- Earnings call transcript Q1 2023

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Operator

Thank you for standing by, and welcome to the Zscaler Fiscal Year 2023 First Quarter Results 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 to your host, Mr. President, and Vice Finance. Senior Choi, Investor Strategic Relations Bill Please, sir. go ahead,

Bill Choi

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

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

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

that December the on events also UBS like December TMT London the New more release. would today's as inform Conference in and in Investor on December, please X. you well earnings City a uncertainties, see our For discussion Conference SEC in we'll filings following with of York X. complete Global risks attending Nasdaq the I in upcoming be to as

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

Jay Chaudhry

results. our I Thank share you, to pleased Bill. QX am

Exchange a difficult billings Normalized For grew grew for XX% transformation. the a billings duration digital XX% to year the grew embrace customers to XX% revenue and as ago, Zero against secure comparison. continue quarter, platform Trust our billings higher year-over-year our

enabling grow operating Our is the basis growth period. XXX margins disciplined same points approach operating year-over-year, to XX% over profits expanding with our by to

flow performance Rule-of-XX once quarter, and XX%, which, profitability companies cash above combination free we X% public margin the of our a achieved. for of placed SaaS again, Our that the believe only the was growth

created As largest transform were economics their service retention We company in now establishing scalable of because Zscaler cloud outstanding our the industry-leading and gross and industry. bodies we cloud the September, one platform, idea a possible multi-tenant anniversary. the network. highly in the platform, bold clean security with mobility and Zscaler slate are recommended the we with platform. architecture. in-line our XX% margins. our by a most security multi-tenant standards Zero respected in modern infancy, is Trust founded approach to of the retention started over corporate This and cloud reflecting differentiated NIST, When high and world's cloud have margins unit gross These XX% business, rate XXth and celebrated In

with of being employees, to architecture connects be not Trust a I Zero proud applications and comprehensive securely policies, started are this IT The a driving our all Trust billion To Zscaler's in users, opportunity secure to we Our and more small, are has data thank This leaders business and knowledge are In my implementation of work bigger grow today. that threats, security my Trust new and and organizations. being based provides built racing castle-and-moat their continue priorities journey. we serviceable becoming number organizations their to for Zero of and security customers Large including environment, location. been. it adoption hundreds more could partners firewall of Exchange want part from exponentially more unique meet as architecture to our Zscaler of less. a and using is vision enabling priority. Trust their to digital and program design guidance to Cyber regardless on In remains that practical today's accomplishments ensure I more planning, networking it with launched mainstream to organizations certification with devices VPN professionals is clear date, resilient Zero for ransomware and firewalls. of lead cybersecurity now and cost market operations VPNs Zero are ROI is even this a exfiltration conversations are than is are and ever relevant one agile, optimization $XX and that our as is executives, tailwinds the business asked do their These durable need, and public conviction generational and attackers cloud as business greater transformation. secure. exploit architecture, Hybrid architecture.

compromises need cost on-prem cloud eliminates security, either experience. Trust maintain or Our user the the are appliances in and traditional Exchange and to machines difficult require between for virtual devices, Zero as security that

size. this more customers Our willing business macro adopt value environment message are to and to platform is our average challenging multiple resonating increasing our products, in point deal consolidate broader

efforts reorganized each than to with large, theaters, As of opportunities enterprise are years we the fiscal enterprise in more a geo field actively increasing all we When segmentation customer two result, deal before. sizes multiyear, multi-pillar ever geos. in segment and our we segment our this global leader started year. at it level align started working expanded To on beginning for ago, one the of our

We As this we late for QX, us customer. contributed changes grew billion year-over-year, leader XX% $X reach more scale quarter saw ending our closer deals. decision-making align These our segment ARR beyond. made most customers. faster QX, this ramp additional to to XXX position for to us base to geo grown, each seasonally the changes In with a of the and or believe sense tougher business of in with deal as these to of reviews milestone under in $X it has but the longer customers next and by in on over even these scrutiny ARR million we

before, customers are users, ZPA journey accelerates ZIA, platform mentioned ZDX, transformation makes includes our a user critical together. complete our for and which customers' us protection, I for and This increasingly Zscaler bundled buying As them. partner for

several Now let deals. me highlight such

global for of secure more solution First, thousands of including operating employees Zoom. cloud initiative a business, XXX per commitment This by to of strategic for a Microsoft pursuing million driven in needed branch countries. offices modernize than XX our XXX top adoption, the and to scalable four-year year made users thousands $XX SASE customer a hundreds Zscaler and proven and banks

