Good day, everyone, and welcome to Palo Alto Networks Fiscal First Quarter 2023 Earnings Conference Call. I am Clay Bilby, Head of Palo Alto Networks Investor Relations. Please note that this call is being recorded today, Thursday, November 17, 2022, at 1:30 p.m. Pacific Time. With me on today's call are Nikesh Arora, our Chairman and Chief Executive Officer; and Dipak Golechha, our Chief Financial Officer. Our Chief Product Officer, Lee Klarich, will join us in the Q&A session following the prepared remarks. You can find the press release and information to supplement today's discussion on our website at investors.paloaltonetworks.com. While there, please click on the link for Events and Presentations where you will find the investor presentation and supplemental information. During the course of today's call, we will make forward-looking statements and projections regarding company's business operations and financial performance. These statements are subject to risks and uncertainties that are made as of today. We assume no obligation to update them. Please review the press release and our recent SEC filings for a discussion of these risks and uncertainties. We will also refer to non-GAAP financial measures. These measures should not be considered as a substitute for financial measures prepared in accordance with GAAP. The most directly comparable GAAP financial measures and reconciliations are included in the press release and the appendix of this investor presentation. All comparisons are on a year-over-year basis, unless specifically noted otherwise. Please also note that the 3-for-1 stock split announced during our Q4 was completed with share and per share numbers now reflecting this. I will now turn the call over to Nikesh.

Thank you, Clay. Good afternoon, and thank you, everyone, for joining us for our earnings call. As you can see, we had a solid first quarter where we showed balanced top line growth and a demonstrable focus on profitability. Early in the quarter, we saw some customer behavior changes and have adapted our operations to align with the changing market conditions. On the top line, billings grew 27% year-over-year, while RPO grew 38%. We have consistently maintained that cybersecurity is the most innovative sector of the technology industry. Demonstrate progress on our transformation, we have shared how our new cloud delivered and cloud-enabled offerings are contributing to our business via our NGS ARR. In that context, this quarter, our NGS ARR hit a key milestone. It crossed the $2 billion mark and grew 67% year-over-year. As the macroeconomic environment changes, we are accelerating our efforts to drive incremental operating leverage in our business. Given that we're the largest independent cybersecurity business, we can meaningfully improve our margins over the next phase of our company's next cycle. Our focus on profitability in the quarter drove operating income growth of 44% year-over-year with operating margins up 260 basis points during the same period. We also generated over $1 billion in free cash flow in the quarter. For the second quarter in a row, we generated net income on a GAAP basis as we focus on GAAP profitability for the fiscal year. At the center of our strategy is the need to drive more consolidation to get customers to a better security posture. Towards that end, we continue to see large cross-platform buys and grow our millionaire customers at a steady clip. Our customers have been in a journey with us, initial deals that give them comfort with our products and help distinguish…

Thank you, Nikesh, and good afternoon, everyone. For Q1, revenue of $1.56 billion grew 25% and was above the high end of our guidance range. Product grew 12% and total services grew by 30%. By geography, we saw growth across all theaters, with EMEA up 32%, the Americas growing 24% and JPAC growing 26%. Our next-generation security capabilities are increasingly driving our results, and our NGS ARR grew 67% and at $2.11 billion exceeded $2 billion for the first time. We continue to see strength driven by our broad portfolio within next-generation security. This includes Cortex, Prisma Cloud, Prisma SASE, software firewalls and the advanced versions of cloud-delivered subscriptions. We remain optimistic about the prospects of this broad and diverse portfolio. We delivered total billings of $1.75 billion, up 27%, which was above the high end of our guidance range. Total deferred revenue in Q1 was $7.2 billion, an increase of 39%. Remaining performance obligation, or RPO, was $8.3 billion, increasing 38%, with current RPO representing about half of our RPO similar to previous quarters. Moving beyond the top line metrics. I already highlighted non-GAAP gross margin of 74.3% was down 10 basis points year-over-year, with some incremental supply chain-related expenses being incurred for components and shipping. Operating margin was 20.6%, an increase of 260 basis points year-over-year. This strength in operating margin was the result of lower expenses as a percent of revenue across all 3 expense lines, R&D, sales and marketing and G&A. We have already focused on aligning our investment plans to the areas of highest return. And thus, as we proceed through this environment, it is sharpening of these efforts. Non-GAAP net income for the first quarter grew 56% to $266 million or $0.83 per diluted share. Our non-GAAP effective tax rate was 22%. GAAP net…

