“For Q3, we expect billings growth to continue to improve and encourage modeling 200 to 260 basis points of sequential billings growth”

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 $648 million, up 23% year-over-year and up 3% sequentially. From a geographic perspective, Americas represented 54% of revenue, EMEA was 30% and APJ was 16%. Our annual recurring revenue or ARR exiting Q2 surpassed $2.7 billion. ARR growth was approximately 23% year-over-year; remaining performance obligations or RPO, grew 28% from a year ago to $4.615 billion. Current RPO was approximately 49% of the total RPO. Total calculated billings grew 18% year-over-year to $743 million. Our unscheduled billings, comprising new upsell and renewal billings grew over 25% year-over-year. Our calculated current billings grew 19% year-over-year. We ended Q2 with 620 customers with over $1 million in ARR and 3,291 customers with over $100,000 in ARR. This continued strong growth of large customers speaks to the strategic role we play in our customers' digital transformation journeys. Our 12-month trailing dollar-based net retention rate was 115%. While this is 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 80.4% compares to 80.8% in the year-ago quarter. Our total operating expenses increased 2% sequentially and 19% year-over-year to $380 million. We continue to generate significant leverage in our financial model with an operating margin of approximately 22%, an increase of about 200 basis points year-over-year. Our free cash flow margin was 22%, including data center CapEx at 2% of revenue. We ended the quarter with approximately $2.9 billion in cash, cash equivalents and short-term investments. Next, let me provide our guidance for Q3 and full year fiscal 2025. As a reminder, these numbers are all non-GAAP. For the third quarter, we expect revenue in the range of $665 million to $667 million, reflecting year-over-year growth of 20% to 21%. Gross margins of approximately 80%. I would like to remind investors that we're introducing new products that are experiencing strong growth and are optimized for faster go-to-market rather than margins. This will continue to influence our gross margins. We plan to optimize new products for margins over time as they scale, operating profit in the range of $140 million to $142 million. Net other income of $18 million. Earnings per share in the range of $0.75 to $0.76, assuming a 23% tax rate and 163 million fully diluted shares. For the full year fiscal 2025, we expect billings in the range of $3.153 billion to $3.168 billion, reflecting a year-over-year growth of approximately 20% to 21%. For Q3, we expect billings growth to continue to improve and encourage modeling 200 to 260 basis points of sequential billings growth, and revenue in the range of $2.64 billion to $2.654 billion, reflecting year-over-year growth of approximately 22%. Operating profit in the range of $562 million to $572 million. Earnings per share in the range of $3.04 to $3.09, assuming a 23% tax rate and approximately 163.5 million fully diluted shares. We expect our free cash flow margin to be approximately 24.5% to 25% with a large market opportunity and customers increasingly adopting the broader platform we will invest aggressively to position us for long-term growth and profitability. With that, operator, you may now open the call for questions.”