Q1 2025 Palo Alto Networks Inc Earnings Call

November 20, 2024

Good day, everyone and welcome to Palo Alto networks first quarter 2025 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 Wednesday November 22024 at $1 30 PM Pacific time.

You have not entered any numbers. Please reenter the meeting password followed by pound.

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

You entered 9999. This meeting password is invalid. Please reenter the meeting password followed by pound.

You can find the press release and other information to supplement today's discussion on our website at investors Dot Palo Alto networks Dot com, while there. Please click on the link for quarterly results to find the <unk> 25, supplemental information and <unk> 25 earnings presentation.

You have not entered any numbers goodbye.

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 these forward looking statements.

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

This presentation contains non-GAAP financial measures and key metrics relating to the company's past and expected future performance non-GAAP financial measures should not be considered a substitute for financial measures prepared in accordance with GAAP. The most directly comparable GAAP financial metrics and reconciliations are in the press release and the appendix of the Investor presentation.

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

We also note that management is scheduled to participate in the UBS Global Technology Conference.

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

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

Speaker Change: We are delighted to report a strong start to fiscal year 2025, and our first quarter of focusing on <unk> and <unk>, we saw strength in both metrics and saw them performed well ahead of our expectations the.

Speaker Change: The market for cyber security continues to be robust and continues to grow faster than the overall technology market. Despite the acceleration of technology spend due to AI cyber security continues to ice out space technology spend.

Speaker Change: We saw particular strength in our next generation security offerings, notably in cortex, and our network.

Speaker Change: <unk> grew 40% or $4 5 billion.

Speaker Change: It is still well ahead of our and the streets expectations independent of a one time increase due to the IBM deal.

On the profitability front, we expanded our operating margin by 60 basis points year over year as we continue to see benefits from our broad efficiency focus while making the necessity investments to sustain our growth.

Speaker Change: This translated into a 13% EPS growth and strong cash generation.

Speaker Change: We are particularly pleased with our continued execution at scale, where we are able to balance our growth initiatives within our financial investment envelope, allowing us to deliver upside to our EPS guidance.

Speaker Change: We've been talking about the benefits of simplifying security architectures and consolidating point products into platforms for a while now I'm sure. All of you remember our eventful quarter or we change gears on platform position as I've said before I wish we could have made a good decisions faster.

Speaker Change: We continue to see momentum across our partner ecosystem and our customers more recently, our industry peers have been evangelizing the virtues of plaque from physician and industry experts have begun to weigh in.

Speaker Change: I had our teams go back and compare the growth in the mentions of the word platform on cyber security earnings calls this year versus last year. We found an overall, 50% increased amongst our peers as they say imitation is the highest form of flattery.

Speaker Change: As another point of reference in recent research Gartner see 75% of secured leaders actively pursuing a vendor consolidation strategy, although less than 15% of large enterprise customers have implemented at least any one security platform solution Gardner.

Speaker Change: Gartner expects that by 2028, 45% of organizations will use fewer than 15 cybersecurity tools in their product portfolio up from 13% of organizations in 2023.

Speaker Change: I do want to reiterate the definition of what we want to achieve as a platform.

Speaker Change: Central to stopping threats of the future is a robust AI and automation platform Ization strategy and data is at the heart of it all.

Enter your meeting I D followed by pound.

Our approach is to ingest all relevant security data once stitch and analyze this with precision AI technology and natively automated end to end workflows instead.

Speaker Change: It is a tall order to take data from many different security vendors analyze it on the fly and make a decision to stop an attack fast enough, but we are encouraged with the early success of our X Simon cloud platform to do exactly this.

Enter your participant I D followed by pound.

Otherwise just press pound to continue.

Speaker Change: And then for security, we also collect all data across all palatal network security products and enable our customers to operate on a single pane of glass with consistent services, which work across all our form factors. We believe our network security strategy is the most comprehensive platform available in the industry encompassing a majority of the use cases by a single consistent interface.

Please enter the meeting password followed by pound.

You have not entered any now.

Speaker Change: As one of our customers recently said.

You entered 91358646 for six to this meeting password is invalid. Please reenter the meeting password followed by pound.

Speaker Change: That's one pane of glass versus many classes of pain. So while many of our competitors are talking about their platform approach. We don't believe they're equipped to deliver it and the way we can.

Speaker Change: We feel the cyber security industry is embarking into its next phase or.

Speaker Change: Where the market will continue to converge towards a fewer set of platform ization players over the next five to 10 years point solutions will continue to get subsumed in these platform plays having started this trend we intend to be one of those few players.

You have not entered any numbers goodbye.

Speaker Change: Okay.

Speaker Change: With this being the first quarter of our fiscal new year before they're oriented our go to market enablement around platform Ization. Our goal is to broaden the effectiveness of our solution selling across thousands of sellers and arm them to sell the value of our differentiated security outcomes across network security cloud security and security operations with.

With platform specific domain consultants and architects, we are able to bring tremendous focus to our go to market efforts.

I'm again pleased the results we're seeing.

Speaker Change: This came through in our Q1 metrics, we added more than 70, new platform migrations with about a third coming from our acquisition of grade or SaaS.

Speaker Change: We ended Q1 with approximately 1100 plus amortization.

Speaker Change: Beyond the number of new platform Ization in Q1, we also straw stent in the IRR per platform is customer.

Speaker Change: Our Q1 are out of our platform is customer was up 6% versus the average we saw during fiscal year 2024 improve.

Speaker Change: The improvement in the Arrow is driven not only by our success signing larger transactions. It is also driven by our team's ability to expand existing platform deployments continuously with new innovation that has delivered for example, and network security we have seen significant value from the adoption of advanced subscription services and uptake of add on modules and sassy such as Adam.

Our autonomous digital experience management or Casspi.

Speaker Change: Edwin Gatsby are essential for us to be able to deliver AI solutions in their access capabilities in the future and we believe this capability will become existential for all salary customers.

Speaker Change: Our Q1 performance keeps us on track to achieve 20, 530000, plus amortization deals by fiscal year 2030.

Speaker Change: We're happy with our continued strong growth in N. G. S ore in Q1 fueled by a continuous plus amortization momentum we see multiple drivers here.

Speaker Change: Network security customers are increasingly deploying our software and SaaS form factors, including adopting advanced Zero Trust security subscriptions across them over time. These customers have a significant incentive to convert and network security architecture towards adoption of our full suite of three form factors.

Speaker Change: Outside of network security, where we now have well over $2 billion in Ngl's era. We are also seeing a cloud security and cortex security operations business become significant as well last quarter cloud security crossed the 700 million dollar milestone in this quarter cortex crossed the $1 billion milestone.

Speaker Change: Looking at the large platform deals we.

Speaker Change: We see a variety of opportunities across all of our customers.

Speaker Change: We signed the transaction with large technology firm for over more than $50 million. This deal was headlined by a soft transformation, we're able to replace multiple seems like Simon hadn't xdr customer facing rising cost of the sock with little automation and adequate visibility into the rising number of tailored attacks had leverage day off.

Speaker Change: The customer and security of our customer and a year ago had platform is with US and network security and the transaction data density that is well next.

Speaker Change: We had a deal north of $15 million in value the National Hospital system Black summarizing the network security, which includes nearly for firewalls the customers focus on both preventing a breach after observing them any high profile incidents in the health care industry as well as reducing operating costs, we displaced a legacy firewall vendor and also set ourselves up for future Saturday blowers.

Speaker Change: In <unk>, we also have an initial cortex footprint in the secured at our customer over the next or deployment.

Speaker Change: Our financial institution customers standardizing, our firewalls, including in L. A in a transaction for over $20 million. After standardizing on our network security platform sassy in fiscal year 2024.

Speaker Change: While we have to win the firewall business based on the capabilities of our appliance or SaaS Eplex organization consistent network architecture across form factors was a big differentiator.

But the benefit of our consistent network security architecture, we were able to streamline operations across our network and drive lower costs.

Speaker Change: But not the least we try in the transaction greater than $30 million for the physical security.

Speaker Change: Services company.

Customer signed a large transaction with the last year platform rising network security and security operations in this quarter the customer expanded both the tech Siam and xdr deployments that as sassy and network security.

Speaker Change: This was a challenging deal is there a significant change to the customer with new IP leadership, including someone who previously deployed a sassy point product from our competitor.

Speaker Change: We're able to show both cost savings and a better security outcome from our consistent network architecture and expanded cortex footprint was driven by the customers confidence that we are helping them identify and stop attacks overall.

Speaker Change: Overall these are representative of a large deal momentum we saw 305 transactions over a million dollars up 13% and 60 transactions over $5 million up 30% this quarter.

Switching gears, let's take a look at our three platforms and how they are supporting our growth.

Speaker Change: In network security, we continue to see steady demand in our product business. The demand continues to be a function of customer refreshes capacity expansion in selective competitive takeouts driven by the customers' desire to deploy our network 60 platform across the category.

We're also seeing customers, who as they move to the cloud are beginning to deploy more and more software firewall to protect their cloud instances with the recent upgrade of our products will be able to solve AI use cases.

Speaker Change: We continue to feel positively about strength in public cloud deployed all deployed cloud deployed software firewalls. These represent 70% of our total virtual firewalls are are that are driving our growth in this area.

Speaker Change: SaaS continues to drive transformation deals that you saw in our customer stories, the true power of sassy and its extensibility now to a newer use cases helps validate the case for many of our new customers are.

Speaker Change: Our SaaS platform has recently integrated AI based monitoring incremental capabilities to manage applications and even more recently the prism acts with browser and she will talk more about in a minute.

Why society customers grew 20%, what interestingly, 40% of our Saudi customer this quarter are net new to Palo Alto networks is exciting since it creates a future opportunity post implementation to drive consistency by holding these customers to full network security platform.

Speaker Change: This was true for the financial services customer I mentioned in addition to landing. These sassy customers. We also have seen success driving larger deals the sassy transactions over $1 million in contract value up 40% in Q1.

Speaker Change: Critical sustaining our network performance our investments, we're making innovation.

Speaker Change: He is an enhanced security capability for operational technology environments to address the growing challenges our customers face as a number of non IV connected devices accelerate.

Speaker Change: Challenges in Ot environments include a need for more visibility.

Speaker Change: A lack of segmentation and unsanctioned remote access the abroad precision the Ida bear on this challenge along with our new line of Ruggedized firewalls.

Speaker Change: We also saw strong interest from customers in our broad security are by design portfolio with EIA access leading the way.

