Summary of Zscaler (ZS) 2025 Conference Call Company Overview - **Company**: Zscaler (ZS) - **Industry**: Cybersecurity, specifically focusing on Secure Access Service Edge (SASE) and Zero Trust security models Key Points and Arguments Market Dynamics - SASE is a rapidly growing space with increasing competition and new entrants [1] - Zscaler is experiencing accelerating order bookings and growth beyond its historical markets of ZIA (Zscaler Internet Access) and ZPA (Zscaler Private Access) [1][2] Growth Opportunities - Zscaler identifies three major areas of opportunity: 1. Data security, which is becoming increasingly complex, especially with AI integration [5] 2. Agentic operations, leveraging AI to enhance security and IT operations [5] 3. Expansion into new markets beyond traditional offerings [5][12] Zero Trust Security Model - The concept of Zero Trust is evolving, with a shift from user-centric to encompassing cloud workloads, IoT, and AI agents [7][9] - Zscaler's Zero Trust Exchange is positioned as a comprehensive solution for secure communication across various entities [9] Product Development and Innovation - Zscaler has expanded its offerings to include a B2B collaboration exchange and enhanced capabilities for securing AI applications [9] - The company emphasizes the importance of a single vendor for data protection to simplify complex data protection policies [11] Customer Engagement and Sales Strategy - The sales approach has shifted from transactional to account-focused, enhancing customer relationships and sales productivity [62] - Zscaler's solutions are designed to reduce costs significantly for customers, with examples of cost reductions of 50-70% for large enterprises [33] Competitive Landscape - Zscaler faces competition from traditional firewall companies that are attempting to pivot to SASE solutions, but the company believes these offerings do not meet the true Zero Trust criteria [38][39] - The company maintains a strong brand reputation among CIOs and CISOs, focusing on ROI and value delivered rather than just pricing [44] Financial Performance and Metrics - Zscaler reported over $350 million in Annual Recurring Revenue (ARR) from data security, indicating strong growth potential in this area [75] - The company is focused on upselling existing customers, with a reported 40% increase in new logo Annual Contract Value (ACV) year-over-year [56] Data Protection Strategy - Zscaler's approach to data security emphasizes securing data rather than the network itself, positioning itself as a leader in Data Loss Prevention (DLP) [69] - The company has developed a flexible pricing model (Z Flex) to allow customers to choose and adapt their data protection modules according to their needs [78] Future Outlook - Zscaler is optimistic about the future, with plans to expand its Zero Trust offerings to branches and workloads, indicating a phased approach to market penetration [37][50] - The company is committed to continuous innovation and customer satisfaction, aiming to delight customers and win more business [86] Additional Important Insights - The transition to Zero Trust is seen as essential for modern cybersecurity, moving away from traditional firewalls and SD WANs [26] - Zscaler's focus on simplifying security operations and reducing complexity is viewed as a critical factor for resilience in enterprises [34][35] - The company acknowledges the presence of late adopters in the market but believes that its solutions will eventually become mainstream as more enterprises recognize the need for Zero Trust [36]

Core Insights - Zscaler has launched a new suite of solutions aimed at enabling customers to adopt Zero Trust Everywhere, enhancing security across branches and multi-cloud environments [1][2][3] - The updates to the Zscaler Zero Trust Exchange™ platform empower organizations to secure their networks against threats like ransomware by making branches and clouds invisible to malicious actors [2][3] Product Innovations - Unified Appliance for Zero Trust Branch: This solution secures communications between various locations and segments OT and IoT devices, eliminating the need for traditional firewalls and reducing complexity and costs [4] - Zero Trust Gateway for Cloud Workloads: A cloud-native service that secures communications from workloads to the internet and between workloads in under 10 minutes, enhancing security in hybrid and multi-cloud environments [4] - Zscaler Microsegmentation for Cloud Workloads: This service provides granular segmentation policies for cloud workloads, protecting critical assets against lateral threats [4] - Zero Trust Exchange for B2B: A platform that facilitates secure collaboration between partner organizations, replacing outdated technologies and enhancing data protection during mergers and acquisitions [4] Strategic Impact - The expanded Zero Trust Everywhere approach allows organizations to modernize their security infrastructure, mitigate risks, and protect data across various environments [5] - Zscaler's solutions are designed to simplify security network infrastructure, making it easier for businesses to scale securely in a rapidly changing threat landscape [3][4]

