ZS - NASDAQ

Good day, everyone, and thank you for standing by. Welcome to

Good afternoon, everyone, and welcome to the

Thank you, Ashwin. We delivered a strong Q4 with all metrics exceeding the high-end of our guidance. Revenue grew 30% year-over-year. Billings grew 27% and profitability reached new records with operating margins of approximately 22% and free cash flow margin of 23%. We also achieved a new milestone of $1 billion in quarterly bookings in Q4, driven by an acceleration in new and upsell business in the quarter. For the full-year, revenue grew 34% and free cash flow grew 75%, resulting in free cash flow margin of 27%, a new record for the company. With another year of strong top and bottom-line performance, we exceeded the Rule of 60 for the fourth consecutive year. Despite the recent changes in our go-to-market organization, we delivered these outstanding results, driven by strong customer demand for our

Thank you, Jay. Our Q4 results exceeded our guidance on growth and profitability, even with ongoing customer scrutiny of large deals. Revenue was $593 million, up 30% year-over-year and up 7% sequentially. From a geographic perspective, Americas represented 55% of revenue, EMEA was 30%, and APJ was 15%. For the full-year, revenue was $2.17 billion, up 34% year-over-year. Our total calculated billings in Q4 grew 27% year-over-year and 45% sequentially to $911 million. Our calculated current billings grew 27% year-over-year. Like last year, some customers paid us upfront on multiyear deals and the percentage of total calculated billings coming from such upfront payments was relatively unchanged year-over-year. Our remaining performance obligations or RPO grew 26% from a year ago to $4.418 billion. The current RPO was approximately 48% of the total RPO. We ended Q4 with 567 customers with over $1 million in ARR and 3,100 customers with over $100,000 in ARR. This continued strong growth of large customers speaks to the strategic role we play in our customer's digital transformation journeys. Our 12-month trailing dollar-based net retention rate was 115%. While good for our business, our increased success in selling bigger bundles, selling multiple pillars from the start, and faster upsells within a year can reduce our dollar-based net retention rate in the future. There could be variability in this metric on a quarterly basis due to the factors I just mentioned. Turning to the rest of our Q4 financial performance, the total gross margin of 81.1% compared to 81.4% in the prior quarter and 80.7% in the year-ago quarter. On a year-over-year basis, gross margin benefited by approximately 60 basis points from a change in our accounting attributed to the longer useful life of our cloud infrastructure. Moving on, our total operating expenses increased 8% sequentially and 26% year-over-year to $353 million. We continue to generate significant leverage in our financial model with an operating margin of approximately 22%, an increase of about 260 basis points year-over-year. Our free cash flow margin was 23%, including data center CapEx of approximately 8% of revenue. We ended the quarter with over $2.4 billion in cash, cash equivalents, and short-term investments. Before getting to the details of Q1 and full-year fiscal 2025 guidance, I wanted to share additional context about our framework for billing guidance. We expect full-year fiscal '25 calculated billings of $3.110 billion to $3.135 billion or year-over-year growth of approximately 19% to 20%. We expect first-half billings to be in the range of 39% to 39.5% of full-year billings guide with Q1 to be approximately 16.2% of full-year billings guide. The midpoint of our guidance implies year-over-year billings growth of approximately 13% in the first-half, accelerating to 23% growth in the second-half. In no particular order, I'd like to share three key factors that are driving this acceleration. One, as Jay mentioned, we expect sales productivity to continue to improve with the second-half stronger than the first. We expect this to contribute to strong new upsell and renewal activity in the year; two, our strong and growing pipeline supports second-half acceleration; and three, from a timing perspective, our contracted non-cancelable billings from prior year's active contracts are scheduled to grow 7% in the first-half and 23% in the second-half. This naturally implies a stronger second-half in billings growth, giving a strong visibility into total billings growth in the second-half. Moving on to taxes, please note that we expect to continue to be a modest cash taxpayer in fiscal 2025 with an estimated cash tax of approximately $45 million to $50 million. For non-GAAP P&L reporting, I'd like to call your attention to a change we are making to our non-GAAP tax calculations. Starting fiscal 2025 and going forward, we're establishing a non-GAAP tax rate of 23%, which is reflected in our non-GAAP earnings per share guidance for fiscal 2025. Please refer to our earnings release and financial supplemental for fiscal '23 and fiscal '24 comparisons reflecting this new non-GAAP tax rate. Turning to the rest of guidance, as a reminder, these numbers are all non-GAAP. For the first quarter, we expect revenue in the range of $604 million to $606 million, reflecting a year-over-year growth of approximately 22%, gross margins of 80%. I would also like to remind investors that a number of our emerging products, including newer products like

Thank you. [Operator Instructions] Please standby for our first question thank you. And it comes from the line of Saket Kalia with Barclays. Please proceed.

