Good day, everyone, and welcome to Palo Alto Networks Fiscal Second Quarter 2023 Earnings Conference Call. I am Clay Bilby, Head of Palo Alto Networks Investor Relations. Please note that this call is being recorded today, Tuesday, February 21, 2023, at 1:30 PM Pacific Time. With me on today's call are Nikesh Arora, our Chairman and Chief Executive Officer; and Dipak Golechha, our Chief Financial Officer. Our Chief Product Officer, Lee Klarich, will join us in the Q&A session following the prepared remarks. You can find the press release and information to supplement today's discussion on our website at investors.paloaltonetworks.com. While there, please click on the link for Events and Presentations where you will find the investor presentation and supplemental information. During the course of today's call, we will make forward-looking statements and projections regarding company's business operations and financial performance. These statements made today are subject to risks and uncertainties. We assume no obligation to update them. Please review the press release and our recent SEC filings to see these risks and uncertainties. We will also refer to non-GAAP financial measures. These measures should not be considered as a substitute for financial measures prepared in accordance with GAAP. The most directly comparable GAAP financial metrics and reconciliations are in the press release and the appendix of the investor presentation. All results and comparisons are on fiscal year-over-year basis, unless specifically noted otherwise. We would also like to note that management is scheduled to participate in the Morgan Stanley TMT Conference and JMP Securities Technology Conference in March. I will now turn the call over to Nikesh.

Thank you, Clay. Good afternoon, and thank you, everyone, for joining us today for our earnings call. I'm pleased to report that we had another strong quarter with the balance of top line growth, significant expansion and non-GAAP operating margin and strong free cash flow. Billings and revenue each grew 26% year-over-year. Our RPO grew 39% as we continue to sign large multiyear deals with our customers. We also delivered an acceleration in our operating leverage in Q2 as we focused on driving profitable growth. Our non-GAAP operating income grew 55% year-over-year, supported by a non-GAAP operating margin, which exceeded 22% for the quarter, up over 440 basis points year-over-year. This translated to another quarter of profitability on a GAAP basis. We have now been GAAP profitable on a cumulative basis over the last four quarters. In addition, our strong free cash flow generation this quarter also puts us on track to outperform prior guidance. I know many of you are wondering about the macro environment, so I want to start with an update there. There's clearly a tougher macro emerging out there as the Fed continues on its crusade to tame inflation. The changing macro is clearly making business leaders more cautious. Some of our customers are seeing signs of a slight slowdown while others are less impacted. I, however, feel that we're not done yet. And while not expecting shocks, I do think we will see more cautious activity over the next few quarters. Clearly, caution is abundant, driving more scrutiny, making customers demand more value from their partners. We've seen some projects get delayed or descoped, non-canceled while most continue on track. We've always maintained that we expect cybersecurity to be resilient, and we continue to see evidence of that. On the large deal front, this behavior…

Thank you, Nikesh, and good afternoon, everyone. For Q2, revenue of $1.66 billion grew 26%. Product revenue grew 15%, whilst total service revenue grew 29%, with subscription revenue growing 32% and support revenue growing 25%. Moving on to geographies. We saw revenue growth across all theaters, with the Americas growing 22%, EMEA up 35% and JPAC growing 32%. The strength of our next-generation security capabilities continues to drive our results, with NGS ARR of $2.3 billion, growing 63%. Strength was broad-based across all three of our platforms: Network security, cloud security and security operations. We delivered total billings of $2.03 billion, up 26% and above the high end of our guidance range. Total deferred revenue in Q2 was $7.6 billion, an increase of 39%. Remaining performance obligation, or RPO, was $8.8 billion, increasing 39%, with current RPO representing about half of our RPO similar to recent quarters. Our non-GAAP earnings per share was significantly ahead of our guidance, and this metric, as well as our trailing 12 months adjusted free cash flow, accelerated. Non-GAAP EPS of $1.05 grew 81% year-over-year, while trailing 12-month adjusted free cash flow of $2.7 billion grew 76% year-over-year. Moving on to the rest of the financial highlights. Non-GAAP gross margin of 75.5% was up 150 basis points year-over-year, driven mainly by an increase in our software mix. On a quarter-over-quarter basis, we saw less pressure from incremental costs related to the supply chain. We've made significant progress in driving leverage. This is something that we articulated at our Analyst Day in September 2021 and kicked off in fiscal year 2022. And we have accelerated this in fiscal year 2023 with a focus on profitable growth as evidenced by our Q2 performance. Our operating margin of 22.8% increased 440 basis points year-over-year. This result was driven…

Great. Thank you, Dipak. [Operator Instructions] The first question will be from Brian Essex of JPMorgan with Hamza Fodderwala to follow. Brian, you may ask your question.

