Palo Alto Networks (PANW) This fall 2022 Earnings Name Transcript

Palo Alto Networks (PANW -1.06%)
This fall 2022 Earnings Name
Aug 22, 2022, 4:30 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

Ready Remarks:

Clay Bilby

Good day, everybody, and welcome to Palo Alto Community’s fiscal fourth quarter 2022 earnings convention name. I’m Clay Bilby, head of Palo Alto Networks investor relations. Please notice that this name is being recorded immediately, Monday, August 22, 2022, at 1:30 p.m. Pacific Time.

With me on immediately’s name are Nikesh Arora, our chairman and chief government officer; Lee Klarich, our chief product officer; and Dipak Golechha, our chief monetary officer. Yow will discover the press launch and data to complement immediately’s dialogue on our web site at buyers.paloaltonetworks.com. Whereas there, please click on on the hyperlink for occasions and displays the place you may discover the investor presentation and supplemental info. In the middle of immediately’s convention name, we’ll make forward-looking statements and projections that contain dangers and uncertainties that might trigger precise outcomes to vary materially from the forward-looking statements made on this presentation.

These forward-looking statements are based mostly on our present beliefs and data obtainable to administration as of immediately. Dangers, uncertainties, and different elements that might trigger precise outcomes to vary are recognized within the protected harbor statements supplied in our earnings launch and presentation and in our SEC filings. Palo Alto Networks assumes no obligation to replace the data supplied as part of immediately’s presentation. We can even focus on non-GAAP monetary measures.

These non-GAAP monetary measures should not ready in accordance with GAAP and shouldn’t be thought-about as an alternative to or superior to measures of economic efficiency ready in accordance with GAAP. We’ve included the tables which give reconciliations between the non-GAAP and GAAP monetary measures within the appendix to the presentation and in our earnings launch, which we now have filed with the SEC and which can be discovered within the Traders part of our web site. Please additionally notice that each one comparisons are on a year-over-year foundation except particularly famous in any other case. We wish to notice administration is scheduled to take part within the Citibank World Know-how Convention in Goldman Sachs Communacopia and Know-how Convention in September.

I’ll now flip the decision over to Nikesh.

Nikesh Arora — Chairman and Chief Govt Officer

Thanks, Clay. Good afternoon, and thanks for becoming a member of us immediately for our earnings name. As you’ll be able to see from the video, we have been excited to have fun the tenth anniversary of our IPO in early July. Our workers are engaged and excited as we proceed confidently on our mission to be the cybersecurity associate of selection.

Transferring to This fall, I am happy to report that we once more noticed very robust outcomes, beginning with top-line outcomes that have been effectively forward of steerage we initially outlined for the fiscal yr ’22. We delivered this progress whereas balancing our profitability commitments. We additionally made important investments to proceed to remodel our firm and make the most of the massive and quickly rising market alternative we see in cybersecurity. On the highest line, billings progress of 44% was the best we have reported in 4 years.

We additionally grew RPO forward of our income progress fee. The important thing focus of our crew has been quickly positioning us as a relentless cybersecurity innovator. And a technique we measure our progress is how our NGS ARR develops. We’re delighted to report this metric grew 60%, reaching $1.9 billion exiting the yr.

We predict it to succeed in $2.6 billion in FY ’23. If this was an impartial start-up, it will be among the many fastest-growing cybersecurity companies to attain scale. Inside our core community safety enterprise, firewall as a platform, billings grew 26%. After we began reporting this metric, the intent was all the time to indicate that we proceed to take share within the community safety market.

On the similar time, rework the enterprise to a software program enterprise. Right now, near 50% of that comes from software program type elements. Working earnings grew 52% in This fall and our working margin for the yr completed to the excessive finish of the steerage vary, with adjusted free money stream margin coming in above the excessive finish of the vary we supplied. We achieved a significant inside aim we have had on the profitability entrance, delivering GAAP profitability this quarter.

Wanting ahead, we’re guiding to full yr GAAP profitability in fiscal 2023. We have had lots of you ask us in regards to the macro atmosphere and the way is it impacting our enterprise and the markets we serve. Within the final yr, we arguably noticed essentially the most difficult provide chain circumstances the expertise business has ever seen. We executed via this effectively in the course of the yr with modest impacts to our gross margins.

We count on circumstances will finally ease. For our planning, we’re assuming a cloth enchancment will not be seen previous to the tip of fiscal yr ’23. Nonetheless, as the provision challenges fade, we count on it will begin to have a positive impression on our product gross margins. There is a persevering with debate on inflation, its nature, and period.

We noticed some labor and different inflationary pressures within the second half of the fiscal yr. We don’t anticipate these pressures going away within the subsequent fiscal yr and we now have deliberate for it to persist via fiscal yr ’23. And therefore, it’s included in our plan and is mirrored in our steerage. With respect to the macro impression on demand, we have simply come out of This fall with distinctive 44% billings progress.

In enterprise gross sales, as most of you understand, there may be This fall magic. We did, nevertheless, see some marginal modifications within the macro atmosphere in This fall. While early, you will need to see how the general macroeconomic circumstances develop over the subsequent yr. First, we noticed extra longer period offers as clients more and more have the arrogance to make massive long-term commitments with us.

That is vital to the transformation aims we set out for Palo Alto Networks. It confirms and validates our view that clients will consolidate if we give them fixed best-of-breed merchandise and be certain that they’re built-in to ship higher safety outcomes. Second, we noticed some remoted situations of consumers extending the lifetime of {hardware} doubtlessly pushed by macro forces. We count on that on the margin.

This might proceed into FY ’23. It’s counterbalanced by some clients refreshing their state and our continued share good points within the {hardware} type issue. Third, in transformational tasks, the overwhelming majority of our clients proceed on their investments right here regardless of the anticipated short-term macro impacts. Safety spending is tied into our clients’ needs to maneuver to the cloud, drive extra direct relationship with their clients, modernize their IT infrastructure, in addition to drive efficiencies whereas adapting to a brand new means of working.

These efforts proceed. Coupled with a heightened consciousness and have to do one thing round cybersecurity, we count on secular tailwinds to persist in cybersecurity, and we’re greatest positioned to ship in opposition to our buyer wants. One other pattern I wish to spotlight is the return to Palo Alto Networks by workers who had left for seemingly greener pastures. Over a six-month interval, as a part of our Welcome House program, we now have engaged with many former workers.

Up to now, dozens of high performers have been rehired with many extra within the funnel. Over 70% of individuals reached out to have expressed a need to return again to us and a big quantity have already got. 50% are coming back from start-ups, the subsequent largest share coming from peer firms. We’re joyful to welcome these workers again to Palo Alto Networks.

As we embark on new fiscal yr, my fifth as Palo Alto Networks CEO, is price reflecting the place we got here from. Our transformation technique has not been straightforward, however we’re unwavering in our resolve to construct essentially the most complete and related choices for our clients, taking away their complexity and delivering a greater safety final result for them. We see a path to being the most important cybersecurity firm backed by fixed innovation and wonderful execution turning into our clients’ cybersecurity associate of selection whereas delivering growing worth to our shareholders. Simply 4 years in the past, we have been a unique firm.

