Q2 2025 Palo Alto Networks Inc Earnings Call

February 13, 2025

It also introduces new risks with 85% of work happening in the browser and 90% of organizations, enabling the use of personal devices. The browser has become the epicenter of modern security challenges. How do you secure this new frontier the secure browser from Palo Alto networks, it's designed for the future with seamless sick.

<unk> brows bravely with AI aware protection for your users and your information blocking up to 30 billion attacks every day powered by precision AI. It's built for the modern edge securing work on 100% of your devices managed or not.

Welcome to the new world of secure connectivity.

Browsed for easily.

Yes.

Yeah.

Good day, everyone and welcome to Palo Alto networks second 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 Thursday February 13th 2025 at 130 P M Pacific time.

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

Speaker Change: You can find the press release and other information to supplement today's discussion on our website at investors <unk> Palo Alto networks Dot com, while there. Please click on the link for quarterly results to find the Q2 twenty-five supplemental information in the Q2 25 earnings presentation.

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

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

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

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

Speaker Change: This presentation contains non-GAAP financial measures and key metrics related to the company's past and expected future performance non.

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

Speaker Change: Unless specifically noted otherwise all results in comparisons are on a fiscal year over year basis, all per share figures have been adjusted for the two for one stock split that we announced November 20th 2024 and effective after the close of trading on December 12 2024.

Speaker Change: We also note that management is scheduled to participate in the Morgan Stanley Technology Media and Telecom conference this quarter.

Nick Kash: I will now turn the call over to Nick Kash. Thank you Walter Good afternoon, everyone and thank you for joining us today for our earnings call.

Speaker Change: I'm excited about our Q2 results our teams did a phenomenal job of executing at scale.

Speaker Change: Made considerable progress and plot for amortization, allowing us to outperform both our top and bottom line expectations for this quarter.

Speaker Change: We delivered on our high RVO expectations towards the top of the range. This gave us strength and our Engie S. A R. R. I also allowed us to outperform our revenue expectations.

Speaker Change: In Q2 growth was pretty broad across the entire portfolio with strength across all three geographies and platforms.

Speaker Change: In particular, we saw strong performance from large deals internationally and also strong contribution from sassy sulfur firewalls and X I am.

Speaker Change: On the profitability front, we delivered operating margins ahead of our internal target. Despite some one time events.

Speaker Change: Artificial initiatives continue to bear fruit, including some promising early contributions from AI.

Speaker Change: These results allow us to raise our operating margin and EPS guidance for the year.

Speaker Change: We're also very happy with our free cash flow performance and continue to be confident in managing our free cash flow guidance over the next few years as outlined.

[Company Representative] (Palo Alto Networks): Future. And with AI reshaping how we work, it also introduces new risks. With 85% of work happening in the browser and 90% of organizations enabling the use of personal devices, the browser has become the epicenter of modern security challenges. How do you secure this new frontier? The Secure Browser from Palo Alto Networks. It's designed for the future with seamless security. Browse bravely with AI-aware protection for your users and your information, blocking up to 30 billion attacks every day, powered by precision AI. It's built for the modern edge, securing work on 100% of your devices, managed or not. Welcome to the new world of secure connectivity. Browse bravely.

[Video Narrator 1]: Future. And with AI reshaping how we work, it also introduces new risks. With 85% of work happening in the browser and 90% of organizations enabling the use of personal devices, the browser has become the epicenter of modern security challenges. How do you secure this new frontier? The Secure Browser from Palo Alto Networks. It's designed for the future with seamless security. Browse bravely with AI-aware protection for your users and your information, blocking up to 30 billion attacks every day, powered by precision AI. It's built for the modern edge, securing work on 100% of your devices, managed or not. Welcome to the new world of secure connectivity. Browse bravely.

Speaker Change: More from Deepak on this later.

Speaker Change: From our vantage point the outlook for cyber security seems to have been robust in Q2 and is likely to stay so or the rest of this year.

Speaker Change: Despite the settling in process of the New administration, we see signs that we are going to be able to see reasonable growth through the rest of the year.

Speaker Change: As the conversation around AI continues to get omnipresent and companies race to evaluate experiment and deploy I, they're discovering that some of the legacy architectures coming the way of their aspirations. Interestingly. This is resulting in a resurgence of cloud transformation projects and consequently demand for network security and network transformation.

Speaker Change: While cybersecurity the derivative effect this clear the longer term trend towards AI is going to continue to underpin technology transformation that has continued to drive demand for security.

Walter Pritchard: Good day, everyone, and welcome to Palo Alto Networks' second 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, Thursday, 13 February 2025, at 1:30PM Pacific Time. With me on today's call to discuss second quarter results are Nikesh Arora, our Chairman and Chief Executive Officer, and Deepak Golechha, our Chief Financial Officer. Following our prepared remarks, Lee Klarich, our Chief Product Officer, will join us for the question-and-answer portion. You can find the press release and other information to supplement today's discussion on our website at investors.paloaltonetworks.com. While there, please click on the link for quarterly results to find the Q2 2025 supplemental information and the Q2 2025 earnings presentation. During the course of today's call, we will make forward-looking statements and projections regarding the company's business operations and financial performance.

Speaker Change: The transformation that are all geared to embedding AI capabilities across infrastructure. Additionally, many of them involve changing strategies towards data and a growing understanding the data security would be more and more important in the future.

Speaker Change: You see that from the heightened interest in data security posture management, where our acquisition of <unk> seems to be proving pre signed.

Speaker Change: To fully harness the power of AI customers must unshackle their data from disparate legacy systems and providers and open up broader access to lean into the cloud cloud.

Speaker Change: Cloud infrastructure is much more dynamic than on Prem I T, creating risks as cloud data volumes growing customers utilize new services from the cloud service providers, such as modern data repositories that doubling down in ensuring they are protecting their cloud environments from development to run time understanding who's accessing what data in the cloud and putting controls around these new services.

Walter Pritchard: These statements made today are subject to a number of risks and uncertainties that could cause our actual results to differ from those forward-looking statements. Please review our press release and recent SEC filings for a description of these risks and uncertainties. We assume no obligation to update any forward-looking statements made in the presentation today. This presentation contains non-GAAP financial measures and key metrics related 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 specifically noted otherwise, all results and comparisons are on a fiscal year-over-year basis.

These statements made today are subject to a number of risks and uncertainties that could cause our actual results to differ from those forward-looking statements. Please review our press release and recent SEC filings for a description of these risks and uncertainties. We assume no obligation to update any forward-looking statements made in the presentation today. This presentation contains non-GAAP financial measures and key metrics related 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 specifically noted otherwise, all results and comparisons are on a fiscal year-over-year basis.

Speaker Change: In other words, the cloud is becoming an integral part of the enterprise and at the same level of security must be delivered.

Speaker Change: Our goal is to be changing attack backdrop is also compounding. This inflection we have seen there are tangible signs that bad actors use AI to accelerate attacks. Google recently found that anniversaries can use generative either more rapidly create attacks, including custom payloads iterate a malicious scripts they use invasion techniques. Additionally that accurately using ginnie I.

Speaker Change: Due to record a sense off target organizations, including the infrastructure and hosting providers, which are often exploit isn't attacks.

Speaker Change: We have a new technological revolution that requires us to secure.

Speaker Change: As customers leverage the cloud transform on Prem infrastructure responded the escalating threat environment driven by AI, they're transforming how they managed security operations.

Walter Pritchard: All per-share figures have been adjusted for the two-for-one stock split that we announced 20 November 2024, and affected after the close of trading on 12 December 2024. We also note that management is scheduled to participate in the Morgan Stanley Technology Media and Telecom Conference this quarter. I will now turn the call over to Nikesh.

All per-share figures have been adjusted for the two-for-one stock split that we announced 20 November 2024, and affected after the close of trading on 12 December 2024. We also note that management is scheduled to participate in the Morgan Stanley Technology Media and Telecom Conference this quarter. I will now turn the call over to Nikesh.

Speaker Change: Legacy offerings cannot unify SEC ops across cloud and on Prem across multiple vendors and also take advantage of that.

Speaker Change: Yeah, it's key for providing automation to help stitch together or welding volumes of data and generate the near real time analysis of the remediation needed to keep pace.

Speaker Change: As I said securities a data problem and did it has to be all in one place for AI to have context and stop threats in their track.

Nikesh Arora: Thank you, Walter. Good afternoon, everyone, and thank you for joining us today for our earnings call. I'm excited about our Q2 results. Our team did a phenomenal job of executing at scale. We've made considerable progress in platformization, allowing us to outperform both our top and bottom line expectations for this quarter. We delivered on our high RPO expectations towards the top of the range. This gave us strength in our NGS ARR and also allowed us to outperform our revenue expectations. In Q2, growth was pretty broad across the entire portfolio, with strength across all three geographies and platforms. In particular, we saw strong performance from large deals internationally and also a strong contribution from SASE, Software Firewalls, and XIM. On the profitability front, we delivered operating margins ahead of our internal target despite some one-time events.

Speaker Change: Our India industrial has to change the paradigm by shifting from fragmentation of the block from Ization to enable the best security outcomes and.

Speaker Change: In a recent study we did with IBM platform as organizations take 72 days left to detect and 84 days less to container security incident.

Our teams are busy helping customers as they accelerate cloud adoption and transformation across their environments. They need integrated security products and platforms for AAV due to be most effective and staying out of active cyber security landscape.

Speaker Change: Oh, you're in we're pleased with our progress in driving our platform Ization strategy and the adoption endure an endorsement of our platform. In addition broadly across the industry.

Speaker Change: As I mentioned, a few quarters ago I wish we had made this move earlier, we're seeing some interesting behavior that reinforces our conviction that the future state of cyber security would have to be AI enabled platforms. They can markedly improves the speed of response.

Nikesh Arora: Our efficiency initiatives continue to bear fruit, including some promising early contributions from AI. These results allow us to raise our operating margin and EPS guidance for the year. We're also very happy with our free cash flow performance and continue to be confident in managing our free cash flow guidance over the next few years, as outlined. More from Deepak on this later. From our vantage point, the outlook for cybersecurity seems to have been robust in Q2 and is likely to stay so over the rest of this year. Despite the settling-in process of the new administration, we see signs that we are going to be able to see reasonable growth through the rest of the year.

Our efficiency initiatives continue to bear fruit, including some promising early contributions from AI. These results allow us to raise our operating margin and EPS guidance for the year. We're also very happy with our free cash flow performance and continue to be confident in managing our free cash flow guidance over the next few years, as outlined. More from Deepak on this later. From our vantage point, the outlook for cybersecurity seems to have been robust in Q2 and is likely to stay so over the rest of this year. Despite the settling-in process of the new administration, we see signs that we are going to be able to see reasonable growth through the rest of the year.

Speaker Change: We delivered approximately 75, new platform Ization in Q2 up from approximately 45 in the year ago.

Speaker Change: We now have a total of over 1100, 50, plus amortization within our top 5000 customers as you might expect most of our Black Friday, So start with network security and are from customers that our platform is in the one area. However, a number of two platform customers grew over 50% in Q2, and we're seeing a number of three platform customers up three times year over year.

Speaker Change: Also the number of customers Black Muslim cortex is up more than three times, reflecting a strong X XI and momentum.

Nikesh Arora: As the conversation around AI continues to get omnipresent and companies race to evaluate, experiment, and deploy AI, they're discovering that some of the legacy architectures come in the way of their aspirations. Interestingly, this is resulting in a resurgence of cloud transformation projects and consequently, demand for network security and network transformation. While cybersecurity is a derivative effect, it is clear that the longer-term trend towards AI is going to continue to underpin technology transformations that hence continue to drive demand for security. The transformations are all geared to embedding AI capabilities across infrastructure. Additionally, many of them involve changing strategies towards data and a growing understanding that data security will be more and more important in the future. We see that from the heightened interest in data security posture management, where our acquisition of Dig seems to be proving prescient.

As the conversation around AI continues to get omnipresent and companies race to evaluate, experiment, and deploy AI, they're discovering that some of the legacy architectures come in the way of their aspirations. Interestingly, this is resulting in a resurgence of cloud transformation projects and consequently, demand for network security and network transformation. While cybersecurity is a derivative effect, it is clear that the longer-term trend towards AI is going to continue to underpin technology transformations that hence continue to drive demand for security. The transformations are all geared to embedding AI capabilities across infrastructure. Additionally, many of them involve changing strategies towards data and a growing understanding that data security will be more and more important in the future. We see that from the heightened interest in data security posture management, where our acquisition of Dig seems to be proving prescient.

Speaker Change: We're excited to see the number of parts. We have had success driving studies so far in our Q2 performance keeps us on track to achieve our stated target of 25 to 3500 blocks organizations by fiscal year 'twenty three.

Speaker Change: Investors are always asked me what platform Ization deals look like so I wanted to provide a few example, based on deals we signed this quarter.

Speaker Change: Bank in Asia sign a transaction worth over $65 million in Q2 platform rising with us.

Speaker Change: For the first time on cortex is a significant X I am deployment.

Speaker Change: They have been leveraging xdr another cortex capability several years ago, We're also network security customer and accurate our customer.

Speaker Change: They had many point products their sock and we're not getting the outcomes they needed the limitations of the time discovering a new media security incidents, resulting in compliance issues.

Speaker Change: And black from Isaac on Cortex, LNG S Air with this customer increased by five times, so were $12 million area. We look forward to driving a successful deployment here, which can be an avenue was back from rising in network or cloud security in the future for this customer.

Nikesh Arora: To fully harness the power of AI, customers must unshackle their data from disparate legacy systems and providers and open up broader access and lean into the cloud. Cloud infrastructure is much more dynamic than on-prem IT, creating risk. As cloud data volumes grow and customers utilize new services from the cloud service providers, such as modern data repositories, they're doubling down and ensuring they're protecting their cloud environments from development to runtime, understanding who's accessing what data in the cloud and putting controls around these new services. In other words, the cloud is becoming an integral part of the enterprise, and the same level of security must be delivered. A constantly changing attack backdrop is also compounding this inflection we have seen. There are tangible signs that bad actors use AI to escalate attacks.

To fully harness the power of AI, customers must unshackle their data from disparate legacy systems and providers and open up broader access and lean into the cloud. Cloud infrastructure is much more dynamic than on-prem IT, creating risk. As cloud data volumes grow and customers utilize new services from the cloud service providers, such as modern data repositories, they're doubling down and ensuring they're protecting their cloud environments from development to runtime, understanding who's accessing what data in the cloud and putting controls around these new services. In other words, the cloud is becoming an integral part of the enterprise, and the same level of security must be delivered. A constantly changing attack backdrop is also compounding this inflection we have seen. There are tangible signs that bad actors use AI to escalate attacks.

Speaker Change: You asked me about the size of that transaction or $60 million does which include a review of its network security estate and expansion across our portfolio.

The customer Leverages, all three of our four form factor of a form factors within network security and is already platform is there. The deal also included cortex in Prisma cloud, which positions us well for future block for amortization this areas.

Speaker Change: Yes, they are here.

There were 40% of the last 12 months to over $11 million.

Speaker Change: The European automated automotive manufacturer signed a 25 million dollar transaction in Q2 there.

Speaker Change: They're already platform is with us in network security and cloud security that has several capabilities as it renewed their firewalls and support footprint, including Iot virtual firewalls and sassy.

Nikesh Arora: Google recently found that adversaries can use generative AI to more rapidly create attacks, including custom payloads, iterate on malicious scripts, and use evasion techniques. Additionally, bad actors are using GenAI to do reconnaissance of target organizations, including their infrastructure and hosting providers, which are often exploited in attacks. We have a new technological revolution that requires us to secure AI. As customers leverage the cloud, transform on-prem infrastructure, and respond to the escalating threat environment driven by AI, they're transforming how they manage security operations. Legacy offerings cannot unify SecOps across cloud and on-prem, across multiple vendors, and also take advantage of AI. AI is key for providing automation to help stitch together overwhelming volumes of data and generate the near real-time analysis and remediation needed to keep pace.

Google recently found that adversaries can use generative AI to more rapidly create attacks, including custom payloads, iterate on malicious scripts, and use evasion techniques. Additionally, bad actors are using GenAI to do reconnaissance of target organizations, including their infrastructure and hosting providers, which are often exploited in attacks. We have a new technological revolution that requires us to secure AI. As customers leverage the cloud, transform on-prem infrastructure, and respond to the escalating threat environment driven by AI, they're transforming how they manage security operations. Legacy offerings cannot unify SecOps across cloud and on-prem, across multiple vendors, and also take advantage of AI. AI is key for providing automation to help stitch together overwhelming volumes of data and generate the near real-time analysis and remediation needed to keep pace.

Speaker Change: This is a complex customer and we also secured business with them and cortex, Xdr, XOR and expense as well as Prisma cloud in doing so we are now well positioned in the future to consolidate the sock opportunities X I am well.

Speaker Change: This customer the NDS are are grew 50% to $9 million.

Speaker Change: More broadly than these anecdotes the growth in our large deals tells the story. We have 74 accounts that had transactions over $5 million in Q2 up 25% year over year and 32 accounts that had transactions there were $10 million.

Speaker Change: Up over 50%.

Speaker Change: Now moving on to an update about our first security platform network secure network.

Speaker Change: Our Q2 net take momentum was driven by strong software demand.

Nikesh Arora: As I said, security is a data problem, and the data has to be all in one place for AI to have context and stop threats in their tracks. Our industry has to change the paradigm by shifting from fragmentation to platformization to enable the best security outcomes. In a recent study we did with IBM, platformized organizations take 72 days less to detect and 84 days less to contain a security incident. Our teams are busy helping customers as they accelerate cloud adoption and transformation across their environments. They need integrated security products and platforms for AI to be most effective in staying ahead of this active cybersecurity landscape. A year in, we're pleased with our progress in driving our platformization strategy and the adoption and endorsement of platformization broadly across the industry. As I mentioned a few quarters ago, I wish we had made this move earlier.

As I said, security is a data problem, and the data has to be all in one place for AI to have context and stop threats in their tracks. Our industry has to change the paradigm by shifting from fragmentation to platformization to enable the best security outcomes. In a recent study we did with IBM, platformized organizations take 72 days less to detect and 84 days less to contain a security incident. Our teams are busy helping customers as they accelerate cloud adoption and transformation across their environments. They need integrated security products and platforms for AI to be most effective in staying ahead of this active cybersecurity landscape. A year in, we're pleased with our progress in driving our platformization strategy and the adoption and endorsement of platformization broadly across the industry. As I mentioned a few quarters ago, I wish we had made this move earlier.

Speaker Change: We continue to lead the market in network security, which are approximately 80% of our bookings.

Speaker Change: Our zero Trust platform combines see best of breed form factors built into consistent architecture.

Speaker Change: This is fast becoming a requirement as applications proliferate across data centers Hyperscale assassin leverage AI. Meanwhile, user increasingly distributed across headquarters remote locations or at home and other places and also there are now soon to be nonhuman users in the form of AI agents, who had interactions with applications must be secure.

Speaker Change: Disjointed network security offerings require significant resource to be applied to integration create.

Speaker Change: Creating the possibility of gaps in security policies, given the disparity of control planes and more importantly, unless we can harmonize the data across the network it will be challenging for customers to adopt AI enabled security capabilities in the future.

Speaker Change: I have to believe that in the future all solutions will need to integrate harmonize data and use that for training agents to solve security.

Nikesh Arora: We're seeing some interesting behavior that reinforces our conviction that the future state of cybersecurity will have to be AI-enabled platforms that can markedly improve the speed of response. We delivered approximately 75 new platformizations in Q2, up from approximately 45 in the year ago. We now have a total of over 1,150 platformizations within our top 5,000 customers. As you might expect, most of our platformizations start with network security and are from customers that are platformized in one area. However, our number of two-platform customers grew over 50% in Q2, and we're seeing our number of three-platform customers up 3x year over year. Also, the number of customers platformized in Cortex is up more than 3x, reflecting our strong XIM momentum.

We're seeing some interesting behavior that reinforces our conviction that the future state of cybersecurity will have to be AI-enabled platforms that can markedly improve the speed of response. We delivered approximately 75 new platformizations in Q2, up from approximately 45 in the year ago. We now have a total of over 1,150 platformizations within our top 5,000 customers. As you might expect, most of our platformizations start with network security and are from customers that are platformized in one area. However, our number of two-platform customers grew over 50% in Q2, and we're seeing our number of three-platform customers up 3x year over year. Also, the number of customers platformized in Cortex is up more than 3x, reflecting our strong XIM momentum.

Speaker Change: Looking deeper into firewall as a platform are bookings accelerated and grew by 21% within this we continue to see stable demand in the appliance market that stability, coupled with us continuing to take market share allowed us to grow our appliance bookings in the mid single digits.

Speaker Change: There is a refresh cycle coming from many players in the industry and we believe we are well positioned to benefit from it.

Speaker Change: Software and SaaS. The makeup across approximately two thirds of our firewall as a platform bookings and grew or one and a half times faster than the rate of the total firewall as a platform business.

Speaker Change: We have been on a multiyear journey to reinvent our security subscriptions, which he used consistently across all three form factors. Each of these advanced subscriptions are cloud delivered and we believe significantly differentiate with what's in the market.

Nikesh Arora: We're excited to see the number of parts we have had success driving strategies so far, and our Q2 performance keeps us on track to achieve our stated target of 25 to 3,500 platformizations by fiscal year 2030. Investors have always asked me what platformization deals look like. So I wanted to provide a few examples based on deals we signed this quarter. A bank in Asia signed a transaction worth over $65 million in Q2, platformizing with us for the first time on Cortex with a significant XIM deployment. They have been leveraging XDR and other Cortex capabilities several years ago. We're also a network security customer and a QRadar customer. They had many point products in their SOC and were not getting the outcomes they needed, with limitations in the time to discover and remediate security incidents resulting in compliance issues.

