Q1 2025 Zscaler Inc Earnings Call
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Speaker Change: Good day, and thank you for sending by welcome to the Zee scalar first quarter of 2025 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session. That's a question during the session you will need to press star one one on your telephone you didn't hear an automated message advising your hands raised.
Speaker Change: To withdraw your question. Please press star one again, please be advised that today's conference is being recorded I don't understand the conference over to your speaker today, Ashwin case ready Vice President Investor Relations and strategic Finance. Please go ahead.
Speaker Change: Good afternoon, everyone and welcome to the Zee scalar fourth quarter fiscal year 2025 earnings conference call.
Speaker Change: On the call with me today are Jay Chaudhry, Chairman and CEO remote Kennesaw CFO.
Speaker Change: Please note we have posted our earnings release and the supplemental financial schedule to our Investor Relations website.
Speaker Change: Unless otherwise noted all numbers, we talk about today will be on an adjusted non-GAAP basis.
Speaker Change: You will find a reconciliation of GAAP to the non-GAAP financial measures in our earnings release.
Speaker Change: 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.
Future hiring decisions remaining performance obligations income taxes earnings per share our object you sent outlets okay.
Speaker Change: Restaurants dollar products, and our market share and market opportunity.
Speaker Change: These statements and other comments are not guarantees of future performance, but rather are subject to risks and uncertainties some of which are beyond our control.
Speaker Change: These forward looking statements apply as of today and you should not rely on them as representing our views in the future.
Speaker Change: We undertake no obligation to update these statements after this call.
Speaker Change: For a more complete discussion of the risks and uncertainties. Please see our filings with the SEC.
Speaker Change: In today's earnings release.
Speaker Change: I also want to inform you that we'll be attending the following conferences.
Speaker Change: Global Technology, and AI conference in Scottsdale on December 4th.
Speaker Change: Scott Shiao of Bank Global Technology Conference in San Francisco on December 10th.
Speaker Change: Barclays Global Technology Conference in San Francisco on December 11th Needham growth Conference on January 9th and 10th.
Jay Chaudhry: Now I'll turn the call over to Jay.
Thank you Ashwin, we delivered a strong Q1 with all matrix once again exceeding the high end off on guidance.
Jay Chaudhry: Agree with 26% year over ear and bookings growth accelerated to over 30% driven by increasing customer commitments to our zero Trust exchange platform and growing interest in our AI solutions.
Jay Chaudhry: Our billings growth of 13% far exceeded the recent average growth rate of publicly traded legacy network security vendors by over 10 percentage points, demonstrating our continued market share gains in cyber security.
Jay Chaudhry: We're making tremendous progress executing on our go to market plans and driving innovations that our customers are relying on us for with.
Jay Chaudhry: With continued strong demand I'm very pleased to increase our full year billings and revenue guidance.
Jay Chaudhry: Q1 was a solid quarter for our profitability as well.
Jay Chaudhry: Our operating discipline, we grew operating profit by 50% year over ear and delivered new Q1 records for operating margin of 21% and free cash flow margin of 46%.
While many successful SaaS companies strive for Rudolph 40 results.
Jay Chaudhry: Our revenue growth and free cash flow margin makes us a rare SaaS company that operates at rule of 70 odd better. This places us in the top handful of about 145 largest public SaaS companies in my scores of customer conversations CX ores are prioritizing zero trust secure.
Jay Chaudhry: <unk>, an AI for their it spending we.
Jay Chaudhry: We are fighting AI with AI, we recently delivered several AI innovations and are continuing to expand our AI portfolio in the following three areas of high customer interest cost securing use of AI applications for faster and safer adoption of public and private AI applications.
Jay Chaudhry: We enable customers to securely adopt public AI apps, such as chat GPT, Microsoft co pilot and Github Copilot with these killer for co pilots Z.
Jay Chaudhry: Zee scalar for co pilots provide granular visibility to find and classify on prem or cloud data gives access control for only the right users to access data limits co pilots discovery of data fixes copilot, Ms configurations, and enforces policies to stop sensitive.
Jay Chaudhry: Data from leaking our industry, leading capabilities in this area are driving large customer wins.
Jay Chaudhry: Example, in a new logo win a global 2000 technology serves this customer purchased our AI powered data protection solution.
Jay Chaudhry: Which accounted for 50% of the seven figure ACB deal data protection enables the customer to securely rollout Microsoft co pilot be security use of office 365 was a huge opportunity for us and I believe that secure use of Microsoft co pilot is a huge op.
Jay Chaudhry: Protiviti as well in addition to enabling secure adoption of co pilots, we provide visibility and control into public AI apps used by employees scored a risk level of AI apps and store comp queries for logging or auditing purposes with the widespread adoption of public.
Jay Chaudhry: AI apps, we are seeing growing demand for their security.
Jay Chaudhry: Our innovations are expanding beyond securing public AI apps do customers private AI apps, including chat bots, LLM and SLM models and inference engines.
Jay Chaudhry: We're expanding the functionality of our inline proxy based zero Trust exchange with an elegant oxy to analyze prompt queries and adults to detect and prevent pump injections and other malicious activities.
AI powered automated digital experience for operational efficiency and faster resolution of end to end user or performance issues.
Jay Chaudhry: Our already available automated digital experience products, including CTX co pilot are contributing to large deal wins.
For example in a seven figure ACB upsell deal a large healthcare provider doubled their C. I S subscription to 60000 seats and purchased <unk> advanced plus which includes <unk> co pilot, but all 60000 seats.
Jay Chaudhry: This customer plans to use the ex co pilot to automate it operations entity was resolution time for service tickets with the steel this customer's annual spend more than doubled with us.
Jay Chaudhry: We're taking CTX copilot to the next level with CTX AI agent to automate root cause analysis, resulting in a further reduction in resolution time and provide automated recommendations to fix user performance issues.
