Good day, ladies and gentlemen and welcome to the Fourth Quarter and Full Year Fiscal 2014 Earnings Conference Call. My name is Jasmine and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. And I would now like to turn the conference over to your host for today, Ms. Kelsey Turcotte. Please proceed.

Great, thank you. Good afternoon and thank you for joining us on today’s conference call to discuss Palo Alto Networks’ fiscal fourth quarter and fiscal year 2014 financial results. This call is being broadcast live over the web and can be accessed on the Investors section of the Palo Alto Networks’ website at investors.paloaltonetworks.com. With me on today’s call are Mark McLaughlin, Palo Alto Networks’ Chairman, President and Chief Executive Officer; and Steffan Tomlinson, Chief Financial Officer. This afternoon, Palo Alto Networks issued a press release announcing the results for its fiscal fourth quarter and full year ended July 31, 2014. If you would like a copy of the release, you can access it online at the company’s website. We would like to remind you that during the course of this conference call, Palo Alto Networks’ management will make forward-looking statements, including statements regarding our revenue and earnings per share guidance for our fiscal first quarter, targeted operating model gross margin range, expectations regarding revenue cost and expenses, billings, free cash flow, capital expenditures, effective tax rate and our share count, our ability to accelerate growth in our market share, expectations relating to our acquisition of Cyvera, demand for and adoption of our products and services, expected availability and efficacy of new products and our competitive position. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially from these anticipated by these statements. These forward-looking statements apply as of today and you should not rely on them as representing our views in the future and we undertake no obligation to update these statements after this call. For more detailed descriptions of these risks and uncertainties, please refer to our Quarterly Report on Form 10-Q filed with the SEC on June 3, 2014 and our earnings release posted a few minutes ago on our website. Also, please note that certain financial measures we use on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided reconciliations of these non-GAAP financial measures to GAAP financial measures in the Supplemental Financial Information that can be found in the Investors section of our website located at investors.paloaltonetworks.com. Before I turn the call over to Mark, we would like to inform you that we expect our first quarter fiscal year 2015 earnings conference call will be held after the market closes on Monday, November 24. In addition, we would like to invite you to participate in an investor webinar on Tuesday, September 30 at 1:30 PM Eastern, 10:30 AM Pacific to discuss our next generation security platform and technology differentiation. Webcasting information can be found on our website at investors.paloaltonetworks.com. And with that, I will turn the call over to Mark.

Thanks, Kelsey and thanks everyone for joining us this afternoon. I am happy to be here today to share with you our results for our fiscal fourth quarter and full fiscal year 2014. We continue to see a large amount of momentum in the business and Q4 was strong across the board. We delivered record billings in revenue, with revenue for the fourth quarter growing 18% sequentially and 59% year-over-year to $178 million along with Q4 non-GAAP earnings per share of $0.11. It was a great end to a very good year for us and I would like to thank the Palo Alto Networks team for their hard work and our customers and partners for their ongoing support. Our results continue to demonstrate our ability to significantly outgrow both our competitors and the market and we are more confident than ever that our platform architecture and strategy is unique, compelling and far ahead of the competition. In addition to our strong financial performance, we also celebrated the number of milestones and highlights. In Q4 we added a record number of new customers by a wide margin and we are now privileged to serve more than 19,000 global customers, up from 13,500 at the beginning of the fiscal year. This customer base is highly diversified across verticals and geographies and includes more than 850 of the Global 2000 and 75 of the Fortune 100. On this list are some of the largest high-tech, financial services, government, manufacturing and service provider organizations in the world who entrust their security to our unique platform and superior solutions. New customer wins this quarter include a large U.S. retailer where we replaced Cisco to become their enterprise wide security platform, a Canadian government agency where we beat Check Point and replaced Juniper to become their…

