Q4 2019 Earnings Call
Please standby.
Good day, everyone and welcome to the these dealers Four Q2 000, <unk> earnings Conference call. Today's conference is being recorded and at this time I would like to turn the conference over to Mr. Bill Choi Vice President of Investor Relations. Please go ahead Sir.
Good afternoon, and thank you for joining us to discuss Zieske alert financial results for the fourth quarter of fiscal 2019 with me on the call or Jay Chowdhry, Chairman and CEO and remote Knesset CFO .
By now everyone should have access to our earnings announcement. This announcement may also be found on our website in the Investor Relations section. In addition, a supplemental financial schedule was posted to the Investor Relations section of our website earlier today.
Let me remind you that we'll be making forward looking statements during todays discussion, 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 income taxes and earnings per share. 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.
Our actual results may differ significantly from those projected or suggested in any forward looking statements. These forward looking statements apply as of today and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements. After this call for a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition. Please see our filings with the Securities and Exchange Commission as well as in today's earnings release, unless otherwise noted all numbers, we talk about today other than revenue will be on an adjusted non-GAAP basis.
Please refer to our earnings release on the Investor Relations portion of our website for a reconciliation of GAAP to the non-GAAP financial measures for historical periods. The GAAP to non-GAAP reconciliations can be found in the supplemental financial information referenced a few moments ago I would also like to inform you that we will be hosting our analyst day next week on September 17 in conjunction with our Dizziness Live conference in Las Vegas.
Zenith live is our annual customer and partner cloud summit featured keynote presentations and topics specific breakouts regarding the transformation to a cloud for the future we will be webcasting, both as the units life Keynotes, Indiana, Steve program, which you can access on the events section of our IR website.
Now I'll turn the call over to Jay.
Thank you Bill and thank you everyone for joining us on our call today.
In Q4.
I'm pleased to announce that we delivered strong revenue and operating profit growth in the fourth quarter with positive free cash flow.
For the quarter.
Revenue grew 50% and billings grew 32% year over year against a very difficult comparison.
And for the full year, our revenue grew 59% and billings grew 51%.
I will start the call by commenting on our market opportunity.
Next I will discuss our sales execution, including the hiding off our new President go to market and Chief revenue Officer, and conclude with some of our deal wins in the quarter.
We have seen a macro shift take place with organizations like choosing multi tenant cloud architecture.
Empower them to scale quickly as they move to applications and data to the cloud.
Digital transformation and adoption of mobile and cloud fundamentally change network traffic patterns and break that traditional parameter protection model weird organizations build a hub and spoke network.
And the mode of security appliances to secure the network.
Built for a world without walls cease could or clogs acts as the business policy engine, which is now deployed across more than 150 data centers to deliver the full set of security and policy enforcement on a direct path to the application.
Our mission is to provide fast secure and reliable access to information no matter, where it lives responding to customers' need for better advice, what a cloud centric world. We're appliance based perimeter security is less relevant Gartner has recently published a groundbreaking research note I told.
Future off network security is in the cloud in this paper they introduced a concept off a secure access service edge.
Pronounced sassy.
Sassy goes well beyond the destruction of Npls asked event.
Or hardware appliances with Claude on applying zero Trust principles.
As I interpreted sassy has the following key points.
Number one demands that service providers offer compute power at the edge off of widely distributor network.
Distributor as close as possible.
Each and point number two light range just on drugs.
And all the security services in backlog.
Three.
Labors inline encrypted traffic inspection at scale.
Most importantly, gartner recommends reducing complexity network security by moving <unk> ideally one vendor for secure web gateway.
Cloud access security broker or cash.
DNS Zero Trust network access.
And remote browser isolation capabilities.
We agree with these key findings and I recommend that everyone read just report it is available on our main website.
These killer platform was designed from the start one of the world that Gartner has spelled out.
As the world moves towards the sassy Martin traditional network security vendors are embracing these killers vision.
Cloud based security.
After rejecting it for years.
They are trying to retrofit the legacy appliances into a cloud world and making more and more noise about what we believe.
They are fundamentally flawed hybrid security cloud offerings.
Yeah messages keep on buying my boxes, but use my so called cloud service. Many users are on the road or in a branch office.
But we believe the pieces together hybrid clogs can't scale leave gaps in security audit expenses.
Deliver a poor user experience and will not allow enterprises to fully realize the benefits of the cloud.
Just like you can't create a Netflix is why stacking thousands so DVD players in backlog you can't offer and inline high performance security clogs, why spinning up a bunch of virtual machines in a public cloud. This is a defensive strategy of cloud imitators, which in our view does not serve the needs of the customer.
To put it simply architecture matters zeese color has for architectural advantages that firewalls can't just add on.
Edge cloud for policy enforcement.
