ZS - Earnings call transcript Q3 2018

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Operator

Good day and welcome to the Zscaler Third Quarter 2018 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Bill Choi. Please go ahead, sir.

Bill Choi

Good afternoon everyone and thank you for joining us to discuss Zscaler’s financial results for the fiscal third quarter 2018. call CFO. Chaudhry, the and and on Canessa, Remo me are Chairman Jay CEO; With everyone have now, By should earnings announcement. access to our announcement found Investor This be website also the in on Relations our section. may

today. supplemental financial posted website In addition, schedule a to was our earlier

retention remind operating making statements Let pro operating net performance, discussion gross you during Company’s rate. the but share, statements flow to free dollar-based net forma we’ll guarantees which performance, limited cash per comments other future risk loss, not of not margin, but to control. that rather net anticipated today’s These are be me forward-looking beyond including some and future and subject our loss are and revenue, of uncertainty, are expenses,

differ any these to from suggested in our apply significantly or the not you statements forward-looking representing We may forward-looking obligation this These of on undertake projected in update today as and views statements future. rely after should those actual call. Our as statement. them results no

recalculation For and today’s our uncertainties well our Exchange in a as with financial an we GAAP today Unless talk and a otherwise our noted, release. the all to numbers basis. that will the adjusted be the Please please filings condition, Commission risks release of operating results impact the of Securities future as could and complete earnings about discussion more our see Investor for of website on on non-GAAP non-GAAP. earnings to refer Relations portion

also inform that the Bank participating Conference a Francisco moments in supplemental of be in referenced the Merrill periods, to in on few GAAP June found you Lynch to would We America financial Thursday, For Xth. reconciliations non-GAAP tomorrow will the be can historical San we ago. information like

Now, over I’d Jay. to call turn to the like

Jay Chaudhry

like success to pleased growth I’d to business been and and we XX% thank calculated results investors, to you, also third total to our quarter our quarter rapid recognize in $XX.X the year-over-year customers, thank public as growing $XX.X call and a Zscaler our you and revenue first to-date. who year-over-year company. the essential Thank and the posted who instrumental success. to joining for have been earnings am as employees I strong to continue growing to calculated at everyone, I’d our Bill, billings you, today. partners like share to strong growth We with our million. experience revenue billings with for XX% million have

healthy growth, our to had addition top-line performance. In operating we

globally the in to order mode traditional traffic applications why That’s Zscaler’s based positive cloud these centers are, appliances Then, appliance multi-tenant cloud experience. the platform path improved the platform Our enforcements, to flow wide secure security. where cloud operating In we to to In in call locations. connecting plus for applications on for embrace eliminates generated that between established area cloud, relying user to critical network center to security We for the around to they increasingly users as taking which is to policy and the the that the as secures advanced over matter and everywhere, perimeter hence and disappeared and Cloud the applications users internal oriented Compute, you moving the the to year-over-year, require delivers security a traditional applications and networks Microsoft the internet architect, users and organizations of Office cash security transformation they corporate cloud perimeter a network we the fundamental done perimeter appliances? shortest data purpose-built, and are internet difficult has is the cloud dedicated their in regardless margins would security quarter. are need and the and ports. access compromises the branch center, security to a hub on-prem change becoming deploy built to built network. a security is new corporate maintain security Zscaler office results services, and and network and security. security, in security network network, it the requires users and that appliances believe the Zscaler world for world, to cloud. transformation, the X spoke cloud organizations In data nearest a and across storage where backhaul first adopting are needs moving such apply are checks free percentage demonstrate functions the their points, for increased of cloud no Zscaler adoption the business. access cloud. They’re cost public the where breaking the data deployed application. applications devices XXX traditional Our and are be SaaS business where marketplace architecture XXX mobile approach. and

opportunity the and replace of platform. security due security. IDC various castle to the in perform appliances analysis, on billion moat we a our outbound spent have We data, gateways offer on the functions Based using to $XX.X our and inbound traditional annually is

the equipment costs. secure Additionally, world. solution we believe first the on Zscaler in first and results reduced We deploying bandwidth spend cloud mobile are to network

our strong updates. Zscaler speaking, we security security far growth unique In two cloud cloud XX than at superior XX of years detect and excess in delivers security XXX,XXX we our traditional effect requests offers process internet complementary scale. of during threats Broadly running services. XXX billion in all block We over million have platform than appliances periods. operational adoption. for QX, peak our more customers. We perform day, platform This and saw Each per of experience our day

access designed the to data Zscaler out. First, or valuable Internet ZIA user secure and is and applications reach corporate does and malware not fast Access for internet. ZIA ensure doesn’t to the leak SaaS