Jay Chaudhry: Third AI powered security products, a better cyber and data protection and SEC ops automation.
Jay Chaudhry: We have delivered several AI powered innovations for data and cyber protection such as automated data classification, Jenny I based image classification zero day vulnerability detection and prevention AI powered app segmentation.
Jay Chaudhry: And ml based Iot Ot device discovery for increased productivity and efficiency of security operations. We have introduced several innovations, including <unk> <unk> and unified vulnerability management by extending our zero Trust platform with data fabric technology, we're developing.
Jay Chaudhry: Being other AI power innovations, including breach prediction.
Jay Chaudhry: Hunting and more.
Jay Chaudhry: Our AI powered solutions leverage the vast amount of proprietary enterprise data generated by 500 billion transactions per day processed by our Zero Trust exchange, we will continue to leverage our data and combine it with new agent based technologies to rapidly expand our AI portfolio.
Jay Chaudhry: The combination of zero Trust and AI is creating exciting new opportunities, which we are well positioned to capture with a large and expanding platform.
Jay Chaudhry: Moving on hackers are finding new ways to exploit the limitations of legacy castle and moat security to launch an increasing number of sophisticated attacks.
Jay Chaudhry: Such a pax often start with expectation of firewall VPN architecture Beast traditional security solutions enabled threat actors to move laterally on the corporate network and compromise the entire organization to make up for the flawed architecture legacy security vendors are offering disjointed.
Jay Chaudhry: <unk> products under the pretext of a platform.
Jay Chaudhry: This increases cost and complexity for customers.
Jay Chaudhry: Fortunately 50 retail customer recently told me that a legacy final vendor sold them, a so called platform and when they try to implement it. They found that it was nothing more than consolidated billings complexity is the enemy of security Amazonians No wonder so many enterprises are.
Jay Chaudhry: Getting breached despite spending billions of dollars on so called SaaS security, which is nothing more than virtual firewalls and vpns in the cloud.
Jay Chaudhry: The sooner organizations move away from these disjointed security solutions to Zero Trust.
Jay Chaudhry: The sooner they will become secure and resilient.
Jay Chaudhry: Six killer customers modernize them future proof their security with a platform for better security operational simplicity and cost reduction today.
Jay Chaudhry: Today, we proudly secured over 35% of global 2000, and about 45% off the fortune 500.
And we're seeing more and more large enterprises adopt our platform to.
Jay Chaudhry: To give you. An example in a new logos haven't figure ACB deal, a global 2000, and aerospace and Defense Company purchased Z I E for 100000 users and workload protection for 5000 workloads. This customer initiated a strategic shift towards the cloud first architecture.
Jay Chaudhry: And chose the scalar as their partner for their security transformation.
Jay Chaudhry: Additionally, we see significant opportunity for CPA Upsells, let me share. An example, an existing fortune 500 insurance customer expanded this V. I a subscription from 45000 to 70000 users and purchase Z P for all 70000 users.
Jay Chaudhry: In addition to securing access to private applications rapid M&A integration for faster time to value realization was a key objective for this customer V.
C P. A expedites M&A integration by securely, providing zero trust access to applications for the acquired entities employees without having to connect the networks of two companies. This is not possible with a firewall based SaaS solution with this upsell this customer's annual spend with us.
Jay Chaudhry: Almost doubled to over $5 million.
Jay Chaudhry: We expect Z P. A to continue to be one of our biggest growth drivers in fiscal 'twenty five moving on to data protection at Zenith live we outlined our broader vision of our data protection solution that our customers are increasingly adopting for example in a seven figure ACB deals a fortune.
Jay Chaudhry: 500 Pharma company purchased our data protection solution for over 23000 users to eliminate multiple point products, including legacy data loss prevention insider threat management emails data security and more.
Jay Chaudhry: This purchase nearly double the annual spend of this customer would see scale I'm thrilled with the innovations we are bringing to our data protection solution. For example, we recently introduced a unique offering which combines the capabilities of C. P. A with a cloud browser product to bring zero trust access to third.
Jay Chaudhry: Marty suppliers and partners.
Jay Chaudhry: Traditionally third party application access was addressed either by V. D eyes that are expensive and complex all by third party enterprise browsers that acquired yet another agent to be deployed on the endpoint third party enterprise browsers are complex to deploy and manage and their.
Jay Chaudhry: These are being exploited by attackers.
Jay Chaudhry: Our solution uses standard browsers, like chrome and provide superior security, while eliminating V D ice and third party browsers to give you a few examples are global 2000, and it serves as a company.
Jay Chaudhry: 20000 users a U S based shipping and packaging company for 7000 users a global 2000 insurance company for over 5000 users each purchased our cloud browser solution to eliminate legacy third party access products, we will continue to invest to accelerate innovations in this area.
Jay Chaudhry: Next our emerging products, including CTX Zero Trust her branch in cloud and AI analytics are increasingly contributing to our success I'm excited to share that emerging products Anr is growing twice as fast as our core products combined with our accounts.
<unk> go to market motion, our emerging products are driving large seven figure deals. Let me share two examples first in a seven figure upsell deal a fortune 500 transportation customer purchases EIA for workloads, eliminating virtual firewalls from their cloud environments. This upsell drove it.
Jay Chaudhry: Proximately, 40% increase in the annual spend of this existing 5 million dollar plus a or our customer driven by our continued innovations for workload protection and an account centric go to market strategy, we are securing large workload footprints, while increasing number of customers.
Jay Chaudhry: Which has accelerated workload protection <unk> over the past couple of quarters second in a new logo a seven figure ACB win a large U S. Automotive supplier purchased our zero Trust SD Wan for all 45 of the branches and zero Trust device segmentation for their 37 factories.
Jay Chaudhry: A combination of Zero Trust SD Wan with Zero Trust device segmentation will eliminate lateral track movement, among branches and factories, which is not possible to achieve with traditional SD Wan I believe with our solutions, we will accelerate the decline of north South and east.
