Zscaler, Inc. Q4 FY2025 earnings call

• Q4 revenue grew 21% year over year, operating margin exceeded 22% (quarterly record).
• ARR exceeded $3 billion, making Zscaler one of two pure-play SaaS security vendors to reach this milestone.
• Innovations in AI security: Launched Zscaler AI Guard, developing Zero Trust solutions for agent-to-agent and agent-to-application communication. SecOps ARR grew over 85% year over year, IT ops bookings grew 58% year over year.
• Zero Trust Everywhere: Over 350 enterprise customers, with strong demand for Zero Trust branch (e.g., a leading higher ed institution signed a 7-figure deal) and Zero Trust cloud (acceleration in ARR, with a Fortune 10 healthcare enterprise expanding workload protection).
• Data Security Everywhere: ARR grew to $425 million, with large deal wins like a Fortune 500 services enterprise adopting multiple data security solutions.
• Z Flex program: Generated over $100 million in TCV bookings in Q4, with over 50% sequential growth, available to both new and existing customers.

In Q4, Zscaler's revenue grew 21% year over year to $719 million. Annual recurring revenue (ARR) increased about 22% year over year and surpassed $3 billion. Geographically, Americas accounted for 55% of revenue, EMEA for 29%, and APJ for 16%. For the full fiscal year 2025, total revenue reached $2.7 billion, up 23% year over year. The company's remaining performance obligation (RPO) grew 31% year over year to $5.8 billion. AI security, Zero Trust Everywhere, and Data Security Everywhere are key segments. AI security ARR surpassed $1 billion in Q4. Zero Trust Everywhere has over 350 enterprise customers, with strong demand for Zero Trust branch and cloud. Data Security Everywhere ARR grew to approximately $425 million.

• Fiscal 2026 Q1 revenue guidance: $772 million to $774 million, growth of ~23%, gross margin ~80%, operating profit $166 million to $168 million.
• Full-year fiscal 2026 ARR guidance: $3.676 billion to $3.698 billion (21.9%-22.7% growth), revenue guidance: $3.265 billion to $3.284 billion (22%-23% growth), operating profit $728 million to $736 million, EPS $3.64 to $3.68, free cash flow margin ~26%-26.5%.
• Assumes $95 million contribution from Red Canary ARR in fiscal 2026 and $90 million from Red Canary in revenue. Net new ARR growth expected to be high single-digit on an organic basis.

• Macro environment uncertainties that could impact business growth.
• Competition in the security SaaS market, which could affect market share.
• Execution risks related to integrating new products and solutions, such as the successful adoption and scaling of Zero Trust Everywhere and AI security innovations.

Q: How does SASE replace firewall appliances?

A: Jay Chaudhry stated that branch firewalls go first, followed by data center firewalls, then virtual firewalls. Zero Trust branch by Zscaler is playing an important role in eliminating branch firewalls. SASE includes firewall, SD WAN, etc., and Zscaler prefers zero trust SASE.

Q: What's the average customer look like for Zero Trust Everywhere?

A: Jay Chaudhry explained that Zero Trust Everywhere customers need zero trust for users, branches, and cloud workloads. ARR has gone to two x or three x in such deals, and sales reps aren't given targets for each product but have additional incentives for new products. A customer with zero trust users, branch, and cloud becomes a Zero Trust Everywhere customer.

Q: How does Z Flex impact financial metrics?

A: Kevin Rubin said Z Flex is available to both new and existing customers, doesn't fundamentally change the financial model, but increases potential deal sizes and TCV/ARR without directly affecting financial metrics like net retention rate or billings in a tactical way.

Q: When will the full-fledged next-gen SOC platform be available?

A: Jay Chaudhry said it's a journey, with incremental progress. They're using a phased approach, leveraging Red Canary's technology, and expect to become a leading player in security operations by combining various products to offer outcomes-based solutions rather than data-based charges.