Great. Thank you, Clay and congrats to everyone on some fantastic results. Really, really strong here. Thanks for taking the question. Maybe Nikesh for you, I just have a question on SASE. Maybe if you could dig in a little bit to the competitive dynamics there. Does it really help to -- I guess, how much does it help the platform to have full end-to-end SASE? I see a lot of private vendors building out full end-to-end SASE platforms, or is this more of a transformational push or maybe there's a little bit of both? Thank you.

Hey, thanks for the question. Look, the SASE market, I think traditionally was a market which was focused on Internet access. Customers use that as a proxy-based way to onboard Internet access and was fine. I think the pandemic really flipped the switch, coupled with the whole cloud transformations that are going on, our customers, especially larger customers, want to create a first -- first-class citizen of any user who's not sitting in the office or in the campus, and they want to get to Zero Trust. So, I think the confluence of Zero Trust, the confluence of the cloud transformation, the confluence to apply a full security stack opened the door for full SASE deployment to network transformations, couple that with the fact that people are trying to get away from large wide- network-type network architectures, SD-WAN type network. So, I think, our confidence on all of these things created a real spurt in the SASE market. We have 60-plus thousand customers who use our firewalls. Now, we're showing them a path to migrate from a firewall-based, campus-based, data center-based architecture to a Zero Trust architecture, which spans hardware, software, and any kind of remote access and campus solutions. So, I think that's what's driving that for us. And whilst your guys -- you're impatient, your brains move faster than our ability to execute sometimes, it's only been three years. And I think I could challenge anybody out in the market. Anybody -- everybody read the same Gartner Magic Quadrant on SASE. I want to see how many vendors can claim that the last six quarters, they sold $1 billion SASE, and who just did a $40 million deal in SASE last quarter. So, I think that's our execution, our ability to work with existing customers, our constantly listening to customers evolving our product is allowing us to get here. It's a competitive market, but I think we're down to two, two and a half vendors in this market who we see at every customer now.

All right. Our next question from Hamza Fodderwala with Morgan Stanley with Fatima to follow. Go ahead Hamza.

Hey good afternoon. Thank you for taking my question. Maybe for Nikesh and Lee Klarich. Just curious around the early customer conversations around AI as customers look to automate their security operations. And to what extent is that aiding the conversation towards consolidation for Palo Alto Networks?

That's a great question, Hamza. And I've been sort of on and off in terms of how to temper my enthusiasm for this space. And I was on my way to India to speak at a convocation, I experienced ChatGPT for the first time. And I turned around and rewrote my convocation speech saying, this is the best thing that happened to security, enterprise and to consumer, because I think it's kind of an inflection point, which is big. Now clearly, that's a conversation. I'd say, two months ago, customers were not asking us about AI, and now they all want to know, are you deploying AI in your security products? That's great. And that's why we spent some time on the earnings call trying to elaborate how we've been using this for a long time. The conversations are around how do I start making more sense of my data. I think the last iteration of using data in the security industry has been more about, I'd say, offline or reactive data analysis for the most part. And this is the first time the customers want real-time, proactive, block-the-threat outcomes, which is sort of our sweet spot, if I may say so. And that conversation is beginning to start. I'll tell you, on XSIAM, there's no deal less than $1 million. I haven't seen a security product that we launched in the industry which starts off at a minimum price of $1 million, right? We've done $30 million of business in the last 12 to 16 weeks, where our customers -- our teams are still getting trained. We're still getting traction. We still have, we think, 70%, 80% of the product developers still working on the rest of it as we get feedback from customers. So -- and I'm cautiously optimistic. And I think you will see this pave the way for deployment of AI. This is our first outcome-based product. This is the first time we can walk in and say, listen, I can reduce your mean time to respond, a mean time to detect. Otherwise, I'd say, use this, this is really good, it's going to save you, but he won't find out until something happens. In the case of XSIAM, I say, I can demonstrate efficiency, I can demonstrate lower cost of ownership for you. So, very hopeful. Don't get ahead of yourself. It's going to take a while. I really told you we'd be happy if I get $100 million faster than any of the product. And hopefully, this becomes another leg of growth for Palo Alto to give us more sustained top line over the long-term.