We’ve reinvented the firewall market and captured the market share management place. There have been glimmers of our next-generation safety technique, nevertheless it made up simply 8% of our billings. Our software program story in community and safety was early, with some traction in our digital firewalls and a fledgling precursor to SASE known as GlobalProtect Cloud Companies. We made our first acquisition in cloud-native safety and had early level merchandise that can change into a part of Cortex.

After we step again and took inventory within the business, we had a key speculation, which we then examined, proved to ourselves, and have reproduced throughout the enterprise immediately. There has not beforehand been a cybersecurity firm with a management place in a number of classes. Now the shoppers consider that our cybersecurity platform might anchor their structure. We set out on this bold journey as you see at Prisma Cloud and Cortex, in addition to innovated considerably in our community safety capabilities.

Quick ahead to immediately, our transformation has taken us far. We’re a acknowledged chief in 11 cybersecurity classes throughout our three platforms. Subsequent-generation safety contributed greater than 38% of our billings, serving to to speed up our progress. In community safety, we now have essentially the most complete answer throughout three type elements that share a standard structure and likewise supply a set of market-leading safety subscriptions.

We’ve constructed, assembled, and built-in capabilities in 9 modules that make up Prisma Cloud, which is now the chief in cloud-native safety. Lastly, we now have three anchor merchandise in Cortex, which with our new XSIAM product exhibiting promise within the revolutionized safety operations goes to carry us in good stead. The proof that this transformation is working is within the momentum we’re seeing in our clients. The variety of clients that spend over $1 million yearly with us continues to develop, with the millionaire depend now in extra of 1,200 and the variety of World 2000 clients which have bought merchandise in all three of our platforms is now 50%.

Whereas we have had many massive buyer wins lately, I need to spotlight a crew in three transactions. The primary is a expertise firm that bought merchandise in all three of our platforms in a transaction over $75 million of worth. The second is a monetary service firm that standardized its community safety in our platform, together with including VMs and deploying Prisma Cloud spending north of $40 million. And third is an expert providers firm that spent over $75 million throughout Strata, Prisma, and Cortex.

One of many outcomes from our transformation over the previous 4 years is a gradual enhance in our subscription and help combine primarily pushed by the expansion of our next-generation safety enterprise. Subscription help now exceeds 80% of our billings. This has resulted in better predictability in our revenues. We’ve seen rising commitments from our clients symbolize a better portion of our subsequent yr’s income.

As we enter fiscal yr ’23, that quantity is 59% on the midpoint of our steerage. Growing income visibility offers us additional confidence in our means to take a position and drive future progress. This quantity is over 70% for the income we count on in Q1. All of this has occurred whereas our income progress has accelerated from FY ’20 to FY ’22, partly because of the accelerated progress in our next-generation safety choices, whereas we now have additionally taken share in conventional community safety equipment type elements as reported by third events.

Regardless of the success to date in our transformation, we nonetheless see important potential forward of us. We estimate our massive addressable market to be rising at a fee of 14%. At 29%, our fiscal yr ’22 income progress greater than doubled this market progress fee. As we now have remodeled the enterprise, we now have seen our income progress reaccelerate.

Even with this important progress over the past 4 years, we nonetheless solely symbolize roughly 6% of our TAM we final introduced at our Analyst Day in September 2021. 6% share of the market is low for the market chief as in comparison with different classes and expertise. So we see there may be ample room to develop. There are quite a few developments that excite us round our means to drive this progress and proceed our share good points.

Chances are you’ll quickly see a day the place there shall be $1 trillion in public cloud consumed. Our statement to date on this early market is that firms allocate 2% to five% of the cloud budgeted safety, creating a big Prisma Cloud alternative. There are 3.5 million worldwide cybersecurity jobs which might be unfulfilled. Our view is that extra coaching and hiring alone won’t successfully and effectively counter the rising use of automation employed in assaults and the amount of alerts that’s overwhelming the safety operations heart.

We consider a brand new paradigm and safety ops is required that closely leverages AI and automation. We’re focusing on this chance with our Cortex merchandise and XSIAM merchandise particularly. Lastly, hybrid work is right here to remain. There are greater than 1 billion data employees globally.

We consider we now have a robust place in SASE with our protection of customers and department places of work immediately, simply catching the floor of misplaced alternative. We’ve a transparent mission in entrance of us in every of our safety platforms to harness the chance that we now have outlined. As that is This fall, I figured, moderately than having me define all of the accomplishments from our product crew, I might invite Lee Klarich, who patiently listens and sits in our calls, to present you a extra detailed replace that will help you perceive how we’ll proceed to construct on our success we had in FY ’22.

Lee Klarich — Chief Product Officer

Thanks, Nikesh. As Nikesh highlighted, throughout cybersecurity, one of many largest challenges has all the time been the overwhelming variety of level merchandise that clients should deploy, combine and operationalize to attain the safety they want. Usually, this has by no means been absolutely achieved, resulting in costly but suboptimal safety outcomes. We’re bringing a brand new method, one which delivers market-leading capabilities tightly built-in in three platforms.

FY ’22 has been a big yr for us in community safety, the place we now have furthered our place delivering a constant safety structure throughout {hardware}, software program, and SASE. We neared completion of our Gen 4 {hardware} rollout, which on some fashions delivers near 10x efficiency over Gen 3. Consequently, we noticed over 50% of NGFW {hardware} gross sales in This fall on Gen 4. Additionally, in FY ’22, we launched the cloud NGFW throughout three of the most important clouds, enabling our clients to undertake best-in-class community safety in a cloud-native service.

And Prisma SASE had three main launches in FY ’22, together with the latest ZTNA 2.0 launch, firmly establishing our next-gen method to zero belief. Throughout our {hardware}, software program, and SASE type elements, we’re in a position to ship a constant set of core safety capabilities as ML-powered cloud providers. In FY ’22, we noticed the fast adoption of superior URL filtering, and we now see almost all URL filtering gross sales on this superior ML-based service. Superior Risk Prevention, which was launched in fiscal Q3, can be now off to a robust begin.

And maybe most significantly, clients can handle all type elements and safety subscriptions from a single administration console to ship constant consumer expertise and super operational leverage. Whereas we consider the complete platform is the place clients will find yourself, we need to guarantee clients can begin their adoption with any type issue and obtain a really best-in-class answer. The variety of $1 million lifetime worth SASE clients which might be additionally clients of our two different community safety type elements ended FY ’22 at 210. That is up eightfold since FY ’19.

We’ve seven clients which have bought all three of our type elements with $100 million in lifetime worth in community safety. Extra broadly, once we take a look at our community safety buyer base, clients which have purchased all three platforms from us spend 10x greater than those that are clients of just one type issue. This showcases the true worth of our community safety platform. In This fall, we launched ZTNA 2.0, which redefines state-of-the-art and 0 belief community entry to deliver uncompromised safety and ship zero belief with zero exceptions.

