Good day, everyone, and welcome to the Palo Alto Networks fourth quarter 2015 earnings conference call. As a reminder, today's conference is being recorded. And at this time, I'd like to turn the call over to Kelsey Turcotte. Please go ahead, ma'am.

Good afternoon, everyone, and thank you for joining us on today's conference call to discuss Palo Alto Networks fiscal fourth quarter and fiscal year 2015 financial results. This call is being broadcast live over the web and can be accessed on the Investors section of our website at investors.paloaltonetworks.com. With me on today's call are Mark McLaughlin, our Chairman, President, and Chief Executive Officer; and Steffan Tomlinson, our Chief Financial Officer. This afternoon we issued a press release announcing our results for the fiscal fourth quarter and full-year ended July 31, 2015. If you'd like a copy of the release, you can access it online on our website. We'd 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 financial outlook for the fiscal first quarter of 2016, our business strategy, demand for our products and services, certain financial results and operating metrics, our market size, our growth rate, our operating leverage, product and service development and the timing and impact of these releases, expected benefits of partnerships, client satisfaction and 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 those 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 a more detailed description of factors that could cause actual results to differ, please refer to our quarterly report on Form 10-Q filed with the SEC on May 28, 2015, and our earnings release posted a few minutes ago on our site. 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. For planning purposes, we expect our first quarter fiscal year 2016 earnings conference call to be held after the market closes on Monday, November 23. We'd also like to inform you that we will be presenting at the Deutsche Bank Technology Conference in Las Vegas on Thursday, September 17. And finally, at the conclusion of today's conference call, we will be posting our prepared remarks to our Investor Relations website, under Quarterly Results. And with that, I'll turn the call over to Mark.

Thank you, Kelsey, and thank you everyone for joining us this afternoon. I am happy to be here with you to share our results for our fiscal fourth quarter and full-year fiscal 2015. 2015 was another great year for the company, one in which we continue to distance ourselves from the competition. In the year, we grew our customer base more than 35% to over 26,000 customers and are now privileged to serve almost half of the Global 2000. The number of WildFire customers increased approximately 140% year-over-year to over 7,000 customers. We grew both revenue and billings more than 55% year-over-year. We significantly expanded our non-GAAP operating margin. We generated free cash flow of more than $300 million. We expanded key technology partnerships and distribution relationships around the world. And we continue to strengthen our platform with new offerings, including Traps, WildFire enhancements and data center appliances. We were able to grow at these rates and deliver these results because we have established ourselves as the leader in next-generation security. Cyber security is an increasingly complex and long-term issue that threatens the fabric of our day-to-day digital lifestyle. To meet this challenge, enterprises, governments and service providers are having to re-architect their systems and networks off of legacy platforms and onto next generation technology. This has led to an increase in investment levels in security that we do not expect to change any time soon. Customers recognize that security is not a problem that can be solved by cobbling together disparate point products or legacy solutions, but that an entirely new approach is needed. There is a growing global market recognition that our prevention first mindset, with the market's only true natively integrated and automated next-generation security platform, delivers demonstrably better protection and prevention at a very attractive total…

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, which are GAAP, all financial figures are non-GAAP unless stated otherwise. Q4 was a strong finish to fiscal 2015, a year in which we delivered industry-leading sales growth, expanded operating margins and increased free cash flow generation. During the fourth quarter, our land and expand sales strategy resulted in a record number of new customer additions and expansion in existing customers that once again drove growth across the entire portfolio of products, services and support. We delivered record revenue, deferred revenue, billings, non-GAAP operating income and free cash flow. As we look to FY'16, we feel good about our ability to continue to grow the top-line and drive incremental leverage in the business. Now, let me turn to the numbers. Q4 total revenue grew 59% over the prior year and 21% sequentially to reach a new record of $283.9 million. For the fiscal year, we reported revenue of $928.1 million, a 55% increase over the prior year. The geographic mix of revenue for Q4 was 71% Americas, 18% EMEA, and 11% APAC. Compared to the prior year, the Americas grew 68%, EMEA grew 32% and APAC grew 61%. We saw broad strength across a wide range of verticals and did not have any end customer concentration. The three components of our hybrid-SaaS model, product, subscription services and support, all grew well in fiscal 2015, with particular strength in Q4. Q4 product revenue of $154 million increased 54% over the prior year and 27% sequentially. On a year-over-year basis, we saw healthy growth across our product portfolio. In particular, the PA-7050 chassis continues to help accelerate growth in…

[Operator Instructions] And we'll go first to Andrew Nowinski with Piper Jaffray.