All right. Our next question from Fatima Boolani of Citigroup with Brad Zelnick like to follow. Go ahead.

Good afternoon. Thanks for taking my questions. Nikesh, this one's for you. You were pretty explicit that you are having realistic conversations with customers about payment terms and extensions and financial circumstances as most organizations focus maybe more on cash flow preservation than they had in the past. So maybe to specifically ask, it's not very apparent in your numbers that you're having those types of conversations. So a, how are you managing to circumvent a lot of that? And how is Palo Alto Financial Services as a financing vehicle maybe helping you drive a lot of those conversations that's not apparent to us?

Good.

Good.

It means we are doing a good job of managing our cash flow margins and making sure our customers are happy. And this very rarely do I get to make both shareholders and customers happy at the same time. So it's one of those moments. Look, on a more serious note, yes, you're right. We are having those conversations. And I'd say, Dipak and his team doing a phenomenal job in making sure that our sales teams are supportive when the customer is talking about payment terms, annual billing plans or specifically using PANFS. So I'm going to pass over to Dipak and explain how he's walking the tightrope and making sure that we're doing this effectively with our customers. I will say, we're blessed because, as Dipak highlighted, we have $6.2 billion of cash on our balance sheet. So we have the capacity to be able to do this for our customers. But Dipak?

Yes. No, I think, I would just say that, it's been very selective and very purposeful looking at the actual customer interaction. We have a whole team, that are very experienced at this. We brought a lot of people in with external experience. And it really is a case-by-case piece here, but that's how you keep it like very selective and strategic. And that's the only time we really use it.

All right. Great. Our next question is from Brad Zelnick of Deutsche Bank, followed by Tal Liani. Go ahead, Brad.

Great. Thank you, very much, and congrats, Nikesh and team. Great, great job. Nikesh, Palo Alto Networks is far more than a hardware company. And that's...

Oh, my God, Brad. You're reminding me of the meeting we had 4.5 years ago in my office. Go on.

I'm so glad that I left that impression on you, Nikesh. But I'm still waiting for the odd word by the way. You can see behind here. It's still -- even though I'm in front of the building, it's a bit sparse. But good to see you. So, far more than a hardware company today that's on full display, but you've downticked on your industry hardware growth expectations from what you said last quarter. I believe last quarter, you said 5% to 8%. Now you're saying low to mid-single digit. I don't know if it's a material difference, but I noticed the difference. If anything, what's changed at all in your market view? How should we expect your hardware business to perform versus market? And what would you say, Nikesh, to a skeptic that's perhaps skeptical that a lot of the success you see in everything else in next-gen is riding along on -- and opportunities created when a sales person shows up and is selling hardware? I guess how much of that motion is happening away from hardware that we should appreciate? Thanks.

So, Brad, I think it's important to understand, that we have a very large installed base. We have 62,000 customers who deploy Palo Alto firewalls. And let's just say, in my 4.5 years at Palo Alto, I don't know any customer has decommissioned us yet. So, I think that the solution of the hardware is not being deployed or not being used is not true. So there is hardware and [indiscernible] customers. Even though somebody may not be buying hardware, a lot of our subscription growth, our ELA growth, is driven by the fact that people have hardware, which they are extending the software capabilities on and buying more software capabilities from us. So it's not just that a salesperson shows up only to sell hardware, they actually show up to deploy more security capabilities on the software front. And couple that in the case of SASE, if you look at our large pipeline, it's clearly driven by a customer of Palo Alto, who is a firewall customer, or a potential SASE customer who's saying, listen, I know your security services, I know your Zero Trust policies, I want to be able to expand into it and deploy a full end-to-end SASE solution or a Zero Trust solution for you. So, I guess I'm trying to say is that, our success in software is not hardware-dependent. All I'm highlighting is that I believe that the market was very confused last year with supply chain. You couldn't get chips. There were orders being made. Customers are getting jittery, saying, I have capacities, I might need more hardware. So a whole bunch of conflation of effects that happened hardware. I have constantly maintained that hardware grows. The industry grows at low to mid-single digits. You noticed that perhaps a slight downtick in…

