Earnings call transcript Q2 2023

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Operator

Hello, and welcome to the Zscaler Second Quarter Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentations, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to Bill Choi, Senior Vice President, Investor Relations and Strategic Finance. begin. may you Sir,

Bill Choi

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

On the call Chairman and with me today and Canessa, are Remo CFO. CEO; Jay Chaudhry,

and Investor Relations non-GAAP Unless we our have about Please we all basis. website. financial on today note our earnings will otherwise that be release to schedule a numbers posted talk noted, supplemental adjusted an

financial find measures of the in earnings reconciliation GAAP You the non-GAAP will our release. to

customer contain performance, forward-looking remind to, income, you income, opportunity. rate, that taxes, response future products, operating will not free and obligations, future retention today's I'd expenses, our including, like limited statements, income dollar-based earnings discussion the performance revenue, cash net to hiring per but decisions, calculated our objectives gross operating anticipated to our flow, Company's our market remaining billings, net share, operating outlook, margin, and

rather risk them are We statements statements call. other today, obligation future our comments are no not as on apply should control. of and in the which views these of representing undertake guarantees to some of you to after not are performance, beyond update forward-looking statements uncertainty, rely These as this subject These our future. and and

inform Xth. Xth, March, risks events Francisco San JMP that more as upcoming the to Francisco TMT see SEC would we'll March a in I following and as be Stanley in the in today's discussion For you Technology on of San our Conference complete like on March the also well please attending uncertainties, filings with Morgan earnings Conference in release.

Now to I'll turn Jay. over call the

Jay Chaudhry

Bill. you, Thank

industry. have solid impacted a QX challenges delivered despite the broader that tech We economic

impacted of we few XX%. customers XX% billings calendar grew and by February. more start year. already about the deals purchasing decisions have revenue year-over-year For deliberate gone the closed the not away, in Billings our large grew their new These have quarter, at being and were a

business was retention expansion Once increasing deployments in we net strong their broader hand, XXX%. On the with had and rate existing adopting over growth our dollar-based other platform. our our customers again,

delight continue Net to of to helping our path Score, their priorities. drove high. a our them or security, to agility accelerating cost new We NPS, business customers elimination, solve This some Promoter their and by highest better

Our is NPS now exceeds market in companies. our than serviceable their XX, before SaaS Zscaler enterprises opportunity. times as average my today, strengthening for to digital the than choice more X billion more best which recognize the And, transformation, ever secure $XX confidence

free which reflected disciplined growth to doubled and flow, both strong basis. profit Our approach on of is a operating cash year-over-year in our

expanded margin Our while points, operating a by high very continued approximately X grow at our rate. percentage also revenue to

our gross largest of cloud, are unit best-in-class margins. the the economics, rate result security market and multitenant stable platform. leadership, and gross a services, retention As highly scalable have with metrics world’s outstanding we These high-XX% cloud XX% differentiated

Let of environment me manage plan of share and XXXX. remainder my observations about the our business with you the some we for to how

compared With was their saw more to value. higher first-year scrutiny cautious December, typically larger In higher on business We spending. macro weighing organizations budgets being concerns in January, we are away, about ramped on over ramped timing and our where position quarter, These of year. us into time impact expand in higher. billings the annual ramped long-term to each customers, on delays a select additional In resulting leaders, deals hurdle for but the of to them approvals. budgets billings, taking longer strategic a decisions a deals new and into requiring level will gone additional in make in large commitments. deals. to relationship haven't instances customers deals was and measured the are These deals QX, customer some create ramp run-rate subscription our to enabled we These grow but deals have lowered second

we enter to XX, second half expecting cautiousness As fiscal we are continue. the customer of

deals of deals, accounted timing we further a outlook. of slight the deterioration are close in assuming and our has mature for have in cycles uncertain sale lengthening We Even our rates. and more pipeline though grown large has current

to that and economic slowdowns, is immune XXXX In one about from conversations summit the their resilient. to remains the are weeks remains being shift very architecture executives, become of gain their engagement more Zero about my enabling as talked the us IT XX adopt our need strong. plans hundreds not Global to their pioneered. with hosted the organization’s a added and competitive While Trust to cybersecurity to business talked foundation. CISO They They by to Customers excited companies. attack surface relatively with advantage, with number to priority. innovate, innovations platform, Zscaler Two IT agile security, cybersecurity direct-to-cloud CISOs we security with ago, reduce new and

growing roles in we our we and of profitability. significantly fresh Given on see front us, a and people, innovating opportunities operations and our we took recent the in to look to projects strategic increasing to our teams and large opportunity years, After will found while also at align organization keep building streamline priorities.

