Zscaler, Inc. — Call Transcript 2025

All right. Thanks, everyone, for joining us as part of the Needham Growth Conference. I'm Mike Cikos, Lead Analyst covering Zscaler. And with me today, I'm pleased to say that we have the CEO and founder, Jay Chaudhry, as well as the Head of IR and Strategic Finance, Ashwin Kesireddy. We have 40 minutes set aside here for this fireside. Members in the audience will have the option to send in questions as we go, so please pass them along. We'll do our best to get those answered while we have the team here. But before we get into it, Jay is going to open up with some prepared remarks and some slides just to better illustrate the story and where the vision of Zscaler is going. So with that, Jay, over to you. Thank you, Mike. We appreciate the opportunity. Just to set the big picture state, Zscaler pioneered a Zero Trust Exchange platform. That platform essentially started with protecting your workforce, your employees. That's where you're familiar with our three key offerings: ZIA for internet access, ZPA for private access, and ZDX for digital experience. With this solution, any user can access any application from anywhere in a Zero Trust fashion, and that also leads to doing user-to-app segmentation, the kind of stuff that only was done using some very expensive outdated products, BYOD kind of solutions out there, then our customers said, "Wow, this is wonderful. Why don't I do Zero Trust for my workloads too?" Workloads are somewhat like users. They talk to internet. They talk to each other. So hence, leveraging the same core platform, same core exchange, we built essentially securing your cloud. This is workload-to-internet communication. This is workload-to-workload communication. As a part of the architecture, it fundamentally enables workload segmentation as well. Then our manufacturing customers, logistics, and many other companies came and said, "Why don't you help me secure my IoT/OT systems as well?" As you know, IoT/OT, they need to send telemetry. And you need to reach to those OT systems, generally from the internet, which is done with using the old-school VPN. And telemetry is usually sent by building a little VPN out there as well. In Zero Trust fashion, we enable IoT/OT. And now, actually, with the acquisition Airgap, we can do IoT/OT device segmentation inside the factory, warehouse, and the like. Then fourthly, securing B2B communication. This is your customers and suppliers. More and more businesses are going online, and more and more communication is happening with customers, suppliers. How do you do it in the old world of firewalls and VPNs? You set up site-to-site VPN. If you are connected to 500 suppliers with VPN, your network is getting extended to those 500 companies. Creates a significant supplier risk, third-party risk. We eliminate any of that stuff. So while many of the vendors trying to say, "Oh, we do what Zscaler does," are barely trying to do what we do on the leftmost side, while our platforms are expanded to do all four key entities. Now, as the traffic flows through all of this, we are collecting logs. These are transaction logs, over 500 billion per day. That's B for billion. That's a precious data, private log data that now goes into our Zscaler AI Fabric because AI essentially depends upon having meaningful logs. So I'll talk to you in a couple of minutes, sorry, in a couple of 30 seconds about it. But let me talk to you about the overall, sorry, picture of AI/ML we put together. One second, that slide here. Number one thing our customers needed as soon as ChatGPT got announced and Microsoft Copilot got announced for us, how do I use these services in a secure fashion? For example, submitting code to ChatGPT is not a good thing. So what we did is, since we're sitting in line, almost like an international airport, we can see all traffic your employees are submitting through public AI applications. So the first thing our customers wanted was, "Tell me what services my customer, my employees are using." That's a discovery part. So we offered discovery of uses of AI applications, public AI applications very early on. Lots of our customers put it in production very early on. The second part is managing policy. I want my developers to use public AI, but it can only go to these five services because they are the sanctioned one. My marketing department can use these four AI services, and my sales can use only these five services as well. That's a policy for use of Gen AI. The third part became the protection part of it, protecting data, so people can use those sanctioned AI services, but they can't be putting data that's confidential, sensitive, and the like. This became important, and as more and more companies are trying to use Microsoft 365 Copilot, now they're worried about what kind of data can be accessed by their employees. Think of it. Once Copilot has access to OneDrive, SharePoint, there's all kinds of sensitive information sitting out there, salary information. These AI tools are powerful. They scan everything. They get trained. They can tell you any information, anyone's salary, and all the other information out there. So Zscaler has done data classification using APIs. We actually enforce policy about who can access what kind of information with Microsoft Copilot. So secure use of Copilot has become an important area. During our last earnings call, I highlighted one important deal that was driven by securing Copilot. That's kind of one thing that's out there with customers. We often package it as a part of the data protection solution, so it becomes part of the high-end bundle. The second thing, we have added AI in all kinds of products out there. For data classification, Gen AI is wonderful. We're using it extensively. Zero-day detection, we're using it. ZDX Copilot we launched a few months ago has been very, very popular to figure out troubleshooting and the like, and in fact, the segmentation of application and all is being powered by AI. That's what we have done, and the next big area we are working on in this area is agent technology for automation, operational efficiencies, and better security. The 360 offering we launched out there, the digital experience, we have Copilot. It's natural for us to work on the agent technology to take to the next level. AI agents for breach prediction. These are the new area. Security operations for automation. New areas we're working on. Then the third area, that's kind of a very exciting area as well, and this is securing use of private AI applications. Our customers actually are building private apps. They're private large language models in the data center, in the cloud. How do you secure them? How do you make sure only the right use gets done? So we are doing, we are essentially building a proxy, large language model proxy. We're sitting in line. This is through API calls. We can check the prompts to figure out if this prompt is good, a prompt is not good. Should it be blocked? Should it not be blocked? The response coming back needs to be analyzed to see if the right responses get sent back. There's also a risk of data poisoning. There's a risk of prompt injection. Those are the type of things we are inspecting for and detecting to make sure your private AI apps remain secure and they only are used in a meaningful fashion. So that's a high-level view of the kind of things we're doing in the AI area and for entities that we provide zero-trust communication for. With that, Mike, back over to you. Great. Thanks, Jay. And just sticking with the AI theme for a second while we're already here. But for Zscaler's Copilot offering, can you talk about what's involved from the customer standpoint to deploy and get those offerings up and running? Have we measured or quantified yet just how quickly customers can generate time to value? How quickly is that accelerated because of Zscaler's Copilot offering? Yeah. One of the key Copilot that's out there in production for quite some time is ZDX Copilot. One of the hard problems customers have is when a user calls IT and says, "Things are slow. I'm at home. I'm in this hotel. Things are not working well." IT struggles to figure out where to start. Is it application? Is it network? Is it PCs? Wi-Fi? What the issues are? With ZDX, you could go and look at X number of things to figure it out, and we make it easier. But Copilot is actually able to take, if somebody needs to spend five minutes to figure out what the issue is, literally, ZDX Copilot is helping them figure out in a minute or two. We're seeing customers talking about the time to detect issues can be cut down by somewhere in the two-thirds to one-third or half kind of stuff is the data I've gotten for lots of customers, which is very, very good. That means fewer resources needed for troubleshooting, and the customers, the user, gets back to what they need to do much faster. Excellent. Excellent, and just to maybe think about this more holistically, but if we just take a step back and look at AI and the monetization opportunity, how does Zscaler think about that monetization? We're talking about massive opportunity with Microsoft 365, right? So how is it you guys are looking to make sure that you're capturing value versus other industries are just going to have to embed this technology and they can't necessarily monetize it? I think the answer will be both. Some of it will need to be embedded because your technology needs to leverage AI, but when the tangible areas our customers are willing to pay for it, Copilot, people will start charging a Copilot, but eventually, Copilot will become the next UI. But then the agents will come to the technology you start charging for. So as the sophistication goes up, you charge, and over time, you'll probably charge less. The next value needs to be added. That's what we're doing in many of these areas. But for example, our customers are happy to pay extra for ZDX Copilot. But the big area, I believe, for us is as we really work on our security language models by taking 500 billion logs and start doing better detection, faster detection. This has the potential to essentially disrupt traditional detection technology, response, and investigation type of stuff. That's a significant big opportunity for us for the long run. Awesome. And on that Copilot's point, in the top of the call with the presentation, but you had said it had led to one of the deals on the most recent quarter. I imagine that's the seven-figure ACV deal with that Global 2000 customer. I'd love to get a sense of when Copilots or when these AI offerings are being introduced, how does the sales process change? Are the cycles slightly longer? Is there a different cast of characters as far as the procurement process? Anything that would be incremental? So if a customer is actually accelerating the deployment of some of these AI technologies, the sales process accelerates. The example we gave for this, securing Microsoft Copilot, this customer actually wanted to roll it out and start using them, holding it back because they're not sure about the data privacy to see who has access to what data. Concern was, could someone be checking salaries of these different employees? Because Copilot essentially picks it up for all these OneDrive and SharePoint kind of stuff. So that type of stuff accelerates. I think if you are starting a totally new AI project, it'll have its own sales cycle. We are leveraging AI along with the traditional sales cycle to add value, to increase the deal size or accelerate the deal size, accelerate the deal timing size. Got it. Got it. And I know we were, I think it was the first slide you had brought up, was really talking to how Zscaler has been built and maybe some of those architectural decisions that you guys went through, the nitty-gritty and the hard stuff early to ensure that you have this platform today. Again, just for the audience here, but can you walk through how those architectural decisions have led to this unique value prop versus how competitors may not have the same kind of inside baseball that you guys have at this time? Yeah. If you look at it from an architecture point of view, what we built is fundamentally different. In the traditional world, what you do is it's a network-centric world. You build a mesh network, then you connect everything to everything. You manage route tables, then you would firewall as a moat, VPN, all that kind of stuff. We reimagined the network. We reimagined security. In the Zscaler world, you don't have to have your own network. Internet becomes a corporate network. Just like when you have public highways, you do not need private roads, and then our world was, you don't need any firewalls. We're not building moats. Everyone is untrusted. That's why we're fundamentally a switchboard. We are like a policy engine. That engine says, "Who can connect with whom?" If I use one diagram to show you a little bit view of our architecture, very clean and simple. Applications are sitting out there just like an island. User devices are sitting out there somewhere. We are the policy engine. We start with identity checks. We're not the business of offering identity. We work with all the leaders. We can define which application, which user can access. We are continually checking risk based on the behavior and the like. And then we can make connection to the right application. Period. Everything is untrusted. There's no such thing as trusted network. This is what we have done with Zscaler. Now, when a firewall company says, "We do Zero Trust too," what do they do? They build this mesh network. You've got a traditional model, firewall sitting in various locations out there. But since they want to claim they can do Zero Trust in cloud security, they'll say, "I'll spin up these firewalls in the cloud as virtual firewalls. Don't worry about buying my boxes." How about VPN? Well, they can spin up VPN in the cloud as well. In spite of that, it's still a mesh network. Everything connects to everything. There's a lateral movement out there. This doesn't solve any of the problems. In fact, this gives a false sense of security. So in this model, this architecture is like a bridge. Once the firewall opens up, traffic starts flowing, good and bad. We are like a switch. One thing gets connected at a time. Unless these firewall guys re-architect or start from scratch, you can't keep on bolting things on a firewall and say, "I got a Zero Trust architecture." It's fundamentally different. Excellent. Excellent. And it's probably starting to go into the go-to-market angle here. But from a high level for these GenAI offerings that you guys have, are we at a significant enough volume with your customers at this point to start thinking about what that associated uplift to the deal value is at this time? So it is still early stage from volume point of view, but the direction is in the right direction. When we add our AI-based technology to some of our bundles, we are able to get the bundle price up in the 20% range. So we are not trying to say, "I need to lead in as a separate AI product," because AI is making things smarter. The example I gave you, ZDX and ZDX with Copilot, customers see distinct value. That's why they're ready to give a better price. Excellent. Okay. And from a go-to-market standpoint, does that require you to introduce more sales heads into the sales process? I know that you have your CRO, Mike Rich, who's been implementing some go-to-market changes, but just interested if you need more architects now as a result of this kind of sale. So it doesn't. We are not trying to change how things work. In fact, we are reducing the complexity of interacting with our application. In fact, it is reducing the amount of training we have to give it to our customers to use our services and products. From a sales point of view, we do need to train our salespeople so they can have AI-centric discussion, explain how the functionality works. But they don't need to explain how the large language model gets trained underneath. By and large, customers need to know, "If I did these things and it took me so long and this level of complexity, I can do it faster and better with all my training on it. Got it. And again, just thinking about that sales process, the different personas brought in, are you potentially or were you already in some way already tackling, let's say, compliance, legal? Again, I think about the number of people that may need to be brought in for these kinds of decisions and the implications that might have for sign-off on a deal, right? Yes. So Zscaler has traditionally dealt with three C-level people: CIO, the overall leader in IT, who's responsible for application security and network and the like, and head of network and head of security. Compliance has been part of it all along. Actually, Zscaler helps you achieve a lot of compliance. Now, in