Just wanted to ask about the product growth and it's clearly probably the best we've seen in a couple of years here for you. And I was wondering if you could dissect that a little bit and give us some color on whether big deals may have influenced that product growth versus some of the market share gains you appear to be capturing? And then specifically on the market share side, I'd be curious as to where you're seeing the most gains from? Whether it's from a vendor or a specific market segment?

They're very related questions, and the answer is, on the second part is we're seeing gains everywhere competitively, so from the legacy firewall vendors, as well as a lot of the point guys who overtime are being subsumed into our platform from a services perspective. So we're seeing gains pretty much everywhere we compete and also now including on the endpoint side as well. And that plays into the product growth. So on the product growth side, yes, its very healthy numbers as you can see. And we're experiencing both of the things that you just mentioned. One is we are seeing larger deals. We're getting into the Global 2000 at accelerating rates, sourcing larger deals with larger customers. And our existing customer base has continued to buy more overtime as well, as you can see from the lifetime value. So it's winning larger deals with larger customers upfront and just a continuation of something we've been seeing for quite some time, which is customers continue to supply more from us.

The other angle on that, Andrew, is we're getting deeper into the data center. So we're selling our 7050 chassis and our 5000 Series and we're seeing larger deal sizes as we get further into the data center. And that should continue as we get more traction with our 7080, which we just announced.

And we'll go next to Philip Winslow with Credit Suisse.

Just wanted to double click on the subscription side. As Steffan, you mentioned, you're up to 2.2 subscriptions per box. As you kind of think about the guidance going forward, how do you expect that to trend? And then, obviously, you're introducing some, call it, non-boxed attach should be a subscription. You already have Traps, you've talked about AutoFocus. Maybe some more color on just how Traps is doing? And how we should at least think about AutoFocus beginning to contribute once it's launched?

So a couple of thoughts on this, first, on the subscription side, you can see the attach rates continue to grow year-over-year. There is a lot of value in the subscription services that used to be point solutions. So as we subsume them into the platform, which we have over time, customers are finding a lot of value from that approach. So we like that a lot, of course. You can see our subscription services business, if you look at the fourth quarter is approaching like $480 million of billings run rate, so growing at over 75%. So you can just see very strong growth in attach, other subscription service. Then in addition to that as you correctly note, as we go forward, we have a number of new services, Traps is one of them, Aperture, AutoFocus both coming out here in the next few weeks time. And our services, they'll be billed as such more from a sales and revenue and deferred revenue perspective, but they won't have the concept of attach. So some of the attach rates commentary made in that past maybe able to hold up a less meaningful as we go forward with you bringing more services to market that don't have those attach rates. And on the Traps itself, we're very happy with Traps where it is right now. There is such a strong demand in the market for endpoint security, a 100% or close to 100% of the sales calls I go on, customers are talking about the need for something dramatically different to happen at the endpoint. And we think we have the answer for that. So we have a lot of interest in that. We think we've got a really great technology there that very importantly is part of the platform. So at the end of the day, we're selling the platform and that's what people find value in.

And then, just one quick follow-up for Steffan. You guys had another quarter of improving product gross margin. I know a lot of this has to do with mix sometimes and when product is introduced, but maybe give us some more color on what happened this quarter, sort of this year or two and then how you're sort of thinking about that going forward?

Well, mix definitely plays a factor, and as we sell higher margin boxes, that plays to the favorability. But mix is only one part of the story. We also focus on COGS reduction and we have we think the best supply chain team on the planet and they are going out and trying to drive cost down. So we are looking at a favorable product mix environment, but also reducing COGS. And we have great manufacturing partners as well. So we have both of those dynamics going on, which is helping with product gross margins.

We'll go next to Rob Owens with Pacific Crest.

