00:00 Josh
Shares of Zscaler are tumbling after reporting first quarter earnings on Tuesday. The company posting a strong top line beat, but profitability and outlook weighing on the stock. Here to walk us through the report. We got Zscaler CEO, Jay Chaudry. Jay, great to see you as always. Um, you know, stock is under pressure here today, Jay. Of course, you know, we should we should note, under pressure after a tremendous run, Jay. But what walk us through the earnings report to start with, Jay. What what are you seeing in the business?
00:29 Jay Chaudhry
So Josh, thank you for having me over.
00:33 Jay Chaudhry
We deliver amazing results. ARR grew 26%. Our revenue growth was 26% as well. RPO accelerated to 35% year over year and our free cash flow margin was 52%.
00:47 Jay Chaudhry
In fact, if you take revenue and free cash flow together, we are performing at the rule of 78.
00:54 Jay Chaudhry
There are very few companies in the SAS world that are over $3 billion in ARR and are growing at over 25%. We’re very ecstatic and happy with the results we posted.
01:06 Josh
Jay, you know, I was talking to an analyst this morning who covers you all, smart guy, friend of mine. And he said, you know, I I’d like to hear Jay separate out Red Canary results, referring to the acquisition you all closed in August, from organic results. I think what he was really trying to get at Jay is is is organic slowing down? How do you answer that?
01:28 Jay Chaudhry
Yes, I think that’s part of the confused confusion analysts had, but with Red Canary or without Red Canary, our growth was strong, our operating margin was strong.
01:36 Jay Chaudhry
Red Canary is an important acquisition for us, but from contribution margin’s point of view, it’s relatively small. The biggest thing they bring to the table for us is agentic technology that’s allowing us to really do some of the security operations in a better way.
01:46 Jay Chaudhry
Uh, so our growth on the top line as well as ARR was very strong without Red Canary as well.
01:55 Josh
Let me ask you, Jay, when you look into, you know, through year end and beyond, what is enterprise spending look like, Jay? How how would you characterize it? How healthy? How resilient?
02:04 Jay Chaudhry
So the macroeconomics haven’t changed a whole lot. The market is tight, budgets are tight, there’s deal scrutiny on large deals. But there are two situations where you can get the deals done and do the kind of growth we have done. Number one, enterprises care about cybersecurity and especially now with cyber along with AI security becomes a very important part. We do that very well. The second part is since there’s pressure on budgets, so CIOs are looking for cost reduction. They’re looking for simplification, consolidation, and our platform can eliminate a lot of network and security point products. There’s so many firewalls, VPNs, router, switches sitting out there that can be taken out. We do that. So by combining great security with zero trust architecture and meaningful cost savings, we got a strong pipeline and we are getting deals done. That’s really what’s showing up in our results.