Speaker Change: Our teams have been busy driving customer engagement and we have hundreds of customers leveraging a axis.

Speaker Change: He currently secured over 750 applications or volume, which we believe leads the industry and our growing this figure by the day.

Speaker Change: We're also providing inland data loss prevention for more than 65 application with this number growing as well.

Speaker Change: Lastly, as part of a general availability release of our copilot capabilities across all three platforms, we rolled out the strata copilot and our development process, we prioritize delivering superior accuracy and we've had fantastic feedback the strider copilot train on nearly 50000 vetted sources Leverages best practices to help guide customers to faster.

Speaker Change: <unk> helped accelerate remediation the a.

Speaker Change: <unk> made a version to scope out and available to our customer support teams, which is beginning to positively impact our time to resolving customer issues, which we believe will continue to improve significantly going forward.

Speaker Change: I want to spend a few minutes on the Prisma access browser.

Speaker Change: We acquired talent cyber security in December of last year, we need this technology will become increasingly important to secure unmanaged devices such as those used by contractors, we saw an opportunity to acquire high quality scarce asset and be first to natively integrated secure browser into a sassy offering. Since then we have been integrating the talon browser with a leading security DLP and access services.

Speaker Change: And leveraging our broader network security capabilities. This has resulted in a much more robust secure enterprise browser, our prisma access browser.

Speaker Change: What has been rewarding has it been a surge in interest in emergence of various use cases. The browser is the ideal place to counter targeted attacks such as fishing secure privileged users and enable access to risky that applications customers are deploying prisma access browser as an additional security control that is transparent to the end user customers.

Speaker Change: Customers running the heart of their business with SaaS applications and leveraging emerging applications are especially seeing the benefits of prisma access browser as a critical end user security control also the replacement of virtual desktop infrastructure really eye is also starting to emerge as an opportunity.

Speaker Change: This is a legacy technology for which uses are collectively unhappy.

Speaker Change: We are working to expand the pool of VDI users, Michigan addressed by adding new protocols, such as SSH, and RTP and securely, enabling mobile device users.

Speaker Change: Adding our Eden capabilities browser can further enhance the end user experience it does max with browser compared to media.

You've seen significant commercial transaction for Prisma access browser with over 115, new customers and 1 million licenses sold since the time of the tower acquisition.

Speaker Change: Traction the ball to networks assay customers, including some of our largest customers highlights our ability to successfully integrate the innovation and the innovative technologies that we acquire and rapidly take to market.

Prisma access is about 16 million active licenses today are enterprise customers. The largest prisma access cohort are now eligible to leverage this license to adopt prisma access browser, we're seeing strong interest in this newly integrated capability.

Now moving on to cortex, a strong momentum in this business continued with US crossing the $1 billion milestone in Q1 as I mentioned before we are.

Speaker Change: Built the cortex portfolio steadily over the last six years, starting with Xdr architects offerings of boats being recognized as leaders in their markets, but also work together seamlessly as a platform that can deliver superior security operations outcomes for our customers in Q1, our leadership position continue to be reinforced by third party recognitions, including from Gartner and endpoint protection.

Forrester and attack surface management, and equipping of a cold and security automation orchestration response or SOR.

Speaker Change: <unk> was a standout within cortex, and we've made significant progress since it's Alicia G. A about two years ago.

Speaker Change: We continue to deliver both strong innovation and commercial momentum at X time released over 400, New machine learning detection modules, leveraging precision AI to broaden the scope of our autonomous saw capabilities. We now have over 150 active Exxon customers about 40 of which have more than $1 an era.

Speaker Change: We also rolled out a program for managed security service providers in Q1.

Speaker Change: One of the key highlights this quarter has been our partnership with IBM, including Qunar transaction that closed this quarter.

Speaker Change: This is an amazing burgeoning relationship I'm excited about the early momentum, we're seeing from customers to migrate from Qunar to Exxon.

Enter your meeting I D followed by pound.

Speaker Change: Following the close the deal at the end of August we have added over 550 kilowatt SaaS customers to record customer base since announcing the transaction we have seen a number of customers sign to it are the Exxon transaction for total fiscal year, so far or $80 million as we execute against our well plan go to market programs.

You have not entered any numbers please.

Enter your participant I D followed by pound. Please enter the meeting password followed by pound.

Speaker Change: Over 500 active Exxon customer opportunities in the pipeline across the full SaaS and on Prem Kuhnert, our base water a $1 billion in total value.

You have not entered any numbers. Please reenter the meeting password followed by pound.

We're also seeing further opportunity cross discuss was set with a broader cortex offerings. This opportunity he sees global with over half of the installed base outside the United States. We believe that this deal that help us to become one of the top three players in the same space over the upcoming years.

You have not entered any numbers. Please reenter the meeting password followed by pound.

Speaker Change: Beyond our success in cortex, and with <unk> specifically.

Speaker Change: You have not entered any numbers goodbye.

Speaker Change: I wanted to highlight another trend we see in the market.

Speaker Change: Many of the attacks, we see on our customers are targeting there Todd environments. The pace of change in cloud is far faster than on Prem is challenging for security teams to keep up with.

Speaker Change: As new quota, sometimes being pushed multiple times per day, and new cloud services are constantly being adopted by developers.

Speaker Change: This demand for real time cloud security is driving us to bring together the capabilities of our leading CNI portfolio Prisma cloud and our cortex theory operations capability stop cloud attacks.

Speaker Change: Against this backdrop, we have sold millions of cloud detection response agents with these deployments up 10 X in the two quarters since the April launch of our new offerings.

Speaker Change: This has helped drive a combined prisma and cortex customer base, which is up 15% a year over year interestingly about a third of our Prisma cloud customers already use at least one cortex product.

Security service providers in Q1.

One of the key highlights this quarter has been our partnership with IBM, including pure dollar transaction that closed this quarter.

Speaker Change: Our combined portfolio can bring superior security value and operational improvement to our customers.

We recently released a new capability integrating our XR automation capability and cortex, with our data security posture management or D. S. P M and cloud to automate the intermediation of data security risks identified.

This is an amazing burgeoning relationship I'm excited about the early momentum, we're seeing from customers to migrate from Qunar to Exxon.

Following the close the deal at the end of August we have added over 550 kilowatt SaaS customers to record this customer base since announcing the transaction we have seen a number of customers sign to it are the Exxon transaction for a total D severe so far or $80 million as we execute against our well plan go to market programs.

Speaker Change: We also released our AI copilot for Prisma cloud and cortex of general availability, while early in the adoption, we see significant promise here driving towards security operations at our machine led in human empower.

Speaker Change: And our cortex copilot beta nearly half of users trusted you take security accident <unk> behalf.

Over 500 active Exxon customer opportunities in the pipeline across the full SaaS and on Prem Kuhnert, our base whatever $1 billion in total value.

Speaker Change: With the recent flurry of conversations around agenda Guy, we have begun embedding egencia capabilities across our copilot, who believes decision take vision of AI will be hugely impactful in security and we're moving swiftly to drop that into Iraq.

Speaker Change: We're also seeing further opportunity cross discussed was set with a broader cortex offerings.

Speaker Change: This opportunity would be CS global with over half of the installed base outside the United States. We believe that this deal will help us to become one of the top three players in the same space over the upcoming years.

Speaker Change: We continue to drive innovation in our cloud security offerings, we released ESPN from our acquisition, we integrated that into Prisma cloud to counter the rise in cloud data attacks. These critical D. S. P M capabilities enable customers to trace potential jackpots in their cloud environment and determine what sensitive data is at risk appropriately prioritize their response and immediate automatically.

Speaker Change: Beyond our success in cortex, and with <unk> specifically.

Speaker Change: I want to highlight another trend we see in the market.

Speaker Change: Along with our overall launch of secure are by design or are on time and the I S. P. M offerings targeted at cloud environments have also seen positive early traction lastly, we also launched under the program for managed security providers as customers to enable partners do have a security service and the customer cloud environment.

Speaker Change: As new quota, sometimes you can push multiple times per day, and new cloud services are constantly being adopted by doctors.

Speaker Change: Before I wrap up and hand, the call over Deepak I'll leave you with a few thoughts one word.

Speaker Change: As a backdrop, we have sold millions of cloud detection response agents with these deployments up tenex in the two quarters since the April launch of our new offerings.

We're seeing growing industry validation of our strategy with Q1, marking yet another steady quarter progress plaque formation is fueling the growth of our in GSE IRR and puts us on track to hit our long range targets as we drive sustainable profitable growth.

Speaker Change: This has helped drive a combined prisma and cortex customer base, which is up 15% of year over year Interestingly about a third of our Prisma cloud customers already use at least one cortex products.

Speaker Change: We're signing large transactions with leading global organizations because their approach delivers better security outcomes and the alternative.

Speaker Change: Our combined portfolio can bring superior security value and operational improvement to our customers.

Speaker Change: Over the last six years, we have integrated our solution across three airpower platform and disappear, which is driving our business. We believe we have the best network cloud and security operations platform and we will continue to invest across these areas and keep them ourselves at the forefront of the Nexus of cyber security in the iron ore.

Speaker Change: We also released our AI copilot for Prisma cloud and cortex of general availability, while early in the adoption you see significant promise here driving towards security operations at our machine, let in human empower.

Speaker Change: Over time, we will steadily bring these platforms closer together to solve problems leveraging our integrated capabilities and common data b.

Speaker Change: We hear our customers asking for it and we are delivering on it today with real time security across cloud and cortex.

Speaker Change: And our cortex copilot beta nearly half of users trusted take security action on their behalf.

Speaker Change: We also intend to leave this platform convergence opportunities that arise in the future.

Speaker Change: With the recent flurry of conversations around agenda Guy, we have begun embedding egencia capabilities across our Copilots, who believes decision take version of AI will be hugely impactful in security and we're moving swiftly to drop that into Iraq.

As you can see in Q1, our conviction in <unk>, our momentum gives us the confidence to make significant investments, notably in innovation I believe we are the only dedicated cyber security company with the resources and focus to drive consistent innovation and harnesses substantial dedicated go to market capability to fuel our differentiated strategy.

Speaker Change: We continue to drive innovation in our cloud security offerings, we released ESPN from our acquisition, we integrated that into Prisma cloud to counter the rise in cloud Ddos attacks. These critical ESPN capabilities enable customers to trace potential jackpots in their cloud environment and determine what sensitive data is at risk appropriately prioritize their response and immediate automatically.

