Q4 2020 Zscaler Inc Earnings Call
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I would now like to hand, the conference over to Mr., Bill Troy Senior Vice President Investor Relations. Thank you. Please go ahead Sir.
Good afternoon, everyone and welcome to the de scalar fiscal fourth quarter and for your 2020 earnings conference call on the call with me today, RJ, Chowdhry, chairman and CEO and remote kunis the CFO.
Please note that we have posted our earnings release, and a supplemental financial schedule to our Investor Relations website.
Unless otherwise noted all 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 for historical periods. The gap to the non-GAAP reconciliations can be found in the supplemental financial information.
Starting in fiscal 21, we will be excluding stock based compensation related payroll taxes from our non-GAAP results. We have provided a separate table in the supplemental schedule with historical data for the last eight quarters.
I'd like 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 billings operating performance gross margin operating expenses operating income net income free cash flow dollar 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 risks and uncertainty some of which are beyond our control, including but not limited to the duration and impact of Kogan 19 on our business the global economy, and the respective businesses up our 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.
Undertakes no obligation to update these statements after this call.
A more complete discussion of the risks and uncertainties. Please see our filings with the FCC as well as in today's earnings release I would also like to inform you that management will be attending the following upcoming virtual investor conferences.
City Global Technology Conference Tomorrow.
Deutsche Bank Technology Conference on September 15.
Morningstar management behind the moat conference on September 29.
Presentations for these events will be webcast and the links will be available on our Investor Relations website now I'll turn the call over to Jay. Thank you Bill and thank you for joining us I hope all of you and your families of staying healthy and safe.
With ongoing pandemic I would like to acknowledge the tireless efforts our team and partners who are committed to our customers success.
I'm pleased to report our strong results for the fiscal fourth quarter and a full year 2020 with exceptional growth in both new customer and Upselling business in Q4, we delivered growth of 46% in revenue and 55% in billings.
Inflecting increased momentum business as our customers sounds great digital transformation, despite the macro economic challenges.
Offer customers up close native platform, which we call. The C scanners Zito Trust exchange securely connecting users to applications or applications to applications.
For glass and hyper connected digital world.
In the new what home any via economy. We're applications are moving to the cloud and users are outside the corporate network.
Additional network and network security you have become irrelevant, we ensure that businesses can operate at any scale with users anywhere in the world on any device independent off the next.
We are helping our customers move from legacy network security to seed or trust acuity, which reduces business risk and makes businesses a child and competitive.
As I did affect on the past 12 months, culminating in our strong Q4 performance I view fiscal 20 as earlier in which we made tremendous progress on a number of strategic fronts to position us well for long term growth.
The scalar has never been stronger and I believe we have an incredible opportunity in front for flops.
Let me highlight three pillars of our strategy.
Axle.
Products and our go to market.
To start with our platform visco their stance for zenas host kilobit.
True to our name our platform continues to scale to new Heights cease go to Zero Trust exchange is the largest inline cloud security back home in the world.
And we have processing more than London, 20 billion transactions and blocking more than 100 million threats per day from users across 185 countries.
This large dataset feeds off machine learning and engines for superior insect protection.
Better detection of user and application traffic and all needs and faster resolution of performance bottlenecks.
All of this happens on a platform that uses 70% renewal energy today with a goal to use over 90%.
Deployed across more than 150 data centers on SEDAR Trust exchange platform was built from the ground up to fully delivered the promise of Gartners secure access service side or sassy framework.
Traditional network security vendors are trying to co-opt odd vision of cloud security after rejecting it for he is.
The trying to retrofit the legacy appliances into a cloud world.
Just like you can create netflix by stacking thousands of DVD players in the cloud.
You can't off putting in line high performance security cloud my spinning off a bunch on virtual firewalls in the public cloud.
To put it simply having the right cloud native architecture creates a significant barrier to entry cloud imitators.
Building on cloud native architecture, with full security and minimal latency Wassa daunting challenge and running a massive inline distributor comp, but five nine so availability is an order of magnitude more difficult.
For large enterprises, who want network and security modernization. We believe we're the only cloud native multi tenant platform that meets their needs.
We ended fiscal 20 with over 4500 customers, including over 150 off the Fortune 500.
And over fourth 50 off the global 2000 companies.
We have over 100 customers that generate over 1 million dollar in AI at all or annual recurring revenue.
While the average NPS or net promoter score often average tasks company is third these skaters NPS is 76.
Which is 2.5 times higher approved off the value that these colored deliveries.
Next on product innovation. This has been an exceptionally productive year port on engineering and product teams.
We're through internal innovation and highly targeted acquisitions, we have significantly increased the number of products available on our platform.
Further expanding our already substantial technology lead.
During the year, we expanded the number of solutions from two to four.
First a flagship Z. I hear solution expanded with two new products outdoor band Caspian and cloud Brunswick isolation, which together with our inline camp speed and advanced DLP expanded our addressable market data protection.
Second on CBS solution, which doubles on market opportunity has become the most mature zero trust solution with deep and wide functionality, including support for web and non web applications.
With deployment at massive scale with over 150 global 2000 customers ZP has become the market leader for Zero Trust Securities.
Third with the Ses kilo platform uniquely sitting between the user and application.
These kind of digital experience horn Cdx solution computer a performance score measuring the digital expedience off every user application, helping customers to pinpoint and there is all performance issues further expanding our addressable market.
Lastly, our next opportunity is to expand our zero trust exchange to protect applications and data in public or private clouds.
With our CSP in product, we can identify and remediate missed configurations of cloud workloads for Whiting superior data protection.
Our what upload segmentation service implements a zero trust architecture or App to App communication, we are apps, maybe running on containers or virtual machines. This is a hot repeated accord app segmentation without having to do network based segment.
Yeah.
What sets us apart from the many vendors who claimed to have a platform. It's the following.
Our platform is purpose built for the cloud it is designed to be extensible to integrate with our targeted acquisitions as well as with third party products.
Legacy network security vendors can create a cloud tactful, but cobbling together a bunch of acquired companies history has shown there. This approach does not work.
Moving on to the third pillar go to market.
Before we refined our metric driven repeatable sales process, which is giving us deep visibility into our business and a strong and growing pipeline.
We invested heavily this year to build our sales machine that we believe can demonstrate our compelling value to enter prices drive larger deals and deliver consistent sales execution to takes these could be own a billion dollars annual revenue.
Let me highlight a few offer go to market accomplishments, we significantly expanded our sales leadership by adding extra depth in our regional management the build out of our sales leadership is largely complete.
We had another record quarter piling and exceeded our yearend target of 60% year over year increase in quota carrying field reps.
Even with the significant growth our sales productivity was up for the year exceeding our expectations.
Since we launched our summit partner program, we recruited additional cloud focused channel partners to drive further sales leverage.
We're pleased to see increasing wins and larger deal size with our summit partners.
I'm extremely proud off our go to market team and whole we executed our sales strategy this year.
Now, let me provide some business highlights for the fourth quarter.
See I have business is accelerating due to our customers focus on what form anywhere.
But employees that allowed to directly access SaaS applications and the internet phone to homes security becomes a major risk and they need zee.
We continue to see increased adoption offer high end transformation bundle, which includes cloud firewall and sandbox.
At the end of fiscal 2000.
49% offers Cie annual recurring revenue is coming from the transformation bundle compared to 43% last year.
Let me sure tools Ziad deals in the quarter that show up accelerated momentum with the financial services customers.
A new customers initially engaged us to secure SD van.
420 offices.
They shifted the focus from Stephen to securing 14000 employees into homes as a result, often and damage.
Which sensitive financial data at risk security was a major requirement and only a proxy architecture was considered.
This customer purchased empires Ziad portfolio.
Including Caspian advanced DLP Haynes CSP him for Microsoft Office 365.
Our integrated Casspi offering replaced or cast the point product that by itself required three own site engineers and a seven figure annual spend.
Our so Peter security at a very attractive ROI resonated with both the CIO and the CFO.
In a zero upscale and other financial services company that has been a customer since 2018, most would appear and more than double the purchase of business bundle plus DLP to protect all 70000 employees.
Like the prior example, this customer only considered a proxy architecture.
They are standardized on our platform and consolidated three vendors streamlining the operations and reducing the cost.
Our product integration with Microsoft and coach strike loss and important consideration.
Next I'd like to highlight Zepa.
We continue to have strong adoption of Zepa, which is benefiting from work from anywhere and applications migrating to the club.
CP is more than a VPN replacement.
It is an architectural shift to zero trust access private applications in a multi cloud environment.
SCPA contributed 29% offer new an upscale business in fiscal 2000.
Peter to 14% in the prior year.
In the quarter, we closed our largest deal for Zepa with the long time customer. This global 100, Conglomerated already purchased the entire Cie portfolio for all employees.
And with the Corbett pandemic accelerated transformation journey by purchasing SCPA for 300000 employees.
With responding success with Ziad and significant cost in zeese care. They deployed CPH globally in just a couple of weeks.
As the world battled the spread of call it.
While the immediate objective for this deal was to eliminate legacy VPN.
CPR was selected to implement Zito trust secured by establishing an application level policy, where you connect users to specific apps not to a network cps, providing secure access to over half a million unique applications and other proof point off.
Its maturity and scalability.
