Q1 2021 Zscaler Inc Earnings Call

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Quarter 2021 earnings conference call at this time, all participants on the listen only mode. After the speakers presentation that will be a question and answer session to ask a question. During the session you would need to press star one on your telephone.

Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero.

I'd now like to hand, the conference over to your first speaker today to Mr. Bill Choi Senior Vice President Investor Relations and strategic finance. Thank you. Please go ahead.

Good afternoon, everyone and welcome to the Z scalar fiscal first quarter 2021 earnings conference call on the call with me today are Jay Chowdhry, Chairman and CEO and remote connect the CFO. Please note that we have posted our earnings release and a supplemental financial schedule to our Investor Relations website.

Unless otherwise noted on numbers, we talk about today will be on an adjusted non-GAAP basis.

I'll find the reconciliation of GAAP to non-GAAP financial measures in our earnings release, starting in fiscal 2021, we are excluding stock based compensation related payroll taxes in our non-GAAP presentation.

The GAAP to non-GAAP reconciliations for historical periods can be found in the supplemental financial information 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 cash.

Collated billings operating performance gross margin operating expenses operating income net income free cash flow dollar based net retention rate future hiring decisions remaining performance obligations income taxes and earnings per share.

These statements and other comments are not guarantees of future performance, rather are subject to risks and uncertainties some of which are beyond our control, including but not limited to the duration and impact of COVID-19 on our business the global economy, and the respective businesses of 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 SEC as well as in todays earnings release.

I would also like to inform you that management will be presenting at the following upcoming events.

Credit Suisse Technology Conference Tomorrow.

GBS Global TMT conference on December seven.

Barclays Global TMT Conference on December 10 on.

Our annual Athena slide how summit for the Americas, and EMEA will be held virtually next week and for PJ. The following week.

We encourage everyone to register and view our summit. We also invite you to attend a one hour product QNX session, specifically for investors and financial analysts on Wednesday December nine.

The presentations for these events will be webcast and the links will be available on our Investor Relations Web site.

Now I'll turn the call over to Jay.

Thank you Bill first of all I call on a few new families on a healthy and sales.

Probably off our strong results and an exceptionally strong start to fiscal 21 in our first quarter, we delivered 52% growth in revenue and 64% growth in billings, while also generating record operating profits and free cash flow.

I believe on financial results demonstrate the scanners pivotal role in enabling our customers' digital transformation journeys, which on accelerating at a pace never seen before.

Our visibility and business momentum remains strong.

And we are pleased to increase our fiscal year guidance.

I believe the market is coming to us and we are investing across our organization to capture a significant share off on large and growing opportunity.

I would like to strength as east coast or team and our partners for their tireless efforts and commitment to our customers success.

I'm also pleased and excited to welcome Chris caused.

The disease killer team as our new Chief marketing Officer.

Let me highlight three factors that drove our strong performance in the quarter.

One building on on growing traction with large enterprises, we closed a record number of seven figure ACB deals. The majority of these wins are three year commitment to per white, the foundations for application network and security transformation.

In particular, I am pleased with on increasing wins in the financial services vertical which is no embracing the cloud and they're all 50 65 deployments have become an important catalyst for us.

Two our optimized go to market engine is driving significant velocity, including a strong pace of new logo acquisitions I am very pleased with the performance across all Geos launch.

Last year, we double down on our investment in our sales organization, we scaled our sales enablement team and built a repeatable and metrics driven process, which is giving us better visibility into on business and ultimately resulting in.

Strong and growing pipeline.

These efforts are also bearing fruit in two big ways, one our newly hired sales reps are contributing at a faster pace.

And to our sales productivity is higher than a year ago. Despite a high percentage on ramping sales reps.

Three.

A power all our seat on trust exchange platform is that as operating with Cxos.

Our platform is comprised of four key pillars with each enabling a critical element of the transformation.

Xie to.

To secure direct access to income net and SAS zig.

Zepa for zero Trust access to private applications.

These killer digital experience or Cdx to belabor user experience for work from anywhere.

Cloud workloads segmentation to protect applications.

An increasing share off our sales is coming from initial platform purchases by new customers and also growing up sell to existing customers, which is driving record.

122% net retention rate.

I believe in the current challenging environment and in the post Colgate economy sales.

These zscaler will be the go to platform, our vendor consolidation cost savings increased user productivity and better cyber protection.

We are excited about our mission to make the club sales for business and enjoyable for users we enable our customers to increasingly used on internet as their corporate network any place legacy perimeter based security.

Xerox has secured.

As the CIO of disease Zscaler customer told us.

We ended up with a security posture, that's better than when we had a complex net and network security.

And have a user experience that's materially better.

As we look forward to the next few years, we are focused on driving broader adoption of our four major cloud solutions, which together maximize the value on our customers' digital transformation.

From pre sales to deployment and customer success with growth of sophisticated sales machine to sell value and deliver measurable outcome at the cxo level.

We continue to scale our organization as the market increasingly moves are weighted.

We will continue to build our ecosystem on technology and channel partners, which are contributing to overall sales velocity and expanding our reach across our total addressable market.

Additionally, we are demonstrating our value to customers through an increased focus on park leadership and demand generation programs.

At our recent virtual Cxos summit series.

We hosted six events that drew over 400, Cxos and IP leaders to discuss secure digital transformation.

Many cxos shared with me that the current work from home environment, while temporary.

Has help them realize that zero trust architecture is the future and.

And it can be implemented easily and rapidly.

Coal with was a catalyst in changing the mindset and shaking off inertia, resulting in a reduced need for educating customers about the value of disease Zscaler architectural over legacy approaches.

INBONE customer requests have greatly increased and we are becoming an integral part of a growing number of larger transformation projects.

We continue to see more customers buying CIA and Zepa together, which enables a true transformation, we're direct and seamless access to SaaS applications or applications in your data center or the public cloud.

For example.

On a global manufacturing company.

Purchased our transformation bundle plus DLP and cash for 45000 users and VP for 25000 users.

Drivers for this deal were network and security transformation.

They had a traditional hub and spoke network for 300 manufacturing facilities.

Which were slowing that adoption of cloud applications, such as Webex Officethree hundred 65.

And work day.

Our next Gen firewall vendor try to sell its hybrid offering but failed to meet their security and performance requirements, including SSL inspection.

Interestingly this.

This initiative was part of a five year managed services RFP we.

We are all six system integrators and service providers bid see scale.

We are seeing customers increasingly migrate away from the large installed base on legacy on Prem Gateway and security appliances to pursue direct to cloud architecture.

In one new customer win a full two on 50 retail customer replace the legacy web gateway with Cie for cyber security and data protection.

This customer purchased Ziad professional bundle plus cash the sandbox and DLP for 45000 users.

Security was a major requirement and only a proxy architecture with SSL inspection was considered.

This deal was a good example of this current leveraging our tech partners. We are proud stripe became the endpoint security provider and Microsoft the identity provider.

On very pleased with our growing success with the financial industry, where adoption of cloud is accelerating.

A fortune 100 financial services company purchased our transformation bundle with advanced DLP and cash speed for 18000 employees to overcome capacity issues with their security appliances when day deployed Officethree hundred 65.

Firewall based technologies were ruled out new to strict security requirements for SSL inspection and DLP with exact data match.

As these three deals show our comprehensive data protection offering within Cie has been gaining traction as customers are concerned about data leakage with employees working from anywhere.

Our new outdoor bank cash be is helping us displays cash the point products and increase our deal size.

The most common themes in our customer wins are to increase user productivity reduce business risk simplify IP and reduce cost.

See zscaler platform enables this by consolidating and eliminating point products.

Moving on to Zippy on.

Our customers' views EPA as the foundation for the architectural shift to zero Trust access for private applications.

Our platform eliminates the internet attack surface of customers' applications, resulting in reduced business risk.

Zepa is a clear market leader.

With proven maturity and scalability.

We are supporting hundreds of large enterprises in the complex multi cloud environment.

Let me highlight two zepa deals in the quarter.

First a global bank with headquarters in Europe needed to scale its remote access after the legacy VPN and VDI became a performance bottleneck and a security concern the ITC team had to cope with over 4000 trouble tickets per.

A month from users having issues with their connectivity.

This customer purchase zepa for over 100000 employees to deliver a seamless always on experience.

While the immediate objective for this deal was to replace legacy VPN.

CPGA was selected to implement zero Trust architecture.

By establishing an application level policy bill users connect to specific applications not to a network.

In other deal a fortune 500 Tech company purchased Zepa, you accelerate M&A integration.

After one year 6000 employees at the acquired Division, we're still using two laptops, which separate VPN to two separate networks.

In Q dating to complex corporate networks can take 12 months or more.

CPGA is on elegant solution to this problem.

Without having to connect a corporate networks SCPA per wides secure application access across both companies in weeks per.

Purchasing our high end zippy offering.

On the customer is leveraging ZIP is multiple identities support to accelerate deployment.

The customer plans to use EPA as a standard solution for future M&A, a core strategy for growth at this customer in.

In addition to see per year, the customer per shares ZT X for 6000 users to quickly troubleshoot issues and increase employee productivity.

Do close my business review I will touch on some early success with our new emerging products.

As an accelerated market shift towards what from anywhere, which aligns with our platform and emerging products like cdx.

We had a number of the ZX wins in the quarter, including an up sell with a European bank for 40000 employees.

This customer had CIA for all employees and it was friction less to turn on Cdx to get end to end visibility and resolve performance issues.

We also had wins for our CSP ammo offering, giving us additional opportunities for growth.

Our emerging products on increasing our overall competitive differentiation.

For large enterprises, who want network and security modernization.

