Q4 2024 Palo Alto Networks Inc Earnings Call

Requiring a lot of it for integration quote unquote for cyber security and high costs.

To maintain and sustain in the long run.

So we've been looking over the recent yours is the cyber.

Industry stocking consolidating for opportunity.

To find the right platform integrated too.

To deliver better service and lower our cost of initiatives within the Selby.

It's us able to leverage the latest capabilities integrated stack from Palo Alto networks.

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While also providing our input too by the way to 40 corn map to deliver capabilities that are more performance and more adaptive to the energy industry.

Speaker Change: Reaching a platform really all of us to keep our focus on what we want them to focus on basically proactive training and protection officer as well as responding in case of an event and not working through the integration work.

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

Speaker Change: Networks' fiscal fourth 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 August 19, 2024 at 130 PM Pacific time.

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

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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 define the Q4 2020 for supplemental information in the Q4 2004 earnings presentation.

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Speaker Change: During the course of today's call, we will make forward looking statements and projections regarding the company's business operations and financial performance. These statements made today are subject to a number of risks and uncertainties that could cause our actual results to differ from those forward looking statements. Please review our press release and recent SEC filings.

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Speaker Change: For a description of these risks and uncertainties.

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

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

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

Speaker Change: We also note that management is scheduled to participate in both the Goldman Sachs <unk> and Technology Conference and the Citi Global TMT Conference in September.

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

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

Speaker Change: Okay.

Speaker Change: As most of you are aware the intensity around technology Alliance connectedness and as a consequence cyber security continues to accelerate.

Speaker Change: Supply chain and interconnected systems have become the norm for bad actors to target by most metrics cyber incidents of that impact continue to be on the rise and.

Speaker Change: And we saw it in spades in Q4, notably the large scale breaches.

Speaker Change: A growing number of technology and business trends of further complicating situations, creating additional challenges. The combination of these is getting further C suite attention and focusing on the cyber security.

Speaker Change: Organizations increasingly rely on their it systems and nothing makes us more evident in our significant outage our security breach.

Speaker Change: Last six months financial damages from an individual base topped $1 billion.

Speaker Change: In another case the impact on business is essential and required significant work dedicated assistant recovery and rebuilding.

Speaker Change: <unk> hundred 42 group is being called into customer crisis situations, you see a wide variation in BREIT situations, but ransomware remains a significant threat tying many together.

Speaker Change: A relatively new phenomenon public ransomware extortion is raising the profile of this challenge as organizations need to deal with the pressures of public disclosure before they've had time to do an early assessment. In addition, the time customers have to address an issue before damages escalate the shrinking in fact, our research found that nearly half of cases attackers.

Speaker Change: Can exfiltrate customer data less than a single day of compromise.

Speaker Change: Geopolitical tensions remained at high levels as evidenced by multiple regional conflicts in the news cyber security activities often elevated in these environments and we see multiple nongovernment agencies impacted by this nation state activity.

We have seen this trend building for a number of years customer environments of being more complex with it often with capabilities such as work from anywhere public cloud and more recently AI.

Speaker Change: Complexities additive with old technologies that have not been retired Meanwhile, a multitude of uncoordinated security defenses are simply there at all.

Speaker Change: Crawling interconnected as a business whether it systems is multiplying the impact of a breach.

Speaker Change: Instead of beach impacts being isolated to a single company, we're seeing customers suppliers partners and others and ecosystem being severely impacted.

This has been most prevalent in the healthcare and retail industries, but this could happen anywhere.

Speaker Change: A recent high profile outage involving security tools has elevated the cyber security conversation further.

And in addition to wanted to better understand the security risks. The C suite and boards are also now digging deeper into the technology is being deployed to mitigate these risks.

Speaker Change: Meanwhile, AI continues to generate significant excitement in the market and many organizations are starting to scale a transformative use cases that can enable new sources of revenue and our drive substantial efficiencies.

Speaker Change: AI adoption is proceeding at a rapid pace faster than honestly I've seen any other new technologies.

Speaker Change: However, it is following a typical pattern.

Speaker Change: Innovation is driving the speed of adoption, while security might be an afterthought.

Speaker Change: At the same time adversaries, leveraging AI capabilities broaden attacks better target organizations are scaled a malicious activity beyond the capabilities of the defenses that rely solely on handlers.

Speaker Change: This environment better than ever more challenging threat landscape. The complex set of point products that are not well integrated or even coordinated is driving a growing need for black from ization.

Speaker Change: We saw this translate into an acceleration in our bookings in the second half of the year. Following the rollout of our profitable specialization strategy in fiscal year 2024.

Speaker Change: We're delighted with our Q4 results.

Speaker Change: We drove the top line ahead of the overall cyber security market and delivered improved profitability and strong cash generation.

Speaker Change: We exceeded our guidance range for quarterly revenue and EPS.

Speaker Change: While exceeding our original annual guidance ranges for operating margin and free cash flow. We also grew our pure 20%.

Speaker Change: We saw strong growth in our next generation security offerings, and we exceeded our next generation security our guidance significantly surpassing the $4 billion milestone in Q4.

Speaker Change: <unk> <unk>, 43% with strong contributions across the portfolio.

Speaker Change: And yet another milestone with $4 2 billion and Ngls are articles out there is more than half of our fiscal year 2020 for revenue.

Speaker Change: Remember six years ago, when I started this was zero.

Speaker Change: We completed the year by expanding operating margins by 220 basis points in achieving nearly 39% of free cash flow margin generating well over $3 billion of free cash flow.

Speaker Change: We'll continue to deliver healthy GAAP profitability.

I know there was significant consternation around our <unk> strategy six months ago. All I want to say is I wish we had started down that path sooner.

The amount of interest and activity around it has certainly been hardening and shows promise.

Speaker Change: After a strong addition of approximately 65, new black musicians in Q3, we added over 90, new platform positions Q4, now have well over 1000 total back position amongst our five largest customers as we exit FY 'twenty four.

Speaker Change: Beyond the number of black musician. He saw something interesting we saw a sequential increase in average. They are there are per platform is customer in Q4 for perspective, our average <unk> of over 10% since Q1.

Speaker Change: This effectively means as we convert our customers to platform customers and single platform customers to multi platform customers. We see an uplift in IRR. This is an exciting development.

Speaker Change: Representing the rise in interest around Collateralization senior level customer meetings increased 70% year over year in the second half there and grew even faster in Q4.

Speaker Change: This engagement is key to aligning the customer a senior team with our platform position strategy and its benefits we have a growing team of our executives and sales leaders focused on these engagements worldwide.

Speaker Change: We expect <unk> to be a key driver towards achieving our goal of $15 billion and then yesterday are in fiscal year 2030, and our Q4 performance bolsters, our confidence and our ability to reach this goal.

Speaker Change: You heard from our customer in the intra video when I wanted to give you some more stories to Dimensionalize our success at DAC amortization in Q4 as you saw in the video.

Speaker Change: And a high eight figure deal in fact, a very high eight figure deal with Schlumberger, They started with executive engagement and our briefing center earlier in the year.

Speaker Change: They are an existing firewall and XR customer as part of the platform position expanded our federal footprint added prisma access of moving them closer to Zero Trust network security implementation.

Speaker Change: Additionally, we added Prisma cloud for cloud security, replacing an incumbent cloud security competitor. He also agreed to transfer their Sim, replacing two distinct <unk> offerings with our AI powered next generation Sim X and they are now one of our marquee customers Black Knight is across all three.

Speaker Change: We had a mid eight figure prioritization deal with global semiconductor manufacturer billing on a five year relationship.

Speaker Change: We work with the customer project reduce their costs and achieve a more consistent security outcome.

Speaker Change: This led to a discussion around transforming the network security Zero Trust. Additionally, the customer review to deploy Urquhart cortex platform.

Speaker Change: This approach was deemed more comprehensive and superior to a solution that was proposed which comprise various point products when competitors, which would have to be stitched together.

Speaker Change: The platform by a global media company across Altria for network security form factors, the customer prioritized and focused on driving zero Trust network transformation for an increasingly mobile workforce, while under significant cost pressures and dealing with the complexities of M&A integration.

Speaker Change: Our customers also leveraging exogenous faster improve automation and better understand the attack surface RT.

Speaker Change: Ultimately convert this lengthy sales cycle into a nine figure deal.

Speaker Change: Lastly, the U S financial services firm is moving 90% of the applications to the public cloud significantly reducing its data center footprint and that process, they're looking to consolidate point solutions and simplify the management of their security environment.

Speaker Change: This customer expanded from existing cortex, xdr, and XR footprint to add X I am replacing again to incumbents in it.

Speaker Change: Additionally, the customer added borrowing capacity and Prisma cloud for cloud native applications to deploy a comprehensive cloud security solution secure then move to the cloud.

Speaker Change: Now I'll highlight the drivers of our momentum in key innovations across our three product platforms as we look towards fiscal 2025 and beyond.

Speaker Change: Over the last five years, we have driven a significant transition as an industry around more software driven network security.

Speaker Change: Our strategy to deliver a comprehensive approach towards network security with hardware software form factors for both on Prem and cloud and an industry, leading SaaS solution is working not just that our comprehensive set of software subscriptions were consistently across all of these form factors.

We continue to see our firewall as a platform billings.

Speaker Change: Billings growth.

Speaker Change: Growing in a healthy manner up 17% in fiscal year 2024.

Speaker Change: While there are slower appliance growth around the industry. Our net growth has been driven by SaaS and the software firewall business.

Speaker Change: Our firewall as a platform billings are now two thirds of total up from just over 40% two years ago.

Speaker Change: This year, our <unk> business grew 40% propelling this mix shift.

Speaker Change: Our software based virtual firewall business continues to show strong results with bookings accelerating the second half helping to drive this to double our cloud next generation firewall business, which runs natively on top of our for the for Hyperscale.

Speaker Change: Along with along with cloud next generation firewall, we're seeing an inflection in software for our business is about 70% of the business. This quarter was being used to protect the public cloud.

Speaker Change: As customers choose a palo alto firewall instead of the firewall from the cloud service provider.

Speaker Change: Our customer momentum in <unk> remains strong with customers growing by over 20%.

Speaker Change: Once again in FY 'twenty for more than one third of our newest assay customers continue to be continue to be neutral Palo Alto networks.

Speaker Change: This is encouraging but effectively landing in network security with all three of our product families, allowing us to eventually drive platform Ization and move these customers to a zero trust platform.

Speaker Change: Our natively integrated enterprise browser has attracted more attention to our SaaS offering since the title acquisition not only with now an integral part of SaaS. We're also able to provide the customers an ability to protect the high usage of employees, both in our SaaS and browser product.

Speaker Change: Beyond our software and sassy form factors like cloud based subscriptions and driving setting network security growth.

Speaker Change: A significant driver is the advanced versions of four of our core subscriptions modernize to be fully cloud delivered like neuro subscriptions, such as Iot and DLP.

Speaker Change: We have seen strong adoption of our first the advanced subscriptions, which carry a higher price point than our original subscriptions.

Advanced Europe bolstering our first has been adopted by over half of our customers. After three years in the market. We just launched advanced DNS in Q4 and are excited to see it ramp as well.

Speaker Change: More broadly we have seen the overall subscription attach rate per customer increased from $2 six at the end of fiscal year 2022 to three five today.

