Good day and welcome to the Zscaler's First quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Bill Choi. Sir, please begin.

Good afternoon, and welcome to the Zscaler first quarter 2020 earnings conference call. On the call with me today are Jay Chaudhry, Chairman and CEO; and Remo Canessa, CFO. By now, everyone should have access to our earnings announcement, which can be found on our website in the Investor Relations section. In addition, a supplemental financial schedule is available for download at ir.zscaler.com. Please note, unless otherwise noted all numbers we talk about today other than revenue will be on an adjusted non-GAAP basis. You will find the reconciliation of GAAP to the non-GAAP financial measures in our earnings release. For historical periods the GAAP to the non-GAAP reconciliations can be found in the supplemental financial information referenced a moment ago. Let me remind you that we'll be making forward-looking statements during today's discussions, including but not limited to the Company's anticipated future revenue calculated billings, operating performance, gross margin, operating expenses, operating income, net income, free cash flow, dollar-based net retention rate, income taxes and earnings per share. These statements and other comments are not guarantees of future performance, but rather are subject to risk and uncertainty, some of which are beyond our control. Our actual results may differ significantly from those projected or suggested in any forward-looking statements. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition please see our filings with the Securities and Exchange Commission, as well as in today's earnings release. I would like to inform you that we will be participating in several upcoming investor conferences. Next week management will be at the UBS Global TMT Conference and Cowen's Networking and Cyber Security Summit in New York City. And also the Barclays' TMT Conference in San Francisco. On January 14, we will be at Needham's Growth Conference in New York. Now I will turn the call over to Jay.

Thank you, Bill, and thank you everyone for joining us. We reported solid Q1 results delivering strong revenue and operating profit growth in the first quarter with positive free cash flow, while making strategic investments to scale our go-to-market machine to the next level. Our revenue grew 48% and billings grew 37% year-over-year in Q1, and we are increasing our outlook for revenue and billings for the full fiscal year 2020. Adoption of the ZIA Transformation Bundle continues to grow and ZPA remains our fastest growing product. I'm thrilled that more customers are using ZIA and ZPA together, which provides a single platform for secured cloud transformation that we believe no other vendor can match. As you know, Dali Rajic joined this September as our President Go-To-Market and Chief Revenue Officer. I'm excited about the key initiatives our sales leadership is putting in place to position us well for the long term. At our recent Zenith Live Cloud Summit, I was pleased to hear CIOs, CTOs, and CSOs of Global 2000 Enterprises sharing with pride their cloud transformation journeys enabled by Zscaler that delivered lower costs, improved security, and provided fast and reliable user experience. I'm very proud that Gartner recently recognized Zscaler as a leader in the Secure Web Gateway Magic Quadrant for the ninth year in a row. More importantly, Zscaler is positioned the highest for both execution and vision, significantly separating us from the competition. We pioneered the cloud native, integrated security platform and our cloud service is trusted by over 3,900 customers, including over 400 of the Forbes Global 2000 to access applications no matter where they live. The Zscaler cloud processes over 80 billion transactions per day, which is over ten times the number of Google searches per day. This provides an unprecedented network effect,…

Thank you, Jay. Revenue for the quarter was $93.6 million, up 9% sequentially and 48% year-over-year. From a geographic perspective, for the quarter Americas represented 51% of revenue, EMEA was 41% and APJ was 8%. Turning to calculated billings, which we define as the change in deferred revenue for the quarter plus, total revenue recognized in that quarter. Billings grew 37% year-over-year to $88.3 million. As a reminder, our contract terms are typically one to three years and we primarily invoice our customers one year in advance. Remaining Performance Obligations or RPO which represents our total committed non-cancelable future revenue was $555 million on October 31st, up 35% from $411 million one year ago. Our strong customer retention and ability upsell have resulted in a consistently high dollar based net retention rate, which is 120% for the quarter ended October 31st. This compares to 118% a year ago and last quarter. Our increased success selling bigger deals starting immediately with our Transformation bundle and faster upsell within a year while good for our business can reduce our dollar based net retention rate which is calculated on a year-over-year ARR basis. Considering these factors we feel 120% is outstanding and it will vary quarter-to-quarter. We are pleased with the continued adoption of our comprehensive cloud platform by our customers as they increasingly rely on us for their transformation journey, in fact, two-thirds of our top 25 customers were also customers two years ago in the cumulative ARR has more than doubled over this period. Total gross margin was 81% flat sequentially and down 1% year-over-year. We feel that 80% continues to be a good target range in the near term as it is important to continue to invest in our platform to drive top line revenue growth. Turning to operating expenses,…