this new world with AI stuff, a lot of customers looking at is your solution compliant, for example. The question does come up, but we are actually out there to make sure you are using AI with compliance. The first thing I talk to you about, secure use of AI, being able to enforce policy and compliance, who can access what, who could be posting what kind of data where. We actually are helping with the compliance side of it. Do additional questions? Are they beginning to come up? Yes. Are they a big part of it in our solution today? Not quite. Okay. Got it. Got it. Well, you're obviously seeing traction there, especially given the AI analytics stat that you gave. I think it was that new and upsell ACV was up north of 90%. So kudos on that. If we shift gears for a second to going back to the earnings call you guys hosted in early December, you had gone out of your way, I think, in the remarks to talk about ZPA as being a large growth driver in the upcoming year. I guess, what are you seeing and hearing in customer conversations that gives you that confidence? Is there anything from a competitive landscape or maybe the pipeline build? Just help walk us through that comment, please. So I think we assured with our investors that in large customers, over 60% of large customers already bought ZPA, which is pretty remarkable. We also shared that if you look at the new ACV, new business of ZI and ZPA, ZPA now forms over 40% of it. I mean, but six years ago, it was zero. To take out 40-plus % of a ZI, which has grown pretty rapidly, is a pretty remarkable thing. I mean, could it get to 50%? Probably yes. And via internal discussion, say, "Man, if it goes over 50%, I'll be unhappy because then ZI is not growing fast enough." But there are opportunities out there. So it started by VPN replacement early on. But now the biggest driver of ZPA has become minimizing or eliminating ransomware attacks. The typical way ransomware attacks happen is they get on the network, this so-called trusted flat network, by stealing identity and logging through a VPN or something out there. Once they're on the network, they move laterally, they find high-value asset, encrypt it, and the game is over. ZPA, by default, doesn't allow you to do lateral movement on the network. You're never on the network. Then you can go a step beyond. ZPA allows you to do application-to-user segmentation like, so if somebody got in, you can get into one application, but you can't literally go laterally and try to find others and spread against it. These are the type of values our customers are doing more and more. In this, in fact, one of the exciting use cases of ZPA ends up being, when it started out, you used it from home. Now, every office is becoming such that the users at the headquarters or your regional office are not on your corporate network. They're on a guest network, and through ZPA they come through our policy engine and access applications, not just moving on the corporate network. It's a big deal. The next phase of Zero Trust is becoming the branch. That's where we launched a Zero Trust Branch appliance. Your branch becomes an island. It's like Starbucks. In fact, I'm excited to see more and more customers are saying, "I need to eliminate my SD-WAN because SD-WAN helped me reduce the cost of MPLS," but SD-WAN is like any other network. Once you get in the branch, you get on the network, you move laterally, you can infect everything out there. So the opportunity to further simplify this network complexity and reduce lateral movement, the risk and the like, is massive. That's why customers see the difference, even when the competition comes and say, "Oh, we got ZPA-like stuff too." The biggest thing they got is some basic VPN replacement functionality. I know a lot's been made about this upcoming firewall refresh, right? I know that you guys have been vocal as far as stand to benefit from this cycle. First question, just super high level, but is this firewall refresh more pertinent for Zscaler today versus the last cycle in your view? Oh, absolutely. In fact, when I was asked during the last cycle, "Is there an opportunity for you to replace firewalls?" The answer was, "Not really." At the time, we needed some device to send traffic from the branch. And we could say, "You could replace North-South firewall and send traffic to us." Then they would say, "With whom? What do I do? Is it SD-WAN? Is it not?" We didn't have clean answers, so that's why my answer was, "Not really." But today, where we are with two main changes we added to our product line, it's a big opportunity. One is our Zero Trust appliance. It eliminates North-South firewalls and some of the related stuff out there, the DNS, DHCP, all those things. So that's the branch connecting to the internet. Then the customer said, "Many of my branches have East-West firewall for segmentation and the like." Our acquisition of Airgap Networking about six to eight months ago actually gives us a very cool, exciting capability to eliminate those firewalls and NAC segmentation and all the stuff. Your branch becomes simple. One simple appliance or two for failover can trigger all the stuff. We plan to participate in this area. Now, we're not going to go to the market and say, "I'm a better firewall than those guys out there." Or I'm not going to say, "We're going to replace every firewall everywhere." Our customer base understands the value of Zero Trust. They understand the complexity of managing hundreds of firewalls and hundreds of branches out there. So they are more and more getting engaged with us to say, "I'm going to replace my SD-WAN firewalls, NAC, and all the stuff in the branches and save money." In fact, we highlighted a very good example of a customer in the auto parts area who's actually replacing the branch firewalls and segmentation all inside. We are getting some very, very good early wins in this area. Excited. So we plan to participate in it at the getting to the branch level. There'll be still some firewalls left in the data center. I tell you, the reason we don't mess with the data center, it's so complex and the customer doesn't even understand what all is being done with what. And they tell me, "My data center is getting phased out over time. Let's not focus on the data center. Let's focus on the rest of the stuff. Got it. Okay. But the way you're describing it, and correct me if I'm wrong, it sounds like these offerings. We're really going to be taking this to your existing customers. That is correct. They've already recognized the value. Zscaler is a strategic partner for them. Okay. Got it. It's a large and solid base. They've got almost 50 million users or 45% of Fortune 500 companies. Excellent. For, let's say, device segmentation, how has traction or adoption trended there versus internal expectations? Who are customers traditionally displacing if they are displacing someone? TCO, cost savings, anything on that front for the device segmentation? Yeah. So our story about displacement is very, very exciting. And this is not just even segmentation. Probably I'll take a minute to walk you through the cost takeout opportunities we offer to our customer. It is fascinating, and it's becoming more and more important as customers are still trying to save money. So in a typical enterprise, people got a bunch of agents on the endpoint shown here. Your firewall or campus, a branch has firewalls, north, south, east, west. They got network access control called NAC. They got segmentation devices of some kind. And then they got multiple data centers with DMZ that has a bunch of firewalls, web gateways, load balancers, VDI kind of stuff. And there's some regional hubs where the traffic comes through and then goes out to the internet. And then they got some software offerings, often in the cloud for that kind of access out there. Now and then they are connecting over the network, MPLS, traditional SD-WAN, and whatnot, and internet connection. Zscaler portfolio has become so large that we can replace all these products shown with access. The red color is generally security products. The gray color is essentially your networking products. So once you take this thing out, the picture looks like this. We end up essentially securing your endpoint, your branches, factories, and all, Zero Trust network connection. Now, the data center, we still, I'm showing you a few firewalls that are needed on the east-west side of it. And we work with, then you need three other partners who offer platforms in certain areas, MDM and EDR players, identity players, and operations for security operations and the like. What's shown on the right side is all the stuff that gets taken out. Now, practically speaking, all this thing doesn't happen overnight. It's a phased journey. Our customers are in some stage of the journey. Based on the customer size, this thing happens probably somewhere in the, they start seeing savings in the first two quarters. But when you replace all this to go through this journey, it's generally about an 18 to 24-month journey, and you end up getting to the stage the diagram is shown on the right side. It is wonderful and exciting on the segmentation stuff. We are replacing a couple of things. One, the segmentation product sitting in your branch, in your factory. What are those? Generally, either you're doing it with East-West firewalls or you're doing it with VLANs type of switches. And then you're doing NAC kind of stuff out there. All of that stuff goes away. There's some tangible savings from that. Excellent. And if we, I guess, again, just change over, but maybe a more macro question here. Again, investors have their pencils out thinking about the new year. What are you hearing or what's the tone of conversation you're currently having with customers? How's commentary trending? From budget and spend point of view, I see no concern on the cyber budget side of it. In fact, cyber is becoming more and more critical. It's not just on CISO's mind, it's CIO's mind, it's on board's mind, it's audit committee's mind as well. Most customers I talk to, and I talk to lots of them, the cyber budgets are generally flat or maybe 5% or 10% up. They have been going up. Most cases, they're up to some degree. Now, IT budgets aren't generally up. It's common. Some of these IT budgets are flat, and some may have gone up, but in many cases, customers are asking for, "How do I reduce cost?" And some of the money may be getting redirected towards some of the AI projects. So I see pressure on the IT side of it, not the cyber side of it. What we are able to do in that situation, think of this diagram. If I can start showing the picture and say, "Mr. Customer, I can take out these six products in first quarter, these three in second quarter, these seven in third quarter and fourth quarter," and I create an actual spreadsheet table showing net cost savings, that story is very compelling, and we end up saving a lot of money. That's how we get the deals done. Now, think of, so this is essentially consolidation and simplification. Of course, some vendors like to talk about platformization and all this stuff. It's quite a notion. This is essentially consolidation. What's the biggest cost saving coming out of here? Now, network ends up being the biggest saving. The network is a big piece, but firewalls and security products end up being the biggest cost takeout. Would a firewall vendor try to cannibalize its firewalls to really save money for the customer? Not really. In fact, the typical dialogue I hear out there sometimes is a firewall vendor goes and says, "Mr. Customer, you're spending $20 million with us. Your traffic is going to grow. Give me $30 million per year, and I can replace a few things and give you Zscaler type of stuff for free." We go to the customer and say, "You know that firewalls are not the future. They're getting phased out. In two years, I'll bring your spend from $20 million down to $6 million on firewalls, and you need about $4 million for Zscaler. Your total spend will get to $10 million and then $30 million." The delta in price savings is so significant because we're eliminating a lot of stuff. The case becomes very compelling. That's how we end up closing deals. Got it. Got it. And just to come back to it as well on that macro theme, we finally have certainty on the administration we're working with, although the policy we'll be working with is still up to debate, right? But have you seen any change in customer behavior, whether it's public or private sector in recent weeks, just because we do have that certainty with the administration at this time? Look, lots of conversations in the federal government at the C-level. Nothing has changed so far, though there's one other thing people wonder, "What will our president do? Where will this change?" But one thing is clear in everyone's mind that the new administration is equally worried about cyber as the old administration was. So you can change all kinds of policies, but since it is a national security issue, we do not think that the focus on cyber will go away or get minimized. Got it. Got it. Two questions on the management team here. The first, you guys obviously appointed Adam as Chief Product Officer for the company. Can you just help us think about the expertise he's bringing to the role? What, if anything, this might represent as far as how Zscaler continues to view the market and build out its platform? Yeah. Being a product officer at Zscaler is not a trivial simple task. The platform is so big and deep. It involves security, networking-related stuff, application-related stuff, segmentation, and the like. Adam actually has spent most of his career in the security space, having breadth and depth of it. Coming from an early-on managed security background, he spent a bunch of time doing old technology, firewalls, and all. It's important to understand that world because once you replace that world, you need to know what they did, what the shortcomings are. Then he spent the last four years in the security operations area, the SIEM/SOC area as well. So he has that element of experience to help us. He's already making a difference, coming with a fresh set of eyes, some of the packaging, some of the pricing, some of the streamlining of products. When your platform is big, there's a fair amount of work that goes on. Even on the past few years, we have done a remarkable job where we used to start with ZIA bundle to transformation bundle and to moving on to combining ZIA ZPA packaging to make it easier for customers, and now we have Zscaler for Users and so on, so we are excited about Adam, and I think he'll make a big difference to our product innovation, pricing, packaging, and taking to market. Excellent. And then the second management question, obviously the bigger one for folks on my side is Remo and the announced departure with some big shoes to fill, obviously, because we all loved working with him so much. I guess, where are we in that search? And can you help us think about the credentials we're looking for just because of who and what Remo was, right? So can you help us go through that? Yeah. Look, I've had great, great fun working with Remo for eight and nine years now. It's wonderful. We started a few hundred million dollars. Now we're sitting well over $2.5 billion. A great journey. He's put a lot of these systems and processes and things in place, established all the stuff. It's hard to fill his shoes. We have no lack of interest in attracting the best of that CFO because of the position, the company setting, and the growth profile, the top line, bottom line, all that stuff. So active engagement going on. We made a lot of progress. So we think we should be able to come forward with some of the selections and all in not too distant future. What are we looking for? If you really think of the profile of Zscaler, we're not a convoluted financial company with all kinds of legacy products here and there. It's a clean SaaS model. There's no complicated financing out there. It's a very clean financing model. So what's critical for us is really people who can come and scale this business. So scale is an important part of it. Obviously, having experience on the SaaS and cloud subscription side of it is important for us. And also having more engagement on the business side because as we get bigger and bigger, working closely with the sales organization and that type of stuff becomes important. So those are the key attributes. And of course, trust and a great working relationship is always the starting point. Excellent. Excellent. With that, we'll have to call it, but thank you very much to Jay and Ashwin for your time today. Thank you to the audience for tuning in. Looking forward to a successful NGC next week, but thank you. Thank you so much. We'll talk soon. Mike, thank you so much for the opportunity.

