ZS - Earnings call transcript Q4 2022

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Operator

Welcome to the Zscaler Fourth Quarter and Fiscal Year-End 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] As a reminder, today's conference call is being recorded. I will now turn the conference over to your host, Mr. President Relations Vice Strategic Senior Choi, of and Investor Finance. Bill may begin. you Sir,

Bill Choi

Good Zscaler to and welcome afternoon, and everyone, the XXXX conference full earnings fiscal call. year quarter fourth

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

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

to Conference would and Mizuho release. following Technology upcoming XXth. the September filings as as on a the in Software September: Sachs that in today's attending like on more be SEC risks I uncertainties, see Goldman please our Summit complete inform we'll with September For of events and discussion well Communacopia earnings also you the XXth,

Jay. call I'll over Now, to the turn

Jay Chaudhry

am delivered very another customers I strong secure Exchange Bill. transformation. we results XX% you, to share year. our to revenue continued our Trust billings as XX% Zero QX and pleased digital Thank quarter, their to platform to outstanding growth the embrace end In growth,

while We generating profitability. strong growth this are strong delivering

cash XX%, QX. for flow a Our which was margin free was record

are While Rule-of-XX, get many This our of over high-XX% for gross differentiated Public service and margins. economics efficiently. and SaaS year. cloud Rule-of-XX outstanding for XX% to results gross that surpassed that quarter business multi-tenant the underlying of reflect the because strong to companies rate and platform the happy These we purpose-built, possible the our full unit retention is has scales

For to the full grew billion XX% XX% year, $X.X billings billion. grew revenue and $X.X to our

and We are all seeing verticals, market geographies. across products, industry revenue growth segments

platform making operational goal progress to in invest securing protecting innovation, To driving million is our business on users to our users. reach efficiencies and over bottom for XXX we’re towards the and aggressively Our growing great while customers, over XX drive we X,XXX million focusing goal, line. of will continue our

macro we my environment some Let to me observations through fiscal share uncertain the ‘XX. and in you manage how of with plan

for platform to conversations of Zero confirm IT tackling CIO the security that executives my challenges. and cloud SASE First, priority Trust proxy-based remains cybersecurity the confirm and top is Independent surveys best level with priority. sophisticated IT will cybersecurity hundreds issue. a Board number a continue top Zscaler’s one be solution

reducing of accelerate cost complexity. and are user ours, rise secure demand hybrid IT for the macro uncertainty experience which digital offer disruptive believe and security driving work while can Zscaler. need adoption We of the better like technologies periods of the and In for addition, transformation substantially

Security in shift capture are towards Zero positioned ongoing market this and recognized Edge, Trust. well pioneer we leader the As Service to

significant new a address billion we with market, and opportunities. Second, $XX customer upsell

delivering measurable greater CXO ARR, above experience proven growth $X with level, than competitive elevate million with ending year-over-year We million superior outcomes and exceeding customers $X over XXX in ARR. the drove in over customers Our us at XX% including these customers, XX in noise. the architecture of

blueprint for our the us. our promoter customers upsell net for exceed consecutive great again XX, more, a SaaS retention more to delivering XX% continues value, Happy for comes now is average which our for business NPS net existing drives have companies. which than new rate and X XXX%, times score We exceeded strong of quarters. customers, buy has from Approximately and seven

continue and addition, expect together platform In customer large drive with upsells. we deep enviable to to wide our of enterprises, our base

a ZIA and have we our for before, product pillars. with existing opportunity indicated customers have just we ZPA X times upsell core As our

us consultative with our enables sales in our the and customers, engagement C-level. high-level a to success role of process Lastly, plays our especially maintain major at a

multi-year, assessments, more our As close customers. this pillar our deals. scrutinized, with adaptive QX, large cases process, changing CFO-ready business part sales periods produce resilient these makes calculated In will ROI and and business. of we of delivered us our to multi-product helped continue believe business drive payback we which many in environment collaboration process to saw more value getting us with deals we We as business

accelerates customers forward, for am them. about makes and ZDX us This solution Trust deliver new are journey to our a buying critical existing with we Looking continue Zero and and customers’ I win customers. excited to as together ZIA, ‘XX fiscal transformation users. a opportunities for complete Increasingly, ZPA partner

a in Let ZDX pharmaceutical and a premium With options, trust access with logo company QX. a superior me has China. ZIA, zero multiple employees. experience regions Zscaler user In connectivity of with for to multi-nationals out purchased two in China Fortune improve This discuss ZPA need deal win, security without started data all XX centers China. XXX,XXX compromising for deals various new covering such regional in

and is purchased of support AWS workloads three-year, all ZIA, larger to VPN, us. for also the appliance or for their They ZPA, these cloud scale to customer work hybrid adoption Workloads, for zero at and SASE the This becoming accelerated our next-gen understands engaged used in Next, they required customer for the either pillars M&A We for referenceable that product. incumbent an for we connectivity a to VPN ZDX was Zscaler which biggest eight-figure under not any enable platform: cloud had cases. Zscaler firewall trust zero this risk. Impressed deal Protection. as who vendor XX,XXX its use disqualified hosted for name, strategy. is Workloads a no a this customer trust with with Cloud is M&A four This with channel their and call or multi-cloud, us This customer app-to-app deal what integration closed results, IT marketplace, company-wide global us. security their

