Summary of Zscaler (ZS) 2025 Conference Call Company Overview - **Company**: Zscaler (ZS) - **Event**: Citi's Global TMT Conference - **Date**: September 04, 2025 Key Points Financial Performance - Zscaler achieved a significant milestone by crossing **$3 billion** in Annual Recurring Revenue (ARR), becoming one of only two pure-play SaaS security companies to do so [5][6] - The company reported **22% ARR growth**, **32% billings growth**, and **27% cash flow growth** for the fourth fiscal quarter [5][6] - The guidance for fiscal 2026 is set at **22% to 23% growth**, which includes the recent acquisition of Red Canary contributing approximately **$95 million** or **2.5%** to growth [18][19] Shift in Metrics - Zscaler has shifted its growth metric focus from billings to ARR, aligning management compensation with ARR growth rather than billings [12][13] - The new definition of ARR reflects the next twelve months of revenue, which is more aligned with revenue recognition practices [14][16] - The company reported a **114% net retention rate** for Q4 but does not intend to use this metric going forward, emphasizing ARR growth as a more representative metric [27] Market Dynamics - The market for Zscaler's services is still considered to be in early stages, with significant opportunities for growth in the zero trust security space [34][42] - Zscaler has expanded its offerings from secure web gateways to a comprehensive zero trust architecture, which includes zero trust for users, branches, and cloud workloads [35][40] - The company has captured **45%** of the Fortune 500 companies, indicating substantial upsell opportunities [42] Data Security and AI Integration - Zscaler's data security business is projected to reach **$400 million** in ARR, with a focus on inline cloud data loss prevention (DLP) [48] - The acquisition of Red Canary aims to enhance Zscaler's capabilities in AI-driven security operations, providing managed services and technology solutions [66][68] - Zscaler's approach to data security is evolving to include data security posture management (DSPM) and endpoint DLP, creating a comprehensive solution for customers [54][56] ZFlex Initiative - ZFlex, introduced recently, generated over **$100 million** in bookings in Q4 and is designed to facilitate customer flexibility in consuming Zscaler's modules [75][76] - The initiative aims to reduce friction in the buying process and support ARR growth, although it is not a consumption-oriented model [80] Capital Allocation and M&A Strategy - Zscaler maintains a focus on innovation and efficient financial models, continuing to invest in engineering and product development [84][85] - The company is selective in its M&A strategy, seeking disruptive technologies that can enhance its platform rather than acquiring for revenue [85][87] Additional Insights - The competitive landscape is evolving, with Zscaler positioned to lead in the AI SecOps movement due to its extensive data capabilities and innovative architecture [71][72] - The company emphasizes the importance of understanding customer needs and providing comprehensive solutions rather than relying on traditional metrics like customer count [24][25] This summary encapsulates the key discussions and insights from the Zscaler conference call, highlighting the company's financial performance, strategic shifts, market opportunities, and future growth prospects.

Financial Data and Key Metrics Changes - Revenue for Q4 2025 was $719 million, representing a 21% year-over-year growth and exceeding guidance [19] - Annual recurring revenue (ARR) surpassed $3 billion, marking a 22% year-over-year increase [19][6] - Operating margin reached 22.1%, a record high, with a free cash flow margin of 24% [21][19] - Gross margin was 79.3%, slightly lower than the historical target of 80% due to a one-time deployment [21] Business Line Data and Key Metrics Changes - AI Security, Zero Trust Everywhere, and Data Security Everywhere collectively surpassed $1 billion in ARR in Q4 [6] - SecOps ARR grew over 85% year-over-year, while ZDX Advanced Plus Queue bookings increased by 58% year-over-year [10] - Data Security Everywhere ARR grew to approximately $425 million, with significant deal wins [16] Market Data and Key Metrics Changes - The Americas accounted for 55% of revenue, EMEA for 29%, and APJ for 16% [20] - The company serves nearly 40% of the Global 2000 and over 45% of Fortune 500 companies [19][5] Company Strategy and Development Direction - The company is focusing on three growth vectors: AI Security, Zero Trust Everywhere, and Data Security Everywhere [6] - The ZFlex program is being utilized to facilitate strategic multi-year deals and increase module adoption [17] - The company aims to replace legacy solutions in various sectors, including finance, healthcare, and retail [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand for their solutions, particularly in AI and Zero Trust security [5] - The company anticipates a stable macro environment for fiscal 2026, with a focus on ARR as the primary growth metric [24][72] - Management expects to continue strong growth in AI Security and Zero Trust solutions, with significant upsell opportunities [67] Other Important Information - The acquisition of Red Canary is expected to contribute approximately $95 million to ARR in fiscal 2026 [23] - The company ended Q4 with $3.6 billion in cash and short-term investments [23] Q&A Session Summary Question: How is SASE replacing firewall appliances? - Management indicated that Zero Trust architecture is essential, and firewall appliances are being phased out, starting with branch firewalls [29] Question: How will ZFlex be utilized by the sales force? - ZFlex is designed to provide flexibility in module adoption, allowing for larger and better deals, and is being expanded to a broader customer base [33] Question: What does a Zero Trust Everywhere customer look like? - A Zero Trust Everywhere customer typically adopts multiple modules, leading to significant increases in ARR [36] Question: What is the focus of AI security product adoption? - Customers are primarily interested in securing both public and private AI applications, with a growing focus on agent-to-agent communication [41] Question: What is the expected growth trajectory for net new ARR? - Management is guiding for high single-digit net new ARR growth in fiscal 2026 on an organic basis [46] Question: How is the data security portfolio performing? - Data security solutions are often purchased alongside Zero Trust solutions, with significant growth potential as customers consolidate their security products [49] Question: What is the impact of ZFlex on financial metrics? - ZFlex is applicable to both new and existing customers, increasing potential deal sizes without fundamentally changing the financial model [53]