Core Insights - Illumio Inc. has announced a strategic integration with NVIDIA to enhance security for critical infrastructure organizations and advance their Zero Trust posture [1][3] - The collaboration integrates NVIDIA BlueField networking platform with Illumio's breach containment platform, providing comprehensive security and operational efficiency across IT and Operational Technology (OT) environments [1][2] Integration Benefits - Organizations can deploy Illumio directly on NVIDIA BlueField, gaining visibility into network dependencies and precise security controls at both host and network levels [2][5] - The integration simplifies the protection of critical systems, ensuring operational continuity while meeting compliance requirements [2][3] - Future capabilities will include AI-driven insights from Illumio to identify risks and attacker patterns, enabling rapid threat detection in ICS and OT environments [2][3] Industry Context - The collaboration addresses rising threats and increased regulatory pressure globally to strengthen cyber resilience and reduce operational risk to OT infrastructure [3] - Illumio is recognized as a leader in The Forrester Wave™: Microsegmentation Solutions, Q3 2024, highlighting its role as a trusted vendor in the NVIDIA partner ecosystem [3][6] Key Features - Enhanced visibility and policy enforcement for traffic within and between IT and OT layers, allowing organizations to visualize all traffic to and from OT systems [5] - Rapid deployment of Zero Trust for critical infrastructure, reducing complexity and accelerating time to value while containing breaches [5] - Improved compliance and operational resilience through consistent microsegmentation across diverse environments without impacting system performance [5]

Core Insights - Zscaler Inc reported better-than-expected third-quarter financial results, with revenue of $678.03 million, surpassing the consensus estimate of $666.86 million and adjusted earnings of 84 cents per share, exceeding analyst estimates of 75 cents per share [1][2] Financial Performance - The company expects fourth-quarter revenue to be between $705 million and $707 million, slightly below the estimate of $707.61 million, with anticipated adjusted earnings of 79 to 80 cents per share [2] - Zscaler raised its full-year 2025 outlook, projecting revenue of $2.659 billion to $2.661 billion, compared to estimates of $2.65 billion, and adjusted earnings of $3.18 to $3.19 per share, exceeding estimates of $3.07 per share [3] Market Reaction - Following the earnings announcement, Zscaler shares fell by 1% to close at $251.11 [3] Analyst Ratings - Rosenblatt analyst Catharine Trebnick maintained a Buy rating on Zscaler and raised the price target from $235 to $315 [6] - Needham analyst Mike Cikos also maintained a Buy rating and increased the price target from $240 to $310 [6]

Q3 2025 Financial Performance - Revenue for Q3 2025 reached $678 million, exceeding guidance, representing a 23% year-over-year increase[6] - Calculated billings for Q3 2025 totaled $785 million, exceeding expectations with a 600 bps Q/Q increase[6] - Calculated Current Billings reached $760 million, a 24% year-over-year increase[6] - The company achieved a gross margin of 80.3% and an operating margin of 21.6%[6] - EPS for Q3 2025 was $0.84, an 18% year-over-year increase[6] - Free cash flow was $119 million, representing an 18% margin[6] Key Business Metrics and Growth - Remaining Performance Obligations (RPO) reached approximately $5 billion, with a 30% year-over-year growth[8] - Annual Recurring Revenue (ARR) reached approximately $2.9 billion, with a 23% year-over-year growth[8] - TCV Bookings exceeded $1 billion, marking a Q3 record[8] - New growth categories ARR is growing faster than total ARR, approaching $1 billion in combined ARR[8, 30] Strategic Initiatives and Customer Adoption - Over 210 enterprises are adopting "Zero Trust Everywhere," with a growth rate exceeding 60% quarter-over-quarter[8] - 59% of customers purchasing Zero Trust Branch were new logos[8] - Zscaler secured over 50 million total users on its platform[15] FY25 Guidance - The company increased its FY25 revenue guidance to $2.659 billion - $2.661 billion, representing approximately 23% year-over-year growth[59] - Calculated billings guidance for FY25 was increased to $3.184 billion - $3.189 billion, representing 21%-22% year-over-year growth[59] - Operating profit guidance for FY25 was increased to $573 million - $575 million, with an approximate 22% margin[59] - Earnings per share guidance for FY25 was increased to $3.18 - $3.19[59] - Free Cash Flow Margin guidance for FY25 was increased to 25.5%-26.0%[59]