Thank you, Remo. In closing, let me state four key points that make me excited. Number one architecture matters, especially for a cloud security platform that must set in line to inspect all traffic for policy enforcement. We believe we have the best architecture with 10 years of operational experience to run a massive cloud and enormous barrier to entry. Number two, with multiple tailwinds such as Office 365 SaaS adoption, SD-WAN and app migration to public clouds, we believe the market is coming to us. Number three, we are in early innings of the cloud journey we're disrupting a $20 billion TAM with ZIA and ZPA. In addition, we recently announced these got our B2B and ZDX, which we believe will expand our TAM significantly. Number four with new go-to-market leadership on board, we are building a sales machine that can deliver world-class execution and sustainable long-term growth. We thank you for your interest in Zscaler and look forward to reporting on our progress in the future. Operator, you may now open the call for questions.

[Operator Instructions]. And our first will come from Alex Henderson with Needham.

All right. Thank you very much. I was hoping to ask a question around the new sales head, the Chief Revenue Officer, to what extent he's become -- come in and been effective, how long do you think it takes for his programs to be fully ramped and to get to the maximum benefit? Is that a three to four quarter process of reacceleration? And then the second piece of it, if I could, lot of questions coming at me from clients about the competition from the next-gen firewall players. It seems to me that has not been a factor, but can you talk about whether that's shown up in terms of pricing pressure or any other notable metric other than lost deals, but maybe some other element to the mix that may have pressured things? Thanks.

Yes, Alex. Thank you. This is Jay. Regarding your question about our go-to-market, our CRO. As you know, we have done very well so far bill-to-business to hundreds of millions of dollars. Now, our goal is to take it to $1 billion and plus which means scaling our sales execution. Tony actually is the right guy who is driving a number of these things. Let me give you a perspective of what all he's driving. So, for execution at scale, I will give you three examples. One, when you have scores of salespeople, it's one thing; when you have hundreds of salespeople, you need far better sales enablement, far better training. For us, we used to have a small sales enablement team. Dali has come in and built a pretty sizable team, and the team has already rolling out some of the training programs. Number two; to really scale your business, you need a very consistent and repeatable sales process that may be more refined. And Dali has come in and taken our process and further refined and it's being rolled out to the whole field. Number three, while we had tools and systems in place to scale to the next level and to have better accountability, better visibility to give us better leading indicator in sales activities, he and the leadership team have started work on many areas. So, a lot of these things are already making a difference, and we're seeing it. And I think as each quarter goes by, we will see more and more impact of the work being done by Dali and his team. Remo, you want to add anything?

Yes, couple add-ons to that also. I mean our plan is still to be at a 20% plus operating margin once we hit $800 million to $1 billion in revenue. Related to pricing pressure, our discounts are lower this quarter. Our average prices per user are higher. When I take a look at our ARR for customers with greater than 3,000 users, it is higher this quarter. It's in the high 300,000 range and our churn is down.

Alex, regarding your second question about competition from firewall vendors, you know somehow discussion keeps on coming, I tried to address it during my statements, but fundamentally if you look at the large enterprises; to protect users, they almost always look for a proxy architecture. You guys deal with large banks. If you talk to top 20 banks and ask anyone, would you just depend upon on next-gen firewall for user protection, I haven't found a yes answer from a single bank so far. Now, it's probably true. There used to be some of that is happening on the lower end where the customer is less security savvy, and they are able to go with some of that solution happening. So, probably on the SD-WAN side, some of that is happening in the lower end. But where our primary focus is, we don't really think any of the impact from the firewall vendors making noise has happened and impacted us. So far, I think it's the architecture that we got much better that's giving us an edge, and I think it's a long-term edge.

