ZS - Earnings call transcript Q3 2022

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Operator

Good day, and thank you for standing by. Welcome to the Zscaler Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentations, there will be question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. now today, hand Mr. would to conference I speaker your Instructions] like the to over [Operator Bill Relations and Senior Strategic Choi, Vice Finance. President of Investor Mr. floor the is Choi, yours.

Bill Choi

XXXX the Good Fiscal welcome everyone, Call. to afternoon, Third and Quarter Earnings Conference Zscaler

about website. Jay numbers supplemental On CEO; will Chairman basis. our financial today note we schedule and the earnings we our Relations Please and have CFO. to Chaudhry, posted an today Unless Canessa, release on call all adjusted me that with talk otherwise are noted, Remo and be Investor a non-GAAP

of today, call. financial operating reconciliation response in on control. These to forward-looking guarantees in You'll are these GAAP after discussion including, company's find the margin, of this you expenses, net that outlook, market income statements some are risk undertake which our objectives future gross limited you earnings performance, our operating uncertainty, comments flow, net to update taxes, statements and but other our will like and the market I'd opportunity. free remaining not non-GAAP operating not billings, forward-looking statements These and apply statements, the but as measures customer rate, earnings calculated no release. retention and performance income, dollar-based and hiring should contain not today's We our our future are cash rely share to, representing remind anticipated future future. decisions, and obligations, share, income, per as them the subject revenue, views products of our rather to obligation performance, beyond of to our to

today's our SEC as and complete as more a see the in risks with the please release. discussion filings well For uncertainties, earnings of

Bank inform will of Cybersecurity latest move X; Loop's on a upload on to segment June we X; the briefing Q&A would that on we the Mizuho Tech following in on Zenith the at host to IR We June: innovations we'll Conference Software remarks Conference focused events our when upcoming also attending also today's Live call. the June like investor I America's Conference you and Global be copy June of XX. prepared Summit an XX; the website Virtual June to will on of

turn Now Jay. I'll over call the to

Jay Chaudhry

you, Thank Bill.

We strong are flow report pleased and delivered XX% XX% another cash growth XX% In quarter. revenue to margins, we for investing QX, all billings year-over-year while growth. free high growth,

are increased flow Rule-of-XX achieve revenue happy we While year. to guidance to our the for on exceeded most the again we margins. based With expect today, companies cash full free and public SaaS Rule-of-XX to Rule-of-XX, get growth the

We excellent growth. only delivering are not

We delivering are strong also profitability.

making scale. in for innovation disciplined investments are and We go-to-market

Zero large the customers. choice securing for our our of breadth and customers' believe platform, Zero we growing can our us Trust partner We depth With our enterprise to security makes enterprises base of journey. sell on focus clear the efficiently ever-expanding Trust of

as driving cannot a While for customers act as change. broader offerings this there In in projects unproven Zscaler with risk growing transformational with zero-trust periods mission-critical to IT we ransomware, catalyst seen macro immature commitments cyber threats increase challenges for pillars large, multi-year platform security transform architecture. are vendors. such castle-and-moat from environment, to coupled and security leaders from have of uncertainty as of economic uncertainties, multiple and an product are can This,

productivity cyber and pioneer SSE with offerings, the better leader deepest widest Edge increased for user cost vendor Service and trusted is the in or Security protection. consolidation, savings, category the As and Zscaler partner

GXK customers new close adding Global are We added a record quarters, XX customers. In pace. at the XXXX we two last to

surpassed and companies and our secure ZIA half ZPA, Global Approximately XXXX have has of Global of ACV $XXX XXX Now customer ZPA had verticals. trust to revenue. XX% over customers across and $X-million significant deals new in excited plus to XXXX geographies QX, report annualized of growth major both transformation. Zscaler million their and that we in XX% In am Fortune I the digital

entire multi-product transform future path surpassed elements transformational It deals the platform, for for enterprises in reaching and $X their a pillar are strong as provide driving We revenue customers into racing a it. longer to milestone. billion. not our of for bookings, just We are our seeing business. large ramp acceleration This has in key total to of commitments with an is multi-year, growth value a larger strategic committed

highlight deal during wins quarter. me customer let some Now, the

users. ZIA, As I all ZDX mentioned ZPA before, I for customers will purchase and ultimately believe all

This The and customers Zero single a consolidating customer win, about Leveraging every Trust is inspection with ZIA, excited quarter, in logo In was for customer fast new most a hundreds a headquartered framework global security users distributed for XXX,XXX in point users. providing services our that across food having purchased seen ZPA experience. globally of its security Zero policy platform, for dozens ample we in-line of are locations ZPA location. this buying conglomerate SSE XXX across Europe, evidence ZIA, different in countries. ZDX all units products XX and Trust have ZDX together, user business vendors