We're excited to see the number of parts we have had success driving strategies so far, and our Q2 performance keeps us on track to achieve our stated target of 25 to 3,500 platformizations by fiscal year 2030. Investors have always asked me what platformization deals look like. So I wanted to provide a few examples based on deals we signed this quarter. A bank in Asia signed a transaction worth over $65 million in Q2, platformizing with us for the first time on Cortex with a significant XIM deployment. They have been leveraging XDR and other Cortex capabilities several years ago. We're also a network security customer and a QRadar customer. They had many point products in their SOC and were not getting the outcomes they needed, with limitations in the time to discover and remediate security incidents resulting in compliance issues.

The living these incremental innovations into a platform like advanced subscription in the network security makes our customers' adoption seamless. This is quarter, Australia is staying ahead of our customer security needs with future proof innovation is also a win win for Palo Alto the customer.

Speaker Change: Next let's dive deeper into SaaS in a software firewall business.

grew by 21%. Within this, we continue to see stable demand on the appliance market. That stability coupled with us continuing to take market share allowed us to grow our appliance bookings in the mid to single digits.

Speaker Change: As customers transform their networks to keep pace with delivering first class security capabilities for remote users and branch offices, we continue to see demand for SaaS E. Mini CFC projects are large and comprehensive which is well suited to a rich offering.

Speaker Change: As he continues to be our fastest growing form factor in network security and a strong contributor to our growth. He goes IC customers by over 20%, while we grew bookings well north of 50% and increased deals over $1 million in value by two and a half times.

Nikesh Arora: In platformizing on Cortex, our NGS ARR with this customer increased by five times to over $12 million year over year. We look forward to driving a successful deployment here, which can be an avenue to platformizing network or cloud security in the future for this customer. A US municipality signed a transaction worth $60 million with us, which included renewal of its network security estate and expansion across our portfolio. The customer leverages all three of our form factors within network security and is already platformized there. The deal also included Cortex and Prisma Cloud, which positions us well for future platformization in these areas. Our NGS ARR here increased over 40% in the last 12 months to over $11 million. A European automotive manufacturer signed a $25 million transaction in Q2. They had already platformized with us in network security and cloud security.

In platformizing on Cortex, our NGS ARR with this customer increased by five times to over $12 million year over year. We look forward to driving a successful deployment here, which can be an avenue to platformizing network or cloud security in the future for this customer. A US municipality signed a transaction worth $60 million with us, which included renewal of its network security estate and expansion across our portfolio. The customer leverages all three of our form factors within network security and is already platformized there. The deal also included Cortex and Prisma Cloud, which positions us well for future platformization in these areas. Our NGS ARR here increased over 40% in the last 12 months to over $11 million. A European automotive manufacturer signed a $25 million transaction in Q2. They had already platformized with us in network security and cloud security.

Speaker Change: We now have over 50, 630 customers and over 22 million individuals seats.

Speaker Change: Across our asset base as well as our GP customers, we have been chosen to help protect our base of over 100 million users.

Speaker Change: Meanwhile, the drivers of us has the momentum or broadening.

Speaker Change: Bookings of newer modules of the sassy platform, such as autonomous digital experience man inventoried them cloud access security broker Gadsby Prisma access browser, which you just saw an AD for any eye access grew nearly fourfold this year.

Speaker Change: Customers are happy with the initial deployments of adding these to drive a more modern security environment and streamline their vendor landscape.

Nikesh Arora: They added several capabilities as they renewed their firewalls and support footprints, including IoT, virtual firewalls, and SASE. This is a complex customer, and we also secure business with them in Cortex with XDR, XO, and Xpanse, as well as Prisma Cloud. In doing so, we're now well positioned in the future to consolidate the SOC opportunity with XIM. For this customer, the NGS ARR grew 50% to $9 million. More broadly than these anecdotes, the growth in our large deals tells the story. We had 74 accounts that had transactions over $5 million in Q2, up 25% year over year, and 32 accounts that had transactions over $10 million, up over 50%. Now moving on to an update about our first security platform, NetSec. Our Q2 NetSec momentum was driven by strong software demand. We continue to lead the market in network security, which is approximately 80% of our bookings.

They added several capabilities as they renewed their firewalls and support footprints, including IoT, virtual firewalls, and SASE. This is a complex customer, and we also secure business with them in Cortex with XDR, XO, and Xpanse, as well as Prisma Cloud. In doing so, we're now well positioned in the future to consolidate the SOC opportunity with XIM. For this customer, the NGS ARR grew 50% to $9 million. More broadly than these anecdotes, the growth in our large deals tells the story. We had 74 accounts that had transactions over $5 million in Q2, up 25% year over year, and 32 accounts that had transactions over $10 million, up over 50%. Now moving on to an update about our first security platform, NetSec. Our Q2 NetSec momentum was driven by strong software demand. We continue to lead the market in network security, which is approximately 80% of our bookings.

Speaker Change: I'm, particularly excited about the momentum we're seeing with Prisma access browser.

Speaker Change: Roughly one third.

Speaker Change: The new Prisma access seats sold in the quarter.

Speaker Change: Therefore, our secure browser.

Speaker Change: We signed the transaction in Q2, four were north of $10 million with one customer.

Speaker Change: With a total of over $30 million in Prisma access browser bookings in Q2 and growing seats by 95% quarter over quarter.

Speaker Change: We also continued to innovate and sassy relieving the mobile version of our integrated a secure browser. This browser integrated Prisma access offers mobile phone and tablet uses the same robust security and access to private applications.

Speaker Change: We added capabilities to access and truly organizations can apply controls to how their users interact with the ibs applications, we cannot provide real time visibility into over 1800 applications up from 506 months ago.

Speaker Change: Yeah, I can access comes with out of the box policies to manage functions such as uploads downloads of trading capabilities.

Nikesh Arora: Our Zero Trust platform combines three best-of-breed form factors built on a consistent architecture. This is fast becoming a requirement as applications proliferate across data centers, hyperscalers, SaaS, and leverage AI. Meanwhile, users are increasingly distributed across headquarters, remote locations at home, and other places. And also, there are now soon to be non-human users in the form of AI agents, where interactions with applications must be secured. Disjointed network security offerings require significant resources to be applied to integration, creating the possibility of gaps in security policies given the disparity of control pains. And more importantly, unless we can harmonize the data across the network, it will be challenging for customers to adopt AI-enabled security capabilities in the future. We have to believe that in the future, all solutions will need to integrate, harmonize data, and use that to train AI agents to solve security.

Our Zero Trust platform combines three best-of-breed form factors built on a consistent architecture. This is fast becoming a requirement as applications proliferate across data centers, hyperscalers, SaaS, and leverage AI. Meanwhile, users are increasingly distributed across headquarters, remote locations at home, and other places. And also, there are now soon to be non-human users in the form of AI agents, where interactions with applications must be secured. Disjointed network security offerings require significant resources to be applied to integration, creating the possibility of gaps in security policies given the disparity of control pains. And more importantly, unless we can harmonize the data across the network, it will be challenging for customers to adopt AI-enabled security capabilities in the future. We have to believe that in the future, all solutions will need to integrate, harmonize data, and use that to train AI agents to solve security.

Speaker Change: In a short period of time this quarter, we crossed 300 customers who use the access capability.

Speaker Change: You can also provide comprehensive data protection to secure sensitive data of secrets and intellectual property.

Speaker Change: Now turning to soccer firewalls.

Speaker Change: This has been a strong area of growth, we saw 50% bookings growth in our software for our business with AI in public cloud adoption continuing to be the strongest driver of.

Approximately 70% of our VM deployments are now in the public cloud.

Speaker Change: We continue to see customers adopt our software firewall is alongside of hardware appliances as a testament to this about two thirds of our software for our customers are also harder for our customers showing the hybrid nature of the solution and the need for black for amortization.

Speaker Change: We also continue to innovate in this business early in Q2 really as our API based air on time security capability, which added the ability of our products directly secure applications without being in the traffic but.

Nikesh Arora: Looking deeper into Firewall as a platform, our bookings accelerated and grew by 21%. Within this, we continue to see stable demand in the appliance market. That stability, coupled with us continuing to take market share, allowed us to grow our appliance bookings in the mid-single digits. There's a refresh cycle coming for many players in the industry, and we believe we are well positioned to benefit from it. Software and SASE make up approximately 2/3 of our Firewall as a platform bookings and grew over 1.5 times faster than the rate of the total Firewall as a platform business. We have been on a multi-year journey to reinvent our security subscriptions, which we use consistently across all three form factors. Each of these advanced subscriptions is cloud-delivered, and we believe significantly differentiates with what's in the market.

Looking deeper into Firewall as a platform, our bookings accelerated and grew by 21%. Within this, we continue to see stable demand in the appliance market. That stability, coupled with us continuing to take market share, allowed us to grow our appliance bookings in the mid-single digits. There's a refresh cycle coming for many players in the industry, and we believe we are well positioned to benefit from it. Software and SASE make up approximately 2/3 of our Firewall as a platform bookings and grew over 1.5 times faster than the rate of the total Firewall as a platform business. We have been on a multi-year journey to reinvent our security subscriptions, which we use consistently across all three form factors. Each of these advanced subscriptions is cloud-delivered, and we believe significantly differentiates with what's in the market.

Speaker Change: Later in Q2, we leverage this capability to secure agents as many of our customers look forward towards the value propositions of agents.

We cross 300 customers who use the AI access capability. We can also provide comprehensive data protection to secure sensitive data secrets and intellectual property.

Speaker Change: But need to secure them.

Speaker Change: As they would need to secure any other user application.

Speaker Change: This capability helped drive our first seven figure firewall software firewall transaction for AI in the quarter and we have a healthy eight figure pipeline for AI firewalls for the future.

Now turning to software firewalls.

This has been a strong area of growth. We saw 50% bookings growth in our software follow-up business with AI and public cloud adoption continuing to be the strongest driver.

Speaker Change: Now moving onto cortex. This morning, we had an exciting announcement we.

Approximately 70% of our VM deployments are now in the public cloud. We continue to see customers adopt our software firewalls alongside our hardware appliances.

Speaker Change: We took our industry, leading prisma cloud platform evolved it with more capability merged it with our C. D argue ability and our cortex platform.

As a testament to this, about two-thirds of our software for our customers are also hardware for our customers.

Nikesh Arora: Delivering these incremental innovations into our platform, like advanced subscription and network security, makes our customers' adoption seamless. This is core to our strategy of staying ahead of our customers' security needs with future-proof innovation. It is also a win-win for Palo Alto and the customer. Next, let's dive deeper into SASE in our software firewall business. As customers transform their networks to keep pace with delivering first-class security capabilities for remote users and branch offices, we continue to see demand for SASE. Many SASE projects are large and comprehensive, which is well-suited to our rich offering. SASE continues to be our fastest-growing form factor in network security and a strong contributor to our growth. We grew SASE customers by over 20%, while we grew bookings well north of 50% and increased deals over $1 million in value by two and a half times.

Delivering these incremental innovations into our platform, like advanced subscription and network security, makes our customers' adoption seamless. This is core to our strategy of staying ahead of our customers' security needs with future-proof innovation. It is also a win-win for Palo Alto and the customer. Next, let's dive deeper into SASE in our software firewall business. As customers transform their networks to keep pace with delivering first-class security capabilities for remote users and branch offices, we continue to see demand for SASE. Many SASE projects are large and comprehensive, which is well-suited to our rich offering. SASE continues to be our fastest-growing form factor in network security and a strong contributor to our growth. We grew SASE customers by over 20%, while we grew bookings well north of 50% and increased deals over $1 million in value by two and a half times.

Speaker Change: To announce the introduction of cortex cloud.

showing the hybrid nature of the solution and the need for platformization.

Speaker Change: Codex loud and now the industry's first end to end cloud security platform with deeply integrates into the song.

We also continue to innovate in this business. Early in Q2, we released our API-based AI Runtime Security capability, which added the ability of our product to directly secure AI applications without being in a traffic path.

Speaker Change: As we have been delivering cloud security over time, we've learned that customers are keen to ensure that they can trace the cloud security capability all the way into run time to production and do real time security against Us.

Speaker Change: later in Q2. He leverages capability to secure AI agents as many of our customers look forward towards the value propositions of agents.

Speaker Change: We're also delivering a powerful data security a DSP them experience and real time security capability with our cloud agent.

Speaker Change: but need to secure them as they would need to secure any other user or application.

Speaker Change: All of this is now natively connected to the cortex platform.

Speaker Change: This capability helped drive our first 7-figure software firewall transaction for AI in the quarter, and we have a healthy 8-figure pipeline for AI firewalls for the future.

Speaker Change: This is where our cloud security is growing.

Speaker Change: We have anticipated the market changes and cloud security and is one reason for our momentum and leadership in this space.

Speaker Change: Recall that in our early days, we entered the cloud security market in 2018 with two acquisitions and continue to build up these capabilities binding.

Now moving on to Cortex.

Nikesh Arora: We now have over 5,600 SASE customers and over 23 million individual seats. Across our SASE base, as well as our GP customers, we have been chosen to help protect a base of over 100 million users. Meanwhile, the drivers of our SASE momentum are broadening. Bookings of newer modules of the SASE platform, such as Autonomous Digital Experience Management, or ADEM, Cloud Access Security Broker, or CASB, Prisma Access Browser, which you just saw an ad for, and AI Access grew nearly four-fold this year. Customers are happy with their initial SASE deployments, or adding these to derive a more modern security environment and streamline their vendor landscape. I'm particularly excited about the momentum we're seeing with Prisma Access Browser. Roughly 1/3 of the new Prisma Access seats we sold in the quarter were for our secure browser.

We now have over 5,600 SASE customers and over 23 million individual seats. Across our SASE base, as well as our GP customers, we have been chosen to help protect a base of over 100 million users. Meanwhile, the drivers of our SASE momentum are broadening. Bookings of newer modules of the SASE platform, such as Autonomous Digital Experience Management, or ADEM, Cloud Access Security Broker, or CASB, Prisma Access Browser, which you just saw an ad for, and AI Access grew nearly four-fold this year. Customers are happy with their initial SASE deployments, or adding these to derive a more modern security environment and streamline their vendor landscape. I'm particularly excited about the momentum we're seeing with Prisma Access Browser. Roughly 1/3 of the new Prisma Access seats we sold in the quarter were for our secure browser.

This morning, we had an exciting announcement.

Speaker Change: We took our industry-leading Prisma Cloud platform, evolved it with more capability, merged it with our CDR capability and our Cortex platform to announce the introduction of Cortex Cloud. Cortex Cloud is now the industry's first end-to-end cloud security platform which deeply integrates into the SOC.

Speaker Change: By entering the category and leading with our initial GARP posture capabilities. Soon after it became apparent that too many security issues of reaching production and organization could not keep up with it immediately the ones applications were deployed.

Speaker Change: We lead the trend shift left connecting this to the cloud posture to address security should be on the four deployment.

Speaker Change: A doctor's took note as customer deployment of mission critical applications sensitive data accelerated into the cloud or one unit at 42 research shows that 80% of security exposures are found in cloud attack surfaces.

Speaker Change: As we have been delivering Cloud security over time, we have learned that the customers are keen to ensure that they can trace the Cloud security capability all the way into runtime reproduction and do real-time security against this.

Speaker Change: 66% increase in threats targeting cloud environments.

Speaker Change: We're also delivering a powerful data security DSVM experience and real-time security capability for the cloud agent. Again, all of this is now natively connected to the Cortex platform.

Speaker Change: With these evolutions of the attack backdrop, we believe cloud security the security operations must be an extra could be linked existing prisma cloud customers have a seamless upgrade to cortex cloud to benefit from AI powered proposition automated remediation a new simplified powerful user experience. Additionally, they can also adopt cortex best in class C.

This is where cloud security is going.

Nikesh Arora: We signed a transaction in Q2 for over north of $10 million with one customer, with a total of over $30 million in Prisma Access Browser bookings in Q2 and growing seats by 95% quarter over quarter. We also continue to innovate in SASE, releasing the mobile version of our integrated secure browser. This browser, integrated with Prisma Access, offers mobile phone and tablet users the same robust security and access to private applications. We added capabilities to AI Access, ensuring organizations can apply controls to how their users interact with AI-based applications. We can now provide real-time visibility into over 1,800 applications, up from 500 six months ago. AI Access comes with out-of-the-box policies to manage functions such as uploads, downloads, and sharing capabilities. In a short period of time this quarter, we crossed 300 customers who use the AI Access capability.

We signed a transaction in Q2 for over north of $10 million with one customer, with a total of over $30 million in Prisma Access Browser bookings in Q2 and growing seats by 95% quarter over quarter. We also continue to innovate in SASE, releasing the mobile version of our integrated secure browser. This browser, integrated with Prisma Access, offers mobile phone and tablet users the same robust security and access to private applications. We added capabilities to AI Access, ensuring organizations can apply controls to how their users interact with AI-based applications. We can now provide real-time visibility into over 1,800 applications, up from 500 six months ago. AI Access comes with out-of-the-box policies to manage functions such as uploads, downloads, and sharing capabilities. In a short period of time this quarter, we crossed 300 customers who use the AI Access capability.

Speaker Change: We have anticipated the market change in cloud security and it's one reason for our momentum and leadership in this space.

Recall that in our early days

Speaker Change: We entered the cloud security market in 2018 with two acquisitions and continue to build up these capabilities.

Dr capability to gain real time cloud security capability.

Speaker Change: The unification of enterprise to cloud can further drive the adoption of X I am into the customer's cloud and Robyn codecs cloud natively integrated cloud data context, and workflows within cortex or time to significantly reduce the mean time to respond to monitor its a single unified Chekhov solution more importantly, because we are natively integrating cloud solutions Sock X.

Speaker Change: pioneering the category and leading with our initial car posture capabilities.

Speaker Change: Soon after, it became apparent that too many security issues were reaching production and organizations could not keep up with the remediation once applications were deployed.

Speaker Change: We led the trend to shift left, connecting this to the cloud posture to address security issues before deployment.

Speaker Change: Time has now transformed into both the cloud and enterprise.

Speaker Change: Attackers took note as customer deployment of mission-critical applications and sensitive data accelerated into the cloud. Our own Unit 42 research shows that 80% of security exposures are found in cloud attack services.

Speaker Change: We're excited about the prospects for us to maintain or accelerate our strong excellent momentum.

Speaker Change: Okay.

Speaker Change: As I mentioned, we are making this announcement the back of strong momentum in our cloud security and security ops business I won't give you some highlights.

There's a 66% increase in threats targeting cloud environments.

Nikesh Arora: We can also provide comprehensive data protection to secure sensitive data, secrets, and intellectual property. Now turning to software firewalls. This has been a strong area of growth. We saw 50% bookings growth in our software firewall business with AI and public cloud adoption continuing to be the strongest driver. Approximately 70% of our VM deployments are now in the public cloud. We continue to see customers adopt our software firewalls alongside our hardware appliances. As a testament to this, about 2/3 of our software firewall customers are also hardware firewall customers, showing the hybrid nature of the solution and the need for platformization. We also continue to innovate in this business. Early in Q2, we released our API-based AI runtime security capability, which added the ability for our product to directly secure AI applications without being in the traffic path.

We can also provide comprehensive data protection to secure sensitive data, secrets, and intellectual property. Now turning to software firewalls. This has been a strong area of growth. We saw 50% bookings growth in our software firewall business with AI and public cloud adoption continuing to be the strongest driver. Approximately 70% of our VM deployments are now in the public cloud. We continue to see customers adopt our software firewalls alongside our hardware appliances. As a testament to this, about 2/3 of our software firewall customers are also hardware firewall customers, showing the hybrid nature of the solution and the need for platformization. We also continue to innovate in this business. Early in Q2, we released our API-based AI runtime security capability, which added the ability for our product to directly secure AI applications without being in the traffic path.

Speaker Change: With these evolutions in the attack backdrop, we believe cloud security and security operations must be inextricably linked. Existing Prisma Cloud customers will have a seamless upgrade to Cortex Cloud to benefit from AI-powered prioritization, automated remediation, and new simplified powerful user experience.

Speaker Change: We drove bookings growth of approximately 50% in both cortex, and Prisma cloud in Q2, and cortex with healthy momentum with customer growth of approximately 20%.

Speaker Change: Fueling this customer growth, we again signed hundreds and the xdr customer in Q2.

Speaker Change: Additionally, they can also adopt Cortex's best-in-class CDR capability to gain real-time cloud security capability.

Speaker Change: Become opportunities for soft transformation on the broader cortex platform in the future.

Speaker Change: Our STR momentum continues to be fueled by the efficacy of our product. This quarter. We achieved further external recognition of this achieving the leadership results. The most recent micro tech evaluation.

Speaker Change: The unification of enterprise to cloud can further drive the adoption of XIM into the customer's cloud environment. Cortex Cloud natively integrates with cloud data, context, and workflows within Cortex XIM to significantly reduce the mean time to respond to modern threats with a single, unified, check-off solution. More importantly, because we are natively integrating cloud solutions with SOC, XIM has now transformed into both a cloud and enterprise center.

Speaker Change: X I am.

Speaker Change: Our AI driven cycles platform surpassed the $1 billion cumulative bookings milestone in Q2.

Speaker Change: While we know we have a winning product with Exxon, but we're also starting to see external validation of our leadership with Frost and Sullivan and deer, recognizing us as leaders in the same category.

Speaker Change: We're excited about the prospects for us to maintain or accelerate our strong XR momentum.

Nikesh Arora: Later in Q2, we leveraged this capability to secure AI agents, as many of our customers look forward towards the value propositions of agents but need to secure them as they would need to secure any other user or application. This capability helped drive our first seven-figure software firewall transaction for AI in the quarter, and we have a healthy eight-figure pipeline for AI firewalls for the future. Now moving on to Cortex. This morning, we had an exciting announcement. We took our industry-leading Prisma Cloud platform, evolved it with more capability, merged it with our CDR capability and our Cortex platform to announce the introduction of Cortex Cloud. Cortex Cloud is now the industry's first end-to-end cloud security platform, which deeply integrates into the SOC.