Speaker Change: We're releasing capabilities that are single form factor competitors' network security are not able to offer such as our natively integrated browser and sassy, a leading cloud and check us portfolio position us to lead and real time cloud detection response. We're also seeing good early signs from a product and go to market investments around the opportunity to treat at our customer base to actuator Exxon momentum.

Speaker Change: Along with the overall launch of secure are by design or are on time and the I S. P. M offerings targeted at Florida mines have also seen positive early traction lastly, you also lost or the program for managed security providers as customers to enable partners at two of our security services customer cloud environment.

Speaker Change: Yeah.

Speaker Change: As for securing AI itself.

Speaker Change: Our security I by design portfolio is off to a great start enabling organizations to confidently unsecured leverage yeah in the enterprise if I look at the broader technology industry.

Speaker Change: Before I wrap up and hand, the call over Deepak I'll leave you with a few thoughts one.

Speaker Change: Seen evergreen company that successfully executing the platform approach in markets such as CRM HR I T. S. M. We think this will happen in cyber security and we are poised to be that company.

Deepak: We're seeing growing industry validation of our strategy with Q1, marking yet another steady quarter progress platforms nation is fueling the growth of our and Jesse IRR and puts us on track to hit our long range targets as we drive sustainable profitable growth.

Speaker Change: Boiling this down to the impact on our fiscal year 2025 outlook, we're raising our full year 'twenty five and yesterday, our revenue and EPS in the back of the strong performance.

Deepak: We're signing large transactions with leading global organizations because their approach delivers better security outcomes and the alternative.

Speaker Change: Also reflecting our belief in the company's future and the momentum and confidence we have in our strategy, we announced a two for one stock split.

Deepak: Well the last six years, we have integrated our solution across three airpower platform and discipline is driving our business. We believe we have the best network cloud and security operations platform and we will continue to invest across these areas and keep them ourselves at the forefront of the Nexus of cyber security in the yard.

Speaker Change: This was also done to help ensure our shareholders accessible to all our share of the accessible to all employees and investors.

I'll now turn the call over to Deepak things in more detail of our Q1 performance and higher guidance.

Deepak: Time, we will steadily bring these platforms closer together to solve problems leveraging our integrated capabilities and common data.

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

Deepak: To maximize our time is spent on Q&A I will provide you with highlights of Q1.

We hear our customers asking for it and we are delivering on it today with real time security across cloud and cortex.

He can review the results in our press release and the supplemental financial information on our website.

Deepak: We also intend to lead this platform convergence opportunities that arise in the future.

Deepak: Note that we have removed billings and added N G S era and appeal to our supplemental financials, reflecting our focus on a lot of metrics.

Deepak: As you can see in Q1, our conviction in black normalization or momentum gives us the confidence to make significant investments, notably in innovation I believe we are the only dedicated cyber security company with the resources and focus to drive consistent innovation and harnesses substantial dedicated go to market capability to fuel our differentiated strategy.

Deepak: In Q1 total revenue was 2.14 billion and grew 14% above the high end of our guidance.

Deepak: When revenue product revenue grew 4%, while total services revenue grew 16%.

Deepak: We are releasing capabilities that are singles form factor competitors' network security are not able to offer such as our natively integrated browser and sassy, a leading cloud and <unk> portfolio position us to lead and real time cloud detection response. We're also seeing good early signs from a product and go to market investments around the opportunity to treat or our customer base to actuarial Exxon momentum.

Deepak: Drilling into services revenue subscription revenue grew 21% and support revenue rose 8%.

Speaker Change: As Nick has mentioned the demand for firewall appliances was stable in Q1, and we continue to expect growth of zero to 5% as we have previously discussed our support revenue is mainly tied to our appliance form factor.

Deepak: Yeah.

Deepak: As for securing AI itself.

Deepak: Our security I by design portfolio is off to a great start enabling organizations to confidently and security leverage yeah in the enterprise if I look at the broader technology industry.

Speaker Change: Moving onto geographies, we saw double digit revenue growth across all of our theaters with the Americas growing 12% EMEA up 21% and Japan growing 13%.

Deepak: In evergreen companies that successfully executing a platform approach in markets such as CRM HR I T. S. M. We think this will happen in cyber security and we are poised to be that company.

Total <unk> grew 20% to $12 6 billion.

Speaker Change: We added approximately $68 million in Apio sequentially from the acquisition of the key radar SaaS business approximately $30 million of this IPO was also included in our deferred revenue.

Deepak: Boiling this down to the impact on our fiscal year 2025 outlook, we're raising our full year twenty-five engie S. A our revenue and EPS in the back of the strong performance.

Deepak: Also reflecting our belief in the company's future and the momentum and confidence we have in our strategy, we announced a two for one stock split.

Speaker Change: Our current RVO grew 18% to $5 9 billion.

Speaker Change: The average duration of our new contracts remained at approximately three years in line with the year ago quarter and slightly down from Q4.

Deepak: This was also done to help ensure our shareholders accessible to all our share of the accessible to all employees and investors.

Deepak: I'll now turn the call over to Deepak things in more details of our Q1 performance and higher guidance.

Speaker Change: Our <unk> grew 40%, finishing Q1 at $4 five $2 billion.

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

Speaker Change: [laughter].

Speaker Change: We added $74 million in NGF era from key rate of SaaS.

Deepak: To maximize our time is spent on Q&A I will provide you with highlights of Q1.

Speaker Change: We expect this key radar N G S air ought to decline to approximately half this amount by Q4 as we focus on upgrading these customers to X I am and growing RF Tam Arrow.

Speaker Change: He can review the results in our press release and the supplemental financial information on our website.

Note that we have removed billings and added N G S era and appeal to our supplemental financials, reflecting our focus on a lot of metrics.

Speaker Change: Also it is worth noting that about a third of our new platform migrations in Q1 came from <unk>.

Speaker Change: In Q1 total revenue was 2.14 billion and grew 14% above the high end of our guidance.

Speaker Change: These customers of both.

Speaker Change: Both have over 100000 in Q radar era, and an active customers of cortex, xdr or cortex XO.

Speaker Change: Within revenue product revenue grew 4%, while total services revenue grew 16%.

Speaker Change: Drilling into services revenue subscription revenue grew 21% and support revenue rose 8%.

Speaker Change: That is a one time increase as we completed the acquisition.

Speaker Change: Moving down the income statement gross margin of 77, 3% was down slightly as we saw the impact of some of our newer SaaS offerings that haven't yet scaled.

Speaker Change: As Nick has mentioned the demand for firewall appliances was stable in Q1, and we continue to expect growth of zero to 5% as we've previously discussed our support revenue is mainly tied to our appliance form factor.

Speaker Change: We continue to see efficiencies across the company as we focused on driving profitable growth.

Speaker Change: Moving on to geographies, we saw double digit revenue growth across all of our theaters with the Americas growing 12% EMEA up 21% and Japan growing 13%.

Speaker Change: This resulted in 60 basis points of operating margin expansion and along with some higher interest and other income drove upside to our earnings per share.

Speaker Change: Our diluted GAAP EPS continues to grow along with our overall profitability and we generated strong free cash flow in Q1 based on collections of our substantial Q4 bookings.

Speaker Change: Total <unk> grew 20% to $12 6 billion.

We added approximately 68 million and our appeal sequentially from the acquisition of the <unk> radar a SaaS business approximately $30 million of Desafio was also included in our deferred revenue.

Speaker Change: On our balance sheet, you will see that our debt balance came down by over $300 million we.

Speaker Change: We have continued to see early conversion of our convertible debt.

Our current <unk> grew 18% to $5 $9 billion.

Speaker Change: Which occurred at the option of the debt holders and with shuttle by offering cash and equity.

Speaker Change: The average duration of new contracts remained at approximately three years in line with the year ago quarter and slightly down from Q4.

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

Speaker Change: We did not repurchase any shares in Q1, and our buyback strategy remains opportunistic. We continue we have $1 billion in authorization remaining through December 2025.

Our N T S error grew 40%, finishing Q1 at $452 billion.

Speaker Change: Yeah.

We added $74 million in NGF era from key rate of SaaS.

Speaker Change: Before I turn to guidance I wanted to touch on the early impact we saw as we shifted our focus squarely to IPO and Engie S. A R. R as our top line metrics.

Speaker Change: We expect this key radar N T S air ought to decline to approximately half this amount by Q4 as we focus on upgrading these customers to X I am and growing RF Tam Arrow.

Speaker Change: We did this believing it would help further drive companywide behavior to optimize our business for long term value creation and we are encouraged by the early results in Q1.

Speaker Change: Also it is worth noting that about a third of our new platform innovations in Q1 came from Colorado.

Speaker Change: These customers of both.

Speaker Change: As we drove sales enablement and training to kick off the year, we focused the teams on maximizing exit Ara and deal profitability as compared to specific invoicing structures.

Speaker Change: Both have over 100000 in Q radar era, and active customers of cortex, xdr and or cortex XO.

Speaker Change: That is a one time increase as we completed the acquisition.

Speaker Change: I'm encouraged by some early signs we saw in Q1, when we reduce cycle times within certain steps about deal close process.

Speaker Change: Moving down the income statement gross margin of 77, 3% was down slightly as we saw the impact of some of our newer SaaS offerings that haven't yet scaled.

Speaker Change: We also saw a handful of larger deals that work their way through the process more smoothly than in the past.

Speaker Change: We continued to see efficiencies across the company as we focused on driving profitable growth.

Speaker Change: For example, a seven figure SaaS deal with one of the world's largest semiconductor companies accelerated through our process. After we structure the deal around annual billings as opposed as compared to prior Panna first proposals, which have need which would've needed longer scrutiny and approvals at a customer.

Speaker Change: This resulted in 60 basis points of operating margin expansion.

Speaker Change: And along with some higher interest and other income drove upside to our earnings per share.

Speaker Change: Our diluted GAAP EPS continues to grow along with our overall profitability and we generated strong free cash flow in Q1 based on collections of our substantial Q4 bookings.

Speaker Change: In another seven figure transactions xdr with a health care customer, we were able to structure a deal to accommodate our customers' payment sounds requirements, while focusing on maximizing exit Ara.

Speaker Change: On our balance sheet, you will see that our debt balance came down by over $300 million we.

We look forward to building on this to drive further improvements and predictability in our business as we focus squarely on N G S era and profitability in our deals.

Speaker Change: We have continued to see early conversion of our convertible debt.

Speaker Change: Which occurred at the option of the debt holders and with shuttle by often cash and equity.