Speaker 1: All right. Thanks, everyone, for joining us as part of the Needham Growth Conference. I'm Mike Cikos, Lead Analyst covering Zscaler. And with me today, I'm pleased to say that we have the CEO and founder, Jay Chaudhry, as well as the Head of IR and Strategic Finance, Ashwin Kesireddy. We have 40 minutes set aside here for this fireside. Members in the audience will have the option to send in questions as we go, so please pass them along. We'll do our best to get those answered while we have the team here. But before we get into it, Jay is going to open up with some prepared remarks and some slides just to better illustrate the story and where the vision of Zscaler is going. So with that, Jay, over to you. All right. all right Thanks, everyone, for joining us as part of the Needham Growth Conference. thanks everyone for joining us as part of the needham growth conference I'm Mike Cikos, Lead Analyst covering Zscaler. i'm mike cikos lead analyst covering zscaler And with me today, I'm pleased to say that we have the CEO and founder, Jay Chaudhry, as well as the Head of IR and Strategic Finance, Ashwin Kesireddy. and with me today i'm pleased to say that we have the ceo and founder jay chaudhry as well as the head of ir and strategic finance ashwin kesireddy We have 40 minutes set aside here for this fireside. we have 40 minutes set aside here for this fireside Members in the audience will have the option to send in questions as we go, so please pass them along. members in the audience will have the option to send in questions as we go so please pass them along We'll do our best to get those answered while we have the team here. we'll do our best to get those answered while we have the team here But before we get into it, Jay is going to open up with some prepared remarks and some slides just to better illustrate the story and where the vision of Zscaler is going. but before we get into it jay is going to open up with some prepared remarks and some slides just to better illustrate the story and where the vision of zscaler is going So with that, Jay, over to you. so with that jay over to you

Speaker 2: Thank you, Mike. We appreciate the opportunity. Just to set the big picture state, Zscaler pioneered a Zero Trust Exchange platform. That platform essentially started with protecting your workforce, your employees. That's where you're familiar with our three key offerings: ZIA for internet access, ZPA for private access, and ZDX for digital experience. With this solution, any user can access any application from anywhere in a Zero Trust fashion, and that also leads to doing user-to-app segmentation, the kind of stuff that only was done using some very expensive outdated products, BYOD kind of solutions out there, then our customers said, "Wow, this is wonderful. Why don't I do Zero Trust for my workloads too?" Workloads are somewhat like users. They talk to internet. They talk to each other. So hence, leveraging the same core platform, same core exchange, we built essentially securing your cloud. This is workload-to-internet communication. Thank you, Mike. thank you mike We appreciate the opportunity. we appreciate the opportunity Just to set the big picture state, Zscaler pioneered a Zero Trust Exchange platform. just to set the big picture state zscaler pioneered a zero trust exchange platform That platform essentially started with protecting your workforce, your employees. that platform essentially started with protecting your workforce your employees That's where you're familiar with our three key offerings: ZIA for internet access, ZPA for private access, and ZDX for digital experience. that's where you're familiar with our three key offerings zia for internet access zpa for private access and zdx for digital experience With this solution, any user can access any application from anywhere in a Zero Trust fashion, and that also leads to doing user-to-app segmentation, the kind of stuff that only was done using some very expensive outdated products, BYOD kind of solutions out there, then our customers said, "Wow, this is wonderful. with this solution any user can access any application from anywhere in a zero trust fashion and that also leads to doing user-to-app segmentation the kind of stuff that only was done using some very expensive outdated products byod kind of solutions out there then our customers said "wow this is wonderful Why don't I do Zero Trust for my workloads too?" Workloads are somewhat like users. why don't i do zero trust for my workloads too?" workloads are somewhat like users They talk to internet. they talk to internet They talk to each other. they talk to each other So hence, leveraging the same core platform, same core exchange, we built essentially securing your cloud. so hence leveraging the same core platform same core exchange we built essentially securing your cloud This is workload-to-internet communication. this is workload-to-internet communication This is workload-to-workload communication. As a part of the architecture, it fundamentally enables workload segmentation as well. Then our manufacturing customers, logistics, and many other companies came and said, "Why don't you help me secure my IoT/OT systems as well?" As you know, IoT/OT, they need to send telemetry. And you need to reach to those OT systems, generally from the internet, which is done with using the old-school VPN. And telemetry is usually sent by building a little VPN out there as well. In Zero Trust fashion, we enable IoT/OT. And now, actually, with the acquisition Airgap, we can do IoT/OT device segmentation inside the factory, warehouse, and the like. Then fourthly, securing B2B communication. This is your customers and suppliers. More and more businesses are going online, and more and more communication is happening with customers, suppliers. This is workload-to-workload communication. this is workload-to-workload communication As a part of the architecture, it fundamentally enables workload segmentation as well. as a part of the architecture it fundamentally enables workload segmentation as well Then our manufacturing customers, logistics, and many other companies came and said, "Why don't you help me secure my IoT/ OT systems as well?" As you know, IoT/O T, they need to send telemetry. then our manufacturing customers logistics and many other companies came and said "why don't you help me secure my iot/ ot systems as well?" as you know iot/o t they need to send telemetry And you need to reach to those OT systems, generally from the internet, which is done with using the old-school VPN. and you need to reach to those ot systems generally from the internet which is done with using the old-school vpn And telemetry is usually sent by building a little VPN out there as well. and telemetry is usually sent by building a little vpn out there as well In Zero Trust fashion, we enable IoT/ OT. in zero trust fashion we enable iot/ ot And now, actually, with the acquisition Airgap, we can do IoT/ OT device segmentation inside the factory, warehouse, and the like. and now actually with the acquisition airgap we can do iot/ ot device segmentation inside the factory warehouse and the like Then fourthly, securing B2B communication. then fourthly securing b2b communication This is your customers and suppliers. this is your customers and suppliers More and more businesses are going online, and more and more communication is happening with customers, suppliers. more and more businesses are going online and more and more communication is happening with customers suppliers How do you do it in the old world of firewalls and VPNs? You set up site-to-site VPN. If you are connected to 500 suppliers with VPN, your network is getting extended to those 500 companies. Creates a significant supplier risk, third-party risk. We eliminate any of that stuff. So while many of the vendors trying to say, "Oh, we do what Zscaler does," are barely trying to do what we do on the leftmost side, while our platforms are expanded to do all four key entities. Now, as the traffic flows through all of this, we are collecting logs. These are transaction logs, over 500 billion per day. That's B for billion. That's a precious data, private log data that now goes into our Zscaler AI Fabric because AI essentially depends upon having meaningful logs. How do you do it in the old world of firewalls and VPNs? how do you do it in the old world of firewalls and vpns You set up site-to-site VPN. you set up site-to-site vpn If you are connected to 500 suppliers with VPN, your network is getting extended to those 500 companies. if you are connected to 500 suppliers with vpn your network is getting extended to those 500 companies Creates a significant supplier risk, third-party risk. creates a significant supplier risk third-party risk We eliminate any of that stuff. we eliminate any of that stuff So while many of the vendors trying to say, "Oh, we do what Zscaler does," are barely trying to do what we do on the leftmost side, while our platforms are expanded to do all four key entities. so while many of the vendors trying to say "oh we do what zscaler does," are barely trying to do what we do on the leftmost side while our platforms are expanded to do all four key entities Now, as the traffic flows through all of this, we are collecting logs. now as the traffic flows through all of this we are collecting logs These are transaction logs, over 500 billion per day. these are transaction logs over 500 billion per day That's B for billion. that's b for billion That's a precious data, private log data that now goes into our Zscaler AI Fabric because AI essentially depends upon having meaningful logs. that's a precious data private log data that now goes into our zscaler ai fabric because ai essentially depends upon having meaningful logs So I'll talk to you in a couple of minutes, sorry, in a couple of 30 seconds about it. But let me talk to you about the overall, sorry, picture of AI/ML we put together. One second, that slide here. Number one thing our customers needed as soon as ChatGPT got announced and Microsoft Copilot got announced for us, how do I use these services in a secure fashion? For example, submitting code to ChatGPT is not a good thing. So what we did is, since we're sitting in line, almost like an international airport, we can see all traffic your employees are submitting through public AI applications. So the first thing our customers wanted was, "Tell me what services my customer, my employees are using." That's a discovery part. So we offered discovery of uses of AI applications, public AI applications very early on. So I'll talk to you in a couple of minutes, sorry, in a couple of 30 seconds about it. so i'll talk to you in a couple of minutes sorry in a couple of 30 seconds about it But let me talk to you about the overall, sorry, picture of AI/ML we put together. but let me talk to you about the overall sorry picture of ai/ml we put together One second, that slide here. one second that slide here Number one thing our customers needed as soon as ChatGPT got announced and Microsoft Copilot got announced for us, how do I use these services in a secure fashion? number one thing our customers needed as soon as chatgpt got announced and microsoft copilot got announced for us how do i use these services in a secure fashion For example, submitting code to ChatGPT is not a good thing. for example submitting code to chatgpt is not a good thing So what we did is, since we're sitting in line, almost like an international airport, we can see all traffic your employees are submitting through public AI applications. so what we did is since we're sitting in line almost like an international airport we can see all traffic your employees are submitting through public ai applications So the first thing our customers wanted was, "Tell me what services my customer, my employees are using." That's a discovery part. so the first thing our customers wanted was "tell me what services my customer my employees are using." that's a discovery part So we offered discovery of uses of AI applications, public AI applications very early on. so we offered discovery of uses of ai applications public ai applications very early on Lots of our customers put it in production very early on. The second part is managing policy. I want my developers to use public AI, but it can only go to these five services because they are the sanctioned one. My marketing department can use these four AI services, and my sales can use only these five services as well. That's a policy for use of Gen AI. The third part became the protection part of it, protecting data, so people can use those sanctioned AI services, but they can't be putting data that's confidential, sensitive, and the like. This became important, and as more and more companies are trying to use Microsoft 365 Copilot, now they're worried about what kind of data can be accessed by their employees. Think of it. Once Copilot has access to OneDrive, SharePoint, there's all kinds of sensitive information sitting out there, salary information. Lots of our customers put it in production very early on. lots of our customers put it in production very early on The second part is managing policy. the second part is managing policy I want my developers to use public AI, but it can only go to these five services because they are the sanctioned one. i want my developers to use public ai but it can only go to these five services because they are the sanctioned one My marketing department can use these four AI services, and my sales can use only these five services as well. my marketing department can use these four ai services and my sales can use only these five services as well That's a policy for use of Gen AI. that's a policy for use of gen ai The third part became the protection part of it, protecting data, so people can use those sanctioned AI services, but they can't be putting data that's confidential, sensitive, and the like. the third part became the protection part of it protecting data so people can use those sanctioned ai services but they can't be putting data that's confidential sensitive and the like This became important, and as more and more companies are trying to use Microsoft 365 Copilot, now they're worried about what kind of data can be accessed by their employees. this became important and as more and more companies are trying to use microsoft 365 copilot now they're worried about what kind of data can be accessed by their employees Think of it. think of it Once Copilot has access to OneDrive, SharePoint, there's all kinds of sensitive information sitting out there, salary information. once copilot has access to onedrive sharepoint there's all kinds of sensitive information sitting out there salary information These AI tools are powerful. They scan everything. They get trained. They can tell you any information, anyone's salary, and all the other information out there. So Zscaler has done data classification using APIs. We actually enforce policy about who can access what kind of information with Microsoft Copilot. So secure use of Copilot has become an important area. During our last earnings call, I highlighted one important deal that was driven by securing Copilot. That's kind of one thing that's out there with customers. We often package it as a part of the data protection solution, so it becomes part of the high-end bundle. The second thing, we have added AI in all kinds of products out there. For data classification, Gen AI is wonderful. We're using it extensively. Zero-day detection, we're using it. These AI tools are powerful. these ai tools are powerful They scan everything. they scan everything They get trained. they get trained They can tell you any information, anyone's salary, and all the other information out there. they can tell you any information anyone's salary and all the other information out there So Zscaler has done data classification using APIs. so zscaler has done data classification using apis We actually enforce policy about who can access what kind of information with Microsoft Copilot. we actually enforce policy about who can access what kind of information with microsoft copilot So secure use of Copilot has become an important area. so secure use of copilot has become an important area During our last earnings call, I highlighted one important deal that was driven by securing Copilot. during our last earnings call i highlighted one important deal that was driven by securing copilot That's kind of one thing that's out there with customers. that's kind of one thing that's out there with customers We often package it as a part of the data protection solution, so it becomes part of the high-end bundle. we often package it as a part of the data protection solution so it becomes part of the high-end bundle The second thing, we have added AI in all kinds of products out there. the second thing we have added ai in all kinds of products out there For data classification, Gen AI is wonderful. for data classification gen ai is wonderful We're using it extensively. we're using it extensively Zero-day detection, we're using it. zero-day detection we're using it ZDX Copilot we launched a few months ago has been very, very popular to figure out troubleshooting and the like, and in fact, the segmentation of application and all is being powered by AI. That's what we have done, and the next big area we are working on in this area is agent technology for automation, operational efficiencies, and better security. The 360 offering we launched out there, the digital experience, we have Copilot. It's natural for us to work on the agent technology to take to the next level. AI agents for breach prediction. These are the new area. Security operations for automation. New areas we're working on. Then the third area, that's kind of a very exciting area as well, and this is securing use of private AI applications. Our customers actually are building private apps. They're private large language models in the data center, in the cloud. ZDX Copilot we launched a few months ago has been very, very popular to figure out troubleshooting and the like, and in fact, the segmentation of application and all is being powered by AI. zdx copilot we launched a few months ago has been very very popular to figure out troubleshooting and the like and in fact the segmentation of application and all is being powered by ai That's what we have done, and the next big area we are working on in this area is agent technology for automation, operational efficiencies, and better security. that's what we have done and the next big area we are working on in this area is agent technology for automation operational efficiencies and better security The 360 offering we launched out there, the digital experience, we have Copilot. the 360 offering we launched out there the digital experience we have copilot It's natural for us to work on the agent technology to take to the next level. it's natural for us to work on the agent technology to take to the next level AI agents for breach prediction. ai agents for breach prediction These are the new area. these are the new area Security operations for automation. security operations for automation New areas we're working on. new areas we're working on Then the third area, that's kind of a very exciting area as well, and this is securing use of private AI applications. then the third area that's kind of a very exciting area as well and this is securing use of private ai applications Our customers actually are building private apps. our customers actually are building private apps They're private large language models in the data center, in the cloud. they're private large language models in the data center in the cloud How do you secure them? How do you make sure only the right use gets done? So we are doing, we are essentially building a proxy, large language model proxy. We're sitting in line. This is through API calls. We can check the prompts to figure out if this prompt is good, a prompt is not good. Should it be blocked? Should it not be blocked? The response coming back needs to be analyzed to see if the right responses get sent back. There's also a risk of data poisoning. There's a risk of prompt injection. Those are the type of things we are inspecting for and detecting to make sure your private AI apps remain secure and they only are used in a meaningful fashion. How do you secure them? how do you secure them How do you make sure only the right use gets done? how do you make sure only the right use gets done So we are doing, we are essentially building a proxy, large language model proxy. so we are doing we are essentially building a proxy large language model proxy We're sitting in line. we're sitting in line This is through API calls. this is through api calls We can check the prompts to figure out if this prompt is good, a prompt is not good. we can check the prompts to figure out if this prompt is good a prompt is not good Should it be blocked? should it be blocked Should it not be blocked? should it not be blocked The response coming back needs to be analyzed to see if the right responses get sent back. the response coming back needs to be analyzed to see if the right responses get sent back There's also a risk of data poisoning. there's also a risk of data poisoning There's a risk of prompt injection. there's a risk of prompt injection Those are the type of things we are inspecting for and detecting to make sure your private AI apps remain secure and they only are used in a meaningful fashion. those are the type of things we are inspecting for and detecting to make sure your private ai apps remain secure and they only are used in a meaningful fashion So that's a high-level view of the kind of things we're doing in the AI area and for entities that we provide zero-trust communication for. With that, Mike, back over to you. So that's a high-level view of the kind of things we're doing in the AI area and for entities that we provide zero-trust communication for. so that's a high-level view of the kind of things we're doing in the ai area and for entities that we provide zero-trust communication for With that, Mike, back over to you. with that mike back over to you

