ZS - NASDAQ

Thank you for standing by, and welcome to

Good afternoon, everyone, and welcome to the

Thank you, Bill. We had a strong close to our fiscal year. In Q4, we delivered 43% revenue growth and 38% billings growth with balanced growth across all verticals, customer segments, and geographies. For the full year, our revenue grew 48% to $1.6 billion and billings grew 37% to over $2 billion. In addition to achieving record billings in the quarter, we also set records across several other measures. We added the highest number of $1 million ARR customers, generated record new pipeline for a Q4 and attained record operating profit margin. I'm proud of our team's achievements and humbled by the trust our customers are placing in our platform. While the macro environment remains challenging, we are executing well. With cybersecurity as a high priority, IT executives are moving forward with zero trust initiatives driving our business. As I mentioned before, we are partnering earlier with CXOs to create compelling CFO-ready business cases with clear ROI and payback periods. As our results demonstrate, refining our high-touch sales process is helping get large deals across the finish line. We have a blueprint for delivering immediate value, which drives faster upsells, often within 12 months of initial purchase. We closed a record number of deals over $1 million ACV in Q4, driven by broad based strength across our key industry verticals. In addition to our industry-leading top-line growth, we are generating record profitability. Due to our spending discipline, we achieved a record 19% operating margin as we more than doubled our operating income on a year-over-year basis. These outstanding results reflect the strong unit economics of our business with best in class 80% gross margins. Our innovation and customer obsession drove our Net Promoter Score to exceed 80, which is more than two times the average for SaaS companies and contributed to our high 90% gross retention rate. I am very pleased to announce that we doubled our annual recurring revenue from $1 billion to over $2 billion in seven quarters. reaching a milestone only a select handful of SaaS companies have achieved. We secure over 7,700 customers and protect over 41 million users. With every customer looking to adopt zero trust architecture in today's world of cloud, AI, and mobility, we believe we are in the early stages of capturing a large share of our $72 billion market opportunity. We have our sights set on achieving our next goal of $5 billion in ARR. We are on a mission to take zero trust everywhere to users, workloads and OT systems and become the go-to platform for vendor consolidation, cost savings, increased business agility and better cyber and data protection. To fully realize the business value enabled by our platform, customers are increasingly buying

Thank you, Jay. We are pleased with our strong performance in Q4 and solid execution, even with ongoing customer scrutiny of large deals, Revenue was $455 million, up 43% year-over-year and up 9% sequentially.

[Operator Instructions] Our first question comes from the line of Brad

Great. Thanks so much and congrats on such a strong finish to the year. Jay, can you address why

Right. So, Brad, this MQ is not slowing us down at all. SASE is a broad genetic [indiscernible]. When Gartner started it a few years ago, it was an integration of SD-WAN and SSE, the gateway products we have. And we've done integration with every FD vendor that matters out there. So but that MQ that got started this time was for single vendor SASE with SD-WAN offering in it. We have often said that SD-WAN is offering zero trust [in space] (ph). We do offer zero trust SASE. But we don't offer SD-WAN SASE. So we're [indiscernible]. We are about changing the world, not really propagating the old world, and we are very successful in doing so.

And Brad, related to guidance, you know, the positives are, our pipeline is record pipeline. Our execution was very good in Q4, which gives us confidence. The potential downside is the global macro environment. We've taken that into account. From our view, for fiscal 2024, we're seeing a similar environment as we did in '23. The guidance that we have, as you called out, 24% to 26%, we feel is very strong guidance, which supported by our optimism that we're seeing in our business related to also what we see at the global macro situation.

Thank you very much guys.

Thank you. One moment please. Our next question comes from the line of Matt Hedberg of RBC. Your line is open.

Great. Thanks for taking my questions guys. Congrats on the quarter. Jay, I was particularly impressed, comments on emerging product success. Seems to be really kicking in here this year and even more so next year. Now I was curious on workload protection. It seems to be resonating a lot of partner conversations that you mentioned on call. Maybe just a little bit more details on why that's resonating, because I think if some of these add on products continue to do what they're doing, it certainly opens up much larger TAM than kind of the core

So when we started

Thanks, Jay. Congrats.

Thank you.

Thank you. One moment please. Our next question comes from the line of Roger Boyd of UBS. Again, Roger Boyd of UBS. Your line is open.

