Q3 2024 Palo Alto Networks Inc Earnings Call

Narrator: It was just a regular cyber-sneak peak.

Okay.

Okay.

[Company Representative 1] (Palo Alto Networks): It was just a regular cybersecurity Monday. That's me. I've seen this before. Or had I? What was this AI treachery? I needed some help. Good thing I knew someone. Or something.

It was just a regular cyber security Monday.

That's me.

Narrator: I've seen this before, or haven't I?

I've seen it before.

Or.

Yeah.

Narrator: What was this AI treachery? I needed some help. Good thing I knew someone. Or something.

One was a stretch.

I needed some help.

Good thing I use them.

Or something.

unknown: Why'd you call, Jay?

[Company Representative 2] (Palo Alto Networks): Glad you called, Jay. It's time for an upgrade.

Okay.

Jay: It's time for an upgrade, awesome

Fair enough.

Awesome.

[Company Representative 1] (Palo Alto Networks): Awesome. My path became clear. I knew what I had to do. Because they never stop. No time to waste. This isn't sci-fi. This is Precision AI.

Narrator: My path became clear. I knew what I had to do.

My tongue.

Yes.

Hum.

Okay.

I knew that I had.

Narrator: because they never stop. There is no time to waste. This isn't sci-fi. This is precision AI.

Because.

Sure.

Narrator: There is no time to waste. This isn't sci-fi. This is precision AI.

No John waged.

So it's fine.

This is precision.

Walter Pritchard: Good day, everyone, and welcome to Palo Alto Networks' fiscal third quarter 2024 earnings conference call. I'm Walter Pritchard, Senior Vice President of Investor Relations and Corporate Development. Please note that this call is being recorded today, Monday, May 20, 2024, at 1.30 p.m. Pacific. With me on today's call to discuss our second quarter results are Nikesh Arora, our Chairman and Chief Executive Officer, and Dipak Golechha, our Chief Financial Officer. Following our prepared remarks, Lee Klarich, our Chief Product Officer, will join us for the question and answer portion.

Walter Pritchard: Good day, everyone, and welcome to Palo Alto Networks' Fiscal Q3 2024 Earnings Conference Call. I'm Walter Pritchard, Senior Vice President of Investor Relations and Corporate Development. Please note that this call is being recorded today, 20 May 2024, at 1:30PM Pacific Time. With me on today's call to discuss Q2 results are Nikesh Arora, our Chairman and Chief Executive Officer, and Dipak Golechha, our Chief Financial Officer. Following our prepared remarks, Lee Clarich, 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 Q3 2024 Supplemental Information and Q3 2024 Earnings Presentation. During the course of today's call, we may make forward-looking statements and projections regarding the company's business operations and financial performance.

Speaker Change: Good day, everyone and welcome to Palo Alto networks.

Speaker Change: Fiscal third quarter 2024 earnings conference call I'm, Walter Pritchard, Senior Vice President of Investor Relations and corporate development. Please note that this call is being recorded today Monday may 20th 2024 at 130 PM Pacific time.

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

Walter Pritchard: 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 Q3-24 Supplemental Information and Q3-24 Earnings Presentation. During the course of today's call, we may 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.

Speaker Change: 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.

Speaker Change: While there please click on the link for quarterly results to find the Q3 'twenty for supplemental information in Q3 24 earnings presentation.

Walter Pritchard: Please review our press release and recent SEC filings for a description of these risks and uncertainties. We assume no obligation to update any forward-looking statements made in the presentations today. We will also refer to non-GAAP financial measures. However, these measures should not be considered as 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 to the investor presentation.

Speaker Change: During the course of today's call. We may make forward looking statements and projections regarding the company's business operations and financial performance.

Walter Pritchard: These statements are 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. We will also refer to non-GAAP financial measures. These measures should not be considered as 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 to the investor presentation. Unless otherwise noted specifically, all results and comparisons are on a fiscal year-over-year basis. We also note that management is scheduled to participate in the Bank of America Global Technology Conference in June. I will now turn the call over to Nikesh.

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

Speaker Change: These review our press release and recent SEC filings for a description of these risks and uncertainties.

Speaker Change: We assume no obligation to update any forward looking statements made in the presentations today.

Speaker Change: We will also refer to non-GAAP financial measures. These measures should not be considered as a substitute for financial measures prepared in accordance with GAAP.

Speaker Change: The most directly comparable GAAP financial metrics and reconciliations are in the press release and the appendix to the investor presentation and.

Walter Pritchard: Unless otherwise noted specifically, all results and comparisons are on a fiscal year-over-year basis. We also note that management is scheduled to participate in the Bank of America Global Technology Conference in. I will now turn the call over to Nikesh.

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

Speaker Change: We also note that management is scheduled to participate in the Bank of America Global Technology Conference in June.

Speaker Change: I will now turn the call over to the cash.

Nikesh Arora: Thank you, Walter. Good afternoon everyone, and thank you for joining us today for our earnings call. I hope everybody enjoyed our new marketing campaign teaser featuring Keanu Reeves that went live on national media. Let's start at the beginning.

Nikesh Arora: Thank you, Walter. Good afternoon, everyone, and thank you for joining us today for our earnings call. I hope everybody enjoyed our new marketing campaign teaser featuring Keanu Reeves that goes live on national media. Let's start at the beginning. I'll update you on what we have experienced in Q3. First and foremost, cyberattacks continue unabated. We're seeing a consistent stream of nation-state activity that is systematically looking for software supply chain and hardware zero-day vulnerabilities and attempting to exploit them at scale. Additionally, there continues to be a robust stream of attack activity targeted at large enterprises and pieces of critical infrastructure. We continue to see high-profile breaches, some of which were widely reported in the press again this quarter. Most organizations face the challenge of an ever-shrinking time window for a bad actor to enter the environment, find valuable data, and exfiltrate it.

Speaker Change: Thank you Walter good afternoon, everyone and thank you for joining us today for our earnings call I Hope everybody enjoyed our new marketing campaign teaser featuring counter reads that goes live on National media.

Nikesh Arora: I'll update you on what we experienced in Q3. First and foremost, cyberattacks continue unabated. We're seeing a consistent stream of nation-state activity that is systematically looking for software supply chain and hardware zero-day vulnerabilities and attempting to exploit them at scale. Additionally, there continues to be a robust stream of attack activity targeted at large enterprises and pieces of critical infrastructure. We continue to see high-profile breaches, some of which were widely reported in the press again this quarter. Most organizations face the challenge of an ever-shrinking time window for a bad actor to enter the environment. Find valuable data and exfiltrate it. The window is now measured in hours.

Speaker Change: Let's start at the beginning.

Speaker Change: Date, you on what we have experienced in Q3.

Speaker Change: First and foremost cyber attacks continue unabated, we're seeing a consistent stream of nation state activity that is systematically looking for software supply chain and hardware zero day vulnerabilities and attempting to exploit them at scale. Additionally, there continues to be robust stream of attack activity targeted at large enterprises and pieces of critical.

Speaker Change: Infrastructure.

Speaker Change: We continue to see high profile breaches some of which were widely reported in the press again this quarter.

Speaker Change: Most organizations face the challenge of an ever shrinking time window or a bad actor to enter their environments find valuable data and exfiltrate at the Wynn.

Nikesh Arora: The window is now measured in hours. In comparison, the time it takes for an organization to discover a breach and stop the malicious activity continues to be measured in days and weeks. While not a new phenomenon, with new disclosure mandates, this challenge is now clearly out in the open. With AI, we expect the attacks to come at an even faster pace. I don't need to elaborate on the current enthusiasm around AI. Almost every one of our customers is either experimenting with AI or plans to deploy some use cases in the near future. As usual, their employees are way ahead. Almost 50% of employees at most companies are using some sort of AI application, LLM, or Copilot, to explore, learn, and make themselves more productive. While this is great for the evolution and adoption of AI, this is introducing a whole new set of threats.

Speaker Change: Non measured in hours in comparison the time it takes our organization to discover breach and stop the malicious activity continues to measured in days and weeks, while not a new phenomena with new disclosure mandates. This challenge and are clearly out in the open with AI, we expect the impacts to come at an even faster pace.

Nikesh Arora: In comparison, the time it takes for an organization to discover a breach and stop the malicious activity continues to be measured in days. While not a new phenomenon, with new disclosure mandates, this challenge is now clearly out in the open. With AI, we expect the attacks to come at an even faster pace. I don't need to elaborate on the current enthusiasm around AI.

Speaker Change: I don't need to elaborate on the current enthusiasm around AI almost every one of our customers is either experimenting with AI or plans to deploy some use cases in the near future.

Nikesh Arora: Almost every one of our customers is either experimenting with AI or plans to deploy some use cases in the near future. And, as usual, their employees are way ahead. Almost 50% of the employees of most companies are using some sort of AI application, LLM, or co-pilot to explore, learn, and make themselves more productive.

Speaker Change: As usual that employees are way ahead, almost 50% of employees. The most companies are using some sort of AI application at a level copilot to explore learn and make themselves more productive.

Nikesh Arora: While this is great for the evolution and adoption of AI, it is introducing a whole new set of threats. As some of you are aware, we have recently announced a suite of products which are aimed at securing this AI usage by design. More about this later, but I expect this to continue to provide a tailwind to the cybersecurity industry. On spending for cybersecurity, we see no change in space or trajectory. Most customers have a series of projects they want to get done, and the only limiting factor seems to be execution.

Speaker Change: Whilst this is great for the evolution and adoption of AI. This is introducing a whole new set of threats as some of you are aware, we recently announced a suite of products, which are aimed to secure this AI usage by design more about this later, but I expect us to continue to provide a tailwind to the cyber security industry.

Nikesh Arora: As some of you are aware, we have recently announced a suite of products which are aimed to secure this AI usage by design. More about this later. But I expect this to continue to provide a tailwind to the cybersecurity industry. On spending for cybersecurity, we see no change of pace or trajectory. Most customers have a series of projects they want to get done, and the only limiting factor seems to be their execution capability. Customers continue to focus on Zero Trust transformations, coupled with the need for new network architectures to adapt to a more hybrid infrastructure. The resurgence of cloud migrations is being driven by the need to get their data in the cloud to be AI-ready, causing discussions around the cloud security platform.

Speaker Change: On spending besides security, we see no changes base our trajectory most customers have a series of projects they want to get done and the only limiting factor seems to be the execution Kimco Custer.

Nikesh Arora: Customers continue to focus on zero trust transformations, coupled with the need for new network architectures to adapt to more hybrid cloud. The resurgence of cloud migrations is being driven by the need to get their data in the cloud to be AI-ready, causing discussions around the cloud security platform. As you may all have noticed with all the M&A activity, the security operations space is getting rejuvenated. This is something we've been preparing for with DECSAI.

Speaker Change: Customers continue to focus on zero trust transformations, coupled with the need for new network architectures to adapt to a more hybrid infrastructure.

Speaker Change: Dozens of cloud migrations is being driven by the need to get their data in the cloud to be I already causing discussions around the cloud security platform.

Nikesh Arora: As you may all have noticed with all the M&A activity, the security operations space is getting rejuvenated, which is something we've been preparing for with XSIAM. With the accelerated pace of change in cyber, even with healthy increases in cybersecurity funding, many organizations aim to simply keep pace with the volume of threat activity at scale. Most cannot do this and are increasingly receptive to a better way of tracking their security challenges, tackling their security challenges, vendor sprawl, and architectural complexity. We firmly believe that answer is platformization of cybersecurity over time. I'm delighted to report, despite the concerns around our platformization approach after our last quarter, the customer feedback has been nothing but encouraging. We have initiated way more conversations around platformization than we expected.

Speaker Change: You may all have noticed with all the M&A activity security operational space is getting rejuvenating is something we've been preparing for with VIX ire.

Nikesh Arora: At the accelerated pace of change in cyber, even with healthy increases in cyber security funding, many organizations aim to simply keep pace with the volume of threat activity they see. Most cannot do this and are increasingly receptive to a better way of tracking their security challenges, and tackling their security challenges. Windows for All and Architectural Complexity.

Speaker Change: The accelerated pace of change in fiber, even with healthy increases in cybersecurity funding many organizations aimed to simply keep pace with the volume of trade activity a C.

Speaker Change: Most cannot do this and are increasingly receptive to a better way of tracking their security challenges tackling their security challenges.

Speaker Change: Windows sprawl than architectural complexity.

Nikesh Arora: We firmly believe that the answer is platformization of cybersecurity over time. I'm delighted to report that, despite the concerns around our platformization approach after our last quarter, the customer feedback has been nothing but encouraging. We have initiated way more conversations than we expected. If meetings were a measure of outcome, they have gone up 30%, and a majority of them have been centered on platform opportunities. In short, demand is robust, and my expectation is that we will continue to see it that way for the next few years.

Speaker Change: We firmly believe that answers black formalization of cyber security overtime.

Speaker Change: I'm delighted to report despite the concerns around our platform vision approach after our last quarter the customer feedback has been nothing but encouraging.

Speaker Change: Have initiated way more conversations about <unk> than we expected if meetings, where a measure of outcome. They have gone up 30% and a majority of them have been centered on platform opportunities in short demand is robust and my expectation is that we will continue to see it be that way over the next many quarters.

Nikesh Arora: If meetings were a measure of outcome, they have gone up 30%, and a majority of them have been centered around platform opportunities. In short, demand is robust, and my expectation is that we will continue to see it be that way for the next many quarters. With this backdrop, we're pleased with our strong Q3 results. As you can see, we deliver top-line growth ahead of the market and continue to drive growth while improving profitability. Our performance was highlighted by 47% growth in our next-generation security ARR. As we continue to transform our business to a security software business, we saw 23% growth in RPO, an uptick from last quarter. This translated into 15% revenue growth and 3% growth in our billings. As we have articulated earlier, we don't see the billing metric as a true indicator of business strength.

Nikesh Arora: With this backdrop, we are pleased with our strong Q3 results. As you can see, we deliver top-line growth ahead of the market and continue to drive growth while improving profitability. Our performance was highlighted by 47% growth in our next-generation security ERR as we continue to transform our business into a security software business, and we saw 23% growth in RPO, an uptick from last quarter. This translated into 15% revenue growth and 3% growth in our billing. As we have articulated earlier, we don't see the billing metric as a true indicator of business trends.

Speaker Change: With this backdrop, we're pleased with our strong Q3 results.

Speaker Change: As you can see we delivered topline growth ahead of the market and continue to drive growth while improving profitability.

Speaker Change: Our performance was highlighted by 47% growth in our next generation security IRR as we continue to transform our business to a security software business and we saw 22% growth in our appeal and uptick from last quarter.

Speaker Change: This translated into 15% revenue growth and 10% growth in our billings.

Speaker Change: As we have articulated earlier, we don't see the billing metric and a true indicator of business trends at.

Nikesh Arora: It continues to be impacted by payment terms, where more and more customers prefer annual billing plans. However, if you imply bookings, you will note that we saw an uptick over that in the last two quarters. We actually ended up billing backlog this quarter. We continue to operate our business efficiently. Our operating margin has expanded by 200 basis points year over year, driving 25% growth in operating income and 20% in our EPS to $1.32. Our cash generation was strong, and again, our GAAP net income grew substantially year over year. Before I continue with highlights from Q3, I'm aware that our accelerated consolidation and platformization strategy created significant conversation last quarter. We also had questions from analysts and investors on this topic since we reported our Q3 results in February.

Nikesh Arora: It continues to be impacted by payment terms, where more and more customers prefer annual billing plans. However, if you look at implied bookings, you will note that we saw an uptick in that over the last two quarters. We actually ended up billing backlog this quarter.

It continues to be impacted by payment terms, where more and more customers prefer annual billing plans. However, if you impute implied bookings you will note that we saw an uptick or that in the last over the last two quarters, we actually ended up billing booking backlog billing backlog this quarter.

Nikesh Arora: We continue to operate our business efficiently. Our operating margin expanded by 200 basis points year-over-year, driving 25% growth in operating income and 20% in our EPS to $1.32. Our cash generation was strong, and again, our gap net income grew substantially year over year.

Speaker Change: We continue to operate our business efficiently our operating margin expanded by 200 basis points year over year, driving 25% growth in operating income and 20% in our EPS to $1.32.

Speaker Change: Cash generation was strong again, our GAAP net income grew substantially year over year.

Speaker Change: Yeah.

Nikesh Arora: Before I continue... With highlights from Q3, I'm aware that our accelerated consolidation and platformization strategy created significant conversation last quarter. We have also had questions from analysts and investors on this topic since we reported our Q2 results in February. I thought I'd share more background on how we got here to provide context and also offer a platformization framework for you to help understand why we're convinced that we can build a much larger business over the next several years, and platformization is key to achieving that.

Speaker Change: Before I continue.

Speaker Change: With highlights from Q3, I'm aware that our accelerated consolidation and platform Ization strategy created significant conversation last quarter.

Speaker Change: It also had questions from analysts and investors. This topic since we reported our Q2 results in February.

Nikesh Arora: I thought I'd share more background on how we got here to provide context and also offer a platformization framework for you to help understand why we're convinced that we can build a much larger business over the next several years, and platformization is key to achieving that. When we embarked on our journey to transform our company, we were keen to create interest and convince our customers that we could solve their problems not just with our next-generation firewalls and the associated subscriptions, but also with a set of best-of-breed products across 20-plus categories organized across three platforms. That strategy was hugely successful and saw us achieving nearly $4 billion in NGS ARR. The majority of the focus of our teams was landing multiple products across our three platforms at our customers.

Speaker Change: What I would share more background, how we got here to provide context and also offer platform position framework for you to help understand why we are convinced that we can build a much larger business over the next several years and platform Ization is key to achieving that.

Nikesh Arora: When we embarked on our journey to transform our company, we were keen to create interest and convince our customers that we could solve their problems, not just with our next-generation firewalls and the associated subscriptions but also with a set of best-of-breed products across 20-plus categories organized across three platforms. That strategy was hugely successful and saw us achieve nearly $4 billion in NGS ARR.

Speaker Change: When we embarked on our journey to transform our company, we were keen to create interest and convince our customers that if we can solve their problems not just for that next generation firewalls and the associated subscriptions, but also with a set of best of breed products across 20, plus categories organized across the platforms.

