Earnings call transcript Q3 2023

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Operator

Thank you for standing-by and welcome to the Zscaler Third Quarter Fiscal Year 2023 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Mr. Bill Choi, Senior Vice President of Investor Relations and Strategic Finance.

Bill Choi

Good afternoon everyone, and welcome to the Zscaler third quarter fiscal year 2023 earnings conference call.

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

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

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

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

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

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

on Infrastructure our that Conference Zenith we and briefing focused I Conference Security investor in Tech Global at be latest June will would on events attending X, XX. also to innovations our Bank inform Cantor's of America we'll June in an San like on you the June. on X, Live host following upcoming June Conference Francisco and

the call Now, I turn to over Jay. will

Jay Chaudhry

Bill. you, Thank

guidance high-end last by XX%, third financial with all XX%. we year-over-year grew On and by metrics strong a grew above of the delivered billings current by billings revenue basis, results grew provided XX%, quarter quarter. We the

verticals outside various grew U.S. business new across come from approximately significantly the our of had revenue and industry we Our half

customers of in and loyal high a XXs. have with base the rates gross We strong retention

than a a XX%. approach basis, once operating and more with doubled on to operating income exceeding have We year-over-year now disciplined growth, again on margins

While the comprehensive Zero to of our will on macro our enable backdrop we I platform, strong Trust continue economic first conditions, customer our our and and navigate guidance. execution operate us tighter to believe approach, under functionality this Exchange deliver

Our consultative sales stay account and to customers, changing close especially environment teams process at to our enables C-Level. to adapt our the business the

CFO and We clear earlier compelling ready are have jointly periods. partnering CXOs cases, payback with ROI to that create business

get results deals QX line. our As demonstrate, across high-touch is helping the engagement finish this

enables large to engine many multi-product us go-to-market multi-year, deals. close Our

increased providing that are ago, We guidance macro year, their macro-economic projects for were A quarters uncertainties. increasingly noted our which we due optimism and balances customers conditions. scrutinizing few full and budgets, the believe to business we

in scrutiny QX. level continue seeing are this elevated We of

Nevertheless, we my of priority. network still see of become world. anywhere a firewalls with hundreds from complexity remains enterprises, has high-priority the security-based IT conversation In moving executives, number-one work cybersecurity and IT Traditional forward. cannot initiatives what handle VPNs in safeguarding on their

point operations. to looking Moreover, that ransomware technical in data from the debt Trust the moat business globe high-profile explosion and breaches, are down castle the leaders to phase-out me of architecture. telling Zero and adopt network the around Given are and impedes leaders legacy and IT security, progress slows security C-level products

message value with customers. is business Our resonating

to customers IT environment. and evolving succeed rapidly By security are to Our their user networking and today's and while they and and embracing compared substantially point with experience, consolidating in increasing Zscaler, reducing competitive complexity, cost Zero productivity, our edge which Zero them business modernizing Trust legacy Trust Exchange gives offers security better the security. products need

creates go-to-market many solutions customers, business for integrated to which value jointly for tech increases We our leaders also easy, and partner us. with deliver leverage

Perimeter, the increasing a Beyond with marketing the is pipeline. that our our CrowdStrike, example current is field campaign of tech great called collaboration partner successful Our

success. number deliver deployment on our the to down double outcomes pre-sales From account certification CXO our In to to managers, technical move investments business measurable organization is level. faster and a today's at services we in which customer customer customers strategy environment, customer We've partners, will success of of towards have our success made built management, value. services, and help realizing together partner

business greater We in now customers, million over in our have, XXX $X new $X XX% than In exceeding million year-over-year. XX including logo customers ARR, grew QX, approximately ARR. with

Our their us at-scale, customers Trust partner a choice makes experience pursuing of for proven journey. Zero security

of rate value, has our buy our XX% our have upsell. testament XXX%. drives again our new XX over which a greater customers. strong from strong is with blueprint Net We customers, Promoter more came Happy our Score exceeded and for business Approximately relationship existing and of a delivering retention to net customers

As for we customers their existing have have Xx opportunity a protecting indicated before, upsell our with we users.

from Our is securing securing users, OT. IoT engineering to our platform at securing and as well workloads, rapid team expanded innovating as comprehensive and has a pace

before, As users, buying ZIA, are together. which ZPA customers I mentioned bundles ZDX Zscaler and increasingly for

the in and to new Zscaler branches one firewalls an bundle, by for Users for is win, for services. upgraded deal eliminating a exciting users, XXX,XXX network APJ upgrade XX%, this open and this customer upsell significantly quarter. need last Let reducing deploying With fast-growing the to in highlight platform me year. after SaaS MPLS In time ZIA global bank

centric address strategic footprint have a solution to security they customer a needs the said, their them is time transform that cloud now a it vendor and are as aligns they business understands continue them. seen its first We organization. to expand into This the partner and to

customer's this our purchase and we largest services of the of outside latest serve eight out-of-the-XX an companies diversity insurance China. outside the this financial business geographic also in the U.S. ARR example is of Today, this diversified world, million, surpassed $XX With

for is equates quarters, that entire employees. not and often This purchased VPN observed with the Over I the often simply and all analysts few replacement. DMC, ZPA is past investors replaces true. inbound ZPA ZPA

