Q4 2019 Earnings Call

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Excellent.

I am pleased to welcome Vice President of Investor Relations, David Niedermayer Oh.

Hello, Thanks for coming I really appreciate it good afternoon, David Letterman, Vice President Investor Relations at Palo Alto networks.

Thanks for joining us today to discuss our fiscal fourth quarter and full year 2019 result, this meeting is being broadcast live over the web and can be accessed on our Investor Relations section of our website investors that Palo Alto networks Dot Com earlier. This afternoon, we issued a press release announcing our results for our fiscal fourth quarter and full year ended July 30, Onest 2019, we also provided a script of certain fiscal fourth quarter and full year 2019 financial results and operating metrics along with applicable reconciliations as exhibits to a car report on form 8-K filed with the FCC earlier this afternoon.

Copies of these materials can also be found on the Investor section of our website I'd like to remind you that management will be making forward looking statements, including statements regarding our near and long term financial guidance and strategy as well as modeling points for Q1, 2000 and full year fiscal 2020. Please kindly take a moment to review the Safe Harbor language provided with the meeting materials also please note that certain financial measures. We use on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges for historical periods. We've provided reconciliations of these non-GAAP financial measures to GAAP financial measures in the supplemental financial information that can be found at the end of the presentation on the Investor section of our website located at investors got Alto networks dotcom onstage with us today will be in a casual or our chairman and Chief Executive Officer, Kathy Nano, our Chief Financial Officer, the Claridge, our chief product officer and years of our Chief Technology Officer, We will have accumulated forum at the end of the financial presentation and with that I'll turn it over to Kathy.

The.

[noise].

Hi, everyone. Thank you so much for coming today.

Got spattering of applause, how nice [laughter] I appreciate that thank you.

Thank you all very very much for coming today. We appreciate your interest in Palo Alto networks, we have a lot to cover today and so I'm just gonna get right into it I'm going to start by providing a quick overview of our fiscal Q4 results for the year fiscal year 2019, and full year results and the cash will then come up and he'll walk you through our strategy and our operating framework for the next three years, and then Lee Claridge and IRSA will take you through our product strategy and already turned to cover forward looking guidance at the end. So let's turn now to fiscal fourth quarter, 2019, which capped off another great year for Palo Alto networks.

In the quarter, we grew revenue, 22% year over year to approximately $806 million.

Quarterly billings crossed the billion dollar Mark a first in the company's history.

And our performance in Prisma and cortex, or as we refer to them collectively as Nexgen security was especially strong our nexgen security billings were approximately a $192 million in the quarter. This represents a 768 million dollar annual run rate to approximately and accelerated our growth to approximately 180% year over year.

For the full fiscal year. We also delivered strong top line results and full year free cash flow was approximately $924 million.

If we adjust for the cash charges associated with our headquarters in Santa Clara and the retirement of our 2019 convertible debt free cash flow for the year was $1.1 billion at a margin of 36.7%.

So, let's turn now to some of the product highlights for the quarter.

In Q4, we completed the acquisitions of twist Bakken pair sac and we are actively integrating them into our prisma cloud offering.

We also released significant updates to prisma access, including providing over 100 network Onboarding long locations around the globe and providing clean pipe for service providers.

Along with several other unique capabilities in that release.

In addition, we released to trap six dot one which included expanded support for macko access and Linux further strengthening our endpoint and XT our offering.

And we received fed ramp certification for wildfire cloud a huge milestone towards shifting government wildfire usage towards the cloud.

And as you probably just saw earlier this afternoon, we announced our intent to acquire Zing box and enterprise Aiotv Security company and if the cash will discuss a bit later. This acquisition is yet. Another example of our ongoing strategy to consolidate new technologies into our next generation firewall platform, making it easier for customers to protect their complex enterprise environment.

In addition to product releases, we have several notable wins during the quarter, we displaced semantic and these scalar at a fortune 50 us retailer to secure their data center and network of more than 2000 retail outlets.

We displace these scalar and beat Fortinet at a major European National Health care provider in their digital transformation project.

They are securing their hundreds of hospitals, along with all of their patients and employees with a great win for us in the quarter.

We'd be crowd strike and display Symantec with our Prisma and core Tech platform at a global insurance company with more than 25 million policyholders.

And we'd be Fortinet and displaced Cisco to become the standard security platform for the government of one of the most populous regions in Asia Pacific.

In summary, there was a lot of great news in the quarter, we continue to have high win rates against our competition and add thousands of new customers every quarter.

In Q4, we added nearly 3000, new customers and are now privileged to have won nearly 65000 customers.

We're looking forward to another great year in fiscal 2020, and we'll now move onto the rest of the presentation. Please welcome our CEO , Nick Casher or.

[noise].

Good afternoon.

Thank you very much for joining us.

Thank you Kathy.

Normally when I get up on stage I, usually ask the audience what can I answer so let you leave your hobby.

Now many of you are so trying to get rid of me very long notes about what do you want me to tell you which are going to make you happy.

It was very helpful. Just like I have my marching orders, you've given me the script. So Keith Weiss from Morgan Stanley , Yes, we will talk about product evolution M&A.

Keith Bachman talks a depth and duration of depressed cash flows on very depressing, but we'll talk about that they're not depressed I'm sure. We will go down to the.

Details of our next generation security business to explain the financial models around do you don't get spooked by duration issues.

I guess Brad.

No hardware company this size a major transition like this but hopefully we just need to keep growing and not make the transition you do notice that have been displacing your favorite companies. These killer in many situations. So.

[laughter], but I'm scared that hey, Brad changes the recommendation something's going to happen to the rest of your guys. So for now I'm happy with Brad where it is.

So.

Is it about 12 plus months I've been involved in that works I know you guys have been asking for us to come up come about and explain how we're thinking about this company going forward. So hopefully in the next 70 580 minutes me, they're only in many of my management colleagues, we'll share our plan for the next three years with you in terms of where we want to take this company.

Before I go there I saw what I would do is quickly walk you through what I've learned over the last 12 months now Unfortunately, there's going to be no or chatting factoring secrets and what I'm going to tell you in the first section section, but hopefully you'll get a sense that you know I've been studying this industry for a while and.

And the problems are obvious right.

There's 140 billion dollar industry, and we have too many vendors.

I've gone to over 300 customers. The last one year of the winter. So far is 200 enrolled cyber security vendors deployed or one customer that's a lot.

Well what happens is when you have to enroll cyber security vendors and cyber security only eight or 10% of it spend.

Its way too many vendors for the amount of spend you do on IP compared to the rest of the vendors you have.

Well that is often is people are deploying to any tools. One of these customers not the during 12 under customer has nine endpoints deployed.

They were up nine CRM systems around nine HR systems, we have nine endpoint in one financial services organization. We think that model is broken it's wrong it cannot be the boss of securing that enterprise for the future.

If you think what do you do in the industries, we give you the tools. They sent out you can ride policy against that you can spin up a bunch of alerts and we'll give you all the alerts and you can figure out what to do with them.

So we have tremendous amounts of alerts being generated in many of our customers and linear talk more about this on average a customer can get 175000 alerts a week.

That's a lot of alerts.

And then you spent a lot of time and effort manually going through your issues in investigating which can take anywhere from four to 57 days. So you have an industry, where we have too many vendors to many tools duminy alert.

And too much around the labor.

We think.

At the same time or be gone, but getting the industry.

Our friends the adversaries have gotten more and more sophisticated the days of malicious software. The days of Keyloggers are gone now we're talking about AI based bought animal based attacks and people are really addressing your entire enterprise infrastructure trying to figure out how to get it. So the amount of breaches have actually gone up last year was about 3800 breaches.

And most of these breaches or automated attacks.

So it's kind of an interesting situation in the industry.

We have a situation where people are spending more money.

On cyber security and they're feeling less secure.

This is a problem.

This problem is to be fixed so.

We believe we need a new paradigm for security and much of what we're going to talk about is what that new paradigm is going to be or needs to be we believe we need to go towards lesser number of vendors.

We believe we need to go towards more comprehensive security. We believe this has to be more of an automated industry as opposed to an industry that is full of lot of manual labor. So a lot of what Lee and neither going to talk about is going to be how our products are gonna enable that going forward and we will talk specifically about some of the things we're working on which will be unveiled over the course of the next few quarters and years and how we intend to make this happen.

At the same time, we are at an inflection point in the industry.

In my travels the last 12 months and my time at Google.

I haven't met a customer who's not thinking about going to the club.

Almost every customer of med.

Approximately two under them is in some way shape or form on their journey to the club some of them are evaluating the cloud some of them are all sort of.

Deploy some application in the cloud some of them are in a hybrid cloud environments on the go and go to multiple clouds, but there's not a customer who was not talking about the car.

Interestingly, we don't believe that cloud security has matured as fast as the cloud platforms.

So the best security you can get it some cloud native security offered by an individual platform provider, but we actually don't have comprehensive cloud security that allows you to make the journey to the cloud in a more comfortable and happy fashion.

So.

Our belief is as we see this cloud.

Market go to potentially a trillion dollars of the next five years, there is an opportunity opportunity for cloud security to play a relevant role in allowing these customers to make the cloud journey over the next three to five years, there's a big opportunity.

The Big obviously, we have here is to make sure. We don't make the same mistakes were made and enterprise security.

We need to get cloud security right.

We anticipate and cloud security, there's an opportunity for us to become a platform of choice and customers not have to deal with the problem of too many tools too many vendors to many alerts and too much amount of labor and we'll talk more about that when linear come and talk about what we've been doing the last 12 months for cloud security.

But before I walk before I have them come up on stage and talk about the opportunity ahead of us.

Want to make sure I give you a sense of what am I doing doing for the last 12 months and he has been all ready all these notes and trying to figure out what the run up to as a company.

Let's take a look at where we've come from Telnes go when I came to Palo Alto networks, we had a phenomenal company a company that has built an amazing firewall had a great Brian tremendous amounts of trust with our customers and over 50000 customers in the market.

There's a lag between when I click this and this slide shows though this was Palo Alto networks. They were primarily a firewall company, we'd made a few acquisitions and we had done a bunch of projects from the side.

But.

Despite the way we had implemented then we'd managed to get 8% about billings from none of that services outside of.

Our firewall business.

The worrying thing was though I notice, we would acquire companies and decouple them and merge them into our hardware based business well that's a bad.

That thing if you start taking software businesses and start making the work like hardware business hardware has also has a certain cues cycle has certain deployment cycle software is a slightly different cycle. It's very important for us to make sure we were going to get this right. So we spent the last 12 months.

Focusing now I may not know enough about cyber security, but having spent so many of you know it's been 10 years at Google. The one thing I did learn a Google is the first and foremost you have to get your product strategy right.

So for a legal hours or head of product near our CTO and many of our product colleagues has been many a nice sitting with me writing and rewriting product lines looking at competition looking at our strategy is looking at whether we are set up to win or not and literally re architecting. Many for products in Australia, just to make sure we set ourselves up to win.

So you spend hours, they're written documents and probably on their 15th iterations. We went through every product gathered and said why don't you make this acquisition what is the way to win in this category are gonna when do we have enough resources deployed against it and once we get the product right do we have the go to market capabilities to go make this happen in the market.

It wasn't simple it wasn't easy.

But some of it was also very exciting.

In our firewall business, we had been selling subscriptions for subscriptions against our firewalls.

I mean, I had talked about why cannot the far will become a platform I cannot predict what do we have the firewall and instead of having 20 different network appliances in a customer's infrastructure like on our firewall become the platform of the future for enterprise security. So at least near we'll talk about we are going to go from four to potentially time, maybe more subscriptions over time, because we believe once our customers trust us to be part of their enterprise infrastructure. We have the ability to go in deploying more and more capability into that infrastructure and we will talk about our latest acquisitions thing Bob Dole intent is to make that on other subscription or firewall, we believe our customers.

We'll deploy that firewall justly they've deployed in a security, which we launched a few months ago. So.

On a pro aside we have built we have continued to build the next generation firewall into a faster better firewall, but really when we went back to the drawing board. We sat back and said near if you were starting a company and building firewalls that if you want to do although some if you believe the firewalls are not going to be interesting they'll talk about why they're going to continue to be interesting, we sat down and thought how would you re architect the firewall business and how would you build up going forward. So what you will see as part of our our enterprise strategy firewalls is our expectations of how this market is going to walk and how do we need to be in the top right of that magic quadrant continue to go further in that direction as opposed to not continue innovation.

Not only that on our cloud front.

We had one acquisition call evident we'd made 12 months ago.

Over the last 12 months, we've examined the cloud security space very very carefully we believe there needs to be a comprehensive multi cloud multi technology platform available for cloud security. We have made two acquisitions in that space with <unk> and <unk> and we hope to be able to integrate them very swiftly hopefully before the end of this calendar year and be able to provide the best cloud security platform to our customers, but as Mcleod I'm not confusing this with the EMS or any other product has over a thousand customers already we do not believe there is any cloud security company in the world today with over a thousand customers securing the public cloud.

No and we've been able to achieve that over the last 12 months.

Not only that.

We looked at our products go GPCR, which is effectively prism axis ER, which is.