Later in Q2, we leveraged this capability to secure AI agents, as many of our customers look forward towards the value propositions of agents but need to secure them as they would need to secure any other user or application. This capability helped drive our first seven-figure software firewall transaction for AI in the quarter, and we have a healthy eight-figure pipeline for AI firewalls for the future. Now moving on to Cortex. This morning, we had an exciting announcement. We took our industry-leading Prisma Cloud platform, evolved it with more capability, merged it with our CDR capability and our Cortex platform to announce the introduction of Cortex Cloud. Cortex Cloud is now the industry's first end-to-end cloud security platform, which deeply integrates into the SOC.

Speaker Change: Contributing to our cortex trends in Q2 was over $100 million of jewelry that was related to bookings.

Speaker Change: As I mentioned, we are making this announcement on the back of strong momentum in our cloud security and security ops business. I want to give you some highlights.

Speaker Change: Our pipeline on crude I was equally strong, leaving us optimistic about our IBM partnership as a driver of cortex.

Speaker Change: We drove Pooking's growth of approximately 50% in both Cortex and Prisma Cloud in Q2.

Speaker Change: On the cloud side, we saw the adoption of our capabilities continues to broaden with D. S. P. M integrated Prisma cloud you've seen early adoption to be one of the strongest one of any of our new cloud security capabilities in the past.

Speaker Change: in Cortex. We had healthy momentum with customer growth of approximately 20%. Fueling this customer growth, we again signed hundreds of new XDR customers in Q2. It's become opportunities for SOC transformation on the broader Cortex platform in the future.

Speaker Change: We're excited to see the success continue with D. S. P M as part of the cortex cloud product, we announced this morning.

Speaker Change: We're also seeing particular success amongst some of the largest companies in strategic industries. For example, several SaaS companies signed significant cloud security deal with us in Q2.

Speaker Change: Our XTR momentum continues to be fueled by the efficacy of our product. This quarter, we achieved further external recognition of this, achieving the leadership results in the most recent MITRE ATT&CK evaluation.

Speaker Change: And this industry San was a top 10 SaaS companies outside of the cybersecurity leverage our cloud security capabilities to secure the customers' environment.

Speaker Change: XIM, our AI-driven psychos platform surpassed the $1 billion cumulative bookings milestone in Q2.

Speaker Change: As you can see.

Speaker Change: We saw strong momentum across the business in Q2, we're seeing customer imperatives around AI driving accelerated cloud adoption in infrastructure investment, which is supporting strong cybersecurity man.

Speaker Change: While we know we have a winning product with XIM, we are also starting to see external validation of our leadership with Frost and Sullivan and Omdea recognizing us as leaders in the SIEM category.

Nikesh Arora: As we have been delivering cloud security over time, we have learned that the customers are keen to ensure that they can trace the cloud security capability all the way into runtime and production, and do real-time security against this. We're also delivering a powerful data security DSPM experience and real-time security capability with a cloud agent. Again, all of this is now natively connected to the Cortex platform. This is where cloud security is going. We have anticipated the market changes in cloud security, and it's one reason for our momentum and leadership in the space. Recall that in our early days, we entered the cloud security market in 2018 with two acquisitions and continued to build up these capabilities, pioneering the category and leading with our initial cloud posture capabilities.

As we have been delivering cloud security over time, we have learned that the customers are keen to ensure that they can trace the cloud security capability all the way into runtime and production, and do real-time security against this. We're also delivering a powerful data security DSPM experience and real-time security capability with a cloud agent. Again, all of this is now natively connected to the Cortex platform. This is where cloud security is going. We have anticipated the market changes in cloud security, and it's one reason for our momentum and leadership in the space. Recall that in our early days, we entered the cloud security market in 2018 with two acquisitions and continued to build up these capabilities, pioneering the category and leading with our initial cloud posture capabilities.

This healthy spending backdrop and strong execution from our team of Black amortization helped drive the healthy top line trends you saw in Q2 across RPM O N G S here or in revenue.

Speaker Change: Contributing to our cortex strength in Q2 was over $100,000 and curated our related bookings.

Speaker Change: Our pipeline on QRadar is equally strong, leaving us optimistic about our IBM partnership as a driver of Cortex.

Speaker Change: We remain optimistic about sustaining this momentum as our sales teams leverage our ecosystem continue to become more adept at aligning our many capabilities into a unique platform a different journey for each customer, but remain confident in our long term and yesterday at our forecast.

On the cloud side...

we saw the adoption of our capabilities continue to broaden.

Speaker Change: But DSPM integrated Prisma Cloud is seen early adoption to one of the strongest one of any of our new cloud security capabilities in the past

Speaker Change: Supporting this is a steady innovation stream and momentum across our portfolio.

Speaker Change: We're excited to see this success continue with DSPM as part of the Cortex Cloud product we announced this morning.

Speaker Change: Leading early mover into new market categories like enterprise browser security high by design, the airpower sock that you're making easy for our customers our key new innovations.

Speaker Change: We're also seeing particular success among some of the largest companies in strategic industries.

for example.

Nikesh Arora: Soon after, it became apparent that too many security issues were reaching production, and organizations could not keep up with remediating them once applications were deployed. We led the trend to Shift Left, connecting this to the cloud posture to address security issues before deployment. Attackers took note as customer deployment of mission-critical applications and sensitive data accelerated into the cloud. Our own Unit 42 research shows that 80% of security exposures are found in cloud attack surfaces, with a 66% increase in threats targeting cloud environments. With these evolutions in the attack backdrop, we believe cloud security and security operations must be inextricably linked. Existing Prisma Cloud customers will have a seamless upgrade to Cortex Cloud to benefit from AI-powered prioritization, automated remediation, and new simplified, powerful user experience. Additionally, they can also adopt Cortex's best-in-class CDR capability to gain real-time cloud security capability.

Soon after, it became apparent that too many security issues were reaching production, and organizations could not keep up with remediating them once applications were deployed. We led the trend to Shift Left, connecting this to the cloud posture to address security issues before deployment. Attackers took note as customer deployment of mission-critical applications and sensitive data accelerated into the cloud. Our own Unit 42 research shows that 80% of security exposures are found in cloud attack surfaces, with a 66% increase in threats targeting cloud environments. With these evolutions in the attack backdrop, we believe cloud security and security operations must be inextricably linked. Existing Prisma Cloud customers will have a seamless upgrade to Cortex Cloud to benefit from AI-powered prioritization, automated remediation, and new simplified, powerful user experience. Additionally, they can also adopt Cortex's best-in-class CDR capability to gain real-time cloud security capability.

Speaker Change: several SaaS companies signed significant cloud security deals with us in Q2. In this industry, some of the top 10 SaaS companies outside of cybersecurity leverage their cloud security capabilities to secure their customers' environment.

Speaker Change: Platform approach lastly are driving profitable growth balancing operating margin improvements with strong cash flow. We continue to make progress in driving a culture of efficiency up all of that work and you've seen the results of this over the last few years.

As you can see,

Speaker Change: We saw strong momentum across the business in Q2. We're seeing customer imperatives around AI driving accelerated cloud adoption and infrastructure investment, which is supporting strong cybersecurity demand.

Speaker Change: This focus on efficiency and some early success in the Ibs initiatives gives us the confidence to continue delivering profitable growth.

Speaker Change: This healthy spending backdrop and strong execution from our team and platformization helped drive the healthy top line trends we saw in Q2 across RPO, NGS, ARR, and revenue.

Deepak: I will now pass onto Deepak for his remarks.

Thank you and our cash and good afternoon, everyone.

Speaker Change: To maximize our time is spent on Q&A I will provide you with highlights of Q2, you can review the results in our press release and the supplemental financial information on our website.

Speaker Change: We remain optimistic about sustaining this momentum as our sales teams leverage our ecosystem, continue to become more adept at aligning our many capabilities into a unique platformization journey for each customer. We remain confident in our long-term and GSAR forecast.

Speaker Change: In Q2 total revenue was $2.26 billion and grew 14% above the high end of our guidance.

Speaker Change: Supporting this is a steady innovation stream and momentum across our portfolio. We're leading early mover into new market categories like enterprise browser, secure AI by design, the AI-powered SOC, which are making it easy for our customers to adopt key new innovations with our platform approach. Lastly, we're driving profitable growth, balancing operating margin improvements with strong cash flow. We continue to make progress in driving a culture of efficiency at PowerApp Networks and you've seen the results of this over the last few years.

Speaker Change: Within revenue product revenue grew 8%, while total services revenue grew 16%.

Speaker Change: Drilling into total server.

Nikesh Arora: The unification of enterprise to cloud can further drive the adoption of XIM into the customer's cloud environment. Cortex Cloud natively integrates with cloud data, context, and workflows within Cortex XIM to significantly reduce the meantime to respond to modern threats with a single, unified SecOps solution. More importantly, because we are natively integrating cloud solutions with SOC, XIM has now transformed into both a cloud and enterprise SIM. We're excited about the prospects for us to maintain or accelerate our strong XIM momentum. As I mentioned, we are making this announcement on the back of strong momentum in our cloud security and security ops business. I want to give you some highlights. We drove bookings growth of approximately 50% in both Cortex and Prisma Cloud in Q2. In Cortex, we had healthy momentum with customer growth of approximately 20%.

The unification of enterprise to cloud can further drive the adoption of XIM into the customer's cloud environment. Cortex Cloud natively integrates with cloud data, context, and workflows within Cortex XIM to significantly reduce the meantime to respond to modern threats with a single, unified SecOps solution. More importantly, because we are natively integrating cloud solutions with SOC, XIM has now transformed into both a cloud and enterprise SIM. We're excited about the prospects for us to maintain or accelerate our strong XIM momentum. As I mentioned, we are making this announcement on the back of strong momentum in our cloud security and security ops business. I want to give you some highlights. We drove bookings growth of approximately 50% in both Cortex and Prisma Cloud in Q2. In Cortex, we had healthy momentum with customer growth of approximately 20%.

Speaker Change: This is revenue subscription revenue grew 20% and support revenue rose 8%.

Speaker Change: Our product revenue is approaching 40% software on a trailing 12 month basis.

Speaker Change: We expect healthy software contribution to product revenue in the second half of this year, which we expect will increase our product revenue into the double digit growth range.

Speaker Change: This focus on efficiency and some early success in AI-based initiatives gives us the confidence to continue delivering profitable growth. I will now pass on to Dipak for his remarks.

Speaker Change: We also saw stable demand for firewall appliances in Q2, which we expect to continue through fiscal 2025, that's the appliance market growth zero to 5% as we've previously discussed.

Thank you, Nikesh, and good afternoon, everyone.

Dipak: To maximize our time spent on Q&A, I will provide you with highlights of Q2. You can review the results in our press release and the supplemental financial information on our website.

Speaker Change: Moving on to geographies, we saw double digit revenue growth across all theaters with the Americas growing 13%.

Speaker Change: We're up 18% and Jay pipe growing 17% we.

Dipak: In Q2, total revenue was $2.26 billion and grew 14%, above the high end of our guidance.

Speaker Change: We were particularly encouraged by the volume of large deals we closed with some notable large deals in EMEA and Japan.

Nikesh Arora: Fueling this customer growth, we again signed hundreds of new XDR customers in Q2, which become opportunities for SOC transformation on the broader Cortex platform in the future. Our XDR momentum continues to be fueled by the efficacy of our product. This quarter, we achieved further external recognition of this, achieving the leadership results in the most recent MITRE ATT&CK evaluations. XIM, our AI-driven SecOps platform, surpassed the $1 billion cumulative bookings milestone in Q2. While we know we have a winning product with XIM, we're also starting to see external validation of our leadership, with Frost & Sullivan, and Omdia recognizing us as leaders in the SIEM category. Contributing to our Cortex strength in Q2 was over $100 million in QRadar-related bookings. Our pipeline on QRadar is equally strong, leaving us optimistic about our IBM partnership as a driver of Cortex.

Fueling this customer growth, we again signed hundreds of new XDR customers in Q2, which become opportunities for SOC transformation on the broader Cortex platform in the future. Our XDR momentum continues to be fueled by the efficacy of our product. This quarter, we achieved further external recognition of this, achieving the leadership results in the most recent MITRE ATT&CK evaluations. XIM, our AI-driven SecOps platform, surpassed the $1 billion cumulative bookings milestone in Q2. While we know we have a winning product with XIM, we're also starting to see external validation of our leadership, with Frost & Sullivan, and Omdia recognizing us as leaders in the SIEM category. Contributing to our Cortex strength in Q2 was over $100 million in QRadar-related bookings. Our pipeline on QRadar is equally strong, leaving us optimistic about our IBM partnership as a driver of Cortex.

Dipak: Within revenue, product revenue grew 8%, while total services revenue grew 16%.

Speaker Change: For example, we had our largest deals ever in both EMEA and APAC this quarter each in excess of $50 million.

Dipak: Drilling into total services revenue, subscription revenue grew 20% and support revenue rose 8%.

Speaker Change: That's noncash noted these deals demonstrate the broadening of our large deal success in North America to our international theaters.

Dipak: Our product revenue is approaching 40% software on a trailing 12-month basis.

Speaker Change: Also I know many investors have had questions about the U S federal market.

Dipak: We expect healthy software contribution to product revenue in the second half of this year, which we expect will increase our product revenue into the double-digit growth range.

Speaker Change: We have had prudent expectations in this market this year and we saw stable federal business in Q2.

Speaker Change: Much of our federal business is tied to renewals and existing programs with long standing funding.

Dipak: We also saw stable demand for firewall appliances in Q2, which we expect to continue through fiscal 2025, as the appliance market grows 0-5%, as we have previously discussed.

Speaker Change: During the quarter. We also received fed ramp high authorization across our network cloud and security operations platforms. We now have the most comprehensive suite of AI powered cyber security solutions authorized for use in federal networks at the high end pack level.

Dipak: Moving on to geographies, we saw double-digit revenue growth across all theaters, with the Americas growing 13%, EMEA up 18%, and JPAC growing 17%.

Nikesh Arora: On the cloud side, we saw the adoption of our capabilities continue to broaden. With DSPM integrated into Prisma Cloud, we've seen early adoption to be one of the strongest on any of our new cloud security capabilities in the past. We're excited to see this success continue with DSPM as part of the Cortex Cloud product we announced this morning. We're also seeing particular success among some of the largest companies in strategic industries. For example, several SaaS companies signed significant cloud security deals with us in Q2. In this industry, some of the top 10 SaaS companies outside of cybersecurity leverage our cloud security capabilities to secure their customers' environment. As you can see, we saw strong momentum across the business in Q2. We're seeing customer imperatives around AI driving accelerated cloud adoption and infrastructure investment, which is supporting strong cybersecurity demand.

On the cloud side, we saw the adoption of our capabilities continue to broaden. With DSPM integrated into Prisma Cloud, we've seen early adoption to be one of the strongest on any of our new cloud security capabilities in the past. We're excited to see this success continue with DSPM as part of the Cortex Cloud product we announced this morning. We're also seeing particular success among some of the largest companies in strategic industries. For example, several SaaS companies signed significant cloud security deals with us in Q2. In this industry, some of the top 10 SaaS companies outside of cybersecurity leverage our cloud security capabilities to secure their customers' environment. As you can see, we saw strong momentum across the business in Q2. We're seeing customer imperatives around AI driving accelerated cloud adoption and infrastructure investment, which is supporting strong cybersecurity demand.

Speaker Change: Total <unk> grew 21% $13 billion at the high end of our guided range. Our current our P. O grew 17% to $6 $1 billion.

Dipak: We were particularly encouraged by the volume of large deals we closed, with some notable large deals in EMEA and JPAC.

Dipak: For example, we have our largest deals ever in both EMEA and JPAC this quarter, each in excess of $50 million.

Speaker Change: The average duration of new contracts remains at approximately three years. It did trend towards the high end of our historical range in Q2 based on our performance in large part from Ization deals, particularly customers, making longer term commitments to X I am.

Dipak: As Nikesh noted, these deals demonstrate the broadening of our large deal success in North America to our international theaters.

Dipak: Also, I know many investors have had questions about the U.S. federal market.

Speaker Change: Our N G. S era again delivered strong growth growing 37%, finishing Q2 at 4.78 billion. Our Engie S. A R was driven by the strength across our advanced subscriptions sassy and cortex.

Dipak: We have had prudent expectations in this market this year, and we saw stable federal business in Q2. Much of our federal business is tied to renewals and existing programs with long-standing funding.

Speaker Change: Moving down the income statement gross margin of 76.6% was down slightly as we continued to see the impact of some of our newer SaaS offerings that are growing quickly, but have yet to achieve scale.

Dipak: During the quarter, we also received FedRAMP High Authorization across our network, cloud, and security operations platforms. We now have the most comprehensive suite of AI-powered cybersecurity solutions authorized for use in federal networks at the high-impact level.

Nikesh Arora: This healthy spending backdrop and strong execution from our team on platformization helped drive the healthy top-line trends we saw in Q2 across RPO, NGS, CRR, and revenue. We remain optimistic about sustaining this momentum as our sales teams leverage our ecosystem, continue to become more adept at aligning our many capabilities into a unique platformization journey for each customer. We remain confident in our long-term NGS, CRR forecast. Supporting this is a steady innovation stream and momentum across our portfolio. We're leading an early mover into new market categories like enterprise browser, secure AI by design, the AI-powered SOC, which are making it easy for our customers to adopt key new innovations with our platform approach. Lastly, we're driving profitable growth, balancing operating margin improvements with strong cash flow.

This healthy spending backdrop and strong execution from our team on platformization helped drive the healthy top-line trends we saw in Q2 across RPO, NGS, CRR, and revenue. We remain optimistic about sustaining this momentum as our sales teams leverage our ecosystem, continue to become more adept at aligning our many capabilities into a unique platformization journey for each customer. We remain confident in our long-term NGS, CRR forecast. Supporting this is a steady innovation stream and momentum across our portfolio. We're leading an early mover into new market categories like enterprise browser, secure AI by design, the AI-powered SOC, which are making it easy for our customers to adopt key new innovations with our platform approach. Lastly, we're driving profitable growth, balancing operating margin improvements with strong cash flow.

Speaker Change: Also we had some costs in Q2 related to inventory and product transitions that were higher than typical and we don't expect that that will recover in the second half of the year.

Thank you.

Dipak: Total RPO grew 21% to $13 billion at the high end of our guided range. Our current RPO grew 17% to $6.1 billion.

Speaker Change: It is worth noting we have been transitioning our contract manufacturing facility in Texas as our primary manufacturing and fulfillment center not only to enable scale and innovation in our appliances, but also to take advantage of a foreign trade zone that can help mitigate tariffs and products, we shipped to international destinations as we assemble and 19th.

Dipak: The average duration of new contracts remained at approximately three years. It did trend towards the high end of our historical range in Q2, based on our performance in large platformization deals, particularly customers making longer-term commitments to XIR.

Speaker Change: You all have a firewall appliance products in the U S.

Dipak: Our NGS ARR again delivered strong growth, growing 37%, finishing Q2 at 4.78 billion. Our NGS ARR was driven by the strength across our advanced subscriptions, SASE and Cortex.

Speaker Change: More broadly we continue to see efficiencies across the company as we focus on driving profitable growth. We saw operating expenses as a percentage of revenue decreased by 120 basis points as we benefited from scale in our business model and the initiatives as part of continuing to build a culture of efficiency.

Nikesh Arora: We continue to make progress in driving a culture of efficiency at Palo Alto Networks, and you've seen the results of this over the last few years. This focus on efficiency and some early success in AI-based initiatives gives us the confidence to continue delivering profitable growth. I will now pass on to Deepak for his remarks.

We continue to make progress in driving a culture of efficiency at Palo Alto Networks, and you've seen the results of this over the last few years. This focus on efficiency and some early success in AI-based initiatives gives us the confidence to continue delivering profitable growth. I will now pass on to Deepak for his remarks.

Dipak: Moving down the income statement, gross margin of 76.6% was down slightly as we continue to see the impact of some of our newer SaaS offerings that are growing quickly but have yet to achieve scale.

Speaker Change: We delivered 81 cents diluted non-GAAP EPS and diluted GAAP EPS of <unk> 38 cents continues to grow along with our overall profitability.

Walter Pritchard: Thank you, Nikesh, and good afternoon, everyone. To maximize our time spent on Q&A, I will provide you with highlights of Q2. You can review the results in our press release and the supplemental financial information on our website. In Q2, total revenue was $2.26 billion and grew 14%, above the high end of our guidance. Within revenue, product revenue grew 8%, while total services revenue grew 16%. Drilling into total services revenue, subscription revenue grew 20%, and support revenue rose 8%. Our product revenue is approaching 40% software on a trailing 12-month basis. We expect healthy software contribution to product revenue in the second half of this year, which we expect will increase our product revenue into the double-digit growth range.

Dipak Golechha: Thank you, Nikesh, and good afternoon, everyone. To maximize our time spent on Q&A, I will provide you with highlights of Q2. You can review the results in our press release and the supplemental financial information on our website. In Q2, total revenue was $2.26 billion and grew 14%, above the high end of our guidance. Within revenue, product revenue grew 8%, while total services revenue grew 16%. Drilling into total services revenue, subscription revenue grew 20%, and support revenue rose 8%. Our product revenue is approaching 40% software on a trailing 12-month basis. We expect healthy software contribution to product revenue in the second half of this year, which we expect will increase our product revenue into the double-digit growth range.

Dipak: Also, we had some costs in Q2 related to inventory and product transitions that were higher than typical and we don't expect that that will recur in the second half of the year.

Speaker Change: As a reminder, in the year ago period, we had a significantly positive impact to GAAP EPS from the large $1.5 billion release of tax valuation allowance that happened only in fiscal 'twenty 'twenty four.

Dipak: It is worth noting we have been transitioning our contract manufacturing facility in Texas as our primary manufacturing and fulfillment center, not only to enable scale and innovation in our appliances, but also to take advantage of our foreign trade zone that can help mitigate tariffs and products we ship to international destinations as we assemble and manufacture all of our firewall appliance products in the U.S.

