Good day, everyone. Welcome to the Palo Alto Networks' Fiscal First Quarter 2017 Earnings Conference Call. Today's call is being recorded. And at this time, I'd like to turn the conference over to Kelsey Turcotte, Vice President of Investor Relations. Please go ahead Ma'am.

Great. Good afternoon and thank you everyone for joining us on today’s conference call to discuss Palo Alto Networks fiscal first quarter 2017 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 and chief executive officer, and Steffan Tomlinson, our chief financial officer. This afternoon we issued a press release announcing our results for the fiscal first quarter ended October 31, 2016. If you would like a copy of the release, you can access it on-line on our website. We would like to remind you that, during the course of this conference call, management will make forward-looking statements, including statements regarding our financial outlook for the second quarter and full-year fiscal 2017, our competitive position and the demand and market opportunity for our products and subscriptions, our growth rates and trends in certain financial results and operating metrics, sales productivity, sales cycles, seasonality, and innovations in our product, subscription and support offerings. 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 annual report on Form 10-K filed with the SEC on September 8, 2016 and our earnings release posted a few minutes ago on our website and on the SEC’s website. Also please note that certain financial measures we use on this…

Thank you, Kelsey. And thank you everyone for joining us this afternoon to report our fiscal Q1 results. In the first quarter, our results significantly outpaced the growth of the market and the competition. Revenue for the quarter grew 34% year-over-year to $398 million, while billings grew 33% year-over-year to $517 million. We generated free cash flow of $182 million, up 43% year-over-year, and reported non-GAAP earnings per share of $0.55, up 62% year-over-year. Security remains a strategic priority for global enterprises and organizations and we continue to capture mindshare and market share at very high rates. In the quarter, we saw strong demand for our next-generation security platform from both new and existing customers who are also increasingly deploying our eight subscription offerings. We added well over 1,500 new customers and are now privileged to be serving more than 35,500 customers worldwide. New customer wins and competitive displacements in the quarter included: A Check Point replacement in the data center at one of the world’s busiest airports. A competitive win against Check Point and Cisco at an EMEA based investment management and services organization which made a seven figure investment in our next-generation security platform. A large cloud deal with a global systems integrator where we replaced Cisco, Fortinet, and FireEye with a significant investment in both our hardware and subscriptions, including AutoFocus which served as a strategic competitive differentiator. A McAfee replacement on more than 10,000 endpoints in a government agency in EMEA. And a Fortune 500 manufacturing company where we beat and replaced Cisco for data center segmentation. On the expand side of our business, adoption across our platform continues to drive lifetime value growth across the board. All of our top 25 lifetime value customers again made purchases in the first quarter and to make this…

Thank you, Mark. Before I start, I’d like to note that except for revenue and billings figures, all financial figures are non-GAAP unless stated otherwise. In Q1, we continued to execute our financial strategy of growing both the top line and expanding profitability. Our hybrid-SaaS model continues to pay off as we posted record deferred revenue, significant year over year margin expansion and non-GAAP EPS growth, and record free cash flow. Turning to the numbers. We reported Q1 revenue of $398.1 million, an increase of 34% year-over-year. Looking at the geographic mix of revenue for Q1, the Americas grew 33% and accounted for 70% share, EMEA grew 32% and accounted for 18% share and APAC grew 47% and accounted for 12% share. Q1 product revenue of $163.8 million increased 11% year-over-year and growth was healthy across our product portfolio. To better describe the value we are delivering and to improve clarity, we have renamed the services revenue line on our income statement to subscription and support revenue. In the quarter subscription and support revenue of $234.3 million increased 57% over the prior year and accounted for a 59% share of total revenue. SaaS-based subscription revenue of $121.2 million increased 65%, while support revenue of $113.1 million increased 49%. Q1 billings were $516.9 million, up 33% year-over-year. Total deferred revenue was $1.4 billion, an increase of 69% year-over-year. Short-term deferred revenue of $758.1 million increased 59% year-over-year and accounted for 56% share of total deferred revenue. Long-term deferred revenue of $601.5 million increased 84% year-over-year and accounted for a 44% share of total deferred revenue. The growth in deferred revenue is driven by customers adopting our subscription and support offerings and renewing them at very high rates. With the top line details covered, I will now turn to margins. Our Q1…

[Operator Instructions] This time I will take the first question from Ken Talanian with Evercore ISI. Please go ahead.

