Q1 2020 Earnings Call
Welcome to the easy scholars first quarter 2020, <unk> earnings conference call.
Today's conference is being recorded.
This time I would like to turn the conference over to Mr. adult Chile, Sir please begin.
Good afternoon, and welcome to the de scale or first quarter 2020, <unk> earnings conference call on the call with me today, RJ, Chowdhry, chairman and CEO and remote can ssds, though by now everyone should have access to our earnings announcement, which can be found on our website in the Investor Relations section. In addition, supplemental.
Actual schedule is available for download and I are done Zieske Alere dot com.
Please note unless otherwise noted all numbers, we talk about today other than revenue will be on an adjusted non-GAAP basis, you will find a reconciliation of GAAP to non-GAAP financial measures in our earnings release for historical periods. The gap to the non-GAAP reconciliations can be found in the supplemental financial information referenced a moment ago.
Yes.
We remind you that we'll be making forward looking statements during today's discussions, including but not limited to the company's anticipated future revenue calculated billings operating performance gross margin operating expenses operating income net income free cash flow dollar based network.
<unk> income taxes in earnings per share.
These statements and other comments are not guarantees of future performance, but rather are subject to risk and uncertainty some of which are beyond our control.
Our actual results may differ significantly from those projected or suggested in any forward looking statements. These forward looking statements apply as of today and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements. After this call.
For a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition. Please see our filings with the Securities and Exchange Commission as well as in today's earnings release, well liked informed you that we will be participating in several upcoming investor conferences next week management will be at the UBI.
Global TMT conference in Cowens networking and cyber security Summit in New York City and also the Barclays TMT Conference in San Francisco.
On January 14, we will be at Needham growth Conference in New York now I'll turn the call over to Jay.
Thank you Bill and thank you everyone for joining US we reported solid Q1 results delivering strong revenue and operating profit growth into first quarter, but positive free cash flow, while making strategic investments to scale, our go to market machine to the.
Next level.
Our revenue grew 48% and billings grew 37% you at all what are your in Q1.
And we're increasing our outlook for revenue and billings for the full fiscal year 20 Twond.
Adoption off the CIA transmission bundle continues to grow.
And Cps remains our fastest growing product.
I'm thrilled.
More customers using Z. I and C.P.A. together.
For wage Oh single platform for secure cloud transformation.
That we believe no other vendor can match.
As you know.
Ali right, it's going to September as a precedent go to market and Chief revenue Officer.
I'm excited about the key initiatives our sales leadership is putting in place to position us well for the long term.
At our recent sturdiness like cloud summits I was pleased to hear Ceos, CTO and Csos Global 2000 enterprises sharing with price decline transmission journeys enabled by sea scanner.
Had delivered lower costs improved security and the wider fast and reliable user experience.
I'm very proud that Gartner recently recognized these killer.
Leader in the secure web Gateway Magic quadrant for the nine your role.
More importantly.
The scanner is positioned I asked what boat execution and vision.
Significantly separating us from the competition.
We pioneered the cloud native integrated security Pacsun.
And Oh surface is trusted by over 3900 customers, including over 400.
Forbes Global 2000 to access applications, no matter, where they live.
These killer process is over 80 billion transactions per day.
Which is over 10 times, a number of Google searches per day.
Just for why each an unprecedented next look in fact, which allows us to deliver superior security to our customers.
We are aggressively investing enough business to pursue a massive opportunity to disrupt traditional network security, which mostly relies on legacy security appliances.
Let me know highlight a few wins in Q1 that showcase what we believe our sustainable competitive advantages.
I will start with an upsells that highlights the scalability and lost to city off My thought this fortune 100 customers purchased our professional bundle for all 40000 employees three years ago in Q1.
Tripled the annual business with us by upgrading to business bundle.
Adding additional users and.
Interesting protection for starters were traffic going phone that data center to dip public float.
They deployed local internet breakouts at over 1000 locations during their cloud journey, including Rolling out office, the 65 inch.
Internet traffic increase exponentially.
Reaching 1.2 headlights per month.
Which is equal to 10 billion photos in Facebook.
And yeah I T leaders praised elasticity off this east color clogs, when a company wide, we do a conference call why the CEO when flawlessly, even though the network traffic doubled during the event how would a single tenant security clog, possibly handle that.
<unk>.
No I Wasnt sure a new logo when a fortune 100 customer that needed to opt level their security.
Unlike most large enterprises, they had no proxy gateways and instead relied upon next gen firewalls for the user traffic to the Internet.
No wonder.
Had a high risk posture.
They purchased Zee.
Transmission bundle, but all 14000 employees.
With the scanner <expletive> can detect and prevent advanced threats and zero day attacks, which are increasingly phoned in encrypted traffic.
<unk> results in better security.
Next I go highlight to win that illustrates benefits all four edge cloud capabilities and enables faster and many integration.
Top global Health care company that bought our business bundle and cloud firewall for 30000 employees 18 months ago purchased an additional 30000 seats to integrate a recent acquisition.
The two companies have a combined global presence with hundreds of locations across 70 countries.
Each company had embarked on network transformation journey for local Internet breakouts, but with two very different approaches to security.