Uh huh.

I shouldn't talk about competition just yet so.

It's a product with real security that helps to secure cloud native architectures. Unlike some of the the the fix on the market take is a popular word today's lexicon. So bitter prism axis, we resource to be moved to the Google cloud. We on boarded 100 plus locations and you saw the results we had the biggest quarter for Prisma access in Q4.

Then if you ever had in the company we have our first over 10 million dollar deal for Prisma axis, where as we highlighted the displays these killer so feel very confident in our ability to keep building prism access as one of the future architecture for securing the club.

On securing the future we looked hard at the Soc industry and linear we'll talk about it we weren't comfortable with the way the industry is going we're not comfortable where the solution needs to be that you take all your data put it in a very large data repository run a bunch of analytics against him and spin up mode alerts.

They use alerts gives them to the Soc I'm, just saying it you had 174000 I got.

Another hundred really good alerts for you to take a look at that's not the right answer.

We looked at the market we acquired them is still the Misto has done really well for us and we believe the future of Sox is going to be more towards automation and linear will talk about more about what we're able to do in that space. We also took what was our traffic acquisition and are like severance I've your acquisitions and looked hard at the PDR space and said where is the endpoint industry going to evolve to how are we gonna win.

We launched xdr four months ago, we've had our first full quarter of next year and we're delighted with the fact that 250 customers have already been acquired by the ex the Arctic No. This wasn't done without our ability to run not just the product focus but also a focus in our go to market capability over the last.

Four months.

We have taken our prison mine cortex teams from 500 people to 1500 people.

Well, we did that by hiring new people in acquisitions and effectively redeploying resources from what would have been part of our core business into our new business, which is what has allowed us to accelerate our prism on court its growth rates from approximately 70 odd percent, 280% as kathee highlighted.

We feel very confident that that is.

A number or some numbers, we can really focus on and drive further we'll talk more about where you expect those numbers to go over the next three years.

So what does it look like today.

We've been able to grow our buildings from our next generation security service for in $52 million, approximately 13% of our total billings and Fynineteen.

And we feel very very confident that we have our product portfolio cleared up I believe you had actually in the process of delivering and deploying three different platforms in the market one around our firewall wander around the cloud security and one around securing the future where both the firewalls and our cloud security capabilities come together in the salt.

Right.

So I believe our opportunity in the enterprise.

He is to be able to simplify enterprise security reduce the number of vendors and their lives our customers have on vendors and it's fascinating as kathee highlighted one of our very large <unk> retail customers required in Q4 has gone to a single vendor solution. The single vendor across all forms of firewalls firewalls and the data center.

Virtual firewalls against their cloud instances and Prisma axis against their network security needs. So we are noticing customers re architecting the security as it think about going to the cloud that are rethinking do they need multiple vendors to secure them across these various form factors across the various technologies and many of the smaller ones of course, I'm Gonna say that are making the choice towards consolidating into a single vendor platform not only that on the cloud front.

We've had customers after we acquired Chris lock in Red Lux, who were in evaluation mode have signed multi million multi million dollar multi year deals with us because not to believe but just lock in red lock in pure separate Palo Alto networks, we're going to keep building and investing in these products and continue to grow them further and are delighted with our vision in terms of how we plan to deliver cloud security to them.

We believe we have an opportunity to keep being ahead of the curve of cloud security and it's funny only acquired Red Lager, they're locked him came to me and said we're going to go build container security for you I guess it sounds wonderful I came to New York and I went to about 10 or 15 customers. The financial services and said look you are using our Prisma cloud security when a building container security nine months like we don't have time.

I'm going to take what's out there the best of breed container security when you use it.

So its interesting our customers won best of breed, but they don't want to wait for integrated platform to appear and be available across multiple technologies. So we have been able to take catalog and plus log and fierce I can put them together and offer best of breed across container Serverless and public cloud I to our customers as a platform. We believe our opportunities to stay ahead in that space.

And deliver a comprehensive multi cloud multi platform integrated security solution four o'clock last but not the least in the future. We believe you have the opportunity of taking good data as opposed to ALLDATA, taking that into applying analytics to it.

And being able to provide tremendous amounts of automation to allow our customers to be able to secure the future. So I drove auction of standing up here and and Regaling you with my product capability in my product knowledge, but I figured a one of the highlights of today. It could be for you guys to hear from our founder or whose promise to give you an unfiltered version of what he thinks about the industry and how things need to go from there and then we'll have lead trying to moderate him to make sure. He doesn't go off the rails, but before I invite them I'm delighted to say last time, we had an analyst day, we pointed you to a Palo Alto networks down for about $19 billion. They believe with all the product investment and product capability to develop we now have the opportunity of addressing ill close to 70 people and all the time and if I 22, no magical 522, as you will notice that when I come back after Lee and near have talked about her product or investments.

I'm going to give your guidance for the next few years in terms of what we expect our billings to be and what we expect our next generation security capabilities to get to our cash flows and our operating margins to hold your breath or don't hold your breath, just hanging there and with that let me welcome Lee and near the top of the stage.

[noise].

[noise].

Good afternoon.

Oh.

Good afternoon.

I've been.

[laughter], yeah, yeah, well what behavior so far.

Ah you know I've I've been working with here for a very very long time almost yeah.

Yeah years, and I think this is the first time that he and I are actually sharing the stage together so.

You know goes no should be fine.

So well, we'd like to do is share with you our product strategy and how we think about things.

And we will fit that into the contract the Nicus just walk through in terms of the three pillars, securing the enterprise secure in the cloud and secure in the future.

Now I've been in a secure industry for very long time, I've been pelton networks for very long time, and I can definitively say that I've never been more excited.

And confident in our ability to deliver these platforms in a very unique and differentiated way.

No to kick us off.

No better person here to talk about securing the enterprise here.

Thank you Lee.

So.

Let's talk a bit about securing their enterprises, specifically about network security I know that some of you would like to believe that the file will is going away and there was no role for network security into future in reality, there are things that have to be done through the network to network security and there's just no other place to do them and so things like looking for command and control connections things like combining oxys control user identity and authorization systems and most importantly, more than half of the devices that enterprise used today cannot be protected by running something on the device itself have to be protected from the network.

Mobile phones, we'd looked down operating systems or limited battery life routers switches printers network attached scanners, and all other kind of I O piece like IP phones and things like that.

The only way to protect them used to the network because you can't run anything on it. So network security is here to stay it's always been the core of cyber security and will continue to be the court of cyber security, but churn just have to be made because over time applications have been moving from the corporate data center into the cloud would or SAS or public cloud and users have been moving from corporate networks into smaller officers branch offices, they've been moving.

Oh, and then it will completely in the form of being mobile users and network security has to follow them and therefore security has to follow them wherever they go because again there are things that network security is the only thing or there are things like network security has to do like some cyber security functionality like access control and [noise].

And and supporting getting devices that can only be done from the network. The challenge is how you do that how do you follow the user when they're off the network How'd you followed the application when it's running into public cloud and more importantly, like Macaire said customers are asking us to consolidate more and more functionality that today to deploying the network separately from the firewall into the single Nixon Russian based platform that we have created and to talk about that in the innovation around it.

Well go back to eat.

So theres lots of innovation, that's going on in next Gen. Firewall, there's two areas in particular that I want to talk through with all of you today that are of particular importance. The first is a sort of a piggy backing off when he was talking about the importance of form factors.

Okay, how do we take all the same capabilities and make sure that they can be deployed everywhere the inline security as needed.

And this is something we started driving several years ago. When we expanded from hardware appliance form factors to software form factors with the VM series since that time VM series has turned into the leading virtual nexgen far along in the market.

And then from there and more recently, we expanded into delivering these capabilities as a service with Prisma access, which allows us to extend security out to mobile users branch offices retail environments et cetera.

Now was particularly powerful about this in addition to be able to provide consistent security everywhere is the ability to have a single control plane to be able to manage this consistently as well as new cash mentioned earlier, one of our very large customer acquisitions in the previous quarter was a customer had been with us for a while with hardware in the data center and in the quarter. They extended that using the M series and prism access into a complete solution and what was particularly exciting and relevant to them was the ability to get that consistent security consistent control plane, they can't get anywhere else.

Yeah going hand in hand with this.

Is the ability to use the <unk> as a platform for delivering more and more capabilities.

You know it if you look if you think about the enterprise security market.

It is actually insane.

The number of different security vendors that customers have to deal with.

It's crazy.

We have a we have a running tally of the most number of security vendors that customers deal with when they come to or are you just need to hear about what we can do for them I think the latest record is now up well above 200 different security vendors for a single customer they have to deal with them manage.

No.

We have been.

I mean from the very beginning starting consolidate these through integrating best in class capabilities into our next Gen. Firewall. We did this for that yes. We do this you are filtering and we really substantially change those markets.

We took a bit of a hiatus, but we're back.

DNS security launched earlier this year, our fist subscription for the next Gen firewall.

And we intend to extend this more rapidly going forward to be able to integrate what would otherwise be standalone capabilities and to be able to consolidate those into our financials a platform.

Importantly to do that across all form factors as well.

Now you saw the the announcement earlier today I was saying box for higher to security I'll talk about that a little bit more detail in a second.

But just to give you some flavor for the security services. We're looking at we're also actively working on and building ft win as an example.

That we will be able to integrate across for different form factors in order to be able to again, both simplify as well as provide better capabilities to our customers.

Across their network environments.

Now to talk about higher Ti.

The.

This is this is becoming a very much a growing issue within the enterprise as you can see from some of the things here, even fish tanks can be used to break into enterprises move laterally hackers are using higher ti devices as both initial insertion points as well as the ability to move laterally across networks now why is this.

I would say devices are have become very ubiquitous across the enterprise.

By our estimation, what we've observed in both our own environment as well as others for every employee there is about three different aiotv devices in the typical enterprise.

In many cases I would see devices, they're on patched there on managed.

They are connected by definition.

That's the security risk I believe that every single one of our 65000 customers hasn't a growing aiotv security neat.

And we will be unique in being able to deliver that as an integrated service to our next gen firewall obviating the need to deploy yet more hardware.

In order to get a very relevant and important new security service without us.

The options are looking at a handful of small vendors and trying to figure out, which one to invest in and which ones you're going to take the operational burden of trying to deploy throughout your network that is a very powerful approach that we are able to take by delivering this is a integrated service.

So with that combination of the evolving and expanding form factors the ability to then deploy multiple and additional security services to those form factors.

We see a great opportunity to address the network security Tam.

As well as an opportunity to replace what today is often outsourced manual labor.

With products in automation.

You'll see that seem as we talked about the different areas. This ability to look to leverage automation.

To replace outsource manual labor.

Is one of the large opportunities we have in consolidating or the products around this so switching gears from enterprise to the cloud.

Okay now when we talk about cloud, we're going to talk about two distinct aspects of the clout the first.

Just about every enterprise is on some journey of of moving some of their applications to the cloud.

Okay, typically as multi cloud, they're off and still keeping to date as part of the data center for some of the application so its hybrid.

That is one opportunity very significant opportunity as you saw before the second is to leverage the cloud to deliver security to the end users through their mobile branch office et cetera.

So let's start with securing the cloud now.

Hey concept at all have you seen probably a million times, but just an important concept is a shared responsibility model.

Customers are responsible for the security of everything they deploy in the club.

And as we've seen many applications that could deploy our mission critical.

Have incredibly sensitive data and they need the best security solution across multi cloud and hybrid cloud.

Now to put this in context.

The the World has moved beyond lift and shift to large extent and we'll continue to move toward more cloud native application architectures, which will require a cloud first approach to security.

You cannot simply take on Prem data center capabilities and simply move them you have to take into approach what you're seeing here is a typical application that has multiple different components, which is very standard each of those components often running in a different technology stack.

So how do you secure an application like that right. So it requires.

A lot of the same security functions.

Wherever the application is but those security functions have to then be applied across all the different technology stacks.

So for example, you need to do vulnerability management of course any need to apply that to volumes.

The typical industry answer to this would be to say that's a product.

The problem is.

You're going to get to that [laughter].

Every line representing a different product now if you're an enterprise looking at that but that's a lot.

We were at risk of repeating the sins of the past if we let that happen.

I firmly believe the Palo Alto networks.

Is the only company.

In a position.

And with a focus on preventing that from happening.

With prison Mcleod, our intention and what we are delivering to our customers.

Is the most comprehensive cloud security platform that they can get.

Taking these different capabilities applying them across the different technology stacks, multi cloud and even hybrid cloud.

To help secure our customers journey to the cloud.

And.

To be clear there is a lot that has yet to be done.

I anticipate that there are a number of cloud security technologies, having been invented yet.

Then we will have to be thinking about.

And we will continue to be very decisive and purposeful about building out this platform.

And continue to maintain.

Its position as the most comprehensive solution.

Now we've talked about the other kind of cloud and for that here.

Thanks Julie.

You know maybe before dawn I'm I'm very excited about trees Macleod you know when we started the company and Lee has been with me since the beginning when we started the company we were going to build the next generation firewall and we had a bunch of very large vendors that we have to go and displaced which we've done right where they by far the largest network security vendor out there Oh. It was a lot of work displacing them I think thats, we'd cloud with public cloud security in general we'd cloud security. The market is open there was the need I don't see any other vendor in a position to do this.