Hi, thanks for taking my questions. Just wanted to get a sense for the contribution from unattached subscription to subscription billing and how we should think about that going forward?

The contribution from unattached subscription billings was healthy on year-over-year basis. We still have a predominant amount of billing from attached subscriptions but the percentage growth rate for unattached subscriptions tends to outpace the attached at this point just given the relative sizes.

Would you say it is doubling year-over-year like triple digit growth something in that range?

For our unattached subscriptions, they are growing triple digits.

Move now to Weiss from Morgan Stanley.

Thank you guys for taking the question. And looking at Q1 and it not being as robust as expected, can you help us understand what gives you guys the comfort that it's not competitive or it's not market saturation that it’s just really extended deal cycles? And in sort of how that confidence extends to the full year guidance which is now looking for acceleration into the back half of the year particularly on that product revenue side?

Yes, sure. It's Mark. Yes, I am pretty sure it's not competition related, right, when you get to see that playing through from a data perspective, when we look at the quarter we just posted with 34% revenue growth and look at the major competitors, we are 3x higher than Cisco in growth, 5x higher than Check Point in growth right. So those win rates are very high, they have been consistently very high and we expect them to continue to remain that way into the future. So it doesn't look to be anything competitive there. Importantly, we are always look at the technical stuff as well competitively and we don't see anything that competition has done differently. I think the kind of rates of growth and the compares really prove that out. From a second half perspective, we said earlier that we expect the second half to be stronger than the first half. We still expect that to be the case. We know that this second half comps are better in the first half, that the increasing cohort opportunity and bigger cohorts to refresh and the innovation engine to fuel that. We are also continuing to see pickup from the service provider which had a very good first quarter beating the numbers which we like a lot.

Got it. And then Q1 is always a time when -- if there is going to be any changes in go to market strategy, there is - anything unusual this year about sort of the go to market strategy or any changes that you guys put into place that might have impacted getting those deal signed on time in the quarter?

Yes, we've been growing at very high rates as you know over time so we’ve prided ourselves in trying to make sure that we are putting all the people processes and system changes in place to scale with that growth, that advance so we make changes every year from a go to market perspective just in order to keep up with that kind of growth. We didn't do anything different this year.

I now move to Sterling Auty with JPMorgan.

Yes, thanks. Trying to put in the context kind of reiterating the full year EPS but kind of tougher start on revenue especially product revenue. What are you baking in in terms of the improvement in the environment? Do you hit that acceleration in the back half of the year versus how you are changing your construct in terms of the growth versus margin expansion?

I'll take the first part of that, Sterling. So from a change perspective I mean change what we are thinking before which we expected the second half to be stronger than the first half. So that's still obviously is the case given the guidance, that were given today for the reasons that I just gave to Keith so from an environment perspective looks like from a mixed environment out there, if you look at all the security companies and peers recording, that hasn't changed a lot in the last couple of three quarters. So they got better and that would be a positive for everybody but still not an [inaudible] we are delivering way faster than all the competition in the space. I'll turn the EPS question over to Steffan.

Yes. We continue to expect to grow revenue greater than 30% and closer to the 30% to 31% for the year. That's really due to elongating sales cycle. As Mark mentioned, it is much faster than the growth rate of the competition or the rate of the market. We feel comfortable that even with a little bit of lower revenue number for the year, we are able to still get to the $2.75 to $2.80 non-GAAP EPS through operational discipline and rigor. And that's why we feel comfortable with the $2.75 to $2.80.

And maybe just to clarify for people because I got the question already a few times in email and IM, the $2.75 to $2.80 is not because of the sales commission and accounting change, correct?