Multi tenancy proxy for SSL or Tls inspection and Zadar Trust network access.
These killers platform deployed across more than 150 data centers was built from the ground up.
And for whites the advantages off your lost to see scale deep content inspection and user experience that is difficult to match.
In addition, we have over 10 years of operational experience running our security cloud at scale.
As I have said before.
There really is no compression go to them for expedience.
To keep on growing at a rapid pace as we seek to reach a billion dollars in revenue.
We need to build a sales machine to drive consistent sales execution.
Critical water popped on transformational sales, which delivers even if the market environment gets tougher.
We're not sure if the macro economic environment is having an impact, but we started to see some large deals taking longer to close.
To help us deliver go to market scaling and execution I'm very pleased to announce that Dolly logic is twinning Ses care as a president go to market and see auto.
I've been deliberate about finding the right leader with a progressive mindset.
As this is an extremely important role.
Ladies shoes, my views on value driven strategic selling and I'm confident that he is the right leader to drive our sales execution. He brings a wealth of hsas and cloud experience and a proven ability to scale global sales and channel in support of our long term growth objectives.
On that do you front I'm excited that more customers are buying the C.I.N.C.P.A. platforms, together, which enables true transformation with direct access to any service or application from anywhere on any device without backhauling traffic through the data center CIA for Internet and SAS and C. P for internal applications in your data center or in the cloud.
As some of you know C. P is a newer platform that we started selling about two years ago and it's now an important part of our business already contributing 14% off for new business.
We are seeing rapid growth with <unk> with approximately half of that business coming from existing ziad customers.
Let me start by highlighting a new customer that bought CIA and CPH together Global information services company spun off one off its business units along with the legacy network and data center infrastructure.
With that opportunity to start with a clean slate they adopted a strategy to pursue a full transformation to the cloud.
With Internet as to why it ATM network cloud has a new data center and cease killer asset policy enforcement platform.
The customer purchased the CIA business bundle plus cloud firewall and data loss prevention for all 25000 employees in CPGA for 10000 mobile users.
Without building, a new network with scores of new security gateways. The customer is leveraging the scale to provide secure fast and reliable access for all users from all locations on any device at a lower cost of ownership and with greater operational simplicity.
Global system integrator partner, who is implementing overall transmission project played a key role in driving those east could or sale and example of channel leverage we are creating without investments in our asphalt partners.
Let me give you an example off an existing ziad customer adding zepa.
A fortune 100 multinational oil and gas customer.
With headquarters in Europe that bought our Ziad transformation bundle for 65000 employees last year purchase D.P.A. fought over 56000 users.
Zippy. It represents the next step in this customers I T transformation journey towards the cloud first strategy.
After adopting local increment breakouts for 450 locations the customer bar Zepa do replace its legacy VPN and do a lot more zepa will provide access to its applications in the data center and in the public cloud, while increasing the level of security with a zero Trust network access approach.
The p. it creates a unified policy based access across all environments, including thousands so perhaps that they're moving to eight of U.S. and ashu.
This large company also expects to benefit from C.P.A. to integrate potential acquisitions.
This latest purchase increased the total customer spend would see scanner by two thirds.
In our large z. ideas, we continue to see office 365 deployments and securing local internet breakout asked a primary driver.
A global 500 industrial company with headquarters in Europe .
She has stopped business bundle aim cloud sandbox for 120000 users as they require a scalable solution that can keep pace with over 50% growth in Internet traffic Korea.
In addition to office 365, SSL traffic inspection and cloud Sandboxing, where needed for better security for all locations across 60, plus countries and all users whether at the headquarters of branch office or on the road.
In another deal a fortune 100 consumer goods company that purchased business bundled several years ago upgraded to transformation bundle plus data loss prevention for all 100000 employees.
After deploying Officethree hundred 65 last year that customer was overwhelmed with a growth of traffic for one drive and should point.
With these killer they will no longer have to backhaul office to be 65 to four data centers. Instead, they are implementing SDRAM for nearly 300 locations for local internet breakouts to deliver better user experience.
To secure all local break out the customer purchased cloud firewall sandbox.
And DLP for all users to keep Mal fear from coming in and sensitive information from leaking out.
No matter, where the user is.
For customers, who want network and security transformation. We believe we are the only cloud native multi tenant platform that meets their needs.
The cloud security market is evolving rapidly and we are adding significant functionality to our platform and creating more distance from the cloud imitators, you will hear more about our innovations at our zenith like cloud Summit next week.
Overall, the competitive environment remains favorable and you have high win rates coupled with the strong net dollar retention rate of 118% in fact.
Customer churn rate declined quarter over quarter and year over year, we ended fiscal 2019 with over 3900 customers.
Total global 2000 customers increased to over 400 as of July 31.