Okay, great. Hey, guys. Thanks for taking my question here and a nice quarter on the billings and on next year's billings guide. Maybe if I give it to one question, Jay, maybe I'll make it for you. Can you [Technical Difficulty] drop a little bit there? I think we all know your views on firewall-based solutions, but maybe out of curiosity, how about some of the newer players in SASE that are maybe attacking this with a similar kind of pure-play cloud approach as

Saket, thank you. We have not seen any meaningful change on the competitive landscape. In fact, if I would say, as the market is looking for a broader platform that's integrated and it's looking for proven vendor because the resilience has become a very important thing our brand has gotten better. On the high-end of the market, we actually feel like we're very good. We mentioned about the number of new logos. Last year, we added essentially doubled in '24 over '25. We've seen whether the firewall vendors or some other vendors, either they lack the proxy architecture or they lack a multi-tenant architecture. Architecture is critical for win and that's a big advantage for us. Even if you build the architecture the time and experience it takes to build a highly reliable, highly resilient cloud is massive. And then these large enterprises have to trust you. It took us a long time to earn the trust of these customers. So we feel we are in a good position. We keep on innovating the gap between our offering and what I call so would be competitors is growing bigger and bigger. So I feel very bullish and comfortable for the platform and the gap we are creating with other competitors.

Very helpful. Thanks.

Thank you. One moment for our next question. And it comes from the line of Brad

Great. Thanks so much. And I'll echo my congrats on a real strong finish to the year. Jay, I appreciate your comments about the Microsoft and CrowdStrike related outage in July and why

Yes. Brad, It's a good question after the CrowdStrike out, customers are more focused on resilience, which is our strength. In fact, I personally got lots and lots of calls right after the incident. They wanted to know about what we're doing about it, that we ended up personally inviting actually wide invitation briefing to 1,000 or so our largest customers. I was surprised to see that within a matter of a week or so, about 700 customers registered for the briefings, we ended up doing multiple of them. The main question was, this is mission-critical service and how are we protected? The good thing is

Very helpful, Jay. Thank you.

Thank you. One moment for our next question, please. And it comes from the line of Roger Boyd with UBS. Please proceed.

Great. Thank you for taking my questions. Remo, I wanted to ask you about the billings guide and if you could just speak to the general level of conservatism there. You've been pretty clear even before this quarter about the expected headwind coming out of the go-to-market transition, but it does sound like sales productivity was better than expected in both 3Q and 4Q this year. So just beyond that, anything else giving you more pause or tempering your expectations around the broader macro environment, sales cycles, or anything else? Thanks.

Yes, great question. So I mean, billings guide really reflects, again, we broke out the first-half versus second-half. And you know, as we talked about in the sales organization, we had higher attrition than we expected in Q3 and that attrition has stabilized in Q4. Hiring those account reps, this could to take time for those account reps to basically get to full productivity. We expect them to get to strong productivity in the second-half, our pipeline supports our guidance. And as we called out also, when you take a look at billings, billings is made up of new and upsell renewals and contracted billings. And one of the things we called out on the script is contracted billings are scheduled billings up from prior year contracts. So those are what we're seeing, we're seeing that because of the business is getting more second-half weighted, we're seeing that this -- our guide reflects that. And as we called out, in the first-half, contracted billings is expected to increase on a year-over-year basis 7% and in the second-half 23%. What I can say also is that from my perspective, being here at

No, it's good. I think the last comment I mentioned is, in today's environment, CIOs do want ROI cost savings, cost takeout. We're in a unique position to remove a number of point products that help justify closing our deals.

Great.

Thank you. One moment for our next question, please. And it comes from the line of Joseph Gallo with Jefferies. Please proceed.

Hey guys, thanks for the question. Jay, I want to follow up on that last question. I mean, you've obviously started the branch out very successfully beyond

So it's a very good question. So now CrowdStrike wasn't really an issue of putting all of your eggs in one basket. CrowdStrike was one of the point products. Each product must work well. So on one side, customers do want consolidation. If you got two dozen products, they want to bring it down to a handful of key platform providers, but they do not want to go to the extreme of going with a single vendor that wants to sell all security products or a single vendor that wants to sell you all the applications and security products. In fact, most of the CIOs, I want to, they have been standardizing in-line access to three providers, one for EDR, one for identity, and one for

From an NRR perspective, Joseph, 115% I believe is outstanding. We're not guiding to NRR. The only time we really look at it is, as we mentioned before on these calls, really the key for me is just driving top-line business, whether it comes from existing customers or new customers, but 115% at our scale, I think is outstanding.

Thank you.

Thank you. One moment for our next question, please. And it comes from the line of Ittai Kidron with Oppenheimer. Please proceed.

