Zscaler, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Zscaler Fourth Quarter 2021 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, your first speaker today, Mr. Bill Troy, Senior Vice President, Investor Relations and Strategic Finance. Thank you. Please go ahead, Bill.

Good afternoon, everyone, and welcome to the Zscaler Fiscal Fourth Quarter and Full Year 2021 Earnings Conference Call. On the call with me today are Jay Chowdhury, Chairman and CEO, and Remo Canessa, CFO. Please note that we have posted our earnings release and a supplemental financial schedule to our investor relations website. Unless otherwise noted, all numbers we talk about today will be on an adjusted non-GAAP basis. you'll find the reconciliation of GAAP to the non-GAAP financial measures in our earnings release. I'd like to remind you that today's discussion will contain forward-looking statements, including but not limited to the company's anticipated future revenue, calculated billings, operating performance, gross margin, operating expenses, operating income, net income, free cash flow, dollar-based net retention rate, future hiring decisions, remaining performance obligations, income taxes, earnings per share, our market share and market opportunity. These statements and other comments are not guarantees of future performance, but rather are subject to risk and uncertainty, some of which are beyond our control, including but not limited to the duration and impact of COVID-19 on our business, the global economy and the respective businesses of our customers, vendors and partners, market adoption of our offerings, and our expectations regarding the development of the markets in which we compete. 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, please see our filings with the SEC as well as in today's earnings release. We will upload a copy of today's prepared remarks to the IR website when we move to the Q&A segment of the call. Now, I'll turn the call over to Jay. Thank you, Bill.

We had a very strong quarter to close out a spectacular year. In Q4, we delivered growth of 57% in revenue and 70% in billings as customers embraced our expanded cloud platform. to accelerate the digital transformation. Let me share a few highlights of fiscal 21. Our full-year revenue grew 56% to $673 million, and billings grew 70% to reach $934 million. We are seeing revenue growth across all verticals, customer segments, and geography. 51% of revenue was from outside the United States. I'm very excited to see our ARR approaching $1 billion. And please do note that our new annualized bookings and new logo acquisition accelerated throughout the year. All product pillars of our platform saw strong demand. CPA revenues surpassed $100 million in fiscal 21, growing 166% year over year. Increased cybersecurity risk and accelerating digital transformation have increased the need for our zero trust architecture. We are uniquely positioned to reduce business risk and make businesses agile and more competitive. We are the only cloud provider at scale with a proxy-based architecture to deliver true zero trust security. FireWarn and VPN-based castle and mode security connects users to the corporate network, which facilitates lateral movement of threats, increasing cyber risks. C-scaler connects users only to applications, not to the network. a core principle of zero-trust architecture that reduces ransomware attacks and other cyber risks. Built from the start to enforce policy at the edge, as advocated by the SASE framework, the Zscaler Cloud spans 150 data centers with five nines of availability, providing fast and secure access to all applications, whether in your data center or in a multi-cloud environment. Because of these architectural advantages and our proven ability to scale, the Zscaler Zero Trust Exchange has become the foundation for digital transformation. With a record number of seven-figure ACV deals in Q4, we now have over 200 customers with greater than $1 million in ARR. Over 5,600 enterprises, including 35% of the Fortune 500, trust Zscaler to secure their transformation journey, while the average net promoter score of SAS companies is 30. Zscaler's is 74, which is 2.5 times higher. of the values these pillars deliver. Now, I would like to discuss three market segments where we made significant progress during the quarter and the fiscal year. First, the financial services sector has become our top vertical as these companies are embracing the cloud and Office 365. Let me highlight three new customer wins in Q4 for the purchase of ZIA and ZPA together. First is the global bank that's adopting a zero-trust strategy to protect over 100,000 employees with our high-end ZIA and ZPA bundles. They've purchased every module we offer in the ZIA pillar, including firewalls, sandbox, ASP, DLP, and browser isolation. Fast user experience and enhanced cybersecurity were the key factors for our win. Our second new logo