Zscaler Inc at Citi TMT Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Fatima Boolani - Citi - Analyst : Well, I want to jump right into it. Jay, you all reported your fourth fiscal quarter results on Tuesday, and I think maybe just to level set and set the tone for the conversation, If we can spend a little bit of time on reemphasizing and highlighting the mile markers and milestones in the quarter, and take it from there?

Question: Fatima Boolani - Citi - Analyst : I'm glad you brought up ARR, Kevin. That was a meaningful pivot in the way you're thinking about the business, talking about the business. And to be fair, I think we were socialized that, that was coming down the pike. So it wasn't entirely a surprise. But just from a guidance and forecasting methodology perspective, ARR is presumably going to be the north star and the guiding light for the company. I'm wondering if you can spend a little bit of time sort of talking to us about the formulation of the ARR guidance. How some of the downstream impacts are playing out from the sales organization perspective, if a salesperson is no longer sort of compensated on billings or it's a different paradigm. I would love to have you spend a little bit of time on that. And I think it's worth discussing because this time last year, there was a lot of hand-wringing about the billings dynamics between the scheduled and the unscheduled pieces. So what a difference a year makes, but I'd love to have you take it away on the ARR front.

Question: Fatima Boolani - Citi - Analyst : Is a humble cloud security web gateway company.

Question: Fatima Boolani - Citi - Analyst : Kevin, I know you had mentioned that there hasn't been a wholesale change or shift in the way the guidance philosophy has evolved since you've come in. Maybe there's some tweaking and toggling but no wholesale changes. But as you think about guiding towards a brand-new metric, I mean, certainly, it's not a brand-new conceptual metric for all of us. But for you, for Zscaler, for investor expectations, how should we think about some of the mitigants that you've wrapped around the ARR guidance so we can get comfortable with the fact that, hey, this is actually your first year guiding towards ARR.

Question: Fatima Boolani - Citi - Analyst : Before we put the ARR conversation to bed, I did want to broach the topic of net retention rates. It's a very much a companion metric. Any definitional tweaks or changes we should think about on net retention rate and dollar-based net retention rate? I know historically, you all have been very consistent in discussing the fact that, hey, as the business -- as the portfolio has widened and increased in capabilities, as the land sizes with your customers have increased, it necessarily creates more variability in that DBNRR metric. So any commentary that you can offer us as the ARR definition has changed? Should we also think about, hey, maybe there is a recalc or a definitional shift on the net retention rate?

Question: Fatima Boolani - Citi - Analyst : Very clear. I appreciate the nuance there. Maybe just to zoom out and talking about the market environment and the market opportunity. I think at the very highest level, I wanted to discuss some of the dynamics playing out in the, let's just call it, your core business, which is the bread and butter, the historical flagships of ZIA, ZPA. I think I tend to have a lot of investor conversation about where are we in the cycle for SASE and to use -- I should be using football analogies because we're in fantasy season, but let's just use the baseball analogy. I think there is a perception that the core business on the SASE side, term that you helpfully coined for all of us. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2025 / 11:30AM, ZS.OQ - Zscaler Inc at Citi TMT Conference

Question: Fatima Boolani - Citi - Analyst : So where are we in terms of the market penetration? I can make a very strong case that it's still early days, but we've seen a lot of competitive influence in the space by some of your largest peers or some pure-plays that have come into the market, right? So Jay, please spend a little bit of time telling us, hey, this is not a saturated market and why?

Question: Fatima Boolani - Citi - Analyst : You brought up Agentic, and I wouldn't be a software analyst if we didn't talk about AI. So we'll absolutely get to that. But before we do, clearly, a lot of expansion and the vision on the Zero Trust side for traditional SASE that's expanding, like you said, to cloud and devices, that's helping you mitigate some of the pressures on the headcount model or seat-based model perspective. But the other area of excitement that I think has surprised to the upside is the type of momentum you're seeing on the data security side. I think you sized that business for you, frankly, at $400 million in ARR. And so there has been a renaissance of sorts in the data security world. It's gathering a lot of attention for what I think are very obvious reasons. But I'd love to have you kind of talk to the opportunity here. Many ways to skin the cat, we've heard different ways to do data security from some of your -- some of the pure plays, the backup and recovery vendors and some of the larger platform vendors like yourselves. So why is it -- why would you think, Jay, the Zscaler's way of in-line cloud data, DLP-centric data security prowess is the right set of ingredients to be the AI security player?

Question: Fatima Boolani - Citi - Analyst : And just to kind of close the loop on this, clearly, a burgeoning opportunity. But from a pricing model perspective, are you tethered to the exponential growth of data that's happening today and that is only going to continue to be more exponential as AI acts as a force multiplier on data creation? And how does that influence the way you think about having a variety and diversity of pricing models within the base?

Question: Fatima Boolani - Citi - Analyst : I think this is a good segue into the next area that I really wanted to touch on was Red Canary. Would be really helpful for you to give us a reminder of the impetus of bringing on that acquisition. I think there's a perception that, hey, this was a very services-heavy orientation of an asset. What is it really bringing to the table? And ultimately, and I think you've wrapped that conversation around advancing your Agentic AI aspirations. How does Red Canary service that vision?

Question: Fatima Boolani - Citi - Analyst : Jay, just to play devil's advocate. AI-powered SecOps and the modernization of the SecOps and SIEM, very attractive areas because we know the competitive and the technology dynamics are very similar to maybe what you saw in the Secure Web Gateway land almost 10 years ago, right? But the reality is there is a lot of competition. There are very fierce forces that are advocating to displace and disrupt those very, very large budgets. So I want to understand how do you think you are going to be a very formidable player in the AI SecOps movement as companies look to completely refresh and modernize their SecOps stack?

Question: Fatima Boolani - Citi - Analyst : Bringing this back into the discussion around go-to-market and how customers are consuming a much wider Zscaler platform. Kevin, maybe the question is for you. Z-Flex is 4, 4.5 months, about the age of my newborn daughter. So a lot of learnings in that period. Can you give us a sense of outside of the $100 million in bookings that you did on Z-Flex this past quarter. What is the ultimate goal and outcomes that are aspired to with this initiative? And just from, again, a guidance perspective, how is this being considered in the way you're thinking about ARR and you're thinking about revenue and even RPO, if you can comment on that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2025 / 11:30AM, ZS.OQ - Zscaler Inc at Citi TMT Conference

Question: Fatima Boolani - Citi - Analyst : And just to be clear, is the orientation of Z-Flex primarily a commitment-based model that a customer draws down against a solution or SKU of their choice within Zscaler or there are just more favorable amenable financing terms? I mean, because we've seen different variations and permutations of this. So is it a little bit of both? Is it something else?

Question: Fatima Boolani - Citi - Analyst : I wanted to quickly shift gears to the other side of the ledger. We talked -- checked the box on talking about the revenue opportunities, the secular dynamics. But just from a capital allocation and reinvestment standpoint, there -- the growth in the emerging product suite has been remarkable, right? And to continue to feed that growth, you have been leaning and you are leaning into reinvesting in the business alongside inorganic activity. I'm wondering if you can talk about where the preponderance of that investment is going and expected to go in fiscal '26. And how should we think about M&A as a complementary force in your capital allocation efforts? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2025 / 11:30AM, ZS.OQ - Zscaler Inc at Citi TMT Conference

Question: Fatima Boolani - Citi - Analyst : I'd like to end the conversation on that positive note. Thank you so much.

Question: Fatima Boolani - Citi - Analyst : Appreciate the time.