Thank you Mark, and thank you for joining us on our call today. Before I get into the details of our results and guidance, I’d like to note that except for revenue figures that are GAAP, all financial figures are non-GAAP unless stated otherwise. Now, let me start with an overview. The acceleration of customer acquisition, billings, revenue and adjusted free cash flow underscore the power of our land, expand, and retain strategy. The enterprise security market is $16 billion growing to over $19 billion in 2017 and we’re substantially outpacing the growth rates of both our competitors and our addressable market. We continue to balance investment and growth with profitability and our hybrid SaaS model plays a key role in our success with increasing revenue visibility, leverage and cash flow generation. Our results highlight the differentiation of our solutions in the power of our financial model. Turning to the numbers, Q4 total revenue grew 59% over the prior year and 18% sequentially to another record of $178.2 million. For the fiscal year, we reported revenue of $598.2 million, a 51% increase over the prior year. The geographic mix of revenue for Q4 was 68% Americas, 21% EMEA and 11% APAC. Compared to the prior year, the Americas grew 74%, EMEA grew 54% and APAC grew 7%. As in previous quarters we saw broad strength across a wide range of verticals and we did not have any end customer concentration. Product, subscription and support, the three components of our hybrid SaaS model, all grew very well in fiscal 2014, with particular strength in Q4. Q4 product revenue of $99.7 million, increased to 52% over the prior year and 19% sequentially. We saw a strong demand across our entire product family, with particular strength in the contribution from our highest end…

(Operator Instructions) And your first question comes from the line of Phil Winslow with Credit Suisse. Please proceed.

Hi. Thanks guys and congrats on another just great quarter. You guys provided some commentary on gross margins and obviously gross margins were quite strong this quarter, I am wondering if you can give us a sense of just what you are seeing in the pricing environment out there just broadly speaking versus actually just sort of the mix and how that’s impacting your gross margins and how can you think about that going forward here? Thanks.

Yes. Phil thanks for joining our call. As a general matter what we are seeing from a pricing perspective is our ability to maintain premium pricings due to the premium nature of our offering, we have seen a lot of pricing competition in the market as we continue to gain share from other folks but it hasn’t apparently affected our ability to hold the line in that. And I think you can see that across the line in the margins side, so with nice increase in margins and discounting for us has been very disciplined and consistent over time. So that’s generally what we are seeing in markets today.

The other thing Phil is when you look at our increasing attach rate for subscriptions the overall total gross margins are benefiting from the tailwind that we are getting from increased subscription attach rates. So the fact that WildFire increased sequentially and we have very high attach rates for threat and URL filtering. Those are all benefits for gross margin.

Great and then also just switching gears for a sec to the relationship with VMware, you guys have been talking about it for a couple of quarters but it seem like you start to see some traction in that with the VM series, wondering if you can just provide some more details and what the feedback you are getting from potential customers there? Thanks.

The feedback has been really strong. So what we have seen in the early previous of this about six months ago was extremely high level of interest from folks across the board when we talk about it and be able to show them by the POCs. We are in the market this quarter with the solutions that we actually we sold things in this quarter including very nice large deal with one of the largest brands in the world who was one of the first customers for the joint solution which was fantastic. From the VMware perspective my understanding is that within the next 45 days this solution will be on their price list as the SKU as well. So the entire VM sales forces will have the ability to bring this to market as well. So we feel this is very positive momentum for this – for the technologies specifically. And then just as a general matter advanced security in the data center space and it’s great to be working with the leader there VMware.

Next question please?

Your next question comes from the line of Karl Keirstead with Deutsche Bank. Please proceed.

Hi, it’s actually Ted on behalf of Karl. Given that you said that you had strong performance in the PA-7050 appliance this quarter, can you talk about the ASP trends? Did you see a meaningful improvement in the ASPs in this quarter?

Yes, as a general matter Ted, from an ASP perspective, which we look at it from an initial sale, those have been going up every quarter very consistently on a modest basis. So we spend a lot more time and attention on with the life-time value the customer looks like, because from a buying kind of perspective, customers tend to – they tend to test us, they tend to find a place in the network. Their first purchase is to put us in a network somewhere and see that it actually works, and then the repeat purchases are come faster and consistently higher. But just as a general matter, ASPs continue to uptick every quarter, which is nice.

Got it. And then just one follow-up. Then you had a strong lead quarter on top line billings and revenues are really strong. But as I look at the guidance for next quarter, you’re guiding almost flat revenues for Q1 versus Q4, which is quite a bit lower than your seasonal growth from Q1 to Q4 – actually Q4 to Q1. Are you just being conservative here or whether deals that you thought got pulled forward in this quarter?