win is a Fortune 500 asset management company that purchased ZIA and ZPA to secure over 30,000 employees. And third is a Fortune 500 insurance company that purchased ZI and ZPA for 26,000 employees to enable work from anywhere. These wins illustrate when companies are ready to embrace the cloud, Zscaler is the only cloud native multi-tenant platform that meets the needs. With security as a major requirement, these financial services customers only considered a proxy architecture. that can provide SSL inspection at scale and rejected firewall-based architecture. We now count eight of the top ten global banks and seven of the top ten insurance companies outside of China as our customers. Next, let me highlight our progress in the enterprise market segment. which includes organizations with 2,000 to 6,000 employees. We started focusing on this segment at the start of fiscal 21, and the results have exceeded our expectations. This segment includes over 12,000 organizations representing $8 billion of our serviceable market for user protection. Deal sizes in this segment are growing, as customers adopt more of our platform. I'm excited to see our first seven-figure upsell win in our enterprise segment, where the customer is buying all four pillars of our platform, ZIA, ZPA, and ZDX for 6,000 users, and ZCP workload segmentation for almost 3,000 servers. Our ARR with this customer now exceeds $1.5 million, validating a significant opportunity in this market segment. To further penetrate the segment, we are developing targeted marketing programs, significantly growing our sales team and doubling down on our summit partner program to recruit and enable channel partners to drive further sales leverage. Finally, we continue to invest to capture a large federal opportunity. With a sizable Fed sales team and the highest FedRAMP certifications, we count well over 100 government agencies and federal integrators as customers. In Q4 alone, we added over 20 new federal customers, including four with over $1 million in annual contract value, each purchasing ZIA and ZPA together. Driven by the President's recent executive order, we're seeing increased interest in our zero trust exchange across all levels of the government. We are among a select group of companies chosen by NIST, a national standards body, to run a pilot program in support of the executive order. We are excited about this opportunity to help our country dramatically improve our security posture while significantly reducing legacy IT costs. Next, let me highlight our technology innovations and emerging products which are expanding our opportunity. We started with a highly scalable multi-canon globally distributed cloud capable of providing inline inspection of internet and SaaS traffic with CIA and securing access to private applications with CPA. Over the past year, we extended our platform to protect cloud workloads and to manage digital user experience. We're very excited about the early traction of our emerging product the next growth engines for us. Our emerging products contributed high single digits percentage of a new and upsell business in fiscal 21, which is well ahead of our expectations. ZDX is the fastest growing solution in our history and a natural compliment to ZIA and ZPA. With a single lightweight endpoint agent, It is frictionless to turn on ZDX to provide end-to-end visibility to help resolve performance issues for every Zscaler user. In Q4, one of our largest ZDX deals came from a Fortune 500 tech company that purchased the entire ZIA portfolio as well as CPA and ZDX for all 60,000 employees to support work from anywhere while embracing zero trust architecture. We were pleasantly surprised to see so many large enterprises adopt ZDX so rapidly. Other notable ZDX wins include a Fortune 500 pharma company for 70,000 users, a Fortune 50 energy company for 55,000 users, a Fortune 500 European bank for 39,000 users, an industrial manufacturing company for 28,000 users, and a healthcare company for 25,000 users. I believe that every ZIA and ZPA customer will embrace ZDX as user experience is one of the highest priorities for a CIO. We are receiving very positive feedback from customers. A Fortune 600 healthcare executive indicated ZDX contributed to an 18-point gain in employee net promoter score for the IT service desk in two quarters. After having disrupted perimeter-based security with our zero-trust exchange for users, our next big opportunity is to bring zero-trust to workloads with Z-scaler cloud protection Every organization is building their applications in the cloud and will look to implement zero trust security to protect workloads. Our zero trust exchange securely connects workloads to workloads and process to process using business policies, eliminating the need for traditional networks and associated cyber risks. Solutions within our ZCP pillar include workload posture, which includes CSPM and CIEM, ensures proper