Up from over 300, a year ago.
And we have over 100 of the Fortune 500 companies as our customers.
We are strengthening our channel partnerships with large system integrators, and global service providers, who contribute over 50% off our revenue.
We will continue to aggressively invest in our business to pursue our significant market opportunity.
Now I'd like to turn over the call to remove to walk through our financial results.
Thank you Jay.
Revenue for the quarter was $86.1 million.
Up 9% sequentially and 53% year over year.
For the year ago comparison recall that Q4, 2018 revenue was aided by $1.4 million and nonrecurring revenue from a large public sector customer deploying our platform as a private cloud.
From a geographic perspective for the quarter Americas represented 51% of revenue EMEA was 41%.
In a P.J. was 8%.
For the full year revenue was $303 million up 59%.
Zepa remains the fastest growing new product in our history.
Zepa contributed 14% of our new and upsell business in fiscal 2019 up from 10% in the prior year.
Turning to calculated billings, which we define as the change in deferred revenue for the quarter plus total revenue recognized in that quarter.
Billings grew 32% year over year to $126 million.
As a reminder, our contract terms are typically one to three years, we primarily invoice our customers one year in advance.
Excluding upfront greater than one year billings in both periods.
Billings would have grown over 50%.
Remaining performance obligations were ARPO was $554 million on July 30 Onest.
Up 39% from $398 million one year ago.
As a reminder, the large public sector deal added $26 million ARPU a year ago.
Based on her ending July 30, Onest annual recurring revenue for <unk>, approximately 43% is from our high end transformation bundle.
Which includes our next generation firewall and sandbox.
Up from approximately 35% last year.
Our strong customer retention and ability to up sell have resulted in consistently high dollar based net retention rate.
Which is 118% for the quarter ended July 30 Onest.
This compares to 117% a year ago and under 18% last quarter.
Our increased success selling bigger deals upfront, we start with transformation bundle and faster upsells within a year, while good for our business can produce our net retention rate.
Which is calculated on a year over year air our basis.
Considering these factors, we feel 118% is outstanding and it will vary quarter to quarter.
Total gross margin was 81% down 1% sequentially and up 1% year over year.
We feel that 80% continues to be a good target range in the near to medium term as it is important to continue to invest in their platform to drive top line revenue growth.
Turning to operating expenses, our total operating expenses increased 6% sequentially and increased 31% year over year to $62.2 million, but decreased as a percent of revenue 72%.
The sequential increase in operating expenses is primarily due to increased sales and marketing spend in R&D.
We increased our headcount in Q4 by over 130 employees and ended the year with over 1400 80 employees.
Sales and marketing increased 6% sequentially and 33% year over year to $41 million.
The increase is due to higher compensation expenses and marketing programs.
R&D was up 7% sequentially and up 28% year over year.
$13.2 million as we continue to invest to enhance product functionality and to innovate on new products.
<unk> increased 3% sequentially and increased 26% year over year $8 million year over year growth and Gionee includes investments in building our teams and other expenses related becoming a publicly traded company.
These expenses exclude $3 million litigation related expenses.
Our fourth quarter operating margin was a positive 9%, which compares to a negative 4% in the same quarter last year net income in the quarter was $9.1 million or non-GAAP earnings per share of seven cents.
We ended the quarter with $365 million in cash cash equivalents.
In short term investments.
Free cash flow was positive $7.6 million in the quarter compared to a positive $11.9 million for the same quarter a year ago.
Our E. S. P. P program decreased our free cash flow by approximately $4 million in the quarter, whereas in the year ago quarter. It had a positive 3 million dollar impact.
The SPP program does not impact or overall cash balance.
Now moving on to guidance.
As a reminder, these numbers are all non-GAAP , which excludes stock based compensation expenses amortization of intangible assets certain litigation related expenses.
And any associated tax effects.
For the first quarter, we expect revenue in the range of $89 million to $90 million, reflecting a year over year growth of 41% to 42%.
Operating loss in the range of negative $1 million to breakeven.
Please note Q1 will include $6 million in expenses for three major marketing events, including Zenith live Americas, Zenith life, Europe , and our sales kick off.
Income taxes of $700000 in earnings per share in the range of zero to one cents.
Assuming 139 million common shares outstanding.
For the full year fiscal 2020, we expect revenue in the range of 395 million to $405 million or year over year growth of 30% to 34%.
Calculated billings in the range of 490 million to $500 million or a year over year growth of 26% to 28% operating profit in the range of $13 million to $18 million.
Income taxes of $2.8 million.
Earnings per share in the range of 12 to 15 cents.
Assuming approximately 140 million common shares outstanding.
Our guidance reflects plans to invest aggressively in our business to pursue our significant market opportunity.