[Operator Instructions]. Our first question of the evening comes from Saket Kalia of Barclays.

Okay. Great. nice set of results. Nikesh, maybe for you. You mentioned some early customer behavior changes. I was wondering if you could just expand on that a little bit and how that manifested in the business? It doesn't seem like there was much of an impact in the NGS business. In fact, that accelerated growth year-over-year. I wonder if you could just expand on where that customer behavior changed and how you've incorporated that into the full year guide?

Look, Saket, as I mentioned, we are seeing customers spend more time trying to understand what they're spending money on. There's more questions, the CFOs are getting involved. So larger deals are getting more scrutiny. We noticed that early in the quarter, so we accelerated our efforts in trying to get those deals in front of those CFOs much faster than earlier in the quarter as opposed to waiting towards the end. In certain cases, customers came back and said, I'd like this now. I'd like to hold off on this and buy it next quarter. That just means we have to go far more pipeline much faster and much harder to make sure we can make up for those deals with other deals in our pipeline. At any point in time, our pipeline, as you would expect, is larger than what we expect to deliver in that quarter. So we have deals in the pipeline. We just have to work with our customers to solidify them. And what we have done is, because of that behavior, we have increased scrutiny internally, we've increased efforts with our sales teams to get ahead of this and we're just increasing the activity of execution. We front-loaded our hires. We hired 550 direct sales rep as quickly as we could in the quarter because this environment is going to continue. And the only way to fight this to get more coverage out of the field. Get work coverage, get more focus on getting deals done, get them across the line. There's not a demand problem, right? All that is happening is that people are pushing out some of their products, means you just need to get more active with our customer base to make sure we get more business into our pipeline. This is what we're doing.

Next question from Hamza Fodderwala of Morgan Stanley..

And a lot of great clarity in the prepared remarks. Nikesh, I wanted to talk a little bit about supply chain security and Cider. I think a few months ago, there was an executive order from the Biden administration around securing software supply chains. I know it's early days in the acquisition, the acquisition is not even dry yet, but -- what do you feel about sort of the pipeline, the opportunity the Palo Alto Networks being now the largest cybersecurity vendor for the U.S. federal government? What are you seeing there? And is there interest already from that front?

Let me comment, and then I'm going to let our birthday boy, Lee Klarich speak to this, because we've got to give him work to do. It's his birthday and came to work. As you know, Prisma Cloud continues to go from strength-to-strength. We see very large deals in the hopper in our pipeline, and we're beginning to see more and more seriousness on cloud security from our customers. I highlighted a customer which has 4 public clouds deployed. They can't do that. They can't secure it with for different native cloud CSP platform security. So we are seeing more interest. We are seeing more engagement. As I've always maintained, I don't believe all the cloud security products have been created. And as you start to see the customers move. So we saw the shift left movement. We went ahead, did Bridgecrew. It's fully integrated. We've seen 65% of our customers begin to use that. As we're talking to them, we're realizing they have some legacy, some new apps tech vendors in place, which they're deploying and they're trying to use that to take care of supply chain security. Some of that is older architectures, older ways of doing things. But we decided we want to do it differently. If I answer the question, Lee, everything say, Lee, answer the rest of those question.

