Q3 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the V. scalar third quarter 2020, <unk> earnings Conference call.
At this time all participants are in listen only mode. After the speaker presentation, there will be a question answer session.
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Not like the hand, the conference over to your speaker today to Bill Choi. Please go ahead.
Good afternoon, everyone and welcome to does he scalar fiscal third quarter 2020, <unk> earnings conference call on the call with me today, RJ, Calgary, Chairman and CEO and B. Mcinnes. The CFO. Please note that we have hosted our earnings release in the supplemental financial schedule to our Investor Relations website.
Lets otherwise noted on numbers, we talk about today will be on an adjusted non-GAAP basis.
You will find a reconciliation of GAAP to non-GAAP financial measures in our earnings release, we're historical periods gap. The non-GAAP reconciliations can be found in the supplemental financial information.
To remind you that today's discussion will contain forward looking statements, including but not limited to the company's anticipated future revenue.
The latest buildings operating performance.
Gross margin.
Operating expenses operating income net income free cash flow all their base net retention rate remaining performance obligations income taxes and earnings per share. These statements and other comments are not guarantees of future performance, but rather are subject to risk and uncertainties some of which are.
Beyond our control, including but not limited to the duration and impact over 19 on our business the global economy, and the respective businesses where customers vendors and partners.
These forward looking statements apply as of today and you should not rely on them as representing our views into future. We undertake no obligation to update these statements. After this call for a more complete discussion of the risks and uncertainties. Please see our filings with the SBC as well as in today's earnings release I would also like to.
Formula that management will be attending the following upcoming virtual investment conferences.
Ones TMT Conference Tomorrow.
Think of America's Global Technology Conference on June 3rd.
There's consumer technology and services conference on June 4th and the Morgan Stanley Thematic conference on Zero Trust architectures on June Twentyth.
In patients for these events will be webcast and the links will be available on our Investor Relations website now I'll turn the call Liberty Jake.
Thank you Bill. Thank you for joining us I hope everyone is staying healthy and say hey reviews on precedented time.
Well I wasn't clear thought it with dogs.
But impact.
As you saw in the earnings Robbins, we delivered very strong results for the third quarter.
Yeah, increasing our guidance for fiscal <unk> each one.
Right right cloud native security platform for the club.
And the beach told transformation Mark.
Business, it's part of the celebrate.
Combined with improved sales execution.
Capitalizing on the market opportunities.
Visco two.
And your daughters and you.
See scooter was founded on the belief that.
Oh within mobile World.
Use of must be able to securely access any application from anywhere on any device.
In the new work any better quantum.
For doing this vision, it's even more critical because almost all users, but no I'm sorry.
No.
Our traditional.
He meter based security becomes irrelevant.
[laughter] kit employees working from home.
Our customers that using these kind of Inc.
Oh Gee Hey.
The white secure access to the Internet and SAS applications and he's going to why would access on CP. Once you don't trust access wind tunnel applications.
Combined <unk> and SCPA enables our customers work securely from.
Literally overnight as foreign P. in autos went into effect at all but both.
We saw exceptional strength you know the C.P.S. so.
With all work Nx role in the usage during the quarter.
Many new and existing customers deployed on groups Oh sense news CPR users.
Our employees work, but on the floor to support these deployments in the medical weeks or you've been phase.
Even with this unprecedented tropical.
Net promoter score for and yes, we wont cost that more than twice the average NPS Offseason company.
Hi portion we received many emails from customers about the positive impact cease get on page on their business by enabling them to continue that operations.
Let's take code a couple of that.
See so large insurance company in U.S. said coach.
Yes, good or deployment was executed with New York perfection, we quickly secure 10000 users.
Who knows who's east kit or such great Tech and people encore.
See I, often hi Tech come in you guys said I caught.
Without dogs I know consider these go to acquisition to be one of the most timely and beneficial services I have purchased in 25 years all working.
<unk>.
I spoke to over 100, Cxos this passport and most of them, but we couldn't 19 is accelerating the digital transformation.
And assistance to change is disappeared.
He scooter was born in the club.
For the club.
And as a result, we've seen left the transition work so anyway.
We are focused on ensuring.
Safety for employees around the globe.
While we have successfully engaging and supporting customers Fortunately.
One example, you're leveraging more than two.
Virtual white boarding who conduct interactive architectural workshops.
Now, let me discuss our performance for the third quarter.
Revenue grew 40% and billing you 55% year over year.
We also delivered very strong growth operating profits and free cash.
So broad strength across verticals.
No trouble strength in financial services.
From a product perspective.
We had strong growth in both Z. I don't see p., it, but a standalone performance deep here, which contributed 48% of new and add on business compared to approximately 20% plus path of physical 20 Twond.