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

In Q1, we focused our pan her first financing capability on transaction, where it was best suited resulting in a meaningful reduction in the volume of these transactions instead of Pan of fast, we leveraged annual invoicing, which can be simple for customers, especially when procuring SaaS offerings.

Speaker Change: We did not repurchase any shares in Q1, and our buyback strategy remains opportunistic. We continue we have $1 billion in authorization remaining through December 2025.

Speaker Change: Before I turn to guidance I wanted to touch on the early impact we saw as we shifted our focus squarely to IPO and N. G. S. A R R as our top line metrics.

Speaker Change: Last quarter I mentioned to you that we would have expected our billings to grow 12% in this fiscal year. If we did not change any of the practices in our business that impact billings.

Speaker Change: We did this believing it would help further drive companywide behavior to optimize our business for long term value creation and we are encouraged by the early results in Q1.

Speaker Change: After reviewing Q1 results. This will continue to be true under the same assumptions.

Speaker Change: The quarterly analysis of billings is no longer meaningful as it does not reflect how we now run the business.

Speaker Change: As we drove sales enablement and training to kick off the year, we focused the teams on maximizing exit Ara and deal profitability as compared to specific invoicing structures.

Speaker Change: Based on our Q1 performance. We also remain confident in our cash flow outlook for the year.

Speaker Change: With that let me turn to guidance.

Speaker Change: For the fiscal year 2025, we expect N G S. A R ought to be in the range of $5 five two to 5.5 dollars $7 billion, an increase of 31% to 32%.

Speaker Change: I'm encouraged by some early signs we saw in Q1, when we reduce cycle times within certain steps of our deal closed process.

Speaker Change: We also saw a handful of larger deals that work their way through the process more smoothly than in the past.

Speaker Change: As a reminder, this guidance includes the contribution of key radar fast of about half of the approximately $74 million in a are often key radar in Q1 as well as incremental momentum in our NDS offerings, the cash and I discussed.

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

Speaker Change: In another seven figure transactions xdr with a health care customer, we were able to structure a deal to accommodate the customer's payment tons requirement, while focusing on maximizing exit Ara.

Speaker Change: Revenue to be in the range of $9, one two to $9, one $7 billion an increase of 14%.

Speaker Change: Operating margins to be in the range of 27.5% to 28%.

Speaker Change: We look forward to building on this to drive further improvements and predictability in our business as we focus squarely on N G S era and profitability in our deals.

Diluted non-GAAP EPS to be in the range of $6 to six to $6 three $9 an increase of 10, 13%.

Speaker Change: And adjusted free cash flow margin in the range of 37% to 38%.

Speaker Change: For the second fiscal quarter, we expect <unk> to be in the range of $4 seven zero to $4 $75 billion, an increase of 35% to 36%.

Speaker Change: Remaining performance obligation of $12 $9 billion to $13.0 billion, an increase of 20% to 21%.

Speaker Change: And revenue to be in the range of $2 two two to $2 to $5 billion, an increase of 12% to 14%.

Speaker Change: After reviewing Q1 results. This will continue to be true under the same assumptions.

Speaker Change: We expect diluted non-GAAP EPS to be in the range of 154 to 156 those.

Speaker Change: The quarterly analysis of billings is no longer meaningful as it does not reflect how we now run the business.

Speaker Change: Sure an increase of 5% to 6%.

Speaker Change: We included our typical modeling points in the presentation for you to review.

Speaker Change: Based on our Q1 performance. We also remain confident in our cash flow outlook for the year.

Speaker Change: Finally, as the cash noted we announced today a two for one split of Palo Alto networks common stock. This decision is supported by underlying confidence in our continued business momentum and by our desire to make our stock more accessible to our employees and the broader group of investors.

Speaker Change: With that let me turn to guidance.

For the fiscal year 2025, we expect N G S. A R ought to be in the range of $5 five two to 5.5 dollars $7 billion, an increase of 31% to 32%.

Speaker Change: As a reminder, this guidance includes the contribution of <unk> radar fabs of about half of the approximately $74 million in air off from key radar in Q1, as well as incremental momentum in our NDS offerings, the cash and I discussed.

Speaker Change: Shareholders of record at the close of trading on December 12, 2024 will receive one additional share after the close of training on December 13th 2024 for every outstanding share held on December 12.

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

Stock will begin trading on a split adjusted basis on December 16th 2024.

Speaker Change: With that we will roll one more video and then we'll stop Q&A tool.

Speaker Change: Revenue to be in the range of $9, one two to $9, one $7 billion an increase of 14%.

Speaker Change: To allow for broad participation in the Q&A I ask that each analyst only ask one question. Our first question will come from socket Calia from Barclays followed by Brad Zelnick from Deutsche Bank go ahead socket.

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

Speaker Change: Diluted non-GAAP EPS to be in the range of $6 to $66 three $9 an increase of 10, 13%.

Okay, Great Hey, guys. Thanks for thanks for taking my question and nice start to the year.

Speaker Change: And adjusted free cash flow margin in the range of 37% to 38%.

Speaker Change: Maybe this is a question for both you and to cash and Deepak.

For the second fiscal quarter, we expect <unk> to be in the range of $4 seven zero to $4 $75 billion, an increase of 35% to 36%.

Speaker Change: The platform strategy is clearly starting to hit its stride and we've talked about the implications.

Speaker Change: Of that longer term specifically.

Speaker Change: The long term <unk> target, but I'm curious if we could just talk about the margin implications from platform position long term.

Speaker Change: Remaining performance obligation of 12 $9 billion to $13.0 billion, an increase of 20% to 21%.

Speaker Change: And revenue to be in the range of $2, two $2 billion to $2.25 billion, an increase of 12% to 14%.

Speaker Change: As those deals tend to be bigger and also tend to have higher lifetime value.

Speaker Change: Well I'm gonna add Deepak to add the look we look at we look at margin.

Speaker Change: We expect diluted non-GAAP EPS to be in the range of 154 to 156 those.

Deepak: If you look at the biggest cost on any enterprise companies P&L, it's a cost of sales.

Speaker Change: Share an increase of 5% to 6%.

Speaker Change: By far the second largest cost is your Cogs as it relates to cloud spend now we are privileged to have some amazing deals with two large cloud service providers, which allow us to maintain margins at a consistent almost with on Prem solutions that other people do because of our scale.

Speaker Change: We included our typical modeling points in the presentation for you to review.

Speaker Change: Finally, as Nick has noted we announced today a two for one split of Palo Alto networks common stock. This decision is supported by underlying confidence in our continued business momentum and by our desire to make our stock more accessible to our employees and the broader group of investors.

Speaker Change: And we expect that to continue to improve overtime. So that one and that's a significant factor. The second second even factor towards margin improvement is as I mentioned cost of sales of the more we can platform is with existing customers and have large deal sizes customers introduces our effort, but you don't have to get 20 deals to get drawing on a dollars like some of our peers, we got one deal for triangle.

Speaker Change: Which means the cost of sales was lower on an incremental basis as we established a land and expand strategy from a customer perspective, and last but not the least I sort of alluded to it. We're noticing some very interesting outcomes from a customer support perspective, which ends up being a turtle largest area of cost we're seeing in some cases.

Speaker Change: Stock will begin trading on a split adjusted basis on December 16th 2024.

Speaker Change: With that we will roll one more video and then we'll start the Q&A.

Speaker Change: NXP has a global semiconductor company with operations in more than 30 countries. We are a trusted partner for innovative solutions in the automotive industrial Iot mobile and communications infrastructure markets.

Our tier one support cases are getting solved by support Copilots, which are supporting their using sort of significantly reducing the time to resolution of tickets at least on the sort of simpler and for now borrowing as I said, we've trained 50000 data points into our network security Copilot, I think as we get better and better.

Speaker Change: Upon a comprehensive evaluation of available solutions. It became clear that Palo Alto networks offers a holistic and integrated approach to a unified management platform.

Speaker Change: Platform not only supports our zero trust strategy and digital transformation initiatives, but also addresses the complexities and risks associated with managing diverse point solutions across multiple teams.

Speaker Change: We're training our models and training their customer support Copilots, where we've fully revamped the way we collect data on customer issues. I think there is tremendous potential there to give us the future margin expansion. So I think across the board margin expansion on Cogs margin expansion from lower cost of sales and margin expansion from customer support automation.

By capitalizing on Palo Alto networks, the Idd platform approach, we anticipate improved security outcomes through operational efficiencies and accelerate our response time.

Speaker Change: Great. Thanks for the question next up is Brad Zelnick from Deutsche Bank, followed by Hamzah firewall from Morgan Stanley Go ahead, Brian great. Thanks, So much and congrats on a strong start to the year.

Speaker Change: On security Operation Center, we expect this platform to enable us to simplify security by conducting a thorough review of all cyber security tools and identifying opportunities for consolidation.

Speaker Change: The cash Youre.

Speaker Change: Your next our competitors are talking about hardware refresh cycles and I. Appreciate hardware is a much smaller part of your mix. So I won't bother asking why youre not expecting a refresh benefit like they are.

Speaker Change: [music].

Speaker Change: Look forward to their refresh cycles, so we get a chance to take out their customer they replace the whole ball Arthur So I'm delighted there's a refresh cycle in the market and that's exactly what I wanted to ask and instead, how should we think about their refresh impacting your opportunity. Both in the positive sense that you can go in and displace them in their boxes reach end of life, but also perhaps as a headwind if they are you.

Socket Calia: Okay, Great Hey, guys. Thanks for thanks for taking my question and nice start to the year.

Socket Calia: Maybe this is a question for both you into cash and Deepak.

Socket Calia: The platform is Asian strategy is clearly starting to hit its stride and and we've talked about the <unk> implications.

Speaker Change: In the event of bundle in SaaS <unk> and other next Gen capabilities are you running campaigns actively to go. After this thank you so Brian let me parse that out actually.

Of that longer term specifically.

Socket Calia: The long term <unk> target, but I'm curious if you could just talk about the margin implications from plot for <unk> long term.

You know I know I spoke fast and English is my second language. So.

Speaker Change: I did try to suddenly land in there that I am positive about hardware or I said, we're seeing steady growth in hardware both from refreshes of boxes for our customers. What are you seeing expanded demand for new use cases, like ruggedized, and Iot et cetera, and last but not the least.

Socket Calia: Those deals tend to be bigger and also tend to have higher lifetime value.

Speaker Change: Well I'm going to add the <unk> to add the Vic we look at we look at margin.