VPN employees laptops Importantly, the the the specific threat Trust lateral which corporate in to true back Organizations office. risk to to bring and of to and as connect movement. users we network, priority. to platform Zero requirement infected Zscaler which the threat posture, the movement, need eliminate board-level cloud, met eliminate significantly security not VPNs of a applications Unlike was a unwittingly improve lateral their will a risk the legacy

an employees. upsell user users for services a XXX,XXX in ZIA protection for upgraded in our after Zscaler year, Asia all platform deploying entire company Next, financial XXX,XXX last for XXXX users, to deal, Global

our total one XX% offices ZPA Trust effectively experience is of seamless will a than open our replaces branch accessing Also, provides tripled This company, VDI cost Zero compared With Zscaler I user legacy As the reducing one with latest and we growing extensive applications, connectivity, quickly are ZPA user existing more said, they architecture. the more And which ARR secure to and Internet with a which have infrastructure costs customer's requirements. in VDI seven-figure this far key quote, new over using branch year. firewall-based to this to access. by opening versus just now solution. customer purchase, visibility security

firewall-based XX disqualified outside in insurance customers. as million two Zscaler that banks ready solutions. embrace segment. of these excited services and TLS SaaS China when as have architecture large companies to these global met their seven As companies financial the of with traffic of our I'm security Enterprise We a financial the With platform $X companies scale a illustrate, more services was major needs. see inspect now these cloud, the and ACV wings top ability top at proxy to XX also the requirement, to chose eight were only our wins

a remote to their are a of supports point regardless them sourced to the applications the location. products. was channel. a ZPA and making the and customer consolidate ZIA, we product XX me in enabling VAR for This half with offices Let ZDX, strategy, this for partner new and with close This access all bought deal SaaS enterprise the users and posture pillars, to share four tech control transformation secure and direct sector Zscaler X,XXX who is and seamless private dozen digital speaks progress workloads. for by enabling

the adopt smaller as shows, enterprise in are our win this As growing, segment deal broader sizes platform. customers

our also $X included as enhance each four million, two at vertical on which are quarter. strong to the security We opportunity, were of executing ZIA US driving service only Zero to the our We have had nation's over that which cloud the Next, all level These federal well the strategy Fed business, ZPA. certifications federal a highest pursues had government FedRAMP we products and are government certification. of cybersecurity. remain deals a Trust the in

to the critical threat users these to and lateral Our which not architecture, winning was highly connects deals. differentiated to applications network, movement, eliminating

the XX of agencies from customers to platform of mentioned, upsell cabinet-level as very demand on consolidate overall with have opportunity growing. I our large landed as We XX to And at organizations. now plenty these is customers

Happy times more, XX, and more has again than companies. quarters. Promoter is Our average for retention NPS the to rate XXX%, net buy continues now eight X our customers SaaS which for consecutive Net exceeded exceed Score

customers, opportunity just like An product innovation, our our upsell Xx continued protection. important ZIA with a ZPA to area have pillars. of highlight and is existing data I'd core We for

an protection to traction, of This data gaining data been unstructured Our customers working service anywhere. industry-fast offering protection employees service, from comprehensive expedite years and data ML. on In QX, classification and leakage delivered auto about with in innovation configuration deployments configuration. zero our has concerned of leveraging provides eight with are data AI DLP we building zero as and

reduce completed enable the first These Exchange case of technology recently we way integrate Data protection protection the is and to potential us where Exact very released additional with broadly the market. of acquired Zero the hundreds solution sophisticated many organizations manage integration with automation Indexed and combined significantly platform Match protection the our to risks ShiftRight previously in addition, of data Data incidents time. features, in to resolution yet will into workflow simple, workflow In Match areas ShiftRight technology Data data a leading technology Trust platform. we makes

Zscaler and are products, about experience we servers product pillars; the for to adoption to emerging rapid core secure two workloads workloads. digital our manage our Beyond excited and of ZDX user

ACV interest. our from is workload nearly C-Net our product year-over-year. growing [ph] offerings XXX% are strong communication New And and deception newest customer seeing

this spend products. one petabyte PLS In me the encrypted which us. that to our AWS It deal another than more for Zero Let ZPA and by added quarter longtime customers our driven workload This ACV inspect customer built now customer application doubles also workloads per win, month, one-third years and on better for and their This XXX accelerate migration Zscaler workloads $X them Fortune Azure. deals us. the same its the users a A XXX,XXX workload XX,XXX Transformation of aerospace for they've workload for workloads is were our purchased for Trust two security. upsell the protection, expanded ZIA, represents seven-figure to Trust accelerating and workload ZIA with architecture. is in and this to seamless IoT core upsell customer for committed annual Zscaler ago highlight to resulting customer's adoption, that Zscaler spend users million-plus purchase SaaS as annual was Zero Exchange. of Bundle to ZDX, with purchased traffic upgraded add to two already

the As of largest security trusted Zscaler track these in-line record, partner customer wins illustrate obvious proven running cloud world's and makes choice. the our

and billion our line customers more security network processes day, security. Our providing XXX effect in an and prevents Exchange policy per Zero than billion unmatched Trust violations for superior over seven transactions

are address are pillars. hundreds we Our ability we increase in to of closing, while multi-year as millions uncertainties, there scale economic cloud broader for challenges product demonstrated platform of macro workloads and devices. an multiple even In and billions our becomes and commitments seeing large of IoT OT more important

