Zscaler, Inc. (ZS) Q4 2026 Earnings Call Transcript

Good day and thank you for standing by. Welcome to the Zscaler fourth quarter 2026 earnings call. At this time all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation there will be a question and answer session. To ask a question please press star one one on your telephone and wait for your name to be announced. To withdraw your question please press star one one again. I would now like to hand the conference over to your speaker today, Kim Watkins, SVP Investor Relations and Strategic Finance.

Good afternoon, and thank you for joining us today. Welcome to Zscaler's fourth quarter fiscal 2026 earnings conference call. On the call with me today are Jay Chaudhry, Chairman and CEO, and Kevin Rubin, CFO. Please note that we posted our earnings release, shareholder letter, and a supplemental financial schedule to our Investor Relations website. Unless otherwise noted, all numbers we talk about today will be on an adjusted non-GAAP basis. You will find a reconciliation of GAAP to the non-GAAP financial measures in our earnings release. Before we get started, I'd like to remind you that today's discussion will contain forward-looking statements, including, but not limited to, the company's anticipated future revenue, annual recurring revenue, net new annual recurring revenue, operating margin, gross margin, operating profit, net other income, earnings per share, and free cash flow margin, our customer response to our products, our expectations regarding AI and its impact on our business and customers, and our market share and market opportunity, and our objectives and outlook. These statements and other comments are not guarantees of future performance, but rather are subject to risk and uncertainty, some of which are beyond our control. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a more complete discussion of the risks and uncertainties, please see our filings with the SEC, as well as in today's earnings release. I also want to inform you that we'll be attending the following conferences this quarter. Citi 2026 Global TMT Conference on September 9th, Goldman Sachs Communicopia and Technology Conference on September 9th, Wolf Research TMT Conference 2026 on September 9th, and JPMorgan 2026 Software Forum on October 1st. And with that, I'll turn the call over to Jay.

Thank you, Kim. Good afternoon, everyone. We delivered a strong finish to the fiscal year with 25% ARR growth and a non-GAAP operating margin of 24%. We are seeing significant positive trends in net new ARR with growth excluding Red Canary accelerating to 17% in Q4. These results reflect increasing market adoption of our Zero Trust platform. AI is quickly becoming the largest tailwind we have ever seen driving demand for our zero trust everywhere data security and security for ai solutions our customers are relying on us to both combat the threats created by agentic ai and safely deploy ai agents and models at scale since our last earnings call new ai models have become more powerful, more autonomous, and more dangerous from a cybersecurity perspective. The ability of these new frontier AI and open-weight models to uncover previously unknown vulnerabilities at a rapid pace has become even more apparent. Organizations simply do not have enough time or resources to fix the unprecedented number of software vulnerabilities that are being discovered. The time between vulnerabilities being discovered and exploited is also shrinking. You cannot win a patching race against AI. This is leaving organizations exposed and likely leads to more breaches. Over the past few months, our team has conducted hundreds of frontier AI risk assessments for global enterprises to help them assess their cyber resilience posture to minimize potential breaches. The takeaways have been incredibly revealing. Over 90% of organizations had AI applications, models, and other servers exposed to the internet. And more than one-third had known exploitable vulnerabilities. At the same time, the threat landscape has been compounded by the ability of new AI models to power ungoverned autonomous agents. We are now seeing the impact of fully autonomous AI attacks. There have already been multiple high-profile incidents from three leading frontier model companies where agents went rogue and took unauthorized action. This includes the recent Hugging Face incident, where a swarm of agents went to extreme lengths to break out of a sandbox training environment, get onto the corporate network, and move laterally to conduct a sophisticated attack. This is driving urgency at the highest levels, and Zscaler is uniquely equipped to meet the moment. CEOs and boards are looking to us as their trusted partner to address three essential business challenges. First, how do we secure our environment when we can't patch security vulnerabilities fast enough? Our zero trust exchange makes applications, AI models, and data invisible. An attacker, human or agent, cannot breach what it cannot reach. Second, how do we minimize the impact of a potential breach? Our Zero Trust Exchange connects users, workloads, branches, and agents directly to the applications they need without