expanded customer’s direct including years. million. doubled quickly over of cloud. in In I two for XXX One largest users small ZPA users my This from the case, the from With were tech employees XXx morning less Next, a to our spend who extended in which this a access entire “Every zero for for and quarter started with in to with employee use improvements deployed than annual and change. one came integration working $XX fast quote, a grew trust the in experience, provided the Users into user seats buzzing ZDX. another data customer center deals offering years, log slacked, for delighted us Zscaler customer and anywhere ZIA, applications dramatic or M&A thankful commitment IT the company-wide Zscaler Fortune and about the into journey initiative. well their with Their three machine, Zscaler!” XXX,XXX to I’m This I

our pillars saw perspective, product performance we a of all strong from platform. across Next,

of Our our core and contributed to secure pillars, of been manage our ZIA and business excited and fiscal digital products: ZPA, expect rapid emerging to Emerging ZDX XX% new are we servers in workloads. and user for experience, the ‘XX. have never in adoption continued and fiscal Zscaler growth ‘XX, we stronger, about products Workloads

Zenith rapidly Control CIEM, launched We platform. Infrastructure integrated expand for as continue solution CSPM, Code vulnerabilities public innovate across correlates our to conference and June, as Live scanning. our risks we fully and and Posture a in clouds that At

customers. for our and of is adoption In deception into opportunity. innovations This our shortening our expanding addition, platform our market new example strategy an market highly early-stage integrated acquired we to our great by recently acquisition saw our and time technology targeted

zero to purchase, NAC, their trust. for that is user, or bundle the delivered ZIA, Zscaler a of of the million emerging a VPN, agency In VPN, purchased a a We employee and three VDI must-have, user the to Fortune that detect Deception performance troubleshooting application, government Australia every value. a ZDX With products: to seven-figure with approximately connects customer This seven-figure Zero user-to-app it won resolves network issues Control they The me Access time in a segmentation, by ACV company experience cloud every monitoring ZPA improving not were this of plan Transformation our win, to and every for intercept They ZDX, segmentation. deals pinpoints infiltrate or implement XX $X as driven network understands and by and for with network actors ZPA latest by Let security, said network-based total infrastructure. customer where and legacy productivity. in their ACV purchased reducing Access Trust value Network including highlight immediate and bad insurance an on-prem ZDX if accounted replace location. trying to upsell network. ZDX that’s real-time ACV hop, regardless

data APJ purchased their Workloads efficiency. VPN Zero inspection. AWS to Finally, Trust need We With firewalls movement Zscaler threat apps Global and complement operational financial the and to in virtual and implement running lateral a while Azure, security in for prevent many for improving networks, eliminating services to eliminate architecture for ZIA services customer by backhauling workloads ZPA traffic site-to-site reduced center and for workload they for wanted users. XXX a XX,XXX through cost and and the complexity

us now two only discuss making with we together ZIA, authorization Next, High have of the certification. which let in security vertical. service ZPA, products have level FedRAMP at to FedRAMP makes We me progress cloud the Federal highest for the are

Zero In ZPA our new and over ZPA certification. Federal certifications of are addition, purchased together. XX the These QX, customers added business. we ZIA them driving only with Trust half solution over DoD and ILX In is federal

particularly agency a of deployment. received Now, as million ACV I landed XX low-seven-figure a want we contract highlight will we awarded with Against the federal of I’m five-year, about: over for an be at order XXX,XXX time, based these ZIA for this that deal ZPA. We have this upsell The organizations. users. were large of opportunities Cabinet-level granted over agencies with task customers, $XX cabinet by XX one large value contract excited award, initial to on plenty and

down-market plans momentum certifications we’re on Zero registrations. RSA heard opportunities in cloud-centric transformation growth further are the with Next, and year-over-year and the partner, me which partners, and XX% providing us with over together we saw building conference, in contribution global are we a practices. our driving consultants. about comment building our their to large is channel We higher increased leverage closely business. you programs. our At the for I’m in that about key with also to the with let sourced-deal channel unlock talk Working Enterprise segments, their Commercial excited VAR can invest grow SIs SASE Zscaler Optiv, Trust new

marketplaces, cloud very this for us. growing to channel Moving well is

business Azure, We marketplaces integrations, made our Xx collaboration our nearly grew in generation new QX, investments cloud co-selling programs. with demand opportunities In including have and deep and AWS year-over-year. technology strategic through

upsell our top deals of we the including of five greater-than-$X the deals five through quarter. million example, signed AWS For and two new marketplace,

