“We continue to expect operating margins to be in the range of 18.5% to 19%.”

In context

“Dipak Golechha (CFO): Thank you, Nikesh and good afternoon, everyone. We again delivered results ahead of our guidance across all metrics as we continue to transform our business. Top line growth remains strong in Q2 with balanced strength across our portfolio, including product and especially in our next-generation security offerings. Supported by the strength in our differentiated offerings we're raising our full year guidance. For Q2, revenue of $1.32 billion grew 30% and was above the high end of our guidance range. Product grew 21% and total services grew by 32%. We saw strong growth in all geographies and across all platforms. By geography, the Americas grew 33%, EMEA was up 22% and JPAC grew 23%. NGS ARR finished the quarter at $1.43 billion supported by broad strength across each of our platforms. Prisma Access ARR more than doubled year-on-year and we continue to see especially strong growth from XDR and Prisma Cloud. This demonstrates that our portfolio approach to driving growth in our high-growth markets is working and what gives us confidence to raise our guidance here, which I will talk more about shortly. In the second quarter of 2022, we delivered total billings of $1.61 billion, up 32% and also above the high end of our guidance range. Total deferred revenue in Q2 was $5.4 billion, an increase of 31%. As a reminder, billings as total revenue plus the change in total deferred revenue net of acquired deferred revenue. Our NGS billings grew 79% year-over-year. Going forward, we encourage investors to focus on our NGS ARR metric as we view this measure as being more indicative of the underlying drivers of this business. We will not be updating NGS billings in the future. Remaining performance obligation or RPO was $6.3 billion, increasing 36% with current RPO growing largely in line with total RPO. As mentioned previously we believe RPO adds meaningful insight into our future revenue, as it includes both prepaid and contractual commitments from customers. The strength of our RPO growth gives us confidence in our future quarters as it effectively provides us a head start from a revenue perspective. Our product growth was 21% in Q2 and above what we have seen historically, reflecting strong customer demand for our appliance and software offerings. Within our firewall as a platform business, we saw billing growth of 26% in line with the growth we have seen over the last year as customers purchased hardware, software, and SASE form factors. Within FWaaP, our software mix increased five points to 40%. Last quarter we raised our fiscal year 2022 outlook for product revenue growth to mid-teens. We're raising this outlook to high teams as we continue to balance the forces of very strong customer demand and supply chain constraints. Turning to the details of our results, product revenue was $308 million growing 21%. Subscription revenue was $618 million, increased 34%. Support revenue of $391 million increased 30% and in total subscription support revenue of $1.01 billion increased 32% and counted for 77% of our total revenue. Non-GAAP gross margin of 74% was down 130 basis points in part due to the ongoing costs associated with the supply chain. Our production teams have done an outstanding job in fulfilling the growing demand and keeping the priority focused on enabling shipments to customers. We will continue that posture moving forward. Non-GAP operating margin of 18.4% was again up sequentially and down at year-over-year as expected with higher product and support costs impacting the year-over-year track. Non-GAAP net income for the second quarter grew 20% to $185 million or $1.74 per diluted share. Our non-GAAP effective tax rate was 22%, our GAAP net loss was $94 million or $0.95 per basic and diluted share. Turning now to the balance sheet and cash flow statement. We finished January with cash equivalents and investments of $4.2 billion. Days sales outstanding was 60 days unchanged from a year ago. Cash flow from operations was $483 million; we generated adjusted free cash of $441 million, a margin of 33.5%. In Q2 we again balanced multiple financial priorities with strength in both top line, underlying non-GAAP profitability and in cash conversion. We believe it is important to hold ourselves to this discipline even when growth is robust in order to drive a best-in-class financial model as we scale into a larger company. We continue to execute on our capital allocation priorities that outlined in our September Analyst Day. During Q2 we repurchased approximately 1 million share on the open market at an average price for approximately $534 per share for a total consideration of $550 million. We continue to expect a large part of our cash flow to be used for share purchase. We have approximately $450 million remaining on our authorization, for future share purchases expiring December 31st, 2022. On the M&A front we did not close any acquisitions in Q2. As we noted at Analyst Day, we continue to focus on managing down our stock-based compensation as a percentage of revenue. This quarter we reduced SBC by about two points year-over-year, as we apply our overall discipline to this process, whilst balancing the current market for cyber-ready talent. We look forward to continuing this trend. Similarly, we talked about an aspiration for achieving the rule of 60 combining revenue growth and adjusted free cash margin. You will see that with the revised midpoint of our fiscal year guidance, we are now expecting to achieve this once aspirational goal. Lastly, moving to guidance and modeling points. As Nikesh highlighted, we continue to see very balanced demand. This includes demand from our appliance form factors that outstrip our ability to fulfill them in the short term, as well as strengthen our next-generation security portfolio. Our Q3 guidance takes into account the strong demand picture as well as the best information we have today on supply chain and other factors. Turning to our guidance for the third quarter of fiscal 2022, we expect billings to be in the range of $1.59 to $1.61 billion, an increase of 24% to 25%. We expect revenue to be in the range of $1.345 billion to $1.365 billion, an increase of 25% to 27%. Non-GAAP EPS is expected to be in the range of a $1.65 to $1.68 based on a weighted average diluted count of approximately 106 million to 108 million shares. For fiscal year 2022 we expect billings to be in the range of $6.8 billion to $6.85 billion, an increase of 25% to 26%. We expect revenue to be in the range of $5.425 to $5.475 billion, an increase of 27% to 29%. We expect NGS ARR to be $1.725 billion to $1.775 billion, an increase of 46% to 50%. We expect product revenue to grow in the high teens with the seasonality weighted to Q4 as we have seen in prior years. We continue to expect operating margins to be in the range of 18.5% to 19%. Non-GAAP EPS is expected to be in the range of $7.23 to $7.3 based on a weighted average diluted count of approximately 106 million to 108 million shares. Adjusted free cash flow margin is expected to be in the range of 32% to 33%. Additionally, please consider the following additional modeling points. We expect our non-GAAP tax rate to remain at 22% for Q3 2022 and fiscal year 2022, subject to the outcome of future tax legislation. We expect net interest and other expenses of $5 million to $6 million per quarter. For Q3, we expect capital expenditures of $40 million to $45 million. For fiscal year 2022, we expect capital expenditures of $185 million to $195 million, which includes $39 million outlaid in Q2 related to our Santa Clara headquarters. With that, I will turn the call back over to Clay for the Q&A portion of the call. Thank you.”