C. P is a natural purchase for existing customers.
We try to positive impact on net interest rate all hundred 19%.
Gross margins were slightly door asked we temporarily increased our use of public cloud who handled the significant growth in CPX huh.
You're moving this increased traffic.
Who aren't data centers in coming quarters, and expect gross margins to improve.
I will speak more about gross margins in his section.
As I mentioned earlier, many new and existing cost most deployed hundreds of thousands of news EPA users in the quarter.
Yodle based global warming added more than 200000 users in three weeks across 185 countries.
Well U.S. based insurance company deployed 30000 to use it was one week.
And oil and gas company enabled over 27000 users and in that.
And in India based financial services company enable 11000 users in only two days.
We are seeing thoughts attach rate of D.A. increase in art deals, but we still have a very large opportunity for himself in the future has only 32% off for global 2000 customers approaches CP yet.
Well commitment, we believe all employees need CP U.S. internal applications Y grade public cloud and over 90 is accelerating adoption.
C P. It's much more than a VP and their place.
Customers a blind CP.
Implement a zero trust netbook approach or what got the called CP and then.
Which advocates that network security and more long, but to be done in a premium last fall.
Hence user should not be connected to the next but only two specific application.
While many enterprises purchase BP in appliances.
The legacy European vendors in the past couple of months.
I believe those more tactical purchases.
In the warmed up Sito Trust, there's no place for firewalls and <unk>.
Since the network security devices and traditional Netbooks disappear.
New customers are increasingly purchasing <unk> deep you got.
As for talk needed the naval employees to work anyway, securely with great user experience.
For example, offering customers purchased our transformation bundle plus deal.
In line and out a bank casting and frozen isolation 40000 to use and SCPA for 25000 users.
This fortune 500 company was increasingly using cloud applications like coffee 65.
The multi brand.
Appliance based security staff was a bottleneck.
It was working user performance and business Julie.
But deal started as legacy web scale theater placement.
But our sales team successfully demonstrated a value transforming that Mexico and security, who deliver great user experience superior security at the very attractive return on investment.
Let's see scared.
They are consolidating four different vendors and eliminating more than eight point products, including secure web gateway Nexgen firewall sample DNS d. ill ask and SSL inspection.
No.
Cloud native architecture scales to be any searches and their traffic that's had overwhelmed with security appliances.
In addition.
Good News Sito Trust.
<unk> enabled the come quickly into good mergers and acquisition, which is a pool wrote strategy for them.
Next let me talk about Ziad.
Which we believe this also accelerating due to quote wouldn't 19.
Hi, techs employees working from him.
Yes, they access SAS applications and you can swing.
Without Ziad enterprises must use legacy <unk>.
Do wrong traffic to the corporate data center for us.
And how do they trying it.
Back to the data center.
And finally back to the U.S.
No one this results in poor user experience.
And we all know that EPA, even cloud fit VP, what's users on the corporate net.
And represents a major cyber risk.
Last quarter.
Treq labs security these such team uncover well over half a million coal wouldn't 19 specific threats and protected customers from them.
Let me highlight a few off ziad.
A major U.S. bank was experiencing performance issue with an incumbent wet Keith.
Could not meet the classic requirements, all 50 65.
And what do you bought a refreshed.
In this partner led Pete.
Customer purchase transmission bundle cost DLP, Caspian and Brazil isolation.
PC thousand users angles are talking at the legacy box you solution along with a few other security point products.
The customer expects this project, you and auto while exceeding 100% and a payback period less than 12 months, while adding critical capabilities like SSL inspection at scale.
Firewall.
And best in class DLP as DLP is becoming importing into walled off cloud and worked from anywhere.
While at the plant was an important concentration for the steel.
Cobot 19, a focus shifted to deploying Ses killer right way to protect users what came from.
And this is Steve when in the future.
With similar goals, a fortune 500 financial services.
And existing customers.
Upgraded the 50000 users subscription business transformation button.
This is another example of a sizable deals that was driven by two off from new products, Opencast b and from that isolation.
These examples illustrate that many offer customers applying a heightened XII a bundle and additional product launches.
Lastly, like European public sector customers or choose our transformation point.
And DLP 400000 users.
They needed to replace recently purchased so called CLO Securities Sir.
From a legacy Mexican firewall vendors.
After taking 10 months to onboard 14000 users they had to stop their deployment.
Since security was important for this customer.
They needed to inspect SSL traffic.
While this virtual firewall.
Similarly, inspect Esa so it could not do so at any meaningful scale.
Windows single tenant close sort of his failed.
Tender offer to replace it with on Prem firewall bonuses.
Since east killer, what natively designed as a full SSLP talks.
Customers got inspect encrypted traffic at scale without impacting user experience.
Leading to better security and reduced businesses.