First, our guidance methodology is to always to give one quarter out guidance and exiting Q4, we look at a number of things, including pipeline and pipeline is very strong heading into Q1. When you look at year-over-year growth rate in Q1, we are looking at 31% to 40% year-over-year growth, which is much higher than a lot of the models that were out there. Additionally, you think about seasonality in our business and we feel like fiscal Q2 and fiscal Q4 will be the stronger quarters for us from a seasonal standpoint. And most companies of our size actually see sequential declines in revenue from Q4 to Q1. So, with that as the backdrop, we feel good about the quarter, the pipeline is good and we have a lot of momentum and visibility heading into fiscal Q1.

Next question please.

And your next question comes from the line of Keith Weiss with Morgan Stanley, please proceed.

Thanks on that. Thank you guys for taking the question and very nice quarter. It’s somewhat unusual for a company of your scale to see this type of acceleration in your overall business. Particularly, if you look at the billings growth going to 64% this quarter from sort of 50% growth last quarter. Anything in particular driving that acceleration, is it new products turning on, is it a better acceptance within the marketplace, anything that you could point us at sort of explain how business is actually getting better as you guys get there?

Yes, thanks, Keith. Yes, it’s all the above. I think what we’re seeing here is, just as a really big picture is from a security perspective, it’s very apparent that I think security spending is growing, that enterprises around the world are recognizing that cyber securities are very lasting, an important and probably permanent line item from a spend perspective. They’re seeking out the best possible solutions for that from the most advanced technology providers. And I think that’s what our reputation in the market is perceived at today and growing very quickly. So when you think about – you think about that, you think about the size of the addressable market in order to have the right technology at the right time and history to take care of all these problems for enterprises, it’s really driving some fantastic growth and we had a very nice year. We had a fantastic quarter and as Steffan said, we’ve got a very nice pipeline going into Q1 as well, but I think we’ve got a lot of momentum here.

Got it. And then as a follow-up on the flip side of the equation for Steffan, you went – you reiterated sort of the targets for operating margins, exiting FY 2015 and exiting FY 2016. And if I’m not mistaken, that’s still not reflected in sell-side models and at least – or at least in the consensus expectations, so there is some scepticism about that operating margin leverage. So maybe you can walk us through some of the key components of where we should be expecting that leverage and sort of how you guys push that extra margin out of the business?

Well, margin expansion is going to come primarily from sales and marketing as a percentage of revenue. When you compare where we are today versus what our target is, we are at 51.9% ending in Q4 and our target exiting Q4 FY 2016 is to be 33% to 36%, and how we bridge, where we are today to where we will be in the future, it comes out of having more productive sales folks that are in the mix and given the great performance in Q4 and we’ll have more ramped sales people than ramping, exiting Q4 FY 2015 and Q4 FY 2016, that will be very helpful. From a partner standpoint, we have Westcon in the mix that will help with global distribution and we will look to get more leverage out of our partner infrastructure. The other part of the equation is going to be contribution from other partners, such as VMware and other partnerships like that that will strike. And when you think about a sales person and what they can contribute to the company, it’s all about adding more tools to the tool bag. And with these partnerships in the global distribution capacity and the great sales and marketing leadership that we have in the company, we feel comfortable that we can get the leverage out of that line. Every other line in our operating margin structure is at or near our target model. So, we will have a very strong focus on sales and marketing leverage over these next eight quarters and we feel like we are setup to do it. The final point I will make is we always take an eye towards balancing growth with profitability. And the fact that we are able to reaccelerate top line growth at these levels and you look at the billings performance, we are able to take down lot of business on the street in a profitable manner and we will continue to look to take share. And we have 5% market share, 5% to 7% market share in a $20 billion market. There is a lot of wood left to chop.

Keith, one other point I would make as well as I think you have written about this couple of times, but it is – when you look at our installed base of the repeat purchasing patterns, our installed base, what repeat repurchase has come at a lower cost of sale for us. So, the power of that installed base and that LTV numbers we are looking at every quarter will also drive reduced cost of sale over time.

Great. Next question?

Your next question comes from the line of Walter Pritchard with Citi. Please proceed.