We’ve seen important momentum in our buyer traction on SASE in FY ’22 on quite a lot of fronts. Our general lively SASE buyer base grew by 51% in This fall, and our $1 million SASE offers additionally accelerated this yr, up 83% with over 50 $1 million offers in This fall alone. Whereas many of those massive offers are coming from our put in base as they see the worth throughout our type elements, it’s equally vital that over 30% of our new SASE clients in This fall have been new to Palo Alto Networks. This highlights the competitiveness of our SASE answer and permits us to succeed in internet new clients.

Moreover, as soon as we land with the brand new SASE buyer, we’re seeing clients look to standardize on our {hardware} and software program home equipment. Within the cloud, we see that almost all clients are nonetheless comparatively early of their journey. They’re migrating workloads to the cloud and constructing new functions, rising their footprints, consuming extra subtle providers, and adopting a number of clouds. With this has come an growth of their cloud safety wants.

Our method with Prisma Cloud delivers a complete platform with a rising set of capabilities to remain forward of our clients’ wants. More and more, cloud safety wants to start out in the mean time, builders write their first traces of code via to deploying and working this code in public cloud. The acquisition of Bridgecrew introduced us infrastructure as code, a means of detecting and fixing safety points throughout growth. IAC turned our ninth built-in module of Prisma Cloud on the finish of January.

And within the first six months of availability, we have already got over 200 clients, making it our fastest-growing new module. We designed an extremely straightforward means for our clients to activate any of the 9 modules and have grown the variety of clients that use greater than three modules to over a 3rd and people utilizing 4 modules to almost 20%. This frictionless module adoption has helped to gasoline our 55% progress in credit consumed on the platform. We’re additionally closing in on 2,000 clients for Prisma Cloud.

It is nice to see all of the third-party recognition just like the SC award as Finest Cloud Workload Safety Resolution that we introduced immediately, however we’re not carried out but. We see a number of alternatives for brand new modules and we’ll proceed to have a look at each natural growth and exterior expertise to drive continued growth of the Prisma Cloud platform. We’re earlier in our Cortex platform journey, executing effectively throughout our three core product classes of XDR, safety orchestration and automation, and assault floor administration. We noticed important progress in FY ’22 as we drove gross sales of our key merchandise and elevated traction, combining choices in bigger cross Cortex transactions.

Our buyer depend surpassed 4,000, and we additionally signed 52 transactions better than $1 million in This fall. Mixed with this buyer success, we additionally continued the fast innovation that we consider shall be required to be a frontrunner in safety operations extra holistically. After we envision the way forward for cybersecurity, I do not see a route to success that isn’t closely pushed by AI and automation. Attackers are too effectively funded and decided whereas buyer networks, clouds, functions, and customers are too advanced to manually defend.

The one strategy to ship significant safety outcomes is by accumulating wealthy helpful knowledge normalizing all knowledge sources to a single supply of reality after which making use of AI fashions to detect assaults and automate responses in actual time. We at the moment are taking this to the subsequent degree. Earlier this yr, we introduced XSIAM, a completely built-in AI-driven SOC platform, and kicked off a program with a restricted variety of design companions to make sure we had robust product market match. The outcomes of this design associate program are extremely encouraging, proving our assumptions in regards to the worth of excellent high quality knowledge powering AI-based assault detection and native automation simplifying and dashing response.

And I am joyful to say our first paid buyer was a seven-figure buy and many of the different design companions are more likely to buy within the coming months. We’re on monitor to launch the product right into a broader set of our clients within the first half of fiscal ’23. We couldn’t have achieved all we now have within the final a number of years in advancing our lead in community safety, standing up our cloud-native safety platform and progressing towards the autonomous inventory with out our investments in innovation. Over the past a number of years, our R&D spending has grown with the intention to allow our ambition to steer with the three platforms.

You see this in main product releases, which reached almost 50 in FY ’22. As we transfer into FY ’23, we’re extra dedicated than ever to main in cybersecurity innovation. My crew went via a rigorous technique of prioritizing our most vital funding areas throughout our three platforms. With the continued funding in R&D, I am assured we’re set as much as ship an awesome set of improvements within the coming yr with concentrate on crucial areas for our success.

With that, I will cross it again to Nikesh.

Nikesh Arora — Chairman and Chief Govt Officer

Thanks, Lee. Earlier than I wrap up and cross it to Dipak, I need to give you a high-level overview of how we’re excited about our monetary targets in FY ’23. I highlighted the robust drivers at play, together with expertise sector forces, in addition to drivers inside cybersecurity. Lee simply talked to you about all of the innovation we now have underway.

We proceed to believe in our crew’s execution and the traction we’re seeing throughout our platforms. We count on to proceed to ship robust outcomes, according to the profile we now have talked about for the final yr since our Analyst Day. For fiscal yr 2023, this contains billings progress of 20% to 21% and income progress with growing predictability that’s within the mid-20s. After reaching working margins on the excessive finish of our steerage in fiscal yr ’22, we intend to ship working margin growth of fifty foundation factors to the excessive finish of our steerage, with adjusted free money stream margins of over 100 foundation factors on the excessive finish of our steerage whereas absorbing elevated provide chain prices and inflationary impacts.

We achieved GAAP profitability in This fall fiscal yr ’22 and we undertaking it will proceed for fiscal yr ’23. Lastly, immediately, we additionally introduced a 3-for-1 inventory break up. This was carried out to assist guarantee our shares are accessible to all workers and buyers. The inventory break up additionally demonstrates our perception in the way forward for the corporate and the momentum and confidence we now have in our technique.

With that, I’ll cross on to Dipak to debate our This fall ends in extra element, in addition to our Q1 and financial yr ’23 steerage.

Dipak Golechha — Chief Monetary Officer

Thanks, Nikesh, and good afternoon, everybody. Right now, we once more reported one other robust quarter, which culminates in a robust fiscal yr for Palo Alto Networks. For This fall, income of $1.55 billion grew 27% and was on the excessive finish of our steerage vary. Merchandise grew 20% and complete providers grew by 30%.

By geography, we noticed robust progress throughout all theaters with EMEA up 33%, the Americas rising 26%, and JAPAC rising 24%. Subsequent-Era Safety ARR grew 60% to $1.89 billion with energy throughout the portfolio. Within the fourth quarter of 2022, we delivered complete billings of $2.69 billion, up 44%, which was above the excessive finish of our steerage vary. Complete deferred income in This fall was $6.99 billion, a rise of 39%.

Remaining efficiency obligation, or RPO, was $8.2 billion growing 40% with present RPO representing about half of our RPO just like latest quarters. With almost all of our {hardware} merchandise now refreshed, as Lee had talked about, over 50% of our This fall product orders have been booked with Era 4. Buyer reception has been constructive, with the vast majority of clients nonetheless within the early phases of their improve. Our Firewall as a Platform billings grew 26%.

We additionally proceed to see an growing software program combine inside our FWaaP billings, up 2 factors to 48% in This fall. Transferring past the highest line metrics I’ve already highlighted, non-GAAP gross margin of 73.2% was down 210 foundation factors yr over yr as we proceed to incur extra expense for elements and delivery. We count on this headwind to persist via a lot of fiscal yr ’23. Final This fall, we guided for a fiscal ’22 working margin of 18.5% to 19%.