Hey, great. Thanks for taking the question and congrats on a nice quarter. Jay, a lot has been made about Microsoft’s entry into this market. Very high level, but Microsoft pretty specifically is targeting the SSE security edge space and not SASE space. Just maybe a follow-up to Brad's question, do you see that distinction as maybe further legitimizing the SSE approach relative to single vendor SASE? Thanks.

Thank you. So SSE is widely understood and accepted. It's essentially the combination know,

Thank you. One moment, please. Our next question comes from the line of Ittai Kidron of Oppenheimer and Company. Your line is open.

Thanks, and hi, gentlemen. Congrats, a great finish for the year. I guess I want to talk about the competitive landscape of the more traditional firewall guys, Palo Alto and Fortinet more recently, and I guess, Check Point [referring and] (ph) acquisition recently as well are clearly trying to make big efforts here. Maybe you could talk about the competitive environment. I mean, what way is it today different than what it was a year ago? And what -- what are you seeing from your competitors more kind of near term here?

Thank you. On the high end of the market, we -- where we do extremely well, we really haven't seen a change. If there's any change, I would say, art position has further solidified, and I would even say it has gotten somewhat easier on the higher end of the market. When it comes to the firewall market, we are replacing firewalls in the branches. When

Appreciate it. Thank you.

Thank you.

Thank you. One moment, please. Our next question comes from the line of Andrew Nowinski of Wells Fargo. Your line is open.

Great. Thank you. Congrats on a great quarter, particularly on the billings. I mean, it looks like you solidly exceeded that even if you pull out that $20 million deal upfront. So I wanted to ask about the data protection products that you call out. You spent a lot of time talking about it on the call, and based on the info on your slide deck, it looks like there's a lot of components to that beyond just data protection. So maybe, could you just talk about some of the vendors that you're competing against there? I think you said one customer, you replaced two of their -- two different vendors. Maybe you can just expand on what you're seeing there from a competitive perspective? And maybe how competitive is it relative to like the markets for

Yeah. So data protection becomes a natural thing for us when traffic starts flowing through

That's great. Thanks, Jay. Keep up the good work.

Thank you.

Thank you. One moment please. Our next question comes from the line of Brian Essex of JP Morgan. Your line is open.

Hi. Good afternoon, and thank you for taking the question and congrats on the results. Jay, I was wondering if you maybe or even Remo as well, give us a little bit more color in terms of the ramp deals that you saw this quarter. Is there a way to quantify what percentage of deals were ramp versus prior quarters and how does that typically, how do the dynamics of those deals work in terms of the amounts of commitments, the pricing, and the flexibility around ramping? And does it give you more flexibility? Or does it give you more visibility around what you see in the pipeline in terms of coverage over future periods? Thanks.

I mean, I'll start and maybe Jay could contribute also. Ramp was a headwind about 1% for us. Four larger deals that we're doing, as we talked about in the past, is that we use ramp with our customers to basically ramp into the full suite of products that we have. What we're seeing is we're seeing customers buy more of our platform upfront. We're seeing also existing customers expanding their platform with

Yeah, if I may add. The bigger the platform we sell, the more likely you need to provide ramp because the more pieces to be done. Number two, there's some of the tighter macro environment bigger deals scrutiny. Ramp did pick up in the past year or so as compared to two years ago. We factor that in as a part of doing business, and it's not a bad thing. We just have to manage it right way.

Great. Thank you very much.

Thank you. One moment please. Our next question comes from the line of Gray Powell of BTIG. Your line is open.

Okay. Great. Yeah, Gray Powell from BTIG. Thanks for taking the question and, congrats on the good results. So, a couple of related questions on my side. Can you talk about the visibility you have on late stage pipeline today relative to this time last year? And I guess I'm just trying to get your confidence in billings. Does the higher percentage of brand deals today, does that help give you better visibility on the growth outlook?

Our visibility is good. So, as we talked about, we've had, a record pipeline and our execution also in Q4. So I would say, visibility for us is good and supports our guidance. Certainly the billings, with the ramps, give us also a good visibility too. So, our guidance, I feel, 24% to 26% is very good guidance, and takes into account our visibility and all factors. And also, if I may add, we have a record pipeline, and we're seeing pretty good momentum on our business. We were in Vegas doing our sales kickoff a couple of weeks ago. The energy and excitement in the room could be felt. Actually, it was very good because our sales team have a lot of confidence. We talked about the record pipeline, the record deals out there. We talked about the new momentum the channel is adding to us. So we feel very good about our fiscal ‘24 business.

That's perfect. Thank you very much.

Thank you. One moment, please. Our next question comes from the line of Jonathan Ruykhaver of Cantor. Your line is open.