Hey, thanks. Just had a question around I think you talked on the call in your prepared remarks about 70% of each of the – even the Fortune 100 or Fortune 500 are customers and I note that your largest store, I guess your second largest competitor, Checkpoint has a similar staff, although a bit higher, I am wondering if getting to this point with the 70%, could you sort of compare and contrast, you must co-exist in lot of accounts and there are some accounts I am sure where you had success in displacing incumbents. Can you talk about sort of in those large accounts, how you co-exist, when did you co-exist?

Yes, sure. It’s a great question, Walter. I think what we have seen consistently and is really picking up is Palo Alto Networks is becoming I think the more recognized leader here from the most advanced security is that everybody started somewhere right, everybody has got a legacy vendor in a lot of cases, those are Checkpoint. So, in almost every situation, we come into as we have said we are displacing it. So, we are coming into the network. We often co-exist for a while in the network with whoever the legacy vendor and then over time we gradually displaced them and that’s what you are saying through all the TV analysis and the customer acquisition. So, it’s not surprising to be in a network for somebody else, but I think it’s a very clear trend that we are taking people out of the network every quarter more and more.

And then just one follow-up on I think you mentioned that Asia was – I mean, great performance in U.S. especially, I think you noted that Asia was up 7%, I think it was year-over-year. Can you talk about just that territory, I know it’s not that large from a revenue perspective, but what’s going on there and is there any change in terms of leadership or something that’s driving that?

Now, on the APAC basis is a great market for us and we think a fantastic growth opportunity. It’s the last of the markets that we entered from an entrance perspective a number of years ago. So, as far as coming up the curve on getting distribution capability straight on the street, it’s the least mature of our theatres. And in the quarter, on the 7% growth, you have to look back to last fourth quarter had a really great Q4 last year. So, the compare was pretty tough there, but we really like that market.

Great. Next question please.

And your next question comes from the line of Rob Owens with Pacific Crest. Please proceed.

Great, thank you. I was wondering if you can touch a little bit on the acceleration that you saw in customer acquisition and is this a function of the Juniper lawsuit being behind you, are you guys coming to the market now to much broader product set with the 1,750 or is this a function of replacement cycle and where we are there? Thanks.

Yes, Rob. Yes, I don’t think I need to do the Juniper thing, I think that what’s happening and we saw it consistently every quarter. So, our customer count grew every quarter very nicely and by a wide margin in the fourth quarter. So, it was fantastic. I think what we are just seeing is the recognition of Palo Alto Networks, particularly on a global basis as not only the technology leader here, but also with the company the ability to execute against that. So, when you think about our – everything else is going on in the company outside of technology from all the work that Mark and his team have done from a very mature repeatable sales process, all the discipline we are bringing the channels organization, the fact that we have made the distributors who are now agreeing to distribute us on a global basis. We just can’t ignore it anymore from that perspective. We have I think the highest customer satisfaction scores in the industry. All those things are very important. And from your reputation perspective, customers talk to each other and what they are hearing is that Palo Alto actually solves very hard problems, the installations get done, the deployments work, the technology works and that the customers continued to buy more and more from us and that’s a self fulfilling thing for us which we discontinue to grow off of our really, really high customer satisfaction. We have rapidly positive fans, which is our customers which is great to have that kind of fan base and they do a lot of selling for us.

Great. And can you talk a little bit about the revenue model in around the NSX solution and if you look at micro segmentation, are you moving for more of a subscription base model for your traditional firewall?

It’s been, but we have two we have well just for NSX we have two models there. One is perpetual license and the other is per use license. So we have given the customers the option to go either for server or for both – I am sorry for term or for perpetual and then we will see what happens as they plays out. Some of that will come down to whether they are more interested in CapEx models or OpEx models but both and time will tell which of those will be might be more popular.

Great. Next question?

And your next question comes from the line of Brent Thill with UBS. Please proceed.

Mark, in EMEA you have seen several quarters of sequential growth on a year-over-year basis. And I know you mentioned back at the Analyst Day that you are making good progress in converting some of the distributors over that were on legacy solutions to your platform. I am just curious if you can give us an update and what’s happening there is that what’s happening with this conversion and you are seeing in terms of acceleration of growth and I have had a quick follow-up for you?