First off, I want to talk about the renewal cycle. And your own renewal cycle, as you look at preexisting customers over last three and four years, is that beginning to influence and drive some of this product growth we saw? And then second, interim Traps, Mark, appreciate the color around the platform play, but maybe you can give us just a little more with regard to the technology? And are you actually getting technology wins? Is it driving new customer acquisition? And lastly, on the Traps front, what are you guys seeing in terms of relative price per endpoint?

So on the renewal cycle, I take that you mean like a refresh cycle on our own?

A refresh of your own install base.

As we said before, we have a great customer base and we continue to add to that. We added over 2,000 customers since last quarter alone, so that's the gift that keeps giving on a long-term basis when you think about renewals and refresh cycles. So we talked before about seeing refresh cycles in our 2009 and 2010 cohorts, I would start to throw in that the 2011 cohort as well as the things get to the four to five year natural refresh cycles. And if you combine of '09, '10, and '11 together, it's like little over 4,000 customers out of 26,000, right, so our glass is not even tiny, but full yet from a refresh cycle perspective on a very large and growing customer base and we like that a lot. On Traps, the question of technology wins are what's working there. There are two things really that are going on. The first is on a pure-play technology or a head-to-head basis, I'd say, Traps is the only technology in the market that actually does exploit prevention, right. And then when you combine that with the WildFire to get real-time known malwares, prevention at real-time unknown malware detection and very quick turn on in prevention, that's a very serious technology difference, and not just on a standalone basis, best-of-breed against anything in the market, customers understand that that's real prevention as opposed to the other things that are in the market today. And when you have that in the platform, connected to platform through WildFire, you have the power of WildFire, plus the 7,000-plus WildFire customers where all that information is now being shared on a very, very, fast basis, to in essence automatically reprogram networks and endpoints is extraordinarily compelling. And on the price side from Traps, as we have said before, we're selling Traps on a per endpoint per month basis billed annually over one, two, or three year contracts.

On the price side, I guess, the question is, are you seeing it at a premium relative to where traditional AV vendors were and that's where you're seeing TAM expansion?

So on the TAM expansion side, we naturally pick up TAM expansion, because we work the endpoint security business before, so its $4 billion-plus market and we didn't address before and now we have the opportunity to do that. And when we brought Traps to market, we intentionally priced it in the line with traditional endpoint security technologies, because we didn't have to really break any glass there or tread new directions. So we priced it at anywhere from $2 to $5 per endpoint per month on these multiyear contract, one, two or three year contract, so nothing dramatically different than what people are paying already.

We'll go next to Jayson Noland with Robert Baird.

I wanted to ask, Steffan, about the Q4 '16 target of 22% to 25% on margins, like you said that was set back at the IPO in your growth rate has accelerated this last year. Is that still the right target or how do you get comfortable with backing off on growth or doing what you need to do to get there?

When we set the target model back at the time of the IPO, we had a philosophy that we want to be balancing growth and profitability. And over the last, call it, three years we have been delivering growth and profitability. And we find that as operating principle that we try to stay true to. So 22% to 25% is what we reiterated exiting Q4 fiscal '16. We believe we can deliver industry-leading growth and expanding profitability over that time period. We give that range for a reason. It gives us latitude to, if we wanted to be at the lower end of the range, we can invest more in the business. If we wanted to be at the higher end of the range, we would let more fall to the bottomline, but with, call it, single-digit market share and close to a $20 billion TAM, we are laser focused on growing both topline and profitability.

And then a quick follow-up. At VMware last week, the Palo came up a lot. Maybe, Mark, if you can touch on the relationship with VMware? And then, anything on the software-only side along -- software-only product alongside NSX from VMware?

I was up there a little while at VMware, which was very-well attended and had a chance to talk to a number of customers, and about NSX and what we're doing with VMware, which is very significant we think. And that there is lot of move into virtualized data centers, security is becoming a paramount concern. And one of the major used case is that the VMware continually talks about, because care about is, micro-segmentation, which is in essence a security used case. And Palo Alto Network for NSX is the answer for these as well as traffic protection in that regard. So we like that relationship a lot. It's opened a lot of doors for us. We're winning deals. We just talked about a seven-figure deal we won at the end of fourth quarter, run NSX, so we like the traction here a lot. And then on the software side, we had completely virtualized everything that we've done before years ago with our VM Series. And then the NSX relationship what we've done with AWS as well is to expand and extend that into the private and public cloud environments, so you can have complete software-based solutions in any of those cloud environments, which is pretty significant and is getting a lot of attention in the market.