CFO Given improved non-budgeted, X-year across CEO upleveled cost and signed experience savings, off the on the significant company, commitment. user security and the this

about. started Trust footprint, they we for their sizable for a which for AWS paid excited very are Zero addition, Workloads our pilot In offering

Next, XX%, XX% headquartered upsell delivering ZDX point issues for immediate XX employees. ZIA legacy time deal, ZDX for XX users, XXX,XXX XXX,XXX by consolidating oil in ZPA customer value Global and troubleshoot gas reducing products. customer’s performance Europe, in to while is performance all purchased by deploying an a the after to and

browser spend spend well million. then, increased newly a sitting to protection, Zscaler is purchase is ago. $XX chief Transformation annual has Professional with journey their XXx years isolation, remember the our finalizing application in customer’s their the services. to ZIA deception introduced of architect the customer’s This In six customer bundle office, and remarkable: upgraded deal I increased the by over our that This ZPA bundle Since that over with XX%. addition, X-year over includes annual

in upsell buying Workloads. users a Fortune all for Next, ZDX win, ZPA them XXX This on forward ZPA and has purchased look and users. XX,XXX ZIA, an XX,XXX of Trust we example ZIA large a working for is Bank Asia customer over to deployed employees. Zero that for with another In for ZDX all

users immediate legacy inbound establishing deal network legacy was achieving to by trust network, While for application-level ZPA the app specific segmentation. connect a without a zero delivery app infrastructure, controllers, to objective DDoS ZPA need on policy, VPN payback hence to this replace of cost was generating replace having to protection, segmentation entire applications, access multi-vendor not and do implement substantial DMZ selected to an including where for help a just Zscaler firewalls, their not X Zscaler did macro, VPN, can while ROI, within eliminating it’s transformation. tougher in reduce Because the driving this even months. the a purchase

Our integration than important users. Microsoft’s complete annual with the form spend. and them. ZIA, ZPA ZPA customer’s solution an for together across latest ZDX ZIA EX purchase and was Zero suite more implement also for doubled Trust decision This factor to a

technology. same workloads, is Zero big core immediate and by the powered for opportunity next ZIA ZPA Trust Our

providing multiple for eliminates existing the Fortune ZIA Let clouds. Trust is now Workloads ACV exciting protection, Zero a centers single VPNs. deal doubles protect enhancing workload deployed virtual cyber and annual than for This customer XX,XXX for framework, their XX,XXX area: workloads spend. simplifying This XXX firewalls financial users, data and multi-million-dollar public this few highlight customer need to services the spanning a and purchased in me largest both users An more site-to-site operations. deal policy visibility wins and across with workloads our customer’s to-date The protects under and

CIO’s and Lastly, and framework discuss ZDX and cloud for our university Zero by via pillars continued as product closed was Zero a Also, eliminate the expanding offerings threat requirement all very the X-figure risk ZIA, theft. for marketplaces. for this X-year, happy market top movement I’m our priority We to recommended of meeting marketplace. their criteria environment. is ZPA multi-cloud critical X,XXX a An let new elite workloads universities for four routes XX,XXX success and as me platform research comprehensive with increasingly legacy in Trust NIST. Workloads of through intellectual a purchasing are for becoming AWS customer ransomware Trust Zero for deal lateral over win to purchased property VPNs together. users our Trust this target our Their

Trust Next, part in Exchange excited of where Federal Zero to government all by across the U.S. we are Driven I Order, am considerable levels highlight government. interest the we’re our in momentum. Executive seeing increased President’s having

security are country costs. to our dramatically posture while reducing We help improve IT excited legacy our significantly

We certifications ZPA. and have FedRAMP of ZIA highest the for level

of at level are There solution few ILX an addition, have company level. other certification DoD select ZPA this the that differentiator Zero no and certification. In Trust cloud cybersecurity with is us. for only a important there is companies only ILX is this certification,

this new a seven-figure wins First, factor: ZPA ZIA this X and that ACV a in was purchased contractor highlight customer quarter deal. an me X-year Let where defense important

with instances are: for security success firewalls We VPNs. core for zero unit Remote to in cloud. Two connect architecture achieved ongoing eliminating threat the to AWS that access SAP gen Second, for a service in can’t applications lateral trust the authorization next and be a network, DOD Trust Access. market users considerations of Zero purchased High cloud to also cloud our FedRAMP Federal Gov ZPA principle is not important only movement, by secure or First, the ZPA

proxy Second, which ZIA’s inspects superior architecture, security. scale traffic at delivering TLS-encrypted