As I field execution. have segmentation deliver sizes we mentioned adapted earlier, our customers as increased, better customer to our deal level and serve more have to consistent

the platform, to the to across value business our platform uncertainty zero get architecture, for quantify remain periods to the Our consolidate with a at especially believe and consultative to sales as C simplify embrace on customers, enables point teams I process IT catalyst can they drive buy us level, are turning Customers to and of while are and me delivers to the account budgets of better using lower change. products, act engaging and to Zscaler change and line. are resilient. deals close our of Zscaler the trust operate. we standardize are security budgets in all security that to cost. challenging of today's that challenging IT expensive technical more to telling products, increasingly which which eliminate overall the are environment point are CIOs Customers tightening, legacy believe remain this environment, debt

of believe innings we achieve than a customers goal. market billion before, still ARR while to digital customer opportunity transformation and scaling the enable We to go-to-market significant in support our ever innovations early organization. secure are $X and our more bringing are We

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

Remo Canessa

Jay. you, Thank

exceeded QX revenue, up approximately product XX% additional revenue manage profitability was total year-over-year. as Our year-over-year, deal a geographic was perspective, XX% sequentially. $XXX and growing of growth XX% through XX% APJ From XX% EMEA Americas our was on up XX%. results of revenue, even and and and million, was Revenue guidance reviews. ZPA represented we longer XX% scrutiny

XX% billings calculated comparison. QX in year-over-year grew a $XXX million total against Our to difficult

this As headwind to billings we duration a expected, was growth quarter.

negatively We XX% our billings billings this Our but points. higher midpoint that last duration normal by our XX levels. for the higher above XX below duration to grew months percentage duration, approximately impacted estimate growth X range, QX year's was billings our Normalized was of year-over-year.

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

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

the strong The continued transformation quarter, enterprise XX% customers. from customers' in which role we play our the broader in customers QX, added quarter strength large our $XXX,XXX focus upsell paying We large had than XXX us platform. customers the prior than We million enterprise end metric this speaks us of base up have with year. our paying annually, strategic initiatives. $X we of digital and a customers, At a to opportunity annually, provides significant at XXX ending to the more such in X,XXX more us XXX of the

of Turning to financial XX.X% up our points Total the QX performance. XX rest was basis gross nearly margin of year-over-year.

from sequentially expenses due Our compensation million, total primarily operating increased $XXX free XX% XX%. hiring expenses was and XX% year-over-year higher was flow margin quarter. margin to very cash and successful a Operating to XX%

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

exchange. getting we're Before are for their few customer environment. trying working and Zero their providing pipeline, Customers our seeing to consolidate the our our use to Across approach. we're us, guidance, case platform remains deals we strong. targeted a Trust historically on and more are with key Demand our I'd segments, accelerate than from current much as larger multi-pillar platform-centric In expanding business around share the have. like opportunities commitments broader a observations opportunity more a about customers transformation to security multi-year Zscaler actively

increase introduce customers reviews. to more review this prudent of larger our is on continue which growing. close, our more XXXX, expansion operating to how higher We'll to While from intend is guidance. we deliver In a deals fiscal an by In for XXX of think it's environment, and profitability, our continue. outlook margin based checks to good prior basis to longer balance as scrutiny customers points, than business, our level growth take our for business and expect we and

Now and modeling to guidance points. moving

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

that reflecting EPS. $X shares to XXXX, million income a in per the net of margins which fiscal count. XX% fiscal method of back $XX For to revenue operating $X.XX, $XXX of the Gross account other the expect to fully diluted $X.XX of Earnings expense will fully of for our second quarterly in taxes XX%. of approximately if-converted to of million, million, requires share new note XX%, we XXX for quarter $XXX the $X.X starting million To of accounting adopted notes, million, range add $XX diluted of we you assuming includes million standard million use shares. range share the to X.X million. the the Please XXXX, income calculating $XXX,XXX in year-over-year and convertible to profit need growth in interest

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

We billings our full profit of range in guide. of XX% $XXX $XXX expect the our to first of million. million year half mix to Operating billings be approximately

margin basis at guidance of the of share last $XX improvement per range million reflects earnings revenue income assuming XXX to million, compared diluted fully XXX while of XXX Our operating approximately growing to to in $X.XX points year, shares. taxes $X.XX, XX%;

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

Let on to ability tremendous confident our with profitability. framework. me increasing on conclude opportunity, while investment growth comments We deliver our our remain in

thoughtful on in changes the margin model to us operating line market quickly and top recurring conditions revenue managing selling and cost investments capacity are visibility good and prioritizing The We business on and gives also delivering while overall profit continue in while our to adapt structure. our to being of our in and goals. pipeline nature our us see a innovation robust prudent allows

than revenue discussed, can XX% XXX the remain expect you we're We if to market may in customers faster XX%, a now confident basis platform, open we'll growing margin As continue huge the we to for expansion our approach in you reaching points disciplined the and operating margins of the Operator, of our less maximize value questions. XX% than our with year. opportunity broader business to call long-term managing increasingly adopting for shareholders. have

Operator

comes Instructions] [Operator Capital. Hedberg first Our RBC question of you. Thank Matthew from

