Brad Zelnick: Great. Thanks so much. I wanted to ask another question from a go-to-market perspective, just extending on Fatima’s question. Nikesh, how do you align the channel to execute on this platformization strategy where for you to win, somebody else has to lose. And their economics are typically a function of present day billings not LTV. And then also just extending on that, you’ve talked about the SIs as a real strategic opportunity for you. Where do they fit into this platform — I got to practice the word platformization strategy. Thank you.
Nikesh Arora: I know it’s a new word. Only introduced five years ago when you didn’t believe us. But now we’ve got to worry about consolidation. Thank you, Brad. So when I start to make fun with you, I start forgetting your question. So look, the two, the SI, your channel question, so two parts of it. It’s a great question. First of all, channel does get compensated on TCV. So I think part of what we said is our deals are 40 times when they use all three platforms compared to a single platform deal. Our deals are north of 20 times than used two platforms, right? Our top 10 customers spent 36% more with us than everybody else. And that’s all a function of — as the deal size. As we do the platformization, the deal size is going to get bigger.
The channel gets paid on TCV. So channel has a lot of incentive to help us drive this platformization. I think you hit a very important point around SIs. We have been working really hard over the last six months with our SI partners to help activate and we’re actually trying to get in front of their engagements with customers as opposed to wait for their RFPs. We have very strong relationships with almost every SI out there. It’s been a concerted effort. We’ve just Kristy Friedrichs who is the CEO of New Relic to drive our partnership, she is the Chief Partnership Officer. So we are putting a lot of attention and focus on it. And we’re positively enthused about the traction we’re getting with the SI. To think about it, the SIs are new to this business over the last three to five years.
They used to have cybersecurity businesses, but they really doubled down and focused on it, you can take your favorite SI and they all have a very strong practice in cyber security. And they would much rather partner with one large player or a few large players in the entire gamma of 3,000 cybersecurity companies that are out there. So it fits their aspirations. It fits our aspirations are getting ahead of it. So they are a critical part of this platformization approach because these platform offers actually spin out a lot more services revenue than individual best-of-breed offers.
Brad Zelnick: Thank you.
Walter Pritchard: Great. Thanks. Next up is Matt Hedberg from RBC followed by Joe Gallo from Jefferies.
Matt Hedberg: Great. Thanks, Walter. I think one of the important points, Nikesh, you made is, despite all these changes, free cash flow margins are unchanged for fiscal ’24 and the midterm targets, I guess the question for Dipak, I just wanted to make sure I understood why that’s the case. It sounds like you said it was prior arrangements and optimizing vendor payments. First of all, did I get that right? And I guess, secondly, when we get into ’25, are there other variables that we think of that could potentially change that margin target or kind of confidence level that, that margin target can hold into next year?
Dipak Golechha: So whilst we’re not guiding to next year, we’re pretty confident in our free cash flow margin, as I said in my prepared remarks going forward. Just to be clear, the thing that buttresses our free cash flow margin the most is our operating margin. Okay? So we do expect that to continue to increase. And that’s kind of like one part of it. Secondly, we’ve got more business that’s coming off prior contracts that we’ve signed. So we have visibility to that. We know when they’re going to come. We also have some incremental focus on factors that impact our cash flow, for example, vendor payment terms. But when we put that all together, look, we’re pretty confident on the cash flow side.
Walter Pritchard: Great. Thank you. And we’ll take our final question from Joe Gallo at Jefferies. Go ahead, Joe.
Joseph Gallo: Hey, guys. Thanks for the question. I appreciate the candor and the cash on spend fatigue and it’s logical. But given your discounting comments, can you just give an update on the competitive environment on win rates or any metrics you’re tracking, particularly in SASE. Have you seen several vendors enter the market, several noting large eight-figure wins. You’ve certainly made eight-figure deals look easy over time, but what gives you confidence this is not competitive, and this is more of a short-term hiccup?
Nikesh Arora: First of all, I would not classify this as a short-term hiccup. I know you guys would love life that was linearly nice in quarters and moved up in a beat-and-raise percentage basis. I’m trying to get this done in the next three to five years where we become even a bigger and larger platform in cybersecurity. If I step back and look at what we’ve done over the last five years, we established the notion of the platform in cybersecurity. It wasn’t a notion that existed. I’m trying to accelerate the deployment of the notion because I believe competitive advantage in product in this industry the last two to three years. At this point in time, I believe we have the largest competitive advantage across our platforms in the market starting with our XSIAM product in our SOC space.
We think that is a 15-year-old legacy space, which we should get quickly and go and deploy as quickly as we can across the board and take you any friction in the process. On network security, we did not have network securities, Zero Trust offers in the marketplace. We are starting to see our customer bought $40 million of SASE and then came and replaced all their firewalls with us in the last six months, right? So we are seeing the customers show that behavior. We’re trying to take all the friction out of the way, they can make that happen. Now if I break it down into the three categories we’re in, I think in network security, you’ll see more and more zero trust offers where hardware, software and SASE have to combine. There’s very few vendors in the space who can do that today.
So they’re trying to hold on to the legacy positions. We’re accelerating combination across that category. You can make your own judgments as to which vendors are going to benefit, which ones are not going to benefit as much. In the SOC space, there is only one option, deploy AI in your SOC. The average technology in the SOC space is 13 to 15 years old, right? That was not made for AI. It was not ready for AI, it doesn’t matter who you buy, it doesn’t matter what gets acquired. What is important is that you can actually have an AI delivered data lake that delivers the capability of XSIAM. On cloud, it’s a new space. And we’re beginning to see what’s fascinating is for us, our best cloud customers are the ones who are delivering SaaS software to their customers.
So we take the large platform players, they use our cloud security because they understand the need to have an integrated cloud platform. So we have green shoots. We have trialed this. This is the time for us to double down and accelerate. That’s what we’re doing. It’s not a hiccup.
Joseph Gallo: Makes sense. Thank you.
Walter Pritchard: Great. Thanks, Joe, for that last question. With that, I’ll pass it over to Nikesh for his closing remarks.
Nikesh Arora: I know this was exciting for all of you guys, even more exciting for us. We are committed. We believe this is the right way forward. We believe this is the way we can deliver a faster platformization, a faster way to consolidate the industry into a platform. We hope that in the next five years, this allows us to double our business from here, which is why I’m here. I want to say thank you to all of our employees, all of our partners, and of course, all of you for taking the time to listen to our earnings call.