cover of As to we optimization in initiated review, targeted a drive cost additional us more best deliver operational detail. growth. Remo that plan profitable that a to this positions will efficiency result

rapidly products in their environment. with consolidating modernizing Trust Zscaler, they By of are of to customers of costs, C-level technical impedes leaders down products that before, disruptive periods evolving can the accelerate our slows and business embracing that network giving mentioned operations. adoption I me are I technologies Zero the business security edge telling like legacy debt while progress As point architecture reducing ours. and them uncertainty believe competitive security succeed and today's point need

cases to with with create facilitate We customers collaborate value our clear have deal to expanded business that CFO-ready business and ROI periods payback approvals. team necessary

risk unproven today’s from projects mission-critical their In customers to immature with environment, afford vendors. can’t offerings

data in wins or as the use up solution misguided my realize the will by their on cloud when on deliver office. your lots boxes and but business customer virtual cloud A whether deployed see to public when Zero their service benefits and and secure firewalls has as real so-called Zscaler fully a purchased are digital from initially architecture, the delivers a transformation, centers; users or in transformation. were single-tenant starting their allow tenant cloud, that we’ve appliances flawed These message: who from of branch it won to that comes vendor of in firewall choosing a spun Keep to multi-tenant are Every scales road of my customers agility. buying world. We’re in customers failed Trust they our security single incumbent to deal enterprises digital SASE machines because architecture not

the amount the in preventing provides over trillion per processing is per user anomalies, billion traffic and Exchange Trust in-line to and largest threat application This superior massive XXX X Zero security cloud security day. of violations us protection. Our in billion policy world, and of signals traffic machine XXX than with our and learning day detection better feed resulting AI for more engines transactions

are capabilities the customer AI/ML today. scale at world driving real in success Our

share me an you. example Let with

we divisions. helped a Global XXX experiencing December, of on In conglomerate its cyberattack a targeted one

attacks the that our ThreatLabZ high-end quickly of This the secure our attack damage. cause customers. worked this the upgraded potential product bundles zero-day benefits ZIA root to ThreatLabZ our to bundle brings transformation prevent act research to entire prevent identify Our the our highlights customer win ecosystem. to and Subsequently, to and closely any and the of customer the team with value

their to a accelerates that capabilities, purchasing delighted of success. critical us I'm only but number for share an platform are our business value partner which customers as realization increasing comprehensive not establishes their also

ZIA, before, mentioned are I which together. includes Zscaler Users, customers for As platform our bundled for increasingly and ZPA complete ZDX, user protection buying

workload number purchasing we addition, are a In these technology. expanded bundles, and the powered drove XX% of XX ARR, gaining we with the ZIA in customers greater year-over-year customers growth protection, ZPA greater of same these $X ARR traction with and have over million by new than than existing these $X to Thanks customers XXX with core customers. of nearly million. ending in And,

all where deals highlight this product quarter pillars. the three customers purchased four me Let

business of point-products, that Trust With surface purchasing business. VPNs, Zero Zscaler on Users for reduces bet and including for purchased new platform secure Top and is sensitive integrated and our simplify devices of DLP global data our our bundle By pillars, their logo their a Workloads workloads, workloads. and their protects Zero will suite, including data to environment agility users software XXX,XXX advanced heightened a by for In their making a dozens CASB. IT the company sprawl. Zscaler their customer users, only protection attack win, while a the and services in consolidating to and they their security scalable Trust operations pursued location. platform, as all for bringing four X,XXX Zscaler strategy firewalls, VDIs, resulting selected customer XX Trust their data They This application network a and due from risk platform to complex regardless product Zero growth

exciting auto their the an purchase bundle win, operations customer's upsell including business to in This major Users driven for to Zscaler X,XXX platform for by users strategy transform of was Workloads Trust chain. purchased and Next, for Zero XX,XXX digitally for their management manufacturer vast a workloads. upgraded supply

are we new for fact, helping accelerate In time-to-market EVs. them

it significant can third compared experienced parties access vehicles By new new using days, a remote third for used parties take now remote legacy secure commissioning and secure few ZDX, in customer as delays over provision not to fast this month access a they access and ZPA, ZPA purchasing did Before to collaboration. to have with technology. within

for ransomware In their VPNs that firewalls risk addition, and of significantly the Zscaler Users reduces allow.

existing Zero security Workloads opportunity upsell, Users They a for XXX and with for spend the Finally, grows. four Cloud-First product bundle public for ZIA workload all this to pharmaceutical strategy Zero protection Zscaler million-dollar for X,XXX from upgraded as annual Xx With users a purchased pursue for customer to users Trust pillars all their XX,XXX additional Trust company workloads. for XX,XXX of Global purchased increased workloads. and users for cloud this with usage by

ramp that mentioned larger to we instances, to in customers enable commitments. I some Earlier, new

