Financial Perspectives: CFO - ZSCALER INC

Financial Performance:

• Fiscal 26 revenue and ARR grew 25% YoY (20% excluding Red Canary); net new ARR growth was 14%.
• Achieved record non-GAAP operating margin of ~23% and free cash flow margin of 23%; delivered "Rule of 49" performance.
• Operating margin expanded by ~8 percentage points since fiscal 23.
• Current ARR is ~$3.8 billion, representing only a fraction of the $19 billion+ addressable spend within existing customers.
• ZFlex bookings exceeded $1.7 billion in fiscal 26, equating to nearly $500 million in ARR, with a 30% ARR uplift for ZFlex customers.

Guidance and Future Outlook:

• Reaffirmed fiscal 27 guidance; targets organic ARR growth to over $8 billion by fiscal 31 (more than doubling current ARR).
• Long-term aspiration is $10 billion in ARR by fiscal 31, with a potential upside of nearly $2 billion if agentic AI adoption accelerates.
• Gross margins expected to remain stable at ~80%; CapEx as a % of revenue expected to remain elevated until fiscal 28 before normalizing to high single digits.
• Stock-based compensation (SBC) aims to align with peer group averages over the long term; expected to support GAAP profitability improvements.
• Three primary growth engines (Zero Trust Branch/Cloud, Data Security, Security for AI) are expected to continue driving compounding ARR.

Business Segments and Product Lines:

• Zero Trust SASE Everywhere: Foundation category with ~$3 billion ARR; grown at 20% CAGR. "Zero Trust SASE for Users" is the largest sub-segment; "Zero Trust Branch and Cloud" (2 distinct offerings) grew at 75% ARR CAGR, reaching $250 million ARR.
• Data Security: Grew at >30% CAGR over three years; fiscal 26 ARR accelerated to 34% with bookings up >40% YoY.
• Security for AI: Ended fiscal 26 with ~$70 million ARR; Q4 fiscal 26 bookings increased >50% sequentially, with >65% of ACV from products less than two quarters old.
• Agentic SecOps: Newly launched integrated offering poised to disrupt the market; historical performance less relevant than forward trajectory.
• Non-seat-based/metered products now represent 30% of new and upsell ACV; ~33% of new logo ARR is driven by newer platform offerings.

Market and Competitive Landscape:

• Total Addressable Market (TAM) updated to $220 billion based on third-party industry forecasts.
• Branch and cloud solutions have only 10% penetration in the Global 2000, indicating significant white space.
• Zero Trust architecture is increasingly critical as AI and agentic threats operate at machine speed.
• Customers with Branch and Cloud solutions deliver over 5x the ARR of non-branch/cloud customers and achieve 121% Net Revenue Retention (NRR), 6 points higher than the overall NRR.
• Top 10 customers are growing faster than $1M–$10M ARR customers, validating the platform strategy.

Risks and Challenges:

• CapEx levels and memory component prices are expected to remain elevated until fiscal 28, impacting free cash flow timing.
• "Law of large numbers" challenges for the mature "Zero Trust SASE for Users" segment, necessitating a shift to non-seat-based growth.
• Agentic AI represents an emerging market; while potential for $2 billion upside is significant, it is not currently included in formal guidance due to early adoption stages.

Management Commentary and Tone:

• Tone is highly confident and optimistic, emphasizing a "strong foundation," "clear visibility," and a "customer growth flywheel."
• Management highlighted the successful shift toward non-seat-based revenue and the effectiveness of ZFlex in lowering friction for platform adoption.
• Emphasized that $15 billion+ of white space remains within the existing installed base, with less than 20% of customers currently deploying multiple data security products.

Analyst Questions and Answers:

• Note: The provided transcript text contains only the CEO's prepared remarks and closing statement; no specific Q&A section with analyst questions or answers is included in the source text.

Other Key Points:

• Net Revenue Retention (NRR) remains consistent at ~115%; Gross Revenue Retention is in the mid-90s.
• Capital allocation priority: 1) Reinvestment in innovation/resilience; 2) M&A for technology/talent; 3) Maintaining a strong balance sheet.
• G&A expenses are expected to trend down modestly due to AI adoption and automation.
• R&D spend expected to show modest leverage as products mature, while maintaining investment in new innovations.