Q2 2026 Zscaler Inc Earnings Call

February 26, 2026

Operator: Good day. Thank you for standing by. Welcome to the Zscaler Q2 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kim Watkins, SVP of Investor Relations and Strategic Finance. Please go ahead.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone.

Speaker #1: You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Speaker #1: I would now like to hand the conference over to your first speaker today, Kim Watkins, SVP of Investor Relations and Strategic Finance. Please go ahead.

Kim Watkins: Good afternoon, thank you for joining us today. Welcome to Zscaler's Q2 fiscal 2026 Earnings Conference Call. On the call with me today are Jay Chaudhry, Chairman and CEO, Kevin Rubin, CFO. Please note that we posted our earnings release, shareholder letter, and a supplemental financial schedule to our investor relations website. Unless otherwise noted, all numbers we talk about today will be on an adjusted non-GAAP basis. You will find a reconciliation of GAAP to the non-GAAP financial measures in our earnings release.

Speaker #2: Joining us today, welcome to Zscaler's second quarter fiscal 2026 earnings conference call. On the call with me today are Jay Chaudhry, Chairman and CEO, and Kevin Rubin, CFO.

Speaker #2: Please note that we posted our earnings release shareholder letter and a supplemental financial schedule to our investor relations website. Unless otherwise noted, all numbers we talk about today will be on an adjusted non-GAAP basis.

Speaker #2: You will find a reconciliation of GAAP to the non-GAAP financial measures in our earnings release. Before we get started, I'd like to remind you that today's discussion will contain forward-looking statements, including but not limited to the company's anticipated future revenue, annual recurring revenue, net new annual recurring revenue, gross margin, operating profit, net other income, earnings per share, and free cash flow margin, our customer response to our products, our expectations regarding AI and its impact on our business and customers, and our market share, market opportunity, objectives, and outlook.

Kim Watkins: Before we get started, I'd like to remind you that today's discussion will contain forward-looking statements, including, but not limited to, the company's anticipated future revenue, annual recurring revenue, net new annual recurring revenue, gross margin, operating profit, net other income, earnings per share, and free cash flow margin, our customer response to our products, our expectations regarding AI and its impact on our business and customers, and our market share and market opportunity, and our objectives and outlook. These statements and other comments are not guarantees of future performance, but rather are subject to risks and uncertainty, some of which are beyond our control. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call.

Speaker #2: These statements and other comments are not guarantees of future performance but rather are subject to risks and uncertainty, some of which are beyond our control.

Speaker #2: These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call.

Speaker #2: For more complete discussion of these risks and uncertainties, please see our filings with the SEC as well as in today's earnings release. I also want to inform you that we'll be attending the following conferences.

Kim Watkins: For more complete discussion of these risks and uncertainties, please see our filings with the SEC as well as in today's earnings release. I also want to inform you that we'll be attending the following conferences: Morgan Stanley Technology, Media, and Telecom Conference on March 2, Loop Capital Markets Investor Conference on March 10, Stifel Technology Conference on March 10, Cantor Global Technology and Industrial Growth Conference on March 11, and Wells Fargo Software Symposium on April 8. With that, I'll turn the call over to Jay.

Speaker #2: Morgan Stanley Technology, Media and Telecom Conference on March 2, Loop Capital Markets Investor Conference on March 10, Stifel Technology Conference on March 10, Cantor Global Technology and Industrial Growth Conference on March 11, and Wells Fargo Software Symposium on April 8.

Speaker #2: And with that, I'll turn the call over to Jay.

Speaker #3: Thanks, Kim. And thanks to everyone for joining us today. We delivered strong Q2 results, and I couldn't be more proud of the team's execution.

Jay Chaudhry: Thanks, Kim, and thanks to everyone for joining us today. We delivered strong Q2 results, and I couldn't be more proud of the team's execution. ARR grew 25%, reflecting continued strong demand for our platform. We are confident in our outlook for the second half of fiscal 2026, and as a result, we are increasing our guidance across the board. I'd like to zoom out for a moment and talk about what's on everyone's mind, AI. AI is the single most transformative technology of our time, and its mass adoption is only just beginning. We believe Zscaler is the security platform for the AI era because we already protect users, data, and applications across clouds and the internet at scale.

Speaker #3: ARR grew 25%, reflecting continued strong demand for our platform. We are confident in our outlook for the second half of fiscal 2026, and as a result, we are increasing our guidance across the board.

Speaker #3: I'd like to zoom out for a moment and talk about what's on everyone's mind: AI. AI is the single most transformative technology of our time, and its mass adoption is only just beginning.

Speaker #3: We believe Zscaler is the security platform for the AI era because we already protect users' data and applications across clouds and the internet at scale.

Speaker #3: Just as we enabled customers to securely accelerate digital transformation and cloud adoption, we believe we are uniquely positioned to secure the AI transformation, driving continued demand for our platform.

Jay Chaudhry: Just as we enabled customers to securely accelerate digital transformation and cloud adoption, we believe we are uniquely positioned to secure the AI transformation, driving continued demand for our platform. Organizations are rapidly adopting AI to drive productivity and innovation. Doing so is creating new vulnerabilities, significantly expanding the attack surface and increasing cyber threats in scale, sophistication, and speed, recasting AI from a productivity engine into a dangerous security threat. During my conversations with more than 100 CEOs and CIOs, including many at the World Economic Forum in Davos last month, the urgency of securing AI is one of the top concerns on their minds. This is the opportunity for Zscaler's industry-leading Zero Trust Exchange, which enables our customers to securely scale AI for the agentic era and beyond.

Speaker #3: Organizations are rapidly adopting AI to drive productivity and innovation. But doing so is creating new vulnerabilities, significantly expanding the attack surface, and increasing cyber threats in scale, sophistication, and speed.

Speaker #3: Recasting AI from a productivity engine into a dangerous security threat. During my conversations with more than 100 CEOs and CIOs, including many at the World Economic Forum in Davos last month, the urgency of securing AI is one of the top concerns on their minds.

Speaker #3: This is the opportunity for Zscaler's industry-leading Zero Trust Exchange, which enables our customers to securely scale AI for the beyond. Zscaler minimizes the attack surface and limits lateral movement with our unique Zero Trust architecture that enables direct, one-to-one communication among users, applications, and AI agents.

Jay Chaudhry: Zscaler minimizes the attack surface and limits lateral movement with our unique Zero Trust architecture that enables direct one-to-one communication among users, applications, and AI agents. I started Zscaler with an initial focus on securing users with Zero Trust. We extended our platform to deliver Zero Trust for workloads, branches, and devices, which has increased our TAM significantly and extended our technology lead from other vendors who are still trying to build a SASE solution for user security. Now we are extending our global Zero Trust Exchange platform to secure AI applications, AI agent communication, and agentic workflow at scale. As AI agents are unleashed within the enterprise, it won't be long before billions of AI agents interacting with each other will have access to mission-critical applications and sensitive data. Just like users and organizations, AI agents are also becoming the weakest link in cybersecurity.

Speaker #3: I started Zscaler with an initial focus on securing users with Zero Trust. Then we extended our platform to deliver Zero Trust for workloads branches and devices, which has increased our TAM significantly and extended our technology lead from other vendors who are still trying to build a SASE solution for user security.

Speaker #3: Now we are extending our global Zero Trust Exchange platform to secure AI applications, AI agent communication, and agentic workflow at scale. As AI agents are unleashed within the enterprise, it won't be long before billions of AI agents interacting with each other will have access to mission-critical applications and sensitive data.

Speaker #3: Just like users, an organization's AI agents are also becoming the weakest link in cybersecurity. Imagine a threat actor hijacking even one of an organization's AI agents, resulting in a serious breach.

Jay Chaudhry: Imagine a threat actor hijacking even one of an organization's AI agents, resulting in a serious breach. AI agents shift the threat landscape and operate autonomously at speeds far exceeding humans, exponentially increasing agentic traffic while compressing the time to prevent, detect, and respond to threats. This is becoming even more acute as AI agents or apps exposed to the internet can be scanned and targeted in seconds. Securing this new reality requires inline policy enforcement at massive scale. This is what Zscaler is built to deliver. Zscaler stands for the zenith of scalability. Effective AI security requires a proven global Zero Trust Exchange infrastructure, and we believe Zscaler is the only cybersecurity platform for the AI age that's able to secure at this unprecedented speed and scale, creating a durable advantage.

Speaker #3: AI agents shift the threat landscape and operate autonomously at speeds far exceeding humans, exponentially increasing agentic traffic, while compressing the time to prevent, detect, and respond to threats.

Speaker #3: This is becoming even more acute as AI agents or apps exposed to the internet can be scanned and targeted in seconds. Securing this new reality requires inline policy enforcement at massive scale.

Speaker #3: This is what Zscaler is built to deliver. Zscaler stands for the zenith of scalability. Effective AI security requires a proven global Zero Trust Exchange infrastructure and we believe Zscaler is the only cybersecurity platform for the AI age that's able to secure at this unprecedented speed and scale creating a durable advantage.

Speaker #3: We have 15-plus years of experience operating our own cloud across 160-plus data centers worldwide offering real-time security services with 99.999% reliability. This global infrastructure is critical to secure AI agent communication.

Jay Chaudhry: We have 15-plus years of experience operating our own cloud across 160-plus data centers worldwide, offering real-time security services with 99.999% reliability. This global infrastructure is critical to secure AI agent communication. Our software is present on millions of end-user devices, servers, as well as in the cloud and branch offices, and it enables us to get agentic traffic to our Zero Trust Exchange, giving us a unique advantage. With our AI platform capabilities, we processed nearly 1 trillion AI transactions in calendar 2025. We are also processing millions of MCP requests through our exchange on a monthly basis, up from literally nothing a couple of quarters ago. As an example, a large Fortune 100 financial services customer is using our Zero Trust Exchange to enforce policy for their software development agents.

Speaker #3: Our software is present on millions of end-user devices, servers, as well as in the cloud and branch offices and it enables us to get agentic traffic to our Zero Trust Exchange giving us a unique advantage.

Speaker #3: With our AI platform capabilities, we processed nearly 1 trillion AI transactions in calendar 2025. We are also processing millions of MCP requests through our exchange on a monthly basis, up from literally nothing a couple of quarters ago.

Speaker #3: As an example, a large Fortune 100 financial services customer is using our Zero Trust Exchange to enforce policy for the software development agents. In another example, a CISO of a Fortune 500 entertainment company a Zscaler customer shared with me that with little deployment effort, he was able to turn on Zscaler Exchange to enforce policy for AI traffic and is securing over 4 million prompts per week.