Speaker 1: Great. Thanks, Jay. And just sticking with the AI theme for a second while we're already here. But for Zscaler's Copilot offering, can you talk about what's involved from the customer standpoint to deploy and get those offerings up and running? Have we measured or quantified yet just how quickly customers can generate time to value? How quickly is that accelerated because of Zscaler's Copilot offering? Great. great Thanks, Jay. thanks jay And just sticking with the AI theme for a second while we're already here. and just sticking with the ai theme for a second while we're already here But for Zscaler's Copilot offering, can you talk about what's involved from the customer standpoint to deploy and get those offerings up and running? but for zscaler's copilot offering can you talk about what's involved from the customer standpoint to deploy and get those offerings up and running Have we measured or quantified yet just how quickly customers can generate time to value? have we measured or quantified yet just how quickly customers can generate time to value How quickly is that accelerated because of Zscaler's Copilot offering? how quickly is that accelerated because of zscaler's copilot offering

Speaker 2: Yeah. One of the key Copilot that's out there in production for quite some time is ZDX Copilot. One of the hard problems customers have is when a user calls IT and says, "Things are slow. I'm at home. I'm in this hotel. Things are not working well." IT struggles to figure out where to start. Is it application? Is it network? Is it PCs? Wi-Fi? What the issues are? With ZDX, you could go and look at X number of things to figure it out, and we make it easier. But Copilot is actually able to take, if somebody needs to spend five minutes to figure out what the issue is, literally, ZDX Copilot is helping them figure out in a minute or two. Yeah. yeah One of the key Copilot that's out there in production for quite some time is ZDX Copilot. one of the key copilot that's out there in production for quite some time is zdx copilot One of the hard problems customers have is when a user calls IT and says, "Things are slow. one of the hard problems customers have is when a user calls it and says "things are slow I'm at home. i'm at home I'm in this hotel. i'm in this hotel Things are not working well." IT struggles to figure out where to start. things are not working well." it struggles to figure out where to start Is it application? is it application Is it network? is it network Is it PCs? is it pcs Wi-Fi? wi-fi What the issues are? what the issues are With ZDX, you could go and look at X number of things to figure it out, and we make it easier. with zdx you could go and look at x number of things to figure it out and we make it easier But Copilot is actually able to take, if somebody needs to spend five minutes to figure out what the issue is, literally, ZDX Copilot is helping them figure out in a minute or two. but copilot is actually able to take if somebody needs to spend five minutes to figure out what the issue is literally zdx copilot is helping them figure out in a minute or two We're seeing customers talking about the time to detect issues can be cut down by somewhere in the two-thirds to one-third or half kind of stuff is the data I've gotten for lots of customers, which is very, very good. That means fewer resources needed for troubleshooting, and the customers, the user, gets back to what they need to do much faster. We're seeing customers talking about the time to detect issues can be cut down by somewhere in the two-thirds to one-third or half kind of stuff is the data I've gotten for lots of customers, which is very, very good. we're seeing customers talking about the time to detect issues can be cut down by somewhere in the two-thirds to one-third or half kind of stuff is the data i've gotten for lots of customers which is very very good That means fewer resources needed for troubleshooting, and the customers, the user, gets back to what they need to do much faster. that means fewer resources needed for troubleshooting and the customers the user gets back to what they need to do much faster

Speaker 1: Excellent. Excellent, and just to maybe think about this more holistically, but if we just take a step back and look at AI and the monetization opportunity, how does Zscaler think about that monetization? We're talking about massive opportunity with Microsoft 365, right? So how is it you guys are looking to make sure that you're capturing value versus other industries are just going to have to embed this technology and they can't necessarily monetize it? Excellent. excellent Excellent, and just to maybe think about this more holistically, but if we just take a step back and look at AI and the monetization opportunity, how does Zscaler think about that monetization? excellent and just to maybe think about this more holistically but if we just take a step back and look at ai and the monetization opportunity how does zscaler think about that monetization We're talking about massive opportunity with Microsoft 365, right? we're talking about massive opportunity with microsoft 365 right So how is it you guys are looking to make sure that you're capturing value versus other industries are just going to have to embed this technology and they can't necessarily monetize it? so how is it you guys are looking to make sure that you're capturing value versus other industries are just going to have to embed this technology and they can't necessarily monetize it

Speaker 2: I think the answer will be both. Some of it will need to be embedded because your technology needs to leverage AI, but when the tangible areas our customers are willing to pay for it, Copilot, people will start charging a Copilot, but eventually, Copilot will become the next UI. But then the agents will come to the technology you start charging for. So as the sophistication goes up, you charge, and over time, you'll probably charge less. The next value needs to be added. That's what we're doing in many of these areas. But for example, our customers are happy to pay extra for ZDX Copilot. But the big area, I believe, for us is as we really work on our security language models by taking 500 billion logs and start doing better detection, faster detection. I think the answer will be both. i think the answer will be both Some of it will need to be embedded because your technology needs to leverage AI, but when the tangible areas our customers are willing to pay for it, Copilot, people will start charging a Copilot, but eventually, Copilot will become the next UI. some of it will need to be embedded because your technology needs to leverage ai but when the tangible areas our customers are willing to pay for it copilot people will start charging a copilot but eventually copilot will become the next ui But then the agents will come to the technology you start charging for. but then the agents will come to the technology you start charging for So as the sophistication goes up, you charge, and over time, you'll probably charge less. so as the sophistication goes up you charge and over time you'll probably charge less The next value needs to be added. the next value needs to be added That's what we're doing in many of these areas. that's what we're doing in many of these areas But for example, our customers are happy to pay extra for ZDX Copilot. but for example our customers are happy to pay extra for zdx copilot But the big area, I believe, for us is as we really work on our security language models by taking 500 billion logs and start doing better detection, faster detection. but the big area i believe for us is as we really work on our security language models by taking 500 billion logs and start doing better detection faster detection This has the potential to essentially disrupt traditional detection technology, response, and investigation type of stuff. That's a significant big opportunity for us for the long run. This has the potential to essentially disrupt traditional detection technology, response, and investigation type of stuff. this has the potential to essentially disrupt traditional detection technology response and investigation type of stuff That's a significant big opportunity for us for the long run. that's a significant big opportunity for us for the long run

Speaker 1: Awesome. And on that Copilot's point, in the top of the call with the presentation, but you had said it had led to one of the deals on the most recent quarter. I imagine that's the seven-figure ACV deal with that Global 2000 customer. I'd love to get a sense of when Copilots or when these AI offerings are being introduced, how does the sales process change? Are the cycles slightly longer? Is there a different cast of characters as far as the procurement process? Anything that would be incremental? Awesome. awesome And on that Copilot's point, in the top of the call with the presentation, but you had said it had led to one of the deals on the most recent quarter. and on that copilot's point in the top of the call with the presentation but you had said it had led to one of the deals on the most recent quarter I imagine that's the seven-figure ACV deal with that Global 2000 customer. i imagine that's the seven-figure acv deal with that global 2000 customer I'd love to get a sense of when Copilots or when these AI offerings are being introduced, how does the sales process change? i'd love to get a sense of when copilots or when these ai offerings are being introduced how does the sales process change Are the cycles slightly longer? are the cycles slightly longer Is there a different cast of characters as far as the procurement process? is there a different cast of characters as far as the procurement process Anything that would be incremental? anything that would be incremental