Our partnerships highlight can their for close access streamline our us cloud strengthening customers, the ESG customers’ I give which sizable important process. budgets and deal to their another AWS area want to goals. Azure also

significantly emissions. for which the appliances, eliminates and Our usage, carbon cloud highly waste, need decreases efficient energy on-prem IT

for We Zero relevant to renewable covering are goal XXXX, calendar X proud economy. to own by products carbon any our for macro procurement. our point In also Zero for in their X, cost. more continue collective favorable to demand even believe agile provider competitive, conditions, and which Net travel, joining Scope achieving year, committed Since announce makes with ESG businesses we customers to uncertain consolidates Zscaler to goals. public Exchange use, to other see be and We to cloud journey. X, than more cloud transition platform, energy I closing, our a last categories, low Carbon including reduces our and effort Trust be trust securing simplifies Neutral are and XXX% customers a use, customer excited we ‘XX, am IT,

we of delivered grown our the and our I cloud for growth global profitability strong their to tireless a to efforts We commitment to and proud employees secure thank approximately team and in partners who customers’ success. to have hyperconnected the world mission our X,XXX extremely and want am share XXXX. mobility. of I our employees

invest opportunity to will delivering our while operational customers and We of delight excellence. large continue the us, aggressively ahead capture to

to like to financial I’d Remo Now, call turn results. our over for the

Remo Canessa

Thank Jay. you,

strength the quarter XX% up pleased are XX% and growing year-over-year. revenue of quarter From a of fastest the was year. revenue XX% year-over-year. geographic had results up full total $XXX our million, be XX% We Revenue was was the year-over-year with XX% approximately product revenue, of for and XX% major sequentially. fourth APJ we Americas three across to revenue, EMEA growth ZPA for XX%. XX% broad APJ perspective, was with our continues regions: and growing region represented

delivered in up year-over-year. billion, XXXX. This For acceleration was the we XX% from an is the year, growth fiscal full XX% revenue $X.XX

a to XX the of $XXX ago Technology with our verticals: months Healthcare, range. billing XX to to calculated Our comparable growth year-over-year million, in strong our QX slightly and billings Finance, XX% above duration and normal We Manufacturing, saw total top year Services. grew in five midpoint

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

mentioned customers. a are of as RPO. orders typical from award contract individual XX-months Jay for total as be million point the $XX recognized is contract the As federal in a government this agency are U.S. our our five-year, clarification, will length which in the received, Federal RPO not term value task is for included of that

Zscaler expect pillars, which for ZDX total or we contributed Cloud our grew business. in for products high-teens the and pillar, and Workloads XXXX. two emerging Protection, business met used XX% new our products, and our full between include ZPA new new of Moving ZIA was offerings year, CNAPP business mix and we what in percentage emerging of contribute XXXX, for and XX% in new on call as Zscaler to ZPA to Workloads, fiscal our targets the to to core product our our a Including the deception total fiscal total pillars.

and to Zero a large portfolio market. our pillars, have innovate we our We will position in opportunity strengthen leadership to the our Trust all with and security expand continue

broader strong to the dollar-based rate, platform our retention retention and above customer high ability resulted the again rate net upsell Our which XXX% for last have a was in quarters. seven

annually, to at we play such field contributing Summit our annually, quarter enterprises in large and program with XXX opportunity initiatives. the our paying us are The a paying large year metric with of to We to overall enterprise than in the to a provides added million had in We X,XXX our than increased the customers’ growth. the employees year. focus platform. $XXX,XXX in more up customers, the and have XXX which with strong base customers customers us us strategic XX% upsell role digital significant We our X,XXX Expanding engagement broader this prior enterprise ending from XXX our more $X in continued strength X,XXX speaks smaller customers. investments transformation customer Partner

financial our margin gross rest year-over-year. percentage was X performance, the XX.X% up and to total point of of nearly quarter-over-quarter QX Turning

was $XXX Operating total and X% Our free XX%. increased flow and expenses XX% operating to XX% sequentially margin million. year-over-year was cash margin

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

few framework operating environment. a thoughts current a our share to outlook for in from strength. business the like would I guidance, of is our providing Before about position the Zscaler

fiscal customer a pipeline a opportunities. with set and this entering are We record large year of

increasingly business the our and to base. long-term the land, to in large to commitments, upsell after durability initial continue invest platform with to enterprise plan retain capturing margins contribution we customer model, adopting confidence high With in broader with proven opportunity. and our have very We customers ability the market of our

by of Jay continue of and macroeconomic think scrutiny QX, to the our in scrutiny uncertain prudent was more end backend resulted deal higher business review there loaded. expect As outlook. We level customers being mentioned, at more which to it's the given this

business and our very on to the deliver we XXX business the for us if In environment operating adapt guidance, ‘XX, and profit platform to in deliver operating approximately of intend demand to Zscaler fiscal quickly remains expansion model changes, points. our While goals. strong, basis margin allows margin our

