Zscaler Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Saket Kalia - Barclays Capital Inc. - Analyst : Okay, great. Hey, guys. Thanks for taking my question here. And first off, Remo, congrats on your retirement. Heck of a run at Zscaler and all the companies before this as well.

Question: Saket Kalia - Barclays Capital Inc. - Analyst : Absolutely. Jay, maybe for you. Thanks for the detail on the unscheduled billings growth of 20% this quarter. Can you just maybe talk about how that did versus your expectation or maybe versus last quarter for some context? And as you look forward, do you still feel confident in sort of the accelerated billings growth as that contracted non-cancelable billings pool grows and normalizes back to what it was historically? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 02, 2024 / 9:30PM, ZS.OQ - Q1 2025 Zscaler Inc Earnings Call

Question: Andrew Nowinski - Wells Fargo Securities, LLC - Analyst : Thanks. Remo, sorry to hear you're retiring. It's certainly been a pleasure working with you over the last decade. I guess I'd like to ask you a question on the data security. The ZDX Copilot certainly sounds like an interesting opportunity. Given your prior partnership with Microsoft and your ability to securely deliver traffic to Office 365, I would imagine Microsoft is supporting you in this endeavor. But just wondering maybe if you could provide some more color on how you're helping -- how they're helping you bring more customers, help more customers roll out Copilot, and whether you are seeing Zscaler beat Varonis in that space.

Question: Gabriela Borges - Goldman Sachs & Company, Inc. - Analyst : Hi, good evening. Thanks for taking my question. Jay, I wanted to follow-up on your comments on ZPA being a particularly meaningful driver, of course, in FY25. Maybe just remind us, how far along do you think we are in the VPN replacement cycle? How is the competitive environment changing? And what are some of the catalysts that might call an enterprise to reevaluate their VPN and zero trust ZPA strategy now, versus maybe, call it, during COVID? Thank you.

Question: Brad Zelnick - Deutsche Bank Securities Inc. - Analyst : Great, thanks so much. So much information you've shared. Remo, fantastic run. Congrats. And nice strong booking start to the year, guys. Jay, I was surprised to hear you compared your growth this quarter to that of the firewall players out there just given how differentiated you are. And some of those folks are talking about significant hardware refresh opportunities ahead as they have boxes that go end of life. If you look backwards, to what extent are those events, opportunities for Zscaler to go in and totally re-architect and transform and displace a set of branch firewalls, for example, and bring them onto your platform? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 02, 2024 / 9:30PM, ZS.OQ - Q1 2025 Zscaler Inc Earnings Call

Question: Brad Zelnick - Deutsche Bank Securities Inc. - Analyst : Thank you. If I could just sneak in a quick follow-up, I don't know for you or Remo, but 30%-plus bookings growth, that is really strong. I think by my math, current bookings using cRPO even is strong as well. So it's not as if this is driven by duration. Can you maybe unpack for us just to help us to understand -- I understand the scheduled versus unscheduled billings dynamic, but we're looking at a pretty significant delta, and I just -- I feel like that bookings number is so strong it's worth highlighting and maybe just drilling into a bit for everyone. Thank you so much again.

Question: Mike Cikos - Needham & Company, LLC - Analyst : Hey, guys. Thanks for taking the questions here. And I just really wanted to come back to the 20%-plus year-to-year unscheduled billings in the quarter. So congrats on that. I just wanted to see, can you tie that into the disclosure that we have today on that emerging products ARR? Is most of that unscheduled billings growth being sustained by those emerging products to see or hear that that ARR base is growing twice as fast as core, wanted to get some more color around if that's the driver and which products would that emerging products classes is seeing the most traction. Anything that would be incremental. Thank you very much, guys. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 02, 2024 / 9:30PM, ZS.OQ - Q1 2025 Zscaler Inc Earnings Call

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Thanks. And Remo -- so congratulations, and enjoy retirement. You earned it. A couple small ones for me. First of all, if I may, Remo, your last earnings call, you gave an ARR number and an ARR target for the end of the fiscal year. I was wondering if you can give us an update on ARR here now and the target for year-end. And then, on the second thing, on the emerging products, can you remind us what are the two, three biggest pieces within the emerging products category? Number one. But number two, also, what percent of new business activity do they represent for you right here, right now? Just trying to get a better sense of the change in mix there contribution-wise. Thank you.