Speaker Change: If you look at the biggest cost on any enterprise companies P&L, it's cost of sales.

Speaker Change: By far the second largest cost is your Cogs as it relates to cloud spend now we have a privilege to have some amazing deals with two large cloud service providers, which allow us to maintain margins at a consistent almost with on Prem solutions that other people do because of our scale.

We are seeing slow and steady takeouts of other customers. So what's happening is our SaaS at cohort from two or three years ago really landed with sassy as that end of life happens in that customer base for firewalls.

Turned to us as a now I know the Palo Alto secure interface I don't have to learn it and.

Speaker Change: And we expect that to continue to improve overtime. So that one and that's a significant factor. The second second even factor towards margin improvement is as I mentioned cost of sales of the more we can platform is with existing customers and have large deal sizes customers introduces our effort, but you don't have to get 20 deals to get $20 million like some of our peers, we got one deal for triangle.

Speaker Change: And they can just put firewalls hardware firewalls against that sassy management pain, because we have the same securities management pain across IC. So.

Speaker Change: It's not going to be left revolutionary, but it is going to be evolutionary if you look every year our market share of hardware firewalls goes up to 300 basis points.

Speaker Change: Which means the cost of sales was lower on an incremental basis as we established a land and expand strategy from a customer perspective, and last but not the least.

Speaker Change: So we think.

Speaker Change: There are donors in the market of market share, who will constantly keep donate market share as they hit their refresh cycles and there are acquirers of market share and we're hopefully one of those so I actually have a steady expectation from product hardware, which I think is going to underpin our our growth across the board over the next few years.

Speaker Change: I sort of alluded to it we're noticing some very interesting outcomes from a customer support perspective, which ends up being a turtle largest area of cost we're seeing in some cases, our tier one support cases are getting solved by support co pilots, which are supporting or using sort of significantly reducing the time to resolute.

Speaker Change: Great question, Brad next is Hamzah firewall for Morgan Stanley followed by Brian Essex from J P. Morgan pumps that go ahead alright.

Speaker Change: Alright, great. Good afternoon. Thank you for taking my question and great to see the success with the <unk>.

Speaker Change: <unk> of support ticket at least on the sort of simpler and for now.

Speaker Change: Yes, my access browser you're into that acquisition.

Speaker Change: As I said, we've trained 50000 data points into our network security Copilot, I think as we get better and better training our models and training their customer support Copilots, where we have fully revamped the way we collect data on customer issues I think there's tremendous potential there to give us future margin expansion. So I think across the board margin expansion on Cogs margin expansion from lower cost of <unk>.

Speaker Change: I wanted to get your just maybe early view into 2025, I mean on the one hand, there is some optimism on the macro you have a lot of new products on the other hand cio's. He says they don't want.

Speaker Change: Value for what they are spending there are some talks about the incoming administration looking to perhaps rollback certain regulations maybe.

Speaker Change: And the margin expansion from customer support automation.

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

Speaker Change: Entire civilian agencies your big seller into the.

Speaker Change: The federal government. So I'm just curious how you weigh those puts and takes as you look into 2025. Thank you.

Brad Zelnick: Great. Thanks, so much and congrats on a strong start to the year.

Speaker Change: Thank you Hamzah for a great question, but I think the most if you separate the signal and noise.

Brad Zelnick: The cash.

Speaker Change: The biggest signal is AI in the next 12 to 48 months.

Speaker Change: And AI is already having significant impact both on the attack side attacks are getting faster and faster and quicker.

Speaker Change: I worked with their refresh cycles, so we get a chance to take out their customers at a place of auto so I'm delighted there's a refresh cycle of the market and that's exactly what I wanted to ask and instead, how should we think about their refresh impacting your opportunity. Both in the positive sense that you can go in and displace them in their boxes reach end of life, but also perhaps as a headwind is there.

Speaker Change: He is possibly being used to evaluate what are the more vulnerable parts of infrastructure. So we can go after that so I think from a cyber incident perspective, Unfortunately, it's not going to slow down.

Speaker Change: Using the event a bundle in SaaS SEC ops and other next Gen capabilities are you running campaigns actively to go. After this thank you so Brian let me parse that out actually.

Speaker Change: Alright.

Speaker Change: And that's the biggest driver of improved security posture improve higher spend from <unk> I think youre right. There is a consolidation let me spend less money for security and there. We are discovering is some more top down motion than it is a bottom up motion and as you're aware, we're expanding a lot of effort towards interacting with CIO is in C level.

Speaker Change: I know I spoke fast and English my second language so I.

I did try to suddenly land in there that I am positive about hardware or I said, we're seeing steady growth in hardware both from refreshes of boxes for our customers. What are you seeing expanded demand for new use cases, like ruggedized, and Iot et cetera, and last but not the least.

Speaker Change: It is actually we're spending a lot more time with our GSI partners trying to address that issue because they are typically involved in the transformation stage would say, let's take all of the stuff you put it together and replace it. So we're seeing early success.

As I said, we should have done that sooner because when he set across those guys. They look do you have nine different products you could bundle. It together take it down have one banner management pain and you'll save a lot of cost because then they understand cause around ingesting data nine times across nine product, we're ingesting analyzing at nine times and giving them the outcomes. They want so I think the trend is in our favor as it.

We are seeing slow and steady takeouts of other customers. So what's happening is our SaaS at cohort from two or three years ago, we landed with sassy as that end of life happens in that customer base for firewalls.

Speaker Change: Turning to us and say now I know the Palo Alto secure interface I don't have to learn it.

Speaker Change: And they can just put firewalls hardware firewalls against that sassy management pain, because we have the same security management pain across IC. So.

Speaker Change: Regards the incoming administration I think you know.

Clearly a higher standard deviation.

Speaker Change: And administration by the sounds of it and highest elevation implies more risk and Morris implies, possibly a motor turn.

Speaker Change: It's not going to be left revolutionary, but it is going to be evolutionary if you look every year our market share in hardware firewalls. It goes up to over 300 basis points.

Speaker Change: So we think.

Speaker Change: Alright. Thank you Hamzah next up is Brian Essex from J P. Morgan followed by Joe Gallo from Jefferies Go ahead, Brian Great. Thanks, Walter and thank you for taking the question.

Speaker Change: There are donors in the market of market share, who will constantly donate market share as they hit their refresh cycles and there are acquirers of market share and we're hopefully one of those so I actually have a steady expectation from product hardware, which I think is going to underpin our our growth across the board over the next few years.

Brian Essex: And great to see the strong profitability and cash flow by the way.

To ask you about the integration between cortex, and cloud and wanted to understand.

Great. Thanks, Good question, Brad Nexus Hamzah firewall up for Morgan Stanley followed by Brian Essex from J P. Morgan pumps that go ahead.

Brian Essex: When did that kind of hit the market is it typically led by cortex or cloud.

Speaker Change: Alright, great. Good afternoon. Thank you for taking my question and great to see the success with the.

Brian Essex: And how should we think about how that positions you competitively not just in the cloud security market, but across all of <unk>.

Speaker Change: Prisma access browser you're into that acquisition.

Brian Essex: Strider Prisma cortex segments of the business so.

Speaker Change: I wanted to get your just.

Speaker Change: Maybe early view into 2025, I mean on the one hand, there is some optimism on the macro you have a lot of new products.

So like.

Brian Essex: At a at a higher level.

Brian Essex: The cloud market is effectively right now three parts right Thursday entire configuration management part, which is the scene that part and posture management part there is the blocking real time threats and protecting enterprises part, which is the C. D. Our cloud detection response part and then there's a cloud net the network traffic.

Speaker Change: The other hand, CIO CS so they still want Val.

Speaker Change: Value for what they are spending there are some talks about the incoming administration looking to perhaps rollback certain regulations maybe.

Speaker Change: Entire civilian agencies your big seller into the.

Speaker Change: The federal government.

Speaker Change: I'm just curious how you weigh those puts and takes as you look into 2025. Thank you.

Brian Essex: We inspected for firewall perspective, we're clearly leaders in the network traffic part as we've talked about 70% of our use cases now public facing you know, we're a cloud service provider traffic.

Speaker Change: Thank you Hamzah for a great question.

Speaker Change: The most if you separate signal and noise.

We are still one of the leaders in the snap space from.

Speaker Change: The biggest signal is AI in the next 12 to 48 months.

From a from an early start in Prisma cloud, but what I think's going to happen in next few years as market is going to shift more and more towards the the real time security side on cloud, which is where C. D. Our cloud Sox ixion become more and more important so almost every one of them already signed deals. There is a portion of that that is <unk>.

Speaker Change: And AI is already having significant impact both on the attack side attacks are getting faster and faster and quicker.

Speaker Change: He is possibly being used to evaluate what are the more vulnerable parts of infrastructure. So we can go after that so I think from a cyber incident perspective. Unfortunately.

Brian Essex: Lloyd towards cloud security now.

Speaker Change: Not going to slow down.

Speaker Change: And having that data together allows us to prioritize all the configuration issues and separate again signal from noise. So I'll, let Lee described but more about how you see that evolving but I think that will change the cast of characters who are going to win in cloud security in the future.

Speaker Change: Alright.

That's the biggest driver of improved security posture and improve a higher spend from <unk>.

Speaker Change: I think youre right. There is a consolidation let me spend less money for security and there. We are discovering is some more top down motion than it is a bottom up motion and as you're aware, we're expanding a lot of effort towards interacting with CIO and C level executives and actually we're spending a lot more time with our GSI partners trying to address that issue because.

Speaker Change: Yeah. Thanks, Nick.

Speaker Change: Thanks, Brian for the question.

Speaker Change: Picking up where no cash left off the you think about sort of end to end cloud security. There's the all of the work that goes into sort of the cloud posture side generates a lot of data and understanding about what what assets are deployed with workflows report, how theyre configured how they might be.

Speaker Change: They are typically involved in the transformation stage would say, let's take all of the stuff you put it together and replace it. So we're seeing early success.

Speaker Change: As I said, we should have done that sooner because when you sit across as you guys look do you have nine different products you could bundle. It together take it down have one management pain and you'll save a lot of cost because then they understand cause around ingesting data nine times across nine product, we're ingesting analyzing at nine times and giving them the outcomes. They want so I think the trend is in our favor as Rick.

Speaker Change: Boehner Bush susceptible to attack.

Speaker Change: And by connecting that with C. D. R. It allows us to both leverage that for better protection of the cloud workloads in real time, and vice versa. It allows us to leverage all the runtime runtime components back into posture from a remediation perspective, and so we initiated this earlier this year with the initial launch.