enterprise and applications to enterprises Zscaler to a medical which user data have and center. centers locations. experience XXX first without purchased applications user while is bringing XX,XXX ZPA a enable application users go internal a or a network, this policy, ZPA we the MPLS with user across Loss highlight specific includes Fortune good driver U.S. in business resulting embracing XX,XXX or A effectively connects based users. to for on want will to deliver Cloud or large ZPA in in equipment would Office for networking This for Firewall, key that customer while company This cloud. to the to transformation and approach security the deploying Second, the on headquarters Data our noteworthy DLP public cloud the QX. Prevention XXX. bundle is transformation, secure to best move provide for better Private I public a securely specific We Access like efficiently data having number the reducing cost how access office new the delivering their customer security through costs. of few without a in superior customer A is on was experience. cloud network and wins user access Sandbox

Zscaler’s traffic While keeping and they’re from applications the protecting to goes all for locations, firewalls all SaaS their firewall. through cloud headed data Internet the center servers,

who is included to data based more, on ZPA companies stringent for an that The a For customer best-in-class months application A enable customer both a connecting business requirements. purchased together, securely. DLP can modern the networks X privacy acquisition provide policy a platform work with access, and integrate manage take driven EU which will in ZPA, and global driver service bundle new moving We and needed can secure Inspection to to than was solution over Zscaler or with M&A business Rather to XX,XXX cloud have compliant the the for closely elegant complex for ZPA. the to bank security across the provider use customer days. case by the business partner a rapidly XX SSL users, Office service XXX. for this DLP. European

SP Zscaler across now other a new customers verticals. as progress part in offers of service customers. this winning we making enterprise to various their summary, managed significant are In Additionally,

driver purchased seats module. all was of application XX,XXX They to employees closely by transformation tech on-prem A We months and also employees ago, our to win have in project this had application. XX,XXX Zscaler. [ph] this to for purchased Zscaler six to contractors for access also applications. XX,XXX wins internet integrator Zscaler bundle and a additional deal HR a worked protected migration number Fortune purchased and XXX from secure company, an SaaS The ensure with partner just DLP the SaaS upsell and QX. now an which systems notable

QX, This company to to want the on-premise simply customers budget I example web Inspection In Asia to entry due our XXX XXX,XXX SSL, wanted IT often users Recognizing replace for is users an hide same professional deal services they for the where threats bundle share functionality. QX. a global level over in Now, bundle domestically. also they products purchased expanded in a proxy of purchased existing SSL that XX,XXX behind constraints. that and an

they is to an DLP. by licenses a purchase from company Here journey. conjunction its bundle expansion, a on as continued increasingly upsell these for transformation adoption decided rely additional transformation our Fortune the professional believe XX,XXX for the XXX customers users, their has since XXXX a North Zscaler the also In for demonstrate business customer, existing XX,XXX and licenses. to long-term international examples customer that platform upsell services been to an They with American We users. bundle of purchased the upgraded they ZPA XX,XXX us

and and XX upsell world because Google. in our which Japan, Cloud three based Microsoft two, France. trends. was from towards Firewall on XXX% of highlight Number the spent and SDRAM We will that adoption to CSOs and in QX application and back SaaS and projects providers legacy an by applications officers transformation days and Sandbox network; and key trip feel India retention a number Azure the XXX came service engagement activity in with field migration number having us. dollar Our particular; the and driven systems more is AWS, we’re I public by net Recently, transform road partners level functionality. hub increasing I Office integrators. includes the I visiting three, was excited one, spoke that bundle, large cloud customers, the of high-end coming rate for and

our as our these on trends focus is With secular execution. tailwinds,

in a have We vision. strong to place execute team our

engaging and continue. teams I spent even of markets, our have departure strong our place am for closely sales momentum Following I month past sales will the and confident COO, more in sales the that leaders leadership. with international With our Americas

SPs. We’re advantage investing us top A us level. large partnerships in for enable strategic unique C SIs capabilities, and global our is down which with at go-to-market to channel the sell

one-third have and visited our that my mentioned office where We I enable sales. of last our will employees. month also accelerate leverage our on partners I and India continue we train to to create our trip

in staff in results India and smoothly support, we business talented Our with quarter your appreciate X development. interest operations XX running summary, Zscaler. coverage we for customer are In by cloud for our keeps our and pleased this

We’re significant I’d look to over at the beginning financial of turn Remo to market our walk our forward to success call and reporting now in to through like the results. the future. a opportunity

Remo Canessa

you, Thank Jay.

mentioned, like we’re our to revenue Jay our I’ll guidance. the the start with growth. our results financial through I’d with pleased strong quarter. our very third demonstrated As before moving go of third quarter for results to model, overview fiscal then Zscaler brief

years. attractive platform provides life X visibility recognized is which subscription of ratably allows contracts, for gross also subscription the X predictability We generally revenue over cloud to and Our margins. and

user subscription pricing is Our per a on calculated basis.