XX enterprises. world’s scale inline service cloud experience in Google makes increase over partner mission-critical of deliver day, An per ARR, XXx requires and governments no than obvious day. of proven our XXX reliability $X and year-over-year. XXX compression a that billion example running We of choice exceeding the number XX% inline operational years million per of which availability a largest cloud. is the track is customers unmatched for cloud. transactions for searches There algorithm in-line now more an have proven for over record We of running and trusted security the Our that Zscaler Zscaler an such is processes

exceeded portfolio. made rates, driving the faster few are customer for of which greater number a me services, share account of broad success quarters. let together net which our adoption a high investments technical and XXX% and partners, X Now, our last We partner a certification observations across in services, about retention managers, has

driving is accelerating We which upsells. for delivery, value have solid a blueprint

by that these happy company. demonstrated than SaaS more of NPS All is XX, customers, more than of an result of which investments Promoter Score our Net or in average Xx

we CNAPP, functionality who pace integrated beyond of offer but most we Next Workloads. now point-products of a scores backend Infrastructure-as-Code rapid Unlike Users, correlated, now with CIEM CSPM, and Zero developed having our let the ZPA. built threat me awareness dashboard. fully calls to for has fully provide for and Scanning are common expanding innovation. the native and vendors Trust integrating cloud platform highlight Zscaler data this moved actionable Trust Zero by have After from for for it and apps, CNAPP Gartner a ZIA comprehensive

issues will not service, fastest growing millions Zoom. to it information cloud Teams annual automatically experience. enhanced digital our improve We It other figure screen and provide sharing be of at ZDX, voice, our highlighting about from only also Microsoft for AI/ML but our are quality of with leverage video what innovations due user Zenith next and engine telemetry We out performance can to of the month. and can integration Live, where points and our summit new billions users to

and efficient. ZDX ZDX ServiceNow end-user far cloud. more available have on became also integrated our We certified making with also Federal got customer support

massive groups XXX reconnaissance higher intel threat deliver Our This day and getting about specific from tracking protection other behavioral threat vendors. is trillion coupled their enables effect patterns ThreatLabZ to security Zscaler signals APT threat billion better a and cloud over in tools dozen than order transactions XXX our and intelligence. research resulting with team better per

to now systems. Trust integrated of are access solution Zscaler users opportunity. large emerging an systems, to a announced IoT/OT beyond Siemens we workloads, the to OT availability all-in-one Today, Moving and and bringing secure Zero accelerate

Zscaler with factory to the control of development joint industrial systems. Siemens benefits and Our brings

partner. go-to-market see thrilled strong are a our as of continue and to services. Siemens, customer, demand long-standing spite We closing, we a uncertain in In for macro conditions, have to development

We are we position, business. and continue in in to financial aggressively will a strong invest our

and hiring a creating on rewards that at focused and all levels. are culture talent innovation We developing

trust Officer. scale. as People believe Recent highly motivated our network pioneered security network this than with build our month, our macro and any securing is accelerate other to headcount acquisition, we mainstream, hybrid-work to resulting and energized proven in machine. approximately shared global sales hyperconnected new who drive today’s market, Zscaler With on transformation for go-to-market Zero security of platform, by world We integrated environment we global top In year-over-year, hiring customers productive employees are in and talent. marketing grew on Castle, to their building for and transformation by has our journey. We organization our becoming is focused business transformation more a Chief hiring cost, continued in also remain app reductions Google’s growth mobility. experience Zscaler is have high-performing competitive their We and of welcomed our and secure investing cloud in Brendan already to Zscaler’s mainstream, provider culture, the customers grown uncertainty and with in teams our the former cloud in risk. complexity at XX% To mission destination and Trust total driving Exchange. talent X,XXX which we head Brendan

record of demanding commitments customers, of customers trusting Global a XXXX platform. to XXX Global with our XXXX adding multi-year are XX% making are Zscaler. These now number and of Fortune We large XX% customers

We growing cost, just are also and profitable rapidly growth. not delivering at we efficient are any

We growing to opportunity call I'd over of financial and continue to ahead capture for Now our turn innovation the our investment and Remo the disciplined in results. growth large will to like us

Remo Canessa

Jay. Thank you,

Trust by for $XXX approximately On broad was quarter continues platform. year-over-year. was had be we mentioned, and the APJ demand total revenue XX% exceeded Jay to ZPA regions. third a revenue XX% major of XXXX. XXX% for EMEA Zero quarter fiscal customer our Revenue fastest-growing revenue results geographic revenue, our was Americas XX%. the with year-over-year. a perspective, strength third From As across year-over-year of growing million, of up are our growth we of was growth the pleased X sequentially. XX% for XX% APJ year-over-year XX% region the XX% up for basis, driven straight XX% strong revenue, and product with quarter represented

XX% billing to the billings above grew XX Our to ago year-over-year a with $XXX million, normal range. total our and of calculated year months duration comparable midpoint toXX

RPO, from total XX% or current obligations, $X.XXX is RPO. The one performance billion. of remaining grew ago the Our XX% to year RPO

and and in rate, paying platform at XXX the ability a metric up these we continued quarter. annually, again annually, XXX $X $X are Our the adding retention resulted more XX% added the which to quarter dollar-based $XXX,XXX strong customers customer quarter ARR retention We initiatives. customers’ customers. million to in increased I’m very million rate XXX we was transformation our We X,XXX upsell such by us customers our XX enterprise customers have play high from customers: at than in the prior The strategic role above in broader which pace strength than paying had our focus speaks the we the us in with XXX%. net more year. pleased in large ending the digital this

flat XX.X% quarter-over-quarter gross approximately was Turning the QX year-over-year. of of and financial to total performance, rest our margin