Next one off the world's largest ITC services company with headquarters in Asia purchase EPA for all 180000 employees.
This customers using virtual firewalls, and BP ends to protect the applications in the public cloud.
They appeal each internet facing firewall, our VPN asked an attack surface that they wanted to eliminate.
With the CP roll out the customers reduced the internet exposure for hundreds of applications down to a handful in less than four weeks greatly reducing business. This.
Legacy vendors quite to sell their cloud base VPN, but failed to meet the requirement for zito attack surface.
I'm delighted to share that more customers are buying ziad and CPH together, which enables a true transformation with direct access to any application or what any network.
For example, a global professional services company purchased our transmission bundle plus DLP for 50000 users and Zepa for 20000 users.
The business involves handling sensitive customer information, hence they needed inspection of all traffic, including SSL for comprehensive data protection.
Combined five our vendor try to sell its cloud based offering but it was disqualified as they could not meet the SSL inspection and DLP requirements.
Our zero interest approach will also help the customer to quickly integrate future M&A.
Core growth strategy for this company.
And lastly in another new logo D. A federal civilian agency purchase Ziad business bundle with cloud firewall, plus DLP and CP April 21000 users.
When the pandemic stocking that agency relied on legacy VPN technology, which could not scale and resulted in poor user experience.
While the immediate use case was VPN and placement this agency acquired Cie NCP it together to transform its network and security with our fed ramp authorize cloud platform.
This Wayne was notably our largest federal deal to date.
And we are building considerable momentum in the us federal market.
With the highest levels of fed ramp certifications, both ziad NCP, which involves a rigorous process. We are positioned very well in this large market and we are proud to help on government customers do their critical work in these trying times.
Let me touch on a couple for new products that are starting to contribute to deal of wins.
Our outdoor bank Casspi has become very comprehensive helping us displays casspi point products and increase our deal size as I indicated in the deal highlights.
Also starting to see early success with Cdx, including wins with the European consumer products company and a us based pharmaceutical company.
While currently very small we believe our new products create a significant growth opportunities.
As we start the new fiscal year, we are fortunate position to be able to help our customers pursued digital transformation their highest I'd priority.
With the mindset change and the openness to transformation I have seen an increase in CIO level awareness and engagement with us.
The inbound customer requests have greatly increased and we are becoming a part of bigger transformation projects and a key partner to consolidate point products remove complexity and save costs.
We are excited about our mission to make the clubs safe for business and enjoyable for users.
Now I'd like to turn over the call it removes or our financial results.
Thank you Jay as mentioned, we are pleased with results for the fourth quarter and the full year 2020.
Revenue for the quarter was $125.9 million up 14% sequentially and 46% year over year.
Okay revenue was 12% of total revenue in the quarter.
From a geographic perspective for the quarter America's represent 50% of revenue EMEA was 40% may PJ was 10%.
For the full year revenue was $431.3 million up 42% year over year.
Turning to calculated billings, which we define as the change in deferred revenue for the quarter plus total revenue recognized in that quarter.
Billings grew 55% year over year $294.9 million as a reminder, our contract terms are typically one to three years, we primarily invoice our customers one year in advance.
Remaining performance obligations or appeal, which represents our total committed noncancelable future revenue.
$783 million on July 30, Onest up 41% from one year ago.
The current ARPU is 55% of the total RPL.
The PD was 29% of total new and upsell business in fiscal 2000.
Turning to 14% in the prior year.
We're seeing a higher attach rate of SCPA, both on a number of deals in the number of seats per deal.
We see a good mix of CK opportunities between new and existing customers. We have a large upsell opportunity as only 35% of our 450 global 2000 customers have purchased the UK.
Our strong customer retention and ability to upsell have resulted in a consistently high dollar based net retention rate, which is 120% for the quarter compared to 118% a year ago and other 19% last quarter.
As we've highlighted this metric will vary quarter to quarter.
Good for our business, our increased success selling bigger transformation bundles, selling both ziad and CK from the start.
And faster Upsells within a year have reduced our dollar based net retention rate in the future.
Considering these factors, we feel that 120% is outstanding.
Total gross margin was 78% down two percentage points sequentially and three points year over year.
The decline is primarily due to zepa traffic growing over 10 X. since February.
Doug Merritt use of eight Ws Asher to meet the surge in demand.
Which one that significantly higher costs compared to our data centers.
The gross margin was better than our guidance of 76% to 77% as we made solid progress on migrating more of the CP traffic to our data centers during the quarter.
As we mentioned previously our combined gross margins of our core products Ziad and Zepa are expected to return to 80% in the second half of fiscal 2021.
However, most of our new emerging products, which include Cdx workload segmentation and Csps, we'll be running in the public cloud until we scale them into our owned data centers in the future.
While the public cloud these products will have lower gross margins that are core products.
As a result, we expect total corporate gross margins to be 70, 879% in fiscal 2021.
Turning to operating expenses, our total operating expenses increased 14% sequentially and 46% year over year to $90.7 million was flat year over year as a percentage of revenue at 72%.
Operating expenses in Q4 includes approximately $2.9 million expenses associated with the cloud needy netwise acquisitions.
Sales and marketing increased 14% sequentially at 46% year over year to $59.7 million.
Year over year increase was due to higher compensation expenses and investments in building our teams and go to market initiatives offset by lower Tammy.
We've been very successful on hiring and Onboarding remotely we exceeded our goal of increase in our field rep headcount by 60% for the full year.
R&D was up 19% sequentially and up 54% year over year to $20.3 million.
The increase was primarily due to continued investments our team.
China increased 8% sequentially and 33% year over year to $10.7 million. The growth engine a includes investments and building our teams compensation related expenses and professional fees included acquisition related expenses.
Our fourth quarter operating margin was 6%.
Which compares to 9% in the same quarter last year.
Net income in the quarter was $7 million or non-GAAP earnings per share of five cents.
We ended the quarter with over $1.3 billion and cash cash equivalents and short term investments, including net cash of approximately $1 billion sprays for the June offering of convertible senior notes due in 2025.
Free cash flow was positive $11 million in the quarter.
Now moving onto guidance as a reminder, these numbers are all non-GAAP, which excludes stock based compensation expenses.
Amortization of debt discount.
Amortization of intangible assets facility exit costs than any associated tax effects.
As Bill indicated earlier starting in fiscal 2021, we will also be excluding stock based compensation related payroll taxes from a non-GAAP results.
For the first quarter of fiscal 2021, we expect revenue the range of $131 million to $133 million, reflecting a year over year growth of 40% to 42%.
Operating profit in the range of $8 million to $10 million.
Other income of $500000 net of interest payments on the senior convertible notes.
Income taxes of $1.25 million.
Earnings per share of approximately five cents six cents.
Assuming 143 million common shares outstanding.
For the full year fiscal 2001, we expect revenue the range of 580 $590 million or year over year growth of 34% to 37%.
Calculated billings in the range, so 100, 1000 $20 million or year over year growth of 29% to 31%.
Over the last five years first half billings half represented on average 43% to 44% of full year billings, we would expect a similar distribution in fiscal 2021.
Operating profit in the range of $44 million to $46 million other income of $2 million income taxes, a $5 million and earnings per share in the range of 28.
Any sense, assuming approximately 145 million common shares outstanding.
Our guidance reflects the increased investments by business driven by two major developments. One cobot 19 is accelerating digital transformation, which is the markets. These scaling was created to serve.
We feel we have momentum based on our performance and we see the market coming to US. Our plans are to continue to invest aggressively in sales and marketing behind the growth in our business.
To our pursuit of additional market opportunities with our new products the chain reviewed earlier.
As I've indicated the acquisitions of cloud meeting and adds wise are expected to have an immaterial impact on revenue in fiscal 2001.
While adding approximately $12 million to $14 million and operating expenses.
In addition, we will increase investments our technology platform and cloud infrastructure.
Given our accelerate investments this year, we would like to provide an update to our long term financial model.
We expect to achieve 20% to 22% operating margins for the full year and fiscal 24.
While we will balance growth and profitability.
Growth will take priority, considering our significant market opportunity.
We are confident of reaching our target operating model within the next for years.
Now I'd like to hand, the call back over to Jay.
San Qt interval.
We believe we are in the early innings self a significant market opportunity to secure digital transformation.
Just like Salesforce and workday develop cloud native multi tenant platforms to disrupt large legacy software vendors. These color has a similar opportunity to disrupt network security.
Multiples tailwinds, such as SAS adoption work anywhere and App migration to public clouds, we believe the market is coming to us.
The value proposition offered Zito Trust platform is resonating with customers. Our next big opportunity is to expand into securing app to app communication in the cloud as well as monitoring end to end digital experience.
As we demonstrated in recent quarters, we're delivering world class sales execution, and we believe we have position for long term growth.
We thank you for your interest and zeese care and look forward to reporting our progress in the future.
Operator, you May now open the call for questions.
As a reminder to ask the question you will need a press star one on your telephone.
To withdraw your question press the pound key.
In the interest of time, we ask that you. Please limit yourself to one question. Please standby, while we compile the Q and a roster.
Our first question comes from Walter Pritchard with Citi. Your line is now open.
Hi, Thanks, I'm wondering if you could juxtapose the guidance for billings next year around 30% with the capacity growth you've had in sales, which I think is about double that.
