Zscaler's Resilience in Challenging Economic Times
2023-07-30
Zscaler, a cybersecurity company, recently held a call meeting to discuss various topics including their fiscal year, budget flush prospects, customer deals, and the performance of their Federal business. The meeting concluded with closing remarks from the company's Founder, Chairman, and CEO.
The most important topic discussed in the meeting was the company's focus on closing multiyear, multi-pillar deals in a tougher environment.
One of the most interesting outcomes of the meeting was the impact of the economic slowdown on the company's business. Despite their services enabling companies to lower their spending by replacing capital expenditures with operational expenditures, the company is still being affected by the broader macroeconomic slowdown. However, compared to other market segments, the impact is relatively less severe. This suggests that the company's services are still in demand, but the overall economic conditions are influencing customer behavior and decision-making processes.
The market outlook for the company is cautious due to a tougher macro environment and incremental risk in billings. The company acknowledges the uncertainty in the market but believes that the enterprise segment change is not a major concern. They are focused on growth and maintaining a measured approach to operating profitability. The company sees potential in financial federal services and healthcare verticals but does not consider the impact of different verticals to be significant. Overall, the market outlook suggests a cautious approach with a focus on growth and maintaining a balanced approach to profitability.
The key drivers of the business discussed in the meeting are multiyear, multi-pillar deals, business justification, strong C-level engagements, sales pipeline growth, and navigating a challenging deal execution environment.
The company's plans for its product/service are focused on maintaining its competitive position in the large enterprise segment and emphasizing the mission-critical nature of its service. They aim to continue meeting customer requirements and offering important cybersecurity capabilities. Despite the economic slowdown, the company believes its product/service is in a better position compared to other market segments and will continue to help customers save money through consolidation, simplification, and standardization.
The competitive landscape in the company's industry is not experiencing significant changes. The CEO mentioned that there haven't been many competitive shifts or changes in pricing dynamics, particularly in the large enterprise segment. The company's focus on providing the right architecture and mission-critical services has helped them maintain their position without facing much competition from firewall companies. The CEO also noted that their service is considered more mission-critical than Office 365. While there may be some pricing pressure from competitors, the company has not seen significant impacts in terms of pricing. Overall, the competitive landscape seems relatively stable for the company.
The most important KPIs discussed in the meeting were workload growth, pipeline growth, coverage ratio, and multiyear, multi-pillar deals. The CEO highlighted the increasing importance of workloads as a key performance indicator, with workloads now representing one-third of customers with a $1 million annual cost spend. The CEO also mentioned the growth of the pipeline, which signifies an increase in potential deals and opportunities for the company. The coverage ratio was also discussed, with the CFO responding that they take this into account in their guidance, implying that the coverage ratio is an important KPI that affects the company's financial performance. Lastly, the CEO mentioned the growing pipeline composition for large multiyear, multi-pillar deals, indicating the company's focus on securing long-term, multi-faceted contracts. These KPIs provide insights into the company's growth strategy and financial performance.
The company's outlook for the quarter and year is positive. For the second quarter of fiscal 2023, they expect revenue to grow by 42% to 43% year-over-year, with gross margins of approximately 80%. They project an operating profit of $42 million to $43 million, net other income of $8 million, and income taxes of $4.5 million. Earnings per share are anticipated to be between $0.29 and $0.30. For the full year fiscal 2023, they expect revenue to grow by approximately 40% to a range of $1.525 billion to $1.530 billion.
The participants of the call mentioned in the meeting outcome include Keith Bachman from BMO Capital Markets, Shrenik Kothari from Robert W. Baird and Company, Saket Kalia from Barclays, and Adam Borg from Stifel Financial Corp. These individuals are analysts who were present during the call to discuss and analyze the company's earnings. Their active participation signifies the importance and interest surrounding the company's financial performance.