Hi acquired company wants a next gen five won't shops, which scores all firewalls deployed in branch offices, given a false sense, we'll see Q.
As 95% off the web traffic is encrypted and what's not being inspected.
To integrate the two companies they standardize on C. skin.
Implemented SSL inspection and off ripping out all the branch firewalls.
Result, significant savings and a big improvement into security posture.
Next I'll like to shoot considerable momentum we are building in the U.S. federal market.
Last year, Z., I and Zepa deceived fed ramp to start discussion at a moderate level and last month ZP at east fed ramp readiness at the high impact level, which puts his east killer <unk> Elite group, Paul technology companies see I just don't.
Only fat DRAM certified secure cloud Internet gateway to date.
Zepa, it's the first and only cloud security service that has received fed ramp certification for the Cetone Trust remote access.
This positions us very well in this large mark.
In Q1, we want to deals, which civilian agencies, each with an annual contract value great. So bad half a million daughters.
Must win is with a large strategic agency with an initial order for C.I. NCP, what 15000 mobile users to deliver secure access to applications.
You know trust network access the second agency purchased a complete Cie NCP a platform for all 6800 employees to enable cloud transformation to secure C band deployment for local breakouts and to provide direct access.
Do any application from anywhere.
Turning to Japan, we entered this large market only two years ago, but.
But have been gaining great traction.
In Q1, one off Japan's largest transportation companies purchased our <unk> business bundle and cloud sandbox, all 30000 employees to secure local breakouts and increased security, but all users.
Non proxy technologies, such as Nextgen firewalls, well not considered since comprehensive security was important.
[laughter] common theme all these wins is that a cloud first world requires a cloud native architecture.
In a recent groundbreaking research note Gartner defined a new product category named secure access service edge or S. U S E pronounced Sasha.
Gartner predicts that a few Ciota network security in the club.
And most organizations will move couldn't netbook security to assess the model.
Importantly.
Got to recommence, reducing the complexity of network security by moving to one vendor for secure web Gateway Casspi DNS. So you don't Trust network access and remote browser isolation capabilities. This is the scale.
We strongly believe this validates our vision wouldn't be phone did see scalar over 10 years ago.
He had on the core architectural principles Gartner has outlined for sassy number one.
Sassy demands that the security providers offer security at the cloud edge close to the user but good user experience.
Caterpillar Wides inline security at the cloud edge it more than 150 data centers around the world.
In contrast, lexi security vendors, claiming to offer a sassy service are spinning off virtual machines on public clogs. The traffic back called it was centralize compute that is not security at the edge that is not sassy.
But to see recommends that a branch office should have a light footprint, which simply an S Steve and rugs.
And all security services in the cloud.
While these kind of cloud is a light ranch architecture legacy Fido vendors, apparently heavy branch appliances, okay that is not sassy.
Number three Gartner specifically says quote.
Many off do you sassy capabilities, we use a proxy model and difficult because a proxy is required to inspect encrypted traffic.
These kinda meets this requirement while next since firewalls don't hence nexsan firewalls, a notch sassy.
Number four last me sassy advocates cloud native multi tenant ought to be checked.
Which is the foundation off disease go to cloud platform.
You can't take legacy single tenant security appliances, and stick them into clogs as virtual machines and call it cloud security.
That would be like placing thousands of DVD players in a public cloud and calling it a netflix streaming service.
In summary.
These killer was designed for the sassy walled that Gartner has spelled out.
Some of you have asked questions about competition from next Gen firewall vendors.
Over the last 10 years, we have faced various competitors starting with large legacy secure web gateway bankers, who claim to offer a cloud security service.
We had on day to day.
Security must move the clothed legacy fireboat vendors I know, making similar noise.
Section firewalls are designed to build the mode and own the castle to secure the network and the data center.
They are their own architecture for securing users.
The next question is why can't they built a platform likes the scalar well.
And so lies in the architecture.
Architecture is like the Foundation office building you can't change the foundation unless you start all which is hard and takes a long time.
We know that startups like Salesforce and Workday competed and won against much larger on premise incumbent vendors because of the cloud native architecture.
We believe we're doing the same in the network security space.
Let me talk about our products I go highlight a few innovations data expanding our platform.
So these killer b to B and C Scully digital expedience or the CTX two.
Two major product lines, we announced and zenith life on getting great initial feedback from our customers.
The outdoor band cast speed that Vietnam Stinginess life is receiving very good or lead reception.
Combined with our existing inline cast be capabilities, we will know off for a complete cast be solution.
The integration of Brazil isolation technology, we acquired through absolute it is ahead of plan and its already been tested by customers.
Building upon the trust BRAF acquisition, we did last year.
We have significantly enhanced threat detection capabilities with machine learning and <unk>.
Moving on to Tech partnerships <unk>.
To compliment our comprehensive platform, we believe in partnering with Tech leaders. This provides an integrated solutions for customers and creates go to market can leverage for the scanner.
For example.
We have a deep and wide partnership with Microsoft Office, 365, and actually were public cloud.
Microsoft names the scanner, the first and only cloud security provider to be a certified partner in the Microsoft networking partner program or NPP for office see 65, which has stringent requirements for use underperformance.