Your line open. is

Matthew Hedberg

you Maybe a think, also, to these what if looks for to the Wondering as the Maybe reorg. there the segment question impact like. like way good may that. understanding little that the question that have term longer there's a And that guys. goals. Thanks sales on bit Jay, really any billings deeper achieve was mentioned I of taking and just It if QX seems Great. was result to that? a maybe slight a thing a of quantify case just

Jay Chaudhry

Of course, Matt.

directly As we reported At to a under time, leader global smaller to segment we years CRO. enterprise that enterprise start you ago. sales our couple who of the team pursue know, put a

segment teams to As has it this it nicely leaders. in us time right under was for the move grown, geo geo

So that was one change.

the seasonally changes done, ARR. we us our pipeline, better QX seeing we're $X results, billion and to where second, this to large tougher already got the a we've grow got field a got to four do big is our segments are you redistributed and we've as and market better level, know, Enterprise major, we but contributed these in thing late to target of for made changes ramp right among accounts The And at this think Commercial.

Operator

Thank you. One moment please.

Company. Needham question & comes Alex Henderson of from next Our

open. Your line is

Alex Henderson

very you much. Thank Great.

of of a of off, I'd give the going what's of lower the is your us hoping I environment. you could complement you. toughening to obviously like for outstanding what in context was execution challenges. were a I bit on end little but do marketplace First your in the that companies you in area that's a smaller segments. was in Thanks. any space, an been have lot other issues know seen I you seeing if you business what obviously don't wondering much call SMB

Remo Canessa

Yes. think impacted the segments all Alex, quarter. I overall, I in were mean

as we the that feeling you are is basically change that mentioned I also quarter. enterprise companies basically results in segment think the impacted all macro environment, made The the impact. macro

it impact but lower end, segments. did doing okay, all we're the On

else. more I think than driven it's by anything macro

Jay Chaudhry

low the wasn't impacted than others, so. more Remo, But end

Remo Canessa

Yes. upper better a low ended No, the than little bit end.

Jay Chaudhry

Yes.

Operator

moment One you. Thank please.

Andrew Our next from Nowinski question comes Wells of Fargo.

Your line is open.

Andrew Nowinski

then you on raise kind the macro change to guide another I factor did duration one, wondering, of number quarter. any you've what billings add than the of you. little Thank I a the that levels -- conservatism in given a nice into for want did on and congrats guidance. very you done just nice ask backdrop? your I'm regard duration, question much question Maybe historically. assumptions bit to you of with a And in Thank a Great. make guess, do or extra you billings? less

Remo Canessa

It's fiscal QX, saw to in to the is have what the related guide, out XXXX, duration Yes. because last duration last of to slightly the QX to year. is conservatism, The thing midpoint. for QX we was similar headwinds, billing guide above the happening year, billing really in QX. longer. going for to One Related it's related call our to

QX and we saw we're forward of we're into elongation happening what rest of the QX, cycles. What basically year. sales is So the taking for seeing in

on good. getting As about platform Customers sale, buying Jay of and more more size all our are remarks, bigger. is we the of platform. our deal It's prepared talked mentioned a

is Our increasing. pipeline

region Each it was now the for sales XX-month trending down is larger the nine deals, pipeline it's before pipeline type It was cycle. five regions. trending range. months, to nine increasing more more But than whereas increasing. talked Our into into about, XX-month is we up

into were guidance. taking basically with things consideration those all our So,

Jay Chaudhry

Remo, feel strong factoring QX if factor know is there's we in. But do are we that we pipeline add. about. closing I The what time good may a in pretty

Operator

Thank you. please. One moment

next of Our from comes Fishbein question Truist. Joel

open. Your line is

Joel Fishbein

of some on how tail Fed these there you your one positioned projects. on the Obviously, how being about high. FedRAMP transformation of has only that follow-up Thanks are love understand space. government some I'd wanted the undergoes long the for Jay, comments taking question. just my security to is competitively, the deals those to as

you. more color lot Just around that. Thank a

Jay Chaudhry

quite for us. good was The business Fed

have We it. building on been

cabinet it. all have helping been have landed on level certifications. at pace. on and and these taken less pretty macro growing small to of is XX where It has now cycle level investing XX its own That's the agencies The through its of they has actually impact business. fairly the goes at budget it own us start are federal decent a process. they We we're all and them, We a

so stage. periodic last project, it's have And an early Though did million actually which billed $XX a sizable quarter, gets on basis. we

feel about takes Federal very strong So good time business, but Federal own closing in the its and some of deals. these

Operator

One Thank moment, you. please.

Hamza Our comes next question from Fodderwala Morgan of Stanley.

open. is line Your

Hamza Fodderwala

Hi, guys. taking or thank evening to you for feel and chime my question. free for Remo, Jay Good Maybe in.

