Summary of Cybersecurity Industry Conference Call Industry Overview - The conference call focused on the **cybersecurity industry** in North America, particularly the performance and outlook for 2026. - **Platforms** have been identified as the primary source of excess returns in 2025, with a notable performance disparity between platform companies and other cybersecurity names. Key Points Performance Metrics - Platforms (e.g., Palo Alto Networks (PANW), CrowdStrike (CRWD), Zscaler (ZS), CyberArk (CYBR)) saw an average return of **~30%** in 2025, while other cybersecurity names were down **~12%** [3][7]. - The overall cybersecurity market was largely flat, with platforms being viewed as multi-year compounders due to their growth potential [3][14]. Growth Expectations - Continued favor for platforms is expected, but M&A activities in the first half of 2026 may create volatility and present opportunities for other companies [4][31]. - Companies like Netskope (NTSK) and SailPoint (SAIL) are highlighted as potential outperformers with expected growth rates of **20%+** [3][9]. M&A Impact - The ongoing M&A activities, such as PANW's acquisition of CyberArk and ZS's acquisition of Red Canary, may create short-term noise around organic growth metrics [8][31]. - Despite the potential for dilution and integration challenges, these acquisitions are expected to enhance long-term growth prospects [8][31]. Valuation Insights - PANW is noted as a top pick due to its reasonable valuation at **25x EV/27e FCF**, which is in line with large-cap software [7][31]. - Other companies like SAIL and NTSK are seen as undervalued with significant upside potential, trading at lower multiples compared to their growth prospects [9][35]. Market Dynamics - The cybersecurity market is characterized by a trend towards consolidation, with enterprises increasingly looking to reduce the number of disparate security tools [54]. - The shift towards platformization is expected to continue, driven by the need for integrated solutions that enhance security effectiveness [54]. Additional Insights Emerging Opportunities - The AI security segment is growing rapidly, with Zscaler's AI Security revenue expected to exceed **$500 million** by year-end, reflecting a **80%+ YoY growth** [32]. - SailPoint is positioned to benefit from the transition to cloud and AI, with multiple avenues for growth including a **$2 billion+ legacy replacement opportunity** [35]. Cautionary Notes - Companies like Fortinet (FTNT) are viewed with caution due to potential downward revisions in growth expectations, particularly related to firewall refresh cycles [38][45]. - Qualys (QLYS) faces longer-term growth concerns despite recent performance, with a need for clearer visibility into future growth drivers [46]. Conclusion - The cybersecurity industry is poised for continued growth, particularly among platform companies, despite potential short-term challenges from M&A activities. - Investors are encouraged to consider both established platforms and emerging players with strong growth narratives as they navigate the evolving landscape of cybersecurity.

Zscaler (ZS) shares tanked significantly, closing down 13% on Nov. 26, even though the cybersecurity company posted exceptional financials for its first quarter. The selloff is puzzling particularly because ZS raised its full-year guidance as well on Wednesday. It now sees $3.29 billion in revenue on up to $3.82 per share of earnings, both ahead of consensus estimates. More News from Barchart Following the post-earnings plunge, Zscaler stock is down some 25% versus its year-to-date high. www.barchart.c ...

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]

Core Viewpoint - Zscaler Inc. is experiencing a balance between stabilizing growth and aggressive innovation as it approaches its first-quarter fiscal 2026 earnings report on November 25 [1] Management's Forecast: Margins And Milestones - Zscaler projects revenue between $772 million and $774 million, indicating approximately 23% year-over-year growth [2] - The company aims to recover gross margins to 80% after a decline in the previous quarter due to a one-time, hardware-heavy government deployment [2] Growth Vectors and Acquisitions - CEO Jay Chaudhry highlights three major growth areas: AI Security, Zero Trust Everywhere, and Data Security Everywhere, which have collectively surpassed $1 billion in Annual Recurring Revenue (ARR) [3] - The acquisition of Red Canary is expected to contribute $95 million in ARR for the fiscal year [3] Market Sentiment and Strategic Positioning - Wall Street sentiment is largely positive, with Cantor Fitzgerald raising its price target to $365, driven by confidence in the Secure Access Service Edge (SASE) opportunity and anticipated synergies from the Red Canary acquisition [4]

Core Insights - Zscaler Inc reported strong fiscal fourth-quarter results, with annual recurring revenues (ARR) increasing by 22% and initial guidance for fiscal 2026 indicating 19% growth [1][7][8] Financial Performance - Billings reached $1,202 million, a 32% year-on-year increase, surpassing the consensus estimate of $1,145 million [3][8] - Revenue for the quarter was $719 million, exceeding expectations of $708 million [3] - ARR for the fourth quarter was $3.015 billion, remaining flat sequentially, but net new ARR growth accelerated to 16% year-on-year from 6% in the previous quarter [3][11] Guidance and Future Outlook - Management guided for an operating margin expansion of approximately 65 basis points for fiscal 2026, indicating potential for upside [2] - The ARR guidance for fiscal 2026 is set at $3.676-$3.698 billion, reflecting a growth rate of 22%-23% [8] - The guidance does not include contributions from Red Canary contracts, which are up for renewal in fiscal 2026 [9] Market Position and Growth Areas - Zscaler is experiencing strong momentum in the Secure Access Service Edge (SASE) market, with a robust portfolio of emerging products [4][6] - The company's emerging growth categories, including AI Security, Zero Trust Everywhere, and Data Security Everywhere, now represent over $1 billion in combined ARR and are growing faster than the overall business [11] - Customers contributing $1 million in ARR grew by 18% year-on-year, while those spending over $100,000 increased by 13% [11] Analyst Sentiment - Analysts have noted that Zscaler's results substantially exceeded expectations across growth and profitability metrics [4][10] - The company is well-positioned to maintain a 22% year-on-year revenue growth trajectory [5]