bandwidth gross margin costs. that was reduces because high a high were throughput, margin our based which We our for Our quarter. achieve on optimized platform XX% and gross purpose-built, architecture is security is for expenditures, a to able operational capital multi-tenant the

operations our support cloud also our to marginal peer also prices. leading on expenses. are with We our exchanges sales resources automated Our reduces highly focus ability and internet and

leverage with meaningful and us potential expansion and scales. for through provides strategy distributors. and providers [ph] margin business operating channel as Our companies significant our sell Most security reach

and X% the From Revenue platform. perspective, X% revenue year-over-year. grew up is customers strong XX% Our and APJ grew a grew for results and million, a and with we for and service geographic was are sequentially quarter year-over-year; represented quarter XX% year-over-year; revenue We revenue XX% EMEA XX% and transformational very provider was which and access XX% to $XX.X of differentiate year-over-year. Americas gives of achieved. was of relevant system a third had XX% us integrator relationships the pleased

change year-over-year a total Turning define quarter to in for We in in deferred revenue as and million that billings the revenue the recognized billings revenue. to Billings $XX.X quarter. calculated quarter. grew deferred plus XX%

upfront billings of XX%. billings benefited Even after excluding This have upfront both periods, of from over strong would in mix quarter, grown multi-year we a the deals. billings

our advance. terms and we customers invoice As one a in reminder, our years, X typically year to contract X are

for on prefer basis, a the us last to upfront look large contract in term. upfront our pay And customers at a there ‘XX for were Some year-over-year deals keep paid full mind, QX year. few billings when please

resulted Our retention net This strong upsell to months customer the trailing ago in XXX% which year to for XX, rate, retention and quarter. a a XXX% is XXXX. consistently have dollar and based ability April high XXX% ending last XX compares

it expect, on We and upsells vary and of will customer additions. the size quarter-to-quarter, new depending timing

functionality. Our net with to based our move can on additional Customers retention more to largely product price bundles add and rate sales ZIA is customers. higher users of

gross ZIA. as an compared QX cross-sell In last efficiencies. of to addition, higher increase ZPA customers. our mix bundles sequentially. with price was a XX%, as The which Total X% and up was to year has be operational driven last can year-over-year increased additive existing was functionality year by to ZPA flat as more released pricing margin well similar fiscal

Turning expenses. to operating

been investments and operating first after and XX% total expenses our and significant team Sales increased Our and commissions and other million. we our sales $XX.X as costs R&D $XX.X and year-over-year we We headcount, sequentially public $X.X XX% our to increased and sale. a million. drive G&A and to and that sales justifies $X.X $X.X are to year-over-year million company. marketing to to These offer year, marketing our The building enhance to as XX% X% to of related initial sequentially grew million. large and We opportunity to in sales expenses invest our includes we marketing million costs market have X% that making. XX% sell growth. to initially expenses. in made We’ve exclude year-over-year on functionality concentrated continue new XX% expenses products. investments product litigation year-over-year sequentially believe consulting are efforts and significantly, X% incurred decline G&A we became growth products marketing increased sequentially as

a ended X% which quarter loss to flow. negative forma year. flow was million Our with from $X.X We which a or the and last ESPP third third million million million We was the operating in in per quarter our public net to in Net same Free share margin offering. last quarter the in XX% compares $X.X compares raised $XXX our the loss million million was proceeds started pro of $XXX in quarter net We cash the same for $X.X positive March cash cash year. program negative $X.XX. the quarter free which to negative $X cash quarter in contributed equivalents. approximately

to non-GAAP, expenses on and compensation are reminder, litigation a significant as numbers moving expenses. all stock-based Now, exclude these guidance, related which

$XX XX% $X.XX pro of loss the revenue of million, XXX For $X the million million, shares loss taxes $X.XX, assuming common in in of million range operating gross outstanding. million of non-GAAP fourth to $XXX,XXX, in approximately forma per expect the the range to share approximately to $X margins we range XX%, non-GAAP of net quarter, non-GAAP $XX to

in XXX stock year million was to to shares our we common of assume $XX Recall including share shoe. operating the at non-GAAP and million, the of issued fiscal million green and count, in and IPO the outstanding. share XX.X the middle the million the $X.XX XXXX, beginning the Over the completed of $X.XX, of approximately to In effectiveness not range that range QX of that IPO. occur $XXX range conversion we shares $XX preferred million million, taxes the the our expect assuming of upon non-GAAP per year we the forma revenue of loss non-GAAP loss in of in $X.X pro million full $XXX

are look We of achieved what proud very opportunity. and our to we forward building on

Now, I back call to hand the over will Jay.