Microsoft only recommends N P. P partners for office see 65 connectivity.
We are working closely with both feared and silver peak the only two leaders in Gartner News recently published as Steven Magic Quadrant.
Let's now turn to go to market cease good or is that enabler of cloud transformation.
As a result.
We have a different talk don't sales process and go to market strategy than legacy vendors.
As I stated during the last earnings call you are focused on improving our sales execution do takes these killer beyond a billion dollars in revenue.
That is why I'm excited to have Dolly on board as he is building a highly scalable go to market machine.
He is already driven rapid and tangible progress building a multi dimensional go to market model, putting us into great position to scale.
Let me give you a few examples we implemented a more defined metrics based model off accountability and transparency, giving us better visibility into <unk> business is done.
We are a head off our plan to build a new sales process and enablement program that will deliver consistent and high level execution in the field. It just older D, having a meaningful impact in our day to day execution.
And we continue to mature our sales leadership structure.
With all that we have implemented in a very short point.
I'm very pleased with our progress and confident that we're building a solid foundation, what a highly scalable sales machine, what our long term growth.
No I like to turn over the call to remote for our financial results.
Thank you Jay revenue for the quarter was $93.6 million up 9% sequentially and 40% year over year from a geographic perspective for the quarter America's represented 51% of revenue EMEA was 41% and he PJ was 8%.
Turning to calculated billings, which we define as the change in deferred revenue for the quarter, Let's total revenue recognized in that quarter Billings grew 37% you every year the $88.3 million.
As a reminder, our contract terms are typically one to three years, we primarily invoice our customers when you're in advance.
Remaining performance obligations, RPL, which represents our total committed noncancelable future revenue was $555 million October 31st up 35% from $411 million one year ago.
Our strong customer retention and the ability to upsell have resulted in a consistently high dollar based net retention rate.
The 120% for the quarter ended October 31st this compares to 118% a year ago and last quarter.
Or increased success selling bigger deals starting immediately with our transformation bump in faster upsells within a year well good for our business can produce or dollar base net retention rate.
Which is calculated on a year over year or our base was.
Considering these factors, we feel 120% is outstanding and it will vary quarter to quarter.
We are pleased with the continued adoption of our comprehensive cloud platform buyer customers as they increasingly rely on us for their transformation journey.
In fact, two thirds of our top 25 customers were also customers two years ago and their commute A.R.R. that's more than doubled over this period.
Total gross margin was 81% flat sequentially and down 1% year over year, we feel that 80% continues to be a good target range in the near term as it is important to continue to invest in their platform drive topline revenue growth.
Turning to operating expenses, our total operating expenses increased 17% sequentially increased 44% year over year that $72.7 million decreased as a percentage of revenue, 78% compared to 80% last year.
Sales and marketing increased 20% sequentially and 46% year over year, the $49.4 million the year over year increase is due to higher compensation expenses and the cost of three major marketing events.
Life, Americas, <unk> life, Europe , and our sales kick off.
R&D was up 12% sequentially and 44% year over year to $14.8 million as we continue to invest to enhance our product functionality and innovate new products.
Gina increased 6% sequentially increased 32% year over year $8.5 million.
Year over year growth and seen a includes investments and building our teams these expenses exclude $2 million and litigation related expenses.
Our first quarter operating margin was 3%, which compares to 2% in the same quarter last year net income in the quarter was $4.1 million or non-GAAP earnings per share of three cents.
We ended the quarter with $378 million in cash cash equivalents and short term investments.
Free cash flow was positive $9.4 million in the quarter compared to positive 5.2 million for the same quarter year ago.
Are you SPP program increased our free cash flow by approximately $3 million in the quarter same as a year ago.
Yes, P.P. program does not impact overall cash balance.
Now moving onto guidance as a reminder, these numbers are all non-GAAP , which excludes stock based compensation expenses.
Amortization of intangible assets certain litigation related expenses in any associated tax effects.
For the second quarter, we expect revenue the range of $97 million to $100 million, reflecting a year over year growth of 30, 135%.
For the year ago comparison recall, the Q2 2019 revenue was aided by $2.3 million and nonrecurring revenue from a large public sector customer deploying our platform as a private cloud.
Excluding this revenue from last year guidance reflects 30, 539% growth.
Operating profit in the range of $3 million to $4 million income taxes of 900000 in earnings per share of approximately three cents, assuming 130 million common shares outstanding.
For the full year fiscal 2020, we expect revenue in the range of four and 5 million to $413 million where year over year growth of 30, 436%.
Calculated billings in the range of 500 billion to 510 million where year over year growth of 28, the 31%.
Operating profit in the range of $15 million to $18 million.
In Q4, we expect to host our annual Sina live events in both the media in Americas, We expect the cost of these two events to be in the range of $5 million to $6 million.
Income taxes of 3.6 million in earnings per share in the range of 13 to 15 cents.
You mean, approximately 139 million common shares outstanding.
Our guidance reflects our plans to invest aggressively in our business to pursue where significant market opportunity. We're pleased with the progress our zero is making and we're confident he is the right person to drive our sales and go to market execution.