Well, it's inclusive of it. So our guidance range last - when we talked about in our Q4 earnings call for the set up for FY2017 was $2.75 to $2.80, and that was including a benefit of the deferred commission change so that's still baked into it, but the $2.75 to $2.80 that's we are calling right now is not changing any assumption that we talked about from Q4.

We move now to Andrew Nowinski with Piper Jaffray.

All right, thanks. Maybe just from a geographic perspective, looks like this is the first quarter in about two years where your revenue growth in EMEA outpaced the Americas. So just can you give us any color on what impacted the moderation in revenue growth and specifically in the Americas?

Yes, Andrew, it is Mark. Yes, so as we noted earlier we've seen a number of deals, a handful deals that [inaudible] larger deals because we are winning bigger deals with bigger companies and it doesn't take a lot of those to push just going a quarter, given that our biggest market is the Americas and that's where we, lot of our customer base is, that would be the place that would be most impacted.

All right. Then on VM-Series, now you had strong growth this quarter and I think you said 50% of those customers in the quarter were new to Palo Alto, is it possible that the VM-Series might be cannibalizing some of your product revenue selling into those new customers?

That's good question. I don't think that's the case, Andrew. The VM-Series, our cloud in general I think it continues to be great selling point for us because we can provide the consistency and security both across on prem, hybrid to public cloud environments, and that's what customers are responding to. The front end of that thrust is the VM-Series and I said in my prepared remarks about half of the customers that came to us in the first quarter their first experience with Palo Alto Networks is to buy VM-Series. So it's clearly opening door for us. Maybe more interesting to your question though if we looked at over the 2,000 plus customers we have on VM-Series today, that trend is holding about more than half of those were first time customers at Palo Alto Networks with the VM-Series. Again if we look at back that, more than a majority of those have come back and purchased hardware, for example, since they joined us with the VM-Series. So this looks to be a positive [inaudible].

We will now move to Shaul Eyal with Oppenheimer.

Thank you. Hi, good afternoon, guys. Mark any specific product that either outperformed or underperformed this quarter? How did the 7080, 7050 performed specifically this quarter?

Yes, we saw good contribution across our entire family not just in the hardware side but across all the services side as well. One thing that we really like to see in the first quarter went well for us was particularly in the high end stuff is in the service provider business. We organized a lot around that in last year's time and that team did a great job beating the number in the first quarter. So that's fantastic like to see more of that coming and those customers tend to buy the higher end device.

Got it. Got it. And how the federal vertical specifically this quarter?

It was good. We got a good Fed business that's true across civilian, the intelligence community, the defense community as well. So we are growing a very nice Fed business that quarter came in well for us as you know the Fed year end is inside that quarter. The only blemish on that business here was we had one high seven figure deal that pushed into the next week for the few number days, mostly due to the government is still operating under continued resolution so it has a little couple more approvals had to get done in budget. So but other than it was exactly a good we expected.

This time we'll hear from Karl Keirstead with Deutsche Bank.

So you step in on the long term DR, super strong performance in the quarter and just given that this underpins your billings growth and to some extent your free cash flow growth. I just like to understand that a little bit better. The mix I think now 44% of all of your DR, do you think that can still increase -- to help us understand how some of the environmental stuff you talked about with longer sales cycle et cetera. That didn't seemed to have any impact on long-term DR, so I am wondering if you could explain that if there was any kind of lengthening of [Technical Difficulty] duration that might offset that. Thank you.

We did see modest uptick in duration on a sequential basis. When we see growth on long-term deferred revenue in this quarter kind of year-over-year basis is about 84%. That's been in a relatively call it tight range over the last several quarters. That is an indication that our customers are willing to standardize on us a platform. So [Lockson] is a strategic partner. And we believe that's a very good indication. It's actually a sign of the strength of the platform. We have seen some larger deals that Mark had highlighted that they ended up slipping past to end of the quarter sales elongation is the reason there. Had those bill not slipped we would have seen even more healthy kind of increase in both short term and long term deferred revenue. So the deferred revenue would have been better had we not had the sale cycle elongation. And going forward we factored in sales cycle elongation into guidance. And that is a prudent thing to do at this point. And if sales cycle start to shorten we will update then but right now we are basically taking our sales cycle and factoring that into the methodology for the guidance, for not end of the quarter but for the year.