Our next question comes from Daniel Bartus with Bank of America.

Great. Thanks for taking the questions guys. First for Jay maybe, no mention of the longer sales cycle order. So, can you just walk us through the changes you're seeing versus last quarter when you called that out, and then I've got a quick follow-up. Thanks.

Yes. Changes in terms of the sales cycle and all haven't really changed a whole lot for us. I think what we are doing is tightening our sales process and tightening our execution. We aren't really seeing much market impact in terms of slowdown of any of the stuff with better leadership and some of the things I outlined, I think it's focused execution is what we are doing, and we are beginning to see it's making a difference for us. And I think it'll help us in the long run because we're building a stronger infrastructure to scale our sales.

Great, makes sense. And then, Remo, quick, good to hear the new products are getting good reception. I'm curious if you have any ZDX or Z B2B in your fiscal 2020 expectations, and what's the potential for these new products to ramp and maybe drive some upside this year? Thanks.

Yes. So, no, there's nothing we're planning for, and you shouldn't plan for anything either. We're planning to get these products out in the second calendar quarter of 2020. There's potential for the products as Jay mentioned with the CASB out of band browser isolation user experience in the B2B. We feel that there's a pretty significant upside for us with these types of products but nothing for this fiscal 2020 should be accounted for.

Yes. If I may add, we are engaged with customers as you would expect in beta stages during evaluation and testing. Our interest is real. I mean just to clarify what we announced was two big product lines, Zscaler B2B and Zscaler Digital Experience. And then we also announced two, what I would call features, out-of-band CASB, CASB as a feature and browser isolation is another feature that's relevant for both ZI and ZPA. Early indications are very positive. These products become generally available in calendar Q2.

Our next question will come from Patrick Colville with Arete Research.

Thanks taking my question. Can we just talk about the CASB product because -- I mean, that's something that from speaking to your customers, there's a lot of interest in CASB right now and some have said that these scale will be a natural insertion point into that CASB debate above and beyond your current partnerships right now with I think with Microsoft and McAfee. So just it's good to better understand that product, if possible, please?

Yes. So for a long time we have had what we call in-line CASB, if all traffic goes through us, we have to do CASB which includes threat detection and protection DLP and alike. And for Autoban, we dependent upon two partnerships. You mentioned McAfee and Microsoft. Our customers kept on telling us that it's small add-on we should be doing it. So we took them seriously, we built it. So we become a single provider. So it's a natural feature for us to add-on and we're seeing lots of traction. We will continue our partnership with Microsoft and Sky High McAfee in this area. If customers want something like that they have it, but we believe a large number of our customers will take Zscaler and if there is another CASB solution I think we will end up displacing it.

Great. And can I just ask a quick follow-up on the dollar-based net retention rate. So the 120% is extremely impressive, no doubt, and especially given it's a sequential and annual increase, but it does imply that revenue from new customers would have tailed off, both sequentially and annually. So do you mind just help me understand if that's correct. The revenue contribution became increasingly skewed to existing customers? Or if there are any metrics you can share to help me better understand new customer revenue and customer count Great.

Yes. That's a good question. So typically we range with 2 versus up sell 60% to 40% new versus upsell and also 50 to 50. In Q1, the mix was closer to 50% to 60%. What's important to recognize we don't really distinguish internally the difference between new and upsell when we track it? But we incentivize our sales organization both for new and up sell. When you take a look at the installed base that we have and the penetration with our installed base. There's a significant opportunity for us to upsell into that installed base. We don't want to disincentivize our sales organization selling into that installed base. With Dali onboard, I'm sure he'll be driving all aspects of the business including new customer acquisition.

Remo, if I may add. If a company is a single product company with a narrow offering, they have to keep on worrying about new customers in order to drive the growth. We have such a wide platform and more products being added to it. So we're less worried about making sure we just do new customers. So our number one goal is to maximize new ACV. Hence, we don't have a difference between new versus upsell. And Remo said the range of new has varied from 50% to 60%. And I think that's a good range. But as you see more new products coming, some of them can be sold on its own without the install base. We expect over time to go up. But we don't look at in or our net retention revenue as the most reliable indicator. It varies quite a bit. Remo, you have commented on in the past why it varies.

