Core Insights - Zscaler exceeded Wall Street expectations for quarterly revenue and profit, indicating strong market performance [1] Company Performance - The company's revenue growth was driven by robust demand for its cloud and artificial intelligence security solutions [1]

Core Insights - Zscaler reported quarterly earnings of $0.96 per share, exceeding the Zacks Consensus Estimate of $0.85 per share, and showing an increase from $0.77 per share a year ago, resulting in an earnings surprise of +12.94% [1] - The company achieved revenues of $788.11 million for the quarter ended October 2025, surpassing the Zacks Consensus Estimate by 1.91% and up from $627.96 million year-over-year [2] - Zscaler's stock has increased approximately 55.4% since the beginning of the year, significantly outperforming the S&P 500's gain of 14% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.88 on revenues of $794.38 million, and for the current fiscal year, it is $3.66 on revenues of $3.27 billion [7] - The estimate revisions trend for Zscaler was mixed prior to the earnings release, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market [6] Industry Context - The Security industry, to which Zscaler belongs, is currently ranked in the top 11% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

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Financial Data and Key Metrics Changes - The company reported a strong start to fiscal year 2026, with annual recurring revenue (ARR) growth accelerating to 26% year-over-year and remaining performance obligation (RPO) growth accelerating to 35% [7][23] - Q1 revenue was $788 million, growing 26% year-over-year and 10% sequentially, exceeding the high end of guidance [23] - The gross margin was reported at 79.9%, down from 80.6% in the same quarter last year, influenced by new product introductions [24] - Free cash flow margin for Q1 was 52%, with cash and short-term investments totaling $3.3 billion [25] Business Line Data and Key Metrics Changes - ARR from the three growth pillars—AI Security, Zero Trust Everywhere, and Data Security Everywhere—accelerated in the quarter [7][23] - AI Security pillar grew over 80% year-over-year, exceeding the FY 2026 target of $400 million ARR three quarters early [8] - Data Security Everywhere ARR accelerated to approximately $450 million [19] Market Data and Key Metrics Changes - Geographically, the Americas accounted for 58% of revenue, EMEA for 27%, and APJ for 15% [23] - The company closed Q1 with 698 customers generating over $1 million in ARR and 3,754 customers exceeding $100,000 in ARR [24] Company Strategy and Development Direction - The company aims to exceed $10 billion in ARR, leveraging its leadership in Zero Trust security and comprehensive AI Security offerings [22] - The introduction of the Z-Flex program is driving meaningful upsells and reducing sales cycles, generating over $175 million in total contract value (TCV) [20][21] - The company is focusing on expanding its Zero Trust Everywhere initiative, having secured over 450 enterprises, surpassing its goal three quarters ahead of schedule [16] Management's Comments on Operating Environment and Future Outlook - Management noted that while IT budgets remain tight, there is less pressure on cybersecurity spending, with strong interest in Zero Trust Security and AI Security [65] - The company is optimistic about the future, citing strong demand for its solutions and a robust pipeline [66] Other Important Information - The company announced the transition of its Investor Relations leader, with Kim Watkins joining in early December [4] - The integration of Red Canary is progressing well, with the majority of the pipeline coming from existing Zscaler customers [48] Q&A Session Summary Question: About Zero Trust Branch and its future acceleration - Management indicated that the technology for Zero Trust Branch is in great shape, with significant demand from customers, and sees a big opportunity for growth [31] Question: Regarding the growth of the $2 billion ARR segment - Management confirmed that a significant part of the remaining $2 billion is from ZIA and ZPA, which are growing well, but the core business will grow at a slower rate than the overall business [40][42] Question: Performance of Red Canary and its integration - Management stated that the integration of Red Canary is going well, with its contribution trending slightly better than previous guidance, although it is not material to overall business [48][49] Question: Breakdown of revenue strength - Management highlighted that all three growth pillars—Zero Trust Everywhere, AI Security, and Data Security—are growing well and accelerating [53] Question: Competitive landscape and core business performance - Management noted that the competitive landscape has not changed significantly, with Zscaler's brand becoming stronger among large enterprises [58] Question: Customer spending priorities for 2026 - Management observed that while IT budgets are tight, there is strong interest in Zero Trust and AI Security, which are driving pipeline creation [65] Question: Trends in the SASE market - Management expressed confidence in their position within the Zero Trust market, stating that their expansion is driven by new functionalities [71] Question: Organic net new ARR in the quarter - Management indicated that organic growth in Q1 was consistent with Q4 and exceeded internal expectations [78][79] Question: Synergies between Red Canary and data security portfolio - Management discussed the integration strategy, emphasizing the potential for enhanced threat detection and governance capabilities [119]