We believe we are the only cloud native multi tenant platform that meets their needs.

Xie Zscaler is the largest in line cloud security platform in the World. We are processing more than 140 billion transactions daily, while preventing 7 billion security incidents and policy violations there.

Deployed across more than 150 data centers are zero on Trust exchange platform was bill from the ground GAAP for the secure access service edge or sassy framework.

Building, a cloud native architecture with full security and minimal latency is very hard and running a massive in line global cloud with five non means of Billability is an order of magnitude harder.

As the world moves to sassy framework and Zero Trust architecture. Some of you have asked about competition and why others can't build a cloud native platform likes the scalar well.

Well the answer lies in the architecture.

Which is like the foundation of a building that supports everything.

Our foundation is a multi tenant architecture bill from the ground up for in line traffic inspection.

It delivers over quantity key security solutions, including anti virus cloud sandbox flow firewall DLP advanced threat prevention and SSL inspection at scale.

That's extremely hard to build and complex to operate as a cloud service without compromising user experience.

It is like the difference between building a simple SaaS application.

This is a highly complex SAS platform like an E RP.

How many cloud native ERP systems are you aware off since net suite started two decades ago.

While single dimensional SaaS applications are easy to develop multi dimensional platforms like an ERP and see scalar are much harder to design build and operate.

With our business momentum, we're also demonstrating that our strategic sales process and world class execution are important competitive advantages.

First our consultative sales model identifies the value we can drive for the customers and enables them to fully realize the benefits on digital transformation.

This strategic sales process requires top sales talent.

I believe we are the best sales team top to bottom and we are hiring at on rapid pace.

We are now a destination for top talent around the globe.

Second.

We are deepening our ecosystem of technology partners, which are contributing to deal wins and adding leverage to our sales model in.

In addition to our ongoing partnership with Microsoft and Count stride.

We have now extended our strategic partnership VM beer to integrate with the SDN solution and to partner for joint go to market engagements.

I believe we have built a go to market engine.

That will generate long term sustainable growth.

Now I'd like to turn over the call to remain on for our financial results.

Thank you Jay as Jay mentioned, we are pleased with the results for the first quarter of 2021 revenue for the quarter was $142.6 million up 13% sequentially.

52% year over year.

Zepa revenue was 13% of total revenue.

From a geographic perspective, we have broad strength across our three major regions Americas represented 51% of revenue EMEA was 39% in a P.J. was 10%.

Revenue exceeded our guidance due to stronger than expected deal activity is the value proposition of ziad.

In CPGA is increasingly becoming clear to customers.

Turning to calculated billings, which we define as the change in deferred revenue for the quarter plus per will be recognized in that quarter billings grew 64% year over year to $144.7 million.

As a reminder, our contract terms are typically one to three years, we primarily invoice our customers one year in advance for.

Remaining performance obligations or our PEO, which represents our total committed non cancelable future revenue was $864 million on October 30, Onest up 56% from a year ago.

The current our PEO is 54% of the total per appeal, we had a healthy mix between new and existing customers with new customers contributed over 50% of new and upsell ACB, our strong customer retention ability to upsell have resulted in a consistently high dollar based net retention rate, which is 102.

On a 2% compared to 120% last quarter new year ago.

As we have highlighted this metric will vary quarter to quarter, but good for our business. Our increased success selling bigger transformation bundles selling book Ziad in CPGA from the start and faster upsells with the new year can reduce our dollar based net retention rate in the future. Considering these factors, we feel that 122% is outside.

Moving.

Total gross margin of 81% increased two percentage points sequentially and was comparable on a year over year basis.

The sequential improvement was driven by migrating most of the DTA infrastructure trade data centers during the quarter as well as timing of expenses.

While we are pleased with the gross margin performance I would like to remind investors that a number of our new commercial products, which includes cdx workload segmentation and CSP M will be running in the public cloud until we scale them into our own data centers on the future loans.

While on the public cloud these products will have lower gross margins on our core products.

As a result, we expect gross margins to be approximately 79% for the full year in fiscal 2021.

Turning to operating expenses, our total operating expenses increased 11% sequentially and 33% year over year to $96 million.

Operating expenses as a percentage of revenue improved by 10 percentage points from 77% a year ago, 67% in the quarter.

Sales and marketing increased 12% sequentially and 31% year over year to $64.2 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 TV with our employees working from home.

We've been very successful on hiring non boarding remotely and we're accelerating our sales and marketing hiring throughout this fiscal year R&D.

R&D increased 8% sequentially and 42% year over year to $20.9 million.

The increase was primarily due to continued investments on our team Gina increased 9% sequentially and 29% year over year to $10.9 million. The growth agenda includes investments in building our teams compensation related expenses and professional fees.

Our first quarter operating margin was 14%, which compares to 4% in the same quarter last year net.

Net income in the quarter was $20 million or non-GAAP earnings per share of 14 cents. We ended the quarter with over $1.4 billion in cash cash equivalents and short term investments.

Free cash flow was positive $42 million in the quarter, which the meaningful improvement from $11 million in the prior quarter and $9 million in the year ago quarter. The strength of free cash flow was driven by strong receivable collections and better underlying profitability in the quarter.

Now moving on to guidance.

As a reminder, these numbers are all non-GAAP, which excludes stock based compensation expenses related payroll taxes.

Amortization of debt discount amortization of intangible assets facility.

Facility exit costs on any associated tax effects.

For the second quarter fiscal 2021, we expect revenue in the range of 146 million to $148 million, reflecting year over year growth of 44% to 46% on.

Operating profit $11 million to $12 million other income of $800000 net of interest payments on the senior convertible notes.

Income taxes of $1.250 million in earnings per share of approximately seven to eight cents.

Assuming a 144 million common shares outstanding due to better than expected first quarter performance and our strong pipeline.

We are increasing our full year fiscal 2021 guidance for revenue billings and profit.

For fiscal 2021, we now expect revenue in the range of $608 million to $612 million or year over year growth of 41% to 42%.

Calculated billings in the range of 755 million $765 million or year over year growth of 37% to 39% on.

Operating profit in the range of 55 million to $57 million.

Other income of $2.7 million income taxes of $4.5 million in earnings per share in the range of 37 38 cents, assuming approximately 145 million common shares outstanding.

We continue to see the market coming to US we remain committed to investing aggressively in our company behind the growth in our business we.

We have a highly efficient business model and are making investments across the organization day in order to capitalize on the large opportunity ahead of us.

While we'll balance growth and profitability growth will continue to take priority considering your significant market momentum.

Now I'd like to turn the call back over to Jay.

Thank you Remo coming off a record Q1, we're seeing the market coming to us and validating our vision for zero Trust cloud native platform.

We believe we are on the early innings of a significant market opportunity to enable secure digital transformation.

The value proposition offer zero cross platform is resonating with customers and we are seeing this reflected in our business momentum over the last three quarters risk.

We have scaled our go to market engine and are delivering world class sales execution.

Which we believe will drive sustainable long term growth.

Thank you for your interest in Z scalar.

We hope to see you at Zenith lives next week on.

Operator, you May now open the call for questions.

Thank you Sir.

As a reminder to ask a question you would need to press star one on your telephone.

To withdraw your question. Please press the pound key.

Due to the essence of time, we ask that you. Please limit yourselves to one question.

Please stand by while we compile the Q on a roster.

I show. Our first question comes from the line of Sterling Auty from JP Morgan. Please go ahead.

Yes, thanks, guys. So.

Jay You mentioned financial services, the number of times in terms of the traction that you're seeing where would you say or where would you characterize the penetration in that industry. How big is it as a percentage of revenue and perhaps are we seeing some continued momentum as maybe a catches up to other industries.

Certainly thank you financial sponsors have been slow in embracing cloud, but non got all opening up that dad embracing cloud and office 365 is becoming the economist to make office 364, five work there have to be some transmission in the network and security and.

Done so much work with Microsoft to Beach flow office 365 can be enabled securely delivering fast user experience. So thats, becoming are on number one application to get in that space than its expanding from there.

Bill you want to add anything to it so.

So I mean, three three top verticals that we have on financial manufacturing and health, but were were broad across all verticals.

So theres really no vertical is dominant so.

We haven't given out the percentages of each of those verticals, but we're very broad.

Got it thank you.

Thank you.

Your next question comes on the line of Matt Hedberg from RBC capital markets. Please go ahead.

Hi, guys. Thanks for taking my question Congrats on the strong results here.

Jay.

Sure you seem to have the conversations with sales, obviously showing up in numbers really important zscaler.

Yes, I'm curious, though how are those conversations.

Total that team I mean, I would feel like.

You know a lot of the momentum sort of cemented the change but on sort of curious on on sort of post that team.

What do you think the tone of buying behavior is on your target per customer.

Yes lots of questions are being asked pre corporate post quarter end watching on if you look at on record fee coverage. We had very good growth our business is celebrating its driven by acceleration in digital transformation non comp.

Hogan was a catalyst and shaking off in our share the change in mindset has accelerated demand for zero trust very tough to CIO that tell me, we didn't realize how important it was to new transformation being able to embrace CLO book collaboration for security and the like.

So they are really.

Moving faster than they did before and.

And so on momentum.

To our business.

Really has picked up because it was highlighted the limitation on the old legacy on all network and need to transform and this transformation works. So we're pretty bullish we think even.

Even after vaccine on.

On business will keep on accelerate.

Great. Thanks, a lot a lot on geismar.

One follow on with Jay is that we take longer pipelines are price.

My plan is accelerating so we're seeing.

You know open acceleration on our pipeline and that's across the board both in CIA and SCPA.

Thank you.

I share on next question comes on the line of Fat Cat Kalia from Barclays. Please go ahead.