So, is impacting obviously, company. macro every

So that's clear.

year I we're of a back hand, kind growing lot concerns think the at outlook derisked have And Zscaler like what it time. on that chance your give full the that point, to, seemed macro September. did a seemed of, at in other for guide

some are So about we force are you're sales you. that is full-on perhaps about? being it better it to you Thank a opportunities. really that changes incremental help these reorg, And that to align long-term your talking talking growth or just headwind sales somewhat tweaks driving that's is made

Remo Canessa

Yes. I'll start.

that the both it's seeing. think I basically macro things we're

full that was billion. revised the -- $X.XX billion year, had we that billings the we've up growth beginning to billings to up it The $X.XX of guide growth For of $X.XX had $X.X to $X.XX at billion we billion year billion.

both, tried looking primarily macro mentioned, basically things and changes somewhat that, were did is has it's we to the we to positive. that So and But gave and the pretty we changes. behind guide, derisk why talked And Macro the the and we've our us if increased. the the also Jay uncertainty it's into guide very are related is there's midpoint that's playing as but really macro, about it. what much

Jay Chaudhry

Yes.

if reorganization. I may not add, first all, a full it was So, of

handled As in I and be said, as getting And deals we are on bigger, They have our of segments, lower sat by the getting these bigger. forth. so that segment need so they're four upper and some segments. deals to

the report who It's used the be this CRO to us deal should optimize geos. And good which segment So team, and working to is realigning now the them. the to lower was on size enterprise second linked directly, for to that. was,

typically that massive changes, done. So than going they're these deals are But normal more not we have are none away. but of they

We We're well winning positioned. some already. are

on We more. are working

pipeline, very I -- the So and is growing. made, good as as these result it. feel changes and some a comfortable And said, of of I about

Remo Canessa

point. when substantial of you the other amount Really, the accounts take pretty look shifted, was a that various a at amount accounts it shifted, Yes. segments. of that One into

perspective, again, we before, largely we again, some Jay feel going as Could from is. mentioned, there impact of. care forward, is But So, that taken as be there mentioned largely it's macro. our

Operator

Thank One you. moment, please.

Our comes next question of America. from Tal of Bank Liani

line Your is phone sure on your make Please, open. is unmute.

Tal Liani

you Here hear you go. Can now? me

Operator

clear. and Loud

Tal Liani

Perfect. questions. have I related Thank you. two

area what impacted impact putting of picture. the would in the question landscape? see customers is question Palo Prisma is, see one much this And economic be changes should first and someone The I the we're competitive the I the seeing? want to changes might you're replacing second change much year CapEx And like-to-like. is, without actually you're do be CapEx understand Do a with in enabling to pricing of of particular aggressiveness drive you Prisma not that other me you upfront. out the slowdown, Alto -- had asked tremendous you're say where ago any If some the any OpEx, could that the better-than-expected because dynamics bigger and results on changes same kind acting players of the

to it. should budget if actually enables question this as why do spending is, they we seeing it And that their are lower need they the if issues, area So well impacted they are despite to? companies fact the

Jay Chaudhry

Yeah.

So okay, I'll start.

They large to them and thing excluded. when deals, these during tell you and savvy. haven't enterprises of the segment, competition we call. I competitive And at dynamics, companies architecture. come the firewall often I'll very take look changes large aren't some all for have tried all. pricing about end this question of almost right seen the first enterprise Your These large mentioned seriously. in the on much compete, really They higher they're

wonder with really is we I if if some critical. matter companies from, do there. competing. if number deals very largest we're aren't you where out are But That's selling So top ask of will the really took deals, competing you come two, mission my dynamics because me Price you firewall do x-deals, those also number service one. the

on more from critical fact, hear CIOs, it's Office are probably XXX. mission switchboard. because I than what That's In we the

are everything We to connecting everything.

have we pressure competitive side seen from of not So pricing it.

us are told a vendor said, decided but few we offered this doesn't been the yes, not that requirements. we have it and serious a because times about it We came third, the customer core price, meet the

very second impact part economic for in standardization, that the it's does It money. customers slowdown. One, save question consolidation, is the are area. two really two, playing and things with of do area we Number cyber true important was of simplification Your customers.

a more the those But when there's, other segments. the macro say, it So two would that but impact than I things us are market far areas. broader is relatively less obviously, are many helping some lot than speaking, other is

to they getting As see don't many I budget and securely much. had talked reduced CXOs, CIOs

much to there compared budgets, shape, but better are a IT we As in is impact.

approval. more going and impact one is are and more of these and And CEOs large part the deals through for CFOs sorry,

Operator

One you. moment Thank please.

of John Our from next Guggenheim. DiFucci question comes

Your line is open.