We’re happy to have achieved the excessive finish of our aim by delivering 19% working margin for fiscal yr ’22, whereas absorbing higher-than-expected provide chain prices. Non-GAAP internet earnings for the fourth quarter grew 57% to $254 million or $2.39 per diluted share. Our non-GAAP efficient tax fee was 22%, GAAP internet earnings was $3 million or $0.03 per fundamental and diluted share. Turning now to the stability sheet and money stream assertion.

We completed This fall with money, equivalents and investments of $4.69 billion. Days’ gross sales excellent was 98 days, a number of days above the place it will have landed with out the impression of late quarter shipments. Our reductions proceed to be according to what we now have seen over the past yr. This fall money stream from operations was $524 million.

We generated adjusted free money stream of $485 million. We achieved 33.3% adjusted free money stream margins for the yr, above the excessive finish of our 32% to 33% information for fiscal yr ’22. Throughout This fall, we repurchased roughly 755,000 shares on the open market at a mean value of roughly $483 per share for a complete consideration of $365 million. Moreover, our Board of Administrators approved a further $915 million for share repurchase, refreshing our authorization for future share repurchases again to $1 billion expiring December 31, 2023.

On the M&A entrance, we closed one very small acquisition in This fall. We decreased our stock-based compensation as a % of income by roughly 3% yr over yr and quarter to quarter. SBC will stay a spotlight space in fiscal ’23 as we stability the usage of SBC to draw and retain high cybersecurity expertise with scale leverage we count on on this space. Lastly, shifting to steerage and modeling factors.

It’s price noting that in fiscal ’22, we now have flexibility constructed into our plans that allowed us to execute via some real-time developments in the course of the yr, equivalent to provide chain and labor inflation. We have used the identical method in constructing our fiscal yr ’23 plans, incorporating a level of flexibility of outcomes. It is also price noting that we noticed a really robust This fall enterprise exercise. In some instances, this was from clients benefiting from ordering {hardware} and particularly subscriptions forward of a value enhance that took impact on August 1.

We additionally noticed some clients make massive commitments within the fourth quarter that may have in any other case occurred in fiscal yr ’23. As you consider subsequent yr, notice that within the second half of fiscal ’22, we now have very robust billings with some profit from a rise in invoicing of multiyear contracts for just a few massive clients. In This fall, with out this impression, our billings would have been within the mid to excessive 30s. Turning to our steerage for the fiscal quarter of 2023.

We count on billings to be within the vary of $1.68 billion to $1.70 billion, a rise of twenty-two% to 23%. We count on income to be within the vary of $1.535 billion to $1.555 billion, a rise of 23% to 25%. We count on non-GAAP EPS to be within the vary of $2.03 to $2.06. For the fiscal yr ’23, we count on billings to be within the vary of $8.95 billion to $9.05 billion, a rise of 20% to 21%.

We count on NGS ARR to be within the vary of $2.60 billion to $2.65 billion, a rise of 37% to 40%. We count on income to be within the vary of $6.85 billion to $6.9 billion, a rise of 25%. We count on product income to be within the mid to excessive single-digit % vary yr over yr. We count on fiscal ’23 working margins to be within the vary of 19% to 19.5%, which is 50 foundation factors forward of the vary we supplied at our fiscal — for fiscal ’22 and in step with the expansion targets we introduced to our fiscal — throughout our fiscal yr ’21 Analyst Day.

We count on non-GAAP EPS to be within the vary of $9.40 to $9.50. We count on adjusted free money stream margin to be 33.5% to 34.5%, and we count on to be GAAP worthwhile for fiscal yr 2023. Relating to our fiscal yr ’24 monetary targets, which we outlined at our September 21 Analyst Day, we now have robust confidence in reaching these aims and we hope you are taking away from our name immediately a number of the causes behind this confidence. Moreover, please take into account the next modeling factors.

We count on roughly 42% of our working earnings to return within the first half of the fiscal yr and roughly 58% within the second half. We count on our non-GAAP tax fee to stay at 22% for Q1 fiscal yr ’23, topic to the end result of future tax laws. For Q1 ’23, we count on internet curiosity and different earnings of $6 million to $8 million. We count on Q1 ’23 diluted shares excellent of 108 million to 110 million shares.

We count on fiscal yr ’23 diluted shares excellent of 111 million to 113 million shares. We count on our Q1 capital expenditures of $35 million to $40 million. And we count on fiscal yr ’23 capital expenditures of $190 million to $200 million. And eventually, as Nikesh famous, we introduced immediately a 3-for-1 break up of Palo Alto Networks widespread inventory.

The choice was pushed by a need to make our inventory extra accessible to our workers and the broader group of buyers. It is usually supported by our underlying confidence in our continued enterprise momentum. Shareholders of document on the shut of enterprise on September 6, 2022, will obtain two extra shares after the shut of enterprise on September 13, 2022, for each excellent share held on September 6. Our inventory shall be buying and selling on a split-adjusted foundation on September 14, 2022.

With that, I’ll flip the decision again over to Clay for the Q&A portion of the decision.

Clay Bilby

Nice. Thanks, Dipak. To permit for a broad participation, I might ask that every particular person ask just one query. The primary query comes from Hamza Fodderwala of Morgan Stanley, with Rob Owens to comply with.

Hamzah, please ask your query.

Hamza Fodderwala — Morgan Stanley — Analyst

All proper. Thanks, guys. Thanks for taking my query, and a very nice set of outcomes. Dipak, only a clarification query for you actual fast.

Did you say that the billings progress in This fall would have been mid to excessive 30s, excluding the estimated pull ahead? After which additionally for Nikesh, you talked about some early macro commentary about longer period offers. Are you additionally seeing any modifications within the gross sales cycle as you guys do extra seven, eight-figure, 9 offers? After which is that mirrored within the steerage in any respect?

Nikesh Arora — Chairman and Chief Govt Officer

Yeah. I simply maintain the effectivity of time. Sure, Dipak did say that if a number of the — it is vital to grasp, not simply pull forwards, we had some massive long-duration offers, having normalized for them. We simply need to ensure that we set expectations for subsequent yr, that 44% was distinctive and a few of that was due to some massive longer-duration offers.

I imply normalize for that, you then’d find yourself within the mid to excessive 30s. So that is extra precautionary in our half versus telling you that we’re not doing effectively. On the entrance of like — deal life cycles have been elongating on the high finish of the marketplace for us because the deal dimension have grown. This isn’t internet new to us.

This has been taking place over the past two or three years. Once I got here, the most important deal we did was $28 million, now we have carried out offers nearer to $100 million. Clearly, it takes an extended time to get a $100 million deal in place and requires much more validation from our clients’ POCs and getting engaged. In order that pattern is constant.

We’ve not seen any change in that pushed by financial elements. So that’s your query. As I mentioned, the three results we noticed, we shared a bit of little bit of sweating of {hardware} property to push them out a bit of longer. We have seen some folks take a look at transformation tasks.

You possibly can see them not go away from transformation. We have seen consolidation, these three issues we have seen.