And I think that the numbers that youve seen in the numbers that you will see speak for themselves.

Because to do this you have to first half if I wanted because there's no way to secure the cloud. We notify will you have to look at the things I've only been firewood can look indoor things that's running into cloud that you need a firewall because you can front end point security on them and then on top of that you need all the different technologies that we've been building and acquiring and integrating over the last few years that I just don't see anyone out there that's even thinking about it. Nevertheless, someone that has a different components that are required in order to go after the cloud security market. So very excited about that that's at least as I was as much as it was excited when we started the Palo Alto networks and went off to enterprise security market now once applications start moving to the cloud we should be our enterprise network architectures and access architectures are changing and the reason for that.

Whoops were missing a slide here.

<unk>.

Sorry.

Okay. Yeah. So the the reason for that is that traditionally the way users I've been accessing enterprise applications, which were running in enterprise data centers was through remote DOCSIS solutions like <unk> for example, and throw Mpls IP VPN Mpls links and all the things we're offering a guaranteed bandwidth encouraging performance to that what a great way to watch this enterprise applications wants applications start moving to the cloud, whether it's us or public cloud and once users are moving into a smaller offices into branch offices and of course become more bio it doesn't make sense anymore to run all the traffic through the data Center and then go out to the Internet do you want to have direct internet DOCSIS from wherever the user is whether it's in a branch office or whether to users mobile.

Of course with the tradition of the cyber security industry. The way, we're doing gates or the way the industry is doing duties by offering more and more and more solutions to try to do it right. So you have mpls and then you decide to start VPN and then HM.

Some trophee goes fast starts you have to go to a copy proxies and we have a bunch of kids be companies and and and of course. The February its topic are there the cloud delivered security V. I proxy and maybe a side note here on any fun I've seem a little bit angry done then maybe because it is I am because I feel like that can play and get whack a mole game because ER about 24 years ago I had two killed the first generation of proxies, we'd stateful inspection. If you remember companies like secure computing anyone here covered them, you, probably you'll probably responsible for them, having a higher market cap than check point at a time.

I'm not sure where they are today and comedies like crap door and not ours and of course proxies always how do you suppose we proxies theyre slow they break applications. They break networking they break network optimization network routing and so on so we'll have to kill them. The first time.

And then 12 years ago during 2007, when we started selling our products here, we have to kill the next generation of proxies to Blue Coat's into web census over the world, which again didn't make any sense proxies have never made sense, they're slow I latency. They break applications you can front everything to date, they break networking and so on which we have we all know where blue coat piece today right price of part of Broadcom in and I'm not sure. We'll read some sees and I know, it's it's visual right third time, another multi sport being we have to deliver security from the cloud how we're going to do it guess, what we're going to do with me. The proxy now why would you do it would probably be enough food network security book, It's easy it's very difficult to become a network security company, it's very difficult to build something that can go into the infrastructure, whether it's physical virtual and and provide they been networking and security that pocket based security application level. So vendors are taking the easy way out right, let's put a proxy. So we break up application. So we break the network who cares customers.

Going to pay for it anyways and are trying to use proxies to solve the issue. So first I think proxies the wrong way to to and I don't think I'm sure proxies are doing if I were here six months ago I would say, we're going to kill the proxy you know after what you've seen and what I've seen in the last two quarters, we've killed a proxy but.

Again, but I I really think that its not just a proxy. It's this it's this mess that the industry's suggesting in order to fix they they they access challenges that are associated with the move to the cloud.

And of course, there was a much better solution and duck by better solution is what brings them octopuses about some pretty good pretty Smocks Stakes mobile users and he takes branch offices in a single cloud the leveraged firewall proof I will base, our fiber based solution.

It provides access to fast applications, we are cats be to public cloud applications to on premise applications and whatever comes next.

This platform is going to do and the reason this platform has been so successful in the last couple of quarters and he is going to continue to be so successful is because when customers see decrease versus the mess that today's called Axess again, the mix driven by the cloud. The choice is very very clear. This is the way to do it and if I look at our position in the market. You know there are not many firewood vendors out there that are probably four or five vendors that sell today. The other three vendors are busy trying to figure out why they can't sell hardware against our hardware I just don't see anyone else today in a position to go and capture disuse huge access to the cloud market I I really like our position I really like where we are today and I certainly like where we are if they could get into in the future.

I'm, sorry, I'll continue [laughter], if so now that we've covered with you.

Yes.

Got Ya <unk>, they cut you off.

The risks and consequences of getting cyber security wrong in health care can be catastrophic for both the individual and the system with well over a million employees. This prisma access customer is one of the largest employers in the world to protect this sprawling health care system and its massive amount of patient data in the cloud is a challenge displacing xis scalar in beating out Fortinet Palo Alto networks, along with a strategic partner was chosen due to our industry, leading technology, our consultative approach to security the wealth of threat data from our global customer base as well as our proven ability to scale and with the right cyber security in place the customer is able to take advantage of the latest digital innovations across the health care space and fully focused on the health safety and well being of their more than 50 million patients.

[noise] can you imagine trying to access X ray data through a proxy.

They tried and they have to throw out a huge deployment of the proxy.

So going back to time, we think that cloud security in 2020 represents a very large to I'm, a very large opportunity and like I said I personally just don't see much competition over there and anyone that has the components to compete against us in in cloud security and then if you look at the automation thats needed in order to drive that security automation, but would there he's done by people.

And we do that with software and analytics or the opportunity becomes even larger okay.

So now that we've covered the first two pillars, let's let's move to secure the future. So.

Let me catch that up both enterprise security and cloud security are here to stay with us for a long time and and and we have to do both and we have to be good at both and we are going to be continuing doing both and be the market leaders in both at some point the stool converge into security operation system, because the security operations system needs to run both enterprise security and cloud security and he called comes to one place and our big issues into security operations today that that just aren't.

That's it but basically make their security operations that are not prepared for the future and we've decided a couple of years ago to go and fix stuff to prepare to security operations Center for the future. So let's first talk about what's not working in the security operations Center most of Georgia pressure sensors are based around the technology called seem I saw you EMM security incident event management by the way I was not going to do we didn't didn't and event management, but whatever we told them that that basically collect as much as long as they can from network devices and endpoints in applications and servers and wherever they can get a nordstrom and then to have a bunch of static rules and or menu a labor looking got this data and guess what they do they generate alerts based on the data now of course the data that's coming in already includes alerts because if the firewall or <unk>, yes, or whatever found something bad or something bad was founded bad was found in the public cloud and so on.

On top of that or it's not to the same collects and displays. So there was there. They seem has rules we called him correlation rules that generate even more alerts some seem have some filtering mechanism to filter out alerts usually they feel they're all donors needed going not Stargate why they had the mother told them about the breach and only looked at eight nine months later and then all of that leads to reactive.

The investigation.

And what the industry is trying to do to fix that because that's going to cost them or they'll tell you that the statements broken right now the solution to the theme is broken these were going to switch to another broken seem with the hope that our daughter broken C is going to be better and it's not and and the more advanced companies in the industry I figured out that something has to be done and what has to be done is you have to collect is much more meaningful data from the network or from endpoints and so on and provide much more meaningful processing using machines of that data right. So the same doesn't work. So why don't we create a new industry called E.D.R., we're going to ask customers to pool get another agent on the endpoint what are going to collect a lot of data from the endpoints were going to process the data with whatever machine learning gum.

Static rules, maybe we'll put some people on it we're going to find bad things generate even more alerts because there aren't enough alerts already and maybe sometimes what are going to respond back to the endpoint now that's not enough we have to do something with the networks. So there was a whole industry equaled 90, I network traffic analysis, that's doing duck on the network same thing they collect deeper data from the network using separates and source into another data lake process that the weeds rules and whatever and machine learning and then maybe respond back usually they generate just more alerts and the same thing happens for all your teeth into something happens for public cloud and the same thing happens for Sop and I'm sure that with every new challenge the industry is going to generate yet another vertical that is going to collect it another separate set of data and all of that because the seemed doesn't do anything.

Okay.

We think that this doesn't make sense like specifically NDR doesn't make sense like why would you limit yourself to collecting data only from the endpoint processed data just from the endpoint and respond back back to the endpoint. We think there has to be something much better than that and that's what core Texas about okay. No maybe before dots that they see the survey that the Mystore company, we acquired beach.

Late last year before we acquired them.

You heard it before an average enterprise has to do with the $174000 for weeks.

Usually they have the capacity to handle maybe 12000 and even though it gives them a few seconds for each alert it doesn't make sense that leads to at least four days of investigating that Oliver so they figure out what they need to investigate and some alerts. They just don't touch are they realize that they need to handle.

And and we have to fix stuff industrial cortex, SDR is about and to do that.

I'm going to have my brought us Guy tell you Howard [laughter]. So if we think about securing the future, but we're really talking about collecting good data <unk> analytics against it leveraging as much automation as we can because manual work can be error prone obviously, it takes too much time et cetera.

But ultimately we're trying to get to a proactive outcome.

Trying to get away from the reactive something bad has happened let me figure out how bad it was in when it happened or things like that to proactive how do we actually prevent the bad things from happening so using that as a framework.

It all starts with good data.

There's there's a massive amount of money that is being spent on collecting logs and alerts.

But not on collecting good data.

You have to collect good data in order to drive good analytics AI machine learning and things like that now to get the good data. We of course started with the best horses, we know our Nextgen firewalls traps on the endpoint sort of cloud services.

We know because we can control those is as sources the kind of data the rich deep data, we can get in order to drive analytics. So that is where we started.

But now we are starting to extend that out to third party sources as well.

Before the start of starting point for that will be other network security devices.

We're going to start with checkpoint and probably gone a cisco and other things like that because again in the enterprise, there's still a bit of a massive lots of different things and so while we try to move everyone to a better state. We can help by at least taking in that data correlating et cetera. So we're starting to now pull and third party data to augment our data sources to be able to drive good analytics. So what is good analytics look like.

Well.

Good analytics search search first and foremost shouldn't be a capable of detecting attacks that otherwise can't be detected cortex ex yard does that for sure.

In addition to that though analytics is very powerful in being able to reduce the amount of noise and alerts enterprises have to deal with we have seen in certain environments up to 50, x. reduction of alerts by being able to just simply group them into incidents to be able to then investigate incidents as opposed to lots of alerts. We've also then seeing the ability to reduce the amount of time significantly in how long it takes to investigate and incident.

By priests dishing data together and showing the the full view to the analyst.

It is much much more powerful and easy for them to go through the investigation get to conclusion and ultimately provide automation.

Our aspiration here.

Is to get orders of magnitude improvement, even from this which which by the way to the Soc. This is a massive improvement for their otherwise are and we're going to keep focusing on driving these better outcomes.

No good data to good analytics ultimately to really good automation.

Automation is where we can.

Take a lot of the noise out of the system and really lead the Soc counts with just what they need to be able to have to focus on.

And again, you can see the level of alert reduction by simply automating.

The investigation response that humans don't have to do the work improving the risk the meantime to respond.

Some environments, well north of 90% a improvement in how long it takes to respond to incidents that is massive benefit.

To an enterprise to the Soc.

And going forward.

We have a view that we can even make this automation predictive in nature.

Based on everything that we see across this growing ecosystem, we can build a network effect as weve done in many other areas.

So that we actually will be able to tell customers. This is what you should do in order to achieve these outcomes.

The security industries have riskier industry needs to get more opinionated about how to achieve the right outcomes as opposed to simply providing tools and that customers kind of do what they want they want with them.

Automation is a key area for this.

Lastly to bring this together we are ultimately trying to get to a proactive response or footprint, where again instead of reactive or proactive.

This is why traps on the endpoint.

It is so important to have cortex functions not only does it provide really rich deep data in order to drive analytics and other things like that but it can actually prevent attacks from happening in the first place.

Every attack that has prevented up front.

Means fewer and fewer alerts that even have to be analyzed on the backend.

Additionally, this is a footprint that allows us to when we do finished because for those finished investigation. We can actually then automate the response back to enforcement point to take action.

Do we prevent on the front end provide rich data and then ultimately prevent on the back end as well.

We can automate that entire sequence.

Nope.

We bring this together.

Each one of these components is in of itself best in class.

But importantly.

Integrated together to form the foundation of a platform.

They can solve a lot of the challenges that you're talking about.

The stock currently deals with and are growing.

So let's hear from one of our customers as they talk about their adoption of cortex, and what it meant to them.

No. We were given these security initiative by the facility to be a unified voice for security thrilled to see that really forced us into looking into a much wider scale no. We had to be responsible for security for hybrid for cable for old political subdivisions in cities until the government [noise] prior to that we were very much focused in security for government. So wouldn't cortex came on board, we were able to bring those other entities under level gorilla into a unified view of old security. It was a small entity. We are hearing security professionals security professionals are very expensive and hard to find and we have taken on a lot more role for security, we desperately needed to do automation into heavy tool that filter through all the noise for us.

