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Speaker 1: Bloomberg Audio Studios, podcasts, radio News. Hey, we are also

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Speaker 1: watching shares of z Scaler. They're getting smacked down a

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Speaker 1: bit today, down about thirteen percent, hitting a fifty two

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Speaker 1: week low. Now down about thirty six percent year to date.

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Speaker 1: Stock is down more than sixty percent since November of

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Speaker 1: twenty twenty one.

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Speaker 2: Industry selling shares. After the security software company second quarter

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Speaker 2: results they beat estimates, they weren't, though strong, seen as

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Speaker 2: strong enough to reverse recent negative sentiment toward software companies.

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Speaker 2: It comes on top of a tough week for company shares.

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Speaker 2: Stock tumble ten percent on Monday on the AI scare

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Speaker 2: worries again Carol over the impact of aion companies and

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Speaker 2: industries shares. The rallied back close to seventeen percent in

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Speaker 2: the next three days thanks to a calming down a

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Speaker 2: little bit in the trade.

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Speaker 1: Yeah, it's been a crazy week for z Scaler, no

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Speaker 1: doubt about that. We should point out a bunch of

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Speaker 1: analysts weighing in on the company's earnings and lowering their

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Speaker 1: price target on the stock. But let's get into the business,

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Speaker 1: the outlook and more. Delighted to have back with us.

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Speaker 1: Jay Chowdry, He's founder, chairman, and CEO of z Scaler

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Speaker 1: joining us from San Jose, California. Welcome back. Also with us,

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Speaker 1: someone who understands follows this company very closely, our own

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Speaker 1: man Deep saying he's Bloomberg Intelligence Global head of Technology Research.

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Speaker 1: Here in studio, Jay tell us a little about the quarter,

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Speaker 1: and I think we all want to know how AI

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Speaker 1: is impacting your business. Let's start there.

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Speaker 3: So AI is a massive opportunity because what AI is

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Speaker 3: doing is bringing lots of AI agents in the enterprise.

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Speaker 3: Agents are some alike people. It traditionally uses us having

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Speaker 3: the weakest link for cybersecurity. Now AI agents are becoming

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Speaker 3: the weakest thing. How do you secure them? Well, you

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Speaker 3: need to make sure that you can do one to

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Speaker 3: one connection. That means an agent can only access certain

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Speaker 3: applications and nothing more. That requires a global infrastructure that

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Speaker 3: Ziskre has built in the form of zero tals ex change.

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Speaker 3: That's why we're very bollish about our future.

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Speaker 2: So go ahead, made I.

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Speaker 4: Mean, Jay, I think the street obviously didn't like the

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Speaker 4: billing's number in your print, and that was seen as

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Speaker 4: you know, moderating like was that attributed primarily because of

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Speaker 4: seat growth slowing down? And we keep hearing, you know,

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Speaker 4: layoffs like the one that's square announced yesterday, or was

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Speaker 4: there anything more to the billing's number last night?

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Speaker 3: So billings is a secondary number for US. The number

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Speaker 3: one area of focus for is ARR growth and revenue growth.

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Speaker 3: Our revenue group twenty six percent EU over ear ARR

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Speaker 3: twenty five percent, free cash flow eighteen percent, opening margin

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Speaker 3: twenty two percent.

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Speaker 5: They're all great numbers.

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Speaker 3: Now, we have a z flex program that gives some

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Speaker 3: flexibility in billings, so billings can get impacted. But with

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Speaker 3: z Flex, customers are doing multi year, four or five

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Speaker 3: year deals with US committing to z Scaler, which is

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Speaker 3: a very strong sign. So I don't think the billing

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Speaker 3: should be viewed in a negative light.

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Speaker 5: Overalth business is very strong, Jay.