ZIA expanded retail which firewall-based users for per that’s and a for private and our solution store well and and ZPA one us secure Leveraging managers. users, direct historically, recognition secure Exchange cashless to as using win terminals, checkouts they for access to is excited XX,XXX scalable we're for while significant possibilities. failed petabytes retail highly In bought experience. surface. as reliable had XXX using store create to will access vertical over their month partner technology data from as to logo customer internet digital such of innovative are contract an XX,XXX to to transformation new facial store a This leader ramp company with value future retail retail where us now This for redefine multi-phase a new attack win, we platform, use operations. ZIA scale to was XX,XXX Trust employee X-figure This Zero smaller their committed ZPA SASE a their total an tablets enabling

terminals accounts for will the Additionally, to stores retail from Workload all XX% deal approximately cameras Zero for of Trust and the in value. secure Workloads total cloud. the protection traffic

show, user full-year target experience deals product and are including emerging contributing of customers our high-teens to percentage two management these These securing of Workloads and our pillars: digital on As business. new meet workloads. for or expanded servers emerging for track products for embracing our ZDX are platform Zscaler exceed

Zero Our doubling year-over-year. is Workloads for roughly Trust solution

In generating is interest. addition, our solution significant CNAPP new customer

we CSPM, Control, an that risks You Infrastructure-as-Code Live June, called recall solution our may Zscaler launched Posture and CIEM, Zenith scanning. integrated solution across and CNAPP vulnerabilities in correlates is which at

a a Global for remediated vulnerabilities. Control had secure Posture across Engineering workloads. assets, Posture previously and upsell X,XXX Control we compliance revealed provided million with to $X.X multi-cloud win undetected quarter, XXXX high-risk ACV visibility This company violations,

research proud firm that based quadrant by “Leader” the peer our solution was GX Control Posture reviews. We recently on are independent in recognized

In such major innovations more including and We over XXX innovations as phishing access market, are new ever release, before. customers bringing features our we detection AI-powered than cloud software dynamic, to risk-based to our brought latest policy. product

to markets. internal We SASE security targeted and our continue Zero expand to drive both leadership highly and Trust innovation the acquisitions in

SaaS in acquired Canonic which Security, innovative SaaS few security, we supply in announced chain protects ago, customer As startup applications. a data an weeks

be apps visibility data and other customer protection CASB management, that most of Together posing are sharing with example, SaaS significant unprecedented isolation, and for inline data breaches out-of-band comprehensive suite Google with SSPM our now loss. applications and For provides posture data. SaaS DLP, data Zscaler and for SaaS data third-party risk connected could browser XX

of ROI that change. With CXO look to next transformation of me our IoT and top cost with outcomes measurable drive are we the using less. Trust superior for aligned priorities. OT and to optimization users, do our deliver our few as level digital years, CIOs experience, proven at telling and environment we platform to customers’ are they broader ahead challenging are being and priorities, adoption are committed efforts. are they maximize we As workloads driving architecture are the to value secure this to with customers’ becoming more bigger that asked our the Zero

Our our broader are in business customers and We multiple secure with our share significant platform, our billion track a on we're wallet early which we're products and market consolidating of stages increases achieve still resonating, more transformation, proposition is digital value enable with $X that point ARR goal. opportunity believe them. to to the

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

Remo Canessa

Thank you, Jay.

of total ZPA Revenue through of $XXX revenue as results was profitability, million, QX a year-over-year and XX%. our despite exceeded and new X% continued approximately APJ in longer year-over-year grew sequentially. guidance was strongly EMEA reviews. a business deal EMEA we revenue, growing From managed perspective, year-over-year. even represented perspective, XX% XX% XX% was Our a the on and on Americas From macro and XX% region. up XX% revenue, growth product geographic continued scrutiny was challenges basis up

Our million. we billings near-term. $XXX billings around to performance Until our can a calculated billings total at we measure billings XX% relevant On of the basis believe looking a on QX certainty environment, more macro basis, sequential quarter-over-quarter. a sequential the in year-over-year be grew XX% total grew in get

XX% earlier. of with year-over-year, subscription the grew deals strategic ramps billings includes current Our which Jay impact talked that about phased

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

Our dollar-based again once rate retention was XXX%. net above

of with a our large upsell have customers, base opportunity strong significant platform. enterprise provides We a which us to broader

the quarter $X $XXX,XXX greater with ARR, transformation from at ARR, end up At ending in digital the customers' initiatives. to of in XXX the the in customers strength prior with added than customers speaks play greater customers. we The XX% had of than role QX, the metric this continued quarter we XXX such year. We million strategic our XXX in X,XXX in

Total XX.X% rest the prior financial performance. to is gross Turning margin of year. the QX our unchanged from of

to and Our year-over-year sequentially expenses operating $XXX total primarily X% million, compensation to higher expenses. XX% increased due

points our guidance. our which of margin plans with performance to in a XX.X%, As pace after increasing XXX we indicated last contributed hiring quarter, QX. we operating in exceeding in margin strong to operating QX, hiring moderated This our quarter basis year-over-year the exceeded

economics. that We are seeing the strong our is leverage in our driven by financial unit underlying model

Our flow cash margin was free XX%.

