Zscaler, Inc.

Hello, and thank you for standing by. Welcome to Zscaler Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 11 on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to turn the call over to Ashwin Kajredi, Vice President of Investor Relations and Strategic Finance. Sir, you may begin.

Good afternoon, everyone, and welcome to the Zscaler Third Quarter Fiscal Year 2024 Earnings Conference Call. On the call with me today are Jay Chaudhry, Chairman and CEO, and Remo Kanessa, CFO. Please note we have posted our earnings release and a supplemental financial schedule to our investor relations website. Unless otherwise noted, all numbers we talk about today will be on an adjusted non-GAAP basis. You will find 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 objectives and outlook, our customer response to our products, and 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. 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. I also want to inform you that we'll be attending the Bank of America Global Technology Conference in San Francisco on June 5th. Now, I'll turn the call over to Jay.

Thank you, Ashwin. We delivered an outstanding quarter with all metrics exceeding our guidance, and I'm very pleased to increase our full-year guidance based on our strong performance. Revenue in Q3 grew by 32% year over year, and billings grew by 30%. Our $1 million-plus ARR customers increased 31% year-over-year to 523, and we ended the quarter with over 50 customers with $5 million-plus in ARR. Our disciplined approach to growth is reflected in our operating profit, which nearly doubled year-over-year, and our operating margin reached a record 22%. I'm also pleased to report that we had our first quarter of GAAP profitability on a net income basis for Q3. Our strong performance was driven by continued demand for our Zero Trust Exchange platform, which we purpose-built to secure communication among users, workloads, and devices. We expect demand to remain strong as an increasing number of enterprises are planning to adopt our platform for better cyber and data protection. Zero Trust Security remains a top initiative for IT teams as legacy Castle and Moat firewall-based security is ineffective in the new world of cloud and AI. Our zero-trust exchange, processing over 400 billion transactions and preventing billions of security and policy violations per day provides superior security to our customers. For example, last calendar year, our platform prevented over 2 billion phishing attempts, up 60% year-over-year. The cyber and data protection capabilities of our platform are resonating with customers, and we are accelerating the expansion of our core platform with innovations across multiple pillars. We recently introduced the industry's first AI-powered co-pilot for ZDX, our digital experience monitoring solution. This helps simplify and automate detection and resolution of performance issues. We added two significant products to our data protection pillar. One, data security posture management, or DSPM, to discover, classify, and protect sensitive data in public clouds. And two, GenAI app security to provide deep visibility and granular controls for GenAI apps. We introduced Zero Trust Network Segmentation, which expands our platform to local area networks inside branches, campuses, and factories. We expanded our AI cloud solutions by introducing Unified Vulnerability Management to enable customers to proactively identify critical vulnerabilities. We will continue our rapid platform expansion with organic innovations as well as strategic acquisitions. We recently acquired two early-stage innovators, Avalar and AirGap Networks. Avalar's data fabric ingests, normalizes, and unifies data across enterprise security and business systems to dynamically prioritize vulnerabilities based on holistic risk. This innovative data fabric will combine data from our 400 billion daily transactions with over 150 third-party data sources to add various contexts to provide better understanding of risk for timely mitigation. As a result, customers can get real-time actionable insights and operational efficiencies, improving their overall security posture. For securing customer branches, campuses, and factories, we continue to innovate. Our Zero Trust branch solution released last year enables each branch office, campus, and factory to be treated like a Starbucks, which means there is no lateral set movement as the branches are not on the corporate network, and there is no need for firewalls as branches are no longer exposed to the internet. With the AirGap acquisition, We are taking branch security to the next level as we are introducing the industry-first zero trust segmentation inside branches, campuses, and factories for servers and IoT devices. This eliminates the need for legacy firewall-based segmentation for east-west traffic. We talked about our $72 billion market opportunity in the past. Our recent acquisitions and other innovations increase our market opportunity by several billion dollars as they extend our platform into new adjacent markets, including vulnerability management, security operations, and branch security. Moving on to our AI innovations, we are developing multiple AI-powered applications, including RISC-360, Business Insights, unified vulnerability management, and more. We are training our AI security models with the vast amounts of data generated by over 400 billion daily transactions on our platform to deliver superior threat detection. We are leveraging AI to automatically classify data and enforce policies for better data loss prevention. We have delivered GenAI app security to enable secure use of AI apps by our customers. Our GenAI app security delivers, one, visibility into the AI services used by employees. Two, policy control, which allows different user groups to access only approved AI services from the thousands of such services. And three, enforcement of data protection policies to prevent sensitive data from leaking to public AI services. We will be showcasing these and other innovations that combine the power of Zero Trust with AI at our Zenith Live user conference in June. Organizations are relying on Zscaler to continue to innovate as threat actors are evolving and posing new challenges by frequently exploiting firewall and VPN-based security architecture. Recently, hackers exploited a zero-day vulnerability of a leading Nexen firewall and a vulnerability of a leading VPN. Such exploits put organizations at risk as attackers can move laterally on the flat networks created by legacy firewalls. These shortfalls in legacy security will continue to be exploited until enterprises embrace zero trust architecture and phase out firewalls and VPNs. Zscaler's zero trust architecture eliminates lateral tech movement, which dramatically improves security posture of organizations. Our differentiated zero trust and proxy-based architecture