And we'll go next to Sterling Auty with JPMorgan.

Mark, in your prepared remarks you talked about the reseller and reseller channels. Do they still have enough capacity with the group that you have to grow and hit all the targets that you have for fiscal '16 or how much channel expansion would you need to deliver your goals this year?

So couple of years ago, we were thinking about this a lot, which was there is a great opportunity in this market. With our platform approach, we believe that we could capture historic market share. We still continue to believe that. And with vendors, you get into the practicalities or pragmatics of lots of stuff, one of which is capacity for distribution, right. So we were intentionally thoughtful about trying to establish deeper and deeper relationships, not only with the channel partners we have today, but folks you have global reach and a lot of capacity. So we spent a lot of time and effort organizing around that principle as a company from a leadership and talent perspective and then go and work on these relationships, which are now bearing fruit, we were just talking about right now. So we think with the partner community we have today and some of the relationships we're continuing to drive that we've got a lot of capacity to grow and outsize market rates for quite sometime, which is our intent.

And then one follow-up, Steffan, you mentioned kind of the sales and marketing expenses in the quarter. You mentioned, both hiring and the commission. Can you give a little bit more detail, how much of the sales and marketing percent of revenue was more due to the overage in and bookings and the commissions that you generated? And the reason why I ask, just so we can get an understanding, why should we see the margin expansion be more backend loaded in fiscal '16?

We're not going quantify the exact percentage. It's in the, call it, few percentage points that had an impact for sales commission expense that were related to end of year accelerators and that sort of thing. As we mature as a business, and we have our sales force that proportionately has more ramped sales people than ramping sales people, we achieve that in fiscal '15, we are going to see even more sales people who are fully ramped and that means they're going to be doing more productivity per person, which helps to drive leverage. We also have our reseller and channel infrastructure becoming more productive. And that will be an element that will help drive operating leverage in sales and marketing. And lastly, if you think about our land and expand strategy, the expansion value of our accounts are coming at a much lower cost of sales, because the initial customer acquisition has already been spent and when you look at the proportion of our business coming from our install base relative to new business, at our last Analyst Day, I believe it was about two-thirds coming from in the existing business. And that's a trend that we have seen to be consistent. So as those dynamics play out, we should be getting more leverage in sales and marketing overtime. And that's part of how we're getting leverage to get to the 22% to 25% exiting Q4 FY '16.

And we'll go next to Matt Hedberg with RBC Capital Markets.

Mark, it sounds like you're career grade box doing well. I know you highlighted the PA-7080, as at strong early interest. Can you talk about the performance of your boxes versus other high throughput boxes? And how you guys hold up under increased traffic?

There is a very different architecture at play here and one that's been a very compelling for our customers, right. So let's use the PA-7080 for example, 200 gigs a second, that is very high performance just in and of itself, but way more importantly it's very high performance with the next generation security that's unique to Palo Alto Network, right. So what we're not doing is we're not trading off performance for turning on additional features sets, because we have an architecture with the single pass engine. So in 200 gigs, we're able to do that with all of the security capabilities that all of our customers have come to know and love, and not have them in a position where to say, you have to have higher and higher performance capability from a box perspective to get lower and lower rates of outcome as you turn on security features. So this is a true architectural difference here that's very compelling. I think pretty well understood by our customer base, when it comes to most importantly security, and then the total cost of ownership.

And then maybe quick follow-up on Traps. 150 customers is a nice data point. I'm wondering, who the most likely buyer is of Traps? It would seem that WildFire would make a lot of sense given its deep integration. I'm wondering is that the right way to think about the next steps for customer additions?

Yes, we've seen adoption in a couple of three different buckets, all of which are fantastic. And you're exactly right; the one that would seem to make the most sense would be people who are using WildFire already, because the integration into the platform is through a WildFire. So if you have a customer with the planned Palo Alto platform, running and using WildFire, the idea that you have endpoint prevention and also that's populating and receiving from WildFire, which then means you get 7,000-plus other networks working for you as well is a great value proposition. Interestingly we've also seen a number of customers who have purchased nothing yet from Palo Alto Networks, except Traps, the very first purchase that they are making, which is fantastic. It's another door opener for us. And then we think can lead to downstream further sales to those folks.

