Zscaler, Inc.

Good day, everyone, and thank you for standing by. Welcome to C-Scaler fourth quarter 2024 earnings 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 participate, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please be advised that today's conference is being recorded. Now I will pass the call over to the Vice President, Investor Relations and Strategic Finance, Ashwin Kethireddy. Please go ahead.

Good afternoon, everyone, and welcome to the Zscaler Fourth Quarter Fiscal Year 2024 Earnings Conference Call. On the call with me today are Jay Chowdhury, Chairman and CEO, and Remo Kanissa, 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 following conferences. Citi Global T&T Conference in New York City on September 5th. Goldman Sachs Communicopia and Technology Conference in San Francisco on September 11th. Wolf Research TMT Conference in San Francisco on September 11th. Now, I'll turn the call over to Jake.

Thank you, Ashwin. We delivered a strong Q4 with all metrics exceeding the high end of our guidance. Revenue grew 30% year over year. Billings grew 27%. And profitability reached new records with operating margins of approximately 22%. And free cash flow margin of 23%. We also achieved a new milestone of $1 billion in quarterly bookings in Q4, driven by an acceleration in new and upsell business in the quarter. For the full year, revenue grew 34% and free cash flow grew 75%, resulting in free cash flow margin of 27%, a new record for the company. With another year of strong top and bottom line performance, we exceeded the rule of 60 for the fourth consecutive year. Despite the recent changes in our go-to-market organization, we delivered these outstanding results driven by strong customer demand for our Zero Trust Exchange platform. I'm very pleased with the progress we're making in go-to-market execution, the pace of innovation, and customer adoption of our expanded platform. I'm also pleased to share we crossed $2.5 billion in ARR in Q4, and we expect to achieve a new milestone of $3 billion or more in ARR in fiscal 25. Before getting into further details of the quarter, let me share a few observations on the demand environment. First, customer adoption of Zero Trust platforms is stronger than ever. with Q4 setting a record for new and upsell business. Our platform secures 47 million users across nearly 8,700 customers. While other vendors are still struggling to deliver cloud security for users, we expanded our platform beyond users to deliver zero-cost security for applications, workloads, and IoT devices. customers are consolidating their disjointed legacy security products by adopting our comprehensive platform. Second, the increasing use of AI is creating new avenues of growth for us. For example, the rising adoption of Gen AI is exposing new gaps in organizations' security posture. To help our customers address these risks, Earlier this year, we launched GenAI Security, which enables customers to realize the productivity benefits of GenAI without compromising data security. Using our GenAI Security, customers can gain visibility, apply access control, and enforce data protection policies to prevent their sensitive data from leaking. Third, I'm thrilled to share that we have achieved a major milestone with our cloud platform surpassing over half a trillion transactions daily. That is T as in trillion. This further demonstrates a widening market leadership position. These transactions generate a vast quantity of proprietary logs that feed our massive data lake. These are not firewall logs that often can't inspect SSL traffic for cyber threat detection. These are complete logs that have structured and unstructured data, including the full URL. We leverage this proprietary data to train AI models that power innovations throughout our platform. Our AI analytics solution, including unified vulnerability management, risk 360, business insights, are seeing strong traction. AI analytics contributed nearly three points to new and upsell business growth in Q4 and two points for the entire fiscal 24, even though some of these products were only available for a part of the year. I am pleased with the contribution of AI analytics in fiscal 24 and with continued expansion of the solution. I expect its contribution to continue to grow. With an addressable market of $96 billion, we believe we are in the very early stages of our opportunity with Zero Trust and AI. The cyber threat environment continues to worsen as the limitations of firewall and VPN-based architecture are exploited by threat actors to launch an increasing volume of sophisticated attacks. Over the last year, we saw an 18% increase in ransomware attacks blocked by the Zscaler cloud. Our seasoned ThreatLabs research team is tracking 391 of the most sophisticated ransomware families, including many that were uncovered by Zscaler in the past year. Driven by the increased number of cyber breaches, more customers are adopting our Zero Trust platform. For example, In a new logo win, a top 10 Fortune 500 industry machinery company purchased Zscaler for users for 100,000 users in a multi-year seven-figure ACV deal. The customer previously purchased a firewall-based SASE solution to consolidate firewalls, secure web gateways, and MPLS network strength. Subsequently, they realized the so-called SASE solution allows lateral threat movement and does not deliver zero trust security. They chose Zscaler to replace their firewall-based SASE. Our purpose-built proxy-based cloud platform makes our customers' branches and data centers invisible to threat actors. Hence, they can't be discovered and they can't be attacked. In addition to landing new logo platform purchases, we are also upselling our platform. Our land and expand motion creates a flywheel of continuous engagement and upsell. To give you an example, in a seven-figure upsell deal, a Fortune 200 financial services customer bought ZPA and ZDX after the successful ZIA deployment for 68,000 users. After securing Internet and SaaS access with Zscaler, it was natural for them to expand to our broader platform. ZPA for zero-trust access to private applications and for user-to-application segmentation to eliminate lateral threat propagation. And ZDX to quickly identify and resolve end-to-end performance issues. With this purchase, the customer's ARR more than doubled to nearly $10 million. Next, I am happy to share that customers continue to adopt the advanced features of our data protection pillar, making it one of our fastest growing pillars. For example, in a new logo win, an American healthcare provider purchased multiple pillars of our platform, including ZIA Transformation, Data Protection Advanced, and ZDX for 124,000 users in a multi-year eight-figure TCV deal. Our data protection pillar was critical to this wing due