Jay Chaudhry: In another example, a CISO of a Fortune 500 entertainment company, a Zscaler customer, shared with me that with little deployment effort, he was able to turn on Zero Trust Exchange to enforce policy for AI traffic and is securing over 4 million prompts per week. Our Zero Trust Exchange is fundamentally different from competitive firewall-based security architecture that connects users or AI agents to a network and then allows them to roam free, dramatically increasing the risk of cyber breaches. We expect these advantages, including significant architectural differentiation and our large customer base, to drive short-term and long-term demand for our platform. Turning back to the quarter, our results reflect robust demand across all three of our growth pillars: AI security, Zero Trust Everywhere, and Data Security Everywhere.

Speaker #3: Our Zero Trust Exchange is fundamentally different from competitive firewall-based security architecture that connects users or AI agents to a network and then allows them to roam free dramatically increasing the risk of cyber breaches.

Speaker #3: We expect these advantages including significant architectural differentiation and our large customer base to drive short-term and long-term demand for our platform. Turning back to the quarter, our results reflect robust demand across all three of our growth pillars.

Speaker #3: AI security, Zero Trust Everywhere, and Data Security Everywhere. I will start with AI security which includes two product areas. AI Protect, our recently introduced solution to secure the use of AI and agentic operations.

Jay Chaudhry: I will start with AI security, which includes two product areas: AI Protect, our recently introduced solution to secure the use of AI and agentic operations. I will begin with AI Protect, which secures the full spectrum of enterprise AI adoption and solves a range of cyber and data loss challenges. Zscaler ThreatLabz research found that in calendar 2025, AI application use within our customer base expanded to over 3,400, a quadrupling in the last 12 months alone, with data transfers to AI apps exceeding 18,000 terabytes. Many of these apps have serious vulnerabilities. Zscaler AI Protect gives customers a single integrated way to secure AI at scale by discovering and managing all AI assets, including shadow AI uses, enforcing safe access to approved apps, and inspecting every prompt and response in real time to stop data leaks and attacks like prompt injection.

Speaker #3: I will which secures the full spectrum of enterprise AI adoption and solves a range of cyber and data loss challenges. Zscaler Threat Labs research found that in calendar 2025, AI application use within our customer base expanded to over 3,400 a quadrupling in the last 12 months alone.

Speaker #3: With data transfers to AI apps exceeding 18,000 terabytes, many of these apps have serious vulnerabilities. Zscaler AI Protect gives customers a single integrated way to secure AI at scale.

Speaker #3: By discovering and managing all AI assets including shadow AI uses enforcing safe access to approved apps and inspecting every prompt and response in real-time to stop data leaks and attacks like prompt injection.

Speaker #3: For customers building their AI models and applications, our AI Red Teaming solution performs continuous security assessment. This quarter we integrated our AI Red Teaming and our Guardrail products to provide true closed-loop security.

Jay Chaudhry: For customers building their AI models and applications, our AI Red Teaming solution performs continuous security assessment. This quarter, we integrated our AI Red Teaming and our Guardrail products to provide true closed loop security. While our Zscaler AI Protect solution is new, we see demand rapidly accelerating, including landing new logos, representing a massive future growth opportunity. This quarter, several large enterprises adopted our solution. In an eight-figure new logo win, we landed a Fortune 500 semiconductor manufacturer. This customer expanded its use of our platform to include AI Protect and data security solutions to block access to unsanctioned applications, prevent public LLM data leakage, and provide visibility into prompts. Zscaler's integrated AI Protect solution spanning the entire AI life cycle was a key differentiator for this new logo win.

Speaker #3: While our Zscaler AI Protect solution is new, we see demand rapidly accelerating including landing new logos, representing a massive future growth opportunity. This quarter several large enterprises adopted our solution.

Speaker #3: In an eight-figure new logo win, we landed a Fortune 500 semiconductor manufacturer. This customer expanded its use of our platform to include AI Protect and Data Security solutions to block access to unsanctioned applications prevent public LLM data leakage and provide visibility into prompts.

Speaker #3: Zscaler's integrated AI Protect solution spanning the entire AI lifecycle was a key differentiator for this new logo win. In another example, in a seven-figure upsell deal, a global 2,000 construction company which is securing users with Zscaler added our AI Protect solution to prevent data leakage and enforce acceptable use controls for access to GenAI applications.

Jay Chaudhry: In another example, in a seven-figure upsell deal, a Forbes Global 2000 construction company, which is securing users with Zscaler, added our AI Protect solution to prevent data leakage and enforce acceptable use controls for access to GenAI applications. The second product area of our AI security is agentic operations, which includes our Agentic SecOps and Agentic ITOps solutions. We are significantly advancing our Agentic SecOps capabilities by integrating Red Canary's agent framework with the deep security insights we generate from the Zscaler Zero Trust Exchange, which processes more than 500 billion transactions every day, more than 20 times the number of daily Google searches. This fusion of capabilities simplifies customer operations, automates threat hunting, and provides more accurate, actionable threat prioritization.

Speaker #3: The second product area of our AI security is agentic operations which includes our agentic SecOps and agentic ITOps solutions. We are significantly advancing our agentic SecOps capabilities by integrating Red Canary's agent framework with the deep security insights we generate from the Zscaler Zero Trust Exchange with processes more than 500 billion transactions every day.

Speaker #3: More than 20 times the number of daily Google searches. This fusion of capabilities simplifies customer operations automates threat hunting and provides more accurate actionable threat prioritization.

Speaker #3: Some of our wins for our agentic SecOps solution this quarter include a leading AI software and research organization. A global 2,000 utilities energy company.

Jay Chaudhry: Some of our wins for our Agentic SecOps solution this quarter include a leading AI software and research organization, a Global 2000 utilities energy company, and a Global 2000 oil and gas company. In Agentic IT Operations, our innovations include Zscaler Digital Experience or ZDX Copilot, which combines agentic technology with a conversational interface to troubleshoot and resolve performance issues of applications and network and endpoint devices. Booking for ZDX Advanced Plus, which includes our ZDX Copilot product, crossed $100 million over the last 12 months, growing more than 80% year-over-year. We are soon launching an AI agent for ZDX that will automate multiple troubleshooting tasks, resulting in faster diagnosis and resolution of performance issues. Overall, I'm very pleased to see growing demand and continued momentum for our AI security solutions.

Speaker #3: And a global 2,000 oil and gas company. In agentic IT operations, our innovations include Zscaler Digital Experience or ZDX Copilot which combines agentic technology with a conversational interface to troubleshoot and resolve performance issues of applications and network and endpoint devices.

Speaker #3: Booking for ZDX Advanced Plus which includes our ZDX Copilot product crossed 100 million over the last 12 months growing more than 80% year over year.

Speaker #3: We are soon launching an AI agent for ZDX that will automate multiple troubleshooting tasks resulting in faster diagnosis and resolution of performance issues. Overall, I'm very pleased to see growing demand and continued momentum for our AI security solutions.

Speaker #3: Our next growth pillar is Zero Trust Everywhere which includes revenue from customers who are more broadly adopting our Zero Trust architecture by purchasing all of the following: Zero Trust users, Zero Trust branch, and Zero Trust cloud.

Jay Chaudhry: Our next growth pillar is Zero Trust Everywhere, which includes revenue from customers who are more broadly adopting our Zero Trust architecture by purchasing all of the following: Zero Trust Users, Zero Trust Branch, and Zero Trust Cloud. We pioneered the Zero Trust Users market by disrupting the traditional proxy and VPN markets, and we are a clear market leader. With our Zero Trust Branch, we are disrupting branch firewalls, software-defined networks or SD-WAN, and MPLS networks. With Zero Trust Cloud, we are disrupting virtual firewalls in the cloud. We are seeing ARR from Zero Trust Branch and Zero Trust Cloud growing significantly as we dramatically reduce cost and complexity. The number of Zero Trust Everywhere enterprises has grown at a rapid pace and now sits at over 550, up from over 130 a year ago.

Speaker #3: We pioneered the Zero Trust users market by disrupting the traditional proxy and VPN markets and we are a clear market leader. With our Zero Trust branch, we are disrupting branch firewalls software-defined networks or SD-WAN and MPLS networks.

Speaker #3: With Zero Trust cloud, we are disrupting virtual firewalls in the cloud. We are seeing ARR from Zero Trust branch and Zero Trust cloud growing significantly as we dramatically reduce cost and complexity.

Speaker #3: The number of Zero Trust Everywhere enterprises has grown at a rapid pace and now sits at over 550, up from over 130 a year ago.

Speaker #3: The pricing of Zero Trust Branch and Zero Trust Cloud are based upon the number of devices, the number of workloads, and the amount of traffic, which keeps growing.

Jay Chaudhry: The pricing of Zero Trust Branch and Zero Trust Cloud are based upon the number of devices, the number of workloads, and the amount of traffic, which keeps growing. This expansion also creates a flywheel effect, generating follow-on demand for our data security and AI security offerings. Let me give an example of a Zero Trust Branch win at a subsidiary of a Fortune 500 retailer, who significantly expanded its deployment of Zero Trust Branch to over 1,000 sites in a seven-figure upsell, making it one of our largest ever Zero Trust Branch deals. The use cases for this customer were frictionless M&A integration and rapidly bringing both newly acquired and greenfield sites online. This order also included our AI Protect solution to secure sensitive data from GenAI apps.

Speaker #3: This expansion also creates a flywheel effect generating follow-on demand for our data security and AI security offerings. Let me give an example of Zero Trust branch win at a subsidiary of a Fortune 500 retailer who significantly expanded its deployment of Zero Trust branch to over 1,000 sites in a seven-figure upsell making it one of our largest ever Zero Trust branch deals.

Speaker #3: The use cases for this customer were frictionless M&A integration and rapidly bringing both newly acquired and greenfield sites online. This order also included our AI Protect solution to secure sensitive data from GenAI apps in Q2 45% of the total customers who bought our Zero Trust branch solution for new logos demonstrating that Zero Trust branch is helping us grow our new logos.

Jay Chaudhry: In Q2, 45% of the total customers who bought our Zero Trust Branch solution were new logos, demonstrating that Zero Trust Branch is helping us grow our new logos. This is also clear proof that for better cyber protection, customers want each branch to become like an internet cafe and replace SD-WAN, which is often sold by SASE vendors. Another important part of a Zero Trust Everywhere solution is Zero Trust Cloud, which reduces cost and operational complexity by eliminating virtual firewalls in data center and cloud environments and can be deployed in 10 minutes. We're seeing tremendous momentum for Zero Trust Cloud. To share a customer example, in one of our largest ever Zero Trust Cloud wins, a Forbes Global 2000 financial services customer signed a seven-figure deal increasing their ARR to more than $5 million, up over 40%.