Yes, that’s part of it, Brent. So, we have focused in the past and we mentioned to you guys about distribution being very important from a capacity perspective. When you think about the size of the company right now we are actually pretty large player and growing at excessive rates relative to any of the competition. And what that’s resulted in I think is from a distribution and partners perspective is folks that may have had a concern about maybe they are going to wrap Palo Alto Networks because they are going set one of their existing vendors. They just have to get pass that we are just too big to not be on everybody’s line card at this point and that’s what we are seeing. And the announcement with Westcon we announced recently is a perfect example of that. It increased our capabilities with them over 40 countries, a lot of those are in Europe. They have been a great partner in the U.S. already, so this is expansion outside of our core market with one of the best in the world. So that’s a perfect example of what is happening with distribution which is the recognition and desire to want to work Palo Alto as and live with Palo Alto because that’s what the customers clearly want.

Okay. And just from a federal government perspective we are obviously coming into an important close for their fiscal year, I am curious if you can maybe just highlight what you are seeing there this year versus perhaps what you saw last year if there is any contrast in the overall environment?

Yes. The fed market has always been a good one for us. It’s a good vertical I think if you think about what those folks need and what we provide from a solution perspective, it’s match made and haven’t and from a customer perspective they buy at good rates from us. No vertical is more than 12% of our business. So we are not really dependent on any single vertical, but we have experienced good growth in the fed space and we would expect with their year end being in our first quarter, we would see a nice quarter with this federal space as well. I think if you look historically call two years ago, a year ago I think it seems to be set settling out. There was all kinds of things from budgets and sequestration all those sorts of things it has substantially subsided in that market over the last year which is a benefit not only to everybody but us as well.

Great. Next question.

And your next question comes from the line of Jonathan Ho with William Blair. Please proceed.

Good afternoon and strong results, congratulations. Just wanted to dig in a little bit into the spending environment, I mean clearly it looks like things are – came back up again I just wanted to get a sense from you guys around the magnitude of the as you can maybe quantify what the spending environment strength looks like. And number two primarily where you are seeing that strength in terms of verticals?

Yes. I think Jonathan on the spending environment side what I have witnessed over the last couple of years is that security as a line item in the IT budget I think has increased just as a budget line item. And I think there is a growing realization that with that increase is going to stay there, right over time because security is very real, it’s very lasting, it’s global in nature and everybody has to deal with that. And I think that’s in that positive for everybody. From a vertical perspective as a general matter you usually see some verticals out of ahead of other ones on being a cut of edge of technology. I think we’re beyond that at this point for cyber security as a general matter meaning we’re seeing Middle America at least these are from our own results. Middle America, very large companies in the Fortune 500 that they’re never the first to go to newer platforms are quickly adopting Palo Alto Networks as a platform of choice. I think that’s an example of what you’re going to see across the board where the recognition of cyber security is very important and you have to spend on it, this is going to be persistent over time.

Got it. And then just regarding the TRAPS in cyber opportunity, I mean, can you guys maybe talk a little about sort of the initial customer reception. I think you mentioned a lot of interest there and the potential to integrate with WildFire, but maybe just talk to what is it that’s differentiated and sort of the initial reception from customers based on that differentiation?

Yes, the thing that I think the customers are desiring and we hopefully will be delivering for them is that the end points are the Wild West cyber security wise right now. So I think we’ve done a nice job on the network and with our cloud-based services from a detection and prevention perspective, but unless you have better protection of the endpoint that’s very porous and a lot of that stuff gets in there. Almost everything in the market today there is really focused on just detecting bad things and then you’re going to sort of all of the forensics remediation mode. And what’s Cyvera has and where we have now in bringing to market is something that it’s actually preventative in nature is true real-time exploit prevention, and that’s a extremely disruptive technology and concept, I think is disruptive is what we did with firewalls in next generation firewall space is what we’re bringing to market with the – in the endpoint space with this TRAPS technology. So you have this real-time exploit prevention and then we integrated it and this is what we are bringing to market at the end of September into WildFire. So now you have all the fantastic benefits of WildFire from a malware detection prevention capability, and all those thousands of customers that are on WildFire right now and growing, it leaps and bounce every quarter. And we’ve connected that, we’ve connected the power of what’s happening on the network. And now we have the same advanced disruptive capabilities on the end point. And that’s where customers are reacting to very positively in our POCs with them and the early looks that we’ve given them, so it’s very positive feedback, which is great.

Thanks. Next question?

And your next question comes from the line of Raimo Lenschow with Barclays. Please proceed.