With RCR on board, we expect to step up our sales and marketing investments in the coming quarters.
In addition, we will increase investments in our technology platform and cloud infrastructure.
As you model billings I want to remind you that historically Q2, and Q4 have been our strongest billing quarters.
With sequential declines in Q1 in Q3 quarters, respectively.
Over the last three to five years first half billings have represented on average 43% to 44% a full year billings.
In fiscal 20, we expect our first half mix to be in the 42% to 43% range.
The reason for this was primarily related to our new hero getting familiar with our business and fully ramping.
Also please keep in mind that we had a large upfront billing of $11 million in Q2 of 2019 from large public sector customer deploying our platform as a private cloud, which will pose a tough year over year comparison in Q2.
Excluding this deal or billings guidance for the full year implies 29% to 32% growth.
In terms of free cash flow. Please note that we'll have additional spend for tenant improvements related to our headquarters move in January as well as ongoing cash outlays for lease payments on our existing San Jose buildings and litigation expenses related to the ongoing semantic lawsuit.
With our headquarters move we expect a modest budget of $4 million to $5 million or tenant improvements.
Including these cash payments, we expect our free cash flow margins in fiscal 2020 to be one or two points lower compared to our operating profit margins.
Longer term, we would expect free cash flow margins to be higher than our non-GAAP operating margins.
Now I'd like to hand, it back over to Jay.
Thank you it anymore.
In summary, designed as a cloud native multi tenant architecture. We believe we are in the early innings off a significant market opportunity to enable cloud transformation.
Just like Salesforce and workday developed cloud native multi tenant platforms to disrupt large legacy software vendors see scared or has a similar opportunity to disrupt network security.
With multiple tailwinds, such as office 365, SAS adoption as the brain and App migration to public clogs.
We believe the market is coming to us.
With the addition of Dolly Dodge.
We are building a sales organization that can deliver world class execution.
We look forward to seeing you had on zenith like cloud summit and our analyst day in Las Vegas, where we will showcase some of our upcoming new products.
We thank you for your interest in the skin and look forward to reporting on our progress in the future.
Operator, you May now open the call for questions.
Thank you and ladies and gentlemen to ask a question. Please signal by pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach out equipment. Once again press star one to ask a question.
And we'll take our first question from Brad Zelnick with Credit Suisse. Please go ahead.
Great. Thank you. So much can you guys hear me.
Yes Hello.
Excellent congrats on a fantastic year and it's.
Excellent excellent so congrats on a fantastic year and it's great to see your sustained growth above 50%. If we make the proper adjustments J.I. I wanted to ask you about your comment about large deals taking longer to close what are the proof points that suggest to you that this may be due to macro deterioration versus perhaps execution issues and what gives you. The confidence this isn't a change in the competitive dynamic for what you're selling.
Yes, so we.
Deal with a large number of deals our pipeline has been growing a comment you made was that some of the larger deals took longer.
Talking about macro forces competition.
I can tell you that.
If we analyze our top 50 deals, which we did.
Ah you really see any competitive.
Real competition phone Fargo, guys or any other guys thought competitive rate remains very very strong.
On the macro level, we haven't seen any significant things to really say that macro is playing a role in it.
We do believe that passed a large number of wraps up being hard they all need to go through a bit more sophisticated sales methodology sales the framework and the like so we can keep on scaling the successful execution, we have been doing so far.
So not worried about any comparative pressures.
No clear indications on the macro or that kind of remains to be seen as everyone does talk about them.
But we are quite excited that we have a new see auto who can help us further scale. The kind of work we had done before to the next level.
Congrats on the higher end just to follow up on this topic with remote if we look at long term deferreds. It would seem there as well that duration might be shrinking a bit from what it had been last quarter is this due to the same dynamics that Jay is discussing or are there other factors to consider as well what's baked into your guidance for the full year is it more of what you're seeing exiting fiscal 19 or is it assuming what you saw on average throughout the entire year. Thank you.
Thank you.
Brett My guidance basically is what we've seen through the entire year you know based on duration.
The if you take a look at the total deferred revenue grew 53% short term deferred revenue grew 57%.
And what we have in long term deferred revenue, we've got that public sector deal, which transfers over from long term to short term I wouldn't think anything different related from a duration perspective.
In my guidance for fiscal 2000.
Okay, great. Thanks, so much we'll see you next week.
Thank you.
We'll take our next question from Alex Henderson with Needham and company. Please go ahead.
Oh Hi, Thanks. This is Roger board on for Alex I'm wondering it another way can you say what portion of our PEO you expect recognize over the next 12 months.
So the.
The CR P.O. is.
It's about 45% or I'm, sorry, the CR P.O. is $305 million.
So that will be over the next 12 months.
Got it and then on sales execution I was wondering if you could just provide some detail.