Speaker Change: Guards the incoming administration I think you know.

Speaker Change: Clearly a higher standard deviation.

Speaker Change: Of of Ctr, which basically connects Chris Macleod with cortex, and then since then we've been continuing to iterate on that and drive closer and closer integration between those two platforms.

Speaker Change: Administration by the sounds of it and highest elevation implies more risk and Morris implies, possibly a motor turn.

Speaker Change: Alright. Thank you Hamzah next up is Brian Essex from J P. Morgan followed by Joe Gallo from Jefferies Go ahead, Brian. Thanks.

Speaker Change: Great. Thank you.

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

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

Joe Gallo: Guys. Thanks for the question I think you could characterize cyber guidance broadly for calendar 14 was tepid at best but yet your <unk> guide calls for an acceleration in RPI when really strong IRR. So I mean, what are you seeing with budget flush or fad or pipeline, that's allowing you to kind of define the gravity that others are feeling thanks.

Brian Essex: And great to see the strong profitability and cash flow by the way.

Brian Essex: Wanted to ask about the integration between cortex, and cloud and wanted to understand.

Brian Essex: When did that kind of hit the market is it typically led by cortex or cloud.

Brian Essex: And how should we think about how that positions you competitively not just in the cloud security market, but across all of <unk>.

Speaker Change: Well I think we covered a lot of these Joe in our prepared remarks, I mean, we've got a product portfolio that we feel very proud of all we've just recently done.

Brian Essex: Stride to Prisma cortex segments of the business so.

Brian Essex: So look.

Speaker Change: IBM acquisition, where we have a lot of additional pipeline that's coming through.

Brian Essex: At a at a higher level.

Brian Essex: The cloud market is effectively right now three parts right. There's the entire configuration management part, which is the scene that part and posture management part there is the blocking real time threats and protecting enterprises part, which is the C. D. Our cloud detection response part and then there's a cloud net the network traffic.

Speaker Change: The pipe.

Speaker Change: That.

Speaker Change: And hopefully we've proven over the last few years that we have a forecasting process that we are we feel comfortable like manages the business. So I don't want to comment about others, but we really focus more on what we see and maybe.

Speaker Change: Maybe you'll come in as just proof positive that our plot for amortization strategies.

Brian Essex: We inspected for firewall perspective, we're clearly leaders in the network traffic part as we've talked about 70% of our use cases to our public facing you know a cloud service provider traffic.

Speaker Change: Working in a somewhat unique.

Speaker Change: Great. Thanks for the question Joe.

Speaker Change: Matt Hedberg go ahead go ahead, followed by Gregg Moscowitz after that.

Matt Hedberg: Thanks for taking my questions guys what stood out to me with the large deal success was striking and he spent a lot of time talking about platform innovation.

We are still one of the leaders in the snap space from.

From a from an early start in Prisma cloud, but what I think is going to happen in the next few years as market is going to shift more and more towards the the real time security side on cloud, which is where C. D. Our cloud Sox ixion become more and more important so almost every one of our rexam deals. There is a portion of that that is <unk>.

Q1 brings a whole another level to it could you talk about specifically on the <unk> side of it the Ngls. It really does seem like there is a next gen Sim replacement opportunity here and we've talked a lot about some of the competitors with Splunk can you talk about just what could what are some of the catalyst to get unlock some of these large replacement deals I know they take a long time, but I'm curious if there.

Brian Essex: Lloyd towards cloud security now.

Anything that you guys can do to accelerate that.

Speaker Change: But look we're very happy in two years since our going G E on X I am we're positively enthused about the progress we've made and we've crossed the billion dollars and they are in cortex sourcing larger and larger X I am deals we have 150 customers.

Lee: Yeah. Thanks, Nick.

As we mentioned we have a robust pipeline north of $1 billion. This was our fastest growing product in the history of cyber security at scale. The good news is you know there are two or three very interesting characteristics of the Sim market. If you look at the sub market, 90% of the Sims are of technology that is 10 to 15 years old when you go back and look at the.

Thanks, Brian for the question.

Lee: Picking up where no cash left off the if you think about sort of end to end cloud security. There's the all of the work that goes into sort of the cloud posture side generates a lot of data and understanding about what what assets are deployed with workflows report how they are configured how they might be.

Speaker Change: A history of what things are where the security at our logarithm.

Lee: <unk> susceptible to attack.

Lee: And by connecting that with C. D R.

Extra beam job sumo logic Splunk. These things are 10, 710 15 years old.

Allows us to both leverage that for better protection of the cloud workloads in real time, and vice versa. It allows us to leverage all the runtime cloud runtime components back into posture from a remediation perspective, and so we initiated this early this year with the initial launch of of Ctr, which basically connect.

Speaker Change: I think theres, a new breed of.

Speaker Change: Same players that is fast coming in to replace these legacy sense I think we're going to go through a sim replacement cycle that we went through the endpoint replacement cycle from Symantec and Mcafee to the xdr vendors I think it is a moment of Sim now for the next five years now Interestingly every same deal that we see where.

Lee: Chris Macleod with cortex, and then since then we've been continuing to iterate on that and drive closer and closer integration between those two platforms.

Speaker Change: We're able to deliver a much better security posture, and meantime, median time to remediate and detect which is better than the current deployment and we're able to save cost.

Great. Thank you.

Speaker Change: Great. Thanks, Brian next up Joe Gallo from Jefferies, followed by Matt Hedberg from RBC go ahead, Joe Hey, guys. Thanks for the question I think you could characterize cyber guidance broadly for calendar for Q is tepid at best but yet your <unk> guide calls for an acceleration in <unk> and really strong IRR. So I mean what are.

Speaker Change: So from a from a compelling proposition perspective. This is a no brainer income Jose I know, you're spending $10 million a year running your sock I can do it for nine I can consolidate and I can improve your median time to remediate from four days in many cases from 19 minutes to four hours.

Speaker Change: Are you seeing with budget flush or fad or pipeline, that's allowing you to kind of defied gravity that others are feeling thanks.

Speaker Change: So that's a compelling proposition.

Speaker Change: We are seeing tremendous amount of interest in the market. The we have created a compelling event in the case of Q radar customers, because they have to migrate to us or elsewhere, and we're seeing enough traction where people are considering palo alto instead. So I think the next two to five years, you will notice that the entire 20 billion Tam or Sam is going to go through.

Speaker Change: Well I think we covered a lot of these Joe in our prepared remarks, I mean, we've got a product portfolio that we feel very proud of all we've just recently done.

Speaker Change: IBM acquisition, where we have a lot of additional pipeline that's coming through.

Speaker Change: The pipe that that.

Speaker Change: <unk>.

Speaker Change: Great. Thanks for the question, Matt next up Gregg Moskowitz from Mizuho, followed by Rob Owens from Piper Sandler go ahead, Greg Great. Thanks for taking the question. The cash now that we're a few quarters into the platform <unk> go to market lets say get a little more of a flavor of how it's going is there an aspect are two of the.

Speaker Change: Maybe you'll come in this is proof positive that our plot for amortization strategies are working and it is somewhat unique.

Speaker Change: Great. Thanks for the question Joe.

Speaker Change: Strategy that's been most successful so far for example, if you were to look at traction with legacy trade ins versus introductory offers are more multi product incentives. What would you say has resonated the most with that with customers.

Hedberg go ahead go ahead, followed by Gregg Moscowitz after that.

Speaker Change: Thanks for taking my questions guys what stood out to me with the large deal success was striking and he spent a lot of time talking about platform innovation it seems like Q.

Thing that seems to resonate the most Greg is elimination of execution risk.

Speaker Change: Q1 brings a whole another level to it could you talk about specifically.

Speaker Change: On the same side of it the Ngls it really does seem like there is a next gen Sim replacement opportunity here and we've talked a lot about some of the competitors with Splunk can you talk about just what could what are some of the catalysts you can unlock some of these large replacement deals I know they take a long time, but I'm curious if there's anything that you guys can do to accelerate that.

And what I mean by that is when I go to a customer saying, okay. Let's go do this in a phased manner will replace your SaaS, you'll deploy safi for you and then phase two will come in and replace your firewalls. They like that if I say don't worry I'll start executing today and you can start paying me when you stop being the other vendor that's kind of that's linked to the Golden bear hug because the biggest risk to have his weight.

Speaker Change: But look we're very happy in two years since our going G E on X I am well.

Speaker Change: I have to go extend that other deal by one ear I guess, what that you're sending a signal to the other vendor you're out in the air. So the prices go up and I say don't worry about it let's start executing now or deployed you can pay me when the current contract expires, so that that eliminate some risk as designating the most again the.

Speaker Change: Positively enthused about the progress we've made and we've crossed $2 billion and they are in cortex sourcing larger and larger Siam deals. We have 150 customers and as we mentioned we have a robust pipeline north of $1 billion and this was our fastest growing product in the history of cyber security at scale. The good news is.

Speaker Change: Customers fully understand that we're going to get our pound a flash in the ear two or three of that deal. So they understand there is no free lunch, but eliminating that that that execution risk goes a long way I think be as I said to Hamzah and I said in our prepared remarks.

Speaker Change: There are two or three very interesting characteristics of the Sim market. If you look at the Sim market, 90% of the Sims are of technology that is 10 to 15 years old you could go back and look at the history of what things are worth as cure at our logarithm.

It really helps us step back and say like what are you trying to achieve and in many cases, we've been able to converge xdr in Sim Rfps for example, saying listen 50.

Beam Jive sumo logic Splunk. These things are 10, 710 15 years old.

Speaker Change: Theres, a new breed of Sim.

Speaker Change: 50% of data is going to go into xdr, which is gonna be one vendor that data is needed for AI based on machine learning based analysis across the entire stack why wouldnt you make sure that that data can be part of the same and be used to improve your posture and get better faster outcomes.

Thank you.

Speaker Change: Great. Thank you Gregg next question, Rob Owens from Piper Sandler followed by Gray Powell from BTG, Yeah. Thanks, Walter in the cash as part of your prepared remarks, I'd love for you to build on.

Speaker Change: <unk> to deliver a much better security posture, and meantime, median time to remediate them and detect which is better than the current deployment they were able to save cost.

Speaker Change: The data security and another one that's wholly grills alongside next generation Sim of courses is data that everybody is chasing so what youre seeing from end customers and I know you've made acquisitions of a DSP capability in the space, but how you see Palo altos evolution longer term relative to the data opportunity. Thanks, Rob This is Mike.