Thanks guys. Great solid finish for the year. Remo, I'm sorry, I'm going to have to try and beat the dead horse here again on the billings. Just want to make sure I understand this right. I mean, in '24, you didn't have any unusual seasonality in the first-half, second-half on year-over-year patterns. They were quite similar in billings. So what is it that's driving the 7% and 23% differences in the first and the second-half? Are things being pushed out? Do you just expect deals to push out, hence you expect to close more or renew more in the second-half? Is that a macro comment? Was there something that happened two, three years ago, lumpsum that somehow comes back into play here? Anything that you can do to dig in just a little bit more on that would be greatly appreciated?

Yes. So it's really -- if you take a look at the call-out is scheduled billings. And scheduled billings growth in the first-half was 7% and scheduled billings growth on a year-over-year basis, we see a 23% for this year. So then the question is step-back and what creates that? So we signed three-year contracts. In the three-year contracts, they're scheduled billings. So we have those scheduled billings. Those billings are coming through. Now, if you take a look and go back into fiscal '23 first-half and fiscal '24 first-half, there were macro challenges. So it's a challenging environment from

Thank you.

Thank you. One moment for our next question and it comes from the line of Brian Essex with JPMorgan. Please proceed. Great.

Great, Thank you, and good afternoon. Thank you for taking the question. Jay, I think -- I think you may have touched on this in your prepared remarks, but I want to circle back into the -- to the macro, specifically the competitive environment with regard to pricing. And there are certainly in the

So as I said during my prepared remarks, yes, the macro remains challenging and there's deal scrutiny. But also at the same time, cyber, it's very important. In many areas, good enough is good enough. In cyber and large enterprises, good enough is not good enough. So customers do want a good -- a very good cyber solution. That's number one. And number two, in the cyber area, a real

Got it. Thank you.

Thank you. One moment for our next question, please. And it's from the line of Matt Hedberg with RBC Capital Markets. Please proceed.

Great. Thanks guys for the questions. Maybe one on the quarter. Could you talk a little bit about, obviously, it was a Q4, but -- and we assume it's back-end loaded. But the linearity of the quarter, anything abnormal with deals that pushed or pulled? And I guess maybe if you could comment a little bit more specifically on trends in August thus far that would be -- or I guess now we're in the September, but through August, that would be helpful?

The trends in August, I'll let Jay speak about that. Q4, we talked about that the quarters have become more back-end loaded. Nothing -- it was similar to the prior few quarters, Q4. So nothing unusual with Q4 from a linearity perspective. And regarding trends in August, we can't give specific trends on dollar amounts or anything like that or business, but maybe Jay can give a few comments.

I think nothing unusual to talk about in August. Our business is making progress as usual. So I think you'll probably hear more about us as we get better.

Maybe if I could just squeeze one more in. You know, it seems like in the spirit of consolidation, it feels like you guys are in a good spot to consolidate a lot of customer spend. Can you talk about large deal visibility, understanding it is -- it is hard to predict the timing of those things, but could you talk about sort of the growth in your large deal pipeline and kind of the focus on increasingly playing that consolidation role?

Yes, there is no slowing down on consolidation of point products. We have been seeing our deals in general getting bigger. They're seeing upsell going more and more. So if customers spend X, they're spending more with us. I shared several deals, several large deals, where customers started at X and it's gone up to Y or

So from my perspective, also Matt, I mean, just some numbers we called out on the script, 567 customers with greater than $1 million ARR, 3,100 customers of greater than $100,000 and I believe 60 -- over 60 customers with $5 million in ARR, half a trillion transactions per day. So to put in perspective, I mean, order of magnitude, that's more than anybody has seen. At the time of our public offering, we're doing 30 billion transactions per day. So we've gone from 30 billion transactions to 500 billion transactions. The data that we receive, the information that we receive that we're able to basically help our customers for a security perspective. So I just don't think there's anybody else out there who can do it. So it's my view that we are in a great position to capture this market. I also believe that with the go-to-market changes that we've made over the last nine months, we're going to sell deeper in the accounts and also we've been one of the things we called out GSIs. That's going to be an area that we're going to focus in on as we go forward. I think the opportunity is really big. I believe the platform is well-positioned to really protect customers and governments throughout the world. And I think, you know, we feel good about where we're at right now.

Thanks. Super helpful.

Thank you. One moment for our next question. That comes from the line of Shrenik Kothari with Baird. Please proceed.

