“We expect our free cash flow margin to be up year-over-year and in the low-20% range.”

In context

“Remo Canessa (CFO): Thank you, Jay. Our Q2 results exceeded our guidance on growth and profitability, even with ongoing customer scrutiny of large deals. Revenue was $525 million, up 35% year-over-year and up 6% sequentially. From a geographic perspective, Americas represented 54% of revenue, EMEA was 31%, and APJ was 15%. Our total calculated billings in Q2 grew 27% year-over-year to $628 million. On a sequential basis, total billings increased 37% quarter-over-quarter. Our calculated current billings grew 26% year-over-year. Our remaining performance obligations, or RPO, grew 29% from a year ago to $3.613 billion. The current RPO is approximately 51% of the total RPO. We ended Q2 with 497 customers with greater than $1 million in ARR, adding 29 such customers in the quarter. We also saw strength in $100,000 ARR customers this quarter, which grew to 2,820, adding 112 customers sequentially. This continued strong growth of large customers speaks to the strategic role we play in our customers’ digital transformation initiatives. Our 12-month trailing dollar-based net retention rate was 117%. While good for our business, our increased success in 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. There could be variability in this metric on a quarterly basis due to the factors I just mentioned. Turning to the rest of our Q2 financial performance, total gross margin of 80.8% compares to 80.7% in the prior quarter and 80.4% in the year-ago quarter. On a year-over-year basis, gross margin benefited by approximately 60 basis points from a change in accounting attributed to the longer useful life of our cloud infrastructure. As mentioned on our previous earnings call, beginning fiscal 2024, we extended the depreciable useful life of our servers and network equipment in our cloud infrastructure from four to five years. Moving on, our total operating expenses increased 3% sequentially and 22% year-over-year to $321 million. We continue to generate significant leverage in our financial model, with operating margin reaching 19.6%, an increase of approximately 700 basis points year-over-year. Our free cash flow margin was 19%, including data center CapEx of approximately 6% of revenue. We ended the quarter with over $2.4 billion in cash, cash equivalents, and short-term investments. Next, let me share some observations about the macro environment and our framework for guidance for the rest of the fiscal year. We believe we are still operating in a challenging macro environment and customers continue to scrutinize large deals. Customer interest in our platform remains strong, and we are adding experienced sales leaders to our already strong sales team to position us well for sustainable growth in the long term. In our outlook for fiscal 2024, we're balancing our business optimism with ongoing macroeconomic uncertainties and sales leadership changes. Moving on to guidance for Q3 and full year fiscal 2024. As a reminder, these numbers are all non-GAAP. For the third quarter, we expect revenue in the range of $534 million to $536 million, reflecting a year-over-year growth of approximately 28%. Gross margins of 80%. I would like to remind investors that a number of our emerging products, including newer products like ZDX and Zscaler for Workloads, will initially have lower gross margins than our core products. We're currently managing the emerging products for time to market and growth, not optimizing them for gross margins. Operating profit in the range of $98 million to $100 million. Net other income of $15 million. Income taxes of $10 million. Earnings per share in the range of $0.64 to $0.65, assuming 161 million fully diluted shares. For the full year fiscal 2024, we're increasing our guidance as follows. Revenue in the range of $2.118 billion to $2.122 billion, reflecting a year-over-year growth of approximately 31%. Calculated billings in the range of $2.55 billion to $2.57 billion or year-over-year growth of 25% to 26%. From a modeling perspective, Q3 is typically our seasonally weaker quarter. Consistent with our historical seasonal patterns, we expect billings to decline sequentially by approximately 7% in Q3. Operating profit in the range of $395 million to $400 million, which reflects up to 400 basis points of operating margin improvement compared to last year. Income taxes of approximately $35 million. Earnings per share in the range of $2.73 to $2.77, assuming approximately 161 million fully diluted shares. We expect our free cash flow margin to be up year-over-year and in the low-20% range. We continue to expect our data center CapEx to be high-single-digit percentage of revenue for the full year, reflecting the 3 to 4 percentage points headwind to free cash flow margins. We expect the timing of CapEx spend to be more towards the later part of the second half of the year as we invest in upgrades to our cloud and AI infrastructure. With a large market opportunity and customers increasingly adopting the broader platform, we plan to continue to invest significantly to drive long-term growth while increasing profitability. Before moving on to Q&A, I would like to note that Bill Choi, our Senior Vice President of Strategic Finance and Investor Relations, will be leaving us in a couple of weeks. This is a bittersweet moment for me, as Bill has been instrumental in building the finance practice here, but happy for him as he is moving to pursue his first CFO opportunity at an AI networking company. We wish him great success in his next endeavor. With that operator, you may now open the call for questions.”