“Calculated billings in the range of $1.974 billion to $1.978 billion, or year-over-year growth of 33% to 34%.”

In context

“Remo Canessa (CFO): Thank you, Jay. Revenue in Q3 was $419 million, up 46% year-over-year and up 8% sequentially. ZPA product revenue was approximately 20% of total revenue, growing 66% year-over-year. From a geographic perspective, the Americas represented 54% of revenue, EMEA was 31%, and APJ was 15%. Our total calculated billings in Q3 grew 40% year-over-year to $482 million. Until we get more certainty around the macroenvironment, we believe looking at total billings on a sequential basis can be a relevant measure of our billings performance in the near term. On a sequential basis, billings declined 2% quarter-over-quarter, which is better than our normal seasonality. Our calculated current billings grew 44% year-over-year. Our remaining performance obligations or RPO grew 36% from a year ago to $3.023 billion; the current RPO is approximately 50% of the total RPO. Our dollar-based net retention rate was once again above 125%, while good for our business, our increased success selling bigger bundles, selling multiple pillars from the start, and faster upsells within a year can reduce our dollar-based net retention rate in the future. This is not a metric we try to optimize quarter-to-quarter, which could lead to variability on a quarterly basis. At the end of Q3, we had 400 customers with greater than $1 million in ARR, up 39% from a year ago. The continued strength of this metric speaks to the strategic role we play in our customers' digital transformation initiatives. We also ended the quarter with 2,432 customers with greater than $100,000 in ARR. Turning to the rest of our Q3 financial performance. Total gross margin of 80.2% compares to 80.4% in the prior quarter, and 80.6% in the year-ago quarter. Higher public-cloud usage for emerging products drove the year-over-year change in gross margins. Our total operating expenses increased 3% sequentially and 33% year-over-year to $272 million, primarily due to higher compensation expenses. Operating margin of 15.3% increased approximately 600 basis points year-over-year. Following our optimization efforts in Q2, we're seeing higher efficiency in supporting roles across the departments. Our free cash flow margin was 18%. We continue to expect our datacenter CapEx to be around the high-single-digit percentage of revenue for the full year. We ended the quarter with over $1.97 billion in cash, cash equivalents, and short-term investments. Next, let me share some observations about the macroenvironment and our framework for guidance. From our perspective, the global macroenvironment remains uncertain and customers continue to scrutinize large deals. We're seeing deals getting larger as customers are trying to consolidate more and accelerate their security transformation around our Zero Trust Exchange. Customers are expanding their commitments with us from a targeted use case to a much broader platform-centric approach. While good for our business, larger deals take longer to close as customers introduce more checks and reviews. In addition, in select instances, we enabled new strategic customers to ramp into larger subscription commitments. Typically, these ramp deals reduce our first-year billings, but will grow into a higher annual run-rate level in the second year. We are entering Q4 with a record pipeline and our customer engagements remain strong. However, predicting close rates in any 90-day period has become more challenging in this environment. Our guidance assumes that new business will take longer to close over the remainder of the fiscal year in view of the macro. As a result, we are assuming a slightly lower close rate in Q4 compared to Q3. We will continue to balance growth and profitability. In our outlook for Q4, we intend to deliver operating margin expansion of more than 400 basis points year-over-year. With that in mind, let me provide our guidance for Q4 and fiscal '23. As a reminder, these numbers are all non-GAAP. For the fourth quarter of fiscal 2023, we expect revenue in the range of $429 million to $431 million, reflecting a year-over-year growth of 35% to 36%. Gross margins of approximately 80%. I would like to remind investors that a number of our emerging products, including ZDX and Zscaler for workloads, will initially have lower gross margins than our core products. We are currently managing the emerging products for time-to-market and growth, not optimizing them for gross margins. In addition, we will continue to invest in our cloud infrastructure as we scale with the growing demand. Operating profit in the range of $69 million to $70 million, net other income of $13 million, income taxes of $6 million. Earnings per share of approximately $0.49, assuming $157 million fully diluted shares. Please note that starting in fiscal 2023, we adopted the new accounting standard, which requires the use of the if converted method for calculating EPS. To account for our convertible notes, you will need to add back $360,000 in quarterly interest expense. For the full year fiscal 2023, we expect revenue in the range of $1.591 billion to $1.593 billion, or year-over-year growth of approximately 46%. Calculated billings in the range of $1.974 billion to $1.978 billion, or year-over-year growth of 33% to 34%. Operating profit in the range of $224 million to $225 million. Our guidance reflects approximately 400 basis points of operating margin improvement compared to last year. Income taxes of $21 million, earnings per share in the range of $1.63 to $1.64 assuming approximately $156 million fully diluted share. As noted earlier, to account for convertible notes and EPS, you will need to add back $1.4 million in annual interest expense. We remain confident in our ability to capture our large market opportunity while increasing profitability. We will balance growth and profitability based on how our business is growing. The recurring nature of our business model gives us good visibility on top-line revenue and allows us to adapt quickly to changes in market conditions to deliver on our operating profit and margin goals. With a large market opportunity and customers increasingly adopting the broader platform, we'll continue to make disciplined investments to position us for long-term growth.”