This customer also purchased zippy for 30000 users with plans to expand in the near future.
As this last example shows architecture matters for cloud security platform that bus it in line to inspect traffic and enforce policy.
Single tenant architecture, whether deployed as opponents is on and virtual machines in the public club.
Only work if enterprises title for security like known inspecting SSL traffic.
As I have said before.
You can't create Netflix or by stacking caused insult DVD players in the club.
We believe.
No strongly validated our platform and vision.
When they published a new approach for security named secure access service edge or SAS.
While many imitators claim to be sassy.
Conveniently forget to mention that Gartner identified.
That's not inspection as a key requirements offset see architecture.
We believe our penny or track record of running a massive any line club that has to be highly reliable and I'll be able to.
Makes these kid of safe and the best choice, but enterprises need to securely access mission critical applications.
We recently crossed a milestone for processing over 100 billion transactions per day.
Which we believe allows us to provide an unmatched network effect for better security for our customers.
Let me know discuss the tremendous progress we've made you not go to market initiatives to implement.
She table and scalable process for World class sales execution.
I believe our consultative sales approach played a major role in our success the sport it enabled us to maintain a heightened level of engagement with customers and prospects in the current virtual environments.
Last quarter I.
Hi set there we were making good progress based on key beating sales indicator.
Let me give you a few examples of our progress in Q3.
We hired a record number of field sales reps and we're continuing to attract high level talent.
We built out strong sales leadership at the regional directors regional VP and he VP level.
We increased sales productive you.
We generated strong pipeline.
And who did close focus channel partners.
<unk> for those sales leverage.
I could not be happier with partners and we believe this quarter was formed results quite a proof of our ability to execute our sales strategy.
Moving on to products.
As we discussed previously.
For new product offerings that a generally available this quarter.
Casspi Rosar summation these color b to B and these kind of digital experience or C. D. S.
As I mentioned in my view highlights.
Cash be Ambrose isolation products are beginning to generate revenue.
As we have indicated before.
We anticipate these new products will add to our growth in fiscal 2021 and you don't.
On close security platform packs users access to any applications anyway.
Our next opportunity is to expand into protecting applications and data in the clock.
We are pursuing this opportunity in three areas.
One with outdoor bank has to be.
We are providing comprehensive data protection for SaaS application.
Two with the acquisition of CLO neat.
And its cloud security posture managed or CSP and function that.
We know per white data protection.
Public cloud workloads, which is an emerging security market segment.
Right.
Todays announcement acquisition of hedge whites networks, we are extending Zito Trust protection East west traffic within public cloud or data.
With Edwin.
You can point to zero interest approach for machine to machine and process to process communication.
Edgewise discovers individual microservices and the legitimate communication patterns.
And using AI and machine learning and got it.
Automatically creates and enforces authorized process to process communication you provide applications segmentation.
This is far superior approach that legacy networks segmentation for secure.
With our existing and new products. We believe these qunar is the most comprehensive cloud security platform.
And these additional products will expand our already large market opportunity.
Now I'd like to turn over the call to remain for our financial results.
Thank you Jay as mentioned, we had a very strong third quarter ready for the quarter was $110.5 million up 9% sequentially and 40% year over year.
From a geographic perspective for the quarter America's represented 51% of revenue.
It was 40% in a P.J. was 9%.
Turning to calculated billings, which we define as the change deferred revenue for the quarter plus total revenue recognized in that quarter.
Billings grew 55% year over year to $131.3 billion.
As a reminder, our contract terms are typically one to three years, we primarily in voice or customers when you're in advance.
For many performance obligations Archeo, which represents our total committed noncancelable future revenue was $654 million on April thirtyth of 31% from year ago.
The current Archeo is 56% of the total or PEO and grew 36% year over year.
I'd like to call out two dynamics that impacted our billing and contract duration.
We are offering shorter commitments and invoicing periods for customers need help with that business continuity requirements for cobot, 19, and in China, and Japan free access as EPA for three months.
Overall impact of these initiatives toward billings and ARPU was relatively modest.
With billings duration, approximately flat year over year end with contract duration down slightly.
We also had a higher mix of upsell business, which typically a shorter contract and billing duration as it often co terminates with existing contract.
Our strong customer retention and ability to upsell have resulted in a consistently high dollar based net retention rate, which is 119% for the quarter and benefited from increased adoption of zepa with existing customers.
As compared to 118% year ago, and 116% last quarter.
As we've highlighted this metric will vary quarter to quarter well good for our business or increase success selling bigger transmission bundles. So only build ziad ends EPA from the start and faster upsells within the year can reduce or dollar based net retention rate in the future.
So during these factors, we feel that 119% he was outstanding.
Total gross margin was 80% down two percentage points sequentially and year over year.