Speaker Change: We generated adjusted free cash flow of over $509 million in Q2.

Speaker Change: On our balance sheet, you will see that balance came down by over $100 million and we continue to see early conversions of our convertible debt, which occurred at the discretion of the debtholders and was settled by us in cash and equity.

Dipak: More broadly, we continue to see efficiencies across the company as we focus on driving profitable growth. We saw operating expenses as a percentage of revenue decreased by 120 basis points as we benefited from scale in our business model and initiatives as part of continuing to build our culture of efficiency.

Speaker Change: Our remaining debt of just over $500 million matures in June 2025, Although we may continue to see some early conversions, we did not repurchase any shares in Q2 and our buyback strategy remains opportunistic we we have a $1 billion in authorization remaining through December 2025.

Walter Pritchard: We also saw stable demand for firewall appliances in Q2, which we expect to continue through fiscal 2025, as the appliance market grows 0% to 5%, as we have previously discussed. Moving on to geographies, we saw double-digit revenue growth across all theaters, with the Americas growing 13%, EMEA up 18%, and JPAC growing 17%. We were particularly encouraged by the volume of large deals we closed, with some notable large deals in EMEA and JPAC. For example, we had our largest deals ever in both EMEA and JPAC this quarter, each in excess of $50 million. As Nikesh noted, these deals demonstrate the broadening of our large deal success in North America to our international theaters. Also, I know many investors have had questions about the US federal market. We have had prudent expectations in this market this year, and we saw stable federal business in Q2.

We also saw stable demand for firewall appliances in Q2, which we expect to continue through fiscal 2025, as the appliance market grows 0% to 5%, as we have previously discussed. Moving on to geographies, we saw double-digit revenue growth across all theaters, with the Americas growing 13%, EMEA up 18%, and JPAC growing 17%. We were particularly encouraged by the volume of large deals we closed, with some notable large deals in EMEA and JPAC. For example, we had our largest deals ever in both EMEA and JPAC this quarter, each in excess of $50 million. As Nikesh noted, these deals demonstrate the broadening of our large deal success in North America to our international theaters. Also, I know many investors have had questions about the US federal market. We have had prudent expectations in this market this year, and we saw stable federal business in Q2.

Dipak: We delivered 81 cents of diluted non-GAP EPS and a diluted GAP EPS of 38 cents. Continues to grow along with our overall profitability. As a reminder, in the year ago period we had a significantly positive impact to GAP EPS from the large 1.5 billion dollar release of tax valuation allowance that happened only in fiscal 2024.

Nick Kash: As Nick has mentioned.

Nick Kash: We are pleased with the momentum we are seeing in our plot for amortization strategy and the outcome and driving our financial results.

Nick Kash: I wanted to update you on what we are seeing a year into this strategy.

Nick Kash: As you all know doubt remember, we announced that plot for monetization strategy a year ago.

Nick Kash: Over the last 12 months, we've learned from our success and adapted where it made sense.

Dipak: We generated adjusted free cash flow of over $509 million in Q2.

Nick Kash: We launched a number of structured sales programs that we highlighted to jumpstart This initiative.

Dipak: On our balance sheet, you will see that our debt balance came down by over $100 million as we continue to see early conversions of our convertible debt, which occurred at the discretion of the debt holders and was settled by us in cash and equity.

Nick Kash: Our goal was to remove friction both related to technology risk and budget challenges for the customer.

Nick Kash: We have now embedded these practices into how we do this business a.

Dipak: Our remaining debt of just over $500 million matures in June 2025, although we may continue to see some early conversions.

A year in we have seen both the industry rally around this approach as well as some of our key ecosystem partners also put significant resources behind plot for amortization.

Walter Pritchard: Much of our federal business is tied to renewals and existing programs with long-standing funding. During the quarter, we also received FedRAMP High authorization across our network, cloud, and security operations platforms. We now have the most comprehensive suite of AI-powered cybersecurity solutions authorized for use in federal networks at the high-impact level. Total RPO grew 21% to $13 billion at the high end of our guided range. Our current RPO grew 17% to $6.1 billion. The average duration of new contracts remained at approximately three years. It did trend towards the high end of our historical range in Q2, based on our performance in large platformization deals, particularly customers making longer-term commitments to XSIAM. Our NGS ARR again delivered strong growth, growing 37%, finishing Q2 at $4.78 billion. Our NGS ARR was driven by the strength across our advanced subscriptions, SASE, and Cortex.

Much of our federal business is tied to renewals and existing programs with long-standing funding. During the quarter, we also received FedRAMP High authorization across our network, cloud, and security operations platforms. We now have the most comprehensive suite of AI-powered cybersecurity solutions authorized for use in federal networks at the high-impact level. Total RPO grew 21% to $13 billion at the high end of our guided range. Our current RPO grew 17% to $6.1 billion. The average duration of new contracts remained at approximately three years. It did trend towards the high end of our historical range in Q2, based on our performance in large platformization deals, particularly customers making longer-term commitments to XSIAM. Our NGS ARR again delivered strong growth, growing 37%, finishing Q2 at $4.78 billion. Our NGS ARR was driven by the strength across our advanced subscriptions, SASE, and Cortex.

Dipak: We did not repurchase any shares in Q2 and our buyback strategy remains opportunistic. We have a billion dollars in authorization remaining through December 2025.

Nick Kash: This has helped leverage our own investments on the sales and marketing side and brings us closer to enterprise accounts with ecosystem partners have strong relationships.

As Nikesh mentioned...

Nick Kash: Many of our large plots of amortization deals athene pursued and closed with global system integrators with these joint successes partners collectively are putting more resources behind plot for amortization.

Nikesh: We are pleased with the momentum we are seeing in our platformization strategy and the outcome in driving our financial results.

Nikesh: I wanted to update you on what we are seeing a year into this strategy.

Nick Kash: When we initially announced part for amortization, we had piloted the program, helping us build conviction and our aggressive launch.

Nikesh: As you all no doubt remember, we announced our platformization strategy a year ago. Over the last 12 months, we've learned from our success and adapted where it made sense.

Nick Kash: Predating, our broad announcement some of our top reps will driving deals with the principles that embody pop amortization a.

Nikesh: We launched a number of structured sales programs that we highlighted to jumpstart this initiative.

Nick Kash: A year in we have seen rep participation significantly increase with approximately a third of our sales reps, having already participated in a new platform Ization deal win in the last 12 months since we launched our accelerated strategy.

Nikesh: Our goal was to remove friction both related to technology risk and budget challenges for the customer.

Nikesh: We have now embedded these practices into how we do business.

Nikesh: A year in, we have seen both the industry rally around this approach, as well as some of our key ecosystem partners also put significant resources behind platformization.

Nick Kash: Lastly, when we launched the program we had assumed that plot for amortization would enable us to increase our <unk> per customer.

Walter Pritchard: Moving down the income statement, gross margin of 76.6% was down slightly as we continued to see the impact of some of our newer SaaS offerings that are growing quickly but have yet to achieve scale. Also, we had some costs in Q2 related to inventory and product transitions that were higher than typical, and we don't expect that that will recur in the second half of the year. It is worth noting, we have been transitioning our contract manufacturing facility in Texas as our primary manufacturing and fulfillment center, not only to enable scale and innovation in our appliances but also to take advantage of our foreign trade zone that can help mitigate tariffs in products we ship to international destinations as we assemble and manufacture all of our firewall appliance products in the US.

Moving down the income statement, gross margin of 76.6% was down slightly as we continued to see the impact of some of our newer SaaS offerings that are growing quickly but have yet to achieve scale. Also, we had some costs in Q2 related to inventory and product transitions that were higher than typical, and we don't expect that that will recur in the second half of the year. It is worth noting, we have been transitioning our contract manufacturing facility in Texas as our primary manufacturing and fulfillment center, not only to enable scale and innovation in our appliances but also to take advantage of our foreign trade zone that can help mitigate tariffs in products we ship to international destinations as we assemble and manufacture all of our firewall appliance products in the US.

Nick Kash: As you can see in some of the large deal highlights in our cash coverage, we have seen success signing larger deals and further expanding our IRR and plot for my customers.

Nikesh: This has helped leverage our own investments on the sales and marketing side and brings us closer to enterprise accounts where ecosystem partners have strong relationships.

Nick Kash: As you can tell from both the tone in some of the details that we provided we are very happy with our progress here.

Nikesh: Many of our large platformization deals have been pursued and closed with global system integrators. With these joint successes, partners collectively are putting more resources behind platformization.

Nick Kash: I'll reiterate what the cash noted last quarter and earlier our biggest learning is that we should have made this move earlier.

Nikesh: When we initially announced platformization, we had piloted the program, helping us build conviction in our aggressive launch.

Nick Kash: Now turning to the bottom line.

Nick Kash: Our confidence in future operating margin expansion is rooted in our visibility to continued leverage across our P&L.

Nikesh: Predating our broad announcement, some of our top reps were driving deals with the principles that embody platformization.

Nick Kash: As the cash mentioned, we've seen some encouraging encouraging results from our AI based initiatives across multiple areas of the company that gives me greater confidence in their ability to drive leverage.

Nikesh: A year in, we have seen rep participation significantly increase, with approximately a third of our sales reps having already participated in a new platformization deal win in the last 12 months since we launched our accelerated strategy.

Nick Kash: I wanted to provide you with an update of some of these AI based initiatives and what we're seeing so far.

Walter Pritchard: More broadly, we continue to see efficiencies across the company as we focus on driving profitable growth. We saw operating expenses as a percentage of revenue decrease by 120 basis points as we benefited from scale in our business model and initiatives as part of continuing to build our culture of efficiency. We delivered $0.81 of diluted non-GAAP EPS, and our diluted GAAP EPS of $0.38 continues to grow along with our overall profitability. As a reminder, in the year-ago period, we had a significantly positive impact to GAAP EPS from the large $1.5 billion release of tax valuation allowance that happened only in fiscal 2024. We generated adjusted free cash flow of over $509 million in Q2.

More broadly, we continue to see efficiencies across the company as we focus on driving profitable growth. We saw operating expenses as a percentage of revenue decrease by 120 basis points as we benefited from scale in our business model and initiatives as part of continuing to build our culture of efficiency. We delivered $0.81 of diluted non-GAAP EPS, and our diluted GAAP EPS of $0.38 continues to grow along with our overall profitability. As a reminder, in the year-ago period, we had a significantly positive impact to GAAP EPS from the large $1.5 billion release of tax valuation allowance that happened only in fiscal 2024. We generated adjusted free cash flow of over $509 million in Q2.

Nick Kash: And the areas that we focus on we've seen meaningful efficiencies, which either manifest as lowest spending enabling us to drive incremental innovation or absorb expected increases in volume without additional spending.

Nikesh: Lastly, when we launched the program, we had assumed that platformization would enable us to increase our ARR per customer.

Nikesh: As you can see in some of the large deal highlights that Nikesh covered, we have seen success signing larger deals and further expanding our ARR in platformized customers.

Nick Kash: One of our first AI based initiatives was focused on our employees' facing processes in the past, we have leveraged contractors in various business processes and I T.

Nikesh: As you can tell from both the tone and some of the details that we've provided, we are very happy with our progress here.

Nick Kash: We are on track to reduce this contract labor by about 50% as we close out fiscal 2025, which was out directly and operating expense savings.

Now, turning to the bottom line.

Nikesh: Our confidence in future operating margin expansion is rooted in our visibility to continued leverage across our P&L.

Nick Kash: And our global customer support business, we've leveraged an internally developed co pilot to assisting case resolution.

Walter Pritchard: On our balance sheet, you will see that our debt balance came down by over $100 million as we continue to see early conversions of our convertible debt, which occurred at the discretion of the debt holders and was settled by us in cash and equity. Our remaining debt of just over $500 million matures in June 2025, although we may continue to see some early conversions. We did not repurchase any shares in Q2, and our buyback strategy remains opportunistic. We have a billion dollars in authorization remaining through December 2025. As Nikesh mentioned, we are pleased with the momentum we are seeing in our platformization strategy and the outcome in driving our financial results. I wanted to update you on what we are seeing a year into this strategy. As you all no doubt remember, we announced our platformization strategy a year ago.

On our balance sheet, you will see that our debt balance came down by over $100 million as we continue to see early conversions of our convertible debt, which occurred at the discretion of the debt holders and was settled by us in cash and equity. Our remaining debt of just over $500 million matures in June 2025, although we may continue to see some early conversions. We did not repurchase any shares in Q2, and our buyback strategy remains opportunistic. We have a billion dollars in authorization remaining through December 2025. As Nikesh mentioned, we are pleased with the momentum we are seeing in our platformization strategy and the outcome in driving our financial results. I wanted to update you on what we are seeing a year into this strategy. As you all no doubt remember, we announced our platformization strategy a year ago.

Nikesh: As Nikesh mentioned, we've seen some encouraging results from our AI-based initiatives across multiple areas of the company that give me greater confidence in this ability to drive leverage.

Nick Kash: So far we have seen our support co pilot used in about 85% of cases in network security, which is where we first rolled out this technology.

Nick Kash: We're seeing approximately 50% reduction in the time to resolve cases.

Nikesh: I wanted to provide you with an update of some of these AI-based initiatives and what we're seeing so far.

Nick Kash: This results in a better experience for our customers and also our team is being able to absorb more case volume, while adding less head count than in the past.

Nikesh: In the areas that we have focused on, we've seen meaningful efficiencies which either manifest as lower spending, enabling us to drive incremental innovation, or absorb expected increases in volume without additional spending.

Nick Kash: Lastly, we are deploying co pilot tools for all developers earlier and are seeing some exciting results. We've recently deployed the technology to all of our engineers.

Nikesh: One of our first AI-based initiatives was focused on our employee-facing processes.

Speaker Change: These and other initiatives that are still in the early stages.

Nikesh: In the past, we have leveraged contractors in various business processes in IT.

Speaker Change: Give us a consistent outcomes and that gives me more confidence confidence and confidence on the tangible benefits to our business, including our cost structure.

Speaker Change: Before I turn to guidance, we have a lot of questions about how we get comfortable with the sustainability of our cash generation given some of the transitions happening in our business.

Walter Pritchard: Over the last 12 months, we've learned from our success and adapted where it made sense. We launched a number of structured sales programs that we highlighted to jump-start this initiative. Our goal was to remove friction both related to technology risk and budget challenges for the customer. We have now embedded these practices into how we do business. A year in, we have seen both the industry rally around this approach as well as some of our key ecosystem partners also put significant resources behind platformization. This has helped leverage our own investments on the sales and marketing side and brings us closer to enterprise accounts where ecosystem partners have strong relationships. Many of our large platformization deals have been pursued and closed with global system integrators. With these joint successes, partners collectively are putting more resources behind platformization.

Over the last 12 months, we've learned from our success and adapted where it made sense. We launched a number of structured sales programs that we highlighted to jump-start this initiative. Our goal was to remove friction both related to technology risk and budget challenges for the customer. We have now embedded these practices into how we do business. A year in, we have seen both the industry rally around this approach as well as some of our key ecosystem partners also put significant resources behind platformization. This has helped leverage our own investments on the sales and marketing side and brings us closer to enterprise accounts where ecosystem partners have strong relationships. Many of our large platformization deals have been pursued and closed with global system integrators. With these joint successes, partners collectively are putting more resources behind platformization.

Nikesh: In our global customer support business, we've leveraged an internally developed co-pilot to assist in case resolution.

Speaker Change: We began to see an increase in deals with deferred payments in fiscal year 2022, and have seen a significant increase driven by larger transactions, particularly in our SaaS offerings over the last three and a half years.

Nikesh: So far, we have seen our support co-pilot used in about 85% of cases in network security, which is where we first rolled out this technology.

Speaker Change: As we've absorbed an increase in deferred payments our visibility into our free cash flow each year has increased.

Nikesh: This results in a better experience for our customers and also our team is being able to absorb more case volume while adding less headcount than in the past.

Speaker Change: In fiscal year 2024, when we entered the year with a $1 billion in deferred payments scheduled for the year that was 32% of our fiscal year 'twenty for adjusted free cash flow.

Nikesh: Lastly, we are deploying co-pilot tools for our developers earlier and are seeing some exciting results. We've recently deployed the technology to all of our engineers.

Speaker Change: This year that amount increased to $1 $4 billion and now visibly increased to 41% of our expected adjusted free cash flow.

Nikesh: These and other initiatives that are still in their early stages

Nikesh: give us consistent outcomes and that gives me more confidence on the tangible benefits to our business, including our cost structure.

Speaker Change: Looking forward, we expect to enter fiscal 2026 with $2 billion and deferred payments scheduled for the year.

Speaker Change: Further increasing our visibility into free cash flow in fiscal year 2026.

Walter Pritchard: When we initially announced platformization, we had piloted the program, helping us build conviction in our aggressive launch. Predating our broad announcement, some of our top reps were driving deals with the principles that embody platformization. A year in, we have seen rep participation significantly increase, with approximately 1/3 of our sales reps having already participated in a new platformization deal win in the last 12 months since we launched our accelerated strategy. Lastly, when we launched the program, we had assumed that platformization would enable us to increase our ARR per customer. As you can see in some of the large deal highlights that Nikesh covered, we have seen success signing larger deals and further expanding our ARR in platformized customers. As you can tell from both the tone and some of the details that we've provided, we are very happy with our progress here.

When we initially announced platformization, we had piloted the program, helping us build conviction in our aggressive launch. Predating our broad announcement, some of our top reps were driving deals with the principles that embody platformization. A year in, we have seen rep participation significantly increase, with approximately 1/3 of our sales reps having already participated in a new platformization deal win in the last 12 months since we launched our accelerated strategy. Lastly, when we launched the program, we had assumed that platformization would enable us to increase our ARR per customer. As you can see in some of the large deal highlights that Nikesh covered, we have seen success signing larger deals and further expanding our ARR in platformized customers. As you can tell from both the tone and some of the details that we've provided, we are very happy with our progress here.

Nikesh: Before I turn to guidance, we have a lot of questions about how we get comfortable with the sustainability of our cash generation given some of the transitions happening in our business.

Speaker Change: We've progressed substantially over the last several years through the transition of deferred payments. We've also spent significant time over the course of this year, ensuring that we're balancing this transition with other uses of cash and opportunities cash flow optimization.

Nikesh: We began to see an increase in deals with deferred payments in fiscal year 2022 and have seen a significant increase driven by larger transactions, particularly in our SAS offerings over the last three and a half years.

Speaker Change: Because our appliance bookings and smaller bookings predominantly are paid upfront and many of our large transactions already utilize deferred payments. We believe we can manage the trend towards more of a larger transaction bookings utilizing deferred payments as we have done over the last several years.

Nikesh: As we have absorbed an increase in deferred payments, our visibility into our free cash flow each year has increased.

Nikesh: In fiscal year 2024, when we entered the year with a billion dollars in deferred payments scheduled for the year, that was 32% of our fiscal year 2024 adjusted free cash flow.

Speaker Change: Consequently.

Speaker Change: Our expected increasing profitability as we scale and the financial dynamics give us improved confidence in our free cash flow generation.

Nikesh: This year, that amount increased to $1.4 billion and our visibility increased to 41% of our expected Adjusted Free Cash Flow.

Speaker Change: Our confidence holds for fiscal year 2025, we continue to expect 37, 38% adjusted free cash flow margin as well as our cash generation beyond this year. We are comfortable that we can generate adjusted free cash flow margins for fiscal year, 2026, and fiscal year, 2020 seven of greater than three.

Walter Pritchard: I'll reiterate what Nikesh noted last quarter and earlier. Our biggest learning is that we should have made this move earlier. Now, turning to the bottom line, our confidence in future operating margin expansion is rooted in our visibility to continued leverage across our P&L. As Nikesh mentioned, we've seen some encouraging results from our AI-based initiatives across multiple areas of the company that give me greater confidence in this ability to drive leverage. I wanted to provide you with an update of some of these AI-based initiatives and what we're seeing so far. In the areas that we have focused on, we've seen meaningful efficiencies, which either manifest as lower spending, enabling us to drive incremental innovation, or absorb expected increases in volume without additional spending. One of our first AI-based initiatives was focused on our employee-facing processes.

I'll reiterate what Nikesh noted last quarter and earlier. Our biggest learning is that we should have made this move earlier. Now, turning to the bottom line, our confidence in future operating margin expansion is rooted in our visibility to continued leverage across our P&L. As Nikesh mentioned, we've seen some encouraging results from our AI-based initiatives across multiple areas of the company that give me greater confidence in this ability to drive leverage. I wanted to provide you with an update of some of these AI-based initiatives and what we're seeing so far. In the areas that we have focused on, we've seen meaningful efficiencies, which either manifest as lower spending, enabling us to drive incremental innovation, or absorb expected increases in volume without additional spending. One of our first AI-based initiatives was focused on our employee-facing processes.

Nikesh: Looking forward we expect to enter fiscal 2026 with 2 billion in deferred payments scheduled for the year further increasing our visibility into free cash flow in fiscal year 2026.

We've progressed substantially over the

7%.

Nikesh: We've also spent significant time over the course of this year ensuring that we're balancing this transition with other uses of cash and opportunities for cash flow optimization.

Speaker Change: As a reminder, we do not guide free cash flow on a quarterly basis, and we do see getting you year fluctuations in our cash flow seasonality in fiscal year 2025 relative to prior years, we expect to see fluctuations and seasonality driven by the timing of deferred payments from customers the timing of bookings within the year.

Nikesh: Because our appliance bookings and smaller bookings predominantly are paid up front and many of our large transactions already utilize deferred payments, we believe we can manage the trend towards more of our larger transaction bookings utilizing deferred payments as we have done over the last several years.

Speaker Change: And the timing of cash tax payments. This year, we expect relative to the street that more of a free cash flow will come in Q4.

Nikesh: Consequently, our expected increasing profitability as we scale and these financial dynamics give us improved confidence in our free cash flow generation.

Speaker Change: With that let me turn to guidance.

Speaker Change: For fiscal year 2025, we expect N G S air ought to be in the range of 5.5 to the $5.57 billion, an increase of 31% to 32%.