Speaker 2: So if a customer is actually accelerating the deployment of some of these AI technologies, the sales process accelerates. The example we gave for this, securing Microsoft Copilot, this customer actually wanted to roll it out and start using them, holding it back because they're not sure about the data privacy to see who has access to what data. Concern was, could someone be checking salaries of these different employees? Because Copilot essentially picks it up for all these OneDrive and SharePoint kind of stuff. So that type of stuff accelerates. I think if you are starting a totally new AI project, it'll have its own sales cycle. We are leveraging AI along with the traditional sales cycle to add value, to increase the deal size or accelerate the deal size, accelerate the deal timing size. So if a customer is actually accelerating the deployment of some of these AI technologies, the sales process accelerates. so if a customer is actually accelerating the deployment of some of these ai technologies the sales process accelerates The example we gave for this, securing Microsoft Copilot, this customer actually wanted to roll it out and start using them, holding it back because they're not sure about the data privacy to see who has access to what data. the example we gave for this securing microsoft copilot this customer actually wanted to roll it out and start using them holding it back because they're not sure about the data privacy to see who has access to what data Concern was, could someone be checking salaries of these different employees? concern was could someone be checking salaries of these different employees Because Copilot essentially picks it up for all these OneDrive and SharePoint kind of stuff. because copilot essentially picks it up for all these onedrive and sharepoint kind of stuff So that type of stuff accelerates. so that type of stuff accelerates I think if you are starting a totally new AI project, it'll have its own sales cycle. i think if you are starting a totally new ai project it'll have its own sales cycle We are leveraging AI along with the traditional sales cycle to add value, to increase the deal size or accelerate the deal size, accelerate the deal timing size. we are leveraging ai along with the traditional sales cycle to add value to increase the deal size or accelerate the deal size accelerate the deal timing size

Speaker 1: Got it. Got it. And I know we were, I think it was the first slide you had brought up, was really talking to how Zscaler has been built and maybe some of those architectural decisions that you guys went through, the nitty-gritty and the hard stuff early to ensure that you have this platform today. Again, just for the audience here, but can you walk through how those architectural decisions have led to this unique value prop versus how competitors may not have the same kind of inside baseball that you guys have at this time? Got it. got it Got it. got it And I know we were, I think it was the first slide you had brought up, was really talking to how Zscaler has been built and maybe some of those architectural decisions that you guys went through, the nitty-gritty and the hard stuff early to ensure that you have this platform today. and i know we were i think it was the first slide you had brought up was really talking to how zscaler has been built and maybe some of those architectural decisions that you guys went through the nitty-gritty and the hard stuff early to ensure that you have this platform today Again, just for the audience here, but can you walk through how those architectural decisions have led to this unique value prop versus how competitors may not have the same kind of inside baseball that you guys have at this time? again just for the audience here but can you walk through how those architectural decisions have led to this unique value prop versus how competitors may not have the same kind of inside baseball that you guys have at this time

Speaker 2: Yeah. If you look at it from an architecture point of view, what we built is fundamentally different. In the traditional world, what you do is it's a network-centric world. You build a mesh network, then you connect everything to everything. You manage route tables, then you would firewall as a moat, VPN, all that kind of stuff. We reimagined the network. We reimagined security. In the Zscaler world, you don't have to have your own network. Internet becomes a corporate network. Just like when you have public highways, you do not need private roads, and then our world was, you don't need any firewalls. We're not building moats. Everyone is untrusted. That's why we're fundamentally a switchboard. We are like a policy engine. Yeah. yeah If you look at it from an architecture point of view, what we built is fundamentally different. if you look at it from an architecture point of view what we built is fundamentally different In the traditional world, what you do is it's a network-centric world. in the traditional world what you do is it's a network-centric world You build a mesh network, then you connect everything to everything. you build a mesh network then you connect everything to everything You manage route tables, then you would firewall as a moat, VPN, all that kind of stuff. you manage route tables then you would firewall as a moat vpn all that kind of stuff We reimagined the network. we reimagined the network We reimagined security. we reimagined security In the Zscaler world, you don't have to have your own network. in the zscaler world you don't have to have your own network Internet becomes a corporate network. internet becomes a corporate network Just like when you have public highways, you do not need private roads, and then our world was, you don't need any firewalls. just like when you have public highways you do not need private roads and then our world was you don't need any firewalls We're not building moats. we're not building moats Everyone is untrusted. everyone is untrusted That's why we're fundamentally a switchboard. that's why we're fundamentally a switchboard We are like a policy engine. we are like a policy engine That engine says, "Who can connect with whom?" If I use one diagram to show you a little bit view of our architecture, very clean and simple. Applications are sitting out there just like an island. User devices are sitting out there somewhere. We are the policy engine. We start with identity checks. We're not the business of offering identity. We work with all the leaders. We can define which application, which user can access. We are continually checking risk based on the behavior and the like. And then we can make connection to the right application. Period. Everything is untrusted. There's no such thing as trusted network. This is what we have done with Zscaler. Now, when a firewall company says, "We do Zero Trust too," what do they do? They build this mesh network. You've got a traditional model, firewall sitting in various locations out there. That engine says, "Who can connect with whom?" If I use one diagram to show you a little bit view of our architecture, very clean and simple. that engine says "who can connect with whom?" if i use one diagram to show you a little bit view of our architecture very clean and simple Applications are sitting out there just like an island. applications are sitting out there just like an island User devices are sitting out there somewhere. user devices are sitting out there somewhere We are the policy engine. we are the policy engine We start with identity checks. we start with identity checks We're not the business of offering identity. we're not the business of offering identity We work with all the leaders. we work with all the leaders We can define which application, which user can access. we can define which application which user can access We are continually checking risk based on the behavior and the like. we are continually checking risk based on the behavior and the like And then we can make connection to the right application. and then we can make connection to the right application Period. period Everything is untrusted. everything is untrusted There's no such thing as trusted network. there's no such thing as trusted network This is what we have done with Zscaler. this is what we have done with zscaler Now, when a firewall company says, "We do Zero Trust too," what do they do? now when a firewall company says "we do zero trust too," what do they do They build this mesh network. they build this mesh network You've got a traditional model, firewall sitting in various locations out there. you've got a traditional model firewall sitting in various locations out there But since they want to claim they can do Zero Trust in cloud security, they'll say, "I'll spin up these firewalls in the cloud as virtual firewalls. Don't worry about buying my boxes." How about VPN? Well, they can spin up VPN in the cloud as well. In spite of that, it's still a mesh network. Everything connects to everything. There's a lateral movement out there. This doesn't solve any of the problems. In fact, this gives a false sense of security. So in this model, this architecture is like a bridge. Once the firewall opens up, traffic starts flowing, good and bad. We are like a switch. One thing gets connected at a time. Unless these firewall guys re-architect or start from scratch, you can't keep on bolting things on a firewall and say, "I got a Zero Trust architecture." It's fundamentally different. But since they want to claim they can do Zero Trust in cloud security, they'll say, "I'll spin up these firewalls in the cloud as virtual firewalls. but since they want to claim they can do zero trust in cloud security they'll say "i'll spin up these firewalls in the cloud as virtual firewalls Don't worry about buying my boxes." How about VPN? don't worry about buying my boxes." how about vpn Well, they can spin up VPN in the cloud as well. well they can spin up vpn in the cloud as well In spite of that, it's still a mesh network. in spite of that it's still a mesh network Everything connects to everything. everything connects to everything There's a lateral movement out there. there's a lateral movement out there This doesn't solve any of the problems. this doesn't solve any of the problems In fact, this gives a false sense of security. in fact this gives a false sense of security So in this model, this architecture is like a bridge. so in this model this architecture is like a bridge Once the firewall opens up, traffic starts flowing, good and bad. once the firewall opens up traffic starts flowing good and bad We are like a switch. we are like a switch One thing gets connected at a time. one thing gets connected at a time Unless these firewall guys re-architect or start from scratch, you can't keep on bolting things on a firewall and say, "I got a Zero Trust architecture." It's fundamentally different. unless these firewall guys re-architect or start from scratch you can't keep on bolting things on a firewall and say "i got a zero trust architecture." it's fundamentally different

Speaker 1: Excellent. Excellent. And it's probably starting to go into the go-to-market angle here. But from a high level for these GenAI offerings that you guys have, are we at a significant enough volume with your customers at this point to start thinking about what that associated uplift to the deal value is at this time? Excellent. excellent Excellent. excellent And it's probably starting to go into the go-to-market angle here. and it's probably starting to go into the go-to-market angle here But from a high level for these GenAI offerings that you guys have, are we at a significant enough volume with your customers at this point to start thinking about what that associated uplift to the deal value is at this time? but from a high level for these genai offerings that you guys have are we at a significant enough volume with your customers at this point to start thinking about what that associated uplift to the deal value is at this time

Speaker 2: So it is still early stage from volume point of view, but the direction is in the right direction. When we add our AI-based technology to some of our bundles, we are able to get the bundle price up in the 20% range. So we are not trying to say, "I need to lead in as a separate AI product," because AI is making things smarter. The example I gave you, ZDX and ZDX with Copilot, customers see distinct value. That's why they're ready to give a better price. So it is still early stage from volume point of view, but the direction is in the right direction. so it is still early stage from volume point of view but the direction is in the right direction When we add our AI-based technology to some of our bundles, we are able to get the bundle price up in the 20% range. when we add our ai-based technology to some of our bundles we are able to get the bundle price up in the 20% range So we are not trying to say, "I need to lead in as a separate AI product," because AI is making things smarter. so we are not trying to say "i need to lead in as a separate ai product," because ai is making things smarter The example I gave you, ZDX and ZDX with Copilot, customers see distinct value. the example i gave you zdx and zdx with copilot customers see distinct value That's why they're ready to give a better price. that's why they're ready to give a better price

Speaker 1: Excellent. Okay. And from a go-to-market standpoint, does that require you to introduce more sales heads into the sales process? I know that you have your CRO, Mike Rich, who's been implementing some go-to-market changes, but just interested if you need more architects now as a result of this kind of sale. Excellent. excellent Okay. okay And from a go-to-market standpoint, does that require you to introduce more sales heads into the sales process? and from a go-to-market standpoint does that require you to introduce more sales heads into the sales process I know that you have your CRO, Mike Rich, who's been implementing some go-to-market changes, but just interested if you need more architects now as a result of this kind of sale. i know that you have your cro mike rich who's been implementing some go-to-market changes but just interested if you need more architects now as a result of this kind of sale

Speaker 2: So it doesn't. We are not trying to change how things work. In fact, we are reducing the complexity of interacting with our application. In fact, it is reducing the amount of training we have to give it to our customers to use our services and products. From a sales point of view, we do need to train our salespeople so they can have AI-centric discussion, explain how the functionality works. But they don't need to explain how the large language model gets trained underneath. By and large, customers need to know, "If I did these things and it took me so long and this level of complexity, I can do it faster and better with all my training on it. So it doesn't. so it doesn't We are not trying to change how things work. we are not trying to change how things work In fact, we are reducing the complexity of interacting with our application. in fact we are reducing the complexity of interacting with our application In fact, it is reducing the amount of training we have to give it to our customers to use our services and products. From a sales point of view, we do need to train our salespeople so they can have AI-centric discussion, explain how the functionality works. in fact it is reducing the amount of training we have to give it to our customers to use our services and products. from a sales point of view we do need to train our salespeople so they can have ai-centric discussion explain how the functionality works But they don't need to explain how the large language model gets trained underneath. but they don't need to explain how the large language model gets trained underneath By and large, customers need to know, "If I did these things and it took me so long and this level of complexity, I can do it faster and better with all my training on it. by and large customers need to know "if i did these things and it took me so long and this level of complexity i can do it faster and better with all my training on it

Speaker 1: Got it. And again, just thinking about that sales process, the different personas brought in, are you potentially or were you already in some way already tackling, let's say, compliance, legal? Again, I think about the number of people that may need to be brought in for these kinds of decisions and the implications that might have for sign-off on a deal, right? Got it. got it And again, just thinking about that sales process, the different personas brought in, are you potentially or were you already in some way already tackling, let's say, compliance, legal? and again just thinking about that sales process the different personas brought in are you potentially or were you already in some way already tackling let's say compliance legal Again, I think about the number of people that may need to be brought in for these kinds of decisions and the implications that might have for sign-off on a deal, right? again i think about the number of people that may need to be brought in for these kinds of decisions and the implications that might have for sign-off on a deal right