Speaker Change: That strategy was hugely successful and source, achieving nearly $4 billion and Engie S. A R are the majority of focus of our teams was landing multiple products across many platforms that our customers.

Nikesh Arora: The majority of the focus of our teams was landing multiple products across all the platforms that are. Whether we were able to land at a brand new customer for Palo Alto Networks, or we added products from new platforms to our existing customers, we were happy. These landings could range from a single product used in a part of the organization to broader users across the internet. From that lens, if you look at our top 5,000 customers, we have landed two or more of our platforms at about half these customers, and these customers contribute just over 80% of NGS ARR.

Nikesh Arora: Whether we were able to land at a brand-new customer for Palo Alto Networks or we added products from new platforms to our existing customers, we were happy. Landing could range from a single product used in part of the organization to broader usage across the organization. From that lens, if you look at our top 5,000 customers, we have landed two or more of our platforms at about half these customers, and these customers contribute just over 80% of NGS ARR. If you look at it by platform, we have landed 97% of these top 5,000 in network security, over 20% of them in Prisma Cloud, and over 40% with Cortex. By all means, our land-to-platform strategy was extremely successful. In landing with multiple platforms, many of our customers have leveraged our capabilities across key cybersecurity buying centers such as network security, cloud security, and security ops.

Speaker Change: Whether we will have land, we were able to land at a brand new customer for Palo Alto networks, or we added products from new platforms to our existing customers. We were happy landing could range from a single product using part of the organization to brought a broader usage across the evolution.

Speaker Change: From that lens, if you look at our top 5000 customers.

Speaker Change: We have landed two or more of our platforms at about half of these customers and these customers contribute just over 80% of N. G. S. A R. R.

Nikesh Arora: If you look at it by platform, you have landed 97% of these top 5000 network security customers or 20% of them in Prisma Cloud and over 40% with Cortana. By all means, our land-to-platform strategy was extremely successful.

Speaker Change: If you look at it by this despite platform Aladdin, 97% of these top 5000 network security or 20% of them in Prisma cloud in over 40% of the cortex.

Speaker Change: By all means our land the platform strategy was extremely successful.

Nikesh Arora: In landing on multiple platforms, many of our customers have leveraged our capabilities across key cybersecurity buying centers such as network security, cloud security, and security operations. Most of this cross-platform adoption has happened more organically, with customers adopting incremental products from Palo Alto Networks at their own pace. Given the complexity of the environment and the friction of dealing with contracts from multiple vendors, not many of our landed customers are fully platform-ready, and the ones that are fully platformized, we saw encouraging results.

Speaker Change: And landing with multiple platforms many of our customers have leveraged our capabilities across key cyber security buying centers, such a network security cloud security and security ops.

Nikesh Arora: Most of this cross-platform adoption has happened more organically, with customers adopting incremental products from Palo Alto Networks at their own pace. Governed by the complexity of the environment and the friction of dealing with contracts from multiple vendors, not many of our landed customers are fully platformized. In the ones that are fully platformized, we saw encouraging results. We realized that for fully platformized customers, while they saw better security outcomes, our ARR profile was also very different. While our average next-generation security ARR for our landed customers ranges from $200,000 to 800,000 for our land strategy, we discovered that our ARR for fully platformized customers ranges from $2 million to 14 million, depending on how many platforms the customers are standardizing on. This drove us to accelerate the rollout of our platformization strategy at the end of the last quarter, following successful pilots earlier in the year.

Speaker Change: Most of this class cross platform adoption has happened more organically with customers adopting incremental products on policy networks and their own base governed by the complexity of the environment and the friction dealing with contracts for multiple vendors not many of our line of customers a fully platform.

Speaker Change: And the ones that are fully black from ice we saw encouraging results.

Nikesh Arora: We realized that for fully-platformized customers, while they saw better security outcomes, our ARR profile was also varied. While our average next-generation security ARR for our landed customers ranges from $200,000 to $11,000, for our land strategy, we discovered that our ARR for fully-platformized customers ranges from $2 million to $14 million, depending on how many platforms the customers are standardizing.

Speaker Change: We realized that for fully blasphemous customers. While this all better security outcomes are at our profile, but also very different.

Speaker Change: While our average next generation security IRR for our lender customers ranges from 200000, Austrian $1000 for our land strategy, we discovered that our air from fully platform as customers ranges from $2 million to $14 million, depending on how many platforms or customers are standardizing on <unk>.

Nikesh Arora: This drove us to accelerate the rollout of our platformization strategy at the end of the last quarter, following successful pilots earlier in the year. We've created interest in the market, started a conversation with customers looking to begin their platformization journey, and spurred existing sales cycles to a more strategic outcome. Having personally reviewed over 500 of our top customers in detail this past quarter, having had a few hundred conversations with CISOs, CIOs, and CEOs, I continue to be convinced of our opportunity to deliver full platformization to our top customers. However, we're still early in the results from full platformization.

Speaker Change: This drove us to accelerate the rollout of our back of amortization strategy at the end of the last quarter pulling successful pilots earlier in the air.

Nikesh Arora: We created interest in the market, started conversations with customers looking to begin their platformization journey, and spurring existing sales cycles toward a more strategic outcome. Having personally reviewed over 500 of our top customers in detail this past quarter, having had a few hundred conversations with CISOs, CIOs, and CEOs, I continue to be convinced of our opportunity to deliver full platformization to our strong to our top customers. We're still early in the results from full platformization. Across these top 5,000 customers, we have completed about 900 through Q3 2024. Our Q3 efforts resulted in approximately 65 incremental platformization sales in Q3, just up 40% since Q2. It was this framework that was the foundation for our goal of $15 billion in next-generation security ARR by fiscal year 2030 that we first discussed last quarter.

Speaker Change: Interest in the market started conversation with customers looking to begin their part from physician journey and sparing existing sales cycles to a more strategic outcome having.

Speaker Change: Having personally reviewed over 500 of our top customers in detail. This past quarter, having had a few hundred conversations a seesaw CIO Ceos I continue to be convinced of our opportunity to deliver full platform Ization to restaurant tour top customers.

Speaker Change: We're still early in the results from full platform Ization occur.

Nikesh Arora: Across these top 5,000 customers, we have completed about 900 through Q3 2024. Our Q3 efforts resulted in approximately 65 incremental platformization sales in Q3, which is up 40% since Q2. It was this framework that was the foundation for our goal of $15 billion in next-generation security ARR by fiscal year 2030, which we first discussed last quarter.

Speaker Change: Across these top 5000 customers, we have completed about 900 through Q3 2024.

Speaker Change: Cuzzi efforts resulted in approximately 65 incremental tax amortization sales in Q3, which is up 40% since Q2.

Speaker Change: It was this framework that was a foundation for our goal for our goal of $15 billion in next generation security IRR by fiscal year 'twenty 30 that we first discussed last quarter.

Nikesh Arora: With our incremental momentum in platformization, we see a runway to delivering approximately 2,500-plus platformization sales, up from the current 900, while continuing to land our multiple platforms in our customer base and adding new customers. I showed you the benefits we see in our ARR from our success driving platformization. Our customers also see significant benefits as they adopt our full platform. We have talked to you in the past about reduction in median times resolution with XIM, which takes less than one-tenth of the time it took before XIM was deployed, as customers platformize on court.

Nikesh Arora: With our incremental momentum in platformization, we see a runway to delivering approximately 2,500-plus platformization sales up from the current 900 while continuing to land our multiple platforms in our customer base and adding new customers. I showed you the benefits we see in our ARR from our success driving platformization. Our customers also see significant benefits as they adopt our full platforms. We have talked to you in the past about reduction in median time to resolution with XSIAM, which takes less than one-tenth of the time it took before XSIAM was deployed as customers platformize on Cortex. IDC recently validated the benefits platform customers see in a study published earlier this year, independently proving much of what we have talked about. Customers saw productivity benefits as much as 30% to 40% efficiency improvements and significant improvements in security outcomes.

Speaker Change: Without income incremental momentum in platform Ization, you see a runway to delivering approximately 2500 plus platform Ization sales up from the current 900, while continuing to land our multiple platforms in our customer base and adding new customers.

Speaker Change: I showed you the benefits we see in our ore from our success driving platform position our customers also see significant benefits as they adopt our full platforms. We've talked to you in the past about reduction in median time to resolution with X I am which takes less than 110th of the time. It took before Exxon was deployed as customers plasmolyse them cortex.

Nikesh Arora: IDC recently validated the benefits platform customers see in a study published earlier this year, independently proving much of what we've talked about. Customers saw productivity benefits, as much as 30 to 40% efficiency improvements, and significant improvements in security. I could talk further about the benefits, but what really brings us to the forefront are some examples of our significant transactions in Q3. The U.S. County Agency signed a seven-figure transaction planning our firewall subscriptions as well as Cortex XTR and became a Palo Alto customer for the first time.

Speaker Change: IDC recently validated the benefits platform customers see in a study published earlier this year independently proving much of what we've talked about customers saw productivity benefits.

As much as 30% to 40% efficiency improvements and significant improvements in security outcomes.

Nikesh Arora: I could talk further about the benefits, but what really brings us to the forefront is some examples of our significant transactions in Q3. The US County Agency signed a seven-figure transaction landing our firewall subscriptions as well as Cortex XDR, and becoming a Palo Alto customer for the first time. We displaced a competitor that had sold both of these capabilities to the customer and competed against us on an appliance vendor that could not offer best-of-breed capabilities across these two categories. A large US financial services company that was an existing platform customer faced significant challenges in their SOC. Despite a staff of 40 in the SOC, they were not achieving their goals and sought a transformation plan. We signed an eight-figure deal including XSIAM, our ITDR, or identity threat detection and response offering, and our managed detection and response service.

Speaker Change: I could talk further about the benefits, but what really brings us to the forefront as some examples of our significant transactions in Q3.

Speaker Change: He is kind of the agency signed a seven figure transaction letting a firewall subscriptions as well as cortex, xdr and becoming up that'll also customer for the first time.

Nikesh Arora: We displaced a competitor that sold both of these capabilities to the customer and competed against us with an appliance vendor that could not offer best-of-breed capabilities across these two categories. A large U.S. financial services company that was an existing platform customer faced significant challenges in their solution. Despite a staff of 40 in the SOC, they were not achieving their goals and sought a transformation. We signed an eight-figure deal including SIAM, our ITDR, or Identity Threat Detention and Response Offering, and our Managed Ejection and Response Service.

We displaced a competitor that is sold both of these capabilities of customer and compete against on us on an appliance vendor that could not offer best of breed capabilities across these two categories.

Speaker Change: A large U S financial services company that was an existing platform customer faced significant challenges in their sock. Despite a staff of 40 and the sock they were not achieving their goals and sort of transformation plan, we signed an eight figure deal, including Siam, our I T. Dr or identity threat detection and response offering and our managed detection and response service.

Nikesh Arora: A global data services provider was unhappy with an incumbent SASE provider facing outages that created lost productivity. It was also never able to integrate its VPN and URL filtering capabilities fully. The customer selected our SASE capability for approximately 65,000 mobile and branch office users, including CASB, DLP, Enterprise Browser, and ADEM capabilities for many of them. This was a highly competitive situation, but our ability to deliver consolidated capabilities through a platform across a half a dozen areas, as well as our superior security versus incumbent one of the business. Finally, a large healthcare company experienced a breach and engaged our Unit 42 incident response services. After we helped the customer remediate and get back online, we were able to educate the customer on the benefits of platformization. The customer fully platformized with us, standardizing on network security, Prisma Cloud, and Cortex.

Nikesh Arora: A global data services provider was unhappy with his incumbent SaaSy provider facing outages that created a loss of productivity, and was also never able to integrate its VPN and URL filtering capabilities fully. The customer selected our SASE capability for approximately 65,000 mobile and branch office users, including CASB, DLP, Enterprise Browser, and ADEM capabilities for many. This was a highly competitive situation, but our ability to deliver consolidated capabilities through a platform across a half a dozen areas, as well as our superior security versus incumbents won us the business. Finally, a large healthcare company experienced a breach and engaged our Unit 42 Incident Response Service.

Speaker Change: Our global data services provider was unhappy with their incumbent SaaS provider facing outages that created loss productivity is.

Speaker Change: Also never able to integrate its VPN and you are filtering capabilities fully the customer selected us as a capability approximately 65000 mobile and branch office users, including Casspi DLP enterprise browser and Adas capabilities for many of them. This is a highly competitive situation, but our ability to deliver consolidated capabilities through our platform.

Across the half a dozen areas as well as our superior security West is incumbent on us as a business finally, a large healthcare company expansive breached and engaged our unit forty-two incident response services offer we helped the customer immediate and get back online you were able to educate the customer on the benefits up lateralization the customer fully platform lies with us standardizing on Netflix.

Nikesh Arora: After we help the customer remediate and get back online, you're able to educate the customer on the benefits of platformization. The customer fully platformized with us, standardizing our network security Prisma Cloud and Cortex. This transaction was the largest in the history of Palo Alto Networks at nearly $150 million.

Speaker Change: Prisma cloud and cortex. This transaction was the largest in the history of volatile that works at nearly $150 million of D. C D.

Nikesh Arora: This transaction was the largest in the history of Palo Alto Networks at nearly $150 million TCV. Beyond these showcase deals, our overall large deal activity was healthy in Q3, as shown by significant increases in our accounts with transactions over $1, $5, and $10 million in the quarter. We also recently announced our partnership with IBM. IBM and Palo Alto Networks have done what, in my mind, is a one-of-a-kind partnership. This partnership involves migrating the QRadar customers of IBM to XSIAM, where IBM will be able to deliver industry-specific capabilities on XSIAM using Watsonx. Given their leadership position in the Gartner Magic Quadrant, now we can collectively deliver an even better solution to both their existing and new customers. Enabling over 1,000 IBM security consultants on the entire Palo Alto Networks portfolio will allow us to drive platformization in an accelerated fashion.

Nikesh Arora: Beyond these showcase deals, our overall large deal activity was healthy in Q3, as shown by significant increases in our accounts with transactions over $1, $5, and $10 million in the quarter. We also recently announced our partnership with IBM. IBM and Palo Alto Networks have done what, in my mind, is a one-of-a-kind partnership. This partnership involves migrating the QDR customers of IBM to XIM, where IBM will be able to deliver industry-specific capabilities on XIM using Watson X.

Speaker Change: Beyond these sugars deals are overall large deal activity was healthy in Q3 as shown by significant increase in our accounts with transactions over one five and $10 million in the quarter.

Speaker Change: Yeah.

Speaker Change: We also recently announced our partnership with IBM IBM and Palo Alto networks have done what in my mind is a one of a kind partnership. This partnership involves migrating the qunar customers of IBM to X I am where IBM, we will be able to deliver industry specific capabilities on Exxon using Watson X.

Nikesh Arora: Given the leadership position in the Gartner Magic Quadrant, now we can collectively deliver an even better solution to both their existing and new customers. Enabling over 1000 IBM security consultants on the entire Palo Alto Networks portfolio will allow us to drive platformization in an accelerated fashion. We will be IBM's first cybersecurity partner across network, cloud, and SOC, while driving a significant book of business for IBM. Additionally, IBM will platformize on Palo Alto products.

Speaker Change: Given our leadership position in the Gartner Magic quadrant now, we can collectively deliver an even better solution to both their existing and new customers.

Speaker Change: And it really over 1000, IBM security consultants on the entire follow up networks portfolio will allow us to drive fly from Ization in an accelerated fashion.

Nikesh Arora: We will be IBM's preferred cybersecurity partner across network, cloud, and SOC while driving a significant book of business for IBM. Additionally, IBM will platformize on Palo Alto products. We will extensively leverage watsonx across both our operations and products. Lastly, but not the least, we will work on co-developing solutions for cloud security. Last quarter, when we rolled out our accelerated consolidation and platformization strategy, we also activated our AI leadership strategy. Leading up to this, over the last year, we've oriented an increasing portion of our R&D investments towards AI. We have seen growth in customer interest in adopting AI to drive business value and bad actors using AI, as I discussed earlier. In early May, we announced our comprehensive suite of AI security offerings and believe we will be first to market with capabilities to protect the range of our customers' AI security needs.

Speaker Change: We'll be Ibm's referred cyber security partner across network cloud and sock, while driving a civic significant book of business for IBM.

Speaker Change: Additionally, IBM will block from Ais in Palo Alto products.

Nikesh Arora: We will extensively leverage Watson X across both our operations and products. And lastly, but not least, we will work on co-developing solutions for the cloud. Last quarter, when we rolled out our accelerated consolidation and platformization strategy, we also activated our AI leadership strategy. Leading up to this, over the last year, we've oriented an increasing portion of our R&D investments toward AI. We have seen growth in customer interest in and adoption of AI to drive business value, and bad actors using AI, as I discussed earlier.

Speaker Change: When extensively leverage Watson X across both our operations and products and lastly, but not the least we will work on co developing solutions for cloud security.

Speaker Change: Last quarter, when we rolled out our accelerated consolidation of the platform migration strategy. We also activated our AI leadership strategy, leading up to this over the last year, you've oriented an increasing portion of our R&D investments towards the eye, we have seen growth in customer interest in adopting AI to drive business value and bad actors using is there AI as I discuss.

Speaker Change: Australia.

Nikesh Arora: In early May, we announced our comprehensive suite of AI security offerings and believe we will be the first to market the capabilities to protect the range of our customers' AI security. We rolled out three products to safely enable the use of AI, from employees using AI to enterprises building AI into their applications. AI Access Security, AI SPM, and AI Runtime Security put us at the forefront of securing AI adoption. We also believe our co-pilots across our three platforms, which are context-aware, can perform and automate user actions, surface alerts, and best practices, and provide in-product support, all with near-perfect accuracy.

Speaker Change: In early May we announced our comprehensive suite of AI security offerings and believe we will be first to market with capabilities to protect the range of our customers AI security needs.

Nikesh Arora: We rolled out three products to safely enable the use of AI from employees using AI to enterprises building AI into their applications. AI Access Security, AI-SPM, and AI Runtime Security put us at the forefront of securing AI adoption. We also believe our copilots across our three platforms, which are context-aware, can perform and automate user action, surface alerts, and best practices, and provide in-product support, all with near-perfect accuracy. Furthermore, we announced our Precision AI Security Bundle to leverage inline AI to counter AI attacks with AI defense. We have had strong early customer engagement with these offerings, which we expect to be made generally available beginning of July. As you heard from our teaser trailer with Keanu, this isn't sci-fi. This is Precision AI. More broadly than AI, it has been a busy last three months from an innovation perspective.