XX% of as was was due Our year-over-year compared $XXX flow to the revenue XX% percentage to margin return partial ago expenses year T&E. total a XX% Operating a and quarter, and XX%. operating cash sequentially million. expenses to in was X% Operating XX% free of margin increased

and short-term quarter We for continue expect the investments. cash, the data around to full percent ended center cash billion We digit to $X.XX year. in over CapEx equivalents, revenue with of high-single be

points. Now, and moving modeling on to guidance

which related As payroll amortization a excludes of reminder, debt all discount and and stock-based numbers of taxes, assets. are intangible non-GAAP these compensation amortization expenses

once are all metrics. our guidance increasing We across again

growth Segmentation million. will and more like of expect we number on of ZDX, fiscal revenue to the to initially them I that margins including products, of quarter because growth rather the gross of a XXXX, our reflecting of to Workload emerging have year-over-year CSPM, profit and remind gross XX% margins; than gross to XX%. $XX fourth of million, range focused for million a million would lower than operating range optimizing are products, in margins our $XXX the XX%; investors $XXX in $XX core time-to-market we For

other We $XXX,XXX; $X.XX RSA million of taxes fully shares. approximately million; XXX in-person Live loss share and assuming customer earnings income per on million of diluted to conferences; more income events, this to net $X.XX, including have events of quarter, XXX Zenith $X

full flow cash of growth cash $X.XX XX% a $XXX With XX%, earnings the approximately free million the or billings growth approximately commitments, XX% are For guidance market margin for a revenue per platform of With our range XXXX $X.XX to fully of range full of to to of million at growth our invest expect $X.XXX XXX margin profit increasing increasing adopting our broader of diluted XX%, fiscal a shares; full-year free customers we flow to to $X.XXX we approximately approximately $XXX the revenue large of reflecting billion operate operating $XXX cash free increasing in million, assuming of increasingly XX%, billion to year-over-year to and a calculated to year-over-year increasing opportunity. of range share or for $X.XXX the to billion XXX to the million, Rule-of-XX we flow year. longer-term outlook our capturing year. with plan million

confidence and after our the retain very of initial base. and model, high durability contribution to business customer our proven upsell margins ability have enterprise We land the to with in

will profitability now continue and employees, our open our the on will to for growth best which we may is is call questions. but business the based and shareholders, Operator, We of balance prioritize how growing, customers. we interest in believe you growth

Operator

Nowinski first Instructions] of comes Andrew question Our from [Operator Wells Fargo.

Andrew Nowinski

or quarter this seems about to it demand. maybe seeing I underperforming federal sectors. from Federal an quarter. the momentum Congrats saw be you're I Jay, I the think of think uptick -- QX, ask you said was considerable one where you this to amazing your on another U.S. wanted in which

changed on what what in the flush could So caused budget uptick maybe if in demand quarter this wondering ahead of QX? you just calendar that and usual comment

Remo Canessa

our single new on see an of Andrew, we let do go-forward We basis, I'll quarter, important start digit, and we're was QX, a definitely federal an being speak so well that upsell. in more to digit was that. market. it as to the mid-single And Also, Jay last uptick. I'll positioned low federal federal QX, it Zscaler. feel in contributor

Jay Chaudhry

you unique be right you done. to and the X we a Andrew, timing aligned President's FedRAMP well certifications. is are certifications. which Two, being we need And setting aligns things. architecture, issued budgets know, in House a a Trust X success as executive And we FedRAMP federal, achieve now Trust, it's architecture, within memo One, order are what you years. To the Yes. Zero implement it plans These have. White actually as with Zero and have have becoming Zero architecture Trust available. there's submitted well. highest agencies timeline to for issue more need

of development our All long-term is point positive this view. of from

time. save always opportunities Fed However,

Operator

comes of next Our Henderson from question Alex Needham.

