Operator: Our next question comes from the line of Tal Liani with Bank of America. Please go ahead.
Tal Liani: I’ve been asking the same question as all the other security names, and it looks like it’s throughout the industry, we’re seeing it. But if I look at the sequential trends of billings, in ‘22, it was up 54% in 4Q ‘22; 4Q ‘23, up 42%, 43%; and now it’s only up 2%. Can you discuss why is billing on a sequential basis? We don’t see the same seasonality that we’re seeing. And again, this is industry wide. Does it mean that contract duration is going down? Does it mean that pricing is going down? What are the implications for the business? Thanks.
Dave Bernhardt: Thanks, Tal. Billings grew 2% quarter-over-quarter, but they were up 33% year-over-year. The quarterly billings can vary based on customer mix, especially with MSSP. So we focus on ARR and as a better metric. Just from an overall contract standpoint, the average contract duration is up. But we’re seeing less frequent upfront payments, which is the entire industry thing. We’re not in a $0 — or 0% interest environment. And that obviously impacts customers’ willingness to put a full year upfront or multi-years upfront for larger enterprise customers. So that dynamic has changed really over the past year. But — and with MSSPs, we see a lot of monthly and quarterly payments. So that’s always going to be the dynamic with us.
Tal Liani: And is there any difference in linearity of deal flow during the quarter, this quarter versus previous quarters?
Dave Bernhardt: No. Linearity was fairly consistent.
Operator: Our next question comes from the line of Trevor Walsh with JMP Securities. Please go ahead.
Trevor Walsh: Great. Thanks team for taking my question. Appreciate it. And also appreciate the updates around Purple AI. Maybe, Tomer, just a quick one for you on that. Of your customer conversations, what’s been kind of the primary pushback, if any, around just the adoption of that new product? And then how does that maybe translate into what you’re seeing as — from just kind of an initial catch rate of what you’re expecting around with Purple AI as we move into kind of the beginning of next year, and if that tracks similar to maybe Singularity Cloud or the Security Data Lake, if you expect that type of uptick or if there are maybe other kind of puts and takes there?
Tomer Weingarten: Sure. We’re not seeing, I think, any type of pushback per se. I think that some of the questions that we’ve been asked revolved around potentially training more modules — more models — more AI models that are tailored to the customer environment and how we plan to address that. So I think there is largely a lot of excitement towards the capability In terms of how we’re thinking about it. Obviously, it takes some time to scale a whole new technology. And obviously we’re doing it responsibly. We want to make sure there is the right safeguards. We want to make sure that privacy is kept. All of these things are incredibly important for a company like ours. I mean, we’re not just an average consumer company.
We deal with security and we need to make sure that these things are in place. In terms of the magnitude, I mean, Purple AI is definitely almost another product line for us, right? I mean, it’s not just a module. So, how we’re treating it, how we’re structuring our go-to-market, what we anticipate Purple will contribute in the, call it, the next 24 months, it’s definitely in the magnitude of something like cloud, something like data. But again, I mean, it’s early days. It looks very, very promising. I think the fact that it’s an enterprise-wide capability, so once again, it’s not something that you sell per seat, it’s not something that just for one footprint, and the application of it can be virtually endless in the enterprise environment.
I think that puts us in a league of its own in terms of the other offerings that we’re seeing in the security space.
Operator: The next question comes from the line of Rudy Kessinger with D.A. Davidson. Please go ahead.
Rudy Kessinger: Dave, I guess just on the net new ARR, I guess, the implied net new ARR for Q4, it implies about, I guess, half the growth versus Q3 as you saw last year. So just what are your assumptions, on close rates, budget flush, et cetera relative to I guess Q3 but also Q4 of last year?
Dave Bernhardt: Yes. So obviously we’ve increased our guidance to about $200 million in net new ARR for the full year, up from $195 million. So, we’re seeing clear signs of stabilization. We’re expecting Q4 net new ARR to be essentially flat to what it was in Q4 of last year. We don’t expect a budget flush. We’ve never really been a recipient of that, although I wouldn’t mind it if it were to come. But really the way we’re thinking about this is that Q4 is seasonally our largest quarter of the year. We don’t expect Q4 this year to be any different than historically. We delivered upside to Q3. We outperformed typical seasonality and we’re expecting that to carry into Q4. And I think one of the things to be concerned about is just there’s still macro uncertainty, there’s geopolitical uncertainties.
Those are continuing to persist. We want to be mindful of the evolving macro dynamics. But I think overall we’re pleased with the outlook we’re seeing, we’re pleased with the performance we had in Q3, and we’re pleased with the execution of our teams. So, the stabilization we’re seeing and the visibility we have for Q4 makes us optimistic that things are getting better.
Rudy Kessinger: Okay. And then just a quick follow-up, the margin improvement, very, very nice to see. Just on gross margins, any one time items to call out that drove that 79% in Q3 and why the step back down about 150 basis points in Q4?
Dave Bernhardt: There’s about 150 basis points of FX gain. Obviously we have a fair amount of support people across Europe. The U.S. saw favorable U.S. dollar to — especially to the shekel over the end of Q3. Some of that has flipped thus far in Q4, but on a constant currency basis we’re assuming, we’d have been roughly at about 77.5%, which is what we’re guiding for Q4.
Operator: Our next question is from the line of Gabriela Borges with Goldman Sachs. Please go ahead.
Unidentified Analyst: This is Max on for Gabriela. Thanks for taking our question. As a follow-up to the prior question, we have a question for you. As you think about your fiscal year 2025 planning assumptions, it would be great to get your observation on what is incrementally changing in your priorities headed into next year, especially with your new CRO in place? Thank you.
Tomer Weingarten: We’ll provide an outlook next quarter. It feels prudent to get through the largest quarter of the year before turning to a new calendar year and budget expectations. Look, our market position is strong and we execute well. I think we have multiple growth drivers. Our goal remains the same. It’s to maximize growth and improve margins. And obviously, at the same time, as Dave mentioned, the economic challenges are still very, very present, and we’re not assuming any bettering conditions significantly next year. We’re very encouraged by our new CRO, very excited to have Michael with us. Obviously, he brings a wealth of experience. It definitely is something that we planned for quite a few quarters. We also want to wish Mark the best in his retirement, and we look forward to really scaling the business in the next couple of years beyond $1 billion.