Thanks for taking my question. If I can stay on the Cyvera case here, how does it – how will it change your sales setup, because if you look at like if the last organization is probably a different buying center or how do you need to specialize sales force for that or how does that going to work for you? And then I have a follow-up here.

Yes, good question, Raimo. So traditionally, network and security, our network and endpoint are different buyers and that is the case today, and I expect that to continue to for some time, although I think when you get to CIO, CSO, CTO level, more and more they’re talking about securing the enterprise, and not drawing a technology distinction between those two things. They’re just saying hey we need to protect the enterprise, right. So when we come in with a solution that says here’s the network cloud-based services and the endpoint, they are all highly integrated and highly automated, they have worked well together, that resonates extremely well at the C level. However, there are still different buying centers and even though that may change over time, we want to be cognizant of that. And what we’re doing from a sales force perspective is building an overlay team for our endpoints that our specialist and they know how to sell to that buying center. So all of our sales people will be able to tell the story about the strategic solution and from a customer perspective of interest about endpoints, we have people coming in primarily on the SE side plus some sales expertise. They know how to talk to that buyer. So that will be a joint call to go get that close for hopefully the entire solutions that we sell.

Okay. And the follow-up question I had is, if you look at WildFire and obviously having gaining really good traction there. But if you look at the market, there’s obviously some of our big players in there that’s having some momentum. What do you see in terms of the customer use cases? How are you getting deployed? Are you kind of the starting point for guys and then kind of they can go up market for some extra stuff or how are you fitting in that kind of competitive environment there? Thank you.

Yes, we’re seeing a couple of things here Raimo. The first is that our very large and quickly growing installed base when we – what we’re selling is a platform play. So this is a strategic solution that can take care of all your cyber security needs across your entire enterprise and WildFire is a very important part of that. So if you’re an existing Palo Alto Networks’ customer and you see the technology as highly integrated and automated into this platform, that is a good sale like you want that technology and we’re seeing that from the installed base. The other thing we’re seeing which is fantastic and you saw by a wide margin this very high customer acquisition in the quarter is that’s a fantastic selling point for us for new customers. So if the top of mind issue for a prospect is Advanced Persistent Threats, we’re able to come in and do with a WildFire and say this is the markets only detection and prevention capability, I’ve got thousands of customers using it to prove it to you from a reference perspective, and when they take a look at WildFire as the entry point, they are often extremely interested in that and that’s what they want to buy and in the process of that they’re often taking more of the platform. So, we are – it’s not that we’re indifferent about how we get into account, but we can serve any use case and this is a very compelling use case for folks in the top of mind issue, so it also works on the prospecting side for new customer acquisition.

Great. Next question.

And your next question comes from the line of Andrew Nowinski with Piper Jaffray. Please proceed.

Alright. Thanks a lot for taking the question today and congrats on the great quarter. Maybe just a follow-up on the gross margin side, I think you said product gross margin was down this quarter due to product mix, though you noted the PA-7050 significantly exceeded your internal forecasts. Given the significant revenue upside, can you just provide more clarity with regard to what products negatively impacted your product gross margins?

Sure. Andrew, we’ve been pretty clear with the street around every time we introduce a new product, it’ll take several quarters to get up to scale in terms of volume and as volume scale, COGS come down, gross margins go up. With the PA-7050, we’ve been shipping it for about a quarter and half, so we still aren’t yet – we still are not yet at scale for the PA-7050. So while it’s great for – from a top line revenue standpoint, it’s not at scale yet from a gross margin standpoint. So over time, we should be getting more gross margin benefit out of the PA-7050, that’s probably the biggest driver. So when we refer to product mix, we had more PA-7050’s sold and that’s great for top line revenue, it had a slightly depressive impact on gross margins, but we’re talking about 60-basis point sequentially, year-over-year we’re up. So we feel very good about the discipline around gross margin management and COGS reduction efforts.

Got it. And then can you just talk about the competitive landscape and whether you’re anticipating any changes going forward by way of perhaps new product refreshes coming from some of the legacy firewall vendors? Thanks.