I see there is some puts and takes around product productive reps and so forth, but how should we think about those two things together and you had productivity increase this year I think you said in the script just wanted to make sure we're thinking about those those together or any any things that drive the disparity.
Yeah.
Walter I think you've known me for a long time.
Related to how we do guidance, we'd like to be prudent.
Related to you as Jay mentioned on the call.
We had planned initially for fiscal 20 foot or sales productivity would be down.
When you consider that we're able to increase our field quota sales reps by 60%.
Similarly in the second half.
For us to be higher sales productivity in fiscal 20, I think speaks volumes related to the go to market in the team, we haven't sales organization as well as the market coming to us.
As we go forward into fiscal 21, just some clarity the key thing to remember is that we see the market coming to us everything points, but basically the market is coming to us from pipeline growth customer meetings, you customer growth and.
Just the.
So these are bringing on board deal sizes consolidation going on all the things everything we're looking at basically points that growth.
So what we're doing basically is we're going to invest in the growth of the company.
Some of operating profitability perspective.
It is easy to get to a SaaS models operating profitability quicker only going to do slow things down because the contribution margin in years, two and three.
Jane I have said from the start if we see this market coming to us we're going to step on the gas and we're seeing the market coming to us for stepping on the gas and reduced significantly increased our investments across the board and the company in particular in sales and marketing continued sales and marketing.
R&D and also our cloud operations and delivery of our platform.
Thank you.
Thank you.
Our next question comes from Matt Hedberg with RBC capital markets. Your line is open.
Hey, Thanks for taking my question guys congrats on the quarter.
Jay digital transformations are clearly accelerating post coded and I'm wondering though as you talk to executives.
Our lot of I'm thinking that in fact security transformations has to happen first in other words is that a precursor to digital transformation.
And is that what's also sort of leading to what I would assume is record pipelines are exiting there.
That's correct, Matt Thank you.
If you think of digital transformation. It does three pieces to it everything starts application transformation modernization because people need to access applications, maybe business application collaboration that alike.
And since his new economy, you can be sitting on the network had in your branch offices or whatever you end up working from any view and we had ever. So you must be secure so security becomes an important enabler off this transformation Bernie in fact, I would say that security comes first before any often net.
Transformation, our Steven comes in because without proper cloud Centrix Judy can be done that's why have you seen acceleration.
In our business, that's why when people say Gee Astro Corbett on things going to slow down I said, no. We're seeing ex the acceleration business not because off a one time event, but because of accelerating trend more and more CIO csos I'm talking to us. The other thing I've mentioned is our business is not.
But just csos number one biopsies get are number one sponsor of diseases that are transformation as CIO, and then CTO and see so coming along with that.
But.
Thank you.
Our next question comes from Alex Henderson with Needham Your line is no.
Thanks.
Just one technical question and then one.
Technology side.
Can you talk about whether you expect to continue to expand your sales capacity at a pace faster than sales in your 21 guidance and then second.
So on the technology front I'm really fascinated by your commentary around.
The modern application protection domain to domain App to App.
Environments can you talk a little bit about how you penetrate into kubernetes orchestration.
Environments.
Hi into Jenkins.
CD processing and does that put you in con.
Conflict with some of the CDN players or are you more a partner with them. Thanks.
I'll take the first question Alex the answers, yes, we are increasing sales capacity significantly in fiscal 21.
Sales capacity increase we took a bet last year about increasing sales capacity.
And it was the right that and basically the increase sales capacity puts us in good position going into fiscal 21.
Much of that sales capacity in fiscal 20, basically coming on the second half will have a positive impact in the second half of our fiscal 21.
Related to going into fiscal 22, we increasingly we're trying to increase our sales capacity and trying to front end load that sales capacity increases as we go forward.
We are going to monitor how the business is going but as I mentioned before all indicators are it's just very very positive.
The sales productivity. This I mentioned, we exceeded our sales productivity.
Good to be above the prior year, where we thought we'd be below.
It just speaks to what we've put in place what are the key things. We think about these scalar you think about a company that built the platform for today in the future.
You're talking about a market that basically we knew was there but wasn't coming to us as fast as we thought it would.
Is now coming to us because basically the external factors richer hitting the world.
So and then the missing piece basically is the go to market. We feel we've got if not the world's best sales machine one of the world's best sales machines with the leadership that we have in our sales organization. Some investments that we've made in that in fiscal 20. It will continue to make into fiscal 21.
Having said that basically the foundation is in place that foundation in the go to market was built in fiscal 2000, now we're going to add to it will monitor it if we see things you know as we're hoping to we'll continue to expand.
And Alex This is changed second part of your question is application protection in public comps.
We are seeing lots and lots are dynamic what flows being launched in public comps do security has to be done different vendors trying to look at a different ways legacy brandon's trying to take that legacy approach to it for example, find one guys will say, let be trying to create Netflix segmentation.
CDN guys are trying to say Gee, almost CDN vendor on kind of build awareness around it and the light.
We come from the fact that in this new world.
There's no such thing as traditional security, we are exchange with the switchboard reconnect right user to write application and extended the same concept to say, we will securely connect right application to write down because right process to the right process and thats using caught off guard.
Via technology combined with the acquisition, we did have a company called AD networks. So, it's a miss and new market. It's a disruption opportunity. We think we can do the same thing in a public loan that we had done four zero.
Type of technologies.
Thank you.
Yes.
Thank you.
Our next question comes from Andrew Nowinski with da Davidson. Your line is now open.
Okay, great. Thank you very much gentlemen, congrats on the the great quarter I just want to ask more of a competition related question Cisco acquired a company called thousand eyes recently, and I, which I believe is a technology aimed at providing more network visibility similar to ZX. So I'm wondering.
If you're seeing any more competition from Cisco in the zero Trust market.
And then also could you also provide any feedback on your win rates first Palo Alto. Thanks.
Yeah, Let me start with this your first question about network visibility event.
It is true that the loss of vendors that up.
Doing network monitoring and the network. They monitor it was typically the wide area network private network. We don't do anything that we believe that Internet is the new network. So we are not focused on network itself. We are focused on end to end monitoring and performance of the use of from user to the.
Application the network as a piece of applications a piece of it and end user.
Device may be something it's.
Even though net from performance is an older market and performance is all the market a market we are going after.
Got it really new market, because I don't want Khomeini, that's number one number two.
This part doesn't really have much to do see don't trust. This is about performance.
Question was are we seeing see norcross competition from other large vendors.
Zero Trust can be done by calling things on top of network security. If you are doing networks acuity don't Mizuno Trust because you don't trust means.
Securing the network.
Assuming that.
You basically.
You can be trust or to be on the network. So thats a second part a third parties I see you mentioned competition from a firewall company I think yes. So we think look if you think will lead our trust, we savvy securely connect and entity to another entity or use it to an application.
Putting them on the network network is merely transport for US all network security companies, including firewalls decline to secure the network architecture is totally opposite to architecture.
So while.
We see them on some of them more accounts when it comes to large and prices, they're very savvy. They understand zero across the understand security to understand proxy architecture and as I highlighted in a few on my used to in my.
But if your remarks, and some that customer wins.
Firewalls are generally it all down at the upfront even if that fight to go in there because proxy architecture becomes a requirement do proper security, including SSL inspection.
That's great thanks to keep up the good work.
Thank you.
Thank you. Our next question comes from Brad Zelnick with Credit Suisse. Your line is now open.
Great. Congratulations guys are real real strong finish to two unbelievable year.
And it's great to see remote I wanted to drill in on the update that you provided on the long term model.
So you've told US now you've put up a timeline to when you'd be at 20% to 22%.
Operating margins for your at four years out and if I'm not mistaken I recall that.
Around the time of the IPO you had thought that the company would be at 800 million to $1 billion in revenue.
At the time that you would hit that goal.
And I just wanted to go back and think about.
If I.
If I try to back to the envelope model out to 24, and we assume you know natural deceleration overtime is it fair that at that point, you would be growing the business maybe somewhere in that in the high teens are low Twentys do you think about it that way and as well how should we think about the slope.
Of that margin expansion overtime on the weight of the 20% to 22%.
Thank you.
Right a lot of great questions and doing that we've got several questions.
The key thing is that the world changed the world changed from the time, we went public.
Isn't what's happened basically.
We're seeing an acceleration in our business as I talked about before.
The two things that we're seeing the acceleration one is very apparent which is basically coatings 19, I mean, it's basically accelerating transformation and it's the markets that were built for.
So that's one thing that's going on.
The second thing basically with our emerging products, we have a significant additional tam in our user experience product and also workloads segmentation.
And we've decided is that a tour to find the 20, 22% profit target and we're seeing for the full year fiscal 24.
Versus the dollar amount, which we provided before.
We've also said basically is that.
And from you know the model you know the SaaS model, we can slow this thing down and get their like next year. Once it is that's the right thing to do for the shareholders.
With this market opportunity, though it is absolutely not.
But so therefore from Jane I've had long discussions about this.
And I believe we mid four years ago, I mean, there's not much has changed.
We basically are the same page I took this johnston filled a great company I took this job because you know my respect for Jay and because we're on the same page we're trying to build a very meaningful insignificant company and we feel we have that opportunity more so now than before because of.
Changes in the world.