Speaker Change: If 10 subscription that run across all of our network security offerings customers can buy these on our firewalls, one by one and bundled package for a specific network security use case.

Speaker Change: As an enterprise license agreement to cover the entire state.

Speaker Change: Beyond the strong network security momentum.

Speaker Change: We are innovating to ensure we can continue to lead the network security market, our software and SaaS and further drive scope some of the most important highlights our prisma access browser. Following the acquisition of talent in Q2, we launched the industry's first and only enterprise browser, namely we integrated the SaaS this month.

Speaker Change: Leading up to the launch we saw strong interest in this technology with over 100 customers adopting our Palo empowered prisma access both at the <unk>.

Browser is available to our existing and new strategic customers.

Speaker Change: <unk> seen success with our autonomous digital experience management capability integrated with sassy, which helps customers proactively identify sources of downtime and insured network availability for the hybrid worker and branch office, we followed that up by adding this capability to apparel and have seen strong initial interest.

Speaker Change: We launched our EA access offering, enabling our organizations workforce to use AI tools with confidence, while giving security teams full visibility robust controls data protection and proactive threat prevention measures.

Speaker Change: Axis can easily return on for our over 5000 Prisma access customers.

Speaker Change: Following our early access program in July we have now seen interest from over 1000 customers to deploy access finally, leveraging our industry, leading virtual firewall capability runtime offering is experiencing strong interest from Prisma cloud and network security customers looking to protect the AI applications models and data from threats as we look forward.

Speaker Change: The direction of the network security market is as clear to us as it's ever been we're focused on driving the benefits of back amortization to our Threet network security form factors and getting our customers to true Zero Trust architecture delivers the best security with the lowest cost to operate.

Speaker Change: Turning to Prisma cloud.

Speaker Change: The enterprise adoption of our public cloud is a generational change and I think that has been underway for at least half a decade more recently this has been fueled by the adoption of AI services in the public cloud the public cloud must be secured differently than on premise environments and we recognize this more than five years ago.

In this highly competitive market, we have not only established ourselves as the largest pure play cyber security cloud security business being the first $7 million to $700 million in IRR. We also have the broadest footprint of cloud security capabilities in the market.

Speaker Change: As a great confirmation of our leadership and innovation capability, leading slash SaaS players have chosen prisma cloud to secure their production environments, we have CRM HR and collaboration leaders, who all signed significant deals with us in fiscal year 2020 for these players are amongst the most sophisticated users of public cloud technology and hundreds of thousands of organizations.

Speaker Change: Asked them to operate a secure enterprise grade SaaS offering we are proud to be able to showcase them as customers.

Speaker Change: Highlighting the comprehensiveness of our platform, we had a number of key innovations Q4 that show our ability to stay in the lead as competitive market. For example, we released our 13th Prisma Cloud module data security posture management based on the acquisition of <unk> Securities.

Speaker Change: <unk> team has moved quickly not only releasing this module, but also helping to integrate data security comprehensively within Prisma cloud.

Speaker Change: An important use case for securing data in the cloud securing cloud native LLM based applications.

To address this need we released AI security posture management, our 14th module lastly, at least cloud detection response capabilities leveraging the best of Prisma cloud cortex, Ctr gives us full visibility into security vendor to the cloud as well as real time threat detection and remediation with.

Speaker Change: With an increasing frequency and scalar breaches targeting cloud environments, CDL capabilities, becoming critical differentiator a comprehensive cloud security platform.

Speaker Change: As we close out there along with the overall acceleration we saw in our second half business.

Speaker Change: Large deal business of Prisma cloud was up with strong growth in new and expand business in Q4.

Speaker Change: As we look forward, we will ensure prisma cloud stays ahead of us in that market new capabilities.

Speaker Change: We will bring new real time capabilities to the cloud and enable full cloud security integration to resolve these will be essential for our customers as public cloud and AI adoption broaden.

Speaker Change: Last but not least cortex.

Speaker Change: Fiscal year 2024 was a watershed year for cortex, we firmly.

Speaker Change: <unk> the transformation platform for security operations and continue to innovate across the broader cortex portfolio.

Speaker Change: We also expanded the cortex customer base, bringing us future opportunities rexam and maintain our growth on a significantly increased scale.

<unk> achieved approximately $500 million in bookings in FY 'twenty, two alone up more than two X versus our fiscal year 2023.

Speaker Change: Our active customers are up four times over the same time period.

Speaker Change: Last year with over 30 customers north of $1 million and Exxon are our customers are seeing the security outcomes at X time to deliver namely a dramatic reduction in the time to discover and immediate security events. This is important in identifying signs of a breach of stopping the activity the four significant business interruption numbers.

Speaker Change: Our ability to deliver the substantial outcomes. Unlike any product we have sold since the introduction of original next generation firewall more than 15 years ago.

Speaker Change: The growth of Exxon is following a similar path we.

Speaker Change: <unk> our momentum in Cordis continues with the business passing $900 million than they are this year.

The focus of our platform migration efforts for cortex is with X I am having closed out fiscal year 2024, with well north of 100 exon customers. We have seen some amazing outcomes are deployed customers more than 50% of achieved a median time to resolution for security incidents of under 10 minutes coming from days.

Speaker Change: After the first quarter deployment. These customers have been seeing an additional two X improvement in their medium time to remediate.

Speaker Change: Looking forward.

Speaker Change: We have increased conviction that we can lead the transformation of any organization security operation Center over their clients you see a growing list of customers with an appetite for the outcome. We can deliver and we believe the market is at a point that is ripe for disruption we.

Speaker Change: We have a strategy of delivering additional value to our cortex, xdr XOR expense customers by enabling them to back from is the next time.

Speaker Change: <unk> also see a significant opportunity to provide real time capabilities in cloud security for cloud detection and response capabilities can help drive this.

Speaker Change: The Attunity lastly.

Lastly.

Speaker Change: We expect to close the IBM create our SaaS assets acquisition by the end of September we are excited to work with our colleagues at IBM to bring <unk> to their customers.

Speaker Change: It doesn't stop with Exxon plus amortization were also equally excited about our newest launched X sight for cloud. This allows organizations to comprehensively address cloud security issues as part of their security operations.

Speaker Change: We see a growing list of customers with an appetite for the outcome. They can deliver and we believe the market is at a point that is ripe for disruption.

Speaker Change: We have a strategy of delivering additional value to our cortex xdr XOR extends customers by enabling them to back from is the next time.

Speaker Change: Additionally, we are partnering with many service providers and system integrators to build capabilities together to continue accelerating our next time opportunity.

Speaker Change: We also see a significant opportunity to provide real time capabilities in cloud security for cloud detection and response capabilities can help drive this.

Speaker Change: And finally, a quick note on the recent widespread outages in the industry.

Speaker Change: I want to reiterate our product uses an approach that deploys a 1% to 3% white sample test cohort to ensure no issues and then we released content updates in a phased manner.

Speaker Change: Opportunity.

Speaker Change: Lastly.

Speaker Change: We expect to close the IBM create our SaaS assets acquisition by the end of September we are excited to work with our colleagues at IBM to bring <unk> to their customers. It.

Speaker Change: We have additionally, enable controls so customers can manage the update process and control it.

Speaker Change: It doesn't stop with Exxon plus amortization were also equally excited about our newest launched X sight for cloud.

Speaker Change: Recent outage that caused a number of customers to reevaluate their options. They have initiated conversations with us around xdr Nexsan this plus our industry, leading cortex technology as appealing as we've talked to everyone. We've talked to so far and we think it has potential to further drive our cortex momentum.

Speaker Change: Allows organizations to comprehensively address cloud security issues as part of their security operations.

Speaker Change: Additionally, we are partnering with many service providers and system integrators to build capabilities together to continue accelerating our next time opportunity.

Speaker Change: And finally, a quick note on the recent widespread outages in the industry.

Speaker Change: Yeah.

Speaker Change: When I came to Palo Alto networks, we articulated a clear strategy for our continued success, we needed to ensure our products. We're constantly improving there we're solving problems for our customers. The best way possible and also we were solving new problems in other words, our success will depend on our product portfolio and product quality.

Speaker Change: I want to reiterate our product uses an approach that deploys a 1% to 3% white sample test cohort to ensure no issues and then we released content updates in a phased manner.

Speaker Change: We are additionally, enable controls so customers can manage the update process and control it.

Speaker Change: I continue to be excited about continued growing leadership position in cybersecurity categories with our products customers adopt the best of breed offering and eventually evolve into a platform approach.

Speaker Change: Recent outages caused a number of customers to reevaluate their options. They have initiated conversations with us around xdr Nexsan this plus our industry, leading cortex technology as appealing as we've talked to everyone. We've talked to so far and we think it has potential to further drive our cortex momentum.

Speaker Change: Also our innovation are evident in the broad analyst recognition of our leadership position across 24 categories. This quarter. We added a new recognition in incident response services, a testament to our industry, leading capabilities and breach response and recovery.

Speaker Change: When I came to Palo Alto networks, we articulated a clear strategy for our continued success, we needed to ensure our products. We're constantly improving there we're solving problems for our customers. The best way possible and also we were solving new problems in other words, our success will depend on our product portfolio and product quality.

We also added a leadership recognition data security posture management, our eighth for Prisma cloud.

Speaker Change: One last year to highlight we continue to believe in the opportunity around AI. We think we are in the very early innings and there will be both the threat and opportunity.

Speaker Change: I continue to be excited by our continued and growing leadership position in cybersecurity categories with our products customers adopt the best of breed offering and eventually evolve into a platform approach.

Speaker Change: I'm, particularly proud of our team stepped up and delivered this comprehensive suite of security solutions for our customers.

Speaker Change: We also continue to infuse AI into our platforms, allowing us to bring leading solutions to our customers.

Speaker Change: Also of our innovation are evident in the broad analyst recognition of our leadership position across 24 categories. This quarter. We added a new recognition in incident response services, a testament to our industry, leading capabilities and breach response and recovery.

Speaker Change: These AI solutions are off to good start.

Speaker Change: We surpassed 200 million, an IRR to close out their underscoring the traction the AI first products, we've had in the market such as Exxon. Many outlets in May we announced our suite of security offerings and launched our precision Air campaign, featuring the TV AD with Keanu Reeves over the last several weeks, we've released the announced products, namely access the AFR.

Speaker Change: We also added a leadership recognition data security posture management are eight for Prisma cloud.

Speaker Change: One last year to highlight we continue to believe in the opportunity around AI. We think we are in the very early innings and there will be both a threat and opportunity.

Speaker Change: All our runtime security and our security posture management. We believe this makes us the first to market with a comprehensive portfolio for secure are by design.

Speaker Change: I'm, particularly proud of our team stepped up and delivered this comprehensive suite of security solutions for our customers.

Speaker Change: We also continue to infuse AI into our platforms, allowing us to bring leading solutions to our customers.

Speaker Change: Before I hand over the call to Deepak.

Deepak: I wanted to reflect on our journey and set some context as we discuss fiscal year 2025 throughout fiscal year 2024, you saw backdrop, helping create interest in demand for enhanced cybersecurity. This helps to accelerate our bookings in the second half of the year. It is also reflected in our new black formalization as we closed the year with strong momentum and our strong and yes. They are.

Speaker Change: <unk> solutions are off to a good start.