Walter Pritchard: In the past, we have leveraged contractors in various business processes in IT. We are on track to reduce this contract labor by about 50% as we close out fiscal 2025, which will result directly in operating expense savings. In our global customer support business, we've leveraged an internally developed copilot to assist in case resolution. So far, we have seen our support copilot used in about 85% of cases in network security, which is where we first rolled out this technology. We're seeing approximately 50% reduction in the time to resolve cases. This results in a better experience for our customers and also our teams being able to absorb more case volume while adding less headcount than in the past. Lastly, we are deploying copilot tools for our developers earlier and are seeing some exciting results. We've recently deployed the technology to all of our engineers.

In the past, we have leveraged contractors in various business processes in IT. We are on track to reduce this contract labor by about 50% as we close out fiscal 2025, which will result directly in operating expense savings. In our global customer support business, we've leveraged an internally developed copilot to assist in case resolution. So far, we have seen our support copilot used in about 85% of cases in network security, which is where we first rolled out this technology. We're seeing approximately 50% reduction in the time to resolve cases. This results in a better experience for our customers and also our teams being able to absorb more case volume while adding less headcount than in the past. Lastly, we are deploying copilot tools for our developers earlier and are seeing some exciting results. We've recently deployed the technology to all of our engineers.

Nikesh: Our confidence holds for fiscal year 2025, where we continue to expect 37-38% adjusted free cash flow margin, as well as our cash generation beyond this year. We are comfortable that we can generate adjusted free cash flow margins for fiscal year 2026 and fiscal year 2027 of greater than 37%.

Speaker Change: Remaining performance obligation of 15.2 to $15 $3 billion, an increase of 19% to 20%.

Speaker Change: Revenue to be in the range of $9.14 billion to $9.19 billion, an increase of 14% opt.

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

Nikesh: As a reminder, we do not guide free cash flow on a quarterly basis and we do see year-to-year fluctuations in our cash flow seasonality. In fiscal year 2025 relative to prior years, we expect to see fluctuations in seasonality driven by the timing of deferred payments from customers, the timing of bookings within the year, and the timing of cash tax payments. So this year we expect, relative to the street, that more of our free cash flow will come in Q4.

Speaker Change: Diluted non-GAAP EPS to be in the range of 3.18 to $3 to $4, an increase of 12% to 14% and adjusted free cash flow margin in the range of 37% to 38%.

Speaker Change: For the third fiscal of 'twenty five we expect Engie S. A R ought to be in the range of $5.03 billion to $5.08 billion, an increase of 33% to 34%.

Speaker Change: Remaining performance obligation of 13.5 to $13 $6 billion, an increase of 19% to 20%.

With that, let me turn to guidance.

Nikesh: For fiscal year 2025, we expect NGS ARR to be in the range of 5.52 to 5.57 billion dollars, an increase of 31 to 32 percent.

Speaker Change: Revenue to be in the range of 2.26 to $2 $9 billion, an increase of 14% to 15% and diluted non-GAAP EPS to be in the range of 76 to 77 cents.

Walter Pritchard: These and other initiatives that are still in their early stages give us consistent outcomes, and that gives me more confidence on the tangible benefits to our business, including our cost structure. Before I turn to guidance, we have a lot of questions about how we get comfortable with the sustainability of our cash generation, given some of the transitions happening in our business. We began to see an increase in deals with deferred payments in fiscal year 2022 and have seen a significant increase driven by larger transactions, particularly in our SaaS offerings over the last three and a half years. As we have absorbed an increase in deferred payments, our visibility into our free cash flow each year has increased.

These and other initiatives that are still in their early stages give us consistent outcomes, and that gives me more confidence on the tangible benefits to our business, including our cost structure. Before I turn to guidance, we have a lot of questions about how we get comfortable with the sustainability of our cash generation, given some of the transitions happening in our business. We began to see an increase in deals with deferred payments in fiscal year 2022 and have seen a significant increase driven by larger transactions, particularly in our SaaS offerings over the last three and a half years. As we have absorbed an increase in deferred payments, our visibility into our free cash flow each year has increased.

Thank you.

Nikesh: Remaining performance obligation of $15.2 to $15.3 billion, an increase of 19 to 20 percent.

An increase of 15% to 17%.

Speaker Change: We've included our tripling the typical modeling points in the presentation for you to review before I turn back to Walter for Q&A, We all want more video.

Nikesh: Revenue to be in the range of $9.14 to $9.19 billion, an increase of 14%.

Nikesh: Operating margins to be in the range of 28 to 28.5 percent. Diluted non-GAAP EPS to be in the range of 3.18 to 3.24 dollars, an increase of 12 to 14 percent. An adjusted free cash flow margin in the range of 37 to 38 percent.

Speaker Change: When you think about the relationship between Palo Alto networks and cognizant. The word that comes to mind is strategic.

Speaker Change: We are a 20 billion dollar global technical services firm that employs over 340000 associates worldwide, we had disparate technologies across the environment. Our data was also very disjointed.

Nikesh: For the third fiscal of 2025, we expect NGS ARR to be in the range of $5.03 to $5.08 billion, an increase of 33 to 34 percent, remaining performance obligation of $13.5 to $13.6 billion, an increase of 19 to 20 percent.

Walter Pritchard: In fiscal year 2024, when we entered the year with $1 billion in deferred payments scheduled for the year, that was 32% of our fiscal year 2024 adjusted free cash flow. This year, that amount increased to $1.4 billion and our visibility increased to 41% of our expected adjusted free cash flow. Looking forward, we expect to enter fiscal 2026 with $2 billion in deferred payments scheduled for the year, further increasing our visibility into free cash flow in fiscal year 2026. We've progressed substantially over the last several years through the transition of deferred payments. We've also spent significant time over the course of this year ensuring that we're balancing this transition with other uses of cash and opportunities for cash flow optimization.

In fiscal year 2024, when we entered the year with $1 billion in deferred payments scheduled for the year, that was 32% of our fiscal year 2024 adjusted free cash flow. This year, that amount increased to $1.4 billion and our visibility increased to 41% of our expected adjusted free cash flow. Looking forward, we expect to enter fiscal 2026 with $2 billion in deferred payments scheduled for the year, further increasing our visibility into free cash flow in fiscal year 2026. We've progressed substantially over the last several years through the transition of deferred payments. We've also spent significant time over the course of this year ensuring that we're balancing this transition with other uses of cash and opportunities for cash flow optimization.

Speaker Change: Do we optimize our entire technology strategy through platforms nation.

Speaker Change: And to create a level of consistency across our entire enterprise so our ability to protect and defend goes up and the complexity to manage and maintain this technology. So we've improved when.

Nikesh: revenue to be in the range of 2.26 to 2.29 billion dollars, an increase of 14 to 15 percent, and diluted non-GAAP EPS to be in the range of 76 to 77 cents.

Speaker Change: When we look at the promise of what we're seeking for Cheyenne and where we're seeing the benefits is the ability to more effectively consolidate the visibility through all of that data and the ability to rapidly accelerate creating run books and use cases out of that data in order to drive our response in our decision, making and really.

an increase of 15 to 17 percent.

Speaker Change: We've included our typical modeling points in the presentation for you to review. Before I turn back to Walter for Q&A, we will roll one more video.

Speaker Change: Asian ship between Palo Alto networks, and cognizant is one that I get to see come into real life in terms of how we're going to transform and how we're re envisioning our entire security program.

Thank you. Thank you. Thank you.

Speaker Change: When I think about the relationship between Palo Alto Networks and Cognizant, the word that comes to mind is strategic. We are a $20 billion global technical services firm that employs over 340,000 associates worldwide.

Walter Pritchard: Because our appliance bookings and smaller bookings predominantly are paid upfront and many of our large transactions already utilize deferred payments, we believe we can manage the trend towards more of our larger transaction bookings utilizing deferred payments as we have done over the last several years. Consequently, our expected increasing profitability as we scale and these financial dynamics give us improved confidence in our free cash flow generation. Our confidence holds for fiscal year 2025, where we continue to expect 37% to 38% adjusted free cash flow margin, as well as our cash generation beyond this year. We are comfortable that we can generate adjusted free cash flow margins for fiscal year 2026 and fiscal year 2027 of greater than 37%. As a reminder, we do not guide free cash flow on a quarterly basis, and we do see year-to-year fluctuations in our cash flow seasonality.

Because our appliance bookings and smaller bookings predominantly are paid upfront and many of our large transactions already utilize deferred payments, we believe we can manage the trend towards more of our larger transaction bookings utilizing deferred payments as we have done over the last several years. Consequently, our expected increasing profitability as we scale and these financial dynamics give us improved confidence in our free cash flow generation. Our confidence holds for fiscal year 2025, where we continue to expect 37% to 38% adjusted free cash flow margin, as well as our cash generation beyond this year. We are comfortable that we can generate adjusted free cash flow margins for fiscal year 2026 and fiscal year 2027 of greater than 37%. As a reminder, we do not guide free cash flow on a quarterly basis, and we do see year-to-year fluctuations in our cash flow seasonality.

Speaker Change: Thank you.

Speaker Change: We ask in the Q&A that each analyst only ask one question. Our first question will come from socket Calia from Barclays followed by Hamzah, followed Wala for Morgan Stanley Socket go ahead.

Speaker Change: We had disparate technologies across the environment. Our data was also very disjointed.

Speaker Change: How do we optimize our entire technology strategy through platformization and to create a level of consistency across our entire enterprise? So our ability to protect and defend goes up and the complexity to manage and maintain this technology that we've improved.

Speaker Change: Okay, Great Hey, guys. Thanks for taking my question here and nice quarter, maybe a question for Nick cash and Deepak together.

Speaker Change: It's great to see free cash flow margins at 37% plus expected now through fiscal 'twenty seven the cash can you just maybe talk about some of the success youre seeing and driving better profitability and Deepak can you just maybe go one level deeper into other drivers of that free cash flow like the deferred payments.

Speaker Change: We look at the promise of what we're seeking for XIM and where we're seeing the benefits is the ability to more effectively consolidate the visibility through all that data and the ability to then rapidly accelerate creating run books and use cases out of that data in order to drive our response and our decisions.

Speaker Change: Yeah, I don't think it is a principal thank you for the question as Deepak highlighted that we're beginning to hit scale. As you see platform deals are actually a lot more efficient from a sales perspective, because the larger deals.

Speaker Change: See if you look at the types of care landscape. We're now clearly a large deal company compared to most of our competitors. So that definitely drives efficiencies for us from a scale perspective, if you look at any P&L in any enterprise business 50 to 60 per the P&L of the sales marketing and customer support if you can find efficiencies in that process, that's where leverage lies so you see.

Walter Pritchard: In fiscal year 2025, relative to prior years, we expect to see fluctuations in seasonality driven by the timing of deferred payments from customers, the timing of bookings within the year, and the timing of cash tax payments. But this year, we expect, relative to the street, that more of our free cash flow will come in Q4. With that, let me turn to guidance. For fiscal year 2025, we expect NGS ARR to be in the range of $5.52 to $5.57 billion, an increase of 31 to 32%. Remaining performance obligation of $15.2 to $15.3 billion, an increase of 19 to 20%. Revenue to be in the range of $9.14 to $9.19 billion, an increase of 14%. Operating margins to be in the range of 28 to 28.5%.

In fiscal year 2025, relative to prior years, we expect to see fluctuations in seasonality driven by the timing of deferred payments from customers, the timing of bookings within the year, and the timing of cash tax payments. But this year, we expect, relative to the street, that more of our free cash flow will come in Q4. With that, let me turn to guidance. For fiscal year 2025, we expect NGS ARR to be in the range of $5.52 to $5.57 billion, an increase of 31 to 32%. Remaining performance obligation of $15.2 to $15.3 billion, an increase of 19 to 20%. Revenue to be in the range of $9.14 to $9.19 billion, an increase of 14%. Operating margins to be in the range of 28 to 28.5%.

Thank you.

Speaker Change: We ask in the Q&A that each analyst only ask one question. Our first question will come from Saket Kalia from Barclays, followed by Hamza Fatarwalla from Morgan Stanley. Saket, go ahead.

Saket Kalia: Okay, great. Hey guys, thanks for taking my question here, and nice quarter. Maybe a question for Nikesh and Dipak together. You know, it's great to see free cashflow margins at 37% plus expected now through fiscal 27. Nikesh, can you just maybe talk about some of the success you're seeing in driving better profitability? And Dipak, can you just maybe go one level deeper into other drivers of that free cashflow, like the deferred payments?

Speaker Change: We've been improving our operating margins consistently now for over two and a half years, that's being driven from that efficiency lens. If you couple that with some of the early experiments we've shared on the AI front. We think this has tremendous potential in the future where.

Speaker Change: Enterprise companies should operate at a much higher operating margin in the future from now I'm not going to put a forecast just yet but I think the trend is our friend and that gives us tremendous comfort that we can underpin our performance with strong operating margins over the course next few years couple that with the the way depot kind of steam.

Yanozaki, first of all, thank you for the question.

as Dipak highlighted.

Like we're beginning to hit scale

Saket Kalia: As you see, platform deals are actually a lot more efficient from a sales perspective because the larger deals, you know, I think you can see, if you look at the cybersecurity landscape, we're now clearly a large deal company compared to most of our competitors. So that definitely drives efficiencies for us from a scale perspective. If you look at any P&L, in any enterprise business, 50 to 60% of the P&L is sales, marketing and customer support.

Speaker Change: We have been able to balance the deferred payment products, which you can talk about which as he said gives us tremendous amount of visibility and we feel confident that the range for the next few years is there and possibly higher after.

Walter Pritchard: Diluted non-GAAP EPS to be in the range of $3.18 to $3.24, an increase of 12% to 14%, and adjusted free cash flow margin in the range of 37% to 38%. For Q3 of fiscal 2025, we expect NGS ARR to be in the range of $5.03 to $5.08 billion, an increase of 33% to 34%. Remaining performance obligation of $13.5 to $13.6 billion, an increase of 19% to 20%. Revenue to be in the range of $2.26 to $2.29 billion, an increase of 14% to 15%, and diluted non-GAAP EPS to be in the range of $0.76 to $0.77, an increase of 15% to 17%. We've included our typical modeling points in the presentation for you to review. Before I turn back to Walter for Q&A, we will roll one more video.

Diluted non-GAAP EPS to be in the range of $3.18 to $3.24, an increase of 12% to 14%, and adjusted free cash flow margin in the range of 37% to 38%. For Q3 of fiscal 2025, we expect NGS ARR to be in the range of $5.03 to $5.08 billion, an increase of 33% to 34%. Remaining performance obligation of $13.5 to $13.6 billion, an increase of 19% to 20%. Revenue to be in the range of $2.26 to $2.29 billion, an increase of 14% to 15%, and diluted non-GAAP EPS to be in the range of $0.76 to $0.77, an increase of 15% to 17%. We've included our typical modeling points in the presentation for you to review. Before I turn back to Walter for Q&A, we will roll one more video.

Speaker Change: If I can just feel like.

Speaker Change: A lot of this is in the prepared remarks, but we've had a lot more visibility with a growing balance of deferred payments already in the past few years, there's parts of our business that are really never going to go to the first payments the smaller transactions that have a multi tier distribution network, where everybody wants to get paid upfront the appliance business whether it's in.

Saket Kalia: If you can find efficiencies in that process, that's where leverage lies. So you've seen we've been, you know, improving our operating margins consistently now for over two and a half years. That's being driven from that efficiency lens. If you couple that with some of the early experiments we've shared on the AI front, we think this has tremendous potential in the future where, you know,

History standard pay upfront.

Speaker Change: Daniel leftover with everything else and we've we've already made a significant transition already so there's not as much left to actually do look quite far along the journey, that's what gives us confidence and that's what I was.

Saket Kalia: Enterprise companies should operate a much higher operating margin in the future from now.

Saket Kalia: I'm not going to put a forecast just yet, but I think the trend is our friend. And that gives us tremendous comfort that we can underpin our performance with strong operating margins over the course of the next few years. Couple that with the way Dipak and his team have been able to balance the deferred payment products, which you can talk about, which, as you said, gives us tremendous amounts of visibility. And we feel confident that the range for the next few years is there and possibly higher after.

Speaker Change: It was meaning to convey in the prepared remarks.

Speaker Change: Very helpful. Thank you. Thank you socket next question is from Hamzah <unk> from Morgan Stanley followed by Brian Essex from J P. Morgan.

Walter Pritchard: When I think about the relationship between Palo Alto Networks and Cognizant, the word that comes to mind is strategic. We are a $20 billion global technical services firm that employs over 340,000 associates worldwide. We had disparate technologies across the environment. Our data was also very disjointed. How do we optimize our entire technology strategy through platformization and to create a level of consistency across our entire enterprise? So our ability to protect and defend goes up, and the complexity to manage and maintain this technology that we've improved. When we look at the promise of what we're seeking for XIM and where we're seeing the benefits, it's the ability to more effectively consolidate the visibility through all that data and the ability to then rapidly accelerate creating runbooks and use cases out of that data in order to drive our response and our decision-making.

[Video Narrator 2]: When I think about the relationship between Palo Alto Networks and Cognizant, the word that comes to mind is strategic. We are a $20 billion global technical services firm that employs over 340,000 associates worldwide. We had disparate technologies across the environment. Our data was also very disjointed. How do we optimize our entire technology strategy through platformization and to create a level of consistency across our entire enterprise? So our ability to protect and defend goes up, and the complexity to manage and maintain this technology that we've improved. When we look at the promise of what we're seeking for XIM and where we're seeing the benefits, it's the ability to more effectively consolidate the visibility through all that data and the ability to then rapidly accelerate creating runbooks and use cases out of that data in order to drive our response and our decision-making.

Hamzah: Alright, great. Thank you for taking my question and good evening.

Speaker Change: Because I had a bit of a.

Hamzah: Bigger picture question for you Palomar.

Speaker Change: Palo Alto.

Thank you for watching. Please subscribe to my channel.

Saket Kalia: If I can just build, Saket, like a lot of this is in the prepared remarks but we've had a lot more visibility with a growing balance of deferred payments already in the past few years.

Hamzah: I'll leave that to the others.

Hamzah: No I, obviously palo.

Hamzah: Palo Alto networks has been at the forefront of AI, whether it's AI for security operations when it comes to cortex or securing AI now with hubs.

Saket Kalia: There's parts of our business that are really never going to go to deferred payments, the smaller transactions that have a multi-tiered distribution network where everybody wants to get paid up front, the appliance business where it's industry standards pay up front.

Speaker Change: Dig in Prisma cloud.

Speaker Change: D C. It was it was a big moment for it for the AI trend in the market earlier. This year I'm curious what do you think this means for the proliferation of AI in general and how this impacts security and specifically Palo Alto networks.

Saket Kalia: Then you're left over with everything else and we've already made a significant transition already.

Saket Kalia: So, there's not as much left to actually do. We're quite far along the journey. That's what gives us confidence, and that's what I was meaning to convey in the prepared remarks.

Speaker Change: That's a very good question coming from you Hamzah.

Speaker Change: Not that I wouldn't expect that from here, but it's a great question look I think deep seek as a phenomenal pivotal moment for AI not just for us but across the industry. If you look at it across three parameters right. There's the question around quality is it as good as the models that people are using out there like open AI Gemini or Lama et cetera.

Speaker Change: Very helpful. Thank you. Thank you, Saket. Next question from Hamza Fadarwala from Morgan Stanley, followed by Brian Essex from J.P. Morgan.

Walter Pritchard: The relationship between Palo Alto Networks and Cognizant is one that I get to see come into real life in terms of how we're going to transform and how we're re-envisioning our entire security program. Thank you. We ask in the Q&A that each analyst only ask one question. Our first question will come from Saket Kalia from Barclays, followed by Hamza Fodderwala from Morgan Stanley. Socket, go ahead. Okay, great. Hey guys, thanks for taking my question here and nice quarter. Maybe a question for Nikesh and Deepak together. You know, it's great to see free cash flow margins at 37% plus expected now through fiscal 2027. Nikesh, can you just maybe talk about some of the success you're seeing in driving better profitability? And Deepak, can you just maybe go one level deeper into other drivers of that free cash flow like the deferred payments?

The relationship between Palo Alto Networks and Cognizant is one that I get to see come into real life in terms of how we're going to transform and how we're re-envisioning our entire security program.

Hamza Fadarwala: All right, great. Thank you for taking my question and good evening. Nikesh, I had a bit of a bigger picture question for you. Hey, do you want to order?

Walter Pritchard: Thank you. We ask in the Q&A that each analyst only ask one question. Our first question will come from Saket Kalia from Barclays, followed by Hamza Fodderwala from Morgan Stanley. Socket, go ahead.

Speaker Change: And at least if you read our the ratings out there it seems like it's equally good if not better for technical answers. It does better coding better math better physics. So it looks like for for sort of it has a better reasoning engine are out there. So that's interesting and then the next question if it comes in.

I'll leave that to the others.

Speaker Change: Obviously, you know, Palo Alto Network's been at the forefront of AI, whether it's AI for security operations when it comes to Cortex, or securing AI now with the

Saket Kalia: Okay, great. Hey guys, thanks for taking my question here and nice quarter. Maybe a question for Nikesh and Deepak together. You know, it's great to see free cash flow margins at 37% plus expected now through fiscal 2027. Nikesh, can you just maybe talk about some of the success you're seeing in driving better profitability? And Deepak, can you just maybe go one level deeper into other drivers of that free cash flow like the deferred payments?

Speaker Change: If it is so good at it's equally good you know what are the economics did they actually get it done for a lot cheaper now we can debate that and I don't know if you'd ever get to the bottom of it but what's interesting is today you pay 14 cents for about 1 million words.

Speaker Change: Dig and Prisma Cloud, you know, DeepSeek was it was a big moment For the AI trend in the market earlier this year. I'm curious What do you think this means for the proliferation of AI in general and how this impacts security and specifically Palo Alto Networks? That's a very good question coming from you Hamza Not that I wouldn't expect that from you, but it's a great question Look, I think DeepSeek is a phenomenal pivotal moment for AI not just for us but across the industry

Speaker Change: And you paid $7.50 for every other model.