We will put growth ahead of profitability.
We're putting.
The end zones basically the goalpost as we're at right now for our projections for fiscal 21.
Where we are going to be for the full year fiscal 24.
Growth rates I can't tell you.
How are things going to play out I can't really.
When it Cantilevers, we can get there we can get Theres no matter how this market goes.
Our with with the product platform that we have that we started out with the Ziad then we expanded to Zepa and you take a look at the growth and Zepa, but we've had its been pretty significant.
Now, you're adding ZDF user experience, which we think a significant market as I mentioned.
You are putting on board the Fourq workloads segmentation and then you have the ability to bring other products like Kathy.
Out of band the browser isolation b to B C. As PM, we have the ability to deliver these products because we've built the platform in order to deliver these products.
So.
And my confidence, we're going to get to our operating profitability for years I am what is the growth going to be I cannot tell you.
But I can tell you that I'm very you know based on what we're seeing.
Based on the market potential based on the team that we have in place.
I feel very good.
Okay. Thank you that's it for me.
Yes.
Thank you.
Our next question comes from Keith Bachman with BMO. Your line is now open.
Hi, Thank you very much for taking the question I wanted to ask a little bit about growth drivers and just to pick on what you pick up on what you just mentioned.
As you talk about the world's change and it would seem to be that.
In a cohort economy.
The solutions EPA is getting a much.
More welcome reception speaking well worth it seems like it's been a catalyst to grow.
And you mentioned that only 35% of your installed base as purchase that.
When you think about the guidance you gave for 21, how are you thinking about the growth as EPA within that context, and really what I'm asking is any color you could give us on the distribution, but in fact VPA now being a help in terms of opening up new accounts as well as just selling into the installed base.
The.
So to speak but if you just give us a little color on.
How do we should be thinking about the growth rate and 21 is it in fact opening new doors, where you stand alone. Thank you.
I'll take a crack than you know lift to Jay Jay talked.
The.
Yes, the answer is yes, I mean zepa.
It was at 43% of our business.
Total total new an upsell business in Q3.
Zepa for the year between 9% knows around 28, 29% for Q4.
I look at the dollar amount of Zepa in Q3 Q4 pretty comparable.
The question that came up in the last call is what's going on with Ziad easy I guess going to fall off the cliff.
Will it happen.
It was a record quarter. If it was it was a record quarter for Ziad in Q4.
The question came up last last call was.
More of your existing customers are buying basically and lets EPA driven by coated and percentages, where I think 60% upsell 40% new.
He said in our pipeline indicated that we'd be closer to our historical rates is 50% newer 60% news.
We're pretty much 50 50.
The pipeline that we have going forward related to ziad its EPA.
Yes.
I think.
Depends on close rates, but it's healthy.
Showing the DTA.
Past has a lot of Tractions Joel.
The key thing, though when you take a look at the contribution of Ziad in SCPA.
What I want to draw your attention twos, the Z scalar as a platform.
Ben platforms, we talked about Cdx one.
Workload segmentation in the other products that I've talked about.
As we go forward.
Customers havent needs related to securing their networks for the 21st century.
Scalar was built for the 21st century.
These scalar is right in the center of with these companies need.
We need to go out there until you know good until companies what we have so they understand that their lives can be a lot better.
So when you think about us going forward think about seascape as a platform play through the ability to add additional applications relatively quickly to really you know service our customers to properly secure them both in the workload environment as well as you know going as we're going to user environment.
Yeah, that's great deal I would say.
Many times people to think of call. It means EPA no work from any other meets the eye and bodes combined and this big potential volatile.
Okay. Thanks, gentlemen.
Thank you. Our next question comes from Daniel Bardas. Thank of America. Your line is now open.
Hey, guys. Thanks, a lot of taking the question.
I wanted to ask about new products, specifically cdx in Hebei to be so first Jay can you just talk about customer interest at this time, maybe compared to the early years first EPA and then remote just curious what you have baked into your fiscal 21 assumptions for these products or new products in general.
Thanks.
Yes, So let me start with the two new products you talked.
Cdx, which is digital experience.
When you see yeoman's in Sydney.
Connects to office 365 things slow theres not a single product in the market that helps by de figured out where the issues. All that's a big hold we are feeling so there is pretty high demand for Cdx and we just got the product last quarter, a b C. A good pipeline lots.
Interest and evolving the product pretty rapidly.
B to B is exiting a little bit interesting.
Big sizable opportunity, but different kind of products a little bit different buyer.
It's a chief digital officer, who is building new b to B applications that interest.
So we're seeing a lot of interest, but we see lot more evangelism needed on the b to B side, Dan on the Cdx side, but good going pipeline in Bulgaria. Good interest shorter sales cycle on ZX longer sales cycle, and b to b, but both help us because that part of a proper flat.
All these things on board piece that are time, they become extension to the platform on customer has bought because customers are trying to buy best of breed platform and best of breed products.
In the financial side, the revenues basically immaterial because ratable.
And for the new business, New HCD I would say in the mid single digit type range for all the products combined.
Similar type trajectory that we had four SCPA, where we went from like 4%.
10%.
During that single digit type range is probably by baked into plant.
Got it thanks guys.
Thank you and our next question comes from Brian Essex with Goldman Sachs. Your line is now open.
Hi, Good afternoon. Thank you for taking my question Jay had a question for you and maybe to pivot off the keys question. It seemed as though last quarter. There was a lot of I'll call it panic buying but a lot of.
Enterprise purchases that maybe they didn't have enough time to assess you know a new enterprise architecture and it sounds like you have a more and I think that naturally led to higher attach rate that sounds like growth is more balance now could you maybe talk about strategically what you're seeing with customers are they do they now have time to reassess.
There you know network architecture and are those leading to larger deals and more new customers added onto the platform, maybe just give us a little bit of color in terms of what you're saying are being helpful.
Yes, two points that you mentioned there one is the assessment do the right architecture to is on their decisions driven by some of their cost complexity driven the answer is yes to both of those things. It is very true that a lot of people.
Who actually are familiar and exposed to the scanner and in fact someone got one already testing the bomb CPM pretty quickly because they knew us already.
We also saw a number of Zvi is EPA combined deals in Q3.
Acceleration of combined.
ZP due to got has.
Further increased we like that but also what have your planning is a number of customers. We are talking do now or I would say prospects were talking you know are saying, yes, we bought a bunch of VPN. So whatever VDI is part of short term need to be met but we know we want to go to zero.
Costs be needs. This digital transformation. So evaluations easterners ZP is are driven by some of those needs not for the short term once the architectural transmission the second big trend we've seen.
Is that because of macroeconomic pressures every CIO and more and more cfos are trying to figure out how to do cost consolidation and simplification. So no they're beginning to buy more and more bigger platform bundled spend smaller bundles that has led to an inc.
Trees off transformation bundle on the XY aside but on so combination of Ziad ZP. It together on the other side. So we are benefiting foam consolidations simplification introduction.
Complexity as well, we think it's a good trend that market needs to do.
For making that business more a child more competitive.
That's great color. Thank you.
Thank you. Our next question comes from Patrick Coalville with Deutsche Bank. Your line is now open.
Thank you for taking my question congrats on.
It was a very impressive set results can just talk about the sales hiring in.
HM 220 that was pretty one the biggest things. We saw you guys. This increase in sales head count by 60%.
Yes, Hi site.
Very astute decision. So we just think about 2021.
Can go the metrics around I guess, the headcount hiring would be great and.
The amount w. or some just how we should think about.
The momentum that.
And I.
I guess, how you see that trend.
Yes, we're not going to give up.
Much color as we did last time.
What I can say, though to give you some perspective, we do expect to increase.
The number of hence we increased the school 20, and Intersil field sales organization substantially.
So we are as I mentioned, we see the market coming to us.
We're going to do we feel is the right things for the business.
We're going to aggressively higher.
That aggressive hiring is already started.
And that aggressive hiring we're finding.
Is that basically I think theres, a increased awareness related to the value propositions that see scalar has.
And I think that you know, we're attracting some very high quality people.
But the total amount the numeric no amount will be substantially higher in fiscal 21 since fiscal 2002.
Fiscal 2000 cars.
Okay. That's that's right okay. Thank you.
Thank you.
Our next question comes from Jonathan Ruykhaver with Baird. Your line is now.
Yes. Thank you good afternoon and.
I'm wondering if you could provide some more color on the initiative that has been put into place with the new summit partner program, specifically, just what kind of reception is seen in.
Has there been any impact yet the channel sales velocity.
Yes, very good question I briefly mention in my prepared remarks, but summit partner was put in place to identify clone focus our cloud Bourne partners, who could help customers transformation.
It's actually very but a mine bit hall, our sales was done so we're seeing increased number one off deals registration.
Also seeing deal size going because of the way. This transformation Sam is happening and we think will we expect to get more and more leverage in fiscal <unk> 21 from these partners. So so I would say very bullish on the progress are made and expecting even better results in dismissed and despair.
Earlier.
That's great. Thanks for the color.
Thank you.
Ladies and gentlemen, this concludes our question and answer session.
I'll now turn the call back over to Jay Chaudhry for any closing remarks.
Right well. Thank you all for joining US we look forward to see you add one of the sell side conferences that it will be attending.