John DiFucci

you. Thank

we saw guys, is one much from macro last the more than to COVID, this benefited where access. So different slowdown distributed Zscaler due

should soft security for undergo macro layer further look their of in we fiscal transformation a into and the how as out XXXX beyond, paradigms? backdrop, softening, the expect perhaps to as new we and So customers softening we appetite

Jay Chaudhry

question. good a That's Yes.

look what projects? You're must that upon okay. we of if But CIOs one It projects can projects will not That's fit, projects new are do you is part. basically looking saying, start depends you're we Cyber at. what risk The on cyber is do, transformation where Yes, is pressure at versus projects a still wait. customers kind big but they It's discussion. It simplification. without be there. two, away. happening. being start new going there Number big customers projects, done. that and done are won't consolidation investments, of Board-level is can and while cost prioritizing

able actually security the share to a If the fair of we fairly get level, of budget you of CIO is engaging at total IT and it. at small CIO a the look are By part the budget. a

there traditionally two, good sense. think done; deals? CXO CFO business need But it been XXXX. pretty we will have number need need you than it doing a two said those one, to and Having assessments, do bigger case have cross for of used that now make the be. better to level higher engagement, we justification makes that hurdle much quite strong I yes. to things: a you fiscal a CIO, assessment so, close is So while, actually about to which we're to value be we Absolutely, And you doing that, feel

Remo Canessa

Yes. A of comments, couple John.

new So QX and in upsell XX-XX. our with split was approximately

And Now accounts. we QX was new call, Jay driven, well on did had with in Federal calls. the deals. talked Federal also financial large We about the sector

others, we're workload, and track environment, the and a as I to position turn, and for perspective on go environment user think going is experience, this we of we market built, go-forward from a the right top range still will as have in a is will that's through ago as things but stages shouldn't user it global how to well not both macro XX% way probably advantage at work -- favorable, we economic from of $XX the years this penetration But XX% XXXX, to basis, market a now turn. before, for it itself this be So And look upsell. so I early fiscal I it's security. in XX-XX the billion, cost that think is very mean growing. the security bigger I is two lose that you mentioned new, it feel and is. networking The clearly world that the we estimate market mean Zscaler that now. you we're as through that's this it's big in macro in to platform perspective, probably

and macro So we way need keep kind to of things on again, take this feel environment, of themselves. through executing, will we care

Operator

moment Thank you. please. One

of Boyd UBS. question of from next Our comes Roger line the

is line open. Your

Roger Boyd

taking questions. for the Thanks Great.

gave contribution there sounded nice did business, forgive but think workloads. ZDX you Zscaler like I me for and it if to emerging in did, the have wins you the some products and with of you new quarter

it, just you're teens to current about relative percent call high if on in the update Thanks. I'm new the for, last So upselling solutions thinking wondering us quarter guide environment of you your these how business. can

Remo Canessa

teens. tracking Hey, the still high to Yes. they're Roger,

the our well. year. teens are doing the they're and in ZDX cloud protection products So tracking for high

Jay Chaudhry

faster may stages. has CNAPP, service. has what I posture similar And And our tight grown protection fastest-growing If a that's cloud is, workloads been between only areas. Yes. the we our actually security, product. It One who has we call, line has customer add, two. look pretty and API-based at vendor the are ZDX a has if strong. two is, you Trust its the Zero than ZPA, second similar main integration been or for interest security, control And in-line in time done

year-over-year was significant. our workload workloads. a talked customers' couple with It doubled a than deals, nearly Zero about during seven-figure more I ACV for of thing. deal. spend for annual us. deals Trust One ACV That's doubled the new large Our earnings

now cost deal us. represent Another with million one-third mentioned, $X workloads I of are customers annual spend this

be four fairly ago, So get these significant. to which small used to beginning things, three, are pretty quarters

Operator

Thank moment, please. you. One

comes question next Our from…

Unidentified Speaker

conversation. fair it me the if to guys? hear -- is so, that in can Nice you assume first hi, And

Jay Chaudhry

Yes.

Unidentified Speaker

Hey.

a So just quick question.

talked growing. about pipeline the You

level the is to ratio wondering, a the at in significant growing Just Thank enough cycles. elongation sales coverage offset you.

Remo Canessa

into all take We guidance. in our that account

account So -- account. yes, into it's guidance. our been taken taken And been so, into all in it's

Operator

Thank you. One please. moment,

of Fatima comes Citi. next from of question Our Boolani line the

is line open. Your

Citi. Boolani Fatima of from comes question next Our

Your line is open.

Fatima Boolani

or Hey, for much, multi-year, pipeline taking a a have Remo, much multi-pillar the deals, you questions. please you good for opportunity with I transaction those the appreciate is that around of commentary Thank the chime lot you large composition tougher increasing, Jay types against but Either my afternoon. environment. for shared of in.

dichotomy are under could bit, matter, you environment seems little some your you So ensure because reliant things some to What execute are these and of admittedly have that that more the of of I some peel bit back is pipeline there's little in. deals much and wanted on a and larger to business a a are that the and successful is harder execution and there, your that dependent type variability if to incentive doing of large as of sure building see driving more into related on. rates don't you. you're to behavior the that that becoming on you And those performance? make close type it you're that more cause changing Thank control like your a transactions, just we which, slippage and

Jay Chaudhry

yes, what multi-pillar multi-year, seeing. pipelines yes, that's are And, more levels, Fatima, scrutiny deals, Right. approval tougher with growing. we're and more environment those

to are cases, helping that make business deals That's value those we're closed. doing able there better mentioned help been get have them. customers business which two significant sure to what we are I to do assessment, quantify that we CFO-ready is So for justification. us trends look One business on

you many this our these And remove ROI we've It's you more of showing that fact, most in better eight-point can We're That's is security the we're a it. If very in ROI cases. -- than products, get. majority networking doing job strong. and XXX% done in area.