is foundational to delivering superior security. Let me give you a few examples. After experiencing a catastrophic cyber attack last year, a large financial services new logo customer purchased our ZIA data protection and ZDX pillars for 25,000 users in a seven-figure ACV multi-year deal. This customer wanted zero trust architecture. and hence excluded the current firewall vendors from consideration. Our superior architecture and strong data protection capabilities were key to winning this deal. As the customer said, Zscaler's CASB, EDM, and OCR technologies are amazing. Zscaler just works. In another example, an existing global manufacturing customer, after learning about a major VPN vulnerability, rolled out Zscaler to 100,000 devices in just three days. Subsequently, the customer increased the purchase of Zscaler for users, including ZIA, ZPA, ZDX, and data protection in a seven-figure ACV deal, increasing their ARR by over $5 million. This customer also made an initial purchase of Zero Trust for Branch and our advanced privileged remote access solution, which speaks to customers' growing interest in our broader platform. Customers are also purchasing more of our platform to eliminate legacy tech debt and consolidate multiple point products while simplifying IT operations and improving user experience. Let me highlight two upsell deals that illustrate this. After making an initial purchase last year, a global 100 financial services customer significantly expanded the purchase of Zscaler for users in a seven-figure ACV deal for over 64,000 users. Despite having years of relationship with a legacy firewall security vendor, they chose Zscaler. This customer is consolidating multiple point products, including Secure Web Gateway, VPN, and VDI. We work closely with one of our GSI partners on this large project. This deal is an example of us working with GSI partners to expand our market opportunity. In another upsell win, a large APGA-based financial services customer signed a seven-figure ACB multi-year deal for 10,000 users buying most of our platform services. In addition to expanding the purchase of Zscaler for users, they purchased our zero-trust for workloads, zero-trust for branch, and AI cloud solutions. Our emerging products contributed nearly a third of the ACV value of the deal. I'm very pleased to share that we are seeing strong customer interest in our emerging products, which contributed nearly a quarter of our new and upsell business this quarter. Here are a few examples. In an eight-figure ACV deal, a Fortune 500 technology customer expanded their purchase of Zscaler for users and made their first purchase of Zero Trust for workloads and our AI cloud solutions. With this purchase, the customer's total ARR increased over 5x to more than $10 million. This was also our largest workload protection deal to date, representing seven figures in ACV. I'm thrilled to see our recent innovations in workload protection receiving increased traction. We closed several deals for our AI cloud solutions, including RISC-360 and Business Insights, with customers across multiple verticals, including broadcasting, consulting, insurance, and many more. CISOs get inundated with lots of security alerts and signals that don't help them take specific actions based on risk. Customers are buying RISC-360 as it provides them with the overall risk score of their organizations, the factors contributing to risk, and the actionable recommendations to reduce risk. For Zero Trust Branch, one of the largest retailers in Europe who initially adopted CIA ZDX and data protection last year, expanded the deployment in a seven-figure upsell deal to include the full suite of Zscaler for users and Zero Trust SD-WAN. Zero Trust SD-WAN, which will be deployed at the regional locations, contributed about a quarter of the ACV value of this deal. Next, in the federal vertical, we are proud to be serving 12 of the 15 cabinet-level agencies, and we continue to pursue new and upsell business opportunities across the federal market to help them adopt zero-trust architecture as mandated by the President's Executive Order. To give an example, in a seven-figure upsell win, an existing cabinet-level agency increased the purchase of ZIA and ZPA by over 50%. significantly increasing the ARR of this already $10 million plus customer. Next, let me give you an update on our progress in the Department of Defense or DoD segment. DoD has a requirement to implement Zero Trust with the technologies and solutions that work best for individual military services and departments. I'm thrilled to share that we signed a seven-figure ACV deal with the DoD branch this quarter. In this land deal, the customer made an initial purchase of Zscaler for users to protect 50,000 users. With our proven Zero Trust architecture, this latest DoD deal demonstrates that we are well positioned to capture the large cybersecurity opportunity at the DoD. Next, let me give you an update on our go-to-market organization where we continue to make great progress. First, to capture the strong demand for our platform and to scale our business to $5 billion in ARR and beyond, we appointed Mike Rich as our Chief Revenue Officer in Q2. Mike hired key leaders in Q3, and he now has his full management team in place. The quality and caliber of Mike's leadership team is exceptional. I'm very pleased with the progress of our sales hiring, particularly at the leadership level. With the right leaders in place, we are now focused on increasing the pace of hiring Kodak hiring reps. Second, as I mentioned last quarter, we are evolving our sales motion from opportunity-centric to account-centric. The eight-figure ACV deal with the Fortune 500 technology company that I called out earlier is an example of the success of this new sales motion. We engage closely with this customer to recommend the best solution for now and the future. We look forward to working with them as they are fully embracing digital transformation and zero trust security. In conclusion, we are on a mission to take our platform everywhere so customers can benefit from better security simplified IT operations, and improved user productivity. We are one of the few vendors that deliver tangible cost savings as we eliminate multiple legacy point products. The last three decades of the security industry have been centered around firewalls, which are no longer effective in today's cloud, mobile, and AI world. I believe the next three decades will be defined by Zero Trust architecture. We have the right platform and the right team to delight our customers and capture our large and growing market opportunity. I'm excited about the journey ahead and look forward to sharing at Zenith Live how Zscaler is combining the power of Zero Trust with AI to power the future of secure digital transformation. Now, I'd like to turn over the call to Rimu for our financial results. Thank you, Jay.