Yes. So I mean a 120% that's clearly outstanding. We've ranged on 118% for several quarters. We called out several quarters ago that there could be pressured on that in and our net retention rate. As more companies are buying transformation upfront, which is what we're seeing? In addition, if customers are buying things quicker within the year because our net retention rate is based on ARR at beginning of the year versus what it is currently. If customers buy product within that period that's going to put pressure also on the net retention rate. Now those are the negative effects to it. The positive effects to it are that 43% of our ARR and ZIA was transformation. 14% of our new and upsell business last year was the ZPA. So there are upsell capabilities with those products. In addition, as Jay mentioned, with our new products, there's a potential for it also going up. The point to make is it's going to fluctuate. It's a hard metric to really put your finger on. 120% is outstanding but it could fluctuate.

Our next question will come from Andrew Nowinski with DA Davidson.

Great, thank you and congrats on the nice quarter. I want to start with a question on the Fed side. So I think you mentioned a few modest sized deals with civilian agencies, but I'm wondering if you can give us your thoughts on how Microsoft being awarded the Jedi contract might impact Zscalar given your strong partnership with Microsoft and having --and now having both ZIA and ZPA FedRAMP certified?

Actually very excited with the opportunity. We started investing in FedRAMP certifications over two years ago. It's a very hard certification, but we made the investment and as you've seen in recent press releases and the like, we got certification for both ZPA and ZIA. And as I said, we're the only vendor that's FedRAMP-certified with cloud security gateway. And on the ZPA side only vendor certified for 0 trash remote access that puts us in a very, very good position. Now the way Zscaler works is it's independent of cloud. We can access Microsoft, AWS, Azure all these clouds worked with us, but having a good partnership already in place with Microsoft will help us work closely with them in the field from go-to-market point-of-view. So while we have begun to get some early deals, we are pretty optimistic about the opportunity. Though we do realize that federal deals can take a little bit of a longer time. But very pleased with the team we have put in place. The team has grown quite a bit and it's delivering.

Okay, thanks Jay. And then the Telcos have also been a fairly large driver of demand over the course of the last few years. So can you just give us any color on what if anything has changed with regard to the revenue contributed by the Telco providers? Thanks.

Yes. Telco, they have been an important partner for us. I won't see any partner has been driving a lot of demand for us. As you know, as we drove transformation we have done a lot of evangelism. So we have been driving a lot of demand. It has been high-touch sales. But as customers are asking for more and more transformations, we do see no more leads coming from telco partners to say my customers asking for it. We're beginning to see RFPs coming out and say I need to do transformation. Deal I referred to in my earnings calls from Japan actually was an RFP that is issued three telcos in all three telcos were Zscaler because we met the requirements. So good business happening. We are trying to go further down market with telcos. That's a new project. Actually Dali is trying to drive. So far a lot of business we've done with telcos on the very high end with the large enterprises. So excited about the opportunity. They are natural partners for us even though there is, yes, some contention about network costs and what not. But we really don't impact that, it is the market that's looking for it and we're taking advantage of the market.

Yes. Telcos typically represent around 50% of our revenue and that's about where it was in Q1.

Our next question will come from Saket Kalia with Barclays.

Hi, guys. Thanks for taking my questions here. Jay maybe to start with you. A lot of talk on competition particularly from the firewall side. I'd actually like to shift a little bit and maybe talk about competition from the traditional Secure Web Gateway players here that are transitioning. Most notably with Blue Coat. I guess the question is what are you seeing in terms of sales engagement with those types of opportunities since the deal is closed and really their willingness to explore a solution legacy Zscalar?