Speaker #3: This is also a clear proof that for better cyber protection, customers want each branch to become like an internet cafe and replace SD-WAN, which is often sold by SASE vendors.

Speaker #3: Another important part of a Zero Trust Everywhere solution is Zero Trust Cloud, which reduces cost and operational complexity by eliminating virtual firewalls in data center and cloud environments, and can be deployed in 10 minutes.

Speaker #3: We're seeing tremendous momentum for Zero Trust cloud. To share a customer example in one of our largest ever Zero Trust cloud wins a global 2,000 financial services customer signed a seven-figure deal increasing their ARR to more than 5 million up over 40%.

Speaker #3: Zero Trust cloud is priced based on traffic, creating a natural path for ARR to grow as customer traffic grows. This deployment will eliminate a large number of virtual firewalls in their multiple cloud environments, which significantly reduces the operational burden of managing firewalls in multiple clouds and improves cyber posture by preventing lateral threat movement.

Jay Chaudhry: Zero Trust Cloud is priced based on traffic, creating a natural path for ARR to grow as customer traffic grows. This deployment will eliminate a large number of virtual firewalls in their multiple cloud environments, which significantly reduces the operational burden of managing firewalls in multiple clouds and improves cyber posture by preventing lateral threat movement. With significant wins, we are proving that for better cyber protection, customers want each cloud workload to become like an island and communicate only through our Zero Trust Exchange and displace virtual firewalls. Our opportunity is to secure millions of workloads. Our third growth pillar is Data Security Everywhere, which has eight modules, including data discovery, data classification, posture management, and data loss prevention. We are seeing significant traction driven by enterprises consolidating their data security point products onto our integrated platform and simplifying deployments.

Speaker #3: With significant wins we are proving that for better cyber protection customers want each cloud workload to become like an island and communicate only through our Zero Trust Exchange and displace virtual firewalls.

Speaker #3: Our opportunity is to secure millions of workloads. Our third growth pillar is data security everywhere which is eight modules including data discovery, data classification, posture management, and data loss prevention.

Speaker #3: We are seeing significant traction driven by enterprises consolidating data security point products onto our integrated platform and simplifying deployments. The growing use of AI apps is making data protection essential.

Jay Chaudhry: The growing use of AI apps is making data protection essential, generating strong demand for our solution. Let me share an example. In an eight-figure upsell win, a Global 2000 financial services customer expanded its adoption of our platform by purchasing additional data security modules, strengthening protection for sensitive data across its organization. This customer selected us over well-known competitors to replace multiple legacy point products due to our unified policy for various data sources and channels. With this purchase, the ARR for this customer increased nearly 5x. We believe Zscaler is incredibly well-positioned to secure the AI era. As the number of agents expands, the unique Zero Trust architecture becomes even more crucial, minimizing attack surfaces and limiting lateral movement by enabling direct one-to-one communication. In summary, our growth opportunity is straightforward. Traffic flowing through our Zero Trust Exchange for secure communication expands our revenue opportunity.

Speaker #3: Generating strong demand for our solution. Let me share an example. In an eight-figure upsell win a global 2,000 financial services customer expanded its adoption of our platform by purchasing additional data security modules strengthening protection for sensitive data across its organization.

Speaker #3: This customer selected us over well-known competitors to replace multiple legacy point products due to our unified policy for various data sources and channels. With this purchase the ARR for this customer increased nearly 5X.

Speaker #3: We believe Zscaler is incredibly well positioned to secure the AI era. As the number of agents expands the unique Zero Trust architecture becomes even more crucial.

Speaker #3: Minimizing attack surfaces and limiting lateral movement by enabling direct one-to-one communication. In summary, our growth opportunity is straightforward. Traffic flowing through our Zero Trust Exchange for secure communication expands our revenue opportunity.

Speaker #3: In the agentic era the traffic from Zscaler's more than 50 million users locations and AI agents will grow exponentially driven by billions of autonomous agents.

Jay Chaudhry: In the agentic era, the traffic from Zscaler's, more than 50 million users, servers, cloud workloads, branch locations, and AI agents will grow exponentially, driven by billions of autonomous agents. We believe that Zero Trust communication will be the only way to provide the real-time protection customers need to adopt AI safely and securely. We run the largest inline globally distributed security cloud platform in the world, processing more than 500 billion transactions every day, more than 20 times the number of daily Google searches. This proprietary anonymized data is used to train our AI engine, a powerful differentiator to stop ever-changing threats at speed and scale. We provide the global infrastructure which enables our customers to secure communication and apply policies in real time at wire speed.

Speaker #3: We believe that Zero Trust communication will be the only way to provide the real-time protection customers need to adopt AI safely and securely. We run the largest inline globally distributed security cloud platform in the world processing more than 500 billion transactions every day.

Speaker #3: More than 20 times the number of daily Google searches. This proprietary anonymized data is used to train our AI engine a powerful differentiator to stop ever-changing threats at speed and scale.

Speaker #3: We provide the global infrastructure which enables our customers to secure communication and apply policies in real time at wire speed. Today, we are trusted by more than 45% of Fortune 500 companies, and we expect to continue expanding our partnership over time.

Jay Chaudhry: Today, we are trusted by more than 45% of Fortune 500 companies. We expect to continue expanding our partnership over time. In addition, with just 4,400 of more than 20,000 largest enterprises in the world as Zscaler customers today, we have a significant opportunity ahead. This gives us a durable runway for long-term growth from both upsell and new logo opportunities. Protecting AI is not just a job or task for Zscaler, it is our mission. We believe Zscaler is the cybersecurity platform for the AI age. Now, I will hand it over to Kevin to walk through the financials.

Speaker #3: In addition with just 4,400 of more than 20,000 largest enterprises in the world as Zscaler customers today we have a significant opportunity ahead. This gives us a durable runway for long-term growth.

Speaker #3: From both upsell and new logo opportunities. Protecting AI is not just a job or task for Zscaler; it is our mission. We believe Zscaler is the cybersecurity platform for the AI age.

Speaker #3: Now I will hand it over to Kevin to walk through the financials.

Kevin Rubin: Thanks, Jay. We delivered strong Q2 2026 results, exceeding our targets while investing with discipline. With 26% revenue growth and a 36% free cash flow margin, we achieved rule of sixty-two performance in the first half of the year, placing us among the elite companies that consistently outperform the rule of forty. Our Q2 2026 net new ARR was $156 million, up 19%, bringing total ARR to $3.4 billion, up 25% year-over-year. Net new ARR benefited from strength in large deals and volume of deals. In particular, the Americas closed twice the number of $1 million+ deals this year as compared to last year. Excluding the contribution from our acquisition of Red Canary, net new ARR was $139 million, up 7% year-over-year, and total ARR up 21%.

Speaker #2: strong Q2 26 results exceeding our targets while investing with discipline. With 26% revenue growth and a 36% free cash flow margin we achieved rule of 62 performance in the first half of the year.

Speaker #2: Placing us among the elite companies that consistently outperform the rule of 40. Our Q2 26 net new ARR was 156 million dollars up 19% bringing total ARR to 3.4 billion dollars up 25% year over year.

Speaker #2: Net new ARR benefited from strength in large deals and volume of deals. In particular the Americas closed twice the number of one million dollar plus deals this year as compared to last year.

Speaker #2: Excluding the contribution from our acquisition of Red Canary net new ARR was 139 million dollars up 7% year over year and total ARR up 21%.

Speaker #2: These results compared to an exceptionally strong 24% net new ARR growth last year. Red Canary exited Q2 with $114 million of ARR. For the first half of the year, net new ARR excluding Red Canary grew 10% year over year, accelerating from 1% last year.

Kevin Rubin: These results compare to an exceptionally strong 24% net new ARR growth last year. Red Canary exited Q2 with $114 million of ARR. For the first half of the year, net new ARR, excluding Red Canary, grew 10% year-over-year, accelerating from 1% last year. This quarter, our Zero Trust Internet Access, or ZIA, and Zero Trust Private Access, or ZPA, ARR remained healthy and grew in the mid-teens. We have steadily expanded our Zero Trust platform beyond users to protect branches, workloads, AI applications, and now AI agents. We believe AI agents will drive a meaningful increase in machine-to-machine and agent-to-agent interactions over time. In Q2, our non-seat-based metered usage solutions delivered just over a quarter of new ACV, and the ARR tied to those offerings grew more than 100% year-over-year.

Speaker #2: This quarter our Zero Trust Internet Access or ZIA and Zero Trust Private Access or ZPA ARR remained healthy and grew in the mid-teens. We have steadily expanded our Zero Trust platform beyond users to protect branches workloads AI applications and now AI agents.

Speaker #2: We believe AI agents will drive a meaningful increase in machine-to-machine and agent-to-agent interactions over time. In Q2, our non-seat-based metered usage solutions delivered just over a quarter of new ACV, and the ARR tied to those offerings grew more than 100% year over year.

Speaker #2: Revenue of $816 million grew 26% year over year and 4% sequentially, exceeding the high end of our guidance. We closed Q2 with 728 customers generating over $1 million of ARR and 3,886 customers exceeding $100,000 in ARR, both growing 18% year over year.

Kevin Rubin: Revenue of $816 million grew 26% year-over-year and 4% sequentially, exceeding the high end of our guidance. We closed Q2 with 728 customers generating over $1 million of ARR and 3,886 customers exceeding $100,000 in ARR, both growing 18% year-over-year. We also set a record $1 million+ new ACV deals for a Q2. On a geographic basis, we saw strong growth from the Americas, which accounted for 57% of revenue, up approximately 31% year-over-year. EMEA accounted for 28% of revenue, up approximately 18%, and APJ for 15%, up approximately 23%. Remaining performance obligation, or RPO, of $6.1 billion grew approximately 31%, including approximately 47% classified as current RPO.

Speaker #2: We also set a record one million plus new ACV deals for a Q2. On a geographic basis we saw strong growth from the Americas which accounted for 57% of revenue up approximately 31% year over year.

Speaker #2: AMIA accounted for 28% of revenue, up approximately 18%, and APJ for 15%, up approximately 23%. Remaining performance obligation, or RPO, of $6.1 billion grew approximately 31%, including approximately 47% classified as current RPO.

Speaker #2: We are pleased with the strong execution in our account-centric sales motion, which is strengthening our position as a long-term strategic partner and driving deeper customer adoption over time.