Okay, Great Hey, guys. Thanks for taking my question here.

Hey, maybe for you.

The question is do you have any statistics or just general thoughts on how many of your engagements are competitive meeting a competitive bake off process versus perhaps being brought in by service rider, where there really isn't a competitive process that makes sense.

Yes Saket. Thank you. Your question reminds me on my days at your defense on site for trust when I used to sell security appliances.

And we used to have lots of other costs, which boxes faster, but it's been great boxes cheap.

Xie scanner when all driven by transformation transformation is not a box you sell it actually starts with CIO level discussion do help them enabled applications net sales.

Qt on them together.

So.

Most of our deals at a higher end at the large enterprise level on.

Not really competitive on the tall when you come to lower end, we do see some of the competition, but when it comes on there in fact I highlighted when in my prepared remarks, we're even though there was an audit fee net.

One win.

A managed services partners all six site on Sps beds.

EBIT disease can okay, I'm very proud on that's because the customers and the ESI SP channel understands that you can't take typical legacy boxes and trying to make them new cloud transformation.

So when it comes to competition I think we got some big Big me unless someone price really purpose built something have a good architecture.

We will maintain this need.

Thank you.

I share. Our next question comes from the line of Alex Henderson from Needham. Please go ahead.

Well. Thank you very much on a hard to decide what so but more to like in your numbers on margin expansion the accelerated top line the job.

I wanted to to look forward, a little bit if I could.

With you talk about machine to machine environment, some domain to domain and what you're doing on that front.

It seems pretty clear to me that as we see more and more modern applications coming out that it's not just the cloud direct architecture, that's important but actually the cross domain traffic can you talk a bit about how you participate on that what you're doing to secured.

Yeah. There are two aspects on your question one is machine to machine or add to our communication within our public cloud and the second part is across clouds, maybe azure eastern has progressed type of stuff.

You know while companies arch line to do this doing traditional net book security way doing virtual firewalls and whatnot.

We have taken zero on trust.

Gross to the public cloud on where we can have asked to have communication and where we have the zero trust on switching technology, we needed identity technology identity for various apps would be built on.

Using the acquisition, we did a few months ago per company called edge wireless networks.

So with that we can do within the day central machine to machine communication without doing network segmentation and achieve apps segmentation and we can also go across clubs, but having said that thats a young market. That's initially on market it needs. Some education. So it takes some time.

On the market to grow, but we are well positioned to go in early and get positioned there. That's a big 80 on investments for us.

Super Thank you very much.

Thank you.

Next question comes on the line of Walter Pritchard from Citi. Please go ahead.

Hi, I'm wondering Jay on the cloud.

Workload protection market Theres you are in that market clearly new product for you a number of players are in that market could you help us understand what you're seeing in the early deals in sales cycles, there who's the who the competition is the buyer the same as the buyer that you've generally been selling to and and the differentiation you have there when you can.

Operating in that market kind of as as a as maybe a starting point or when it's a pretty competitive situation. Thanks.

Yes. Thank you good question Walter.

Cloud protection is not one piece of multiple pieces and they're in different stages of the market CSP M is one area, where we are actually competing well that so fairly well understood and fairly simple market.

Your CLO traffic phone Azure, NWS workload going to Internet, which most of these workloads do you.

You can try to do some virtual fighter warning and whatnot, but doesn't award all you can simply standard to see Zscaler internet access by simply pointing traffic very well positioned in that part of the segment.

On the third segment is on outlets asked about machine to machine communication and whatnot App to App, that's the younger area and that's when we see some young players some strong EPS in the game, but generally the market being so.

John it's not a hole on our competition in that space and and only selected customers on kind of trying to pursue that I see many custom said I tried to do network segmentation doing this and this hasn't worked that try this.

And the buyer is somewhat different and you said the two types of buyers for cloud protection. One is actually the high tea organization Thats actually building application on the Dev ops team because they are actually driven by application and they often ignore security and C. So comes and say wait a second you can do things faster.

But you must have security in place. So we end up doing with two parties Csos, we already do you win and Dev ops part D that slow the new for us to get to new and learn.

Thank you.

Thank you.

Thank you I show. Our next question comes from the line of Tao Liani from Bank of America. Please go ahead.

Hey, guys great quarter on.

I want to my question is more higher level on trying to.

The set the expectations for next year, So if I look at your guidance and the EBIT and.

A little bit more for beaten raise which is done in the last few years, you are going to be staying in the same growth rate we've seen this year.

I'm trying to get the qualitative part of you.

Have older solutions and you have nowhere markets, how do you view the growth rate in older solutions like C.P.A.

How do you view your level of competition, there new customer the ability to gain new customers versus grow with new with existing customers and.

And then same question about your newer areas what are the driving factors on I'm trying to understand how to build a spreadsheet for next year when it comes to the various solutions that you're offering.

Comments, it's a very good question tell sales.

Think about the four key solutions or talked about zero. It has been a work horse has been growing rapidly.

But in spite of that.

If you look at our penetration in global 2000, we are just under 25%.

And there is a big market the majority of the markets sitting on.

I'll point out in fact, there is still a sizable market on legacy web proxies like blue coat and that that's to be removed.

And we are taking more and more part of that so that's kind of one piece and XII is not one product as zvi is a portfolio of several offerings and more and more customers are buying either bigger bundles like transmission start with on the moving up from business bundles of professional bundled so that's a pretty size.

Both thing on Z. I have you know we are close to leveling off at all.

Zippy it.

Got it on the younger only about 40 years old have gone from zero to about 30% and off the new business in that range.

And if you look at our customer base.

Just about in the mid Thirtys somewhere 30% or so of the global 2000, XII customer have zippy.

So even in our installed base as the Guy who is a big market all day.

So we think these two big proven product portfolios are called them too big pillars, they have plenty of room for opportunity.

And then Ziad Cdx digital experience is becoming an interesting product, it's a new product in a new area because as you go over the Internet no. One has any meaningful offering on let someone new into in response time.

We expect pretty good growth, forming one day, we expect almost every user will have XY is EPA and cdx, that's the way to get driving force.

A force area.

His new area.

The cloud workloads data center, I think that Mark will take some time to mature as seamless viewing on really putting tons on.

Revenue in some of the new areas, but you shouldn't think about cash b type of things as new products on their part of their new but they're part of the portfolio that automatically attached to our ziad bundle in the same way if you're seeing browse isolation picking up with either goes the XII on goes.

Zepa.

But plenty of room in all areas and I always said to my sales leaders, we have lots of product to sell that scale our sales on investment and that's what we're focused on we're focused on growing go to market, which is doing very well so excited for.

For next year.

Did I cover India, I mean, you know.

It's a great question, let me take a look at the percentage of customers that have transformation, we indicated was 49%.

Over the last call in July that's gone up this quarter, particularly going on CPH, 13% of revenue so big opportunity with are installed base for that are emerging products.

We had an acceleration in growth of new customers in Q1.

Versus the growth in Q4, so we're seeing momentum were seeing deal sizes getting bigger received.

On the need for transformation on a broader scale and as Jay mentioned driven by coated with Covance started started the visibility what we're seeing right now is the realization on the part of the.

Gross and others in companies that high level.

Who understands the legacy architectures they have got.

Really not thread architectures, that's just that's what's driving the business for us it is.

Is that.

In addition to that proof points that we have pipeline.

Pipeline into.

Interest.

Productivity.

You know just a.

Theres, we feel the momentum we feel momentum that coming our way.

The when it comes down to you know at the end it comes down to people. It comes down to the execution. The market is there the product is there the vision is there.

I believe the people are there also anything in the past three quarters, we had done an amazing job in scaling on go to market, which was the last piece we needed to.

Scale and Weve already feeling very good about it.

Agreed.

Got it thank you.

Thank you.

Our next question comes on the line of Hamza Fodderwala from Morgan Stanley. Please go ahead.

Hi, guys. Thank you for taking my question.

Jay a question for you you mentioned earlier that.

Co Bill has been a catalyst.

For the scalar more longer term in terms of the market.

On to you in terms of customers coming to you for cloud transformation deals as well as.

Talent coming to you as well and you mentioned a really strong higher.

Hiring environment for you guys I'm wondering.

Where are these newer hires coming from are they coming from some of your competitors within security space or is it coming from other security sales can you give us any sort of color on that.

Yeah. So.

First of all icing on hiring is happening at a faster pace than we had even expect so so very good actually remember about a year or two years ago. We used to say we are behind in hiring sales reps you might recall that on.

On that has passed I think probably a brand is helping that well known on there also our sales leadership has put a deep and wide leadership in place.

And then getting more specific to answer your question. If you look at two broad areas on sales hiding even though there are multiple areas beyond that on.

Honestly loans.

Typically sales reps are not coming on box selling background majority on for sales that come from solution selling SaaS type of back on because our sales is very different than a typical bogs security selling.

So they come from generally softer in cash type of companies.

By and large that's number one on the technical side. The FC side, we generally higher from someone that comes in a little bit networking security back on because they need domain expertise, which takes a little longer but.

But we are getting tons and tons of interest and we are just trying to stay selective when behind but we are pretty much tracking our progress on hiring very well.

On on in hiring basis, when other things that I would call out we had a record orders for net hires.

The quarter, we hired over 260 people.

Before it was 200 quarter before it was 150 in the quarter before that it was 100.

Other than to 60 about 60% were in the sales and marketing area.

We had a record quarter for quota.

Quota carrying sales rep hires in Q4, we had a comparable number in Q1.

We are accelerating hiring.

Even more than what we anticipated on our last call given what we're seeing.

Got it Super helpful. Thank you.