We will move now to Jayson Noland with Baird.

Okay. Great, thank you. Just to ask on the longer sales cycle, was there any feedback from the customer base that would be helpful? I just wondering if that was the US election or just more general.

Hi, Jayson. It's Mark here. It's hard to pass through that level of detail with the customers. So first of all let's just talk about the handful of the deals, so it is not lot of things. Getting to the specifics as to why that may occur, whether it was related to election or not, that's hard to get from customers. I think generally it is good thing that watch is over from a consistency and certain key perspective regardless of who win right. I think everybody probably feels that but we didn't hear that being expressed through the customers. But we are seeing is that we are winning bigger deals, bigger companies, we are working on a architectural, strategic, long-term projects with companies which is great but we are seeing a bit longer to get done.

Okay. That make sense. And I wanted to ask on service provider too. It has been a challenging vertical for some key suppliers here under exposed to gaining traction. I guess Mark how should we think about SP into 2017?

We think a couple of things. First is that as you know it was a vertical that we hadn't been super focused on for a number of years and we've organized around that last year to both from a product perspective to really get some service provider to put a lot more focus on that internally. That's primarily because we think that industry can benefit from the advanced security we have. Also when you see data moving around as it is, it has been continued with IoT and things like that. The mobile framework is becoming increasingly important in order to make those things happen right. So security is going to become increasingly important. And we want to make sure that we bring our advanced security capabilities to that market. And we are doing that. So that said, pleased with service provider results, that business is not as big as rest of our business yet but it is growing at very nice rates and that feedback so far has been very positive on we brought to the marketing.

[Operator Instructions] I'll now take a question from Michael Turits with Raymond James.

Hey, guys. Two questions. First of all back on the sale cycle question. Is there any sense that there is hesitation regarding our extensive let's call decision cycles given people's plan so what they will do in cloud which tends to be complex sometimes?

I'll take the first question on that. [indiscernible] of course right it is a big deal, it is macro trend and as people are thinking about cloud, one of the main things we hear from customers not surprisingly is the security aspect of that and an increasingly what's obvious to us as well is they beat and won of the consistency of security and with their on prem in cloud and any play with cloud right. And that's where we are uniquely bringing to the customer base here today. You don't have to have different security and more when you have different security outcomes [Technical Difficulty] like to have on prem, so they are looking for that answer. And they are also know that they are probably going to have multi call strategy as well. So who can bring the consistency of security in all the situations that increasingly as the powerful network and I think that showing through with our relationships with the results for our VM-Series. So I think it's a good thing. I mean all those kind of accurate things with IoT or cloud or all those things go into the next when people are making their decisions over top technologic companies we think the positive of course.

And then the other question was on Trap side, most of your address is directly, you pointed out the Traps is doing what-- anything that point to concretely in terms of uptick or positive reaction following the new release in Traps and how people reacting to that?

Yes, Michael speaking about our version 3.4 which we brought out in the late summer timeframe which got very positive reviews both externally and from our prospect and customer base. The main reason for that is as we continue to iterate Traps and that was a very big iteration there, it became very clear after that release that it could be a head on to the replacement right. And that's what the big budget in the market is and that's where people are increasingly buying traps to that. Now in addition to having those capabilities to be an AV replacement which it has, we also want to get external validation of that -- get that in a number ways. Some as third party testing, so you've seen some of the reports coming out where those tests supporting well, getting the kind of compliance check off like I mentioned on the call for HIPAA and PCI is important so that people from an auditing perspective, so yes that can be an AV replacement, and in third just reference ability. Now if over a million things under protection with Traps bit size and very fast growing customer base. People talking to people saying this really works not just only as an AV replacement more importantly as fill time prevention end points and probably just as importantly to seamlessly bring together progression from end point to network to cloud to all things platform provide them.