Hence, whether they have Trust, half services all In work our fact ZPA employees. office the Zero in over at home. customers off for or delivering purchased ZPA

In ZPA. of with saw deals we an that strong area landed ZPA QX, growth large was logo and new

Fortune two XXX highlight year provide access employees, logistics ACV including and me services. dedicated purchase suppliers VPNs, their Trust and A dollar of such made products, load multiple a architecture to ZPA ZPA for users multi-million Zero and partners Let XXX,XXX as multiple balancers, four application ZDX VDIs network private point for company consolidates deals. it

generate and in ZPA employees. manufacturing XXX% a ZPA a deal, three another actors top by their for is ZDX was this In year and XX,XXX tech As security customer. priority software was to company result, are ACV actively global landed targeted a XXX state manufacturing commitment hackers. seven-figure expected being ROI for development Cyber ZPA all and nation for their as made IP

well not is are considerations investors, and Another to understood aspect by paramount that customers in the of performance market scale real-world. our

performance When you trade-off are a security. providing in-line between and inspection, cannot you have

results it same built opportunity in the market, capabilities see not do, number known have as The our chaining Given we claiming in to performance. service and chaining, to for lower microservices our performance. effectively service They their as function success are products a using they large vendors is of scale inspection they time-to-market. surprising the that something using trying to order traffic reduce poor reality in-line in their is,

largest security XX million billion us of technology single-stand, global patented secured performance our from multi-action $XXX comprehensive with architecture, users transactions some we unique deliver to brands, the over surpassed enables high at and Our and daily. We scale.

the the are cannot close inline, no vendors. largest risk offerings and We security customers comes to operations with afford one immature cloud, us, to unproven mission-critical from

ZDX a platform. showcases deal Let users. incumbent At we from scale turned me a consolidating insurance handful In XXX,XXX web for ZIA of healthcare are XX Their to could inspection X% customer, global our ZPA point and a scale when the even which TLS vendors, and this for large the CASB purchased of of not provider proxies, users win, a DLP, highlight SSE firewalls XXX,XXX employees products VPNs. of and including dozens CASB, was on. company

Our suite factor them. was ZDX, ZIA, with for and Microsoft an integration decision EX across important also ZPA

network the to acquisitions security use that addition, the integrate are customer will legacy architecture. rather rapidly than new In required months, Zscaler in by weeks,

highlight transformation SSPM of me for plus and that over browser SaaS and chosen CASB Next, in was advanced best-in our win users. vertical, XXX,XXX suite XX DLP, deal chain class capabilities protection isolation, data a led global our In security. was protection. bundle because vendor, by the Zscaler company ZDX transportation supply ZIA the CASB, let a data largest purchased in

firewall big implement and protection and CASB locations. And sandbox, course at data a proxy, and our to of our to across proven scale buying customers resilience factor. and existing X,XXX products. was with and This started cloud replacing along web see include ZIA their We more data quickly architecture with to direct expanded point their cloud deal protection

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

This environment. multi-cloud that had a XXX deal workloads in in a Zscaler upsell quarter we APJ, global purchased an headquartered XX,XXX bank for with workloads, for

was workload spend protection XX%. their existing for rollout an annual it which ZIA customer, to As seamless and easy increased with them by us

federal Trust are users as purchased cover close the ZIA level deals. A XXX,XXX sub-agencies. deployments deals starting with our We customers, and its initial to all beyond government cabinet Zero ZPA land larger also for move to agency the of

president's across executive the multiple agency on order, adapt which mandates standardizing their consolidate federal Trust evaluation the and thorough to a After principles. with products to agencies Zscaler Zero comply to point

of we and and expand this landed Our for XX plenty FedRAMP agencies, authorization organizations. on ZIA large differentiators have the these reliable been of ZPA very scalable highly both and cabinet opportunity with XX level win, to highest in further having key platform have

customer-centric is R&D new level, innovation in product driving AI CTO to our leading next accelerated cycles scaling at Microsoft. engineering platform will and welcome we who customer the as scaling that force lead has Syam and Syam engagement and our take teams Salesforce our next phase the To journey. the our Salesforce, development experience which Nair, teams. of in was extensive innovation the critical to He AI-powered at

protection highlight we better leveraging of few examples a how Let to are deliver me AI/ML cyber today.

an three acquisition was the but of leveraged to years , service launched the built caused where it ZDX, together for in reducing AI/ML company. detection what far attacks. XXXX to user This resulted performance issue. data to ago, show reducing being our sent technology engine better was degraded, number digital We and deliver not files to in zero from by Our sandboxing just XX%, with Zscaler time ground-up to leverage is their first experience the detection AI/ML, experience. improving was our day

launched controls AI ChatGPT, unstructured that customers ensure Zscaler use we documents delivered in advancements safely. to can for October AI/ML launch access XXXX, enforcement. the policy And protection leveraged data after to The of classify policy-based applications

blocks and it data If the sensitive applications, our to DLP detects submit like it. employees ChatGPT technology