We are stepping up sales and marketing investments in order to build the foundation for long term growth. In addition, we will increase investments our technology platform and cloud infrastructure.
As you model billings I want to remind you that historically Q2 in Q4 have been our strongest billings quarters with sequential declines in Q1 in Q3 quarters, respectively.
With the outperformance in Q1 billings, we now expect first half billings to be approximately 43% a fool your billings compared to our prior expectations of 40% to 43%.
Also please keep in mind that we had a large upfront billings of $1 million in Q2 of 2019 from a large public sector customer to point, our platform as a private clouds, which will totally tough year over year comparison in Q2.
Excluding this deal our billings guidance for the full year implies 30% to 35% growth.
In terms of free cash flow. Please note that we will have additional spend for tenant improvements related to where it headquarters move in January as well as ongoing cash outlays for lease payments.
On our existing San Jose buildings in litigation expenses related to ongoing Symantec lawsuit.
These extraordinary items are expected to be approximately $15 million to $20 million in cash payments for the full year.
As a result of these payments, we expect or free cash flow margins in fiscal 2020 to be zero to two points lower compared to our operating profit margins.
Longer term, we expect or free cash flow margins to be higher, but our non-GAAP operating margins.
Now I'd like to turn it back over to Jay.
Thank you it anymore in closing, let me state for key points that make me excited.
Number one architecture matters, especially for cloud security platform that must fit in line to inspect all traffic what policy enforcement.
We believe we have the best architecture, with 10 years or operational experience to run a massive clout and enormous barrier to entry number two with multiple tailwinds such as office see 65, SAS adoption as Steve <unk> and <unk>.
Migration to public clubs, we believe the market is coming to US number three we audit early innings self the cloud journey.
Disrupting the 20 billion dollar Tan with Z. I and ZP.
In addition, we recently announced these kind of B to B and C. D acts, which we believe will expand our Tam significantly.
Number four with new go to market leadership on board. The building a sales machine that can deliver world class execution and sustainable long term growth.
We thank you for your interest in these killer and look forward to reporting on our progress in the future operator.
You May now open the call for questions.
Thank you.
At this time that they would like last question, but not by pressing star one.
Thank you Pat.
You can speak I found it makes check your mute function turned off like us not to each night.
Yes, when they are questions to one question follow up question again, so I wanted to ask a question and I first what comes on I can understand.
Great. Thank you very much.
I was hoping to ask a question around.
Sales of head.
[noise] Chief revenue officer to what extent.
<unk> become come in and been effective.
Long do you think it takes for his programs to be fully ramped.
And to get to to the maximum benefit is that a three to four quarter process.
Re acceleration and then the second piece of it if I could.
Lot of questions coming out from.
Clients about.
[noise] competition from the next Gen firewall players it seems to me that that has not been a factor, but can you talk about whether that's shown up in terms of pricing pressure or any other.
Notable metric.
Lost deals, but maybe some other element to the mix.
Pressure things.
Yes, Alex. Thank you this is Jay.
Regarding your question bought or go to market our see auto.
As you know we're done very well so far built the business to hundreds of millions of dollars not goal is to take a $2 billion mplus, which mean scaling sales execution.
The only actually is done right Guy who is driving a number of these things let me give your perspective on what all he's driving.
So <unk> execution at scale.
If you see example.
One when you have scores I'll salespeople, it's one thing when you're a hundreds of salespeople you need for a better sales enablement far better training Ross.
We used to a small sales enablement team Dolly has come in and built a pretty sizable team and the team is already rolling out some training programs number two.
[noise] do really scale your business you need a fairly consistent repeatable sales process that they'd be more refined and told me. He has come in and taken up processed informed but who find it and it's being rolled out over the whole fields.
Number three while we had tools and systems in place to scale to next level and to have better accountability better visibility to give us better leading indicator in sales activities. He and the leadership team has started work on many areas. So a lot of these things are already making a difference and we.
Seeing it and I think as each quarter goes by.
We will see more and more impact off the work being done by Dolly and his team.
You know he wants to add any couple add ons to that also mean art our plans still to be about a 20% plus operating margin. Once we hit so eight hundreds a billion dollars.
You know related to pricing pressure.
Our discounts or are lower this quarter, our average prices per user or higher.
When I take a look at our A.R.R., where customers are greater than 3000 users. It's higher this quarter, but it's in the high 300000 range.
Our turns down.
Alex regarding your second question about competition phone firewall vendors.
Somehow discussion keeps them coming I tried to address that are doing my.
Statements, but fundamentally if you look at the large enterprises to protect use they almost always look for a proxy architecture.
You guys do you have a large banks if you talk to top 20 banks and ask anyone would you just depend upon on next in firewall for user protection.
I have one phone or yes, and sort of from a single bank so far.
No, it's probably true they use we some of that is happening on the lower end where.
The customer is less security savvy and that able to go with someone that's been happening so probably on the STB insights somewhat that has happened in lowering where our primary focus is we don't really think any of the impact from the final vote renders making noise that's happened in impacted us.
So far I think it stopped architecture that'd be got much better that's giving us an edge and I think it so long from it.
Hi, Thank you.
Next question comes from Daniel.