So far what were seeing with Gore Tex its doing exactly that we're seeing the noise that is we formally we're a team that is going away. We're getting the important alerts that we hadn't seen previously.

We did not have a formal search so we are engaged in a build thought process as part of that we are using cortex. There's a foundational piece. We're also bringing the other pieces such as Mr. With two titles pieces together and.

Accomplish the automation pieces, we need that's helping us to reduce the staffing that we would normally not need for Sox and we can supplement that with Cortez.

[noise] Oh, it's cool and he can secure a state.

ER and of course, all this adds up to a large and growing Tam the combination of endpoint protection analytics automation and.

Maybe most obvious in this case the ability then reduce the manual outsourcing and pull that into product automation analytics as well is this financial substantial opportunity, we see as well.

And for that does that.

Like to invite to catch back up and talk about it.

[noise]. Thank you Lee in there so.

As I mentioned, we spent a lot of time, making sure we get our product strategy right and linear have highlighted or where we plan to go.

I Hope you didn't Miss the fact that at least committed publicly to deploying a lot of subscription that are firewalls and potentially as long as they ran across every form factor I'm just trying to make sure. The years me safety is so that I can make sure I can hold them to and we also talked about ingesting third party data into cortex, which is an extension of our vision for application framework from the boss, but thought it is just part of our solutions. Once you get product right you've got to make sure you have the execution capability to put the product out in the market and as Ive analyzed or enterprise companies. It's very interesting. There is a very few very large enterprise companies and many small enterprise companies and it's interesting if you look at them.

There is a distribution engine that needs to be created just commensurate with your thought product capacity.

Companies get started they get into a very good state with one set of products and then you did you have to keep innovating and adding more product to the portfolio. The salespeople or you have to acquire product and be able to ingest. It in a way that your sales people didn't sell it there's only one way to double revenue is it double the number of sales people and make sure there's enough capacity in the market or make sure you double the amount of product at a sales person can selling is able to sell they appear to be able to do that our intent is to do a little bit of both and what I want to highlight is in addition to product capability. We've also been working and our execution capability and making sure we have the go to market.

As Lee in years, just highlighted and like and then my last session with saying we can address the 70 billion dollar market there how that market breaks out we think there's a 27 billion dollar opportunity network approximately $8 billion in cloud $13 billion in Soc and endpoint protection at about $25 billion in the automation, which needs to be deployed across all of those categories. It's a slightly different view than you will see in the industry industry still believes there's going to be very loud services market. We on the contrary believes that the services market is important for the architectural pieces to get cyber security right, but if you need a lot of people to be able to manage security for large enterprises are long term that is not going to give you the automation and the right outcomes and it's kinda quite a way too much time, while the adversaries are working on automating the ability to attack you and get your precious data.

So.

As you see we have 65000 customers and we have an amazing brand, which people trust.

Just to highlight one of the first subscriptions, we launched early this year they've been able to deployed over 500 customers in a very short period of time. So our sales teams know how the moment only to deploy a subscription that able to add it to our firewall capability and get deployed in the market at Lee talked about I'd capability. They want to make that available to every one of our enterprise firewall customers and you know one if you ask me why wouldn't you go acquire a more complex I O T company. There are some larger companies is the I.D. space. This solve complex you I understand why as a startup you would go off for a complex use case, because that's probably where the large deals are but the enterprise I did he has a need for every customer our sales people know how to sell it we know how to attack. This to our firewall an aspiration is that for every subscription that we deployed we should be able to get to thousands of customers if not tens of thousands of customers in a two to three year timeframe, which allows us to keep expanding both them and our revenue in a leverageable way with our customers.

Yeah, if you look at.

Our current capabilities, we have 4000 partners, we operate a call center in 50 countries and we have over 3000 people out in the field, which makes us the largest pure play cyber security sales team out in the field.

You want us to turn that into a large distribution capability. We also believe that we have built the best execution team and cyber security I know many of you wrote in your notes about the management turnover at volatile networks.

No I don't know what they have built a phenomenal company, which was firewalls centric and we had done some stuff in the cloud and some stuff in the Soc is very important as we go through this transition of building a multi product multi platform cyber security business that our management team represents our capabilities, which are required to be able to sell multiple platforms market and what we have done over time as we've made sure that you're managing the transition and upgrading our skill set for our team to make sure that we can actually go sell cloud. They can go sell automation. It can go sell <unk> melt it can go sell files.

I joined Google One there were 450 people in Google Europe , We took that theme from 450 people to 5000, Andy Quintuple revenue in five years when I was there.

I left Google Google isn't on its fourth.

Generation of management today, and they have far surpassed ocwen to playing of revenue from the early days. There was a 100000 employees. So as you go through evolution you have to make sure you bring your management teams in lockstep.

And were very comfortable that the transitions we're doing on the management front are a continuation of our desire to build the best execution rest assured most these management turnover of your think seeing that all managed transitions at all towards the purpose of building. This multi capability cyber security sales team and you can see that we did our first billion dollar billings quarter in Q4, while we were going through these transitions, which tells you that would be a very strong field sales force and they are all on board with our desire and ambition to build that cyber security player.

And the world.

The language and he was experiencing there we go.

In the last year, we've hired over 2000 cyber security professionals, we have expanded our hiding the MIT, we now higher from 19 cloud and next generation companies as opposed to purely enterprise the hardware businesses, which had been a lot of our core sales team in the past and we built technology, which allows us to cross train our teams in cloud and automation techniques. This allowed us to train 3000 people in a week to be able to sell cloud why this is interesting is.

This is an important slide this is what we anticipate in terms of how we are going to take this and build this into the largest enterprise security business. The way. We do it is we ingest or innovating build technology, we put them in speed boats.

We have a speedboat for cloud you up to speed, but for automation. We also start training of core sales team out in the field and this gives you a sense of.

What the proportion of our field sales force is able to sell our various products. So we've taken prisma axis on 60% of our sales teams out in the field is not able to sell personal access this gives us huge amplification and leverage.

'cause Mccloud is closing in on 30, 35% of our sales force.

And by the end of the year, we will have integrated plus lock in pure SEC, allowing it to be part of the Prisma cloud platform, which will integrate seamlessly both from a contractual and from a usage perspective, So every prisma cloud customer.

Auto magically have container and service capability and we believe that leverage is going to allow us to address 40% of our customer base. Our plan is to get our speedboat deems to be able to sell it to 90% of our our entire through 90% of our core salesforce turned to our customer base, allowing us to leverage and the distribution we need to become the biggest player both in cloud as well as automation and salt.

No other player in our space has 40000 people in the field out there selling.

Not just that we want to make sure. We do this while we continue to delight our customers. So we have been able to maintain the leadership position and customer happiness and customer success out of the market not only that Oh.

We're not going to rest on our laurels, we have just announced to our field team are introducing an industry first the security incident, a shortened service whereby if any of our customers. Unfortunately.

Isn't a breed situation or any customer and industry, we're going to be the available until their breaches resolve irrespective of whether what proportion of the products of all the products. So we continue to want to be at the forefront of customer success and customer happened to us in our ability to execute.

So with that I know, yes, there's been another conversation about the channel I think there was one meeting we had with the channel Advisory Board, which I think every analyst us feedback on anything for theme I haven't said that we'd be tweaking our channel model, just causing consternation.

This is just to give you comfort that 99% of our business still comes from the channel and as you can see in Q3 and Q4, because we revamped our channel programs to create more capability training and incentive for our channel. The channel sourced business that were doing has never been greater than we've had in the last two quarters Bald network. So any any noise around the fact that channel and us are not together in this journey to build into the cyber security business is just noise as we believe it will signal is that it's showing in the results that actually allowing us to amplifier capability and they are really excited about our new acquisitions and the direction, we are taking with the various platforms.

Okay.

Alright.

This is all formally.

[laughter], sorry, it's taken us a long to get here, but until they give you a context.

It's very hard for us to take you to what you were here for.

So with that.

As you know we've had a long history of success.

We have increased market share and network security. Despite popular belief that we're not going to be able to grow our security business at twice the rate of industry.

The team and I spend a lot of time or last three or four months looking at do we need to go through a financial model transition that follows networks and I read it right. Many of your notes about the two these depression of cash flows duration, what about all they're going to do is the D.A.R. versus the term license of perpetual license.

We tested the market be talked to many of our customers. We talk to many of the cost many of the companies going through a transition and.

We're not going to any major financial transition just a flat.

Our customers like the way, we sell our products to them our sales people understand how to sell products to themselves. We are going to be selling firewalls, we've been selling them. So far we are not going to go to any term license model, we're going to stick with the perpetual license model and some of our software form factors of itself and replace firewalls are going to be sold like.

Firewalls are sold.

So based on all the analysis.

Whilst we will be building.

The U.S capability to sell a next generation security.

We feel very comfortable.

That we will be able to maintain a 20% billings growth rate over the next three years as well as a 20% revenue growth rate over the next few years I've had the privilege over the last three weeks off looking at every one of your models I have read almost every one of your notes and I can safely say that this 20% guidance is above the average of most of the models out there on the streets bulletins infineon buildings, but we stand behind the commitment I believe you can go our billings and revenue and roughly 20% girls are going forward.

An important part I'd like to highlight one of those shifts we are seeing.

Because I'm sure you guys pay attention to product revenues will be called and we are seeing a shift wherever replacing our competitors firewalls boxes with software form factors of Prisma access. So what we've done is we've taken our Oems are.

Prisma access sales and our firewall sales and said what would it look like if we can consider them all as an upfront sales and how what our revenues are held our billings look like in the firewall category. This is a combination of the m. suppose Max isn't that far well, we feel very comfortable that do be able to go the firewall as a category billings by 23% over the next two years.

Which we believe is still two and a half times industry growth rate, which would be how firewalls are sold and.

We think about it.

I will sure pointing out to the fact that because we anticipate a large proportion of future firewalls sales to be in the software form factor there will be a revenue.

Recognition mix shift, which will come through but we still believe the category. We grew at 22% over the next few years.

Talking about the partnership really excited about.

We're really excited about our next generation security billings.

We were able to achieve four and $52 million in billings and Prisma incorporates and won't be called next generation security. We're guiding to 800 $810 million of billings were 520, and we believe you will get to $1.75 billion by 2002.

Resulting in revenue of approximately over $1 billion from next generation security revenue by if my 22.

Just to park.

It takes some spending to drive that fosters honey girls.

So that Fytwenty, if I 19, we've been able to manage.

The acceleration of far for his mind cortex revenues by being able to reallocate from our core business. We believe that we need to invest between 100 $125 million next year to keep driving that revenue growth at the pace, we're committing to.

What we believed thereafter, we will be able to keep getting operating margin margin leveraged by 150 basis points and 20 122, and we believe the long term operating margin for our business should be 25%.

I know you've been discussing cash flow a lot about it.

Do you feel comfortable despite these investments despite the.

Shift towards more.

Services like software based services, and Prisma axis, and the Oems as well as cortex. We believe you will safely be able to generate $4 billion of free cash flow over the next three years.

Got into a long term free cash flow margin of 30%.

Before I talk about how we think about this oh I thought it'd be important also to tell you how we intend to use the cash.

What we've done on M&A as you've seen there was a fear when I came 12 months ago that this guy comes from Google is going to spend a lot of money and buy a lot of big stuff. Let me highlight the key tenets of my M&A philosophy.

First and foremost I prefer avoiding overlapping products.

Overlapping products are dangerous.

We have products in most categories I'm not interested in buying other endpoints company I'm not interested in buying that if I won't company because that requires some into maintained good bases two sets of customers and is no leverage for me. It's much more interesting for us to create innovation in the category and displays those competitors as opposed to acquire them and just create scale. We believe we have scale to most of our categories and so we don't need to acquire customers overlapping product category.

We prefer targeting blue Ocean.

You mean like areas, where there's not enough people, we like theaters, where we can and just technology and deployed small or large distribution base as opposed to go and participate in bed oceans, where there's a lot of blood and not enough profitability.

You see technologies that will integrate across our platforms. If you look we acquired bad luck or emerging good luck and good luck into a common platform, we acquired pure second to Serverless, which will be integrated as well read acquiring Io d., which will be integrated into our firewall capabilities that will be acquired dymista, which would be which is being integrated into coatings. So we prefer acquiring technologies we believe.

Filled an important gap and also provide leverage to our go to market engine because if your acquired Spattered products. Then you have to go train your sales forces on different go to market capabilities and different U.S. pizza.

For our customers.

You prefer acquiring product excellence forces revenue.

Because I have to be at large multiple of revenue I'd, rather not I'd, rather acquire somebody has built a great product and who has good early customers exhibiting product market fit every one of our companies that we've acquired and I will talk about this slide in a second and last but not the least we focus a large dams.

We're not interested in small towns unless they can be subscriptions, which can be added to our firewalls, which allows us to consolidate the enterprise so with that strategy in mind.

Our approach is in the first nine months, we forced our teams to write integrated product plans in fact using box and also already started talking about what the product implication could look like because our first and foremost intent is to make sure that the integration has done asap.