GPT-X, for cyber While ChatGPT, of use a security public Zero enterprises requires that logs Trust on Based for proxy whopping Zscaler AI is logs, devices, XXX all captures their plenty per all data, billion like apps private data. like switchboard AI-powered and Bard Exchange architecture, workloads communication a users, and a private for communication day. Bedrock own

effectively providing not the URL scientists, customize structured and models data day. unstructured trillions for has are These data and beyond These traffic. not AI per information domain. firewall cannot full that SSL are security logs DNS most logs are data, experts train valuable have of the see including anonymized these domain, and have the the logs Zscaler complete private and often little that that signals to LLM

of attacks to Vegas. innovations, We customers our our from to can you the be other so invite believe, customers. of our today's Cloud about will sophisticated a the AI/ML world in AI, Live, most including they predict Imagine breached, attack. on I where Using Annual number join plan in to before prevent breached, they opportunity they Las know and has Summit us. at Zscaler to ransomware many a mid-June, proactively Zenith I are that launch

significant and share In of believe the that market billion our large market. we $XX years security, capture of of to stages network closing, are still XX opportunity early in a we traditional a addressable disrupt

that and location. architecture Trust applications, Our of built their users, using on is unique business regardless Zero connect securely policies devices a Exchange

to plus cyber driving We XX customer-centric our vendor believe go of focused increased productivity profitability. on new increased business by the inline massive value and for and running creating and savings, has platform makes to be user We better highly cost innovation, shareholder cloud, remain year track-record a growth protection. consolidation, reliable that available, Zscaler

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

Remo Canessa

Thank you, Jay.

XX%, represented XX% Revenue and EMEA QX APJ year-over-year total XX% in a up ZPA million, was approximately revenue, was growing of was XX% perspective, product Americas and X% up $XXX geographic XX% revenue was year-over-year. sequentially. From revenue, of XX%.

basis, XX% Until believe which Our On of around billings our a macroenvironment, get quarter-over-quarter, at a in X% billings sequential the to near-term. our certainty billings basis, in be sequential million. more calculated year-over-year on QX total than performance billings normal looking we total the grew measure is $XXX better we declined seasonality. relevant can a

current year-over-year. calculated billings XX% grew Our

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

was to net we good once selling can a selling variability to for on the basis. retention is a our again This from in net XXX%, try faster business, and quarter-to-quarter, start lead future. increased our bundles, retention within could rate a Our while dollar-based rate which bigger multiple dollar-based metric year, above pillars the upsells reduce our quarterly optimize success not

up with continued ARR, XX% this speaks we metric play XXX had we digital the to greater the transformation in of than strength in customer's a of At initiatives. $X million strategic The role our from QX, year-ago. end customers

the We with with quarter than $XXX,XXX ARR. also greater ended customers X,XXX in

usage Turning emerging financial performance. year-over-year gross in in Higher to year-ago our to XX.X% prior rest margins. of public-cloud products quarter. for the the Total and the margin drove XX.X% XX.X% QX gross quarter, in change the of compares

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

Operating approximately XX.X% basis-points of XXX margin year-over-year. increased

roles QX, in efforts across our in supporting optimization departments. we're efficiency higher seeing Following the

was Our margin free cash flow XX%.

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

about centric our and transformation Exchange. our expanding customers the Customers our are Trust trying platform and macroenvironment uncertain customers to commitments with use-case observations macroenvironment us, perspective, security continue around for some deals. getting their broader the large larger as to framework a share remains are to consolidate more, much a me targeted scrutinize and From deals let guidance. accelerate from Next, seeing global Zero approach. We're their

checks to While good as close for more and introduce our business, customers larger deals take longer reviews.

instances in first our ramp reduce enabled in level these select addition, deals year but second In customers billings, into to higher run-rate strategic subscription Typically, larger commitments. new the grow a we into will annual year. ramp

QX entering record customer and engagements our strong. remains a are with pipeline We

become rates more close XX predicting However, in any this in has day challenging environment. period

view guidance Our new over year business to macro. the the assumes take remainder will fiscal of close longer in that of the

assuming are QX. lower close As rate QX in to a result, we slightly a compared

In QX, operating margin to continue will deliver we more than our of intend for We XXX balance to growth year-over-year. profitability. expansion outlook and basis-points

With me and that 'XX. in mind, let QX provide fiscal our guidance for

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

quarter the fourth growth of we XXXX, $XXX revenue year-over-year the $XXX Gross to expect For margins of approximately XX% reflecting XX%. million, a of fiscal XX%. of range in to million

margins initially that remind core products gross to emerging and our including ZDX have lower like would for investors I number a workloads, will Zscaler than of our products.