Speaker 2: Yes. So Zscaler has traditionally dealt with three C-level people: CIO, the overall leader in IT, who's responsible for application security and network and the like, and head of network and head of security. Compliance has been part of it all along. Actually, Zscaler helps you achieve a lot of compliance. Now, in this new world with AI stuff, a lot of customers looking at is your solution compliant, for example. The question does come up, but we are actually out there to make sure you are using AI with compliance. The first thing I talk to you about, secure use of AI, being able to enforce policy and compliance, who can access what, who could be posting what kind of data where. We actually are helping with the compliance side of it. Do additional questions? Are they beginning to come up? Yes. Yes. yes So Zscaler has traditionally dealt with three C-level people: CIO, the overall leader in IT, who's responsible for application security and network and the like, and head of network and head of security. so zscaler has traditionally dealt with three c-level people cio the overall leader in it who's responsible for application security and network and the like and head of network and head of security Compliance has been part of it all along. compliance has been part of it all along Actually, Zscaler helps you achieve a lot of compliance. actually zscaler helps you achieve a lot of compliance Now, in this new world with AI stuff, a lot of customers looking at is your solution compliant, for example. now in this new world with ai stuff a lot of customers looking at is your solution compliant for example The question does come up, but we are actually out there to make sure you are using AI with compliance. the question does come up but we are actually out there to make sure you are using ai with compliance The first thing I talk to you about, secure use of AI, being able to enforce policy and compliance, who can access what, who could be posting what kind of data where. the first thing i talk to you about secure use of ai being able to enforce policy and compliance who can access what who could be posting what kind of data where We actually are helping with the compliance side of it. we actually are helping with the compliance side of it Do additional questions? do additional questions Are they beginning to come up? are they beginning to come up Yes. yes Are they a big part of it in our solution today? Not quite. Are they a big part of it in our solution today? are they a big part of it in our solution today Not quite. not quite

Speaker 1: Okay. Got it. Got it. Well, you're obviously seeing traction there, especially given the AI analytics stat that you gave. I think it was that new and upsell ACV was up north of 90%. So kudos on that. If we shift gears for a second to going back to the earnings call you guys hosted in early December, you had gone out of your way, I think, in the remarks to talk about ZPA as being a large growth driver in the upcoming year. I guess, what are you seeing and hearing in customer conversations that gives you that confidence? Is there anything from a competitive landscape or maybe the pipeline build? Just help walk us through that comment, please. Okay. okay Got it. got it Got it. got it Well, you're obviously seeing traction there, especially given the AI analytics stat that you gave. well you're obviously seeing traction there especially given the ai analytics stat that you gave I think it was that new and upsell ACV was up north of 90%. i think it was that new and upsell acv was up north of 90% So kudos on that. so kudos on that If we shift gears for a second to going back to the earnings call you guys hosted in early December, you had gone out of your way, I think, in the remarks to talk about ZPA as being a large growth driver in the upcoming year. if we shift gears for a second to going back to the earnings call you guys hosted in early december you had gone out of your way i think in the remarks to talk about zpa as being a large growth driver in the upcoming year I guess, what are you seeing and hearing in customer conversations that gives you that confidence? i guess what are you seeing and hearing in customer conversations that gives you that confidence Is there anything from a competitive landscape or maybe the pipeline build? is there anything from a competitive landscape or maybe the pipeline build Just help walk us through that comment, please. just help walk us through that comment please

Speaker 2: So I think we assured with our investors that in large customers, over 60% of large customers already bought ZPA, which is pretty remarkable. We also shared that if you look at the new ACV, new business of ZI and ZPA, ZPA now forms over 40% of it. I mean, but six years ago, it was zero. To take out 40-plus % of a ZI, which has grown pretty rapidly, is a pretty remarkable thing. I mean, could it get to 50%? Probably yes. And via internal discussion, say, "Man, if it goes over 50%, I'll be unhappy because then ZI is not growing fast enough." But there are opportunities out there. So it started by VPN replacement early on. But now the biggest driver of ZPA has become minimizing or eliminating ransomware attacks. So I think we assured with our investors that in large customers, over 60% of large customers already bought ZPA, which is pretty remarkable. so i think we assured with our investors that in large customers over 60% of large customers already bought zpa which is pretty remarkable We also shared that if you look at the new ACV, new business of ZI and ZPA, ZPA now forms over 40% of it. we also shared that if you look at the new acv new business of zi and zpa zpa now forms over 40% of it I mean, but six years ago, it was zero. i mean but six years ago it was zero To take out 40-plus % of a ZI, which has grown pretty rapidly, is a pretty remarkable thing. to take out 40-plus % of a zi which has grown pretty rapidly is a pretty remarkable thing I mean, could it get to 50%? i mean could it get to 50% Probably yes. probably yes And via internal discussion, say, "Man, if it goes over 50%, I'll be unhappy because then ZI is not growing fast enough." But there are opportunities out there. and via internal discussion say "man if it goes over 50% i'll be unhappy because then zi is not growing fast enough." but there are opportunities out there So it started by VPN replacement early on. so it started by vpn replacement early on But now the biggest driver of ZPA has become minimizing or eliminating ransomware attacks. but now the biggest driver of zpa has become minimizing or eliminating ransomware attacks The typical way ransomware attacks happen is they get on the network, this so-called trusted flat network, by stealing identity and logging through a VPN or something out there. Once they're on the network, they move laterally, they find high-value asset, encrypt it, and the game is over. ZPA, by default, doesn't allow you to do lateral movement on the network. You're never on the network. Then you can go a step beyond. ZPA allows you to do application-to-user segmentation like, so if somebody got in, you can get into one application, but you can't literally go laterally and try to find others and spread against it. These are the type of values our customers are doing more and more. In this, in fact, one of the exciting use cases of ZPA ends up being, when it started out, you used it from home. The typical way ransomware attacks happen is they get on the network, this so-called trusted flat network, by stealing identity and logging through a VPN or something out there. the typical way ransomware attacks happen is they get on the network this so-called trusted flat network by stealing identity and logging through a vpn or something out there Once they're on the network, they move laterally, they find high-value asset, encrypt it, and the game is over. once they're on the network they move laterally they find high-value asset encrypt it and the game is over ZPA, by default, doesn't allow you to do lateral movement on the network. zpa by default doesn't allow you to do lateral movement on the network You're never on the network. you're never on the network Then you can go a step beyond. then you can go a step beyond ZPA allows you to do application-to-user segmentation like, so if somebody got in, you can get into one application, but you can't literally go laterally and try to find others and spread against it. zpa allows you to do application-to-user segmentation like so if somebody got in you can get into one application but you can't literally go laterally and try to find others and spread against it These are the type of values our customers are doing more and more. these are the type of values our customers are doing more and more In this, in fact, one of the exciting use cases of ZPA ends up being, when it started out, you used it from home. in this in fact one of the exciting use cases of zpa ends up being when it started out you used it from home Now, every office is becoming such that the users at the headquarters or your regional office are not on your corporate network. They're on a guest network, and through ZPA they come through our policy engine and access applications, not just moving on the corporate network. It's a big deal. The next phase of Zero Trust is becoming the branch. That's where we launched a Zero Trust Branch appliance. Your branch becomes an island. It's like Starbucks. In fact, I'm excited to see more and more customers are saying, "I need to eliminate my SD-WAN because SD-WAN helped me reduce the cost of MPLS," but SD-WAN is like any other network. Once you get in the branch, you get on the network, you move laterally, you can infect everything out there. Now, every office is becoming such that the users at the headquarters or your regional office are not on your corporate network. now every office is becoming such that the users at the headquarters or your regional office are not on your corporate network They're on a guest network, and through ZPA they come through our policy engine and access applications, not just moving on the corporate network. they're on a guest network and through zpa they come through our policy engine and access applications not just moving on the corporate network It's a big deal. it's a big deal The next phase of Zero Trust is becoming the branch. the next phase of zero trust is becoming the branch That's where we launched a Zero Trust Branch appliance. that's where we launched a zero trust branch appliance Your branch becomes an island. your branch becomes an island It's like Starbucks. it's like starbucks In fact, I'm excited to see more and more customers are saying, "I need to eliminate my SD-WAN because SD-WAN helped me reduce the cost of MPLS," but SD-WAN is like any other network. in fact i'm excited to see more and more customers are saying "i need to eliminate my sd-wan because sd-wan helped me reduce the cost of mpls," but sd-wan is like any other network Once you get in the branch, you get on the network, you move laterally, you can infect everything out there. once you get in the branch you get on the network you move laterally you can infect everything out there So the opportunity to further simplify this network complexity and reduce lateral movement, the risk and the like, is massive. That's why customers see the difference, even when the competition comes and say, "Oh, we got ZPA-like stuff too." The biggest thing they got is some basic VPN replacement functionality. So the opportunity to further simplify this network complexity and reduce lateral movement, the risk and the like, is massive. so the opportunity to further simplify this network complexity and reduce lateral movement the risk and the like is massive That's why customers see the difference, even when the competition comes and say, "Oh, we got ZPA-like stuff too." The biggest thing they got is some basic VPN replacement functionality. that's why customers see the difference even when the competition comes and say "oh we got zpa-like stuff too." the biggest thing they got is some basic vpn replacement functionality

Speaker 1: I know a lot's been made about this upcoming firewall refresh, right? I know that you guys have been vocal as far as stand to benefit from this cycle. First question, just super high level, but is this firewall refresh more pertinent for Zscaler today versus the last cycle in your view? I know a lot's been made about this upcoming firewall refresh, right? i know a lot's been made about this upcoming firewall refresh right I know that you guys have been vocal as far as stand to benefit from this cycle. i know that you guys have been vocal as far as stand to benefit from this cycle First question, just super high level, but is this firewall refresh more pertinent for Zscaler today versus the last cycle in your view? first question just super high level but is this firewall refresh more pertinent for zscaler today versus the last cycle in your view

Speaker 2: Oh, absolutely. In fact, when I was asked during the last cycle, "Is there an opportunity for you to replace firewalls?" The answer was, "Not really." At the time, we needed some device to send traffic from the branch. And we could say, "You could replace North-South firewall and send traffic to us." Then they would say, "With whom? What do I do? Is it SD-WAN? Is it not?" We didn't have clean answers, so that's why my answer was, "Not really." But today, where we are with two main changes we added to our product line, it's a big opportunity. One is our Zero Trust appliance. It eliminates North-South firewalls and some of the related stuff out there, the DNS, DHCP, all those things. So that's the branch connecting to the internet. Oh, absolutely. oh absolutely In fact, when I was asked during the last cycle, "Is there an opportunity for you to replace firewalls?" The answer was, "Not really." At the time, we needed some device to send traffic from the branch. in fact when i was asked during the last cycle "is there an opportunity for you to replace firewalls?" the answer was "not really." at the time we needed some device to send traffic from the branch And we could say, "You could replace North-South firewall and send traffic to us." Then they would say, "With whom? and we could say "you could replace north-south firewall and send traffic to us." then they would say "with whom What do I do? what do i do Is it SD-WAN? is it sd-wan Is it not?" We didn't have clean answers, so that's why my answer was, "Not really." But today, where we are with two main changes we added to our product line, it's a big opportunity. is it not?" we didn't have clean answers so that's why my answer was "not really." but today where we are with two main changes we added to our product line it's a big opportunity One is our Zero Trust appliance. one is our zero trust appliance It eliminates North-South firewalls and some of the related stuff out there, the DNS, DHCP, all those things. it eliminates north-south firewalls and some of the related stuff out there the dns dhcp all those things So that's the branch connecting to the internet. so that's the branch connecting to the internet Then the customer said, "Many of my branches have East-West firewall for segmentation and the like." Our acquisition of Airgap Networking about six to eight months ago actually gives us a very cool, exciting capability to eliminate those firewalls and NAC segmentation and all the stuff. Your branch becomes simple. One simple appliance or two for failover can trigger all the stuff. We plan to participate in this area. Now, we're not going to go to the market and say, "I'm a better firewall than those guys out there." Or I'm not going to say, "We're going to replace every firewall everywhere." Our customer base understands the value of Zero Trust. They understand the complexity of managing hundreds of firewalls and hundreds of branches out there. Then the customer said, "Many of my branches have East-West firewall for segmentation and the like." Our acquisition of Airgap Networking about six to eight months ago actually gives us a very cool, exciting capability to eliminate those firewalls and NAC segmentation and all the stuff. then the customer said "many of my branches have east-west firewall for segmentation and the like." our acquisition of airgap networking about six to eight months ago actually gives us a very cool exciting capability to eliminate those firewalls and nac segmentation and all the stuff Your branch becomes simple. your branch becomes simple One simple appliance or two for failover can trigger all the stuff. one simple appliance or two for failover can trigger all the stuff We plan to participate in this area. we plan to participate in this area Now, we're not going to go to the market and say, "I'm a better firewall than those guys out there." Or I'm not going to say, "We're going to replace every firewall everywhere." Our customer base understands the value of Zero Trust. now we're not going to go to the market and say "i'm a better firewall than those guys out there." or i'm not going to say "we're going to replace every firewall everywhere." our customer base understands the value of zero trust They understand the complexity of managing hundreds of firewalls and hundreds of branches out there. they understand the complexity of managing hundreds of firewalls and hundreds of branches out there So they are more and more getting engaged with us to say, "I'm going to replace my SD-WAN firewalls, NAC, and all the stuff in the branches and save money." In fact, we highlighted a very good example of a customer in the auto parts area who's actually replacing the branch firewalls and segmentation all inside. We are getting some very, very good early wins in this area. Excited. So we plan to participate in it at the getting to the branch level. There'll be still some firewalls left in the data center. I tell you, the reason we don't mess with the data center, it's so complex and the customer doesn't even understand what all is being done with what. And they tell me, "My data center is getting phased out over time. Let's not focus on the data center. Let's focus on the rest of the stuff. So they are more and more getting engaged with us to say, "I'm going to replace my SD-WAN firewalls, NAC, and all the stuff in the branches and save money." In fact, we highlighted a very good example of a customer in the auto parts area who's actually replacing the branch firewalls and segmentation all inside. so they are more and more getting engaged with us to say "i'm going to replace my sd-wan firewalls nac and all the stuff in the branches and save money." in fact we highlighted a very good example of a customer in the auto parts area who's actually replacing the branch firewalls and segmentation all inside We are getting some very, very good early wins in this area. we are getting some very very good early wins in this area Excited. excited So we plan to participate in it at the getting to the branch level. so we plan to participate in it at the getting to the branch level There'll be still some firewalls left in the data center. there'll be still some firewalls left in the data center I tell you, the reason we don't mess with the data center, it's so complex and the customer doesn't even understand what all is being done with what. i tell you the reason we don't mess with the data center it's so complex and the customer doesn't even understand what all is being done with what And they tell me, "My data center is getting phased out over time. and they tell me "my data center is getting phased out over time Let's not focus on the data center. let's not focus on the data center Let's focus on the rest of the stuff. let's focus on the rest of the stuff