Oh I know what you offer in terms of channel enablement and <unk>, what you do for your partners in a way of training education to help them smoothed out their departments.
Yeah. So two questions here one is what are we doing to enable our partners in the second questions about deployment.
From what we have said all along that our sale is not a typical security appliance type of sales, where you train hundreds of our channel and they go and sell to technical people.
We are fundamental to enabling cloud transformation. So sales is driven top down at the sea levels CIO CTO seasonal so at best Channel partners, our system integrators and surface waters, though we end up doing a fear them on a heavy lifting and the heavy lifting is natural because when you're doing driving a new transformational sale. When you are disrupting the old World you have to drive high touch.
But as I indicated in one of the wins I highlighted on acetate partners are doing a great job.
Regarding deployment axes east Gorilla is relatively easier to deploy we do train our channel partners. We also have our own sales Saudi deployment teams that worked with channel partners are deployments happened pretty well fairly fast and customers overall, a very happy as you can see from our net retention rate is also our churn rate, which has been pretty low.
Great. Thank you very much.
Yeah.
Moving next we'll go to Tal Liani with Bank of America. Please go ahead.
Hi, guys I have two questions number one is more high level question for Jay.
Last week, there was not only stay off one of the competitors that said that in the long run.
Proxies are not the right solution and the right solution is to offer the same services from the network and this was a firewall company I'm wondering if you the stock went down on this I wondering if you can address this issue directly.
The second thing is is there anything you are planning on doing outside of once you discussed is there anything you plan on doing to address the slower.
Sales growth because of the environment that you noted thanks.
And is there is there.
Thank you.
Yeah.
So first of all about proxy.
I think if you ask any export out there.
What security inspection technology gives you better capability to inspect and block threats.
Hi Tech, 99% of smart people agree it's a proxy technology. So I think well statements like that made by competition.
Really making zero cents and took a lot of you work for large banks.
You cared about security.
If you look at the top 10 large banks in the world and home any of them.
Our next in Florida, but lots of them how many of them replaced a proxy technology for old phone traffic I believe you will find it zito.
In fact, I know off of very large bank that has spent tens of millions of dollars on an extra implied wall and deployed them all and this bank is still.
Depending upon a proxy technology to inspect your classic for threats.
That's one piece.
Two if you look on any vendor who's doing any meaningful thing even.
Even sitting in front of servers like all companies in the world. They all have proxy based technology, because without proxy you had little or no control lost money.
Well I won't which is a pass through device was a good thing before the SSL the world when traffic was not encrypted today in most other cases 90 plus percent of the cases, it's SSL traffic Tls traffic firewalls were never designed to inspect SSL proxy technologies needed for SSL. If you really don't inspect the traffic. It is like your luggage passing through an airport inspection checkpost.
Without inspected.
That's not a good thing so I I think these statements, meaning less mislead customers that give them false sense of security and do a disservice to the security industry.
From a from a growth perspective, you know things that we've done.
You know we've been up without a C. R O for about a year and a half.
You know that was deliberate on our part Jay's part to make sure. We found the right person. So we did not want to jump the gun.
And hire the wrong person, we feel that we have the absolute right person to run our sales organization.
Also you know we've hired and made several hires over the last four to six months VP of federal VP of the east a new VP general manager of EMEA.
Well, the CRL and a VP of sales enablement you know we see this is a there's a large market opportunity and you know we're going to increase our sales and marketing efforts.
In fiscal 20, having the right person on board gives us confidence to invest more into our sales and marketing organization to maximize this market opportunity. Yeah. If I may add I mean, as we compete out here. We almost win every deal very little situations would we don't win so very comfortable with our differentiated technology very comfortable with our sales process of you find.
Just need to make sure we can keep and scaling it as we set our targets for a bigger and bigger numbers.
So given a the coffins ER.
Just mentioned does it mean, it's going to take you longer to get to your margin targets doesn't change the trajectory of margin improvement.
No I mean from from our perspective, what we've said all along that we get to our operating model of a 2020, 2% operating profitability. Once we're at $802 billion. There's no change in that the one change related to the guidance is that Oh, yeah. We brought down the first half down to 40% to 43% versus historically, where we've been 40, 344% of our total billings. The reason for that is that you know with Dolly coming on board a it's going to take some time to get ramped up to understand the landscape. So we want to give him some room in there related to up our billing guidance.
Thank you.
Our next question will come from Andrew Nowinski with Piper Jaffray. Please go ahead.
All right, thanks, and congrats on the nice quarter.
Maybe if you could just start with.
Yeah, I know in the past you've talked about office 365, as significant tailwind for Z scale or.
I'm just wondering if you.
If you can give us any parameters on how we should think about that.
In terms of what's left in fiscal <unk> as we head into fiscal 20.