placing them on the network. This eliminates lateral threat movement, containing the impact of a breach. Third, how do we take advantage of all the benefits of AI without introducing significant new risk? Zscaler has a full portfolio of data security and security for AI solutions that prevents data exfiltration, provides guardrails to prevent abuse or misuse of AI applications and enables secure agentic communication. Because of these advantages, customers trust us to secure their business critical environments. We are also differentiated by our scale operating the world's largest distributed inline security cloud, processing more than 750 billion transactions per day. This scale provides unmatched, high-fidelity telemetry that continuously improves our AI-powered security capabilities. In the AI era, zero trust is now an imperative, and we are not alone in this belief. Anthropic published a white paper in late May encouraging adoption of a zero trust architecture for AI agents, emphasizing the importance of treating every agent like an untrusted entity and making sure it only has access to authorized data and applications. This is why customers are expanding their investments with us to secure their agentic infrastructure and why we are confident our Our platform is uniquely equipped to address the risks companies face in this new world. In addition to protecting companies from the threats created by agentic AI, we're also enabling organizations to safely deploy AI agents and models. Our AI solutions are key to providing enterprise visibility, governing what data and applications agents can access, and what actions they're permitted to perform. We are often asked, why are solutions are needed alongside identity for AI security? While identity solutions answer, who is requesting access? Our inline exchange determines what that user or agent should be allowed to do, and enforces that policy in real time. Put simply, identity is only the starting point for securing AI. Greater visibility and control is needed for organizations to trust agents accessing sensitive data, interacting with applications, and taking action on behalf of users. Earlier this year, we introduced the industry's most comprehensive security for AI solutions designed for exactly that reason. We are seeing strong, proactive inbound interest from both new and existing customers, and we have seen no budget constraints. Security for AI bookings increased more than 50% sequentially in Q4, on top of a strong Q3. Our security for AI solution provides new logo opportunities by offering organizations an integrated way to secure AI use at scale. At our Zenith Live conference in June, we unveiled the latest additions to our Security for AI lineup, including our Zero Trust Exchange for Agents and Endpoint AI Security, both of which we expect to scale in the second half of fiscal 2027. Both products are in early access, and we're seeing tremendous interest from customers. These new solutions will provide organizations the ability to enforce AI policy, both at our exchange and the endpoint, enabling policy enforcement at the optimal location. We continue to innovate in this area at a rapid pace. Next week, we are announcing the next major innovation on our platform with our new agentic SecOps solution. Just as AI is increasing the threat surface, it is also stressing the human-driven traditional SOC approach, where remediation can take days or weeks. In contrast, our AI-first approach brings together our proprietary telemetry and Red Canary's decades-plus of experience in Managed Detection and Response, or MDR. MDR. Our Agentex SecOps solution enables security teams to prioritize real threats and leverage specialized AI agents to detect, investigate, and respond to threats at machine speed. We're driving closed-loop remediation in real time by integrating our Agentex SecOps with our zero trust exchange, enabling customers to move with speed as the time between detection and exploitation has decreased from months to minutes. We will be launching our new agentic SecOps solution with a webcast on September 9th, which will be streamed on our website. Our approach for securing users and non-users and ensuring safe adoption of AI is resonating. This is increasingly evident in my conversations with customers and partners and is illustrated with a few customer examples. First, we had a notable seven-figure upsell Z-Flex win with a Fortune 500 transportation customer who deployed our Security for AI portfolio to secure their full AI lifecycle. Our Security for AI solution provides an integrated approach to secure AI use at scale. this includes discovery and management of all ai assets including shadow ai and enforcement of safe access to approved apps it also includes real-time prompt and response inspection to stop data leaks and threats like prompt injections and continuous red teaming assessments this customer selected our security for ai solution over two major platform competitors and with this win the customer's ARR grew to nearly 10 million dollars in another seven-figure z-flex upsell a fortune 500 semiconductor manufacturer expanded its adoption of the zscaler platform to secure