We believe that we see as soon as we acquire one of these pick good technology best of breed companies were able to improve their business plan by approximately 40%, which is what we've been able to do with Dymista pure sectors love Red log and many are for acquisitions.

And we let their teams on their place in the market with go to market support from our speed boats.

We didn't want to nine and 24 these start introducing them to our speed boost to our core business, allowing us to get more leverage and more scale across their acquisitions and to be targeted doubling their plan.

Because of that but 24 months they become multiple accretive to us as a business. That's on M&A philosophy that should give you a good sense of how we intend to use some of that cash flow and as Lee and you have talked about we're going to constantly make build versus buy decision. So we can deliver best of breed to our customers and if you believe that read that we're not going to get there fast enough, you'll make acquisitions, but the acquisition would be guided by their philosophy I've just laid out in terms of smart product teams and what is delightful is a new and I was just sitting early and trying to account for all the acquisitions or do you have or 12 founders working in our company and our product organization from 12 months ago, and they're all committed to be here over the next two to three years as part of our networks, we make that a condition of acquisition. So they're supposed to stay there and we actually let them run their products because we believe the fact that they were able to go out against all odds and build a great product and build a great business. It is incumbent and embedded in that we let them run that product for us at Palo Alto networks and to create the right circumstances like.

The ability for them to make that happen.

That's helpful and then M&A.

So I thought what I would do is I would do what you guys would do and see how do we compare against the industry.

We believe we are already largest cyber security company, and we're growing faster than anybody else in our space.

But this is only half interesting.

I find this even more interesting.

If you take prism on cortex, which are as our next generation security business.

In the last 12 months, we grew our billings by 89%.

The next 12 months.

We're forcing forecasting a 78% growth, which we believe makes us the largest next generation security company compared to all the people out there who enjoy robust valuations.

I would use the word is robust.

If you look at our forecasts Refy 22.

Oh, we believe will be almost twice as big as any next generation security company.

In our press mine corridor category, whilst were able to maintain.

Our firewall business generating huge amounts of cash flow.

So I like to call does the Servicenow slide I also reviewed many analysts day presentations and surface not was kind enough to build the slide and I understand this is the where analysts the geek out where.

This is something called the rule 40, you had your cash free cash flow margins and revenue growth.

And for some interesting reason over 40 is good and the low Fortys bad.

No drama surface not left us out of the slide.

It's probably we're not the where the old Fuddy Duddy Farwell company, we're not the next generation security company, but we decided to make our own version of lights or at least we feel happy funny.

Look at this and we're delighted to see that.

Do you rank second from the left based on a last 12 month performance.

And we hope to stay far above that median of 38% over the next three years.

So with that Oh. This is what we expect from our company now for like 22, we expect a 20% CAGR for total billings. The total revenue over the next few years.

We expect to get to $6 billion in total billings and $5 billion in total revenue by 22.

<unk>.

Expect that 1.75 billion of that total billings are going to come from our next generation security services and approximately <unk> billion of that will be revenue unified 22.

We expect to get back to our current operating margins by 22 with a long term target of 25%.

And we expect to generate $4 billion of free cash flow by if I 22, so from here simple matter of execution.

With that let me call my friend, Kathy who can give you more specific guidance for flight 20 and for Q1.

Yeah sure.

[noise] okay.

[noise] yeah.

All right. So that's a lot talked a lot about fiscal 22 and about what we see in coming years, Let me just put a finer point on what we expect for fiscal 20.

So am I moving these fights or somebody else, okay sense, it's a lot of data and information on the screen and these sites will be made available to you I'm going to focus primarily on talking about the year over year growth rate.

We will make these slides available to you following the call.

So for fiscal Q1 F Y 20, we expect billings growth to be between 15% to 17% year over year.

We expect revenue growth of 16% to 17% year over year.

We expect non-GAAP EPS to be in the range of a dollar to <unk> dollar for which incorporates net expenses related to acquisitions, including easing box.

Proposed acquisition, which we've just announced.

For the full year fiscal 2020, we expect billings to increase between 17% to 19% year over year, and we expect revenue growth to be in the range of 19% to 20% year over year.

As in the cash mansion Nexgen security billings growth is expected to be in the range of 77% to 79% year over year.

We expect fiscal 2020, non-GAAP EPS to be in the range of $5 to $5.10, which also includes net expenses related to our recent acquisitions.

And finally, turning to free cash flow.

We expect adjusted free cash flow margin of approximately 30% for fiscal 2020.

In this slide presentation, you'll also find some additional modeling points related to Capex estimates share count tax rate the impact of M&A on a P.S.

I'm not going to read them to you.

But once again, we'll make that available to you.

So finally, we've summarized our fiscal 22 guidance for you as well on the screen and a cash already covered this but hopefully the format for fiscal 20.

Two will be easy for you to digest.

And I don't think it's on the screen so perhaps yeah.

Perhaps I should move it since I'm holding the quicker and I am sorry.

So while we are investing.

To capture a significant market opportunity and we do see a gradual shift in durations, we expect it to be gradual associated with changing mix of our products towards more cloud and SaaS delivered products as an a cash mentioned, we're not anticipating a big Bang event and so for the years beyond fiscal 22, we're targeting our operating margins to be above 25% and free cash flow margins at least 30% or greater.

So that.

Hopefully.

We'll put some of your minds at ease that concludes our prepared remarks, and now I will turn up the lives and be happy to address any of your questions.

The cash.

Hi, guys happy I didn't come on if you could give a round of applause.

[noise] sub crowd.

Okay, we have people running Mike so.

Question.

Please state your name and your from before you a state your question. Please.

Thank you. This is Jonathan Ho from William Blair <unk>, one of the questions. I had is regarding the next generation growth can you unpack for us a little bit of the components that you see from that next gen side, and maybe how much that ties to the investments that you're making things.

Yeah look.

We're not going to breakdown the individual components, just yet but.

In terms of the of the investment we as I mentioned, we moved a thousand people through acquisitions or through organic hiring we've taken our prisma and cortex of next generation security team to about 15 or people out of the 7000 people. The highlights. We ended it ended a fine 19, with we anticipate adding more people into those categories. Both for R&D and for sales I'll be feel reasonably comfortable that our core team is robust and the size. So we'll be making small additions to our core team, but mostly focusing so far in your hires into prisma quarter. Some of that spending is also a full year impact of what we already invested going into Q3 and Q4 of this year. So some of it as a follow on from Q3, and Q4 investment, which we were able to manage with our with our budget. This year, but some of it is incremental hiring for prisma cortex.

In terms of across the board I can give you color that.

You know.

Prisma cloud is doing phenomenally well for us, it's really a we need to be out there in front of our customers a lot more there's over 20 30000 people selling public cloud between AAMC Azure GCP Ali Baba that's probably a few hundred cloud security sales people in the world. So when we show up in customers and be chosen but then one thing look this is what you're not doing the osha yeah I Gotta go cover my security needs and when I write applications. There's just not a secure themselves. So we're seeing really good traction for the Macleod I think a near made it abundantly clear how excited we are about prisma axis and help Roxy style or securing cloud native architectures is not a good idea suezmaxes is a huge focus the miss still has done well post acquisition that has followed the M&A slide I showed you in terms of our six expecting to double their business plan from where they are so.

NXT are for US has done really well because it got turned 50 customers in the first full quarter of operation and we continue to see more and more and you know with the addition of third party data ingestion and the way. We think about in addition, just to clarify or at least that we just don't ingest data, we'd make sure analytics engine can ingest the data and provide analytics and suppress bad alerts and give me a good signal and to date have stitching. So our ingestion philosophy, it's more a philosophy, which works on building analytics around the data and then ingesting data under day like so I think across the board, we anticipate robust growth. That's why we're comfortable guiding to an $800 million to $810 million number.

Well.

Okay.

Hi, Ken Talanian Evercore ISI when I look at that 6 billion dollar billings number how much of that is from your existing product set and what are your what are your assumptions around kind of current acquisitions going into that and then maybe some of the future acquisition assumptions that the build up to that.

Look as Lee mentioned that we believe many of the cloud security products are not fully built in the market from maturity perspective, if it gets over less you know Serverless. We think is 50% bill to be bought feels like they have a product road map, which is a robust product roadmap in front of them for six to nine months. So we believe there will be interesting cloud security based acquisitions, we might have to do in the future, which will fall on the M&A philosophy I laid it so some of those bolt on technology, which haven't been developed are anticipated in our desire to build a cloud platforms of the future, but there's no major.

Plug.

In that number for us to go out and acquire revenue to reach that $6 billion or if you feel what we should be able to get to that with the majority of the products. We have in place, but small bolt on acquisitions as we see the industry was the product market.

Thank you show they all with Oppenheimer and a cash you know you have put many concerns to rest over the course of the past hours. So.

One question I had in mind.

Once again [laughter] everything before the buffets [laughter] [laughter] as as we think about your targets heading towards fiscal 22 and above have you taken into consideration any changes with respect to channel compensation partners anything with a go to market or pretty much from our perspective, we should be thinking about it mostly at a status quo going further.

There are no major.

Assumptions in there and changing any channel behavior the process.

We are seeing more activity in the channel by telcos and by size like the Accentures under the rights of the world or it can't do the world or telephonic as the war they are becoming more active in cyber security. If you look at most of the landscape every telco every consulting organization is building very large cyber security practices because they are trying to not only closed the bureaucrats that building cloud practices. So if you go. This is the biggest fastest growing segment of the ethane SP space. So yes, we anticipate they will have a bigger role to play and how we are able to support some of our products in the future, but dropped us just evolution of channel. If they end up doing more business bring us to customers will be there with them just somebody we are for the office and doubling the routines that today.

Thanks, Saket kalia from <unk> from Barclays.

Because you talked about no transition to a term license model for example for the firewall business, which which was which was good to hear but you also even suggested that maybe some cloud products could be priced similarly to the firewall I think we mentioned that quickly could you just give some examples of that and when that can actually start to happen. So what I. It looks like the thank you first of all asking the question I want to make sure I clarify sometimes are our sales teams bundle our animal products into three year deals and sell them like they would sell an upfront cash payment, which allows us to kept the cash flow just the way we get the cash flow for our firewall products and roughly three years is roughly the term for our hardware business in terms of.

Contract durations, so that's what I'm, saying that some of the cloud deals end up being three year deals instead of annual deals. So we still get the benefit of the cash flow, So which is like Kathy alluded to the fact that we're not anticipating large duration declines over the next three years, we believe.

Having said this yet, but I'm going to say, we believe that the duration decline will be approximately 10% over the next three years.

And hence we believe we are able to deliver we will be able to do it with a $4 billion of cash flow over the next three years.

Thanks.

Hi, it's that task, we all get from Guggenheim Cathie, If I'm doing my math right based on your Billings Guide for next year and your Billings guide for the next generation of products, but if I back that out it looks like you're guiding to the core business growing at about 8%.

The the follow business, which is a big step down from the 24%.

Part of what we had this year is that that I'd really think about part of growth next year and the height.

I think it's a little bit higher than that but yes. That's close you know with the reason that were the reason that were looking at the firewall technology.

As a group it's because we're very excited about what we're seeing from our customers in terms of demand for both Prisma access and our VM series and so that security category, which Nick has showed up on the slide earlier, we are expecting to continue to grow at very rapid rate now you know the mix may change a little bit in between there, but I think our forecast still holds regardless and the you know the firewall security itself back in line security that network security is still a very important component for all of our customers, but we're seeing great demand and great excitement about what prisma access can do by delivering that security in a cloud form factor really security as a service and so we're very jazzed about our possibilities going forward in terms of being able to win deals that would have normally been one with firewalls.

Hardware with that particular product and we think that we're the only competitor that can really offer these various form factors to our customers and so we see a really terrific opportunity.

Just to elaborate on that for a second you saw two examples one Lee alluded to a very large retailer and we had a video from another in both cases, we were competing with probable.

Then we went in with Prisma axis.

With a differentiated strategy. These are very large views as I've mentioned one of them was over 10 million dollar deals close but in both cases, we were able to displace the hardware form factor for competitors to the competitors did not have a soft for formfactor. The good news is the software form factor deployment is a breeze, if you're trying to deploy a box in 2000 locations in a retailer it takes them and I don't know how for two years. The software we can get there in three to five months.

So.

Part of what we're trying to do is we're trying to actually force that shift towards the software form factor because as Nir mentioned, we don't believe our competition has the capability to deliver the solution via software form factor, which allows us boots to be differentiated or do speed of deployment allowed to allow it to run across 100 on boarding points from four for our customer. So that's part of the the assumption, which you rightfully captured we're actually trying to engineer that bigger shift and trying to drive our business more towards the so far but.

So one more follow up on the long term target competing with you gave US last time in 2017, you have free cash flow margins long term below operating margins. This time to reverse that your operating margins long term are actually.

Lowering your free cash flow margin targets, what is driving that the reversal is it just more recurring revenues yeah can I just clarify when we're talking about long term and I'm glad you asked that so I can get it out there for everyone to hear and we're talking four to five years right and the previous guidance that we had given our long term with much much further out when were sort of growing at the rate of the market is the way. We described it and at that point in time, we assume that we'd be a much greater cash taxpayer and so that was the reason for the lower free cash flow margin.