Alex Henderson

are points that vendors? your that they're context, in aggressive today been those can address versus doing X more this of seeing terms what is, received just traffic, the this policy those XXX% Great. you you listening me lot I've in And relevance relative is concepts a then talking of the data highly comments one, Trust in you're second traditional better sharp to And how about really perimeter talk to things X last market. into that differentiated to say, defense. attacks And over implementation to trying so increase increase of strikes in Cloudflare's mechanics alternative platform? of Can or encrypted in get the we're attacks different space? than, over than people radically Zero X getting the a the And the the that year. is you that encrypted report solve

Jay Chaudhry

thank Alex. Yes, you,

a Zscaler Trust Zero It's isolation, And entire of and of all, you a top People the little it Literally, of because build [D&C]. policy call and that [IAM-based] VPN on do fact, a Private platform between in and application implementation. replacement Zscaler Access help with What So a we deals app running. is expanded you're Trust. the first need you browser sometimes Zero they replaces nothing that that big inbound further time. winning ZPA segmentation. interior that, workload we deception can protection, built to

part. So that's X

The part was attacks. second

attacks for attacks. find -- And Zscaler, they our someone next the attack, So architecture, you. first Trust this of to they applications impacted Zero is need to is behind find. can’t part your and all, hind even With of

For proper of look a them connection, that everything, architecture them, package that, proxy care you terminate at decrypt need and actually find the take and them.

scalable that else that, a built have sets that there. nothing highly very we out For scales apart, us like very, architecture

it's in-line cloud XX-plus these of With apart running others. combination what years of experience a is So a sets things. us massive from

CDN focusing of on lot some to market It those we on We build regarding and a market, DNS functionality. time or right, ZIA, to users breadth coming generally functionality the focused have from and of Now our are takes competitors DDoS experience of with guys richness associated start with. ZPA start been and servers. built have

setting. I long, take we will a someone are think long us. it to to And try for time catch

innovating pace. are a We very at fast

Operator

Next, have Morgan Fodderwala Stanley. Hasma of we

Hamza Fodderwala

stock the well. incentive of forward, going and done in pace general just a more hiring the structure be a market to around between Zscaler question more what wondering opportunity margin of employees want little against probably given How incentive equity last the on particularly that Just the last years. lot going you're the you has couple going in of can about you of give of to are relative a a forward? cash thinking destination in market And have couple like structure you're hiring done we're that It seeing. you've trajectory the stock, if in one years? obviously continue more difficult that the us and seems you about talent been to thinking Remo. bit for I'm how color for

Remo Canessa

of Yes. questions Yes. There are a lot

-- flow and we're And the this define kind me go you That's our my revenue free year. through and the Let Rule-of-XX currently, that is Rule-of-XX. way we're if at growth can Jay we can also. just the We projecting view margin. cash also what give I and see for of maybe tell

Our last free year. to margin we're cash was this It flow XX%. XX% projecting be year,

opportunity a early So of take stages of we're as because in flow company as the advantage market. got cash market this we've significant we're unique in this coming the position into really to well

investments going going across board company. investments continue to So and get goal going throughout ARR be to and we're the to we the organization, are Those a as to make forward. to go $X to is -- we're our billion

So we're the about that and And do companies the quarter with infrastructure on building to or last the lot options related the companies incentives to environment, and big PE-backed stock the in with having last employees incentives that. related really talked place incentives, to of companies and just cash frothy call a cash packages. start-up we

we So reflect market to levels. employees at our get our to adjusted merit

So in good shape. from we're compensation pretty perspective, a cash

you coming a a as is goes of large companies, see stock-based get stock follow scale path do -- -- stock-based when compensation all decreased is becomes have very stock. a point We'll Stock, going I our is perspective. a as taking Regarding decrease regarding look stock prices But from what we're what a what to over forward, a we're to large made down basically time. the as as at and happens company, period go that. certain revenue. of base down. companies company the stock compensation and can this percentage we're their will No a doing at say same that our decisions you'll What we

things From seeing related for global pace perspective, the you're of environment. again, and not customers. our to the strategic macro we are seeing all hiring, our seeing the Regarding that -- it. We're we're

our deal getting As are sizes Jay talked about, large.

strategic is nature and customers Our increasing. our with engagement our

hiring, continue can So of to the if the will. hiring. we pace increase of And is pace our plan we

related color because, of quite operating frankly, operating profitability Jay we at in to we line. the profitability look and growth [indiscernible], #X, I are growth. regarding bottom to -- also mindful are put and We'll Now mindful.

So market we a opportunity, huge that we market. in leader see huge feel -- we the we're see

interest the and we We that feel do on employees. best and will basis continue a to is we'll shareholders of prudent our it invest, our

Jay Chaudhry

unit gross add may I very what to quick businesses. margins easier If X to economics, with becomes high Remo and us in comments for it invest said,

has Secondly, -- getting hiring environment the is easier. actually

that spending high-flying raise starting freeze are cost they're to or year, We now hearing grow people off and to lay down. and of companies to companies funding starting that are valuations are hiring, multibillion-dollar slow at any last

plan to leverage we want [NHI]. customers keep So on want to accelerating because accelerate Zscaler, transformation their they be will our to our because competitive

Operator

we Hedberg have Capital Matt next, RBC And of Markets.