This decline is primarily due to CJ traffic growing over 10 x. during the quarter.
We supported the surge in demand by augmenting the use of AAMC, Azure, which run at significantly higher cost compared to where data centers.
We decided to prioritize helping our customers can you ramp quickly rather managing our cloud infrastructure to optimize our gross margins.
We're working to reduce the use of public cloud increased the capacity in our data centers over the next three quarters.
But we expect some pressure on gross margin in the near term we.
We expect overall gross margins to be 76, the 77% in Q4, 78% in the first half of fiscal 2021, and we expect to return towards 80% targets in the second half the school 2021.
We feel it's important to continue to invest in our cloud infrastructure to drive topline revenue growth.
Turning to operating expenses are total operating expenses increased 11% sequentially and 35% year over year to $79.6 million decreased as a percentage of revenue to 72% compared to 74% last year.
Sales and marketing increased 6% sequentially and 35% year over year to $52.6 million.
We had to mid year regional sales kickoff in February for training and Teambuilding represented $2.3 million can expenses.
The year over year increase is due to higher compensation expenses and investments and building or teams and go to market initiatives offset by lower any.
R&D was up 20% sequentially and up 39% year over year to $17.1 million.
The increase is primarily due to continued investments in our team to enhance our product functionality and innovative products.
Gee increased 22% sequentially and 26% year over year to $9.9 million.
The growth in China includes and dozens of leaner teams compensation related expenses.
Specialties, including acquisition related expenses.
Our third quarter operating margin was 8%, which compares to 8% in the same quarter last year net income in the quarter was $9 million or non-GAAP earnings per share of seven cents.
We ended the quarter with $391 million in cash cash equivalents in short term investments and no debt.
Free cash flow was positive $9 million in the quarter.
Before moving on to guidance I'd like to share a few additional thoughts related to cobot 19 that may be informative.
No, we're not able to accurately predict the long term impact at the pandemic, we did not experience a negative impact to our topline results from cobot 19 this quarter.
We attribute this to our focus on large enterprises are recurring revenue model and our market position as customers move increasingly to the cloud.
We had good linear during the quarter with a strong March and April and May to date continues to be strong.
We have not seen any meaningful pressure on renewals receivables collections to date due to cope with 19, those long term impact on our customers and partners because not only know.
Renewals due in the next 12 to 18 months may face downward pressure, depending on how the economy recovers.
Our overall exposure to industries, particularly impacted by cobot 19, like transportation hospitality retail and leisure.
Workforce reductions have been announced publicly is less than 10%.
Now moving on to guidance, which incorporates these observations.
Reminder, these numbers are all non-GAAP, which excludes stock based compensation expenses amortization of intangible assets.
So we exit costs in any associated tax effects.
With fourth quarter, we expect revenue in the range of $117 million to $119 million, reflecting year over year growth of 36% to 30%.
Operating profit in the range of $2 million to $4 million other income of $1 million income taxes $1 million in earnings per share of approximately two to three cents, assuming 140 million common shares outstanding.
For the full year fiscal 2020, we expect revenue the range of $422 million to $424 million for year over year growth of 39, 40%.
Calculated billings in the range of 529 million $531 million, where year over year growth of 36%.
Excluding the $11 million upfront billings in Q2, 2019 or updated billings guidance for the fiscal year implies growth of 40%.
Operating profit in the range of $24 million to $26 million.
Other income of 6.4 million income taxes, a 3.5 million in.
Earnings per share in the range of 20 to 21 cents, assuming approximately 138 million common shares outstanding.
The acquisitions of cloud needy and his wife networks are expected to have an immaterial impact on revenue in Q4 and in fiscal 2021 as their early stage company.
The cash purchase price with cloud BD, which closed in mid April was $9 million in the cash purchase price, it's wise, which closed last week was $31 million.
Our plan is to further develop these products incorporate their technologies into our platform.
We expect to incur approximately $2 million, an additional operating expenses related to the acquisitions in Q4 and $12 million to $14 million in fiscal 2021.
This is incorporated into our Q4 guidance.
Our guidance reflects our plans to invest aggressively in her business to pursue a significant market opportunity we've been very successful in hiring and onboarding remotely.
We remain on track to increase our field sales rep headcount by 60% for the full year.
We're very pleased with the progress in our go to market initiatives.
And confident that these investments will build the foundation for long term growth.
In addition, we will increase investments and our technology platform and cloud infrastructure.
Now I'd like to him the call back over to Jane.
Thank you Daniel in closing, let me state five key points that make me excited.
One secure digital transformation, which at the market purpose built to address is sounds great.
True as we have seen but SAS needham's like Salesforce and workday.
Architecture bathrooms.
Only a cloud native multi tenant architectural can enable true transformation trade customers like consolidating and simplifying legacy networking and security infrastructure.