Yes. When it comes to competition, our real competition from incumbency point-of-view is Secure Web Gateway because they have the right architecture as proxy architecture. Where we have been winning against them is because they have been good on-premise single-tenant proxy architecture, but they couldn't pivot to the cloud -- they couldn't build a viable multi-tenant architecture right. Remember my DVD versus Netflix example. Now among these traditional vendors for Secure Web Gateway, Blue Coat had big presence, a large enterprises as an appliance and with sales to a new owner. There's somewhat uncertainty out there. So we are seeing a lot of additional interest from large enterprises who are looking for alternatives and also some of these customers are moving to the cloud so it is actually helping us. So we're getting inbound inquiries that we're not getting before. So we think it's a big opportunity for us. We got some focus to take advantage of it.

Makes sense. Remo, maybe for my follow-up for you somewhat related but now that Symantec is part of a larger entity. You talked about $15 million to $20 million in one time cash costs including litigation. Can you talk about the litigation portion of it? And how does that sort of progress now that ownership on Symantec has sort of changed hands?

Yes. The litigation portion is $8 million to $10 million. And the transaction with Broadcom and Symantec just was completed. So there's not much update. I mean the only thing I can say is that we do not feel, we infringe we're going to defend ourselves vigorously and the lawsuit that is currently out there is not having any impact on our business at all.

Yes. We are carrying on, as you pointed out, change of hands can present an opportunity. And if it did we will be open to it.

Our next question will come from Brian Essex with Goldman Sachs.

Hi, good afternoon. And thank you for taking the question. Jay, maybe if I could point to a couple of the sustainable competitive advantage examples that you gave. One, the first one pointed to scalability and elasticity of your platform and the third one pointed to your Edge cloud capabilities. But both were really interesting instances of pursuing Internet breakouts. Maybe if you could help us understand a little bit how these deals transpired? And who the partners on the SD-WAN side were and was this driven by maybe an SI that was putting the deal together and working with the company on a consultative basis? Or was this something that you lead and held their hands through this process and pulled maybe the SD-WAN vendors in and put the deal together on your side?

Yes. The way these things are happening, it's still not process where market is mature and RFPs get sent out all the time. As we have mentioned, we are still in a high-tech sales model. There is good amount of evangelism needed though it's getting easier and easier what it used to be. A typical process, our sales team goes or they engages with customers shows them the value of transformation that can deliver user experience at lower-cost. And that basically leads to natural discussion in sale. Let's get an SP or SA together because it's generally involved in transformation SD vendor awareness is out there. We start collaborating with SD vendors out there. As I mentioned to you, VMware and Silver Peak are good partners for us, they're the leaders out there. And we come together and offer our proposal and solution. So what I see I would say a majority of the large deals that are driven and closed, there's still led us and we bring the partners along. But in a good number of them they do come from partners and many times our SD-WAN vendors introduced us to deal and sometimes we introduced us them to deals. So that's why we liked these technology partnerships. Microsoft, VMware are too big technology partners that are helping us on the SP front. The large SP the top four or five SP are globally are very good partners.

Got it. Maybe just a follow-up to, thank you for that. That's very helpful. Remo, when we spoke with Dali in September, he had a goal of maybe taking 30 to 60 days to evaluate data on a platform, build models, evaluate tie-up, talent and hire and so forth. Is he through with that? And do you know like definitively kind of the framework of what the incremental spend on the sales and marketing side will be for this year or might that kind of bleed into next year? I'm just trying to get a sense of when we might anticipate some meaningful leverage on our sales and marketing side of the model.

Yes. Good question. I would start seeing basically improvement next year related to, and again the guidance that we gave contemplates the investments we're making in sales and marketing. Dolly's 30 to 60-day plan. I mean I've worked with the few CROs and watching what Dali is doing here in the first couple of months as he's moving very quickly and doing an outstanding. I mean he is building the sales leadership in the organization. He's building, as Jay mentioned, our sales enablement and training. He is better defining sales responsibility and putting in place the framework for us to be a much bigger company and placing in, putting in place that accountability. In summary, what I see with Dali is doing, he's putting structured, disciplined leadership and has a passion that he has. Quite frankly, I don't know when he sleeps. It's going very quickly, but it is going to take time. So that was the reason for our guidance initially at 42% to 43% billings in the first half and we increased that to 43% increased our billings guidance to 500 and 510. I'm excited working with Dolly. And what he's doing and looks forward to it.

