Zscaler Inc at Morgan Stanley Technology, Media & Telecom Conference Summary

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

Question: Keith Weiss - Morgan Stanley - Analyst : <_ALACRA_META_ABSTRACT>So it just came off of a really solid quarter for Zscaler. Maybe just to start with like a State of the Union, what are you guys seeing in terms of overall security demand? What are you seeing in your backyard in terms of how people are shifting towards a more software focus and network security and security overall?

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. In terms of what is sustaining or driving budgets on a go forward basis, I've always thought in terms of security, there's three fundamental demand drivers. One, expansion of the surface area to be protected. Two, the threat environment. And three, it's regulatory, like sometimes it's mandated that we have to do this on a go forward basis. It seems to me, AI is a big accelerant for the first two, right? It's expanding the surface area and arming the bad guys, if you will, to enable them to make the threats worse. What do you think from your position? Is AI expanding the market opportunity for you guys?

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. So we talked about AI as an expansion of the surface area. It's also an opportunity for Zscaler to improve your products. I think about it in terms of the amount of data that you guys have visibility to. I think you guys talked about over 500 billion transactions daily, which is unbelievable. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 06, 2025 / 6:00PM, ZS.OQ - Zscaler Inc at Morgan Stanley Technology, Media & Telecom Conference It seems like there's a massive amount of data that can utilize to get better protection. So can you talk to us a little bit about how generative AI is changing the product portfolio? How you're able to leverage that to improve the security.

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. I want to shift gears a little bit and talk about the customer journey, if you will. I'm going to show my age a little bit. When we were doing the Zscaler IPO, there was a almost a no-brainer entry rep for you guys into customers. It was MPLS replacement. And was like a really great value proposition. Now you're selling a much broader platform. Now it's a whole Zero Trust architecture, which frankly is harder to implement, harder to get customers on board with. So how does Zscaler evolve in terms of go to market, in terms of customer success to enable that adoption to get to customers on board with that fuller vision.

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. Maybe we could dig in there a little bit. I know you guys brought on board Mike Rich in November 2023 to help evolve that go-to-market strategy, if you will. Can you talk about some of the changes that Mike has put into place and how that go-to-market strategy has evolved?

Question: Keith Weiss - Morgan Stanley - Analyst : ServiceNow is a fantastic template. We have a product we call SaaS X-Ray, and we try to understand the underlying unit economics

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. So let's dig into the platform. I think it was about a year ago you launched an SD-WAN offering. So now you can offer the single vendor SASE solution which combines both the secure edge and the SD-WAN components onto that single platform. Can you walk us through the decision to finally start offering that SD-WAN piece of the equation and how does it differ from what's in the market today?

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. So there's a lot of vendors who are talking about having four letter acronym offerings that I'm not going to mention anymore. But it's prevalent across all the network security vendors and even like CDN vendors that are evolving and trying to offer this as well. From an investor, there's the concern when it comes to Zscaler, yes, you've led in this market, but now it's a lot more competitive. So from your perspective, has it become more competitive? Is it harder to differentiate in that marketplace and get your message across?

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. So let's talk about the opportunities within the product portfolio. ZIA was a starting point. How much opportunity or runway is left? Is there still a lot of greenfield for ZIA on a go-forward basis? Or is it shifting to become more like a replacement opportunity for you guys?

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. So maybe we could bring Remo into the conversation and help us frame this in reference to press maybe total revenues or the new revenue. How should we think about the proportion between like ZIA, ZPA, and the emerging products in terms of what's in your revenue base today versus what you're seeing in terms of what's coming in the door in terms of the new business?

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. So maybe we could dig into some of those emerging products, some of those upsell opportunities. Zscaler Digital Experience, it seems to really kind of hit the market as we were focusing a lot on the hybrid workforce and the need to understand the performance of that hybrid workforce. Does that necessity wane as I started to come back into the office and the focus is a little bit less on the hybrid environment?

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. Data protection -- in the current environment, I mean, data has always been important, but it's rising in point, but even more so the governance and the effective governance of that data, people are worried about data leakage, especially when we're using these models. It seems like it should be a good tailwind behind your data protection offering. Maybe you can talk to us about how large that -- how fast it's been growing. Are you seeing that demand pick up that tailwind, if you will?

Question: Keith Weiss - Morgan Stanley - Analyst : You guys have this great foundation with the network in ZIA and ZPA. You've expanded out the product portfolio extensively. We're talking about a go-to-market motion that is focused on selling up into that customer base. Does the pricing strategy need to evolve? And we hear a lot from some of your competitors about some more token-based pricing or platform-based pricing. How are you guys, if you are at all, evolving the pricing strategy to try to incent that bundling motion?

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. Remo, I apologize. I've only left two minutes for margins, but Jay is very engaging. You guys had 5 percentage points of margin expansion in FY25. It was a great year and pushing leverage. How are you thinking about that balance between growth and profitability on a go forward basis from here?

Question: Keith Weiss - Morgan Stanley - Analyst : Got it. And if you think about that -- you feel like you're in a good place in terms of operating margins. You want to have the capital to invest. If you think about the capital intensity side of the equation, how that's going to translate into free cash flow? Anything we should bear in mind in terms of which direction we should expect capital intensity to trend?

Question: Keith Weiss - Morgan Stanley - Analyst : Unfortunately, it's time, but it is a great note to end on. It's really about the right network architecture is what's positioned Zscaler for this opportunity, what enables Zscaler to be so efficient in going after this opportunity. So thank you gentlemen, both for sharing that perspective with us at the TMT Conference.