Jay Chaudhry: East West Firewalls. This deal is an example of a global system integrator or GSI working closely with Zee scalar to transform customers' legacy networks and security to Zero Trust architecture.
Jay Chaudhry: Next in the federal vertical we added a new cabinet level agency this quarter and no. We proudly serve 14 of the 15 cabinets have agencies, including the D O D.
Jay Chaudhry: Federal agencies are adopting the zee scalar platform to improve their security posture and reduce cost and complexity by eliminating firewalls and vpns.
Jay Chaudhry: Having landed these cabinet travel agencies, we see significant upsell opportunities to grow <unk> over time, we are also continuing expansion into other federal agencies.
Jay Chaudhry: Example, in a new logo win a large federal agency purchased Z P. A N Z D X 422000 users and a seven figure <unk> deal got.
Jay Chaudhry: Government investigations by multiple countries, including Australia, the European Union, Japan, Singapore, the United Kingdom, and the United States.
Jay Chaudhry: Concluded that nation state cyber attackers are successfully breaching the moat created by firewall based solutions and as a result. These governments are planning to adopt zero Trust architecture, we see this as a huge opportunity and we will leverage our success in you.
Jay Chaudhry: <unk> had roles to grow our business in these and other countries.
Jay Chaudhry: Next let me share a few highlights of the progress, we're making to up level. Our go to market engine I am pleased to share that we're making solid progress on hiring and attrition plants, we had a strong quarter of hiring highly experienced quota carrying account executives and had lower attrition.
Jay Chaudhry: We expect these trends to continue in Q2, strengthening our sales capacity heading into the second half of fiscal 'twenty five.
Jay Chaudhry: Last year, we made the strategic decision to shift our sales motion from opportunity based selling to account centric Sally.
Jay Chaudhry: Our Seattle, Mike, Chris and his team are executing on this strategy and we are already seeing stronger customer engagements higher quantity pipeline better close rates and more business with customers strong customer engagement and sales execution contributed to over 20% year over year growth.
Jay Chaudhry: In unscheduled billings in Q1, as a reminder, unscheduled billings is comprised of new upsell and renewal billings.
Jay Chaudhry: We also grew 1 million dollar cross a our customers by 25% year over year to 585, we ended Q1 with over 65 customers spending $5 million plus annually with us.
Moving on to the channel we are working closely with our strategic partners, including G. S highs strategic national and regional partners and hyper scaler to drive faster value realization for our customers and.
Jay Chaudhry: An increasing number of strategic partners are embedding these killers platform in their solutions for their customers.
Jay Chaudhry: Our joint partner offerings are expanding beyond Z I E. C. P. A N C. D X to now include our emerging products.
Jay Chaudhry: Overall with strong execution in our account centric sales motion, we expect to continue to grow the number of $1 million, plus and 5 million dollar plus customers at a strong pace.
Jay Chaudhry: With a more mature pipeline a stronger sales team and growing partner engagements I believe we remain on track to increase sales productivity and achieve strong growth in conclusion on expanding portfolio that combines the power of zero Trust and AI is resonating with customers are.
Jay Chaudhry: Customer engagements are getting stronger as demonstrated by our net promoter score or NPS of over 70, which is well over two X. The SaaS company average I'm proud of the progress we made in our go to market initiatives this quarter.
Jay Chaudhry: And we will continue to make further progress towards achieving our next goal of $5 billion in a R. R.
Speaker Change: No I'd like to turn over the call to Remo for our financial results.
Thank you Jay our Q1 results exceeded our guidance on growth and profitability, even with ongoing customer scrutiny of large deals.
Remo: Revenue was $628 million up 26% year over year and up 6% sequentially.
From a geographic perspective Americas represented 54% of revenue EMEA was 30% and a P. J was 16%.
Speaker Change: Our total calculated billings in Q1 grew 13% year over year to $517 million as Jay mentioned, our unscheduled billings comprised of new upsell and renewal billings grew over 20% year over year.
Speaker Change: Our calculated current billings grew 12% year over year.
Speaker Change: Our remaining performance obligations or our P. O grew 26% from a year ago to $4.411 billion.
Speaker Change: Our P O was approximately 49% of the total RPE O.
Speaker Change: We ended Q1 with 585 customers with over $1 billion and are are you have 3165 customers with over $100000 in a R. R.
Speaker Change: This continued strong growth of large customers speaks to the strategic role we play our customers' digital transformation journeys.
Speaker Change: Our 12 month trailing dollar based net retention rate was 114%.
Speaker Change: While good for our business our increased success in selling bigger bundle selling multiple pillars from the start and faster upsells within a year can reduce our dollar based net retention rate in the future.
Speaker Change: There could be variability in this metric on a quarterly basis due to the factors I just mentioned.
Turning to the rest of our Q1 financial performance total gross margin of 80.6% compares to 80.7% in the year ago quarter.
Speaker Change: Our total operating expenses increased 5% sequentially and 19% year over year to $372 million, we continue to generate significant leverage in our financial model with operating margin of approximately 21% an increase of about 330 basis points year over year.
Our free cash flow margin was 46%, including datacenter capex of approximately 3% of revenue.
Speaker Change: We ended the quarter with over $2.7 billion in cash cash equivalents and short term investments now let me provide our guidance for Q2 and full year fiscal 'twenty 'twenty five.
As a reminder, these numbers are all non-GAAP.
Speaker Change: For the second quarter, we expect revenue in the range of $633 million to $635 million, reflecting.
Speaker Change: Reflecting a year over year growth of approximately 21% gross margins of approximately 80%.
Speaker Change: I would like to remind investors that we are you see new products that are experiencing strong growth in our optimized for faster go to market rather than margins.
Speaker Change: This will continue to influence our gross margins.