Walter Pritchard: Yeah, no, Saket, as principal, thank you for the question. As Deepak highlighted, we're beginning to hit scale. As you see, platform deals are actually a lot more efficient from a sales perspective because the larger deals, you know, I think if you look at the cybersecurity landscape, we're now clearly a large deal company compared to most of our competitors. So that definitely drives efficiencies for us from a scale perspective. If you look at any P&L in any enterprise business, 50% to 60% of P&L is sales, marketing, and customer support. If you can find efficiencies in that process, that's where the leverage lies. So you've seen we've been, you know, improving our operating margins consistently now for over two and a half years. That's being driven from that efficiency lens.

Nikesh Arora: Yeah, no, Saket, as principal, thank you for the question. As Deepak highlighted, we're beginning to hit scale. As you see, platform deals are actually a lot more efficient from a sales perspective because the larger deals, you know, I think if you look at the cybersecurity landscape, we're now clearly a large deal company compared to most of our competitors. So that definitely drives efficiencies for us from a scale perspective. If you look at any P&L in any enterprise business, 50% to 60% of P&L is sales, marketing, and customer support. If you can find efficiencies in that process, that's where the leverage lies. So you've seen we've been, you know, improving our operating margins consistently now for over two and a half years. That's being driven from that efficiency lens.

Speaker Change: So it's 2% of the cost of every other model now.

Speaker Change: That's driving experimentation I have talked to him and he says Ceos recently and everybody is experimenting so are we to see if deep sea can deliver that degree of performance and the third question. If I'm looking right. Now this has come from a nation state maybe from somewhere where we don't want to trust. The model you got to figure out how security alert.

And if you look at it across three parameters, right?

Speaker Change: There's the question around quality. Is it as good as the models that people are using out there like OpenAI, Gemini or Lama, etc?

and at least if you read.

Speaker Change: Any AI model that is going to be used by enterprises will be used in a <unk>.

Speaker Change: The ratings out there it seems like it's equally good if not better for technical answers It does better coding better math better physics

Speaker Change: Sequestered fashion, either on Prem or in your own cloud instance, require AI firewalls around it.

Speaker Change: So, it looks like it has a better reasoning engine out there. So, that's interesting. Then the next question becomes great. If it's equally good, what are the economics? Did they actually get it done for a lot cheaper? Now, we can debate that, and I don't know if you'll ever get to the bottom of it. But what's interesting is, today, you pay 14 cents for about a million words.

Speaker Change: If you can guarantee that your data doesn't get out of that sequestered sort of.

Speaker Change: Space and if you can guarantee that you can put guardrails around the model I think you'll see a lot more experimentation. So from that perspective I was gonna pivotal my recommendation to every enterprise out there is to make sure you don't deploy I without running firewalls around it makes sure don't deploy on a multi tenant environment, but I think this is great for AI.

Walter Pritchard: If you couple that with some of the early experiments we've shared on the AI front, we think this has tremendous potential in the future where enterprise companies should operate at a much higher operating margin in the future from now. I'm not going to put a forecast just yet, but I think the trend is our friend. And that gives us tremendous comfort that we can underpin our performance with strong operating margins over the course of the next few years. Couple that with the way Deepak and his team have been able to balance the deferred payment products, which you can talk about, which as you said, gives us tremendous amounts of visibility. And we feel confident that the range for the next few years is there and possibly higher after.

If you couple that with some of the early experiments we've shared on the AI front, we think this has tremendous potential in the future where enterprise companies should operate at a much higher operating margin in the future from now. I'm not going to put a forecast just yet, but I think the trend is our friend. And that gives us tremendous comfort that we can underpin our performance with strong operating margins over the course of the next few years. Couple that with the way Deepak and his team have been able to balance the deferred payment products, which you can talk about, which as you said, gives us tremendous amounts of visibility. And we feel confident that the range for the next few years is there and possibly higher after.

Speaker Change: Hum.

Speaker Change: Well look.

Speaker Change: Any technology is great for security because they need technology requires you to put more security around it.

and you pay $7.50 for every other model.

So it's 2% of the cost of every other model.

Speaker Change: Great. Thank you Hamzah. Our next question is coming from Brian Essex at J P. Morgan followed by Gabriela Borges at Goldman Sachs. Brian Go ahead.

Speaker Change: That's driving experimentation. I have talked to many SaaS CEOs recently and everybody's experimenting. So are we, to see if DeepSeek can deliver that degree of performance. And the third question comes, okay, wait. You know, this has come from a nation state, maybe from somewhere where we don't want to trust the model. We got to figure out how to secure it. Now look.

Brian Essex: Yes, good afternoon, and thank you for taking the question I have a bit of a different question and it comes from that perspective.

Brian Essex: Bridging AI across the platform to provide better security outcomes and maybe if you could talk about.

Speaker Change: Any AI model that is going to be used by enterprises will be used in a

Walter Pritchard: Yeah, if I can just build, Saket, like a lot of this is in the prepared remarks, but we've had a lot more visibility with a growing balance of deferred payments already in the past few years. There's parts of our business that are really never going to go to deferred payments, the smaller transactions that have a multi-tier distribution network where everybody wants to get paid upfront, the appliance business where it's industry standard to pay upfront. Then you're left over with everything else. We've already made a significant transition already. So there's not as much left to actually do. We're quite far along the journey. That's what gives us confidence. And that's what I was meaning to convey in the prepared remarks. Very helpful. Thank you. Thank you, Saket. Next question from Hamza Fodderwala from Morgan Stanley, followed by Brian Essex from J.P. Morgan. All right, great.

Dipak Golechha: Yeah, if I can just build, Saket, like a lot of this is in the prepared remarks, but we've had a lot more visibility with a growing balance of deferred payments already in the past few years. There's parts of our business that are really never going to go to deferred payments, the smaller transactions that have a multi-tier distribution network where everybody wants to get paid upfront, the appliance business where it's industry standard to pay upfront. Then you're left over with everything else. We've already made a significant transition already. So there's not as much left to actually do. We're quite far along the journey. That's what gives us confidence. And that's what I was meaning to convey in the prepared remarks.

Brian Essex: What youre seeing in.

Speaker Change: sequestered fashion, either on-prem or in your own cloud instance, or require AI firewalls around it. If you can guarantee that your data doesn't get out of that sequestered sort of...

Brian Essex: In cloud security as an example, and win rates as Youre able to provide.

Brian Essex: Code to cloud the Sox security across your entire platform, how does that affect your ability to compete against point solution.

Speaker Change: space, and if you can guarantee that you can put guardrails around the model, I think you'll see a lot more experimentation. So from that perspective, I think it's going to be pivotal, my only recommendation to every enterprise out there is make sure you don't deploy AI without running firewalls around it, make sure you don't deploy in a multi-tenant environment, but I think this is great for AI, and look, any technology is great for security because any new technology requires you to put more security around it.

Brian Essex: Providers in that space.

Brian Essex: You know how how is that.

Speaker Change: Enabling you to kind of leverage the platform as an example, and that cloud security stage. Thanks, Hey, Brian is any point solution business left every security company seems to claim their platform now. So I don't think I don't think there's I think that breed of point solutions gone, but anyway, the difference be calling yourself.

Speaker Change: Great, thank you Hamza. Next question is coming from Brian Essex at JPMorgan followed by Gabriella Borges at Golden Saks. Brian, go ahead.

Saket Kalia: Very helpful. Thank you.

Speaker Change: Yeah, that's what they say about our students.

Walter Pritchard: Thank you, Saket. Next question from Hamza Fodderwala from Morgan Stanley, followed by Brian Essex from J.P. Morgan.

Speaker Change: But that notwithstanding leg.

Speaker Change: I was I was a I call. It the last night and I said you know what.

Brian Essex: Yeah, good afternoon. Thank you for taking the question. I have a bit of a different AI question and it comes from the perspective of, you know, leveraging AI across the platform to provide better security outcomes. And maybe if you could talk about

Hamza Fodderwala: All right, great.

Walter Pritchard: Thank you for taking my question, and good evening. Nikesh, I had a bit of a bigger picture question for you. Hey, do you want to go first? I'll leave that to the others. No, obviously, you know, Palo Alto Networks has been at the forefront of AI, whether it's AI for security operations when it comes to Cortex or securing AI now with Dig and Prisma Cloud. You know, DeepSeek was a big moment for the AI trend in the market earlier this year. I'm curious, what do you think this means for the proliferation of AI in general and how this impacts security and specifically Palo Alto Networks? Well, that's a very good question coming from you, Hamza. Not that I wouldn't expect that from you, but it's a great question.

Thank you for taking my question, and good evening. Nikesh, I had a bit of a bigger picture question for you.

Speaker Change: I've found a new whereas on debtor for black for amortization.

Nikesh Arora: Hey, do you want to go first?

Speaker Change: Our earlier sort of.

Hamza Fodderwala: I'll leave that to the others. No, obviously, you know, Palo Alto Networks has been at the forefront of AI, whether it's AI for security operations when it comes to Cortex or securing AI now with Dig and Prisma Cloud. You know, DeepSeek was a big moment for the AI trend in the market earlier this year. I'm curious, what do you think this means for the proliferation of AI in general and how this impacts security and specifically Palo Alto Networks?

Speaker Change: Additive that you need a platform. So you can get a single pane of glass you can run zero trust and that works. It can be harmonized across policies. There are no security gaps.

Brian Essex: What you're seeing in cloud security, as an example, and win rates as you're able to provide, you know, code to cloud to SOC security across your entire platform. How does that affect your ability to compete against point solution providers in that space?

Speaker Change: But as we go down this journey, we're discovering and what are we talking about deploying agents and why do we need human beings trying to these complex staff and trying to understand how security should be deployed why can't we have agenda persona out I'd say I'm Gonna network configuration I'm, you're in a fishing the mediator why can't redesign security agents when they quickly realize you can design in <unk>.

Brian Essex: And, you know, how is that enabling you to kind of leverage the platform as an example in that cloud security space? Thanks.

Speaker Change: Unless you have the data.

Speaker Change: You can you can have the data across 17 disparate products and make sense of it. So what we're discovering is this strategy that we deployed a flatter organization about two years ago in Italy that are put out.

Speaker Change: Every security company seems to claim their platform now. So I don't think that breed of point solution is gone. But anyway… What's the difference between calling yourself a platform and actually being a platform? Yeah, that's what they say about us too. But that notwithstanding, look, I was… I called Lee last night.

Nikesh Arora: Well, that's a very good question coming from you, Hamza. Not that I wouldn't expect that from you, but it's a great question.

Walter Pritchard: Look, I think DeepSeek is a phenomenal pivotal moment for AI, not just for us, but across the industry. If you look at it across three parameters, right, there's the question around quality. Is it as good as the models that people are using out there, like OpenAI, Gemini, or Llama, etc.? And at least if you read the ratings out there, it seems like it's equally good, if not better, for technical answers. It does better coding, better math, better physics. So it looks like for sort of it has a better reasoning engine out there. So that's interesting. Then the next question becomes, great, if it's so good at, if it's equally good, you know, what are the economics? Did they actually get it done for a lot cheaper? Now, we can debate that, and I don't know if you'll ever get to the bottom of it.

Look, I think DeepSeek is a phenomenal pivotal moment for AI, not just for us, but across the industry. If you look at it across three parameters, right, there's the question around quality. Is it as good as the models that people are using out there, like OpenAI, Gemini, or Llama, etc.? And at least if you read the ratings out there, it seems like it's equally good, if not better, for technical answers. It does better coding, better math, better physics. So it looks like for sort of it has a better reasoning engine out there. So that's interesting. Then the next question becomes, great, if it's so good at, if it's equally good, you know, what are the economics? Did they actually get it done for a lot cheaper? Now, we can debate that, and I don't know if you'll ever get to the bottom of it.

Speaker Change: Our weight behind it a year ago is resulting in us getting harmonious data.

Speaker Change: Are these 1100 and 50 customers who are platform is have data that is harmonized, we can run and build agents on top of that so from that perspective, the more platforms. We sell it creates tremendous opportunities for us, but I can talk to let Lee talk about how this is helping us the cloud security front yeah. So.

Speaker Change: and I said, you know what, I found a new resonant detritus for platformization.

our earlier sort of

Speaker Change: The narrative was that you need a platform so you get a single pane of glass, you can run zero-trust networks, you can be harmonized across policies, there are no security gaps.

Speaker Change: So.

Speaker Change: You've seen what we've done in a replacement right Brian So the in an X I am using AI for the sock and reducing meantime, remediation from days down two hours to minutes, you've seen us do this with them.

Speaker Change: But as we go down this journey, we're discovering and we're talking about deploying agents. Why do we need human beings trying to do these complex tasks and trying to understand how security should be deployed? Why can't we have agentic personas that say, I'm your network configurator. I'm your, you know, phishing mediator. Why can't we design security agents when very quickly realize you can't design an agent unless you have the data?

Speaker Change: And net shack in a cross network security and SaaS and other places in cloud.

Walter Pritchard: But what's interesting is today you pay $0.14 for about a million words, and you pay $7.50 for every other model. So it's 2% of the cost of every other model. Now, that's driving experimentation. I have talked to many SaaS CEOs recently, and everybody's experimenting. So are we to see if DeepSeek can deliver that degree of performance. And the third question comes, okay, wait, you know, this has come from a nation-state, maybe from somewhere where we don't want to trust the model. We got to figure out how secure it is. Now, look, any AI model that is going to be used by enterprises will be used in a sequestered fashion, either on-prem or in your own cloud instance, will require AI firewalls around it.

But what's interesting is today you pay $0.14 for about a million words, and you pay $7.50 for every other model. So it's 2% of the cost of every other model. Now, that's driving experimentation. I have talked to many SaaS CEOs recently, and everybody's experimenting. So are we to see if DeepSeek can deliver that degree of performance. And the third question comes, okay, wait, you know, this has come from a nation-state, maybe from somewhere where we don't want to trust the model. We got to figure out how secure it is. Now, look, any AI model that is going to be used by enterprises will be used in a sequestered fashion, either on-prem or in your own cloud instance, will require AI firewalls around it.

Speaker Change: What you what you can see is a couple of things first is in the individual areas. So in App check how we use AI in order to have better detection and prevention of his configurations before their reach production in production, how we use AI in order to better remediate and detect and remediate prioritize et cetera.

Speaker Change: We can't have the data across 17 disparate products and make sense of it. So what we're discovering is this strategy that we deployed of platformization about two years ago, and really sort of put our weight behind a year ago, is resulting in us getting harmonious data.

Speaker Change: And then with cortex crowd, which we announced earlier this morning with that allows us to do is now not only apply AI and automation within each of these areas, but now connect that across the full end to end from Aztec into cloud into run time into sock.

Speaker Change: These 1,150 customers who are platformized have data that is harmonized. We can run and build agents on top of that. So from that perspective, the more platforms we sell, it creates tremendous opportunities for us. I'm going to let Lee talk about how this is helping us with the cloud security front.

Speaker Change: And that is incredibly powerful when you think about trying to become much more proactive in real time in cloud security.

Speaker Change: You've seen what we've done in a number of places, right, Brian? So in XIM, using AI for the SOC and reducing meantime remediation from days down to hours to minutes. You've seen us do this in NETSEC and across network security and SASE and other places in cloud.

Walter Pritchard: If you can guarantee that your data doesn't get out of that sequestered sort of space, and if you can guarantee that you can put guardrails around the model, I think you'll see a lot more experimentation. So from that perspective, I think it's going to be pivotal. My only recommendation to every enterprise out there is make sure you don't deploy AI without running firewalls around it. Make sure you don't deploy in a multi-tenant environment. But I think this is great for AI. And look, any technology is great for security because any new technology requires you to put more security around it. Great. Thank you, Hamza. Next question is coming from Brian Essex at J.P. Morgan, followed by Gabriela Borges at Goldman Sachs. Brian, go ahead. Yeah, good afternoon, and thank you for taking the question. I have a bit of a different AI question.

If you can guarantee that your data doesn't get out of that sequestered sort of space, and if you can guarantee that you can put guardrails around the model, I think you'll see a lot more experimentation. So from that perspective, I think it's going to be pivotal. My only recommendation to every enterprise out there is make sure you don't deploy AI without running firewalls around it. Make sure you don't deploy in a multi-tenant environment. But I think this is great for AI. And look, any technology is great for security because any new technology requires you to put more security around it.

Speaker Change: Is that translating into better win rates, though like if you. If you look against the point solution vendor like always in the cloud security space are you starting to see the improvement in win rates.

Speaker Change: Yes, it could.

Speaker Change: Jumped on that.

Speaker Change: I'm going to let him answer the question.

Speaker Change: Something else good.

Speaker Change: Yes.

Speaker Change: What you can see is a couple of things. First is in the individual areas. So in AppSec, how we use AI in order to have better detection and prevention of misconfigurations before they ever reach production. In production, how we use AI in order to better detect and remediate, prioritize, etc.

Speaker Change: Does it it not only has it achieves better security outcomes, but it also translates to more efficient security operations.

Walter Pritchard: Great. Thank you, Hamza. Next question is coming from Brian Essex at J.P. Morgan, followed by Gabriela Borges at Goldman Sachs. Brian, go ahead.

Of the teams that actually have a response for managing all of this on a day to day basis.

Brian Essex: Well I was going to say, Brian is that I think cloud security is going to go through one more.

Speaker Change: And then with Cortex Cloud, which we announced earlier this morning, what that allows us to do is now not only apply AI automation within each of these areas, but now connect that across the full end-to-end, from AppSec into cloud, into runtime, into SOC. And that is incredibly powerful when you think about trying to become much more proactive in real-time in cloud security.

Speaker Change: Evolution.

Brian Essex: Yeah, good afternoon, and thank you for taking the question. I have a bit of a different AI question.

Speaker Change: And that evolution will be as it you know, it's so sudden center shifted left to go to code now it's doing a hardship right at you right as you need to be in the sensor in production environments understanding what's going on protecting our production environment and using that to prioritize cloud security. So I think.

Walter Pritchard: It comes from the perspective of leveraging AI across the platform to provide better security outcomes. Maybe if you could talk about what you're seeing in cloud security as an example and win rates as you're able to provide code-to-cloud-to-SOC security across your entire platform, how does that affect your ability to compete against point solution providers in that space? And how is that enabling you to kind of leverage the platform, maybe as an example in that cloud security space? Thanks. Hey, Brian, is any point solution business left? Every security company seems to claim their platform now. So I don't think this, I think that breed of point solution is gone. But anyway, there's a difference between calling yourself a platform and actually being a platform. Yeah, that's what they say about us too. Those guys.

It comes from the perspective of leveraging AI across the platform to provide better security outcomes. Maybe if you could talk about what you're seeing in cloud security as an example and win rates as you're able to provide code-to-cloud-to-SOC security across your entire platform, how does that affect your ability to compete against point solution providers in that space? And how is that enabling you to kind of leverage the platform, maybe as an example in that cloud security space? Thanks.

Speaker Change: The bigger cloud security.

Speaker Change: Is that translating in a better win rate? So like if you if you look against a point solution vendor like a Wiz in the cloud security space, are you starting to see the improvement in win rates?

Speaker Change: Action is going to be in run time with agents and that's where more xdr players are playing it's actually not that to see that players who have had one the last round if that makes any sense.

Yes, please go ahead.

Unidentified Moderator: Super helpful. Thank you Alright, alright, thanks, Brian for those two questions. We'll go with Gabriela Borges from Goldman Sachs, followed by Jonathan Ho from William Blair Gabrielle We go ahead.

Speaker Change: Just jumped on that one. I'm going to let him answer the question and I'm going to say something else.

Speaker Change: Yes, because it not only achieves better security outcomes, but it also translates to more efficient security operations of the teams that actually are responsible for managing all this on a day-to-day basis.

Nikesh Arora: Hey, Brian, is any point solution business left? Every security company seems to claim their platform now. So I don't think this, I think that breed of point solution is gone. But anyway,

Gabriela Borges: Hey, good afternoon. Thanks for taking my question Deepak you mentioned earlier that there is somebody else that was gonna be upfront, maybe just elaborate for us what are the guardrails are what is the framework fear salespeople that determines when they go to market here, one year billings and when they can offer.

Brian Essex: there's a difference between calling yourself a platform and actually being a platform.

Brian Essex: What I was going to say, Brian, is that I think cloud security is going to go through one more.

Nikesh Arora: Yeah, that's what they say about us too. Those guys.

Walter Pritchard: But that notwithstanding, look, you know, I called Lee last night, and I said, you know what? I found a new raison d'être for platformization. Our earlier sort of narrative was that you need a platform so you can get a single pane of glass, you can run Zero Trust networks, you can be harmonized across policies, and there are no security gaps. But as we go down this journey, we're discovering, and we've been talking about deploying agents, and why do we need human beings trying to do these complex tasks and trying to understand how security should be deployed? Why can't we have agentic personas that say, I'm your network configurator, I'm your, you know, phishing remediator? Why can't we design security agents? When they quickly realize you can't design an agent unless you have the data.

But that notwithstanding, look, you know, I called Lee last night, and I said, you know what? I found a new raison d'être for platformization. Our earlier sort of narrative was that you need a platform so you can get a single pane of glass, you can run Zero Trust networks, you can be harmonized across policies, and there are no security gaps. But as we go down this journey, we're discovering, and we've been talking about deploying agents, and why do we need human beings trying to do these complex tasks and trying to understand how security should be deployed? Why can't we have agentic personas that say, I'm your network configurator, I'm your, you know, phishing remediator? Why can't we design security agents? When they quickly realize you can't design an agent unless you have the data.

evolution

Speaker Change: I'm, saying when you count one of ours.

Unidentified Moderator: Thanks.

Unidentified Moderator: So I think it's all.