Something significant cost fib.
Hey, it's our value proposition is highly attractive to see outflows and see iOS, especially in today's challenging economic environment.
For in addition to an ongoing success for delivering comprehensive use their protection.
Our next big opportunity is to expand in protecting applications and data.
Which we are pursuing through our own internal integration and targeted acquisitions.
While we are delivering world class sales execution, which we believe will drive sustainable long term growth.
We are mindful off the table tool.
Core with 19 is inflicting on the lives of so many people.
So many ways and we hope.
That'd be a healthy and making a difference to our customers and employees in these challenging times, we wish everyone. Good health okay.
Operator, you May now open the call for questions.
Thank you Sir.
As a reminder to ask your question you would need to press star one on your telephone.
Which are your question press the pound key.
Due to the assets of time, we ask that you. Please limit yourself to one question and one follow up.
Please standby, while we compile the given a roster.
Sure first question comes from the line of Alex Henderson from Needham. Please go ahead.
Well, thank you very much.
Thanks for the great quarter.
I was hoping you could talk little bit about the transaction a the two one from a next gen firewall player.
Cloud architecture.
Are you seeing.
Increased flow of traffic coming out you a in your pipeline from people who are having those same type of issues.
To what extent.
Have you been able to demonstrate that the architecture really does matter just some of those customers.
That becoming a.
Funnel of opportunity for you.
Oh, Hi, Alex. Thank you for the question if they were good and a lot of installed base, we will be seeing a lot of flow coming at the onset many customers who are using bought all based cloud security services. The one that US deplored you see and who are trying to do.
Security that proper SSL inspection hot foundry.
So in in a nutshell or the loss of customers LCM grid firewall installed base and about non clearly.
Okay, then let me shift to the second follow up question if I could.
Clearly you're driving a cloud direct model as that happens.
You are connecting the user direct to the cloud and then applications are increasingly being driven by kubernetes.
And in a variety of locations, whether that be ws shore or private cloud.
Those start to become points of in the cloud.
Activity to them becomes critical.
Are you planning on.
Doing the connectivity into.
Those.
Locations those points in the cloud where are you also planning on going beyond that too.
See I see the processing and the like.
Where the image is.
Secured before it goes into production.
Production or in run time.
So the way we look at.
Paul Texas' applications, whether sitting in a data center or in a public cloud auto private cloud I assume think destinations so with zipper, yet any use a conexus any of those applications were independent all all those applications are deployed and where they are deployed.
So we are doing that today, but then most more important step doing and future as we announced the acquisition or add your world.
That's why it's network is application to application communications security processing cost us communication, which we think is a next big opportunity for us.
Thank you very much for helping us out thanks.
[laughter].
Thank you I'm next question comes from Andrew Nowinski from D.A. Davidson. Please go ahead.
Great. Thank you and congrats on the Oh fantastic quarter I'd like to start with the questions. EPA. So I was wondering if you could give us any color relative to the pricing of zepa versus the <unk> and what I'm trying to get out as whether.
You are indifferent in terms of whether customers start with EPA, and then move to see a or vice versa.
So I will start than dream of can handle.
See I and CPR to independent product lines Ziad to provide secure access to an external applications like hsas and internet and C.P. It do per watt accessory internal applications.
Mirth can start from either side it doesn't really matter.
But since VI as started very early on with US. So we have a large installed base of customers, who started with ziad and those happy customers on adding zepa, but we do see a number of customers starting with TPH.
I seen similar we sell them three bundle for each pro business and transformation so pricing front similar.
Models are somewhat for both both products.
Got it that makes sense and then just a quick follow up on your hiring target I don't know if you mentioned it but I know you were targeting a 60% growth and headcount by the end of the July quarter are you still on track to achieve that.
Yes, Yeah, we're oh, we have had a record quarter.
Three hiring we also feel the quality people they are bringing on board.
Yes, two outstanding.
Leadership that we're putting in place throughout the sales organization.
For the most part it's completely in place right now so now now we're filling up the ranks with a field sales reps, but we are we're planning expected to get the 60% field such field sales Rep Pro.
Great. Thanks, guys.
[noise]. Thank you.
Yes and comes from Brad Zelnick.
From.
Credit Suisse. Please go ahead.
Great. Thank you very much you know guys I just first want to say congratulations on the success very impressive to see the acceleration in the business and frankly the execution during these crazy times.
Not really leads to my my first question for Jay Jay can you just talk us through the balance of headwinds and Tailwinds from covert 19 that impacted the business and and if you look out on the horizon longer term how does how does this experience change the shape of adoption towards these killer going forward.
Yeah. If you look at what could have done it has forced everyone to work from home.
It is accelerating digital transformation and that's some markets we were designed to address.