Jay Chaudhry

Las and close with Thanks, we and Cloud reminder June It Live, Remo. Inaugural on will like XX are to our XX Customer holding be in I’d a Partner that Summit. Vegas. Zenith

We we’ll transformation. Operator, call cloud all keynote talk Hopefully, open have speakers lineup see of there. you you an now questions. for the can to about impressive the

Operator

from take Morgan Please Melissa Instructions] our ahead. Franchi go with Stanley. We’ll question first [Operator

Melissa Franchi

is Great. notable, of on clearly lot and drivers, acceleration business if deferred. but Jay, hi, today. the of that And guys. drivers billings Congrats those so a there take secular your even mentioned a in you you is the that it’s impacting few quarter, long-term out the pretty

So, I’m in that factors to three just a put the the what wonder or say level of let’s quarter one the were past seen that drove if maybe what point you few -- two can finer we’ve relative in on quarters? to different acceleration like

Jay Chaudhry

kind two is business. Melissa, This big are of or that course changing deals thanks. There one no it. normal of a is

We good to Remo, billing great momentum seeing has board want revenues. that’s you to across and what color are the resulted it? any add in

Remo Canessa

got with We’ve a a Office No. market increased the as year-over-year good momentum to SD-WAN. strong feel all to us. seeing we All before, Jay. across I our is The We’ve tailwinds talked business, agree we’re XX% and on geos. coming our we XX%. got basis XXX have about geos

it’s good be. to So, a place

Melissa Franchi

firewalls I’m know in the still areas I’m for security, then, a maybe add gateways, are is a is gave can displacing sort obvious to is opportunity the But But, if bit wondering or now which examples. pretty which I you little you. just that the you con? more a some on of to particularly addressing color web other And meaningful relative of interested opportunity that expense, you opportunity displace opportunity around security

Jay Chaudhry

question, Melissa. Good

or don’t As firewall. web gateway lead either we we replacing really said, displacing security in with

gateway of lot is looking focus because you number true traffic. it’s first gets removed, approach. party holistic one web transformation, the that bound lead internet often the a Our those is they’re the for approaches, When a transformation. is that lead secure in It

comments, during side, selling transformation well Sandbox. a are firewall Cloud you summary we bundles, saw Cloud the as Firewall as which include number of as On

typically firewalls. firewall data of don’t different go me, sitting majority believe And and a branches Now, back center. say What is, the centers. replace have have in in and customers couple still the data three, happens we center or to data enterprises regional four let’s main coming the

we Greenfield, bundles, no add in is these when there is of It no point, firewall, do branches. most there on opportunities. now is So, is is egress transformation it there these gateway

But, let’s in we when end whatever outbound Now, head they those, this. remove on have boxes say doing center. replace to do taking we aren’t up data really the gateway we

of of do the think [Ph] most more some open files. having field the retail see of cases. going the I for we guys But we’re us wide local add-on generally, and in as Greenfield breakout is branch clearly

Operator

next our Sachs. Borges Please question take Goldman from we’ll And with ahead. Gabriela go

Gabriela Borges

of down Hi. Good year, Either and for all Thanks close force sales about or for I hiring feeling was because congrats at and have do for some normalized to of with you’re the continue you force the the were level at you How afternoon. pace. question point? that an into taking to productivity this prudent Jay, the you then productivity goes focusing? results. Are remember you coming assume the elevated on Remo my how thought it sales

Jay Chaudhry

you, flat to is essentially our I Thank up. mean, productivity Gabriela. slightly

to a expect helps pace. going mentioned, points are that as us As increase up actually strategic fairly you also we And get our want productivity price things our add to are are better as And tenure driving the it? productivity. we Remo, and we hiring do average you increases. to transformation sales, do at rapid

Remo Canessa

Yes.

So, we relative our and stages our penetration. of are acceptance to basically, in product the the also, early

relatively go basis productivity mentioned, a time. our expect to We Jay over sales been that as quarter-over-quarter So, up flat. has would on

business a we’re leverage able We in However, organizations. invest the to the were to sales that build and large what achieve in last see positive flow chose going model. is cash the our we’ve have free our as quarter. flow, and to very We continue this talked cash free opportunity. marketing about we before We

flow to that sustaining on or getting aren’t or free cash So, our basis. a concerns profitability long-term to related

our invest Our a in our and grow manner. prudent be the in to focus is on going business top-line to business to

sustained, about and we’ve things we positive fiscal flow non-GAAP free the that operating -- be an One profitability of cash basis, ‘XX. plan is before as a free cash positive talked on sometime to also in

us. that because we the running we’re to keep of in So going mind with the see front of business in large opportunity on