Thank you, Nikesh. Good question, Hamza. So let me make 1 thing very clear. It's not just a U.S. federal government challenge. Anyone who is developing and deploying applications into public cloud, which today is basically everybody has a supply chain risk that they're dealing with. That supply chain risk can come in the form of software, in the form of open source software that they're building into their applications, which brings a certain type of supply chain risk. And the second type is through all of the tools and applications that they need to use in order to actually build an application. And we've seen that this can easily be hundreds of different third-party tools that they incorporate into the development process that have access to their source code. That is the second form of supply chain risk and sometimes referred to as CICD pipeline risk, and that is a key component of what cider will add to the broader capabilities we have with Prisma Cloud.

That is not good to be on mute. Okay, Brad Zelnick with Deutsche Bank with Andy to follow.

Congrats on the strong execution. Nikesh, I wanted to circle back on your comments about the using supply chain and expectations for hardware growth to be above long-term trend this year. I believe you said low double digit. Just making sure the uptick is solely your view on supply. And just relatedly, when we look at product gross margin, it still seems to be under pressure. Can you help us just reconcile how much of this is mix versus COGS and any other factors to appreciate and what to expect the hardware gross margin?

First of all, Brad remind me to send you a painting for your office, it looks a bit sparse. But that notwithstanding, but I've always maintained the underlying hardware growth in the industry is about 5% to 8%. And I'm not deviated. We've seen changed behavior, people have tried to order ahead because of supply chain constraints. You've seen pricing impacts to drive some of the growth. But I think the underlying growth continues to be the same. What has happened in the last, I'd say, 4 to 6 months, slowly and steadily, we are seeing easing of some elements of supply chain. There are some components that become easier to get. As you've seen some semiconductor companies are talking about cutting supply or cutting production in memory and NAND and DRAM. So you're already going to see easing in various certain amount of components, which is allowing us to ship product faster. At the same time, some, I'd say, real and perhaps some artificial supply chain constraints are being maintained in the industry. I expect them to ease over time, which should also ease up somewhat pressure on gross margin. The gross margin impact is purely us having great expedite fees for certain parts. It's really not an underlying component cost issue. So we think those will ease over the next it really depends on suppliers. I think the supply chain easing is happening as we speak, and we should be out of it in the 6 to 9 month time frame at the far end 12. It all depends on when the suppliers stop extracting more from us to try and get us those parts.

Next is Andy Nowinski of Wells Fargo.

Congrats on a great quarter. One of the key metrics that stood out to us, I guess, was the next-gen ARR growth, particularly your net new ARR growth. And I think you mentioned you saw strength across all I was just wondering if you could put a finer point on that and maybe a lot of now the largest component of next-gen security and whether that big deal was included in that ARR this quarter?

So go ahead, Dipak.

Yes. So I would say, look, we feel very good about all the elements of our NGS ARR. Like just to repeat, we've got SASE, we've got Cortex. We've got cloud and we have some of the new cloud live services. The majority of the growth continues to be the SASE cloud Cortex side of the house. So I think all of that is good. There are portions of deals we don't comment on deals like specifically, but if they have the appropriate products, then we contribute the appropriate amount of ARR on them.

Yes, to your direct question, yes, the expanse deal is in the net new ARR that you've seen.

Next up is Phil Winslow of Credit Suisse, with the Tal Liani to follow.

Congrats on another phenomenal quarter. I wanted to focus in on Prisma SASE and Prisma Access. You gave some interesting stats there in terms of penetration into your existing firewall base. But also wins in the cloud for -- with customers that are not current on-premise firewall customers of yours. When you look at the momentum you're seeing, are you getting better at penetrating that existing base? And are customers starting to understand the value of on-premise off-premise 1 policy? Or are you seeing more momentum even in, call it, displacing competing vendors in the cloud now?