Kevin Rubin: We are pleased with the strong execution in our account-centric sales motion, which is strengthening our position as a long-term strategic partner and driving deeper customer adoption over time. In Q2, we again delivered double-digit sales productivity growth, reflecting continued improvement in our go-to-market execution with meaningful headroom ahead. We also achieved record pipeline conversion for a Q2, signaling stronger pipeline quality and improved visibility. We continued to build strong momentum this quarter with our recently launched Z Flex program. Z Flex gives customers with multi-year commitments the flexibility to activate or swap modules without starting a new procurement cycle, along with premium deployment assistance and support. This program is driving meaningful upsell, shorter sales cycles, and greater forward visibility. In Q2, Z Flex generated more than $290 million in TCV, up over 65% quarter-over-quarter.

Speaker #2: In Q2, we again delivered double-digit sales productivity growth, reflecting continued improvement in our go-to-market execution with meaningful headroom ahead. We also achieved record pipeline conversion for a Q2, signaling stronger pipeline quality and improved visibility.

Speaker #2: We continued to build strong momentum this quarter with our recently launched Zflex program. Zflex gives customers with multi-year commitments the flexibility to activate or swap modules without starting a new procurement cycle along with premium deployment assistance and support.

Speaker #2: This program is driving meaningful upsell, shorter sales cycles, and greater forward visibility. In Q2, Zflex generated more than $290 million in TCV, up over 65% quarter over quarter.

Speaker #2: Since launching a year ago we have delivered approximately 650 million dollars in TCV at an average four-year term underscoring customers' long-term commitment to Zscaler.

Kevin Rubin: Since launching a year ago, we have delivered approximately $650 million in TCV at an average 4-year term, underscoring customers' long-term commitment to Zscaler. To share a couple of customer examples, in a 5-year, 8-figure Z Flex deal, a large US-based finance and insurance customer nearly tripled its annual spend by expanding its module adoption across 11 existing modules and adopting 5 new modules, including our AI security solution. In a new logo Z Flex win, a Fortune 500 retail customer purchased 11 modules in a 5-year, 8-figure deal. This customer adopted all of our Zero Trust solutions, including Zero Trust Users, Cloud, and Branch, landing as a Zero Trust Everywhere customer. Turning to M&A, I'd like to start with some color on our recent acquisitions.

Speaker #2: To share a couple of customer examples. In a five-year eight-figure Zflex deal a large US-based finance and insurance customer nearly tripled its annual spend by expanding its module adoption across 11 existing modules and adopting five new modules including our AI security solution.

Speaker #2: In a new logo Zflex win a Fortune 500 retail customer purchased 11 modules in a five-year eight-figure deal. This customer adopted all of our Zero Trust solutions including Zero Trust users cloud and branch landing as a Zero Trust everywhere customer.

Speaker #2: Turning to M&A I'd like to start with some color on our recent acquisitions. On February 5th we closed the acquisition of SquareX which extends Zero Trust capabilities into any browser enabling organizations to leverage standard browsers like Chrome and Edge to secure access on unmanaged devices.

Kevin Rubin: On 5 February, we closed the acquisition of SquareX, which extends Zero Trust capabilities into any browser, enabling organizations to leverage standard browsers like Chrome and Edge to secure access on unmanaged devices without requiring a separate third-party enterprise browser or using outdated and costly virtual desktop infrastructure. Next, Red Canary. On 1 February, we executed the next phase of integrating the Red Canary teams with the respective Zscaler teams. Red Canary was primarily a technology and talent acquisition. As we shared when we closed this acquisition, churn for MDR businesses is higher than we experience in our Zscaler business. Post-acquisition, Red Canary's churn has been elevated. We'll be providing Red Canary ARR in Q3 and Q4. Turning to operating performance, non-GAAP gross margin was 80.2% compared to 80.4% a year ago.

Speaker #2: Without requiring a separate third-party enterprise browser or using outdated and costly virtual desktop infrastructure. Next, Red Canary. On February 1st, we executed the next phase of integrating the Red Canary teams with the respective Zscaler teams.

Speaker #2: Red Canary was primarily a technology and talent acquisition. As we shared when we closed this acquisition churn for MDR businesses is higher than we experience in our Zscaler business.

Speaker #2: Post-acquisition Red Canary's churn has been elevated. We'll be providing Red Canary ARR in Q3 and Q4. Turning to operating performance non-gap gross margin was 80.2% compared to 80.4% a year ago.

Speaker #2: Non-gap operating income of 181 million dollars grew 41 million dollars or 29% as compared to 140 million dollars last year. Non-gap operating margin of 22.2% increased 50 basis points year over year reflecting the sales productivity improvements I mentioned earlier demonstrating leverage on sales and marketing.

Kevin Rubin: Non-GAAP operating income of $181 million grew $41 million or 29% as compared to $140 million last year. Non-GAAP operating margin of 22.2% increased 50 basis points year-over-year, reflecting the sales productivity improvements I mentioned earlier, demonstrating leverage on sales and marketing. Turning to the balance sheet, we ended the quarter with $3.5 billion in cash equivalents, and short-term investments, and $1.7 billion of debt. In Q2, we generated $204 million in operating cash flow, up 14% year-over-year, and CapEx was $18 million or 2% of revenue. Finally, free cash flow margin was 20.7% this quarter, down from 22.1% last year driven by the timing of cash collections.

Speaker #2: Turning to the balance sheet we ended the quarter with 3.5 billion dollars in cash cash equivalents and short-term investments and 1.7 billion dollars of debt.

Speaker #2: In Q2 we generated 204 million dollars in operating cash flow up 14% year over year and CapEx was 18 million dollars or 2% of revenue.

Speaker #2: Finally free cash flow margin was 20.7% this quarter down from 22.1% last year driven by the timing of cash collections. Looking ahead I'd like to spend a minute addressing the recent increases in memory storage and processor prices and availability.

Kevin Rubin: Looking ahead, I'd like to spend a minute addressing the recent increases in memory, storage, and processor prices and availability. Far, we haven't seen a meaningful impact to our operations. However, it could become a factor in the future as we purchase equipment for our data centers and Zero Trust Branch appliances. We'll continue to monitor our costs and adjust customer pricing if needed. Turning to guidance. Let me provide our outlook for Q3 and full year fiscal 2026. As a reminder, these numbers are all on a non-GAAP basis. For Q3, we expect revenue of $834 million to 836 million, reflecting approximately 23% year-over-year growth. Gross margin of approximately 80%.

Speaker #2: So far we haven't seen a meaningful impact to our operations. However it could become a factor in the future as we purchase equipment for our data centers and Zero Trust branch appliances.

Speaker #2: We'll continue to monitor our cost and adjust customer pricing if needed. Turning to guidance. Let me provide our outlook for Q3 and full-year fiscal 26.

Speaker #2: As a reminder, these numbers are all on a non-GAAP basis. For the third quarter, we expect revenue of $834 million to $836 million, reflecting approximately 23% year-over-year growth.

Speaker #2: Gross margin of approximately 80%. Operating profit of $187 million to $189 million, equating to an operating margin of 22.4% to approximately $25 million.

Kevin Rubin: Operating profit of $187 to 189 million, equating to an operating margin of 22.4% to 22.6%. Net other income of approximately $25 million and earnings per share of $1.00 to 1.01, assuming a 21% tax rate and 167 million fully diluted shares. For the full year fiscal 2026, ARR of $3.730 to 3.745 billion or year-over-year growth of approximately 24%. This guidance implies net new ARR growth excluding Red Canary of approximately 9.5%.

Speaker #2: In earnings per share of one dollar to a dollar oh one assuming a 21% tax rate and 167 million fully diluted shares. For the full-year fiscal 2026 ARR of 3.730 billion dollars to 3.745 billion dollars or year over year growth of approximately 24%.

Speaker #2: This guidance implies net new ARR growth excluding Red Canary of approximately 9.5%. For Red Canary we expect ARR of approximately 130 million dollars in fiscal 26 up from our prior guidance of 95 million dollars with net new ARR of approximately 6 million dollars in Q3 and 10 million dollars in Q4.

Kevin Rubin: For Red Canary, we expect ARR of approximately $130 million in fiscal 2026, up from our prior guidance of $95 million, with net new ARR of approximately $6 million in Q3 and $10 million in Q4. This includes all the business expected in each period, including fiscal 2026 renewals, upsells, and new logos. For the second half of fiscal 2026, we expect approximately 40% of total net new ARR to be recognized in Q3. Revenue of $3.309 billion to $3.322 billion, reflecting year-over-year growth of 23.8% to 24.3%. We expect Red Canary revenue of approximately $125 million in fiscal 2026, up from our prior guidance of $90 million.

Speaker #2: This includes all the business expected in each period including fiscal 26 renewals upsells and new logos. For the second half of fiscal 26 we expect approximately 40% of total net new ARR to be recognized in Q3.

Speaker #2: Revenue of 3.309 billion dollars to 3.322 billion dollars reflecting year over year growth of 23.8% to 24.3%. We expect Red Canary revenue of approximately 125 million dollars in fiscal 26 up from our prior guidance of 90 million dollars.

Speaker #2: Operating profit of 742 million dollars to 748 million dollars up approximately 28 to 29% year over year. Up from our prior guidance of 732 million to 740 million dollars.

Kevin Rubin: Operating profit of $742 million to $748 million, up approximately 28% to 29% year-over-year, up from our prior guidance of $732 million to $740 million. Earnings per share of $3.99 to $4.02, assuming a 21% tax rate and approximately 169 million fully diluted shares. Free cash flow margin of approximately 26.5% to 27%, reflecting CapEx in the mid-single digits as a percentage of revenue. We are very pleased with the results we delivered in the first half of fiscal 2026. We achieved 25% year-over-year ARR growth and record operating income.

Speaker #2: Earnings per share of $3.99 to $4.02, assuming a 21% tax rate and approximately 169 million fully diluted shares. And free cash flow margin of approximately 26.5% to 27%, reflecting CapEx in the mid-single digits as a percentage of revenue.

Speaker #2: We are very pleased with the results we delivered in the first half of fiscal 26. We achieved 25% year over year ARR growth and record operating income.

Speaker #2: Excluding Red Canary our net new ARR growth accelerated to 10% in the first half of the year up from 1% in the same period last year.

Kevin Rubin: Excluding Red Canary, our net new ARR growth accelerated to 10% in the first half of the year, up from 1% in the same period last year. We also saw continued momentum with Z Flex and closed a record number of $1 million-plus ARR deals for a Q2. Looking ahead to the second half of the year, we believe we are well-positioned to build on this momentum. We will do this by scaling our rapidly expanding AI security portfolio, expanding Zero Trust Everywhere adoption, and growing our Data Security Everywhere revenue. Ultimately, we remain focused on driving durable, profitable growth with strong cash generation. I want to thank our employees, customers, and partners for their continued support. With that, operator, you may now open the call for questions. Thank you.