We will now take a question from Saket Kalia with Barclays Capital.

Hi, guys. Thanks for taking my questions here. Just first for Mark, Mark you talked about some of the stronger cohorts in the past like 2012 for example starting to become for refresh, presumably we've just seen the beginning of that trend, what do you have seen so far? Are you seeing anything different in this refresh cycle versus others that you've seen in the past?

No. I guess couple of things, one is you correctly noted that from a refresh cycle perspective and the amount of customers that would even be up for refresh, vast majority of that is coming into play starting in the second half this year and beyond. That's the first thing. The second thing of the refresh as we've seen in the earlier cohorts even though a small have been very strong and then just as a general matter so it is not really Palo Alto Networks view point but it is from an industry perspective haven't seen anything different in the cycles of refresh, little hard to call those but generally 4 to 6 years but that seems to be the case still.

Got it, got it. And then for my follow up just specifically on the Wildfire subscription, presumably you are going to see more competition from other specialists that are going to maybe compete with cloud delivery. Do you still think that Wildfire has the advantage as being part of the Firewall and being cloud delivered or is that something that you maybe start to hear from customers as maybe sandbox start to change?

Well, couple of three things and that probably fact it is the first is that that Wildfire has to be and is very good at these end marks right. So super capable as best of breed right from a sandbox perspective and those are cable space, in order to that for people and I think with the size of the customer base and the kind of customers they were adding we can see it's get very high mark, so that's one. Two, Wildfire is really well done in a sense that it is delivered from the cloud right. So the second thing is that for us to have the ability to bring that kind of capability from the cloud and do it at enormous scale which we are doing today is a competitive differentiator for us. The third thing is that it is under the brains of the platform right. So when you have Wildfire and you are using it that is how you actually get in about five minutes real time update to everything we know across the earth ecosystem of our customers provided you automatically to high degrees of automation. And the last point which I think is going to be increasingly important over time and here we are way ahead just given the size of the customer base and the architecture is we are dealing with gobbs of data right, and I said petabytes of data here. So our ability to make that data useful for Wildfire itself to get the five minute update and then to do additional things like we've done with AutoFocus which is to provide high degrees of relevance and correlation almost in real time to that data and be able to continue to do that without much that kind of scale is increasingly important. So I think those are very high competitive barriers for anybody to get over let alone somebody who is just showing up to the bogging.

We will now move to Rob Owens with Pacific Crest Securities.

Great. And thanks for taking my question. Mark you mentioned how is you participating more architectural strategic long-term deal. So those are typically falling into a budget process that's long way -- the large deal slippage, is that year sensitive more of lack confidence in IT budget going to spend at this point or do you think there might be some re-prioritization going on?

I think it looks like security is still a big deal right. And I would guess that was going to be the case for really long time to come just because it is so important to underpinning all of the trust in the digital. So I don't see that changing whatsoever. What we are seeing in our business is that we are in bigger and bigger companies getting these larger deals done. And they tend to be more complex because of the architectural aspects of it and we are winning them right. So it just taking longer to get some of them on which is unfortunate but on a long term basis it is very beneficial for the company. We put a hell a lot of focus as we mentioned before in 2,000 customer segment because we think 70% plus of the addressable market opportunity in that segment. We got over 1,100 customers in Q1, 100 right now, we've added 1,000 in Q1, we added over 100 year-over-year. And about 40% of our sales in Q1 for example are coming out of G2, 000, and that's growing high and up into the right. So it is increasingly important segment but what you get with that is you are going to get these larger architectural designs right that are taking so longer to get done and like I said that's a good thing for us in the long term but it might have some impact on a short term. And all that said not we do have to win these fields, we got to call bond then we are going to get them as well. So we realize it we do a better job on that. We are definitely focused on that.

And as a follow up, can you talk with the level of discounting in the quarter which you are seeing either from competitors or expected discounting from end customers?