Financial Data and Key Metrics Changes - Revenue for Q4 2025 grew 21% year over year, reaching $719 million, and total revenue for fiscal year 2025 was $2.7 billion, representing a 23% year over year growth [6][23] - Annual recurring revenue (ARR) surpassed $3 billion, marking a 22% year over year increase [7][22] - Operating margin for Q4 was 22.1%, exceeding long-term targets and growing approximately 60 basis points year over year [26] - Free cash flow margin for Q4 was 24%, with data center CapEx at 8% of revenue [26] Business Line Data and Key Metrics Changes - AI security solutions, including AI Guard and JNI security offerings, saw significant customer interest, contributing to the overall growth [6][10] - SecOps ARR grew over 85% year over year, while ZDX Advanced plus SKU bookings increased by 58% year over year [12][19] - Data Security Everywhere ARR reached approximately $425 million, with strong demand driving growth [18] Market Data and Key Metrics Changes - The Americas accounted for 55% of revenue, EMEA for 29%, and APJ for 16% [23] - The company now serves nearly 40% of the Global 2000 and over 45% of Fortune 500 companies, indicating a strong market presence [22][24] Company Strategy and Development Direction - The company is focusing on three growth factors: AI security, Zero Trust Everywhere, and Data Security Everywhere, which together surpassed $1 billion in ARR in Q4 [8][19] - The Z Flex program generated over $100 million in TCV bookings in Q4, representing over 50% sequential growth, and is expected to drive future growth [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand for their solutions and the potential for growth in the Zero Trust and AI security markets, which are expected to disrupt a $100 billion security market [20][21] - The macro environment is anticipated to remain relatively unchanged, with a focus on ARR as the primary growth metric moving forward [28][92] Other Important Information - The acquisition of Red Canary is expected to contribute approximately $95 million to ARR and $90 million to revenue in fiscal year 2026 [27] - The company plans to optimize new products for margins over time as they scale [29] Q&A Session Summary Question: How is SASE replacing firewall appliances? - Management indicated that firewall appliances, particularly in branches, are being replaced by Zero Trust architecture, with significant demand for Zero Trust branch solutions [33][36] Question: How will Z Flex help exceed sales goals? - Z Flex provides flexibility in module adoption for customers, allowing for larger and better deals, and is being expanded to a broader customer base [39][42] Question: What does a Zero Trust Everywhere customer look like? - A Zero Trust Everywhere customer typically adopts multiple modules, with significant increases in ARR observed as they transition to this model [45][50] Question: What is the focus of AI security product adoption? - Customers are primarily focused on securing public AI applications first, followed by private models, with significant interest in agent-to-agent communication solutions [54][56] Question: What is the expected growth for data security solutions? - Data security solutions are being adopted alongside Zero Trust solutions, with a significant opportunity for upselling additional modules to existing customers [60][63] Question: What is the methodology behind fiscal year guidance? - The company maintains a prudent approach to guidance, shifting focus from billings to ARR as a more aligned growth metric [90][92]

