00:00Nikesh, I think we get right into the numbers, right? The situation is full year EPS guidance come down. Revenue
00:06is beaten. And so I'm trying to understand the environment that you're in. What is it that's weighing on profitability
00:12for the balance of this year?
00:15Well, first of all, nice to see you, Ed, and thank you for having me on. I think the market
00:19is not paying attention to our numbers carefully. We just completed our largest acquisition in CyberArk.
00:24We had a great quarter. Our numbers are across every known consensus metric. The market is not understanding that our
00:32guidance for the next two quarters includes CyberArk.
00:35If you take the consensus of CyberArk and ours, you're actually getting above the collective consensus. But the market hasn't
00:40understood the dilution of shares. So I think they have it wrong.
00:44Our guides are actually above consensus across the board. These are the post-market bots which haven't figured this out.
00:54I always enjoy you joining us on the network. You're always honest. You're always very specific about M&A, right?
01:01The math that people are doing is the guide for next-gen ARR growth is 53% to 54%, CyberArk,
01:08Chronosphere.
01:09But that would suggest that organically growth is near to sort of 20%. Can you see the math that they're
01:16doing?
01:17Yes, I see the math. But I think if they listen carefully, CyberArk computes ARR differently from us.
01:23So we've had to strip out a few hundred million dollars of CyberArk ARR. Hence, if you take that out
01:29and add it back, we're actually doing better collectively than we were guided.
01:32This will clarify by tomorrow morning as the market opens.
01:35But I think the market hasn't understood the comments our CFL made around the fact that our computation of ARR
01:42is different.
01:43It's more conservative than CyberArk. CyberArk is more aggressive than ours.
01:47If you turn their ARR down to the way we compute it, actually collectively our ARR guidance is in excess
01:54of what we previously guided organically individually.
01:59On the call, you mentioned a nine-figure Chronosphere deal. You didn't name the customer. Somebody from the sales side
02:08asked you about the deal. They didn't ask you to name the customer. Who's the customer, Nakesh?
02:14It's a popular LLM out there. I think more importantly, what is there to understand is that Chronosphere is a
02:19net-news startup.
02:20They came up with a new way of doing observability, which is much more cost-effective, much more efficient, and
02:26can scale to the volume that LLMs are putting out there.
02:29That's the reason we bought the company. The fact that 250 engineers can build something so amazing that provides a
02:35leapfrog opportunity against current players in observability, that's what we bought them for.
02:41They have been under test for many months with this LLM. They have fully been accepted across the platform.
02:47They will be replacing an incumbent vendor, and as that continues to grow, we expect to see continued growth of
02:53ARR for that one customer.
02:54But additionally, obviously, Chronosphere is talking to a whole bunch of net-new customers who are looking for either get
03:00-off their do-it-yourself observability platforms
03:03or replace expensive observability platforms that they have subscribed to in the past.
03:08Nakesh, observability is so core to what is happening in Agentic right now.
03:13If we move on the assumption that the customer is one of the key frontier labs, would you just talk
03:20a little bit about why they came to you for security rather than do security themselves?
03:25I know that might sound like a silly question, but actually, a lot of the frontier labs have teams, right?
03:31They're looking at this issue themselves.
03:33They see value clearly in what Palo Alto Networks is offering.
03:38Well, remember, observability is beyond the model, right?
03:41The model, LLM people are focused on making sure their model is amazing.
03:45It does all the things that you expect it to do.
03:46But observability is to look at it from an end-to-end perspective to see how do they make sure
03:51that the customers of theirs who are using these things
03:53and the usage continues to double almost every quarter, how do they make sure that all their systems are low
03:59latency, are working perfectly,
04:00and there's nothing in the entire end-to-end delivery chain that is underperforming.
04:05So that's what observability does.
04:06The reason they're coming to us is because they're busy building the best models, applying their AI research to the
04:11models.
04:12We're busy with Chronosphere making sure that the end-to-end proposition works and there is very low latency.
04:17By the way, this is true for not just LLM.
04:20This is true for every consumer app that is out there.
04:23Whether you take Uber or DoorDash or YouTube, every one of these has to have an underpinning observability platform
04:30to make sure that it's fully available 99.99% of the time because every minute it is not working
04:37at the capability
04:38and the latency that is required is lost revenue.
04:42Nikesh, very quickly, you acquired Koi.
04:45The idea is greater visibility into AI threats, but just succinctly, what problem did that solve for you on the
04:51team?
04:51What are you getting?
04:52Yeah, look, I think if you look at the adoption of AI at the enterprise end,
04:57you were seeing a tremendous amount of adoption of Vibe coding.
05:00People are using Cloud Code, Cursor, Codex, and many, many open source coding platforms.
05:05As they use it, all that action is happening at the endpoint, at the developer laptop.
05:10And that's where, that's an uncovered area of security.
05:13You have to protect that laptop, that endpoint of the developer to ensure that you can deliver code safely and
05:19securely.
05:20Koi saw the opportunity an year and a half ago.
05:22They built the capability, they have some hot people that are adopting them across the board.
05:27Anyone who's trying to use Vibe coding, anybody who's trying to get onto the recording bandwagon and find efficiencies,
05:33needs that security at the endpoint.
05:35This is different than other endpoint security, both us and other players in the industry sell, called ADR.
05:40This is very specific to endpoint security for agentic capability.
05:44That's what Koi does, so that's the reason we acquired Koi.
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