Speaker #2: We also saw continued momentum with Zflex and closed a record number of one million dollar plus ARR deals for a Q2. Looking ahead to the second half of the year we believe we are well positioned to build on this momentum.

Speaker #2: We will do this by scaling our rapidly expanding AI security portfolio expanding Zero Trust everywhere adoption and growing our data security everywhere revenue. Ultimately we remain focused on driving durable profitable growth with strong cash generation.

Speaker #2: I want to thank our employees customers and partners for their continued support. With that operator you may now open the call for questions. Thank you.

Speaker #1: Certainly. As a reminder to ask a question please press star one one on your telephone and wait for your name to be announced. To withdraw your question please press star one one again.

Operator: Certainly. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please limit yourself to 1 question. Please stand by while we compile our Q&A roster. Our first question will come from the line of Saket Kalia of Barclays. Your line is open.

Speaker #1: Please limit yourselves to one question. Please stand by while we compile our Q&A roster. Our first question will come from the line of Saket Kalia of Barclays your line is open.

Speaker #3: Okay great. Hey guys thanks for taking my question here. And thank you team for the increased disclosure on Red Canary. Very very very helpful.

Saket Kalia: Okay, great. Hey, guys. Thanks for taking my question here, and thank you, team for the increased disclosure on Red Canary. Very, very helpful. Jay, maybe for you, I'd love if we could talk about just the competitive backdrop a little bit and anything you can touch on in terms of competitive win rates and what you saw this quarter. I mean, clearly this is a rising tide market, you know, there are other players as well. Maybe the question is, where are you winning and what impact, if any, are they having?

Speaker #3: Jay maybe maybe for you I'd love if we could talk about just the competitive backdrop a little bit. And anything you can touch on in terms of competitive win rates.

Speaker #3: And what you saw this quarter. I mean clearly this is a rising tide market but you know they're all there are other players as well.

Speaker #3: Maybe the question is where are you winning and what impact if any are they having.

Jay Chaudhry: Thank you, Saket. We haven't seen much change in the competitive dynamics over the past few quarters. What we saw was a record pipeline conversion for Q2, which is wonderful. We also had a record Q2 in terms of large deal wins and in Q2, and large deal wins, I mean, over $1 million. I mean, there's a fair amount of noise the market creates out there, SASE this, SASE that. SASE is a collection of all kinds of products, and many of these SASE numbers, legacy firewalls, VPNs get thrown out. What we are seeing in the market is our customers care about zero trust, and as we engage and explain zero trust, we almost always win. By the way, SASE is not equal to zero trust, and zero trust is what eliminates lateral movement. Very pleased with the performance.

Speaker #4: Thank you, Saket. We haven't seen much change in the competitive dynamics over the past few quarters. What we saw was a record pipeline conversion for Q2.

Speaker #4: Which is wonderful. And we also had a record Q2 in terms of large deal wins and in Q2 and large deal wins I mean over a million dollars.

Speaker #4: I mean there's a fair amount of noise the market creates out there sassy this sassy that. Sassy is a collection of all kinds of products.

Speaker #4: And many of these sassy numbers legacy firewalls VPNs get thrown the market is our customers care about Zero Trust. And as we engage and explain Zero Trust we almost always win.

Speaker #4: And by the way sassy is not equal to Zero Trust. And Zero Trust is what eliminates lateral movement. So very pleased with the performance.

Jay Chaudhry: Our brand has grown. Most of the large enterprises like us, they know us. I think the future is great for us.

Speaker #4: Brand has grown. Most of the large enterprises like us they know us and I think the future is great for us.

Speaker #3: Very helpful. I'll hop back in queue. Thank you.

Saket Kalia: Very helpful. I'll hop back in queue. Thank you.

Speaker #1: Our next question will be coming from the line of Brad Zelnick of Deutsche Bank. Your line's open, Brad.

Operator: Our next question will be coming from the line of Brad Zelnick of Deutsche Bank. Your line is open, Brad.

Speaker #5: Oh great. Thank you so much. Congrats again on another great quarter guys and and also appreciate the additional disclosure. Kevin it seems you're raising your full year ARR expectation by more than your overachievement in Q2.

Brad Zelnick: Great. Thank you so much. Congrats again on another great quarter, guys, and also appreciate the additional disclosure. Kevin, it seems you're raising your full year ARR expectation by more than your overachievement in Q2. How much might be from newer acquisitions, and are there any seasonal anomalies we should consider, perhaps slipped deals out of Q2 or anything like that? Thank you.

Speaker #5: How much might be from newer acquisitions and are there any seasonal anomalies we should consider perhaps slip deals out of Q2 or or anything like that.

Speaker #5: Thank you.

Kevin Rubin: Thanks, Brad. Appreciate the comments and the question. You know, first of all, just, you know, remember, our business seasonality tends to favor H2. We are going into the second half of the year feeling confident. We do see a strong pipeline of deals going into the back half, which does give us confidence in the raise, with the exception. Excluding Red Canary. I would point to strength in the overall business as well as just general seasonality that we see in the back half of the year.

Speaker #4: the comments and and the question. You know first of all just you know remember our business seasonality tends to favor H2. So we are going into the second half of the year feeling confident.

Speaker #4: We do see a strong pipeline of deals going into the back half which does give us confidence in the raise. With the exception excluding Red Canary.

Speaker #4: So I would point to strengthen the overall business as well as just general seasonality that we see in the back half of the year.

Speaker #3: Okay. Thanks a lot.

Brad Zelnick: Okay. Thanks a lot.

Speaker #4: Thanks Brad.

Kevin Rubin: Thanks, Brad.

Speaker #1: Our next question will be coming from the line of Greg Moskowitz of Mizuho your line is open Greg.

Operator: Our next question will be coming from the line of Gregg Moskowitz of Mizuho. Your line is open, Greg.

Gregg Moskowitz: Great. Thank you very much for taking the question. Also, welcome the additional disclosure, so thank you for that. Very interesting that your non-seat-based meter usage solutions are now over 25% of new ACV. That's higher than a lot of people had thought. With the related ARR more than doubling year-over-year, this has the potential to put some upward pressure on the growth algorithm for Zscaler in the future. You know, Jay, when you kinda look deeper at these non-seat-based solutions, you gave some good color in your prepared remarks, can you help us better understand what's really most resonating with customers today as well as what you're most excited about going forward? Thanks.

Speaker #6: Great. Thank you very much for taking the question. Also welcome the additional disclosure. So thank you for that. Very interesting that your non-seat based meter usage solutions are now over 25% of new ACV.

Speaker #6: That's higher than a lot of people had thought. And with the related ARR more than doubling year over year this has the potential to put some upward pressure on the growth algorithm for for Zscaler.

Speaker #6: In the future but you know Jay when you kind of look deeper at these non-seat based solutions you gave some good color in your prepared remarks.

Speaker #6: But can you help us better understand what's really most resonating with customers today as well as what you're most excited about going forward. Thanks.

Jay Chaudhry: Of course. Yes, we started early on with Zscaler. For users with Zero Trust, that is largely seat-based, but now we have Zero Trust for workloads, branches, devices, and now we are extending it to AI agents as well. Now, even for users, we did have a number of use cases that are non-seat-based. This is ZIA, ZPA, where we were doing third-party contractors, guest Wi-Fi, or B2B data exchange with suppliers and customers. Yet our growth on Zero Trust launch and cloud has been very strong, and that's all non-user or metered pricing. Our AI security solutions, which are starting small but growing pretty rapidly, are all non-user-based, rather they are token-based.

Speaker #4: Of course. Yes. We started early on with Zscaler. For users with Zero Trust that has largely seat based. But now we have Zero Trust for workloads branches devices.

Speaker #4: And now we're extending it to AI agents as well. Now even for users we did have a number of use cases that are non-seat based.

Speaker #4: This is ZIO ZPA where we were doing third party contractors guest Wi-Fi or B2B data exchange with suppliers and customers. And yet our growth on Zero Trust branch and cloud has been very strong.

Speaker #4: And that's all non-user or meter pricing. Our AI security solutions which are starting small but but growing pretty rapidly are all non-user based rather they are token based.

Speaker #4: And yeah we are pleased to say that a quarter of our new business came from meter usage and we expected to grow over time especially with AI agents because we believe that there will be billions of AI agents the only way to secure communication of AI agents.

Jay Chaudhry: Yeah, we are pleased to say that a quarter of our new business came from metered uses, and we expect it to grow over time, especially with AI agents, because we believe that there will be billions of AI agents. The only way to secure communication of AI agents is to go through Zero Trust Exchange that scales, that's highly reliable and globally distributed, and that's what we have.

Speaker #4: Is to go through Zero Trust exchange. That scales that that's that's highly reliable and globally distributed. And that's what we have.

Speaker #6: Very helpful. Thank you.

Gregg Moskowitz: Very helpful. Thank you.

Speaker #1: And our next question will be coming from the line of Brian Essex of JP Morgan your line is open Brian.

Operator: Our next question will be coming from the line of Brian Essex of JP Morgan. Your line is open, Brian.

Speaker #5: Great. Thank you. Good afternoon. Thank you for taking the question and another set of kudos to Kevin for the organic versus inorganic disclosure. Maybe a question for you Jay and and I you know we saw this quite a lot during you know like a decade ago when digital transformation was the buzz buzzword and a lot of different IT projects were classified as digital transformation products.

Brian Essex: Great. Thank you. Good afternoon. Thank you for taking the question, and another set of kudos to Kevin for the organic versus inorganic disclosure. Maybe a question for you, Jay, and you know, we saw this quite a lot during, you know, like a decade ago when digital transformation was the buzzword, and a lot of different IT projects were classified as digital transformation products. Similarly, we're starting to hear of a lot of projects, you know, where executives are throwing AI on top of their projects to get more budget. From that perspective, are you beginning to see any attach to budgets outside of security? How are CIOs thinking about, you know, funding some of these projects, and is Zscaler a beneficiary of that?

Speaker #5: Similarly we're starting to hear of a lot of projects you know where executives are throwing AI on top of their projects to get more budget.

Speaker #5: And from that perspective are you beginning to see any attached to budgets outside of security. How are CIOs thinking about you know funding some of these projects and is is Zscaler beneficiary of that.

Speaker #4: Yeah. So we are seeing CIOs trying to really move as fast as they can to implement AI security projects. Instead of feeling is if I'm not doing something I'll be left behind.