And we'll go next to Keith Weiss with Morgan Stanley.

As we look into FY '16, you guys do have a lot more products in the product portfolio, both in terms of sort of expanding out the core firewall or your Next-Generation Firewall portfolio, but also going to newer sort of solutions, Traps' distribution is expanding, but also with the new services. Any change in the distribution model or sort of the sales structure to account for the bigger part of portfolio or does everything just go into everybody's tool bag on a go-forward basis?

It's a good question, Keith. So what we've done historically and it's worked out well for us is when we're bringing something new to market, depending on what that is, and I'll use WildFire as an example of that, building a small overlay team that become experts and what that capability set is. And then having them learn the technology and see what the customer objections are for that, make sure we understand all the things, the technology, and then rolling it out to the entire sales force, depending what that looks like. So we did that for WildFire. We did that and are currently doing that for Traps. We have an overlay sales team, we build up over fiscal '15, and our sales kick off a few weeks ago. We've done a lot of training for the entire sales force for Traps. We quoted everybody on Traps for fiscal '16, now that we have worked out all the how do you solve this thing with that overlay sales team. So those are two areas where we've done. And for Aperture and AutoFocus, those will not have overlay sales teams. Those are great technologies. They're fairly self-explanatory in the sense of how it adds value to the platform. We're confident our sales people will get that.

And maybe if I could sneak in one last one just on federal business. From what we are hearing from Check, it sounds like federal spending around security is definitely ramping up again going into the federal fiscal yearend. I know Q1 is not typically a sort of one of your seasonally strong quarters, but how are you guys feeling about that federal business heading into their federal fiscal yearend?

I was talking about that. Given what the federal government has to do for a living, some of the challenges that are very evident that they are facing, can rebound the papers. And what our technology does, we always thought like that was some vertical we can add, provide a lot of value. Last year it was very tough. I mean the last government fiscal year was very tough, as everybody knew and we heard many times, sort of walking the hallways, as I do out in the Pentagon and places like that, that the next fiscal year for the fed government would be better than the last one and they're working their budget. That appears to be what's happening and that's fantastic for everybody, but for us in particular, given what our technology does and the problems we can solve for their customer base.

And we'll go next to Michael Turits with Raymond James.

Different kind of questions about refresh. Historically, you've gotten a lot of opportunity in terms of displacing, let's call it, legacy vendors, Telco or if you like Cisco and Juniper. Is there any slowing of that opportunity or are you still replacing those guys with the same kind of rates and just plenty of roadmap for that runway for that?

Yes, we are. So we haven't seen any changes there, except perhaps acceleration, as you can kind of see from the numbers here, as everybody continues to donate to the cause. And customers see that with their legacy technologies and their point products. What we are seeing is a recognition by the customer base, that if you are really trying to get prevention done, it's very important that, one, you can feel the traffic, which is why we went in the firewall space against legacy stateful inspection firewall vendors. And in addition to that, when you have that architecturally favored position, you should be able to do a lot of prevention with that, which is subsuming a lot of point technologies into URL platform. So that's what we're going to think from.

So no slowing or shortening of the opportunity there?

Shortening of the opportunity, sales side do you mean?

No. I'm sorry, wrong words, but no lessening in the opportunity that you see for displacing legacy vendors?

No. We continue displacement at very high rates.

And we'll go next to Brent Thill with UBS.

Steffan, on the billings number, obviously one of the best numbers you've had in the last couple of years. Was there any change in the billing duration that you saw in Q4, are most of the billing terms pretty similar to what you've seen historically?

Billing terms are very similar, and there was really no change in contract duration.

And for Mark, you highlighted the move into the data centers is one of the bigger opportunities. Is there a way to frame where you're at whether it's a baseball analogy and other approach in terms of how you're thinking about the penetration that you see right now?

I think it's early. The data center use case for us is growing very rapidly. It's approaching 40% of the business from a sales perspective. And we like that a lot, those are larger devices, lots of subscription services go in there, so that's a great move for us. But when we look at some of the big picture items like the Global 2000, we're very fortunate right now to serve just about half of that. So glass half empty situation there. We got another 1,000 to and we haven't sold the dime till yet. Those are very large companies. All of them have big data centers. And just as a general matter, there is a lot going on in the data center space in general and security is a prime driver, as people think what they're going to do with data centers in the future. So I think we've got a lot of wood to chop in.