Financial Data and Key Metrics Changes - The company reported a strong start to fiscal Q1 2026, with annual recurring revenue (ARR) growth accelerating to 26% year-over-year and remaining performance obligation (RPO) growth accelerating to 35% [7][23] - Q1 revenue reached $788 million, growing 26% year-over-year and 10% sequentially, exceeding the high end of guidance [23] - The gross margin for Q1 was 79.9%, down from 80.6% in the same quarter last year, influenced by new product introductions [24] - Operating margin was 21.8%, with a free cash flow margin of 52% [25] Business Line Data and Key Metrics Changes - ARR from the three growth pillars—AI Security, Zero Trust Everywhere, and Data Security Everywhere—accelerated in Q1 [7][23] - AI Security pillar grew over 80% year-over-year, exceeding the FY26 target of $400 million ARR three quarters early [8][15] - Data Security Everywhere ARR accelerated to approximately $450 million [19] Market Data and Key Metrics Changes - Geographically, the Americas accounted for 58% of revenue, EMEA for 27%, and APJ for 15% [23] - The company closed Q1 with 698 customers generating over $1 million in ARR and 3,754 customers exceeding $100,000 in ARR [24] Company Strategy and Development Direction - The company aims to exceed $10 billion in ARR, leveraging its leadership in Zero Trust security and comprehensive AI security offerings [22] - The introduction of the Zflex program is driving meaningful upsells and reducing sales cycles, generating over $175 million in total contract value (TCV) [20][21] - The company is focusing on expanding its Zero Trust Everywhere initiative, having secured over 450 enterprises, surpassing its goal three quarters ahead of schedule [16] Management's Comments on Operating Environment and Future Outlook - Management noted that while IT budgets remain tight, there is less pressure on cybersecurity spending, with strong interest in Zero Trust and AI Security solutions [65] - The company is optimistic about the future, expecting AI Security ARR to surpass $500 million by the end of fiscal 2026 [15][21] Other Important Information - The company announced the transition of Ashwin Kesireddy to a new role as Product Manager of AI Security, with Kim Watkins joining as the new head of Investor Relations [4][27] - The integration of Red Canary is progressing well, with its contribution trending slightly better than previous guidance, although it is not expected to be material to overall business [48][116] Q&A Session Summary Question: About Zero Trust Branch and its future acceleration - Management indicated that the technology for Zero Trust Branch is in great shape, with significant demand from customers, and they see a big opportunity for growth [30][32] Question: Regarding the growth of the $2 billion ARR segment - Management confirmed that a significant part of the remaining $2 billion is from ZIA and ZPA, which are growing well, but the core business will grow at a slower rate than the overall business [40][42] Question: Performance of Red Canary and its integration - Management stated that the integration of Red Canary is going well, with its go-to-market team uncovering opportunities within Zscaler's customer base [48][116] Question: Insights on revenue strength and core business performance - Management highlighted that all three growth pillars are accelerating, contributing to strong overall performance, and they are seeing organic growth consistent with previous quarters [54][56] Question: Competitive landscape and customer priorities - Management noted that the competitive landscape has not changed significantly, with Zscaler's brand becoming stronger and customers prioritizing Zero Trust and AI Security solutions [58][66] Question: Trends in the SASE market - Management emphasized that Zscaler remains strong in the Zero Trust market, differentiating itself from other vendors claiming to offer SASE solutions [70][72] Question: Organic net new ARR in the quarter - Management confirmed that organic growth in Q1 was consistent with Q4, exceeding internal expectations [78][116] Question: Synergies between Red Canary and data security portfolio - Management discussed the integration strategy, highlighting opportunities for remediation and governance within the data security portfolio [119]