Speaker Change: We rolled out three products to safely enable the use of AI from employees using AI to enterprises building yeah into their applications.

Speaker Change: Access security SPM when they are run time security put us at the forefront of the security Guy adoption. We also believe our copilot across LC platforms, which are context aware can perform and automate user action surface alerts and best practices and provide in product support all with near perfect accuracy.

Nikesh Arora: Furthermore, we announced our Precision AI Security Bundle to leverage inline AI to counter AI attacks with AI defense. We have had strong early customer engagement with these offerings, which we expect to be made generally available beginning of July. As you heard from our teaser trailer with Keanu, this isn't sci-fi; this is precision AI.

Speaker Change: Furthermore, we announced our precision AI security bundle to leverage inline AI or AI attacks with AI defense we.

Speaker Change: We have had strong early customer engagement of these offerings do you expect to be made generally available beginning of July.

Speaker Change: As you heard from our teaser trailer with Guyana. This isn't SIFI. This is precision AI.

Nikesh Arora: More broadly than AI, it has been a busy last three months from an innovation perspective on SAS. Our SAS Utility Launch, which we rolled out early this month, debuted with several unique industry-defining capabilities. He announced the industry's only secure enterprise browser integrated into SASE, and as end-user engagement with AI applications grows, the browser becomes an important defense layer against AI threats. Additionally, it is becoming clear that the browser offers a better way to secure contractors' mobile devices and managed devices, with SASE integration providing a simpler and more secure approach to adoption. We launched AI-powered data security integrated into SASE, leveraging the industry's first LLM-powered data classification. This new classification engine combines the strength of a context-aware machine learning model with the power of LLM. Understanding how to increase classification

Speaker Change: More broadly than AI. It has been a busy last few months from an innovation perspective.

Nikesh Arora: On our SASE theater launch, which we rolled out early this month, we debuted with several unique industry-defining capabilities. We announced the industry's only secure enterprise browser integrated into SASE, and as end-user engagement with AI applications grow, the browser becomes an important defense layer against AI threats. Additionally, it is becoming clear that the browser offers a better way to secure contractors, mobile devices, and managed devices, with SASE integration providing a simpler and more secure approach to adoption. We launched AI-powered data security integrated into SASE, leveraging industry's first LLM-powered data classification. This new classification engine combines the strength of context-aware machine learning models with the power of LLMs, understanding how to increase classification accuracy. Lastly, as part of our SASE 3.0, we launched application acceleration, which understands each user's journey within enterprise SaaS and cloud applications and optimizes performance for these applications.

Speaker Change: SaaS, our SaaS seats here to launch as you rollout early this month debuted with several unique industry defining capabilities announced.

Speaker Change: We announced the industry's only secure enterprise browser and integrating the sassy and as end user engagement. The applications go the browser becomes an important defense layer against the ice reps.

Speaker Change: Italy is becoming clear that the browser offers a better way to secure contractors mobile devices and manage devices with sassy integration, providing a simpler and more secure approach to adoption.

Speaker Change: We launched the AI powered data security integrate into sassy leveraging industry's first Alabama power data classification. This new classification engine combines a stent or context aware machine learning model the power of LMS.

Speaker Change: Understanding how to increase classification accuracy.

Nikesh Arora: Lastly, as part of our SaaS E3.0, we launched Application Acceleration, which understands each user's journey within enterprise SaaS and cloud applications and optimizes performance for these applications; customers see performance up to five times faster than the user experience on the general internet. This rapid cadence of innovation in SASE has enabled us to maintain SASE ARR growth of about 50% for the sixth quarter in a row. In Prisma Cloud, we have completed the first phase rollout of data security posture management, which came from the DIG security acquisition.

Speaker Change: Lastly, as part of our SaaS you too I know you launched application acceleration, which understands each user's journey with an enterprise SaaS and cloud applications and optimize performance for these applications customers see performance up to five times faster than the user experience and the general Internet.

Nikesh Arora: Customers see performance up to five times faster than the user experience on the general internet. This rapid cadence of innovation in SASE has enabled us to maintain SASE ARR growth above 50% for the sixth quarter in a row. In Prisma Cloud, we have completed the first phase of rollout of data security posture management, which came from the Dig Security acquisition. We also added support for more than 100 new APIs across the major hyperscalers to stay ahead of our customers by securing the cloud services they adopt. Based on our Cortex Expanse technology, we launched cloud discovery and exposure management, leveraging our Expanse data natively in Prisma Cloud. Over 100 customers now use this capability to evaluate internet exposure risks and discover unknown internet-exposed cloud assets.

Speaker Change: This rapid cadence of innovation and Safi has enabled us to maintain a SaaS ear our growth above 50% for the sixth quarter in a row.

Prisma cloud we have completed the first phase rollout of data security posture management, which came from the Big security acquisition.

Nikesh Arora: We also added support for more than 100 new APIs across the major hyperscalers to stay ahead of our customers by securing the cloud services they will need. Based on our Cortex Expanse technology, we launched cloud discovery and exposure management, leveraging our Expanse data natively in Prisma Cloud. Over 100 customers now use this capability to evaluate Internet exposure risks and discover unknown Internet-exposed cloud ads.

Speaker Change: We also added support for more than 100, new Apis across the major Hyperscale is to stay ahead of our customers are secure in the cloud services.

Speaker Change: Based on our cortex expanse technology, we did launched cloud discovery and exposure management levering leveraging our expense data natively in Prisma cloud.

Speaker Change: Over 100 customers now use this capability to evaluate internal exposure risks and discover unknown Internet explorer cloud assets.

Nikesh Arora: Also, during Q3, we launched CDR, Cloud Detection and Response, which extends our XDR capability into the cloud and gives customers a unified view of their entire environment from cloud to endpoint. CDEM and CDR show the power of having both Cortex and Prisma Cloud platforms as we can leverage these sophisticated capabilities to benefit cloud customers. Last but not least, on Cortex, we launched XRM about 18 months ago, and this offering has already elevated Cortex in the market.

Nikesh Arora: Also, during Q3, we launched CDR, Cloud Detection and Response, which extends our XDR capability into the cloud and gives customers a unified view of their entire environment from cloud to endpoint, and network. CDEM and CDR show the power of having both Cortex and Prisma Cloud platforms, as we can leverage these sophisticated capabilities to benefit cloud customers. Last but not least, on Cortex, we launched XSIAM about 18 months ago, and this offering has already elevated the profile of Cortex in the market. We see steady demand for XDR as the foundation of Cortex, where we are landing many new customers, and now we have north of 5,800 customers on XDR. With $400 million in cumulative XSIAM bookings coming out of Q3, this offering is really going mainstream with customers understanding the value proposition versus a traditional SIEM.

Speaker Change: Also during Q3, we launched C D. Our cloud detection response, which extends our xdr capability into the cloud and give customers a unified view of their entire environment from cloud to endpoint and network.

Speaker Change: See that in the C. D. R showed the power of having both cortex Prisma cloud platforms as we can leverage these sophisticated capabilities to benefit cloud customers.

Speaker Change: Last but not least on cortex, we launched <unk> about 18 months ago. This offering has already elevated the profile of cortex or the market. We see steady demand for XT are the foundation of cortex.

Nikesh Arora: We see steady demand for XDR as the foundation of Cortex, where we are landing many new customers, and now we have north of 5,800 customers on XDR. $400 million in cumulative ex-fine bookings coming out of Q3.

Speaker Change: We are learning many new customers and now we have north of 5800 customers on next year.

Speaker Change: It's $4 million in cumulative axon bookings coming out of Q3.

Nikesh Arora: This offering is really going mainstream, with customers understanding the value proposition versus the traditional SIEM. XIME has accelerated our Cortex ARR growth, and we continue to see a strong pipeline of opportunity. We are converting our innovation into recognized leadership, adding two new positions this quarter, one in Managed Detection and Response and the other in Data Security Posture Management, leveraging our DIG acquisition and demonstrating our ability to acquire technology and rapidly integrate it into our platform.

Speaker Change: This offering is really going mainstream with customers understanding the value proposition versus the traditional semi <unk>.

Nikesh Arora: XSIAM has accelerated our Cortex ARR growth, and we continue to see a strong pipeline of opportunities. We are converting our innovation into recognized leadership, adding two new positions this quarter. One was in managed detection and response, the other in data security posture management, leveraging our Dig acquisition and demonstrating our ability to acquire technology and rapidly integrate into our platforms. As many of you have undoubtedly seen, our rollout of platformization has stoked a long-standing debate within the cybersecurity industry about whether customers desire a platform or best-of-breed cybersecurity. From the Palo Alto Networks perspective, we've proven it is possible to deliver best-of platform. This is why we have invested in building leading products, and we have now recognition for product leadership in 23 categories while also delivering on the benefits of integration across our three platforms.

Speaker Change: <unk> has accelerated our cortex are good and we continue to see a strong pipeline of opportunities.

We're converting on innovation in our recognized leadership, adding two new positions. This quarter, one wasn't managed detection and response to the other and data security posture management, leveraging our big acquisition and demonstrating our ability to acquire technology and rapidly integrate into our platforms.

Nikesh Arora: As many of you have undoubtedly seen, our rollout of platformization has stoked a long-standing debate within the cybersecurity industry about whether customers desire a platform or best-of-breed cybersecurity. From Palo Alto Networks' perspective, we've proven it is possible to deliver best-of-platform. This is why we have invested in building leading products, and we now have recognition for product leadership in 23 categories, while also delivering on the benefits of integration across all three platforms.

Speaker Change: As many of you have undoubtedly seen a rollout of platform Ization has stoked a long standing debate within the cybersecurity industry about whether customers desire a platform our best of breed cybersecurity.

Palo Alto networks perspective be proven as possible to deliver best of platform. This is why we have invested in building leading products and we have now recognition for our product leadership in 'twenty three categories. While also delivering on the benefits of integration across all three platforms.

Nikesh Arora: To summarize, before I pass off to Deepak, please take away a few conclusions from my prepared remarks. One, we put out strong cues for results in a positive spending environment where cybersecurity priorities are well-funded. Beyond the continuation of a challenging threat environment, new threat vectors from AI are starting to surface as the use of AI grows. We've been pleased with the initial traction of our accelerated consolidation platform strategy. This drove an increase in bookings with deferred payments and impacted our billings, something we expect will continue.

Nikesh Arora: To summarize, before I pass off to Dipak, please take away a few conclusions from my prepared remarks. One, we put out strong Q3 results in a positive spending environment where cybersecurity priorities are well-funded. Beyond the continuation of a challenging threat environment, new threat vectors from AI are starting to surface as the usage of AI grows. We've been pleased with the initial traction of our accelerated consolidation platform strategy. This drove an increase in bookings with deferred payments and impacted our billings, something we expect will continue. We had a big quarter of innovation, especially as it relates to AI, where we strive to lead the industry in securing this powerful productivity medium while also doing so comprehensively. As we look forward, we have a significant pipeline heading into our largest quarter of the year. We're just beginning to see the benefits of platformization accrue to our business.

Speaker Change: To summarize before I pass off to Deepak. Please take away a few conclusions from my prepared remarks, one we put a strong Q2 results and a positive spending environment, where cyber security priority of the loan funded beyond the continuation of a challenging environment new threat vectors on the eye are starting to surface as the usage of the high growth.

Deepak: We've been pleased with the initial traction of our accelerated consolidation platform strategy. This drove an increase in bookings with deferred payments and impacted our billings something we expect will continue.

Nikesh Arora: We are a big core of innovation, especially as it relates to AI, where we strive to lead the industry in securing this powerful productivity medium while also doing so comprehensively. As we look forward, we have a significant pipeline heading into our largest quarter of the year. We're just beginning to see the benefits of platformization accrue to our business. We will continue to make further investments here while balancing delivering profitable growth, and we have charted a path with conviction towards being a 15 billion dollar NGSIR company. With that, let me pass you on to Dipak.

Deepak: A big quarter of innovation, especially as it relates to the eye, where we strive to lead the industry in securing this powerful productivity medium, but also doing so comprehensively.

Deepak: As we look forward, we have significant pipeline heading into our largest quarter. There. We are just beginning to see the benefits of black from Ization accrue to our business you will continue to make further investments here are balancing delivering profitable growth.

Nikesh Arora: We will continue to make further investments here while balancing, delivering profitable growth, and have charted a path with conviction towards being a $15 billion NGS ARR company. With that, let me pass you on to Dipak. Thank you, Nikesh, and good afternoon, everyone. To maximize our time spent on Q&A, I will provide highlights, and you can review results available in our press release and the supplemental financial information on our website. Within our revenue of $1.98 billion, product revenue grew 1%, while total service revenue grew 20%. Within services revenue, subscription revenue grew 25%, and support revenue grew 11%. Moving on to geographies, we saw revenue growth across all theaters, with the Americas growing 15%, EMEA up 20%, and JPAC growing 8%. This quarter, our lower JPAC revenue growth was driven by lower product bookings in the region, offset by higher subscription bookings, which benefit revenue over time.

Speaker Change: Have chartered a parts with conviction towards being a $15 billion and yes. They are a company with that let me pass you onto depot.

Dipak Golechha: Thank you, Nikesh, and good afternoon, everyone. To maximize our time spent on Q&A, I will provide highlights, and you can review the results available in our press release and the supplemental financial information on our website. Within our revenue of $1.98 billion, product revenue grew 1% while total service revenue grew 20%. Within Services Revenue, Subscription Revenue grew 25%, and Support Revenue grew 11%. Moving on to geographies, we saw revenue growth across all theaters, with the Americas growing 15%, EMEA up 20%, and JPAC growing 8%.

Speaker Change: Thank you and our cash and good afternoon, everyone.

Speaker Change: To maximize our time is spent on Q&A I will provide highlights and you can review results available in our press release and the supplemental financial information on our website.

Speaker Change: Within our revenue of $1.98 billion product revenue grew 1%, while total service revenue grew 20%.

Speaker Change: Within services revenue subscription revenue grew 25% and support revenue grew 11%.

Speaker Change: Moving on to geographies, we saw revenue growth across all theaters with the Americas growing 15% EMEA up 20% and Jay pack growing 8%.

Dipak Golechha: This quarter, our lower JPAC revenue growth was driven by lower product bookings in the region, offset by higher subscription bookings, which benefit revenue over time. We reported Q3 billings within the range we guided, although, as Nikesh and I have noted several times in the past few quarters, we continue to focus less on this metric. We saw an increase quarter over quarter in business transacted with deferred billings, which is also higher than we forecast.

Speaker Change: This quarter, although it's APAC revenue growth was driven by lower product bookings in the region offset by higher subscription bookings, which benefit revenue over time.

Nikesh Arora: We reported Q3 billings within the range we guided, although, as Nikesh and I have noted several times in the past few quarters, we continue to focus less on this metric. We saw an increase quarter over quarter in business transacted with deferred billings, which was also higher than we forecasted. The impact on our financials from platformization this quarter was in line with what we expected 90 days ago, and our expectations around the impact in Q4 and beyond is unchanged from what we talked about in February. First, we saw a greater volume of large deals, with some of these customers opting for deferred payments over the term of their purchase instead of paying upfront as they grapple with the higher cost of money. This drove the quarter-to-quarter increase in periodic billing plans that I noted.

We reported Q3 billings within the range, we guided although isn't the cash and I have noted several times in the past few quarters, we continue to focus less on this metric.

So an increase quarter over quarter and business transacted with deferred billings, which is also higher than we forecasted.

Dipak Golechha: The impact on our financials from platformization this quarter was in line with what we expected 90 days ago, and our expectations around the impact in Q4 and beyond are unchanged from what we talked about in February. First, we saw a greater volume of large deals with some of these customers opting for deferred payments over the term of their purchase instead of paying up front as they grapple with the higher cost of money. This drove the quarter to quarter increase in periodic bill billing plans that I noted. Also, this level of periodic fillings was higher than we forecasted 90 days ago.

Speaker Change: The impact on our financials from pop amortization. This quarter was in line with what we expected 90 days ago, and our expectations around the impact in Q4 and beyond is unchanged from what we talked about in February.

Speaker Change: First we saw a greater volume of large deals with some of these customers opting for deferred payments over the term of their purchase instead of paying upfront I think rockwell with higher cost of money.

Speaker Change: This drove the quarter to quarter increase in periodic bill billing plans that I noted.

Nikesh Arora: Also, this level of periodic billings was higher than we forecasted 90 days ago. We also saw an uptake in the array of our platformization programs we launched early in the quarter. These programs continued to ramp up as we rolled them out broadly. Within our RPO of $11.3 billion, our current RPO was $5.4 billion. Our average duration of new contracts increased slightly year over year but remained at approximately three years. On our balance sheet, you will see that our debt balance came down by $659 million. The driver for this was early conversion, which occurred at the option of the debt holders and was settled by us in cash. Our remaining debt matures in June 2025, although we may continue to see early conversions. During Q3, we spent $500 million to repurchase 1.7 million shares of our common stock. Our buyback strategy remains opportunistic.

Speaker Change: Also this level of periodic billings was higher than we forecasted 90 days ago.

Dipak Golechha: We also saw an uptake in the array of our platformization programs we launched early in the quarter. These programs continue to ramp up as we roll them out broadly. Within our RPO of $11.3 billion, our current RPO is $5.4 billion. Our average duration of new contracts increased slightly year over year, but remained at approximately three years. On our balance sheet, you will see that our debt balance came down by $659 million.

Speaker Change: We also saw an uptake in the array of a plot for monetization programs. We launch we launched early in the quarter. These programs.

Speaker Change: We continue to ramp up as we roll them out broadly.

Speaker Change: Within our <unk> of $11 $3 billion, our current RVO was $5 $4 billion.

Speaker Change: Our average duration of new contracts increased slightly year over year, but remained at approximately three years.

Speaker Change: On our balance sheet, you will see that our debt balance came down by $659 million. The driver for this was early conversion, which occurred at the option of the debt holders and with several biopsy and cash are.