And we'll go next to Karl Keirstead with Deutsche Bank.

One for Steffan and one for Mark. Steffan, the October revenue guide was, I think, well above The Street, but implies sequentially flat revenues, which I don't think we've seen from Palo Alto in the quite some time. My guess is, it's simply a function of the incredible outperformance in the July quarter, which makes for a pretty tough comparison. But I just wanted to ask you, if there is anything else for us to keep in mind? And then, the follow-up for Mark. Mark, the world in August felt like slightly rockier place. My guess is, given your numbers and guide and the fact that you are in the security sweet spot, it had no effect on Palo Alto. But I just wanted to ask you whether you saw any trickle down from what looked like a tough macro into your business?

You hit the nail right on the head. Given the 21% sequential growth in Q4, we just saw a very strong finish to the year. And when you look at our guide, while it does imply a flat quarter-on-quarter, we're looking at 46% to 48% year-over-year growth. So there's nothing else going on there, other than just extremely tough sequential compare.

And Karl, I think big picture for us on the macro, I mean, yes, August was very choppy right from at least from the market perspective. I'm not so sure about all the real macro drivers behind that. And so if you take this week, it feels better than the last week, right. So I wouldn't put too much into looking in the short-term things like that. One of the things I'm very confident of though is that security is here to stay. It's a very important thing for all companies. As I've said before, I think it's becoming a favorite item in every IT decision that's being made, and I don't think that's going to change overtime. As a result of that, we've seen security spending going up. I don't think that's going to change any time soon.

We'll go next to Fred Grieb with Nomura.

Two questions from me. First, on Traps, are you seeing any customers completely replace their AV or maybe move to free AV when they purchase Traps or is Traps largely being deployed as an additional solution kind of additional to existing AV?

We're seeing both and it's early here, using the baseball analogy, right. It's maybe the top of the first thing, right. And what's going to happen in next generation endpoint security. But in our customer base we sold through, we've seen both things occur. We see more of a compliment, meaning some of these legacy AV, and they're using Traps or another endpoint technology as a compliment to test it out and see what the difference is. Most of those who talked, they say that they are helpful that it's a very different technology, and then you can replace AV overtime, because that would be simpler for that, right. So the less complex networks and endpoint is a good thing for the customers. Some customers they just jump all the way down there, and said look, this does real prevention, because of that no longer need of the AV technology. So there have just been different mindsets right now about how faster when you get to that end state.

And then, I guess on that next-gen endpoint side. Who, if anyone, are you seeing in competitive deals, where customer are looking to purchase Traps?

It's a very crowded market out there right now. It's got the legacy vendors that they are by definition or every deal mean there is some legacy vendor there. We're very familiar with that dynamic, when you think about the firewall space and how to compete and win there. And then there is a lot of smaller players out there, who are trying to make a company on their endpoint technology. In those situations one of the things that we find to be very valuable for Palo Alto Networks is not only does our endpoint capability actually do prevention, but it's part of the larger platform. So particularly for an existing customer already at Palo Alto Networks, you get the value proposition of the platform, having an endpoint capability that does prevention and being tied seamlessly into that platform is a huge differentiator.

And we'll go next to Gregg Moskowitz with Cowen and Company.

Mark as part of the strength that you showed in Q4, are there any verticals that you would call out having done significantly better relative to your expectations?

No. There is not, Gregg. One of the things we love about this business and it's really just to prove the true platform aspects, what we're doing here is its extraordinarily horizontal in nature. I think last time we talked about, we did say that no vertical is more than 12%, 13% of the business and that continues to be the case. So this is high a degree of utility for all verticals and on a global basis. So to me that gives me great comfort. Everybody there talk about platforms. The truth about measurable platform is, does it have a lot of value very horizontally, and I think we've proven that's the case here.

And then just one for Steffan. Your fiscal '16 CapEx guidance is significantly greater than '15, although your CapEx last year did come in roughly $10 million below the midpoint of your guidance. Was some of the expected spend deferred until fiscal '16? Really just kind of wondering, if you could provide some color around that? And if we should think about the fiscal '16 CapEx, as the new normal for Palo Alto or if you think it's a bit inflated for that reason?