Speaker Change: So you talked about from a compelling proposition perspective. This is a no brainer it come in and say I know, you're spending $10 million a year running your sock I can do it for nine I can consolidate and I can improve your median time to remediate from four days in many cases from 19 minutes to four hours.

Speaker Change: So that's a compelling proposition.

Thanks for your question and I have to give to me otherwise.

Speaker Change: We are seeing tremendous amount of interest in the market.

It sounds good.

Speaker Change: We have created a compelling event in the case of Q radar customers, because they have to migrate to us or elsewhere, and we're seeing enough traction where people are considering palo alto instead. So I think the next two to five years, you will notice that the entire 20 billion Tam or Sam is going to go through upheaval.

Speaker Change: Thanks, Rob.

Speaker Change: The.

Speaker Change: If you take a step back data securities is a long standing sort of product category, that's all very painful.

Speaker Change: It's difficult to be accurate data classification is difficult to figure out what policies to enforce and it's difficult to do that holistically everywhere, the data might exist and need to be protected right.

Speaker Change: Great. Thanks for the question, Matt next up Gregg Moskowitz from Mizuho, followed by Rob Owens from Piper Sandler go ahead, Greg.

Speaker Change: So there's there's there's two pieces to our data security strategy.

Speaker Change: Great. Thanks for taking the question the cash now that we're a few quarters into the platform <unk> go to market lets say get a little more of a flavor of how it's going is there an aspect are two of the strategy. That's been most successful. So far for example, if you were to look at traction with legacy trade ins versus introductory offers or more multi product.

Speaker Change: <unk> seen us evolve first is around getting coverage of all the places where data might exist and improving the data classification capabilities.

Speaker Change: Within those so over the last six months, we've launched our AI based data classification, leveraging large language models machine learning models to get more and more accurate data classification being able to apply that to all different places where data can exist and move.

Speaker Change: Incentives what would you say has resonated the most with that with customers.

Speaker Change: Thing that seems to resonate the most Greg is elimination of execution risk.

Speaker Change: The second piece and very importantly is the tie in with Prisma access browser.

Speaker Change: And what I mean by that is when I go to a customer saying, okay. Let's go do this in a phased manner will replace your SaaS, you'll deploy safi for you and then phase two will come in and replace your firewalls. They like that if I say don't worry I'll start executing today and he could start paying me when you stop being the other vendor that's kind of.

Speaker Change: The way that users interact with data access and download a share. It is one of the highest risk areas for data security and historically, it's been very difficult to get all of the necessary context for enforcing an accurate policy.

Speaker Change: That's like the the Golden Bear hug because the biggest risk to have his weight I have to go extend that other deal by one ear I guess, what that you're sending a signal to the other vendor you're out in the air. So the prices go up and I say don't worry about it let's start executing now or deployed you can pay me when the current contract expires, so that that eliminate some risk is resonating the most again.

Speaker Change: Within the secure browser, we get all of the context needed.

Speaker Change: And what we're already seeing with the early adopters of Prisma access browser is the realization that this one component of what it does is effectively next gen data security.

Speaker Change: Ponant for how they secure data interaction with all of their employees and this is part of the.

Speaker Change: The customers fully understand that we're going to get our pound of flesh in the ear two or three of that deal. So they understand there is no free lunch, but eliminating that that that execution risk goes a long way I think the as I said to Hamzah and I said in our prepared remarks.

Speaker Change: Reason why the browsers is expanding from being primarily focused on unmanaged devices and third party contractors to actually being something that applies to all devices in all users across the entire enterprise.

Speaker Change: It really helps us step back and say like what are you trying to achieve and in many cases, we've been able to converge X D. R and Sim Rfps for example, saying listen 50.

Speaker Change: Great. Thanks, Rob for the question. There next up is Gray Powell from BTG, followed by Andy Nowinski from Wells Fargo Go ahead, great Alright, great.

Gray Powell: Thanks for letting me ask a question on the call I really appreciate it.

So after net I'm a little confused on the Ngls <unk> statistics, if I look at the numbers and back out the queue radar deal you added around $230 million in net new <unk> this quarter versus $2 70, a year ago metrics never been down on a year over year.

Speaker Change: Thank you.

Speaker Change: Great. Thank you Gregg next question, Rob Owens from Piper Sandler followed by Gray Powell from BTG, Yes. Thanks, Walter in the cashes as part of your prepared remarks, I'd love for you to build on.

Gray Powell: Basis before so is there something I'm missing or something with the acquisition that maybe I'm not thinking about or just like what was the driver there and then for the full year increase in Ngls Anr.

Speaker Change: The data security another one that's Holy Grails alongside next generation Sim of courses is data that everybody is chasing so what youre seeing from end customers I know you've made acquisitions of a DSP capability in the space, but how you see Palo altos evolution longer term relative to the data opportunity. Thanks, Rob This is Mike.

Speaker Change: How much of that is organic versus.

Speaker Change: Full visibility on the queue radar asset.

Speaker Change: So let me let me answer both questions. Let me just start off with <unk> was above our guidance. So some of this week, we already knew when we provided the guidance but.

<unk> for your question I have to give to me otherwise.

Speaker Change: Yeah.

Speaker Change: Some of the products that move into NDS.

Speaker Change: That sounds good.

Speaker Change: <unk> has also been the advanced versions of our cloud subscriptions from a year ago, So things that.

Rob Owens: Thanks, Rob.

Rob Owens: The but if you.

Take a step back data securities is a long standing sort of product category, that's often been very painful.

Attached to our firewall, where we've made them cloud enable some of that happened last year, which is what led to a lot of the increasingly are off we're now lapping that we're not so.

Rob Owens: It's difficult to be accurate data classification, it's difficult to figure out what policies to enforce and it's difficult to do that holistically everywhere, the data might exist and need to be protected right.

Speaker Change: So that's really the bigger explanation of the base we knew that that's why we included that in our guidance to begin with.

Rob Owens: So there's there's two pieces to our data security strategy.

Speaker Change: When it comes to what's happening with <unk>.

Speaker Change: With Q radar, we talked about the one time benefit our strategy is to convert all of the customers to X I am over time, we expect about.

Rob Owens: <unk> seen us evolve first is around getting coverage of all the places where data might exist and improving the data classification capabilities.

Speaker Change: Half of that to occur within this year. So we would expect maybe half of that.

Rob Owens: Within those so over the last six months, we've launched our AI based data classification, leveraging large language models machine learning models to get more and more accurate data classification being able to apply that to all different places where data can exist and move.

Speaker Change: Additional and GSA or ought to be there by the end of the year.

Speaker Change: The recast what Deepak said you have seen the peak in organic N D. S. Aero this quarter at $74 million or September from IBM and half of that we will migrate to us and we expect hustle that still stay on Q rock for through the end of this fiscal year. So there's no more net new and organic N D S L or expect.

Rob Owens: The second piece and very importantly is the tie in with Prisma access browser.

Rob Owens: The way that users interact with data access to download a share. It is one of the highest risk areas for data security and historically, it's been very difficult to get all of the necessary context for enforcing an accurate policy.

Speaker Change: This year.

Speaker Change: Understood. Okay. Thank you alright, great. Thanks, Greg next up Andy Nowinski from Wells Fargo, followed by a team of Bologna from Citi Go ahead Andy.

Rob Owens: Within the secure browser, we get all of the context needed.

Andy Nowinski: Great. Thank you good afternoon and great results. This afternoon I wanted to ask you about the Christmas assay.

Rob Owens: And what we're already seeing with the early adopters of person axis browser is the realization that this one component of what it does is effectively nextgen data security.

Andy Nowinski: You highlighted a number of.

Andy Nowinski: Large deals are either deployed SaaS or the expanded with SaaS and I know, it's bringing a lot of new customers, which is great. But I was wondering if you could provide an update on the growth of <unk> from that solution, whether those new customers, you're bringing into Palo alto onto the platform are coming at the expense of other vendors or those were they just not using any SaaS solution previously.

Rob Owens: Ponant for how they secure data interaction with all of their employees and this is part of the.

Rob Owens: Reason why the browsers is expanding from being primarily focused on unmanaged devices and third party contractors to actually being something that applies to all devices in all users across the entire enterprise.

Andy Nowinski: So how are you.

Speaker Change: All of the above there are some customers who are going through a network transformation and they're now replacing their legacy VPN VPN clients or other solutions they've had in the past in some cases, there are competitive vendors, who only had a internet proxy based.

Speaker Change: Great. Thanks, Rob for the question. There next up is Gray Powell from BTG, followed by Andy Nowinski from Wells Fargo go ahead, great Alright.

Gray Powell: Alright, great. Thanks for letting me ask a question on the call I really appreciate it.

Gray Powell: So afternoon I'm, a little confused on the Ngls <unk> statistics, if I look at the numbers and back out the queue radar deal you added around $230 million in net new <unk> this quarter versus $2 70, a year ago.

Speaker Change: Deployment with legacy VPN or in some cases about alto VPN, which is converting to a full subsea solution from us. So we see all variance of that as we said 40% of our net new logos to us which means they were not deploying a palo Alto V. P. M. They are deploying our SaaS solution.

Speaker Change: So we're seeing all of that I, just think the SaaS market as I said in the past is a fast growing market. We have clearly established ourselves as one of the top three players in the market I think if it were definitely growing faster than some of the other one is one more of the other property players in the market and we.

Gray Powell: And that metric has never been down on a year over year basis. Before so is there something I'm missing or something with the acquisition that maybe I'm not thinking about or just like what was the driver there and then for the full year increased in <unk>.

Speaker Change: That is organic versus.

Speaker Change: Full visibility on the queue radar asset.

Speaker Change: We particularly like the SaaS space because.

Speaker Change: So let me let me answer both and let me just start off with <unk> was above our guidance. So some of this week, we already knew when we provided the guidance but.

We're always innovating, providing new stuff as you know we basically as I said on my my remarks, we've made it available to every existing assay customers. They can deploy prisma access browser for the unused licenses. So they can actually experience the browser its integrated its the same management pain is the same UI, yeah. So I I guess feel positive about it.

Speaker Change:

Speaker Change: Some of the products that move into NDS.

Speaker Change: <unk> has also been the advanced versions of our cloud subscriptions from a year ago, So things that were.

Speaker Change: Attached to our firewall, where we've made them cloud enable some of that happened last year, which is what led to a lot of the increasingly a off we're now lapping that went up.