Gabriela Borges

months Thank with noticed change may. helpful any I to you’re to That’s change since as or conversations, it’s Thank open any perhaps able you you. And public doors? in color. have been you. a the and to the the either of with Now your IPO, follow-up, are credibility those Since if region? IPO, you as customer that’s company respect the that have conversations in a seeing ability couple

Jay Chaudhry

the when now Actually, and a some have. not we of I telling feedback that lot folks Yes, was be. met to who the reach a I try better number used it before versus in I than fact, CIOs response had is now,

these know go I we that actually As I’m how customers surprised customers, to of talk and many gone public. have

often, I public quite they say So, being congratulations company. a when on start,

seeing that we awareness. So, are better

probably So, not. rate, quantify think this are you but and close stage, leads, I asked and at it’s a to with very to early think have we we think positive quantify, yes. it. would I say bit momentum it’s that pleased I better But too can little a we better Do leading I

Operator

ahead. Please from question take we’ll Suisse. with Credit go Zelnick Brad our next And

Brad Zelnick

firewall even have why the us and their Thanks Can into the against like is out offerings cloud and do what many very help for other security security features for you you so for great firewalls branch This you last cloud several be that understand platform My wins won’t competitive team. Jay, just calling over are years? firewall guys. replacing network fundamentally a consolidated the out much. there you first Remo day talking Zscaler congratulations matter. Jay, about you to question competitors for and

Jay Chaudhry

So, thank you. Brad,

of all, beginning big that flattered us first to I out. am of I the call are So, some would guys say

are has some be would don’t can back -- There around, security come vendors single-tenant in The very to world centers look you’re cloud security architecture really critical into not an things requirements are do logs that needed. spend traffic in to would have customer policies of really appliances Multi-tenant that move The Secondly, easier to anywhere. for. offer the I basic meet. It the there not how because together. you if be have SDN at every just done, from that solution appliance surprised some traditional for each that’s us of because a data what a is customer asking cloud bunch for if sense a destination. cloud VMs to each are

With offer, out we the you in player are also seen the at believe Seagull We’ve movie of don’t we path traffic kind there. dominant yet. saw least and solution we that across with the haven’t cores competed and work Salesforce competed And of [ph] before works, CIM locations. there scales this technology people where seen

You know of outcome that. the

we we distance. built That’s think keep and one we with technology So increasing we’ll our have the point. are comfortable on

firewall The interesting alike. that vendors is second really you when point we very and see also do security it is I’ll a our of you mentioned point are interception transformation, area. important a that From sales transformation. leading don’t SSL view, becoming And from

enterprises, question? enterprises, So, internet enterprises they of lower Did traffic all answer see architecture. of large large on the lot we we standardize a the a And them securing firewalls, proxy look your but don’t on see when outbound on number traffic, I end. for

Brad Zelnick

billings what upfront strategic making long-term factors to for about a you short-term play follow-up you. in I Thank reflects deferred help understand just the And did, can Duration the You But, going have quarter, versus could we commitments forward? which for absolutely benefited trend Jay. imagine us Remo, from And other seems to I might you if have that. be driving that should growth? think revenue Zscaler. how are customers at

Remo Canessa

One And our or is greater. length. past quarters, the XX% parts new for There’s is over of contract business, to length our years three four contract that. Yes. the customers’

that’s a confidence customers sign, into showing that putting our are Zscaler. very positive So the

is billing. other The part the

increasing So, three years length even are still billings though our is two, the for business, new contract annual.

available have longer to incentives reasons shows get We incentives annually. to budgetary where the stickiness make funds customers term upfront. our bill we though sales customers because do to the decisions We some they for Zscaler. that upfront increases give want and have organization into contracts in that for Customers that they So, don’t -- confidence the cash. pay give

Operator

Please question We’ll with from Alex take our go Needham. Henderson ahead. next

Alex Henderson

was I hoping bit mix the quarter terms of could business current little about you in of the talk a in revenue.

different from that in to that today look ZPA, business. winning or in You shift might current How contracts that ZIA for versus ZPA much relative we the said flow? and how seeing a you’re came future towards of the

Remo Canessa

that take I’ll Alex, So, question.