So Phil, first of all, thanks for the compliment. Thanks for the great question. As [indiscernible] asked, and I think I've maintained that I have seen, again more activity this past quarter in C-level executives, some our customers engaging on consolidation plays or getting cloud transformation plays going? And what is interesting is not only our customers are beginning to see increased engagement with GSIs, so global system integrators. So the system integrators are being brought in to try and keep costs down and create a transformation. So I'm not going to name any one of them, but I'd say more engagement gains across the board with the SI community as well as our direct customers. In terms of your question, are we seeing engagement from existing customers and net new customers is both there are existing customers who are stepping up and they are on a path to do their transformations, whether they're adopting the cloud. The big highs, Phil, we used to be a firewall company. these to sell firewalls. I got a very secret for you. CIOs and CSOs doing bare walls. Network architects do and they live in 1 corner of the enterprise. CIOs and CISOs do transformation projects. They'll do cloud transformations, they'll do network transformation, they will do soft transformations. And to be honest, we never had a portfolio until about 2.5 years would actually had those conversations. So what's beginning to happen is we are really building a new muscle as a company, where we are able to engage with CIOs and CSOs. So you've got Amit flying in one direction, [indiscernible] from Europe flying in the other direction. We got PJ Jenkins flying in the third direction, and we let Lee out as well once in a while. So across all of these people, we're having a lot more engagement across customers. And these are long-term plays, but the good news is we show you that a few of these always land in the quarter, so we get a large 8-figure deals in a quarter. These are a consequence of these large transformation conversations would take between 3 to 10 months to germinate into real big deals. So I think the activity is still high. As I said on the margin, there's scrutiny because people are saying, wait, this is a big deal, can we parse it out and adapt it to our budget. But we're not seeing a reduction in conversation or activity.

Next is Fatima Boolani from Citigroup, with Mike Turits next.

Happy birthday, Lee. My gift to you is I won't be asking you a question. Nikesh and Dipak for you, is a commentary on the payment concessions and flexibility in light of a more challenged macro. I want to get a better sense of how pervasive these conversations have been for you in the installed base and maybe more directly what are some of the impacts debut at maybe you're seeing from a deferred revenue mix standpoint and how we should think about invoicing duration and billings duration when we think about our cash flow trajectory in the context of some of those comments.

So Fatima, let me give you context. I want to make sure I'm clear. So far, these are on the margin, okay? This is not mainstream. We do expect the activity to get more in that direction because you can see the Fed continuing to be on this mission to go steam growth, and we expect that's going to cause more customers to pay attention. But let's not -- now as I said in my remarks, there are some industries which are making money hand over fist, talk to oil and gas. They've never made so much money. So the public sector continues to spend with all the geopolitical issues that are out there. And financials, they're making more money, believe it or not. They're fine. So there are certain segments of the market where these conversations are happening. It's not across the board. We don't expect. I think 50% market is not feeling any pain with the interest rate increases. So take that aside, we take the rest of it -- some of our budgets in place. They have transformation plans in place. So on the margin, yes, those conversations will increase. As you know, in anticipation of this, we built PANFS, we have a very good motion around providing financing. We're sitting at $5.9 billion of cash. So we are able to finance our customers if they so need to be able to facilitate their transformation project. So the conversation happens between us or our third-party vendors, they're able to go make this happen. I don't know, Dipak, if you want to comment on the deferred billing and deferred revenue comment.

I would say, Fatima, I think Nikesh explained it excellently. And I would just say everything is included in our guidance, like in terms of what we think.

Couple of the flip side, as we've said, we have $5.9 billion in cash. Our entire interest income last year was $19 million. I think our Q1 interest income was twice that. So there's the flip side of that.

Okay. Next is Michael Turits of KeyBanc and followed by Jonathan Ho.

Congrats on solid quarter in a tough environment. Last quarter, Nikesh, I believe that when you talked about your billings guide, you also commented that you could achieve that billings guide with no reduction in product backlog. Is that -- maybe you could talk a little bit, if you could, about backlog in any way to the extent you can in terms of what happened with it this quarter, up, down, flat? And whether you still assume backlog, product backlog, I think, is what you said, flat into the end of the year in order to make the numbers that you've got.