So we are getting benefits from covert 19 as every customer had to work.
And you saw a number of examples where we enabled so many customers literally overnight taught over a week or two weeks.
So it's helping US now the next question ends up being what happens.
After two or three months.
We think the changes that CIO TCOS I've seen with transformation, but being able to work from home. They are actually accelerating their transmission one of the new things to learn during this transition was I.
I am working from home all of my employees up working from home without using my corporate networks, why do I need the corporate network why do it needs to do this local internet Brady coda and why do I need to do this SD brand transformation. So a lot of customers a binding to going to the final separate transmission.
Our use of can directly go to any application from anywhere so.
So net net we are seeing some good tailwinds no the headwind could potentially be.
The reduction in spend because every company is becoming cost conscious and that's what I actually our story is getting more compelling since we do such a great ROI. So see of course and see I was I know looking for consolidation offenders and this consolidation is at own best of breed platforms.
That then best of breed point products. So they like our position that we are not trying to play in four different market segments that I could be different but in a very meaningful segment, where we are the zero trust exchange to connect anything to anything so net net.
We think this track.
All right or digital transformation is going to help our business.
It makes perfect sense and it would seem to me the least killer was built for a situation just like this maybe my follow up just for revoke the net expansion you know is a.
Metric that you've been de emphasizing over the last several quarters and maybe somewhat unsurprisingly at least to US you know, it's nice to see it picked up significantly.
In the April quarter, how should we think about it.
As we as we look forward and and what are you assuming I know you've only given us one quarter of guidance, but even as your formulating your own plan into next year, how do you thinking about expansion of the base.
Yeah, we've talked about it and we deemphasize till the net retention rate.
However, it stayed.
Pretty consistent over the last three years.
From my perspective, I don't want to give forward guidance someone that retention rate, but I don't see the composition of our business you know significantly changing up you know in the near future.
Great. Thank you guys, so much and congrats again.
Thank you.
Yes.
Thank you.
Next question comes from the line of Danielle Bardas from Bank of America. Please go ahead.
Great. Okay, guys. Thanks, a lot for taking the questions Jay I just wanted to drill down on your SD when driven sales and what you're hearing from customers and I'm thinking it does it make sense that this three Q, maybe the trough for your Ziad business. That's typically tied to SD win and then as we look into four Q and beyond.
And do SD when headwinds potentially persist or do you hear that it's going to be a priority.
You know us to save money as people kind of trickle back into the offices.
Right. That's a question we have been asking a lot of see iOS as they talk to them.
As work from home order would happen.
All netbook changes got put on hold there's only one priority I need my employees to work from home secure which really needed.
Yeah, I kind of product to go to external applications. If you had a good internal applications. So we actually a benefit from not even a having to deal with SD band because sometimes network transformation can take longer we expect that as customers go back to the office they will be.
Revisiting still ecpm projects, but it has shown the CIO shows that they don't have to depend upon the network and they can move forward faster with it I was talking to CIO at this very large company by 100000 users who was actually looking at doing the SD van breakout and no.
Oh, having seemed as you say I'll think about it you probably need to but I am.
Finding that I can run my business without worrying about the network.
Nike things don't change overnight, but and this is changing we think known the shift is happening is less focused on net for more focus on access from anyway.
Great Great and then that's really helpful and it just quickly Reno I'm wondering if you can help us freak out the strength for zepa between existing GPS customers, adding more seats and actually adding new CPG customers.
Yeah, so the strength in the quarter, what's EPA and it was with existing customers. So the growth both in Ziad ends EPA were very good.
So the growth in the.
The with the work from home initiative, the existing customers quickly purchase EPA and C.P.A. represented.
So close to 40% of up.
Of our Hubbard over a newcomer to customers.
So.
The new customer business, historically, 56% mix of the new ACB.
But we expect it to return back to historic Circle.
Yeah, if I may add Zepa came from two sources one was our existing customers are bought some number of see some CPGA, which is generally happen in the 2030 40, 50% range. The SEC. So that's one second bucket blog Xis color customers, who had bought CIA we're still.
Looking at C.P. It hadn't bought it that decision move don't that became number two and third was customers who want to see I and see fit together because they were new could logos to us all to be contributor to the successful SCPA a wild Z. I did very well haswell yep as a follow on also.
Typically in the past, we've seen a 50 50 mix because new and existing.
Over the last several quarters, that's mixes and more in the 30% to 50% range.
In Q3 was closer to that are lower in the range and thats done what our customers and the number of customers.
Perfect. Thanks, guys.
Thank you.
Next question comes from second Kelly from Barclays. Please go ahead.
Hey, guys. Thanks for taking my questions here and Echo my congrats on the on the quarter.