to its comprehensive capabilities, which include securing all types of data, whether structured or unstructured, data in motion or data at rest, and data across all channels, including web, email, endpoint, SaaS, cloud workloads, and more. Next, let me discuss our emerging products, including CDX, Zero Trust for Branch and Cloud, and AI Analytics. I'm delighted to share that emerging products contributed approximately 22% of new and upsell business in fiscal 24. up from 18% in fiscal 23. We expect this contribution to grow to mid-20s in fiscal 25. Our Zero Trust for Branch and Cloud solution, including Zero Trust for Workflows, Zero Trust SD-WAN, and Zero Trust Segmentation, is driving more and more meaningful wins. Let me share two examples. In an upsell win, a Fortune 500 financial services customer purchased Zero Trust for Workloads to protect their on-prem applications. Zero Trust for Workloads contributed approximately one-third of this seven-figure upsell ACV deal, which doubled the annual spend of this existing million-dollar ARR customer. In another upsell win, a top 10 pharmaceutical company purchased our Zero Trust SD-WAN solution to protect over 30 manufacturing sites, eliminating the need for firewalls and making each site like a Starbucks. Zero Trust SD-WAN was nearly 50% off the seven-figure ACV deal. Our expanding portfolio of emerging products, further strengthened by our acquisition of Avalod and AirGap, is opening doors for sales to new customers. With the addition of AirGap, ZSkiller is expanding to provide zero-trust security inside branches, factories, and campuses, where customers traditionally relied on east-west firewalls and network access control or NET. By combining EarGap with our Zero Trust SD-WAN, we can not only replace firewalls at the edge, but also eliminate firewalls inside these sites. We are also seeing strong traction for the unified vulnerability management solution we acquired through Avidar. By combining our customers' enterprise security and business system data with our proprietary log data from half a trillion daily transactions, Avalor delivers real-time actionable insights and operational efficiencies for customers to improve their overall security posture. We expect new logo conversations that start with EarGap for Avalor or other emerging products to expand into broader platform opportunities. We will continue to invest in our platform expansion. Moving to the federal vertical, I am excited to share we landed a new cabinet-level agency, increasing our count of cabinet-level agencies to 13. In a seven-figure ACV deal, this customer purchased Zscaler for Users for 5,000 users. With over 100,000 employees, this customer presents a significant 20x upsell opportunity. Having landed 13 of the 15 cabinet-level agencies, including the DoD, we see large upsell opportunities in the federal vertical with the increasing adoption of Zero Trust. Building upon our success in the U.S., we are accelerating our public sector go-to-market investments in other nations that are modeling their Zero Trust security initiatives similarly to the U.S. This is a large opportunity for us But like many government initiatives, this will take time. Now let me share some updates on our sales organization. First, we had lower than expected attrition and we had a strong hiring quota. In fiscal 25, we plan to continue hiring reps at a strong pace and expect attrition to further improve. Second, I am pleased to report that sales productivity was better than expected during the quarter, driven by acceleration in new and upsell business. In fiscal 25, we expect sales productivity to continue to improve, with the second half stronger than the first. Third, we increased investment in the global system integrators, or GSI channel, by hiring leaders experienced in building GSI programs for large enterprises. These hires are driving significant progress in developing mutual go-to-market plans with GSIs that integrate the Zscaler platform with their customers' digital transformation projects. Most large GSIs are already Zscaler customers, and that enables them to showcase to their customers the value Zscaler's Zero Trust platform delivers. This quarter, we added another large GSI end user customer, making eight of the top 10 GSIs by revenue Zscaler customers. This GSI purchased Zscaler for users for over 300,000 users in our largest ever PCV deal in the services vertical This GSI is consolidating multiple point products, including secure web gateways, load balancers, VPNs, firewalls, and MPLS network, which is expected to deliver 200% ROI to this customer. I am pleased with the progress we're making in transforming our go-to-market engine to an account-centric sales motion, which is contributing to growth of our large customers. We added nearly double the number of global 2000 logos in fiscal 24 as compared to fiscal 23. We ended fiscal 24 with approximately 35% of global 2000 companies and more than 40% of Fortune 500 companies as our customers. Our customer base spending $1 million plus annually grew by 26% year over year to 567. and we ended the quarter with over 60 customers spending $5 million plus annually. We expect this large customer momentum to continue in fiscal 25. Finally, I want to address the topic of cloud resilience that has come to the forefront due to the recent cloud outages of Microsoft and CrowdStrike. When customers rely on a mission-critical cybersecurity service, there's no room for service interruptions. From inception, Zscaler has built a cloud security platform that has been seamlessly scaling with high reliability and resilience. Operating such a service is no trivial task and requires years of experience. Unproven vendors including new entrants and legacy firewall companies do not have this experience. By operating the world's largest security cloud with superior resilience for over a decade, we've earned the trust of the largest enterprises. This is a clear differentiator for us and is driving the growth of our business. As an innovator and a market leader, in January 2023, we became the first cloud security company to introduce a business continuity service that enables customers to continue their operations even during catastrophic events. In conclusion, we are uniquely positioned to benefit from the confluence of two large secular growth drivers, Zero Trust Security and AI. We enter fiscal 25 with a stronger go-to-market machine, increased pace of R&D innovation, strong adoption of our emerging products, and high levels of customer satisfaction with an NPS score of over 70. With our customer obsession, expanding platform, and a large addressable market, I expect another strong year, which will move us closer to our goal of $5 billion in ARR. Now, I'd like to turn over the call to Remo for our financial results.