And if you could also just rank order your top growth drivers impacting your fiscal 20 guidance. Thanks.
Yeah, Oh 50, 65 has been a big driver because office 65.
Almost requires that you do local break out and that's because the amount of traffic generated by office 365 is far far bigger than all other SaaS applications combined.
So that's point number one point number two today about 20% off the largest global 2000 companies on sees good customers that means about 80% on most of the customers have bought office 365, but the deployment is lagging behind zeese killer comes into help do local breakouts. So deployment can happen cost effectively better response time. So we see significant opportunity for office see 65 head office, we are not linked to the sale of <unk> 50, 65, we on needed for the deployment of office. These 65.
The second big driver for Us is as Stephen.
Steven Technology is evolving actually asked the van is also driven by a big part because of all 50 65 and local breakout type of requirements. If you look at all the SD van deployments I happening in large enterprises see schooler is often the choice to secure those asked events. So that's a big opportunity as well.
They're at a much larger scale than it used to be.
Great. Thanks, Jay.
Our next question will come from Saket Kalia with Barclays. Please go ahead.
Hi, guys. Thanks for taking my questions and apologies for the background noise.
First maybe for you Jay we are talking about competition from the firewall players I guess the major change that has happened in the last 90 days has been one of the major appliance vendors of course changing hands. So I'm curious and of course Im talking about broadcast Mantech Im curious how have your your conversations with customers changed if at all since that's been announced.
Yes, so first of all the large enterprises, we are dealing with.
They largely it is one solution thats deployed besides east cooler fall going traffic.
It is semantic blue coat.
On the lower end you start seeing other proxies from different vendors and our success in the large enterprises has been displacing goes proxy appliances. So as I have went out and met customers, which I often do.
We ended the customers in the past felt that yes, they need to change, but they will make a change overtime. It is more urgency because the uncertainty in this space. So we do believe that we will it will be the beneficiary off this change.
Got it that makes sense and for my follow up for you Reno.
You know as as we think about the billings guide for next year, probably sort of thought about the the big deal environment. It sounds like here in Q4, maybe maybe some large deals took little bit longer to close what is the assumed about large deals in your fiscal 20 guide.
Yeah, I would say, they're going to get back to similar levels as they were in fiscal 19, I mean, there's a lot of things that go into the guidance I mean, it's the easier on board.
Trajectory of hiring and so forth, but I'd say, it's going to be pretty similar.
Very helpful. Thanks, guys.
Well go next to Dan is with Wedbush Securities. Please go ahead.
Yes, Thanks, and can you just talk about maybe some of the hiring plans in fiscal 20, and maybe how that would be even us versus international.
Yeah, I think so the total hires that we had in fiscal 19, we had net hires about 430 employees.
My expectation is that we'll hire and our plant we're planning for hiring more people than that.
The concentration of the hiring is going to be a in sales and marketing you know number one R&D number two.
You know cloud operation support number three and then basically everything else.
When I take a look at geographically if you take a look at the distribution, we have ATSI scalar or about a third of the employees are here with me in our headquarters in San Jose.
A third are in India, and a third for the rest of the world.
India has been ticking up a little bit over the last few quarters. We've got two offices, one in Chandigarh ER and one in Bangalore. So my expectation is you know the the percentages will probably be pretty similar maybe a little bit more in India.
Versus the rest of the world, but pretty similar percentages based on what we have currently.
Got it and if I think about seven figure deals there's a large deals in the pipe on how many do you do you think most of those deals right now it's only xisco are in those deals in terms of them being on competitive maybe just talk about that and then the questions were asked before about competitive dynamics, maybe just talk about is there any change there just.
From a high level talk about what you see in sales cycles things.
Yeah. So as you would expect a large enterprise when they go and make a change there do look from multiple.
Providers as a standard process as a standard practice.
But what's exciting and I find in this company that I've never seen before.
His win and Sps and win a large enterprise goes to RFP with five service providers for the network transformation and he's going to be.
Local break or being part of it.
We quite often get paid by all flight winders, which is very exciting and sometimes it maybe four and most of the time [noise] other one or two providers end up being a typical proxy vendors you would expect because that's where large enterprises expect.
And envy windows deals hands down we do very well. So that's why we owned worried about competition you know there's a lot on moyes, we hear about.
The firewall guys, Okay, and and it's it's it makes no sense in fact last week someone alluded to they talked about displacing sees color to do and I see no I wasn't sure what they're talking about I know every ses color customer with over a million users and they're all very happy and doing very well regarding displacement had a fortune 50 retail customer they alluded to.
I personally know every use east killers, fortune 100 disease color customer and we did not lose and so people.
I think when they get desperate they look for leading information Ive analyzed tofifty deals and we really see this viable vendor in that.
