Tal Liani: I’m sorry, I pressed on the mute button. Can hear me now?
Jay Chaudhry: Yes.
Tal Liani: Perfect. Okay. RPO growth was slower. Also, the billing guidance was a tad below, although you hit the quarter, you’re above the quarter expectations. So I wanted to ask about the discount level contract duration. Was there any change in the pricing environment or contract duration this quarter that is driving the lower RPOs? And also, how do I think about – I know you don’t provide kind of quarterly, but how do I think about first half versus second half in terms of billings and RPOs? Thanks.
Remo Canessa: Yes. I mean a lot of questions in there, but I appreciate you bringing off. RPO decline, it’s primarily related to federal. Federal is a big piece of our business. And when you look at federal, federal contracts or even though they’re multiyear contracts, really take federal in for one year in our CRPO. So that was a big driver for that. When you take out basically federal out of the contract duration, really contract durations are comparable year-over-year and also quarter-over-quarter. Discount levels, no, not really seeing anything on a discount level perspective. I’d say it’s the same and has been the same for a while. First half, second half, you can expect billings to be in the 42% range in the first half and the rest basically in the second half. But the RPO basically relates to – primarily relates to federal business, which is one year – one year recognized.
Tal Liani: Got it. Thank you.
Operator: Thank you. One moment please. Our next question comes from the line of Fatima Boolani of Citi. Your line is open.
Fatima Boolani: Good afternoon. Thank you for taking my questions. Jay, this one’s for you. You were very explicit about the success in the federal business coming from very strong wins and partnerships with federal SIs. So I wanted to better understand what the moat and differentiation is. And if you can help explain to us why this wouldn’t necessarily cannibalize your direct business, which you’re executing just fantastically in?
Jay Chaudhry: So our direct business versus channel business, almost all of our business is supposed to be changed. A few customers insist that they must do a deal directly with us. So the channel is supposed to bring leverage. The more channel partners are working closely with us, the more heavy lifting to do, better productivity, better our sales acceleration happens. So it’s important for us. Now in a transformation sale like ours, the channel wasn’t quite ready there to say, hey, tell me the latest box I’m ready to sell. We had to work with them to show them transformation. Federal government is driving big transformation at all levels. President’s Executive order is asking for Zero Trust architecture. And there are a large number of systems integrators in the federal market who actually need technology like ours to make it happen.
And in federal, it becomes more interesting as you must have certification up to certain levels, there are FedRAMP certification at the medium level at high level and whatnot and IFI. We’ve done most of them. So with certifications leveraging those system integrators we are able to drive transformation. And I think we are in a very good shape sitting there with a big market, working side by side with our partners. So there’s no cannibalization. Did I make it clear? Or did I miss something?
Fatima Boolani: No, that’s super clear. Thank you.
Operator: Thank you. One moment please. Our next question comes from the line of Hamza Fodderwala of Morgan Stanley. Your line is open.
Hamza Fodderwala: Hi, good evening. Thanks for taking my question. Remo, regarding your comment on the sales changes and the impact of the full year billings guide. Just curious, are you anticipating the leadership change will drive a broader restructuring in the sales org? Like you saw a few years ago when Dali came on Board? Or is it going to be more incremental? Thank you.
Remo Canessa: Yes. So the leadership we have in our sales organization is very strong with what Dali has created. I don’t see significant changes. Maybe Jay can speak to it, but I don’t see significant changes. And again, the structure that we’ve built under Dali’s leadership was a very strong basically structure.
Jay Chaudhry: Yes. In many ways, our sales process at Zscaler is very similar to ServiceNow sales process. It’s consultative, it is top-down selling, it’s enterprise focus. Really, so we expect the same kind of stuff to carry on, there needs to be – there will be ongoing refinements, but don’t expect any big changes. Some of the things, as I talked to Mike early on as he’s understanding the organization, you’ll see probably more focus on top account program. We have a big opportunity to take our large customers and double, triple or quadruple the ARR with us because our platform supports it. You’re going to see more focus on verticals. We already have some level of verticals, public sectors of vertical for us, health care, you’ll see more focus area.
You’re also going to see more persona focus in our sales staff. And I mentioned early on too, you’ll probably see more focus on global system integrators as they drive some of the large transformations, but no significant changes.
Hamza Fodderwala: Helpful. Thank you.
Operator: Thank you. One moment please. Our next question comes from the line of Matthew Hedberg of RBC. Your line is open.
Matthew Hedberg: Great. Thanks for taking my question. Remo, a question for you on the macro. There’s been a couple of questions on billings and RPO and obviously, the federal strength. But I guess maybe I’m just a little confused because when I look back at your Q4 script, when you talked about the macros, you said you noted global uncertainty, but it seems to me like there was a change in tone from your comments here. I think you said – you noted customer sentiment is starting to stabilize. So I guess I’m just sort of curious, what drove that comment that things are starting to stabilize versus last quarter when you noted uncertainty? And is this something that happened during the quarter? Or anything that kind of prompt you to maybe change the script a bit from 4Q?
Remo Canessa: Yes. I’ll let Jay comment to…