ZPA represents Our less revenue. of X% our still than

quarter substantially. our quarter it ZPA, is However, largest and our third for fairly was increasing

less Now, the revenue is recognize than we We on rapidly X%. basis. business -- recognized revenue

in when So, history. new business actual at increase for coming the the been well. upsell doing look a take And Company’s you ZPA this business it’s was the and it’s in in, last quarter the that highest

Jay Chaudhry

fastest product this And X-figure pleased we the may history. in revenue deal annualized ZPA I had quarter. our new additional, Zscaler’s past is also, growing If first ZPA Remo, we’re from

Alex Henderson

bit. a At question looking and little the asking risk of forward second a

what’s surprised I to up that up, people give As We’ve been into looks it? mean, us of you’ve got any come of amount signing and conference. the coming this the like? you major scale sense the can what of conference size

Jay Chaudhry

course, this call Of our Live. we cloud it is focused cloud summit, transformation. Zenith It’s on

not to who message get It’s So, driving out people transformation. on are we a had clearly there. focused trying

keynote about of great as is And to people. to are we be target level speakers got them expected our some well. total XXX So, XXX or C people. level VP About XX%

got GE, of as Microsoft of delivering well, there message. Scott well. and got We’ve along of CTO got doing as a keynote as customer got in Infrastructure and Satya there And be the be Gelsinger, a Head we the some Dell will a Michael Guthrie message. Pat Siemens keynote video CEO for great we video Electric, General will Global person; So, keynote as coming we of VMware

excited, audience focus but on smaller rather focused people. will So, to transformation and trying very remain than thousands of get

Operator

on, Joel go with Fishbein next question BTIG. ahead. moving Please And take our we’ll from

Joel Fishbein

XXX Fortune to on win the dynamics want a Brad’s and I if manifested ones there device Jay, the several the would added Jay. either But for mentioned bakeoff that you it And medical be itself? in of I great and just follow-up was about obviously guess, quarter. competitive question to question actually that company how win. have you and hear

Jay Chaudhry

Great question.

appliances that’s show example significant by is competition. do And of from to want head networking, did said, bakeoff. think further in CIO of of really appliances There fit no where There not not to architecture it enterprise. I a we This And driven no security is is mix really and the more their embracing got want I CIO any security. a CIO, good then this my was a they cloud ahead cloud. and in deal. partially

there are firewalls there data still policies essentially on road sitting the office keeping are But every obviously, their out data -- centers and protection. or Zscaler’s like traffic road volume through every funneled gets same in Now, the center. offering sitting them

lots So, did opportunities compete not this we of anybody we with And like really are opportunity. there in if that compete.

don’t, So, right sales you’re I with sales the [indiscernible]. someone here, competing doing aren’t to team, me, tell if you

Joel Fishbein

little quantification in so I called know, correctly. just you you quick Remo last that exactly? compare a one have some follow deals out tough the that it, we And know may. you XQ. you. around Can model XQ, if signed for I up big Thank Remo, just so in we give billings And

Remo Canessa

is There few But, are Yes. deal, in XXXX. quarter which called out before one million. is deals $X.X fourth few others. a about there We large

tough the long-term for It’s reason plus $X.X some the compare. that’s million deals. that So, additional

Operator

we’ll Gray with on, question go Please next from Bank. Powell Deutsche our moving take ahead. And

Gray Powell

question. the Great. Thanks for taking

Just couple may. I if

You operating growth showed excellent leverage. margin in

drivers margin to all line about the actually more You through line. there? revenue you operating main of talk upside to the gross Can flowed the even and

Jay Chaudhry

please repeat you Could that, off. Gray? cut got You

Gray Powell

Sure. now? Can hear me you better

Jay Chaudhry

hear Now, I you. can

Gray Powell

great. Okay,

growth you So just in showed the excellent leverage. operating guys margin and quarter,

of all more to through even flowed actually upside gross line You margin the and revenue line. the the then operating to

So, just the drivers was main I if you about there. could wondering talk

Jay Chaudhry

strong. under Our kept business We is expenses control. our

margins. to able maintain gross We’re good

strong cash a show So, prior operating waterfall the margins. high business the with control margin as the positive that projections we was into perspective, related we we our expense well have during positive has as gross flow that of us that the gets gave we maintaining that withhold that the as the employees better we the million. lower a have, impact operating lower quarters accrued liabilities, a initial CapEx, we reason free with before, the from ability from cash margins, put ESPP And collections, way expenses. From build beat have $X that quarter to gross to mentioned will that flow, the is

Remo Canessa

If strategy may I overall. answer

invest smartly on number growth. keep bottom-line, in our of focus manage for and Our top-line. growing And looking where but marketing we sales we top-line to is the development business one can keep opportunities we’ll

this that’s think as Jay opportunity. And as a that large important before, is making. see -- market I mentioned an we I very

public model; a talked have that is that when free business. increased show of prudent One on to We that doing. things ability in for are we of we profitability, best and high operating the top-line company we to do That’s and we manner quickly. is have in our focus the the cash opportunity leverage continue the to relatively flow. interest went what a because have, grow we’ve shareholders that about we We the can feel the