Dipak Golechha: The driver for this was early conversion, which occurred at the option of the debt holders and was settled by us in cash. Our remaining debt matures in June 2025, although we may continue to see early conversions. During Q3, we spent $500 million to repurchase 1.7 million shares of our common stock.

Speaker Change: Our remaining debt matures in June 2025, although we may continue to see early conversions.

Speaker Change: During Q3, we spent $500 million to repurchase one 7 million shares of our common stock our buyback strategy remains opportunistic.

Dipak Golechha: Our buyback strategy remains opportunistic. I know that Billings has been a significant focus for investors. As you're all aware, remaining performance obligation, or RPO, captures the full value of our contracts, independent of customer billing. As we've explained to you over the last year, with an increase in factors impacting payment terms on a quarterly basis, there's been significant volatility in our billing. With this volatility in mind, we've been increasingly focused on driving high-quality bookings, which add to RPO and maximize our NGS ARR. Focusing on these metrics provides a more relevant view of the business.

Nikesh Arora: I know that billings has been a significant focus for investors. As you're all aware, remaining performance obligation, or RPO, captures the full value of our contracts, independent of customer billing terms. As we have explained to you over the last year, with an increase in factors impacting payment terms on a quarterly basis, there's been significant volatility in our billings. With this volatility in mind, we've been increasingly focused on driving high-quality bookings, which add to RPO and maximize our NGS ARR, and contracts. Focus on these metrics provides a more relevant view of the business. If we look at the history of these metrics for our company, you see that NGS ARR has consistently grown ahead of our other metrics, and as it continues to contribute a higher proportion of our revenue. You also see the correlation between RPO and total services revenue growth is high.

Speaker Change: I know that billings has been a significant focus for investors as you're all aware remaining performance obligation or <unk> captures the full value of our contracts independent of customer billing towns.

Speaker Change: As we've explained to you over the last year with an increase in taxes impacting payment terms on a quarterly basis, that's been significant volatility in our buildings.

Speaker Change: With this volatility in mind, we've been increasingly focused on driving high quality bookings, which add to our P O and maximize our NGF AOR and contracts focuses on these metrics.

Speaker Change: <unk> provides a more relevant view of the business.

Dipak Golechha: If we look at the history of these metrics for our company, you see that NGS ARR has consistently grown ahead of our other metrics, and as it continues to contribute a higher proportion of our revenue. You also see that the correlation between RPO and total services revenue growth is high. Our RPO is mainly comprised of contracts for offerings that carry ratable revenue, which is recognized through our total services revenue. Billings, on the other hand, are significantly influenced by the invoicing terms on contract signs, which adds significant volatility.

Speaker Change: If we look at the history of these metrics for our company you see that N. G. S. Ara has consistently grown ahead of our other metrics and as it continues to contribute a high proportion of our revenue.

Speaker Change: You also see the correlation between our P O and total services revenue growth is high.

Nikesh Arora: Our RPO is mainly comprised of contracts for offerings that carry ratable revenue, which are recognized through our total services revenue. Billings, on the other hand, is significantly influenced by the invoicing terms on contract signings, which adds significant volatility. In Q3, we saw RPO growth tick up, along with strength in NGS ARR, including us raising our guidance here. This is in contrast to billing trends, which went the other direction, thereby showing the divergent trends in action in Q3 results. Nikesh talked briefly about our first-of-a-kind IBM partnership that has multiple facets that touch each of our platforms and includes significant devotion of resources from both companies. I'd like to provide more details on the financial impact we expect to see. As part of the partnership, we have agreed to acquire IBM's QRadar SaaS assets, certain QRadar intellectual property, and IBM's on-premise QRadar customer list.

Speaker Change: Apio is mainly comprised of contracts for offerings that carry ratable revenue, which are recognized through our total services revenue.

Speaker Change: Billings on the other hand is significantly influenced by the invoicing terms on contracts signed which add significant volatility.

Dipak Golechha: In Q3, we saw RPO growth tick up, along with strength in NGS ARR, including us raising our guidance here. This is in contrast to billing trends, which went the other way, thereby showing the divergent trends and actions in action through Q3 results. Nikesh talked briefly about our first of a kind IBM partnership that has multiple facets that touch each of our platforms and include a significant devotion of resources from both companies.

Speaker Change: In Q3, we saw <unk> growth tick up along with strength in N G S era, including us raising our guidance here.

Speaker Change: This is in contrast to billing trends, which went the other direction, thereby showing the divergent trends and actions.

Speaker Change: Inaction all through Q3 results.

Speaker Change: The cast talk briefly about our first of a kind IBM partnership that has multiple facets that touch each of our platforms and include significant devotion of resources from both companies.

Dipak Golechha: I'd like to provide more details on the financial impacts we expect to see. As part of the partnership, we've agreed to acquire IBM's QRadar SaaS assets, certain QRadar intellectual property, and IBM's on-premise QRadar customer list. The total consideration is $500 million plus earn-out consideration based on successfully migrating QRadar on-premise customers to our XAM offering over the next several years. We anticipate closing the transaction by the end of September 2024, subject to regulatory approvals and other customary closing conditions. For the calendar year 2023, QRadar SAS revenue was on the order of $100 million.

Like to provide more details on the financial impact we expect to see.

Speaker Change: As part of the partnership we have agreed to acquire Ibm's key radar south assets certain key radar intellectual property and Ibm's on premise QAD customer lists.

Nikesh Arora: The total consideration is $500 million, plus earnout consideration based on successfully migrating QRadar on-premise customers to our XSIAM offering over the next several years. We anticipate closing the transaction by the end of September 2024, subject to regulatory approvals and other customary closing conditions. The calendar year 2023 QRadar SaaS revenue was on the order of $100 million. However, as we work through details of the customer contracts we are acquiring and the deferred revenue associated with this business, we expect our recognized revenue could be much lower than this in our fiscal year 2025. We will provide more information on the financial impact closer to the close of the transaction. We will invest to fuel this partnership and ensure a seamless experience for QRadar customers purchasing and migrating to XSIAM.

Speaker Change: The total consideration is $500 million plus earn out consideration based on successfully migrating <unk> radar on premise customers to our xa I'm offering over the next several years.

Speaker Change: We anticipate closing the transaction by the end of September 2024, subject to regulatory approvals and other customary closing conditions.

Speaker Change: The calendar year 2023 key radar SaaS revenue was on the order of $100 million.

Dipak Golechha: However, as we work through details of the customer contracts we are acquiring and the deferred revenue associated with this business, we expect our recognized revenue could be much lower than this in our fiscal year 2025. We will provide more information on the financial impact closer to the close of the transaction. We will invest to fuel this partnership and ensure a seamless experience for customers purchasing and migrating to XIM. As part of the partnership, we have entered into an agreement with IBM whereby they will operate parts of the business on our behalf on a medium-term basis.

Speaker Change: However, as he works through details of the customer contracts, we are acquiring and the deferred revenue associated with this business. We expect our recognized revenue could be much lower than this in our fiscal year 2025.

Speaker Change: We will provide more information on the financial impact closer to the close of the transaction.

Speaker Change: We will invest the fuel this partnership and ensure a seamless experience to key radar customers purchasing and migrating to X out.

Nikesh Arora: As part of the partnership, we have entered into an agreement with IBM whereby they will operate parts of the business on our behalf on a medium-term basis. We expect we can make these investments within the profitability framework we spoke of previously. Specifically, we continue to expect 28% to 29% non-GAAP operating margin in fiscal year 2026 and 37% or greater free cash flow margin through fiscal year 2026. Before I provide Q4 guidance, I wanted to remind you of what we talked about last quarter when we introduced platformization and discussed the top line headwinds we expected it would have. We continue to expect platformization-related drivers, both larger deals with associated cost of money impacts and acceleration in platformization programs, will impact our billings over a total of a 12- to 18-month period.

Speaker Change: As part of the partnership we have entered into an agreement with IBM, whereby they will operate parts of the business on our behalf on a medium term basis.

Dipak Golechha: We expect we can make these investments within the profitability framework we spoke of previously. Specifically, we continue to expect 28% to 29% long-gap operating margin in fiscal year 2026 and 37% or greater pre-cash flow margin through fiscal year 2021. Before I provide Q4 guidance, I wanted to remind you of what we talked about last quarter when we introduced platformization and discussed the top top line headwinds we expected it would have. We continue to expect platformization-related drivers, both larger deals with associated cost of money impacts and acceleration and platformization programs will impact our billings over a total of a 12 to 18 month period. Consistent with what we noted in February, we expect that this will persist through fiscal year 25 as we anniversary the rollout of these programs, resulting in lower billings and, to a lesser degree, revenue.

Speaker Change: We expect we can make these investments within the profitability framework. We spoke of previously specifically, we continue to expect 28% to 29% non-GAAP operating margin in fiscal year, 2026, and 37% or greater free cash flow margin through fiscal year 2026.

Speaker Change: Yeah.

Before I provide Q4 guidance I wanted to remind you of what we talked last quarter. When we introduced plot for amortization and discussed the top top line headwinds, we expect that it would have.

Speaker Change: We continue to expect plot for amortization related drivers, both larger deals with associated cost of money impact and acceleration in part from Ization programs will impact how billings over a total of 12 to 18 month period.

Nikesh Arora: Consistent with what we noted in February, we expect that this will persist through fiscal year 2025 as we anniversary the rollout of these programs and resulting in lower billings and, to a lesser degree, revenue. Beyond this period, we expect to grow faster than we discussed in August and sustain this growth for longer. Now, moving on to our guidance for Q4 in the year. For the fourth quarter of 2024, we expect billings to be in the range of $3.43 to 3.48 billion, an increase of 9% to 10%. We expect revenue to be in the range of $2.15 to 2.17 billion, an increase of 10% to 11%. We expect non-GAAP EPS to be in the range of $1.40 to 1.42 a share, a decrease of 1% to 3%.

Speaker Change: Consistent with what we noted in February we expect that this will persist through fiscal year 'twenty five as we anniversaried. The rollout of these programs are resulting in lower billings and to a lesser degree revenue.

Dipak Golechha: Beyond this period, we expect to grow faster than we discussed in August and sustain this growth for longer. Now, moving on to our guidance for Q4 of the year. For the fourth quarter of 2024, we expect billings to be in the range of $3.43 to $3.48 billion, an increase of 9 to 10%. We expect revenue to be in the range of $2.15 to $2.17 billion, an increase of 10 to 11%. We expect non-GAAP EPS to be in the range of $1.40 to $1.42 a share, a decrease of 1% to 3%.

Speaker Change: Beyond this period, we expect to grow faster than we discussed in August and sustain this growth for longer.

Speaker Change: Now moving onto our guidance for Q4 in the year.

Speaker Change: For the fourth quarter of 2024, we expect billings to be in the range of $3.43 billion to $3.48 billion, an increase of 9% 10%.

We expect revenue to be in the range of $2.15 billion to $2.17 billion, an increase of 10% to 11% we.

Speaker Change: We expect non-GAAP EPS to be in the range of 1.40 to one point for $2 a share a decrease of one 3%.

Dipak Golechha: For the fiscal year 24, we expect billings to be in the range of $10.13 to $10.18 billion, an increase of 10 to 11%. We expect NGS ARR to be in the range of $4.05 to $4.10 billion, an increase of 37 to 39%. We expect revenue to be in the range of $7.99 to $8.01 billion and increase to 16%, fiscal 24 we expect operating margins be in the range of 26.8 to 27.0 percent an increase of 270 to 290 basis points year-over-year, We expect our non-GAAP EPS to be in the range of $5.56 to $5.58 per share, an increase of 25% to 26%, and we expect adjusted free cash flow margin to be 38.5 to 39%.

Nikesh Arora: For the fiscal year 2024, we expect billings to be in the range of $10.13 to 10.18 billion, an increase of 10% to 11%. We expect NGS ARR to be in the range of $4.05 to 4.10 billion, an increase of 37% to 39%. We expect revenue to be in the range of $7.99 to 8.01 billion, an increase of 16%. For fiscal 2024, we expect operating margins to be in the range of 26.8% to 27.0%, an increase of 270 to 290 basis points year over year. We expect our non-GAAP EPS to be in the range of $5.56 to 5.58 a share, an increase of 25% to 26%. We expect adjusted free cash flow margin to be 38.5% to 39%. In the interest of time and to get as many of your questions as possible, we've included the modeling points in the appendix of our earnings presentation.

Speaker Change: For the fiscal year 'twenty four we expect billings to be in the range of 10.13% a $10.18 billion, an increase of 10% to 11%. We expect N. G. S air ought to be in the range of $4.05 billion to $4.10 billion, an increase of 37% to 39% we expect revenue to be in the range of $7 99.

Speaker Change: <unk> eight points of a $1 billion an increase of 16%.

Speaker Change: Fiscal 'twenty four we expect operating margins to be in the range of $26, 8% to 27.0% an increase of 217 to 290 basis points year over year.

Speaker Change: Expect our non-GAAP EPS to be in the range of $5 56 to $558 a share an increase of 25% to 26%.

Speaker Change: And we expect adjusted free cash flow margin to be 38, 539%.

Dipak Golechha: In the interest of time and to get 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.

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.

Nikesh Arora: With that, I will turn the call back over to Walter for the Q&A portion. Thank you, Dipak. To allow for broad participation, I'd ask that each person only ask one question. The first question will be from Brian Essex at J.P. Morgan, followed by Brad Zelnick at Deutsche Bank. Go ahead, Brian. Brian, you're muted. Brian, you're muted. Brian, it looks like you're unmuted. There we go. Yeah, it wasn't letting me unmute myself, so thank you. Thank you for letting me take the question. Yeah, I guess for Dipak, as we look at your efforts of incentivizing platform consolidation or platformization, I mean, obviously, you've talked about the pressure on the last two quarters of this year. Can you maybe help me understand the duration that you anticipate pursuing these efforts?

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

Walter Pritchard: Thank you, Dipak. To allow for broad participation, I'd ask that each person only ask one question. The first question will be from Brian Essex at J.P. Morgan, followed by Brad Zelnick at Deutsche Bank. Go ahead, Brian. Brian, Brian, you're muted.

Walter: Thank you Deepak to allow for broad participation I would ask that each person only ask one question.

Walter: The first question will be from Brian Essex with Jpmorgan, followed by Brad Zelnick at Deutsche Bank Go ahead, Brian.

Brian Essex: Brian, looks like you're unmuted. Oh, there we go. Yeah, it wasn't letting me unmute myself, so thank you.

Speaker Change: Bryan Bryan you're muted.

Speaker Change: Brian you're muted.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Brian Essex: Brian let's figure out another again, yes. It wasn't wasn't letting me on mute myself. So thank you. Thank you Bill let me take question.

Brian Essex: Thank you for letting me take the question. Yeah, I guess, for Dipak, as we look at your efforts of, you know, incentivizing platform consolidation or platformization, I mean, obviously, you've talked about the pressure on... The last two quarters of this year, can you maybe help me understand the duration that you anticipate pursuing these efforts? Is this going to be a more temporary type of effort where it kind of just lasts through this fiscal year? Or do you expect it to stretch into next year?

Speaker Change: Yes, I guess for Deepak.

Speaker Change: As we look at your efforts of.

Speaker Change: Incentivizing platform consolidation or a platform as Asian, I mean, obviously, you've talked about the pressure on the.

Speaker Change: The last two quarters of this year can you maybe help me understand the duration that you anticipate pursuing these efforts is just going to be a more temporary.

Nikesh Arora: Is this going to be a more temporary type of effort where it kind of just lasts through this fiscal year, or do you expect it to stretch into next year? Thank you. Yeah, so thanks for the question, Brian. Look, I think we will I mean, platformization is something that is now our strategy. So I think in that sense, it will continue for a while. But at some point, it just becomes a normal motion, and then we're lapping a period where we've been doing platformization already. So really, what you're seeing in the financial metrics is the difference when it wasn't the normal motion, and then it becomes the motion, and then in the future, it will just become lapping what is a consistent motion. I think in that context, we said last quarter that this should persist till the end of Q2 next year.

Speaker Change: Type of effort, where it where it kind of just last year. This fiscal year or do you expect it to stretch into next year. Thank you.

Dipak Golechha: Yeah, so thanks for the question, Brian. Look, I think we will. I mean, platformization is something that is now our strategy. So I think in that sense, it will continue for a while. But, you know, at some point, it just becomes a normal motion, and then we're lapping a period where we have been doing platformization already. So really, what you're seeing in the financial metrics is the difference when it wasn't the normal motion, and then it became the motion. And then in the future, it will just become lapping, which is a consistent motion.

Speaker Change: Yes.

Speaker Change: Yes. So thanks for the question, Brian look I think I think we will I mean platinum Ization is something that is now a strategy. So I think in that sense. It will continue for a while but you know at.

At some point it just becomes a normal motion and then we're lapping a period, where we've been doing optimization already so really what youre seeing in the financial metrics is the difference when it wasn't the normal motion and then it becomes promotion and then in the future. It will just become lapping one isn't consistent motion setting the context, we said last quarter that this should persist two.

Dipak Golechha: I think in the context we said last quarter that this should persist till the end of Q2 next year. We can't start in Q2 this year.

Speaker Change: At the end of Q2 next year. The Carton started Q2 this year.

Nikesh Arora: We currently started Q2 this year. That's helpful. Thank you for the clarification. Thanks, Brian. Next question is from Brad Zelnick, followed by Hamza Fodderwala from Morgan Stanley. Go ahead, Brad. Thanks very much for taking the question. Nikesh, I was hoping you can give us an update on the state of the channel. There's a lot of noise from the traditional VAR channel. I wanted to get your sense on how they're acclimating to platformization, but you're also doubling down with the GSI. You announced this super special deal with IBM. You also signed a deal with Accenture, too. We'd just love to hear your latest thinking, and in particular, more on the GSI strategy. I mean, how many more can you add that are up at that level of an Accenture and an IBM? Thanks. Well, first of all, thanks for the question.

Brian Essex: helpful. Thank you for the clarification. Thanks.

Speaker Change: It's helpful. Thank you for the clarification.

Walter Pritchard: Thanks Brian. The next question is from Brad Zelnick, followed by Hamza Fodderwala from Morgan Stanley. Go ahead, Brad.