Financial Data and Key Metrics Changes - In Q1, annual recurring revenue (ARR) growth accelerated to 26% year over year, with ARR reaching over $3.2 billion [5][18] - Remaining performance obligation (RPO) grew approximately 35% year over year to $5.9 billion [19] - Q1 revenue was $788 million, growing 26% year over year and exceeding guidance [18] - Gross margin was 79.9%, slightly down from 80.6% in the previous year [19] - Operating margin was 21.8%, with a free cash flow margin of 52% [20] Business Line Data and Key Metrics Changes - AI Security pillar grew over 80% year over year, exceeding the FY26 target of $400 million ARR three quarters early [6][12] - Data Security Everywhere ARR accelerated to approximately $450 million [16] - Zero Trust Everywhere achieved over 450 enterprise customers, surpassing the goal set three quarters ahead of schedule [13] Market Data and Key Metrics Changes - The Americas accounted for 58% of revenue, EMEA for 27%, and APJ for 15% [18] - The company is one of only five enterprise SaaS companies with over $3 billion in ARR growing at over 25% [5] Company Strategy and Development Direction - The company focuses on three growth pillars: AI Security, Zero Trust Everywhere, and Data Security Everywhere, which are driving strong top-line performance [5][12] - The introduction of the Zflex program is aimed at providing customers with flexibility and driving upsells [16][53] - The company is positioned to exceed $10 billion in ARR by leveraging its leadership in Zero Trust security and comprehensive AI security offerings [18] Management's Comments on Operating Environment and Future Outlook - Management noted that while IT budgets remain tight, there is less pressure on cybersecurity spending, with strong interest in Zero Trust and AI Security solutions [32][34] - The company expects to continue investing aggressively to position itself for long-term growth and profitability [21] Other Important Information - The company announced a leadership transition in Investor Relations, with Kim Watkins joining to lead the team [3] - The acquisition of Red Canary is expected to enhance the company's threat intelligence capabilities [39] Q&A Session Summary Question: About Zero Trust Branch and its adoption - Management indicated that Zero Trust Branch technology is in great shape, with significant demand and a growing customer base [23][24] Question: Growth of the $2 billion ARR segment - Management confirmed that a significant portion of the $2 billion ARR comes from ZIA and ZPA, with a focus on transitioning customers to Zero Trust Everywhere [25][26] Question: Performance of Red Canary - Integration of Red Canary is progressing well, with contributions trending slightly better than previous guidance, though not material to overall business [27][28] Question: Drivers of revenue strength - Management highlighted that all three growth pillars are accelerating, contributing to strong overall performance [29][30] Question: Competitive landscape - The competitive landscape remains stable, with the company's brand recognition growing among large enterprises [31] Question: Customer spending priorities for 2026 - Customers are prioritizing Zero Trust Security and AI Security, with a focus on cost savings and improved cybersecurity [32][34] Question: Demand for Zero Trust Gateway - Management noted that Zero Trust Cloud simplifies deployments and reduces the need for traditional firewalls, enhancing customer buy-in [44][45] Question: SAP RISE migration opportunity - The migration to SAP RISE is expected to provide significant opportunities for the company, similar to past migrations like Microsoft Exchange to Office 365 [50][51] Question: Zflex program impact - Zflex is gaining traction, providing customers with flexibility and longer-term visibility on future ARR [52][53]