gross products them for growth, for are managing margins. optimizing We currently emerging the time-to-market not and

Operating other of fully of per profit $XX million, million $XX $XXX approximately assuming diluted we growing demand. $XX scale invest net we the addition, income the cloud In of taxes income in of million, Earnings as continue to will $X $X.XX, million. infrastructure, in to shares. with share our million range

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

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

compared approximately in earnings of year. share. to basis-points of million, taxes share Income range assuming diluted operating per $XX margin fully last improvement to guidance $X.XX the $X.XX million Our of approximately XXX reflects $XXX

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

We remain ability large our confident our in profitability. opportunity, increasing while capture to market

a our us how us of recurring position and disciplined long-term the us based in on growth. we'll business allows topline and deliver goals. profitability changes to profit and increasingly platform, our gives quickly growth market We operating to to on will market adapt model for continue revenue good visibility conditions is balance opportunity growing. The adopting margin on to our make broader customers to business nature With large investments and

open now questions. call may for you the Operator,

Operator

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

Your question please.

Brad Zelnick

you now this seems really going on thank of so wanted all federal a on Jay, good for about question strong ask opportunity, the Excellent, number to much the light craziness taking U.S. guys like QX, of especially I in congrats world. in you've and the level got you SLED a about you well, the you're opportunity there, your cabinet you. talk And but XX Can government generally, just just XX on maybe international happening not sector and Fed in as things strategy maybe public in and double-click pipeline more to ahead? agencies. more thank

Jay Chaudhry

Brad. you, Thank

we have of been several some certifications. for we in As the last of saying made the highest-level investments certification got in FedRAMP, federal early years,

use that they as same get certification, require. what's you certification, the fact, StateRAMP In known states

So in state-wide at we've done well states, we presence have there. a strong of number very level,

the said beginning rollout, now On and front, lands federal It's We guidelines, created part state well being and covers to Trust that's do helped a White see. U.S. got and agencies, to vertical as some course but XX ago are of Zero House as what it. are also as by we public XX full implementation, beginning certifications they are of helping. Federal, that time we sector got to we early

So very happy to see the both. performance of

we to expand at pretty -- depend protecting year for good we've who federal was looked countries, public more engagement the is, good with have And and it. nations, in those and a next certifications beyond for we degree we friendly done share West sector about federal what with feel we U.S. their -- natural upon And us FedRAMP NATO pipeline strong sector a expect to sorry, have QX of nations, governments. success have and We It for you for for friendly beyond.

Brad Zelnick

Excellent color. Jay. Thank the much you so for

Jay Chaudhry

Thank you.

Operator

question. line Matt you. of our for Hedberg moment question the next next our RBC. And Thank comes from One from

Your question please.

Matt Hedberg

Great, results. you about thanks ability large my do how spent monetize datasets. time on generative with taking I'm it strong you and AI, for congrats you, some and to questions, to a Jay, was curious perhaps able the about element pricing talking additional for AI just think the now? to couple could future? from generative and a that support of there consumption Are perhaps, growth tailwind usage years could be LLM's be going we the see that in to extended guys, actually

Jay Chaudhry

Yes, of above. the Matt, all

lot of of threat And First gets better a companies high-quality, It's being to AI/ML, with good of need able today. guy, volumes are AI/ML like, to than all, sophisticated with need Good that's and will of products protection provide be language these there'll AI clients, bigger current of the large data. picked you be is detection, used do more so protection risks. things. you That cyber threats. like need with do race a the Number easily some do can kind some better data and means against step-up two, you data attacks, the up, do protection stuff three to more they such as in Zscaler need to they'll the to models scientists, number-one. large bad

and advantage and language we barrier-to-entry. IP, large have anonymize the most probably new easily would trillions it XXX and more that data to become probably models billion with not logs be large the I model, data And believe will language Zscaler day give new data. the open-source of competitors and an companies to signals, many that can available, the While becoming are us per precious have. private our hire scientists other will feed we

I being these Now for expect have will us opportunity. but new while plenty SKUs, to new things, of products us upsell that functionality, enhanced give

So I AI/ML to expect expand TAM. our

Matt Hedberg

Thanks Jay.

Operator

from line next Thank Fargo. next Andrew question you. question. comes from for our our Wells Nowinski One moment And of the

question please. Your

Andrew Nowinski

those. the on I and the ramp you with quarter. of one the anniversary the number amazing deals. mean you something to I from guess more I'll And, question move price Great, here. guess on deals, benefit to thanks. their about tailwind when full another that the guess just you start congrats of of at start right of to you're ask and now I of we'll could these you're start is, subscription, and tailwind seeing -- It's and it shift I you seeing when sort for from thank if ramp wanted those so seems questions when one, see the a those any go not if understanding seeing from from headwind walk I'm to correctly really getting timing is headwind year through after you're started I deals, that, when ramp what the deals, talking when about year ramp us of customers a this that's piece we're the