Yes, thank you. So I have a question on the emerging product portfolio. You highlighted how it represented 18% new business in fiscal '23, you expect that to get to plus 20% in fiscal '24. It just seems to me like plus 20%. I'm not sure what that plus could be, but it seems like a low bar just given your comments on data security,

Yes. If I may start, it is all coming out of 100% only. Okay. That's the most important point when the overall growth is pretty strong. Okay. And for the new product, even if it grows 70%, 80% percent a year, it has to work very hard to even take away 1% or 2% from the total new ACV. That's pretty significant. So the growth of these new products is much faster than the growth of the overall new ACV, but they are fairly small and they're growing into good business. We called out data protection as it became a significant part of the business. And I think here too, you're seeing our combination of workload protection and

Yeah. understood. Good point, Jay. Thank you. Thank you.

Thank you. One moment, please. Our next question comes from the line of Joshua Tilton of Wolfe Research. Your line is open.

Hey, guys. Thanks for taking my question and I echo my congrats on a good quarter. I kind of want to go back to the first question. And, if you look at the guidance, the implied new billings kind of looks like a little bit more aggressive, I would say, than the last two years. So maybe just, level set for us or set some guardrails or expectations around kind of the puts and takes on what it would take for you guys to kind of outperform what you laid out for the next 12 months for us, please?

Let me start to give you a big picture and Remo, you can add your color to it. So our guidance is starting with first of all, a record pipeline and the momentum we have in the business. And we have plenty of product to sell. We have a growing market opportunity and many business drivers. We have a lot of new customers who are really buying zero trust for better security. Lots of market that's not covered. We are still in about 30% of global 2000 market. And we're seeing public sector coming strong, federal market coming strong. And that's really, further pushed by some of the mandates that are happening out there. And you saw in some of the deals that are announced, customers are increasingly buying more of these kind of platform leading to bigger deals. CI

Yeah. I mean, our guidance basically balances our business optimism that we see with our company, also with the macro environment. We feel in this market, this is very solid guidance.

Super helpful. Thank you.

Thank you. One moment please. Our next question comes from the line of Saket Kalia of Barclays. Your line is open.

Okay, great. Hey guys, thanks for taking my question here. I want to echo my congrats on the result. Remo, maybe for you, just to switch it up a little bit. Great to see the free cash flow margin expansion thus far. Maybe looking forward, can you just talk about some of the puts and takes on free cash flow margin with I think the 20% plus guide for next year, how are you thinking about things like billings duration or CapEx or anything that's maybe influencing that number? Because it's great to see operating margin expand. Why isn't free cash flow margin maybe expanding in the same way? Thanks.

Yeah, Saket, that's a great question. The billing duration, I would assume the similar type billing duration as we had in fiscal '23, so no change. CapEx, we do expect CapEx to be a higher percentage. If you take a look at the last two years, our CapEx has been in the 6% range of our revenue. We expect our CapEx to be in the high single digit type range. We're seeing the expansion of our business. We're going to be making investments in cloud. And again, it's -- that's the main reason.

Very helpful. Thanks.

Thank you. One moment please. Our next question comes from the line of Gregg Moskowitz of Mizuho. Your line is open.

All right. Thank you for taking the question and I'll echo my congrats. Jay, getting back to data protection, so your multimodal DLP that combines video and audio formats, that's interesting to me. Curious if you had any early customer feedback on that feature. And then secondly, what has been the early uptake around your new Risk360 offering just in terms of visualizing risk, etcetera? Thank you.

So multimodal DLP is still in development. it's not shipping, but there's a bunch of engagement with customers and interest is high because there's nothing like this out there in the market. You don't [indiscernible] pioneer new things that no one has done out there. Risk360, on the other hand, is actually a shipping. We have taken a bunch of orders. This product has more interest up front than any of the other products I can think of because our engagement with CISOs are strong. When a CISO looks at SC60 and say, wow, I have actually a single point to really tell me the holistic view of my business and actually where my risk factors are and what tangible prioritize actions I could take through my wrist. So there is a significant velocity going on, very, very good feedback and the product is growing very rapidly in terms of functionality as well.

Perfect. Thank you.

Thank you. One moment, please. Our next question comes from the line of John DiFucci of Guggenheim. Your line is open. Again, Mr. DiFucci, your line is open.