We plan to optimize new products for margins overtime as they scale.
Speaker Change: Operating profit in the range of $126 million to $128 million.
Speaker Change: Net other income of $18 million.
Speaker Change: Earnings per share in the range of 68 to 69 <unk>.
Speaker Change: Assuming a 23% tax rate and 163 million fully diluted shares.
Speaker Change: For the full year fiscal 2025.
Speaker Change: We expect billings in the range of $3.124 billion to $3.149 billion, reflecting a year over year growth of 19% to 20%.
We expect our first half mix to be approximately 39, 3% to 39, 5% of our full year Billings guide.
Speaker Change: Revenue in the range of $2.6 billion to $3 billion to $2.643 billion, reflecting a year over year growth of 21% to 22%.
Speaker Change: Operating profit in the range of $549 million to $559 million.
Speaker Change: Earnings per share in the range of $2 94 to $2.99, assuming a 23% tax rate and approximately a 164 million fully diluted shares.
Speaker Change: We expect our free cash flow margins to be approximately 23, 5% to 24%. We expect our data center capex to be approximately three points higher as a percentage of revenue compared to fiscal 'twenty 'twenty four.
Speaker Change: As we invest in upgrades to our cloud and AI infrastructure.
Speaker Change: With a large market opportunity and customers increasingly adopting the broader platform, we will invest aggressively to position us for long term growth and profitability.
Speaker Change: On a personal note I'd like to share that after eight amazing years, I've decided to retire as chief financial Officer Zee scalar.
Speaker Change: It has been my greatest pleasure to be a part of these killers journey from less than $250 million to over $2.5 billion in a R. R.
Speaker Change: Like to thank Jay for his confidence in me.
Speaker Change: He has been a true partnership.
Speaker Change: Which for me personally it's been very special I'd.
Speaker Change: I'd also like to thank the employees of these scalar and our board of directors for their support three years.
Speaker Change: I'd also thank our customers partners investors and analysts.
Speaker Change: I am confident that Zee scalar will continue to shape. The next several decades of cyber security.
Speaker Change: With its zero Trust exchange platform I look forward to following <unk> progress.
Jay Chaudhry: Now I'll turn the call over to Jay.
I want to personally thank remove all his contributions to zee scalar.
Jay Chaudhry: <unk> has been a friend and a trusted business partner, whose wisdom and judgment helped us make many critical decisions as we scaled our business at an unprecedented pace he will be dearly missed.
Jay Chaudhry: Fremont will remain as CFO until his successor is appointed with that operator.
Speaker Change: May now open the call for questions.
Speaker Change: Thank you.
Speaker Change: At this time, we will conduct a question and answer session. As a reminder, cancer question unit Press Star one one on your telephone.
Speaker Change: Wait for your name to be announced to withdraw your question. Please press star one again, please limit yourself to one question in the interest of time, please standby with compile the Q&A roster.
Speaker Change: One moment for our first question.
Speaker Change: Yeah.
Speaker Change: Our first question will come from the line of <unk> Kalia from Barclays. Your line is open.
Speaker Change: Okay, Great Hey, guys. Thanks for taking my question here first off Raimo Congrats on your retirement heck of her on a G scalar at all the companies before this as well.
Speaker Change: Thank you I appreciate that.
Speaker Change: Absolutely.
Speaker Change: Hey, maybe for you.
Speaker Change: Thanks for the detail.
Speaker Change: On the unscheduled billings growth of 20%. This quarter can you just maybe talk about how that did versus your expectation or maybe versus last quarter for some context and as you look forward do you still feel confident in sort of the accelerated billings growth.
Does that that contracted noncancelable billings pool sort of grows and normalizes back to what it was historically.
Speaker Change: So I'll start.
Speaker Change: The 20% growth.
It's what we expected and actually exceeded our expectations also.
Speaker Change: As we talked about the schedule contracted billings.
Speaker Change: It's 7% in the first half and 23% in the second half.
Speaker Change: So we do expect the unscheduled billings to be 20% plus also in the second half as we talked about on the last call.
Speaker Change: Great Okay.
Speaker Change: In addition to that and let me add a few comments.
Speaker Change: Q1 was very strong.
Speaker Change: The key factor is that.
Speaker Change: Believe will keep on helping us the second half one we are seeing strong demand for these kind of platform.
Speaker Change: Solid signs of interest for AI security offerings, we have that wasn't there before.
Speaker Change: We have a strong and growing pipeline.
It ramped sales capacity has strengthened as we had lower sales attrition in Q1, so I feel very good about our guidance for the second half.
Speaker Change: Very helpful. Thanks, guys.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Andrew Nowinski from Wells Fargo. Your line is open.
Speaker Change: Okay. Thanks.
Speaker Change: Oh, sorry to hear you're retiring it's certainly been a pleasure working with you over the last decade.
Speaker Change: I guess I wanted to ask a question on equities.
Speaker Change: I guess I'd like to ask a question on the data security the <unk> co pilot certainly it sounds like.
Interesting opportunity.
Speaker Change: Given your prior partnership with Microsoft and your ability to securely deliver traffic to office 365.
Speaker Change: I would imagine Microsoft is supporting you in this endeavor, but just wondering maybe if you could provide some more color on how youre, helping how they're helping you bring more customers to help more customers rollout copilot and whether you.
Speaker Change: Are seeing <unk> in that space. Thank you.
Speaker Change: Sure. It's a good question.
Speaker Change: Yes.
Speaker Change: What we are building is essentially leveraging our model once we did with Microsoft over the years we've done.
Tons of integration.
Speaker Change: In todays data discovery and classification.
Speaker Change: One drive.
Speaker Change: Should point and others.
Gives us unique advantage is that we are sitting in line for all of the traffic for office 365, where you can also go what's known as out of band using API for some of the classification discovery and the like.
Speaker Change: But this is as big of opportunity for us as a loss activity.
