Zscaler, Inc. (NASDAQ:ZS) Investor Innovations Briefing Call June 3, 2025 2:30 PM ET Company Participants a - Corporate Participant Adam Geller - Chief Product Officer Ashwin Kesireddy - Vice President of Investor Relations & Strategic Finance Brian Beyer - Co-Founder, CEO & Director Dhawal Sharma - Corporate Participant Jagtar Singh Chaudhry - Co-Founder, CEO & Chairman of the Board Mike Rich - Chief Revenue Officer & President of Global Sales Conference Call Participants Adam Tyler Tindle - Raymond James ...

Summary of Zscaler (ZS) Update / Briefing June 03, 2025 Company Overview - **Company**: Zscaler (ZS) - **Focus**: Cybersecurity solutions with a strong emphasis on Zero Trust architecture and AI integration Key Industry Insights - **Zero Trust Architecture**: Zscaler has evolved its Zero Trust strategy from ZIA (Zscaler Internet Access) to ZPA (Zscaler Private Access) and ZDX (Zscaler Digital Experience), now promoting "Zero Trust Everywhere" as a comprehensive security approach [5][8][34] - **Data Security Growth**: Data security is identified as one of the fastest-growing areas for Zscaler, with significant investments in AI to enhance detection and prevention capabilities [5][6][13] - **AI Integration**: The company is embedding AI across its operations, particularly in security operations, to improve efficiency and effectiveness in threat detection and response [6][20][39] Core Strategic Initiatives - **Acquisitions**: The acquisition of Red Canary is aimed at enhancing Zscaler's security operations capabilities, leveraging their expertise in threat detection and incident response [17][39] - **Agentic Operations**: Zscaler is developing "agentic task agents" that utilize AI to automate security operations, improving the speed and accuracy of threat investigations [16][39][42] - **Zero Trust in Branch and Cloud**: Zscaler is expanding its Zero Trust framework to include branch locations and cloud environments, integrating SD-WAN capabilities to eliminate the need for traditional firewalls [46][48] Financial and Operational Highlights - **Customer Engagement**: Zscaler has seen strong validation from analysts and customers regarding its Zero Trust branch and cloud solutions, with significant deployments in various sectors, including finance and healthcare [47][49] - **Market Positioning**: The company positions itself against traditional firewall solutions, advocating for a firewall-free approach in cloud environments, which is gaining traction among enterprises [66][81] Important Metrics and Data - **Data Processing**: Zscaler processes over 500 billion signals daily, providing a unique vantage point for threat detection and response [97] - **Customer Base**: The company has a large and satisfied customer base, which is crucial for its growth and market penetration [98] Additional Insights - **Identity Security**: Zscaler emphasizes the importance of identity in its Zero Trust framework, integrating with identity vendors to enhance security posture [100][104] - **Proactive Security Measures**: The company is focusing on proactive security measures, including continuous threat exposure management and vulnerability assessments [31][34] - **Customer Testimonials**: Customers like FICO have reported successful implementations of Zscaler's solutions, highlighting the effectiveness of their Zero Trust approach [55][57] Conclusion Zscaler is strategically positioned to lead in the cybersecurity space with its innovative Zero Trust solutions and AI-driven security operations. The company's focus on integrating acquisitions and enhancing its product offerings will likely drive future growth and market share expansion.

Financial Data and Key Metrics Changes - Revenue for Q3 was $678 million, representing a 23% year-over-year increase and a 5% sequential increase [30] - Annual recurring revenue (ARR) was approximately $2.9 billion, with a year-over-year growth of 23% [30] - Remaining performance obligations (RPO) grew 30% year-over-year to $4.978 billion [31] - Total calculated billings increased 25% year-over-year to $785 million [31] - Gross margin was 80.3%, down from 81.4% in the previous year [32] - Free cash flow margin was 18%, including data center CapEx at 11% of revenue [33] Business Line Data and Key Metrics Changes - New logo annual contract value (ACV) grew over 40% year-over-year [9] - Significant growth in three categories: Zero Trust Everywhere, Data Security Everywhere, and Agentic Operations, with combined ARR approaching $1 billion [19] - Zero Trust Everywhere customers increased from over 130 to over 210, reflecting over 60% quarter-over-quarter growth [22] Market Data and Key Metrics Changes - Americas represented 54% of revenue, EMEA 30%, and APJ 16% [30] - The macro environment remains cautious, with customers prioritizing cyber and data protection despite ongoing economic uncertainty [16] Company Strategy and Development Direction - The company aims to reach $5 billion or more in ARR, driven by the combination of Zero Trust and AI security [29] - The introduction of the Z Flex program allows customers to flexibly scale their adoption of the platform, contributing over $65 million in TCV bookings [17] - The acquisition of Red Canary is expected to enhance the company's capabilities in Managed Detection and Response (MDR) and Threat Intelligence [28] Management's Comments on Operating Environment and Future Outlook - Management noted that while the spending environment remains challenging, cybersecurity remains a priority for customers [51] - The company is focused on building strategic partnerships with customers to reduce costs and enhance ARR over time [52] - Management expressed confidence in achieving strong growth despite economic uncertainties, emphasizing the importance of Zero Trust architecture and AI security [52] Other Important Information - The company appointed Kevin Rubin as the new Chief Financial Officer, expected to contribute significantly to the next phase of growth [37][38] - The company plans to optimize new products for margins over time as they scale [34] Q&A Session Summary Question: How does the company ensure customer focus amidst rapid product expansion? - The company has implemented a two-tier sales model with specialized teams for new product areas, ensuring effective customer engagement and focus [44][45] Question: What is the outlook on macro trends affecting the business? - The company did not experience a softer April and continues to see strong demand for cybersecurity solutions, particularly in Zero Trust and AI security [51][52] Question: Can you elaborate on the Z Flex program and its impact? - The Z Flex program provides customers with flexibility in product adoption and has already generated significant TCV bookings [47][56] Question: What are the expectations for the federal business? - The federal business is performing in line with expectations, with potential for growth as customers seek to reduce costs associated with legacy security products [89][91] Question: How does the company view the acquisition of Red Canary? - The acquisition is seen as a strategic move to accelerate the company's vision in the security market, leveraging Red Canary's technology and expertise [64][66]

Core Insights - Zscaler has announced a definitive agreement to acquire Red Canary, enhancing its capabilities in Managed Detection and Response (MDR) and threat intelligence [1][2] - The acquisition aims to integrate Zscaler's AI-driven workflows with Red Canary's expertise, creating a unified Security Operations Center (SOC) [1][3] - Zscaler protects nearly 45% of Fortune 500 organizations and processes over 500 billion daily transactions, establishing itself as a leader in cloud security [2][4] Company Overview - Zscaler operates the world's largest cloud security platform, leveraging a massive data lake to develop advanced AI-driven solutions [2][4] - Red Canary has over 10 years of experience in security operations, recognized as a leader in the Forrester Wave™ for MDR for three consecutive years [2][4] - The integration of both companies is expected to enhance threat detection and response capabilities, addressing common operator pain points [3][4] Strategic Goals - The acquisition is seen as a natural expansion of Zscaler's capabilities, aiming to accelerate the vision of an AI-powered SOC of the future [2][3] - By combining resources, the companies aim to improve the speed and efficiency of threat detection and response, helping organizations tackle modern security challenges [3][4] - The transaction is subject to customary closing conditions and is expected to close in August 2025 [4]