Now, points. modeling moving on guidance to and

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

For million. margins XX%. I the growth account of growth of assuming for our and a first number the investors $XX EPS. shares. lower will million to million range of revenue quarter XX%; to remind to in of include accounting we starting Please other of them million. to quarterly are which Income margins. and reflecting million. on shares taxes in expense gross gross for adopted XXX the $X of in to like than we profit fiscal would convertible Earnings count. our of $XX fully-diluted interest if-converted $XXX,XXX standard of share $X.XX, more notes, million products, we to the need use $XXX $XXX requires method XXXX, Operating optimizing expect income XX% new million, XXXX, back the To than year-over-year Net range fiscal initially that of per because approximately will fully-diluted $X.X our X.XX time-to-market in approximately for rather emerging products the note that gross have of calculating margins you focused million share core a add

calculated range billion XXXX $X.XX billion billion of growth growth full-year revenue $X.X XX% XX%. For $X.XX in approximately $X.XX the of year-over-year of to to we or range year-over-year billings the XX%; of or expect to fiscal billion the in

XX we range. mind, of comparison we months at QX. ‘XX had XX that deal you duration have mid-XX% want the year in billings, one-off and will normally that to year-over-year While we a multi-year billings In remind difficult normal invoices resulted With quarter, don’t in guide quarterly QX our to approximately that ago to year-over-year. we expect high-end I the to a billings in grow

to We approximately the year to also XX% profit guide, fully higher expect Operating range half in our assuming $XX XXX in first of be shares. first million. of share years. the to range $X.XX mix than in which Earnings is of our mix the last Income full billings million. to XX% million approximately $XXX half diluted $X.XX, $XXX of million per taxes few the

notes and in for to in to interest As share convertible shares $X.XX X.XX million include noted earlier, expense the need will fully-diluted to account EPS, you add annual million our back count.

with conclude our me investment Let comments on framework.

based We balance profitability growing. in our have to is high the will business. prioritize growth and will we on If how investing business growth, continue we

are in As to revenue we in while We XXX the expansion confident can points investing long-term. margins opportunity we’re platform, XX% growing our remain to reaching the operating than we in XX% XX%, you of With discussed, this if of increasingly less a profit goals. operating margin our faster aggressively than the adopting have customers expect with basis committed market huge and broader company balancing year.

a Operator, the profitability. priority higher we global may you place on see operating if flexibility we the a environment, However, to deteriorating questions. call to economic have now open

Operator

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

Andrew Nowinski

contributed of likely was points, that And guess, clarify that. doesn't imagine in in a I'd deal. deal Fed lot with I'll wanted big to It that like QX A start it's not given competitive. RPO it I but the interesting data any yet, but revenue size maybe sound

quarter deal. just beat pipeline Thanks. So the could end And then look Fed, given the the given results in the does that finally, how fiscal in discuss Fed year just you remaining vendors put upcoming you strong wondering the this which with up? if you

Remo Canessa

Andy. I'll take part, the first

not almost been talking RPO. about Zscaler large better -- in growth There's an in entire it's much million all growth, billings what million at $XX RPO a also for that call-out But RPO is that with right. to we've is great which the is $XX You're because the or it's that in quarter absolutely not your look also, deal. call-out revenue not for most

to over turn it Jay. I'll Now,

Jay Chaudhry

Good.

the through the won regarding deals of need process. was all were all very it. and But nature legacy that competitive names you the end you offer the the at They security network a So, firewalls expect federal can obvious imagine competed to all competitiveness, would the that for deal, competing, go architecture all the it and vendors, all And like. day. almost

it. customers, of federal take XX federal So, deals about we have time. and as some as excited XX us We these for are our lot But of Cabinet-level know, do the agencies you opportunity the there's a in market. of

Operator

Bank. Our Brad from comes Deutsche of next question Zelnick

Brad Zelnick

leads in questions. it's [Technical are Difficulty] items question. end and if But unbelievable to related, against mitigate that the which on seem customers. is land that's One, to essential security budget And budget seeing for and there execution IT transformation shift and new terms true times, connectivity difficult well a understood I fund network two it's would Zscaler environment, Jay, logo that. my to and just a it that think where fantastic any tough how customers. related curious you coming nondiscretionary more for initiatives? is in customers And I'm you're their Thanks. for tougher of from

Remo Canessa

the is A Brad. who expansion tell for new -- effort faster. to what one personally seen we lot That's a logos I why market? And get happy takes I discussion often do company bit hundred for it probably conversation -- current your very for us. can A you tests. more us. than a new B, especially well business and to when It goes thing And XXX probably company is few new once which true they new went, move are call is frequently from unusual. customers to are the they what CXOs The I'll exciting over when CXOs called and do, logos, they -- us mean, I've from our you delighted. is very tell time logos. size, in and trying coming logos current Thanks, very that

upsell. channel do logos want of largely lot addition, both, like to partners In well new new doing we as focused lot we and on are because are are program. logos to a demand-gen important doing gen as us. our the programs for Both help demand are A of

the where are Second of to changing. fund. probably transformation coming transformation, driving been from the question is budget nature but your is has Yes, our we