Remo Canessa

I mean, Andy, it's I'll question it. a great take Yes

in last You and year may the year, look deals of take are at the a same. the QX ramp of amounts percentage this QX

years So tailwind headwind a it's pretty same basis. basically year-over-year ago, on a much no or ramp few there's now the related coming really deals deals. and in Ramp the to started

do expect to deals know as go-forward, you go-forward. we ramp I

of rate The you above to and If the the XX basically the at slightly billings XX% had basically a we basically duration, the high to was growth end that last at the duration. XX in year, QX duration year, range was related duration, this midpoint. month was our was our take that of short-term, duration, look

duration. So ramps billings, did really not create was short-term basically our impact it the to positive

Andrew Nowinski

guys. Remo. Got Thanks thanks, it

Operator

Thank from our of you. our next line Truist from question. And One Securities. comes Fishbein moment for the next question Joel

please. question Your

Joel Fishbein

Hi, expense thanks margin for here congrats outperformance question the the discipline. on taking and again, and

call, some but a looks be got making about expand impressive it's sure sacrificing So, but further I to to growth pretty not a pretty guess levers Remo know pulling difficult. there got -- that and. on you're act, this step you little at love you're little have and you know like be that it I'd you continue it margins in bit as it's methodology level, balancing I the a addressed take for considering question to the bit I a and

understand to love I'd So so. to peel on the just onion that back that,

Remo Canessa

our perspective, in size at than bigger a -- we're look our you Day, It's addressable $X.X that billion billion basically you Yes, market, few at look ago. for Analyst the talked much sales or a years a at-the-market market take where from take a our about so, $XX it's when revenue. is that we

the So ability market, Xx penetration this into our also remains. still that to upsell

balance will that's growth, margin for focus expansion, and We in the profitability we your topline want growth, we're leverage. called year, make the talked XXX at, full forward, model top-line top-line the going outstanding. in invest. if a to you our to basis-points, we're our But still out look you QX, expansion is to slows as take that but that's XXX basis-points margin expansion move sure that we recognize, When to about. continue a that position going natural get down, to great you're that feel investors I margin

consensus about to going we're more said Having that, fiscal operating operating give current know and is to related to 'XX, basically balance you you clarity XX.X% street profitability. growth topline And the profitability.

I think capture to invest place to for this framework plenty that to I XX% kind in to and the just gives that continue XXXX, you of us a of is give really do a range. street be XX.X% believe to to fiscal room market. good

Joel Fishbein

you so thank Great, much.

Operator

comes question Barclays. question. And Kalia Saket for the Thank from of our our next moment line you. next One from

please. question Your

Saket Kalia

you. thanks Okay, is maybe taking hi question for here. my guys, question for Jay, this

know competitive that way into for just some it the conversations little could there backdrop stuff, in its noise certainly, importantly at wondered on had you've whether you quadrant were customer speak wanted out that to the themselves. seen just doesn't appear see numbers the bit, there any that all, numbers a you address again, all? if if with make and views competitive I but of First I more

Jay Chaudhry

Saket. you Thank

done Number regarding why Gartner, So a they only Gartner's right? us who is leader. that view the I in insight you magic leader the fact rewarding by as judge. customers real eight survey number believe in customer Gartner's I'll I points Zscaler as rating, one, give is by spending Zscaler the which are on in three said Zscaler, quadrant. is the peer one category. MQ they you In And believe are real

are do categories, in of number BXB OT, for the them, wonderful. eight and So for one SSE we SSE they've just eight far expanded beyond vision also, all we And we our users, workloads, like. have IoT, that's

been you know, customers, customers. you a more me, this know, number that dozen the had There MQ? I as I hundreds this are said, up? don't How to and judge. I've than hundreds I asked hey, of can is you least of conversations talked have what could with I show tell at have a

Is our So, is it it impacting our performance? impacting No. No. engagement?

we building, think I happy. are focused our on customers delivering, keeping

Our north XX. of NPS goal sits

with on very we're doing So what happy we'll keep and executing.

Saket Kalia

thanks Very guys. helpful,

Operator

And line moment our Thank you. question from One next question. Auty comes our next for the of Sterling from MoffettNathanson.

Your question please.

Sterling Auty

going-forward what you hiring hires? sales in force to durability currently. you customer about of Where of you us could the like might if Wondering growth you're did or kind big the the the are of timing go-to-market the your success teams. capacity Yes, guys. and for the just your success seeing and of the extend function talked that us you Jay, look thanks. highlight and remind Hi, when

Jay Chaudhry

broad Yes. Hit a go-to-market level.

hiring go-to-market forward Our goal on newer make the sure pace, give the hiring, to -- the more you of we keep in a at some products. want some market help the Remo some of of to it. the team, takeoff some to down -- moderate us lose color as that is right a did quite teams saw we the of past as as broad do well push couple quarters. We come

Remo Canessa

Yes, good shape. from capacity a in we're perspective,

still talked reduced the heads -- things of did basically quota-carrying we've R&D workforce our the at case. we the You know end QX, we still the to when is, that's going one prioritize of and about we're

a hire. continue we will in mode are hiring We and to

that you not hires is and QX ourselves hiring better is us, of and I doing. We're going-forward, invest opportunity. throughout that, the this to the to matter. did we lost we're But One going in a in that proper is the company, for what to huge market Sterling position mentioned to was and really know, what things and on invest we'll R&D that's make continue

Sterling Auty

Thank sense. Makes you.