Hey, guys, thanks for taking my question. So, Jay, in light of what you said, right, you guys are expanding the platform beyond just securing users and now delivering

Yes. Let me start with the platform expansion. As I said during my prepared remarks, most of the vendors are trying to really mature a product for protecting users. They've done that extremely well, 47 million some users protected. So it is natural for us to expand it to our workloads, IoT, OT devices and the like. In terms of growth, to give you some data points, we talk about emerging products from the newer areas and then we've got the mature flagship products on emerging products, which is where the workload protection, IoT, OT type of stuff falls in, it was about 22% in fiscal '24. It had gone up from 18% in fiscal '23 and we expect it to go to mid-20s in fiscal '25. So that's growing faster. That's why it's able to carve out market share out of that. Now the exciting thing about that area is there's literally no real competition to do these things in

Yes. From a contracted billing perspective, just -- again, the key point is that we signed three-year contracts upfront. And so getting that certainty with that contract is good. And then the billing happens afterwards on an annual basis afterwards. That's the scheduled contract billing. So what we're seeing is our contract lengths are increasing, which is positive. And also we're seeing our deal size increasing, which is positive too. But we're also seeing customers buying more of our product and across our platform with [Technical Difficulty] And again, getting a three-year contract with a scheduled billing gives you certainty related to the billings, but also getting that three-year contract gives you time to basically sell that customer more. And as I mentioned before, which is really key is that the sales organization, go-to-market organization, we're going to be selling deeper into the accounts. That's going to be our focus. We're going to look for new customers, but we're also going to look to sell deeper into our accounts. So longer contracts, it's a good thing.

Got it. Thanks a lot Jay and Remo. Appreciate it.

Thank you. One moment for our next question. That comes from the line of Patrick Colville with Scotiabank. Please proceed.

Hey, Jay, thank you so much for taking my question here. I guess I want to ask about emerging products. I mean, it was 22% of new and upsell in fiscal '24. I mean, very impressive to see those emerging products ramp. I mean, we're going to get this in the 10-K, but what was

So very good question. So let's start with

I guess it's -- the question we get from investors is how -- what is the sustainability of those business lines? And I guess what you just articulated is that there's a lot to go in

So let's also -- let's start with the second part. That is how much market penetration done and how much market penetration we have left to take. As

Wonderful. Thank you so much.

Thank you. Our next question comes from the line of Adam Borg with Stifel. Please proceed.

Awesome. And thanks for taking the question. For Jay, Remo, I know you talked about this a bit in the script, but I was hoping you could talk a little bit more about headcount growth in fiscal '25 and where you're really investing most across sales and marketing and R&D? Thanks so much.

Yes. We do expect to increase headcount in fiscal '25. Our fiscal '25 headcount increase will be across all the areas, R&D, sales and marketing, G&A and cloud. I would say the pace of hiring in fiscal '25 will be less than what it was in fiscal '24. In fiscal '24, we added about 1,400 employees. We went from 5,900 employees to 7,300. So I would think about more of a moderate pace in hiring in fiscal '25 versus '24.

Awesome. Thanks so much.

Thank you. And our last question, one moment please. Next question comes from the line of Hamza Fodderwala with Morgan Stanley. Please proceed.

Good evening. Thanks for fitting me in. Either for Jay or Remo, curious since Mike and the new sales leadership have been on in the last few quarters. What are some of the early indications that you're seeing early proof points that gives you confidence heading into fiscal '25?

So good question. Remember when we set out to make some of these changes, the key thing was for us was we wanted to move from early-stage companies that focus on opportunity-centric stuff to account-centric stuff. That was one of the key terms. We have put a program in place. We trained the sales force and we are actually making good progress in pursuing this process. How do you see the results? You start seeing more upsell in the account base plus and then you start seeing new logo as well. So we are seeing good upsell large deals in large accounts, that's what we expected. In fact, if you think about it, our overall number of $1 million ARR customers has gone up to 567 million. Our customers with $5 million or more ARR has gone 260 million. Now all of that is not attributable to the new team because the new team started working for the past couple of quarters, but we're seeing key results for that. The second thing we're seeing as a result is with the GSI involvement, we have a special focus on GSIs, who actually are embedding our offering into their offerings. So it becomes part of their offerings as well. We're seeing good early indications of that. Number three, the quality of sales leaders and reps we are hiring, a number of them come from the background with a focus on account to focus selling and working large accounts to larger deals. We are seeing the quality of those people. So from my point of view, the transition is going better than I expected. I'm very pleased with it and I'm very bullish about it.

Thank you.

From my perspective. Yes, from my perspective, I'll give you my two sentences and make it really quick. At the end of the day, we've got a great company with a great platform, where significant need of your product on a worldwide basis, that's required, quite frankly. It comes down to one thing and that is people. And I believe what I'm seeing with the leadership that we have, but it's in our go-to-market team across the board. It is -- it is great to see. And really, I think sets us up well going forward. And as Jay mentioned, you know, strong leaders will hire strong people. And I believe the leaderships we have on board is very, very strong.

Yes. I think the comment I'll make is a barrier to entry to do what

Thank you.