thing to be us, Both case are doing are a are providing to what those than because mind rather C-level we a it. show deals a you you're you're those things engagements, of tougher as our in and make of part to you if actually strong have CIO's having there The just better get second we factors done. also, needs to And is done environment the helping forecast. budget, budget of in keeping security going chance

Remo Canessa

the doing in perspective, an quarter. wouldn't of we're And that say anything ordinary Yeah. any we've I done incentive from out

real an no changes incentive from perspective. So

Operator

Thank you. One please. moment

comes Walkley from the Canaccord. Mike Our of question of line next

line Your open. is

Mike Walkley

Great. taking my question. for Thanks

following up maybe answer. that on last Just

to to experiences? work own slowing terms how you or OpEx them, customers they're larger with may their prior closing ramping are larger be in As they're close these deals, once you their pace of deployment deals, help these similar ramping

Jay Chaudhry

Yes.

interesting in be done, more what our driving tougher. mean at look consolidation, CIOs deals needs when Market simplification But the market. is to deals it for bigger. an to get So that's look is they Bigger dynamic scrutiny.

are but -- deploy we commitments our our ramp customers platform. and helping larger to Now to into

it doing. thing So a are phased we is

So does and we for doing that are -- been continue. a we it few have quarters,

Remo Canessa

Yeah.

We've have thousands you hundreds with any look So I at ramping. seeing we're type part It's that always of it not our of you out. of called the do business. we users, been deployments increased of can't mean, overnight.

increased and ramping, been we're it's again, for not our business long So a of time. seeing any part

Operator

Thank please. you. moment One

Our next of comes line Joshua from Wolfe question of Tilton the Research.

open. is line Your

Joshua Tilton

thanks have ones. guys I in two here. quick for Hey, just me squeezing

it any that it range XX-plus to this duration to shouldn't has we you expect one want goes little differently. reason growth back in at question a to QX revenue, is, question. to duration? First the should unusual XQ return If So Andrew's you in ask deferred after second adjusting XQ there saw I just is anything a did out billings normal from that for time there. comps, And just while? look for my the sequentially if XQ call decline first the to

Remo Canessa

our guidance. Yeah. I mean, got you've

So come the we again, in. going deferred in to the to end QX at quarter. Related with revenue the how there's our to seasonality and decline to we're feel business. comfortable it QX, We'll of see

It seasonality than the other declined QX our quarter. performance really So rates QX and slightly out been the small. have this call from very growth to to in quarter. Nothing

Operator

One moment, please. you. Thank

the of Evercore. from of comes Peter question next line Our Levine

is open. line Your

Peter Levine

squeezing for you Thank me Great. here.

deals to that or can to could -- backdrop that? XQ saw, there of just but we off what one earlier top of about of in an maybe billings, but the drop the to question could you are you're pipelines a work-from-home from COVID the wave you John, risk to it is you add kind seeing on here, the the of a pipeline obviously, think, sounds new at given of funnel I seems kind we Given talk strong, color closer net meeting? So of tail the like repeat, end any hit

Jay Chaudhry

CIOs It of did two get strong. The COVID, but that something Yes. some most had starting that. a pipeline benefit do to QX a record was March is and pipeline. or XXXX is quarter of We in of in

the of actually ended of XXXX. effect most So of COVID by mid

need growth is our the So of by driven it the like. kind transformation, then, digital and of for business security, transformation since

cause have been pipe doing start us. kind we funnel. in we of slowdown that QX changes I think some is good did the of made It some for true of

strong And -- much our working the is level need you Okay. on. pipeline. we pipeline. good It's to to how do good part and how want the but that. the job, what well That's we deals approvals a question Remo, are extra anything? land we past of that's scrutiny land. are to And overcome really We add

Operator

Thank you.

Our Bachman of comes Keith of BMO. next the from question line

line is open. Your

Keith Bachman

income previous but by off just to just tougher. the top risk introduced a and much. about to end the from of would wondered billings the very how Remo to is there's to billings to like question bit jumped give quarter the the of on you'd seems about smallest in parts it And ask raising two guide and that. up, it. the yet I'd little And incremental been said, more one kind given has why $X you you op accelerating of respond not the lot Thank raise in isn't seems think beat seems I this billing quarter, That's all you billings if a -- I and it respond wanted the Hi. same. the moving saying, part derisk for of if the is characterize Last the the the op gotten talked and many and But side? been me. midpoint you. Zscalers like, years, a was you're to more it Thank you're question, growth backdrop, second to like like guidance. call us The numbers. that the it remaining range income the fact, keep has it of macro why there's million Remo not

