“We expect our non-GAAP tax rate to remain at 22% for Q2 and fiscal '23, subject to the outcome of future tax legislation.”

In context

“Dipak Golechha (CFO): 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 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. Thus, as we proceed through this environment, it is sharpening 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 income was $20 million or $0.07 per basic share and $0.06 per diluted share. Now turning to the balance sheet and cash flow statement. Our balance sheet is strong, closing Q1 with the highest cash and investable balance ever with cash equivalents and investments of $5.9 billion. We have ample flexibility to repay debt coming due, invest in the business, do tuck-in acquisitions, and return capital to shareholders. We're in the enviable position to be able to do all of these at the same time. Q1 cash flow from operations was $1.24 billion. We generated more than $1 billion in free cash flow for the first time in our history, with total free cash flow of $1.2 billion this quarter. This puts us well on track to hit our annual guidance, which we are raising today. This cash flow performance was largely driven by strong collections in the quarter that we expected based on the strength of our business in Q4. During Q1, we did not repurchase any of our shares. As a reminder, our share repurchase program is opportunistic, and we're committed to this method of returning cash to shareholders over the medium term. As Nikesh discussed on the M&A front, we entered into a definitive agreement to purchase Cider Security for approximately $195 million in cash, excluding the value of replacement equity awards, subject to adjustments. We expect this deal to close in the fiscal second quarter. We expect the financial impact of the transaction to be immaterial to our fiscal '23 guidance. Stock-based compensation ticked up slightly as a percentage of revenue quarter-over-quarter as expected with the issuance of a portion of our fiscal year '23 grants. On a year-over-year basis, we continue to manage our down as a percent of revenue, in line with our long-term plans. As we've had a number of questions about the impact of foreign exchange volatility on our business, I wanted to remind investors that we price our products in dollars around the world and therefore not exposed to the direct translation impact to revenue that you may be hearing about from other companies. Now moving on to our guidance for Q2 and for the year. For the second fiscal quarter of 2023, we expect billings to be in the range of $1.94 billion to $1.99 billion, an increase of 21% to 24%. We expect revenue to be in the range of $1.63 billion to $1.66 billion, an increase of 24% to 26%. We expect non-GAAP EPS to be in the range of $0.76 to $0.78, an increase of 31% to 35%. For the fiscal year, we expect billings to be in the range of $8.95 billion to $9.1 billion, an increase of 20% to 22%. We expect NGS ARR to be in the range of $2.65 billion to $2.7 billion, an increase of 40% to 43%. We expect revenue to be in the range of $6.85 billion to $6.91 billion, an increase of 25% to 26%. We expect product revenue growth in the range of 10%, up slightly, as Nikesh outlined in his remarks. We expect fiscal '23 operating margins to be in the range of 19.5% to 20%, up 50 basis points versus the range we outlined coming into the year. We expect non-GAAP EPS to be in the range of $3.37 to $3.40, an increase of 34% to 37%. We expect adjusted free cash flow margin to be 34.5% to 35.5%, and we continue to expect to be GAAP profitable for fiscal year 2023. Additionally, please consider the following modeling points. We expect our non-GAAP tax rate to remain at 22% for Q2 and fiscal '23, subject to the outcome of future tax legislation. For Q2 '23, we expect net interest and other income of $18 million to $20 million. We expect Q2 '23 diluted shares outstanding of 320 million to 326 million shares. We expect fiscal year '23 diluted shares outstanding of $325 million to $331 million. We expect Q2 capital expenditures of $40 million to $45 million, and we expect fiscal year capital expenditures of $190 million to $200 million. As an additional modeling support based on our prior seasonality, we expect the quarter-over-quarter revenue and billings growth for Q3 '23 to be in line with last year. Also, we expect operating income in Q3 to be roughly flat with our Q2 levels. To wrap up, we are confident in our strategy and wouldn't trade our position with any other cybersecurity company. We're focused on sharp execution and sales intensity to stay ahead of the changing macroeconomic environment. At the same time, we're focused on taking steps to accelerate our profitability as I guided.”