Executive Q&A Panel - ZSCALER INC

Explicit Guidance:

• Long-Term Revenue Targets: Achieve $8 billion ARR by Fiscal 2031 as a base case (more than doubling current ARR); potential to reach $10 billion ARR if AI adoption accelerates faster and impacts the totality of the platform offering.
• CAGR: Maintain a Compound Annual Growth Rate (CAGR) of approximately 17% for the long-term horizon, aligned with the current year's guidance midpoint.
• Revenue Mix Shift: Approximately 25% of ARR is expected to shift towards non-user components (agents, cloud workloads, branches) by 2031, though user segments will remain the majority.
• Growth Drivers: New logos and platform extension are projected to drive significant ARR growth; Net Revenue Retention (NRR) is expected to remain in the "mid-teens" range long-term.
• Financial Performance: Free cash flow and operating cash flow divergence in FY2026 attributed primarily to timing and an increase in CapEx due to pricing and supply chain adjustments; long-term capex outlook not explicitly quantified beyond current trends.

Business-Segment Outlook:

• Product Evolution & Agents: Anticipates "agents" becoming the single largest revenue component in the long-term framework as adoption scales; early indicators for the "agentic exchange" product (launched in early availability) are described as "very positive" with high customer interest.
• Zero Trust Everywhere: Expecting expansion of the "Zero Trust Everywhere" platform (User, Branch, Cloud Workloads, Agents) to become the dominant sales story; "Zero Trust Branch" is growing rapidly, with customers increasingly opting for it over SD-WAN to eliminate lateral movement.
• AI Security & Data: Security for AI and Data Security are converging into a combined solution; data security is a "strong tailwind" driven by AI risks (prompt injection, jailbreaking, data remnants), with the acquisition of Symmetry Systems positioning the company to discover and secure data across AI infrastructures.
• SecOps Expansion: Entering the SecOps space as a platform play leveraging "data gravity" and inline telemetry; focusing on an "agent-first" approach rather than log collection, differentiating from vendors building human-centric solutions and adding agents.
• New Logo Strategy: Targeting a "75% white space" opportunity with 20,000 potential large customers (only 4,600 currently served); focusing on down-market penetration via simplified "t-shirt size" bundles and partner ecosystems (e.g., HeroSoft) rather than direct sales.
• Z-Flow/Z-Flex: Leveraging "Z-Flex" as a core growth motion to drive full portfolio adoption; currently, only 9 of 30 SKUs are being uptaken, with plans to increase adoption to capture the full security portfolio.

Market and Competitive Outlook:

• SD-WAN Displacement: Expects a "natural elimination" of SD-WAN as customers adopt Zero Trust Branch; notes that few competitors offer true zero-trust architecture for branches, creating a "first-mover" advantage in replacing legacy firewall/VPN models.
• SASE Differentiation: Distinguishes the platform from "SASE noise" by offering genuine Zero Trust Everywhere, contrasting with competitors offering "virtual firewalls" or "cloud VPNs" that lack lateral movement prevention.
• Identity Strategy: No plans to acquire a core identity provider; instead, leveraging existing partners (Microsoft, AWS, Google) for identity context while Zscaler provides the inline enforcement and security context layer.
• Competitive Moat: Competitors lack "inline" processing capabilities and comprehensive telemetry (endpoint, cloud, branch); the company views its data gravity and agent-first architecture as a significant barrier to entry for new agentic SecOps startups.

Macro / Industry Outlook:

• AI as a Catalyst: AI is viewed as the "largest tailwind" in company history; driving demand for data security, AI-specific security controls (prompt injection, model safety), and broader Zero Trust adoption.
• Economic Sentiment: Management expresses confidence that market size and demand are "not constrained," with growth driven by execution rather than market saturation; anticipates AI adoption will accelerate the timeline for platform reach.
• Regulatory/Structural Shifts: Emphasizes the need for "Zero Trust Everywhere" (Users, Branches, Workloads, Agents) to address evolving threat landscapes and the risks of lateral movement in the age of AI agents.

Strategic Initiatives:

• Go-to-Market Refresh: Re-accelerating new logos via "Hunter territories" (fully focused on new business) and hybrid territories; hiring for these new territories is described as "almost complete" for FY27.
• Vertical & Geography Expansion: Leaning into Public Sector, International markets, and "Sovereign Cloud" opportunities; leveraging partners to scale down-market reach.
• Platform Integration: Integrating AI security, data security, and Zero Trust SASE into a cohesive "Zero Trust Everywhere" platform; focusing on "agentic exchange" capabilities to handle traffic from AI agents across SaaS, cloud, and endpoints.
• Sales Enablement: Rolling out roughly 5-6 high-level sales plays for new product landing, focusing on "agent-first" value propositions and simplifying bundling for partners.

Risks and Headwinds to Outlook:

• Execution Risk: The primary risk to achieving the $8B-$10B targets is internal execution on products and go-to-market strategy rather than market size or competition.
• Agentic Monetization Timing: The path to monetizing the "agentic exchange" is acknowledged as taking "some time," despite strong design partnerships and interest.
• Inertia and Adoption: Potential pushback on dismantling legacy infrastructure (SD-WAN, firewalls) coming from lower-level IT staff, though leadership buy-in (CIO/CISO) is cited as the key driver for overcoming this.
• Market Complexity: The intersection of AI security, data security, and SecOps is complex; risks exist if the "context" layer becomes commoditized, though the company believes its scale and inline architecture provide differentiation.

Management Tone on the Future:

• Confidence Level: High confidence; management described the future as "fundamentally different" with no "burning need" to pivot strategy, only to "put the foot on the gas" regarding execution.
• Leadership Continuity: Recent sales organization changes are described as unrelated and not indicative of underlying disruption; strong leadership bench is emphasized to support the long-term plan.
• Strategic Focus: Shift from "building" to "executing" a clearly defined long-term plan; emphasis on "velocity and scale" rather than discrete focus on down-market or AI alone, but rather the convergence of both.
• Market Optimism: Management is "bullish" and "confident" that the architectural shift to Zero Trust Everywhere is inevitable and that the company is uniquely positioned to win as AI becomes the primary security driver.

Miscellaneous:

• CapEx/Supply Chain: Noted a significant increase in CapEx in FY2026 due to pricing and supply chain related items, contributing to the narrowing delta between free cash flow and operating cash flow.
• Partner Ecosystem: Highlighting the use of partners (e.g., HeroSoft, Kerash) to access down-market opportunities and geographies where direct sales force capacity is limited.
• Observability Stance: Explicitly stated no intention to enter general IT observability markets; focus remains on "experience observability" (ZDX) specifically for Zscaler's Zero Trust platform.