Jay Chaudhry: Yeah. We are seeing CIOs trying to really move as fast as they can to implement AI security projects. kind of feeling is, if I'm not doing something, I'll be left behind. That's a clear thing I see as I talk to lots and lots of them. They do all worry about cybersecurity, especially when you see all these agents showing up every other week. I mean, last night was a Perplexity computer, and the cloud before that, and all these guys keeps on coming. They are definitely creating security issues. Our customers are asking us, What can you provide me for visibility into AI assets and risk associated with that? Start moving around, how do we control agents? How do we have policy that can say certain agents can access certain applications?

Speaker #4: That's a clear thing I I see as I talk to lots and lots of them. But they do all worry about cybersecurity. Especially when you see all these agents showing up every other week.

Speaker #4: I mean last night was a for Flex3 computer and the pod before that and all these guys keeps on coming. They are definitely creating secure issues.

Speaker #4: So our customers are asking us what can you provide me for visibility into AI assets and risk associated with that. And then start moving around.

Speaker #4: How do we control agents? How do we have policy that can say certain agents can access certain applications? Agents are somewhat like users. They're just more dangerous and they're growing at a rapid pace.

Jay Chaudhry: Agents are somewhat like users, they're just more dangerous, and they're growing at a rapid pace. There is high degree of interest in proper security, especially Zero Trust for agents that we provide. The budget opens up. The budget either comes from the security side of it or the CIOs are allocating some number budget out of the AI project. If you're spending $100 on an AI project, to spend $4, $5, $6 on security is viewed as very nominal thing. We're not seeing budgets as an issue to do AI security projects. It does require that you need to engage at the C-level, and we have very good C-level relationships, and we have pretty good brand and credibility with Fortune 500 companies. Thank you.

Speaker #4: So there is high degree of interest in proper security especially Zero Trust for agents that we provide. The budget opens up. The budget either comes from the security side of it or the CIOs are allocating some number of budget out of the AI project.

Speaker #4: If you're spending $100 on an AI project you spend four five six dollars on security is viewed as very nominal thing. So we're not seeing budgets as an issue to do AI security projects.

Speaker #4: It does require that you need to engage at the C level and we have very good C level relationships. And we have pretty good brand and credibility with Fortune 500 companies.

Speaker #4: Thank you.

Speaker #5: Super helpful. Thanks.

Kevin Rubin: Super helpful. Thanks.

Speaker #1: Our next question will be coming from the line of Meta Marshall of Morgan Stanley your line's open.

Operator: Our next question will be coming from the line of Meta Marshall of Morgan Stanley. Your line's open.

Speaker #7: Great. Thanks. Maybe a question for me kind of following up on Brian's question. Of just what you're seeing in terms of sales cycles once kind of a deal is encompassing more AI I guess just how does it change the dynamic of either kind of needing to take a more holistic view or needing to include more modules.

Meta Marshall: Great. Thanks. Maybe a question for me, kind of following up on Brian's question, of just what you're seeing in terms of sales cycles once kind of a deal is encompassing more AI. I guess, just how does it change the dynamic of either kind of needing to take a more holistic view or needing to include more modules? Just what are you seeing there? Thanks.

Speaker #7: Just, what are you seeing there? Thanks.

Jay Chaudhry: Thank you. Sales cycle depends upon the scope of the project. The first thing our customers are trying to do is put their hands around what do they have in AI environment. What public AI application being used, and what private AIs are being used. For that, we offer AI asset management. They want to do vulnerability assessment, red teaming kind of stuff. As they roll out the project, guardrails becomes important. Last month, we launched our very integrated AI security portfolio. The sales cycle based on what modules they're doing is generally faster because they're not really trying to go after everything. They want to start somewhere, but they want an integrated solution.

Speaker #4: Thank you. So sales cycle depends on the scope of the project. The first thing our customers are trying to do is put their hands around what do they have in AI environment.

Speaker #4: What public AI application being used and what private AI are being used. So for that we offer AI asset management. Then they want to do vulnerability assessment.

Speaker #4: Red teaming kind of stuff as they roll out the project. Guardrails becomes important. Last month we launched our very integrated AI security portfolio. The sales cycle based on what modules they're doing is generally faster.

Speaker #4: Because they are not really trying to go after everything. They want to start somewhere but they want an integrated solution. In fact a number of customers have told me hey we bought this solution from a startup but for one year till I figure out what integrated solution can I get from a a a trusted vendor like Zscaler who will be around for the long term.

Jay Chaudhry: In fact, a number of customers have told me, hey, we bought this solution from a startup, but for 1 year, till I figure out what integrated solution can I get from a trusted vendor like Zscaler who will be around for the long term. Sales cycles are faster. They are smaller deals to start with, and I think they'll grow over time, especially most of those deals are based on consumption or tokens. As usage grows, usage or tokens will grow.

Speaker #4: So deals sales cycles are faster they are smaller deals to start with and I think they'll grow over time. Especially most of those deals are based on consumption or tokens.

Speaker #4: And as usage grows usage of tokens will grow.

Speaker #7: Great. Thank you.

Meta Marshall: Great. Thank you.

Speaker #1: And our next question will be coming from Fatima Bulani of Citi your line is open Fatima.

Operator: Our next question will be coming from Fatima Boolani of Citi. Your line is open, Fatima.

Fatima Boolani: Good afternoon. Thank you for taking my question. Kevin, this one's for you. I was hoping to take a step back, to have you reconcile the comments around Red Canary seeing elevated churn, but also the close to 30% revision on your financial contribution expectation from Red Canary, both to ARR and top line on revenue. Just wanted to kind of better understand. I know you sort of flagged that the Red Canary business generally had much higher levels of churn relative to Zscaler proper. I just kind of wanted to better understand, you know, the dichotomy between those statements and if you can opine on that. Thank you.

Speaker #8: Good afternoon. Thank you for taking my question. Kevin this one's for you. I was hoping to take a step back to have you reconcile the comments around Red Canary seeing elevated churn but also the close to thirty percent revision on your financial contribution expectation from Red Canary both to ARR and top line on revenue.

Speaker #8: So just wanted to kind of better understand. I know you sort of flagged that the Red Canary business generally had much higher levels of churn relative to Zscaler proper.

Speaker #8: so I just kind of wanted to better understand you know the dichotomy between those statements and if you can opine on that. Thank you.

Speaker #4: Yeah. I appreciate appreciate the question. so so look I mean there is a there is an element here that you know as we talked about when we did the acquisitions as we do secure the the renewals there there is a positive impact to to ARR.

Kevin Rubin: Yeah, I appreciate the question. Look, I mean, there is an element here that, you know, as we talked about when we did the acquisition, as we do secure the renewals, there is a positive impact to ARR. You are seeing some of that come in. My commentary just around the elevated levels of renewals is just to give color around what we are seeing. You know, as a reminder, Red Canary was a technology and talent acquisition, and it is a core feature of the agentic SOC that we are, you know, putting together and combining. I mentioned that we put, we moved into the next phase of our integration earlier this month and now consolidating those teams, which we're really excited about.

Speaker #4: And so you are seeing some of that come in. my commentary just around the elevated levels of renewals is just to give color around what we are seeing.

Speaker #4: you know as a reminder Red Canary was a technology and talent acquisition and it it is a core feature of the Agentic SOC that we are you know putting together and combining and I mentioned that we put we moved into the next phase of our integration earlier this month and and now consolidating those teams which we're really excited about.

Speaker #4: So I mean the reconciliation is really just to give you guys a sense for what we're seeing in the business and how you should think about the the second half of the year.

Kevin Rubin: I mean, the reconciliation is really just to give you guys a sense for what we're seeing in the business, and how you should think about the second half of the year.

Speaker #8: Thank you.

Fatima Boolani: Thank you.

Speaker #1: And our next question will be coming from the line of Roger Boyd of UBS. Your line's open, Roger.

Operator: Our next question will be coming from the line of Roger Boyd of UBS. Your line's open, Roger.

Speaker #5: Great. Thanks for taking the question. Jay I wanted to touch on sales productivity. You you've made a number of changes to the go-to-market strategy over the past year in order to really help guide customers towards more transformational projects.

Roger Boyd: Great. Thanks for taking the question. Jay, I wanted to touch on sales productivity. You've made a number of changes to the go-to-market strategy over the past year in order to really help guide customers towards more transformational projects. I know you mentioned another improvement this quarter, can you talk about kind of the future ramp you're expecting in terms of sales force productivity? Do you see further room to upside given the push towards more of these transformational deals that are bigger but maybe more complex? Thanks.

Speaker #5: And I know you mentioned another improvement this quarter but can you talk about kind of the future ramp you're expecting in terms of Salesforce productivity?

Speaker #5: do you see further room to upside given the push towards more of these transformational deals that are are bigger but maybe more complex? Thanks.

Speaker #4: I'll give you a broader view, and Kevin can get into more specific stuff. With the changes we've gone through, we are driving more transformational deals and better engaging with our customers.

Jay Chaudhry: I'll give you broader view, and Kevin can get into more specific stuff. With the changes we've gone through, we are driving more transformational deals, better engaging with our customers. With that, you're seeing bigger deals, Z Flex type of deals that are happening out there. That's leading to improved productivity. In fact, rather, we had a double-digit sales productivity growth. Very pleased with the way sales transformation has happened. As we said last quarter, the transformation's done. Now we keep on executing further. Kevin?

Speaker #4: with that you're seeing bigger deals. Z Flex type of deals. that are happening out there. That's leading to improved productivity. In fact rather we had a double digit sales productivity growth.

Speaker #4: Very pleased with the way sales transformation has happened as we said last quarter. The transformation's done. Now we keep on executing further. Kevin?

Speaker #3: Yeah. Thanks Jay. so just I wanna just you know kind of double click on that that last point right? So as as we engage with our customers it is a you know the account-centric model is a much different level of engagement.

Kevin Rubin: Yeah. Thanks, Jay. I wanna just, you know, kind of double-click on that last point, right? As we engage with our customers, it is a, you know, the account-centric model is a much different level of engagement. We're seeing a lot of interest in Z Flex and what that looks like from a strategic point of view. The nature of the conversations, the way in which we're engaging the larger deals that we're seeing all will lend itself to continued productivity, opportunity going ahead. As I look forward, I would expect that we will continue to see improvements in productivity as a result. We are seeing the benefits, and I expect that we'll continue to see an improvement over time.

Speaker #3: we're seeing a lot of interest in Z Flex and what that looks like from a strategic point of view. and so the nature of the conversation the way in which we're engaging the larger deals that we're seeing all will lend itself to continued productivity opportunity going ahead.

Speaker #3: So as I look forward I I would expect that we will continue to see improvements in in productivity as a result. So we are seeing the benefits and I expect that we'll continue to see an improvement over time.