Core Insights - Zscaler reported strong financial results for Q3 FY2025, driven by increased adoption of its Zero Trust Exchange platform and growing demand for AI security solutions [2][3][6] Financial Highlights - Revenue reached $678.0 million, a 23% increase year-over-year [6][7] - Calculated billings grew 25% year-over-year to $784.5 million [6] - Deferred revenue increased by 26% year-over-year to $1,985.0 million [6] - GAAP net loss was $4.1 million, compared to a GAAP net income of $19.1 million in the same quarter last year [6][7] - Non-GAAP net income rose to $136.8 million from $113.0 million year-over-year [6][7] - Cash provided by operations was $211.1 million, maintaining a 31% margin [7][42] Business Developments - The company appointed Kevin Rubin as Chief Financial Officer and Raj Judge to the Board of Directors [6] - Zscaler signed an agreement to acquire Red Canary, enhancing its AI-powered security operations [6] - Recognized as a Leader in the 2025 Gartner Magic Quadrant for Security Service Edge for the fourth consecutive year [6] - Introduced Zscaler Asset Exposure Management, part of its Continuous Threat Exposure Management offerings [6] Market Trends - The 2025 AI Security Report indicated a 3,000% increase in enterprise usage of AI/ML tools, highlighting the need for Zero Trust strategies [11] - The 2025 VPN Risk Report revealed that 92% of organizations are concerned about ransomware attacks due to VPN vulnerabilities [11] - The 2025 Phishing Report noted that attackers are leveraging GenAI for targeted attacks, emphasizing the importance of a Zero Trust + AI defense strategy [11]

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]

Core Viewpoint - Zscaler, Inc. will host an innovations briefing for investors on June 3, 2025, during its Zenith Live 2025 event in Las Vegas, Nevada [1][2]. Group 1: Event Details - The innovations briefing is scheduled to start at 11:30 a.m. PT and conclude before 2:00 p.m. PT [2]. - A live webcast and replay of the briefing will be available on the Investor Relations section of the Zscaler website [2]. Group 2: Company Overview - Zscaler is a leader in cloud security, focusing on accelerating digital transformation for customers to enhance agility, efficiency, resilience, and security [3]. - The Zscaler Zero Trust Exchange™ platform protects thousands of customers from cyberattacks and data loss by securely connecting users, devices, and applications globally [3]. - The platform is distributed across more than 150 data centers worldwide, making it the largest in-line cloud security platform based on SASE [3].

Core Insights - Zscaler has been recognized as a leader in the "2025 Security Service Edge Magic Quadrant" by Gartner, achieving the highest position on the 'Ability to Execute' axis for the fourth consecutive year [1][3] Company Overview - Zscaler, Inc. (NASDAQ: ZS) specializes in cloud security and aims to enhance digital transformation for its customers by providing a secure connection for users, devices, and applications globally [6] - The company operates the world's largest in-line cloud security platform, the Zscaler Zero Trust Exchange™, distributed across more than 150 data centers [6] Industry Trends - The Security Service Edge (SSE) market is driven by factors such as VPN replacement, Zero Trust networking, SaaS adoption, and GenAI security [2] - Gartner estimates that SaaS will be the largest cloud revenue generator, with a compound annual growth rate of over 15% through 2028 [2]

Core Insights - Zscaler, Inc. has appointed Raj Judge as Executive Vice President of Corporate Strategy and Ventures, aiming to drive the company's growth strategy towards achieving $5 billion in Annual Recurring Revenue (ARR) and beyond [1][3] Company Overview - Zscaler is a leader in cloud security, providing a Zero Trust Exchange that protects thousands of customers from cyberattacks and data loss by securely connecting users, devices, and applications globally [5] Leadership Appointment - Raj Judge brings over 25 years of experience in the tech legal and venture capital sectors, having previously served as Senior Partner and Co-Chair at Wilson Sonsini [2] - Judge's expertise in corporate strategy and investment is expected to significantly impact Zscaler's growth and innovation agenda [3] - The appointment reflects Zscaler's commitment to advancing its corporate strategy and long-term vision [3] Strategic Goals - Judge will focus on key growth and investment opportunities, working closely with stakeholders to accelerate innovation and broaden Zscaler's platform for its customers [3][4]