Here my quick 7-point recap of cybersecurity specialist Zscaler’s (Nasdaq: ZS) first quarter 2024 conference call:

1. Zscaler exceeded its guidance with 40% YoY revenue growth to $497 million. Non-GAAP operating income more than doubling to $89 million and free cash flow was a record $225 million. LTM free cash flow ~$463 million for a FCF margin of 26%. Some big numbers at scale.
2. Traction with large customers continued with a Q1 record of 14 $1M+ new logo customers added in the quarter. Zscaler now has 468 of these large customers, up 34% from last year.
3. Broader platform strategy is at work with ~50% of new customers purchasing the bundle of ZIA, ZPA and ZDX. Management highlighted “More customers are adopting our broader platform to consolidate multiple point products, increasing our average deal size. As a result, we are actively working on more large, multiyear, multi-pillar opportunities than ever before.”
4. Emerging products like ZDX for monitoring and analytics and workload communication for securing workloads highlight strong growth avenues. Its CEO called out ZDX as pivotal in a large hospital deal valued at 7 figures of ACV. Also noted over 1/3rd of customers have purchased initial workload products with expectations for rapid expansion over time. Emerging products present large cross-sell/upsell opportunities within existing customers.
5. A record quarter for pipeline generation, despite macro uncertainty. The company has several tailwinds on its back: Increasing frequency of high-profile breaches, new SEC disclosure requirements pertaining to material cybersecurity incidents, and US President’s executive order on zero-trust security are driving cybersecurity expenditure, with significant attention at the executive/board level. Further, there’s a push towards platform level solutions which are displacing point solutions.
6. Zscaler’s recently launched Risk360 product for risk quantification and mitigation driven by AI appears to be timely given incidences of cyber attacks and new SEC disclosure requirements.
7. Nonetheless, management guides with “prudence”, given its appointment of two new execs (a CRO and a CMO) who are going to help the company get to its stated goal of $5 billion in Annual Recurring Revenue.

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