We do expect to see further misleading claims in the future from legacy hardware vendors, who are trying to talk about this cloud security events when legacy secure web gateway vendors were trying to compete with Ses care, we saw the same behavior.
They tried to upgrade the security appliances, they give me where the cloud and they would have falsely claim it as a cloud security van and displacement of Ses killer, our technology differentiation stay strong.
Our sales methodology say strong we just need to make sure. We can scale our sales execution well has a numbers keep on getting bigger and bigger.
Thanks.
Our next question will come from Joshua children with Dan Bank Capital markets. Please go ahead.
Hi, This is Chris on for Josh will we were trying to understand the focus is on the win win in the market, but could you, possibly speak to how you're seeing pricing develop has it been improving how have average deal size has been trending any commentary around that would be helpful. And then one more follow up on macro and now have you seen any signs of slow downs in that region due to these macro fears.
That's it thank you.
I'll try to answer a few of them you know.
Average deal sizes are based on the air are.
For customers with greater than 3000 or users has gone up every quarter and it did go up in Q4.
Related any pricing pressure or discounting or a quarter to quarter Q3 to Q4 year over year for new and upsell business is lower so no we're not saying the pricing pressure related to me it I'll, let Jay talk more about that.
Yeah.
You know.
Let me know if there's a fair amount our talk on Brexit you can hardly see the newspaper without the news about it.
We do wonder about it but we haven't seen tangible effect on the business, we do see customers.
Talking about some of the uncertainty out there can I put my pulse on a big effect.
I'm watching carefully I'm not sure I can put it on I think we need to do probably we have some more work to do to hiding and scaling the business. We brought in a new leader you know me Oh last quarter. He is doing a great job ramping up the sales teams and really scaling it to where we need to go I'm going to remind you guys that we are an unusually large you know meal or internationally at our stage of the company, 50% of the business comes from international and about 40% of that come from me I'd say, a very important market for us and we will remain focused on investing there to keep that kind of market share.
Thank you.
Our next question will come from Gray Powell with Deutsche Bank. Please go ahead.
Great. Thanks for Thanks, working man I greatly appreciate it.
And maybe just a couple a couple of questions. So it's a one if I if I look at the guidance and I look at revenue growth in absolute dollar terms in fiscal 19, you added a little over a $110 million in new revenues, just a total revenue basis and the guide for fiscal 20 implies that you add a little bit less than 100 million. So is there any reason the absolute dollar growth.
Should go down, particularly given the sales and marketing investments that you made.
We'd like to be prudent with our guidance and our guidance we feel it's prudent.
Okay Fair enough. Good answer maybe just one on the product side, then what kind of improvements have you made on the cloud firewall functionality and how do you feel about your potential to displace branch office firewalls.
Oh.
Potential to bring a place branch office levels, we had done tons and tons and tons of them.
So.
So first of all.
If someone is talking bought find wall cloud fly losses east collecting functionality, they maybe getting mixed up with that data center firewall. Many times I talk to customers. This is what they say.
They say Oh firewall guys, who are here, they're telling me that you should have the same policy and your branch firewall and that it is a new data center I see Okay tell me more how many rules do you have in your data Center firewall 6000 say in fact, they say I bought two products to manage towards flat rolled rules myself course, your data centers complex overtime evolved napping and everything.
So what are you trying to protect and your branch office and so does employees. What's the difference between when you sit in a branch office all you sit in it you know the airport or no coffee shop, there so nothing.
So are you really putting a lot of them at 6000 rooms at your home or every branch office that city. So firewalls in the branch office for outbound traffic a very straight forward in fact, most of the kids they only when needed needed because somebody feels like they they should have it. The reason they don't need. It is when you don't have anything coming from outside and you have no listening poured your tax surface become zito. That's when you have the best to security and that's really what should be done offline. One is very rich we never lose any situation. We never have a case with someone said your branch wide wasn't all right you know.
Now our focus is not really creating lots of rules and branch firewall. Our focus is really working on zero Trust network type of approach that God forbid talks about the sassy kind of approach where you don't even bring people on the network. So in summary, we are trying to do things the new way, where you don't control. The network you don't want anyone network security you securely connect a user to an application and you are simply simply a switchboard in the middle of it so very comfortable with technology and the lead we are increasing and next week, you're going to see some significant big new areas of expansion that we will be announcing a zenith life.
That's great. Thank you very much.
Yes.
Our next question will come from Nick Yulico with Cowen and company. Please go ahead.
Thanks, guys.
Jay you mentioned seeing more customers adopt both ziad G.P.A. out of the gate, which is great. So I guess I'm just wondering if that's having an outsized impact on the on the sales cycles.
So.
Yes, the bigger the product set you are typically longer sale cycle or if you love talking in general the bigger your deal the longer the sales cycle, but I think our mix.