Thank you. Our next question comes on the line of Patrick Coville from Deutsche Bank. Please go ahead.

Hi, guys. This is Dan Kyle on for Patrick.

Congratulations on a great quarter I, just wanted to ask on the pricing environment.

Leasing really strong, but I'm curious if you guys could comment on how prices have trended and then obviously really impressive retention rate. So I'm curious how much of that is.

Adding new products on versus expanding more into the organization if that makes sense.

Yes, so it's a comparable price environment.

Our price per user did go up.

Quarter over quarter.

Related to you know.

What drove the net retention rate.

As Jay mentioned, the emerging products are not.

Not significant impact so it's more the existing products the movement to transformation as well as EPA, which is what drove the.

Increase in net retention rate.

Yes, great. Thank you.

Thank you.

Our next question comes from the line of Brian Essex from Goldman Sachs. Please go ahead.

Great. Thank you very much for taking my question and congrats from me as well on a great great results on a quarter.

Jay I was wondering if you could maybe give a little bit of color.

On the sales force and the maturity of deals that you're seeing I think you're on your 10-K. It looked like he customer growth was just over 15%, but it but it sounds like deals are getting larger as you noted record number of seven figure ACB ACB deals can you maybe help me understand.

What what is the mature what factor is the maturity of the sales force playing into the type of deals that you're seeing how much is new customer versus.

You know expansion of the expansion into your installed base or better penetration and share installed base on how do you see that maturing throughout the rest of the year I know that you noted previously that you know the.

On the elevated hiring on last year should drive.

Better growth in the back half of this year is that is accelerating or just just maybe get a little bit of color on terms of the level of confidence we have.

For for growth through that so the back end of the year based on the deal activity and sales force maturity.

Yes, Brian pockets quite a few questions, let me give a piece at a time.

Sales force maturity since.

Since donley joined US we spent about three and a half fourth quarter is to make sure that we bring in a systematic and disciplined sales process sales enablement and sales metrics to understand the business leading to leading indicators on August up plus putting a number of theaters in place. So you asked me what is the way to think about them.

Sure do you have the sales organization.

I said extremely happy very good about it 'cause having bad inflators drives that asked on the stuff. So I'm very comfortable and because of that comfort, we are accelerating hiring more and more sales people.

Next question is related to a day.

Deals customers, new customers customer growth I think if you look at one number realistically that Aldo whatever 4500 or 40 age into one of those customers are those percentages on will be misleading because there is some small per customer some large customers, we need to get to a level, where we start kind of looking at proper segmentation.

On growth within Segmentations.

We are big focus traditionally has been large enterprises and we have done extremely well.

Among top penetration we are doing in those customers in terms of percentage and in terms of the ups do you not.

On on having those customers is actually going up very well and we're very pleased with that and as I finish on net remote talk about some of those numbers and then we also expanding more into the lower end for price and so to speak I think over time, we'll give you more color. So you can start computing the growth better but.

If you look at the segment, we are now getting more focused on 2000, new user to 10000 users segments, because we already got.

Just segment over $10 in pretty well covered and we are getting great wins all day. So there is a big market for us income downstream and expand as well.

And when you want to add more yeah. I mean, there is absolutely correctly or are you know per day per customers is definitely increasing one of them on the.

The ways, we break it out as.

Customers with greater than 3000 users were over $450000 or our per per per customer, which is up year over year, just keeps on going on.

New customer growth you know we've stated is within the range historical range of 50, 60%.

As I've mentioned before we had an acceleration of new customer growth in in Q1.

Also the calm about sales productivity.

The thing to keep in mind, which is really encouraging is that a.

Significant majority.

The Ars and head count increase occurred in the second half of fiscal 20.

Also the comments that I made Q on Q1 that the hiring that we had for ourselves in Q1 was comparable to our record quarter in Q4, and our sales productivity on a year over year basis in Q1 was up.

Those are all good indicators from from my perspective, and give me confidence that you know.

Things are looking strong.

Strong for the company as well as what we put in place the structure the organization.

I can I've been around for a long time.

And I've seen a lot I have never seen anything like we've got here, it's the scale or with our go to market quite frankly.

Super helpful multi part answer I appreciate it.

Growth.

Thank you.

Sure on next question comes from the line of Andrew Nowinski from D.A. Davidson. Please go ahead.

Okay, great. Thank you gentlemen, congrats on a great quarter.

I just wanted to ask about other partnerships. So you announced a new partnership with Vmware and you've always had a very strong partnership with Microsoft So I'm just wondering.

If Microsoft contributed to the record number of seven figure deals you had in the quarter and how you're thinking about the new partnership with Vmware.

So let me let me start with.

We M.

Yeah, there has been good partner for us.

The portfolio SD Van if you look on asked events, we have always said that as Steve and is a good complementary area for us and we have been actually skewing, some very very large SDN deployments on to.

Enters natural for us to team up at the M. Here. So what did we do we have done integration. So that's the balance can be deployed lot more easily with a single thick and but more exciting than that the NXT working them on and with them on a number of joint go to market initially.

Initiatives, our sales people are kind of doing joint account planning and be better number market initiatives. So we think that will be a good partnership for incremental revenue for both the companies that's.

Thats on the B M here side.

Microsoft you know that partial goes on.

Several years it started with helping Officethree hundred 65 deployments with great use and experiencing book of configuration diaper deployments and then expanded bill onto Azure 82, agile on access to agile sentimental on and.

And you even the endpoint areas.

Microsoft.

[noise] is pushing now often see 65 in financial services, because they have been delayed Doctoroff office, 365, and thats, particularly helping us because those two large companies want to make sure. This deployment goes well and these killers that go to.

Go to partner in those deployments on Microsoft is helping.

Hopping on we are helping Microsoft and they are helping us in these financial services customers on.

Not sure if any of the specific deals this quarter by the M impacted by Microsoft but in large companies that there will be large deals where we'll be working together with Microsoft to close those deals.

Did I Miss something no I got it.

That's great. Thanks, guys.

Thank you.

I sure on next question comes from the line of 15 on Falani from you'd be EPS. Please go ahead.

Good afternoon, gentlemen, thank you for taking the questions on.

Jay on lean, though I wanted to go back on some of the commentary in the prepared remarks around Cpis DPL, depending on I mean, we've gone from zero to mid teens percentage of new revenue that arrived on the plane flying wondering on that please.

Receiving some of the bigger picture factors that are driving demand for HIPAA I am wondering if you can be more specific about where some of the budget dollars are coming from that are getting reallocated in your favor force EPA adoption and to what extent is there more expansion or runway here that has left.

Currently been pulled forward because we've all strength working from home overnight. Other question here. So just at getting some more specificity around where share the Si play budgetary dollars are being earmarked away from on more favor.

So if you think about it while a lot of stuff, we do our transformation general need as an entry point for each area. That's the easiest one from budget point of view.

So VPN ends up being the entry point of the first point.

But as we've said many times ZIP is being bought for zero Trust implementation in the past one new I have seen interest in zero interest goes on big Big time, and it's a specific architecture, where you don't put connect users to the next ports so any.

Product Thats, a VPN or late whether it is an on prem product. It's a cloud based VPN. It so VPN and doesn't really get counted as the zero trust offering.

So it starts with taking on the VPN, but.

But more importantly, all the wins, we are having our are being done to make sure. They can also do zero trust access to non only data center, but also new cloud applications sitting in Azure, ADW, EPS and more and more customers want to implement zero trust, even when you are in on.

Yes, so we don't think the ZP wins on how many because some of the deals are being Paul.

We think Cobra is actually accelerating and showing the need for zero trust being able to access anything from anywhere and we see this acceleration continue so very confident involved on the CP projection.

And thats reflected in the pipeline receivable GP.

Yes, with a for new customer business you take a look at what percentage of our new customers are buying both Ziad day right.

Right, it's not 30% range.

That's up from Q4 was low 30% range.

That's what's resonating that that is the digital transformation occurring that we see.

So you know that it's again the the.

Things that were seeing an internally related to what's occurring.

In you know.

In the market.

Indicates.

That digital transformation is top of mind for many I'd professionals.

And you know the Steelers kind.

Got a great solution or the best solution for them and.

And so that's giving us a.

Confidence if I may say the combination of Zions EPA.

Ensures that any user can work when EBIT office homed weight average and Thats, where the theater cost comes in its a same user experience. The same level of security same level policy is that's what CIO is on buying.

That's super helpful. Thank you gentlemen, I appreciate the color Inc.

Thank you.

I sure last question comes from the line on Catharine Trebnick from Collins. Please go ahead.

Oh, congratulations on a phenomenal quarter, you said on your prepared remark on.

That you had done well in the three verticals finance healthcare and manufacturing, but it seems like the federal government is pretty big Greenfield for you in 2021 day and can you describe or give us some background on what you're doing to prepare to do well on that because there are also moving to office 365.

Similar to the financial Oh Thanks.

Yes, Catherine Thank you federal is a big opportunity for us and our business is making good progress sales.

Our new.

Market, we have a sizable team in place now we have some very good fed ramp certifications.

And we got a growing pipeline in 21 and bill on we expect federal to be a bigger part of our business.

On do you want to give a color off yeah, where it is now yeah federal in Q1 was mid single digit other new and upsell business.

As Jay mentioned, we're very pleased with the progress of our federal and see that as a as a substantial opportunity going forward.

Okay. Thank you.

Sure.

Alright, Q on Q.

So I kinda done with other questions.

And I would like to say thank you for your interest in the scanner.

We hope to see you at Zenith nine.

And upcoming several investor conferences that we're participating in.

Goodbye for now thank you.