Speaker Change: Thanks, Brian next question is from Brad Zelnick, followed by Hamzah firewall up from Morgan Stanley Go ahead, Brian.

Brad Zelnick: Thanks for taking the question. Nikesh, I was hoping you could give us an update on the state of the channel. There's a lot of noise from the traditional VAR channel.

Brian Essex: Thank you for taking the question.

Speaker Change: The cash I was hoping you can give us an update on the state of the channel. There's a lot of noise from the traditional var channel I wanted to get your sense on how they're acclimate them acclimating to platform innovation, but youre also doubling down with the Gsi's you announced this super special deal with IBM. You also signed a deal with Accenture to we'd just love to hear your latest thinking in particular.

Speaker Change: Or on the GSI strategy I mean, how many more can you add.

Speaker Change: Better up at that level or an accenture and IBM. Thanks, well first of all thanks. The question look I don't think there is contention between the two channels is still do IBM deals where the traditional volume ball very often the bar as it represents the customer helps clear the deals house them worked through all the financing et cetera. So there is a role for both what we are.

Brad Zelnick: I wanted to get your sense on how they're acclimating to platformization, but you're also doubling down with the GSIs. You announced this super special deal with IBM. You also signed a deal with Accenture, too. We'd just love to hear your latest thinking and, in particular, more on the GSI strategy. I mean, how many more can you add that are up at the level of an Accenture and an IBM? Well, first of all, thanks.

Nikesh Arora: First of all, thanks for the question. Look, I don't think there is any contention between the two channels.

Nikesh Arora: Look, I don't think there is contention between the two channels. We still do IBM deals with a traditional VAR involved. Very often, the VAR represents the customer, helps us clear the deals, helps them work through all the financing, etc. So there is a role for both. What we are discovering is in platformization deals, customers require consulting effort to re-architect the entire security stack. And typically, they engage with the SI community or GSI community first to try and do that transformation. And partnering with them, hand in glove, allows us to be part of that story.

Nikesh Arora: We still do IBM deals with a traditional VAR involved. Very often, the VAR represents the customer, helps to clear the deals, helps them work through all the financing, etc. So there is a role for both. What we are discovering is that in platformization deals, customers require consulting effort to re-architect the entire security stack. And typically, they engage with the SI community or the GSI community first to try and do that transformation; partnering with them hand in glove allows us to be part of that story. I gave the example when we did the most recent, let's just say, re-architecture, which we had to do in a hurry in the case of a recent hack.

Speaker Change: Discovering isn't lateralization deals customers require consulting effort to re architect the entire security stack and typically they engage with ESI community. Our GSI community first to try and do that transformation and partnering with them hand in glove allows us to be part of that story is I gave the example on wheat.

Nikesh Arora: As I gave the example when we did the most recent, let's just say, re-architecture, which we had to do in a hurry in the case of a recent hack. We were working with SI partners as well as other incident response teams to make sure that we build an architecture that's consistent with what the end state needs to be. That's where partnerships like Accenture and IBM become really worthy and important because the customers are relying on them to do the heavy lift and doing the one-time transformation. I think that both these strategies will coexist. As you know, we still have a substantive hardware business, which we also work through the traditional channel. We also have, actually, to be fair, many of the VARs have transferred or translated their businesses into a part consulting model where they also work with customers and transformations.

Speaker Change: Did the most recent unnecessary architecture, which we had to do in a hurry in the case of the recent hack we were working with our Si partners as well as other incident response teams to make sure that we build an architecture, that's consistent with what the end state needs to be and that's where partnerships like accenture and IBM become really worthy and important.

Nikesh Arora: You know, we worked with SI partners as well as other incident response teams to make sure that we built an architecture that's consistent with what the end state needs to be. And that's where partnerships like Accenture and IBM become really valuable and important because the customers are relying on them to do the heavy lifting and do the one-time transformation. So I think both these strategies will coexist. As you know, we still have a substantive hardware business which we also work through the traditional channel.

Speaker Change: Because the customers relying on them to do the heavy lifting during the onetime transformation. So is it about these strategies will coexist as you know we still have a substantive hardware business, which we also worked through the traditional channel and we also have actually to be fair many of ours have.

Nikesh Arora: We also have to be fair, many of the VARs have transferred or translated their businesses into a part consulting model where they also work with customers of transformation. So I don't think they're contentious. I think it becomes harder for the analyst community to be able to track what the channel status of a company is because the SIs are not as sharing as the traditional bar channel.

Speaker Change: For our translated their businesses into a park consulting model or do they also work with customers. The transformation. So I don't think there and dense but I think it becomes harder for the analyst community to be able to track what the channel status. One company is because of the size or not as as sharing as the traditional watch analysts.

Nikesh Arora: So I don't think they're contentious. I think it becomes harder for the analyst community to be able to track what the channel status of a company is because the SIs are not as sharing as the traditional VAR channel is. Thanks very much for the color, and I love the pullover. That's a good one, Nikesh. Thank you. I appreciate it. I need some color in the day. Thank you. You had a great quarter. Thanks, Brad. Next, we'll go to Hamza Fodderwala from Morgan Stanley, followed by Matt Hedberg from RBC. Go ahead, Hamza. Hey, good afternoon. Thanks for taking my question. Nikesh, in the earnings presentation, you mentioned you see significant pipeline heading into your fiscal Q4.

Brad Zelnick: Thanks very much for the color and I love the pullover. That's a good one, Nikesh.

Speaker Change: Thanks, very much for the color and I love the pullover, that's a good one and cash. Thank you I appreciate it I need some color in the day okay.

Nikesh Arora: Thank you. I appreciate it. I need some color in my day.

Speaker Change: Thank you you had a great quarter.

Walter Pritchard: Thanks Brad. Next, we'll go to Hamza Fodderwala from Morgan Stanley followed by Matt Hedberg from RBC. Go ahead, Hamza. Hey, good afternoon.

Walter Pritchard: Thank you. We had a great quarter. Thanks, Brad. Next, we'll go to Hamza Fodderwala from Morgan Stanley, followed by Matt Hedberg from RBC. Go ahead, Hamza. Hey, good afternoon. Thanks for taking my question. Nikesh, in the earnings presentation, you said

Speaker Change: Thanks, Brett next we'll go to the firewall on from Morgan Stanley followed by Matt Hedberg from RBC go ahead Hamzah.

Hamza Fodderwala: Hey, good afternoon. Thanks for taking my question on the cash and the earnings presentation you mentioned.

Hamza Fodderwala: See significant pipeline heading into your fiscal Q4 I was wondering if you could give us a little bit more color on that pipeline does the Q4 Billings guide does suggest a big central uptick as as usual, but I think this year, a little bit higher than normal, but any color you can be helpful.

Nikesh Arora: I was wondering if you could give us a little bit more color into that pipeline because the Q4 billings guide does suggest a big sequential uptick, as is usual, but I think this year a little bit higher than normal. But any color you can give would be helpful. Yeah, Hamza, look, first, thanks for the question. As I mentioned in our prepared remarks, we have been reviewing all of our customers. We have been through 500 of them with the account teams. And every customer, there is an opportunity. There's an opportunity to deliver a platform. There's an opportunity to consolidate. And just that gives us hope and sort of some degree of conviction that there's a lot of business to be converted out there. It's really led by the customer's speed and desire to execute, or the resources to execute.

Nikesh Arora: Yeah, Hamza, first, thanks for the question. As I mentioned in our prepared remarks, we have been reviewing all of our customers. We have gone through 500 of them with the account teams. And every customer is an opportunity, there's an opportunity to deliver a platform, there's an opportunity to consolidate. And just that gives us hope and sort of some degree of conviction that there's a lot of business to be converted out there. It's really led by the customer's speed and desire to execute or the resources to execute.

Speaker Change: How does that look.

Speaker Change: First thanks for the question.

Speaker Change: As I mentioned in our prepared remarks, we have been reviewing all of our customers.

Speaker Change: Been through 500 of them with the account teams and every customer there is an opportunity there's an opportunity to deliver a platform that has opportunity to consolidate and just that gives us hope and sort of some degree of conviction that there's.

Speaker Change: Theres a lot of business to be converted out there is really learn about the customer's speed and desire to execute or the resources to execute.

Nikesh Arora: So we have a robust pipeline across most of our platforms, you see, the question is, can we go out and convert it as quickly as we need to? And that's what we're guiding to. Thank you. Great. Thanks, Hamza. Next question is from Matt Hedberg, followed by Tal Liani from Bank of America. Go ahead, Matt. Thanks, Walter. Yeah, and Nikesh, I think we are on the same wavelength here on the color. Good choice. I wanted to ask about the federal side. Last quarter, you mentioned Thunderdome. Any update on that transaction and just kind of how we're thinking about federal into Q3 or, excuse me, your Q4? Yeah, that's a great question. Look, the Thunderdome contract got activated last quarter because of sort of the zero-day vulnerability we found in certain VPNs out of the market.

Speaker Change: So we have a robust pipeline across most of our platforms to see question is can we go out and convert as quickly as we need to and that's what we're guiding to.

Walter Pritchard: So we have a robust pipeline across most of our platforms to see customers can we go out and convert as quickly as we need to. And that's what we're guiding to. Thank you. Great. Thanks, Hamza. Next question is from Matt Hedberg followed by Tal Liani from Bank of America. Go ahead, Matt.

Speaker Change: Thank you.

Walter Pritchard: Great. Thanks, Hamza. Next question from Matt Hedberg, followed by Tal Liani from Bank of America. Go ahead, Matt.

Speaker Change: Great. Thanks Hamzah next question is from Matt Hedberg, followed by <unk> from Bank of America go ahead, Matt.

Walter: Walter Yes, the cash I think we are on the same wavelength here on the color of choice.

Speaker Change: I wanted to ask about the federal side last quarter, you mentioned Thunder Bill.

Speaker Change: Any update on that on that on that transaction and just kind of how we're thinking about federal <unk> are actually in your <unk>, Yeah. That's a great question.

unknown: Unknown Attendee, Gonen Fink, William Jenkins, Palo Alto The 100 ohm, The contract got activated last quarter because of the sort of zero-day vulnerability we found in certain VPNs on the market. So they wanted to quickly replace some of the VPNs because they were required to replace them in classified agencies and non-classified agencies. So we saw some activity around Thunderdome; that contract was activated, where people used that contract that we have with TISA to be able to execute some transactions.

Speaker Change: The 100 ohm.

Speaker Change: Contract got activated last quarter because of the.

Speaker Change: Sort of the zero day vulnerability, we found in certain vpns out of the market. So they wanted to quickly replace some of the vpns because they require to place them in the classified agencies Nonfossil agency. So we saw some activity around thunderstorm that contract goes activator, where people use that contract that we have with the <unk> to be able to execute some transactions, but we still.

Nikesh Arora: So they wanted to quickly replace some of the VPNs because they were required to replace them in the classified agencies and non-classified agencies. So we saw some activity around Thunderdome. That contract was activated where people used that contract that we have with DISA to be able to execute some transactions. But we still maintain, these are going to get one at a time. Each of these missions are going to execute one at a time. So we haven't changed our expectations in terms of how Thunderdome will evolve vis-à-vis how we will see it in our financials. Thank you. Great. Thanks, Matt. Next question from Tal Liani at Bank of America, followed by Saket Kalia at Barclays. Go ahead, Tal. Hi, guys. I know we don't focus on billings, but I have a question. Just first to clarify. You do.

unknown: But we still maintain these are going to get one at a time. Each of these missions is going to be executed one at a time. So we haven't changed our expectations in terms of how Thunderdome will evolve vis-a-vis how we will see it in our finances.

Speaker Change: Maintain these are going to get one at a time each of these each of these.

Speaker Change: Emissions are going to execute a one at a time, so we haven't changed our expectations in terms of how tunneled home, but they've all vis vis how we will see it in our financials.

Walter Pritchard: Thank you. Great. Thanks, Matt. Next question from Tal Liani at Bank of America, followed by Saket Kalia at Barclays. Go ahead, Tal.

Thank you great.

Speaker Change: Great. Thanks, Matt next question from Polyone at Bank of America, followed by socket Calia at Barclays Go ahead Tom.

Tal Liani: Okay, I know we don't focus on buildings, but I have a question, just first to clarify. Yeah, just to clarify, if you won, you said in the procuratorial remarks that you won $150 million. Does it include, does it go through billing? And should we exclude it from billing on a normalized level, just to understand the impact on billings this quarter? And then billing is is, it's going to recover because I or I'm going to ask it not to say, but how what's the path for recovery for billing if investors are looking at it and you look out into the next year or two years? What's the path for recovery for billing sprolls, let's

Speaker Change: Yes.

Speaker Change: I know, we don't focus on billings, but I have a question just first to clarify.

Speaker Change: Yeah.

Nikesh Arora: Just to clarify, if you want, you said in the prepared remarks you want a $150 million deal. Does it go through billing, and should we exclude it from billing on a normalized level? Just to understand the impact on billings this quarter. And then billing, it's going to recover because I'm going to ask it, not say it, but what's the path for recovery for billing? If investors are looking at it and you look out into the next year or two years, what's the path for recovery of billings growth? Well, Tal, I think if you listen carefully to what I said, we actually built backlog this quarter, which means we booked a lot more business than we billed, which is the difference between contracts where we chose not to take their payment terms and just do annual billing. So we're signing big deals.

Speaker Change: Just to clarify you. If you want you said in the prepared remarks, you want $150 million deal.

Tom: Does it include it doesn't go through billing and should we excluded from billing on a normalized level just to understand the impact on billings this quarter.

Tom: Then billing is is.

Speaker Change: It's going to recover because I I'm going to ask it not fade, but how what's the path for recovery for billing if investors are looking at it and you look out into the next year or two years, what's the path to recovery of billings growth.

Nikesh Arora: Well Tal, I think you should listen carefully to what I said. We actually built Backlog this quarter, which means we booked a lot more business than we built, which is the difference between contracts where you choose not to take their payment terms and just do annual billing. So we're signing big deals. We have a lot of business that we're signing, and the way that gets reflected is in RPO. It depends on what we choose to either take it under billings or to take it to PAN FS, right? It shows up in billing. What we choose not to take ends up in.

Lasalle: Lasalle I think if you listen carefully to what I said.

Speaker Change: We actually built backlog this quarter, which means we booked a lot more business and rebuild.

Speaker Change: Which is a difference between contracts, where he chose not to take their payment terms and just do annual billing.

Speaker Change: So we are signing big deals they have a lot of business that we're signing and the way it gets reflected in our apio. It depends on what we choose to either take an annual billings or to take to manifest.

Nikesh Arora: We have a lot of business that we're signing, and the way it gets reflected is in RPO. It depends on what we choose to either take as annual billings or to take to PanFS, right? It shows up in billings. What we choose not to take ends up in future or deferred payment plans, or deferred billing. So I think if you look at the implied bookings, you'll see there's a double-digit number in there in the quarter. I just think billing is an artificial metric. I think I understand you guys like it because it's been around for a long time. I think the cost of money has changed the quality of that metric. To me, a quality metric is implied bookings or RPO. In both those, as I mentioned, we saw an uptick this quarter.

It shows up in billings, what we choose not to date ends up in.

Nikesh Arora: Future or Deferred Payment Plans or Deferred Billing. I think if you look at the implied bookings, you'll see there's a double-digit number in there for the quarter. I just think billings is an artificial metric, but I think I understand you guys like it because it's been around for a long time. I think the cost of money has changed the quality of that metric. For me, a quality metric is implied bookings or RPO. And in both those, as I mentioned, we saw an uptick this quarter. So we actually believe we saw a recovery faster than we expected this quarter. That's why we were surprised at the reaction.

Speaker Change: Future or deferred payment plans or deferred billing so.

Speaker Change: I think if you look at the implied bookings youll see theres, a double digit number in there in the quarter.

Speaker Change: I, just think billings and artificial metric.

Speaker Change: I think I understand you guys like it because it's been around for a long time I think the cost of money is Jane the quality of that metric to me a quality metric is implied bookings or RVO and in both of those as I mentioned, we saw an uptick this quarter.

Nikesh Arora: So we actually believe we saw a recovery faster than we expected this quarter. That's why we're surprised at the reaction of the market. Great. Thanks, Tal. Next up is Saket Kalia from Barclays, followed by Gabriela Borges from Goldman Sachs. Go ahead, Saket Kalia. Okay. Okay, great. Thanks, guys, for taking my question. Nikesh, maybe the follow-up is on that point. I like your color. That blue is very nice. Oh, thanks, buddy. Appreciate it. So just to that point, it was great to see RPO bookings, I think, actually accelerated year over year in this quarter, right? So last quarter, I think we talked about more flexibility for customers with platformization, right? Just consolidating and creating some of those RAM contracts. How much did that sort of play into the difference between bookings and billings?

Speaker Change: So we actually believe we saw a recovery faster than we expected this quarter. That's why we're surprised that the reaction of the market.

Walter Pritchard: Thanks, Tal. Next up is Saket Kalia from Barclays, followed by Gabriela Borges from Golan Sachs.

Speaker Change: Great. Thanks, Phil next episodic Italia for Barclays, followed by Gabriela Borges from Goldman Sachs go ahead socket.

Saket Kalia: Okay. Okay, great. Thanks, guys, for taking my question. Nikesh, maybe the follow-up is on that point.

Speaker Change: Okay. Okay, great. Thanks, guys for taking my question.

Tony: The cash maybe maybe the follow up is on on that point I like your color that blue is very nice thanks, Tony I appreciate it.

Saket Kalia: I like your color. That blue is very nice. Oh, thanks, buddy. I appreciate it.

Saket Kalia: So just to that point, it was great to see RPO bookings actually accelerate year over year in this quarter, right? So, you know, last quarter, I think we talked about more flexibility for customers with platformization, right? Just consolidating and creating some of those RAMP contracts. How much did that sort of play into the difference between bookings and billing? Well, remember

Speaker Change: Yeah.

Speaker Change: So just to that point. It was it was great to see <unk> bookings I think actually accelerated year over year in this quarter right. So last quarter I think we talked about more flexibility for customers with plot fermentation righteous consolidating and creating some of those ramp contracts how much of that how much of that sort of play into the.

Speaker Change: The difference between bookings and billings.