Speaker Change: Surpassed 200 million, an IRR to close out their underscoring the traction the AI first products, we've had in the market such as Exxon many hours.

In May we announced our suite of security offerings and launched our precision Air campaign, featuring the TV AD with Keanu Reeves over the last several weeks, we've released the announced product, namely access the firewall, our runtime security and AI security posture management. We believe this makes us the first to market with a comprehensive portfolio for secure are by design.

Speaker Change: FY 'twenty four marked a seminal moment in our history.

Speaker Change: I feel our innovation engine is now leading the market.

Speaker Change: By showing enhancements to our SaaS portfolio, our cloud security efforts are in the stock.

Speaker Change: Of new integrated solutions for our customers take AI. We believe we are the only scaled cybersecurity player to lead the market and a comprehensive suite of AI solutions.

Speaker Change: Before I hand over the call to Deepak.

Deepak: I wanted to reflect on our journey and set some context as we discuss fiscal year 2025 throughout fiscal year 2024, he saw backdrop, helping create interest in demand for enhanced cybersecurity. This helps to accelerate our bookings in the second half of the year. It is also reflected in our new black formalization as we closed the year with strong momentum and our strong and yes. They are.

Speaker Change: We feel comfortable that we're on track towards our target of making Palo Alto networks. The first $15 billion in our security business we.

Speaker Change: We have made decisions on how we run our business to maximize long term IRR July as well as growing shareholder value.

The select club event enterprise companies have skills near our business in front of us and we intend to join the club.

Deepak: FY 'twenty four marked a seminal moment in our history.

Speaker Change: Mike will cover in detail, how we will evolve our external metrics in line with this.

Deepak: I feel our innovation engine is now leading the market.

By showing enhancements cross assay portfolio, our cloud security efforts are in the stock.

Speaker Change: We closed the year with strong topline growth expanded operating margins and drove best in class cash conversion and we are confident that we can continue this in fiscal year 2025, and beyond with that I will hand over to Deepak.

New integrated solutions for our customers take AI. We believe we are the only scaled cybersecurity player to lead the market and a comprehensive suite of AI solutions we.

Deepak: Thank you Kash and good afternoon, everyone.

Deepak: We feel comfortable that we're on track towards our target of making Palo Alto networks. The first $15 billion in our security business we.

Deepak: To maximize our time spent on Q&A I will provide you with highlights of Q4, you can review the results in our press release and the supplemental financial information on our website.

Deepak: We have made decisions on how we run our business to maximize long term IRR July as well as growing shareholder value.

Deepak: In Q4 total revenue was $2, one $9 billion and grew 12% above the high end of our guidance.

Speaker Change: Our select club of Interop, It enterprise companies of skills near our business in front of us and we intend to join the club.

Speaker Change: Mike will cover in detail, how we will evolve our external metrics in line with this.

Deepak: Within revenue product revenue declined 5%, while total services revenue grew 18%.

Mike: Closed the year with strong topline growth expanded operating margins and drove best in class cash conversion.

Deepak: Drilling into services revenue subscription revenue grew 23% and core revenue grew 10%.

Mike: We're confident that we can continue this in fiscal year 2025, and beyond that I will hand over to Deepak.

Speaker Change: It is worth noting the product revenue grew 24% a year ago as this quite chain normalized resulting in growth above underlying demand in that period.

Deepak: Thank you Kash and good afternoon, everyone.

Deepak: To maximize our time spent on Q&A I will provide you with highlights of Q4, you can review the results in our press release and the supplemental financial information on our website.

Speaker Change: Despite the tough Q4 comparison due to supply chain constraint with vessels in the second half.

Deepak: In Q4 total revenue was $2, one $9 billion and grew 12% above the high end of our guidance.

Speaker Change: Fiscal 'twenty for.

Speaker Change: In the second half of 'twenty, three fiscal 2000 and for product revenue grew in the low single digit range, which is in line with our expectations.

Deepak: Within revenue product revenue declined 5%, while total services revenue grew 18%.

Speaker Change: The firewall appliance market demand was stable in Q4, and we continue to expect growth of zero to 5% as we have previously discussed.

Deepak: Drilling into services revenue subscription revenue grew 23% and core revenue grew 10%.

Speaker Change: Moving onto geographies, we saw revenue growth across all theaters with the Americas growing 11% EMEA up 14% and Jay pack growing 15%.

Speaker Change: It is worth noting the product revenue grew 24% a year ago as the supply chain normal lines, resulting in growth above underlying demand in that period.

Speaker Change: We saw strength across all of our geographic theaters.

Speaker Change: Despite the tough Q4 comparison and keep the supply chain constraint with vessels in the second half.

Speaker Change: Total <unk> a metric that better represents our topline growth in billings grew 20% to $12 7 billion.

Speaker Change: Fiscal 'twenty four.

Speaker Change: The second half of 'twenty three fiscal 'twenty full product revenue grew in the low single digit range, which is in line with our expectations.

Speaker Change: Our current <unk> grew 17% to $5 9 billion.

Speaker Change: The firewall appliance market demand was stable in Q4, and we continue to expect growth of zero to 5% as we have previously discussed.

Speaker Change: The average duration of our new contracts remains at approximately three years in line with our third quarter.

Speaker Change: As the cash mentioned, our NGF Ara grew well past the full billion mark ending the year at $422 billion and growing 43%.

Speaker Change: Moving on to geographies, we saw revenue growth across all theaters with the Americas growing 11%, EMEA up 14% and Japan growing 15%.

Speaker Change: Strengthen ngf's era was broad based across our three security platforms.

Speaker Change: We saw strength across all of our geographic standards.

Speaker Change: We reported Q4 billings above the high end of our guidance driven primarily by double digit booking growth and higher volumes transacted on parallel paths.

Speaker Change: Total <unk> a metric that better represents our topline growth in billings grew 20% to $12 7 billion.

Speaker Change: On our balance sheet, you will see that our debt balance came down by $199 million and is now on the $1 billion liking.

Speaker Change: Our current <unk> grew 17% to $5 $9 billion.

Speaker Change: The average duration of our new contracts remain at approximately three years in line with our third quarter.

Speaker Change: Like in Q3. This reduction was driven by the early conversion of our convertible debt, which occurred at the option of the debt holders and with several crossing cash and equity.

Speaker Change: As for cash mentioned, our NGF Ara grew well pass the full billion ending the year at $4, two $2 billion and growing 43%.

Our remaining debt matures in June 2025, although we may continue to see early conversions, we did not repurchase any shares in Q4, and our buyback strategy remains opportunistic.

Speaker Change: <unk> and Ngls era was broad based across our three security platforms.

Speaker Change: We reported Q4 billings above the high end of our guidance driven primarily by double digit booking growth and higher volumes transacted on parallel paths.

Speaker Change: Our board of directors approved an additional $500 million buyback authorization such that we now have 1 billion an authorization remaining through December 2025.

Speaker Change: On our balance sheet, you will see that our debt balance came down by $199 million and is now on the $1 billion.

Speaker Change: I wanted to give you some context around the NGF ore Apio billings and total services revenue metrics.

Speaker Change: Like in Q3. This reduction was driven by the early conversion of our convertible debt, which occurred at the option of the debt holders and with several crossing cash and equity.

Speaker Change: You can see the relatively steady trends in <unk> in NGF era, which closely matched the trend in total services revenue, while we have seen more volatility in billings.

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

Speaker Change: We've talked for a year now about the factors that impact our billings.

Speaker Change: We did not repurchase any shares in Q4, and our buyback strategy remains opportunistic.

Over a year ago, we began to see the impact of rising interest rates on how customers perceive the cost of money and procurement situations.

Speaker Change: Our board of directors approved an additional $500 million buyback authorization such that we now have 1 billion an authorization remaining through December 2025.

Speaker Change: This is causing many to off the payments can be spread over multiple years instead of an upfront payment.

Speaker Change: I wanted to give you some context around the NGF ore Apio billings and total services revenue metrics.

Speaker Change: In response, we leveraged programs such as annual billings and our panel financing capability.

Speaker Change: The impact on billings varied pace based upon which program the customer chose and how the deal was structured.

Speaker Change: You can see the relatively steady trends in <unk> in NGF era, which closely match the trend in total services revenue, while we have seen more volatility in billings.

Speaker Change: Also during the fiscal year, we rolled out our <unk> strategy and we offered customers more flexibility in payment terms, when making large strategic commitments.

Speaker Change: We've talked for a year now about the factors that impact our billings.

Speaker Change: Over a year ago, we began to see the impact of rising interest rates on how customers perceive the cost of money and procurement situations.

Speaker Change: This has had a further impact on our billings.

Speaker Change: And both of these situations, we found ourselves facing the choice of maximizing billings or focusing on Ngls era, and we want to have all of the incentives aligned to velocity.

Speaker Change: This is causing many to off the payments can be spread over multiple years instead of an upfront payment.

Speaker Change: In response, we leveraged programs such as annual billings and our panel financing capability.

Speaker Change: A P O and revenue.

Speaker Change: Are both important to understanding our business momentum revenue.

Speaker Change: The impact on billings varied pace based upon which program the customer chose and how the deal was structured.

Revenue gives you the near term view of our growth.

Speaker Change: Our Apio helps you understand the longer term trends and the scale of our book of business that will drive revenue.

Speaker Change: Also during the fiscal year, we rolled out our <unk> strategy and we offered customers more flexibility in payment terms, when making large strategic commitments.

Speaker Change: This acquisition measure is driven by contracts, we signed each quarter and the long term growth and <unk> influences our revenue growth over time and gives you visibility into the future trend.

Speaker Change: This has had a further impact on our village.

Speaker Change: And both of these situations, we found ourselves station with choice of maximizing billings, while focusing on N. G. S. A R. R and we want to have all of the incentives aligned to velocity.

Speaker Change: As a reminder, the contracts included in our <unk> are all noncancelable and nonrefundable in nature.

Speaker Change: We aspire to continue to grow <unk> ahead of our target forward revenue growth rate at that helps us build confidence in these growth rates.

Speaker Change: <unk> and revenue.

Speaker Change: Are both important to understanding our business momentum revs.

Speaker Change: Now focusing further on Ngls era.

Speaker Change: Revenue gives you the near term view of our growth.

Our Apio helps you understand the longer term trends and the scale of our book of business that will drive revenue.

Speaker Change: As a reminder, <unk> an important metric for us as it shows the return on the significant investments we've been making in the next generation of areas of our cyber security market that are also growing the fastest.

Speaker Change: This acquisition measure is driven by contracts and signed each quarter and the long term growth and <unk> influences our revenue growth over time and gives you visibility into the future trends.

Speaker Change: We expect these offerings will disproportionately drive our growth as we transform our revenue.

Speaker Change: As a reminder, the contracts included in the <unk> are all noncancelable and nonrefundable in nature.

Speaker Change: Our recent rollout of plot from Ization has sharpened our focus on maximizing <unk> for example.

Speaker Change: Ample we started the account review process early in fiscal year 2024 to identify white space amongst the largest organizations globally and maximize <unk>.

Speaker Change: We aspire to continue to grow IPO ahead of our target forward revenue growth rate at that helps us build confidence in these growth rates.

Speaker Change: Now focusing further on NGF arrow.