Makes perfect sense to me. Keep up the good work. Thank you.

Thanks Brad.

Great. Next question from Tal Liani of BofA, followed by Keith Bachman. Go ahead, Tal.

…I wanted to show you my arc, I made it.

Tal?

I wanted to ask you about the difference between revenue growth, billing and deferred revenue. You increased the guidance for deferred and billings that are very, very strong. We see less of an increase in revenue. What are the dynamics going forward?

I'm going to let Dipak answer, but I will recommend you to try Dali. And you might be able to create a parallel poster of our, and we'll have to figure out who did, which one.

Yeah. Look, Tal, I think at the end of the day, like we are an enterprise company. And as you see in our guidance, like we have a large Q4 guidance with a lot of customers sweating assets, as Nikesh mentioned in our -- in his script. I think, we're just trying to reflect that in our latest forecast, which is what drives the guidance. And so if you have people sweating assets, we don't know exactly what will fall in which quarter, and that's what drives the revenue.

Yeah. Well, I think just to make sure that you don't -- we don't mix the forest from the trees. We are seeing better growth across our business on a TCV basis across our customers. That's driving the billings growth, which obviously then falls into revenue, both short-term and long-term and deferred. I think what you're seeing is the higher mix of software in our expectations going forward, which makes it more ratable over time. It gives us more predictability. Hence, the revenue looks consistent with expectations, and you see the software part, which is sitting in deferred grow faster.

Certainly on SASE, that is the most…

That makes sense.

All right. Great . Thanks. Our next question from Keith Bachman of BMO, followed by Patrick Colville. Go ahead, Keith.

Many thanks. Good afternoon, good evening. I wanted to ask you, Nikesh, about Cortex, if I could, more broadly, and I'll break it in two parts. The Cortex journey, the results have been solid, not just this quarter, but for some period of time now. And A, on the competitive front, we've been hearing a lot of discussion from some of the leading vendors that pricing has become much more material in winning share of the CrowdStrikes or what have you. It doesn't appear that that's the case at all in your results from the growth rates and the profitability. So I just want to hear a little bit about pricing. And then more broadly on B, just the competitive dynamics on your results, and you mentioned $100 million run rate on XSIAM, how has the portfolio helped shaping this outcome as you look out over the horizon over the next number of quarters in Cortex?

So Keith, that's a great question. And I'm hesitating on my own analogy, which I was going to give you, but I don't think we should print that. It's clear, it's just -- I don't want to put a word against our Cortex business. First and foremost, look, I've always maintained that the opportunity in the security market arises when there's an inflection point. And I think the endpoint industry went through an inflection point a few years ago when we saw the emergence of EDR and XDR players. And you saw that, I'd say, perhaps the normalization of pure endpoint antivirus-type players in the market. And what's happened is if you look at the evolution, we've gone from a few endpoint players to many, and you're beginning to see convergence again down to two or three people. And I'd say that we are one of the three growing XDR vendors where customers are choosing us. We have one of the best POC outcomes across the entire market vis-à-vis other players. So I'd say today, if you're looking for an XDR outcome, there's possibly two or three vendors always in the fray are beginning to see ourselves to. That was not the case three years ago. That was not the case two years ago. So we're happy with our position, I think, one. Two, XDR is a pipeline business because it's pretty consistent to your point about pricing, the deal sizes are pretty consistent, and they're sort of in a range and you got to have a lot of deals to your pipeline and get some conversion going from them. Cloud and SASE can be big. I still have $40 million cloud deal, $40 million SASE deal. I don't have $40 million XDR deals. They're all in the same swim…

Next is Patrick Colville of Scotiabank, followed by Matt Hedberg. Go ahead, Pat.