Andrew, it’s Mark. Yes, I don’t see anything on the market front that’s changing the game at all except us. We continue to innovate, I think every year we’ve brought out a number of really nice product innovations, new product lines like PA-7050, WildFire enhancements, what we are doing with VMWare, the TRAPS, I think we are pretty far ahead technically and I haven’t seen the competitors do anything other than revise the traditional legacy technology they have and that to me doesn’t appear to be working in the customer base as you can kind of see from customer acquisition and our growth rates.

Great. Next question, please.

And your next question comes from the line of Jeff Bowe with Northland. Please proceed.

Yes, thank you all for taking my question. I’d like to follow-up on Raimo’s a little bit from my entry and that is when we hear from some of the other APT players, they talk about how they like to win in the high-end. They do acknowledge that they are not as strong in the low-end. I’m wondering if you feel as though your own wins place yourself generally in the low-end of that market or is that generally across your customer base?

Hey, Jeff, it’s Mark. It’s across the customer base we are seeing ever increasing strength there. So when I look at customers we’ve sold into from an installed base perspective, it’s a very high percentage of those Fortune 100 and Global 2000 customers we mentioned earlier. When we look at new customer acquisition, some of the largest brands in the world are buying WildFire right out of the gate; we’re closing lots of six-figure deals there, even bigger than that. So I think that’s a myth.

Okay, great. And then secondly, Mark and Steffan, you both talked about the data center market as being a very strong one for the PA-7050. Can you bring us up-to-date on the service provider side, is that an area where you are seeing some success?

Yes. So, it’s still early form a PA-7050 perceptive in a service provider market in a sense of those folks buying it for other purposes than for their own networks, right? So as large enterprises, they could go different than other folks about wanting the most advanced security and high-throughput environment. So they’re good customers for that technology. So from a sell-through perspective, we have been able to – now that we have the offering to sit down and start working our roadmaps with them about new opportunities to work with them to sell-through where they are using that technology in order to provide services say to SMBs and that’s a good opportunity for us in the future, but that’s in the roadmap planning phases.

Great. Next question?

And your next question comes from the line of Gur Talpaz with Stifel. Please proceed.

Great, thank you. What we saw there, is there a placement sale, can you actually operate in similar fashion to the core Firewall market where you can come in behind a pre-existing AB solution than sort of eventually displace them down the road?

Yes. Gur, I think it’s exactly like that, right. I mean, what we are seeing from a customer perspective is folks very willing to take a look at a complementary technology that they have with an idea that perhaps it could be displacement down the road, but our initial selling motion is very much like you did in the early days in the Firewall, which is we have something disruptive, we have something better, you don’t have to. It’s not a binary decision. You don’t have to take somebody out for us to come in. And we like that approach, because when we get in and solve a really hard problem for the customer, we have a much better chance over time of growing inside there and displacing the legacy provider, but we don’t try to make the sale harder and it is by saying this is a binary thing.

Great. And with WildFire, can you talk about how many total customers you have and then with regards we have the new paid customers, are these sort of unpaid customers being up-sold to a paid subscription? Thank you.

Yes. So, from our total paid customers right now, is over 3,000 we said from a total base, which includes the free customers, usually runs about 1,000 ahead of that or so. We have been – and you can kind of talk to those numbers we have been focused very much from a conversion perspective of taking free to paid and installing those to all new customers. So, I would say this is we will continue to have the free offering, because there is really no downside to that for us to get somebody to test the technology and then convert to paid. So, we will continue to have that free offering, but I think you can tell from the momentum here we are much more focused on the paid customers.

So, in an effort to try and get through everyone’s questions, we would ask that you limit yourself to one question now. It would be great. Thanks.

And your next question comes from the line of Matthew Niknam with Goldman Sachs. Please proceed.

Hey, guys. Thanks for taking the question and congrats on the quarter. Obviously, customer growth remains really strong. I am wondering if you can talk about how much of your revenue growth is coming from the existing base and maybe the opportunity for incremental up-sell you currently see among your customer base? Thanks.

Yes, with over 19,000 end customers and we have been adding over 1,000 customers now for well over 10 quarters, it’s been a dynamic where once we land into a customer, it’s all about the expansion value. And Mark had mentioned earlier on around the lifetime value metric, we feel like we are, call it, less than 1% penetrated across the entire installed base of customers as we continue to sell more appliances, subscriptions and maintenance. That opportunity will only grow over time. The other thing is with Cyvera coming into the mix, we will have 19,000 customers in our installed base to go after in order to cross-sell and up-sell the opportunity there. So, we feel like we are in the very early innings of a nine-inning game around customer expansion opportunity.