Gray Powell

last one with just even to over the level if can. then, at does changes And in your that conversations the I any then, Have six peers three more months? seen And matter customers? you appliance-based your of discounting in

Jay Chaudhry

costs, would are in where road to asking described through need the for that is customers who some lot of really the of that these don’t. stocks I competitive of transformation tactical bid I see said a I and whole see solutions. we’ve don’t do I [ph] in based were cloud If a my I coming lot them, Since lots largely [ph] business. this to have rephrased have transactional show And those business things.

it. So, we some do of

for business keep mention whatever haven’t for they if to but don’t broad They and a replacing, drop functionality Zscaler that you is most vendor who I want based obviously their the seen it [ph] price better will cloud. constructions We they are stuff field but that proxy-by-proxy drop with to customers sales the has it just one moving price. buy try want see

broad have to seen us business seen can. things the board, save some vendors across to but whatever way So proxy and haven’t we they their reacting trying

Operator

on, Kalia Barclays next moving ahead. question will we Capital. go with from our And Please Saket take

Saket Kalia

are you just about transformational talk opting that customers examples little know you, some a for you for brochures looks across can different opting us for? Remo. maybe that First, prepared bundles for of multiple bundles the bit customers in point remarks. about broad were I Can the perhaps preference But, that there base? give how the

Remo Canessa

Good question.

increasing. I percentage on So, Also transformation a is on say been currently transformation. give where though to where with professional on are earnings But, bundles. our call, with transformation. towards there the are basis QX can we we we’ll that breakout buying shift related those basis percentages a currently haven’t is business ARR any given What a customers and has

Jay Chaudhry

how surprised the shift same I would was transformational is little say, would I see bundle thing. add faster Yes. to happening. I to a

Saket Kalia

That’s really helpful.

Jay Chaudhry

helping It’s well. as price on average Yes.

Saket Kalia

for That’s helpful, Jay, you. may a be follow-up

strength any leadership? a about your a are about XQ as joint little your perhaps talked contemplated in to you you’ve for you you talk You And whether disruption well, about bench. just the departure guide? departure bit potential the how of us sales Could COO Remo, from and that thinking question

Jay Chaudhry

Yes.

I mentioned, do this running Americas mean, as we don’t impact geo our have strong have international. on momentum. will feel So, we leaders That’s why I any and

this? really changing We because we impact aren’t, don’t an because guidance our see are it. of So, of we

starting and role right search. It’s a are Remo? person. We important find very we’ll the a

Remo Canessa

APJ, our related to of Yes. I impact And fourth leads the EMEA COO. seen related really and in any will guide, our strong Jay. got the to not Americas. follow-up geo really quarter with regions, departure We’ve

Operator

take from And our go we’ll Stephens Jonathan next with Incorporated. question Please Ruykhaver ahead.

Jonathan Ruykhaver

landscape. Can access CloudPlayer about won’t Akamai ZPA a But, competitively too more recently. longer and be an question last a talk competition differentiate believe solution offering you introduced application, how you regarding year; competitive have also potentially I why I believe I announced and term?

Jay Chaudhry

Yes. This is young relatively market.

how So, where move And you gets be public data it cloud. to our can for access, access how they as very when One opportunity that’s accessed is ZPA transformation should in center applications application they a at look versus the opportunities. two interesting.

So, need access to traditional VPN public cloud. products don’t fit in well, you applications when

are push. we driving that So,

replace. seeing incumbent a market. for but sell to it coming typically there whole are can nascent that When We very companies a it’s there yet, We competition bunch VPN of comes to are aren’t of lot replacement? around, sell ZPA compete that VPN And well. there. more replacement as that’s are or That’s we do are actually rollout and trying [indiscernible] we typically so that we new

and a new again, competitors; surprised, I’m And out big Did market don’t question? young there because two So, the your lot. But of incumbent there. has out whole not a One and opportunity the second some haven’t, market we’re yet. approaches. we relatively answer it’s guys rarely seeing really have is I

Jonathan Ruykhaver

private or case The driving wanted I Yes. is to case? to the is in you’re more access the this it just understand, center that application on growth the a cloud used seeing thing one today, other data ZPA. is applications,

Jay Chaudhry

a it. tactical please two, public we’ll your we offer a for is top for applications. It’s also it’s is I product and being is time. then good sell over we it goes right it applications replacement cloud now. actually of same a mix, ends VPN to vision somebody the thing, more of my neither AWS a be When really of and bought hate a can pretty go Then, side this And and side good pretty know, dominating mix VPN Google. say, of kind a we would both replacement up access used in says, benefits. I mix; of learn them and it’s drive down VPN, to help. effect come But sale mix we’ll in access When that when actually And ZPA, Azure as good and