Hi, guys. Thank you for taking my question. And it's good to be back. So I want to ask about margin. So I mean, really impressive to see what you guys printed in the margin. I mean, looking at the numbers for fiscal second quarter. To me, the two most important levers were the product gross margin and the sales and marketing kind of costs that were moderated. I guess as we think about the remainder of the year, how should we model out those two levers? So should we continue to expect less incremental pressure from supply chain costs on the product GMs? And how far can this S&M efficiency go?

Well, I think, Patrick, first of all, is Dipak made your life easier by giving you an operating margin guidance for the year. So you don't have to worry about the component parts. So you can just look at the total and have a wonderful time. Save you some modeling at Palo Alto. So that notwithstanding, I think between Dipak and I, we've both said that -- I contemplated putting this in our earnings script. I had a meeting with an investor. Dipak and I had a meeting for hours about six months to seven months ago. And they took us through the brute force of profitability and margins and margin expansion and long-term EPS for Palo Alto. And the other day, Dipak and I looked at each other and say, you know what, growth is important, but growth -- profitable growth is even more important. And I'd say, there's a series of programs that Dipak has been running over the last six months, which include looking at gross margin across all of our products, looking at our spend across categories, looking at headcount. So this is a sustained program we have in place. We're going to moderate our way through it to make sure that we don't impact our ability to generate the right amount of growth and right amount of profitable growth. But I think, the thing I'll leave you with is that, we've given the guidance for the full year for operating margin, how it's going to evolve. We think it's a very good place compared to where we were expecting to be right now. And I think, we've also given you hope that we don't believe this is the end. We believe we can keep improving from here. So for now, that's all we're going to say.

All right. Thank you, so much.

All right. Next, we've got Matt Hedberg of RBC followed by Jonathan Ho. Go ahead, Matt.

Cool. Thanks, guys. Congrats from me as well. Nikesh, I have to go back to SASE. I mean the 50% growth in ARR off of a large base is impressive. And you guys took a different approach this year in terms of integrating your core firewall and your SASE sales force. Can you talk about the strides in those conversations into the other sort of 50,000 firewall customers that aren't SASE customers? How does that discussion go? And if -- just because it feels like such a marriage that makes so much sense from a cross-sell perspective?

Yes. Matt, look, I think a happy firewall customer is a customer who at least has a good feeling about Palo Alto. And I think, if they've deployed our security services, they're even better, because they know how those security capabilities work. And now we're working though each of these customers to trying to work with them on their Zero Trust strategy. SASE is generally a long lead time, long conversation, because it's not just security. I think the part which sometimes gets lost in this -- in some of the analysts, is that SASE is actually -- you're taking -- say, the firewall, I give you a firewall, you run the firewalls in your network, it's all good. You run your growing product. In SASE, I run your network. I take the traffic from your laptop onto me, on to GCP, and route the traffic for you. So now I'm part of your mission-critical capabilities. That means my network has to be strong, my latency has to be low, my availability has to be high. That's not a traditional question security CoIP companies have been asked. They're not used to running networks. That's why I just fall off my chair when I keep hearing, there are seven other vendors building SASE solutions. I'm like, yes, good luck, learn how to run a network. So there's no coincidence that we decided that we were not going to run the network. We're going to let AWS and GCP run the network for us, because that's what they do really well. And they have cloud capability with low latency. So we've built our SASE stack, which runs now concurrently on GCP and AWS, allowing us to give you availability, which is higher than those two individually. So we think in the long term, that's the right answer, right? Now, clearly, we're not 11 years old in SASE. We're 3.5 years old in SASE. So there are some things which we’ll get stumped on, because there are features and capability we need to keep building, because there are edge cases which had been brought to the forefront. That's where Lee and his team are doing a phenomenal job, continuing to keep us at the top of the sort of pyramid of that topic. We're working on some really exciting capabilities in the upcoming future. We'll inform you in the next upcoming quarters. But we feel very good about our SASE pipeline, our on ramp. They're lumpy. They're large deals. But there is product market fit, and we're seeing success.