Speaker Change: 65, maybe bigger in some ways.
Speaker Change: We are here.
Speaker Change: Our customers have already embraced <unk>.
Speaker Change: Customers are actually beginning to use Microsoft and.
Speaker Change: And all of their concern about the data.
Speaker Change: Yes, yes.
Speaker Change: We're seeing real deals.
Speaker Change: We mentioned during our earnings release by Chi to toss in company.
Speaker Change: Wanted to secure Microsoft co products.
Speaker Change: The deal with US This force a seven figure deal.
Speaker Change: It's really driven by.
Speaker Change: Our data protection solution, that's AI power.
Speaker Change: Device make sure all year right amount of data that can be accessed by that user when they are using Microsoft partners. So while many companies out there we'll try to do.
Speaker Change: Security.
Speaker Change: But no I'd fatty and many of them are sitting in the traffic that they may be able to do one piece of it but we can do both in line as well as data offsetting it so I'm very excited with the opportunity and you won't see more coming with us.
Speaker Change: <unk> already working with the field, but many of the Microsoft organizations and make sure we help our customers as customers are the same common interest.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Gabriela Borges from Goldman Sachs. Your line is open.
Gabriela Borges: Hi, good evening, Thanks for taking my question.
Gabriela Borges: I wanted to follow up on your comment on CPA being a particularly meaningful driver.
Speaker Change: Correct in FY 'twenty five.
To remind us how far along do you think we are in the VPN replacement cycle.
Speaker Change: The competitive environment, changing and what are some of the catalyst that might cause them to reevaluate.
Speaker Change: Zero Trust equal strategy now versus maybe call it permanent.
Speaker Change: Thank you.
Speaker Change: Yes, yes.
Speaker Change: Thought bpm's will be gone along chemicals get lots and lots of them sitting out there similar to.
Speaker Change: And to wonder how long the blue collar talk seems to be here, we're still discovering lots of them.
Speaker Change: And placing there.
The opportunities not just VPN VPN is the starting point.
Speaker Change: On a beachhead for us.
Speaker Change: The entire inbound Dfc data places the whole stack, starting with Don Balancers Ddos protection external firewalls VPN, all the cash stuff.
Speaker Change: So that's big opportunity in the next phase of this opportunity ends up be SEDAR segmentation update so can you.
Speaker Change: The piano placement and tire inbound DMC and segmentation.
Speaker Change: Yes.
Speaker Change: And what we've done with VPN transport numbers.
Speaker Change: It's a remarkable roles.
Speaker Change: The timing of the IPO CPM off about a single digit percent, new and upsell business today, Cps over 40% of the mix of new and up sell.
<unk> generated by <unk> and CPU.
Speaker Change: I believe it's a matter of time when all of our customers will buy it.
Speaker Change: CPE and Gtx, but every employee that's weird on customer go ahead, NBC morning wins out there and.
Speaker Change: So called competition is still trying to spin up virtual VPN in the cloud and corner SEDAR Trust. So we think we have a pretty.
Speaker Change: Big advantage Sandia for quite some time.
Speaker Change: Thank you for the color and congrats Keith.
Speaker Change: Paul.
Sure.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Brad Zelnick from Deutsche Bank. Your line is open.
Brad Zelnick: Great. Thanks, so much so much information you shared raimo fantastic Ron Congrats and.
Speaker Change: Nice strong bookings start to the year guys. Jay I was surprised to hear you compare your growth this quarter to that of the firewall players out there just given how differentiated you are.
Speaker Change: And some of those folks are talking about significant hardware refresh opportunities ahead as they have boxes that go end of life. If you look backwards.
Speaker Change: To what extent are those events opportunities for Zee scalar to go in.
Speaker Change: And totally re architect and transform and displace.
Speaker Change: A set of branch firewall for example, and bring them onto your platform. Thank you.
Speaker Change: Yes.
Speaker Change: I agree with your statement I was wondering should we be ever talking about comparing our billings growth to firewalls, Sharon, but the delta was so big that we thought it was worth highlighting it.
But moving on to <unk>.
Speaker Change: The question you had about the fresh next June.
Speaker Change: When people used to ask me two years ago, our unit, placing firewall directly and I used I would say no. We are not focusing firewalls, but where we are sitting today firewall refresh is good opportunity for us and we are planning to target customers.
Speaker Change: Awesome.
Programs.
Speaker Change: Ken about a year ago, we have limited impact on firewalls, but no with a combination of zero Trust SD Wan and SEDAR plus device segmentation.
Speaker Change: We're able to replace most of the firewalls.
Speaker Change: Firewall East first firewall in data center and Brian just asked about it in the cloud.
Speaker Change: Well.
Speaker Change: So im seeing tremendous customer interest to reduce or eliminate find walls with our platform.
Speaker Change: It's a good opportunity that will be pursuing.
Speaker Change: Thank you if I could just sneak in a quick follow up I don't know for you or remote, but 30% plus bookings growth I mean that is really strong I think by my math current bookings using <unk>.
Speaker Change: As strong as well so it's not as if this is driven by duration can you maybe unpack that for US just to help us to understand.
Speaker Change: I understand the scheduled versus unscheduled billings dynamic, but we're looking at a pretty significant delta and I just I feel like that that bookings number is so strong it's worth highlighting and maybe just drilling into a bit for everyone. Thank you. So much again.
Yes, I mean, it's a great number breadth, 30% bookings growth really proud of that one thing to call out is that.
Is that.
Speaker Change: Our unscheduled billings up 20 plus percent growth basically both in the.
Speaker Change: First half and second half.
Hoping that so about 30%.
Speaker Change: <unk> bookings growth is again really good number.
Speaker Change: Strong strong growth in CRE.
Speaker Change: 22% RPM growth year over year to 26% so all good metrics.
Speaker Change: Then.
Speaker Change: We're well positioned.
