“If we continue to see high growth and strong unit economics, we'll prioritize investing in the business, potentially leading to less than 300 basis points of margin expansion per year.”

In context

“Remo Canessa (CFO): Thank you, Jay. As Jay mentioned, we are pleased with the results for the fourth quarter and full-year 2021. Revenue for the quarter was $197 million, up 12% sequentially, and 57% year-over-year. Product revenue was 17% of total revenue. From a geographic perspective, we had broad strength across our three major regions: Americas represented 51% of revenue, EMEA was 38%, and APJ was 1%. For the full year, revenue was $673 million, up 56% year-over-year. This was an acceleration from the 42% growth we delivered in fiscal 2020. Our total calculated billings grew 70% year-over-year to $332 million, with billing duration in the middle of our 10 to 14 months range. We're also pleased that year-over-year growth in short-term billings accelerated to 71% in the fourth quarter, from 61% in the previous quarter. Our strong billings performance was driven by a record number of new seven-figure annualized contract value deals in the quarter, and we sold more of our platform offerings. We saw strong growth in our top five verticals: Finance, Manufacturing, Services, Healthcare, and Technology. The Remaining Performance Obligations (RPO) were $1.553 billion as of July 31, up 98% from one year ago. The current RPO is 49% of the total RPO. Looking at our pillars, ZPA was 27% of our total new and upsell business in fiscal 2021. Emerging products, which include ZDX and ZCP, are tracking ahead of our expectations and contributed high single digits of our total new and upsell. We are seeing strong customer interest and we expect emerging products to contribute a low-teens percentage of our total new and upsell business in fiscal 2022. The adoption of our emerging products is pacing ahead of ZPA in its early years. We see a large opportunity within all our pillars, and we will continue to expand our portfolio to strengthen our leadership position in the Zero Trust security market. Our strong customer retention and our ability to upsell the broader platform have resulted in a consistently high dollar-based net retention rate, which was 128% compared to 126% last quarter and 120% a year ago. As highlighted, this metric will vary quarter-to-quarter; while good for our business, our success selling bigger bundles and multiple pillars from the start can reduce our dollar-based net retention rate in the future. Considering these factors, we feel 128% is outstanding. We have a solid base of large enterprise customers, providing a significant opportunity to upsell our broader platform. We had 202 customers with ARR greater than a million dollars, up 87% from 108 in the prior year. We also had 1,480 customers with ARR greater than $100,000 compared to 973 customers last year. Our new customer additions accelerated in fiscal 2021, with approximately 1,000 new logos added organically, excluding acquisitions. We ended the year with over 5,600 customers, expanding our field engagement with smaller enterprises with 2,000 to 6,000 employees. The increased investments in our partner program are contributing to higher new customer growth. Turning to the rest of our Q4 financial performance, the total gross margin of 80% declined by 1 percentage point quarter-over-quarter and improved by one percentage point year-over-year. Our total operating expenses increased 15% sequentially and 60% year-over-year to $138 million. Operating expenses as a percentage of revenue increased by 1 percentage point from 69% a year ago to 70% in the quarter, primarily due to increased hiring and higher compensation expenses, along with $2 million in expenses related to our recent acquisitions. The operating margin was 10%, and the free cash flow margin was 14%. We ended the quarter with over $1.5 billion in cash, cash equivalents, and short-term investments. Now moving on to guidance. As a reminder, these numbers are all non-GAAP, which excludes stock-based compensation expenses and related payroll taxes, amortization of debt discount, and amortization of intangible assets. For the first quarter of fiscal 2022, we expect revenue in the range of $210 million to $212 million, reflecting year-over-year growth of 47% to 49% with gross margins of 79%. I would like to remind investors that some of our emerging products, including ZDX, Workload Segmentation, and CSPM, will initially have lower gross margins than our core products because we are focusing on time-to-market and growth rather than optimizing them for gross margin. Operating profit is projected in the range of $18 to $19 million, with other income of $400 thousand net of interest payments on senior convertible notes, and income taxes of $1.2 million. Earnings per share is expected to be approximately $0.12, assuming 148 million fully diluted shares. For the full-year fiscal 2022, we expect revenue in the range of $940 million to $950 million, reflecting year-over-year growth of 40% to 41%, with calculated billings in the range of $1.23 billion to $1.25 billion for year-over-year growth of 33% to 34%. We expect our first-half mix to be approximately 42% of our full-year billings, which aligns with the average of the past 3 to 4 years. Operating profit is expected in the range of $85 million to $90 million, with earnings per share in the range of $0.52 to $0.56, assuming approximately 149 to 150 million fully diluted shares. Please note that our share count guidance now includes dilution from our convertible debentures. We have a capped call with a strike price of $246.76; every $10 increase in our stock price above the strike price will add 250,000 to 300,000 shares to our fully diluted share count. For modeling purposes, I would like to discuss the anticipated short-term and long-term impacts on our fiscal 2022 operating expenses. In fiscal 2021, we saw a 280-basis point benefit to margins from lower expenses compared to fiscal 2020. With plans for in-person meetings and events in the second half of this year, including sales conferences in Q3, we expect expenses to be approximately 250 to 300 basis points higher in fiscal 2022 compared to fiscal 2021. As mentioned previously, the recent acquisitions of Trustdome and Smokescreen are expected to have an immaterial impact on revenue in fiscal 2022. We expect to incur approximately $13 million to $15 million in operating expenses to further invest in these products and incorporate their technologies into our platforms. This has been factored into our guidance. Let me conclude with comments on our investment framework. We will balance growth and profitability based on how our business is growing. At our Analyst Day, consensus estimates reflected approximately 30% revenue CAGR. We outlined our target of achieving 20 to 22% operating margins in fiscal 2024, which implies 300 basis points of margin expansion per year. Since then, we've delivered outstanding results with revenue growth exceeding expectations. If we continue to see high growth and strong unit economics, we'll prioritize investing in the business, potentially leading to less than 300 basis points of margin expansion per year. Our fiscal 2022 guidance of 40 to 41% revenue growth and operating margins of 9 to 9.5% reflects approximately 150 to 200 basis points of margin expansion after adjusting for the increased expenses. We remain confident about reaching 20 to 22% operating margins in the long term, but growth will continue to take priority considering our strong business momentum. With a massive market opportunity and customers increasingly adopting our broader platform, we're committed to investing aggressively in our Company.”