallo: So you take the large platform players they use our cloud security because they understand the need to have an integrated cloud platform. So we have green shoots we have trialed. This this is the time for us to double down and accelerate that's what we're doing it's not a hiccup.

Nikesh Arora: So we have green shoots; we have trialed this. This is the time for us to double down and accelerate. That's what we're doing. It's not a hiccup.

Next time. Thank you. Great. Thanks, Joe, for that last question. With that, I'll pass it over to Nikesh for his closing remarks. Now, I know this was exciting for all of you guys, even more exciting for us. We're committed. We believe this is the right way forward. We believe this is the way we can deliver faster platformization, a faster way to consolidate the industry into a platform. We hope that in the next five years, this allows us to double our business from here, which is why I'm here. I want to say thank you to all of our employees, all of our partners, and, of course, all of you for taking the time to listen to our story.

Makes sense. Thank you.

Speaker Change: Thanks, Joe for that last question with that I'll pass it over to into cash for his closing remarks.

Cash: I know this was exciting for all of you guys are even more exciting for US. We're committed we believe this is the right way forward. We believe this is the way we can deliver a faster path for amortization, a faster way to consolidate the industry into a platform. We hope that in the next five years. This allows us to double our business from here, which is why I'm here I want to say, thank you to all of our employees.

Cash: All of our partners and of course, all of you for taking the time to listen to our earnings call.