Yes, sure. So two angles on that. One is this has been a very, very competitive market. You can think as being competitive market we definitely looked on to the price card, Cisco, Check Point, Fortinet have been doing that for quite some time. If we look at our quarter gaining gross margin are good or high, we didn't see any discounting pressure meeting on us from a sequential basis. And we are able to combat that like I said with this architectural design win what we bring from a platform perspective, we expect to really continue to do that.

We will now move to Pierre Ferragu with Bernstein. Go ahead.

Hey, good evening. Thank you for taking my question. I'd like to come back to your elongating sale cycle. You mentioned a lot of things you talked about more complex deals going to larger client as well and my question is how much of that is actually just like more like broader environment and macro drivers, so I am thinking about like the Brexit in Europe. In US we have heads are run up to the election. Did you see a moment of like macro affecting decision cycles just because people are more careful with the budget? And if that's the case any indication of how significant it was compared to things that are more specific to the complexity of what you are selling?

Yes. I think it's a good question. So I have two angles on that one. The first would be for the things that we think we know for sure right which would be when these bigger companies and bigger deals with like I said these architectural design wins and meeting to the architectural wins that are strategic in nature. A very good sense of that because we are winning the deals. We know we are continuing with the winning and is very high rates on that. As far as how long they may take from an approval process or spending cycle process they get done, there could be lots of factors that play around that. You mentioned a whole bunch of right election price boil and brexit and interest rate and all sorts of stuff that can provide, that can put some uncertainty into the macro spending environment that which looks today like I said earlier next that's what it sound like from report that we've seen and certainty in business deal and those things that would help improve our time, those would be great. But we are trying to really pay attention to things that we can be for sure than with --

And I'll now move to Gregg Moskowitz with Cowen and Co.

Hey, thanks very much. Mark could you talk about the sales cycle and length and envelop of the larger deal that pushed but of the business that did goes in the quarter, did you see any change to average deal size?

No. It's very consistent. One of the things we mentioned in the past Gregg that it continues to be the case is from ASP perspective generally those continue to grow over time. Lot of our wins is first time wins for somebody and we get into expand very dramatically over time and on to those dynamics change.

Now we will move on to Walter Pritchard with Citi.

Hi, thanks Mark. I am just wondering if you could talk to the customer count, the customer addition in the quarter I think it was 1,500 in last year in this quarter was about 2,000. Because I think about large deals pushing is probably not impacting that number that much but I am wondering kind of generally how we should think about that metric as a driver of your particularly your product growth going forward?

Yes, Walter, good question. So, yes, all these quarters when we talk about these numbers and to round right so but I said well over 1,500 in a quarter that would closer to 2,000, this quarter than 1,500 so customer, new customer acquisitions has been very sharp.

And on a year-over-year basis, I know is the largest Q1 customer adds that we had so and relative to contribution. We still get call it three quarters to 80% of all our business from our install base of customers. And you can imagine with 34,000 customers that we had entering the quarter, the purchasing power of their installed base is extremely high. So contribution from new customers definitely helps but the purchasing power is really lies in the installed base.

And then Steffan on the duration you did mention it was up a little bit. Is there anything about certain types of customers tends to driver longer duration or is it service providers or anything systematic that's happening there? Or is it more just how the chips falling in a quarter?

It's kind of where how the chips fall in the quarter with the when you wants that larger customers tend to do multiyear deals but we do see smaller customers doing multiyear deals too just that the impact of the larger customers is more pronounced just because of the ticket size is often times it could be four five times greater than what the smaller customer is purchasing.

At this time we will move to Brent Thill with UBS.

Mark, I just wanted to clarify you mentioned a lot of deals in Q1 that slipped and had closed running in Q2, I just wanted to understand with that the majority of deals, can you just give us a little more color on what you meant there?