Okay.
Great. Thanks for taking the questions guys [noise].
First for Jay maybe no mention of longer sales cycle border. So can you just walk us through the changes you're seeing first last quarter. When you called that out and then I've got a quick follow up thanks.
Yeah, [laughter] changes in terms off that sounds like an all haven't really changed a whole lot for us I think what we're doing is tightening sales process piping execution, we aren't really seen much marketing impact from the slowdown any of the stuff.
With that her leadership and some things like outlined I think its focus execution is what we are doing it'd be a big need to see its make a difference for us and I think it'll help us in the long run because we're building a stronger.
Stronger infrastructure to scanner sales.
Got it makes sense and then remote quick good to hear the new products are getting good reception.
I'm curious if you have any de exercise the b to B and your fiscal 20 expectations and what's the potential for these new products to ramp and maybe drive some upside this year. Thanks.
Yeah. So no there's nothing we're planning for it and you shouldn't plant for anything either a we're planning to get these products out.
In the second calendar quarter of a of 20.
There's potential for the products you know as Jay mentioned, you know with the you know cast we had a ban browser isolation user experience and the a b to B you know, we feel that there's a pretty significant upside for us with these types of products, but nothing for this fiscal 20 should be the kind of work.
If I may add we ought to engage with customers as you would expect in beta stage is doing evaluation and testing a interested as bill I mean, just to clarify what we announced was too big product lines. These kind of beat to be and he's going to digital experience and then we also announced to what I.
Called features Oh, two bank has to be Caspida feature and browse what isolation. It's another feature that's relevant for both zero <unk> early indications very positive.
These products become generally available calendar Q2.
Thank you our next question.
Patrick Coalfield with her take me catch.
Thanks, taking my question can we just talk about the cast we put up because I mean, that's something that I'm speaking to your customers.
You know, there's only interesting Kathy right now and some have said that you scan would be natural insertion point into that cozby debate.
Beyond your current partner shapes, right now ones I think with Microsoft and an Mcafee I'm. So just yeah, good but understand that put up if possible. Please.
Yes, so for a long time be have had what we call in line cast B. If all traffic goes through US we have to do cafs be which includes threat detection and protection DLP and alike.
And for outdoor band, we depended upon two partnerships you mentioned Mcafee and Microsoft what customers are.
Telling us that it's a small add on you should be doing it. So we took them see the Steve your built it so we've become a single provider. So it's a natural a feature for us to add on and we're seeing lots attraction. We will continue our partnership with.
Microsoft and Sky High Mcafee in this area if customers want something like that they habit, but we we believe a large number of customers will take <unk> and if there's a and other.
Casspi solution I think we'll end up dismissing it.
Great. Thank you and touch on a quick follow up on the dollar base net retention rate. So 120% is extremely impressive no doubts and especially given it say.
When show and I knew increase but it does imply that revenue from new customers you know what does tailed off both sequentially and annually. So.
Do you much help me understand if that's correct.
You know the revenue contribution became increasingly skew to existing customers or if there any metrics you can set to help me understand you customer revenue.
Customer accounts.
Yeah. That's that's a good question. So typically we range with two versus upsell, 60% to 40% new versus Upsells and also 50 to 50 in Q1, the mix was closer to 50 to 50% to 50%.
What's important to see recognized we don't really distinguish internally the difference between new and Upsells. We track it will incentivize our sales organization both for new Anup. So when you take a look at the installed base that we have in the penetration or that we have with are installed base, there's a significant opportunity for us to upsell.
Into that installed base, we don't want it Disincentivize you know our sales organization I'm, you know selling into that installed base.
With all the on board I'm sure, you'll be driving all aspects as the business, including new customer acquisition.
Anymore, you fly may add if a company is a single product company, but the now to offering they have to people wanting bought new customers in order to drive growth, we have such a wide platform and more products being added to it. So we are less worried about making sure. We just do new new customer so.
Number one goal is to maximize new ways CV, Hence, we don't have a difference between new versus Upsells and remote said the range of new has varied from 50% to 60% and I think that's a good range, but as you see more new products coming some of them can be sold on.
Its own without the installed base, we expect overtime, who go up but we don't look at and not all natural tension revenue as the most reliable indicator it varies quite a bit treatment. You have commented on in the past yeah why were disease, yeah. So I mean at 120%, let's put it clearly outstanding.
No weve ranged from 118% for several quarters.
We called out a several quarters ago that there could be pressure on that and on our net retention rate you know as more companies are buying transformation up front.
Which is what we're seeing in addition, if customers are buying things quicker you know within the year. Because we are net net retention rate is based on a our or at the beginning the year versus what it is currently.
If customers by.
Product within that period, that's going to put pressure also on the net retention rate now those are the negative effects do it you know the positive effects to it or that.
43% or or are in Ziad was transformation, 14% of our new and up sell business last year up was zepa. So there is up sell capabilities with those products. In addition, as Jay mentioned, but their new products. There's the potential for it also going up the point to make is it's going to.
Thank you. Our next question will come from Andrew Nowinski with D.A. Davidson.