First the before that all Internet the killed of and transformation a is network COVID, used be big corporate discussion problem. of all, to COVID said network.

gone able should So and It's to work mainstream be away. you go that for do. network has evangelist many transformation

Now, money. asking where from? budget CIOs is help products. eliminate the please coming a save thing CFOs and of Number now is, Help are one me lot me point

cost by lots thing a So Zscaler, and which process end big elimination eliminate a reduction ROI one is in part. up especially showing a getting of platform budget good can We and for actually products. wireline sale. the bigger of That's

helping is, part marketplace prepared second remarks us. that highlighted are my I The banks in

these asking mature increased value seen them. us of spite That's Some actually commit for business for a value that why And because you've out their of with already deals in budgets process. true that's group. it and very coming do large hyperscaler business quantification, very what better of our revenues are doing customers we're well is are and

Brad Zelnick

Thank you guys. Fantastic. again, congrats so much. And

Jay Chaudhry

you. Thank

Remo Canessa

you. Thank

Operator

Thank you.

Our next comes Henderson. from Alex question

Alex Henderson

employees talked I lower adoption help they of amount as resulting at rate, their the Live a to well stretching that, think products. about them because in the you're in as yes, conditions may there run you that, eliminating duration. your point of need turn, be to and mainly operations cost is back some such But lower higher event, able Zenith

months, result their to X.X as last ability deal requirements? cost the sizes an larger a you over and and staffing of that seen further companies increased tightened have help conditions rates significantly win some have diminish the as So

Jay Chaudhry

all our to run kind one, like. takes many service many, the is actually have and companies, appliance conferences of We who fit have Often operate publicly of Zscaler the much that stated needed sold. number customers it to it's companies in -- what firewall resources

it. So, pieces from of of that's at Operational part reduction from talk products of obviously cost that you looks the are of Cost savings customer operational is important point elimination about. one an area. Zscaler. four is from cost that There part

large sitting enterprises. CISO appliance one products many it believe You And any are peak. called won't security so for at

cloud, users and I is intolerant area reduction. third business should And user and It's Our critical store which but in interesting to the everywhere the fourth it how say, like?" thing It risk saying, business improved the is get is It helps are linked downtime helps from C has the "What's slowness are is our productivity, customers as level hard very breach? work done. And out to are very, accessing when and us working of experience. and information value level any looking quantify of of risk, the a experience. have our So, had short the them and users sponsor always show savings good assessment process, cost it the What's we of C cost process. book. becomes us also we deal

Alex Henderson

to of was, be just question, The benefit a the amplified those four there factors? environment has clear, been change in that that has then

Jay Chaudhry

a is more yes. Absolutely, results. to assessment, direct to be, and the more Probably and do those it strong need commitment quantification answer Yes. delivering would

Operator

question next of Our comes Fishbein Truist. Joel from

Joel Fishbein

FYXX. forward use do side of what also, the us you on know Want Great great be? then of what's of this little what -- on I -- two to question, in cash, And outperformance execution. on of the two bit Congrats you Remo, will billion a point evolution? some color going in gave cash the $X.X one understand best leverage at the parts. margin the -- just drivers the gross business.

Remo Canessa

I mean, questions. good

colo depreciation outperformance in software cost, we've cost, QX, well Basically, the So the the just that efficiency it's lower bandwidth overall in cost, created authorization XX.X%. as gross as and with our did cloud. ability we out the thing with public to the by applications have in on are Key come applications faster line. primary outperformance the to top gross Those margins reasons. basically putting recognize we with margin, our

margin, We gross the our can are we From also perspective, best to expect is between XX%. gross continue from XX% our the to customers. quickly 'XX and to and long-term our Again, In products will XX%. as we do fiscal as we expect midterm in going that. deliver margins we a perspective,

working have invest we be expect $X.X clearly from gives high So, our a with really in also don't it high to XX% it be strategic bound, cash, within for significant. to need free such 'XX, that perspective that. growth as modeling flow I'd or used of we're cash above. in From tremendous as long for just flow the last business. will from capital because billion free purposes. flexibility Zscaler It And perspective a for plans cash flow in perspective the a fiscal margin We year free margins as gross no for was cash

is that really for cash. So purposes strategic just

Operator

Our next question comes from of John Guggenheim. DiFucci

John DiFucci

it good little back a results. is one in it, really really and no bit. even macro you you it's to hear see to And on high-level question escapes. financial And don't sort of it the acknowledge which Brad's though your it's question, goes My environment, a

being it -- Is guidance, us how is loaded color can or whether but and on it Other other that loaded. ACV think not sort like How but for just assumed, Your comp, at this guidance your accelerated that? calculations some worse? how in more future, it, think implies than it your did you the annual closed softness your macro our if any difficult all, right? about why you you It's was a you mean can think any affecting implied confidence mention did right about I or the So about is and of you businesses you've -- in against per new -- of But it's Remo. more I give get back-end there probably softness and back-end kind talked business anyway. now. the

Remo Canessa

mean, a great I think it's question. I No.