Nikesh Arora: Well, remember, the acceleration... The RAM contracts really impact us in the way that we have higher exit ARRs for New York. Right. So the year one AR may be lower than the year three ARR for a contract. But that is not visible to you yet in the numbers, because there's no way to represent that, right? The only way you'll see it is in a consolidated TCE deal, which is going to show up in RPO.

Nikesh Arora: Well, remember, the acceleration, the ramp contracts really impact us in the way that we have higher exit ARRs on many of our newer contracts, right? So the year one ARR may be lower than the year three ARR for a contract. But that is not visible to you yet in the numbers because there's no way to represent that, right? The only way you'll see it, you'll see it at a consolidated TCV deal, which is going to show up in RPO. So the ramp contracts show up as a total whole sum in the RPO number, and you're seeing an uptick in the RPO number, which tells you that business is stronger this quarter than we expected it to be. I think the only difference is we chose not to take. Remember, when a customer says, "I don't want to pay you upfront," you have two choices.

Speaker Change: Well remember the acceleration there.

Speaker Change: Ram contracts really impact us in the way that we have a higher exit arrows in many of our newer contracts.

Speaker Change: Alright, so when the ear, one area or maybe lower than the ear free air our pork contract.

Nikesh Arora: So the RAM contracts show up as a total wholesome in the RPO number. And you're seeing an uptick in the RPO number, which tells you the business is stronger this quarter than we expected. I think the only difference is we chose not to take, remember, when a customer says, I don't want to pay you up front, you have two choices; you can take annual billings, or you can get them financing through PanaFab, where it takes away from revenue and becomes interest income. And then we decided we didn't want to take so many of these deals. So our quantum of deferred billing went up compared to last quarter.

Speaker Change: But that is not visible to you yet in the numbers because there's no way a triplet due to represent that the only way you'll see it you'll see the consolidated BCE deal, which is going to show up in our P. L. So the round contracts sure was a total wholesome in the European number and you'll see an uptick in the in the European number which tells you that business is stronger this quarter than we expected it to be.

Speaker Change: I think the only difference is we chose not to take remember when a customer says I don't want to pay you upfront you have choices you can dig annual billings or you can get them financing to a manifest.

Nikesh Arora: You can take annual billings, or you can give them financing through PanFS, right? Where it takes away from revenue and becomes interest income. Then we decided we didn't want to take so many of these deals. So our quantum of deferred billing went up compared to last quarter. Got it. Very helpful. Thank you. Great. Thanks, Saket. Next question, Gabriela Borges from Goldman Sachs, followed by Gray Powell from BTIG. Go ahead, Gabriela. Hi, good afternoon. Thank you. I want to ask on the $15 billion NGS target for fiscal year 2030. I have a friend, Nikesh, who will be a little bit of color on how you arrived at that number. There's an interesting footnote here on assuming 5% annual growth per customer. And then within that target, how do you think about cyclicality?

Speaker Change: Where it takes away from revenue and becomes interest income.

Speaker Change: And then we decided we didn't want to take so many of these deals are of quantum of deferred billing went up compared to last quarter.

Saket Kalia: Got it. Very helpful. Thank you.

Speaker Change: Got it very helpful. Thank you great.

Walter Pritchard: Great, thanks, Saket. Next question is from Gabriela Borges from Golden Saks, followed by Gray Powell from BTIG. Go ahead, Gabriela.

Speaker Change: Great. Thanks, Okay next question Gabriela Borges from Goldman Sachs, followed by Gray Powell from EG go ahead, Jennifer Miller.

Gabriela Borges: Hi, good afternoon. Thank you.

Speaker Change: Good afternoon. Thank you.

Speaker Change: On the $15 billion target are reacting at age.

Speaker Change: For any casualty talk a little bit of color on how you might different numbers.

Speaker Change: And here I'm, assuming from annual growth per customer and then within that how do you think about cyclicality any comments on cyclicality of firewall or the cyclicality.

Nikesh Arora: Any comments on the cyclicality of firewall or the cyclicality of platformization impacting the linearity of getting to that target? Thank you. Yeah, two things. One, the firewall is not in there. That's hardware. That's not next-generation security. The services that work on top of firewalls are obviously in there because they're all now AI-enabled and next-generation. Cyclicality is consistent with our cyclicality of our quarters, right? We see more business in Q4. You should expect more platformization deals in Q4, hopefully higher growth in NGS ARR, which you're used to. I think the cyclicality of that slide is no different than the cyclicality you've seen in the growth of NGS ARR over the last three years that have been sharing that number with you. Yeah, sorry. Was there another part? Yeah, just on the footnote here on the 5% within. Yeah, so what we discovered. Yeah, benchmark that for us.

Speaker Change: Issue impacting the linearity of gang.

Nikesh Arora: I want to ask about the $15 billion NGS target for fiscal year 30. I have a friend, Nikesh or Dipak, a little bit of color on how you arrived at that number. There's an interesting footnote here on assuming 5% annual growth per customer. And then within that target, how do you think about cyclicality? Any comments on the cyclicality of the firewall or the cyclicality of platformization impacting the

Speaker Change: Yeah, two things one the firewall is not in there that's hardware that's our next generation security the services that work on top of firewalls are obviously in there because it will enable the next generation cyclic.

Nikesh Arora: Thank you. Yeah, two things. One, the firewall's not in there. That's hardware. That's next-generation security. The services that work on top of firewalls are obviously in there because they're not all AI-enabled and next-generation. Cyclicality is consistent with our cyclicality of our quarter. Unknown Attendee, Golen Fink, William Jenkins, Palo Alto. Yeah, sorry, was there another part?

Speaker Change: Cyclicality is consistent with our cyclicality of our quarters right, we see more business in Q4.

Speaker Change: Expect more rationalization deals in Q4, hopefully higher growth in <unk>, which you used to I think the cyclicality of that slide is no different than the cyclicality as seen in the growth of Ngls are are over the last three years have been has been sharing that number with you.

Speaker Change: Yes, sorry, it was her mother park, Yeah, just just from Hereon.

Nikesh Arora: Yeah, just on the footnote here on the slide, just within So, what we've discovered, well, yeah, benchmark that for us. Well, what we've discovered is that as Platformization grows for a customer. As renewals come up, we're able to upsell them more capability. For example, in SASE, we can now sell them ADEM and AIOps. For example, in our firewalls, we can send them 10 subscriptions. For example, in Cortex, now with XDR and ITDR, we can sell them CDRs.

Speaker Change: So what we discovered.

Speaker Change: Thanks Mark.

Nikesh Arora: Well, what we've discovered is as platformization grows for a customer, as renewals come up, we're able to upsell them more capability. For example, in SASE, now we can sell them ADEM and AIOps. For example, in our firewalls, we can sell them 10 subscriptions. For example, in Cortex, now with XDR, ITDR, we can sell them CDR. In Access, we will be able to sell them AI access. So every time these deals will come up for renewals, we will have the opportunity to present more services and capability onto the platform with the customer driving NRR for us. So we've made a simplistic assumption that the combined effect of NRR is approximately a 5% increase in ARR over the course of those years. Got it. Thank you. Thanks, Gabriela. Next question, Gray Powell from BTIG, followed by Gregg Moskowitz from Mizuho. Go ahead, Gray. Okay, great.

Speaker Change: Well, what we discovered is as.

Speaker Change: Platform Ization grows for.

Nikesh Arora: In Access, we will be able to sell them AI Access. So every time these deals come up for renewals, we will have the opportunity to present more services and capability onto the platform with the customer driving NRR for us. So we've made a simplistic assumption that the combined effect of NRR is approximately a 5% increase in ARR over the course of those years.

Speaker Change: For our customer as renewals come up we're able to upsell them more capability for example in SaaS and now we can sell them aid them in AI ops for example, in our firewalls because under intense subscriptions for example in cortex now with Xdr ITD hour, we can sell them CBR and access we will be able to sell EMEA access. So every time. These deals will come up for renewals you will have the opportunity.

Speaker Change: To present more services and capability onto the platform, but the costs are driving an IRR for us. So we've made a simplistic assumption that the combined effect of an IRR is approximately a 5% increase in IRR or.

Speaker Change: Of course of those years.

Walter Pritchard: Thank you. Thanks, Gabriela. Next question, Gray Powell from DTIG, followed by Greg Moskowitz from Mizzou Hope. Go ahead, Gray. Okay, great.

Speaker Change: Got it thank you.

Thank you Kevin next question Gray Powell from <unk>, followed by Gregg Moskowitz from Mizuho go ahead, Greg Okay, great. Thanks for taking the question.

Gray Powell: Okay, great. Thanks for taking the time to answer the question. And it was good to hear the 50% growth on Prisma SASE this quarter. So a question on Secure Service Edge. If I look at industry analyst estimates there, I think Secure Service Edge is probably about 25% of the network security market today. Give or take; that's rough. I'm just kind of curious, like where do you think that penetration will go in maybe three or four years? Or maybe said differently, how should we think about the growth profile of that market going forward and your ability to grow at or above that?

Nikesh Arora: Thanks for taking the question. It was good to hear the 50% growth on Prisma SASE this quarter. So a question on SASE. If I look at industry analyst estimates there, I think SASE is probably about 25% of the network security market today. Give or take, that's rough. I'm just kind of curious, where do you think that penetration goes in maybe three or four years? Or maybe said differently, how should we think about the growth profile of that market going forward and your ability to grow at or above that? Yeah. Look, I think it's important to start with a view on this that the market will be hybrid for a very long time, meaning customers will need a combination of hardware form factors, software form factors, and SASE.

Speaker Change: And it was good to hear the.

Speaker Change: The 50% growth on Christmas Bassi This co owner.

Speaker Change: So a question on secure service edge, if I look at industry analysts estimates there I think secure service managers, probably about 25% of the network security market today.

Speaker Change: Give or take Thats Ross I'm, just kind of curious like where do you think that penetration goes and maybe three or four years or maybe said differently. How should we think about the growth.

Speaker Change: Hope all of that market going forward and your ability to grow at or above that.

unknown: Yeah, the

Speaker Change: Yeah.

unknown: Look, I think it's important to start with a view that the market will be hybrid for a very long time, meaning customers will need a combination of hardware form factors, software form factors, and SASE. And the reason for that is, you know, campuses still exist, and hardware is still the fastest approach to this, and public and private cloud software-based approaches are the best. SASE comes in with all of the remote users and branch offices.

Speaker Change: Look I think it's important to start with.

Speaker Change: Our view on this that the market will be hybrid for a very long time, meaning customers will need a combination of hardware form factor software form factors and chassis and the reason for that is you know campus is still exists and hardware is still the fastest approach to this in public and private cloud software based approaches are the best chassis.

Nikesh Arora: The reason for that is campuses still exist, and hardware is still the fastest approach to this. And public and private cloud, software-based approaches are the best. SASE comes in with all of the remote users and branch offices. That hybrid nature, from our perspective, means that customers will increasingly choose to go with a platform-based approach where they can shift traffic across those different form factors as is optimized for that form factor. Some of the SASE growth that you've seen, and you've seen it with us for 50% growth with SASE over the last several quarters, is showing that that portion of the architecture is going to grow faster for some time. Ultimately see this come into the total growth of the platform being what really matters.

Speaker Change: He comes in with all of the remote users and branch offices and so.

Speaker Change: The that debt hybrid nature from our perspective means that their customers will increasingly choose to go with a platform based approach where they can shift traffic across those different form factors as is optimized for that form factor and so.

unknown: And so that hybrid nature, from our perspective, means that customers will increasingly choose to go with a platform-based approach where they can shift traffic across those different form factors as it is optimized for that form factor. And so, you know, some of the SASE growth that you've seen, and, you know, you've seen it with us for, you know, 50% growth with SASE over the last several quarters, is showing that that portion of the architecture is going to grow faster for some time. And then ultimately, see this come into the total growth of the platform being what really matters.

Speaker Change: Some of the SaaS growth that you've seen and.

Speaker Change: You've seen it with us for a 50% growth with massage over the last several quarters is showing that that portion of the architecture is going to grow faster for some time and then ultimately we see this.

Speaker Change: Just come into a total growth of the platform being what really matters and then on top of that we can deliver the security services such as the newly announced AI access security across all of those form factors.

Nikesh Arora: And then on top of that, we can deliver the security services, such as the newly announced AI Access Security, across all of those form factors. Okay. Thank you. Thanks for the question, Gray. Next up, Gregg Moskowitz from Mizuho, followed by Fatima Boolani from Citi. Go ahead, Greg. Okay. Yeah, thanks, Walter. Thanks for taking the question. Nikesh, in order to reach your fiscal 30 goals, it looks like you'll need to sign an average, give or take, of around 75 new platformization deals per quarter, a little higher than what you did just in Q3. But if we're in the early days of this strategy, and if you're just now building your go-to-market muscle around this, why shouldn't new platformization customers be a lot higher than that on a multi-year basis? Thanks. Look, we told you last quarter we're going to do platformization.

unknown: And then on top of that, we can deliver security services, such as the newly announced AI access security, across all of those forms. Okay. Thank you. Thanks for the question, Greg. Next up is Greg Moskowitz from Azul, followed by Fatima Boolani from Citi. Go ahead, Greg. Okay, thanks, Walter. Thanks for taking the time to answer the question. Nikesh, in order to reach your financial goals,

Speaker Change: Okay. Thank you.

Speaker Change: Thanks for the question Great next stuff Gregg Moskowitz from Mizuho, followed by a team of <unk> from Citi Go ahead, Greg.

Greg: Okay. Thanks, Walter Thanks for taking the question the cash in order to reach your fiscal <unk> 30 goes it looks like you'll need to sign an average give or take of around 75, new platform mutation deals per quarter, a little higher than what you did just that in Q3, but if we're in the early days of this strategy and if you're just now delta here and go to market muscle around this one.

Greg: Should it new emulation customers be a lot higher than that on a multiyear basis. Thanks.

Walter Pritchard: Thank you. Thanks for the question, Greg. Next up, Greg Moskowitz from Azul, followed by Fatima Boolani from Citi. Go ahead, Greg.

Greg: [laughter].

Like we told you last quarter, we're going to apply for amortization I have to say I have to commend. Our team. We spent a lot of time over the last nine at 90 days working hard on analyzing all of those data to make sure. We could give you a framework. So you can look at it and measure us over the next few quarters as we show you the benefits of Collateralization. So that's one part the other part is I guess positively surprised.

Nikesh Arora: I have to say, I have to commend our team. We spent a lot of time over the last 90 days working hard on analyzing all this data to make sure we could give you a framework so you can look at it and measure us over the next few quarters as we show you the benefits of platformization. So that's one part. The other part is it's positively surprised, a good thing that we've got 60-plus deals done in this quarter. We'll see what happens in Q4. We've just started going down this journey. And of course, if prospects get better, we'll be happy to update our targets in the future. But for now, that seems like a robust goal that will still make us the first company in the history of cybersecurity to ever get anywhere close to that kind of aspiration and number. Thank you. Great.

Nikesh Arora: Look, we told you last quarter we were going to do platformization. I have to say, I have to commend our team.

Nikesh Arora: We spent a lot of time over the last 90 days working hard to analyze all this data to make sure we could give you a framework so you can look at it and measure us over the next few quarters as we show you the benefits of platformization. So that's one part. The other part is like it's positively surprised; a good thing that we've got 60 plus deals done in this quarter. We'll see what happens in Q4.

Greg: Good thing that we've got 60 plus deals done in this quarter.

We'll see what happens in Q4, although we've just started going down this journey and of course, if prospects get better it will be happy to update our targets in the future but.

Nikesh Arora: We've just started going down this journey, and of course, if prospects get better, we'll be happy to update our targets in the future. But for now, that seems like a robust goal that would still make us the first company in the history of cybersecurity to ever get anywhere close to that kind of aspiration and number.

Greg: Or now that seems like a robust gold that would still make us. The first company in the history of SAB secured ever get anywhere close to that kind of aspirational number.

Walter Pritchard: Thank you. Great. Thanks, Greg. Next up, Fatima Boolani from Citi, followed by Shaul et al. from Calend. Go ahead, Fatima.

Speaker Change: Thank you.

Nikesh Arora: Thanks, Gregg. Next up, Fatima Boolani from Citi, followed by Shaul Eyal from TD Cowen. Go ahead, Fatima. Thank you. Good afternoon. Thank you for taking my questions. Nikesh, you talked a lot about the multiplicative impact and the monetization acceleration you can get from platformization. I'm curious if we can put a profitability lens on this because you are driving between $2 and 14 million of the ARR you mentioned from a platformized customer. But from a contribution margin perspective, can you share with us what that incremental profitability impact would be like, and why should we, sitting here, not think that structurally your business, as it moves towards being increasingly consolidated, can see 30%, 35%, maybe even 40% operating margins? Yeah. Look, Fatima, in concept, principally, I have no argument against what you're saying.

Speaker Change: Great. Thanks, Greg next up the team of Alani from city, followed by shovel, let al from Cowen go ahead Fatima.

Fatima Boolani: Thank you. Good afternoon. Thank you for taking the time to answer my questions.

Speaker Change: Thank you good afternoon, and thank you for taking my questions and the cash you talked a lot about the multiplicative impact and that monetization acceleration you can get from blacks organization I'm curious if we can put a profitability lens on this because.

Nikesh Arora: Nikesh, you talked a lot about the multiplicative impact and the monetization acceleration you can get from platformization. I'm curious if we can put a profitability lens on this because you are deriving between $2 and $14 million of the ARR you mentioned from a platformized customer. But from a contribution margin perspective, can you share with us what that incremental profitability impact would be like? And why should we sitting here not think that, structurally, your business, as it moves towards being increasingly consolidated, can see 30, 35, maybe even 40% operating margins?

Speaker Change: You are driving between two and $14 million of that or are you mentioned from the platform is customer.

Speaker Change: From a contribution margin perspective can you share with us what that.

Speaker Change: Incremental profitability impact would be like and why should we sitting here not think that structurally your business as it moves towards being increasingly consolidated.

Speaker Change: Can see 30, 35, maybe even 40% operating margin.