Speaker Change: As we followed up with the rollout of our <unk> strategy, we focus not only on the total deal value or the cash collected upfront, but also on an exit.

Speaker Change: As a reminder, <unk> is an important metric for us as it shows the return on the significant investments we've been making in the next generation areas of our cyber security market.

Speaker Change: And profitability of the recurring revenue stream.

Speaker Change: So growing the fastest.

Speaker Change: We can accommodate customer points of friction while maximizing this recurring revenue as we structure deals with customers to encourage their strategic adoption.

Speaker Change: We expect these offerings will disproportionately drive our growth as we transform our revenue.

Speaker Change: Our recent rollout of plot for amortization has sharpened our focus on maximizing for example, we started the account review process early in fiscal year 2024 to identify white space amongst the largest organizations globally and maximize <unk>.

Speaker Change: These friction points include the challenge of replacing multiple products simultaneously and the issues around double pain, while working through complex contract tons in.

Speaker Change: In making these short term concessions to billings, we ensure a valuable long term relationship with a deal that meets our customers needs.

Speaker Change: As we followed up with the rollout of our <unk> strategy, we focus not only on the total deal value or the cash collected upfront, but also on an exit and.

Speaker Change: I've talked to you about how <unk> and <unk>, becoming more prominent and our focus as we drive apart from Ization strategy.

Speaker Change: And profitability of the recurring revenue stream.

We can accommodate customer points of friction while maximizing this recurring revenue as we structure deals with customers to encourage their strategic adoption.

Speaker Change: Short comings related to billings will become significant over the last 12 to 18 months and further increasing as we drive optimization strategy.

These friction points include the challenge of replacing multiple products simultaneously and the issues around double pain, while working through complex contract tons.

Speaker Change: In evolving our metrics, we solicited input at some of our largest shareholders and looked at how our peer companies are giving guidance.

Speaker Change: And that's the feedback was that quarter to quarter billing volatility volatility is merely a distraction and it does not impact our assessments of the shareholder value, we can create over the medium and long term.

In making these short term concessions to billings, we ensure a valuable long term relationship with a deal that meets our customers needs.

Speaker Change: I've talked to you about how NGF Ara and <unk>, becoming more prominent and our focus as we drive apart from innovation strategy.

Speaker Change: We've seen a number of companies disclose Ara and adopt an <unk> related metrics to help investors better understand the business trajectory. Some of those companies include Adobe Salesforce service now and workday.

Speaker Change: The shortcomings related to billings will become significant over the last 12 to 18 months and further increasing as we drive optimization strategy.

Speaker Change: As a result, beginning this quarter, we will focus on <unk> as a key topline guidance metrics.

Speaker Change: And evolving on metrics, we solicited input at some of our largest shareholders and looked at how our peer companies are giving guidance.

Speaker Change: In addition to revenue.

Speaker Change: We will provide <unk> guidance, both quarterly and annually.

Speaker Change: That's the feedback was that quarter to quarter billing volatility volatility is merely a distraction and it does not impact our assessments of the shareholder value, we can create over the medium and long term.

Speaker Change: We will also provide total op guidance quarterly and annually. This year to help investors understand the size of our book of committed contracts compared to their future expectations for our revenue.

Speaker Change: We've seen a number of companies disclose Ara and adopt an <unk> related metrics to help investors better understand the business trajectory. Some of those companies include Adobe Salesforce service now and workday.

Speaker Change: Since we know this is a change for you. After many years of guiding billings I wanted to help provide a onetime bridge back to what we would expect our billings to look like if we were not to change any of the practices in our business that impact billings.

Speaker Change: As a result, beginning this quarter, we will focus on <unk> as a key topline guidance metrics.

Speaker Change: If we were to keep the mix between our pan of fast and billing programs in fiscal year 2025 in line with what we had in fiscal year 2024, we would expect this to drive 12% growth in our billings in fiscal year 2025.

Speaker Change: In addition to revenue.

Speaker Change: We will provide <unk> guidance, both quarterly and annually.

Speaker Change: We will also provide total <unk> guidance quarterly and annually. This year to help investors understand the size of our book of committed contracts compared to the future expectations for our revenue.

Before I get to detailed guidance I want to give investors. Some additional color on the drivers of our cash flow as that is an area that we continue to receive questions al.

Speaker Change: Since we know this is a change for you. After many years of guiding billings I wanted to help provide a onetime bridge back to what we would expect our billings to look like if we were not to change any of the practices in our business that impact billings.

Speaker Change: First and foremost our improving operating margins to be in the most important driver of our free cash flow margin.

Speaker Change: We have seen the operating margins improved by over 800 basis points since fiscal year 'twenty. One when we began a more intensive focus on profitable growth.

Speaker Change: If we were to keep the mix between our <unk> and billing programs in fiscal year 2025 in line with what we had in fiscal year 2024, we would expect this to drive 12% growth in our billings in fiscal year 2025.

Speaker Change: This higher operating margin has helped us put a higher floor under our free cash flow margins.

Speaker Change: We continue to see ample opportunity to expand our operating margins supporting our free cash flow.

Before I get to detailed guidance I want to give investors. Some additional color on the drivers of our cash flow is that it is an area that we continue to receive questions al.

Speaker Change: Beyond improvements in our operating profitability the timing of customer cash payments can impact our free cash flow.

Over the last four years, we have grown gradually absorbed an increase in customer preference for payments over time.

Speaker Change: First and foremost our improving operating margins to be in the most important driver of our free cash flow margin.

Speaker Change: Increasingly as a proportion of our bookings from 6% in fiscal year, 2020% to 30% as of the most recent quarter, while maintaining or even increasing our free cash flow margins.

Speaker Change: We have seen the operating margins improved by over 800 basis points since fiscal year 'twenty. One when we began a more intensive focus on profitable growth.

Speaker Change: This higher operating margins and has helped us put a higher floor under our free cash flow margins.

Speaker Change: I'm happy that we've been able to do this and we have confidence we can continue this gradual transition within the business and sustain our free cash flow margins at 37 plus.

Speaker Change: We continue to see ample opportunity to expand our operating margins supporting our free cash flow.

Speaker Change: Beyond improvements in our operating profitability the timing of customer cash payments can impact our free cash flow.

Speaker Change: 37% plus through fiscal year 2026.

Speaker Change: I also wanted to update you on the pending transaction with IBM. We continue to expect the deal to close by the end of September depending on the timing of regulatory approvals and other customary closing conditions.

Speaker Change: Over the last four years, we have grown gradually absorbed an increase in customer preference for payments over time.

Speaker Change: Increasingly as a proportion of our bookings from 6% in fiscal year, 2020% to 30% as of the most recent quarter, while maintaining or even increasing our free cash flow margins.

Speaker Change: At this point, we have included several tens of millions in acquired revenue from legacy <unk> SaaS products and our fiscal year 2020, <unk> revenue guidance with this number decreasing over time based on the speed at which we migrate to radar customers X I am.

Speaker Change: I'm happy that we've been able to do this and we have confidence we can continue this gradual transition within the business and sustain our free cash flow margins at 37 plus three.

Speaker Change: We've also embedded the ongoing expenses and our operating margins cash flow margin and EPS guidance.

Speaker Change: 37% plus through fiscal year 2026.

Speaker Change: Now moving on to guidance.

Speaker Change: I also wanted to update you on the pending transaction with IBM. We continue to expect the deal to close by the end of September depending on the timing of regulatory approvals and other customary closing conditions.

Speaker Change: For the fiscal year 2025, we expect <unk> to be in the range of $5 40 to $5 47 billion, an increase of 28, 30%.

Speaker Change: At this point, we have included several tens of millions in acquired revenue from legacy <unk> radar SaaS products and our fiscal year 2025 revenue guidance with this number decreasing over time based on the speed at which we migrate to radar customers X I am.

Speaker Change: Remaining performance obligation of $15 two to $15 3 billion represents an increase of 19% to 20%.

Speaker Change: Revenues to be in the range of $9, one zero to $915 billion, an increase of 13% 14%.

Speaker Change: We are also embedded the ongoing expenses and our operating margin cash flow margin and EPS guidance.

Speaker Change: Operating margins to be in the range of 27, 5% to 28%.

Speaker Change: non-GAAP EPS to be in the range of $6 18 to.

Speaker Change: Now moving onto guidance.

Speaker Change: The $6.31, an increase of 9% to 11% and adjusted free cash flow margin to be 37% to 38%.

Speaker Change: For the fiscal year 2025, we expect <unk> to be in the range of $5 42 to $5 $47 billion, an increase of 28, 30%.

Speaker Change: For the fiscal for the first fiscal quarter of 2025, we expect <unk> to be in the range of $4 33 to $4 $38 billion, an increase of 34% to 36%.

Speaker Change: Remaining performance obligation of 15, two to $15 3 billion represents an increase of 19% to 20%.

Speaker Change: Revenue to be in the range of $9, one zero to $9, one 5 billion, an increase of 13% 14%.

Speaker Change: <unk> performance obligation of $12 four to $12 5 billion, an increase of 19% 20%.

Speaker Change: Operating margins to be in the range of 27, 5% to 28%.

Speaker Change: Revenue to be in the range of $2, one zero to $2.13 billion, an increase of 12% to 13% and non-GAAP EPS to be in the range of $1 47 to $1 49, an increase of 7% to 8%.

Speaker Change: non-GAAP EPS to be in the range of $6 18 to.

Speaker Change: $6.31, an increase of 9% to 11% and adjusted free cash flow margin to be 37% to 38%.

Speaker Change: Since we know this is a change for you.

For the fifth for the first fiscal quarter of 2025, we expect <unk> to be in the range of $4 three three to $4 $38 billion, an increase of 34% to 36% <unk>.

Speaker Change: After many years of guiding billings I wanted to remind you of the one time bridge bank, which <unk> talked about before.

Speaker Change:

Speaker Change: Finally, we included our typical modeling points and the presentation for you to review.

Speaker Change: Remaining performance obligation of $12 four to $12 5 billion in.

Speaker Change: An increase of 19% 20% rep.

With that we're going to play one more customer video and then we will move to the Q&A portion of the call.

Speaker Change: Revenue to be in the range of $2, one zero to $2.13 billion, an increase of 12% to 13% and non-GAAP EPS to be in the range of $1 47 to $1 49, an increase of 7% to 8%.

Speaker Change: I'm responsible for cyber security for this great company Grupo Bimbo worldwide. It's a great response, a reality I need to say, but with the right tools I am able to do that we are not a security company whereof baking come.

Speaker Change: Since we know this is a change for you.

After many years of guiding billings I wanted to remind you of the one time bridge bank, which I talked about before.

Speaker Change: Bonnie.

So it was a challenge to find the right tools for a company this size.

Speaker Change: Finally, we included our typical modeling points and the presentation for you to review.

Speaker Change: So I started to look around and see what security tools scope of pharma side platform not individual solutions, but as a wall or royalties to feed a better world and for that we need to be on business. All the time, we cannot interrupt the supply chain of our products.

Speaker Change: With that we're going to play one more customer video and then we will move to the Q&A portion of the call.

Speaker Change: I'm responsible for cyber security for this great company Grupo Bimbo worldwide. It's a great response, a reality I need to say, but with the right tools I am able to do that we are not a security company, where our baking king.