Matthew Hedberg

Congrats. really the in me and deals Jay, was what stood sales. out multiproduct to large success

out kicking well? an some think you do like I the especially you believe even Because contribution? I partner these importance really deals. is it more the large faster that partner in there Can impressive of about deal. you talk momentum is hyperscalers? drive given can there in -- even of called on really to X-figure Is more guys does feel that flywheel

Jay Chaudhry

Yes.

is partners last fulfilling helping momentum been momentum marketplace. sides. like has leveraged been us have even partner years. from without Microsoft, several X who through One the comes the That So for

Now a bit. it over has extended quite AWS

X that's area. So

marketplace. revenue. is It to to us for area deliver channel The able being second through X more cloud orders is

steadily and part growing, a of these a AWS solution. has been transformation Our and clone as current viewed business through Azure both

of focal out So committed by often channel, when it that's an it's cloud through annual with a already comes the a marketplace spend customer hyperscaler.

makes And there's Microsoft many if a and deals deals. good deal And And teams. QX, think Azure I ways. of actually we recall, AWS and last large training opportunity through very with largest we AWS create marketplace. a leverage. that are generally larger through it Marketplace, quarter sales more you In to easier our X So in did these are

mean to in Global don't larger XXXX XX momentum and we companies any last the quarters, X our in So you've we added deals pretty seen portfolio. slowdown. that's almost remarkable, have see our I

Operator

Next, Patrick we Deutsche Bank. Colville of have

Patrick Colville

impressive so very of everyone and on on the me the to else's you which for guide, a is much billings of question My the Thank was me congratulations set having on metric echo probably quarter. numbers. standout

the pipes that think that just I healthy very the to for year. quarter investors expecting, health what guys in fiscal were billings strong for talk there. to Can underline and above fiscal guidance probably many guess you the fourth you confidence So give I seeing where the you so are

Remo Canessa

it. to contribute if anything. start And I'll you'd Yes. Jay, like

a have strong pipeline. We

talked strategic. more about, we're As we becoming

deal Our platform our really with And in created sizes is the Patrick, users X%, attractive out. up a that basically a projections, The while basically up. customers and at based we a guide, that's the the sales on. which We really It's our guide ROI. cloud with organization. did way cloud that addresses our removal efficiency are workloads getting both pipeline and world stands for strong and for is review with this key changed create the bigger. with very market give other this Zscaler in Also, in we thing what and locations, head applications on on-prem

seeing has so Jay that customers And with about, we're the adopting platform, of talked more we're that. large as seeing

to. the review basically is review comfortable a it So we what and pipeline guide feel to of we're

Jay Chaudhry

Yes.

transformation. consolidation. do cyber how And driving important. for about On we reduction is them it. big becoming that, what of think I issue. qualitative cost talked And of So engagements. that's is out CIOs I I of take to start complexity mean I our and into and help But lots as our lots are a that by customer Remo at pretty uncertainty there said, to and where think customers do a beginning my sense they're always there. And We our with CSOs, top projections account level, pipeline, a

all part a products of talk when a to So important them, together, be which to you And we they of be I that with, we about set bigger more and platform discussion to replace Jay, for actually you? and are now, what actually able need bought. things leads to bigger with security start become all networking products removed, can products these bring a

top stuff it's the people certainly calling start-ups on hiring, Now to it's slow how those market, all in high-flying of already. about the kinds of companies, see And tempered to from to down. us interesting different expected that, talk fascinating see That all unnecessary would is on employees, down. many getting private the noise means which it's start-up that

business. the So we are about bullish

Operator

Truist. Fishbein we Next, of Joel have

Joel Fishbein

this -- Jay, days. It like execution want early quarter. I know I great I'll your to sounds echo about just the congrats ask on it's workload the segmentation.

some to very go-to-market around actually and really doesn't It have than segmentation and you're -- of to IoT around OT. different to it about to hear going and in ZDX. ZIA, uptake. organizations go buying market I'm there seem and sizes they're they Love You're have areas. interested like excited and ZPA workload good specific centers natural plan how those deal inside increase

Jay Chaudhry

a Very scale. how Workloads, a This buying to our orders our question. talked to about of in but of are at very we last large we Workloads, QX, actually start quarter, area. some good them buy number Trust see Zero small In beginning this large customers

very that's now. So encouraging

to in the of and to it of Trust Zero engine. to any ZPA that to bringing it X in Cloud which buyer piece can for Protection available our the market a Live sets Bringing is Gartner In the we'll other what which revamped in stuff. CSPM, it with terms products a taking and parallel is type a engine. products, because of They and out to a ZIA to CNAPP together, called now to at CNAPP need good other, talk And from the there. goes put next is launching everyone. be technology collection offering is ZIA be workloads. offering, we goes We Zenith need simple security. area Internet workload, of that through new space. ZPA that One, broad which talk and build, flows and each apart month. the It's It's at API of have for in-line and This X buckets. It's us Zero CI piece workloads making Trust API-based very vendor

lower it, product, if really we Regarding at when look buying if part, CSO were comes to involved. a at very buying selling No you security be matter buys is the definitely level, what -- who centers, will it different.