Speaker 1: Got it. Okay. But the way you're describing it, and correct me if I'm wrong, it sounds like these offerings. We're really going to be taking this to your existing customers. Got it. got it Okay. okay But the way you're describing it, and correct me if I'm wrong, it sounds like these offerings. but the way you're describing it and correct me if i'm wrong it sounds like these offerings We're really going to be taking this to your existing customers. we're really going to be taking this to your existing customers

Speaker 2: That is correct. That is correct. that is correct

Speaker 1: They've already recognized the value. Zscaler is a strategic partner for them. Okay. Got it. They've already recognized the value. they've already recognized the value Zscaler is a strategic partner for them. zscaler is a strategic partner for them Okay. okay Got it. got it

Speaker 2: It's a large and solid base. They've got almost 50 million users or 45% of Fortune 500 companies. It's a large and solid base. it's a large and solid base They've got almost 50 million users or 45% of Fortune 500 companies. they've got almost 50 million users or 45% of fortune 500 companies

Speaker 1: Excellent. For, let's say, device segmentation, how has traction or adoption trended there versus internal expectations? Who are customers traditionally displacing if they are displacing someone? TCO, cost savings, anything on that front for the device segmentation? Excellent. excellent For, let's say, device segmentation, how has traction or adoption trended there versus internal expectations? for let's say device segmentation how has traction or adoption trended there versus internal expectations Who are customers traditionally displacing if they are displacing someone? who are customers traditionally displacing if they are displacing someone TCO, cost savings, anything on that front for the device segmentation? tco cost savings anything on that front for the device segmentation

Speaker 2: Yeah. So our story about displacement is very, very exciting. And this is not just even segmentation. Probably I'll take a minute to walk you through the cost takeout opportunities we offer to our customer. It is fascinating, and it's becoming more and more important as customers are still trying to save money. So in a typical enterprise, people got a bunch of agents on the endpoint shown here. Your firewall or campus, a branch has firewalls, north, south, east, west. They got network access control called NAC. They got segmentation devices of some kind. And then they got multiple data centers with DMZ that has a bunch of firewalls, web gateways, load balancers, VDI kind of stuff. And there's some regional hubs where the traffic comes through and then goes out to the internet. Yeah. yeah So our story about displacement is very, very exciting. so our story about displacement is very very exciting And this is not just even segmentation. and this is not just even segmentation Probably I'll take a minute to walk you through the cost takeout opportunities we offer to our customer. probably i'll take a minute to walk you through the cost takeout opportunities we offer to our customer It is fascinating, and it's becoming more and more important as customers are still trying to save money. it is fascinating and it's becoming more and more important as customers are still trying to save money So in a typical enterprise, people got a bunch of agents on the endpoint shown here. so in a typical enterprise people got a bunch of agents on the endpoint shown here Your firewall or campus, a branch has firewalls, north, south, east, west. your firewall or campus a branch has firewalls north south east west They got network access control called NAC. they got network access control called nac They got segmentation devices of some kind. they got segmentation devices of some kind And then they got multiple data centers with DMZ that has a bunch of firewalls, web gateways, load balancers, VDI kind of stuff. and then they got multiple data centers with dmz that has a bunch of firewalls web gateways load balancers vdi kind of stuff And there's some regional hubs where the traffic comes through and then goes out to the internet. and there's some regional hubs where the traffic comes through and then goes out to the internet And then they got some software offerings, often in the cloud for that kind of access out there. Now and then they are connecting over the network, MPLS, traditional SD-WAN, and whatnot, and internet connection. Zscaler portfolio has become so large that we can replace all these products shown with access. The red color is generally security products. The gray color is essentially your networking products. So once you take this thing out, the picture looks like this. We end up essentially securing your endpoint, your branches, factories, and all, Zero Trust network connection. Now, the data center, we still, I'm showing you a few firewalls that are needed on the east-west side of it. And we work with, then you need three other partners who offer platforms in certain areas, MDM and EDR players, identity players, and operations for security operations and the like. And then they got some software offerings, often in the cloud for that kind of access out there. and then they got some software offerings often in the cloud for that kind of access out there Now and then they are connecting over the network, MPLS, traditional SD-WAN, and whatnot, and internet connection. now and then they are connecting over the network mpls traditional sd-wan and whatnot and internet connection Zscaler portfolio has become so large that we can replace all these products shown with access. zscaler portfolio has become so large that we can replace all these products shown with access The red color is generally security products. the red color is generally security products The gray color is essentially your networking products. the gray color is essentially your networking products So once you take this thing out, the picture looks like this. so once you take this thing out the picture looks like this We end up essentially securing your endpoint, your branches, factories, and all, Zero Trust network connection. we end up essentially securing your endpoint your branches factories and all zero trust network connection Now, the data center, we still, I'm showing you a few firewalls that are needed on the east-west side of it. now the data center we still i'm showing you a few firewalls that are needed on the east-west side of it And we work with, then you need three other partners who offer platforms in certain areas, MDM and EDR players, identity players, and operations for security operations and the like. and we work with then you need three other partners who offer platforms in certain areas, mdm and edr players identity players and operations for security operations and the like What's shown on the right side is all the stuff that gets taken out. Now, practically speaking, all this thing doesn't happen overnight. It's a phased journey. Our customers are in some stage of the journey. Based on the customer size, this thing happens probably somewhere in the, they start seeing savings in the first two quarters. But when you replace all this to go through this journey, it's generally about an 18 to 24-month journey, and you end up getting to the stage the diagram is shown on the right side. It is wonderful and exciting on the segmentation stuff. We are replacing a couple of things. One, the segmentation product sitting in your branch, in your factory. What are those? Generally, either you're doing it with East-West firewalls or you're doing it with VLANs type of switches. And then you're doing NAC kind of stuff out there. What's shown on the right side is all the stuff that gets taken out. what's shown on the right side is all the stuff that gets taken out Now, practically speaking, all this thing doesn't happen overnight. now practically speaking all this thing doesn't happen overnight It's a phased journey. it's a phased journey Our customers are in some stage of the journey. our customers are in some stage of the journey Based on the customer size, this thing happens probably somewhere in the, they start seeing savings in the first two quarters. based on the customer size this thing happens probably somewhere in the they start seeing savings in the first two quarters But when you replace all this to go through this journey, it's generally about an 18 to 24-month journey, and you end up getting to the stage the diagram is shown on the right side. but when you replace all this to go through this journey it's generally about an 18 to 24-month journey and you end up getting to the stage the diagram is shown on the right side It is wonderful and exciting on the segmentation stuff. it is wonderful and exciting on the segmentation stuff We are replacing a couple of things. we are replacing a couple of things One, the segmentation product sitting in your branch, in your factory. one the segmentation product sitting in your branch in your factory What are those? what are those Generally, either you're doing it with East-West firewalls or you're doing it with VLANs type of switches. generally either you're doing it with east-west firewalls or you're doing it with vlans type of switches And then you're doing NAC kind of stuff out there. and then you're doing nac kind of stuff out there All of that stuff goes away. There's some tangible savings from that. All of that stuff goes away. all of that stuff goes away There's some tangible savings from that. there's some tangible savings from that

Speaker 1: Excellent. And if we, I guess, again, just change over, but maybe a more macro question here. Again, investors have their pencils out thinking about the new year. What are you hearing or what's the tone of conversation you're currently having with customers? How's commentary trending? Excellent. excellent And if we, I guess, again, just change over, but maybe a more macro question here. and if we i guess again just change over but maybe a more macro question here Again, investors have their pencils out thinking about the new year. again investors have their pencils out thinking about the new year What are you hearing or what's the tone of conversation you're currently having with customers? what are you hearing or what's the tone of conversation you're currently having with customers How's commentary trending? how's commentary trending

Speaker 2: From budget and spend point of view, I see no concern on the cyber budget side of it. In fact, cyber is becoming more and more critical. It's not just on CISO's mind, it's CIO's mind, it's on board's mind, it's audit committee's mind as well. Most customers I talk to, and I talk to lots of them, the cyber budgets are generally flat or maybe 5% or 10% up. They have been going up. Most cases, they're up to some degree. Now, IT budgets aren't generally up. It's common. Some of these IT budgets are flat, and some may have gone up, but in many cases, customers are asking for, "How do I reduce cost?" And some of the money may be getting redirected towards some of the AI projects. So I see pressure on the IT side of it, not the cyber side of it. From budget and spend point of view, I see no concern on the cyber budget side of it. from budget and spend point of view i see no concern on the cyber budget side of it In fact, cyber is becoming more and more critical. in fact cyber is becoming more and more critical It's not just on CISO's mind, it's CIO's mind, it's on board's mind, it's audit committee's mind as well. it's not just on ciso's mind it's cio's mind it's on board's mind it's audit committee's mind as well Most customers I talk to, and I talk to lots of them, the cyber budgets are generally flat or maybe 5% or 10% up. most customers i talk to and i talk to lots of them the cyber budgets are generally flat or maybe 5% or 10% up They have been going up. they have been going up Most cases, they're up to some degree. most cases they're up to some degree Now, IT budgets aren't generally up. now it budgets aren't generally up It's common. it's common Some of these IT budgets are flat, and some may have gone up, but in many cases, customers are asking for, "How do I reduce cost?" And some of the money may be getting redirected towards some of the AI projects. some of these it budgets are flat and some may have gone up but in many cases customers are asking for "how do i reduce cost?" and some of the money may be getting redirected towards some of the ai projects So I see pressure on the IT side of it, not the cyber side of it. so i see pressure on the it side of it not the cyber side of it What we are able to do in that situation, think of this diagram. If I can start showing the picture and say, "Mr. Customer, I can take out these six products in first quarter, these three in second quarter, these seven in third quarter and fourth quarter," and I create an actual spreadsheet table showing net cost savings, that story is very compelling, and we end up saving a lot of money. That's how we get the deals done. Now, think of, so this is essentially consolidation and simplification. Of course, some vendors like to talk about platformization and all this stuff. It's quite a notion. This is essentially consolidation. What's the biggest cost saving coming out of here? Now, network ends up being the biggest saving. The network is a big piece, but firewalls and security products end up being the biggest cost takeout. What we are able to do in that situation, think of this diagram. what we are able to do in that situation think of this diagram If I can start showing the picture and say, "Mr. if i can start showing the picture and say "mr Customer, I can take out these six products in first quarter, these three in second quarter, these seven in third quarter and fourth quarter," and I create an actual spreadsheet table showing net cost savings, that story is very compelling, and we end up saving a lot of money. customer i can take out these six products in first quarter these three in second quarter these seven in third quarter and fourth quarter," and i create an actual spreadsheet table showing net cost savings that story is very compelling and we end up saving a lot of money That's how we get the deals done. that's how we get the deals done Now, think of, so this is essentially consolidation and simplification. now think of so this is essentially consolidation and simplification Of course, some vendors like to talk about platformization and all this stuff. of course some vendors like to talk about platformization and all this stuff It's quite a notion. it's quite a notion This is essentially consolidation. this is essentially consolidation What's the biggest cost saving coming out of here? what's the biggest cost saving coming out of here Now, network ends up being the biggest saving. now network ends up being the biggest saving The network is a big piece, but firewalls and security products end up being the biggest cost takeout. the network is a big piece but firewalls and security products end up being the biggest cost takeout Would a firewall vendor try to cannibalize its firewalls to really save money for the customer? Not really. In fact, the typical dialogue I hear out there sometimes is a firewall vendor goes and says, "Mr. Customer, you're spending $20 million with us. Your traffic is going to grow. Give me $30 million per year, and I can replace a few things and give you Zscaler type of stuff for free." We go to the customer and say, "You know that firewalls are not the future. They're getting phased out. In two years, I'll bring your spend from $20 million down to $6 million on firewalls, and you need about $4 million for Zscaler. Your total spend will get to $10 million and then $30 million." The delta in price savings is so significant because we're eliminating a lot of stuff. The case becomes very compelling. Would a firewall vendor try to cannibalize its firewalls to really save money for the customer? would a firewall vendor try to cannibalize its firewalls to really save money for the customer Not really. not really In fact, the typical dialogue I hear out there sometimes is a firewall vendor goes and says, "Mr. in fact the typical dialogue i hear out there sometimes is a firewall vendor goes and says "mr Customer, you're spending $20 million with us. customer you're spending $20 million with us Your traffic is going to grow. your traffic is going to grow Give me $30 million per year, and I can replace a few things and give you Zscaler type of stuff for free." We go to the customer and say, "You know that firewalls are not the future. give me $30 million per year and i can replace a few things and give you zscaler type of stuff for free." we go to the customer and say "you know that firewalls are not the future They're getting phased out. they're getting phased out In two years, I'll bring your spend from $20 million down to $6 million on firewalls, and you need about $4 million for Zscaler. in two years i'll bring your spend from $20 million down to $6 million on firewalls and you need about $4 million for zscaler Your total spend will get to $10 million and then $30 million." The delta in price savings is so significant because we're eliminating a lot of stuff. your total spend will get to $10 million and then $30 million." the delta in price savings is so significant because we're eliminating a lot of stuff The case becomes very compelling. the case becomes very compelling That's how we end up closing deals. That's how we end up closing deals. that's how we end up closing deals