Speaker Change: Our customers.
Speaker Change: Our our new and upsell.
Speaker Change: 65% upsell in Q1.
Speaker Change: Then selling into accounts.
Speaker Change: The new go to market organization.
Speaker Change: Okay.
Speaker Change: A lot of good things really really happening for <unk> as we go into the second half.
Speaker Change: Q2, and also the second half of this year.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Mike Cecos from Needham Your line is open.
Speaker Change: Hey, guys. Thanks for taking the questions here.
Speaker Change: And I, just really wanted to come back to the 20% plus year to year unscheduled bowling billings in the quarter. So congrats on that just wanted to see can you tie that into the disclosure that we have today on that emerging products. They are.
Speaker Change: Okay.
Speaker Change: Most of that on scheduled billings growth being sustained by those emerging products to see or hear that <unk> base is growing twice as fast as core.
Wanted to get some more color around.
Speaker Change: If thats, the driver and which products will be that emerging products classes and seeing the most traction anything that would be incremental and thank you very much guys.
Yes.
Speaker Change: It's Mike it's across the board.
Speaker Change: This is both the merchant products as well as certain corn products.
Speaker Change: The emerging products.
Speaker Change: Include AI workload protection, CTX and our brand solutions.
Speaker Change: CTX is doing very well as we called out also workloads.
Speaker Change: Doing well for us.
Speaker Change: Going forward, we made the comment that we'd be in the mid twenties.
Speaker Change: Percentage of new and upsell for the merchant products and we still feel that but to answer your question it's across the board our entire platform.
Speaker Change: I can add a couple more comments about it.
Speaker Change: Yes.
Speaker Change: Yes.
Merchant products.
Speaker Change: At <unk>, our core products, we're very excited about it so what's driving it.
Brian just one part of it I highlighted some of the deals for the branch.
Speaker Change: Talk about a seven figure ACB deals for the branch.
Speaker Change: No more new suppliers.
Speaker Change: Our trust SD Wan securing 45 branches.
Speaker Change: GAAP doing SEDAR.
Speaker Change: <unk> segmentation of devices 37 branches.
Speaker Change: So that thing is taking all we believe this is going to disrupt the SD Wan, which enables backdrop at the moment.
Speaker Change: But our tax I'm, especially pleased with our progress making on cloud workload protection.
Speaker Change: We have been selling workload protection, we did a great seven figure deal in the fluid that is very interesting and costs.
Speaker Change: A lot of these customers in the past have started small with us early on that smaller footprints are they expanding those footprints with bigger deals and that's what's going to accelerate an opportunity here and then there'll be zero trust workload segmentation the next opportunity.
Speaker Change: Why we are excited because the only competition in that space for us for communication is our school firewalls and we're excited.
Speaker Change: Thank you very much.
Speaker Change: One moment for our next question.
Speaker Change: Our next question will come from the line of <unk> Kidron from Oppenheimer. Your line is open.
Speaker Change: Yeah.
Speaker Change: Hi, Thanks, and remodel so congratulations.
Enjoy retirement you earned it.
Speaker Change: A couple of small ones for me first of all if I may.
Speaker Change: Last earnings call you gave.
Number <unk> target for the end of the fiscal year I was wondering if you can give us an update on IRR here now and the target for year end and then secondly on the emerging products can.
Speaker Change: Can you remind us what are the two or three biggest pieces within the emerging.
Speaker Change: Products category number one but number two also what percent of new business activity did they represent for you right here right now I'm, just trying to get a bit of sense of the change in mix there contribution wise. Thank you.
I'll start then, let's let's say finish up.
Speaker Change: So Tom.
Speaker Change: Target for the end of the year is $3 billion and so we are on track for that $3 billion.
Speaker Change: Net retention rate is 114%, which again, we think is outstanding.
Speaker Change: As we talked about that net retention rate is influenced with the customers buying more upfront, but because of the new emerging products and the strength of the membership product that has a positive effect to that.
Speaker Change: Related to what makes up the <unk>.
Speaker Change: Part of that bridge products I'll turn it over to Joe Let me expand upon that you can put them in a few buckets <unk> started out.
The biggest piece of it Zero Trust, Brian started out at branch connector Xerox's appliance SEDAR Trust SD Wan.
Speaker Change: India for US Zero Trust World workflows in the cloud sharing examples good opportunities and now AI products is becoming actually pretty good for us as well.
Speaker Change: In the past we.
Speaker Change: We had talked about a part of AI products fall AI analytics.
Speaker Change: This.
Speaker Change: <unk> bundle was up 19% year over year.
Speaker Change: It's coming from a small base.
Speaker Change: I am pleased with our traction.
Emerging products are taking.
Speaker Change: And the new business and upsell opportunity as we called out we expect it to be in the mid 20% range up from I believe it was 22% last year. So we do see emerging products are.
Speaker Change: Increasing in strength as we go forward.
Speaker Change: I appreciate it thank you.
Speaker Change: Thank you one moment for our next question.
Our next question comes from the line of Rob Owens from Piper Sandler Your line is open.
Speaker Change: Thanks for taking my question and I guess why would have the opportunity I'll pick on renal and something he said because <unk> in your prepared remarks, you talked about ongoing customer scrutiny on large deals and I don't know if thats just.
Speaker Change: General economic comment or Theres, something else coloring your opinion a lot of the script was around.
Speaker Change: AI and some of these transformational.
Speaker Change: Solutions that you guys are rolling out just curious if there's something else that might be lending to longer sales cycles as deals are getting bigger or if that was just more of a general economic comment. Thanks.
Speaker Change: Yes, Rob your assistant General economic comment, which basically we haven't really seen any change for a while.
Speaker Change: Yes, but that in ways helps us we are seeing interest in ciber, especially cyber that can't really.