our with us and good relationship CSO helping So Zero are Protection. Trust, Workload with Cloud

you are are us. world, your more relationship the these of are Head cloud helping to area CSO Our data developing center the relationship extending helping dedicated Networking us are building of But strong, out since relations is old in it. there. it and The links all we with DevOps with is side because

specialist. overlay but an have team, product creating do not we are We

I selling team. at when we specialists, point You selling platform level, help? need you're sales we broad been are that need overlay teams. product work hiring I a products which at have When do low teams with level. overlay need to high our don't Did

Operator

Citi. And Fatima of Boolani next, have we

Fatima Boolani

Remo, this million in $X momentum momentum. one is deal for the around multi-land you. anecdotes customer In Jay's script, a lot of in X-figure transactions the the

out a just I a of that from your commitments are what think you've seeing customers. you was bigger some called from So standpoint, booking to ask multi-year I wanted you

any sort invoicing not your of you certainly about if I'm any be in But on there thinking backlog? critically? that or duration. And comment we're we your observations there's if can So share should in curious duration more impact that billings seeing impact terms of on

Remo Canessa

great That's Yes. a question.

you our deals. RPO basis. are and If committed on year-over-year look a a at growth take CRPO Those

our duration, growth was the headwinds. year-over-year no RPO XX%. was growth CRPO to duration a Our on was XX% comparable basis. and Related There's

be range. We that XX in months expect to duration to XX

from the So calculated revenue. things which calculated off billings, of is I is Billings mean, key billings. deferred

So that's we But basis. and RPO rates, RPO year-over-year CRPO on a CRPO XX% look rate the at is and build. growth at growth actually what XX% we

answers Zscaler the best Now months. billings hope even we XX is That's outstanding, actual measure believe are said metrics question. that quite -- that, I that to commitment from feel period still But for making having XX question. are I that found is because impressive. those so to the we Zscaler your your answers customers duration that that though

Jay Chaudhry

pillar I which exciting. very if one This is add thing. may an outstanding of from multi-years, deals for doing customers And Remo, is multi-product quarter lots

Operator

Ben from Research. Bollin comes Cleveland of question Next

Benjamin Bollin

how wanted business around margin think business I quantify about sales how marketplaces of go you way back transacted of versus much the marketplaces. that Good the evolved? afternoon, Remo, has topic channels? And today that other cloud implications being over to is to also any should we the or cloud in can interested then

Remo Canessa

mean as flat we that to? but business to see cloud is going new through, I margin, through related Jay, if a going margins And for good expect want we marketplace. you us. marketplace. not Yes. There currently business through much a very channel important

Jay Chaudhry

steadily thing growing Yes. been over business marketplaces cloud time. that But one has through

is good. that very So

talk for through the the a large cloud part I able personally deal. accounting me team -- compensate do marketplace. hyperscaler It fulfillment customer. flows and more actually For the it sales care channel is extremely useful. together what's because cancer But through helped get CIO with sit us. for don't it the I that through the actually is to about strategic When does partners channel help to think to us, business the engaged they who sales with cloud driver Microsoft

are AWS Microsoft helps more them us. So we and so actually team, putting training helps focus and sales on which

Operator

Bank we next, of of have Tal And Liani America.

Tal Liani

get X at from the I in last topic. quarters, investors. this your at little questions. we X.X% flow impact slowdown, general, trying philosophical a or cash from view have quarter, it's I'm same times One, look at up to quarter time, the what's take. revenues like XX%, in I I -- your business? question, understand by in to recovered. And this on a and the operating of and XX% trying I are of the X give went -- asked I'm And margin a being went on along this bit economic It's your but would lot, down And it to your previous on a we're slightly focus question second, margins. question but hear

is the what to margin? needs X see about have operating margin leverage X your pros And for to you the if question upside. Can you years, margin. leverage I don't serious much if pass think margin to happen of and we forward I on So about the cons and talk

Remo Canessa

shareholders absolutely that I'll XX% we this we and flow start talked free drive try it And margin it Having free absolutely last to you to stage. growing XX%. at cash year no XX% SaaS gross a What take that a at disservice at line with year, or about have with opportunity, large growing with model. this be top is this do margin, cash scale leverage We over in we're the have XX%. a that. employees look we're market our if projecting model flow profitability we said leverage. our our when In at operating around was that, would the margin,

of that investments profitability, our be scale growth. top flow resources we're much. large the to this the our and executing free So kind position it If drive a in company are will we're at as really the flow mindful, when free wanted drive of investing will are, use cash that said we you market, cash for there's our that very business we very making in we is, very, with doesn't we making have better than margin and the cash margin it comfortable. in our take that be we mindful. operating But trying line to Having that, where no

attacks companies downturn Companies to they're going an money. through to from have perspective, important. find Also, and to increase. this basically probably save out areas the Now going going economic slowdown are are Security is to coming, knocking keep

are We efficient.