Michael, we don't comment on backlog. As I have said and as Dipak has said, because of supply chain constraints having eased a bit, we have been able to ship product to our customers much faster, which has a positive impact on attached services that we're able to ship them. But remember, our billings grew at 27%. And as we've said in the past, backlog in the overall scheme of things is not as substantial as you might think.

Okay. So no change to that comment from last quarter about holding backlog to make the billings number?

No. We don't hold backlog to make billings numbers. We try and ship our products to our customers as soon as we can to ensure that they get their products as quickly as they would like. And we report the quarter based on what we've been able to ship.

Next to Jonathan Ho, William Blair, with Roger Boyd to follow.

Great. Let me echo my congratulations as well. And happy birthday, Lee. Can you talk a little bit about the XSIAM traction that you're seeing? And maybe help us understand what this means from an upsell potential standpoint when customers start to move in this direction?

Jonathan, that's a great question, because I'll tell you what, I was positively surprised by the reaction of customers wanting to engage in an XSIAM conversation, both directly, as well as many of the system integration partners who are there. So clearly, there seems to be a pent-up desire to reimagine their so. People are relying on old data ingestion platforms. People are lying on old alert-based optimization and prioritization things. And they all understand that it's physically and humanly impossible to intercept cyber threats by doing it manually. And that seems to be a common realization. Yet, none of them actually had a solution base presented to them for a long period of time. So what we thought we were doing design partners, we signed up 8,9 design partners. Guess what? In 3 months, all of them say, we don't want to be a design partner, we'd like to start using the product on a commercial basis. So we accelerated our general availability of the product because we had to make sure it's available for those 9 customers, and all of them turn to customers. Now our sales teams are trying -- are aggressively trying to go out there and pitch it, and we actually have to maintain a wait list to make sure we won't need implementation resources to be able to implement. This is a lift. You're ripping out a data ingestion lake, you're ripping out their existing SIM, yet they have to keep running their SoC in a way that we can transform that. So we're working with GSIs. We're working with third-party partners for them to build the capabilities so you can get this done with a variety of customers. I've said this before and I still maintain this. Four years ago, when we embarked on this journey, we decided we're going to build a cloud security business, we're going to build a Cortex business, we're going to build a SASE business. As I said, all 3 businesses are on track to be $1 billion businesses. I think XSIAM has a similar potential in a similar time frame to be our fourth business that's going to be in the same category.

Is Roger Boyd of UBS, with John Deputy to follow.

Congrats on the nice results. Nikesh, you had talked last quarter about extending Prisma Access, Prisma SASE to the entire sales force and really becoming a SASE-first sales organization. I'm just wondering, relative to your expectations, any comments you can provide on what you're seeing from a sales productivity efficiency standpoint?

Well, we said that, and we are in the midst of that transition, we have trained all of our salespeople to become SASE first. We have hired a bunch of people from SASE competitors to lead some of these areas for us. So we continue that field force transformation. At the same time, and as I said, we've hired 550 direct salespeople in the first quarter because we want to increase the coverage. At the same time, we've been able to do that without having to create a specialist sales force on top of that. So you can see, we also said in our prepared remarks, we are accelerating our path to more profitability because we believe we are going to get those efficiencies we anticipated by making a SASE-first field force. But also doing some other things to drive more and more efficiency across the organization, not just in sales. So we feel pretty comfortable that not only will we get sales productivity, but we also believe we'll get overall productivity in the organization so we can accelerate our operating margin aspirations ahead of our 3-year plan, we'd shared about near than a quarter ago.

Next, John DiFucci from Guggenheim with Josh Tilton to follow.

So really strong NGS ARR quarter, guys. My question is more on the product line. We heard just in [indiscernible] into the quarter of any product refresh that might be happening perhaps is getting extended. And perhaps, and I think it sounds like maybe because of the macro backdrop, some of the stuff you talked about, Nikesh. I guess, first of all, is this accurate? And if so, should we be thinking about perhaps a little like in this quarter, a little bit lower product growth than we saw over the last several quarters, but decent product growth, nevertheless, for perhaps a longer period of time?