Our next question comes from Matthew Wells with Citi.

Hi, thanks for taking my question. Can you provide an update on customer feedback and learnings around the ZB2B and ZDX? I understand both are still in beta and plan to go live I believe next quarter actually.

Yes. I think we will be able to give you more tangible and meaningful customer feedback probably next quarter. Right now, I would say the degree of interest and opportunity higher anticipated three or six months ago. It seems bigger than that. So high customer interest but again it's limited engagement so far. So the limited engagement we have is very high degree of interest. But we'll give you more as we have more tangible feedback.

Got it. And just a follow-up on that. Is the salesforce incentivized around the products while they're still in beta or is this just when they go live next quarter?

We have no incentive. In fact, product management is actually working closely with selected number of customers. So we're not really pushing. We would rather not push till the products are properly cooked and all the kinks out auto fit. Once they become GA only then salesforce start selling.

I just wanted to clarify that these new products are going to be generally available in calendar Q2, so it is not next quarter. Thanks.

Next we have Melissa Franchi with Morgan Stanley.

Hi, this is Melissa Dan on for Melissa Franchi. I was hoping you could provide some color around activity in EMEA. Revenue growth in that area was slightly slower than the rest of the region. So wondering if there was any macro softness in your view or maybe execution considerations. Thank you.

Yes, thank you. From a macro perspective really don't see it. EMEA grew 40% which is slower than the Americas and APJ. We did have a leadership change in EMEA which we're very excited about. But at 41% of total revenue in the EMEA, APJ at 8% Americas at 51% is pretty consistent what it's been in the past. But from a macro perspective not really seeing any changes.

Yes. We're bullish on EMEA. I think we got good incumbent installed base and we will keep on growing it. We're making the right amount of investments for EMEA.

And just a quick follow-up to what extent is ZPA driving initial conversations with new customers versus ZIA? And there have been a lot of other vendors that are seemingly trying to address this opportunity. So has there been any change in what you've seen in competitive deals?

So in the past few quarters, we have been seeing about half the new customers coming for ZPA, sorry half the ZPA deal is coming from new customers and half coming from upsell. So that's kind of number of customers. But having said that, the ZPA deals are smaller than ZIA deal. As we said before, when ZIA is bought it's bought for everyone in the company for all employees and ZPA are based on number of applications. So it's one. GPA is opening more doors for new logos than we had initially thought off. So pleased with that. Your second question is competition for ZPA, ZPA market in what gotten calls 0 trust network access or others call, SDP, it is still a young market. We kind of really run into each other because it's relatively small. So it's not a very competitive space. It's more of a matter of evangelizing and showing people that doing traditional network security with things like VPN is a dangerous thing they don't need to do it. Once they get it you win the deal.

Our next question will come from Fatima Boolani with UBS.

Good afternoon and thank you for taking the questions. Jay, I have a question for you and a follow-up for Remo. Jay, you talked a lot about the internal improvements and pipeline rigor and sales enablement initiatives that Dali have sort of put in place and put into motion. So internally you're really elevating the rigor in the sales organization and go-to-market. I'm wondering if you can speak to the external and external distribution avenues and sort of what you're doing there from maybe a channel perspective or service provider or SI distribution perspective. Because as we understand your model doesn't traditionally lend itself well to the box pressures. So I wanted to get your sense of what sort of investments are in play from an external distribution perspective?

Absolutely, there are number of points I could make there. In fact, I heard from someone other day, they said, it seemed like you're defocusing on channel. I said I'm not sure where that's coming from. Because actually we are putting more focus on channel. Now the point is it's not the same traditional channels. So what are we doing about channel? We know SPS have worked for us. We will keep on making more investments rather looking at going downstream with some of the SPS and not just do the very large enterprise deals. On the channel or maybe called the VAR channel traditionally guide. The people who largely on the box selling business that has limited synergy with us but Dali is focused on two types or channel partners. One, we have done cloud native boutique VARs well but only limited. We are expanding the reach. Dali has successfully done those cloud-native types of vendors in his previous life. So we're focused on getting those things done. Two, finding more vendors who are ready to pivot. Every channel person doesn't want to pivot or they wish they don't have to pivot because boxes will keep on selling forever. So those are the two things we're doing. I talked about sales enablement and training. That's really not just needed for channel, sorry for internal things, that's needed for channel as well. So we are actually putting a lot of focus in that area as well because that's needed for them to become more effective. Does it make sense?