Operator

moment Securities. for next the from you. One our Guggenheim DiFucci line Thank of comes John our question. question And next from

question Your please.

John DiFucci

Thank you.

was see difficult the results, numbers, things it's quarter pre-announced that, looking really this And strong it's guys people you a in was So have this at quarter, you has it real you like but about environment. know the said clean also and are, that, to odd it, have to nice said see talked the and looks continued. that it environment

changed was and struggled anomalous relative you was figure you talk really signings, what larger -- of were is any would last least they out I about were to just executing did you two mean, Not mean, buckled like at what deals in just it past with are strong. or changed? sort more really our guys there -- two large and out quarter of just like it What were ACV I the this from So to measures quarters. up the they guys now deals there happened, this better. quarters, new you I'm for trying that quarter,

Jay Chaudhry

new last taking we're APJ quarter on longer So logo all year-over-year were close. strong was And a areas. of we Americas particularly across basis. some said strong the to this large quarter Americas and deals

delayed. And We those deals of but lost, were those just did close a number said, also not deals. good we

healthcare From vertical Strong for well-diversified. for financial verticals transportation. it and very federal, services, was perspective

deals. user number $XXX,XXX and highlighted we large plus of well, did major Our segment a

delay fundamentals it So as priority, not of customers priority. a our are is strong, cyber a business the to going are very

to we is our significant do because delivers only in bunch when ROI, a priority a big comes cost-savings. I we're are we saving companies probably both you well eliminated, well products. as company point actually Cost that areas. Cyber, and can cyber well of tell as the it

but market, strong. it tougher is a fitting there's well, So is strong, it's more foundation our is scrutiny, our pipeline Remo?

Remo Canessa

greater that upped deals We Yes of go our million $XX know, deals are really across-the-board, There I'll are talk went was than Jay I Again, thing large the strong, deal $XX think mega mega-deal, deals was Americas from $XX basis. about were quarter. mentioned. worldwide pipeline, deals, first of like Pipeline, was organization were deals now, execution, to -- million. with deals federal greater maturity in no Related a of key if did one that mega strong. we the We've have sales good greater than strong, was when it million. $XX than APJ we you on strong million. execution, public

John DiFucci

you much, guys. Thank very

Operator

our moment you. Thank question. And for from our Roger of next the from One Boyd comes next UBS. question line

question Your please.

Roger Boyd

taking again, And question congrats very the for strong results. thanks on the Great,

and feeling ready influence of XQ efforts pretty fiscal better CFO As I sounds cycles you've scrutiny being little sales you're you around in in fiscal about close to been to think cases. some these some material controlling it you made to business about have but quarters like ability budget your I'm relative wondering, you get Thanks. rates, a internal are incrementally just internally efforts with of how Jay, destiny, 'XX, ago, conservative curious in bit few front talked guess own your the a about of practice? broadly these

Jay Chaudhry

it we made were has market than tougher before. this us so sophisticated a lot Yes, more

our when numbers logos, be good longer early on lot CFO annual at in studies, No quarterly we want for done. ROI now engaging refine more. go had case ready they sales getting at a are into engagement, what now level to to case, we value our done? are the example, We enough, C-level the cycle. good doing For business team two, Number can see new early is have to

spend more the of ramp annual meet that's like. budgets commit already because Our engagement hyper market-based had to of timing kind we leveraging committed the that's cloud to are and of their is the now better, frequently, gotten spent to have deals which we do annual much scalers, only

more-and-more. few that a past the are realizing things we are customers the done number had we quarters, ensuring in of value upsell, For

Our customer success our teams, job. a TAMs are great doing

And put working then with the product emerging team field our closely specialists well. It's sales team. products, that's in-place we working very for

Zero platform, platform and is we'll having from Trust, we So which company on pivot building. improving to and a not Zero is as key Trust a day-one execution are built that's sales CASB on it. company a highly-differentiated that's firewall we're keep This nonstop our core business trying great, our we a good to not and

Operator

comes Canaccord the And Walkley from for line next next of moment you. One Thank our our Genuity. Mike from question. question

please. question Your

Mike Walkley

in. net versus fiscal I us Remo share All you retention. some new can Xx little maybe opportunity? given in sales still around to bit kind of you'll lumpiness grandfather you mix, of that a large guess with right, times thanks. future But dollar-based you about logo upsell talked given that it that expect deals XXXX XX%, is upsell, XX%, ratio

Jay Chaudhry

don't mean write I or retention at. something to net Yes, we look is rate

XX%, those total, upsell, really new we've upsell. Zscaler to talked look is, we XXX% we year, and best drivers outstanding. believe about this measure new is versus look expecting at XX% at We the are at, and billings we're the if mix really before is as Our in for

Mike Walkley

Thank you.