Speaker #4: And if I may add the record pipeline conversion in Q2 has a good indication of that what we want to do is working record million-dollar deals in a Q2 and other indication of the results we're getting.

Jay Chaudhry: If I may add, the record pipeline conversion in Q2 as a good indication of that what we want to do is working record million-dollar deals in a Q2, another indication of the results we're getting.

Speaker #1: And our next question will be coming from Atai Kidron of Oppenheimer & Company your line is open.

Operator: Our next question will be coming from Ittai Kidron of Oppenheimer & Co. Inc.. Your line is open.

Ittai Kidron: Thanks, Kevin, I wanted to dig into your comment on the core ZIA/ZPA growth. I think you mentioned meetings in ARR. Can you give us a little bit more color, what was that growth rate over the last two, three quarters perhaps, and how do we think about expectations for your core ZIA/ZPA business for the next two, three quarters?

Speaker #5: thanks. Kevin I wanted to dig in into your comment on the core ZIA ZPA growth. I think you mentioned meetings and ARR. Can you give us a little bit more color what was that growth rate over the last two three quarters perhaps and how do we think about expectations for your core ZIA ZPA business for the next two three quarters?

Speaker #4: Yeah. Tha+thanks Atai. I appreciate the question. we have seen pretty consistent performance in ZIA ZPA. we did get some feedback that it would be helpful for you guys to get a little bit more color.

Kevin Rubin: Yeah. Thanks, Ittai. I appreciate the question. We have seen a pretty consistent performance in ZIA/ZPA. We did get some feedback that it would be helpful for you guys to get a little bit more color in that regard, which is why I added that into the script. You know, keep in mind that ZIA/ZPA as it relates to Zero Trust Everywhere is the foundation and to a large degree, you know, the base and the opportunity.

Speaker #4: in that regard which is why I added that into the script. you know keep in mind that that ZIA ZPA as it relates to Zero Trust Everywhere is the foundation and to a large degree you know the the base of the opportunity.

Speaker #4: If you look at the number of customers that that that we have today you know roughly forty-four hundred out of you know more than twenty thousand potential companies that we've been can be customers.

Kevin Rubin: If you look at the number of customers that we have today, you know, roughly 4,400 out of, you know, more than 20,000 potential companies that we think can be customers, you look at it in terms of, you know, the Fortune 500, where we still have over half of those to prospect against, there is a massive opportunity left with ZIA/ZPA as we think about it. Even within the companies that we do have on ZIA/ZPA, you know, we have an opportunity to upsell those to Zero Trust Everywhere and then adjacently through the other pillars, Data Security and AI.

Speaker #4: You look at it in terms of you know the Fortune Five Hundred where we still have over half of those to to prospect against.

Speaker #4: there is a massive opportunity left with ZIA ZPA as we think about it. And even within the co the companies that that we do have on ZIA ZPA you know we have an opportunity to upsell those to Zero Touched Everywhere and then adjacently through the other pillars data security and and AI.

Speaker #4: So from our point of view it it just reiterates the stability and the underlying business and really gives a sense for what's driving kind of the the the the core of the of the business.

Kevin Rubin: From our point of view, it just reiterates the stability in the underlying business and really gives a sense for what's driving kind of the core of the business. Again, you know, we've got these other three growth pillars that have been doing exceptionally well, and, you know, hopefully, that additional color is helpful for you.

Speaker #4: But again you know we've got these other three growth pillars that have been doing exceptionally well and you know hopefully that additional color is helpful for you.

Ittai Kidron: Thank you.

Speaker #3: One interesting stat what's getting it is that customers on average are tripling their initial purchase in four years. That's pretty remarkable.

Jay Chaudhry: One interesting stat worth sharing is that customers on average are tripling their initial purchase in four years. That's pretty remarkable.

Speaker #5: Thank you.

Ittai Kidron: Thank you.

Speaker #1: And our next question will be coming from Grey Powell of BTIG your line is open Grey.

Operator: Our next question will be coming from Gray Powell of BTIG. Your line is open, Gray.

Speaker #6: Oh great. Thanks for thanks for taking the question. Can can you hear me okay? I I cut out there for a second.

Gray Powell: Oh, great. Thanks for taking the question. Can you hear me okay? I cut out there for a second.

Jay Chaudhry: Yes.

Speaker #4: Yes. Yes, you can. Yes, we can.

Kevin Rubin: Yes, you can.

Gray Powell: Excellent. I want to follow up on some of the earlier questions. I think you've hit on this somewhat. You are seeing a lot of momentum in Z Flex deals. If I'm doing the math correctly, I'm calculating that Z Flex was over 30% of RPO bookings. I'm not sure if that's how you look at it. I guess the question is, how does the ARR ramp on a Z Flex deal compare to customers under historical contracts? Just any directional commentary you can give on how big a typical Z Flex customer is at maturity versus traditional or, like, what they spend, and what's sort of like giving you the most upside from a product perspective?

Speaker #6: Great. Excellent. okay. So I wanna follow up on some of the earlier questions. and and I I think you've hit on this somewhat. But so you are seeing a lot of momentum in Z Flex deals.

Speaker #6: If I'm doing the math correctly I'm calculating that Z Flex was over thirty percent of RPO bookings. I'm not sure if that's how you look at it.

Speaker #6: But I I guess the the question is how does the ARR ramp on a Z Flex deal compare to customers under historical contracts? And then just i+any directional commentary you can give on how big a typical Z Flex customer is a+at maturity versus traditional or like what they spend?

Speaker #6: And and what's what's sort of like giving you the most upside from a product perspective?

Speaker #3: Yeah. Thanks thanks for the question. Let let me maybe just orientate. I mean the way that we look at Z Flex is it i+it is another opportunity for us to offer a a a package to a customer that we think is is mutually compelling.

Kevin Rubin: Yeah. Thanks for the question. Let me, maybe, just orientate. I mean, the way that we look at Z Flex is it is another opportunity for us to offer a package to a customer that we think is mutually compelling. It gives them flexibility, so they have less concern about being locked into a particular, you know, product or product decision in the future. It gives them an opportunity to focus more on the long-term partnership versus more transactional selling in nature. And then it does give an opportunity for them to try in a much easier, less friction way new modules and expand into those modules. From a offering perspective, it is a much better and more strategic way to engage.

Speaker #3: It gives them flexibility so they they have less concern about being locked into a particular you know product or product decision in the future.

Speaker #3: It gives them an opportunity to focus more on the long-term partnership versus more transactional selling in nature. and then it does give an opportunity for them to try in a much easier less friction way new modules and expand into those modules.

Speaker #3: So from a from a offering perspective it is a much better and more strategic way to engage. we do think over time that more and more of our customers will will adopt Z Flex.

Kevin Rubin: We do think over time that more and more of our customers will adopt Z Flex. It is not something that we mandate or push, but where we feel that it really is well-positioned, the field is enabled to be able to offer Z Flex going forward. Your question around differences in ramps, et cetera, fundamentally, you know, two deals, if it's a Z Flex or if it's a non-Z Flex, so long as they're similar structure. There's no difference in how that shows up in ARR. Z Flex is by their nature because they're longer term, they've got more products. They may have a ramp that is built in so that the customer can, you know, deploy along their deployment plan, which could take anywhere from 6 months to 1 year.

Speaker #3: It is not something that we mandate or push, but where we feel that it really is well positioned, the field is enabled to be able to offer Z Flex going forward.

Speaker #3: Your question around differences in ramps, etcetera—fundamentally, you know, two deals: if it's a Z Flex or if it's a non-Z Flex. So long as they're similar structure, there's no ARR.

Speaker #3: Z Flexes by their nature because they're longer term they've got more products they may have a ramp that is built in so that the customer can you know deploy a a long their deployment plan which could take anywhere from six months to a year.

Kevin Rubin: I wouldn't think about Z-Flex as creating a different dynamic with respect to ARR other than it's just another level of indication that we are very strategic in that environment. The average Z-Flex deal is typically an 8-figure TCV commitment, and for those deals that we've done thus far, it's been about a 4-year period. As we've talked about, they tend to be 3 to 5-year deals and right now the average is about 4. Hopefully that's helpful color.

Speaker #3: but I wouldn't think about Z Flexes creating a different dynamic with respect to ARR other than it's just another level of indication that we are very strategic in that environment.

Speaker #3: the average Z Flex deal is typically an eight-figure TCV commitment. And for those deals that we've done thus far it's been about an a four-year period.

Speaker #3: as we've talked about they tend to be three to five-year deals and and right now the average is about four. So hopefully that's helpful color.

Speaker #6: That's that's really helpful. Thank you.

Matt Hedberg: That's really helpful. Thank you.

Gray Powell: That's really helpful. Thank you.

Speaker #3: You're welcome.

Kevin Rubin: You're welcome.

Operator: Our next question will be coming from the line of Jonathan Ruykhaver of Cantor Fitzgerald. Your line is open, Jonathan.

Speaker #1: And our next question. Will be coming from the line of Jonathan Rookhaver of Cancer Fitzgerald. Your line is open Jonathan.

Operator: Our next question will be coming from the line of Jonathan Ruykhaver of Cantor Fitzgerald. Your line is open, Jonathan.

Speaker #7: Yes, thank you. So I think, Jay, this is for you. Just curious—when you look at Square X, from my understanding, you're betting on browser security via an extension rather than having a dedicated secure browser.

Jonathan Ruykhaver: Yes, thank you. I think, Jay, this is for you. Just curious, when you look at SquareX, from my understanding, you're embedding browser security via an extension rather than having a dedicated secure browser. Can you just talk about that? It seems like the flexibility could be a plus, but is there any trade-off between, you know, control and functionality between extension and full browser? Just curious also on your view of, you know, how critical is the browser layer to winning broader Zero Trust deals over the next 2 years?

Speaker #7: can you just talk about that? It seems like the flexibility could be a plus but is there any trade-off between you know control and functionality between extension and full browser?

Speaker #7: And then just just just curious also on on on your view of you know how critical is is is the browser layer to to winning broader Zero Trust deals over the next couple of years?

Speaker #4: Thank you. Very good question. So we have an offering Zero Trust Isolation Solution using any standard browser for managed and unmanaged devices. Now managed no problem.

Jay Chaudhry: Thank you. Very good question. We have been offering zero-trust isolation solutions using any standard browser for managed and unmanaged devices. Now managed, no problem. Unmanaged devices means they were using the standard browser. Some customers wanted something like a device posture check on an unmanaged device. For that, one option was you buy a full-blown enterprise browser from a third party. We looked at some of those acquisitions a couple of years ago. We did not like it. Full-blown browser with its own vulnerabilities, and customers don't like one more agent, or in this case, this is one more mega agent on their endpoint. What we found was with SquareX acquisition, we could add the security functionality such as device posture check using browser extensions from unmanaged device. It's a wonderful use case or generally for third-party type of stuff for us.