Market Overview - The trading day ended with the Dow Jones Industrial Average up more than 600 points, a 1.4% increase, and the S&P 500 rising over 60 points, or 0.9% [6] - The Nasdaq composite finished higher by about 0.7%, with small and mid-cap stocks, particularly the Russell 2000, outperforming, up 2% [7] - Overall, 426 names in the S&P 500 gained ground, while only 74 declined, indicating strong market breadth [8] Company Performance - Alphabet shares have seen a significant year-to-date gain of approximately 70%, outperforming many competitors [5] - Autodesk reported a third-quarter EPS of $2.67, beating expectations of $2.50, with net revenue of $1.85 billion, slightly above the forecast of $1.81 billion [11] - Workday's after-hours share price increased by about 7% after it raised its full-year subscription revenue forecast, projecting fourth-quarter subscription revenue of $2.36 billion, above the estimate of $2.35 billion [13] - NetApp shares surged by 4% in after-hours trading after the company boosted its fiscal year adjusted EPS forecast and reported third-quarter net revenue expectations of $1.77 billion, exceeding estimates [15] - Urban Outfitters saw a significant increase in share price, up 9% in regular trading and 16% in after-hours, with third-quarter comp retail segment sales up 8%, surpassing the 5% estimate [25] Sector Insights - The technology sector experienced mixed results, with Alphabet hitting an all-time high while Nvidia shares fell by 2.6% [9][20] - Retailers showed strong performance, with Abercrombie and Fitch gaining about 36-37% after raising its 2026 net sales and EPS guidance [17] - Dell raised its full-year adjusted EPS outlook to $9.92, up from $9.55, and increased revenue guidance to a range of $11.2 billion to $12.2 billion [22][24]

Group 1 - The Q3 earnings season for S&P 500 companies is showing positive results, with 95% of companies having reported by November 21, and an expected 13.4% increase in earnings per share [2] - This anticipated growth would represent the fourth consecutive quarter of double-digit earnings growth, accelerating from the 12% growth rate reported in Q2 [2] - Initial expectations for Q3 were lower, with analysts predicting only a 7.9% increase in earnings per share as of September 30 [3] Group 2 - Upcoming earnings reports from companies such as Abercrombie & Fitch, Dick's Sporting Goods, and Burlington Stores will provide insights into consumer sentiment and purchasing behavior [4] - Additional reports from technology and other sectors are expected from companies like Zoom, Dell, Workday, HP Inc., Deere, and Pony AI [4]

Core Viewpoint - Zscaler, Inc. reported strong first-quarter earnings, beating analyst estimates, but its stock price fell by 7.77% in after-hours trading despite positive financial results [1][5]. Financial Performance - Quarterly earnings were reported at 96 cents per share, surpassing the analyst estimate of 86 cents [2]. - Revenue for the quarter reached $788.1 million, exceeding the analyst estimate of $773.75 million [3]. - Deferred revenue stood at $2.35 billion as of October 31, 2025, reflecting a 32% year-over-year increase [3]. Business Growth - The company has over $3.2 billion in Annual Recurring Revenue, growing over 25% year-over-year [4]. - Zscaler's CEO highlighted strong demand for its Zero Trust and AI Security platform, indicating a trend towards better security and reduced operational costs for customers [3][4]. Future Outlook - Zscaler raised its fiscal 2026 adjusted EPS guidance to a range of $3.78 to $3.82, compared to the previous estimate of $3.68 [5]. - The fiscal revenue outlook was also increased to a range of $3.7 billion to $3.72 billion, up from the prior estimate of $3.28 billion [5].

Fiscal Q1 2026 Earnings Call November 2025 Safe Harbor Forward-Looking Statements Unless otherwise noted, all numbers presented will be on an adjusted, non-GAAP basis. Reconciliation of GAAP to non-GAAP financial measures is in the appendix of this presentation. This presentation has been prepared by Zscaler, Inc. ("Zscaler") for informational purposes only and not for any other purpose. Nothing contained in this presentation is, or should be construed as, a recommendation, promise or representation by the ...