All right. And our next question from Jonathan Ho of William Blair followed by Saket Kalia. Go ahead, Jonathan.

Congratulations. Just wanted to maybe start out, you've seen some tremendous large deal success this quarter. In terms of the platform consolidation discussions with customers, what are you seeing? And is there evidence of customers maybe standardizing on Palo Alto across multiple areas? What could drive that sort of trend over time? Thank you.

So William, the reason we showcased the millionaire customers, the $5 million deals and the $10 million deal slide, is there's a journey. By the way, I'm going to send you a Palo Alto shirt, so you can at least wear that in this meeting. You can wear that other one other times. But anyway, so yeah, we showed you a slide of $1 million and $5 million and $10 million because customers go through a journey. And it's very rarely you walk into a fresh customer, and we convinced them to go spend tens of millions of dollars to this and consolidate. So it's usually an evolutionary process where we've become the firewall vendor of choice. They go with us on SASE. They're working on cloud. They see the concurrence of cloud and SASE. They have XDR. They want to get to XSIAM. So slowly and steadily, we are showing them the benefits of consolidation. I'll tell you, us being leaders in 13 categories helps because the first time you used the word consolidation, the first reaction of the CIO or CISO is, wait a minute, I want the best stuff. I just don't want it because you have it. Then we say, wait a minute, our stuff is the best up as well as it works together. So it's a journey. It is not something that is a panacea that every customer comes in and walks in, but our teams are now focused towards trying to evolve our customers down that path or across that journey, right? And that's why we can go out and do a deal. I think our largest deal this quarter is north of $75 million.

All right. Our next question from Saket Kalia of Barclays followed by Joe Gallo. Go ahead, Saket.

Okay. Great. Hey, guys. Thanks for fitting me in. Numbers speak for themselves, Nikesh. Maybe a question for you. A lot of excitement around XSIAM. Some interesting wins you called out as well in your AI section. But maybe a strategic question for you. As you think ahead, maybe the next couple of years for XSIAM, how do you think that, that will have started to disrupt the SIM market, either from a tech or a pricing perspective? And maybe just to flip that on its head a little bit, is it possible that tools like XSIAM maybe help expand the SIM market?

So I think, Saket, the SIM market doesn't have a pricing problem. It has a value problem. I spend a lot of money. I don't get enough value. And if you ask some of the customers out there, how do they use the SIM, SIM is used post-breach or post-event to figure out what happened. A SIM is not doing on-the-fly real-time blocking. So when SolarWinds happens, Log4j happens, you can go to your SIM and look at where it happened and figure out and trace it back and try and block the whole. What it won't do for you is stop it mid-flight. And that's a paradigm shift as far as security is concerned. The only way you can do that and stop it mid-flight is analyzing data as it's being created. So to us, the reason we call XSIAM not SIM is here's our words. We watch the data in flow. We watch it coming from the endpoint. We cross correlate mid-flight with firewall data. We go and triage it. We automate some of the alert, some of the noise away. And we're looking at like real incidents between triage already, which are not being put in some large data lake and then running query language against to see how do I solve the problem. They're already doing it in the back end. Now of course, with the availability of new LLMs that are out there, which you all I'm sure have been talking about and dealing with in their free time, they do a lot more useful things than write poetry for your wife. They can actually analyze data to tell you what is anomalous and what is off pattern. And if you can figure that out, then what do you have to do? You have to go ahead and remediate it. How do you remediate it? You got to be a firewall to remediate a network. You've got to be an endpoint to remediate the endpoint. You got to be Prisma Cloud, remediate it in the cloud. So I think what XSIAM is going to do is going to bring real-time capability in the SOC, or real-time capability in security. It's early days. Again, I'm going to say – keep repeating, reputation doesn’t spoil the prayer, don't get ahead of itself, but this is where we're heading. And if you can picture chat ChatGPT 10 years from now, picture AI and security 10 years from now. You will not have humans trying to analyze because it'd be too hard for humans to analyze petabytes of data. Already, the data in an organization is too much for a security analyst to analyze.