Great. Thank you and congrats on the nice quarter I want to start with a question on a the fed side. So I think you mentioned a few modest sized deals with civilian agencies, but I'm wondering if you can give us your thoughts about how Microsoft being awarded the July contract might impact. These scalar you know given your strong partnership with my.
Prosoft and having and now having both the a and C. P. A fed ramp certified.
Actually very excited the opportunity, we started investing and fed DRAM certifications over two years ago, It's very hard certification, but we made the investment and as you've seen in recent press releases and the like you got some discussion for both ZP and <unk> and as they said.
We are the only vendor that's fair DRAM certified cloud security Gateway.
And on the CP aside only vendors certified for a zero trust remote access that puts us in a very very good position now the with east color works is its independent of cloud we couldn't access Microsoft ADW S. as you all these clouds work with us, but having a good partnership or.
The in place with Microsoft will help us worked closely with them to field from go to market point of view. So while we have begun to get some orderly deals we are pretty optimistic about the opportunity, though we do realize that federal do you can take a little bit a longer time.
But very pleased with the team being put in place the team has grown quite a bit and it's delivering.
Okay. Thanks, Jay and then the telcos have also been a fairly large driver of demand over the course of the last few years can you just give us any color on what if anything has changed with regard to the revenue contributed by the the telco providers.
Yeah, Thanks, a telco.
They have been an important partner for us.
I won't say any partner has been driving water demand for us as you know as we drove transformation. We have done a lot a evangelism. So we had been driving a lot of demand isn't high touch sales.
But as customers are asking for more and more transformations, we do see no more leads coming from topical partners to say my customers asking for it the beginning to see RFP is coming out and say I need to do transformation.
The deal I referred to in my earnings calls from Japan actually was an RFP issued two feet telcos and old three telcos bid season here, because we met that equipment.
So good business happening.
To go farther don't market, but telcos, that's a new project actually Dolly is trying to drive a sole fought a lot of business. We've done that telcos on the very high end for the large enterprises.
So excited about the opportunity that natural partners for us, even though that is yes, some contention about a.
That's what cost and whatnot, but we really don't impact outpace the market that's looking for it and we're taking advantage of the market.
Yeah, telcos typically represent around 50% of our revenue and that's about where it was in Q1.
Thank you.
Our next question comes.
Exactly.
Hey, guys. Thanks for taking my questions here, Jay maybe maybe just start with you a lot of talking competition, particularly from the firewall side.
I'd actually like to shift a little bit maybe talk about competition from the traditional secure web gateway players I'm here that are that are transitioning most notably with blue coat. I guess the question is what are you seeing in terms of sales engagement with those types of opportunities since the deal is closed and really their willingness to explore a solution.
Like see scalar.
Yeah, you know when it comes to competition all real competition from incumbency point of view is secure web gateway because they have to fight architecture as a proxy architecture.
We are we have been winning against them is because they have been good on premise single tenant proxy architecture, but they couldn't pivot to the cloud they couldn't build a viable multi tenant architecture right remember my DVD worse is not fix for example.
No.
These traditional.
Vendors for secure web gateway Blue coat had big presence a large enterprises as an appliance.
And <unk> and with no that's a sale too.
A new owner is somewhat uncertainty out there. So we are seeing a lot of additional interest from large enterprises, who are looking for alternatives and.
And also.
Some of these customers are moving to the cloud. So it is actually helping out so we're getting a inbound inquiries that view and aren't getting before so we think it's a big opportunity for us we got some focus to take advantage off it.
Makes sense Reno, maybe for my follow up for you I'm somewhat related but you know now that Symantec is part of a larger entity you talked about 15 to 20 million in one ton cash costs in including litigation can you talk about the litigation portion of it and and how does that sort of progress now that.
You know ownership on semantic a sort of changed hands.
Yeah. The litigation portion is a $8 million to $10 million. The the transaction with Broadcom semantic just a was completed so there's not much update I mean, the only thing I can say is that we do not feel are we in France, we're going to defend ourselves vigorously and you know the law suit, but that is currently a out there.
It's not having any impact on our business at all.
Yeah, you're carrying on which as you pointed out change your parents can present, an opportunity and if it did the movie open to it.
Thank you.
Our next question.
Brian .
In fact.
Hi, good afternoon, and thank you for taking the question.
Jay maybe if I could I could point to a couple of the sustainable competitive advantage. Examples that you gave [laughter] one the first one pointed to the scalability inelastic city of your platform in the third one pointed to edge club capabilities, but but both really really interesting instances of pursuing internet breakouts maybe.
If you could help us understand a little bit how these deals transpired and you know who the partners on SD Wan side. We're in was this driven by me BNS side that was putting the deal together and working with a company on a consultative basis or was this something that you led and held their hands through this process and polled.
Maybe the SD when vendors and and and put the deal together on your side.
Yes. The way these things are happening, it's still not crosses fair market is Mitchell and an audit fees get sent out all the time as we mentioned we are still in a fight that sales model there is.
A good amount off evangelism needed, though it's getting easier and easier what it used to be a typical process. Our sales team goes or the engages customers chose them the value of transformation that can deliver user experience with lower costs and that basically leads for natural discussion, saying, let's get an S. Buda essay to go.