Thank you Jay maybe maybe for you just so just the change subject here just for a second can you talk about some of the acquisitions here with cloud needy an edge wise you know those are those are a little different than than ziad mtpa in terms of the displacing sort of into an existing vendor a per user kind of per year.
Pricing model, how do you sort of envision those two those two.
New acquisition sort of fitting into the go to market for the future.
Yes, so first of all if you look at overall positioning.
It's gorilla hasn't focused on protecting users no matter, what they need to access that's on C. I as VP is east could it be to be story. Our next natural step was to put pack applications and data in the cloud so for that CLO needy helps us to protect.
Workloads, because missed configurations and all can cause because a deal. So that's an important piece where data protection.
And then egg whites basically extends our story of say why should we just offset connecting users to application why not applications to application why no cost us to process using the same zero trust approach that this shops typical network based security.
So that's how they fit no pricing going to view, yes, our pricing has been based on number of users no price would be based on what workloads I did not millions of millions of workloads going on from the clone it will be subscription service just like everything else.
For the unit pricing becomes workloads.
Yes.
Got it makes sense, maybe for my follow up for you Reno.
So helpful commentary in the prepared remarks, just around duration can you just tell us how you're thinking about about duration here in Q4, you know our understanding the majority of billings here our annual in advance.
You talked a little bit about more co term business, maybe some shorter commitments as well kind of in a cobot environment. How are you thinking about sort of that that the duration inside the implied Q4 Billings guide.
Yeah, I really don't see much change in the billings duration in Q4.
Our billing duration typically is between 10 and 14 months.
And for the last few quarters several quarters, it's been a lower half of that arranged I'd expect that the same in Q4.
Very helpful. Thanks, guys.
Great. Thank you.
Thank you.
Next question comes from Catharine Trebnick from Dougherty. Please go ahead.
Thank you for taking my question and congratulations on good quarter.
Prepared remarks, you had discussed that you were doing white boarding in some of your.
Activities in the sales motion can you describe.
Every time I talked to investors.
Pushed back on how complicated the sales process is for you all takes longer to its a long sales cycles can you explain to us or give us more background on what that new sales process looks like in coal bed methane team. Thank you.
Thank you Catherine.
Total lease care is transformation of networking applications, because you no longer me traditional hub and spoke network. So when you try to replace one box. So quiet, we'll all be the second box supply wall it simpler.
This box comes out that box goes.
These go we region, we need to show them that you don't have to have this hub and spoke net broken castle in March security model. So you end up doing this architectural discussion no one's architect started getting into understanding it's the light becomes a lot easier because typically we don't go through this typically.
PEO sees proof of concept that computers features and functions.
And Whiteboarding becomes important do show.
Essentially Honda network is sitting today hopefully it change in phase one phase two phase two square feet. So we showed them their transmission journey, that's with white boarding comes in is it complicated.
I won't say, it's complicated I would say it's different than doing the box centric PRC centric sale here transformation starts from the sea level and those are generally the past parties, who worked and generally that C level really depends upon architects to show them, how the architectural changes so we.
I haven't seen any slowdown in terms of engagement actually I've been surprised to find that getting meetings with sea level as well as architects in this.
Confined at home World is actually much easier.
Did I answer your question.
Oh, Yes, you did thank you very much.
Thank you Catherine.
Thank you.
Next question comes from the line of Gray Powell from BTG. Please go ahead.
Great. Thanks for taking the question and congratulations on the a under good results.
Oh.
Yes.
I wanted to actually want to comment you made the prepared remarks, particularly on the equity. So did you guys see any material benefit from emergency spending initiatives to support work from home and then I know you said many already was strong in March and April and that May continue to be strong finish I'm just trying to taking a trend line there or was it was there any like debt.
While it may or just how do how did make them paradox April.
Yeah, I won't make a specific comment between May and April with what I can say its linear already in Q3 was better than we've had in prior quarters.
We picked up strongly in March with the work from home Cobot 19.
We continue to have a strong April and so we ended the quarter well.
And that momentum that we had in Q3 is carrying over.
Into may and make continues to be strong.
Got it okay that makes perfect sense.
And then just one quick one so I know you guys mentioned you did some free up because 90 day trials were promotions on VPA back in March and April just what's your confidence level converting those into paid customers and how big should we think that opportunity. Thanks.
Yeah I mean.
You know you asked cobot 19 became basically a global endemic.
Most of the customers the started with our original pre offer.
You know before they are trying to based employees converted to paying customers. Some of the customers converted to business continuity program, which is sort of commitment period.
But many also converted to multiyear commitments with annual billing.
So that's prove out the pretty good for us.
But just to add on reasonable we did not have a global.
Trial Free program, that's correct me essentially did it in China early on when things started and after that our customers talk too caught us than say, we need help to get turned on it's less of an issue of money. It's more of a matter of my employees needs to be productive on Monday morning.