Jonathan Ruykhaver

in be then, might but in does impact you seasonality XQ, of it Remo. could help also retention as believe, ‘XX? and understand a And first around one we us question, the other how quarter of the I follow-up in impact retention? net slightly this XQ, more But, net seasonal look was down

Remo Canessa

Jonathan. XXX% calculate question, the takes based a to churn. But the of retention feel we net an We current AR is customers very to for Good year sales on it’s important in which calculated account ago and change comparing period, how from that rate. good. understand It’s

of slight has shift the And take if flat and amount upsell Our quarters. for to XX-XX. basically versus upsell. QX new a been versus churn QX, is a relatively business several QX at more in new look was you There

up. rate, vary it would to do. it’s making relative that be any it retention bundle, is the But retention quarter-over-quarter feel to there term and for a net to projections the So go transformation going going opportunity basis. that longer the rate ZPA with to feel difficult is strong. We us We on an for customers net to

Operator

ahead. Boolani Fatima And with we’ll go from Please hear UBS. lastly

Fatima Boolani

questions. to have your a of for Maybe a start question pretty Good size, the picture international afternoon. Thank you taking for big presence. company you pronounced Jay, Jay. with

So, the that on and I’m follow between and distribution curious to India then Remo. have some perspective get can demand of to your leverage the compare you and APAC you Americas, drivers if up And for relative contrast?

Jay Chaudhry

U.S. was that started international with do is of Zscaler outside I we One, data company. attributed mind. architected strong sized the the And the privacy things. to Good. I I have U.S. in And team couple have that Yes, Okay. when in two, presence. same a got the have got

of wherever the they’re going is our how logs. one do case, They’ll where there. guys, location All VM, appliance will be those a that probably privacy push they to are out, sitting figuring are logs only every there. a friendly data of put these logs most logs batch the spend we traffic or doesn’t whether the write only So, place, that we out the EU. and in the do, go processed. the Because to whatever a company security be in in to company VM they cloud In is

have the embraced why biggest companies that’s of some us. European So,

of side So that was a it. product

I demand And slow Europe Salesforce, every be I in bit month month. they AWS. to If deploying you had six and Office cloud customer in that talk been are at last And Europe the will look drivers, large I will a of used the XXX, embraced it. some be the Azure, think U.S. first every to, embracing by for

So demand U.S. I see same that see the in the in I well. Europe of kind as

the of we Your question was the kind are second part getting. leverage of

in get the than more we providers service Europe from we actually, in U.S. leverage get So

to You embracing All to service Europe they why partners BT Telefónica. [ph] to ranging are the partner OBS, may to actually in There aren’t providers that’s think cloud many a case. great T-Systems partner. going from these and

leverage. So good

good we see market. -- we international a So, will coming growth from on keep

Fatima Boolani

I appreciate the color. a follow-up you. And Remo for

fee-based to Amidst you those just forward that net increases. retention about what of think on to increases customers that or upsizing of As ARR pattern or graduating pricing through, about pass inputs ZPA they price the upside and looking do sort dollar I retention maybe and going bundles, upward pure I adoption net think is around factors, front? provide to within the also the some feel pressure themselves dollar

Remo Canessa

are It’s say, up a to the one, Customers bundle. moving number would I transformation. transformation question. good

that about have is on talked We XX% before business our road about and XX% show transformation. professional, XX% was is

transformation, that you’ve pricing is going also the Once to stickiness. company are decision basically Xx, pricing a an we but customers one at the there’s of of you’re professional move of the and Xx at The up, and opportunity, couple security security. go cloud as you off of in So benefits, there’s transformation as you that a business look each with X.Xx opportunity, as those, to made professional. go

is each impact it’s going related going upsells be to quarter to in retention, vary. mix to and our we to have going addition, look In at, net going -- also. and it’s be to that’s based ZPA what But upon new

company selling strong new quarter-to-quarter. that’s as quarters really take other related the ZPA, and leverage bundles strong to So, mentioned in you upsell, selling But not. it’s increased new quarters increased quarters products something as got like really the to we’ve I and well have a when to selling going some as vary really some upsell, at quarters, they if some that have not, look

Operator

CEO like does to that conclude closing over to Jay back would call question-and-answer turn for remarks. I today’s session. or Chaudhry And additional the

Jay Chaudhry

Well, thank joining you all for us.

time taken excited and thank you’ve about are opportunity us. We the for the you we

our to hope quarter I coming Thank Zenith And can the talking at in will call. you be and earnings you. quarter’s us definitely We Live. the you during next join

Operator

participation. conference. that you Thank again, does conclude today’s for your Once

now disconnect. You may

Zscaler (ZS) 6 Jun 182018 Q3 Earnings call transcript