Speaker 1: Got it. Got it. And just to come back to it as well on that macro theme, we finally have certainty on the administration we're working with, although the policy we'll be working with is still up to debate, right? But have you seen any change in customer behavior, whether it's public or private sector in recent weeks, just because we do have that certainty with the administration at this time? Got it. got it Got it. got it And just to come back to it as well on that macro theme, we finally have certainty on the administration we're working with, although the policy we'll be working with is still up to debate, right? and just to come back to it as well on that macro theme we finally have certainty on the administration we're working with although the policy we'll be working with is still up to debate right But have you seen any change in customer behavior, whether it's public or private sector in recent weeks, just because we do have that certainty with the administration at this time? but have you seen any change in customer behavior whether it's public or private sector in recent weeks just because we do have that certainty with the administration at this time

Speaker 2: Look, lots of conversations in the federal government at the C-level. Nothing has changed so far, though there's one other thing people wonder, "What will our president do? Where will this change?" But one thing is clear in everyone's mind that the new administration is equally worried about cyber as the old administration was. So you can change all kinds of policies, but since it is a national security issue, we do not think that the focus on cyber will go away or get minimized. Look, lots of conversations in the federal government at the C-level. look lots of conversations in the federal government at the c-level Nothing has changed so far, though there's one other thing people wonder, "What will our president do? nothing has changed so far though there's one other thing people wonder "what will our president do Where will this change?" But one thing is clear in everyone's mind that the new administration is equally worried about cyber as the old administration was. where will this change?" but one thing is clear in everyone's mind that the new administration is equally worried about cyber as the old administration was So you can change all kinds of policies, but since it is a national security issue, we do not think that the focus on cyber will go away or get minimized. so you can change all kinds of policies but since it is a national security issue we do not think that the focus on cyber will go away or get minimized

Speaker 1: Got it. Got it. Two questions on the management team here. The first, you guys obviously appointed Adam as Chief Product Officer for the company. Can you just help us think about the expertise he's bringing to the role? What, if anything, this might represent as far as how Zscaler continues to view the market and build out its platform? Got it. got it Got it. got it Two questions on the management team here. two questions on the management team here The first, you guys obviously appointed Adam as Chief Product Officer for the company. the first you guys obviously appointed adam as chief product officer for the company Can you just help us think about the expertise he's bringing to the role? can you just help us think about the expertise he's bringing to the role What, if anything, this might represent as far as how Zscaler continues to view the market and build out its platform? what if anything this might represent as far as how zscaler continues to view the market and build out its platform

Speaker 2: Yeah. Being a product officer at Zscaler is not a trivial simple task. The platform is so big and deep. It involves security, networking-related stuff, application-related stuff, segmentation, and the like. Adam actually has spent most of his career in the security space, having breadth and depth of it. Coming from an early-on managed security background, he spent a bunch of time doing old technology, firewalls, and all. It's important to understand that world because once you replace that world, you need to know what they did, what the shortcomings are. Then he spent the last four years in the security operations area, the SIEM/SOC area as well. So he has that element of experience to help us. He's already making a difference, coming with a fresh set of eyes, some of the packaging, some of the pricing, some of the streamlining of products. Yeah. yeah Being a product officer at Zscaler is not a trivial simple task. being a product officer at zscaler is not a trivial simple task The platform is so big and deep. the platform is so big and deep It involves security, networking-related stuff, application-related stuff, segmentation, and the like. it involves security networking-related stuff application-related stuff segmentation and the like Adam actually has spent most of his career in the security space, having breadth and depth of it. adam actually has spent most of his career in the security space having breadth and depth of it Coming from an early-on managed security background, he spent a bunch of time doing old technology, firewalls, and all. coming from an early-on managed security background he spent a bunch of time doing old technology firewalls and all It's important to understand that world because once you replace that world, you need to know what they did, what the shortcomings are. it's important to understand that world because once you replace that world you need to know what they did what the shortcomings are Then he spent the last four years in the security operations area, the SIEM/ SOC area as well. then he spent the last four years in the security operations area the siem/ soc area as well So he has that element of experience to help us. so he has that element of experience to help us He's already making a difference, coming with a fresh set of eyes, some of the packaging, some of the pricing, some of the streamlining of products. he's already making a difference coming with a fresh set of eyes some of the packaging some of the pricing some of the streamlining of products When your platform is big, there's a fair amount of work that goes on. Even on the past few years, we have done a remarkable job where we used to start with ZIA bundle to transformation bundle and to moving on to combining ZIA ZPA packaging to make it easier for customers, and now we have Zscaler for Users and so on, so we are excited about Adam, and I think he'll make a big difference to our product innovation, pricing, packaging, and taking to market. When your platform is big, there's a fair amount of work that goes on. when your platform is big there's a fair amount of work that goes on Even on the past few years, we have done a remarkable job where we used to start with ZIA bundle to transformation bundle and to moving on to combining ZIA ZPA packaging to make it easier for customers, and now we have Zscaler for Users and so on, so we are excited about Adam, and I think he'll make a big difference to our product innovation, pricing, packaging, and taking to market. even on the past few years we have done a remarkable job where we used to start with zia bundle to transformation bundle and to moving on to combining zia zpa packaging to make it easier for customers and now we have zscaler for users and so on so we are excited about adam and i think he'll make a big difference to our product innovation pricing packaging and taking to market

Speaker 1: Excellent. And then the second management question, obviously the bigger one for folks on my side is Remo and the announced departure with some big shoes to fill, obviously, because we all loved working with him so much. I guess, where are we in that search? And can you help us think about the credentials we're looking for just because of who and what Remo was, right? So can you help us go through that? Excellent. excellent And then the second management question, obviously the bigger one for folks on my side is Remo and the announced departure with some big shoes to fill, obviously, because we all loved working with him so much. and then the second management question obviously the bigger one for folks on my side is remo and the announced departure with some big shoes to fill obviously because we all loved working with him so much I guess, where are we in that search? i guess where are we in that search And can you help us think about the credentials we're looking for just because of who and what Remo was, right? and can you help us think about the credentials we're looking for just because of who and what remo was right So can you help us go through that? so can you help us go through that

Speaker 2: Yeah. Look, I've had great, great fun working with Remo for eight and nine years now. It's wonderful. We started a few hundred million dollars. Now we're sitting well over $2.5 billion. A great journey. He's put a lot of these systems and processes and things in place, established all the stuff. It's hard to fill his shoes. We have no lack of interest in attracting the best of that CFO because of the position, the company setting, and the growth profile, the top line, bottom line, all that stuff. So active engagement going on. We made a lot of progress. So we think we should be able to come forward with some of the selections and all in not too distant future. What are we looking for? Yeah. yeah Look, I've had great, great fun working with Remo for eight and nine years now. look i've had great great fun working with remo for eight and nine years now It's wonderful. it's wonderful We started a few hundred million dollars. we started a few hundred million dollars Now we're sitting well over $2.5 billion. now we're sitting well over $2.5 billion A great journey. a great journey He's put a lot of these systems and processes and things in place, established all the stuff. he's put a lot of these systems and processes and things in place established all the stuff It's hard to fill his shoes. it's hard to fill his shoes We have no lack of interest in attracting the best of that CFO because of the position, the company setting, and the growth profile, the top line, bottom line, all that stuff. we have no lack of interest in attracting the best of that cfo because of the position the company setting and the growth profile the top line bottom line all that stuff So active engagement going on. so active engagement going on We made a lot of progress. we made a lot of progress So we think we should be able to come forward with some of the selections and all in not too distant future. so we think we should be able to come forward with some of the selections and all in not too distant future What are we looking for? what are we looking for If you really think of the profile of Zscaler, we're not a convoluted financial company with all kinds of legacy products here and there. It's a clean SaaS model. There's no complicated financing out there. It's a very clean financing model. So what's critical for us is really people who can come and scale this business. So scale is an important part of it. Obviously, having experience on the SaaS and cloud subscription side of it is important for us. And also having more engagement on the business side because as we get bigger and bigger, working closely with the sales organization and that type of stuff becomes important. So those are the key attributes. And of course, trust and a great working relationship is always the starting point. If you really think of the profile of Zscaler, we're not a convoluted financial company with all kinds of legacy products here and there. if you really think of the profile of zscaler we're not a convoluted financial company with all kinds of legacy products here and there It's a clean SaaS model. it's a clean saas model There's no complicated financing out there. there's no complicated financing out there It's a very clean financing model. it's a very clean financing model So what's critical for us is really people who can come and scale this business. so what's critical for us is really people who can come and scale this business So scale is an important part of it. so scale is an important part of it Obviously, having experience on the SaaS and cloud subscription side of it is important for us. obviously having experience on the saas and cloud subscription side of it is important for us And also having more engagement on the business side because as we get bigger and bigger, working closely with the sales organization and that type of stuff becomes important. and also having more engagement on the business side because as we get bigger and bigger working closely with the sales organization and that type of stuff becomes important So those are the key attributes. so those are the key attributes And of course, trust and a great working relationship is always the starting point. and of course trust and a great working relationship is always the starting point

Speaker 1: Excellent. Excellent. With that, we'll have to call it, but thank you very much to Jay and Ashwin for your time today. Thank you to the audience for tuning in. Looking forward to a successful NGC next week, but thank you. Thank you so much. We'll talk soon. Excellent. excellent Excellent. excellent With that, we'll have to call it, but thank you very much to Jay and Ashwin for your time today. with that we'll have to call it but thank you very much to jay and ashwin for your time today Thank you to the audience for tuning in. thank you to the audience for tuning in Looking forward to a successful NGC next week, but thank you. looking forward to a successful ngc next week but thank you Thank you so much. thank you so much We'll talk soon. we'll talk soon

Speaker 2: Mike, thank you so much for the opportunity. Mike, thank you so much for the opportunity. mike thank you so much for the opportunity