Other because it generally involved and transformation as Steve Andrew awareness is out there restart collaborating with SD vendors out there as I mentioned to you via investments and silver peak, a good part and that's what else I thought leaders out there and be come together and and offer a proposal and solution. So.
What I say I would say majority off the large deals that are driven and closed the still OLED White house, when we bring apartments alone but in in a good number up then they do come from partners and many times I asked event vendors introduce us to deal and sometimes we introduce them to deal. So that's why we like this.
Technology partnerships.
Microsoft VM here on two big Technology partners that are helping us on the SP front, a large espy's the top four or five recipes globally are very good partners.
Got it maybe just a follow up to the thank you for that's very helpful. Remote when we spoke with dalliance September he had a goal of you know maybe taking 30 to 60 days to evaluate Daytona platform build models, a evaluate tie it talent in higher and so forth is he through with that and you know like definitively kind of the the frame.
Work of what the incremental spend on the sales and marketing side will be for this year or might that kinda bleed into next year I'm, just trying to get a sense of when we might anticipate some you know meaningful leverage on a sales and marketing side of the model.
Yes. Good question I would start seeing basically improvement so next year.
The two and again the guidance that we gave you know contemplates the investments, we're making in sales and marketing.
You know Dollies 30 to 60 day plan I mean, I've worked with the if you see arose.
And watching it went to all these doing here in the first couple of months. So he's moved very quickly into an outstanding.
I mean he's building.
Leadership in the organization He's building as Jay mentioned sales and they went in training.
You know better to finding seals responsibility.
Placed the framework.
A couple things in place.
Putting in place that accountability, you know in summary, with what I see what dollies doing he's putting structured disciplined leadership and as a passion, but he has a quite frankly I don't know when he sleeves up it's going very quickly, but it is going to take time. So you know that was the reason for our guidance you initially 40 to 40.
3% you know billings in the first half we increased that 43% and increased our billings guidance to 500 510, you know I'm excited you know working with diet or Dolly and what he's doing and look forward to it.
Thank you.
Next question comes from Mackie Wells.
Hi, Thanks for taking my question can you provide an update on customer feedback in the learnings around he b to B and C. D. X. I understand both are still in beta and plan to go live I believe next quarter actually.
Yeah, I think we'll be able to give you more tangible and meaningful customer feedback probably next quarter right. No I would say the degree of interesting opportunity I had anticipated.
Three or six months ago.
It seems bigger than that so high customer interest, but again, it's limited engagement. So far so limited engagement we have.
Hi degree off interest, but we'll give you more asked me a more tangible feedback.
Got it and just a follow up on that is is the sales force incentivized around the products, while they're still in beta or is this just when they go live next quarter.
Oh, we have no incentive in fact product management, it's actually working closely with.
Select a number of customers, we're not really pushing we would rather not push till the products properly cooked and all the kingsoft off it once they become Ci only then sales force start setting.
Thank you.
I just want to clarify that these new products are going to be generally available in calendar Q2. So it is not next quarter.
Next question. Please thank you Sir actually has Melissa.
Family.
Hi, This is my sit down on fair myself Sankey.
I was hoping you could provide some color around activity in EMEA revenue crash in that area. They say they cite in there I say, reaching so wondering if there any macro softness in your view like maybe execution considerations.
Thank you know there yeah. Thank you know from a macro perspective really don't see it EMEA grew.
40%, which is slower than the Americas and a P.J.
We did have a leadership change in EMEA, which we're very excited about but at 41% of total revenue.
In the media heap Leach, 80% America's at 51 is pretty consistent what it's been.
But from a macro perspective, not really seen any changes yeah. We're bullish on a meal I'd have you got to good incumbent installed base, we'll keep on growing it we Americans, but I'd tomorrow to investments from you.
And I'm just a quick follow up to what extent and he paid driving initial conversations with me that's right, okay and they spend a lot in fact, they foundries that I seemingly tank I guess opportunities has there been any change and what you've seen in competitive yes.
So in the past few quarters, we have been seeing abroad.
Half the new customers coming for Zepa, Saudi half, the ZP ideas coming from new customers and half coming up south.
So that's kind of number of customers, but having said that the C.P. It deals are smaller than see <unk> deal as we've said before when Z. I is bought it's bought for everyone in the company for all employees and C.P.A. odd based on number of applications.
So that's one zepa is opening more doors for new logos then be had initially thought off so pleased with that.
Your second question is competition for C.P.A.
See Pip market end up what gotten called Zero Trust network access or others call a STP.
It is still a young market, we have really done into each other because it's better to be small so not a very competitive space. It's more off a matter off evangelize singing showing people that doing traditional netbooks acuity with things like <unk> VPN is dangerous thing they don't need to do.
But once they get it you wind up to you.
Thank you.
Our next question will come from I Kinda anyway, yeah.
Good afternoon. Thank you for taking the questions.
I had a question for he'll Andy I don't know perino.
Can't you talked a lot at out any internal imprisoning and pipeline recurring sales enablement.
Sure Dan that dollar he has put in place I'm, putting to notion Tim internally are really and elevating the record sales organization Gotta markets. I'm wondering if you can see kin D external and external distribution haven't you essentially what you're doing their fan you know media channel perspective, or a surface pie.