Hamza Fodderwala — Morgan Stanley — Analyst

Thanks.

Clay Bilby

Nice. Subsequent query from Rob Owens of Piper Sandler with Phil Winslow to comply with. Rob, take it away.

Rob Owens — Piper Sandler — Analyst

Nice. Thanks for taking my query. I would like to drill down into the success you guys are seeing in Prisma Cloud. And what are the most important elements and/or technical differentiation that is driving your success proper now?

Nikesh Arora — Chairman and Chief Govt Officer

Let me provide you with kind of an overarching image, and Lee has been variety sufficient to elicit our product capabilities. However like — in a short time, we’re noticing that in case you exit look that there is a whole lot of billions of {dollars} of cloud being bought by our cloud service suppliers, the highest 5 around the globe. And what’s turning into clear is many of the high finish or massive clients are in a number of clouds. They are not simply in a single.

We ourselves are in GCP and AWS situations and within the [Inaudible] of Azure. So we’re seeing ourselves in multi-cloud situation. So, one, that multi-cloud growth is inflicting clients to search for a multi-cloud answer, and that is usually not pushed by one cloud service supplier usually any person like us. That is one a part of it.

The opposite half is that if the client is on the lookout for some extent answer, it is tougher for us, however most clients are migrating away from level options, on the lookout for a extra platform method. As Lee highlighted, which — Bridgecrew, which we acquired operates on the left aspect of the event life cycle, the construct life cycle. Prisma Cloud used to historically function within the run cycle the place you place issues into manufacturing. By connecting construct and run, we have created the kind of even the extension to the event life cycle.

So we’re seeing people who find themselves taking a severe view towards cybersecurity within the cloud come to Palo Alto Networks and never chase some level options. Should you take a look at the business, there are not any platform options obtainable. Most business teams have already validated that because the SC awards we heard about this morning. So Lee, do you need to add one thing? Technical differentiation?

Lee Klarich — Chief Product Officer

You’ve got been well-trained, Nikesh.

Nikesh Arora — Chairman and Chief Govt Officer

All proper.

Lee Klarich — Chief Product Officer

I will add one piece, and truly, Nikesh mentioned it in his ready remarks. Not solely do we now have a platform method, however all the pieces that we ship from the platform is greatest at school. And that mixture is critically vital for our clients to have the belief and confidence in utilizing Prisma Cloud.

Rob Owens — Piper Sandler — Analyst

All proper. Thanks.

Nikesh Arora — Chairman and Chief Govt Officer

Thanks, Rob.

Clay Bilby

Nice. Subsequent, Phil Winslow of Credit score Suisse with Adam to comply with. Phil, go forward.

Phil Winslow — Credit score Suisse — Analyst

Hey, congratulations on an awesome finish to the fiscal yr. Now once we converse to your companions, a rising message again has been an growing quantity of demand for Prisma entry, clearly had an awesome quarter. It is coming from enterprises which were clients of different competing on-premise firewall distributors. Nonetheless, they don’t supply as strong as set of cloud providers Palo Alto Networks does.

And Lee, to your level, throughout your slides, the quantity that jumped out to us immediately was that greater than 30% of recent SASE logos in This fall have been new to Palo Alto Networks. So Nikesh, perhaps Lee, in case you might remark too. Should you suppose ahead right here, what’s the alternative to not solely monetize SASE and Prisma Entry but additionally to doubtlessly transition that largely on-premise put in base of these competing firewall distributors to Palo Alto Networks platform, what are you listening to from clients and why?

Nikesh Arora — Chairman and Chief Govt Officer

Phil, I believe within the final yr, I might say, our means to ship, deploy and promote SASE has grown. And as you picked up the quantity, 30% of those clients are internet new to Palo Alto. And the way in which it really works is we go to them, they admire our firewalls, however the issue is that they now have purchased firewalls from any person two years in the past, three years in the past, 5 years in the past, they usually’re nonetheless on finish of life on them. So that they like us, they like our options, however they don’t seem to be in a position to execute as a result of any person earlier than them purchased them or they purchased them at a second after they have been deluded.

So it now comes to a degree the place we’re in a position to persuade them that our SASE answer is correct. Our pleasure for these 30% clients is that, over time, they are going to then migrate their on-prem {hardware} to Palo Alto as effectively. And we’re noticing early days, however we’re noticing a few of these clients who purchased our SASE answer as a result of they perceive our safety cloth then have deployed it, then it is a easy connect of placing {hardware} as a result of safety options have already been put into place. So we now have taken share within the firewall market by most third-party estimates 300 to 400 foundation factors.

And we expect a part of the driving force is us having the ability to ship a extra complete zero belief community safety functionality. As Lee highlighted, we now have clients who’ve spent north of $100 million of lifetime worth and community safety with us, which is tough to do.

Phil Winslow — Credit score Suisse — Analyst

Thanks, guys.

Clay Bilby

Nice. Subsequent is Adam Tindle of Raymond James with Brian Essex to comply with. Adam, go forward.

Adam Tindle — Raymond James — Analyst

OK. Thanks very a lot. Nikesh on the NGS portfolio, congrats on the success. You are just below $2 billion at this level.

And I believed I would perhaps contact on the expansion versus profitability algorithm for that piece of the enterprise now that at this degree of scale. If I take a look at the fiscal ’23 steerage, it implies that new NGS ARR goes to be simply over $700 million, which is an enormous quantity, nevertheless it’s about the identical greenback quantity as you added in fiscal ’22. May you perhaps converse to type of the crossroads of alternative to take a position extra for NGS ARR, perhaps a brand new step operate degree of recent ARR progress versus is it a greater alternative now to reap and enhance profitability? And definitely, any metrics you’ll be able to present on the place you might be and the place you’ll be able to go and NGS profitability can be nice. Thanks.

Nikesh Arora — Chairman and Chief Govt Officer

So I am sorry, I am confused. Are you saying 50%, 60% progress is time to reap or time to develop quicker? Generally I can by no means make you guys joyful. It is like three years in the past, we mentioned $1 billion, you guys mentioned, that is an enormous quantity, you will not get there. We get you to $1.9 billion in 4 years, and also you sit and say, that is a part of the course now, similar to begin making extra money.

Like, as Lee highlighted, we try to stability our R&D spend with our progress aspirations. I personally consider there may be a lot room within the cybersecurity market as we have demonstrated. Since I got here, we have — income progress is up 50% by way of share progress. So we used to develop within the 19%, 20% vary, rising at 20% to 29%.

And I believe that is a superb place. It is such massive numbers. We’re rising at a superb quantity. We will maintain balancing our funding but exhibiting you fiscal prudence.

May I am going spend extra money and let the working margin languish decrease? Sure. However I do not need to. We promised that we maintain extracting working margin to ensure we’re fiscally prudent, and we’ll do this. However on the similar time, we use the chance of each greenback to make it extra environment friendly and maintain spending for progress.

We predict our progress profile, clearly, as you’ll count on, has improved for many of our merchandise that we have been taking bets on about three or 4 years in the past. I believe it is also vital to grasp ARR is a number one indicator of income. So income is available in after ARR after which you might have prices are available on day one. So sure, our working margins for these new areas are getting higher, in some instances, attending to constructive from detrimental.