QX. key questions, thank see I think We for it's the asking and it. did scrutiny higher one deal in you of

that that scrutiny higher played pillar-type And guidance. large, multiyear, to multi-product So, deal deals. mostly into related our

on guidance, a not not have our 'XX. That budgets took of business. our when in our perspective, put for happen calendar quarters. at a a impact a look John, many we place couple mentioned, you or customers in And As months their significant will few from

create of uncertainty the does that So, ‘XX. of our a fiscal second half in level

compares contribution XX%. guidance, factors all XX% year, consideration that and we took to the guided we last a when a of that is between that and higher in we So, at our was our look billings, which those for reason in half first And the XX.X%. did

feel second So, there's don't visibility we're guidance. our have visibility. the a And thought year, half. why as that fiscal prudent. And in the went again, a we that's lot also, better good recognizing it's of We first of have half -- we the into

Jay Chaudhry

add may go, with two ask good customers things. to from job. a our we've to And working needs may to savings I we is we of done change closely what make what identify needs if point things view. more on are sure I two do to a One

us, asking debt save are focused to please you money? more a have a what of helping is CIO lot because legacy We lot save can on I products, do customers money help.

And process now sales used be second, to but much focused assessment than more that alluded our before. to than sharper So, to we it used business value point. That's the to needs one be. is be on the it it,

Operator

next Our question from comes UBS. Roger of Boyd

Roger Boyd

for really cloud but stuck Azure, momentum Just couple on marketplaces, now Xx highlighted this a up the growth of and Any it the with seems AWS for to big ISVs like touch quarter. customers, quarters you've yourself? a today of that get how big and seems like win-win could VARs is it for and Thanks. how for that a sense given channel Zscaler

Remo Canessa

part as basically our us. for and then start a relatively I'll still we It's I'll channel strategic very It's early. still increasing, of relatively cloud marketplace the is do and see Yes. business. a small But have Jay. important it

turn I'll that, over Jay. to it with So

Jay Chaudhry

becomes a new revenue of Yes. for us. It channel

That's are That's base, past good. big me why significant. us. from from considerate Over let to the the big. -- us pipeline new this net pretty a way. has nothing But and with are three put now it co-selling years, small gone providers for working looking those the In numbers to

budgets budget kind part becomes more interesting is annual it's an that's one some little us, bit on of budgets. committed becomes one a for hyperscalers basis. are of to these other solutions approval those with become for helping justification our That after more The area us. And qualify easier

dedicating are We resources.

channel bigger. We become are making investment to in this

Operator

CGF. Our Walkley comes next question of Mike from

Mike Walkley

be have? seeing scrutiny, on the the sticking results. Jay, what thoughts, this gains currently and just uncertainty just year alternatively, wouldn't increased value congratulations And given market? the much. strong I proposition, why and they uncertainty, very just with given a you your the get tighten wanted in even customers, are you just year Thank budgets you deal share accelerate given Zscaler's to economic Or

Jay Chaudhry

I aggressive. mean, that's go what be Remo, let's I tell Remo. ahead. more Come on,

Remo Canessa

our be we wait mean, to We'll have to guidance, see. got When I and question. great prudent. give a like we It's guidance. you've would

traffic. from when highest The my again, down -- proxy-based, Zscaler, at world. However, perspective, take of security, and going a look this you purpose-built to it was level SSL for

prudent, like the see lower are worse, about, to security be need positioned. a other well, well But of complexity. our And get things I we guidance, we'll see to how professionals do major it. through. play there's -- world, that's lower I shouldn't in don't Again, number we we cost. say Jay for to and going The -- As then like any talked

say just as positioned well that we're company. Let's a

Jay Chaudhry

obviously to are would a I the I That's Yes. hard times better well, extra things with positioning effort I things us happen. say I vendors what require do to all first than make the say. certain us mean that to would lot out there. expect far great

Operator

Our Fodderwala Hamza Morgan comes from next of Stanley. question

Hamza Fodderwala

you replace going fully solutions? entering CIOs a Jay, these debt. of more who last up to want and to architectures is and that, years But -- seeing we in in CISOs replace or had still when of there into technologies over as transformational of it you a couple haven't like I'm we've a obviously are the seems security change hybrid IT. world more some there's existing to yourself to do of caught curious, what for often nature come Zscaler who the and forward? more of of these are are deals, and you technical do And me, work lot still lot days pressure terms does

Jay Chaudhry

question. It's very a good

replace. the But portfolio if the the or point. a devices think customers of ZPA, and with wave to branch was proxies we starting any our Number are firewall ZIA second have many about first big product point. that the inbound like That's of we replacing deploy. calculate the to the VPN all So, two, DMZ replacement essentially Obviously, beginning with there. out think it of entire you the of and ZPA, kind are

the stuff trust workload, the So X months. proxies, branch Zscaler new with number with -- is being X new this relatively Workloads announcement the zero all to done of cloud, is solutions we cloud in is branch The one. where this and brought have finals, or for the past

have customers in have quite few firewalls no We the cloud. now a who

a like will the customers typically, we So in think our We the firewall-free of they cloud. firewalls see, be -- virtual in cloud. buy we bunch

part in all we area that That's The DMZ, moving is data because actually slowest The and sector. part. very like are the third data these boxes And center, don't complicated. to where kind go my is pretty I on and time. of centers cluttered, area and shrinking are put park than park the would rather headed is data that focus over rather clumsy is. the fight