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

invested me mentioned. the about plan momentum. the XX our cost on months, doubled X,XXX targeted that as strong of approximately team we the to optimization let more In provide details employees, based past Jay we aggressively Next, size market

to commented start allows deliver grow. As expanded us while quickly adapt we that uncertainty operating fall, model more we of challenging, the watched to our profitability the if the we macroeconomic XXXX at business fiscal environment becomes the business in and

adapting we we projects. to today, targeted certain QX. optimization a are the in functions This address in job changes announcement saw inefficiencies to and is the initiative With

result, million, our charge we expenses. workforce by $XX will from million X%. will seen a in of the reducing approximately QX, changes Most As of including a to impact and be these take we non-cash $X are

areas. high-priority best will in continue candidates hire to the We

to on moving Now points. guidance and modeling

a numbers non-GAAP. reminder, these are As all

XX%; fiscal $X.X reflecting of million income diluted XXXX, $XX expect fully to taxes profit $X.XX, operating year-over-year million; other million we $XX $XXX margins XX% shares. of of of range For $XX million XX%; of per XXX approximately the gross third million; earnings growth of million; of quarter to assuming the $XXX in a share income in to revenue of million, the range approximately net

quarterly Please the note $XXX,XXX requires you the for accounting interest in for in back convertible method that which calculating new converted of adopted starting add To EPS. use standard need expense. will fiscal we account to if XXXX, the our notes,

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

For digit in compared incorporates percentage This to Jay sequentially, the uncertainties related years. by are to $XXX macro decline last guidance of we million to approximately his assuming comments. billings few mid-single mentioned $XXX QX, declines have seen in we X% that the the Operating in profit the range million.

our $X.XX assuming to approximately last year, per prior from share Our fully XXX taxes guidance $X.XX, reflects compared an is XX%. to while $XX improvement revenue of million the guidance, operating growing approximately Earnings diluted shares. at increase of Income of points range above in margin million. which XXX basis

to will in back $X.X our convertible As need for interest million to annual expense. you earlier, account EPS, notes noted in add

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

balance cost growth will recurring goals. conditions model on and the us market our leveraging gives profitability, our of continue We profit on If to adapt us on revenue margin visibility in allows to our to business line will top we growing. and to business how improves, deliver and over profitability nature basis becomes prioritize quickly based increasing If environment challenging, good The and reflecting In more to operating changes is operational we environment economics growing of efficiencies unit efficiency, achieve is a ‘XX, XX%. on the a revenue structure. our growth. strong we’ll our XX.X%, expansion while focus a are in in operating profitability as result fiscal full-year points second XXX prioritize half margin our our the driving of still

margin of year. framework revenue XX%, in expansion If expect investment can you faster points than basis are than growing still long-term XXX we Our less applies. the

broader of to approach managing a large opportunity our market disciplined our XX% we'll continue reaching the customers our the With to margins to term. for We in operating business increasingly and maximize value adopting remain platform, XX% shareholders. confident long

Operator, may call the for you now open questions.

Operator

Zelnick question first from Our Instructions] comes Deutsche [Operator line of Brad Bank. the with

Brad Zelnick

in taking question. can things you tough. Jay, We hear control of your and within things frame your for integrity appreciate look from that position if you every in terms Thank it that you aren't? outlook on maybe market? at Thank us for much competitive the comment your so that of you. I you the But Great. confidence the underpins company. data And also backdrop the could, Zscaler's is the in

Jay Chaudhry

Thank you.

found strong. us. we for easier that the quite they our at like look us, upselling you quarter, our loyal becomes solution, was upsell to If Customers

of logos are additional approvals additional large In was new as challenging, deals terms challenging scrutiny with and more there needed.