Thank you again, thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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Ladies and gentlemen, thank you for standing by welcome to the these scalar fiscal fourth quarter and full year 2020 earnings conference call.
This time, all participants' lines are in listen only mode.
After the speakers presentation, there will be a question and answer session slots a question during the session you only to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to Mr. Bill Choi Senior Vice President Investor Relations. Thank you. Please go ahead Sir.
Good afternoon, everyone and welcome could that be scalar fiscal fourth quarter and for your 2020 earnings conference call on the call with me today, RJ, Chowdhry, chairman and CEO and remote connects the CFO.
Please note that we have posted our earnings release, and a supplemental financial schedule to art Investor Relations website.
Unless otherwise noted all 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, where historical period, the gap to the non-GAAP reconciliations can be found in the supplemental financial information.
Starting in fiscal 2001, we will be excluding stock based compensation related payroll taxes from our non-GAAP results. We have provided a separate table in the supplemental schedule with historical data for the last eight quarters.
I'd like 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 billings operating performance gross margin operating expenses operating income net income free cash flow dollar based 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 risks and uncertainty some of which are beyond our control, including but not limited to the duration and impact of Coca 19 on our business the global economy, and the respective businesses up our customers vendors and partners.
These forward looking statements apply as of today and you should not rely on them as representing our views in the future.
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 FCC as well as in today's earnings release I would also like to inform you that management will be attending the following upcoming virtual investor conferences.
City Global Technology Conference Tomorrow.
It's a bank technology conference on September 15.
Morningstar management behind them out conference on September 29.
Presentations for these events will be webcast and the links will be available on our Investor Relations website, now I'll turn the call over to Jay.
Thank you Bill and thank you for joining us I hope all of you and your families of staying healthy and say.
With ongoing pandemic I've, a likely to acknowledge the tireless efforts our team and partners who are committed to our customers success.
I'm pleased to report our strong results for the fiscal fourth quarter and a full year 2020 with exceptional growth in both new customer and Upselling business in Q4, we delivered growth of 46% in Lebanon and 55% in billings.
Reflecting increased momentum you're not business as our customers sounds great digital transformation. Despite the macroeconomic challenges we offer customers up cloud native platform, which we call. The C scanners Zito Trust exchange securely connecting users.
As to applications all applications to applications.
Order last and Hyperconnected digital world.
In the new what home any of your economy. We're applications are moving to the cloud and users are outside the corporate network traditional network and network security have become irrelevant, we ensure that businesses can operate at any scale with users anywhere in the world.
On any device independent off the next.
We are helping our customers move from legacy network security to zero across security, which introduces business risk and mix businesses, a child and competitive.
As I reflect on the past 12 months, culminating in our strong Q4 performance I view fiscal 20 adds up earlier in which we made tremendous progress on a number all strategic fronts to position us well for long term growth.
The scanner has never been stronger and I believe we have an incredible opportunity in front of flops.
Let me highlight three pillars of our strategy our asphalt our products.
And our go to market.
To start without platform. These kind of stands for zenith whats kilobit.
So to our name our platform continues to scale to new Heights.
Please go to Zero Trust exchange is the largest inline cloud security back home in the world.
And your processing more than.
20 billion transactions and blocking more than 100 million threats per day from users across 185 countries.
This large dataset feeds our machine learning and engines for superior SEC protection.
Data detection of user an application traffic and normally.
And faster resolution of performance bottlenecks.
All this happens on a platform that uses 70% renewable energy today with a goal to use over 90%.
Deployed across more than 150 data centers are Zito Trust exchange platform was built from the ground up to fully delivered the promise of Gartners secure access service side or sassy framework.
Additional network security vendors are trying to call walked on vision quote security after injecting it for years.
The trying to retrofit the legacy appliances into a cloud world.
But just like you can create next thanks, my stacking thousands of DVD players in the cloud.
You can't Offloading inline high performance security cloud my spinning up buying chalk virtual firewall in a public cloud.
To put it simply having the right cloud native architecture creates a significant barrier to entry cloud imitators.
Our cloud native architecture, with full security and minimal latency Wassa daunting challenge.
And running a massive inline distributed club with five nine so availability is an order of magnitude more difficult.
For large enterprises, who want network and security modernization. We believe we're the only cloud native multi tenant platform that meets their needs.
We ended fiscal 2000 with over 4500 customers, including over 150 off the Fortune 500.
And over 450 off the global 2000 companies.
We have over 100 customers that generate over 1 million dollar in AI at all or annual recurring revenue.
While the average NPS or net promoter score often average task company is 30 Z skaters NPS is 76.
Which is 2.5 times higher approved off the value that sees colored deliveries.
Next on product innovation. This has been an exceptionally productive year, what ought engineering and product teams.
We're through internal innovation and highly targeted acquisitions, we have significantly increased the number of products available on our platform.
Further expanding our already substantial technology lead.
Meetings.
We expanded the number of solutions from two to four.
Fast.
Flagship Z solution expanded with two new products outdoor band Caspian.
And cloud, Brazil, isolation, which together with <unk> in line Caspian and advanced DLP expanded our addressable market data protection.
Second aren't Cps solution with doubles, our market opportunity has become the most mature zero trust solution with deep and wide functionality, including support for web and non web applications.
With deployment at massive scale with over 150 global 2000 customers ZP has become the market leader for Zero Trust secure.
Third with the visco platform uniquely sitting between the user and the application.
These kind of digital experience arent cdx solution computes performance scope measuring the digital expedience off every user application, helping customers to pinpoint and there is all performance issues further expanding our addressable market.
Lastly, our next opportunity is to expand our zero trust exchange to protect applications and data in public or private clouds.
With our CSP in product, we can identify and remediate missed configurations of cloud workloads for Whiting superior data protection.
Our what upload segmentation service implements a seat or trust architecture or App to App communication.
Perhaps maybe running on containers or virtual machines. This is a fox repeated approach for app segmentation without having to do network based segmentation.
What sets us apart from the many vendors who claim to have a platform. It's the following.
Our platform is purpose built for the cloud it is designed to be extensible to integrate with our targeted acquisitions as well as with third party products.
Let's see network security vendors can create a cloud platform, but cobbling together a bunch of acquired companies history has shown that this approach does not work.
Moving onto the third pillar go to market.
Before turning to find odd metric driven repeatable sales process, which is giving us deep visibility into our business and a strong and growing pipeline.
We invested heavily this year to build our sales machine that we believe can demonstrate our compelling value to enterprises drive larger deals and deliver consistent sales execution to pick these could be on a billion dollars in annual revenue.
Let me highlight a few off or go to market accomplishments, we significantly expanded our sales leadership by adding X started back in our regional management the build out our sales leadership is largely complete.
We had another record quarter filing and exceeded our yearend target of 60% year over year increase in quota carrying field reps.
With a significant growth our sales productivity was up for the year exceeding our expectations.
Since we launched our summit partner program.
We recruited additional cloud focused channel partners to drive further sales leverage.
Pleased to see increasing wins and larger deal size with our summit partners.
I'm extremely proud off our go to market team and hall, we executed our sales strategy this year.
Now, let me provide some business highlights for the fourth quarter.
Our to see I have business is accelerating due to our customers focus on what from anywhere.
But employees that allowed to directly access SaaS applications and the internet phone to homes security becomes a major risk and Binney zee.
We continue to see increased adoption offer high end transformation bundle, which includes cloud firewall and sandbox.
At the end of fiscal 2000.
49% offered Cie annual recurring revenue is coming from the transformation bundle compared to 43% last year.
Let me share towards Ziad deals in the quarter that show off accelerated momentum with the financial services customers.
A new customers initially engaged us to secure SD van.
420 offices.
They shifted the focus from Steven securing 14000 employees into homes as a result, Austin and Dallas.
Which sensitive financial data at risk security was a major requirement and only a proxy architecture was considered.
This customer purchase the entire Cie portfolio.
Including Caspian advanced DLP.
And CSP for Microsoft Office 365.
I'll incubated casspi offering replaced a cast the point product that by itself required three onsite engineers and a seven figure annual spend.
Our so Peter security at a very attractive auto why resonated with both the CIO and CFO.
In a zero upscale and other financial services company that has been a customer since 2018, most with appear and more than double the purchase of business bundle plus DLP to protect all 70000 employees.
Like the prior to example, this customer only considered a proxy architecture.
Standardized on our platform and consolidated fee vendors streamlining the operations and reducing the cost.
Our product integration with Microsoft and coach strike was an important consideration.
Next I'd like to highlight SCPA.
We continue to have strong adoption of Zepa, which is benefiting from one from anywhere and applications migrating to the cloud.
CP is more than a VPN replacement.
It is an architectural shift to zero trust access private applications.
By cloud environment.
Cps contributed 29% offer new an upset business in fiscal 2000.
Compared to 14% in the prior year.
In the quarter, we closed our largest deal for Zepa with a long time customer. This global 100 conglomerate already purchased tires the portfolio for all employees.
And with the core with pandemic accelerated transformation journey by purchasing SCPA 40 800000 employees.
With that is something success with Ziad and significant cost in zeese care. They deployed CPH globally in just a couple of weeks.
As the world Battle, the spread of call it.
While the immediate objective for this deal was to eliminate legacy VPN.