Remo Canessa

reports. I earnings mean, mean, the mean, you're the all same earnings primary or I macro about changed. out uncertainty calendar reports the the talked we're coming all great lot macro is seeing in seeing environment has backdrop, most There's XXXX. reason. uncertainty which Yes. going into of the It's Keith. the of And -- questions, If we the thing. a

less. the but is change, segment secondarily, mentioned, enterprise I that's a As lot

you cash but two we're getting are this is at the So size flow The we run is in our getting high you XX%, number believe prudent to increasing our profitability, the as we're to our the business. easy and key of disciplined thing, operating over it operating margin I macro going its thing It's profitability and Related environment and three, has our profitability, be That's if at one. changing, years our -- as in company how the related mentioned, to to it's margin, free look to our -- I is with and changed. shareholders. the more operating stage. short contribution look approach market, and going profitability, early as it's

going past. to be It But our in profitability, our a is business. priority increase growth. perspective. slight forward, in what on measured a seen, go you've been true we Our will in is we're from we more it's be And really we than -- -- have the operating measured right approach but focused will we and as feel the on as balance operating profitability

Operator

One you. moment, Thank please.

R.W. Kothari Baird. question of Shrenik from next comes Our

Your open. line is

Shrenik Kothari

Thanks in. question. just guys. Jay for for Hey, taking my or chime Either Remo,

our clearly, spoke vertical services, our $XX XX call about Federal in global million for You banks financial friends your commitment. top vertical,

solid. far observing we'll macro are there? that CPG building terms potential sectors be kind public broadly, others, in that into more of less in a a itself factored into so or there bifurcation guys accelerator now divergence or hearing, thinking getting of retail Is impacted including of yes? of Is guidance sector verticals, to in utilities, to science, than you verticals, So, something more some tech

Remo Canessa

we strong going comments, I'll that please not the the deal cycle. verticals. is, the more for customer if you'd speak were forward? us. and financial, taken The In the like specifically are current Those specifically services we into do add yes, and is in verticals to saw the verticals federal but vertical, per well impact of account verticals healthcare. us about QX, do. answer deal Have where that for Jay,

on into that. taken maybe, like being to So to it Jay account. is more verticals, other But speaking would comment

Jay Chaudhry

Yes.

is a we overall others. not is I'm well big, doing a say but a I is won't certain I the verticals factor. for verticals a gas, some for major out, sure there have example, not differently effect. factor It of in and though but pointed us. big think, impacting that oil less, Macro than broadly, it's Remo But are vertical big in even many factor, did of

Operator

moment, please. Thank you. One

next Our the from comes Barclays. question Kalia Saket line of of

your unmute. Your make open. is line sure is phone Please,

is okay question next Our -- from

Saket Kalia

operate on I fiscal Hey, broader for a of lot year my was A Sorry. calendar Thanks I'm lot than here. Zscaler different, of a -- little Jay, mute maybe on December guys. year, is related this that but asked. of is one. is bit for timing? questions the perspective have But Clearly, is, question year. your so of my just taking very for there. customers a a heard that sorry. the you, been have to muted have on would budget or Maybe going Is the be question your this you flush you you anecdotally, something fiscal what Any years. there year prospect think for it for more security that just to from you helpful. more be customers?

Jay Chaudhry

significantly have few bit a quarters few are a back-end Look, little quarters, more have Remo? change it But seen deals QX. will there. in as December QX. to will out We loaded. ago. past We I than QX, everything better and saw you in saw maybe a more we We think the similar think don't that thing, linearity getting that

Remo Canessa

that XX/XX From we've similar It But can, had QX, happen? which perspective, there can be. be and QX similar to would more of loaded. a I I more in could it linearity. linearity a of from low Yes. thinking mean socket, related something thinking impact would positive type a -- but there be be back-end could I December, is basically

Operator

please. moment One you. Thank

comes Borg Stifel. Our the next of question Adam from line of

open. Your is line

Adam Borg

so for Awesome. the taking Thanks much question.

Not Just just the was that And Federal missed when you but quarter? two it, I what the mix think on the space. business quick Fed ones represented in the if sure is it's space? on really ZDX or just opportunity, ZIA Federal opportunity ZPA, the about hear wins, workloads for in the Thanks. great the and for Zscaler and it those to what's

Jay Chaudhry

it's for of products. specifics. the place ZDX and and is a you But currently, and ZIA of strong Yes. ZPA. the strong is at building stuff some a newer I'll ZIA it's of interest month, on Federal broad start can mix ZPA, and level the but get into in most

Remo Canessa

basis XX a mentioned, -- cabinet as a the We'll deals good Jay From it's for Federal. for Yeah. four is upsell us quarter perspective. annual how doing beginning greater an than and new million, of on agencies, Federal XX $X on clearly

-- So was quarter for us QX. but good in Federal strong, a

Operator

and Chaudhry call back Thank one, to to conference. for this over remarks. does you. like any the Ladies turn conclude closing I'd Jay our

Jay Chaudhry

you investor for to your you seeing Zscaler. Thank events. Thank We and forward upcoming goodbye. interest look at in you,

Remo Canessa

Thank you.

Operator

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

Have great You may now disconnect. day. a

Zscaler (ZS) 1 Dec 222023 Q1 Earnings call transcript