other The customers like lots was we worked well clean thing that strong that of architecture, thing That worked fact that us. of well the able point the to products, them do for and give are has ROI. consolidation

of terms In seen really we any competitive change. haven't positioning,

In have well higher end with solution right say I than We the we market, like on feel that we stronger established before we the of architecture, fact, thousands customers. deployed of happy right very the have actually and even because that. would are actually customers

fact, replacing firewall-based it. call I are XX,XXX I haven't there, to up, speak, some that is, for thing vendors tried firewall mentioned deploy see are of give been them, times to firewall-based care you our SASE and many to to and over eventually The to past customers I many years, solution, stores SASE some sold we solutions? so of XX and are some the large apart. now beginning we of hey, the retailer really by very are asked with my them. when beginning seen falling they’re other used taking have solutions, that in of the In on and Answer a gave two solutions I can deploy out see months

model Remo is thing needed. adjust other can our mention we business said as The has often I would

we As slowing hiring. the is are adjusting down getting model environment tighter, by

economic Our cost is unit high. very

So gross margins, you're expansion operating investors like margins of margins our operating and do see. sorry, seeing -- which to

with from exchange. doing for calls XX tons Lastly, an of two days us customer made. had is We my coming confidence I CISOs tons and

They fend the spent these better there, they're off of great job. architecture, I spreads All by the more understand done of architecture, guys being world the the more the understanding have deployed a a the fluff to able have out competitors.

in very comfortable I'm of ahead to content ability So, and stay our competition. far the

Operator

Our next of Sterling with Auty question line comes MoffettNathanson. from the

Sterling Auty

much you the security in how enable curious, of the actually quarter a business business, these when high-level kind is is where of solutions how to times? where of just budgetary you Jay, look is some at sort us I'm it's of savings cost in the And much legacy brand-new of sense maybe driving give little replacement a business factor? can a project riskier the tighter of implementations bit

Jay Chaudhry

kind even of starts or of has know, legacy points of the ZPA some for kind for starting access. you from some there. replacing company some internet web VPN, VPN ZIA replacing gateway kind solution us. As Those every with are then gateway expands two and starts secure

may of all our do replacing pieces may stuff. We we some that some have ZIA be or upsell, of look at some well, of or be you almost some upselling upsell So we VPN except by starts Actually, something, other too. business deployed. vendor may to vendor -- replacing replace if we [ZLT] means

So us. replacement almost for business all is

of can call expansion. You the stuff some

the Azure still the data of For example, in applications customers of center, access AWS center bought. have through upselling direct the want in sitting have they replacing may some direct the and data and to some going we're without when to connects

a ease bunch products come replacement from, it's the that's and really So, the point That's fewer comes where interior a from. where offerings. of of operational savings into simplicity

Operator

the Wells Nowinski from Andrew of line Our comes next question Fargo. with

Andrew Nowinski

So you I ramps, talked deals about. ask about wanted to just those that

a certain how was back ramp or still if Just they can customers of much to of out would also, were wondering they deals quantify QX Thanks. normal if amount it? spend that deals those in over contracted deferred, ramping versus that are you time. to have billings And piece added could

Remo Canessa

Yes.

obligated they're ramps and are the to the strategic. contractually So, ramps

large more But ramps ramps. percentage you about, with in again, talked more of deployments QX. buying customers, fillers, Jay we points deployments, couple seeing of large is As impact probably were on are think. a our can more large with The what billings,

Jay Chaudhry

this I for get to manage by actually as we at I one to of on customers strategic look mean, year and may investment that a in future stuff If our some help investments started add, deferring part your years. cash

Operator

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

Alex Henderson

wanted in I put of a ramps So, was asking the those? interested billings about once in us magnitude in guess couple the just it well. you to to on duration some if initial also isn't at I the context couple get actually issue? ramps, of so in I of the start a look as the you I But numbers. But that give sense a ramps. the percent Can past each calculated of of the they all back get of that once actually day, quarters, timing

Remo Canessa

Yes. Related I and are Alex. to on favorable higher you're based in the was billings absolutely upfront slightly later timing ramps billing right, duration, I billings a QX. the lower -- there issue, ramp. it the mean, mean, was a

the related XX%, That's were XX%. you what billings, the at calculated look at favorableness billings short-term billings, at they're think you generally to about If can our duration. billing

Operator

[Operator comes Instructions] line question next the of Boyd UBS. with from Roger Our

Roger Boyd

into poke I opportunity. improve, fiscal confidence heading capacity But the Thanks. capacity conditions the know accelerate goal, you versus you how sales in do to and billion I I your about growth debate. at ability efficiency the 'XX wonder and Jay, your if could you agile $X think base? at long-term market an do reiterated see if

Remo Canessa

question. great a that's And Yes.

we're as that XX-month I going to continue headcount remains selling Having this our are opportunity $X second based as for. almost saw increased to our huge. saw is -- selling that, are feel period. our half. forward continue optimization. XXX% an go this We we've basically strong. made, organization. inefficiencies on in capacity the And shooting And we we the we very cost company. what growth the why We is the capacity a comments still we doing over market in said into that -- are We billion invest we That's

development. going are our and is moderate we company, capacity the still R&D hiring throughout focus selling So, but to

Jay Chaudhry

Yes.

expect quota-carrying headcount to reps going higher engineering And we leaders sales So as still to hire -- well are headcount the as year-end be team we sorry, engineering selectively than today. members. core core our

Operator

question Joel line comes the of from Our Truist. next with Fishbein

Joel Fishbein

billings based lot on you just guidance, Is of helpful today? Be conservative? a worse? give a could, it have you questions that. Hey what on get if it thing it on Remo, environment is just to -- would say, a that. Thank -- of getting how any characterization we're the give Is you're color The you seeing getting on us you.