Ladies and gentlemen, this concludes that write off it's Karl Thank you for attending you may disconnect.

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Ladies and gentlemen, thank you for standing by and welcome to the <unk> first quarter 2021 earnings Conference call.

This time, all participants on the listen only mode. After.

So to speak a presentation that will be a question and answer session to ask a question. During the session you would need to press star one on your telephone please.

Please be advised that todays conference is being recorded.

If you require any further assistance please press star zero.

I like to hand, the conference over to your first speaker today, Mr. Bill Choi Senior Vice President Investor Relations and strategic finance. Thank you. Please go ahead.

Good afternoon, everyone and welcome to the D. scalar fiscal first quarter 2021 earnings conference call on the call with me today are Jay Chowdhry, Chairman and CEO and remote connect <unk> CFO. Please.

Please note that we have posted our earnings release and supplemental financial schedule to our Investor Relations website, unless otherwise noted on numbers. We talk about today will be on an adjusted non-GAAP basis, you will find the reconciliation of GAAP to non-GAAP financial measures in our earnings release, starting in fiscal 2021.

Excluding stock based compensation related payroll taxes in our non-GAAP presentation again.

GAAP to non-GAAP reconciliations for historical periods can be found in the supplemental financial information.

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 calculated billings operating performance gross margin operating expenses operating income net income free cash flow dollar based net retention rate.

Future hiring decisions remaining performance obligations income taxes and earnings per share. These.

These statements and other comments are not guarantees of future performance, rather are subject to risk and uncertainty some of which are beyond our control, including but not limited to the duration and impact of COVID-19 on our business the global economy, and the respective businesses of 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 on the risks and uncertainties. Please see our filings with the FCC as well other than todays earnings release.

I would also like to inform you that management will be presenting at the following upcoming events.

Credit Suisse Technology Conference Tomorrow.

<unk> Global TMT conference on December seven.

Barclays Global TMT Conference on December 10.

Our annual unit slide outs on that for the Americas, and EMEA will be held virtually next week and for a P.J. the following week.

We encourage everyone to register and view our summit. We also invite you to attend one hour product QNX session, specifically for investors and financial analysts on Wednesday December nine.

Other stations 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 first of all I call on a few on your families on a healthy and sales.

Oh, we don't force strong consoles and an exceptionally strong start to fiscal 21 in our fourth quarter, we delivered 52% growth in revenue and 64% growth in billings, while also generating record operating profits and free cash flow.

I believe on financial results demonstrate the scattered pimco role in enabling our customers' digital transformation journey.

Weeks on accelerating at a pace never seen before.

Our visibility and business momentum remains strong.

And we are pleased to increase our fiscal year guidance.

I believe the market is coming to us and we are investing across our organization.

Cash there a significant share off on a large and growing opportunity.

I would like to thank those east color team and partners for their tireless efforts and commitment to our customers success Omar.

I'm also pleased and excited to welcome Chris caused to disease killer team as our new Chief marketing Officer.

Let me highlight three factors that drove our strong performance in the quarter.

One building on on growing traction with large enterprises, we closed on that couldn't number of seven figure ACB deals.

Hey, Jordan you off these wins on three year commitment.

New per wind the foundations application network and security transformation.

In particular, I am pleased with on increasing wins in the financial services vertical which is no embracing the cloud and you often see 65 deployments have become an important catalyst for us.

Two our optimized go to market engine is driving significant velocity, including a strong pace of new logo acquisitions I'm very pleased with the performance across all geos.

Last year, we double down on our investment in our sales organization, we scaled our sales enablement team and built on the Pitbull and metrics driven process, which is giving us better visibility into on business and ultimately resulting in.

On a strong and growing pipeline.

These efforts on also getting food in two big ways one.

Our newly hired sales reps on contributing at a faster pace.

And to our sales productivity is higher than a year ago. Despite a high percentage all ramping sales reps.

Great.

A power at all on speed on Trust exchange platform is that that's an operating with Cxos on.

Our platform is comprised all four key pillars with each enabling a critical element on the transformation.

Z. I hate to secure direct access to increase net and Hsas.

SCPA Zito trust access to private applications. These.

He is going to install expedience on Cdx deliberant user expedience or work on anywhere.

Cloud workloads segmentation to protect applications.

An increasing share all parts sales is coming from initial platform purchases by new customers and also going up sell to existing customers, which is driving record.

122% net retention rate.

I believe in the current challenging environment and in the post called the economy sales.

These zscaler will be the go to platform, our vendor consolidation cost savings increased user productivity and better cyber protection.

We are excited about our mission to make the club sales for business and enjoyable for users, we enable our customers who increasingly used on internet as their corporate net any.

Any place legacy Premier based security the Xerox how secure.

As the CIO office East color customer told us.

We ended up with the security posture, that's better than when we had a complex network and network security.

And have a user experience that's materially better.

As we look forward to the next few years, we have focused on driving broader adoption of our four major cloud solutions, which together maximized the value on our customers' digital transformation.

From pre sales deployment and customer success, we've built a sophisticated sales machine, who sell value and deliver measurable outcome at the cxo level.

We continue to scale our organization as the market increasingly moves are weighted.

We will continue to build on ecosystem on technology and channel partners, which are contributing to overall sales velocity and expanding our reach across our total addressable market.

Additionally, we are demonstrating our value to customers through an increased focus on partnership and demand generation programs.

At our recent Portugal, Cxtwo Summit series, we hosted six events that bill over 400, Cxos and IP leaders to discuss secure digital transformation.

Many cxos shared with me that caught on to work from home and why haven't while temporary.

Has help them realize that zero trust architecture, it's the future.

And it can be implemented easily and rapidly.

Coal with Wassa catalyst in changing the mindset and shaking off in Russia, resulting in a reduced need for educating customers about the value of these killer architectural or legacy approaches.

Inbound customer requests have greatly increased and we are becoming an integral part of a growing number of larger transformation projects.

We continue to see more customers buying Cie and Zepa together, which enables a true transformation, we're direct and seamless access to SaaS applications or applications in your data center or the public cloud.

For example.

On a global manufacturing company purchased our transformation bundle plus DLP and cash the 45000 users and VP for 25000 users.

Drivers for this deal were network and security transformation Bill.

Had a traditional hub and spoke network for 300 manufacturing facilities.

What's gross slowing that adoption.

Cloud applications, such as Webex office see 65 and what.

Our next day in Fytwo vendor try to sell its hybrid offering.

Fails to meet the security and performance requirements, including SSL inspection.

Interestingly.

This initiative was part of a five year managed services RFP we.

We had all stick system integrators and service providers bid see zscaler.

We are seeing customers increasingly migrate away from the large installed base on legacy on Prem Gateway and security appliances to pursue not act to cloud architecture.

In one new customer win a fortune 50 retail customer they placed a legacy web gateway with Z. I for cyber security and data protection.

This customer purchased Ziad professional bundle plus cash to be sandbox and DLP for 45000 users.

Security was a major requirement and only a proxy architecture with SSL inspection was considered.

This deal what's a good example of these kind of leveraging our tech partners Weve crowd stripe became the endpoint security provider and Microsoft the identity provider.

I'm very pleased with our growing success with the financial industry adoption of cloud is accelerating.

A fortune 100 financial services company purchased our transformation bundle with advanced DLP and cash flow 18000 employees to overcome capacity issues with their security appliances when day deployed office fee 65.

Slide about based technologies, but ruled out newco strict security requirements on SSL inspection and DLP with exact date on match.

As these new deals show on comprehensive data protection offering within the CIA has been gaining traction as customers are concerned about eight on leakage with employees working from anywhere.

Our new outdoor Ben cash speed is helping us displays cash the point products and increase our deals sites.

The most common themes in our customer wins are to increase user productivity reduce business risk simplify IP and reduce cost.

See zscaler platform enables this by consolidating and eliminating point products.

Moving on Tuesday per year.

Our customers' views EPA as the foundation for the architectural shift to zero trust accessible private applications.

Our platform eliminates the internet attack surface of customers' applications, resulting in reduced business risk.

Zepa is the clear market leader.

With proven maturity and scalability.

We are supporting hundreds of large enterprises in the complex multi cloud environment.

Let me highlight two is the period deals in the quarter.

First a global bank with headquarters in Europe needed to scale its remote access after the legacy VPN and VDI became a performance bottleneck and a security concern yes.

Yes, I cant team had to cope with over 4000 trouble tickets per month from users having issues with their connectivity.

This customer purchase CPGA for over 100000 employees to deliver a seamless always on experience.

While the immediate objective for this new laws to replace legacy VPN.

Zippy was selected to implement Zadar Trust architecture.

By establishing an application level policy.

Users connect to specific applications not do on network.

In other deal a fortune 500 Tech company purchased Zepa, you accelerate M&A integration.

After one year 6000 employees at the acquired Division, we're still using two laptops, which separate VPN to two separate networks.

In Q dating to complex corporate networks can take 12 months or more sales.

Zepa is elegant solution to this problem.

Without having to connect a corporate networks CPM per whites secure application access across both companies in weeks.

Purchasing our high end zippy offering.

The customer is leveraging ZIP is multiple identities support to accelerate deployment.

The customer plans to use EPA as a standard solution for future M&A.

Core strategy of growth at this customer.

In addition to CP the customer purchased ZT acts for 6000 users to quickly troubleshoot issues and increase employee productivity.

To close my business review I will touch on some early success with our new emerging products.

As an accelerated market shift towards what from anywhere, which aligns with our platform and emerging products like cdx.

We had a number of cdx wins in the quarter, including an up sell with a European bank for 40000 employees.

This customer had CIA for all employees and it was fixed on less to turn on Cdx do get end to end visibility and dissolve performance issues.