a company-wide rollout of cloud co-work after assessing several vendors this client determined Zscaler's security for AI was the only solution capable of securing the customer's AI adoption, including its endpoints, secure agent-to-agent communication, and model usage in private and public environments. This is a great example of how our customers are expanding the use of Zero Trust Exchange to safely deploy AI agents and models as well as combat the threats created by agentic AI. While we're in the early innings of security for AI, these deals give us tremendous confidence in our ability to expand this offering significantly over time. Next, our leadership in data security is a powerful tailwind for our security for AI business. As enterprises embrace Gen AI and Agentec AI, they're confronting a new wave of data exfiltration risks, including data abuse and overprivileged access to data. Our inline architecture, coupled with our endpoint DLP and no endpoint AI security, enhances our ability to enforce data loss prevention in the cloud as well as on the endpoint. Securing data and AI go hand-in-hand, as evidenced by the fact that 70% of our security for AI deals this quarter included our data security solution. In Q4, we also closed a seven-figure Z-Flex upsell win with a large global asset management firm, the customer-selected Zscaler's data security posture management solution, over a privately held DSPM vendor. This customer chose Zscaler to address gaps related to sensitive data discovery across its multi-cloud environment and data governance. With this upsell, the annual spend of this customer increased by nearly 40%, reaching an ARR of $5 million plus. We're also seeing continued traction across our Zero Trust SASE solutions, including customers expanding their Zero Trust SASE deployments. For example, this quarter, we signed a seven-figure Z-Flex upsell with a global 2,000 financial services customer who upgraded to Zscaler Private Access with AI-powered app segmentation for 120,000 users, increasing their ARR by nearly 50%. We are also driving new logos. We closed the seven-figure new logo Z-FlexWin with a Fortune 500 life sciences company that is deploying our ZeroTouch SASE and Security for AI platform across 75,000 users and displacing a legacy firewall-based SASE platform. This customer, led by a newly appointed CISO, who is a three-time repeat Zscaler customer, chose us for our ability to deliver unified visibility and control across both enterprise security and Gen.AI. This is a great example of a new logo purchasing the entire Zscaler platform. Customers are also increasingly starting the zero-thousand journey by securing non-user environments. For example, we closed a seven-figure new logo win with a global 2000 healthcare equipment manufacturer to deploy our zero-trust branch solution across the critical production sites to secure its OT environment, displacing an existing long-term legacy vendor. This is an example of a sizable opportunity Zscaler has within factories and warehouses to secure IoT OT and provide zero-trust device segmentation. Zero Trust branch simplifies customers' branch deployments by eliminating traditional branch firewalls, SD-WAN, and MPLS networks, reducing operational complexity. It also minimizes the impact from an infected machine in a branch or a manufacturing plant by limiting lateral movement across the environment and therefore containing the breach. In another non-user deal win, we closed a seven-figure upsell with a Fortune 500 Aerospace customer. This customer was going through a divestiture and expanded its Zero Trust Cloud deployment between its on-prem and public cloud environments to securely migrate workloads. with this deal the arr of this customer grew by more than 30 percent to over 5 million dollars we're seeing tremendous momentum with zero trust cloud this quarter we extended the solution by offering a managed service through google cloud which can be configured in under 10 minutes reducing the deployment time and operational costs significantly. This expands on our existing offering for AWS and enables multi-cloud flexibility. The strength we're seeing in Zero Trust Branch and in Zero Trust Cloud is translating to meaningful momentum with Zero Trust Everywhere Enterprises, those that have purchased Zero Trust Users, Zero Trust Branch, and Zero Trust Cloud. We exited Q4 with more than 950 zero-trust everywhere enterprises versus over 700 in Q3 and over 350 at the end of fiscal 2025. To summarize, AI represents one of the most significant opportunities in Zscaler's history. Our platform was built for this moment. Zscaler has always secured interactions between every user and applications, and now Zscaler secures interaction between every user, every agent, and every AI model. We have a large and growing market. Adoption of our platform is expanding, and we are continuing to innovate across zero-trust SASE, Agentex SecOps, data security, and security for AI. We are well positioned to extend our leadership as the cybersecurity platform for the AI era, drive durable growth, and create long-term shareholder value. Now, I will hand it over to Kevin to walk through the financials.