Speaker #4: Unmanaged devices means they were using their standard browser. Some customers wanted something like a device posture check on a s unmanaged device. And for that one option was you buy a full-blown enterprise browser from a third party.

Speaker #4: We looked at some of those acquisitions a couple of years ago. We did not like it. Full-blown browser with its own vulnerabilities and customers don't li+like one more agent or in this case this is one more mega agent on their endpoint.

Speaker #4: So what we found was with square X acquisition we could add the security functionality such as device posture check. Using browser extensions. From unmanaged device it's a wonderful use case but generally for third-party type of stuff for us.

Speaker #4: So it's a clean better solution rather than trying to fa full-blown third-party browser and it really takes care of the gap that we have in this environment.

Jay Chaudhry: It's a clean, better solution rather than trying to have full-blown third-party browsers. It really takes care of the gap that we have in this environment. We think it expands our TAM. We have lots of customers who are using browser isolation. This actually will help us expand it to handle some of the third parties who will come from unmanaged devices. Very pleased with the acquisition and the fit and the early market reaction to it.

Speaker #4: So we think it expands our tenant. We have lots of customers who are using browser isolation. This actually will help us expand it to handle some of the third parties who will come from unmanaged devices.

Speaker #4: So, very pleased with the acquisition, and the fit, and the early market reaction to it.

Speaker #7: Yeah. Thank you.

Jonathan Ruykhaver: Thank you.

Speaker #1: And our next question will be coming from the line of Eric Keith of KeyBank. Your line is open Eric.

Operator: Our next question will be coming from the line of Eric Heath of KeyBank. Your line is open, Eric.

Speaker #8: Hey thanks for taking the question. maybe I wanted to come back as an extension to Greg's earlier question and thinking about AI agents. So AI agents are will drive a lot of network traffic.

Eric Heath: Hey, thanks for taking the question. Maybe I wanted to come back as an extension to Gregg's earlier question and thinking about AI agents. AI agents will drive a lot of network traffic. Jay, Kevin, just how should we think about how you can monetize that increased traffic? Kevin, how we should think about it impacting the model over a longer time period? Thanks.

Speaker #8: So Jay Kevin just how should we think about how you can monetize that increased traffic and Kevin how should how we should think about it impacting the model over a longer time period?

Speaker #8: Thanks.

Speaker #3: Yeah, thank you. We think these agents that are going at a pretty rapid pace will generate a fair amount of traffic. The traffic means they're going to access application A or B, or one agent is going to talk to a second agent.

Jay Chaudhry: Yeah. Thank you. We think these agents that are growing at a pretty rapid pace will generate a fair amount of traffic. The traffic means they're going to access application A or B, or one agent is going to talk to a second agent. In order to do that, we believe the best security is that they should be going through a Zero Trust Exchange so that a given agent can only talk to a given agent or applications. Otherwise, imagine one infected or hijacked agent could infect the whole enterprise. That's the biggest value we bring to the table. The more agents, the more agentic traffic, the more value we deliver and the better revenue opportunity for us. We look at it as probably the biggest up-upside for growth of these kind of business.

Speaker #3: In order to do that we believe the best security is that they should be going through a Zero Trust Exchange so that a given agent can only talk to a given agent or applications.

Speaker #3: Otherwise imagine one infected or hijacked agent could infect the whole enterprise. That's the biggest value we bring to the table. The more agents the more agentic traffic the more value we deliver and the better revenue opportunity for us.

Speaker #3: So we look at it as probably the biggest up upside for growth of these kind of business.

Speaker #1: And our next question will be coming from the line of Matt Hedberg of RBC. Your line is open Matt.

Operator: Our next question will be coming from the line of Matt Hedberg of RBC. Your line is open, Matt.

Speaker #6: Great, thanks for taking my questions. You know, strong results in your ARR—you said by more than the beat. But I just had a clarification on ARR.

Matt Hedberg: Great. Thanks for taking my questions, guys. You know, strong results. You're raising, Kevin, you said by more than the beat, I just had a clarification on ARR, and I just want to make sure that I'm not missing anything. It looks like you raised the ARR midpoint by $30 million, it looks like in the disclosure, and maybe this is where I'm mistaken, it looks like you took your Red Canary expectations up from $95 million to $135 million. To me that looks like a $35 million raise. Am I interpreting that right? 'Cause I just I'm just not totally certain about what kind of the organic raise here is for the year.

Speaker #6: I just wanted to make sure that I'm not missing anything. I+it looks like you raised the ARR midpoint by thirty million dollars. But i+it looks like in the disclosure and and maybe this is where I'm mistaken.

Speaker #6: But it looks like you took your red canary expectations up from ninety-five million to a hundred and thirty-five million. So to me that that looks like a thirty-five million dollar raise.

Speaker #6: So i+am I am I am I interpreting that right? 'Cause I I just I'm I'm I'm just not not fully certain about what kind of the organic raise here is for for for the year.

Speaker #3: Yeah no I I appreciate the the clarification. if you look at this on an organic basis we are raising the organic net new from six point seven as our initial raise in the beginning of the year to nine and a half percent growth for twenty-six.

Kevin Rubin: Yeah, no, I appreciate the clarification. If you look at this on an organic basis, we are raising the organic net new from 6.7% as our initial raise in the beginning of the year to 9.5% growth for 2026. Yes, there is some element of Red Canary that is mechanically inherent in the raise. The underlying growth and strength in the organic business, giving us confidence to raise to 9.5% net new growth this year is what you're seeing fundamentally in the raised guidance. Keep in mind, just in the first half of this year, net new without Red Canary grew 10% against the backdrop of last year where it grew 1%.

Speaker #3: So yes there is some element of red canary that is that is in the is mechanically inherent in the raise. But the underlying growth and strength in the organic business giving us confidence to raise to nine and a half percent net new growth this year is what you're seeing fundamentally in the raise guidance.

Speaker #3: And keep in mind just in the first half of this year net new without red canary grew ten percent against the backdrop of last year where it grew one percent.

Speaker #3: So we are seeing very healthy acceleration in net new ARR growth both first half and signaling for the back half.

Kevin Rubin: We are seeing very healthy acceleration in net new ARR growth, both first half and signaling for the back half.

Speaker #6: Thank you.

Jay Chaudhry: Thank you.

Speaker #1: And our next question will be coming from the line of Keith Bachman of BMO. Your line is open Keith.

Operator: Our next question will be coming from the line of Keith Bachman of BMO. Your line is open, Keith.

Speaker #8: O+okay th+thank you. I broke up a little bit there. b+b+but I wanted to go ahead and ask the question about Zero Trust Everywhere. And Jay the question's for you is is h+how significant could th+this be?

Keith Bachman: Okay. Thank you. It broke up a little bit there, but I wanna go ahead and ask the question about Zero Trust Everywhere. Jay, the question's for you, is how significant could this be? You're at 550 customers now, you were at 130 a year ago. Two dimensions of the question are, A, what's the average ARR uplift that you experience when a customer goes to Zero Trust Everywhere? Is there some kinda lift that you could help guide us on? Then how deep do you think this could get with your installed base? What's the potential reach here?

Speaker #8: Y+you're at five hundred and fifty customers now. You were at a hundred and thirty a year ago. Two dimensions of the question are A w+what's the average ARR uplift that you experience when a customer goes to Zero Trust Everywhere?

Speaker #8: Is there some kind of lift that you could help guide us on? And then how deep do you think this could get with with your installed base?

Speaker #8: what's the potential reach here?

Speaker #3: Yeah. So first of all we are very pleased with the number of customers becoming Zero Trust Everywhere customers. The number five fifty is very good.

Jay Chaudhry: Yeah. First of all, we are very pleased with the number of customers becoming Zero Trust Everywhere customers. The number 550 is very good, and these are enterprise customers. They're large customers of it. In terms of lift on ARR, I think we even shared last quarter that we are seeing 2 to 3x essentially move in the ARR when customers are buying, moving to Zero Trust Everywhere, which is very good. In terms of potential out there, I can tell you a year ago I was talking to customers about Zero Trust Branch, which essentially replaces MPLS or SD-WAN. I was wondering how many customers will be saying, I love my SD-WANs, okay? I can tell you, I don't find any of these for a customer. No, these are our customers.

Speaker #3: And these are enterprise customers. They're large customers out there. I+in terms of lift on ARR I think we even shared last quarter that we are seeing two to three X essentially move in the ARR when customers are buying moving to Zero Trust Everywhere which is very good.

Speaker #3: In terms of potential out there I can tell you a year ago when was talking to I was talking to customers was Zero Trust Launch.

Speaker #3: Which essentially replaces MPLS or SD-WAN. I was wondering how many customers will be saying I love my SD-WAN okay? I can tell you I don't find any of these kind of customers.

Speaker #3: No these are our customers. They all want to replace SD-WAN for cost reasons and for security reasons. Remember SD-WAN enables lateral threat movement. So a tra attention i+interest is very high in the branch.

Jay Chaudhry: They all want to replace SD-WAN for cost reasons and for security reasons. Remember, SD-WAN enables lateral threat movement. At-attention, interest is very high in the branch. On the cloud side of it too, it's a fascinating new disruptive play. We literally no real competition other than old school firewalls, and trying to do firewall in the cloud with IP address and ACL is a nightmare, so we're seeing the traction going. Very bullish on both Zero Trust Branch and Zero Trust Cloud. I would love to see that every Zscaler customer in a matter of time will be a Zero Trust Everywhere customer.

Speaker #3: On the cloud side of it too it's a fascinating new disruptive play. We are literally no real competition other than old school firewalls and trying to do firewalls and cloud with IP address and ACL is a nightmare.

Speaker #3: So we're seeing that traction going. So very bullish on both Zero Trust Branch and Zero Trust Cloud f+so I would love to see that every Zscaler customer in a matter of time will be a Zero Trust Everywhere customer.

Speaker #1: And that concludes our Q and A session. I would now like to turn the conference back to Jay Chaudhry. CEO Chairman and Founder for Closing Remarks.

Operator: That concludes our Q&A session. I would now like to turn the conference back to Jay Chaudhry, CEO, Chairman, and Founder, for closing remarks.

Speaker #3: Thank you for joining us. We look forward to seeing you at one of the investor conferences we'll be attending. Thanks again.

Jay Chaudhry: Thank you for joining us. We look forward to seeing you at one of the investor conferences we'll be attending. Thanks again.

Operator: This concludes today's program. Thank you for participating. You may now disconnect.

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