Nikesh Arora: Yeah, look, Fatima, in concept, principally, I have no argument against what you're saying. Because remember, if you look at an average enterprise company's P&L, the largest cost is sales and marketing. Right, close margins are give or take 75 to 80%. Take your favorite enterprise company that leaves you most of your costs are. The majority of the costs are sales and marketing. If you can consolidate and concentrate your sales and marketing costs on very large deals and be able to generate large amounts of ARR or ACV slash DCV for those customers, the cost of sales, the proportion of your revenue goes down.

Speaker Change: Yes.

Speaker Change: I.

Speaker Change: In concept, principally I have no, arguing against what you are saying because remember.

Nikesh Arora: Because remember, if you look at an average enterprise company's P&L, the largest cost is sales and marketing, right? Gross margins are, give or take, 75% to 80%, take your favorite enterprise company. That leaves you most of your costs are the majority of the costs are sales and marketing. If you can consolidate and concentrate your sales and marketing costs to very large deals and be able to generate large amounts of ARR or ACV/TCV for those customers, your cost of sales is a proportion of your revenue goes down. As you are constantly upselling it to the same customer base, it also makes it a little easier. So I think our opportunity is to first create enough breadth in our sort of coverage to make sure that we can actually go address all these landed customers. We've only done 900.

Speaker Change: If you look at our average enterprise companies P&L, the largest cost of sales and marketing.

Gross margins are give or take 75% to 80% take your favorite enterprise company that leaves your most of your costs are.

Speaker Change: Majority of the cost of sales and marketing if you can consolidate and concentrating on sales and marketing costs to very large deals and be able to generate large amounts of IRR or a C. V. Slash D. C V from those customers or cost of sales as a proportion of your revenue goes down as you are constantly upselling into the same customer base. It also makes it a lot easier. So I think we are opportune.

Nikesh Arora: As you are constantly upselling into the same customer base, it also makes it a little easier. So I think our opportunity is to first create enough breadth in our sort of coverage to make sure that we can actually go address all these landed customers. We've only done 900. We said we've got to get north of 2,500, which means we have to go address a lot more customers in our existing landed base.

Speaker Change: He is to first create enough breadth in our in our sort of coverage to make sure that we can actually go address all these landed customers. We've only done 900, instead, we gotta get north of 2500, which means you have to go address a lot more customers on our existing land base. We don't have to go make new friends is after go work with our existing brands, but yes in the long term.

Nikesh Arora: We said we got to get north of 2,500, which means we have to go address a lot more customers than our existing landed base. We don't have to go make new friends. We just have to go work with our existing friends. But yes, in the long term, I have no argument against your thesis that this should allow us to continue to aspire to higher profitability, not counting the impact of AI, which should get us to be a much more productive organization over the medium term. Thank you. Great. Thank you, Fatima. Next question, Shaul Eyal from TD Cowen, followed by Andrew Nowinski from Wells Fargo. Go ahead, Shaul. Thank you. Good afternoon, guys. Question for Dipak or Nikesh on finance receivables. So finance receivables up 34% sequentially. I know you don't guide, cannot guide this metric.

Nikesh Arora: We don't have to go make new friends. We just have to go work with our existing friends. But yes, in the long term, I have no argument against your thesis that this should allow us to continue to aspire to higher profitability, not counting the impact of AI, which would make us a much more productive organization.

Speaker Change: I have no argument against your thesis that this should allow us to continue to aspire to higher profitability not counting the impact of AI, which would get us to be much more productive organization or the medium term.

Walter Pritchard: Great. Thank you, Fatima. Next question: Shaul Eyal from Cowan, followed by Andy Nowinski from Wells Fargo. Go ahead, Shaul.

Speaker Change: Great. Thank you for Hema next question Chevrolet all from Cowen followed by any new Whiskey from Wells Fargo go ahead Joel.

Shaul Eyal: Thank you. Good afternoon, guys.

Speaker Change: Thank you good afternoon Guy a question for.

Speaker Change: Deepak or any cash on Simon's receivables so.

Dipak Golechha: A question for Dipak or Nikesh on finance receivables. Finance receivables are up 34% sequentially. I know you don't guide, cannot guide this metric. But if we look into next quarter and take into account your commentary about the strong pipeline, will we be seeing finance receivables still expanding? Or maybe ask a different question: will there be a point where we do, or would you like to see this metric actually decelerating to a degree? What's the thinking along these lines?

Speaker Change: <unk>.

Speaker Change: Finance receivables up 34% sequentially I know you don't guide Channel Guide this metric.

Nikesh Arora: If we look into next quarter and take into account your commentary about the strong pipeline, will we be seeing the finance receivables still expanding, or maybe ask it differently? Will there be a point where you would like to see this metric actually decelerating to a degree? What's the thinking along these lines? Yeah. So I think thanks for the question, Shaul. I think as a business grows, having tools like PanFS can only help you. And if that's what the customer is looking for in terms of payment plans, I think I don't have a problem if it goes up because it just ends up giving you even more knowledge of what your cash flow will be in the future. So all of that receivable will be collected eventually. Honestly, I think more of it is related to the cost of money than anything else.

Speaker Change: We look into next quarter and taking into account your commentary about the strong pipeline.

Speaker Change: Will we be seeing the finance receivables still expanding or maybe ask the difference you will there be a point.

Speaker Change: Where would you like to see that this metric actually decelerating.

Speaker Change: To a degree whats the thinking along these lines.

Dipak Golechha: Yeah, so I think, thanks for the question, Sean. I think as a business grows, you know, having, you know, tools like PanaFS can only help you. And if that's what the customer is looking for in terms of payment plans, I think, you know, I don't have a problem if it goes up, because it just ends up giving you even more, like knowledge of what your cash flow will be in the future.

Speaker Change: Yes, so I think.

Sean: Thanks for the question, Sean I think as the business grows.

Sean: Having.

Sean: Tools like panel.

Sean: It can only help you.

Sean: And if that's what the customer is looking for in terms of payment.

Sean: Payment plans.

Sean: I think.

Sean: I don't have a problem if it if it goes up because it just ends up giving you even more like knowledge of what your cash flow we in the future like so all of that receivable we collected eventually.

Dipak Golechha: Honestly, I think more of it is related to the cost of money than anything else. So I think this becomes a larger issue in the current environment where interest rates are higher. I think if we're in an environment where interest rates go down, that's when I would expect this to essentially ratchet down.

Sean: Honestly I think more of it is related to the cost of money.

Sean: Then than anything else. So I think this becomes a larger issue in the current environment, where interest rates are higher I think if we were in an environment, where the interest rates will go down that's one I would expect this to essentially.

Nikesh Arora: So I think this becomes a larger issue in the current environment where interest rates are higher. I think if we're in an environment where the interest rates will go down, that's when I would expect this to essentially ratchet down. Great. Thanks, Shaul. Next up is Andrew Nowinski from Wells Fargo, followed by Joe Gallo from Jefferies. Go ahead, Andy. Okay. Good afternoon. Thank you for taking the question. So I wanted to ask you about the IBM deal. What was the impetus for acquiring those assets? Because it looks like their SaaS revenue is pretty small at $100 million. And given how well XSIM is doing, couldn't you just capture those on-prem customers for free over time? I think, Andrew, there's more than that. Remember, we explained to you that part of platformization is going to be able to transition customers off their existing contracts.

Sean: It down.

Walter Pritchard: Great. Thanks, Shaul. Next up is Andy Nowinski from Wells Fargo, followed by Joe Gallo from Jeffries. Go ahead, Andy. Okay, good afternoon. Thank you for taking

Walter Pritchard: Great. Thanks, Shaul. Next up is Andy Nowinski from Wells Fargo, followed by Joe Gallo from Jeffries. Go ahead, Andy.

Great. Thanks, Joe next up is any new Winski from Wells Fargo, followed by Joe Gallo from Jefferies Go ahead any.

Speaker Change: Okay. Good afternoon. Thank you for taking the question. So I wanted to ask you about the IBM deal what was the impetus for acquiring those assets because it looks like the SaaS revenue is pretty small at 100 million and given how well X S. I am is doing can.

Speaker Change: Can you just capture the vamp DRAM customers for free over time.

Nikesh Arora: Hey, Andrew, there's more than that. Remember, we explained to you that part of platformization is going to be being able to transition customers off their existing contracts. Now, the good news is we can transition these customers, irrespective of term when they expire. That's great option value, right?

Andrew: Hey, Andrew there's more of that remember we explained to you.

Andrew: That.

Speaker Change: Part of that from Ization is going to be is going to be able to transition customers off their existing contracts now. The good news is we can transition these customers irrespective of term when they expire.

Nikesh Arora: Now, the good news is we can transition these customers irrespective of term when they expire. That's great option value, right? I don't have to wait for three years to migrate them. I don't have to wait for an RFP. I can just walk up to them saying, "Listen, you're already my customer now because I've acquired the contract. Why don't you come work on transitioning to XSIAM?" Not only that, it also allows the opportunity not just to go after the SaaS customer base, but also allows us to transition the on-prem customer base, which is a much larger prize, where IBM has economics from us where they're able to transition. They will get earn-out based on how many of those customers transition to us. So I mean, honestly, I think it's an amazing deal for us.

Nikesh Arora: I don't have to wait for three years to migrate them. I don't have to wait for an RFP. I just walk up to them and say, listen, you're already my customer now because I've acquired the contract. Why don't you come?

Speaker Change: Great option value right I don't have to wait for three years to migrate them I don't have to wait for an RFP I, just woke up and saying listen eroding my customer now goes I have acquired the contract why don't you come we work on transitioning index I am not.

Nikesh Arora: We are working on transitioning to XIM. Not only that, it also allows the opportunity not just to go after the SaaS customer base but also allows us to transition to the on-prem customer base, which is a much larger prize, where IBM has economics from us. Where they're able to transition, they will get earnings out based on how many of those customers transition to us. So, I mean, honestly, it's an amazing deal for us.

Speaker Change: Only that.

Speaker Change: It also allows the opportunity not just to go off with SaaS customer base, but also allows us to transition the arm from customer base, which is a much larger prize.

Speaker Change: Where IBM has economics from us where they are able to translate that they will get earn out based on how many of those customers transition to it. So I mean honestly, it's I think it's an amazing deal for us I'm just I'm just.

Nikesh Arora: I'm just delighted that IBM agreed to do this deal with us and partner with us. Also, it gives me access to look in the history of IBM. They have not sold anybody else's cybersecurity portfolio with the enthusiasm we hope we can generate together for their 1,000 cybersecurity sellers. Until now, they would sell one portfolio. That was IBM. And today, this deal allows us to train all of them, all 1,000 of them, work with them on XSIAM, and get it out to customers. I think it hopefully cements our place in the SIEM/SOC category at a pace that nobody would have anticipated, right? Until yesterday, there were three players in the Magic Quadrant, which was not us.

Nikesh Arora: I'm just, I'm just, you know, delighted that IBM agreed to do this deal with us and partner with us. And also, it gives me access to, look, in the history of IBM, they have not sold anybody else's cybersecurity portfolio with the enthusiasm we hope we can generate together for the thousand cybersecurity sellers. Until now, they would sell one portfolio, that was IBM. And today, you know, we've got the deal that allows us to train all of them, all thousands of them, work with them on XIM, and get it out to customers.

Speaker Change: Delighted that IBM agreed to do this deal with us and partner with US and also gives me access to look in the history of IBM they have not sold.

Speaker Change: Anybody else's cyber security portfolio with the enthusiasm we hope we can generate together, where there are thousands of security sellers until now there was sell one portfolio that was IBM.

Speaker Change: And today, we are.

Speaker Change: This deal allows us to train all of them all of them work with them on X I am and get it out to customers just I think it's.

Nikesh Arora: Just, I think it, hopefully cements our place in the sims slash saw category at a pace that nobody would have anticipated. Right until yesterday, there were three players in the magic quadrant who were not us. This allows us to participate with one of the biggest players in the space and migrate as many of these customers based on merit and based on a great proposition as quickly as we can. Unknown Attendee, Gonen Fink, William Jenkins, Palo Alto, Nevermind; I won't quote a large number. I didn't have to sell many, many, many billions of dollars and transition to customers then.

Speaker Change: Hopefully cements our place in the Syn Slash sock category.

Speaker Change: At a pace that nobody would've anticipated until yesterday, there were three players in the magic quadrant.

Speaker Change: Not us.

Nikesh Arora: This allows us to participate with one of the biggest players in the space and migrate as many of these customers based on merit and based on great proposition as quickly as we can. That makes sense. That's $500. And I didn't have to spend what was the number? Never mind. I won't quote a large number. I didn't have to sell many, many, many billions of dollars and transition to the customers then. Got it. Thank you. Great. Thanks, Andy. Next up, Joe Gallo from Jefferies, followed by Ben Bollin from Cleveland Research. Go ahead, Joe. Hey, guys. Thanks for the question. I want to follow up on Fatima's question. I don't think many disagree with the strategic long-term potential of the platform or the ensuing financial strength.

Speaker Change: This allows us to participate with one of the biggest players in the space and.

Speaker Change: Get them migrate as many of these customers based on merit and based on great proposition as quickly as we can.

Speaker Change #100: That makes Ireland dollars I know I didn't have to spend more than alright, I won't I don't want to go to a large number I didn't have to sell many many many billions of dollars and travelers are the customers then.

Speaker Change #100: Got it. Thank you great. Thanks, Andy next up Joe Gallo from Jefferies, followed by Denver Olin from Cleveland Research go ahead, Joe Hey, guys. Thanks for the question I want to follow up on <unk> question I don't think many disagree with the strategic long term potential of the platform or the ensuing financial strength. When you look at fiscal 'twenty, five specifically and free cash flow being 37%.

Walter Pritchard: Thanks, Andy. Next up is Joe Gallo from Jeffries, followed by Ben Bollin from Cleveland Research.

Walter Pritchard: Got it, thank you. Thanks, Andy. Next up, Joe Gallo from Jeffries, followed by Ben Bollin from Cleveland Research. Go ahead, Joe. Hey, guys, thanks for the questions. I want to follow up on Fatima's question. I don't think many disagree with the strategic long-term potential.

Nikesh Arora: But when you look at fiscal 2025 specifically and free cash flow being 37%+ margin there, how should we think about the visibility or durability of that free cash flow margin given what's impacting you now with deferred payment terms, discounting, fatigue, hardware digestion should, in theory, impact you for a couple of quarters next year? Thanks. First of all, do not introduce the word fatigue in our conference call. Secondly, yeah, as it relates to the free cash flow margins, I'll let Dipak jump in in a minute. But it's the fine balance of making sure that we can let our annual billings continue to grow as a proportion because we think this interest rate environment is here to stay, and we can manage our free cash flow margin in the same timeframe.

Chris: <unk> margin there how should we think about the visibility or durability of that free cash flow margin given what's impacting you know with deferred payment terms discounting for key hardware digestion should in theory impact you for a couple of quarters next year. Thanks, Chris first of all do not introduce alert fatigue in our conference call.

Nikesh Arora: First of all, do not introduce the word fatigue into our conversation. Uh, secondly, uh, yeah, um... As it relates to the free cash flow margins, I'll let Dipak jump in a minute, but it's the fine balance of making sure that we can let our annual billings continue to grow as a proportion because we think this interest rate environment is here to stay and we can manage our free cash flow margins in the same time frame.

Speaker Change #102: Secondly, Ah.

Speaker Change #102: Yeah.

Speaker Change #103: As it relates to the free cash flow margins I look that shipper jump in in a minute, but like its the fine balance of making sure that we can let our annual billings continue to grow as a proportion because we think disinterested environment is here to stay and we can manage our free cash flow margins at the same timeframe. So the good news is because of and are nicely increasing.

Nikesh Arora: The good news is that, in a nicely increasing profitability, that allows us to have the capability to let our annual billings continue to get bigger and bigger because, eventually, that's what gets you. Take the extreme example on the other side. The other extreme example is a SaaS company without billings, which can go back to the same degree of free cash flow margins that they have. So our opportunity is to see if we can migrate our customers to more and more annualized billings and continue to maintain the margins without creating a kink in there. That's what Deepak is very focused on.

Nikesh Arora: The good news is, because of nicely increasing profitability, that allows us to have the capability to let our annual billings continue to get bigger and bigger. Because eventually, that's what gets you. Take the extreme example on either side. The other side extreme example is a SaaS company with annual billings, which can go back to the same degree of free cash flow margins that they have. So our opportunity is to see if we can migrate our customers to more and more annualized billings and continue to maintain the margins without creating a kink in there. And that's what Dipak is very focused on. I don't know if there was something you want to add to that, Dipak. No, the only thing that I would add is, look, the more that you do deferred payments now, the more you actually understand your waterfall of what will come afterwards.

Speaker Change #103: Profitability that allows us to have the capability to let our anvil billings can they get bigger and bigger because eventually that's what gets you take the extreme example on either side. The other side. Extreme example is SaaS company without village, which can go back to the same degree of free cash flow margins of that so our opportunity is to see if he can migrate R. R.

Speaker Change #103: Our customers to more and more annualized billings and continue to maintain our margins without creating a kink in there. That's what Deepak is very focused on and if there was something on that.

Dipak Golechha: I don't know if there is something you want to add. No, the only thing that I would add is, look, the more that you do deferred payments now, the more you actually understand your waterfall of what will come afterwards. So as long as the shift doesn't happen all at once, and it's a gradual shift that you're managing, it actually gives you even more certainty than less certainty in your ability to deliver. So, you know, happy to talk offline about how we see that and why we believe that. But I think the data doesn't lie there.

Speaker Change #104: The only thing that I would add is like look the more that you deferred payments now the more you actually understand your waterfall of what will come afterwards, so as long as the shift doesn't happen all at once and it's a gradual shift that you're managing it actually gives me even more certainty.

Nikesh Arora: So as long as the shift doesn't happen all at once and it's a gradual shift that you're managing, it actually gives you even more certainty than less certainty in your ability to deliver. So happy to talk offline about how we see that and why we believe that. But I think the data doesn't lie there. Thank you. Thanks, Joe. Next, Ben Bollin from Cleveland Research, followed by Jonathan Ho from William Blair. Go ahead, Ben. Thanks, Walter. Good afternoon, everyone. Thanks for taking the question. Nikesh, one of the initial attributes around platform seems to be the potential for free use periods, and as companies displace other vendors. Could you talk about what you've seen from the use of those free use periods in those first 60-plus deals?