AI Revolution Thesis - Sequoia believes the AI revolution is comparable to the industrial revolution, presenting a significant transformation [1][2] - The cognitive revolution represents a $10 trillion (10 to the 13th power) opportunity [1][8] - Startups are crucial in specializing general AI technologies for specific applications [6] Commercial Opportunity - The AI-driven automation of the US services market, currently at approximately $20 billion, holds a $10 trillion potential [8] - The cognitive revolution can expand the market to include large, standalone public companies built around AI in the services space [12] Investment Trends - Work is shifting towards higher leverage (100+%) on tasks with less certainty in outcomes, requiring human correction [13][14][15] - Real-world measurement is becoming the new gold standard for proving AI excellence, surpassing academic benchmarks [15][16][17] - The industry forecasts at minimum a 10x increase in compute (flops) per knowledge worker, with optimistic views suggesting 1000x to 10,000x consumption [20] Investment Themes - Persistent memory, including long-term memory and consistent AI identity, is critical for AI's expansion into more work functions [21][22][23] - Seamless communication protocols between AIs, beyond initial protocols like MCP, will yield major applications [24][25] - AI voice is currently viable due to increased fidelity and decreased latency, with applications in both B2C and enterprise sectors [27][28][29] - AI security presents a huge opportunity across development, distribution, and user layers, potentially involving numerous AI security agents per person/agent [30][31][32][33] - Open source's ability to compete with state-of-the-art foundation models is critical for a free, open AI future [34][35][36]

Financial Data and Key Metrics Changes - The company reported solid Q2 results with total revenue growth of 9% to 10% expected for Q3 and FY '26, raising the full-year outlook to 10% to 11% [20][21] - Non-GAAP operating margin is projected to be 22% for Q3 and 25% to 26% for the full year [20][21] - Free cash flow margin is expected to be approximately 21% for Q3 and around 28% for FY '26 [20][21] Business Line Data and Key Metrics Changes - The public sector business showed strong performance with multiple new business and upsell deals, including significant contracts with the DOD [17][18] - New products from Okta Identity Governance, Okta Privilege Access, and Okta Device Access contributed positively to revenue [6][7] - The company is seeing improved sales productivity and record pipeline generation due to its go-to-market realignment [16][19] Market Data and Key Metrics Changes - Five of the top ten deals in Q2 were with the US public sector, indicating strong demand in this area [17][18] - The company is experiencing growth in its customer base, with a notable increase in customers spending over $100,000 and $1 million [86] Company Strategy and Development Direction - Okta aims to be the one-stop shop for identity solutions, consolidating multiple identity vendors into a single platform [24][25] - The company is focused on building an identity security fabric that secures all identities, including AI agents [9][10] - The acquisition of Acxiom Security is expected to enhance Okta's Privilege Access capabilities and support its growth strategy [8][78] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategy and execution, noting that the macroeconomic concerns previously mentioned did not materialize [16][20] - The company is optimistic about the adoption of new products and the rapid pace of innovation in the identity security space [21] - Management highlighted the importance of independence and neutrality in the identity market, which positions Okta favorably against competitors [14][21] Other Important Information - The company ended the quarter with approximately $2.9 billion in cash and short-term investments [19] - Okta is preparing for its Oktane conference, where it will showcase innovations and engage with analysts and investors [12] Q&A Session Summary Question: What indicators are used to guide NRR and macroeconomic conditions? - Management noted that NRR has stabilized and they are optimistic about future growth, removing previous macroeconomic concerns from guidance [22][27] Question: What trends are observed in AI-native customer adoption? - AI-native customers are growing rapidly and are focused on securing their internal operations, with Okta well-positioned to support them [34][36] Question: Why is it critical for identity to be an independent platform? - Management emphasized that identity is too fragmented and complex, and consolidating under a single independent platform can reduce costs and operational challenges [44][46] Question: How does the DOD deal impact RPO and CRPO? - The RPO value for the DOD deal will be consistent with the current RPO value as it is a one-year deal [51] Question: What is the monetization strategy for cross-app access and AI agent workflows? - The company plans to monetize through existing products while also developing capabilities to manage AI agents within its identity system [110]