We also had wins for our CSP M offering, giving us additional opportunities for growth.

Our emerging products on increasing our overall competitive differentiation.

For large enterprises, who want network and security modernization. We believe we are the only cloud native multi tenant platform that meets the needs sales.

These zscaler is the largest in line cloud security platform in the World. We are processing more than 140 billion transactions daily, while preventing 7 billion security incidents and policy violations dip.

Deployed across more than 150 data centers are zero on trust exchange platform was bill from the ground GAAP or the secure access service edge or sassy framework.

Building on the cloud native architecture with full security on minima latency is very hard.

And running a massive in line global cloud with five non gains on availability is an order of magnitude harbor.

As the world moves to set the framework and Zero Trust architecture. Some of you have asked about competition and why others can't build a cloud native platform likes the scanner well.

Well the answer lies in the architectural.

Which is like the foundation of a building that supports everything.

On foundation is a multi tenant architecture bill from the ground up but any line traffic inspection.

It delivers over quantity key security solutions, including anti virus cloud sandbox flow firewall DLP advanced threat prevention and SSL inspection at scale.

That's extremely hard to build and complex to operate as a cloud service without compromising user experience.

It is like the difference between building a simple SaaS application.

First is a highly complex SaaS platform like an E RP.

How many cloud native ERP systems are you, albeit off since net suite started two decades ago.

While single dimensional SaaS applications are easy to develop multi dimensional platforms like an ERP and Z scalar are much harder to design build and operate.

With our business momentum, we're also demonstrating that our strategic sales process and world class execution on important competitive advantages.

Plus our consolidated sales model identifies the value we can drive for the customers and enables them to fully realize the benefits on digital transformation.

This strategic sales process requires top sales talent.

I believe we had the best sales team top to bottom and we are hiding act on rapid pace.

We are now our destination.

GAAP talent at on the Globe.

Second we.

We are deepening our ecosystem of technology partners, which are contributing to be wins and adding leverage to our sales model.

In addition to our ongoing partnership with Microsoft and cone stride we.

We have no extended our strategic partnership VM beer to integrate with the SDN solution and to partner for joint go to market engagements.

I believe we've built on a go to market engine that will generate long term sustainable growth.

Now I'd like to turn on where the cost to remain on for our financial results.

Thank you Jay as Jay mentioned, we are pleased with the results for the first quarter of 2021 revenue for the quarter was $142.6 million up 13% sequentially.

52% year over year.

Net revenue was 30% of total revenue.

From a geographic perspective, we have broad strength across our three major regions Americas represented 51% of revenue EMEA was 39% in a p.

PJ was 10%.

Revenue exceeded our guidance due to stronger than expected deal activity.

As the value proposition.

In CPGA is increasingly becoming clear to customers.

Turning to calculated billings, which we define as the change in deferred revenue for the quarter close already recognized in that quarter billings grew 64% year over year to $144.7 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 on our PEO, which.

Since our total committed non cancelable future revenue was $864 million on October 30, Onest up 56% from a year ago. The current ARPU is 54% of the total per appeal, we had a healthy mix between new and existing customers with new customers contributing over 50%.

New and upsell HCV, our strong customer retention ability to up sell have resulted in a consistently high dollar based net retention rate, which is 122 per cent compared to 120% last quarter new year ago.

As we have highlighted this metric will vary quarter to quarter, but good for our business. Our increased success selling bigger transformation bundles selling book Ziad CPGA from the start and faster upsells within the year can reduce our dollar based net retention rate in the future. Considering these factors, we feel that 122% is outside.

Danny.

Total gross margin of 81% increased two percentage points sequentially. It was comparable on a year over year basis.

Sequential improvement was driven by migrating most of the DJ infrastructure trade data centers during the quarter as well as timing of expenses. While we are pleased with the gross margin performance I would like to remind investors that a number of our new emerging products, which includes cdx workload segmentation and see SPM, we'll be running in the public.

Hi out until we scale them into our own data centers on the future while.

While on the public cloud these products will have lower gross margins on our core products.

As a result, we expect gross margins to be approximately 79% for the full year in fiscal 2021.

Turning to operating expenses, our total operating expenses increased 11% sequentially and 33% year over year to $96 million.

Operating expenses as a percentage of revenue improved by 10 percentage points from 77% a year ago, 67% in the quarter.

Sales and marketing increased 12% sequentially and 31% year over year to $64.2 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 TV with our employees working from home.

We've been very successful on hiring on boarding remotely and we're accelerating our sales and marketing hiring throughout this fiscal year R&D.

R&D increased 8% sequentially and 42% year over year to $20.9 million.

The increase was primarily due to continued investments on our team Juno increased 9% sequentially and 29% year over year to $10.9 million. The growth agenda includes investments in building our teams compensation related expenses and professional fees.

Our first quarter operating margin was 14%, which compares to 4% in the same quarter last year net.

Net income in the quarter was $20 million or non-GAAP earnings per share of 14 cents.

In other core with over $1.4 billion on cash cash equivalents and short term investments.

Free cash flow was positive $42 million in the quarter, which the meaningful improvement from $11 million in the prior quarter and $9 million in the year ago quarter. The strength of free cash flow was driven by strong receivable collections and better underlying profitability in the quarter.

Now moving on to guidance.

As a reminder, these numbers are all non-GAAP, which excludes stock based compensation expenses related payroll taxes.

Amortization of debt discount amortization of intangible assets fulfilled.

Facility exit costs on any associated tax effects.

For the second quarter fiscal 2021, we expect revenue in the range of 146 million to $148 million, reflecting year over year growth of 44% to 46% on.

Operating profit $11 million to $12 million other income of $800000 net of interest payments on the senior convertible notes.

Income taxes were $1.250 million.

Earnings per share of approximately seven to eight cents, assuming a 144 million common shares outstanding due to better than expected first quarter performance and our strong pipeline.

We are increasing our full year fiscal 2021 guidance for revenue billings and profit.

For fiscal 2021, we now expect revenue in the range of $608 million to $612 million or year over year growth of 41% to 42%.

Calculated billings in the range of 755 million $765 million or year over year growth of 37% to 39% on.

Operating profit in the range of 55 million to $57 million.

Other income of $2.7 million income taxes of $4.5 million in earnings per share in the range of 37 38 cents, assuming approximately 145 million common shares outstanding.

We continue to see the market coming to us we.

We remain committed to investing aggressively in our company behind the growth in our business.

We have a highly efficient business model and are making investments across the organization day in order to capitalize on the large opportunity ahead of us.

While we will balance growth and profitability growth will continue to take priority considering our significant market momentum.

Now I'd like to turn the call back over to Jay.

Thank you Remo coming off a record Q1, we're seeing the market coming to us and validating our vision for zero Trust cloud native platform.

We believe we are in the early innings of a significant market opportunity to enable secure digital transformation.

The value proposition on for seed or cross platform is resonating with customers and just seeing this reflected in our business momentum over the last three quarters.

Scaled our go to market engine and on delivering world class sales execution.

We believe will drive sustainable long term growth.

Thank you for your interest in Z scalar we.

We hope to see you at Zenith lives next week operator, you may now open the call for questions.

Thank you Sir.

As a reminder to ask a question you would need to press star one on your telephone.

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Due to the essence of time, we ask that you. Please limit yourselves to one question.

Please stand by while we compile the Q on a roster.

I show. Our first question comes from the line of Sterling Auty from JP Morgan. Please go ahead.

Yes, thanks, guys. So.

Jay You mentioned financial services, the number of times in terms of the traction that you're seeing where would you say or where would you characterize the penetration in that industry. How big is that as a percentage of revenue and perhaps are we seeing some continued momentum as maybe it catches up to other industries.

Okay. Thank you.

Financial services have been slow in embracing cloud, but non got all opening on dad embracing cloud and office 365 is becoming the economist to make office leasing seaborne supply import there have to be some transmission in the net broken security and we've done so much work with Microsoft to make sure.

Often see 65 can be enabled securely delivering fast user experience. So thats, becoming on number one application to get into that space tenants expanding on there.

Well you want to add anything to it yeah. So.

So I mean, three three top verticals that we have are financial manufacturing and help.

But were were broad across all verticals.

So theres really no vertical that is dominant so.

We haven't given out the percentages of each of those verticals, but we're very broad.

Got it thank you.

Thank you.

Your next question comes on the line of Matt Hedberg from RBC capital markets. Please go ahead.

Hi, guys. Thanks for taking my question Congrats on the strong results here.

Jay I'm curious you know the conversations with sales, obviously showing up in numbers really importance of new skill or.

Yes, I'm curious, though how are those conversations.

Moving to a vaccine I mean to me it would feel like.

A lot of the momentum sort of cemented the change but on sort of curious on on sort of post that team.

Do you think the tone of buying behavior is on your target customer.

Yes lots of questions on being asked pre corporate cost per going and whatnot. If you look at on record see coverage, we had very good growth business and salaries and it's driven by acceleration in digital transformation non core.

I would want the catalyst and shaking up and our share the change in mindset has accelerated demand for zero trust, but I talk to Ceos that told me, we did not realize how important it was to transformation being able to embrace CLO book collaboration for security and the like so.

So badly.

Moving faster than they did before.

And so momentum.

To our business.

He has picked up because it does highlight that limitation on the old legacy channel network.

And need to pass on and just transformation on works. So we are pretty bullish we think.

On asphalt vaccine on.

Business will keep on accelerated.

Great. Thanks leveled on guys.

One follow on with Jay is that we take a look our pipeline our pipeline is accelerating so we're seeing.

If an acceleration in our pipeline and thats across the board both in Ziad answer.

Thank you.