security of Our highest down absolutely the is the outstanding. level with significant ROI is ROI It to level. deepest

not so And are it economic slowdown seeing we currently. from perspective, an

on different Jay I -- we as X based or We've been change? hire continue I, of a we're to in X experience. and in downturns that can. seeing, what a pipeline, have mentioned before, our we actually our pace. going can what X downturns lot seen at and right now, -- about, on feel talked based our we've and we're It Now great But we're lifetime, is careers. the Zscaler position. to

We to all going line operating growth. also we're we profitability as top things account Jay? really trying -- be to into that this will it's increase go. driving we But -- but operating things and stage, at drive take profitability will

Jay Chaudhry

comments. quick Two Yes.

generating products, reached because the we have significant believe uncertainties do with cost good of and But I reduction. margins. products. are are flagship we all, on other help of our complexity drive customers First growth And to CIC side, reinvesting and going they new are to helping us there's scale the that reduction

that expectations well. we when on, on. proven have successful. We've ZDX ZPA growing than have brought seen did, faster -- made as Protection successful. we Workload ZPA it and It's we we from high We're We even making it brought

we'll that keep we platform, with expect think such a growing I fairly on large So efficiently.

Operator

Boyd from [USB] comes Securities. of question next Our Roger

Roger Boyd

results. the on Congrats

know Just vendors in SD-WAN of But onboard changes some you quick do a adoption with I of opportunities some agnostic you've facing to terms of how the potential risks? Trust those think Historically, on How Exchange. share question potential change ownership. ultimately success customers some disruption to the tied Zscaler Zero about in had SD-WAN. and to losses there. or

Jay Chaudhry

Yes.

offices Before customers SD-WAN in, ago, door, and nobody working downloading here do went network with, used in started and let's Zscaler start years start the a out goes. agent out COVID it Zscaler branch by transformation. COVID came lightweight X.X the to When roll there's to

lightweight lapped insignificant. of most role became from SD-WAN roll really it SD-WAN. our with Today, the or without customers out home, or agent mobile with that, a with our network office they SD-WAN, of work can any So they work from can

So we'll supporting to stay neutral vendors. SD-WAN

SD-WAN. Our are we that's If we no on rolling how customer generally it. are on processes and led by SD-WAN, longer choice, a sales the sales see preferred

changes any see us. So in marketplace the SD-WAN we don't really impacting

Operator

Joshua from Research. comes Wolfe Tilton Our next question of

Joshua Tilton

prices? you in positive from impact Russia the negative but either believe I remarks, you're or to seeing talk prepared the it don't mentioned you any about business the can Ukraine

Jay Chaudhry

a threat years do more our global this exposure -- It research not heightened quarter is I thing sell CIO in cat Russia. at nervous making cybersecurity is threat. a in was every in ago. Ukraine. decided have Hence, to Russia regional we revenue cyber area. Russia, which not environment, and any bigger Ukraine, ago or Yes. It's is a not a tracking team but CSO

driving Zero increasing Americans worried so our More customers is in are, architecture are adoption Europe, actually more is European too. it, the of this and Trust with while about So engagement customers. it

competitive, of remain large then there to impact I we some really very negative play and and We role see They quarter, any a cyber deals have transformation. top become we Europe customers them drive don't a engaged conflict couple on this agile, want of with that. highlighted. in including our this of So to the

So I any negative impact. don't see

Operator

question Rob next from come The shall of Piper Sandler. Owens

Rob Owens

from you broadly, more a see little opportunity what in wonder the I could I Jay, into guess, as the sit? And OT guys bit. if partnership where you you Siemens drill

Jay Chaudhry

of it changing infrastructure but there. this been VPN and security OT all the as slow trust-based have OT critical time, a big They see OT security, factories some to need for really XP where taking systems. Sims own where priority. are in longer plants like or threats typically attacks should and IT out and networks and say, providers plans providing have these zero remote to made systems opportunity these longer you access systems Vendors of VPN based an no you fiber networks connect take their I no

So did Siemens year has systems, development joint partner, essentially over ours their worked we a with where hardened or Siemens and through available technology is as last on They us of this now OT office. us chose the combined we so. solution and made our available our customers'

for think it's us. a good I opportunity

all and opportunity. systems well Trust, that matter are time OT Zero it's embrace will of a positioned for when think I we IoT

Operator

for I session. today's over would Q&A turn the concludes conference your this closing And Chaudhry, Jay CEO, remarks. to back

Jay Chaudhry

annual want summit. quarter. you forward you. and cloud continued Zscaler all interest also I customers our your Zscaler. Zenith many employees, Thank look for We Thank a to you partners I for thank want Live, to thank strong seeing at in of to delivering you.

Operator

This call. conference for participating. Thank concludes today's all you

have disconnect, day. now may and You a pleasant

Zscaler (ZS) 27 May 222022 Q3 Earnings call transcript