Financial Data and Key Metrics Changes - The company reported solid Q2 results with total revenue growth of 10% to 11% for FY '26, an increase from previous guidance of 9% to 10% [18] - Non-GAAP operating margin is expected to be between 25% to 26%, up from earlier estimates [18] - Free cash flow margin is projected to be approximately 28% for the full year [18] Business Line Data and Key Metrics Changes - The public sector business showed strong performance with multiple new business and upsell deals, including significant contracts with the Department of Defense [15][16] - New products from Okta Identity Governance, Okta Privilege Access, and Okta Device Access contributed positively to revenue, indicating strong demand for identity security solutions [5][12] - The company noted that five of its top ten deals in Q2 were with the US public sector, highlighting the importance of this segment [16] Market Data and Key Metrics Changes - The company experienced record pipeline generation, indicating strong market demand and improved sales productivity [13][58] - The acquisition of Acxiom Security is expected to enhance the company's capabilities in privileged access management, further solidifying its market position [6][73] Company Strategy and Development Direction - The company aims to establish itself as a one-stop shop for identity solutions, consolidating multiple identity vendors into a single platform [22][46] - The introduction of cross-app access is a strategic move to enhance security for AI agents, reflecting the company's focus on innovation in identity security [9][75] - The company is committed to maintaining its independence and neutrality in the identity market, which it believes is crucial for long-term success [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory, citing improved sales productivity and a strong pipeline as indicators of future success [13][19] - The removal of macroeconomic concerns from guidance reflects a more stable operating environment than previously anticipated [18][92] - The company is focused on accelerating growth through innovation and the adoption of new products, particularly in the AI space [19][105] Other Important Information - The company ended the quarter with approximately $2.9 billion in cash and short-term investments, providing a strong financial foundation for future investments [17] - The upcoming Oktane conference is expected to showcase the company's innovations and strategies in identity security [10] Q&A Session Summary Question: What indicators are used to guide NRR and macroeconomic impacts? - Management noted that NRR has stabilized and that macroeconomic concerns have not materialized as expected, leading to a more optimistic outlook [20][26] Question: What trends are observed in AI-native customer adoption? - AI-native customers are growing rapidly and are focused on securing their internal operations, indicating a strong demand for identity security solutions [32][34] Question: Why is independence critical for identity platforms? - The company believes that independence allows for better consolidation of identity solutions, reducing complexity and costs for large organizations [42][46] Question: How is the company addressing upsell and cross-sell rates? - Upsell and cross-sell rates remain strong, with larger customers contributing significantly to revenue growth [80][81] Question: What is the monetization strategy for cross-app access? - The company plans to monetize cross-app access through existing products while also addressing the growing need for managing AI agents within its identity system [102][105]

Financial Data and Key Metrics Changes - Total revenue for Q4 2025 was $2,540,000,000, growing 16% year-over-year, exceeding guidance [51] - Product revenue grew 19%, driven by software form factors, while total services revenue increased by 15% [51] - Remaining performance obligation (RPO) grew 24% year-over-year to $15,800,000,000, marking the highest RPO growth in seven quarters [53] - Total gross margin was 75.8%, with product gross margin at 76.8% [56] - Operating margins expanded by 340 basis points, reaching above 30% for the first time in company history [59] Business Line Data and Key Metrics Changes - Next generation security annual recurring revenue (ARR) reached $5,580,000,000, growing 32% year-over-year [55] - Software firewalls and SASE were notable growth drivers, with software firewalls ARR up nearly 20% year-over-year [25][55] - The software firewall market share is nearly 50%, with significant contributions from cloud service providers [26] Market Data and Key Metrics Changes - The Americas grew 15%, EMEA up 19%, and JPEG up 13% [52] - AI ARR reached approximately $545,000,000 in Q4, up over two and a half times year-over-year [55] - SASE ARR grew 35% year-over-year, more than twice as fast as the overall market [30] Company Strategy and Development Direction - The company aims to achieve $15,000,000,000 in next generation security ARR by FY 2030, focusing on platformization and integrated solutions [19] - The strategy includes leveraging AI to enhance security offerings and address the evolving cybersecurity landscape [12][41] - The company is pursuing the acquisition of CyberArk to enhance its identity security capabilities and expand its market presence [46][67] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for cybersecurity solutions, particularly in cloud and AI transformations [11] - The company anticipates continued growth driven by software firewalls and SASE, with expectations for double-digit product revenue growth in FY 2026 [41][66] - Management highlighted the importance of platformization as a key driver for customer commitment and improved security outcomes [39] Other Important Information - The company completed the acquisition of ProtectAI, enhancing its AI security capabilities [12] - A leadership transition was announced, with Lee Klarich appointed as Chief Product and Technology Officer [49][50] Q&A Session Summary Question: Insights on security consolidation and market dynamics - Management emphasized that consolidation in the security market is a gradual process, with potential for significant growth in market share as customers recognize the value of platformization [69][72] Question: Drivers behind strong bookings and execution - Management attributed the strong bookings to effective execution and the benefits of platformization, while noting that macroeconomic conditions remain stable [80][84] Question: Network security ARR and software firewall market share - Management discussed the shift towards software firewalls driven by cloud transformation, highlighting the company's competitive position in the software segment [90]