There were a high distribution perspective, Kristina lets me understand your model different traditionally run got Southwell team did a box publishers. So I wanted to get your sense of like since our play from many external distribution pristiq, yes.
Absolutely and nimble points I come back there in fact I heard from someone other they sent home it seemed like a de focusing on channel I said not sure where that's coming from because actually we are putting more focus on channel.
Point is it's not the same traditional channels. So what are we doing about channel. We know SBS have worked for us real keep on making more investments rather looking at going downstream, but some of the Sps and not just do the very large enterprise deals.
On the channel or maybe called the var channels traditionally guide that people, who largely on the box something business that has limited him limited synergy with us, but dollies focused on two types. Our channel partners. One we have done CLO native boutique.
As far as well, but only limited we're expanding the reach down he has successfully done those cloud native type of vendors and its previous life. So we are focused on getting those things done too you know finding more vendors who are ready to pivot every channel person doesn't want to pivot or.
The fish, they don't have to pay but because boxes with people in selling forever. So those are the two things the doing I talked about sales enablement and training that's really not just needed for channel Saudi for internal it seems that's needed for channel as well. So we are actually putting a lot of focus.
In in that area as well because that's needed for them to become what effect.
I appreciate that doesn't mean out.
So kind of science I remain question for you on.
You've been very explicit on the level of investment.
It's actually handheld and marketing Frank I appreciate getting your guide and I think about analyst day, you're a little bit more explicit on your sales capacity investment hands on maybe calibrating that counts capacity footprint typically perspective here I just wanted to get a sense have an update of how they failed hiring has been tracking as he started thinking.
Here and that's it for me thank you.
Yep, HM or our sales tracking for Q1, it's a little bit behind but our expectation is still to get to that 60%. We're looking for Q2 to be a good quarter for us, but that's all all taken into account or guidance, yeah, I would add that a in the past quarter, we have raised the bar.
In hiding better quality people and also acceleration hiring in fact up under Dolly we've put together new recruiting playbook, we had <unk> educating and training all of our frontline sales leaders to make sure. We hire the right kind of people again part of scaling when you only.
10 leaders, who are highlighting its a small problem, but do you got 50 sales due to go fighting it needs better scaling and better bathroom bad or methodology and process and that's about it really scaling out.
Thank you our next question will come from <unk>.
Karen.
Good thing something so maybe can you talk about the government market you know, obviously a lot of deals move into cloud.
Hi, guys, Yes, I think one of other than just given.
Where you are in terms Azure in terms of that Chad old maybe just talk about that as an opportunity over the next 612 months in terms of how you're viewing that go to 2020.
Yeah, I think I'll add upon what I said earlier.
Getting fat DRAM certifications is the first thing unless you have them nothing not much matters. So what we've done that and also in federal there's a moderate level certifications as a high impact having done both of them for <unk> Saudis D. P is both dawn zier <unk> <unk>.
We ought at moderate forget to high impact shortly or the do it is wide open for us with leverage and as you end up with Microsoft partnership is a good opportunity, but we also worked with if there's a fair them auto.
AWB to a very bullish on their dream I said that [laughter] just.
A good team I would say.
If you asked me a year ago horses today I feel VR.
Significantly I head off what I taught it would be.
Right or maybe we'll take a one more question.
Thank you I laughed questionable companion, Ken <unk> Securities.
Thank you congrats on the solid quarter on Honda's EPA front I'm just wanted to ask about the competitive nature of that might get on my using some of that same competitors.
Oh for years, he pay product and also.
I think probably mid or.
Typically to defend buyers for the P. and <unk>. Thanks.
So it's a good question a Z Ali is generally driven by transformation in auto ideal world restart from the C. O go don't do head off infrastructure, who wants to transform the network and security gets brought along and if so full blown play.
C.P.A. actually has a few different paths.
I'll talk about three of them because it's very different opportunities.
One case.
That we go to their customers say, if your applications that going to the cloud public cloud like actually wouldn't ADW S. You don't need to go back through your data Center go direct throughs East killer. It's a good opportunity in that case, so who is the buyer, it's actually generally hedo infrastructure because he was providing.
Connectivity before.
Number two many customers say, yes, I'll look at close but I have one problem to solve today my remote access VPN I hate it it's slow and it's not secure sort of placing that the VPN apply it could be a security the BARDA could be networking.
Third area very different buyer, Oh, and many when companies I bought a generally they want to bring the networks to gather than the old walled off network security. It does he's got a world you don't bring the Netflix to guide you simply you would see P. airport access to each of those applications transparently in that case traditional.
I T is less of an buyer you basically a deal with it is it's a CIO level, but it's also sometimes and minute team that's put in place to bring the two companies together.
Some common buyers some different buyers.
Thank you gentlemen that concludes that question answer session like trying to call back over to Mr., Jay choppy for any closing remarks.
Well. Thank you all for your time, and we look forward to seeing you add taught upcoming conferences this quarter.
Thank you again.
Thank you ladies and gentlemen. This concludes todays teleconference. You may now disconnect. Please enjoy the rest assured that.
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