Sure. Well, if I back up for a minute get handful of thing can over line as I mentioned before. Over 10,000 plus deals so some of the -- it is only take few of the very one not come across the line to have the less or best quarter than we would have fight and that's what happened the situation. So when we look at what's happening right now, about half of those are closed so far we got deadline --

Okay. Just a comments on sales cycle, you are not alone there has been numerous security companies that are assign the same reason. And I guess is there any other further explanation why the industry is seeing? I think I wanted to point the cloud, is there digestion of past purchases that still or happening.

Yes. I have seen commentary along that, you are correct on pass as well I think it looks as though in the last few years time a lot of stuff has been bought in security from a lot of different providers right. And what we've seen from the -- people working in their way through that is a lot of the point capabilities that it were sold and bought by these folks, they have to work their way through those capabilities being from a minimum from an amortization depreciation cycle perspective right. So you can see that we are subsuming a lot of that into the platform at very high rate but it is not unusual to go into a customer and say, hey, use Wildfire for example, we wanted to sell Wildfire, you already bought parts for the platform before and get a comment from them to say got love it, it sounds great, I tested it, I got to amortize to think I have a depreciate to think I have just little further so locked to be in six months right or whatever the situation maybe. And that could be true for proxies or sandboxes or desk capabilities for end points go across the board. So folks digesting a lot of things that they got over the last few years. It can have an impact on when they made purchase our thing that is part of the platform.

At this time we will hear from Matt Hedberg with RBC Capital Markets.

Hey, thanks for taking my question guys. Mark your growth in EMEA was better, I am curious are you some of your European customers talking about the pending GDP breach notification and maybe if they are not yet do you see that as a potential driver next year?

Yes. A lot of people are talking about that. It's I think it's going to be important, this is a general matter and what Matt talking about there is not in distant future like in United States there will be similar kind of legislation that will take effect. It is already passed, it will take effect in Europe that says you have to report breach right. And when those things happen the focus and attention for companies once they actually have to report stuff should go up. Now we certainly saw that in United States. We think you would see that in Europe. Now the dimensioning part of that legislation is that it uses the term that's very important and it says that you need to state of the art security capabilities right. So state of the art is great right that next generation, that's advanced, that's platform that's all of the things that we've been successful selling. And to double underline that point just to make sure that folks in Europe know that Palo Alto Networks is provider of that. We've taken a lot of the marketing capabilities that we've been so successful force to bargain, we export them most recently for example we published a version of our book which is called Navigating Digital Age which is something that is designed for C suite executive and board members and it has been incredibly well read in the United States. We just published that in French. And that would came out end of last quarter and in side we also launched in Australia as well not the US - a pack that they similar legislation coming into play very same. So we are pushing materials like that in local languages with local experts and very much aligning ourselves with the -- in the case of Europe with state of the art and defining what that means for security feature.

And at this time we will take a question from Gray Powell with Wells Fargo.

Hi, thanks for taking the questions. Just a couple if I may. So I mean product revenue it slowed for everyone in the network securities space this year. I just looked at some of the public players and the group, it looks like product growth expected to be in the call it the high single digit range in the second half of 2016 versus more like 25% last year. Do you think we are back head sort of normalized level of growth and do you see anything that can do either direction going forward?

A couple of things there. One is I think this is definitely the age of the platform right. We are definitively seeing the move from, the paradigm shift from point solutions that are prevention delivered as hardware into nextgen platform that are prevention oriented, some of which will be delivered as hardware and a lot of which we delivered as software and from a stocky facility and that's what's driving the growth in our platform. We are going to have both of them. It is going to be hardware and software capabilities and we would expect that the hardware component that would be follow product end front that would be healthy and continues to grow over time. We said we saw second half acceleration which we do expect to see for some of the reasons we expressed already. And that's our view as to where this is going to go.

Okay. That's helpful. And just a quick follow up. I mean you have your 30% long-term growth target. Is there some sort of base level of product growth revenue growth that's required for you to hit that target?