However I believe we’re nonetheless additional away till you see the impression of the $700 million, $800 million we added this yr. As that flows into income, the subsequent 700 flows in income, we hopefully will maintain increasing working margins, which is fueling our means to present you that 50-basis-point growth through the years. However we’ll maintain hanging the stability.

Clay Bilby

Nice. Subsequent is Brian Essex of Goldman Sachs, with Fatima Boolani to comply with. Go forward, Brian.

Brian Essex — Goldman Sachs — Analyst

Thanks for taking the query and my congratulations on the outcomes as effectively. It is nice to see. Possibly, Nikesh, in case you might assist us reconcile what you are seeing on the product income aspect, notably throughout the context of your steerage subsequent yr, notably given what you mentioned about consolidating, sharing your platform, early phases of refresh cycle, nevertheless it sounds such as you’ve obtained some nice VM sequence traction and the proportion of income of complete Firewall as a Platform enterprise is accelerating. What are the underlying assumptions behind that mid to excessive single-digit product income progress? The place might you see upside? And the way are issues totally different underlying these expectations in comparison with what you are seeing immediately?

Nikesh Arora — Chairman and Chief Govt Officer

Yeah, Brian, as you understand, thanks for the query, and thanks on your variety phrases. Look, we had the same set of expectations final yr going into this fiscal yr. And we benefited from some value will increase, as you understand. We additionally benefited from some pull-through actions by clients as a result of there have been provide chain costs and folks have been making an attempt to ensure, they’re stocking up.

We simply need to be prudent. We do not anticipate extra value will increase as a result of our philosophy is we do not need to maintain driving costs up. As a result of if you maintain growing costs, when provide chain settles down, it’s important to lower costs. And I do not need to be in that situation the place we’re exhibiting you super volatility in our product income.

In order that’s type of one issue is the worth normalization. The second issue is potential pull-in by clients due to provide chain constraints and ordering forward. Should you stability that out, we expect the quantity continues to be within the low to excessive single-digits. However once more, as I’ve instructed you from maybe 5 years in the past, we’re specializing in Firewall as a Platform.

The extra I drive SASE, the extra I drive digital firewalls, the higher off we’re as transitioning our enterprise. It is going to be highlighted. 70% of our income now could be predictable going into subsequent quarter. We highlighted that 80% of our software program subscription is coming from software program.

So, we try to ensure we maintain remodeling this enterprise and software program enterprise. We love our {hardware} enterprise. It drives numerous its put in base. It lies with plenty of refreshes.

It drives numerous our superior Risk Prevention functionality. So please do not take away, that is not now a favourite baby of ours. However on the similar time, we’re cautious and we’re ensuring we stability the expansion in our {hardware} enterprise with the thrust we’re placing into SASE and Cloud and Cortex.

Brian Essex — Goldman Sachs — Analyst

Very useful. Thanks.

Clay Bilby

Nice. Subsequent from Fatima Boolani of Citigroup with Saket Kalia subsequent. Fatima, go forward.

Fatima Boolani — Citi — Analyst

Thanks. Good afternoon, gents. Thanks for taking my questions. Nikesh, for you, if I calculate tough again on the envelope math, you had roughly perhaps 10% of your billings tied to a handful of transactions.

In order I take into consideration massive deal dependency and $75 million, $100 million offers turning into the norm at Palo Alto, how do you place your head along with Dipak to type put guardrails across the steerage because the enterprise turns into a bit of bit extra levered to a few of these bigger offers, particularly given your scale?

Nikesh Arora — Chairman and Chief Govt Officer

Let me return. To start with, we have been cautious, we mentioned mid- to excessive 30s. So it is not precisely 10%. It is someplace between 5% and eight%, if you’ll, in case you have been bringing again of the maths envelope.

However sure, 5% to eight%. However look, a part of it’s we additionally instructed we now have 1,200 millionaire clients. I believe in cybersecurity, that makes us the most important variety of millionaire clients you are going to count on. There’s a considerable amount of clients between that and the $1 million clients, $100 million and $1 million, there’s lots of people — there are many numbers between one and 100.

So you’ll be able to count on we now have folks just about at each quantity. A part of it’s a balancing act by way of what offers we prioritize and what offers we concentrate on. Keep in mind, $100 million offers do not go away. They only take longer.

So we could not get it carried out in Q1. We’ll get it carried out in Q2. So our buyer would not get up one morning and say, you understand that deal have been discussing within the final 9 months for $100, it is not going to occur. It usually it turns into a $60 million deal otherwise you say it may occur within the following quarter.

So our job is to have much more pipeline in our portfolio to ensure that we’re in a position to deliver sufficient of them in, to have the ability to keepyou hungry analysts away from destroying our credibility or no matter the precise phrase is. Have we obtained you satisfied but, Fatima or not? I am nonetheless ready.

Fatima Boolani — Citi — Analyst

I am on the bullet practice.

Nikesh Arora — Chairman and Chief Govt Officer

All proper, good. Unbelievable. Thanks.

Clay Bilby

All proper. Nice. Subsequent query from Saket Kalia of Barclays with Brent Thill subsequent. Go forward, Saket.

Saket Kalia — Barclays — Analyst

OK. Nice. Thanks, Clay. Hey, everybody.

Thanks for taking my query. Echo my congrats on a really robust quarter. Dipak, perhaps for you. You talked about in your ready remarks that you simply took the identical method with FY ’23 information as you probably did with FY ’22, which was clearly very robust.

So perhaps the query for you is, as all of us ponder the impression of macro uncertainty for subsequent yr, how did you kind of take into consideration that if you have been type of excited about that billings information for subsequent yr, which, once more, was very robust at a better base for ’22?

Dipak Golechha — Chief Monetary Officer

Yeah. I do not suppose there’s something totally different that I’ll let you know, Saket, that is already — that is not already in our ready remarks. I imply, I believe it is actually a query of simply dissecting what are the impacts of the macro, determining what provide chain-related, what’s inflation-related, what’s demand-related after which simply ensuring that we methodically work via it, like Nikesh and I and the management crew have numerous debates, proper, in the course of the course of the annual planning course of, after which we simply attempt to ensure that we’re pondering via situations and having sufficient flexibility for various situations. However actually nothing so as to add past the ready remarks.

Saket Kalia — Barclays — Analyst

Received it. Thanks.

Clay Bilby

OK, nice. Subsequent is Brent Thill of Jefferies with Andy Nowinski subsequent. Go forward, Brent.

Unknown speaker

Hey, guys. You’ve Joe on for Brent. Congrats on the end result. Possibly only a follow-up to that final query.

Recognize the additional prudence, and I do know that it is your fiscal first quarter, however is there any purpose why the expansion fee would half? I do know there’s some period in 4Q, however simply perhaps speak in regards to the billings steerage because it pertains to F 1Q.