Unidentified Moderator: It's all part of the actual sales motion in negotiation, so really really where you see the majority of the request for deferred payments is in the higher end like distributors don't really want to have to deal with lots of back and forth with customers at the lower end and therefore, that's typically all upfront alright.

Brian Essex: Action is going to be in runtime with agents and that's where more XDR players are playing It's actually not that the CNAP players who have had won the last round if that makes any sense

Unidentified Moderator: So it's really at the hiring a deal and on firewall, we typically get the money upfront because that's been budgeted based on a refresh cycle. So those cases apart. It then becomes a negotiation.

Speaker Change: Super helpful. Thank you. All right. All right. Thanks, Brian, for those two questions. We'll go next with Gabriella Borges from Golden Saks, followed by Jonathan Ho from William Blair. Gabriella, go ahead.

Unidentified Moderator: Sales team will will basically go and they'll explain that there is value in the cost of money, we expect to be paid upfront and then it becomes part of the negotiation based on what is required and what is not required.

Gabriella Borges: Hey, good afternoon. Thanks for taking my question. Dipak, you mentioned earlier there are some deals that are always going to be up front. Maybe just elaborate for us, what are the guardrails or what is the framework for your salespeople that determines when they go to multi-year versus one-year billings and when they can offer financing versus when you don't want to offer financing? Thanks.

Walter Pritchard: You can't have the data across 17 disparate products and make sense of it. So what we're discovering is this strategy that we deployed of platformization about two years ago and really sort of put our weight behind a year ago is resulting in us getting harmonious data. These 1,150 customers who are platformized have data that is harmonized. We can run and build agents on top of that. So from that perspective, the more platforms we sell, it creates tremendous opportunities for us. But I want to let Lee talk about how this is helping us on the cloud security front. Yeah. So you've seen what we've done in a number of places, right, Brian? So in XSIAM, using AI for the SOC and reducing meantime remediation from days down to hours to minutes.

You can't have the data across 17 disparate products and make sense of it. So what we're discovering is this strategy that we deployed of platformization about two years ago and really sort of put our weight behind a year ago is resulting in us getting harmonious data. These 1,150 customers who are platformized have data that is harmonized. We can run and build agents on top of that. So from that perspective, the more platforms we sell, it creates tremendous opportunities for us. But I want to let Lee talk about how this is helping us on the cloud security front.

Unidentified Moderator: We do have guardrails in place.

Unidentified Moderator: Everything from sales comp two approvals that are in place to make sure that we manage that tightly but it really is with a view of enabling plots amortization at scale, which is why we've been.

Yeah, so I think it's all...

Unidentified Moderator: Working on this for a while and manage the transition pretty well so far.

Gabriella Borges: It's all part of the actual sales motion and negotiation so really really where you see the majority of the requests

Unidentified Moderator: Great. Thanks, Gabrielle are for that question next we'll go with Jonathan Ho from William Blair, followed by Peter We'd from Bernstein, Jonathan go ahead.

Lee Klarich: Yeah. So you've seen what we've done in a number of places, right, Brian? So in XSIAM, using AI for the SOC and reducing meantime remediation from days down to hours to minutes.

Gabriella Borges: for Deferred Payments is in the higher end. Like distributors don't really want to have to deal with lots of back and forth with customers at the lower end and therefore that's typically all upfront.

Jonathan Ho: Good afternoon.

Jonathan Ho: Just wanted to understand it a little bit better the decision I didn't see that as part of the next platform and can you talk a little bit about the ability to accelerate adoption of our accelerated maximization.

Gabriella Borges: Right, so it's really at the hiring deal and on firewall. We typically get the money up front because that's been budgeted

Walter Pritchard: You've seen us do this with NETSEC and across network security and SASE and other places. In cloud, what you can see is a couple of things. First is in the individual areas. So in AppSec, how we use AI in order to have better detection and prevention of misconfigurations before they've reached production. In production, how we use AI in order to better remediate, detect, and remediate, prioritize, etc. And then with Cortex Cloud, which we announced earlier this morning, what that allows us to do is now not only apply AI and automation within each of these areas, but now connect that across the full end-to-end from AppSec into cloud, into runtime, into SOC. And that is incredibly powerful when you think about trying to become much more proactive in real-time and cloud security. Is that translating into better win rates though?

You've seen us do this with NETSEC and across network security and SASE and other places. In cloud, what you can see is a couple of things. First is in the individual areas. So in AppSec, how we use AI in order to have better detection and prevention of misconfigurations before they've reached production. In production, how we use AI in order to better remediate, detect, and remediate, prioritize, etc. And then with Cortex Cloud, which we announced earlier this morning, what that allows us to do is now not only apply AI and automation within each of these areas, but now connect that across the full end-to-end from AppSec into cloud, into runtime, into SOC. And that is incredibly powerful when you think about trying to become much more proactive in real-time and cloud security.

based on a refresh cycle.

Jonathan Ho: Understood. Thank you.

So, those cases apart, it then becomes a negotiation.

Jonathan Ho: Yeah look the.

Our sales team will...

Nick Kash: The cash was mentioning a lot of the action in cloud is shifting toward real time, which means shifting toward runtime and and even sock.

Gabriella Borges: will basically go and they'll explain that there is value in the cost of money.

Gabriella Borges: we expect to be paid up front and then it becomes part of the negotiation based on what is required and what's not required. We do have guardrails in place, everything from sales comp to approvals that are in place to make sure that we manage that tightly, but it really is with a view of enabling platformization at scale, which is why we've been working on this for a while and managed to transition pretty well so far.

Speaker Change: The it's really critical though from our perspective.

Speaker Change: We bring in as much context as possible.

Speaker Change: In order to be able to make take those automated actions right in that context, often comes from CNET and even code security.

Speaker Change: That's the first critical and second is the cleaner your cloud environment can be from preventing issues from ever making it into production or cloud posture, where we're detecting and remediate those issues. The cleaner your cloud environment the more the better that security posture is.

Speaker Change: Great. Thanks, Gabriela, for that question. Next, we'll go with Jonathan Ho from William Blair, followed by Peter Weed from Bernstein. Jonathan, go ahead. Good afternoon. Just wanted to understand a little bit better the decision to add in CNAP as part of the Cortex platform. And can you talk a little bit about the ability to accelerate adoption or accelerate platformization as you take on this tactic? Thank you.

Brian Essex: Is that translating into better win rates though?

Walter Pritchard: Like if you look against a point solution vendor like a Wiz in the cloud security space, are you starting to see the improvement in win rates? Yes. Sorry. No, please go ahead. Just jumped on that one. I'm going to let him answer the question, but I'm going to say something else. Go ahead. Yes, because it not only achieves better security outcomes, but it also translates to more efficient security operations of the teams that actually are responsible for managing all this on a day-to-day basis. What I was going to say, Brian, is that I think cloud security is going to go through one more evolution. And that evolution will be as it, you know, it sort of started in the center, shifted to the left to go to code. Now it's doing a hard shift right.

Like if you look against a point solution vendor like a Wiz in the cloud security space, are you starting to see the improvement in win rates?

Speaker Change: The easier it is for the one time and in shock capabilities to two two fire in real time, because they're it's easier to pick out the attacks using machine learning AI and other types of capabilities like that so ultimately we believe that the best outcome for customers is achieved when they connect to all of the aspects of cloud together.

Lee Klarich: Yes. Sorry. No, please go ahead.

Brian Essex: Just jumped on that one.

Lee Klarich: I'm going to let him answer the question, but I'm going to say something else. Go ahead. Yes, because it not only achieves better security outcomes, but it also translates to more efficient security operations of the teams that actually are responsible for managing all this on a day-to-day basis.

Yeah, look the

Speaker Change: As Nikesh was mentioning, a lot of the action in cloud is shifting toward real-time, which means shifting toward run-time.

Speaker Change: And so you see that show up in terms of how we package the offering as well.

and even Sark.

Great. Thanks for that question Jonathan next we'll have Peter Reid from Bernstein, followed those shipped by shovel. They all from Cowan Peter go ahead.

Speaker Change: It's really critical, though, from our perspective that we bring in as much context as possible.

Nikesh Arora: What I was going to say, Brian, is that I think cloud security is going to go through one more evolution. And that evolution will be as it, you know, it sort of started in the center, shifted to the left to go to code. Now it's doing a hard shift right.

Peter Reid: Alright, thank you.

Speaker Change: in order to be able to take those automated actions, right? And that context often comes from CNAP and even code security.

Peter Reid: Congrats on the continued success on the platform maybe I asked the Unsexy question, which is on the.

Speaker Change: That's the first critical reason. Second is, the cleaner your cloud environment can be from preventing issues from ever making it into production or cloud posture where we're detecting and remediating those issues, the cleaner your cloud environment, the better that security posture is.

Peter Reid: Product side.

Peter Reid: I think we saw some some nice strength this quarter and I know I'm kind of a guidance is that's going to remain a less.

Walter Pritchard: A hard shift right is you need to be in the sensor in production environments, understanding what's going on, protecting the production environment, and using that to prioritize cloud security. So I think, you know, the bigger cloud security action is going to be in runtime with agents, and that's where more XDR players are playing. It's actually not the CNAPP players who have had, who won the last round, if that makes any sense. Super helpful. Thank you. All right. All right. Thanks, Brian, for those two questions. We'll go next with Gabriela Borges from Goldman Sachs, followed by Jonathan Ho from William Blair. Gabriela, go ahead. Hey, good afternoon. Thanks for taking my question. Deepak, you mentioned earlier there are some deals that are always going to be upfront.

A hard shift right is you need to be in the sensor in production environments, understanding what's going on, protecting the production environment, and using that to prioritize cloud security. So I think, you know, the bigger cloud security action is going to be in runtime with agents, and that's where more XDR players are playing. It's actually not the CNAPP players who have had, who won the last round, if that makes any sense.

Peter Reid: Exciting from a growth standpoint portion of the business.

Peter Reid: But that strength was important for delivering on the revenue and if we look forward is that type of strength something that we should be able to work out as a support as opposed to maybe a drag on the overall growth or it's just kind of a one time.

Speaker Change: The easier it is for the runtime and SOC capabilities to fire in real time because it's easier to pick out the attacks using machine learning, AI, and other types of capabilities.

Brian Essex: Super helpful. Thank you.

Speaker Change: and others like that. So ultimately, we believe that the best outcome for customers is achieved when they connect all of the aspects of cloud together. And so you see that show up in terms of how we package the offering as well.

Walter Pritchard: All right. All right. Thanks, Brian, for those two questions. We'll go next with Gabriela Borges from Goldman Sachs, followed by Jonathan Ho from William Blair. Gabriela, go ahead.

Peter Reid: Quarter.

Peter Reid: How will that evolve or could forward.

Peter Reid: Peter I think as a bogie one they don't sound like a broken record I've always been saying that the hardware industry.

Gabriela Borges: Hey, good afternoon. Thanks for taking my question. Deepak, you mentioned earlier there are some deals that are always going to be upfront.

Peter Reid: For us at least orange is going to deliver somewhere between 5% to 8% and sometimes it's been flat in the post pandemic. There was a sort of a splurge certainly went back down I think we're back to a steady state. So I think easily you can expect us to really going and low to mid single digits on the offline side.

Speaker Change: Great, thanks for that question Jonathan. Next we'll have Peter Weed from Bernstein followed by Shaul Eyal from Cowen. Peter, go ahead.

Walter Pritchard: Maybe just elaborate for us, what are the guardrails or what is the framework for your salespeople that determines when they go to multi-year versus one-year billings and when they can offer financing versus when you don't want to offer financing? Thanks. Yeah. So I think it's all part of the actual sales motion and negotiation. So really, really where you see the majority of the requests for deferred payments is in the higher end. Like distributors don't really want to have to deal with lots of back and forth with customers at the lower end, and therefore that's typically all upfront, right? So it's really at the higher-end deal. And on firewall, we typically get the money upfront because that's being budgeted based on a refresh cycle. So those cases apart, it then becomes a negotiation.

Maybe just elaborate for us, what are the guardrails or what is the framework for your salespeople that determines when they go to multi-year versus one-year billings and when they can offer financing versus when you don't want to offer financing? Thanks.

Peter Weed: Thank you and congrats on the continued success on the platform. Maybe I ask the unsexy question, which is, you know, on the product side, you know, I think we saw some some nice strength this quarter. And I know kind of the guidance is that's going to remain, you know, a less, you know, exciting from a growth standpoint portion of the business. But that strength was important for delivering on the revenue. And if we look forward, is that type of strength.

Peter Reid: But I think the real action for US is I think he had to understand Theres a series of transformations going on underneath like the evoke highlighted cash flow transition we've been transitioning our <unk>.

Dipak Golechha: Yeah. So I think it's all part of the actual sales motion and negotiation. So really, really where you see the majority of the requests for deferred payments is in the higher end. Like distributors don't really want to have to deal with lots of back and forth with customers at the lower end, and therefore that's typically all upfront, right? So it's really at the higher-end deal. And on firewall, we typically get the money upfront because that's being budgeted based on a refresh cycle. So those cases apart, it then becomes a negotiation.

Peter Reid: Network Security business as you saw from hardware to software. This is why you see that we're growing that category, 21%, where do you get hardware and software. So that just over time reduces our reliance on hardware because.

Nikesh Arora, Walter Pritchard, Dipak Golechha

Peter Reid: Because I think that cloud transformation is underway more and more cloud volume, but that's the good news is the cloud volume is going up faster than they did a war datacenter volumes declining. So if we can manage this transition in a way they can drive more and more software firewall and capability and not just recompense for the hardware business being.

Walter Pritchard: Our sales team will basically go and they'll explain that there is value in the cost of money we expect to be paid upfront, and then it becomes part of the negotiation based on what is required and what's not required. We do have guardrails in place, everything from sales comp to approvals that are in place to make sure that we manage that tightly. But it really is with a view of enabling platformization at scale, which is why we've been working on this for a while and managed the transition pretty well so far. Great. Thanks, Gabriela, for that question. Next, we'll go with Jonathan Ho from William Blair, followed by Peter Weed from Bernstein. Jonathan, go ahead. Good afternoon. Just wanted to understand a little bit better the decision to add in CNAPP as part of the Cortex platform.

Our sales team will basically go and they'll explain that there is value in the cost of money we expect to be paid upfront, and then it becomes part of the negotiation based on what is required and what's not required. We do have guardrails in place, everything from sales comp to approvals that are in place to make sure that we manage that tightly. But it really is with a view of enabling platformization at scale, which is why we've been working on this for a while and managed the transition pretty well so far.

Peter Weed: So, Peter, I think I probably sound like a broken record. I've always been saying that the hardware industry

Peter Reid: Slow growth compared to that they can also over time drive higher growth across the I am sorry, and then for security category for ourselves.

Peter Weed: for us, at least our end, is going to deliver somewhere between 5% to 8%.

and sometimes it's been flat.

Peter Weed: in a post-pandemic, there was a sort of splurge, surge, and it went back down. I think we're back to a steady state. So I think easily you can expect us to be going.

Peter Reid: Thank you.

Speaker Change: Great. Thanks for the question next up is show will they all from Cowen followed by tally Ani from Bofa go ahead Joel.

Nick Kash: Thank you. Good afternoon, guys you Kash I'm interested in your views on the queue later and overall IBM partnership.

in low to mid single digits on the appliance side.

Peter Weed: But I think the real action for us is, you have to understand, there's a series of transformations going on underneath, like Dipak highlighted, cash flow transition, we've been transitioning our...

Speaker Change: This quarter and is that coming in line or better than your initial views couple of quarters ago. When you have gone. After this asset. Thank you.

Walter Pritchard: Great. Thanks, Gabriela, for that question. Next, we'll go with Jonathan Ho from William Blair, followed by Peter Weed from Bernstein. Jonathan, go ahead.

Peter Weed: network security business, as you saw, from hardware to software. This is why you see that we're growing that category 21%.

Jonathan Ho: Good afternoon. Just wanted to understand a little bit better the decision to add in CNAPP as part of the Cortex platform.

We had our board meeting yesterday, and there was a comment that one day, a Harvard business School case would be written on this.

Peter Weed: between hardware and software. So that just, over time, reduces our reliance on hardware because I think, you know, that cloud transformation is underway. More and more cloud volume, but that's good news. The cloud volume is going up faster than the data center volume is declining. So if we can manage this transition in a way, we can drive more and more software firewalling capability, and not just recompense for the hardware business being

Walter Pritchard: Can you talk a little bit about the ability to accelerate adoption or accelerate platformization as you take on this tactic? Thank you. Yeah, look, as Nikesh was mentioning, a lot of the action in cloud is shifting toward real-time, which means shifting toward runtime and even SOC. It's really critical, though, from our perspective that we bring in as much context as possible in order to be able to take those automated actions, right? And that context often comes from CNAPP and even code security. That's the first critical reason. Second is the cleaner your cloud environment can be from preventing issues from ever making it into production or cloud posture where we're detecting and remediating those issues.

Speaker Change: And.

Can you talk a little bit about the ability to accelerate adoption or accelerate platformization as you take on this tactic? Thank you.

Speaker Change: For the right reasons.

Speaker Change: I'd say this is this has been a spectacular partners for us not just our relationship with IBM. Our go to market partnership together, where they are I know.

Lee Klarich: Yeah, look, as Nikesh was mentioning, a lot of the action in cloud is shifting toward real-time, which means shifting toward runtime and even SOC. It's really critical, though, from our perspective that we bring in as much context as possible in order to be able to take those automated actions, right? And that context often comes from CNAPP and even code security. That's the first critical reason. Second is the cleaner your cloud environment can be from preventing issues from ever making it into production or cloud posture where we're detecting and remediating those issues.

Speaker Change: We've talked to a large large deal it's actually public in the U K the home office deal, where IBM partner to them as a very large modernization contract. We partnered really well some of our very large deals as we highlighted in one of our largest deals this quarter. The Asian Bank was accurate our customer, which now we were able to be at or up five times. So.

Speaker Change: Thank you. Great, thanks for the question. Next up is Shaul Eyal from Cowen followed by Tal Liani from B of A. Go ahead, Shaul.

Shaul Eyal: Thank you. Good afternoon, guys. Nikesh, I'm interested in your views on the Curator and overall IBM partnership this quarter. And is it coming in line or better than your initial views a couple of quarters ago when you have gone after this asset? Thank you.

Speaker Change: You can see that the set of inroads in the partnership at IBM had in many of these customers has translated into very very large opportunities for us though.

Speaker Change: He couldn't have been better.

Unidentified Moderator: Alright, thank you so much.

Walter Pritchard: The cleaner your cloud environment, the better that security posture is, the easier it is for the runtime and SOC capabilities to fire in real-time because it's easier to pick out the attacks using machine learning, AI, and other types of capabilities like that. So ultimately, we believe that the best outcome for customers is achieved when they connect all of the aspects of cloud together. And so you see that show up in terms of how we package the offering as well. Great. Thanks for that question, Jonathan. Next, we'll have Peter Weed from Bernstein, followed by Shaul Eyal from TD Cowen. Peter, go ahead. All right. Thank you. And congrats on the continued success on the platform.

The cleaner your cloud environment, the better that security posture is, the easier it is for the runtime and SOC capabilities to fire in real-time because it's easier to pick out the attacks using machine learning, AI, and other types of capabilities like that. So ultimately, we believe that the best outcome for customers is achieved when they connect all of the aspects of cloud together. And so you see that show up in terms of how we package the offering as well.

Unidentified Moderator: Next we'll go to tally Ani from Bofa, followed by Andy Nowinski from Wells Fargo go ahead I.

Speaker Change: I wanted to ask about margins.

Speaker Change: Can you go over kind of what happened to margins. This quarter did I saw a little bit of pressure and then what's the outlook for the year what are the puts and takes for margins. Thanks.

Speaker Change: and many more. I hope you enjoyed the video. If you did, please leave a comment and let me know. I'd love to hear from you. Thanks for watching.

Speaker Change: It tells us the clarifying question you're talking gross margins is that a gross yes gross margin and also a little bit on the operating margin I saw yeah. So really it's mainly all in the gross margin and it's all it was all in my prepared remarks like were yep.

Speaker Change: One of our largest deals this quarter, the Asian Bank, was a QRR customer, which now we were able to take the ARR up five times. So you can see that the sort of inroads and the partnership that IBM had with many of these customers has translated into very, very large opportunities for us. So it couldn't have been better.

Walter Pritchard: Great. Thanks for that question, Jonathan. Next, we'll have Peter Weed from Bernstein, followed by Shaul Eyal from TD Cowen. Peter, go ahead.

Peter Weed: All right. Thank you. And congrats on the continued success on the platform.

Speaker Change: So they're the main parts where on the services gross margin.

Speaker Change: It was driven by you know like a faster growth on the newer SaaS offerings, which just have more time to mature and scale.

Walter Pritchard: Maybe I ask the unsexy question, which is, you know, on the product side, you know, I think we saw some nice strength this quarter, and I know kind of the guidance is that's going to remain, you know, a less exciting from a growth standpoint portion of the business. But that strength was important for delivering on the revenue. And if we look forward, is that type of strength something that we should be able to look at as a support as opposed to maybe a drag on the overall growth? Or is this kind of a one-time, you know, quarter? How will that evolve looking forward? So Peter, I think it's probably one. I'll sound like a broken record. I've always been saying that the hardware industry for us, at least our end, is going to deliver somewhere in 5% to 8%. And sometimes it's been flat.

Maybe I ask the unsexy question, which is, you know, on the product side, you know, I think we saw some nice strength this quarter, and I know kind of the guidance is that's going to remain, you know, a less exciting from a growth standpoint portion of the business. But that strength was important for delivering on the revenue. And if we look forward, is that type of strength something that we should be able to look at as a support as opposed to maybe a drag on the overall growth? Or is this kind of a one-time, you know, quarter? How will that evolve looking forward?

Speaker Change: Thank you for watching. Please like, comment, and subscribe. I'll see you next time.

Thank you so much.

Shaul Eyal: Thanks, Shaul. Next, we'll go to Tal Liani from B of A, followed by Andy Nowinski from Wells Fargo. Tal, go ahead. Hi. I wanted to ask about margins.