Speaker Change: We deliver billions of products every day, so we need to have the downtime as low as we can.

Speaker Change: Bonnie.

Speaker Change: Hello Alto platform, it's perfect baseball a lot of Palo Alto products that work together seamlessly and allow us to outflow made most of the response, we have lowered the coast. We have improved the response and the time to respond CSC media absolutely old ones.

Speaker Change: So it was a challenge to find the right tools for a company this size.

So I started to look around and see what security tools scope of pharmacy platform not seem debatable solutions, but as a rule.

Speaker Change: Our royalties to feed a better world and for that we need to fill in business. All the time, we cannot interrupt.

Sarkis: Thank you Deepak to allow for broad participation I would ask that each of our participants only asked one question. The first question will come from Sarkis <unk> from Barclays with Honda Firewall for Morgan Stanley on deck go ahead socket.

Shane: Shane <unk> products, we deliver billions of products every day, so we need to have the downtime as low as we can.

Speaker Change: Hello also platform, it's perfect. There's a lot of Palo Alto products that work together seamlessly and allow us to outflow made most of the response, we have lowered the coast. We have improved the response and the time to respond CSC media player.

Sarkis: Okay, Great Hey, guys. Thanks for taking my question and nice end to the year.

Speaker Change: The cash maybe for you it's been a great start to the platform as Asian strategy.

Speaker Change: The question is as you look at the five those top 5000 customers that we're targeting as part of that 2500 to 3500 goal.

Speaker Change: Yeah.

Speaker Change: How much of that is white space versus competitive takeout and maybe related to that when we started thinking about the platform as Asian strategy, you talked about giving customers more flexibility as they transitioned off of legacy solutions, how is that additional flexibility, helping with these platform <unk> wins.

Speaker Change: Thank you Deepak to allow for broad participation I would ask that each of our participants only ask one question. The first question will come from <unk> <unk> from Barclays with Hamzah firewall from Morgan Stanley go ahead, sorry.

Speaker Change: Okay, Great Hey, guys. Thanks for taking my question and nice end to the year.

Speaker Change: Well first of all as I gave thank you.

Speaker Change: He is always seem to manage to get the first question and so congratulations.

Speaker Change: The cash maybe for you it's been a great start to the platform as <unk> strategy.

Speaker Change: <unk>.

Speaker Change: As I said very very positively excited by the response to personalization literally had customers reach out now most recently customer we are about to close the deal customers who've done a I don't want to do this one deal I actually want to sit down with the hope that from Ization discussion it might do it next quarter, but let's not go to point solutions at a time. So these are these anecdotes via these moments where.

Speaker Change: I guess the question is as you look at the five those top 5000 customers that we're targeting as part of that 2500 to 3500 goal how much of that is white space versus competitive takeout and maybe related to that when we started thinking about the platform position strategy, you talked about giving customers more flexibility as they transition to off of it.

Speaker Change: It gets really exciting for us and our sales teams in terms of your question about where are they coming from as you mentioned and a third of our book.

Speaker Change: Legacy solutions, how is that additional flexibility, helping with these platform <unk>.

Speaker Change: Customers in SaaS net new discussed to the company. So when we when the platform is this that's why is that wrong Sassy Zero Trust network security they are new to the company.

Speaker Change: Well first of all so okay. Thank you.

Speaker Change: He is always seem to manage to get the first question and so congratulations.

Speaker Change: As I said very very positively excited by the response to box amortization literally had customers reach out now mostly some of the customer we are about to close the deal customers who've done a I don't want to do this one deal I actually want to sit down with the whole black normalization discussion it might do it next quarter, but let's not go to point solutions at a time. So these are these anecdotes of Uavs.

Speaker Change: A lot of existing customers that are highlighted in our four of our largest deals or they already where palo alto customers, but they use the opportunity to go embraced the larger platform because they saw the vision they participated and they bought into it and this is where it's really helpful where they say listen I really like the <unk> idea I have two parts of the puzzle.

Speaker Change: Moments, where it gets really exciting for us and our sales teams in terms of your question about where are they coming from as we mentioned a third of our customer.

Speaker Change: My third part of the puzzle I need another 12 months of the other vendor to expire so that I can go embraced by all other like don't worry about it you have to start implementing the third our turn on our economics. The moment. The other vendors done now what that does as I said in the past it takes over the execution risk with and I'm not worried that they will stop paying they'll start being a zen and after what he is going to work.

Speaker Change: Customers in SaaS net new discuss to the company. So at least on the rationalization that flies them long Sassy Zero Trust network security there are new to the company.

Speaker Change: Out of existing customers that are highlighted in our four of our largest deals or they already where palo alto customers, but they use the opportunity to go embraced the larger platform because they saw the vision they participated and they they bought into it and this is where it is really helpful, where they say listen I really like the Buck from Ization idea I have two parts of the puzzle.

Speaker Change: At the same time it also creates that economic bridge for that but for us it's amazing because like I very simple view.

Speaker Change: It goes back to the days of when.

Speaker Change: CRM was not a platform we're going to.

Speaker Change: Ticketing.

Speaker Change: Management infrastructure without a platform at that point in time, we have four or five applications are doing this but once you bought one that did all five things you can never bat went back and deployed for different things to solve the problem. So we believe we have a unique opportunity in the platforms, we offer and as I said I wish we had gone there earlier.

Speaker Change: Third part of the puzzle I need another 12 months of the other vendor to expire so that I can go out and breeze bottle lager like don't worry about it you have to start implementing the third our turn on our economics. The moment. The other vendors done now what that does as I said in the past it takes over the execution risk with and are not worried but they'll stop paying they'll start being a Zen and you have to what he is going to work on.

Speaker Change: And then later so I firmly believe this is what's going to help us get to the $15 billion number faster.

Martin: Makes sense. Thanks, guys. Thanks again, thanks, Doug next up concept far wallet for Morgan Stanley followed by Brian Essex Frugal from <unk> go ahead Martin.

Speaker Change: At the same time it also creates that economic bridge for that but for us it's amazing because I very simple view.

Speaker Change: This goes back to the days of when.

Speaker Change: Thank you and congrats on a strong finish to the year and Deepak. Thank you for all the helpful guidance and modeling points.

Speaker Change: CRM was not a platform or <unk>.

Speaker Change: Ticketing with my management infrastructure without a platform at that point in time, we have four to five applications are doing this but once you bought one that did all five things you never bet went back and deployed for different things to solve the problem. So we believe we have a unique opportunity in the platforms, we offer and as I said I wish we've gone there earlier than.

Speaker Change: I really appreciate the disclosure on the AI security are our big over $200 million of air are there already there's two parts of that there's the AI for security operations, which has been cortex, Siam, which has been the fastest growing product I think you guys have had in Palo Altos history, and then the other part is securing AI, which when we talk to.

Speaker Change: Later I firmly believe this is what's going to help us get to the $15 billion number faster.

Speaker Change: Makes sense. Thanks, guys. Thanks again.

Speaker Change: So it seems to be a really big problem, it's coming up more and more in all the various industry conferences. So I'm curious I know it's early days, we just announced some of these products, but based on the pipeline you are seeing today.

Morgan Stanley: Next up concept farm rollout for Morgan Stanley followed by Brian Essex Frugal from <unk> go ahead Martin.

Martin: Thank you and congrats on a strong finish to the year and Deepak. Thank you for all the helpful guidance in <unk>.

Speaker Change: How fast of a product cycle do you think this could be because it seems like an entirely new category altogether.

Speaker Change: Modeling points.

Speaker Change: Hey, guys I really appreciate the disclosure on the.

Speaker Change: That's a great question. Thank you Hamzah. So I think as you know the <unk> product is excellent and its own regard. We've shown you added $500 bookings this year, which I think the second year of our product is spectacular by all means and that helped US drive the 900 million an IRR on cortex.

Speaker Change: AI security are our big over $200 million of air are there already there's two parts of that there's the AI for security operations, which has been cortex X I am which has been the fastest growing product I think you guys have had in Palo Altos history, and then the other part is securing AI, which when we talk to see seems to be a really big problem. It's come.

Speaker Change: And we're seeing superlative results from a median time to remediate I just reviewed a bunch of US. This morning, we've got some customers down to under 10 minutes is really exciting and that does form a part of the Iraq Theres a very reasonable.

Speaker Change: Being up more and more on all the various industry conferences. So I'm curious I know it's early days, we just announce some of these products, but based on the pipeline you're seeing today.

Speaker Change: A reasonable part of the railroad that comes from a network security business, but we've actually deployed <unk> operations into our firewalls, which is what I call infusing AI into network security. So that allows us to actually anticipate when the customer might run out of capacity anticipate firewall.

Speaker Change: How fast of a product cycle do you think this could be because it seems like an entirely new category altogether.

Speaker Change: That's a great question. Thank you Hamzah. So I think as you know the <unk> product is excellent and its own regard. We've shown you read at $500 bookings this year, but I think the second year of our product is spectacular by all means and that helped US drive the 900 million an IRR on cortex.

Speaker Change: Issues. So that's part of it not a lot of that revenue is coming from the product. We just launched because we lost all of our three box pretty much. This year not even last year literally just started launching in July 20th through August 16th So all of our AI Security Suite is then but as I mentioned about 1000 customers are interested in the axis, which is the.

Speaker Change: And we're seeing superlative results from a median time to remediate I just reviewed a bunch of US. This morning, we've got some customers down to under 10 minutes. So it's really exciting and that does form a part of the Iraq Theres a very reasonable.

Speaker Change: I think they are most interested in are there is a financial services organization, which you might know is the first time in our history that the entire security I'm literally walk up to the screen and saying wait what are you doing here, yes, we want to talk about that so early days exciting and the reason it's exciting as I said, it's seminal for me because it's very rare.

Speaker Change: A reasonable part of the railroad that comes from a network security business, but we've actually deployed <unk> operations into our firewall, which is what I call infusing AI into network security. So that allows us to actually anticipate when the customer might run out of capacity anticipate firewall.

Speaker Change: Issues. So that's part of it not a lot of that revenue is coming from the product. We just launched because we lost all of our three box pretty much this year, but even last year literally started launching in July 20th through August 16th So all of our AI Security Suite is then but as I mentioned about 1000 customers are interested in the axis, which is the.

Speaker Change: That you'd expect a large cybersecurity player to show up with innovation ahead of the market.

Speaker Change: And now that we can deploy access to all of our 5006 thousand Prisma access customers, Oregon deploy AI firewalls against all of our virtual firewall customers. It's interesting because all they have to do is turn on a switch and they don't have to deploy new instances or new agents is just going to work. So early days exciting and I'm pretty sure. These products will go through multiple versions.

Speaker Change: I think they are most interested in are there is a financial services organization, which you might know is the first time in our history for the entire security and literally walk up to the screen and say wait what are you doing here, yes, we want to talk about that so early days exciting and the reason it's exciting as I said, it's seminal for me because it's very rare.

Speaker Change: As they get more and more robust.

Speaker Change: Thank you.

Speaker Change: Thanks, a lot Hamzah next up is Brian Essex from Jpmorgan, followed by Andy you would see from Wells Fargo. Brian go ahead.

Speaker Change: That did expect a large cyber security player to show up with innovation ahead of the market.

Brian Essex: Thank you Walter and thank you for taking the question.

Speaker Change: Yes.