Operator

our for from Thank moment next One Tilton Joshua our comes And from Research. of question. Wolfe line question the next you.

Your question please.

Unidentified Analyst

this Patrick on is guys, Josh. Hi for

what's congratulate a the correct. on just First-off, results in environment. checks not Clearly in were to wanted been exactly mix you great the the quarter, tough

is that numbers general So, the I disconnect quarter driving recently. and heard sort up We've feedback then was from wondering, what in think do put strong you of between the the the channel.

Jay Chaudhry

So this new. is I not think

said We a companies selling not we typical have times through are many-many security people VARs. that boxes

mean, are business. channel look transformation and working a it's we personally sometimes with misguided, high-tech These be sale will customers how a play, how large-sized, at always do that's checks I that's and I it. We closely

transformational are C-level you it When is driving and different. whatnot,

are customer say, strong, our our our would very refined engagements strong, more strong. channel let's differentiation Look and is business I So, checks. is be very

able but we XX,XXX we're customers to trying than the is mislead when and trying are to the fund, educate competitors do to make market, X we days our results a communicate in they the them, it's users are create deploy our Yes, results turn-on we amazing. best job are say, them, our they technology Jay, sure to

is there the to extend we say from -- cloud, we office it's our out contrast cases, yes struggling our a And to a trying then is if still only that solution, competitive got thing this are couple there, network you seen a really I've of old-school architecture.

So, way have unique all better there, area new unstructured where noise comes way logs, that that out in I now we the in AI/ML, do we of our executing and advantage private and believe differentiation, that the from we of data. engagement, in with [indiscernible] market, the innovating of better structured are are our data, and spite the

where the out be any vendors Where The out bytes will of comment And from use figure URL are have from? what data, Maybe vendor information could there URL, that can all data, generally unstructured don't the simply going comes on. generative any most that's than long. going. hundreds AI where they We the is the slip every level do structured you better are you a of which on stuff. of Most firewalls, intelligent are you has logs. domain Logs coming you

this stuff. will that some will any for. lead further TAM As our do and we and growth further increase believe are we of actual that give I striving us

Unidentified Analyst

you. thank it, Got

Jay Chaudhry

you. Thank

Operator

One moment from comes for Adam our Stifel. And Borg next our the question from question. of line next

question please. Your

Adam Borg

start And love When taking thanks Jay Zscaler of get Users. traction so to question. thanks think And within are the script Zscaler the in increasing I taking the that should in and for overall the -- sense. way comes you of for Awesome. so much mix about any from for installed-base, for a users for much. customer the Users a about new how to I'd talked mix new Zscaler Maybe think the customers about with

Jay Chaudhry

seeing we bundle Yes, with combined little year ZDX bundle. three ZPA, it's this had a good growth so about over who or time. the at ago, but go who we ago. and time. ZIA, seen it's two thank and of a overall is actually I some trend bigger you. to customers Zscaler we But bunch interesting, have And the as actually will said even customers years we point very, And a have products, have very for matter some bundle the eliminate large same Users, ZPA customer of the was started and created a this of we are

buys seeing When us, or happening we're we actually that well customer kind one reasons, with every go and every and ZPS spend do bunch well Remo. we more to are two for the able said current And we to realizing show tracking buy customers if employee we of customer value, a who Xx and to is that I ROI their more us format. and is trend could ZIA, tracking ZDX think they're Number as so more-and-more. are from Xx on before, incentive point products gives actually remove and them for two, of stuff, value

Remo Canessa

ZIA, our have of than ZDX, that ZPA customers customers. total XX% And Yes. more and bought it's

So it's definitely traction. getting

Adam Borg

again. thanks Awesome,

Operator

Baird. comes Thank line And Shrenik you. from question for from One our next our moment of next Kothari the question.

please. question Your

Shrenik Kothari

Hi, question thank congrats the despite you macro. and execution on for taking my the strong

feel basis. and free Jay for in, Reno, sequential mentioned you on So, a chime to

kind follow-up. engagement you and seasonality, normal of from terms factors You of seasonality to high-touch have saw touched a us of of and help international. quick line, finish of better normal execution, better relative into kind then course get course to I helping benefit a these close deals course larger in are than ramping drivers the to then of seeing upon of And than some unpack is Can guys then you larger the customers on maybe commitments. you with starting federal, impact strategic this

Jay Chaudhry

mentioned correct. Yes XXX% I is think. Everything you

feel, traditional execution. organization. in are execution I think with still the doing tougher I'll I I'm sales better all I go a mean, Yes, scrutiny it's to on we are You better back more a our factors aligned, a environment what lot and know, it's but

product there positioned need But if you've because us got want well. customers it, good that and what's is that's do for highly-differentiated save and cybersecurity better offering money a to really