Yes. And I would say as well Matthew, we mentioned this back at the Analyst Day when you start to think about the power of the installed base and you look at the momentum around the LTV metrics, we anticipate there are multiple billions of dollars in the installed base right now without adding another customer that over time we can unlock.

Great. Next question.

And your next question comes from the line of Gregg Moskowitz with Cowen & Company. Please proceed. Gregg Moskowitz - Cowen & Company: Thank you. Mark, it’s very clear that you are continuing to benefit from all of the sales investments that were made last year. Just wondering if there are any notable changes that you would point to over the last six months or so with regard to sales cycles?

Yes. Sales cycles tend to be fairly consistent for us, which some are really short, some are really long right and we have said over the past that they generally average out about 90 days. And that really hasn’t changed for us. And I don’t anticipate the change either, because sometimes you have a customer who is in dire need of something right away and then a lot of our customers that we bring down, we might have worked with for two years over the course of the many tests and projects and then they make out a large purchase, but generally 90 days is about the average. Gregg Moskowitz - Cowen & Company: Okay, thank you.

Thanks, Gregg.

And your next question comes from the line of Michael Turits with Raymond James. Please proceed.

Hey, guys. Mark, obviously the huge move have been brought severe to get you from network into endpoint, how are you feeling about strategic positioning and whether or not there are other meaningful market segments that you need to get into possibly through acquisition whether or not they are attractive targets out there?

Yes, I had never felt better about our position in the market Mike particularly with the addition of TRAPS to bring the end point. And with that we often show customers a try and go sort of picture of the network cloud based services and the end point I don’t anticipate that becoming a rectangle. I think that we have all the coverage we need from an enterprise security perspective. With that said, we look at the product roadmap, it’s very aggressive if we saw things that could accelerate us on that we would be interested buyers in those sorts of things. But from addressable market opportunity it’s massive right like $19 billion, $20 billion and single-digit percentage we don’t have to buy market share, we don’t have to buy customers, we don’t have to buy distribution capabilities. We are in a very good spot.

Great. Next question.

Your next question comes from the line of Catharine Trebnick with Dougherty & Company. Please proceed. Catharine Trebnick - Dougherty & Company: Thanks for taking my question. I hope you can hear me. I have a quick one on managed services Mark, it seems like first if you want you sort of you said that there is an uptick and mid-sized companies wanted to outsource due to the complexity and the number of threats, then what led your product roadmap met to a managed service offering? Thanks.

Yes. There is couple of ways on that Catharine. One I mean right now what’s happening in a lot of situations is there are service providers who run things on an outsourced network basis. So I mean the simplest form of that is managed service offering where like a large telco for example is running a network on behalf of another company. Sometimes not even small companies, sometimes pretty large companies and we do very well there. So all those large systems integrators and service providers are very familiar with our technology and there is a lot of cases where they are running that technology on behalf of the customer. Usually they are running probably the entire network of their customer on behalf of their customer and we are the security solution in there.

Great. We have time for one question please.

And your final question comes from the line of Daniel Ives with FBR Capital Markets. Please proceed.

Great. Thanks guys. This is Jim Moore in for Dan Ives. Just wondering if you can talk a little bit about any changes that you might have seen in customer sentiment over the last quarter (indiscernible) litigation behind you?

Yes. Jim this is Mark. We said in the past with the litigation that was really we hadn’t seen in the market that people were not going to buy from Palo Alto Networks as a result of that litigation. And I think our numbers historically have shown that compared to the customer acquisition, LTV, revenue growth I think everything supports that statement. And then when you look today really no evidence that we are wrong about that. So I don’t think that really had any impact at all.

Great. Thanks everyone. I will turn it over to Mark for a few ending thoughts.

Great, thanks. Thanks for being on the call this afternoon everybody. We had a really great quarter and a great year and we are energized by the opportunity as we move into our fiscal 2015 and beyond. I wanted to take one more opportunity to thank the Palo Alto Network’s team for all their hard work and the support of our customers and partners as we continue our march to become the global leader enterprise security. Thanks for your time.

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. You all have a great day.