Thank you. So guys, it as everybody has said, the numbers look good. It was a nice quarter. But when we try to look at, like, the new business signings, it looks like it saw a tick down against a similar comp versus what I think was sort of a monster quarter, the third quarter. And Remo, you mentioned the continued macro pressure. And of course, everybody sees that. But is this quarter how we should expect

Yeah. I mean, our new and upsell bookings were up year over year. So, for Q4, so it was a good quarter. From my perspective, John, I mean, it's a huge market opportunity, on the part of

That all that all makes sense. And thanks for taking my question. I mean, what you guys are doing is better than most everybody out there. But, I guess just quick follow-up, Remo, you said your bookings were up year-over-year. If you look at current billings, and I don't know if you look at it that way, I guess I do, but I'm looking, I'm trying to [back into] (ph) new ACV, new ARR depending upon the company. For you, it's new ACV. Was that up year-over-year? For most companies, it's not. And we calculate it being down a little bit, but still better than most.

Yeah. We're not commenting on new ACV, but our bookings were up year-over-year. And I think that's a good way to look at the business.

Okay. Thank you.

Thank you.

Thank you. One moment please. Our next question comes from the line of Adam Borg of Stifel. Your line is open.

Awesome. And thanks so much for taking the question. Maybe just for Remo, a couple of related housekeeping follow ups. So NRR, I think, was at 121%, below 125% for the first time after a number of quarters. I was hoping you could talk a little bit more about that and patients to next year. And I apologize if I missed it as a follow-up, but billings duration in the quarter, just what did that turn out to be and without a headwind or tailwind? Thanks so much.

Yeah. So NRR at 121%, we feel is outstanding. What we're seeing is that we're seeing more customers buying more of our platform upfront. So when customers are buying more of your platform upfront, that'll impact what they're going to purchase in the future. Also, we called out on the call a Fortune 10 company bought basically within one quarter So if you're buying within the year based on the calculation for NRR, that impacts it. From my perspective, and we've been saying this since our public offering is billings is really the best measure to really look at

Great. Thanks so much.

Thank you. One moment, please. Our next question comes from the line of Peter Levine of Evercore. Your line is open.

Great. Thanks for squeezing me in here guys. So I mean want to just follow-up on the GenAI opportunity, you know, at your Analyst Day -- not your Analyst Day but your customer conference a couple of weeks ago, you announced the security autopilot, maybe, Remo, for one. Can you just put a final point in terms of how your plan on monetizing that as usage base? Is it just an upsell to kind of the normal contract subscription? And then second to Jay is your competitors are all saying same thing in terms of your data's proprietary. Maybe the same question to you is, what do you think makes

So let's start with, data. Larger companies have larger data. What's exciting about

Thank you.

Thank you. Our next question comes from the line of Patrick Colville. Your line is open. One moment.

All right, thank you so much for putting me in.

Hey, Patrick. Are you on? Patrick? Hey, Valerie, can we take our last question?

Our last -- Patrick's line was open. I don't know if he disconnected. One moment. [Operator Instructions]

Let me try the next call.

Okay. Thank you. One moment. Our next question comes from the line of Ben Bollin, Cleveland Research. Your line is open.

Good afternoon. Thanks for taking the question. I'm interested in how you feel about your progress throughout the broader channel, traditional two tier cloud marketplace GSI. Any thoughts you have around kind of what you've learned over the last six, 12 months and how that's playing into your strategy over the next couple of years? Thank you.

As you know, traditionally channel has played a limited role for us. We have been working on it. We are seeing more and more progress being made. Just to clarify, I mean, we do take all these through channel with some exceptions, but customers insist on us. So that's one part. We are seeing yesar after year or in the past several quarters channel providing more leverage to us. That means doing more work for us. We recently hired our channel chief Karl Soderlund. He comes from extensive experience and strong relations in the channel, and he's done a lot of work in three areas of channels, system integrators, [bars] (ph), and service providers. In that system integration space, we have actually most of the large SI. They have selected and deployed C Scalar for wound transformation and zero source architecture. So they are not embedding our solution into the SI advisory service switches, very good because then it becomes a lot better. We also, so we're counting on more leverage on broad channel, even the bar channel itself. They're going through some focused training program, enabling program, which will help them do more transformation with us. In fact, we had nearly 200 channel partners come to our sales kickoff and join hands and conduct session with our sales teams. We think that's bringing our team is a lot more closer to work together with common account planning and the like. So we please do progress, and we think we're moving in the right direction.

Thanks, guys. Have a great night.

Thank you.

Thank you. I'd like to turn the call back over to Jay Chaudhry for any closing remarks.

Well, thank you all for your interest in