Zscaler (ZS) 2025 Conference Transcript

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.