But it the Did it. we'll the we customers of there's very number centers for everything little that's coming alone corporate for stage center, your promising Public also with because side a data while. early So all leave demand almost branches where a I there. buying the question? of bit see firewalls a And data and cloud, replace out answer signs. from like of

Hamza Fodderwala

you. Thank That's helpful.

Operator

you. Thank

next Josh Tilton comes Research. Wolfe of from Our question

Josh Tilton

quarter. the on congratulations my echo I'll

provide margin next full maybe You guys year? guidance between operating operating the can margin guardrails and the for us obviously any year. and delta the cash about there how the you margin free Are should gave think for we flow

Remo Canessa

or the our a cash fiscal have you two has the Basically, over relatively above when done been are quarter, single in 'XX, we’re digits follow which in Yes. it's our that has, that take a low. look it one Typically, our is I efficient at at value should the for mean, take look we XX%. very two company. The gave high flow same. cloud. guidance being a When our at last expenditure last what expenses years Zscaler look XX%. any free a Take you years, cloud capital

just profitability. bill also cash we key gross The our with thing high margins, Our the that our annually. flow overall is typically operating --

between is months. range XX billing our So, XX and

-- just would And to different I two good we're the efficient I margin a model. it's It's just from XX%. similar, flow expect So, And perspective. a years, position. a expect really free cash looking last things wouldn't anything higher again, very be in than at

Operator

Moskowitz from Group. Our Gregg next of Mizuho question comes

Gregg Moskowitz

Congrats on ZIA's FedRAMP authorization.

you're in federal to having mid-XXs that seeing your could already will interesting prior Jay, the Zscaler high 'XX you expand you And incrementally. dual momentum clearly it's growth to grew XX%, a robust Remo, fiscal lot on authority in to me your add maybe year. for accelerated business, Given FedRAMP of headcount especially what in that actually a then since

Thank next about thinking over macro you. you Given the how the months? XX uncertainty, growth are hiring X,

Jay Chaudhry

I good in will start. QX. results We did

We years coming, do It federal are ones. takes business But seen, high-level expecting we good time. get us know but and business I've certification to in healthy than more the results has good federal they're that for painful certification any probably QX. taken other very

So and a to they opportunity still are certification with smaller expand. is positioning us well. lot deal, there's the of on But on us

opportunity of For have plan small, they've for started talked we mostly, agencies XX XX about, the give example, Cabinet-level they us -- to expand.

So, investing we are sources. these in

Fed high and have expectations Our pipeline we business. growing, our for is

Remo Canessa

right. the still expansion. points, you XXX do the SaaS our the ratable manage right forward. the We we their attractive with Right cloud XX%-plus, ARR deliver a which hit have planning cost help the very to model to lower couple good it need for now, From of complexity. But for deliver great at because time that difficult in that pretty expansion excited right It business. addresses operating go-to-market, it fiscal security board invest balance, revenue We're was that the customers. their just able coming company. we're our their absolutely opportunity. able you've growth visibility increase What really you're the feel everyone makes we of a at in to a this our reason but plan going product feel are year significant interest where and being prioritize into a to with can we We Gregg, for where we they leverage really in to R&D we're gross about to investing best to for profitability. headcount basically us the the When got continue year. It margin The to in decrease we're high growth about, prioritize -- customers that with perspective, we're model, to to time, for at, that is 'XX. basically through navigate going mindful across be and the We us. model our continue talked plan margins basis to

we growth and So hire. my from to prioritize will continue we continue perspective, will to

So, for fiscal 'XX. that is our plan

Jay Chaudhry

We did last if may to just well year. Remo, add, comment. I

are We [Technical Difficulty] this year.

we off, to hire people, months the they're mean People they're in we're start-ups Google Brendan that we all from deep these in to X and are all organization X have expertise laying Officer. and destination out new comes heavily people He of in some funded development. go. probably investing I with R&D to that nothing We there, trying become the sales, a by like scaling way, are ago, hired it. top our best Chief Castle, and talent And [Technical Difficulty]. acquisition for in

about and very, So opportunity. excited very the business bullish

Operator

Our next question comes Shaul of from Cowen. Eyal

Shaul Eyal

on for Guys, strong Jay. either Remo guidance. and or question the A congrats ongoing performance

instituted for months? Thanks Are moving the on Have your with trends? up the focus on I customers. to Maybe par color they can months? past increase you you some Have us any as few Jay, actually showing your over recent you're course indicated, for clearly, on of provide that. recent want with you've So quarters? ARPU trends. ARPU they been pricing ROI recent great in

