Release Date: May 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue in Q3 grew by 32% year-over-year, and billings grew by 30%.
- The number of $1 million-plus ARR customers increased by 31% year-over-year to 523.
- Operating profit nearly doubled year-over-year, and operating margin reached a record 22%.
- First quarter of GAAP profitability on a net income basis for Q3.
- Strong customer interest in emerging products, contributing nearly a quarter of new and upsell business.
Negative Points
- Higher than expected sales attrition in the quarter.
- Ongoing customer scrutiny of large deals.
- Sales cycles for large deals are extending towards 12 months.
- Attrition in the sales organization due to the departure of the COO.
- Guidance for Q4 indicates a significant deceleration in year-over-year growth.
Q & A Highlights
Q: Can you expand on the role of Zscaler in broader security consolidation?
A: Customers want consolidation and simplification of point products but prefer best-of-breed platforms. Zscaler plays a significant role in this by eliminating firewalls and VPNs, providing substantial savings. Customers typically prefer two or three tiers of security, often involving Zscaler for in-line security, an EDR vendor, and an identity vendor. The focus is on selective consolidation rather than an all-encompassing solution. - Jagtar Chaudhry, CEO
Q: How is Zscaler faring against smaller, purpose-built SASE competitors?
A: Zscaler primarily competes in the large enterprise market and does not frequently encounter smaller SASE vendors. The market is evolving, and Zscaler continues to innovate rapidly, maintaining a competitive edge. The company is pioneering Zero Trust SD-WAN, which it believes will replace traditional SD-WAN. - Jagtar Chaudhry, CEO
Q: What caused the higher attrition in the sales organization, and should we be concerned?
A: The higher attrition was partly due to the departure of the COO and is expected to stabilize. The company is focused on hiring seasoned sales reps and has made significant progress in building a strong go-to-market team. - Jagtar Chaudhry, CEO and Remo Canessa, CFO
Q: How does Zscaler maintain its competitive advantage in a crowded market?
A: Zscaler's architectural advantage, continuous innovation, and strong customer relationships are key differentiators. The company has expanded its platform significantly and continues to innovate rapidly. Customer satisfaction, as evidenced by a high net promoter score, also contributes to its competitive edge. - Jagtar Chaudhry, CEO and Remo Canessa, CFO
Q: Can you explain the deceleration in Q4 guidance despite strong Q3 results?
A: The Q4 guidance reflects prudence, a strong Q3 performance, and a tough comparison to the previous year's Q4, which included a large $20 million deal. Higher sales attrition also played a role. - Remo Canessa, CFO
Q: How is the macro environment affecting customer willingness to undertake transformational projects like SASE?
A: Despite a tough macro environment, cybersecurity remains a top priority for CIOs and CISOs. Zscaler's ability to demonstrate cost savings and improved security through Zero Trust architecture helps secure C-level engagement and drive pipeline growth. - Jagtar Chaudhry, CEO
Q: What are the biggest drivers for Zscaler's growth over the next 12-18 months?
A: Key drivers include the ramping of the sales force, success of emerging products, and continued innovation. Products like ZPA, Zscaler Digital Experience, and data protection are expected to contribute significantly to growth. - Jagtar Chaudhry, CEO
Q: How is Zscaler's Advanced Plus bundle resonating with customers?
A: Customers are increasingly purchasing larger bundles, which include advanced AI capabilities. This trend is contributing to higher ARR and reflects the value customers see in Zscaler's comprehensive offerings. - Jagtar Chaudhry, CEO
Q: How do recent firewall and VPN vulnerabilities impact demand for Zscaler's solutions?
A: These vulnerabilities have increased demand for Zscaler's solutions, particularly in the federal sector. Customers are moving away from traditional VPNs and firewalls to adopt Zscaler's Zero Trust architecture, which offers better security. - Jagtar Chaudhry, CEO
Q: Can you discuss the sustainability of Zscaler's growth and the biggest upside drivers?
A: The sustainability of growth is supported by a strong sales force, innovative product offerings, and expanding market opportunities. Key products like ZPA, Zscaler Digital Experience, and data protection are expected to drive significant growth. - Jagtar Chaudhry, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