Speaker Change: Do you is that chance to all brands some of our tax and the like so that's been seeing our costs come then and then CIO offering, let's say and that Hasnt changed.
Speaker Change: Like just fiber method, but if you've got a news my cost and complexity.
Speaker Change: Terribly motivated so via combined that need for zero Trust and now AI becomes further catalyst.
Speaker Change: Cost and complexity reduction, which is helping us because most companies tend to cost reduction.
Speaker Change: Legacy firewall vendor is not going to cannibalize that large installed base of firewalls.
Speaker Change: Can.
Speaker Change: Great. Thanks for the color.
Speaker Change: One moment our next question.
Speaker Change: Our next question will come from the line of Brian.
Speaker Change: Brian Essex from Jpmorgan Your line is open.
Speaker Change: Good afternoon, and thank you for taking the question Raimo, Congratulations we're certainly going to Miss working with you.
Speaker Change: Maybe I wanted to hit on.
<unk> side of the equation.
Speaker Change: Maybe Jay.
Speaker Change: Can you help us understand where in terms of progress with Avalere and <unk>.
Speaker Change: In the press release, you noted that you surpassed <unk> trillion daily transactions, which is huge.
Speaker Change: Or are your customers evaluating your ability to scale over the volume of data and traffic that you have given all the changes we're seeing in our setups.
Speaker Change: Inside of the market in the current environment.
Speaker Change: Second the market is ready for disruption.
Speaker Change: Market.
Taken a very thoughtful approach of starting by building the data fabric. So that all all Fannie you said all of this stuff doesn't need to come to the math.
Speaker Change: So.
Speaker Change: Avalon acquisition task for US now building up on Avalon <unk> done a few things already that are in the market we started with.
Speaker Change: Thanks, Steve that's powered by the backend.
Speaker Change: We have unified one liberty management that actually helps customers.
Speaker Change: Make sure they can properly prioritize vulnerabilities in that space.
Speaker Change: And then we're hanging onto the same platform some of the digital experience offerings are getting better as well.
Speaker Change: And the SEC ops, the biggest thing we're doing that others can't do.
Speaker Change: It is essentially scoring and prioritization of what needs to be done.
Speaker Change: But the next phase.
Speaker Change: We powered will need our products building, let's call reach prediction.
Speaker Change: And we are working with some of the early stage design win customers have seen some very good results. So what I pointed out to me was you can go and build technology, but if you don't have that kind of private enterprise data you need you can't do much with it let me contrast that chat GPT.
Public data off the whole well trained it on LLS, they're able to do it well, but the logs on private Steve Scala, having those logs available we can actually train the staff.
Speaker Change: But based on the collective learning this thing can be applied to a specific customer so each customer gets benefit. So we are increasing our investment in this area and over time, you're going to start seeing some more meaningful results.
Speaker Change: Alright Thats helpful. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question will come from the line of Joel Fishbein from Chris Your line is open.
Speaker Change: Thanks for taking the question.
Big shoes to fill and you'll be sorely missed.
Speaker Change: Hey.
You talked a little bit about the public sector in the U S. Federal just curious if theres been any updates on Vod and Thunder <unk> any of that.
The projects there.
Speaker Change: We're looking at doing a revitalization.
Speaker Change: <unk> then you seem to be primed for that would love to hear.
Speaker Change: Where that stands.
Speaker Change: So we continue to gain share in federal market across the board. One other thing brought up is now very keen.
Speaker Change: <unk> 15 cabinet level agencies as our customers.
Speaker Change: Across defense too we have a number of initiatives, we had talked about some of them in the past.
Speaker Change: We have very very big opportunity out there.
Speaker Change: And with the New administration coming on board, we are all reading about the push for cost reduction.
Speaker Change: I believe that's a positive for us.
Speaker Change: While our federal business. This is the cost we reduce cost and complexity, we eliminate north South east West Firewalls VPN.
Speaker Change: Segmentation all of those kind of products.
Speaker Change: I'm excited about that.
Speaker Change: Our federal opportunities and it's not just the U S and taking the same kind of solution to somewhat western friendly known narrow friendly countries asphalt.
Speaker Change: Thank you.
Speaker Change: One moment for your next question.
Speaker Change: Okay.
Speaker Change: Our next question will come from the line of.
Speaker Change: Fatima <unk> from Citi. Your line is open.
Hello, Good afternoon, and thank you for taking my questions I appreciate it.
Speaker Change: Congratulations on an illustrious career.
Speaker Change: I wanted to ask you a question with regards to the updated guidance.
Speaker Change: Thanks.
Speaker Change: Right.
Speaker Change: Second quarter billing.
Speaker Change: <unk> gone through the seasonality commentary you shared remodel.
Is there anything that we should think about.
Speaker Change: Transactions that may be landed early.
Speaker Change: Just trying to get a better sense on paid first quarter really strong out of the gate certainly relative to expectations.
Speaker Change: Why would we.
Speaker Change: Some of that pair down in the second quarter.
Speaker Change: If you can give us some color around that thank you so much.
Speaker Change: Yes.
Speaker Change: Our guide for the second quarter for billings is actually up.
Speaker Change: 39, 33, 39, 3% 39, 5% with indicate that for the second quarter.
Speaker Change: The key thing is that we had a great first quarter and if you take a look toward passing the beat for the entire year really fundamentally nothing.
Speaker Change: Change, but we talked about on the prior call the key dynamic which is occurring as the scheduled billings at 7% in the first half and 23% in the second half.
Speaker Change: No.
Speaker Change: Nothing has really fundamentally changed what I can say is that our pipeline supports our guidance by.
Speaker Change: What I can say also is that.
Speaker Change: Yes.
Speaker Change: Hiring has been very good in our sales organization attrition is down.
Speaker Change: Go to market organization really is becoming very very strong.
Speaker Change: Size as we go forward will become a more important part to scalar.
