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Palo Alto Networks, Inc.
CEO : Mr. Nikesh Arora C.F.A.

Quarterly earnings growth(YoY,%)

Period	Revenue	Operating Income	EPS	Release Date
2023 Q4	26.0% YoY	-2447.2%	7300.0%	2023-08-18

Nikesh Arora says,

Q4 2023 Financial Results

• Q4 revenue grew 26%, marking the 12th consecutive quarter of revenue growth over 20%.
• Billings grew 18% compared to 44% growth in Q4 last year.
• RPO (remaining performance obligations) grew 30% ahead of revenue growth.
• Q4 operating margins expanded by 760 basis points.
• Non-GAAP earnings per share were $1.44.
• Achieved 39% adjusted free cash flow margins for the year.

Milestones and Performance

• Combined SASE, Cortex, and cloud bookings were over $1 billion in Q4.
• Cortex platform and SASE both surpassed $1 billion in annual bookings.
• Prisma Cloud ARR exceeded $500 million.
• Added more new ARR than any other pure-play cybersecurity company in the quarter.
• Platformization is driving large deal momentum, with 8 out of the top 10 deals seeing a significant contribution from next-generation security capabilities.

Large Deal Examples

• A large industrial manufacturer signed a transaction worth $45 million, including commitments to Prisma Access, Prisma Cloud, XDR, and IoT security offerings.
• A large professional services firm standardized on Prisma Access in a transaction exceeding $40 million.
• A large retailer signed a landmark transaction for over $40 million, led by XSIAM and displacing the incumbent SIEM offering.
• A large technology service provider chose XDR and XSIAM capabilities in a transaction worth over $30 million.

Growth and Success

• Larger deals grew faster than the overall business in Q4, with the number of deals over $20 million growing faster than deals over $10 million.
• Cortex achieved over 5,000 customers, with average deal size growing over 50% year-over-year.
• SASE gained strong customer awareness and momentum, becoming a standout offering.
• Prisma Cloud surpassed $5 million in ARR, showing steady consumption growth and strong customer adoption of multiple modules.

Outlook and Guidance

• The company’s focus on excellence and execution has resulted in strong performance and exceeded guidance in fiscal year 2023.
• Investments in next-generation security capabilities and platformization are driving growth and large deal momentum.
• XSIAM has achieved $200 million in bookings, surpassing the goal of $100 million in its first year.
• The company continues to make significant organic investments in Prisma Cloud and plans to grow the platform through acquisitions.
• 2024 guidance will be covered in the detailed financial results and guidance section by Dipak.

Lee Klarich says,

Threat Landscape and Challenges

• The threat landscape is intensifying, with attackers becoming more sophisticated and the sheer volume of malicious programs growing rapidly.
• Attackers are now able to exfiltrate data within hours, posing a significant challenge for organizations to detect and prevent breaches.
• The use of AI by attackers is expected to increase, leading to more sophisticated and faster attacks.

Innovation and AI

• Palo Alto Networks has a strong focus on innovation and has over 4,400 product, engineering, and other experts driving innovation.
• The company combines organic innovation with strategic acquisitions to further enhance its capabilities.
• Palo Alto Networks has been infusing AI into its products to solve challenging problems and plans to accelerate its pace of innovation.
• The company has built a strong data foundation and architecture to leverage AI effectively.

Platform-oriented Approach

• Palo Alto Networks follows a platform-oriented approach, integrating capabilities into focused platforms around Zero Trust, code to cloud, and security operations.
• This approach helps achieve real-time security outcomes and reduces complexity for customers.
• The company’s platforms are designed to be comprehensive and selectively integrate third-party technology to complement their capabilities.

Zero Trust Platform

• In the network security market, the point product approach is becoming harder to sustain, leading to a need for platforms.
• Palo Alto Networks’ Zero Trust platform addresses the increasing need for more technologies and capabilities across a broader attack surface.
• Trends like passwordless authentication, Quantum, and BYOD further emphasize the need for a platform-based approach.

Q & A sessions,

Impact of Higher Interest Rates and Scrutiny on Deals

• CFOs are scrutinizing deals, requiring companies to show the business value of cybersecurity products.
• The ability to consolidate multiple products into one platform is resonating with customers.
• Deals are going through more levels of scrutiny, with some being pushed or canceled.
• Customers are discussing deferred payment plans to account for the cost of money.

Normalization of Hardware Cycle and Stricter Execution

• The hardware cycle has started to normalize, aligning with the company’s previous predictions of low to mid-single digit growth.
• The focus is on improving execution to meet demand and achieve better outcomes.

Shift towards Annual Billings and Portfolio-based Approach

• The company has successfully transitioned a significant part of its business into annual billings through deferred payment plans.
• Different products have different discussions, with cloud solutions having shorter duration discussions and XSIAM solutions requiring longer deals.
• The goal is to continue transitioning into more annual billings while maintaining key metrics and outcomes.

Successful Sales Performance and Cross-platform Approach

• The sales team has been successful in winning deals in major categories, such as firewalls, SASE, and XSIAM.
• There are structural changes, such as merging SASE and core teams, to drive growth and improve operating margins.
• The message to the sales team is to focus on cross-platform deals and be empowered to sell all products.

Cybersecurity Market Outlook and Opportunities

• The cybersecurity market is expected to continue growing in the next three to five years, driven by technology advancements and the rise of e-commerce and digital transformation.
• New markets, such as SASE and cloud security, have been created in the past five years.
• Transformation is happening in existing markets, such as network security and SIEM and SOC.
• Steady cybersecurity segments and services are also expected to evolve.
• Palo Alto Networks has been focused on integrating different parts of the market into its platform approach.