Remo Canessa

that. I'll Yes. has ARPU a basis. on take year-over-year been increasing

bundling. ARPU done and typically the go up, but mid-single-digit-type on basis. really relates Our and we Related it to basis. And significant, an applications do to that's annual probably additional XX%. it's applications really, that, nothing increased to related up on prices but And increases, it price they go in additional But annual bundling. range, an typically with has do

Jay Chaudhry

Yes.

saw about of deadline a as vendors they you anything We just recently, the haven't talked some done like price. of hardware

order You kind of the give that. before

We have no deadline.

of not stuff business our pricing any So in the of -- QX. of type into that pulled got

Operator

question next of Bachman comes Keith BMO. from Our

Keith Bachman

I see your Jay, that mix biz particular? Do by you any set, about with perhaps composition XX% And Just of is, customers. solution how really business I there? different I as is new you of in for the is, saturation has been meaning the about VPN challenging? that last Is question think, there logos couple associated see more are And/or get you changing mean The a new you strong existing thinking replacement years. guidance, comments what half said visibility think a wanted from And do second within of how should on any also we be the finally, ask, the to which in I approach, did the versus cut, what you're a environment thought But heavier so guidance? about we second Remo, is that you take seeing prudent more a year, shall say, mix. lower the you about thinking you completely or mentioned speak, macro as half is in to of the understandable. current

Jay Chaudhry

I is around. a the the XX% way the It's By said upsell, think mix, I Keith. way, is other not start, regarding XX% new. I'll

Difficulty]. [Technical we that, with are So

there. Now enterprise well. historically, enterprise our large we've business will grown from come very The

customer our our getting is business getting bigger. is As base bigger,

upside upsell new getting to, is customers. to and our it the of relatively platform naturally Because more both, sell business you'll that's bigger. large newer comes is end upsell platforms for lower So bigger doing. increasing to bigger, customers is us. the see the sell When the And total we're percentage of to to market

that logos focused on getting new in We market. are largely

sorry, partners, there. with are Our are channel And demand channel get logo gen us logos more programs helping there. us to our helping

I our give but expect But normal to probably higher So, guidance, I because time a upsell growing. customer go a you'll base can think our little is over Remo, you see combination.

Remo Canessa

Absolutely, Jay.

upsell just Day. We've was Xx for at go include to the talked workloads. and ZPA we've at a you take it -- the got not past this will Analyst our mentioned. Jay XX%, And when customers. X,XXX about the above I year, just which look ZIA sell does opportunity a reasons the think last That

part another business. of So, our

the total Related customers. year. had to we midpoint, which XX.X% of at versus half, last yes, to that's the consideration second contribution So, related significant to our why gave being opportunity half to we first XX.X%, -- billings upsell

first billings year-over-year, expect we That's year. it we XX% guide our we're XX.X% of in year total of saying half took how account. again, of last So see the the versus to XX%, that growth XX% into this

Operator

Phil next of Winslow Our from Credit comes Suisse. question

Phil Winslow

give another sort think about terms there? just great of I you're their of wonder you sales are on more I to you relative productivity quarter. super talking productivity color we the forward continuing that sort strong. there, seeing about guidance, productivity metrics. think outside what time to just have could on you're But us what metrics go-to-market headcount. follow the mean, been particularly obviously, on remain of ramp Congrats can what's lean about levels obviously, to in what the seeing when looking implied reps, new in And of you as terms if the of from baked terms the we in guidance, in in

Remo Canessa

our ramp time group. faster. And is mean is mature there's to well as no doubt. operation, more the market as sales So, sales that's basically I -- enablement our

have We trained an group, which sales absolutely basically very quickly. our outstanding sales enablement gets reps

which In to The operating what flattish fiscal still our gross the sales to to is for gives reason right for market. is. again, Related we're about flexibility to profitability. the guidance bring 'XX down. with these marketplace, all about, the the for for growth and can going the this rep model really to points capture sales flattish Again, us embedded guidance line sales to we addition to make to expansion also, of margin can what the productivity, -- faster. expecting to we productivity, still the down rep the channels basically, the do reps in high of prioritize helping Jay sales growth XXX even cloud ramp to over we that, But marketplace be is with basis operating we we're top of in high have talked we as contribution margin talked feel year-over-year, productivity decisions that those the are basically channel the things what's about,

Jay Chaudhry

operating said understand if I of add, definitely profitability. balanced may market. We'll more And importance and profitability, Yes. I mindful the especially that. growth today's I think of in be Remo

Operator

to over remarks. closing any for the conclude conference. Jay turn does Chaudhry This to I'd back like you. call Thank our

Jay Chaudhry

events. in many of upcoming for to at continued you I the Thank you sell-side period. see your hope Goodbye. interest

Remo Canessa

Thank you.

Operator

Ladies and gentlemen Thank conference. all conclude that does for today's you participating.

You may Have now disconnect. a day. great

Zscaler (ZS) 9 Sep 222022 Q4 Earnings call transcript