Speaker Change: So the second half basically as we've talked about and you have our guidance, we brought up guidance for the full year and you feel comfortable with that absolutely also the same thing that go to market execution.
Speaker Change: Mike <unk> leadership team has been outstanding.
Speaker Change: Thank you.
Thank you one moment our next question.
Speaker Change: Our next question will come from the line of <unk> co sorry from Baird. Your line is open.
Speaker Change: Okay.
Hi.
Speaker Change: That's on the retirement Raimo, it's great working with you and good luck for the next chapter and thanks.
Speaker Change: Thanks for taking my question.
Speaker Change: The shift to account centric selling courses is yielding benefits already its tail mansion.
Speaker Change: The pipeline quality.
Speaker Change: Just a follow up to Brad's question on the bookings grow then and I'll say remind and Jay you mentioned about the pockets gsi's facilitating significant deals and so thanks for all the sound figure SD Wan. It will just help provide some more quantifiable color in terms of incrementally archived to GSI led deals.
Speaker Change: Any more examples that highlight success.
Speaker Change: With the size of that is leading to larger bigger deals are.
Speaker Change: It's a longer sales cycles, and how should we think about.
Speaker Change: But the billings going forward.
Speaker Change: Alright.
Speaker Change: Very good question.
Speaker Change: We are actually seeing increasing contribution of gsi's, especially in large accounts.
Speaker Change: Delighted to news XD. This time data driven by GSI is ASP on partners.
Speaker Change: An auto supplier parts company. This was a combination of zero Trust segmentation and zero Trust branch, eliminating the need for firewalls.
Speaker Change: And lots and lots of factories and Brian Cheers Bye.
Speaker Change: Also GSI also helped us with it services company, we have to be.
So protection from Microsoft.
Co pilot type of stuff.
Speaker Change: The difference we are seeing is that GSI is now working more closely with customers talking to our lease stage and standardized.
Speaker Change: Standardizing on some of our solution used to be <unk> no.
Speaker Change: Standard solutions, including <unk>.
Speaker Change: Emerging products as well.
So good momentum and also think of it when we talk about eliminating a bunch of products generally those products end up being what.
Our firewall VPN SD Wan, but knack VDI device segmentation.
Speaker Change: It's an opportunity for GSI partners to get services due to.
Speaker Change: Take those products out.
Speaker Change: Over time, we'll start giving you more and more data on it but I'd say, we're very pleased with results and and this is because of our leadership and added to drive GSI, that's making a big difference.
Speaker Change: Got it thanks a lot.
Speaker Change: Our next question.
Our next question will come from the line of Matt Hedberg from RBC. Your line is open.
Matt Hedberg: Great. Thanks for taking my questions guys lots of really good things to think about it this quarter I guess I wanted to go back to the data protection solution.
Matt Hedberg: It seems like it's really contributing to large deals and it's not the first one you've talked about I will look back I think in Q4 of 'twenty three fiscal 'twenty three you've talked about it approaching.
Matt Hedberg: $250 million of era, and I think at the time that was growing about 60%.
Speaker Change: Any update on the scale of that business I think it was about maybe about 12% of IRR back then I have to imagine it's been growing faster than the base business, but that feels like it's a really really material contributor to two new and emerging product growth.
Speaker Change: Yes data protection keeps on growing faster than our overall business.
Speaker Change: We are doing some big deals with us.
Speaker Change: Emerging AI one of the biggest thing that's going to really help drive data protection is AI and because companies are wanting to do.
Speaker Change: Indeed, our leasing out you'd add these todd you've seen more and more.
Speaker Change: Public services like chat GE, even called pilot falls under behavior.
And then there will be one of your board private.
And that our customers are building too. So we have been probably the most comprehensive platform.
Or data protection, not just airline data endpoint data for SaaS applications.
The DSP them off the wall and even data security by email that as well.
Speaker Change: Keep on seeing us and the other comment I made was.
Speaker Change: As all large D data protection ex penetration happens our Internet. We are sitting in line, we have naturally they're doing exercise Tls inspection.
Speaker Change: It's natural to expect to grow this business and we're doing good job with it.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Okay.
And our last question for today will be from the line of Roger Boyd from UBS. Your line is open.
Great. Thanks for taking my questions and satisfy you go but I'll Echo my congrats on your retirement, it's been a pleasure.
Jay just to follow up on data security. It seems like you are having a lot of traction upselling that data security portfolio, but I am wondering to what extent that <unk> seen that holistic view that really only inline vendors can do.
Speaker Change: The influence news Epa's EAA deals and how big of a competitive differentiator you see that going forward.
Speaker Change: So data protection majority of the time it comes when CPA with such a large installed base our customer started on data protection side.
Speaker Change: <unk> known or small data protection, so it's easy in Nashville, Boston start that way.
Speaker Change: We are seeing some of the customers.
Speaker Change: Some of the prospects.
Speaker Change: Interest on the data protection side as well.
Speaker Change: Those numbers to be small.
Speaker Change: Biggest products that are actually helping us with new logos.
Speaker Change: On XD products like air gaps seed our cross device segmentation are ampelos unified wallet Rocky management book, a company like <unk> that has a large platform.
You can sell a lot of installed base. We can also sell a lot of that new logo opportunities because it's a big market for us there.
Speaker Change: It's why we don't really push for one or the other.
Speaker Change: We think balaton important for us.
We are doing well in both cases.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: And with that I'd like to turn it back over to Jay Chaudhry for any closing remarks.
Jay Chaudhry: Okay well. Thank you all for your interest in <unk>, we look forward to seeing you in one of the many conferences that we'll be participating in.
Speaker Change: You bet. Thank.
Speaker Change: Thank you.
Speaker Change: Goodbye.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.
Speaker Change: Okay.
Speaker Change: [music].
Okay.
Okay.
Speaker Change: [music].
Okay.
Speaker Change: [music].
Speaker Change: Yes.