Palo Alto Networks Inc at Goldman Sachs Communacopia + Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : So I wanted to start on the platform question, which I know you get in essentially every buyside chat that you do. So I thought I would ask it in a specific way, which is why do you think Palo Alto has been successful with its platform approach when many other security companies have tried and failed?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. Yes, that makes sense. The other trend that you've discussed in terms of which markets you choose to participate in? Is this idea of an inflection point. Inflection point that's happen in firewall as an end point. One for an inflection point in cloud because that's the greenfield opportunity... REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 13, 2022 / 6:30PM, PANW.OQ - Palo Alto Networks Inc at Goldman Sachs Communacopia + Technology Conference

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Well, let me ask you specifically about the SIM.

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : The SIM market.

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Helpful context. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 13, 2022 / 6:30PM, PANW.OQ - Palo Alto Networks Inc at Goldman Sachs Communacopia + Technology Conference

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : There's a concept embedded in your comments on technology potentially taking share from human capital in the SOC. Is there a scenario where your innovation in SIM also solves the human capital problem in security because of the data approach that you're taking?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : The segments of the security market that you choose not to compete in today because there isn't an inflection point. Do you see a scenario or are there other end markets adjacent to you that you think are likely to also inflect so that your platform becomes broader over the long term?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : While we're on the topic of innovation. What do you think is the next big technical challenge that you'd like to focus on internally at your company, either based on feedback you're getting from R&D or feedback from the customers, what do you think is the next big technical hurdle that you would like to be solving?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : I have an AI-specific question for you, which is based on your comment from last week at an investor conference. The GCP AI tools that you're embedding within Palo Alto Networks and some of the value that you're able to extract, would love to hear more what are you doing with GCP on AI?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : And I have 1 or 2 more questions on the concept of innovation. So this idea of being able to out innovate and maintain a barrier to entry versus other companies that may also try to take advantage of inflection point. So first part of the question -- there are so many private companies and securities. When you meet with private company found as CEOs, how do you establish whether they have something real or whether it's style over substance?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : It leads into a more specific question on R&D priorities, which is talk to us about some of your philosophy on having your R&D organization be as nimble as it is. You've already touched upon getting the founding teams to stay and integrating the product into your organization. Other things that are top of mind when you're thinking about investing in R&D and the structure of your R&D division?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : (inaudible)

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Last point on the topic of innovation, which is there's this maturing security where budgets are up into the right, and companies believe they've underinvested budget has to go up. At the same time, many of the innovations that you're delivering actually drive ROI. And -- so the question for you is, do you think security as an industry is inherently inflationary or deflationary because if companies do it right, they can actually flatline or moderate the pace of increase in security budgets in any year on year?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : The retail color is very helpful. Based on your customer conversations, are there other industries, perhaps industrial and manufacturing, where you feel that there is a catalyst path perhaps to essentially take securities funding a step function?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : I'm not going to ask you about a (inaudible) but I would like to ask you...

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Over the next fiscal year because you are one of the first companies to provide an outlook that goes into the next 12 months. And so as you worked with your finance leadership team, how did you think about some of the factors that could be less predictable over the next year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 13, 2022 / 6:30PM, PANW.OQ - Palo Alto Networks Inc at Goldman Sachs Communacopia + Technology Conference

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : It's a nice transition to the factors that you can control, such as with your go-to-market. And so you alluded that to spending more of your time on scaling the go-to-market versus product over the last 4.5 years. Top 1 to 3 priorities for your sales force this fiscal year? .

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Maybe on that topic specifically, what can you affect with your sales force to be able to move customers from the campus, more fragmented point products to growing all in and Palo Alto. The customers that do spend upwards of $1 million, $5 million, $10 million. What do they have in common? And how do you get more customers are?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Conversations that you're having at the highest out of the organization. To what extent is it also important for you to have virality and marketing efforts that target security uses, security practitioners. And then the last piece of that question is, where did develop this fit in? And how do you think about appealing to developing?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : The mix of dynamic and your point on the hardware coming well, it's a smaller piece of the business mix today. To what extent do you view hardware is still 1 of the foundational building blocks of the security architecture? Or are we at the point where Cloud World, hardware is an afterthought or doesn't need to be a foundational building block?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. No, that makes sense. I'd like to end with a couple of questions on the financial model. Specifically, you've talked about how there have been ongoing supply chain issues that have impacted the margin this year, talked about pace of hiring. How do we think about margin progression over the course of the next 12 months? And then longer term, how do you benchmark your uniquely growing at scale. You've talked about the leadership in 11 different product categories, potential for that to even extend? How do you think about long-term volumes?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : When you benchmark your sales and marketing efficiency, do you benchmark to best-in-class security? Or do you benchmark to best-in-class enterprise software in tech?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Last question on the capital structure. How are you thinking about the right balance of debt versus equity? You have convertible debt coming to especially now that the biggest pot of the lift on M&A, it sounds like you're entering a new phase of maturity. A little more color then.

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Thank you so much for your time. We really appreciate you sharing some of these insights with us.