I am trying to interpret your question.

Okay. So I'm talking about the -- what I think is a product refresh and then...

I'm going to let Lee answer it. I promise we got more than 1 question.

So John, one of the things I've said in the past in talking about product refresh, as it pertains to the new models that we release is these refreshes typically play out over a fairly long period of time. And so I would suggest like not looking at it as a singular quarter when you think about the trend and how this evolves. Most of our customers are large enterprise customers. They make long-term decisions. These decisions take place over 1, 2, 3-plus years of refinements. So these harder refreshers play out over cycles like that as opposed to on specific quarters.

Well, it actually affected the results the last time you did it in 2017 for about 2 years. And it looks like you're about a year into it. And I was just wondering if perhaps it could last longer than 2 years this time. That's really the question.

The only thing I am seeing this time - we've seen a lot of extraneous factors which have muted the outcomes for the industry, with the supply chain crisis, with the pandemic, with the Poland supply chain. Now with the Fed increasing interest rates, I'll tell you, one of the easiest decisions for our customers to make is to sweat their assets a little longer. Because it's not like these firewalls suddenly blow up at the end of life. They can be extended. So laces and I don't rather put the money in my cloud transformation and sweat the asset a little longer. So if you add all to the miss, that's why we went through this whole cybersecurity transformation of the company. We wanted to take away the impact of any 1 product line.

Next is Joshua Tilton of Wolfe Research, with Adam Borg to follow.

It's Patrick on for Josh. It's Patrick on for Josh. Over the last several second quarters, the sequential billings guides have been in the 9% to 10% range. But the guide for next quarter implies a 12% sequential growth. So how do we interpret that? Is it a little more aggressive than usual?

I think probably the way that I would -- I wouldn't interpret too much in it. But at the end of the day, we have pipeline. We have lots of large deals. It really depends on when deals come in. They can have a significant impact on your billings. And so we're just trying to be as transparent as we can in terms of the information that we have on hand. There's no magical math behind the guide.

Next is Adam Borg of Stifel, with Rob [ph] to follow.

I really appreciate it. Maybe just on a topic we haven't heard today on OT cybersecurity, that's an area that we're just picking up more in our checks is seeing some more focus. And I love to think about -- hear a little bit, Nikesh, how you're thinking about the opportunity and what [indiscernible] plays?

Yes, we've been very focused on making sure that we make IoT capability available as part of our integrated portfolio. So you don't have to put get 1 more sensor and get 1 more cybersecurity vendor. Surprisingly, the [indiscernible] can you talk about? We'll let Lee talk about it, yes.

Look, OT environments have long been secured by keeping them disconnected from everything else. And there's OT environments that are still running Windows 95, Windows NT, for those who have been around for a while. That obviously has significant risk. And so the way to control that is simply segmented and walled off from the rest of the world. But what's been happening over the last couple of years is OT networks are increasingly being digitized, specific parts of them are having to be connected to the cloud, which also means the OT and the IoT are starting to merge together a little bit more. And so as that happens, there's a greater interest in thinking about what the next generation of security for an OT environment looks like. And so this is where our ability to come in with a next-gen firewall infrastructure that can provide the segmentation where it's needed. But layer on top of that, the IoT OT security capabilities designed to secure that transformation is starting to pay dividends. I still think this is early days in transformation, but there definitely is a strong interest in these types of organizations. And as Nikesh mentioned earlier, many of these are oil and gas utilities and others that actually are seeing some of the benefits of some of the recent macro environments. And so that's also part of an opportunity to leverage and make investments now.

Next, we've got Rob Owens of Piper Sandler with Matt Hedberg to follow up. Go ahead, Rob.

Could you drill down a little bit in terms of Fed and what you saw in period, obviously calling out a couple of large deals. But if I rewind, the thought process was that Fed was going to get more linear and less budget flushed typical to the September quarter. So are you seeing those trends play out? Or was this more a budget flush type of quarter? And was it in line with your expectations?