Question: Rob Owens - Piper Sandler & Co. - Analyst : Yeah. Thanks for taking my question. And I guess while I have the opportunity I'll pick on Remo and something he said because -- Remo, in your prepared remarks, you talked about ongoing customer scrutiny on large deals. And I don't know if that's just a general economic comment or there's something else coloring your opinion. A lot of the script was around adding AI in some of these transformational solutions that you guys are rolling out. Just curious if there's something else that might be lending to longer sales cycles as deals are getting bigger or if that was just more of a general economic comment. Thanks.

Question: Brian Essex - J.P. Morgan Securities LLC - Analyst : Good afternoon. Thank you for taking the question. Remo, congratulations. We're certainly going to miss working with you. Maybe I wanted to hit on the SecOps side of the equation. Maybe, Jay, can you help us understand where we are in terms of progress with Avalor? And I noticed in the press release, you noted that you surpassed 0.5 trillion daily transactions, which is huge. How are your customers evaluating your ability to scale over the volume of data and traffic that you have, given all the changes we're seeing in the SecOps side of the market in the current environment? Thanks.

Question: Joel Fishbein - Truist Securities - Analyst : Thanks for taking the question. Remo, big shoes to fill, and you'll be sorely missed. Jay, you talked a little bit about the public sector and the US federal. Just curious if there's been any update on DoD and Thunderdome and any of the big projects there? They've been looking at doing a revitalization, and you seem to be primed for that. We'd love to hear where that stands. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 02, 2024 / 9:30PM, ZS.OQ - Q1 2025 Zscaler Inc Earnings Call

Question: Fatima Boolani - Citi Investment Research - Analyst : Good afternoon. Thank you for taking my questions. I appreciate it. And, Remo, congratulations on an illustrious career. I wanted to ask you a question with regards to the updated billings guidance and some of the implied second-quarter billings based on some of the seasonality commentary you shared, Remo. Is there anything that we should think about vis-a-vis transactions that maybe landed early? Just trying to get a better sense of, hey, first quarter was really strong out of the gate, certainly relative to expectations. But why would we see some of that pare down in the second quarter? If you can give us some color around that. Thank you so much.

Question: Shrenik Kothari - Robert W. Baird & Co. Incorporated - Analyst : Hey. Congrats on the retirement, Remo. Great working with you, and good luck for the next chapter. Thanks for taking my questions. So the shift to account-centric selling, of course, is yielding benefits already, Jay, you mentioned, with the pipeline quality. Just a follow-up to Brad's question on the bookings growth. And say, Remo and Jay, you mentioned about the partnership with GSIs facilitating significant deal wins. You

Question: Matthew Hedberg - RBC Capital Markets Wealth Management - Analyst : Great. Thanks for taking my questions, guys. Lots of really good things to think about on this quarter. I guess I wanted to go back to the data protection solution. It seems like it's really contributing to large deals. And it's not the first time you've talked about It. I looked back; I think in Q4 of '23, fiscal '23, you talked about approaching Quarter of a billion of ARR. I think, at the time, it was growing about 60%. Any update on the scale of that business? I think it was about maybe about 12% of ARR back then. I have to imagine, it's been growing faster than the base business, but that feels like it's a really, really material contributor to new and emerging product growth.

Question: Roger Boyd - UBS Securities LLC - Analyst : Great. Thanks for taking my questions. And, Remo, sad to see you go, but I'll echo my congrats on your retirement there. It's been a pleasure. Jay, just to follow up on data security, it seems like you're having a lot of traction upselling that data security portfolio. But I'm wondering to what extent that you've seen that holistic view that really only inline vendors can do start to influence new ZPA, ZIA deals and how big of a competitive differentiator you see that being going forward?