CP. It was selected to implement Zito trust secured by establishing an application level policy, where you connect users to specific apps not through a network.
Cps, providing secure access to over half a million unique applications and other proof point office maturity and scalability.
Next one off the worlds largest I'd services company with headquarters in Asia purchase EPA for all 180000 employees.
Customers using virtual firewalls, and BP ends to protect the applications in the public cloud.
They viewed each internet facing firewall, our VPN asked an attack surface that they wanted to eliminate.
With the CP roll out the customers reduced the internet exposure for hundreds of applications don't do a handful in less than four weeks greatly reducing businesses.
Siem vendors quite to sell their cloud base VPN, but failed to meet that requirement for zito attack surface.
I'm delighted to share that more customers, a blind ziad and CPH, two gad, which enables a true transformation with direct access to any application or what any network.
For example, a global professional services company purchased our transmission bundle plus DLP for 50000 users and Zepa for 20000 users.
The business involves handling sensitive customer information has been needed inspection of all traffic, including SSL for comprehensive data protection.
Combined five our vendor try to sell its cloud based offering but it was this qualified as they could not meet SSL inspection and DLP requirements.
Our zero Altrus approach will also help the customer to quickly integrate future M&A core growth strategy for this company.
And lastly in another new logo or be a federal civilian agency purchase Ziad business bundle with club firewall, plus DLP and CP April 21000 users.
When the pandemic stocking that agency relied on legacy VPN technology, which could not scale and resulted in poor user experience.
While the immediate use case was repeated placement this agency acquired CIA NCP it together.
Transform its network and security with our fed ramp authorize cloud platform.
This Wayne was notably our largest federal deal to date.
And we are building considerable momentum in the us federal market.
With the highest levels of fed ramp certifications, both ziad NCP, which involves a rigorous process. We are positioned very well in this large market and we are proud to help government customers do the critical work in these trying times.
Let me touch on a couple for new products that are starting to contribute to deal wins.
Our outdoor Ben CASB has become very comprehensive helping us displays casspi point products and increase our deal size as I indicated in the deal highlights.
Also starting to see early success with Cdx, including wins with the European consumer products company and a us based pharmaceutical company.
While currently very small we believe our new products create a significant growth opportunities.
As we start the new fiscal year, we are fortunate position to be able to help our customers pursued digital transformation, we are highest priority.
With the mindset change and the openness to transformation I have seen an increase in CIO level awareness and engagement with us.
The inbound customer requests have greatly increased and we are becoming a part of bigger transformation projects and a key partner to consolidate point products remove complexity and save costs.
We are excited about our mission to make the cloud safe for business and enjoyable for users.
Now I'd like to turn over the call it removes or our financial results.
Thank you Jay as mentioned, we are pleased with results for the fourth quarter and the full year 2020.
Revenue for the quarter was $125.9 million up 14% sequentially and 46% year over year.
Lead game revenue was 12% of total revenue in the quarter.
From a geographic perspective for the quarter Americans represent 50% of revenue EMEA was 40%.
Jay was 10%.
For the full year revenue was $431.3 million up 42% year over year.
Turning to calculated billings, which we define as the change in deferred revenue for the quarter plus total revenue recognized in that quarter.
Billings grew 55% year over year $294.9 million as a reminder, our contract terms are typically one to three years, we primarily invoice our customers one year in advance.
Remaining performance obligations or appeal, which represents our total committed noncancelable future revenue.
Let's say $183 million on July 30 Onest.
41% from one year ago.
The current RPL is 55% of the total RPL.
The PD was 29% of total new upscale business in fiscal 2000.
14% in the prior year.
We're seeing a higher attach rate.
Both on a number of deals and the number of seats per deal.
We see a good mix emcp opportunities between new and existing customers. We have a large upsell opportunity has only 35% of our 450 global 2000 customers have purchased.
Our strong customer retention and ability to upsell have resulted in a consistently high dollar based net retention rate, which is 120% for the quarter compared to 118% a year ago and out or 19% last quarter.
As we've highlighted this metric will vary quarter to quarter.
Good for our business, our increased success selling bigger transformation bundles, selling both ziad and CPGA from the start.
And faster Upsells within a year and reduce our dollar based net retention rate in the future.
Considering these factors we feel at 120% is outstanding.
Total gross margin was 78% down two percentage points sequentially and three points year over year.
The decline is primarily due to zepa traffic growing over 10 X. since February.
Men it use of eight Ws Asher to meet the surge in demand.
Which one that significantly higher costs compared to our data centers.
The gross margin was better than our guidance of 76% to 77% as we made solid progress on migrating more of the SCPA traffic to our data centers during the quarter.
As we mentioned previously our combined gross margins of our core products Ziad.
They are expected to return to 80% in the second half of fiscal 2021.
However, most of our new emerging products, which include Cdx workload segmentation and Csps, we'll be running in the public cloud until we scale them into our owned data centers in the future.
While the public cloud these products will have lower gross margins that are core products.
As a result, we expect total corporate gross margins to be 70, 879% in fiscal 2021.
Turning to operating expenses, our total operating expenses increased 14% sequentially and 46% year over year to $90.7 million was flat year over year as a percentage of revenue at 72%.
Operating expenses in Q4 includes approximately $2.9 billion expenses associated with the cloud needy netwise acquisitions.
Sales and marketing increased 14% sequentially at 46% year over year.
$59.7 million the year over year increase was due to higher compensation expenses and investments in building our teams and go to market initiatives offset by lower Tammy.
We've been very successful on hiring and Onboarding remotely.
Exceeded our goal of increase our field rep headcount by 60% for the full year.
R&D was up 19% sequentially and up 54% year over year to $20.3 million.
The increase was primarily due to continued investments our team.
China increased 8% sequentially and 33% year over year to $10.7 million.
The growth engine, a includes investments and building our teams compensation related expenses and professional fees included acquisition related expenses.
Our fourth quarter operating margin was 6%.
Which compares to 9% in the same quarter last year.
Net income in the quarter with $7 million or non-GAAP earnings per share a five cents.
We ended the quarter with over $1.3 billion and cash cash equivalents and short term investments, including net cash of approximately $1 billion raised for the June offering of convertible senior notes due in 2025.
Free cash flow was positive $11 million in the quarter.
Now moving onto guidance as a reminder, these numbers are all non-GAAP, which excludes stock based compensation expenses.
Amortization of debt discount.
Amortization of intangible assets facility exit costs and any associated tax effects.
As Bill indicated earlier, starting in fiscal 2021 will also be excluding stock based compensation related payroll taxes from a non-GAAP results.
For the first quarter of fiscal 2021, we expect revenue the range of $131 million to $133 million, reflecting a year over year grow a 40% to 42%.
Operating profit in the range of $8 million to $10 million.
Other income of $500000 net of interest payments on the senior convertible notes.
Income taxes of $1.25 million.
Earnings per share of approximately five cents six cents.
Assuming 143 million common shares outstanding.
For the full year fiscal 2001, we expect revenue the range of 580 $590 million or year over year growth of 34% to 37%.
Calculated billings in the range, So 100, 1000 $20 million or year over year grow up 29% to 31%.
Over the last five years first half billings have represented on average 43% to 44% of full year billings, we would expect a similar distribution in fiscal 2021.
Operating profit in the range of $44 million to $46 million other income of $2 million income taxes, a $5 million an earnings per share in the range of 28.
You sense, assuming approximately 145 million common shares outstanding.
Our guidance reflects the increased investments by business driven by two major developments. One cobot 19 is accelerating digital transformation, which is the markets. These Taylor was created to serve.
We feel we have momentum based on our performance and we see the market coming to US. Our plans are to continue to invest aggressively in sales and marketing behind the growth in our business.
To our pursuit of additional market opportunities with our new products. The chain reviewed earlier as I've indicated the acquisitions of cloud meeting and Thats why its are expected to have an immaterial impact on revenue of fiscal 21.
While adding approximately $12 million to $14 million in operating expenses.
In addition, we will increase investments our technology platform and cloud infrastructure.
Given our accelerate investments this year, we would like to provide an update to our long term financial model.
We expect to achieve 20% to 22% operating margins for the full year and fiscal 24.
While we will balance growth and profitability growth will take priority considering our significant market opportunity.
We're confident of reaching our target operating model within the next for years now.
Now I'd like to hand, the call back over to Jay.
San Qt interval.
We believe we're in the early innings self significant market opportunity to secure digital transformation.
Just like Salesforce and workday.
Cloud native multi tenant platforms to disrupt large legacy software vendors. These killer has a similar opportunity to disrupt network security.
With multiples tailwinds, such as SAS adoption worked from anywhere and App migration to public clouds, we believe the market is coming to us.
The value proposition offers zero interest platform is resonating with customers. Our next big opportunity is to expand into skewing app to app communication in the cloud as well as monitoring end to end digital experience.
SB demonstrated in recent quarters, we're delivering world class sales execution, and we believe we have position for long term growth.
We thank you for your interest in Z scanner and look forward to reporting our progress in the future.
Operator, you May now open the call for questions.
As a reminder to ask a question you'll need to press star one on your telephone to.
To withdraw your question press the pound key.
In the interest of time, we ask that you. Please limit yourself to one question. Please standby, while we compile the Q and a roster.
Our first question comes from Walter Pritchard with Citi. Your line is now open.