Remo Canessa

not is related follow-on, cloud, workloads also. it IoT, recognize ability to and significant, BXB. to just for only you the inline but significant network multi-tenant OT Architecture, ROI, architecture, simplify your the and users mean, I is customers

know that's You Zscaler. that the basically vision,

The Zscaler, so pioneer leader. with the this all

on XXXX, board typically I customer CISOs Fortune our XX%. at a XXX do talk other. the once do like believe I look this mean to they a week, mean we it once do mean XX% which I companies one advisory a CIOs, week. Jay, penetration into take do one average, a Global We I we meetings, year, you like If in is each

want discussion. your comments, things. and I far mentioned in make, pretty strength, much the being point a a across-the-board, cloud. it's go come is to service, probably all work manage run must proven with massive all I'll mission-critical across One is do and things basically the and so customers to we hasn't who What and such what and switchboard this critical, vendor so so which most And those it how the it's business knows operate

helping experience the It that's too, differentiator what's customers your and cloud vendor when track-record, is and got I what's then say, a your it us. new becoming the a comes saying,

trying private with well, of with One off other around us of and someone customers going the customers may cash, aren't all, because helping who are and vendors be in be area. area be a lot tomorrow, leaders some companies new be who losing who go vary may that's this the us to as helping to at and that's not and will looking will around of

Operator

moment you. our question. from Thank for One Levine of the our line question next comes Evercore. Peter And from next

please. question Your

Peter Levine

any come what So, the competitors building, behind of a to explain they're and squeezing out validity campaign your We've us of complexity, kind in. right overnight. customers kind engineering me somewhat reverse specific of you tax? kind Jay, is seen the quarter shift lift for guys you thanks are Great, very guys with one targeting this your of there

one, you're margins, color with but process, what if you that the any can And Remo front extent and how extent the thought now you've you outlook fiscal just us growth quick macro about any guys. discussions you high-level one been XXXX seeing thanks on to color the attrition on for you or into share then yes, and on thinking can playing the that thank to

Jay Chaudhry

who be someone very will firewall grade company, CDN company CASB or be do be vendor great competency. CDN and core a company. they has a should will competence and in and company firewall good the DNS every company a does DNS So A that well

years came you competency, in and one firewall. I'm years. you very It's and build If try hard. can over for that the build year, to create pivot You best to that and told going I

without while, trying can especially it's say it be it's inline, slowing takes it figuring for that's a but say when that, change. something statements pivoting threats me things may While I that like cyber multi-tenancy, make all companies hard to down to hard, and out it an would because architectural pivot, the do

one IP is to passive are to We XXs service, do handle two, hard, believe XXs to not where some has the XX% likely like and we be so and we at. really property, stuff. very amount number purpose-built the that's the margins of of number deliver because to your needed intellectual gross selling one, the the It's sit

the you is products how applications in-line be trying Thousands Zscaler, competition many offsetting. application. times to describe a many have are of built, it business that being to So gives us on not I can others we think see SaaS, unnatural to see, hard view not few this into point barrier-to-entry SaaS as ERP we at maybe compete for do can us big, comments, that big, get sitting in-line almost out vendors, and I far like doing space an ERP there very for it's that

are expanding our a larger platform at We pace.

customers that end. we'll kind our are find doing competitive tried top-line focus don't do growth, focus on about on call and much focus of spread we on we innovation, well the too some lies be on I next the So and I to cannot campaigns zone. to for year talk of that

Peter Levine

Thank you guys.

Operator

line the from for our today of our question. question One from for Gallo next Thank moment you. our And final next question Jefferies. comes Joseph

question please. Your

Joseph Gallo

Hi, the same billings environment. based appreciate you today? and expected a regarding year-over-year on tough I year-over-year of ramp guys, guys seeing the FXQ commentary in the the performance on FXQ, mix really the are deals pipe, the in mix is great job appreciate question

we then how should color or anything on billings, there mentioned appears conservative. timing other I which any rates, but or is to seasonally else guys. close commentary about know thanks And renewals just anything about, lower think you FXQ else think

Remo Canessa

it remember a to compare year, our tough would was last growth the approximately, think I close growth. ramps. was Yes, quarter-over basically XX% I billings billings just same, consider it quarter, is

Jay Chaudhry

a had QX, so we also, strong a QX, compare. In tough basically

Joseph Gallo

you. Thank

Remo Canessa

right. All

Operator

hand I'd Jay for remarks. conclude any program does like the further the question-and-answer This now Chaudhry to session. back CEO, to

Jay Chaudhry

of you also to see our shareholders, I your for our I thank in like you partners. to at would interest Vegas in customers in our Thank hope and next a couple Talk great, Zscaler, you. Live you weeks. Zenith thank quarter, to

Operator

your program. conference. today's you does Thank gentlemen and for in participation ladies the conclude This

disconnect. now Good may You day.

Zscaler (ZS) 1 Jun 232023 Q3 Earnings call transcript