And now that we can deploy access to all of our 5006 thousand prisma access customers or can deploy AI firewalls against all of our virtual firewall customers. It's interesting because all they have to do is turn on a switch and they don't have to deploy new instances or new agents is just going to work. So early days exciting and I'm pretty sure of these products will go through multiple versions.

Brian Essex: You mentioned in the call about the outage in July and how that impacted some of the demand in Europe in your platform, but what are you hearing from ceases or what did you see in the quarter. One in terms of like follow through from the pipeline for the quarter.

Speaker Change: Was there a pause in the catch up and then media an adjacent question how are how might this be changing the way that some <unk> are looking at the.

Speaker Change: As they get more and more robust.

Speaker Change: Thank you.

Speaker Change: Thanks, a lot Hamzah next up is Brian Essex from Jpmorgan, followed by Andrew you would see from Wells Fargo. Brian go ahead.

Speaker Change: The exposure that they may add to one vendor one type of technology.

Speaker Change: <unk>.

Speaker Change: It's clear that you highlighted the difference in the way that you rollout the updates, but just looking for more higher level one.

Brian Essex: Thank you Walter and thank you for taking the question.

Brian Essex: Yes.

Speaker Change: You mentioned on the call about the outage in July and how that impacted some of the demand in Europe in your platform, but what are you hearing from <unk>, what did you see in the quarter.

Speaker Change: Deal experienced in Q CIO thought process as they approach next Gen technology.

Speaker Change: Brian as I've said publicly as well look that was a tough event.

Speaker Change: One in terms of like follow through from the pipeline for the quarter.

Speaker Change: Simultaneous simultaneously impacted tens of millions of users.

Speaker Change: Was there a pause in the catch up and then media an adjacent question how are how might this be changing the way that.

Speaker Change: Which is unfortunate.

I appreciate the way <unk> handled it.

Speaker Change: At the same time it caused two things to happen one core customers are asking is you have the same product how do you deploy it and as I highlighted to you we have a fundamentally different way in which we do content updates and have been doing it for very long time. So we were able to articulate that finally enough some of the customers busy remediate that issue, while we're trying to get already of the download them. So it's kind of interesting there was I'm so busy fixing that so.

Speaker Change: <unk> are looking at.

Speaker Change: The exposure that they may have to one vendor one type of technology.

Speaker Change: Yes.

Speaker Change: Sir that you highlighted the difference in the way that you rollout the updates, but just looking for more higher level. One deal experience and then to CIO thought process as they approach next Gen technology.

Speaker Change: Have you had to sort of drag or deals kicking and screaming in some cases, so that was kind of interesting, but I think what it did do is like you said it caused customers to step back and say wait a minute now I need to make sure that I'm evaluating all of the <unk> opportunity in the market for US who is not.

Speaker Change: Brian as I've said publicly as well, but that was a tough event.

Speaker Change: If I'm a data simultaneously impacted tens of millions of users.

Speaker Change: Which is unfortunate.

Speaker Change: I appreciate the way crowd strike handled it.

Speaker Change: Not the number one player in the market went up for I think in that market hopefully trending towards three.

Speaker Change: At the same time it caused two things to happen. One club customers are asking is you have the same product how do you deploy it and as I highlighted to you we have a fundamentally different way in which we do content updates and have been doing it for very long time, So we were able to articulate that.

Speaker Change: Exciting because customers are giving people are willing to give us consideration on the xdr space is no longer a slam dunk or some other players in the market, though which is helpful. For US helpful. For our sales team that I think we can build on that coupled with our <unk> capability and opportunity that we just talked about I think it gives us comfort that is going to keep helping us drive momentum.

Speaker Change: Some of the customers busy remediate that issue, while we're trying to get already of the download them. So it's kind of interesting there was I'm. So busy fixing that so we had to sort of drag or deals kicking and screaming in some cases, so that was kind of interesting, but I think what it did do is like you said it caused customers to step back and say wait a minute now I need to make sure that I'm evaluating all of the <unk> opportunity in the market and for US who is.

Speaker Change: And cortex.

Speaker Change: That's helpful. Thank you great. Thanks, a lot Bryan next one from <unk> at Wells Fargo, followed by Gabriela Borges from Goldman Sachs Go ahead Andy.

Speaker Change: Not the number one player in the market went up for I think in that market hopefully trending towards three.

Andy: Hey, good afternoon, and thank you very much for the question. So on the cash it seemed like one of the common factors of those platform <unk> deals that you talked about on the call.

Speaker Change: Exciting because customers are giving people are willing to give us consideration on the xdr space is no longer a slam dunk or some other players in the market, though which is helpful for us hopeful for our sales team that I think we can build on that coupled with our <unk> capability and opportunity that he just talked about I think it gives us comfort that is going to keep helping us drive momentum.

Andy: Involved consolidation on the Sim side.

Speaker Change: So maybe once the deal with IBM closes do you think your platform innovation deals could possibly accelerate if some conversion is actually.

Speaker Change: A core driver of our impetus for these deals.

Speaker Change: And cortex.

Speaker Change: I'm going to have Lee answer otherwise he doesn't come to these calls.

Andy: That's helpful. Thank you great. Thanks, a lot Bryan next one from <unk> at Wells Fargo, followed by Gabriela Borges from Goldman Sachs Go ahead Andy.

Speaker Change: Yeah.

Speaker Change: I think the our.

Lee: Our ability to land customers on any of the three platforms and expand is.

Andy: Hey, good afternoon, and thank you very much for the question. So on the cash it seemed like one of the common factors of those platinum renovation deals that you talked about on the call.

Lee: Fundamental to how we can approach this with customers.

Lee: With that being said <unk>.

Lee: Past year has been a bit of a revelation to see our ability to innovate with a new platform launch it and quickly get some of the world's largest companies to adopt it and adopt it as a large scale stock transformation and you're seeing that with.

Speaker Change: Involved consolidation on the SME side.

Speaker Change: So maybe once the deal with IBM closes do you think your platform innovation deals could possibly accelerate if some conversion is actually up.

A core driver of our impetus for these deals.

Lee: The results of that would be a medium time to resolution.

Speaker Change: I'm going to have Lee answer otherwise he doesn't come to these calls.

Lee: Driving down from days to minutes.

Speaker Change: Yeah.

Less than 10 minutes is world class and sort of see some of these large customers of ours achieved that so quickly is phenomenal.

Lee: But I think the our.

Lee: Our ability to land customers on any of the three platforms and expand us.

Lee: Fundamental to how we kind of purchase to the customers.

Lee: I believe that.

Lee: Once we have that position in the stock that will help to drive the other platforms because the other platforms will help bring.

Speaker Change: With that being said <unk>.

Speaker Change: This past year has been a bit of a revelation to see our ability to innovate with a new platform launch it and quickly get some of the world's largest companies to adopt it and adopt it as a large scale stock transformation and you're seeing that with the.

Lee: We will be able to show where good data sources are and less good less valuable data sources are and actually help our customers work through a.

Lee: Ongoing security transformation based on the insights. The Rexam is stable is able to glean from seeing all of the security data in one place.

Speaker Change: The results of that would be a medium time to resolution.

Lee: Thank you.

Speaker Change: Driving down from days to minutes.

Lee: Yeah.

Speaker Change: Less than 10 minutes is world class and sort of see some of these large customers of ours achieved that so quickly is phenomenal I believe that once we have that position in the stock that will help to drive the other platforms because the other platforms will help bring.

Gabriela Borges: Great. Thanks, Andy next up Gabriela Borges from Goldman SaaS, followed by some team are aligning from cities like everybody to go get rail to go ahead with your question.

Gabriela Borges: Good afternoon, and thank you and the cash by the senior equity pack you've talked in the past about some of your own internal Easter business and to drive operating efficiencies within your business give us a little bit as an update on how that's going or why are you hearing on that road map and Tampa to implement AI for example, saving our customer operations.

We will be able to show where good data sources are and less good less valuable data sources are and actually help our customers work through a.

Speaker Change: Ongoing security transformation based on the insights. The Rexam is payable is able to glean from seeing all of the security data in one place.

Speaker Change: I have been a little bit and maybe what you've learned from the last year and adopting AI following a half an hour.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Great question so.

Speaker Change: Great. Thanks, Andy next up Gabriela Borges with Goldman SaaS, followed by some chemo villani from cities Yeah. We've only got rail to go ahead with your question.

Speaker Change: There two parts three parts as I said, one we've infused the INR products that we talked about that Atlanta, just now the second part is using generative AI to create customer helpful. AI copilot as well as AI co pilot for our customer support teams because they can also use them.

Gabriela Borges: Thank you and the cash by the senior equity pack you've talked in the past about some of your own internal Easter business and drive operating efficiencies with any other business.

And then third parties is driving internal efficiencies, let me start with third part first yes.

Speaker Change: Give us a little bit of an update on how that's going or why do you hearing on that road map of being able to implement AI for example, saving our customer operations.

Speaker Change: We had approximately give or take 300 people who were involved in solving employee tickets for our employees. So about 2% of our 15000 people we have just launched.

Ashok: I have been a little bit and maybe what you've learned from the last year and adopting AI. Following Ashok. Thank you my question. So.

Speaker Change: Last week, what we call the internal AI employee experience that has allowed us to reduce that head count by 50%.

Speaker Change: There are two parts three parts as I said, one we've infused the INR products, we've talked about that Atlanta, just now the second part is.

Speaker Change: And we think that can go down to 80% because we were able to have been able to automate a lot of the docs can also you generally I transfer employees question. So you can think about two to 100 200 people on which we don't need either our own employees. Our third party contractors because it's boring work is horrible worked I have to go keep solving problems you can solve a million tons before now we have auto.

Speaker Change: Using generative AI to create customer helpful. AI copilot as well as co pilots for our customer support teams because they can also use them.

Speaker Change: And then third parties is driving internal efficiencies, let me start with third part first we had approximately give or take 300 people who were involved in solving employee tickets for our employees. So about 2% of our 15000 people we have just launched.

Speaker Change: We added a bunch of them use AI to fix it so that's one project.

Speaker Change: We've got some early results some of our best developers are 40% better in coding.

Speaker Change: Who have used our internal coding co pilot.

Speaker Change: Last week, what we call internal AI employee experience that has allowed us to reduce that head count by 50%.

Speaker Change: It's early days, we expect that we should be able to deploy that capability across 3000 of them I remember coatings only a third of their job because they do other things for the other two thirds of the job, but even in the third if my best versus 40% better on average person is 20% to 25% better theres opportunities for better code and we can do more.

Speaker Change: And we think that can go down to 80% because we were able to have been able to automate a lot of the docs can also you generally I transfer employees question. So you can think about two to 100 200 people on which we don't need either our own employees. Our third party contractors because it's boring work is horrible work they have to go keep solving it probably being solved a million times, but for now we are at.

So those are sort of the two internal efforts. If you will on the customer support side again, the most fascinating discovery for us as we have an internal customer support copilot, which is consistent with our co pilots, we are sharing with our customers across cortex, prisma and strata and those customer support people. The best one is equally productive.

Speaker Change: <unk> added a bunch of them use AI to fix it so that's one project.

Speaker Change: We've got some early results some of our best developers are 40% better in coding.

Speaker Change: Who have used our internal coding co pilot.