But we're talking right now long term for US is about 45 years out.

Okay.

Okay.

And I said four to five not 45 I need to be very clear and then regarding age.

[laughter].

Somebody go to like this question it looks like they were doing it and I saw a woman with her hand up I want her to get a question about him.

[laughter].

[noise].

Just don't ask us a hard one.

Oh go live in any [laughter] level any from U.S. and just a quick point of clarification on the mix shift dynamics, you're seeing in the core firewall business is that a displacement dynamic or are you seeing the mix shift within the refresh of your own installed base.

<unk>, it's more of a displacement dynamic I'd give you one specific use case, but there are some other use cases in many places where whether it's a retail or whether it's a a monkey branch situation or multiple mobile users situation, we have customers with a 100000 employees or more who want to go to a prisma access type solution for the mobile user. So it's more the more mostly a displaced tying up mostly a displacement of competition dynamic than it is a refresh of our data center firewall business I understand so my real question is I know I knew what everybody door you'd high spend three month boring or every one of these [laughter] I know exactly where you're gonna. Please go you talked a lot about automation and each one of the pillars of your corporate strategy and so as I think about your top 25, or your 25th largest customer spending close to $40 million per annum with you I mean, how should we think about that with the automation opportunity and the fact that.

We expect to double the size of your business in the next four to five years I mean, what are some of the dynamics there if you're 25th largest customers already spending $40 million with you. So let me use cortex 60 hours of use.

Right.

We have thousands of customers who deployed drops.

The version or perhaps four months ago was not collecting data sending to central data like allowing us to do insights and analytics against it we are able to go back to every one of those large customers and allow them to ingest data from there and give up sell them Court expects New York. So this is a use case for us where we take their firewalls dig their endpoints and say why did you collect the data across the board will analyze it too will reduce the signal to noise ratio and we were a couple of the mr. with it and be able to give you automation going forward. So that's the use case for example, we can take our firewall customer the important customers add automation to this and that budget comes out of their Soc budgets. Because every one of our customers is building soft Soc is the fastest growing category with about 20 plus percent growth year over year, where people are deploying more people and more data ingestion and more.

More data logging spend and do you foresee that more coming out of the wallets traditional managed security services providers, you sort of offer these tier one type capabilities and while you're at where are those dollars coming from is essentially those dollars are coming from both Soc dollars. If you will is there such a category, but they're also coming from efficiencies we were able to drive for those songs owners were saying, we can come in and instead of you know we put up some interesting numbers. After April eight times and 50 times in terms of alert production traditional approach to learn production is higher more Soc analyst.

But if you can walk in and second to reduce the number of reps by eight times and I could use a number of runs about 50 times. That's a huge amount of savings, which is coming out of the salt analysts that people have to hire and very few for customers able to still get scale up their soft to hard to understand all this because it's kinda very interesting one thing I learned that in talking about energy customers delete policies. They are scattered relieving 70 year old firewall policies, because somebody wrote them to some wisdom in mind and then you guys as always should I'm not gonna deleted. So there's of course Soc I'm just trying to interpret why why is that an alert and the promise dealer keeps coming back because they have no ability to go out and remediate that fits that policy. So part of what the mystery is doing and say, okay. We understand it run like solar slips automate. This so you can start focusing on stuff. That's important that's one of the 174000 alert and not that I'm in I'm, a hacker or bad guy, but if I understand how you prioritize the important alerts you should look at I'll spend my time trying to figure out how to be under the radar. So part of our philosophy, we're going to look at every alert out then you only do you get there is sort of.

<unk> automation that works on the endpoint automation that works then your firewall automation that works in their socks. So that's why if you notice every one of our products has a large automation that we believe are going to take away from the services and labor times and put them to automation.

Thank you so much.

Remember the back.

Hi, Sterling Auty with JP Morgan. So one question for an occasion, Kathy and if possible can I threw a follow up question to near if he still has his microphone, yes, we arent talking management team is good across testing so the cash and Kathy because you mentioned the 10% reduction in duration over the next three years, how much of that is actually going to be what you're managing that duration to versus what customers want because what the positive feedback items that we received through the channel over the last quarter. So is finally, Palo alto being flexible on payment terms and if you know God forbid we do roll into some tougher macroeconomic times I can see more and more customers, perhaps wanting to only pay a year at a time instead of three years upfront.

Yeah, you know, we're going to be very thoughtful about the trade off in terms of what sort of financial incentives do we have to provide in order to have our customers commit to ask for a longer period of time, we talked about last bad issue last quarter, and we talked about the fact that we were paying very close attention to the economics of deals like that where our customers really wanted to only path here at a time and we're going to continue to do that and if our customers demand more and more of that obviously, we will adapt to what our customers are wanting but we actually find that there are a lot of customers who are very comfortable with the way. They pass today very comfortable with our billing practices today and so we're not seeing this huge surge of demand. It's it tends to be occasional request that we handle on a one off basis potentially it could become larger in the future and of course.

First we'll adapt to that overtime with the big shift that we've been talking about I'm, sorry, and Academy is really driven more by the mix shift of the products and primarily the growth of Prisma cloud, which we talked a little bit about last quarter, having shorter contract durations gentlemen.

And sorry, just to add to that.

I've discovered in the last 30 months industry has certain compensating mechanisms already in place there are customers, who want to be on an annual basis and industry. The channel wants to facilitate its it figured it out, but some sort of financing and to show up at our door stuff with the entire contract durations was with customers. So it's it's been around for very long, but there are many enterprise companies, which have financing arms of old all different kinds of tactics to enable that cash flow generation. So we haven't assumed any of that stuff. He believes that life will go on as normal, but I have the inevitable near here. He wanted to flush isn't exactly the windfall nearer when you were talking about proxies you did gen. One kind of gen. Two but we're when we're thinking about prisma in the competition going forward.

You Didnt really kind of call out the names so I want to be very specific in terms of understanding who you seem to think we didn't go up and then.

[laughter] touched upon [laughter], who do you think is going to be the core competition in terms of Prisma access moving forward I mean, we all think probably just going to be part of it but what about the actimize in the in the other companies that are in that space and what do you think happens to kind of the traditional firewall vendors do they all get squeezed out or do they you know come up with offerings as well. Thanks, Yes. So I think the competition is the skirt. However, you I I strongly believe Cogs the rights architecture and the right products at the end of the day we.

And we really took off movie multiple times writes a firearm for example, like a long time ago fire I came up with the market and that is ideal for running sandboxes and signatures or did that the entire world is going to ship to fire. All you know some of you even boats that story, but it was the wrong technical solution. [laughter]. You know first sandbox is going to go to a place everything and second from a technical perspective assigned books Pizza do prevention no detection.

It has to be in line and he comes to be across entire infrastructure, which means that he's thrown off the firewall.

And that's why they went their way we went our way and and we all know how it ended up for both of us. So.

I think Doug.

We're facing the same situation right now there is the right technical way of doing something and the right way to deliver a product with the market. Then there is the wrong way and proxies have always been the wrong way.

And firewalls have always been the right way being even it's worked hard over the network being a packet based device participating in routing participating and network optimization and being able to support all applications not just few applications not breaking up applications I don't know if you know what Microsoft recommends with when you use these killer your turn bugle into these color when you go to over 65.

Why because it breaks over 365.

Because that's what Brooks is due and it's their own technical solution and I strongly believe that the right technical solution will we know if you look at what's involved in access in access into more than access into the cloud and back into the infrastructure into the corporate infrastructure for mobile users into branch offices, you need to do a lot of different things and our competition to very different competitors do some things are going to see a single competitor that does both the application security part of it if I always thought it would be the Cosby side of it. The it's the one part of it day back to cooperate side of it I just don't see anyone to pass the complete portfolio to be able to do what we're talking about a third if I was wondering if I would have been just like I said are still busy figuring out why they can't sell their hardware against ours.

While we have been spending the last several years building or virtual firewall and building our cloud delivered firewalls or two to a point where I just it's just.

You know there are three to five years behind that lease plus the amount of time data behind the hardware firewall I, just I don't see competition from them thinking there.

[laughter] [noise].

I'm getting a recall that ordinary remains to say is we respect our competition and we're glad you're able to bill [laughter] build amazingly large businesses and serve the customers need to cyber security I think that's what he said [laughter].

Matt Hedberg RBC.

It seems like every other question for investors as macro you guys delivered strong results. Obviously, some very large deals this quarter and the guidance on a multiyear view is very strong I guess.

The cash you know when you're out talking to executives what is what does the pulse of buying behavior out there right now and then I have a quick product question for near as well Yeah. You know, what's interesting and maybe I'm going to ask our president I'm not saying you have not seen in this context. He can talk more because he's been out there on the road grinding away. So you guys get to tells a good story I get to go out there in the field and growing so.

Let's have you know come up please.

Oh Boy [laughter] sorry.

Hello, everyone.

The the climate for cyber security is quite strong.

Yeah acquisition.

It's driven by all the.

The challenges you see you know in the papers.

And buying behavior.

It's actually you know quite solid.

The movement towards software and software delivered is a real one so and we actually very very excited about the products that we have both on the product side as a service delivery side of it because these are cloud delivered solutions the background that I come from and.

This is interesting when you look at any trend, let whether it's.

How many software startups were funded cyber security startups, all the way to the actual market spending. It's it's very very solid. Your question was I think on the macro picture.

We haven't seen any slowdown you haven't seen slowdown you saw some of the numbers we share their own pipeline biplane grilled partner generation pipeline.

And clearly our Q4 performance is a measure are testament of being able to go to the core business, while being also able to generate brand new businesses and scale.

And then maybe just a quick product question you didn't hear when you think about consolidating security spend.

What's sort of your view on identity. It's obviously, it's a hot category out there what role is identity, having the Palo Alto platform.

Sure. So first most of our customers integrate our network security with identity, because I didn't really needs enforcement and in most cases, the firewall he's going to boot do would be to feed that performs enforcement actually the only case, where it's not a firewall is when you access SAS applications in all other cases, it's the firewall duct enforcing the identity, sometimes the applications themselves as well. So that's that's the rough identity now if you look at the market today I think most of the market is focused on what's called hygiene, meaning who can connect and who cannot connect to an application which is interesting but is becoming commodity I think the most interest the more interesting part of identities identity analytics, so being able to pick identity events.

And figuring out attacks from from the identity. So that's I think that's one area that's not being.

Addressed today by the market and there is an opportunity I think that's the other side of identity. That's is still yet to be decided by the market is how do you do machine to machine identity, especially in the cloud and I think the jury is still out on that and that's that could be one day and interesting and interesting thing to look out.

That's right.

Oh, Yeah, Phil Winslow Wells Fargo I, just wanted to focus in on the firewall platform billings slide and there you break out your firewall hardware versus Prisma and Cpms for years, we've already so we've talked a lot about prisma axis you here today, but wanted to focus in my question on the VM series and one of the questions I get a lot from from investors is attach rate of VM series and attach rate of firewall and even in the public cloud environment and so that's kind of question to the whole team here.

Is that you want it how are you thinking about contribution of VM series to the four afford billings, but also where are we in terms of increasing attach rates of VM series and call. It a hybrid cloud multi cloud <unk> security.

Quick clarifying question, what do you mean, the attach of the VM series due the incidents that call. It like the out of the box firewall. They got front get from a cloud cloud vendor Azure it'd be us attaching actually VM series, it to that workload and got it.

Uh huh.

So we're we're very pleased with the VM series and how it's done the when it first came out we were focused on the private cloud use case because at the time that was the that was the first generation of cloud and then it's evolved really well as more workloads are shifted into public cloud infrastructure VM series today supports all the major cloud vendors and U.S. Azure GCP Ali Baba it's evolved in a number of ways that are very specific to cloud in terms of how we integrate it with different orchestration platforms. How would you automation, where the only security vendor for example, especially supported with Terraform, which is one of the main sort of multi cloud.

Automation orchestration tools out there we are sellable three different marketplaces, and we actually have a very nice business in growing business with the M series being consumed through the marketplaces.

So there's a lot of really good things that are happening there. The I'd say the only sort of challenge that Reid may not the only challenge with made a big challenge relative to your question is.

A lot of companies will first try to get by without real security and the you know through various mechanisms on you know often is through unfortunate.

Events, where something bad happens to a company that triggers the people to actually really go back and pay attention, but that's that's the the only challenge is sort of getting people over the hump of of trying the the thing that they think might be good enough before they realize that what they really need is best in class security and understand that we can do the cloud integration aspects that yeltsin it.

[laughter] questionnaire.

Great Karl Keirstead Deutsche Bank first of all on the cash for a guy who a year ago said that you're no longer giving annual guidance only next quarter. Thank you for the reversal.

Appreciate it Oh adaptive dynamic yeah, Yeah, [laughter] I wanted to let's say stress test your confidence in 20% billings and revenue growth over the next three years.

And I guess I'm, saying this in the context of you, having just put up a quarter, where you grew both metrics by 22.