Speaker Change #104: Then then less certainty in your ability to deliver so.

Speaker Change #104: Happy to talk offline about how we see that and why we believe that but I think the the data doesn't lineup.

Speaker Change #105: Thank you.

Joseph Gallo: Thank you. Thanks, Joe. Next, Ben Bollin from Cleveland Research, followed by Jonathan Ho from Lean Blair. Go ahead, Ben. Thanks, Walter. Good afternoon, everyone. Thanks for taking the question. Nikesh, one of the initial attributes around platform...

Walter Pritchard: Thanks, Joe. Next, Ben Bollin from Cleveland Research, followed by Jonathan Ho from Lien Blair. Go ahead, Ben.

Speaker Change #106: Thanks, Joe next Ben Bolan from Cleveland Research forward, Jonathan Ho from William Blair Go ahead Ben.

Thanks, Roger Good afternoon, everyone. Thanks for taking the question.

Benjamin Bollin: The cash one of the initial attributes around platform seems to be the potential for free use periods and as companies displace other vendors.

Speaker Change #108: Could you talk about what you've seen from us for use periods in those first 60 plus deals and then.

Nikesh Arora: Maybe Dipak, could you talk through a little bit about what it means for revenue, RPO, ARR, billings, and how that waterfalls over time? Thanks. Yeah. So in the first 50 or 60 deals, I think we've got a little sort of portfolio of all kinds of stuff that's happened. There are some customers where we've had to basically wait for six months to be able to charge for our services because they have an existing contract, and we start implementation. So we wait that period out. Typically, those deals where we end up waiting out end up with longer duration because we don't want to give away that period over a shorter period of time. So you'll see that those deals are north of three years in the case we end up giving some sort of free use period.

Speaker Change #109: Maybe deep pocket, you talked through a little bit about what it means for revenue <unk> billings and like how that waterfalls over time. Thanks.

Benjamin Bollin: Yeah, so in the first 50 or 60 deals, I think we've got a little sort of portfolio, all kinds of stuff that's happened. There are some customers we've had to basically wait for six months to be able to charge for our services because they have an existing contract, and we start implementation. So we wait that period out. Typically, those deals where we end up waiting out end up with a longer duration because we don't want to give away that period over a shorter period of time.

Speaker Change #110: Yeah. So let me in the first 50 or 60 deals I think we've got little a little set of.

Speaker Change #111: Ah portfolio all kinds of stuff. That's happened there are some customers, where we've had to basically wait for six months to be able to charge for our services because they have an existing contract have you started implementation. So we wait that figured out typically those deals where we end up waiting out end up with longer duration, because we don't want to give away that period over a shorter period of time, so you'll see that those deals are north of three years.

Benjamin Bollin: So you'll see that those deals are north of three years, and in most cases, we end up giving some sort of free use period. In smaller situations, sometimes we'll provide migration services, which allows them to get off an existing solution and move to Palo Alto as quickly as possible. And remember, because most of these implementations have some sort of ramp element; nobody goes and deploys 65,000 endpoints and turns them on in one day.

Speaker Change #111: In the case, we ended up giving some sort of free use period.

Nikesh Arora: In smaller situations, sometimes we'll provide migration services, which allows them to get off an existing solution and move to Palo Alto as quickly as possible. And remember, because most of these implementations have some sort of ramp element, nobody goes and deploys 65,000 endpoints and turns them on in one day. Typically, it takes them three to four months internally to deploy those. So that actually doesn't impact us from a COGS perspective as much. It allows them to have that execution flexibility, which we've always talked about as part of platformization. So I think we've seen all variants. And I'll say right now, we're seeing more of an impact on our business from deferred payment than we are from the free periods, to be honest, right? In every case, we're trying to make sure the exit ARR is what we want from that customer.

Speaker Change #111: In smaller situations, sometimes will provide migration services, which allows them to get off an existing solution and moved to Palo Alto as quickly as possible and remember because most of these implementations have some sort of a ramp element nobody goes and deploys 65000 endpoints and turns them on in one day typically it takes them three to four months internally to deploy those so that acts.

Benjamin Bollin: Typically, it takes them three to four months internally to deploy those, so that actually doesn't impact us from a COGS perspective as much. It allows them to have that execution flexibility, which you've always talked about as part of optimization. So I think we've seen all the variants, and I'll say right now that we're seeing more of an impact on our business from deferred payment than we are from the free periods, to be honest

Speaker Change #111: It doesn't impact us from a Cogs perspective, spuds and allows them to have that execution flexibility that you've always talked about as part of optimization. So I think we've seen.

Speaker Change #111: All variance in I'll say right now the it we're seeing more of an impact on our business from deferred payment than we are from the free periods to be honest.

Benjamin Bollin: Right. In every case, we're going to make sure that the exit ARR is what we want from that customer. So you know, our ARR, we expect it to ramp in some of these deals, which are three to five years in duration where we provide a free period. But we're still, as I said, more impact is from the billings, deferral, and annual billings than it is from, And we'll know better after Q4 because you'd expect the volume of Q4, given the expectations, to be substantially more than Great. Thank you, Ben. Next question is Jonathan Ho from William Blair, followed by Joel Fishbein from Truist.

Speaker Change #111: Alright, and every case, we're going to make sure. The exit IRR is what we want from that customer. So you are a or are we expected to ramp in some of these deals which are three to five year duration, where we provided free periods, but we're still as I said more impact is from the billings deferral in annual billings than it is from few periods right now.

Nikesh Arora: So our ARR, we expect it to ramp in some of these deals, which are three- to five-year duration where we provide a free period. But we're still, as I said, more impact is from the billings deferral and annual billings than it is from free periods right now. And we'll know better after Q4 because you'd expect the volume of Q4 business, given the expectations on numbers, should be substantially more than Q3. Great. Thank you, Ben. Next question, Jonathan Ho from William Blair, followed by Joel Fishbein from Truist. Go ahead, Jonathan. Good afternoon. As you add more AI capabilities to your platforms, what are customers looking to benefit from, and how do we think about the monetization opportunity here? Thank you.

Speaker Change #111: I will know better after Q4, because you would expect the volume of Q4 business.

Speaker Change #111: Given the expectations on <unk>.

Speaker Change #111: Members should be substantially more than Q3.

Walter Pritchard: Great. Thank you, Ben. Next question is Jonathan Ho from William Blair, followed by Joel Fishbein from Truist. Go ahead, Jonathan.

Great. Thank you Ben next question, Jonathan Ho from William Blair, followed by Joel Fishbein from tourists go ahead, Jonathan good afternoon.

Jonathan Ho: As you add more AI capabilities to your platforms, what are customers looking to benefit from and how do we think about the monetization opportunity here.

Jonathan Ho: So I think if you look at some of our products, as we articulated, there are three specific products we announced at RSA. And then we said all of our co-pilots would be available and already were available to customers for beta reasons. And then we have underlying capabilities in our products, which are AI enabled. Now, for most of our advanced services and firewalls, and I'm making a broad statement here. So we've increased prices from 20% of the cost of firewalls to sub to 30%.

Nikesh Arora: So I think if you look at some of our products, as we articulated, there are three specific products we announced at RSA, and then we said all of our copilots will be available and already are available to customers for beta reasons. And then we have underlying capabilities in our products, which are AI-enabled. Now, in most of our advanced services and firewalls, and I'm making a broad statement here, so we've increased prices from 20% of the cost of firewalls to the sub to 30%. So we have had an uptick in AI-delivered services on the firewall. The customers see the value, and the majority of customers have opted into that capability, which we've had for the last two or three years. And today, we just launched the most recent one, which is Advanced DNS, which will also be upticked to a 30% instead of 20% subscription.

Jonathan Ho: Thank you.

Speaker Change #113: So I think if you look at some of our products as we articulated there are three specific products we announced.

At RSA and <unk>.

Speaker Change #113: All of our co pilots will be available on already out available to customers for beta reasons, and then we have underlying capabilities in our products, which are AI enabled now in most of our advanced services on firewalls and I'm thinking a broad statement here. So are we.

Speaker Change #113: Increased prices from 20% of.

Speaker Change #113: Cost of firewall to this up to 30%. So we have had an uptick in AI delivered services on the firewall the customers see the value and the majority of customers have opted into that capability, which you've had for the last two or three years and today. We just lost the most recent one which as you have seen us.

Jonathan Ho: So we have had an uptick in AI-delivered services on the firewall; customers see the value, and the majority of customers have opted into that capability, which we've had for the last two or three years. And today, we just launched the most recent one, which is.

Nikesh Arora: Advanced DNS, which will also be increased to 30% instead of 20%. AI access will be sold as an incremental capability and incremental subscription for all of our VPN and for our SASE customers. So you will have monetization capability there. A.I. Firewall would be, again, an uptick on our virtual firewalls, where you have A.I. capabilities, so you'll pay to protect AI installations over a traditional firewall. We're still debating whether we provide AIS-PM to the market, which is an effective security posture management capability, as part of our firewall optionality, or we charge for it separately.

Speaker Change #113: Advanced DNS, which you'll also be uptick to a 30% instead of 20% subscription.

Nikesh Arora: AI access will be sold as an incremental capability, an incremental subscription for all of our VPN and for our SASE customers. So you will have monetization capability there. AI firewall would be, again, an uptick on our virtual firewalls where you'd have AI capability. So you'll pay a premium to protect AI installations over a traditional VM. We're still debating whether we provide AI SPM to the market, which is effectively security posture management capability as part of our firewall optionality, or we charge for it separately. We will do that closer to when we launch the actual product toward July. Our copilots are, for the most part, available to our customers as a productivity tool as an enhancement tool.

Speaker Change #113: Access will be sold as an incremental capability and incremental subscription for all of our VPN and for our SaaS customers. So you will have monetization capability there.

Speaker Change #113: Firewall would be again, an uptick in our virtual firewalls, whether you have AI capabilities. So you pay a premium to protect AI installations over a traditional VM.

Speaker Change #113: We're still debating whether we are providing a S. P M to the market, which is affecting the security posture management capability.

As part of our firewall optionality or we charge for it separately, we will do that closer to when we launched the actual product towards July.

Nikesh Arora: We will do that closer to when we launch the actual product in July. Our copilots are, for the most part, available to our customers as a productivity tool, as an enhancement tool. In certain cases where we require them to ingest data to get advanced telemetry, they would have to buy the advanced telemetry modules to make the copilot even more useful for them. So that's roughly the lay of the land, but one should expect that there should be, you know, three capabilities.

Speaker Change #113: Co pilots are for the most part available to our customers as a productivity tool as an enhancement to in certain cases, where we require them to ingest data to get advanced telemetry. They would have to buy the bus telemetry module to make the copilot, even more useful for them. So that's roughly the lay of the land, but one should expect that there should be.

Nikesh Arora: In certain cases where we require them to ingest data to get advanced telemetry, they would have to buy the advanced telemetry module to make the Copilot even more useful for them. So that's roughly the lay of the land. But one should expect that there should be three capabilities. One, better productivity for our customers so they don't have to understand more complex UI. Two, they will have to pay a certain more sum on more in certain use cases where they are getting incremental value, and we're making incremental effort from them to them. Three, they might require to upgrade their underlying capabilities from base to advanced because we need the telemetry to make AI useful. Great. Thanks, Jonathan. We'll take our last question from Joel Fishbein from Truist. Go ahead, Joel. Thanks, Walter. I have an AI question too, Nikesh.

Three capabilities one.

unknown: Unknown Attendee, Golen Fink, William Jenkins, Palo Alto, Great. Thanks, Jonathan. We'll take our last question from Joel Fishbein from Truist. Go ahead, Joel. Thanks, Walter.

Speaker Change #113: Better productivity for our customers. So they don't have to concur understand more complex you are to there.

Speaker Change #113: They will have to pay a certain more samar nor in certain use cases, where they are getting a number of incremental value and we're making in waynesville effort.

Speaker Change #113: From there rather than three they might require to.

Speaker Change #113: Upgrade their underlying capabilities from base to advanced because we need the diameter to make it a useful.

Walter Pritchard: Great. Thanks, Jonathan. We'll take our last question from Joel Fishbein from Truist. Go ahead, Joel. Thanks, Walter.

Speaker Change #114: Great. Thanks, Jonathan we'll take our last question from Joel Fishbein from tourists go ahead Joel.

Speaker Change #115: Thanks, Walter <unk> question too the cash.

Nikesh Arora: Just to follow up on that, in terms of can you talk about the customer appetite for AI security and maybe a couple of comments about the competitive landscape around companies that are delivering products around AI security as well? Yeah. Look, so we had an amazing reception to our Precision AI sort of preview at RSA. We have north of a few hundred customers who signed up to have discussions with us and engage in the beta of these products. So it's very good. As you'll appreciate, AI Access is an overlay product on all of our Access customers. So it's a good thing because our customers say, "I don't have to go somewhere else and get something add-on and go make that happen because I expect Palo Alto will have it in six weeks' time." So I'm just going to wait for Palo Alto.

Joel Fishbein: Just to follow up on that in terms of key talking about the customer appetite for AI security and maybe a couple of comments about the competitive landscape around companies that are delivering products around security as well.

Nikesh Arora: Yeah, look, so we had an amazing reception for our AI, precision AI sort of preview at RSA. We've got north of a few hundred customers who have signed up to have discussions with us and engage in the beta of these products. So it's a very good day.

Speaker Change #116: Yeah look.

Speaker Change #118: So we had an amazing reception to our AI, our precision AI, a sort of preview at RSA vivat.

Speaker Change #118: North of a few hundred customers, who have signed up to have discussions with us and engaged in debate are all these products. So it's very good a b.

Nikesh Arora: As you'll appreciate, AI Access is an overlay product on all of our Access customers, and it's, It's a good thing because our customers say, I don't have to go somewhere else and get something added on and make that happen, because I expect Palo Alto will have it in six weeks. So I'm just going to wait for Palo Alto. And those who are keen to deploy sooner, we are able to discuss with them, show them the beta, and continue to have design discussions with them.

Speaker Change #118: As you'll appreciate AI access is an overlay product on all of our access customers. So.

Speaker Change #118: It's.

Speaker Change #118: It's a good thing because our customers say I don't have to go somewhere else and get something add on and go make that happen because I expect volatile will have it in six weeks' time, so I'm just going to wait for Palo Alto and those who are keen to deploy sooner we are able to discuss with them show them. The data and continue to have design discussions with them. So it sort of reduces any risk of competitive activity into our customer.

Nikesh Arora: Those who are keen to deploy sooner, we are able to discuss with them, show them the beta, and continue to have design discussions with them. So it sort of reduces any risk of competitive activity into our customer base where somebody else is providing AI Access Security in our case. But two, in the case of AI Firewall, I think what is unique is we are possibly the only security vendor which has a native integration. I say native, not on top, but native integration with AWS, Azure, GCP, and Oracle in their public clouds, which means our firewall sits in their cloud. You can activate it from their UI, not just from our UI, and you can launch it natively in all those cloud providers.

Speaker Change #118: Ace or somebody else is providing access security and our okay spot too in the case of AI firewalls I think what is unique is we are possibly the only security vendor, which has a native integration I say needed.

Speaker Change #118: On top but native integration with AWS Azure or D. C P and oracle in their public clouds, which means our firewall sits in their cloud you can activate it from their UI not just from our UI and you can launch it natively in all of those cloud providers AI firewalls will be built into that capability. So that you get a native capability and most large.

Nikesh Arora: AI firewalls will be built into that capability so that you get a native capability in most large cloud service providers or a VM that you're going to deploy in your data center. So again, for somebody to compete with us, they would have to have that native capability first to build it. So do we expect that Google will have it? Possibly. Microsoft, possibly. AWS, possibly. So the cloud providers might have that capability because they have native firewalls. But again, if you had a multi-cloud infrastructure with an LLM running in one cloud, another one running the other cloud, and some running a data center, we hopefully are the only option that allows that capability to happen.

Speaker Change #118: Loud service providers, all VM that youre going to blame the dataset so again for.

Speaker Change #118: For somebody to compete with us they would have to have that native capability first built it. So do we expect a Google will have it possibly Microsoft possibly it'll be as possible. So that the cloud providers might have that capability because they have native firewalls, but again, if you had a multi cloud infrastructure, where then Alan I'm running in one cloud another one I think the other cloud and data center, we hopefully are.

Speaker Change #118: The only option that allow us that capability to happen. So we're trying to make sure that we do the early innovation in this space. So our customers don't have to or we don't get more fragmentation with other people having to deploy point products and that.

Nikesh Arora: So it sort of reduces any risk of competitive activity into our customer base where somebody else is providing AI access security in our cases. So we're trying to make sure that we do the early innovation in this space so our customers don't have to, or we don't create more fragmentation with other people having to deploy point products in that outcome.

Nikesh Arora: So we're trying to make sure that we do the early innovation in this space so our customers don't have to, or we don't create more fragmentation with other people having to deploy point products in that outcome. Great. Thank you. All right. Thanks, Joel. With that, we'll conclude the Q&A portion of the call. I'd like to turn it back over to Nikesh for his closing remarks. Well, I just want to thank all of you for joining our earnings call. I appreciate your attention. I also want to thank all of our employees for all the hard work that goes into delivering great quarters and all the innovation that they've delivered. And last but not the least, thank you for all of our customers for their trust in us. See you guys next quarter.

Walter Pritchard: Thank you. All right.

Speaker Change #119: Great. Thank you alright, thanks, Joel with that we'll conclude the Q&A portion of the call I would like to turn it back over to the cash for his closing remarks.

Nikesh Arora: Thanks, Joel. With that, we'll conclude the Q&A portion of the call. I'd like to turn it back over to Nikesh for his closing remarks.

Well, I just want to thank all of you for joining our earnings call. I appreciate your attention. I also want to thank all of our employees for all the hard work that goes into delivering great quarters and all the innovation that they've delivered. And last but not least, thank you to all of our customers for their trust in us.

Well I just wanted to thank all of you for joining our earnings call I. Appreciate your attention I also want to thank all of our employees for all the hard work that goes into delivering great quarters, and all the innovation that they've delivered and last but not the least thank you for all of our customers for their trust in us.

Speaker Change #119: See you guys next quarter.