Speaker Change: It's early days, we expect that we should be able to deploy that capability across 3000 of them I remember coatings only a third of their job because they do other things for the other two thirds of job, but even in the third if my best versus 40% better.

Speaker Change: Irrespective tenure after three months.

Speaker Change: Second higher net new burst and have them solve customer problems and three months and they're as good as somebody who's been here for three or four years. So these are all very promising signs that a lot of work that we're doing but part of our philosophy is if we don't go through the trials and tribulations and try it ourselves, we're not going to get to be a great company using AI. So early days, but very excited.

Speaker Change: On average versus 20% to 25% better theres opportunities for better code and we can do more.

Speaker Change: So those are sort of the two internal efforts. If you will on the customer support side again, the most fascinating discovery for us as we have an internal customer support copilot, which is consistent with our co pilots, we are sharing with our customers across cortex, prisma and strata and those customer support people the best one.

Speaker Change: Thanks for that Ann Thanks.

Speaker Change: Great. Thanks, Kipp Gabriele on next steps that team of aligning from city, followed by Polyone for Bofa go ahead for FEMA.

Gabriele: Thank you and thank you for taking my question Kash.

Cash I wanted to zero in.

Speaker Change: Is equally productive irrespective tenure offer two months.

Speaker Change: <unk> cloud.

Second higher net new burst and have them solve customer problems and three months and they're as good as somebody who's been here for three or four years. So these are all very promising signs that a lot of work that we're doing but part of our philosophy is if we don't go through the trials and tribulations and try it ourselves, we're not going to get to be a great company using AI. So early days, but very excited.

Speaker Change: Our prepared remarks.

Speaker Change: You talked about a business acceleration in the back half.

Speaker Change: Youre, telling suggestion and material improvement in that pillar and maybe a little bit more of a proverbial pattern you Scott in that segment of the business, especially when I think about last year. When you did allude to some irrational market behavior market participate and dynamics in activity. So I wanted to get to the bottom of what's underpinning some of that back.

Speaker Change: Thanks for that Anthony.

Gabriele: Great. Thanks, Kipp Gabriele on next steps the team are aligning from city, followed a totally Ani from Bofa go ahead Fatima.

Speaker Change: Acceleration in some of the more sanguine kind of outlook on the creative cloud franchise from here.

Fatima: Thank you and thank you for taking my question Kash.

Fatima: Cash I wanted to zero in on some of their pricing.

Speaker Change: Prisma cloud.

Speaker Change: I'd have to go back and listen to the sentiment analyzer in my own call afterwards, but in reacting to your Pep in my step.

Speaker Change: Our prepared remarks.

Speaker Change: You talked about a business acceleration in the back half and you.

Speaker Change: Like last year as I said to you prior that because of the aggressive new players. They cut prices down 30, 40% philosophy solid volume increases pricing was impacting the industry, causing effectively our growth rate not to be as exciting as we wanted it to be.

Speaker Change: Your tolling suggestion and material improvement in that pillar and maybe a little bit more of a proverbial Pat in your staff in that segment of the business, especially when I think about last year. When you did allude to some irrational market behavior market participate and dynamics in activity. So I wanted to get to the bottom of what's underpinning some of that back.

Speaker Change: It has stabilized for sure. We also took some remedial steps and turning our business into an ACD business for Prisma cloud. Unlike the rest of our business because we wanted our sales team to act in a similar fashion as a market, let's see maybe had a bunch of product improvements and we actually went to our biggest customers and ensure their products are effective for them and I said, coupled with that or.

Speaker Change: The acceleration in some of the more sanguine kind of outlook on the creative cloud franchise from here.

Speaker Change: I'd have to go back and listen to the sentiment analyzer on my own call afterwards, but reacting to your Pep in my step.

Speaker Change: Like last year as I said to you prior that because of the aggressive new players. They cut price was down <unk> 40 per cent philosophy solid volume increases pricing was impacting the industry, causing effectively our growth rate not to be as exciting as we wanted it to be that has stabilized for sure. We also took some remedial.

Speaker Change: Also happened as I mentioned that.

Speaker Change: Some part of.

Speaker Change: Most of our customers are now using many modules, which are oriented towards network security in the cloud we run all four hyperscale or natively. This is most which is in addition to seen App is also our network security part and our real time cloud security part so given the 14 modules. We have from a comprehensive perspective, we found some of the customers where we can uniquely solve.

Speaker Change: And turning our business into an ACD business for Prisma cloud. Unlike the rest of our business because we wanted to our sales team to act in a similar fashion as a market, let's say they've made a bunch of product improvements and we actually went to our biggest customers and ensure their products are effective for them and I said, coupled with that what has also happened is as I mentioned that.

Speaker Change: The use cases, allowing us to do those larger deals.

Speaker Change: In a way the platform migration helps I don't like the Schlumberger.

Speaker Change: They bought all three right. So it wasn't a separate decision for them to go buy cortex from Watson cloud from somebody else and that was geared with somebody else so that ability to drive.

Speaker Change: Some part of.

Platform also helps drive our cloud security.

Speaker Change: Most of our customers are now using many modules, which are oriented towards network security in the cloud. So you run all four hyperscale or natively.

Speaker Change: Thank you I appreciate that.

Speaker Change: Great. Thanks for team next tally owning from Bofa, followed by Patrick Colville from Scotiabank go ahead Tom.

Speaker Change: Which is in addition to snap is also our network security parks and our real time cloud security part so given the 14 modules. We have from a comprehensive perspective, we've found some of the customers, where we can unique use cases, allowing us to do the larger deals.

Speaker Change: Yes.

Tom: You spoke in the past about shorter contract duration, what are the implications on free cash flow generation are there any short term a loan two applications.

Speaker Change: And in a way the platform migration.

Dan: Dan in General can you talk about free cash flow improved so dramatically over the last few years can you talk about the long term outlook for free cash flow margin. Thanks Charles.

Speaker Change: The Schlumberger.

Speaker Change: They bought all three right. So it wasn't a separate decision for them to go buy cortex, and Watson cloud from somebody else and that was scared them somebody else. So.

Speaker Change: <unk> Hello, I'll take that one.

Speaker Change: That ability to drive platform also helps drive our cloud security business.

Speaker Change: Just to start off with I think I said in my prepared remarks, our contract lengths actually did not shrink they being roughly consistent at three years.

Thank you I appreciate that.

Speaker Change: Great. Thanks for the team at <unk>.

Speaker Change: Sally owning from Bofa, followed by Patrick Colville from Scotiabank go ahead Phil.

Speaker Change: For our new deals and they've been actually relatively constant for quite a while now. So you do have some areas where the contract lengths may be smaller shorter you have others like pop amortization deals where the more strategic in nature, but on average it ends up being being that much.

Speaker Change: Yes.

Danny: You spoke in the past about shorter contract duration, what are the implications on free cash flow generation are there any short term a loan two applications and Danny.

Danny: And in General can you talk about free cash flow improved so dramatically over the last few years can you talk about the long term outlook for free cash flow margin. Thanks.

Speaker Change: I think in terms of the ability to generate free cash flow frankly.

Speaker Change: The most important part about our free cash flow is really the operating margins.

Speaker Change: Hello, I'll take that one.

Speaker Change: Just to start off with I think I said in my prepared remarks, our contract lengths actually did not shrink they've been roughly consistent at three years.

Speaker Change: And that in my prepared remarks.

Since fiscal year 'twenty, one we've actually improved our operating margin by 800 basis points that really is the biggest part for us too.

Speaker Change: For our new deals and they've been actually relatively constant for quite a while now. So you do have some areas where the contract lengths may be smaller shorter you have others like pop amortization deals, where they're more strategic in nature, but on average it ends up being being that much.

To what has happened and we've been able to absorb the change in the amount of deferred payments going from 6% to 30% in the last quarter like over that same time period. So I think we've proven that we've been able to deliver strong cash flow like whilst being able to absorb all of these.

Speaker Change: I think in terms of the ability to generate free cash flow frankly, I think the most important part about our free cash flow is really the operating margins I mentioned that.

Speaker Change: Those payments, we we feel very confident that we'll be able to continue to do that and in the future.

Speaker Change: Okay. Thanks.

Speaker Change: Our prepared remarks.

Speaker Change: Great. Thanks, Todd next question, Patrick Colville from Scotiabank.

Since fiscal year 'twenty, one we've actually improved our operating margin by 800 basis points.

Speaker Change: Hi, Roger Boyd from UBS go ahead Patrick.

Speaker Change: Really it's the biggest buttress too.

Patrick Colville: Thank you Walter.

Speaker Change: To what has happened and we've been able to absorb the change in the amount of deferred payments going from 6% to 30% in the last quarter like over that same time period. So I think we've proven that we've been able to deliver strong cash flow like whilst being able to absorb all of these.

Deepak: I mean Mckesson Deepak.

Speaker Change: The financial disclosure you guys gave us.

Speaker Change: Terrific you gave us a huge amount of metrics.

Speaker Change #100: But the metric I want to focus on is the new <unk> guide.

Speaker Change #101: So OPO rose, 20% in <unk> and the guide implies I think a 19, 5% at the midpoint in fiscal 'twenty five so I guess, what gives you the confidence that there's going to be kind of no deceleration over the next 12 months is it specific business lines or.

Speaker Change: The payments, we we feel very confident that we'll be able to continue to do that.

Speaker Change: In the future.

Speaker Change: Okay. Thanks.

Speaker Change: Great. Thanks, Phil next question, Patrick Colville from Scotiabank, followed by Roger Boyd from UBS go ahead Patrick.

Speaker Change #102: Or is it IBM to radar acquisition or hiring could you just kind of come out please.

Patrick Colville: Thank you Walter.

Deepak: I mean Mckesson Deepak.

Speaker Change #101: Our financial disclosure you guys gave us.

Speaker Change #103: Patterns with a combination of factors as I mentioned, we've seen the pipeline and its index of a ratio in the second half if you looked at our first half versus second half.

Speaker Change #102: Terrific you gave us a huge amount of metrics.

Speaker Change #103: But the metric I want to focus on is the new <unk> guide.

Speaker Change #103: Implied bookings have gone up.

Speaker Change #104: So OPO rose 20%.

Speaker Change #103: We see the pipeline for next year, obviously, the IBM business as part of that obviously these trends we're seeing in X time as part of that uplift monetization efforts are part of that and this year. We have tried to anticipate that with making sure. We have resources in place for the coverage we need to deliver those numbers.

Speaker Change #104: In a full queue.

Speaker Change #105: The guide implies I think in 19% at the midpoint in fiscal 'twenty five so I guess, what gives you the confidence that there's going to be kind of no deceleration over the next 12 months.

Speaker Change #104: Business lines.

Speaker Change #106: Or is it IBM radar acquisition of hiring can you just kind of come out please.

Speaker Change #103: Thank you.

Thank you.

Speaker Change #104: Thanks, Patrik next up Roger Duan from UBS, followed by Matt Hedberg from RBC go ahead.

I think patterns of combination of factors as I mentioned, we've seen the pipeline and its index separation in the second half if you looked at our first half versus second half.

Roger Duan: Great. Thanks for taking my question, maybe just a follow up to <unk> question to go on annualized billings, but you noted deepak that 12% would be kind of the bridge to a billings guide. This year. If you maintain a similar mix of financing and annual billings, given the shift towards <unk> and <unk>.