Remo Canessa

mean, question, for I Yes. thanks Joel. the asking

there the sales an cycle. elongation was So, of

So, in QX. half, to than we're worse basically but saw baking we our into second lot not slightly a slightly what worse, that

billings related to the a So, little more conservatism our guidance than past.

Jay Chaudhry

Yes. And that we scrutinies will continue. these are assuming current of levels

Operator

Our the comes from of Scotiabank. line Patrick question next Colville with

Patrick Colville

in the has last about up that's and of been Is like in were I'd sales discussed the guess, or year, bearing the that changes on earlier I So, background kind we're changes that we that wrapped now? the on to made quarter sales fiscal ask call. the slowdown process the seeing any have

Jay Chaudhry

Those the to now of lower start discussed, QX, bearing we changes as and they've us, segment, on no end enterprise and the our we year done where leaders. are numbers. it geo behind Patrick, commodity changes at made the reports to segment of QX

Okay?

at we're larger the So, level end some conditions from highest that seeing macro main is are the deals. of thing the the impacting higher

still of segments, they commercial, market well. actually They're had impacted. done enterprise Our end low quite and the

Operator

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

Saket Kalia

you to up can to deals a are mix or their are maybe run bit these conservatism in things deals years more? as And multiple you these are And that assuming little rate in maybe for sort ramp specifically, come second the dig quarters? into half on similar back a guide? take of just we the couple about in the that ramp maybe the normal of relatedly, next just average, that you, of deals ramp Remo, think

Remo Canessa

is shorter that. for of we are are of we very a about, thinking similar it's buying not dealers the QX. buy kind It Again, and in ramps it's getting Also than we as what QX saw to related large bigger, our talked multiple strategic half, No, years, it's a companies. more what of platform. -- in second to

that mean ramps out Regarding continue a that, for pace are got They QX understand today, understand. and that these in same it I QX. the there would And help to about I us. do expect they've companies architectures problem. the

Operator

of with the question Hedberg next Our comes RBC. line from Matt

Matt Hedberg

wanted in the It trends the worse of And December. worse pushed remarks was to of your linearity. February curious, sounded way than February, just ask that was I deals out i.e., I'm about is that those quantify into quarter? like there January to than sort continue do the January? any impact prepared of

Remo Canessa

Yes. in certainly February. thought And again, pushed I but through mean, came January we some of February February. into that in the deals deals do we'd -- some

linearity a the overall deals. function QX QX. linearity, in actually of Regarding But of versus also the elongation better was that's

that's its is why linearity So, better.

would back-end changing. last loaded forward, see seen linearity Going that I the quarters. as I we've really few don't expect

Operator

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

Mike Walkley

is guess, maybe changes Remo, you to pipeline the customer with how the to greater seems guidance of going mix new share I Can the taking close, be implied that us term. remainder longer intermediate upsell year? with like over it over the even for maybe mix fiscal

Remo Canessa

a great That's question. Yes.

in recall If XX-XX. QX, was you it about

Jay Chaudhry

right. That's

Remo Canessa

new. upsell new. upsell. for in about, right going versus it think about XX-XX on metric for XX% felt think I more perspective, to and still we XX% XX% the and And was we the In upsell my think said, is year, XX% QX, to -- new it's go year, the I From this XX-XX

Operator

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

Keith Bachman

in and/or for I a general you look more the economic at the backdrop, are just there of a if deals change ask is about other release -- words, phase in asking terms In pricing? customers pricing? wanted to

sequentially some and the billings Remo, billings years. guide, or in XX% But to the in to roughly get three you're annual worse. assuming that's the that, growth look you sequential down quarter the if higher, for and the if conservative in or July I talked X% order sequential is to at more things billings the or above can quarter, in growth last April the related about equal guide know make And I are fact,

I when lot if basically the asking to room, little a struggling just for at understand It a will, guide, think look I'm just there's the we So, billings QX. you're like bit should seems some QX. why you

Jay Chaudhry

talked on start of can discount, it. the get the about, I billing would pressure and Remo pricing Yes. you part

So to scrutiny on pressure year. CISOs macro is environment, increasing a there tighter and due this

terms. make as Our deal they depend customers mission-critical the of us service. can solution. And customers service But do one upon. view negotiating most for they want payment the buy to and cheapest not looking works, that the over they're order the service are they But sure

a to help help that's would their So where I it. the some some say in We're lower come aren't tremendous pressure focus of point the on we deals discounting. that, And seeing ramp to from of view, seeing on point first from manage year and us pricing a of dealing delivering level right cost for being on ROI Remo? the actually of at the customer lot view. spend. being reduces strategic, their to But value, pressure

Remo Canessa

Yes.