Well, we have this growth and profitability framework which we have outlined and that we are adhering to. And what we called out as that in this fiscal year we are going to be in high growth mode which is greater than 30% revenue growth. And what we've given as a construct for the year is that product revenue growth on a year-over-year basis would be approximately 12% to 13% year-over-year. And we would need that to be the case in order for the projections to be achievable. So that's basically the construct for the year. We don't have a product growth rate on a long term all basis that we talked about because ultimately it is about selling the whole platform. And we are focused on selling all elements of the platform and that's how we talk about total revenue growth as the primary indicator. There are sub components that we give headlights too like product and subscription and services and renewals. But it is really total revenue growth.

We will now take a question from Erik Suppiger with JMP Securities.

Hey, guys, this is John on for Erik. Thanks for taking my questions. My first question is can you just remind us what percent of the billing that comes from existing versus new customers and how that's trended over the last year? And then also were the push deals concentrated on either new or existing customers?

Yes. On the percentage of billings from new versus existing, it is approximately call three quarters to 80% of billing come from our existing and installed base of customers. And in the dynamic which I reference in the past is this quarter we added north of 1,500 customers in the quarter, new customers but that's too a base of 34,000 customers. And you think about the flywheel that's going on around repeat purchasing, the top 20 five, you look at all of those LTV stats; those are all up into the right. So the purchasing power is a lot greater for the installed base of customers which is why you have three quarters to 80% contribution coming from there. Then your second question was on push deals and whether those came from new customers or existing customers, is primarily new customers where we saw a little elongation of sales cycle.

Okay. And then last question. Overall the one million Traps end points paid or some of those unpaid? And if so how many of them?

They are all paid.

We have time for one question. This will be from Jonathan Ho from William Blair.

Hey, guys. I just wanted to understand a little bit better your public thought opportunity. I mean we saw VMware sign deal with AWS including you in that platform so can you just give us a little bit more color in terms of what that opportunity looks like for you guys? And maybe what this deal could mean.

Yes. I think that deal is a bridging if you will of the public and private collaborate. So I think it is a growing recognition by public call providers and hybrid or private call providers that it is going to be a hybrid world into the future. That's going to be on premise, it is going to be hybrid, and it is going to be public as well. And what companies want to do and I mentioned this consistency aspect is that they want to be able to move their data seamlessly across all over though they sometime they want to be in cloud, sometimes they want to be on prem and sometime they want to be between both. And I think that's what the AWS and VMware deal represent, recognition by both of those companies, probably more in the industry that's going to be the case in the future. So from the security perspective our ability to tell a customer that we can provide exactly the same kind of security in a high consistent manner whatever the data maybe and cloud whether it is on prem, hybrid or public or even more important that it maybe just as important that is everywhere else too across endpoints and third party SaaS application being delivered from the cloud. We get to say we can do the exact same level of security which is the most advanced security can possibly have, exactly the same in all those cases. [Technical Difficulty]

Got it. And then just relative to your commentary on the platform, can you talk a little bit about the number of subscriptions that you are attaching to new product and whether you are seeing that continue to increase or shift around and based on the activity this quarter?

So for the four subscriptions that attached to the appliance we've seen very strong growth rates and very high attached rates. On a sequential basis -- we talk about it on a semi-annual basis. And I had gone back and take a look at if the number grew on a year-over-year basis but that attach rates were healthy. The fun attached business which we have four subscription services that are AutoFocus, Aperture, Traps and Virtual, those don't have a concept in their attach. They are lower in terms of the base but they have triple digit growth rates. So both subscriptions both the attach non attached are growing very healthily. I have just get back to you on whether or not the second half -- if the attach growth rate grew on an annual basis.

It concludes the question- and-answer session. I'll turn things back over to Mark McLaughlin for any additional or closing remarks.

Great. Well, thanks everybody for being on the call this afternoon. And before I close as always I want to thank the Palo Alto Networks team for their dedication and our customers and partners for the opportunity to work with them. We take the responsibility of helping the world’s largest organizations solve their most critical security challenges very seriously. Also, I hope everyone has a safe and enjoyable Thanksgiving. Thanks for your time.

Once again this does conclude today's conference call. Thank you all for your participation.