Hi, Thanks, I'm wondering if you could juxtapose the guidance for billings next year around 30% with the.
Capacity growth you've had in sales, which I think is about double that.
There's some puts and takes around product productive reps and so forth, but how should we think about those two things together and you had productivity increase this year I think you said in his script just wanted to make sure we're thinking about those those together or any any things that drive the disparity.
Yes.
Walter I think you've known me for a long time.
Related to how we do guidance, we'd like to be prudent.
Related to you as Jay mentioned on the call.
We had planned initially for fiscal 21 or sales productivity would be down.
When you consider that we're able to increase our field quota sales reps by 60%.
Early in the second half.
For us to be higher sales productivity in fiscal 20, I think speaks volumes related to the go to market in the team, we haven't sales organization as well as the market coming to us.
As we go forward into fiscal 2001, just some clarity the key thing to remember is that we see the market coming to us everything points, but basically the market is coming to us from pipeline growth customer meetings, you customer growth and.
Just be.
Boys are bringing on board deal sizes consolidation going on all the things everything we're looking at basically points that growth.
So we're doing basically is we're going to invest in the growth of the company.
Operating profitability perspective.
It is easy to get to a SaaS models operating profitability quicker only going to do slow things down because the contribution margin in years two three.
Jane I have said from the start if we see this market coming to us we're going to step on the gas and we're seeing the market coming to us for stepping on the gas and we're going to significantly increase our investments across the board and the company in particular in sales and marketing continued sales and marketing.
R&D and also our cloud operations and delivery of our platform.
Thank you. Thank you.
Thank you.
Our next question comes from Matt Hedberg with RBC capital markets. Your line is open.
Hi, Thanks for taking my question guys congrats on the quarter.
Jay digital transformations are clearly accelerating post coded and I'm wondering though as you talked to executives.
Our lot of I'm thinking that in fact security transformations has to happen first in other words is that a precursor to digital transformation.
And is that what's also sort of leading to what I would assume is record pipelines you're exiting there.
Thats correct, Matt Thank you.
Thanks, you think of digital transformation.
So many pieces to it everything starts in the application transformation modernization because people need to access applications, maybe business application collaboration that alike.
And since his new economy, you can be sitting on the network had in your branch offices or whatever you end up working from any Viet admit ever. So you must be secure security becomes an important enabler off this transformation journey in fact, I would say that security comes first before any off the net.
Transformation, our Steven comes in because without proper cloud centric student can be done that's why have you seen acceleration.
In our business Thats, why when people say Gee Astro Corbett on things going to slow down I see no. We are seeing ex the acceleration business not because off a one time event, but because accelerating trend more and more CIO csos I'm talking to us. The other thing I would mention is our business is not.
But just csos number one biopsies could are number one sponsor of diseases that are transformation as CIO, and then CTO and see so come along with that.
But.
Thank you.
Our next question comes from Alex Henderson with Needham Your line is no.
Thanks.
Just one technical question and then one.
Technology side.
Can you talk about whether you expect to continue to expand your sales capacity.
Pays faster than sales in your 21 guidance and then second.
So on the technology front.
I'm really fascinated by your commentary around.
The modern application protection domain to domain App to App.
Environments can you talk a little bit about how you penetrate into kubernetes orchestration.
Environments.
Into Jenkins.
The processing and does that put you in con conflict with some of the CDN players or are you more a partner with them. Thanks.
I'll take the first question Alex the answers, yes, we are increasing sales capacity significantly in fiscal 2001.
The sales capacity increase we took a bet last year about increasing sales capacity and it was the right bat and basically the increased sales capacity puts us in good position going into fiscal 21.
So that sales capacity in fiscal 20, basically coming on the second half will have a positive impact in the second half of our fiscal 21.
Related to going into fiscal 22, we are increasing that we're trying to increase our sales capacity and trying to front end load that sales capacity increases as we go forward.
We are going to monitor how the business is going but as I mentioned before.
All indicators are good business very very positive.
The sales productivity as I mentioned, we exceeded our sales productivity.
Good to be above the prior year, where we thought we'd be below it just speaks to what we've put in place.
What are the key things, we think about these scale or do you think about accompany that built the platform for today in the future.
You're talking about a market that basically we knew was there but wasn't coming to us as fast as we thought it would is now coming to us because basically the external factors, which are hitting the world.
So there's a missing piece basically is the go to market.
We feel we've got if not the world's best sales machine one of the world's best sales machines with the leadership that we have in our sales organization. Some investments that we've made in that in fiscal 20. It will continue to make into fiscal 21.
Having said that basically the foundation is in place that foundation in the go to market was still in fiscal 2000, now we're going to add so it will monitor it if we see things.
Yes, we're hoping to we'll continue to expand.
And Alex This is June 2nd part of your question is application protection public clouds.
We are seeing lots and lots are dynamic workloads being launched in public comps do security has to be done different vendors trying to look at a different ways legacy Brandon's tried to take that legacy approach to it for example, find one guys will say, let be trying to create network segmentation. So.
In guys are trying to say gee, almost CDN vendor or kind of build awareness around it and the like we come from the fact that in this new world.
There's no such thing as traditional security we are exchange with a switch score we connect done right user to write application mix staying the same concept to say, we will securely connect right application right applications right process through that process and Thats using code off our.
Zepa technology combined with the acquisition, we did a company called AD networks. So, it's a miss and new market. It's a disruption opportunity. We think we can do the same thing in a public loan that we had done for CIA and GPS type of technologies.
Thank you.
Thank you.
Our next question comes from Andrew Nowinski with da Davidson. Your line is now open.
Okay, great. Thank you very much gentlemen, congrats on the the great quarter.
I just wanted to ask more of a competition related question Cisco acquired a company called thousand eyes, recently, and I, which I believe is.
Technology aimed at providing more network visibility is similar to ZX. So I'm wondering if you're seeing any more competition from Cisco in the zero Trust market.
And then also could you also provide any feedback on your win rates first Palo Alto. Thanks.
Yeah, Let me start with this your first question about network visibility.
It is true that the loss of vendors that up.
Doing network monitoring and the network. They monitor it was typically the wider net for private network. We don't do anything that we believe that internet is that new networks. So we are not focus on network itself. We are focused on end to end monitoring and performance of the use of from user to the.
Application network as a piece of applications a piece of it and end user.
Device, maybe piece on that it's.
Even though net performance is an older market at performance is the market a market we are going up.
Thirdly, you market because I don't want Khomeini, that's number one number two.
As far doesn't have much to do see don't trust. This is about performance. Your question was are we seeing see norcross competition from other large vendors.
You know trust can be done by calling things on top of network security, if you're doing networks acuity don't trust because you don't trust means not securing the network I.
Assuming that.
You basically.
You can be transferred to be on the networks, but that's a second part the third part as I see you mentioned competition from a firewall company I think yes, so we think.
Look if you think what does need our trust.
You say abbvies securely connect and teach you another entity or use into an application, but putting them on the net.
Net focused mainly transport for us all network security companies, including firewalls declining to secure the networks.
Architecture is totally opposite to young architecture.
So while.
We see them on some of them more accounts when it comes to large enterprises. They are very savvy, they understand zero across the understand security to understand proxy architecture and as I highlighted in a few all my used to in my.
But if your remarks and some of the customer wins.
Firewalls are generally it all down at the upfront even if the quite to go in there because proxy architecture becomes a requirement do proper security, including SSL inspection.
That's great thanks to keep up the good work.
[music].
Thank you. Our next question comes from Brad Zelnick with Credit Suisse. Your line is now open.
Great. Congratulations guys are real real strong finish to two unbelievable year.
And it's great to see remote I wanted to drill N on the update that you provided on the long term model.
So you've told US now you've put up a timeline to when you'd be at 20% to 22% operating margins for your at four years out and if I'm not mistaken I recall.
That.
Around the time of the IPO you have thought that the company would be at 800 million to a $1 billion in revenue.
At the time that you would hit that goal.
I just want to go back and think about if I.
If I try to back to the envelope model out to 24 and we assume.
Natural deceleration over time is it fair that at that point, you would be growing the business maybe somewhere in the in the high teens are low Twentys, you think about it that way and as well how should we think about the slope of that margin expansion overtime on the weight of the 20% to 22%. Thank you.
Right a lot of great questions and in that you've got to several questions.
The key thing is that the world changed the world changed from the time, we went public.
And whats happened basically.
We're seeing an acceleration in our business as I talked about before.
The two things that we're seeing the acceleration one is very apparent which is basically kogas 19, I mean, it's basically accelerating transformation and it's the markets that were built for.
So thats one thing that's going on.
The second thing basically with our emerging products, we have a significant additional tam in our user experience product can also workload segmentation.
And we've decided is that a.
To refine the 2022% profit target and we're seeing for the full year fiscal 24.
Versus the dollar amount, which we provided before.
We've also said basically is that.
And from you know the model you know the SaaS model, we can slow this thing down and get their like next year. Once it is that the right thing to do for the shareholders.
With this market opportunity, though it is absolutely not.
But so therefore from Jane I've had long discussions about this Jane I believe we mid four years ago.
Not much has changed.
We basically are the same page.
I took this jobs and build a great company.