XX% at -- So, guidance our range. that second it's QX you look if XX%, midpoint. QX, the from we've XX% average sequentially had half is in the But at we've to the in been the

Operator

line of Jonathan Our next the from Cantor. Ruykhaver question with comes

Jonathan Ruykhaver

I'm on workload initial lands what ZIA perspective also, initial to there touch look you overlay size you're all And strategy? wondering reps cloud are protection. adoption equipped deal relative can talk trends on Thanks. solution detail And So just sell those like and that from today? to in the the ZPA? seeing go-to-market, more Jay, Is around an a if

Jay Chaudhry

you. Thank

just or cloud planned. Zscaler. network branch network is architecture to Either good have adoption like and they more product are And with there every a more workflows, options. put and Zero region customers of workflows they overall cloud as corporate firewalls Trust do extend they two pretty as launching Our virtual their

So, our these sold customers. to are products primarily

that's understand and embracing it, they're it. customers why of value Our the

opportunity customers deals deals doing are smaller, That's deals. for initial large the and growing, workloads, small for is ZIA some users, and thing, the just for end for are this customers us start But the like of where into significant. majority workloads. there users, largely ZPA it. start are up we believe They ZIA Now for and ZPA same is buying

a equipped In area. bunch but understand sell there of terms are it, all in that this discussions go-to-market, of we nuanced are reps to also

have expecting area, do And overall, So, sales process. are the specialists. in are product we products, help Remo, we in team. the These is product and experts this do sales This emerging overlay not too. they specialist

Remo Canessa

and both upsell. Commercial new products to still high-teens, tracking Yes.

Operator

Our line Goldman question the Gabriela of next comes Sachs. from Borges with

Gabriela Borges

for With you enterprises do already of having risk you best breed. the essentially to how now about customers? wanted market Global that XX%of on opportunity the the that Zscaler are I over XXXX, ask the move Zscaler to can think that of best breed

from, penetration do that breed where you we that? about let's GXXXX don't as you bake-offs, In say, sort much How the getting of care of think feedback do perhaps next that's is best And technology. think rate? other about you ceiling are to words, the

Jay Chaudhry

last Next Can you bake-offs? expand I'm on sorry. again? part

Gabriela Borges

signs Essentially, breed, you're of not you? customers you're do getting for saying, from today, we're you Yes. going -- competing know any best prioritize of to but are feedback we you

Jay Chaudhry

Yes.

Our the half had The generally gave example gone a when And market, work, long architecture where and looking tell can for I you end believe customers failed architecture. for are large savvy. low if term. to lot about firewall-based not the back. these see products. they the retailer tried, can will expect a architecture we way, right looking I Global They're requirements customers this of thing. the are But, live point more in win thinking solutions pretty a time an are the the came of same talk best kind a different that are do talk of way. XXXX, you complicated. customers platform to best-of-breed the with you -- best-of-breed when some you We that with

I much, higher penetration current much think Global to our we have level. a to ample in XXXX opportunity the take

Operator

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

Peter Levine

new. earlier around Maybe piggyback an just to off versus upsell net question

like you're somewhat seems kind focus force your maybe back-to-base able sales of on So, opportunities. it those to toggle more to

that changing is comp focus to are like on hit seeing incentives, rate? the your having second, product So back-to-base more then upsell, you what highest are guess, force one, better better And opportunities? those incentivize you plans to, the all at sales a ones I

Jay Chaudhry

So, have we incentive aren't we us really Do making many any Not special new changes a to on upsell versus logos? new over really. logo. This special to has the years. times been asked

is platform broad big. and very Our

expansion. up going upsell -- to why know is go-to-market And we there's nothing little We bit significant than done logos So want keep refinements this structure a new expansion time, any expansion our new want to compared and down. and seen now easier make that logos -- quarter model we numbers changes. to on we as making you've from to but really we've time upsell logos. we means some the That's of new

very is we the think a of organization. I one sales good things have best

is architecture good. very Our

we best best very Our back so mean, I the deployments service, why we are That's win. c customers it. believe high new bit easier security. on market, good. That's logo. a But to think because keep to us. come many have to as numbers why best a they driving upsell And today's it's architecture expect we'll stay and I a in and customers, talking compared we