We haven't quite reached $1 billion out of the way, we told you, but we're looking forward to it.

Speaker Change: Thank you great. Thanks, Andy for a team of Bologna from cities up next and our last question will be from Roger Boyd from UBS Fatima go ahead. Thanks.

Speaker Change: So that's really the bigger explanation of the base, we knew that and that's why we included that in our guidance to begin with.

Speaker Change: So you could afternoon I appreciate you taking my questions.

When it comes to what's happening with <unk>.

Speaker Change: Yeah, I think the topic as you are going to definitely to radar and a lot of the momentum that you've been seeing and the 80 million.

Speaker Change: With Q radar, we talked about the one time benefit our strategy is to convert all of the customers to X I am over time, we expect about <unk>.

Speaker Change: Or more than $80 million of bookings that you've already seen in the short amount of time.

Speaker Change: I wanted to actually shift gears on is on the on premise side. The key radar business any catch some of your commentary, which I think can sell apropos there.

Speaker Change: Half of that to occur within this year. So we would expect maybe half of that.

Speaker Change: Additional and GSA or ought to be there by the end of the year.

Speaker Change: There is just a stodgy scale technology and instant market right. So that $500 million are standalone revenue.

Speaker Change: Great. Thank you Rick.

Speaker Change: Recast what Deepak said you have seen the peak in organic N D S air or this quarter at $74 million or September from IBM and half of that we will migrate to us and we expect hustle that still stay on Q rock for through the end of this fiscal year.

Speaker Change: It's just still captain in NICU radar on premise stage, what is your thought process or strategy to really forklift customers two degrees in X cyan and as you think about the arc of the next 12 to 24 mines.

Speaker Change: Oh, there's no more net new and organic N. G. S. A are expected this year.

Speaker Change: Understood. Okay. Thank you alright, great. Thanks, Greg next up Andy Nowinski from Wells Fargo, followed by a team of Bologna from Citi Go ahead Andy.

Speaker Change: How should we think about a multiplier effect on that business can't really gift cortex booster shot to have it potentially be your biggest killer.

Great. Thank you good afternoon and great results. This afternoon I wanted to ask you about the Christmas assay.

Speaker Change: Yeah for Teva I, Oh, we had our board meeting yesterday and one of my Board members and I had this debate about which deal is going to look like the bestial Palo Alto ever did and my bet is in the IBM deal he bet on the Talon deal.

Speaker Change: You highlighted a number of.

Speaker Change: Large deals that either deployed SaaS or the expanded with sassy and I know, it's bringing a lot of new customers, which is great. But I was wondering if you could provide an update on the growth of <unk> from that solution, whether those new customers, you're bringing into Palo alto onto the platform are coming at the expense of other vendors or those were they just not using any SaaS solution previously thank you.

Speaker Change: Of course, I like both of them to be equally successful, but specifically.

Speaker Change: Specifically as it relates to cure it our.

Speaker Change: Our teams are very focused since close we've called the top 500 customers and reached out to see if he can support the migration from <unk> to Palo Alto. This is irrespective of whether they have two rock or on Prem I mentioned, the $1 billion pipeline that $1 billion pipeline as a hybrid flight pipeline of both Q rock.

So any.

Speaker Change: All of the above there are some customers who are going through a network transformation and they are now replacing their legacy VPN VPN clients or other solutions they've had in the past in some cases, there are competitive vendors, who only had a internet proxy based.

And on Prem customers.

Speaker Change: The message is out there to on Prem customers that the technology, but also over time be migrated and I have to say IBM is doing a phenomenal job working with us.

Speaker Change: <unk> deployment with the legacy VPN or in some cases with Palo Alto VPN, which is converting to a full SaaS solution from us. So we see all variance of that as we said 40% of our net new logos to us which means they are not deploying a palo Alto V. P M. They're deploying our SaaS solution.

Speaker Change: And being proactive with those customers, where we go I had a call yesterday with the CIO or IBM and elsewhere together in the room or we're talking to the customers, saying they would provide the migration services they'll work on the on the migrating the rules from cured it or to Palo Alto X I am I willing to do it together so.

Speaker Change: So we're seeing all of that I, just think the SaaS market.

Speaker Change: In the past is a fast growing market, we have clearly established ourselves as one of the top three players in the market I think.

Speaker Change: It's it's we haven't done a partnership like this ever in history of our company I haven't seen one in the cyber security industry yet we.

Speaker Change: Growing faster than some of the other one is one more of the other property players in the market.

Speaker Change: And we particularly like the SaaS space because.

Speaker Change: We have a lot of expectations, but it is a lot of execution a lot a lot of hard work, it's not that's not going to happen because they snap my fingers, but our teams are focused we are dedicated we are trying to do that.

Speaker Change: We're always innovating, providing new stuff as you know, we basically as I said in my remarks, we've made it available to every existing assay customers. They can deploy prisma access browser for the unused licenses. So they can actually experienced a browser its integrated its the same management pain is the same UI yes.

Speaker Change: This will propel us into the top three Sim players in the market in the next two years.

Speaker Change: From nowhere, we did not play in this space two years ago.

Speaker Change: Thank you I appreciate that.

Last question, Roger Boyd to wrap it up go ahead, Roger Great. Thanks, Walter Deepak you noted that contract duration on new business remained constant at roughly three years can you comment on what youre seeing with renewal and upsell business in particular when customers renewing on our platform deals in adopting X Siam, which curious longer duration.

Speaker Change: I guess feel positive about it.

Speaker Change: We haven't quite reached $1 billion out of the way, we told you, but we're looking forward to it.

Speaker Change: Thank you.

Speaker Change: Thanks, Andy for a team of Bologna from cities up next and our last question will be from Roger Boyd from UBS Fatima go ahead.

Speaker Change: Thank you good afternoon I appreciate you taking my questions.

Speaker Change: I guess as we as we worked to gauge the success of some of these pop amortization deal shouldn't we expect to see contracts linked and as customers place more strategic bets on their platform.

Speaker Change: Yeah, I think the topic as you are going to definitely to radar and a lot of the momentum that you've been seeing.

Speaker Change: <unk> 80 million.

Speaker Change: Or more than $80 million of bookings that you've already seen in a short amount of time and what I wanted to actually shift gears on is on the on premise side of the key radar business any cash.

Yeah. So so so I think were onto itself.

Speaker Change: Thanks, a lot for the question look at the end of the day, where we're a large company with lots of different customers. We're definitely seeing the dynamic that you mentioned on some customers. We also see dynamics, where all the customers are saying look I know, there's a lot more innovations come let me go shorter duration on the renewals because that could be ahead of.

Speaker Change: Of your commentary, which I think can sell apropos.

Speaker Change: There is just yet stodgy scale technology and instant market right, so that 500 million or so of revenue.

Speaker Change: It is just still captain in NICU radar on premise days, what is does not process. The strategy to really forklift customers two degrees in X cyan and as you think about the arc of the next 12 to 24 mines.

Speaker Change: The large platform ization in the future. So we see a little bit of everything I think on the renewals just the data trended slightly up but nothing significant.

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

Speaker Change: Great. Thank you Roger and that'll end the Q&A I'll turn the call back over to Nick <unk> for his closing remarks.

How should we think about a multiplier effect on that business can't really give cortex booster shot to have it potentially be your biggest killer.

Nick: Thank you everyone. Once again for joining us as I said I'm very excited of our great start to FY 'twenty five.

Speaker Change: Yeah for Teva.

Nick: We look forward to seeing many of you at upcoming Investor events. I also want to thank all of our employees, who put a lot of hard work to help us deliver. These these amazing results also of course when in fact, all of our customers, suggesting in Palo Alto.

Speaker Change: And we had our board meeting yesterday and one of my Board members and I had this debate about which deal is going to look like the best deal Palo Alto ever did and my bet is in the IBM deal he bet on the Talon deal.

Nick: For delivering a cyber security solutions to them that have a wonderful day.

Speaker Change: Of course, I like both of them to be equally successful but.

Speaker Change: Specifically as it relates to cure it our art.

Speaker Change: I mentioned, the $1 billion pipeline that $1 billion pipeline as a hybrid life pipeline of both Q rock and on Prem customers.

Speaker Change: The message is out there to on Prem customers that this technology, but also over time be migrated and I have to say IBM is doing a phenomenal job working with us.

Speaker Change: And being proactive with those customers, where we go I had a call yesterday with the CIO or IBM and elsewhere together in the room or we're talking about the customers, saying they would provide the migration services they'll work on the on the migrating the rules from cured it or to Palo Alto X I am I willing to do it together so like.

Speaker Change: It's it's we haven't done a partnership like this ever in history of our company I haven't seen one in the cyber security industry yet.

Speaker Change: From nowhere, we did not play in this space two years ago.

I appreciate that.

Speaker Change: Last question, Roger Boyd to wrap it up go ahead Roger.

Roger Boyd: Thanks, Walter Deepak you noted that contract duration on new business.

Roger Boyd: <unk> constant roughly three years can you comment on what youre seeing with renewal and upsell business in particular when customers are renewing on our platform deals in adopting X Siam, which curious longer duration.

Speaker Change: So as we as we looked to gauge the success of some of these pop amortization deal shouldn't expect to see contract lengths and those customers.

Speaker Change: Place more strategic bets on your platform. Thanks, Yes.

So so so I think were onto itself.

Speaker Change: Thanks, a lot for the question look at the end of the day, where we're a large company with lots of different customers. We're definitely seeing the dynamic that you mentioned on some customers. We also see dynamics, where the customers are saying look I know, there's a lot more innovations come let me go shorter duration on the renewals because that could be ahead of the.

Speaker Change: Large <unk> in the future. So we see a little bit of everything I think on the renewals.

Speaker Change: The data trended slightly up but nothing significant.

Speaker Change: Got it Super helpful. Thank you.

Speaker Change: Great. Thank you Roger and that'll end the Q&A I'll turn the call back over to Nick <unk> for his closing remarks.

Speaker Change: Thank you everyone. Once again for joining us as I said I'm very excited of our great start to FY 'twenty five and we look forward to seeing many of you at upcoming Investor events. I also want to thank all of our employees, who put a lot of hard work to help us deliver these amazing results also of course when in fact, all of our customers, suggesting Palo Alto for.

Speaker Change: Delivering a cyber security solutions to them that have a wonderful day.

Q1 2025 Palo Alto Networks Inc Earnings Call

Request a DemoDemo

PANW

Palo Alto Networks

Earnings