configuration and enforces least privileged access for multi-cloud environments. Workload communication, powered by ZIA and ZPA technology, secures app-to-app and cloud-to-cloud communication and Workload segmentation achieves micro segmentation without legacy network segmentation. We have over 300 ZCP customers and are seeing increasingly strong interest from new and existing customers. Let me highlight a few ZCP wins during Q4. An existing ZI and ZPA customer in the consumer goods sector with over 100,000 employees purchase workload communication for 25,000 workloads, and workload segmentation for 10,000 workloads. This customer has a large server environment on a traditional network. Implementing our zero trust for workloads will reduce their cyber risk by minimizing lateral threat movement while securing their app migration to the cloud. We are also landing new logos with ZCP. For example, we landed a Fortune 500 professional services company, where ZCP was the main driver. This customer purchased workload communication for 6,000 workloads, workload segmentation for 500 workloads, as well as the entire ZIA bundle for 40,000 employees. Our team collaborated with CrowdStrike our technology partner, and of Global SI, our channel partner for this deal. Let me conclude some thoughts on our vision and strategy. We envision a world in which the exchange of information is always secure and seamless. In today's hyper-connected digital world, our Zero Trust Exchange secures any-to-any connectivity for users, applications, workloads and IoT and OT systems regardless of their location. At our analyst day in January, we laid out our audacious goal of serving 200 million users and 100 million workloads. In order to achieve this goal, we focused on attracting and developing talent and creating a culture of excellence. We hired over 1,100 employees over the past year and enabled them to be productive and successful all during the pandemic. We're investing in our people through learning initiatives and building a culture where a global and diverse workforce can deliver excellence, powering our customer success. Our employees are engaged and completely aligned to our mission. For our last employee survey, 96% of employees understand and believe in the strategic direction of the company. I'm proud that we are recognized as a great place to work in the 2021 Glassdoor ratings. We are focused on driving broad adoption of all four pillars of our platform. The breadth and depth of our platform is resonating with customers. and their purchasing of high-end bundles to consolidate their security and networking point products. I believe Zscaler is the go-to platform for vendor consolidation, cost savings, increased user productivity, and better cyber protection. As we demonstrated over the last 12 months, we built a sophisticated go-to market machine that delivers business value and measurable outcomes at the CXO level. I'm extremely proud of our go-to-market team and how we executed our sales strategy this year. Even with significant growth in our sales force, sales productivity has increased over the prior year, exceeding our expectations. Our Summit Partner Channel Program consists of hundreds of cloud-focused resellers system integrators, and service providers that are contributing to our deal win and increasing sales leverage. As our market share, reputation, and brand awareness continue to strengthen, a growing number of cloud and SaaS providers are integrating with our platform, further strengthening our strategic position with our joint customers. Our expanding ecosystem is contributing to our sales velocity and broadening our reach. I believe we are on the right track to capture a material share of our $72 billion serviceable market. We also see additional opportunities to bring zero trust to IoT and OT systems. Moreover, 5G. which pushes computing further to the edge, opens up additional opportunities for Zscaler. To pursue these markets, we have a two-pronged innovation strategy. One, investing aggressively in internal R&D and scaling our world-class engineering organization, which continues to rapidly deliver new products and features. We recently opened a new R&D hub in Israel and are expanding our R&D centers across the U.S., India, Canada, and Spain. Two, making highly targeted acquisitions to enhance our platform and shrink time to market. During fiscal 21, we completed two acquisitions. Trustome strengthens our GCP pillar and positions us better to pursue our shift left strategy. And Smokescreen enhances our active defense capabilities with honeypot technology. Through internal innovation and highly targeted acquisition, we will further expand our leadership in the SASE and Zero Trust security markets. In summary, with all these drivers and innovations ahead of us, You can see why we are very excited about our future. Now, I would like to turn over the call to Remo for our financial results.