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Speaker 2: I want to go back to what you said about

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Speaker 2: AI and protecting these AI agents and just how you're

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Speaker 2: thinking about that, because I think a lot of people

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Speaker 2: are trying not just to understand the impact of AI

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Speaker 2: on cybersecurity, but the impact of AI in a company

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Speaker 2: like yours when it comes to operations. So from an

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Speaker 2: operations perspective, with the context of what we saw from

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Speaker 2: Block late yesterday, the company relying more on AI and

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Speaker 2: less on actual human beings.

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Speaker 5: How are you.

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Speaker 2: Using AI at the company operationally to increase your margins,

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Speaker 2: to make your employees more productive.

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Speaker 1: Or get rid of employees.

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Speaker 2: Nobody's going to answer.

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Speaker 3: That everyone should and need to use AI. We use

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Speaker 3: AI to make sure we can deliver better customer support

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Speaker 3: to our employees.

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Speaker 5: The AI agent's not helping us.

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Speaker 3: We are increasing in productivity of our engineering tea use

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Speaker 3: by using all this stuff. But I think the numbers

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Speaker 3: that block share they seem way out of line that

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Speaker 3: anyone else is saying out there. We are seeing some

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Speaker 3: reduction in hiding additional hiding, But I do think that

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Speaker 3: in some of these critical areas you need people. I

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Speaker 3: am hiring more developers for AI development, for example.

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Speaker 5: And for us.

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Speaker 3: Many times customers think that as the number of employees

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Speaker 3: may not grow, that means it impacts our user based pricing.

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Speaker 3: The user base may slow down from growth point of view.

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Speaker 3: But we are actually securing all the agenttic traffic, all

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Speaker 3: the agents when we have millions of users will have

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Speaker 3: billions of agents to secure. That provides an opportunity for

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Speaker 3: us to secure the enterprises and monetize it.

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Speaker 4: Maybe Jay, I want to go to a different topic

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Speaker 4: around sovereigns because we've been hearing more and more that

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Speaker 4: you know, every sovereign wants to build their own AI.

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Speaker 4: How does that impact a company like yours that operates globally,

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Speaker 4: Given you know sovereigns are more keen to deploy this

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Speaker 4: on prem does that impact a cloud security company like yours?

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Speaker 3: Actually, sovereign clouds is a positive development an opportunity for us.

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Speaker 3: We build ZS colar architecture where the data that we store,

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Speaker 3: which is essentially metadata and logs, can stay in that country.

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Speaker 3: We have had a cloud that's built for EU and

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Speaker 3: is EU with data in EU for.

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Speaker 5: A long time now.

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Speaker 3: Many of the large countries also want to operate the

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Speaker 3: cloud in that country as well. We're working with many

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Speaker 3: large countries to really provide them a sovereign security cloud

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Speaker 3: that will access the data wherever the data is.

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Speaker 5: So the two aspects.

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Speaker 3: There may be AI model setting in India or France

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Speaker 3: or Germany, but our sovereign security cloud will make sure

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Speaker 3: they can access the model where it's sovereign or non sovereign.

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Speaker 3: So overall it's a positive thing for us. It's our

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Speaker 3: architecture that allows us to build sovereign security clouds.

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Speaker 4: Yeah, and look, I mean Amazon today announced this fifty

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Speaker 4: billion dollar investment in open ai. Google we know they've

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Speaker 4: flows their acquisition of wiz. So how do you see,

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Speaker 4: you know, the hyperscalers playing in this space where they

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Speaker 4: obviously are deploying the models on their cloud, they are

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Speaker 4: bundling security. Is that going to have some sort of

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Speaker 4: an impact in terms of the AI security aspect that

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Speaker 4: you alluded to, not directly on providers like z Skiller.

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Speaker 3: Look, Hyperscalers, the cloud providers have been building applications and

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Speaker 3: people said, oh, can they take over security market? We

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Speaker 3: haven't seen any of that. It is true that AI

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Speaker 3: model builders will provide some of the applications such as

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Speaker 3: perhaps testing and right teaming, But when it comes to

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Speaker 3: being the zero trust exchange that make sure that agents

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Speaker 3: created by Microsoft, Open a Athroffick or whoever can securely

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Speaker 3: access the right applications, they.