Sure, Gregg. When you look at what happened with CapEx in fiscal year '15, there is a little bit of timing and lumpiness to it. So some of the FY '15 CapEx ended up from a timing standpoint being delayed relative to projects we're dealing, so that's hitting in FY '16, so that's part of the increase. As we run the business, we will have capital expenditures that are running at different rates, given the projects that we're working on. So currently, we have a burgeoning cloud services business and infrastructure business. If you look at the subscription services growth rates, the WildFire traction we've had, we're processing over 3 million unique files per day, and the amount of traffic there is going there to build the infrastructures for that. So we can't necessarily call a new normal on CapEx. But when you look at CapEx and free cash flow, what we're saying is free cash flow for FY '16 should be greater than 30%, and that's about as far out as we comment.

And we'll go next to Ryan Hutchinson with Guggenheim.

Questions on sales force productivity. I think last quarter you talked about it exceeding 50%. Where does it stand at the end of the fourth quarter? And then as you think about headcount additions and productivity levels 12 months out, just any common would be helpful there? And then any material changes to the comp plan at the beginning of the year that we should be mindful of?

Ryan, I'll take those in reverse. No material changes to the comp plan. We continue to have about an aggressive comp plan, and people make good money at Palo Alto Networks. You can see that they're doing well with all that they are selling. From the headcount perspective, we are adding a lot of sales heads, just from an absolute number perspective, I think that's obviously because the opportunity is in front of us. We continue to take down big numbers. We'll do that with a balanced approach. But we definitely want to get as much opportunity as we can and deliver on the bottomline as well. So very confident in the ability to balance the profitability and growth of the company.

The first question was percentage of folks who are fully ramped. We don't give that specific percentage. We usually hold off until Analyst Day to give that. But we're north of 50%, and it's improving directionally, and which is part of the margin expansion story of the company.

And we'll take our final question from Jonathan Ho with William Blair.

Just wanted to start out with Tanium partnership. What does this bring to the table in terms of the incident response side? And can this potentially help accelerate the Traps adoption?

We're happy to have announced that partnership and as with all of our strategic technology partnerships, we've built something first and announced it second, right. So what did we do is, we integrated Tanium capability set into WildFire. And the reason we did that was that when we see an indicative compromise in WildFire, the Tanium technology has the ability to query all the endpoints on an enterprise and see if it's out there. So an easy way to think about that is we're a security company saying we know to what to look for, right from a security perspective. And those guys have a fantastic capability to find things very quickly and demonstrate that scale. So bringing those two things together, allows us to deliver to the customers the detection capabilities, prevention capability and very fast isolation-defined capabilities that are moving into remediation beyond that, right, to the deliver on the roadmap that we laid out for endpoints, of which Traps is extraordinarily important around detection and prevention and to get to isolation remediation as well.

And then European growth seems to always lag the U.S. and other regions. I guess, just want to understand maybe the dynamics there and what sorts of investments you are making towards that region in 2016?

EMEA has been a tough market for a while on a relative basis, primarily just because of all the macro issues over there and FX fluctuations, right. So we like the growth that we've seen in 30%-some in the fourth quarter, over 40% on a year-over-year basis. So it's a fast-growing market, despite the fact that it's got some challenges that we are not seeing in North America or Asia-Pacific as an example. We think along a long-term basis for all markets and what those opportunities are, one of the primary ways we think about it that is our market share. The market share just as a general matter on a global basis is still relatively low compared to some of the larger competitors and that's even lower, when you look at some of the non-North American region. So we think there is a fantastic opportunity for us to capture a lot of market share, which we intend we would do overtime, so we're investing accordingly. End of Q&A

Great. That brings thing to a close. Mark, you want to end up.

Yes. Thank you for being on the call everybody today. We appreciate it. Fiscal '15 was a great year. And I once again want to thank the entire Palo Alto Networks team for all of their hard work and support of our customers and partners. As we look ahead, we are more convinced than ever of our ability to continue to take market share and distance ourselves from the competition. We look forward to updating you on the next call.

And this does conclude today's conference, everyone. We thank you for your participation. You may now disconnect.