Implied bookings have gone up.

Speaker Change #106: We see the pipeline for next year, obviously, the IBM business as part of that obviously these trends we're seeing in X time as part of that uplift amortization efforts are part of that and this year. We have I would anticipate that with making sure. We have resources in place for the coverage we need to deliver those numbers.

Speaker Change #106: Our guidance fair to assume that that mix will probably not be that similar to what you saw last year.

Speaker Change #107: And it was probably additional factors around ensuring environment, just any any thoughts on what you might see from the mix of financing an annualized billings.

Speaker Change #106: Thank you Keith Good luck. Thank you.

Speaker Change #107: Thanks, Patrik next up Roger Duan from UBS, followed by Matt Hedberg from RBC go ahead great.

Speaker Change #108: Look I think we'll see a mix more towards annualized billings and away from financing later I think the simplest way to think about it is if he if he do financing. It's another it's another piece of paperwork at the loan documents at the end of the day it does create.

Roger Duan: Great. Thanks for taking my question.

Roger Duan: Just a follow up to <unk> question I go on annualized billings, but you noted do you park that 12% would be kind of the bridge to a billings guide. This year do you maintain a similar mix of financing with annual billings.

Speaker Change #107: More work out in the field.

So in line with our <unk> strategy, we're all about like figuring.

Roger Duan: Given the shift towards <unk> and <unk>.

Speaker Change #109: Our guidance fair to assume that that mix will probably not be that similar to what you saw last year.

Speaker Change #107: Figuring out where all the friction points are and trying to eliminate them, where we can continue to do the best thing for the shareholders. So that's really what we're driving here and that's what I would expect some scope for that it will look very different because we may not be doing as many manifest deals because they contribute to billings, but they don't change our view that they don't change cash flow.

Speaker Change #110: Meanwhile, its probably additional factors around ensuring environment, just any any thoughts on what you might see from the mix of financing an annualized billings, yeah, I I look I think we'll see a mix more towards annualized billings and away from financing later I think the simplest way to think about it is if he if he do financing it's another.

Speaker Change #109: You don't have too many benefits deals it saves time in the field.

Matt Hedberg: Great. Thanks for the question next up is Matt Hedberg, followed by our last question will be keep our future BMO go ahead, Matt.

Speaker Change #111: It's another piece of paperwork at the loan documents at the end of the day it does create.

Speaker Change #112: More work out in the field.

Matt Hedberg: Sure. Thanks, guys congrats on the quarter and big fan of the new guidance philosophy, I think it really is tied to the business.

Speaker Change #113: So in line with our plot fertilization strategy, we're all about like.

Speaker Change #113: Figuring out where all the friction points are and trying to eliminate them, where we can continue to do the best thing for the shareholders. So that's that's really what we're driving here and that's what I would expect some scope for that it will look very different because we may not be doing as many benefits deals because they contribute to billings, but they don't change our view that they don't change cash flow.

Speaker Change #111: Nick asked you a question for you with the election coming up and you guys have historically had a really strong federal business just sort of curious about how youre thinking about U S fed and <unk> and sort of what could that mean for kind of ask.

Speaker Change #112: It seems like Theres, a lot of pent up demand there on the federal side, just sort of curious on your outlook there.

Yeah, Matt I've learned in my life never train.

Speaker Change #113: You don't have too many benefits deals it saves time for the field.

Speaker Change #113: Foreshadow the government.

Speaker Change #113: Yeah.

Speaker Change #112: Yes.

Matt Hedberg: Great. Thanks for the question next up is Matt Hedberg, followed by our last question will be Keith Bachman from BMO go ahead, Matt.

Speaker Change #112: It's not a winning strategy don't break they certainly don't predict budgets don't bring collections, so well over the punch as we have people, where you know there's business that we have to renew because they have a palo alto capabilities and products are working hard and getting all that done that a bunch of new ideas and new projects that we're working on or keep powering through that you know as.

Matt Hedberg: Alright, thanks, guys congrats on the quarter and big fan of the new guidance philosophy, I think it really is tied to the business.

Matt Hedberg: And of course your question for you with.

Matt Hedberg: With the election coming up and you guys have historically had a really strong federal business just sort of curious about how youre thinking about U S fed and <unk> and sort of what could that mean for kind of the up it seems like theres a lot of pent up demand there on the federal side, just sort of curious on your outlook there.

Speaker Change #114: As elections transpire, depending on what administration comes into place is going to impact a bunch of the budgets, but as I said, we had significantly derisked archival expectations. What we told you earlier in this calendar year. So we're going with immediate set of expectations into the election to make sure that we don't see any bad surprises.

Speaker Change #115: Yeah, Matt I've learned in my life never try and foreshadow the government.

Matt Hedberg: Yes.

Matt Hedberg: It's not a winning strategy don't break this out.

Speaker Change #115: Thanks, a lot.

Keith Bachman: Thanks for that question, Matt the last one will be Keith Bachman from BMO go ahead Keith.

Speaker Change #116: Don't predict budgets don't bring collections, so well where all of the funds that we have people, where you know there's business that we have to renew because they have a palo alto capabilities and products are working hard and getting all that done there's a bunch of new ideas and new projects that we're working on or keep powering through that you know as.

Keith Bachman: Alright, Thank you Walter and good evening I wanted to ask about X I am a bit and break it into two parts in your slide deck. You noted that your customer active customer count is up Forex and I just wanted to hear a little bit about where those customers are coming from and what I mean by that is are these displacements are you sitting.

Speaker Change #117: As the elections transpire, depending on what administration comes into place is going to impact a bunch of the budgets, but as I said, we had significantly derisked our typical expectations of utility earlier in this calendar year. So we're going with a muted set of expectations into the election to make sure that we don't see any bad surprises.

Speaker Change #117: Side by side.

Speaker Change #117: Just wanted to hear a little more about that and then Deepak for you in my discussions with IBM I thought the <unk> business was running about a 100 million a little bit less than that.

Speaker Change #118: Thanks, a lot alright, thanks for that question, Matt The last one will be Keith Bachman from BMO go ahead Keith.

Speaker Change #118: Or are you said tens of millions so I just I wasn't sure. What has been included when you think about the guidance there on what your radar may add on a prospective basis over the next 12 months or so thanks very much so.

Keith Bachman: Alright, Thank you Walter and good evening I wanted to ask about X I am a bit and break it into two parts in your slide deck. You noted that your customer active customer count is up Forex and I just wanted to hear a little bit about where those customers are coming from and what I mean by that is are these displacements are you sitting.

Speaker Change #118: Oh.

Speaker Change #118: We're almost every one of the <unk> sales.

Side by side.

Keith Bachman: Just wanted to hear a little bit more about that and then Deepak for you in my discussions with IBM I thought the <unk> business was running about 100 million a little bit less than that.

Is replacing an existing center.

Speaker Change #118: And in some cases multiples as I mentioned in case of Schlumberger, we're in a place to get to the other eight figure deal to replace two others for.

Speaker Change #119: For the most part is if you looked at the market share of existing sins of the market.

Keith Bachman: Or are you said tens of millions so I just I wasn't sure. What has been included when you think about the guidance there on what your radar may add on a prospective basis over the next 12 months or so thanks very much so.

Our acquisitions, just north of 100 customers would be a representation of us taking the same amount of share from each of those people.

Speaker Change #119: Right and if you look at the people out there are I think there is a bunch of people we've been around for 2017 years, who have shares.

Keith Bachman: Oh.

Keith Bachman: We're almost every one of the <unk> sales.

Speaker Change #119: It will be that people will be replacing.

Most part so there is no net new Sim I don't think Theyre, starting net new companies out there that scale will require 10 20 $30 million same deal. So usually we're replacing people who are out there.

Keith Bachman: Is replacing an existing center.

Keith Bachman: And in some cases multiples as I mentioned in case of Schlumberger, we're in a place to get to the other eight figure deal with plains to others.

Keith Bachman: For the most part is if you looked at the market share of existing sins of the market.

Deepak: Title that Deepak answer D b.

Speaker Change #120: The IBM question.

Speaker Change #120: Just to keep things very simple Keith and we can we can follow up with you in more detail offline.

Keith Bachman: Our acquisitions in north of 100 customers would be a representation of us taking the same amount of share from each of those people.

Speaker Change #121: There are certain contracts that will be part of the IBM BLA or something like that what we won't be able to recognize the revenue.

Right and if you look at the people out there are I think is a bunch of people who has been around since 2017 years, who have shared this morning.

Speaker Change #122: It's just the way that the accounting treatment works and there'll also be some contracts that require consent from customers like so those are the kinds of things. We do expect over time things can move to.

Keith Bachman: Those will be the people will be replacing for the most part. So there is no net new Sim I don't think Theyre, starting net new companies out there that scale will require 10 20 $30 million Sim deal. So usually we're replacing people who are out there.

Speaker Change #123: X I am like our intention was never to right.

Speaker Change #122: Right.

Speaker Change #124: Two things and that's much more ratable revenue anyhow. So so it just takes some time to get those customers transferred over yeah fair enough, Okay, and three out of our real interest is in converting them big sign is it an issue.

Pavel: Pavel that Deepak answer.

Pavel: IBM question.

Speaker Change #121: Just to keep things very simple keep them. We can we can follow up with you in more detail.

Speaker Change #124: Alright, thanks keep extra <unk>.

Pavel: All flying.

Speaker Change #122: There are certain contracts that will be part of the IBM BLA or something like that what we won't be able to recognize the revenue of just the way that the accounting treatment works and there'll also be some contracts that require consent from customers. So those are the kinds of things. We do expect over time things can move to <unk>.

Speaker Change #124: From.

Speaker Change #124: Okay.

Speaker Change #124: Whereas that logo from.

Speaker Change #124: [laughter].

Speaker Change #124: Yeah.

Speaker Change #124: It's a it's a golf course in New Jersey, Alright, I see it's not that hard he asked me hard questions asking easy ones [laughter] alright.

Speaker Change #125: I'll conclude the Q&A portion of the call I'll turn it back over to the cash for his closing remarks.

Speaker Change #123: I am like our intention was never to.

Speaker Change #122: Thanks.

Speaker Change #124: Two things and that's much more ratable revenue anyhow. So so it just takes some time to get those customers transferred over yeah fair enough, Okay, and three out of our real interest is in converting them Beckstein redemption.

Speaker Change #126: I want to use the opportunity to thank all of you for supporting us and for joining our call I also want to thank all of our customers partners and into our ecosystem for supporting our business and last but most importantly, all of our employees who work really hard to deliver these results. Thank you very much.

Speaker Change #125: Alright, Thanks keep extra <unk> from.

Keith Bachman: Yeah, Keith whereas that logo from.

[laughter].

Keith Bachman: It's a it's a golf course in New Jersey Alright.

Keith Bachman: They're hard you asked me hard questions I ask an easy one.

Keith Bachman: Alright.

Speaker Change #126: To conclude the Q&A portion of the call I'll turn it back over to the cash for his closing remarks.

Speaker Change #127: I want to use the opportunity to thank all of you for supporting us and for joining our call I also want to thank all of our customers partners and into our ecosystem for supporting our business and last but most importantly, all of our employees who work really hard to deliver these results. Thank you very much.

Speaker Change #126: Yeah.