So you just put up 22, and you're saying you're going to grow 20 for the next three at first blush sounds a little bit optimistic, especially given that you're on stage as well talking about a hardware to software form factor shift what you. If we look at firms like at five and others that are going through this it tends to be quite dilutive to your overall growth rate. So is it that that form factor shift you expect only to be quite gradual and you can kinda skate around it or is it that youre emerging products are just growing so damn fast that despite that you can still get to 20. Thank you.

First of all thank you Carl if I'm allowed to clarify I was not comfortable giving guidance when I walked in because I didn't understand the leveraged.

Not that I understand industry norms I understand the lives of the company and I understand if it stays and comment on behalf of 7000 people without having some degree of confidence and comfort in our village and whatever so I. Appreciate you guys and during the last one here of our quarterly guidance, but I think hopefully we have given more guidance than putting a large news around our next now that we have forgotten delivered this stuff so well thank you for.

Or reminding me of that in terms of our comfort level I want to parse your question into two or three parts. One part is.

We are seeing unabated colt and cloud generally and I alluded to the fact that there's not enough cloud security out there and there has not been enough people and you made hurting the need for cloud security I will not take the name of the customer, but there has been a recent breach where it was a cloud brings and I can tell you that got the phones ringing because people suddenly realized that you can have ploughed breaches, even though you are using in public cloud provider security cannot be used as an open source set hurdles you have to have to go find a security product to secure cloud instances as you start putting more and more important crown jewel of data out there. So we believe that that's going to drive more more ER.

More of the VM use case, we believe that's going to drive a lot of the Prisma cloud use case, where we're also seeing a as the the question of the Austin I meant answered, but also seeing and a lot of re architecting going on as people go through that re architecting of enterprise. If you look at the company right. There's no see I out there who's not thinking about how do I go to the cloud so let's sit there and politics I wasn't going to the cloud what do I do with my enterprise idea, what do I do with my security, how do I really think it and as that rethinking of the rethinking their branches you go to a retailer by retailer needs to put a lot of lot of bandwidth into their branch. The buff there was little bandwidth you need your Pos systems to work and it was all you need it today, they want a AR and VR in the store or they want to move customer data back and forth suddenly they need security in the store. So we believe there is some degree of new use cases being created which is driving some of the.

Confidence we have itself on newer services and we believe our core business continues to be strong the underlying core business customer base continues to be strong we fully realize that you know we're going roughly from let's say, a three and a half billion dollar bidding number two a $6 billion number which means we have to kind of double and as I said, there's only one way to double have more products or have twice as many salespeople I hope that there's twice as many customers out there that you can get so we think the balance is right and we should be able to execute you've done a lot of investing in a fynineteen in Q3, and Q4 and ramping up both our core capability as lump sum up our people capability now are stretching out to just go out and deliver we'll give it our best shot.

Yeah.

Yeah, you'd use three D. cashed festival.

Yes, you are getting used to it is that you just first of all thank you very much for not changing your business might it took me a very long time to figure. It out. It then they spent money can be 12 months to figure out what they had to go figured out what the other guy. Good reason I can get it did work with have done so far that's that's great and it gives me as opposed to did you to ask more of a product question to Tuniu and so so you explained very well how are you planning to compete you crush Oh proxy based.

Competitors and I was wondering and your different very when their orders are all what you have already.

In your development into the next generation firewalls, and what you've done from there, but I was wondering how do you trend shows that benefits.

Two technologies you are acquiring so for instance, if we look at the components of a pretty smart cloud to when they came in first day. What did you do how do you integrate the epic movies with your existing technology. How is how did you finish from that and then your clients using its how does it benefit from having a better <unk> and having prisma cloud in the same environment.

Yeah. Thank you for the question so.

See you the cash mentioned a couple of the principles that it's.

We now apply more vigorously in terms of the incoming companies level responsibility, we give them the expectations you put on the founding teams of these companies to to continue to execute as well as to build the integration plan any interesting enough. If you asked about Prisma cloud.

That was formed out of the basis of Q acquisitions have been an Io and Red luck.

The integration of those two together took us about four months.

Four months to integrate two products into a single platform.

Now forms the foundation for we'll be able to then further integrate twist lock in pure SEC into that platform as it continued to extend it out again.

Pulling the leadership teams of the companies into this together.

In order to make sure it and then building an execution plan that includes the integration that we all agree on very quickly after the acquisitions happen.

And were very much in the midst right now of executing on that with an expectation that by the end of this calendar year those when that would be new modules in the Prisma cloud platform.

So the a lot of this is around getting the right people to risk <unk>. The right responsibility right accountability, and then executing and we're showing that we can do this is very good success on the customer side than what they're seeing is.

Very easy adoption of additional cloud security capabilities showing up in the same platform that they're already used to.

They simply get to consume and deploy against or cloud workloads, which is a very powerful or go to market and adoption.

Aspect that the products are enabling.

Yeah.

Yeah, you know for example will be xdr. So we both an easy our company we both in in Diego. Many Reits are doing like fiber and integrated both to get her nobody believes that can do that nobody believes it can take network data thick endpoint data combined them together and generate meaningful analytics based on that and we're the first one to do it and like I said, he D oar and get their own their own don't make sense and now we're going to integrate we plan to integrate more and more things into it no I don't type of integration that we have which I think you're partly asks about his wouldn't we buy someone like using books or we develop something like being a security it becomes a service, but these are attached to our fire one and all the customer hospital to use it used to flip the switch you flip a switch and you use the service and you've tested for a week a month whatever you like if you abide you're going like if you don't bite and most customers the sorting through them they see things that they just can't note.

North by the product and the interesting thing is that those services apply to all form factors. So if you have a physical five what do you do that you booked prisma axis, you're starting to when you do that if you. If you went with a competitor with the proxy competitor and you want to do I only security into branch, which you do like you need to secure freezers and you probably have IP phones in video cameras and other things connected to the network into brunch. What do you do you have to go to an Iraqi security corporate didn't you have to buy their product you have to deploy it into branch and you have to do deployed in 2000 branches. If you have 2000 regal points and somehow a personalize it.

With Palo Alto networks, if you're a prison boxes customer rather you turn on the switch.

Immediately it applies to all your branches.

You like if you buy it you don't like it you don't buy it it's not simple.

Okay.

Your other question right next to the gentleman.

Hi, Keith Bachman from bank of Montreal, Cashing Cathy for you.

It is it is M&A inclusive or exclusive of what you just put up on the board and what I mean by that is as we think about the revenue outlook and billing outlook I assume that the context of that is mostly smaller deals probably don't move the M&A, but I just wanted to see if you could clarify in and it relates to you as well Kathy on the margins this year, you're suggesting that margins go lower but thereafter, they'll move higher in so is that again M&A neutral. So that you do some deals you might ask for some for forgiveness for the margin growth that you're suggesting in the outer years. If in fact, you do pursue M&A or even some smaller deals that might pressure those margins, so inclusive or exclusive it's the shorter question about money. So to give you a framework its.

Exclusive of any large M&A, what's has a significant revenue acquisition call button. So if you go buy a company for $100 of revenue work, that's not part of our plan and as I said to the gentleman earlier, there's no plug in these numbers that we're gonna be acquiring took it on the other revenue growing at 50% right that none of that stuff.

We're not looking for M&A as a strategy we're looking as.

Platform as a strategy nine the Blackstone context, if you think about are we better off going back and for example, we built cortex XT out from the acquisitions, we bought it and Oh Wow. We've got the team is doing a good we didn't sell it for six months, we got them to innovate for sold a tougher they put it together.

First loss rattle off your Sac, we integrated a number deploying it across our platforms. So if you find there's a product need and the product market fit that needs to be integrated as part of the platform that stuff will have to be acquired and we'll keep you posted as we acquire them what the impacts of those are financially we've not built in any.

Expectations, saying, we're going to be doing fundamentals of acquisitions every year and it's gonna have certainly you get them back we're going to take that that's baked into these numbers. These are broad numbers organic cathy's told you at 520 has a $45 million.

M&A portrait that this year after one year, we roll that indoor organic number. So that's why 20 122, there's no.

Tobey unless we do something between now and then there's.

Those are clean little bit clubs will become organic numbers.

Right.

One thing I think there was a clarification question, which I want to announce publicly somebody asked a question about the duration of 10% is that every year <unk> across three years. The answer is it's over three years not every year.

[laughter].

I'll try to keep my friends I did I hear that broadband is poor in jail. So.

[laughter] fill and mpls. So [laughter] good idea my wife's just finished watching or just new black last night. So I don't want you there.

[laughter] the.

Michael Turits from Raymond James.

Question on that.

Nearly you guys talked about SD Lan and 61 is big and a big part of what Fortunately has been talking about for some time, so I'm trying to think about.

First of all how do you become an end to end player. What are you going to do with it is it similar I think to important is doing and saying Hey, we can do this to punch. This UN Oregon to use it to help improve global protect cloud services networking component because that's also a big place to discolor wins is by doing networking that they see save people money.

Yeah going Miss working with the broke through dark so interesting but.

[laughter] he doesn't need any more encouragement [laughter] I just want to get it right.

Sure Jim performed for a while yeah. So so SD Wan SD Wan <unk>, maybe maybe 30 seconds and what they want is so just a word the same page as applications move to the cloud and it stops making sense do the Npls you want as you start using regular internet connections idea. So cable modems whatever the threes eateries whatever you can get.

The challenge we got it's not they don't provide you the same reliability and performance guarantees that MPLX does so if the saga and you start relying on applications in the cloud like office 365, and G suite, and so of course dot com or your own applications, the Oregon public cloud, but you can will get the same guarantees. So it's the one is about taking multiple internet connections like do you still from one provider and the cable modem from another world to DSL or would be a fill in L.P. or fiveg sooner and so on and somehow doing some kind of networking drinks.

Own game, such that we the two or more links you can get to the same reliability into same guarantees more or less you have to get from MPLX of course with a much lower cost much higher bandwidth, which is one of those applications in the cloud need.

No.

There are multiple ways of doing that you can do it in the branch itself, meaning you can pick the firewall, defeating the branch and you can add to it the way onto dots firewall and do that those networking tricks to make those multiple internet connections appear much more reliable and more doing dots building, we were building dock and that's going to become a subscription on top of the firewall that's like Lisa a where if you deploy our fibers into branch you. We do that then and in that respect it's somewhat similar towards either SD Wan vendors are doing of course with the differentiation being much better security.

Right, we always weighing on security guard their option to do it in and which which we do today as well as the one power partners and we'll continue to do is to use SD Wan to bring the traffic to prison boxes.

Brees Maxus, which is a bunch of fire was deployed in the cloud need to traffic to get there and you can do it we traditionally like the six times or something like that and much more efficient way to do it is would I see one.

So your program Youre SD Wan Youre software defined Wan to bring the traffic to freeze my access and then you do all the security work in Prisma axis. The advantage of that just not you don't have to deploy a new security box in the branch every few years, because technology goes stale and you need you need to upgrade which is kind of like painting. The Golden Gate Bridge right. You start you deployed 2000 branches by Tom You're finished at 2004 and you have to start from the beginning we presume access you don't have to do it and that's where the real differentiation knees. So doing asked the one in the cloud rather than doing it the one thing that branch and using as the one just to bring the traffic to the cloud is the right way to do SD Wan, but for that you need to have something like prism axis and you need to have a networking bracemac. So it's not something that breaks the TCP connections and restarts them, which is not networking based it's called a proxy.

[laughter].

Do we need to acquire no Luckily said, we're building a new one.

Okay.

Eric Superior JMP, a couple of questions one on the.

Free cash flow margins or is the primary cause for the decline a this year a duration or what what should we think of as the primary hit on the on the margin front, Yes second question after that yeah. The.

Primary reason for the decline in same primary reason you see for operating margin decline and that seemed assets that were making not only organically to drive the new areas of our business, but also the M&A.

Okay, and then ER, which is why we expect that to turn around Okay, then after new year or Lee.

Xdr is is that product production ready.

How much how much of that how how can we gauge the success of xdr from here because weve had traps out there for a while or is this is this something that's going to be a viable competitor to crowd strike at this point or how should we be thinking about that and how much of that is getting sold outside of your installed base.

So.

As we mentioned earlier or Russia.

Very happy would have extra stuff I know, it's early it's it's you announced at about and released about a four and a half five months ago. You saw the results for the first full quarter number of customers we added.

So very excited about the initial market reception customer reception to actually are and the messages that we talked about here are things, we're hearing from our customers.

Very powerful they are building out the ability to integrate the and stitch the endpoint data with the network say that no. One else can do that no one else can get in that end to end visibility, reducing the number of alerts reducing the amount of time it takes them to actually investigate incidents. So all the things we said here or are there here because that's what we're hearing from our customers that have adopted XT are okay. They.

And the interesting aspect of this is that is enabling us to really sort of change the conversation with our customers to one that is a very strategic conversation about the shift toward not just endpoint protection, but the shift toward analytics and ultimately toward automation and tying that imaging system.

Yeah.

Yeah. So.

Going back to the city [laughter], almost because even though [laughter]. This is another case, where I think that the right technical solution with HDR doesn't make any sense. It really doesn't make any technical sense to limit yourself to collecting data just from endpoints.