This job because my respect for Jay and because we're on the same page, we're trying to build a very meaningful insignificant company and we feel we have that opportunity more so now than before because of the changes in the world.
We will put growth ahead of profitability.
We're putting.
The end zone space will be the goalpost, that's where we're at right now for our projections for fiscal 21.
We are going to be for the full year fiscal 2004.
What growth rates I can't tell you.
How are things going to play out I can't really.
When it Cantilevers, we can get there we can get there no matter how this market goes.
Our with with the product platform that we have that we started out with the Ziad then we expanded to Zepa and you take a look at the growth that we've had its been pretty significant.
Now, you're adding cdx the user experience, which we think a significant market as I mentioned.
You are putting onboard the workload segmentation and then you have the ability to bring other products like Kathy.
Out a band the browser isolation b to B C. As PM, we have the ability to deliver these products because we've built the platform in order to deliver these products.
So.
And my confidence, we're going to get to our operating profitability for years.
What is the growth going to be I cannot tell you.
But I can tell you that I'm very based on what we're seeing.
Based on the market potential based on the team that we have in place.
I feel very good.
Okay. Thank you that's it for me.
Yes.
Thank you.
Our next question comes from Keith Bachman with BMO. Your line is now open.
Hi, Thank you very much for taking the question I wanted to ask a little bit about growth drivers and just to pick on what you pick up on what you just mentioned.
As you talk about the world's change and it would seem to be that.
Corporate economy.
The solutions EPA is getting a much.
More welcome reception to sneak in other words, it seems like it's been a catalyst to grow.
And you mentioned that only 35% of your installed base as purchase that.
When you think about the guidance you gave for 21, how are you thinking about growth as EPA within that context, and really what I'm asking is.
Any color you could give us on the distribution, but isn't packaging PA now being a help in terms of opening up new accounts as well as just selling into the installed base Ziad speak, but if you just give us a little color on.
How do we should be thinking about the growth rate in 21 is in fact opening new doors for you as a standalone. Thank you.
I'll take a crack than lift to Jay Jay talked.
The.
Yes, the answer is yes, I mean zepa.
Was at 43% of our business.
Total total new and upsell business in Q3.
Zepa for the year is 29% and was around 28, 29% for Q4.
I look at the dollar amount of Zepa in Q3 Q4 pretty comparable.
The question that came up in the last call is what's going on with Ziad.
Hi, guys going to fall off the cliff.
What happened.
A record quarter. It was it was a record quarter for Ziad in Q4.
A question came up last last call was.
More of your existing customers are buying basically and that's EPA driven by cobot and percentages, where I think 60% upsell, 40% new.
He says that our pipeline indicated that we'd be closer to our historical rates of 50% newer 60% no.
We're pretty much 50 50.
The pipeline that we have going forward related to ziad in SCPA.
Yes.
I think.
Depends on close rates, but it's healthy.
It is showing the CJ.
Past has a lot of Tractions Joel.
The key thing, though when you take a look at the contribution ziad in SCPA.
What I want to draw your attention to the Z scalar as a platform.
That platforms, we talked about Cdx one.
Workload segmentation in the other products that I've talked about.
As we go forward.
Customers, having needs related to securing their networks for the 21st century.
Scalar was built for the 21st century.
These scalar is right in the center of with these companies need.
We need to go out there until until companies what we have so they understand that their lives can be a lot better.
So when you think about us going forward. Thank about seascape as a platform play through the ability to add additional applications relatively quickly to really.
Service, our customers to properly secure them both in the workload environment as well as you know going as you can the user environment.
That's great view I would say.
Many times, we can think of coal would mean ZIP yet no work for them and even be.
Yes, both combined and the big potential.
Okay. Thanks, gentlemen.
Thank you. Our next question comes from Daniel Bardas Bank of America. Your line is now open.
Hey, guys. Thanks for taking the question I.
I wanted to ask about new products, specifically Cdx BBB. So first Jay can you just talk about customer interest at this time, maybe compared to the early years versus EPA and then remote just curious what you have baked into your fiscal 21 assumptions for these products or new products in general.
Thanks.
Yes, So let me start.
The two new products you talked about.
Cdx, which is digital experience.
When you see yeoman's in Sydney.
Next to office 365 things slow theres not a single product to market that helps quite de figured out where the issues. All that's a big hole. We are feeling so there is pretty high demand for Cdx and we just got the product last quarter, a b C. A good pipeline lots of.
Interest and evolving the product pretty rapidly.
B to B is exiting a little bit interesting.
Sizable opportunity, but different kind of products a little bit different buyer.
It's a chief digital officer, who is building new b to B applications that interest.
So if you're seeing on interest, but we see lot more evangelism needed on the b to B side, Dan on the Cdx side, but good going pipeline in Bulgaria. Good interest shorter sales cycle on ZX longer sales cycle, and b to b, but both help us because that part of a proper platform.
All these things on board piece that are time, they become an extension to the platform. Our customer has bought because customers are trying to buy a best of breed platform and best of breed products.
In the financial side, the revenues basically immaterial because ratable.
And for the new business New ACB.
I would say in the mid single digit type range for all the products combine some.
Similar type trajectory that we had four.
Where we went from like 4% up to 10%.
More in that single digit type range is probably by baked into plant.
Got it thanks guys.
Thank you and our next question comes from Brian Essex with Goldman Sachs. Your line is now open.
Hi, good afternoon, and thank you for taking the question Jay had a question could you maybe to pivot off with his question.
It seemed as though last quarter, there was a lot of I'll call it panic buying but a lot of.
Enterprise purchases that maybe they didn't have enough time to assess a new enterprise architecture and it sounds like you have a more.
I think that naturally led to higher zinc attach rates. It sounds like growth is more balance now could you maybe talk about strategically what you're seeing with customers are they did they now have time to reassess their network architecture and are those leading to larger deals and more new customers added onto the platform, maybe just give us a little bit color.
In terms of what you're saying it would be helpful.
Yes, two points you mentioned there one is the assessment do the right architecture to is on their decisions driven by some of their costs complexity driven the answer is yes to both of those things. It is very true that a lot of people.
Who actually but familiar and expose to the Skoda and in fact someone haven't already testing the barge CPM pretty quickly because they knew us already.
We also saw a number of XY is EPA combined deals in Q3.
Acceleration of combined.
Zepa due to got it has.
Further increased we like that but also what are you planning is a number of customers. We're talking to know or I would say prospects. We are talking no are saying, yes, we bought a bunch of VPN, so whatever our BD as far as short term need to be met but we know we want to go to zero.
Ross you need this digital transmission, so evaluation as east XII NCPS are driven by some of those needs not for the short term architectural transmission.
Big trend you're seeing.
Is that because of macroeconomic pressures every CIO and more and more cfos are trying to figure out how to do cost consolidation and simplification. So no. There are beginning to buy more and more bigger platform bundles that smaller.
That has led to an increase of transformation bundle when the CIA side, but on so combination of Ziad ZP. It together on the other side. So we have benefited in foam consolidations simplification introduction.
Complexity as well, we think it's a good trend that market needs to do.
For making that business more giant more competitive.
That's great color. Thank you.
Thank you. Our next question comes from Patrick Coalville with Deutsche Bank. Your line is now open.
Thank you for taking my question congrats on.
It was a very impressive set of results can just talk about the sales hiring in.
2020 that was 41 of the biggest things we sold with you guys. This increase in sales head count by 60%.
Hi site.
Very astute decision. So we just think about 2021.
You are the metrics around I guess, the headcount hiring would be great and.
Mount W will assume just to how we should think about.
The momentum that.
And I.
I guess, how you see that trend.
Yes, we're not going to give.
As much color as we did last time.
What I can say, though to give you some perspective.
We do expect to increase.
The number of heads that we increased the school 20, and Intersil field sales organization substantially.
So we are as I mentioned, we see the market coming to us.
We're going to do we feel is the right things for the business.
We're going to aggressively higher.
That aggressive hiring is already started.
And that aggressive hiring we're finding.
Is that basically I think theres, a increased awareness related to the value proposition to see scalar has.
And I think that we're attracting some very high quality people.
But.
Total amount the numeric amount will be substantially higher in fiscal 21 since fiscal 2002.
Fiscal 2000.
Okay. That's that's right okay. Thank you.
Thank you.
Our next question comes from Jonathan Ruykhaver with Baird. Your line is now open.
Yes. Thank you good afternoon, Dan I'm wondering if you could provide some more color around me initiative that and then put into place would be new summit partner program, specifically, just what kind of reception is seen in has there been any impact yet the channel sales velocity.
Yes, very good question I briefly mention in my prepared remarks, but summit partner was put in place to identify cloud focus our cloud Bourne partners, who could help customers transformation.
This technique betting a volume but hall our sales is done so we're seeing increased number of deal registrations, you're also seeing deal size going.
Because of the way this transformation sand is happening and we think will we expect to get more and more leverage in fiscal 2000 debone form. These partners. So so I would say very bullish on the progress we've made and expecting.
Even better results in this.
This fiscal year.
That's great. Thanks for the color.
Thank you ladies and gentlemen, this concludes our question and answer session I.
Ill now turn the call back over to Jay Chaudhry for any closing remarks.
Right well. Thank you all for joining US we look forward to see you at one of the sell side conferences that it will be attending.
Thank you again.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.