No. It wasn't a budget flush quarter. We've been working the deal, which we announced for a very long time, as you can imagine. Those size deals don't happen overnight. It just happened to converge at the right time for us from a timing perspective. But we're beginning to see the Fed activity get stronger because we're at that point in time with this administration where they've gotten their stuff together across the various agencies, and they've actually started executing against the strategy. So we think, yes, the Fed spend will continue to stay strong and we continue to get linear as time passes, as we get through the rest of this administration's term. It's always dicey in the first year or first 1.5 years because it's a whole new set of characters, especially if you change institutions where they're still trying to figure out what they want to endorse and what they don't want to. So I think things are more stable and things are going to continue to stay strong in that space.

Next is Matt Hedberg from RBC, with Paula.

Congrats from me as well on the quarter. Dipak, a question for you. Obviously, your pricing U.S. dollars -- but I'm wondering, in international markets, obviously, there's been a huge currency movement. I know historically, partners would absorb a lot of that price movement. I'm just sort of curious how that's happening in some of these customer conversation where the dollar is appreciated pretty materially.

Yes. So I think, look, there's always going to be the isolated instances where it comes up in discussion. But for the most part, our sales reps will try to manage that through different tools that they have available to them and then that's pretty much it.

I think, Matt, that's a fair question in addition to what Dipak said. There have customers who come back and said, look, the currency has moved a lot. Our price has gone up in the last 2 weeks and what can we do about it? In that case, it becomes a conversation. In some cases, we had to adjust prices. But at the same time, like you said, some of them get absorbed by the channel, some of them will get absorbed by the customer, some get absorbed by us.

Our last question for the evening will be from Gray Powell of BTIG.

Congratulations on the strong results. So yes, the NGS ARR really stood out to me. Within that, can you just sort of -- can you remind us on the economics of settling SASE to that of the traditional firewall? Is there any sort of like 1-year trade-off? Or just like how should we think about that playing out as SASE becomes a bigger piece of the mix?

I think it's kind of interesting, all of our SASE deals, I think like-for-like are much larger than our firewalls deals even with the same customer. And they can range from 2x to 3x, and sometimes even up to 5x, depending on the comprehensiveness of the requirement and the customers' desire to deploy. So we have lots and lots of 8-figure deals out there that are being competed for in the SASE space. And I think there's 2 vendors fighting for those deals. We were not a player, as you know, 2.5 years ago in that space. Now we're almost in every one of the large deals out there head-to-head. So either the deal gets won or lost, but we're in every one of them, and they're typically large sizes. And the economics are better than the security posture is better for the customer, because imagine, if I sell 500 firewalls, it takes customers a serious amount of time to go deploy them, and every time I give a software upgrade to customers to go drive a truck and upgrade all those firewalls because they want to sandbox the upgrade, which leaves them exposed from a security perspective. And SASE, I can -- I actually -- we actually do the upgrades, and we can get the entire customer base upgrade in this matter two weeks. In some cases, we just announced [indiscernible] 11.0, and we still have a lot of customers who have not upgraded to 10.2, right? So this does improve the security posture, improves the total cost of ownership. And that shows up in a larger deal size because we're shifting costs from the customer to having to be software managed by us and our partners. So look, the economics of SASE are phenomenal from a deal size perspective as well as from -- they're pretty consistent from a margin perspective. So I think there's still, as I've said in the past, is an $8 billion to $10 billion SASE market out there, and that space is growing in double digits as an opportunity.

All right. And with that, we'll conclude the Q&A portion of our call, and I'll turn it back over to Nikesh for his closing remarks.

Thank you, Clay. Thank you, everyone, again, for joining us. We look forward to seeing many of you at upcoming investor events. I also want to thank our customers, partners and employees around the world for helping us deliver these great results in such a tough environment. With that, have a great day.