Peter Levine

the And then are hit which biggest products rate? getting

Jay Chaudhry

Oh, sorry. product. Yes. Big

ZPA, a has starting look ZIA, So, customer if customers are not if sizable ZDX, there's but you starting common. ZIA. and that's point, a more, base can Zscaler has at that with almost more ZPA every ZIA. be But installed still but

customers upsell sell There's of opportunities customers within big both. to XX% so together ZPA for close moved us the opportunity ZPA. these means they there's A have There's ZIA, business, ZPA higher in a transformation. data opportunity bought ZIA, That be now. upsell protection. many transformation, will to to lot end, on the Now have bundles. they From

can't is big the there's X deploy And advanced of McAfee sitting with Data of especially old really and DLP from when protection school some Symantec a opportunity stuff. us. old is a Data sitting And X, the large much mind protection, the you stuff protection of you on Zscaler, lot be very technology. corporations. data for

other one of CIOs Networking very is is shop, ZDX of coffee from to would customers services favorite and the when struggle become to of someone and of figure help Digital highlight, things it care slow, issues one has pinpoint some some experience home, there's Head take when ZDX. I them. product sophisticated hotel, out. some If because is coming are them

becoming service we experience highly, it’s answer your more Did offer. more highly differentiated that is and important. User And this question? I

Peter Levine

Yes. you Thank Perfect. much. very

Jay Chaudhry

Thank you.

Operator

Guggenheim. with John the of Our line from next DiFucci question comes

John DiFucci

competitive? year-over-year. would decelerated be? You But said grew in the in Because as that revenue And question. regions going there strongly forward? a region. reason region guess be were kind progress is do growth of the is you ask it how And checks But revenue indicator, And they your any our -- the EMEA pretty you given were that expect thought usually was Is the I that. I the it mixed. of region reason recurring growth lagging model that that I answered get you more to might the

Jay Chaudhry

can Remo and start, too. things I'll add

large speaking had getting deals, okay? EMEA This less know, quarter, had to are large weaker want higher Remo, And more as you because they scrutiny. was more? large dependency you dependency And on deals any do on U.S. deals. relatively add

Remo Canessa

And new of Yes. it lagging strongest, our I and our mean, strongest a John. not mean right, upsell was revenue indicator. business, is for geo. if you're one our I

do did well. EMEA So,

Jay Chaudhry

color certain are could others. are better of There another I verticals you there's And if give that market kind than stuff. on the vertical

vertical was in expect, would today's As the weak tech you market.

was the slow. of bit on some and retail a And little

John DiFucci

U.S., that tech the Jay, the would right, But vertical? be more for

Jay Chaudhry

correct. For correct. the U.S., that's That's

Operator

of the comes with question next line Shaul from Cowen. Our Eyal

Shaul Eyal

of they or years, topics that cost is one cloud benefits in Remo, words, enterprise expectations. times, other the have to living are that not at up costs, in or their customers subscribed recent recent the the to some indicating under cloud-related Jay promise quarters is some in of big

So interested have discussions. learn bringing been that in whether to your customers point up recent

Jay Chaudhry

hard hearing Kind time of you, Shaul.

if we perhaps you caught about you think that? I could -- repeat maybe So -- hyperscaler and something might

Shaul Eyal

Yes.

with your maybe been a that disappointment Is the it So up relates I discussions was some as bringing costs. overall if have customers? has been up cloud-related to with some asking recent topic that promise customers in whether brought

Jay Chaudhry

Yes.

embracing lots cloud. okay? the -- no with you slowing back or share Point come I is number Customers want me not let cloud, moving forward are is to So, point at conversation I guys That's There's two, are the of number speed embrace which these somebody not one. have. down. saying,

phenomenon, interesting creating for an spend development all Number able three, actually whereby the that's of reasons. You to software these customers that's projects are can aren't expect because slowing cost committed. some use large down

more because -- partner are closely that an our where That's giving customer spend. are Okay? hyperscalers as deal unit can the part at with of for where cloud actually we some approved commit we partnering of be a these of us some actually

But data cloud? Yes. the CIO are some Are back that to they Do cloud about see So, overall, to to do like the an center? we seeing. -- of things alternate there complaints find a those cost I anymore. No. don't rare see go in it's we are says

Operator

back Q&A Jay and of Ladies call gentlemen, interest for to now remarks. like would closing I due time, session. our to the to concludes over the turn that

Jay Chaudhry

conferences. you Thank you Zscaler. in to some at you seeing your We of continued Thank look upcoming forward the for interest again.

Remo Canessa

Thank you.

Operator

today's Ladies Thank call. and gentlemen, this concludes your for conference you participation.

You may now disconnect.

Zscaler (ZS) 2 Mar 232023 Q2 Earnings call transcript