All right. Great. Next question from Joe Gallo of Jefferies, followed by Ben Bollin of Cleveland. Go ahead, Joe.

Hey, guys. Thanks for the question. Can you just comment on the execution in cloud security despite the backdrop of hyperscaler growth moderation? And then maybe more importantly, where customers are in the journey to cloud security consolidation? It still feels like the Wild West of a lot of disparate products in that category. When does that market merge, which I'd imagine benefits to? Thanks.

Thanks, Joe. So two quick answers. One, we're still the largest player with north of 2,000 customers in cloud security. I don't know, if you explicitly called it out, but our largest cloud security was $40 million this past quarter. I don't know any other vendor in the cloud security space who's doing half of that in a quarter in one deal. So yes, there are many small players out there, but we've seen a bit of churn in the market where some small players have kind of been acquired and gone. Does that mean we'll be the only player? No, there'll be other players in the medium term, but we feel comfortable that there are people who are consolidating. It feels like the Wild West because customers are still not fully in the full cloud security platform mold. So they've not fully embraced the need to have all these things connected, but I think it's a matter of time and a matter of demonstration that it's going to happen. In terms of your question around where we are, and we talked about that in the prepared remarks around hyperscalers. Remember, the cloud security market is a few billion dollars. The hyperscalable market hundreds of billions of dollars. Now the difference is when you commit to a hyperscaler, you commit that you're going to move, you're going to transition, you spend a lot of money. And a lot of that stuff sits in deferred revenue because they are not fully deployed, or customers haven't fully consumed. Cloud security applies to stuff that you consume, right? Like, if you haven't consumed it, or you aren't ready to consume it, they're not going to be buying cloud security. So I think we have a little bit of a gap in terms of when people commit to when they deploy it, to when they take cloud security. I just think the – that stuff can slow down for a while, but it's still got – there's a lot of headroom for us to get from where we are. Even, if we got to all the customers who are in deployment or are deployed, I think we should see a steady continued growth for Prisma Cloud. So the market demand, to me, is not where the challenge is. The challenge for us or the opportunity is to go convince as many customers as we can that this is a platform play. You have to consolidate across multiple modules. You have to have stuff talk to each other on a constant basis, otherwise, you end up in the same situation as you were in enterprise security many --.

Our last question today is from Ben Bollin of Cleveland Research. Go ahead, Ben.

Good afternoon, everyone. Thank you for taking the question. Nikesh, you've talked about some GSI opportunities in the past. I'm interested in how you see that channel developing? What type of tail you see there? And how meaningful your platform is becoming for those partners? Thanks.

Thanks, Ben. I used to say that, about a year ago that, I've had more CIO conversations in a quarter than I did in many years. I'd now say that about GSIs. I'd say in the last six months, I've had more GSI conversations than I had in the first five years of Palo Alto, or four and a half years of Palo Alto, right? And the reason is GSIs are interested in transformation. They're interested in where they can go into a customer and deploy a much better security outcome for them. We were not relevant as a firewall company with SASE, with cloud security, with now XSIAM, they see a real opportunity to go in and do some transformation for their customers. And transformation for them means revenue to them and means a solid product in the back. I'd say most GSIs are still early is in their journey to build a full cybersecurity competency across the board. And there, they'd rather deal with lesser vendors than more. So, us being leaders in certain categories, plays into our strength and our ability to partner with them. I think you -- we are already, without specifically calling out deals, there are many deals where we are partnered with GSIs, where they are the front. We work with them to be as part of a larger transformation project, and we're seeing more and more of that.

With that, we conclude the Q&A portion of our call today. I'll turn it back over to Nikesh for his final remarks.

Look, first of all, I want to thank all of you for joining our call. I also want to thank our employees, who work really hard towards delivering these results. I have to say six months ago, when we've started to see warning signs, we pivoted hard. We made sure that our teams got ahead of it, and they have delivered. So, I want to thank all of them for their contribution. As I said, this is this is a challenging macro environment out there. And the only way we're going to get through this as Palo Alto Networks is to keep our head down and execute. And that's what we intend to do. Once again, thank you, guys and see you next quarter.