And we were crazy busy getting I've customers online and making sure they workflow.
Okay.
Got it okay. Thank you very much for clarifying that.
Good thanks.
Thank you.
Next question comes from the line of Srini Nandury from something.
Uh huh.
Alright. Thank you for taking my question Congrats on a great corner, a J up you know you're talking about using gay ws for some of the pricing of the data you know since you didn't have enough capacity, how does that half of the latency and more importantly, how long does it take where you've got more capacity its infrastructure.
Thank you.
Add capacity due on infrastructure.
Yes, that's the reason I I presume you're using got your Ws right.
Yes. So the difference is the phone you know you need to have some hardware sitting in the data centers, where once you add capacity the turning on and turning them up and running is not a hard thing or tall literally thats a matter off maybe a day or two so whatever time. It takes it takes time to acquire hardware and shippers.
To a data center that index turned on pretty quickly.
No as.
Could happen literally overnight I still recall.
On Thursday, I got a calls on very large conglomerates in Europe, you said my over 15000 people need to start working them.
14 go much Amazon or using the.
I'm still playing Annulments EPA, but I need see appeared to turn on Monday morning, and this is going to does not.
Right so.
For us to get on capacity that he doesn't take a whole loan shipments in all does take some time and so it's a good auction to be able to use as good or ADW s. as we need to increase capacity for a short amount of time and as we said in our prepared remarks, the gross margin difference can be.
Significant so we use them as we need them and then be can dial back though.
Alright, thank you.
Thank you.
Our next question.
Comes from the line of FEMA Boolani from you Yes. Please go ahead.
Good afternoon. Thank you for taking the questions he'll Carol safe and sound.
Jay maybe a question for you to start as I do now or a huge amount rather and consider your pipeline at a time when organizations are perhaps becoming more measured in what you're spending at home, they're spending with perhaps slow playing some of the big architectural decisions, you know, particularly around SQN intimate alluded to earlier.
Okay, and I was curious how a lot of these dynamics are or.
We'll be impacting your pipeline composition, if I consider some of your traditional demand drivers across competitive displacement SD Lan adoption in office 365 migration.
Yeah, if I may say on number one driver has been digital transformation by the office the 65 as Steve in any also things have been.
Coming from one quarter Ben.
It is very true every CIO and CF was becoming more cost conscious and that's we're so the decision is not driven by I need to change the architecture. A decision is driven by I need to consolidate and.
My multiple vendors reduce my cost and be ready for digital transformation. If you look up from two buckets point of view.
Consolidations, we do because of great platform and architecture readiness gets them. There. So we actually see this thing accelerating in many ways, especially the network would generally the slowest moving part is becoming less important factor because see I always have seen business work, we don't use.
I think the corporate network.
Did I answer your question.
Yes, that's super helpful.
And we now maybe a question for you just as it relates to volumes of large deals in the quarter you provided some very marquee examples in the prepared remarks.
200000 feet when so I'm curious if there was any outsized or unusually large impact from a very large deals in the quarter and that's it for me. Thank you.
No I mean, theres no real large deal in the quarter I mean, a lot of deals greater than $500000.
C D C D, which is a great quarter horse, but nothing stands out as a very very large deal.
I appreciate that thank you.
Thank you.
Last question comes from Shebly Seyrafi from FBN Securities. Please go ahead.
Hi, guys. So my question is you're gonna have for new products are ramping 21.
Oh do you have an estimate.
Roughly what kind of revenue contribution Dolby.
Yeah, I mean, it's a small it's let's not gonna be material.
If you take a look at the art Zepa products that we know we introduced I'd say, it's going to be along those same type of trajectory.
Couple percentage points or our total perhaps in a fiscal 21, and then accelerate its a go forward occurring immaterial basically impact for the products and you want.
Okay.
And then I know from the number you provided Americas growth accelerated with with my spreadsheet to 39%.
From a 30% growth or the prior quarter.
And you even had a tougher year to year comparison in the Americas. So.
[laughter]. This just kobin or are there other factors in the Americas driving yeah.
Yes, so related to the products, but also related to new and upsell not not revenue for justice. So you're aware that related to the growth you know in the region I can say that all regions is very very well for new enough. So theres no reason that did not see well EMEA eight TJ in Americas.
All right about the same.
Okay. Thank you.
Thank you.
This concludes our Q and a session at this time I like to turn it over to Mr. child.
Closing remarks.
Good.
Well. Thank you for your interest in the scanner, we wish everyone. Good health and safety low power to seeing you add our next quarterly earnings call.
Great. Thank you. Thank you.
Thank you ladies and gentlemen. This concludes today's conference Goodbye. Thank you for participating you may now disconnect.
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