“In fiscal year '23, we expect operating margins to be in the range of 23% to 23.25%.”

In context

“Dipak Golechha (CFO): Thank you, Nikesh, and good afternoon, everyone. For Q3, revenue was $1.72 billion and grew 24%. Product revenue grew 10%, total service revenue grew 29% with subscription revenue of $838 million, growing 31% and support revenue of $495 million, growing 25%. Moving on to geographies, we saw revenue growth across all theaters with the Americas growing 24%, EMEA up 23%, and JPAC growing 24%. The strength of our next-generation security capabilities continues to drive our results. With NGS ARR of $2.6 billion growing 60%. We saw strength across all three platforms: network security, cloud security, and security operations. We delivered total billings of $2.26 billion, up 26% and above the high end of our guidance range. Total deferred revenue in Q3 was $8.1 billion, an increase of 38%. Remaining performance obligation or RPO was $9.2 billion, increasing 35% with current RPO just under half of our RPO. Our non-GAAP earnings per share was significantly ahead of our guidance, growing 83% year-over-year. We again delivered strong cash flow in Q3 with trailing 12-month adjusted free cash flow of $2.8 billion, growing 68% year-over-year. Moving on to the rest of the financial highlights. Non-GAAP gross margin of 76.1% was up 320 basis points year-over-year, driven mainly by a higher software mix, reduced supply chain costs, and some efficiencies in customer support. Our non-GAAP operating margin of 23.6% increased 540 basis points year-over-year. In addition to improving gross margins, slower headcount additions contributed to our operating leverage. Based on our performance in Q3, we are raising our fiscal year '23 non-GAAP operating margin guidance. Non-GAAP net income for the third quarter grew 86% to $359 million or $1.10 per diluted share. Our non-GAAP effective tax rate was 22%. We again delivered GAAP profitability in Q3 with GAAP net income of $108 million or $0.31 per diluted share. Now turning to the balance sheet and cash flow statement. We ended Q3 with cash equivalents and investments of $6.7 billion. It is worth reminding investors that our 2023 convertible note will mature on July 1, 2023, and we expect to settle the principal obligation with cash on our balance sheet of $1.7 billion. The excess will be settled in shares. These shares have previously been accounted for in our non-GAAP diluted shares outstanding. Q3 cash flow from operations was $432 million with total adjusted free cash flow of $401 million this quarter. Stock-based compensation declined by 90 basis points as a percentage of revenue sequentially, and on a year-over-year basis, stock-based compensation was down 220 basis points as a percentage of revenue. As we look forward, we remain focused on profitable growth. At our Analyst Day in 2021, we outlined plans to drive 50 basis points to 100 basis points of margin expansion annually in fiscal year 2023 and fiscal year 2024. In the months leading up to this profitability commitment, we focused in-depth on optimally balancing investments in our business and opportunities to capture efficiencies and benefit from our growing scale. As a result, we came out of this effort with significant conviction in meaningful operating leverage. In fiscal '22, we started influencing these plans but faced supply chain challenges that unexpectedly drove higher costs. While the supply chain was uncertain as we entered fiscal year 2023, we also saw signs of the changing macroeconomic environment. As such, it was the right time to accelerate our efficiency plans. We focused our headcount additions in sales and R&D to fuel our medium-term growth prospects. Outside of these critical investment areas, we've leveraged our scale and employed technology to accommodate our growth in other business areas. Additionally, supply chain challenges have continued to abate at an increasing pace, helping to improve our gross margins. The result has been a significant acceleration in operating margin expansion through the first three quarters of fiscal year 2023 and also increases to our operating and free cash flow margin guidance throughout the year. As you see with our guidance for non-GAAP operating margin in fiscal year 2023, we were nearly 300 basis points ahead of the midpoint of our fiscal year 2024 range, that we implied back in 2021. We now see our fiscal year 2023 non-GAAP operating margins as a baseline to build on in the future. Moving on to guidance. For the fourth fiscal quarter 2023, we expect billings to be in the range of $3.15 billion to $3.20 billion, an increase of 17% to 19%. We expect revenue to be in the range of $1.937 billion to $1.967 billion, an increase of 25% to 27%. We expect non-GAAP EPS to be in the range of $126 to $130, an increase of 58% to 63%. For fiscal year 2023, we expect billings to be in the range of $9.18 billion to $9.23 billion, an increase of 23% to 24%. We expect NGS ARR to be in the range of $2.80 billion to $2.85 billion, an increase of 48% to 51%. We expect revenue to be in the range of $6.88 billion to $6.91 billion, an increase of 25% to 26%. We expect product revenue growth in the range of 15% to 16% in fiscal year '23 as we see supply chain challenges normalize as we exit fiscal year '22. In fiscal year '23, we expect operating margins to be in the range of 23% to 23.25%. We expect non-GAAP EPS to be in the range of $4.24 to $4.29, an increase of 69% to 70%. We expect our adjusted free cash flow margins to be 37.5% to 38.5%, and we expect to be GAAP profitable for fiscal year 2023, including in Q4. Additionally, please consider the following modeling points: We expect our non-GAAP tax rate to remain at 22% for Q4 '23 and fiscal year '23, subject to the outcome of future tax legislation. For Q4 '23, we expect net interest and other income of $50 million to $55 million. We expect Q4 diluted shares outstanding of $326 million to $332 million. We expect fiscal year diluted shares outstanding of $322 million to $324 million, and we expect Q4 capital expenditures of $35 million to $40 million. With that, I will turn the call back over to Walter for the Q&A portion of the call.”