I share on next question comes on the line of Fat Cat Kalia from Barclays. Please go ahead.

Okay, Great Hey, guys. Thanks for taking my question here.

Hey, maybe for you.

The question is do you have any statistics or just general thoughts on how many of your engagements are competitive meeting competitive bake off process versus perhaps being brought in by service provider, where there really isn't a competitive process that makes sense.

Yes. Thank you. Your question reminds me on my days at your defense on site for Us when I used to sell security appliances.

And we used to have lots of other costs, which boxes faster what's been going on.

Since cheap.

You know as east Kim on.

All driven by transformation transformation is not a box you sell new to actually start with CIO level discussion do help them enabled applications net new security on other than to got.

So.

Most of our deals at a higher end at the large enterprise snap.

On clearly competitive much at all when you come to lower end, we do see some of the competition.

Hey comps on there in fact I highlighted when in my prepared remarks, we're even though there was an audit fee that new one with a managed services partners all six sites on SP Bill.

Ben Ziskin, Okay, let me very proud on that's because the customers and the ESI SP channel understands that you can't take typical legacy boxes and trying to make them new cloud transformation.

So when it comes to competition I think we got some big Big me on that someone price really purpose built something have a good architecture.

We will maintain this need.

Thank you.

I share. Our next question comes from the line of Alex Henderson from Needham. Please go ahead.

Well, thank you very much on.

On to decide what so what's more to like in your numbers on margin expansion of the accelerated top line on the job.

I wanted to do to look forward, a little bit if I could.

With you talk about machine to machine environments domains of domain and what you're doing on that front.

It seems pretty clear to me that as we see more and more modern applications coming out that it's not just the cloud direct architecture, that's important but actually the cross domain traffic can you talk a little bit about how you participate in that and what you're doing to secure.

Yes, there are two aspects on your question one is machine to machine or add to our communication within a public cloud and the second part is across clouds, maybe as released on Azure rest type of stuff.

You know while companies arch line due to this doing traditional net book security way doing virtual firewalls and whatnot, we have taken zero EPS costs.

Approach to the public cloud.

Here, we kind of have asked to have communication and we have the zito trust on switching technology, we need an identity technology identity for various apps would be built.

Using the acquisition.

We did a few months ago for company called wireless networks.

So with that we can do within the day sent from machine to machine communication without doing network segmentation and achieve after segmentation and you can also go cost clubs, but having said that that's a young market. That's initially on market. It needs. Some education. So it takes some time for them onto to growth.

But if we are well positioned to go in early and get positioned there that's a big 80 on investments for us.

Super Thank you very much.

Thank you.

Our next question comes from the line of Walter Pritchard from Citi. Please go ahead.

Hi, I'm wondering Jay on the cloud workload.

Workload protection market Theres, you are in that market fairly new product for you a number of players are in that market could you help us understand what you're seeing in the early deals in sales cycles, there who's the who the competition is the buyer the same as the buyer that you've generally been selling to and and the differentiation you have there when you are.

Operating in that market kind of as as the as maybe a starting point or when it's a pretty competitive situation. Thanks.

Yes. Thank you good question will improve.

Cloud protection is not one piece of multiple pieces and at different stages on the market CSP M is one area, where we are actually competing well that so fairly well understood on fairly simple market.

Qualified traffic on Azure, NWS workload going to Internet, which most of these workloads do.

You can price to do some vertical applied warning and whatnot, but doesn't award all you can simply standard to see Zscaler internet access by seem to be pointing traffic very well positioned in that part of the segment.

No not the other segment is what Alex asked about machine to machine communication whatnot App to App. That's are you in that area and thats going to be we see some young players some start ups in the game, but generally the market being so.

John there's not a whole on our competition in that space and on and only selected customers on kind of trying to pursue that I see many custom said I've tried to do network segmentation doing this and this hasnt worked at try this.

And apply on is somewhat different on you said the two types of buyers for cloud protection one is actually.

You organization Thats actually building application on the Dev ops team because they are actually driven by application and they often ignore security and c.. So columns and say wait a second you can do things fast, but you must put security in place. So we end up doing with two parties Csos, we already do you win and drop offs part D that slow.

The new for us to get to new and learn.

Thank you.

Q.

Thank you I show next question comes from the line of Tao Liani from Bank of America. Please go ahead.

Hey, guys great quarter.

I want to my question is more higher level on trying to other.

The the expectations for next year, So if I look at your guidance on the Ed.

And little bit more for beaten raise would you have done in the last few years, you are going to be staying in the same growth rate we've seen this year.

I'm trying to get the qualitative part of.

You have older solutions and you have nowhere markets, how do you view the growth rate in older solutions like Zepa Howdy.

How do you view your level of competition there.

New customer the ability to gain new customers versus growth with existing customers.

And then same question about your newer areas what are the driving factors on im trying to understand how to build a spreadsheet for next year when it comes to the various solutions that you're offering.

It's a very good question tell sales.

Think about the four key solutions are talking about zero. It has been a work horse has been going on me.

But in spite of that.

If you look at our penetration in global 2000, we are just under 25% and there's a big market. The majority of them on good sitting on.

In fact, there is still a sizable market on legacy, but proxies light blue coat.

And that that's to be removed.

And we are taking more and more part of that so thats kind of one piece and the Guy is not one product as you know ziad as a portfolio of several offerings and more and more customers are buying bigger.

Bigger bundles like transmission stock bid on that moving up on business bundles of professional bundles. So that's a pretty sizable thing on Z. I have you know we are close to.

Moving off at all.

Yes.

Got it on the younger only about 40 years old have gone from zero to about 30% and often new business in that range.

And if you look at our customer base.

Just about in mid 30, somewhere 30% or so of the global 2000, XII Cosmo have CBS.

So even in our installed base on the Guy is a big market all day.

So we think these two big proven product portfolios are called on two big pillars there.

Plenty of room for opportunity.

And then Ziad ZT JAKKS digital experience is becoming an interesting product, it's a new product in a new area because as you go where banks net no one has any meaningful offering net.

No and two other response time, we expect pretty good growth form it one day, we expect almost every user will have XY S&P and Cdx net written yet driving force.

Fourth area.

His new area.

Cloud workloads data center, I think that Mark will take some time to mature as seamless as being on really putting tons on.

Revenue in some of the new areas, but you shouldn't think about cash b type of things as new products on their part of their new but that part of the portfolio that automatically attached to our ziad bundle in the same day of you're seeing gross isolation picking up with either on both the ziad on goes.

Zepa.

But plenty of room in all areas and I always said to mine sales leaders, we have lots of product to sell that scale on sales on investment and that's why we are focused on we are focused on growing and go to market, which is doing very well so excited.

Next year I mean.

Good day color, Yeah, I mean.

Great question, let me take a look at the percentage of customers that have transformation, we've indicated was 49%.

Our last call in July and if that's gone up this quarter as continually going on CPH, 13% of revenue so big opportunity with are installed base for that in our emerging products.

We had an acceleration in growth of new customers in Q1.

Versus the growth in Q4, so we're seeing.

Rent on we're seeing deal sizes getting bigger receive.

The need for transformation on a broader scale up and as Jay mentioned driven by co <unk>.

Covert started started the visibility what we're seeing right now is the realization on the part of the C.I. goes and others in companies that high level.

Understand legacy architectures they've got.

Really not thread architectures.

That's just that's what's driving the business for us is that in.

In addition to that proof points that we have.

Pipeline into.

Interest.

Productivity.

You know just a.

Theres you feel the momentum we feel momentum that coming our way.

On the when it comes down to you know at the end it comes down to people that comes down the execution, but.

The market is there the product is there.

Vision is there and I believe the people are there also and I think in the past three quarters, we had done amazing job in scaling on go to market, which was the last piece we needed to scale.

The scale and Weve already feeling very good about it.

[music].

Got it thank you.

Thank you.

Our next question comes on the line of Hamzah for the law from Morgan Stanley. Please go ahead.

Hi, guys. Thank you for taking my question.

A question for you you mentioned earlier that.

Co Bill has been a catalyst.

These scalar more longer term in terms of the market.

Are you in terms of customers coming to you for cloud transformation deals as well as.

Talent coming to you as well and you mentioned a really strong.

Hiring environment for you guys I'm wondering.

Where are these newer hires coming from are they coming from some of your competitors within security state or is it coming from other security space can you give us any sort of color on that.

Yeah. So.

First of all icing on hiring is happening at a faster pace than we had even expect so so very good actually on going about a year or two years, where we used to say we are behind in hiring sales reps on recall that on.

On that has passed I think probably up brand is helping well known out. There also sales leadership has put a deep and wide leadership in place.

And then getting more specific to answer your question. If you look at too broad 80, EPS off sales hiding even though there are multiple areas beyond that are on instance.

Typically sales reps are not coming on box selling backgrounds.

Majority on for sales that come from solution selling SaaS type of back on because our sales is very different than a typical box acuity setting.

They come from generally softer in cash type of companies.

By and large Thats number one on the technical side. The FC side, we generally higher from someone that comes in a little bit networking security bag on because any domain expertise, which takes a little longer but.

But we are getting tons and tons of interest and yes trying to stay on selective when behind.

But we are pretty much tracking our progress on hiring very well add on in hiring basis. When other things I would call out we had a record orders for net hires.

In the quarter, we hired over 260 people.

On a quarter before it was 200 quarter before it was 150 in the quarter before that it was a 100.

That to 60 about 60% were in the sales and marketing area.

I had a record quarter for.

Quota carrying sales rep hires in Q4, we had a comparable number in Q1.

We are accelerating the hiring even more than what we anticipated on our last call given what we're seeing.