Core Insights - Tenable has launched Tenable AI Exposure, a solution designed to manage and control risks associated with generative AI tools like ChatGPT Enterprise and Microsoft Copilot, providing organizations with unprecedented visibility and control [1][2][3] Group 1: Product Features - Tenable AI Exposure offers an end-to-end approach that includes discovery, risk management, and policy enforcement for enterprise AI platforms [1][2] - The solution integrates into the Tenable One platform, providing a unified view of risk across the entire attack surface, combining capabilities from Tenable AI Aware, AI Security Posture Management (AI-SPM), and new governance features [4][8] - The deployment of Tenable AI Exposure is agentless and can be set up in minutes, allowing for rapid coverage [3] Group 2: Market Context - As businesses adopt generative AI to enhance productivity, they are creating new security challenges that lack visibility, making it difficult for security teams to monitor sensitive data exposure and potential manipulations by attackers [2] - The introduction of Tenable AI Exposure addresses the entire lifecycle of AI security challenges, moving beyond mere discovery to comprehensive management [2][3] Group 3: Availability and Demonstration - Tenable AI Exposure is currently available through a private customer preview program, with general availability expected by the end of 2025 [4] - A demonstration of Tenable AI Exposure is being showcased at Black Hat USA 2025, highlighting its capabilities [5]

Core Insights - Qualys, Inc. reported a revenue growth of 10% year-over-year for Q2 2025, with revenues reaching $164.1 million compared to $148.7 million in Q2 2024 [3][6] - The company raised its revenue guidance for the full year 2025 to a range of $656 million to $662 million, reflecting an expected growth of 8% to 9% over 2024 [12] Financial Performance - **Revenue**: Q2 2025 revenues increased by 10% to $164.1 million from $148.7 million in Q2 2024 [3] - **Gross Profit**: GAAP gross profit rose by 11% to $135.2 million, maintaining a gross margin of 82% [4] - **Operating Income**: GAAP operating income increased by 7% to $51.4 million, representing 31% of revenues [5] - **Net Income**: GAAP net income grew by 8% to $47.3 million, or $1.29 per diluted share, consistent with a 29% net income margin [6] - **Adjusted EBITDA**: Adjusted EBITDA increased by 5% to $73.4 million, accounting for 45% of revenues [7] - **Operating Cash Flow**: Operating cash flow decreased by 32% to $33.8 million, representing 21% of revenues [8] Business Highlights - The company launched its inaugural managed Risk Operations Center (mROC) Alliance Partners, enhancing its risk management capabilities [9] - Qualys expanded its TotalAI solution with advanced AI security features, reinforcing its commitment to cybersecurity [16] - The company was recognized as a leader in various cybersecurity categories by KuppingerCole and SC Awards Europe, highlighting its innovative solutions [16] Future Guidance - **Third Quarter 2025 Guidance**: Expected revenues between $164.5 million and $167.5 million, indicating a growth of 7% to 9% year-over-year [11] - **Full Year 2025 Guidance**: Revised revenue expectations to $656 million to $662 million, with GAAP net income per diluted share projected between $4.47 and $4.77 [12]

Acquisition Overview - Palo Alto Networks plans to acquire CyberArk for approximately $25 billion in total equity value[67] - The consideration is $45 in cash and 2.2005 shares of Palo Alto Networks common stock for each CyberArk share[67] - This represents a 26% premium to CyberArk's unaffected 10-day average daily VWAPs as of July 25, 2025[67] - The transaction is expected to close in the second half of Palo Alto Networks' Fiscal Year 2026, subject to CyberArk shareholder approval and regulatory clearances[67] Strategic Rationale - The acquisition accelerates Palo Alto Networks' platformization strategy by adding a new platform in Identity Security, covering all major Security TAMs[11] - The Identity Security opportunity is estimated at $29 billion, with further upside from securing AI agents[11] - The acquisition is expected to be immediately accretive to revenue growth and gross margin post-close and accretive to free cash flow per share in FY'28[11] - Significant revenue synergy potential exists, including cross-selling into Palo Alto Networks' 70K+ customer base[11] Financial Performance and Guidance - Palo Alto Networks reaffirms its Q4 FY'25 and FY'25 guidance shared on May 20, 2025[69] - FY25 total revenue is guided at $9.17 billion - $9.19 billion, representing 14% year-over-year growth[69] - Next-Gen Security ARR is guided at $5.52 billion - $5.57 billion, a 31% - 32% year-over-year increase[69]