Speaker Change: On the hardware we did have some one time inventory write offs you knows that will not repeat in the second half.

Speaker Change: It's.

Shaul Eyal: Can you go over kind of what happened to margins this quarter? I saw a little bit of pressure and then what's the outlook for the year? What are the puts and takes for margins? Thanks.

Speaker Change: We had a 40 basis 0.1 time write off which impacted our gross margin on the hardware side.

Speaker Change: Which is why use it so it's a one time event, but we still outperformed our margin expectations, both internally and.

Tells us the clarifying question, are you talking gross margins?

Yes, gross margin and also a little bit

Speaker Change: As for you guys.

Unidentified Moderator: Thanks, Alright. Thanks, Tal next we'll go with Andy Nowinski and our final question will be from Matt Hedberg from RBC. Andy go ahead.

Shaul Eyal: Yeah, so really it's mainly in the gross margin and it's all, it was all in my prepared remarks, like where, yep, so there the main parts were on the services gross margin, it was driven by, you know, like faster growth on the newer SaaS offerings, which just have more time to mature and scale, and on the hardware we did have some one-time inventory write-off CNOs that will not repeat in the second half.

Nikesh Arora: So Peter, I think it's probably one. I'll sound like a broken record. I've always been saying that the hardware industry for us, at least our end, is going to deliver somewhere in 5% to 8%. And sometimes it's been flat.

Andy Nowinski: Okay. Good afternoon, Thank you and I thought your quarter overall was very good as well I wanted to ask maybe.

Andy Nowinski: A more difficult question on the net new way our side you know if you pull out the 74 million from Q radar in Q1, it looks like your net new we are declined on a year over year basis for the last two consecutive quarters.

Walter Pritchard: And in a post-pandemic, there was a sort of splurge surge, and it went back down. I think we're back to a steady state. So I think easily you can expect us to be going in low to mid single digits on the appliance side. But I think the real action for us is, I think you have to understand there's a series of transformations going on underneath. Like Deepak highlighted the cash flow transition. We've been transitioning our network security business, as you saw, from hardware to software. This is why you see that we're growing that category 21% between hardware and software. So that just over time reduces our reliance on hardware because I think, you know, that cloud transformation is underway. More and more cloud volume. But the good news is the cloud volume is going up faster than the data center volume is declining.

And in a post-pandemic, there was a sort of splurge surge, and it went back down. I think we're back to a steady state. So I think easily you can expect us to be going in low to mid single digits on the appliance side. But I think the real action for us is, I think you have to understand there's a series of transformations going on underneath. Like Deepak highlighted the cash flow transition. We've been transitioning our network security business, as you saw, from hardware to software. This is why you see that we're growing that category 21% between hardware and software. So that just over time reduces our reliance on hardware because I think, you know, that cloud transformation is underway. More and more cloud volume. But the good news is the cloud volume is going up faster than the data center volume is declining.

Andy Nowinski: You have so many positive trends in these large platform as Asian deals why aren't those translating into net new way or our growth over the last few quarters.

So, I think it's...

Shaul Eyal: We had a 40 basis point one-time write-off, which impacted our gross margin on the hardware side, which is why it's a one-time event, but we still outperformed our margin expectations both internally and as per you guys.

Andy Nowinski: Yes.

Andy Nowinski: We talked about this a little bit last quarter I mean, we're very happy with the net new AOR growth. We did have some transitions of.

Speaker Change: Thanks. All right, thanks Tal. Next we'll go with Andy Nowinski and our final question will be from Matt Hedberg from RBC. Andy, go ahead.

Andy Nowinski: Old attaches to cloud delivered advanced subscriptions that led to a significant increase in our net.

Andy Nowinski: Net new E. R. R. A year ago as we lap that we don't have the same step up but the net new way or on some of our newer products, what's driving a lot of the plots Amortizations continues to go from strength to strength.

Andy Nowinski: Okay, good afternoon. Thank you. Um, and I thought your quarter overall was was very good as well. Um, I want to ask maybe

Walter Pritchard: So if we can manage this transition in a way, we can drive more and more software firewalling capability and not just recompense for the hardware business being slow growth compared to that. We can also, over time, drive higher growth across our network security category for ourselves. Thank you. Great. Thanks for the question. Next up is Shaul Eyal from TD Cowen, followed by Tal Liani from Bank of America. Go ahead, Shaul. Thank you. Good afternoon, guys. Nikesh, I'm interested in your views on the QRadar and overall IBM partnership this quarter. And is it coming in line or better than your initial views a couple of quarters ago when you have gone after this asset? Thank you. Shaul, we had our board meeting yesterday, and there was a comment that one day a Harvard Business School case would be written on this. For the right reasons.

So if we can manage this transition in a way, we can drive more and more software firewalling capability and not just recompense for the hardware business being slow growth compared to that. We can also, over time, drive higher growth across our network security category for ourselves.

Speaker Change: After that Mike.

Speaker Change: The software firewall strengths, we talked about the SaaS. These trends, we talked about the cloud security stance. The X I am strength. All these things contribute to net new here, that's what's allowing us to get it to you know I still remember six years ago. This was zero. So we're very happy that it's tightening up closer to $5 billion and we still believe you're on track to get to 15.

Peter Weed: Thank you.

Walter Pritchard: Great. Thanks for the question. Next up is Shaul Eyal from TD Cowen, followed by Tal Liani from Bank of America. Go ahead, Shaul.

Yeah. So.

Shaul Eyal: Thank you. Good afternoon, guys. Nikesh, I'm interested in your views on the QRadar and overall IBM partnership this quarter. And is it coming in line or better than your initial views a couple of quarters ago when you have gone after this asset? Thank you.

Andy Nowinski: Andy, we talked about this a little bit last quarter. I mean, we're very happy with the net new ARR growth. We did have some transitions of old attaches to cloud-delivered advanced subscriptions that led to a significant increase in.

Speaker Change: Billion on Ngl's era.

Speaker Change: Got it.

Speaker Change: Thanks, Andy and our last question is from Matt Hedberg, Matt go ahead.

Matt Hedberg: Thanks for taking my question guys. Congrats on the results not an easy environment here.

Speaker Change: Yeah, I had kind of a high level question, maybe Lee for you I think we've all been talking about Atlantic Gentex framework and I think in any cash you mentioned on the call I guess Lee from your perspective, a lot of people look at identity.

Andy Nowinski: Net New ARR a year ago. As we lapped that, we don't have the same step-up.

Nikesh Arora: Shaul, we had our board meeting yesterday, and there was a comment that one day a Harvard Business School case would be written on this. For the right reasons.

Andy Nowinski: but the net new ARR on some of our newer products, what's driving a lot of the platformizations continues to go from strength to strength. And yeah, I think just to add to that, like.

Speaker Change: The tip of the spear for a genetic based security what what's your perspective on the security Foundation for a broader agent rollout.

Andy Nowinski: You know, the software firewall strengths we talked about, the SASE strengths we talked about, the cloud security strength, the XIM strength, all these things contribute to net new ARR. That's what's allowing us to get it to the, you know, I still remember six years ago this was zero. So we're very happy that it's driving up close to $5 billion and, you know, we still believe you're on track to get to $15 billion on NGS ARR.

Walter Pritchard: I'll say this has been a spectacular partnership for us. Not just our relationship with IBM, our go-to-market partnership together, where they have, you know, we talked to a large deal. It's actually public in the UK, the Home Office deal where IBM and us partnered, and it's a very large modernization contract. We partnered really well. Some of our very large deals, as we highlighted, one of our largest deals this quarter, the Asian Bank, was a QRadar customer, which now we were able to take the ARR up five times. So you can see that the sort of inroads in the partnership that IBM had with many of these customers has translated into very, very large opportunities for us. So it couldn't have been better. Thank you so much. Thanks, Shaul. Next, we'll go to Tal Liani from B of A, followed by Andy Nowinski from Wells Fargo.

I'll say this has been a spectacular partnership for us. Not just our relationship with IBM, our go-to-market partnership together, where they have, you know, we talked to a large deal. It's actually public in the UK, the Home Office deal where IBM and us partnered, and it's a very large modernization contract. We partnered really well. Some of our very large deals, as we highlighted, one of our largest deals this quarter, the Asian Bank, was a QRadar customer, which now we were able to take the ARR up five times. So you can see that the sort of inroads in the partnership that IBM had with many of these customers has translated into very, very large opportunities for us. So it couldn't have been better.

Speaker Change: Oh I think it's.

Speaker Change: I think there's a lot more complicated than that Matt and not necessary in a bad way, but I think sometimes the.

Speaker Change: Our industry can be quick to jump on a single magic bullet of identity, which is important but there's a lot of other aspects too to have these genetic platforms working.

Andy Nowinski: Got it. Great. Thanks, Andy. Our last question is from Matt Hedberg. Matt, go ahead.

Speaker Change: I would actually start with how do you secure the AI portion of the <unk> platform and making sure that it's providing.

Matt Hedberg: Thanks for taking my question, guys. Congrats on the results. Not an easy environment here. Yeah, I had kind of a high-level question, maybe, Lee, for you. I think we've all been talking about an agentic framework, and I think, Nikesh, you mentioned on the call, I guess, Lee, from your perspective, a lot of people look at identity as sort of maybe the tip of the spear for agentic-based security. What's your perspective on the security foundation for a broader agent rollout?

Speaker Change: If youre going to give it the authority to take independent actions.

Speaker Change: Which effectively what Agentic AI will do.

Speaker Change: You better make sure that that AI environment is fully secured from attackers and and you have the proper guardrail is enforced and everything else. Yes. There has to be combined with with identity. All of that has to be combined with it's going to ramp up even just machine to machine level communication, how we secure it so there'll be multiple facets to how.

Shaul Eyal: Thank you so much.

Shaul Eyal: Thanks, Shaul.

Walter Pritchard: Next, we'll go to Tal Liani from B of A, followed by Andy Nowinski from Wells Fargo.

Walter Pritchard: Tal, go ahead. Hi. I wanted to ask about margins. Can you go over kind of what happened to margins this quarter that I saw a little bit of pressure, and then what's the outlook for the year? What are the puts and takes for margins? Thanks. Tal, just a clarifying question. You're talking gross margins? Is that what you mean? Yes, gross margin and also a little bit on the operating margin I saw. Yeah. So really, it's mainly in the gross margin. It was all in my prepared remarks, like where, yep. So there, the main parts were on the services gross margin. It was driven by, you know, like faster growth on the newer SaaS offerings, which just have more time to mature and scale. And on the hardware, we did have some one-time inventory write-offs in those that will not repeat in the second half.

Tal, go ahead.

Tal Liani: Hi. I wanted to ask about margins. Can you go over kind of what happened to margins this quarter that I saw a little bit of pressure, and then what's the outlook for the year? What are the puts and takes for margins? Thanks.

Oh, I think it's...

Matt Hedberg: I think it's a lot more complicated than that. Not necessarily in a bad way, but I think sometimes the...

Speaker Change: H N T K I is secured as it as it matures.

Matt Hedberg: industry can be quick to jump on a single magic bowl of identity, which is important, but there's a lot of other aspects to how these agentic platforms work.

Speaker Change: Just to add to that Matt I think one of the things which is from our perspective fascinating is that.

Nikesh Arora: Tal, just a clarifying question. You're talking gross margins? Is that what you mean?

Tal Liani: Yes, gross margin and also a little bit on the operating margin I saw.

Speaker Change: We have now sold X signed more than 200 times in the last 24 months, making it one of the fastest growing products and cyber security.

Matt Hedberg: I would actually start with how do you secure the AI portion of the agentic platform and making sure that it's providing If you're going to give it the authority to take independent actions

Nikesh Arora: Yeah. So really, it's mainly in the gross margin. It was all in my prepared remarks, like where, yep. So there, the main parts were on the services gross margin. It was driven by, you know, like faster growth on the newer SaaS offerings, which just have more time to mature and scale. And on the hardware, we did have some one-time inventory write-offs in those that will not repeat in the second half.

Speaker Change: And the next time, we see all the data.

Speaker Change: So we expect we will start seeing agentic activity in X I am.

Speaker Change: So you know identity is to parse guidance he is valley.

Matt Hedberg: which effectively what agentic AI will do, you better make sure that that AI environment is fully secured from attackers and you have the proper guardrails enforced and everything else. Yes, that has to be combined with identity, all that has to be combined with, it's going to ramp up even just machine-to-machine level communication, how we secure it. So there'll be multiple facets to how agentic AI is secured as it matures.

Speaker Change: Validating your credentials to make sure you are who you are but do you have an agent or a human being which is what typically MFA does the surface accounts to a SaaS applications.

Speaker Change: But watching the activity in being able to control the activity and stopped the activity and change permissions will have to happen in some sort of AI enabled sock.

Walter Pritchard: So I think it's we had a 40 basis point one-time write-off, which impacted our gross margin on the hardware side, which is why it's a one-time event. But we still outperformed our margin expectations both internally and as per you guys. Thanks. All right. Thanks, Tal. Next, we'll go with Andy Nowinski, and our final question will be from Matt Hedberg from RBC. Andy, go ahead. Okay. Good afternoon. Thank you. And I thought your quarter overall was very good as well. I want to ask maybe a more difficult question on the net new ARR side. You know, if you pull out the $74 million from QRadar in Q1, you know, it looks like your net new ARR declined on a year-over-year basis for the last two consecutive quarters. And you have so many positive trends in these large platformization deals.

Dipak Golechha: So I think it's we had a 40 basis point one-time write-off, which impacted our gross margin on the hardware side, which is why it's a one-time event. But we still outperformed our margin expectations both internally and as per you guys.

Speaker Change: So we think there is an opportunity for us in the future as the definition of agents in the deployment June starts to settle in that we will be able to build a gentle sort of detection remediation and management within the Exxon and capabilities that we have.

Speaker Change: Just to add to that, Matt, I think one of the things which is, from our perspective, fascinating is that

Speaker Change: We have now sold Exxon more than 200 times in the last 24 months, making it one of the fastest growing products in cybersecurity.

Tal Liani: Thanks.

Walter Pritchard: All right. Thanks, Tal. Next, we'll go with Andy Nowinski, and our final question will be from Matt Hedberg from RBC. Andy, go ahead.

Speaker Change: Alright with that question, Matt Thanks for wrap it up for US I'll will turn the call back over into cash for his closing remarks.

and NXIM, we see all the data.

Andrew Nowinski: Okay. Good afternoon. Thank you. And I thought your quarter overall was very good as well. I want to ask maybe a more difficult question on the net new ARR side. You know, if you pull out the $74 million from QRadar in Q1, you know, it looks like your net new ARR declined on a year-over-year basis for the last two consecutive quarters. And you have so many positive trends in these large platformization deals.

Speaker Change: So we expect we will start seeing a genetic activity in XIM.

Nick Kash: Just want to say, thank you very much to all of our customers employees employees and our ecosystem partners for all their hard work and thank you for all of you for taking the time to listen in on our earnings call well see you guys next quarter.

Speaker Change: So, you know, identity is two parts. Identity is validating your credentials to make sure you are who you are, whether you're an agent or a human being, which is what typically MFA does with service accounts to a SaaS application.

Speaker Change: But, watching the activity and being able to control the activity and stop the activity and change permissions will have to happen in some sort of AI-enabled SOC.

Walter Pritchard: Why aren't those translating into net new ARR growth over the last two quarters? Yeah. So, Andy, we talked about this a little bit last quarter. I mean, we're very happy with the net new ARR growth. We did have some transitions of, you know, old attaches to cloud-delivered advanced subscriptions that led to a significant increase in net new ARR a year ago. As we lap that, we don't have the same step up. But the net new ARR on some of our newer products, what's driving a lot of the platformizations, continues to go from strength to strength. Andy, I think just to add to that, like, you know, the software firewall strengths we talked about, the SASE strengths we talked about, the cloud security strength, the XIM strength, all these things contribute to net new ARR.

Why aren't those translating into net new ARR growth over the last two quarters?

Speaker Change: So, we think there is an opportunity for us in the future, as the definition of agents and the deployment agent starts to settle in, that we will be able to build agentic sort of detection, remediation, and management within the Ex-Im capabilities that we have.

Nikesh Arora: Yeah. So, Andy, we talked about this a little bit last quarter. I mean, we're very happy with the net new ARR growth. We did have some transitions of, you know, old attaches to cloud-delivered advanced subscriptions that led to a significant increase in net new ARR a year ago. As we lap that, we don't have the same step up. But the net new ARR on some of our newer products, what's driving a lot of the platformizations, continues to go from strength to strength.

Speaker Change: All right, with that question, Matt, thanks for wrapping it up for us. I will turn the call back over to Nikesh for his closing remarks.

Dipak Golechha: Andy, I think just to add to that, like, you know, the software firewall strengths we talked about, the SASE strengths we talked about, the cloud security strength, the XIM strength, all these things contribute to net new ARR.

Walter Pritchard: That's what's allowing us to get it to the, you know, I still remember six years ago this was zero. So we're very happy that it's tightening up closer to $5 billion. And, you know, we still believe we're on track to get to $15 billion on NGS ARR. Got it. Great. Thanks, Andy. Our last question is for Matt Hedberg. Matt, go ahead. Sure. Thanks for taking my question, guys. Congrats on the results. Not an easy environment here. Yeah, I had kind of a high-level question, maybe Lee, for you. I think, you know, we've all been talking about Agentic and Agentic framework. And I think, you know, Nikesh, you mentioned on the call, I guess, Lee, from your perspective, a lot of people look at identity as sort of maybe the tip of the spear for Agentic-based security.

That's what's allowing us to get it to the, you know, I still remember six years ago this was zero. So we're very happy that it's tightening up closer to $5 billion. And, you know, we still believe we're on track to get to $15 billion on NGS ARR.

Andrew Nowinski: Got it. Great.

Walter Pritchard: Thanks, Andy. Our last question is for Matt Hedberg. Matt, go ahead.

Matt Hedberg: Sure. Thanks for taking my question, guys. Congrats on the results. Not an easy environment here. Yeah, I had kind of a high-level question, maybe Lee, for you. I think, you know, we've all been talking about Agentic and Agentic framework. And I think, you know, Nikesh, you mentioned on the call, I guess, Lee, from your perspective, a lot of people look at identity as sort of maybe the tip of the spear for Agentic-based security.

Walter Pritchard: What's your perspective on the security foundation for a broader agent rollout? Oh, I think it's, I think it's a lot more complicated than that, Matt. Not necessarily in a bad way, but I think sometimes the industry can be quick to jump on a single magic bullet of identity, which is important, but there's a lot of other aspects to how these Agentic platforms work. And I would actually start with how do you secure the AI portion of the Agentic platform and making sure that it's providing, if you're going to give it the authority to take independent actions, which effectively what Agentic AI will do, you better make sure that that AI environment is fully secured from attackers and you have their proper guardrails enforced and everything else. Yes, that has to be combined with identity.

What's your perspective on the security foundation for a broader agent rollout?

Lee Klarich: Oh, I think it's, I think it's a lot more complicated than that, Matt. Not necessarily in a bad way, but I think sometimes the industry can be quick to jump on a single magic bullet of identity, which is important, but there's a lot of other aspects to how these Agentic platforms work. And I would actually start with how do you secure the AI portion of the Agentic platform and making sure that it's providing, if you're going to give it the authority to take independent actions, which effectively what Agentic AI will do, you better make sure that that AI environment is fully secured from attackers and you have their proper guardrails enforced and everything else. Yes, that has to be combined with identity.

Walter Pritchard: All of that has to be combined with, it's going to ramp up even just machine-to-machine level communication, how we secure it. So there'll be multiple facets to how Agentic AI is secured as it matures. Just to add to that, Matt, I think one of the things which is, from our perspective, fascinating is that we have now sold XIM more than 200 times in the last 24 months, making it one of the fastest growing products in cybersecurity. And in XIM, we see all the data. So we expect we will start seeing Agentic activity in XIM. So, you know, identity is two parts. Identity is validating your credentials to make sure you are who you are, whether you're an agent or a human being, which is what typically MFA does or service accounts do in SASE applications.

All of that has to be combined with, it's going to ramp up even just machine-to-machine level communication, how we secure it. So there'll be multiple facets to how Agentic AI is secured as it matures.

Nikesh Arora: Just to add to that, Matt, I think one of the things which is, from our perspective, fascinating is that we have now sold XIM more than 200 times in the last 24 months, making it one of the fastest growing products in cybersecurity. And in XIM, we see all the data. So we expect we will start seeing Agentic activity in XIM. So, you know, identity is two parts. Identity is validating your credentials to make sure you are who you are, whether you're an agent or a human being, which is what typically MFA does or service accounts do in SASE applications.

Walter Pritchard: But watching the activity and being able to control the activity and stop the activity and change permissions will have to happen in some sort of AI-enabled SOC. So we think there is an opportunity for us in the future as the definition of agents and the deployment agents starts to settle in that we will be able to build Agentic sort of detection, remediation, and management within the XSIAM capabilities that we have. All right. With that question, Matt, thanks for wrapping it up for us. We'll turn the call back over to Nikesh for his closing remarks. I just want to say thank you very much to all of our customers, employees, and our ecosystem partners for all their hard work. And thank you for all of you for taking the time to listen in on our earnings call. We'll see you guys next quarter.

But watching the activity and being able to control the activity and stop the activity and change permissions will have to happen in some sort of AI-enabled SOC. So we think there is an opportunity for us in the future as the definition of agents and the deployment agents starts to settle in that we will be able to build Agentic sort of detection, remediation, and management within the XSIAM capabilities that we have.

Walter Pritchard: All right. With that question, Matt, thanks for wrapping it up for us. We'll turn the call back over to Nikesh for his closing remarks.

Nikesh Arora: I just want to say thank you very much to all of our customers, employees, and our ecosystem partners for all their hard work. And thank you for all of you for taking the time to listen in on our earnings call. We'll see you guys next quarter.

Q2 2025 Palo Alto Networks Inc Earnings Call

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