Dipak Golechha — Chief Monetary Officer

So, I believe once more, in the end, we talked about how you have to normalize it for some massive offers. We did additionally take a value enhance on August 1. I believe, once more, we’re simply making an attempt to be prudent at the start of the fiscal yr and ensure that we’re not getting forward of our SKUs. I imply the 20% to 21% is the fiscal yr information.

I believe we have guided a bit of bit greater in Q1, particularly, however I believe — sure, and nonetheless forward of consensus. So I believe we really feel fairly good in regards to the pipeline, all of the metrics that we take a look at.

Nikesh Arora — Chairman and Chief Govt Officer

[Inaudible] Essential to grasp the general market context. You’ve got obtained firms that are lowering steerage, firms that are chopping EPS steerage. There are firms that are warning a possible buyer deal life cycles being smaller. So we’re making an attempt to ensure that we’re ready for each the upside and draw back situation.

I believe it is honest for us to be prudent in that market.

Unknown speaker

Is sensible. Thanks, guys.

Clay Bilby

OK, nice. Subsequent, we have Andy Nowinski of Wells Fargo with Joel Fishbein subsequent. Andy, go forward.

Andy Nowinski — Wells Fargo Securities — Analyst

Nice. First, I simply need to lengthen my congrats on an awesome quarter and the billings steerage, notably in mild of the a lot greater comp you might have this yr. So for a query, I wished to ask about your win charges on Prisma SASE as a result of none of your rivals have firewalls or different options to supply past their SASE options. So I am questioning if the remainder of your portfolio would possibly truly be your most sustainable aggressive benefit that is driving that progress in new logos you are seeing with Prisma SASE.

Nikesh Arora — Chairman and Chief Govt Officer

Andy, I believe a part of — in case you take a look at it traditionally, till about three years in the past, we did not have a SASE product that we might truly go face to face with the business chief, let’s simply say, proper? What has occurred within the final one and a half years or two, we have change into a pressure to reckon with. I would say in essentially the most — the most important enterprise deal is head-to-head with two distributors. Very hardly ever can we see a 3rd. This does not take loads to guess who the second vendor is.

And two years in the past, we weren’t exhibiting as much as the celebration. Two years in the past, getting one or two offers out of 10. Now we expect we’re in 5 to 6 out of 10 offers. And our aspiration is subsequent yr to be 10 out of 10 offers.

You already know what, hopefully, if we are able to win half the offers that we’re in, we’ll be rising at huge numbers like we did this yr. So we expect we’re coming of age in our SASE enterprise. We’ve numerous respect for the opposite participant out there. We predict we now have a greater answer technically.

We’re seeing that when enterprise architectures come to play the place clients need to combine a zero belief technique throughout {hardware}, software program and distant entry pushed options. We consider that we now have a technical edge. On the similar time, we made the early choice to deploy that on the general public cloud. We truly are the one firm that may ship your SASE answer on the general public cloud with redundancy.

So GCP goes down, we sizzling change to AWS. As AWS goes down, we sizzling change to GCP. So we provide the highest degree SLA within the SASE enterprise out there immediately.

Andy Nowinski — Wells Fargo Securities — Analyst

It is nice. Thanks, Nikesh.

Clay Bilby

All proper. Subsequent, we have Joel Fishbein of Truist Securities, adopted by Keith Bachman. Go forward, Joel. All proper, we’ll provide you with yet another shot right here, Joel.

Joel Fishbein — Truist Securities — Analyst

Sorry about that. Sorry about that. Thanks for taking my query. So, I used to be on mute.

Nikesh, simply wished to comply with up on Fed spending and SLED spending, notably since Palo Alto might be within the pull place to take care of the zero belief atmosphere that the federal authorities’s espousing a technique round it, and I might love to only get an replace. It looks as if there’s numerous rhetoric, however not numerous spending. Thanks.

Nikesh Arora — Chairman and Chief Govt Officer

Joel, as you may admire, what usually occurs when a brand new administration comes into place. The primary six months, they spend the time attending to know one another. The following six months, they write numerous government orders after which we get into implementation, if we’re fortunate in yr two. So sure, we now have seen nice indicators of alignment within the Fed market.

We’ve seen some good government orders that align towards extra consciousness round cybersecurity. As you understand, the SEC can be it make it a extra related dialog [Inaudible]. So all of the indicators are headed in the precise course. The fiscal yr shut for Fed is available in, within the subsequent month and a half.

So, we must always hopefully see some exercise in Q1 round that. And I believe subsequent yr must be a greater yr for Fed spending, particularly round zero belief and SASE and Cloud.

Joel Fishbein — Truist Securities — Analyst

Nice. Thanks.

Clay Bilby

All proper. Subsequent is Keith Bachman with BMO, with Gregg Moskowitz to comply with. Go forward, Keith.

Keith Bachman — BMO Capital Markets — Analyst

Are you able to hear me OK?

Nikesh Arora — Chairman and Chief Govt Officer

Yep.

Keith Bachman — BMO Capital Markets — Analyst

Nice. Lee, I need to deliver you into the dialog for a second, if I might. A lot of good metrics round Cortex. And I used to be simply questioning the way you’re excited about the expansion potential in Cortex and notably with XSIAM coming within the first half, does that you simply suppose truly trigger an acceleration in progress in Cortex? And Dipak, if I might simply ask a clarification, sneak one in right here.

For the billings information, are you assuming period impartial in FY ’23? Or any type of assumptions round period and pricing that we must be excited about in that ’20 to ’21 billings information if you evaluate this yr to final yr? Many thanks.

Lee Klarich — Chief Product Officer

Yeah, thanks. Thanks for the query, Keith. The — we noticed one other yr of excellent traction with Cortex throughout XDR, XSOAR, and Xpanse. And I anticipate that we’ll proceed to see that traction in FY ’23 given the product innovation that we have pushed and can proceed to drive throughout these three merchandise and the worth they supply.

Once I take into consideration XSIAM, I consider it as being the beginning of a reasonably thrilling journey, however it may be a multiyear journey. I do not see it as being only a fast hit. It is a extra architectural transformation. It’s actually what I consider clients want however it would take a bit of bit longer for that to totally play out.

And I am very inspired by the design associate program we ran, however there’s — we’ll see that play out over the course of the subsequent yr, and hopefully, that units the muse for the years to return.

Keith Bachman — BMO Capital Markets — Analyst

OK. Nice.

Dipak Golechha — Chief Monetary Officer

After which simply to reply your query on period and pricing. No important modifications on period and no extra pricing past those that we have already introduced. We name August 1, we did have a value enhance that was about 5% on our {hardware}.

Keith Bachman — BMO Capital Markets — Analyst

OK, nice. Many thanks.

Clay Bilby

All proper. Gregg Moskowitz, Mizuho Securities, adopted by Matt Hedberg. Greg, go forward.

Gregg Moskowitz — Mizuho Securities — Analyst

All proper. Thanks, Clay. So, Nikesh, at the start of your fiscal ’22 yr, you spoke a few extra incremental interval, a extra reasonable interval, if you’ll, because it pertains to acquisitions. However earlier, Lee did additionally point out a number of alternatives for brand new modules and valuation multiples having typically are available, I am curious the way you’re excited about M&A in fiscal ’23.