Has to be a mix is not really I wouldn't say that all most of the deals are becoming combines the eyes EPA. The transformation sale in general is complex, it's top down you end up.
Securing the support off not just head of networking head of security architecture. So we have a large number of people who can do it well, but we need to grow old that type of a sales team along with some of the architects and all are to really make sure. We are effectively selling it and the most exciting thing I phone about only he had some of the same top down selling mindset with value creation and with very good salesman technologies. So I think we'll be doing a great job in scaling it to make sure our numbers keeps on growing.
Great. Thank you and then as a follow up as you continue to expand the platform and really address more components of the security stack overtime.
How do you how do you weigh layering in that new functionality into that transformational bundle first pricing this new functionality as a separate product or component like youve done once EPA. Thanks.
Yeah, I think those are the things you take to the market you look at the adoption rate you look at all the market kind of willing to pay and then you change your bundled overtime.
Well you have seen us change some of the bundled over the past couple of years and I think it will be some more changes overtime. I think you will see some large platforms being announced that I've kind of significant beyond the traditional typical security. We are talking about I think you'll be pleased with the evolution rather significant additional the technology. We are doing to further create distance between.
The cloud imitators and us.
And we'll take our next question from Keith Weiss with Morgan Stanley . Please go ahead.
Yes are you there Holly please check it.
Sorry about that I was on mute. Thank you for taking the question I'm sorry.
Asking it and as we're going into the next fiscal year, you have a new ciro, who needs time to kind of ramp up you also have a much broader product portfolio, you're selling a much bigger vision into your customer how should we think about the kinda degree of change we should expect in the salesforce kind of and as we enter the year versus prior years is there a significant kind of restructuring that we should expect sort of from the get go or is that going to come later in the year once that one's Dolly has time, there to kind of ramp up and come up with a game plan.
Yeah, the only and I have been discussing for quite a while.
We don't really expect significant change and.
Sales teams, we do expect a significant change in the sales methodology sales framework to be able to deliver the message consistently.
Yeah. Those are the kind of refinements, we need to do which need to be consistently gotten across we all would all have a good sales team we need to make sure our enablement our training matrix to exactly know what needs to be done is really the focus is I mean think of we all know that when you go to a certain stage. So zero to 200 $304 million you have one set of stuff as you go to the next big Phase 2 billion dollar kind of targets you kind of make a lot of these things in place and those are the type of things for the next level.
Honing on refining and scaling.
And by the way all those factors Saudi all those factors are built into Primos forecasts for 2020, if any will take one last question. Please.
Certainly we'll go next to Keith Bachman with BMO. Please go ahead.
Hi, Thank you that's a good segue from the past question Jay I wanted to just push back a little bit you mentioned that you still have 80% of the largest enterprise yet to penetrate and this is an evangelical sale. It requires in many cases, an architectural change and so I'm. Just wondering why you wouldn't need to lean on a much more significant sales force in order to keep revenue growth rates, and frankly penetration rates on new logos growing and less dependency on.
Oh, the ESI community, who I think is more about fulfilling fulfillment given the model that you have.
So I'm, just wondering why sales and marketing expense wouldn't need to keep growing at a at a pretty high rate given those attributes and I'm just going to sneak in just one clarification.
Could you told us what the CR P.O. was.
305 million, but I just wanted to see could you just clarify what the growth rate or that was as well and that's it for me. Thank you.
Yeah, I'll answer really a girlfriend, that's good it's 45% year over year.
So regarding the first part of the question I think if you looked at what I said early on to I said, Yes channel partners do help but we do tons of heavy lifting transformation sales are actually high touch sales.
So we are investing significantly in our sales and marketing in fact, if you look at our 20 plan, we haven't brought down sales and marketing as a percent of revenue, which typically would <unk> and that's keeping in mind that we need to keep on putting some more gas on it and I. If I left another massive impression and I didn't do a good job we actually are driving.
Sales without our own sales organizations and channel is helping US channel is facilitating us we aren't getting channel leverage what all of you should know when transformation happens channel can only do so much been technology become more mature and Commoditized channel plays a much bigger role.
So we are investing but but prudently theres only so much you can invest in terms of number of sales people sales and marketing total headcount, we're adding this year or last year is pretty significant.
So fully aligned with your with the Master you said, if I said I knew but otherwise it wasn't clear.
And this does conclude today's question and answer session I will now turn the call back over to Jay Chowdhry with for any additional closing remarks.
We thank you for joining us for this call and we look forward to seeing a number of you out of Zeena flight conference as well as on analyst day.
Otherwise, we will talk to you next quarter.
Thank you. Thank you.
And once again this concludes today's call. Thank you for your participation you may now disconnect.