Got it Super helpful. Thank you.

Thank you on next question comes on the line of Patrick Coville from Deutsche Bank. Please go ahead.

Hi, guys. This is Dan Kyle on for Patrick.

Collections on the great quarter I, just wanted to ask on the pricing environment.

Yes, obviously seems really strong, but I'm curious if you guys could comment on how prices have trended and then obviously really impressive retention rate. So I'm curious how much of that is.

Adding new products on growth expanding more into the organization if that makes sense.

Yes, so it's a comparable price environment.

Price per user did go up.

Reported.

Related to.

What drove the net retention rate.

As Jay mentioned, the emerging products or not.

Not significant impact so it's more the existing products moving into transformation as well as the PPA, which is what drove the.

The increase in net retention rate.

Yes, great. Thank you.

Thank you.

Our next question comes from the line of Brian Essex from Goldman Sachs. Please go ahead.

Great. Thank you very much for taking my question and congrats from me as well on a great great results on a quarter.

Jay I was wondering if you could maybe give a little bit of color.

On the sales force and the maturity of deals that you're seeing I think.

Your 10-K, it looked like he customer growth was just over 15%, but it but it sounds like deals are getting larger as you noted record number of.

Seven figure ACB ACB deals can you maybe help me understand.

What what is the mature what factor is the maturity of the sales force playing into the type of deals that you're seeing how much is new customer versus.

Expansion of the expansion into your installed base or better penetration and share installed base on how do you see that maturing throughout the rest of the year I know that you noted previously that.

On the elevated hiring on last year should drive.

Better growth in the back half of this year is that is accelerating I'm.

Just just maybe get a little bit of color in terms of the level of confidence you have four for growth through that so the back end of the year based on the deal activity in sales force maturity.

Yes, Brian on Thats quite a few questions. Let me give it a piece at a time sales.

Sales force maturity since.

Since donley joined US we spent about three and a half fourth quarter is to make sure. We bring in a systematic and disciplined sales process sales enablement and sales metrics to understand the business leading to leading indicators on August up plus putting a number on theaters in place. So you asked me what do I think about them.

Sure do you have the sales organization.

I said extremely happy very good about it 'cause having bad in plays drives that asked on the south so very comfortable and because of that comfort we are accelerating hiring more and more sales people in it.

Next question was on into two.

Deals customers new customers customer growth I think if you look at one number listed company that Aldo whatever 4500 on 40 age into one of those customers are those percentages on will be misleading because it's some small customers and large customers, we need to get to a level, where we start kind of looking at cropper segmentation.

On growth within Segmentations.

We are big focus traditionally has been large enterprises and get done extremely well.

Among book penetration, we are doing in those customers in terms of percentage and in terms of the ops do you.

On on having those customers is actually going up very well and we're very pleased with that and as I finish on net anymore talk about some of those numbers and then we also expanding more into the lower end from price and so to speak I think over time, we'll give you more color. So you can start computing the growth better.

But if you look at the segment. We are now getting more focused on 2000, new user to 10000 users segment's gross we already got.

Just segment over $10, and it's pretty well covered and we are getting great wins on this.

A big market for us income downstream and expand as well.

And when you want to add more yeah, I mean, the jays absolutely correctly, our arm per day per customers is definitely increasing one of them on the.

The ways, we break it out as.

Customers with greater than 3000 users were over $450000 or are.

Per per per customer, which is up year over year, just keeps on going up.

New customer growth.

We've stated it's within the range historical range of 50, 60%.

As I've mentioned before we had an acceleration of new customer growth in Q1.

Also the comment about sales productivity.

The thing to keep in mind, which is really encouraging is that so.

Significant majority.

Ours and head count increase.

Curt in the second half of fiscal 20.

Also the comments that I made in Q about Q1 that the hiring that we had for ourselves in Q1 was comparable to our record quarter in Q4, and our sales productivity on a year over year basis in Q1 was up.

Those are all good indicators from from my perspective, and gives me confidence that.

Things are looking strong.

Strong for the company as well as what we put in place the structure the organization.

I can I've been around for a long time.

And I've seen a lot I have never seen anything like we've got here, it's the scale or with our go to market quite frankly.

Super helpful multi part answer I appreciate it.

Gross.

Thank you.

Sure on next question comes from the line of Andrew Nowinski from D.A. Davidson. Please go ahead.

Okay, great. Thank you gentlemen, congrats on a great quarter.

I just wanted to ask about the partnerships. So you announced a new partnership with Vmware and you've always had a very strong partnership with Microsoft So I'm just wondering.

If Microsoft contributed to the record number of seven figure deals you had in the quarter and how you're thinking about the new partnership with Vmware.

Let me, let me start with.

We have it.

Yeah, there has been.

Good partner for Us.

The portfolio as Steve and if you look on asked events. We have always said that as Steve and is a good complimentary area for us and.

We have been actually skewing somebody brings on share Stephen deployments on to enter.

And it is natural for us to team up it B M. Here. So what did we do we had done integration. So that's the balance can be deployed lot more easily with a single click and but more exciting than that we had actually working with them on it with them on a number of joint go to market.

Initiatives our sales people are.

Doing joint account planning and we've got a number of market initiatives. So we think that will be a good partnership for incremental revenue for both companies.

So on the B M here side.

Microsoft net margin goes on.

For several years it started with helping Officethree hundred 65 deployments with great use and experiencing book of configuration fiber deployments and then expanded bill onto Azure 82, as you would access to agile sentimental.

And units and pointing us.

Microsoft.

It's pushing now often see 65 in financial services, because they have been delayed dr. off obviously see 65, and thats, particularly helping us because those large companies want to make sure. This deployment goes well and these guys that go to.

Go to partner in those deployments on Microsoft is helping.

Helping or we are helping Microsoft and they're helping us in these financial services customers on.

Not sure if any of the specific deals this quarter by the import impacted by Microsoft but in large companies that there will be large deals where we'll be working together with Microsoft to close those deals.

Jim did I Miss something.

On it.

That's great. Thanks, guys.

Thank you.

Actually our next question comes from the line of fifth team on Falani from you'd be EPS. Please go ahead.

Good afternoon, gentlemen, thank you for taking the questions on.

Jay on Raimo I wanted to get back on some of the commentary in the prepared remarks around each day DPL, depending on I mean, we've gone from zero to mid teens percentage of your revenue that arrive it sounds the play so I'm wondering on that.

I appreciate some of the bigger picture factors that are driving the demand for HIPAA I'm wondering if you can be more specific about where some of the budget dollars are coming from that are getting reallocated in your favor force EPA adoption and to what extent is there more expansion a runway here that has muscle.

Fairly been pulled forward because we've all starting working from home overnight EBIT question here. So just at getting some more specificity around where share. The key play budgetary dollars are being earmarked away from on more sober.

So if you think about it while lot of stuff, we do our transformation general need as an entry point for each area. That's the easiest one from budget point of view.

So VPN ends up being the entry point at the ballast point.

But as we have said many times ZP is being bought for Zadar Trust implementation in the past one new I have seen interest in zero interest goes on big Big time, and it's especially architectural you don't put connect users to then exports so any.

Product Thats, a VPN or late whether it is an on prem product, it's a cloud based VPN and so VPN and doesn't really get counted as the Zutto Trust offering.

So it starts with taking on the VPN, but.

But more importantly, all the wins we are having on.

Are being done to make sure. They can also do Zito trust access to non only data center, but also new cloud applications sitting in Azure, ADW, EPS and more and more customers want do implemented zero interest even when you are in the office. So we don't think.

Cps wins are coming because somebody who's up being on Paul rethink Cobra is actually accelerating and showing the need for zero trust being able to access anything from anywhere and we see this acceleration continue so very confident on bond on the CP projection.

And Thats reflected in the pipeline we received.

Yeah with for new customer business.

You take a look at what percentage of our new customers are buying both ziad.

It's not 30% range.

That's up from Q4 was low 30% range and that's what's resonating that that is the digital transformation occurring that we see.

So you know it's again the the.

Things that were seeing an internally related to what's occurring.

In.

In the market.

Indicates.

That digital transformation is top of mind for many I'd professional.

And.

Dealers kind.

Got a great solution or the best solution for them and.

And so thats, giving us a.

Confidence.

Is it a combination of Zions EPA, Inc.

Sure on is that any user can work with any value office home weighted average and Thats, where the unit cost comes in its a same use an experienced same level of security same level obviously.

Thats, what CIO is in volume.

That's super helpful. Thank you gentlemen, I appreciate the color.

Thank you.

I sure last question comes from the line on Catharine Trebnick from Collins. Please go ahead.

Oh, congratulations on a phenomenal quarter, you said on your prepared remark on that.

That you had done well in the three verticals finance healthcare and manufacturing, but it seems like the federal government is pretty big Greenfield for you in 2021 day can you describe or give us some background on what you're doing to prepare to do well on that because there are also moving to office 365.

Similar to the financial Oh Thanks.

Yes, caffeine. Thank you federal is a big opportunity for us and our business is making good progress sales.

Our new.

On could we have a sizable team in place now we have some very good fed ramp certifications.

And we got a growing pipeline in 21 and beyond we expect federal to be a bigger part of our business.

On do you want to give a color off yes, we introduced now yeah Federal in Q1 was mid single digit of our new and upsell business.

As Jay mentioned, we are very pleased with the progress of our federal and see that as a as a substantial opportunity going forward.

Okay. Thank you.

Okay.

Alright, thank you.

So it's kind of done with questions.

And I would like to say thank you for your interest in the scanner.

We hope to see you at Zenith line.

And upcoming several investor conferences that we are participating.

Good bye thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for attending you may disconnect.