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Speaker 5: Look for someone like z Scaler.

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Speaker 3: We become the Switzerland that connects the right party to

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Speaker 3: right party, just like we've built such a strong business

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Speaker 3: for securing users in spite of all these other vendors

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Speaker 3: out there. The more models they create, the more application

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Speaker 3: they create. The more agents that get built, the more

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Speaker 3: opportunity z scaler has.

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Speaker 1: Does that mean the hyperscalers you're getting bigger orders from them?

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Speaker 1: I'm just curious, where are you getting business and is

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Speaker 1: it the hyperscalers?

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Speaker 5: Is it?

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Speaker 3: Yeah, we are getting business from enterprises because enterprises need

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Speaker 3: to secure access to applications no matter where they are are,

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Speaker 3: so applications become destination.

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Speaker 5: For us.

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Speaker 3: We are the switchboard providing zero trust access the market.

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Speaker 3: We pioneered and we are way ahead of anyone else.

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Speaker 3: The rest of the market is doing firewalls and VPNs

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Speaker 3: and we are probably the only real credible choice for

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Speaker 3: enterprises and that has That's what a caven Us business.

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Speaker 3: Over forty five percent of fortune fire on companies upon

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Speaker 3: us today.

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Speaker 4: How are these enterprises measuring the efficacy of your product

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Speaker 4: versus you know, whatever is coming bundled with the hyperscale solutions, Like,

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Speaker 4: what is it that is really making them go with

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Speaker 4: z scaler in terms of the efficacy aspect?

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Speaker 3: Specifically, so z skiller is not a piece of code

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Speaker 3: that you bundle with the hypersciller goes out there. Z

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Speaker 3: scaler is a globally distributed infrastructure setting in one hundred

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Speaker 3: and sixty locations around the globe. So any traffic from

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Speaker 3: an enterprise that needs that, maybe from users that may

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Speaker 3: be from cloud work clothes, that may be from AI agents,

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Speaker 3: it needs to access certain application services, and we become

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Speaker 3: the switchboard the policy enforcement for that. Their traffic go

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Speaker 3: to Microsoft, Aws, Google and Tropic, doesn't matter. We are

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Speaker 3: the policy enforcement point to make sure right people get

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Speaker 3: access through right application, right agents get access to the

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Speaker 3: right applications. Imagine agents getting hacked and hijacked on your network.

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Speaker 5: That's a problem. That's what we secure.

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Speaker 2: You mentioned Anthropic and fresh in our minds is what's

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Speaker 2: happening between the US government, the Department of Defense and

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Speaker 2: Anthropic right now. We're going to be covering that in

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Speaker 2: our four o'clock hour today. But on the government, is

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Speaker 2: the US government actually buying more of your services right now?

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Speaker 2: Are our deals happening? Are they getting delayed? How would

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Speaker 2: you characterize that?

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Speaker 3: So Fredle is a strong market segment for US. Last

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Speaker 3: year it went through some changes, but it back on track.

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Speaker 3: We have strong pipeline, we have strong business in the

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Speaker 3: federal government. Thirteen of the fourteen cabinet level agencies use

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Speaker 3: z Scaler to secure themselves.

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Speaker 1: So just to recap thirty seconds. AI not a threat

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Speaker 1: to your business. I mean software is.

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Speaker 3: An opportunity for our business, not a threat, not a

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Speaker 3: threat at all, and securing agentic technology is the number

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Speaker 3: one thing CIOs want to make sure they can do it.

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Speaker 3: That's holding them back from larger rollout and we become

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Speaker 3: enablers of it.

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Speaker 1: Well, we always appreciate getting time with you, Jay, thank you,

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Speaker 1: thank you so much on what was it now? A

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Speaker 1: busy week Jay Chowdry there, founder, chairman and CEO of

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Speaker 1: z Scaler, have a good weekend, along with of course

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Speaker 1: our own Mandeep saying Bloomberg Intelligence, Global Head of Technology