Zscaler(ZS)2024-12-03 01:46Financial Data and Key Metrics - Revenue grew 26% YoY to 517 million, with unscheduled billings (new, upsell, and renewal) growing over 20% YoY [33][34] - Operating profit increased 50% YoY, with operating margin reaching a record 21% and free cash flow margin at 46% [9] - Remaining Performance Obligations (RPO) grew 26% YoY to 2.7 billion in cash, cash equivalents, and short-term investments [37] Business Line Performance - Zero Trust Exchange platform and AI solutions drove bookings growth of over 30% [8] - ZPA (Zero Trust Private Access) is a significant growth driver, contributing over 40% of new and upsell business [66] - Emerging products, including ZDX, Zero Trust for Branch and Cloud, and AI analytics, are growing twice as fast as core products [22][79] - Data protection solutions are seeing strong demand, with a Fortune 500 pharma company doubling its annual spend with Zscaler [20] - ZDX Copilot and AI-powered solutions are contributing to large deal wins, such as a healthcare provider doubling its ZIA subscription to 60,000 seats [13] Market Performance - The company secured over 35% of Global 2000 and 45% of Fortune 500 companies [18] - Federal vertical saw a new cabinet-level agency win, now serving 14 of the 15 cabinet-level agencies, including the DoD [26] - International opportunities are expanding, with governments in Australia, the EU, Japan, Singapore, the UK, and the US planning to adopt Zero Trust architecture [27] Strategic Direction and Industry Competition - The company is leveraging AI to enhance its Zero Trust platform, focusing on securing AI applications, automating digital experiences, and improving cyber and data protection [10][12][14] - Zscaler is targeting the replacement of legacy firewalls and VPNs with its Zero Trust solutions, particularly in the context of hardware refresh cycles [71][72] - The company is shifting from opportunity-based selling to account-centric selling, resulting in stronger customer engagement and higher-quality pipeline [28][29] Management Commentary on Operating Environment and Future Outlook - Management highlighted strong demand for AI security offerings and a growing pipeline, with sales capacity strengthening due to lower attrition [52] - The company expects to continue growing the number of 5 million-plus customers, driven by a mature pipeline and strong partner engagements [29][30] - Full-year guidance includes revenue growth of 21-22% and billings growth of 19-20%, with free cash flow margin expected to be 23.5-24% [39][40] Other Important Information - The company will attend several upcoming conferences, including the UBS Global Technology and AI Conference and the Barclays Global Technology Conference [5] - CFO Remo Canessa announced his retirement after eight years with the company, during which Zscaler grew from less than 2.5 billion in ARR [42][45] Q&A Session Summary Question: Unscheduled billings growth and future expectations - Unscheduled billings grew 20% YoY, exceeding expectations, and is expected to remain strong in the second half of the fiscal year [51][52] Question: Data security and Microsoft Copilot integration - Zscaler is leveraging its integration with Microsoft to secure Copilot deployments, with a G2000 company signing a seven-figure deal for AI-powered data protection [59][60] Question: ZPA growth and VPN replacement cycle - ZPA is a significant growth driver, with over 40% of new and upsell business coming from ZPA and ZIA combined. The company sees a long runway for VPN replacement and Zero Trust adoption [65][66] Question: Firewall refresh opportunities - Zscaler is targeting customers with firewall refresh cycles, leveraging its Zero Trust SD-WAN and device segmentation solutions to replace traditional firewalls [71][72] Question: Emerging products and their contribution - Emerging products, including ZDX, Zero Trust for Branch and Cloud, and AI analytics, are growing twice as fast as core products and contributing to large deal wins [77][79] Question: Federal market and DoD opportunities - Zscaler continues to gain share in the federal market, with 14 of 15 cabinet-level agencies as customers. The company sees significant upsell opportunities in this vertical [102][103] Question: Data protection solution growth - Data protection solutions are growing faster than the overall business, driven by AI-related security concerns and comprehensive platform capabilities [118][119] Question: GSI-led deals and their impact - Global System Integrators (GSIs) are playing an increasingly important role in driving large deals, particularly in Zero Trust SD-WAN and device segmentation [113][114]