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01/11 10:02
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call indicates a positive sentiment with strong financial performance, including 23% revenue growth and robust ARR. The strategic initiatives like Zero Trust Everywhere and AI innovations are promising, despite slight gross margin decline. The acquisition of Red Canary may pose integration risks, but overall, the guidance and Q&A responses reflect confidence in growth, particularly in federal and new product categories. The Z Flex program and customer expansion efforts are well-received. Although some management responses were unclear, the overall market strategy and financial health suggest a positive stock price movement.
Total Revenue $678,000,000, up 23% year over year; driven by strong demand for Zscaler's platform and improved sales productivity.
Annual Recurring Revenue (ARR) Approximately $2,900,000,000, representing 23% year over year growth; consistent customer adoption of Zscaler's solutions.
Remaining Performance Obligations (RPO) $4,978,000,000, up 30% year over year; reflects strong customer commitments.
Total Calculated Billings $785,000,000, up 25% year over year; driven by increasing customer demand for the platform.
Dollar Based Net Retention Rate 114%; reflects success in selling larger bundles and multiple pillars, but may vary quarterly.
Total Gross Margin 80.3%, down from 81.4% year over year; influenced by new product introductions.
Operating Margin Approximately 22%, comparable year over year; reflects stable operating performance.
Free Cash Flow Margin 18%, including data center CapEx at 11% of revenue; indicates strong cash generation.
Cash and Cash Equivalents Approximately $3,000,000,000; provides a strong liquidity position.
Customer Growth 642 customers with over $1,000,000 in ARR, and 3,363 customers with over $100,000 in ARR; indicates strong growth in large customer segments.
New Product Launches: Zscaler introduced the Z Flex purchasing program, allowing customers to flexibly scale their adoption of the platform, contributing over $65 million in TCV bookings.
Zero Trust Everywhere: The Zero Trust Everywhere category is seeing significant growth, with 59% of customers who bought Zero Trust branch being new logo customers.
GenAI Data Security Module: Zscaler launched a GenAI data security module to secure public and private AI applications, with notable customer adoption.
Market Expansion: Zscaler's ARR reached approximately $2.9 billion, with a target to exceed $3 billion by the end of the quarter.
Customer Growth: Zscaler ended Q3 with over 210 Zero Trust Everywhere Enterprises, achieving over 60% quarter-over-quarter growth.
Operational Efficiency: Zscaler's free cash flow margin was 28%, demonstrating strong profitability alongside revenue growth.
Sales Productivity: Zscaler achieved TCV bookings of over $1 billion in Q3, indicating improved sales productivity.
Strategic Shift: Zscaler is transitioning to an ARR metric for measuring success, moving away from traditional billing metrics.
Acquisition of Red Canary: Zscaler announced the acquisition of Red Canary for $675 million, expected to enhance their security operations capabilities.
Economic Uncertainty: Customers remain cautious about their IT spending due to ongoing economic uncertainty, which may affect their purchasing decisions.
Competitive Pressures: Zscaler faces competitive pressures from legacy vendors and other cybersecurity companies, which may impact market share and pricing strategies.
Customer Scrutiny: There is increased scrutiny from customers regarding large deals, which may lead to longer sales cycles and affect revenue growth.
Regulatory Issues: The company must navigate regulatory challenges, particularly in the cybersecurity space, which could impact operational flexibility and compliance costs.
Supply Chain Challenges: Potential supply chain challenges could arise from the need for hardware or software components, affecting service delivery and customer satisfaction.
Acquisition Risks: The acquisition of Red Canary poses integration risks and uncertainties regarding retention of ARR, as a significant portion of its revenue may not align with Zscaler's strategic goals.
Market Adoption: While there is strong demand for Zscaler's solutions, the pace of market adoption for new products and services may vary, impacting growth projections.
Net Retention Rate Variability: The dollar-based net retention rate may experience variability due to the success of selling larger bundles and multiple product pillars, which could affect future revenue stability.
Total Contract Value (TCV) Bookings: Achieved over $1,000,000,000 in TCV bookings for Q3.
Remaining Performance Obligations (RPO): RPO reached nearly $5,000,000,000.
Annual Recurring Revenue (ARR): ARR was approximately $2,900,000,000, with a target to exceed $3,000,000,000 by the end of Q4.
Z Flex Program: Launched to allow customers flexible scaling of platform adoption, contributing over $65,000,000 in TCV bookings.
Zero Trust Everywhere: Targeting to triple the number of Zero Trust Everywhere customers from over 130 to over 390 by the end of fiscal 2026.
Acquisition of Red Canary: Expected to close in August 2025, enhancing capabilities in Managed Detection and Response (MDR) and Threat Intelligence.
Q4 Revenue Guidance: Expected revenue in the range of $705,000,000 to $707,000,000, reflecting approximately 19% year-over-year growth.
Full Year Fiscal 2025 Revenue Guidance: Revenue expected in the range of $2,659,000,000 to $2,661,000, reflecting approximately 23% year-over-year growth.
Operating Profit Guidance: Operating profit expected in the range of $573,000,000 to $575,000,000 for the full year.
Free Cash Flow Margin Guidance: Expected to be approximately 25.5% to 26% for the full year.
Earnings Per Share Guidance: Expected in the range of $3.18 to $3.19 for the full year.
Z Flex Program TCV Bookings: $65,000,000 in TCV bookings from the Z Flex program in Q3.
Z Flex Program Customer Commitment: An existing Fortune 500 technology customer increased their ARR by over 40% to approximately $19,000,000 under the Z Flex program.
Acquisition of Red Canary: Zscaler plans to use $675,000,000 in cash for the acquisition of Red Canary, expected to close in August 2025.
The earnings call presents a positive outlook with strong revenue growth driven by strategic pillars like Zero Trust and AI security. Despite a slight decline in gross margin, the company maintains efficient cost management and strong cash flow margins. Analyst questions highlight strong demand for products, significant growth potential, and a stable competitive landscape. The Q&A section reveals positive sentiment towards management's strategic direction, especially in Zero Trust areas. Although Red Canary's contribution is minimal, its integration is progressing well. Overall, the company's strategic initiatives and financial health suggest a positive stock price movement.
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