I appreciate that. That makes a ton of sense. Remo, a question for you. You've been very explicit on the level of investments especially on the sales and marketing front as reflected in your guide. But as I think about Analyst Day you were a little bit more explicit on your sales capacity investments. So maybe accelerating that sales capacity footprint is 60% this year. I just wanted to get a sense of an update of how the sales hiring has been tracking as you started the New Year and that's it for me. Thank you.

Yes. Our sales tracking for Q1, it's a little bit behind but our expectation is still to get to that 60%. We are looking 4Q to be a good quarter for us, but it's all taken into account in our guidance.

Yes. I would add that in the past quarter, we have raised the bar in hiring better quality people. And also acceleration hiring. In fact, under Dali we have put together new recruiting playbook where we're educating, we're training all of our frontline sales leaders to make sure we hired the right kind of people. Again part of scaling, when you only have 10 leaders who are hiring. It's a small problem. When you have 50 sales leaders who are hiring it needs better scaling and better methodology and process. And that's what we're really scaling out.

Our next question will come from Dan Ives with Wedbush Securities.

Yes, thanks. So maybe can you talk about the government market, obviously, a lot of deals move into cloud, Jedi, just I think one of them and just given where you are in terms of Azure in terms of that channel maybe just talk about that as an opportunity over the next 6-12 months in terms of how you're viewing that going into 2020?

Yes. I think I'll add upon what I said earlier. Getting FedRAMP certifications is the first thing unless you have been nothing, not much matter so we have done that. And also in FedRAMP there's a moderate level certification is a high impact, having done both of them for ZIA, sorry ZPA is post done, ZIA, we are at more rates we will get to high impact shortly. The door is wide open for us to leverage. And Azure with Microsoft partnership is a good opportunity but we also worked with a fair amount of AWS out there. Very bullish on it. Remo, can I say that? Good team. I would say, if you asked me a year ago versus today, I feel we are significantly ahead of where I thought it would be.

Thank you. Our last question will come from Yun Kim with Rosenblatt Securities.

Thank you and congrats on the solid quarter. On the ZPA front, just wanted to ask about the competitive nature of that market. Are you seeing some of the same competitors are ZIA for your ZPA product and also are you selling to the same department or are they typically two different buyers for VPN and ZIA? Thanks.

So it's a good question. ZIA is generally driven by transformation in our ideal world we start from the CIO, go down to head of infrastructure who wants to transform the network and security gets brought along. And it's a full blown play. ZPA actually has a few different paths. I will talk about three of them because it's very different opportunities. One case that we go to the customer, say if your applications are going to the cloud, public cloud like Azure and AWS. You don't need to go back through your datacenter. Go direct through Zscalar. It's good opportunity in that case. So who is the buyer? It's actually generally Head of Infrastructure because he was providing that connectivity before. Number two, many customers say, yes, I look at cloud but I have one problem to solve today. My remote access VPN. I hate it, it's slow and it's not secured. So replacing that, the VPN a buyer could be security. The buyer could be network. A third area, very different buyer, M&A, when companies are bought generally they want to bring the networks together in the old world of network security. In the Zscaler world, you don't bring the networks together. You simply with ZPA provide access to each of those applications transparently. In that case traditional IT is less open buyer. You basically deal with, it is --it's a CIO level but it's also sometimes M&A team that's put in place to bring the two companies together. Some common buyers, some different buyers. End of Q&A

Thank you, gentlemen. That concludes our question-and-answer session. And I would like to turn the call back over to Mr. Jay Chaudhry for any closing remarks.

Well, thank you all for your time. And we look forward to seeing you at upcoming conferences this quarter. Thank you again.

Thank you, ladies and gentlemen. This concludes today's teleconference and you may now disconnect. Please enjoy the rest of your day.