Limiting yourself to processing day their jobs from endpoints and then responding back to the endpoints, where we all know that attacks are happening across the entire infrastructure.

They they can start into SaaS application and then take over an endpoint and then propagate through the network and end up in the public cloud where your data is it the right technical way of doing it is to collect data from multiple parts of the infrastructure into one please use your analytics or your people or whatever it is to go through the entire data find their tax base and inflammation in the entire data and when you find in attack it doesn't matter, where the signal came from you want to respond back to the entire infrastructure.

Which is kind of where that may still come saying responding back to their entire infrastructure.

And I just don't see the competition doing that I don't see the competition doing but you know the doing more than just basic endpoint data collection and in response. So you know assuming we get.

The right marketing and the right sales and marketing around and go to market and then there are some missing product features I I think that you know next time, we'll be able to talk much more about.

Where where.

Where we are versus the competition you know.

If I may if I may elaborate on that from a.

Market activity perspective, given that we've only had four enough months sports afraid experience with the product to the market against the competitor you mentioned.

Please remember 12 months ago, we didn't have a dedicated sales force that could compete in terms of on a plane by plane basis against some of these competitors because we had a core celsion, which was not as fully adept at celanese, but now that we have been bought teams out there seems fair to say.

We saw crowd strike.

And.

Between 25 and 30 deals.

Which were in our installed base because that's why we went after first and I think the numbers we were able to.

Beat them and 75% of the deals we saw them in our installed base.

Again, it's one data point.

But we're slowly getting our act together and getting better at that stuff.

But six months ago, we work, we didn't have a product perhaps would not compete against each other because perhaps that endpoint protection did not do X T. R. <unk> launch 60 hours may traps free they have thousands of customers using crafts. Our first target is go to the customers already have perhaps if we have the data they only have a firewall who better than them to make sure that they can buy X T. R and we're delighted that 75% of them where cost extra how they shop more deals than we do because they have a larger sales force, but we're delighted that we were able to beat them at 25 and 70000.

Thank you I'm showing from Oppenheimer again, maybe question for a me too okay.

European performance, whereas you know it has been quite stable over the course of the past Oh me two years now thing this quarter and last quarter are not as strong as we have seen before so is it a macro issue maybe a UK specific issue maybe tightening tanking due to its former macro related question that was asked in just a great opportunity.

Really it really is Europe strong adopter of you know cyber security is actually on the headline than a debt is national legislation in countries to go fix it.

And we just investing in the team, giving them resources are we love the leadership team. There. So it's actually a growth opportunity for us to do or continue to do well and actually do better anemia.

All right you know one of the front of them too in the back on the right.

Yeah.

Thanks, Andy Lewinsky with Piper Jaffrey, so sort of question with regard to Prisma access at the Gartner Security Conference.

A few months ago as you scale. It was on stage at the keynote and they had a few customers on stage as well that said they tried your global protect cloud service, which are now calling prisma access and didn't get the performance that they were looking for it wasn't scalable I guess can you just talk about how you've changed or.

60 performance in the architecture.

Yeah, we.

[laughter].

Here's a company wasn't not existing customer.

And they.

They had they'd actually selected.

Said competitor.

And we had an opportunity to get in one last chance.

And they told US the same thing.

Yeah, We said can you share with us the test that you're doing.

[noise].

And it was provided by the competitor and it was a flawed test.

We were able to show them, how was the flight test and after they redid the test to no longer be a flight test.

Prisma axis performed wonderfully.

So and that was before the most recent update to prism access where we now have.

Over 100 onboarding locations around the world.

So we are very pleased with the performance of performs capabilities of prism access as a globally deployed cloud solution.

And as a video you saw which talks about a million employees and hundreds of hospitals.

They ran a full feel see against.

The same competitor so freely.

<unk>, which is already deployed I guess.

All right. Unfortunately, the Bakken, we're coming to the end of far Q and a session, but it will take a few more questions.

Some there and then let's go to Brad first I don't and on Friday.

Thank you very much and a cash I really appreciate it [laughter] I want to go out happy. Okay. This is a this is a fantastic presentation. Today. My question is actually really simple yes.

Three months ago, if we listen to your remarks in your earnings call.

Are you talking about a transition yeah, there's not much of a transition yes why.

Good question I'm glad you asked it.

Four or five months ago, where we're going full speed ahead, analyzing every which way we can make this transition to a floating rate of a model.

And when we sat down and looked at it from an accounting perspective, a legal perspective, a go to market perspective, they would have to him I channel. Our salespeople, we all stepped back and said okay. What are we doing.

Our customers are buying billions of dollars of products from us they have a motion our sales people lot of quoted how to sell it.

It does happen said, we're doing it because the industry likes at our models and software models I personally like money up front.

Cash flow is a good thing.

And I go out and Hunt you. Some this year a rest of you wouldn't go steroid use of near to near three well I'd have to go onto every year, if I'm going to go to analyze model. So we just felt that we were trying to unnaturally change the companys business model and transition to a place.

Which is more akin to a pure software SaaS based model and we are kind of a hybrid business. We have a firewall business very strong building. The next generation security business that you believe is going to be very strong and some of the characteristics of the severely like we'd like the upfront cash for like the cash flow that this brings us we like the fact that that gives you long term deferred revenue, which allows you to be amortized. So we decided that we're better off going this way.

So this is why we're here and then we were comfortable that Weve analyzed everything every country or Sunday, It's I live there has been in the making for six months.

I've been trying to look at what we want to come and tell you. What's important most unimportant as I said I, probably will never read as many research notes that I've read in the last six months from all of your guys apologies to you, but I have a day job, but I did read most of them and I did read what you guys are concerned about and I understand why you like those models.

But you got around the company that we want to run the company and the way the customers want us to deliver the product. So that's why.

[noise] screen under you some insights group Nikkei shop recently being being acquired carbon black and boutiques being there when I was giving the company [laughter] right I'm, sorry, I missed the cut the Embraer. Yeah, you know I know very well quite a carbon black its carbon black yes. Okay. So the question is this you know if you're trying to make sense of Holden.

Landscape is going to be evolving it looks like the embedded wouldn't be acquiring more companies in this space and what does this mean for the whole security landscape going forward.

I can't comment on reimbursed strategy or there are a lot of people, who believes securities important right and they're all stepping up or.

Their acquisitions and security and I think that's probably accurate you will see a lot more acquisitions, because I don't think 2500 vendors are going to survive and I know one of the questions early Jim I suppose buying behavior I firmly believe in the next five years, you will see more consolidated single vendor buys then you will see multi vendor by eight or 800 heavy seas at Baldwin that works for customers show up and I haven't seen a customer who's actually espouses desire that he will he or she wants multiple vendors to be able to secure their environment, they're looking for a solution, which integrates across multiple solutions. So if any company out there whether it's we don't wear or whether it's Microsoft whether its broadcom can actually take bralettes and integrate them I think they're going to win.

So the question is not acquiring we can all apart companys acquisitions. The easiest part. The question is can you actually integrate them do you actually get leverage from integrating them into your platform. According to customer putting them in an E.L.A. and making them free or being part of your large what did I hear that a black form level. So there's so there's a new term you will hear soon in the security industry. It's going from L. is to be anyways, because people have disparate products security and consulting and chips and he can put them all to do with BLE now it doesn't have to be easily anymore, because it's more than it needs to be but those are interesting pause I think the true need if the customer is in a good platform. So people can deliver integrated platform more power to them.

Yeah as near just articulated you need firewall that endpoint data to work together to be able to do next generation security. Similarly, you need container serverless.

<unk> public cloud workloads to do it or together and.

I will tell you an unrelated anecdote and apologize if it doesn't apply.

When I went to Google one of the businesses. We started to go after it was display advertising doesn't go security.

Google had no horse in the race they didn't want to display property, Microsoft had one young had one and they both are very good at selling their own display properties, but they were not good at.

Cross market selling because typically they defaulted to their own product.

And my concern is when you're struggling at the cloud native players like it'll be as far as your GCP or re m. wherever their own sort of hybrid solutions.

You default to better integrations and better alignment with your core products and you don't do as good a job off across industries security solution across industry product. So our hope is really the platform of choice across multiple platforms as opposed to platform that integrates security and trying to bundle it when you're buying their platform.

So.

If I don't want to deploy being where.

And would I be deploying carbon black today I would have may have tomorrow I suspect the indications be he's going to be stronger I'm not sure which started he gets the more revenue maybe gets you more revenue given their scale, but I think the long term outcome is that you want a multi platform solution, which is somewhat platform agnostic. So it can actually make it work better for you across multiple.

Cloud platforms.

Right lost one of the question.

Wow I want to make sure you guys.

Don't leave here with questions and answers good.

Upfront.

I'm sure I read about it tomorrow or the next week, it's like why didn't ask the question guys.

Excellent. Thank you guys for having the presentation and a really compelling product vision age. It it's great to see a value proposition. That's not just you got to be secure because we're going to scare the crap out to you, but also we're going to provide value that out in the field is not here [laughter], we're gonna right [laughter] easier more affected due to securities or is it a dual value proposition that customers must see.

I wanted to drill down into sort of the firewall market overall.

Near presented a really good sort of rationale of why fire walling isn't going to go away and we're still going to be doing firewall and but it seems like where we're going to be doing that far along is going to change. So I guess the question I had is should we expect kind of the traditional firewall being done from an appliance at the edge of the network is that part of the market going to be stable, increasing declining I'm in the midst of a broader kind of firewall and capability. That's still grows so I, let I'll give you. Some data point and then I'll have a lot of product leadership answer that I went back and as part of preparing for the analyst day I looked at the enterprise like these spend over the last seven years right because typically the end of life for most likely infrastructure between seven to 10, depending on what it is and where you buy it.

Oh, there's approximately <unk> trillion trillion two a year that's been spent on enterprise I'd and the reason I go to track that is because I think securities it 3% to 8% of that number right in financial services or government to go straight person because they're very security conscious you know others go to 3%. So if you think about it there is approximately 12 to 15 trillion dollars of block without that and enterprises, just IP infrastructure plot.

I just put a slight up there which is a.

Gawker Slighter Goldman Sachs, why that kind of no other schools that maybe from this morning.

Which talks about the cloud disruption opportunity off a trillion dollars and 2023.

Right so.

You know you're telling me that we're going to stop spending and enterprise I think in the entire I do Mark is going to go down and all we're going to be spending in the cloud or you're telling me people are still going to spend a trillion due it growing at 3% and a lot of that is still going to go to enterprise I'd. So.

I suspect this transition is going to take longer than we think but people are still going to be spending enterprise I'd now onto the margin. It may be smaller number because people are shifting to the cloud and what is doing it two things one is making people evaluate as I'm going to make that shift to the cloud what do I want to buy that allows me to transition and that's why one of the large retailers, we talked about they're going to the club. They don't they don't want to best buy hardware firewall is they want to make sure. They can get VM. So the cloud instances they can get a cloud delivered architecture for Panamaxes. So unfortunate we expect this transition to happen in the next five to seven years a lot of it can't do you have products that satisfy the three use cases, so data center use case the transition use case to the cloud and then the new architecture. Afterwards the clubs. So we think that's why the product strategy aligned towards this transition. We think that ship is going to happen it'll happen on a customer specific basis, depending how many there it'll happen or industry basis, So bear with us on the moving parts, but we think filing is around for a while for the people who are still investing in data centers, but I'll, let my product colleagues elaborate on that.

Sure so on that from a product perspective.

The firewalls get deployed in Boston places they get deployed in the data center, they get deployed to headquarter gateways regional sites branch offices, you industry and the.

Some of those use cases are more attractive to just shift the form factor. So for example, as applications move into public cloud.

The the form factor of course would be software for lots of different technical reasons that are mostly sort of straight forward to understand why you want to do that for example, you can't ship to hardware device to Amazon and asked them to deploy it into your eight every eight it was again you have to use all form factors.

And as we talked about for branch offices retail mobile users. There is a shift that we're driving with Prisma access that we believe is a very good shift both in terms of the customer outcome as well as what they need and want to be able to accomplish.

But there is still you know it's Nick interesting this investment in the enterprise infrastructure over the last you know seven plus years, there will continue to be a lot of investment in that infrastructure has to be protected so, particularly in the larger central sites regional sites and.

The world will be hybrid for a long time meeting data centers.

There will still be a lot of hardware that will need to be deployed against that and one thing we didn't talk about today, but it is very important. This is you know a lot of those places that I just mentioned the performance of hardware starts become really important.

Right. If you think about a large headquarters with can get kind of activity growing you want to do internal segmentation or to segment out biopsy devices things like that which that might be 100 gig sort of larger data centers hardware still has a very important role to play in a lot of those core use cases.

Right I think with that we'll call an end to the Q and a session I want to say thank you to my management team here has been part of the journey and getting us here so far.

[noise] I also [noise].

Want to use the opportunity to shout out to our 7000 employees around the world who work hard to deliver the results that we're able to deliver and hopefully it will keep working hard for the next three years to achieve the targets and beyond let's use of targets. We have outlined with that it's my pleasure to invite your downstairs for Ah some call fails and some demos instead in case, you want to geek out on some of the products.

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