Nikesh Arora — Chairman and Chief Govt Officer

So, we outlined that we — it is tougher to do M&A now than it was three or 4 years in the past as a result of we had such a large canvas or clean canvas by way of varied alternatives the place we might go make acquisitions. Right now, we now have to stability the thought of an acquisition to ensure that is it in step with our product technique, is it an overlapping acquisition or is it a complementary acquisition the place we are able to combine over time. In order that reduces the quantity of the chance on the market. As I’ve all the time mentioned, we’re very centered on product space acquisitions versus go-to-market acquisitions as a result of we now have a — as you’ll be able to see, from our ARR or NGS, $1.9 billion.

We’ve the power to go promote good things if we get good things from our product higher than right here. So, I believe we’ll proceed to remain looking out and scan the market. We’re not within the mindset of buying massive offers. We’re within the mindset of on the lookout for nice product groups that we are able to complementarily connect to our capabilities.

So, we maintain scanning the market and if one thing exhibits up, we’ll do it. However once more, I do not suppose it has ever been a big a part of our effort by way of our market cap. After we did the primary $2.5 billion, the market cap was $20 million, $25 million, now it is $50 million. So, you’ll be able to think about it is a small scale relative to what the chance for the corporate is, and that is how we give it some thought.

We’re not leaping on the bid proper now. The market — I believe it is type of like — the general public market has rationalized, the non-public markets in all probability have not but. It is a bit like actual property and folks keep in mind the final the neighbor’s home, what’s bought at, they type of neglect what their home is price. So till folks notice the true worth of their home, it may be a bit of longer earlier than acquisitions come into the safety market once more.

Gregg Moskowitz — Mizuho Securities — Analyst

Thanks.

Clay Bilby

OK, Nice. Matt Hedberg, RBC, adopted by Grey Powell. Matt, go forward.

Matt Hedberg — RBC Capital Markets — Analyst

Positive. Hello, thanks. Nikesh and crew, congrats on the outcomes. You already know, the success of your SASE portfolio is clearly spectacular.

I am questioning, as you method the fiscal yr, are there issues that you simply’re doing from a go-to-market perspective to even drive greater cross-sell? I consider you might have about 54,000 firewall clients and now simply shy of three,600 SASE clients. Simply type of curious how you consider perhaps driving much more cross-sell what is clearly [Inaudible]

Nikesh Arora — Chairman and Chief Govt Officer

Yeah. So Matt, thanks for the query. It is an awesome query. It is one thing our administration crew has spent numerous time excited about.

And what we’re doing going into this fiscal yr is we used to have SASE gross sales specialists. And what we have carried out is we now have merged them into our core gross sales crew, and we have been working boot camps for the final six to eight weeks coaching all people out within the area for SASE. So we’re changing our total core area crew, our community safety crew right into a SASE-first crew which is the way in which — solely means we are able to get amplification throughout 2,000 sellers and truly go ensure that there is a SASE alternative to be uncovered to each buyer. So, we expect SASE has come of age.

We predict SASE is the linchpin towards our community safety technique. We predict that is going to be a really, very massive market within the subsequent 5 to 10 years. And we expect we’re one among two distributors out there who shall be invited to each alternative, and we hope to win our disproportionate share.

Matt Hedberg — RBC Capital Markets — Analyst

Better of luck. Thanks.

Nikesh Arora — Chairman and Chief Govt Officer

Thanks.

Clay Bilby

All proper. Nice. Our final query for the day from Grey Powell with BTIG. Grey, go forward.

Grey Powell — BTIG — Analyst

All proper. Thanks very a lot. And congratulations on the robust outcomes. So sure, I assume I will follow the SASE theme.

And I would be actually curious, I imply numerous different firms which have reported earnings within the safety house, they’re speaking about longer gross sales cycles, notably for bigger, extra advanced offers. How does that play into the Prisma SASE portfolio? Are you seeing any macro impression there, notably by way of pipeline? After which was that like a consideration within the NGS ARR steerage.

Nikesh Arora — Chairman and Chief Govt Officer

Look, Grey, as I mentioned, at the start, the massive advanced offers take longer to get carried out. And SASE does take longer as a result of clients — SASE is simply not shopping for a safety and bolting it on. It is truly rearchitecting your community entry. It truly simply how your laptop computer dolls in into your work in case you’re utilizing Palo Alto SASE or Prisma SASE.

So it is type of vital as a result of in case your laptop computer would not get entry to BTIG’s infrastructure, you are in bother. So it turns into a community play as a lot as a safety play. So groups take a bit of longer to get it carried out. So I believe that is type of a part of the method, much less so the macroeconomic considerations, if you’ll, it is actually doing the expertise transformation agreeing to do it as a company.

That is what takes a bit of longer. By way of our steerage, look, there’s a complete bunches of places and takes which might be getting into there. There are secular tailwinds. We clearly have a way of the pipeline going into subsequent yr.

As Fatima requested, we did some huge offers, guess what, we did not do some huge offers, proper? You could not have carried out each deal, so there is a bunch of offers which might be nonetheless ready within the wings. Sure, they’re bigger, they usually’re binary that if all of them do not are available, we’ll should go hustle. If all of them are available, we’ll be in an awesome place. However our job as administration is to only stability all these elements, you have to stability inflation, provide chain, deal cycles, varied product investments.

So I believe throughout the stability, in case you look, we expect our steerage is prudent throughout all of those elements the place we expect a few of them may be higher for us. A few of them could also be worse. However on the margin, we expect we are able to ship the steerage as introduced to you.

Grey Powell — BTIG — Analyst

All proper. Sounds good. Thanks.

Nikesh Arora — Chairman and Chief Govt Officer

Thanks.

Clay Bilby

Nice. Thanks. That may conclude our Q&A. I will flip it again over to Nikesh for his closing remarks.

Nikesh Arora — Chairman and Chief Govt Officer

Effectively, to start with, thanks, everybody, on your consideration and your questions and for becoming a member of us. We stay up for seeing lots of you after this in separate calls, in addition to upcoming conferences. I additionally need to thank our clients, companions and naturally, most of all, our workers who make us the nice place that we’re. With that, go Palo Alto Networks.

Period: 0 minutes

Name contributors:

Clay Bilby

Nikesh Arora — Chairman and Chief Govt Officer

Lee Klarich — Chief Product Officer

Dipak Golechha — Chief Monetary Officer

Hamza Fodderwala — Morgan Stanley — Analyst

Rob Owens — Piper Sandler — Analyst

Phil Winslow — Credit score Suisse — Analyst

Adam Tindle — Raymond James — Analyst

Brian Essex — Goldman Sachs — Analyst

Fatima Boolani — Citi — Analyst

Saket Kalia — Barclays — Analyst

Unknown speaker

Andy Nowinski — Wells Fargo Securities — Analyst

Joel Fishbein — Truist Securities — Analyst

Keith Bachman — BMO Capital Markets — Analyst

Gregg Moskowitz — Mizuho Securities — Analyst

Matt Hedberg — RBC Capital Markets — Analyst

Grey Powell — BTIG — Analyst

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