Thanks, Jay. We delivered strong Q4 results with revenue and ARR both growing 25% year-over-year, net new ARR growing 24%, and non-GAAP operating margin reaching a record 24.3%. For full year fiscal 26, revenue also grew 25%, and when combined with 23% free cash flow margin, our performance exceeded the rule of 40, landing at approximately 49%. Our growth engine continues to broaden beyond users with increasing contribution from non-seat based solutions, continued Z-Flex momentum, record large deal activity, and improved sales productivity. ARR momentum remains strong in Q4. Excluding the contribution from our acquisition of Red Canary, net new ARR was $232 million, up 17 percent year-over-year, and total ARR was up 20 percent. Importantly, this marks a continued acceleration in net new ARR growth from 7 percent in fiscal 25 to 10% in the first half of fiscal 26 and to 17% in Q4. Red Canary exited Q4 with $141 million of ARR. Total net new ARR was $246 million, up 24%, bringing total ARR to $3.8 billion, up 25% year-over-year. Performance would broad-based with strength across Americas, EMEA, and APJ. We also continued to deepen enterprise adoption. In Q4, we closed with a record number of $1 million plus new ACV deals, and the number of $10 million plus ARR customers nearly doubled year over year. We ended the quarter with 785 customers generating over $1 million in ARR and 4,182 customers generating more than $100,000 in ARR, growing 18% and 20% year-over-year, respectively. As our platform expands beyond users to protect branches, workloads, AI applications, and AI agents, our monetization model is also expanding. In Q4 and for the full year, our non-seat-based metered usage solutions delivered approximately 30% of new and upsell ACV. ARR tied to these offerings grew more than 100% year-over-year. Turning to revenue, Q4 revenue was $898 million, up 25% year-over-year and 6% sequentially, exceeding the high end of our guidance. Growth was broad-based across the geographies. The Americas accounted for 57% of revenue and grew approximately 30% year-over-year. EMEA accounted for 27% of revenue and grew approximately 17%, and APJ accounted for 16% of revenue and grew 23%. For Fall Fiscal 26, revenue of $3.4 billion grew 25% year-over-year. Excluding Red Canary, revenue of $3.2 billion grew 20% year-over-year. Red Canary contributed $144 million of revenue in fiscal 26. The Americas accounted for 57% of revenue and grew approximately 31%. AMIA accounted for 28% of revenue and grew approximately 16%, and APJ accounted for 15% of revenue and grew approximately 23%. Remaining performance obligation, or RPO, of approximately $7.4 billion grew approximately 27%, with approximately 45% classified as current RPO. Turning to go-to-market, we are pleased with the continued strong sales execution. In Q4, we delivered double-digit sales productivity growth and achieved our highest quarterly productivity ever and the highest annual productivity since 2022. This reflects continued improvement in our account-centric sales motion and our ability to drive broader platform adoption with customers. Entering Fiscal 27, our priorities are focused on deepening relationships with existing customers, accelerating platform adoption, improving new logo execution, expanding coverage in key segments, and increasing partner-led contribution. These priorities are especially important as the rapid proliferation of Frontier AI models increases customer engagement at senior levels of the organization, as Jay discussed earlier. To support new logo growth, we are expanding coverage through both direct and partner-led motions. For example, we recently expanded our partnership with Kerasoft to further penetrate the commercial and SMB segments in the U.S. through 100% channel-led motion. We are also adding dedicated new logo sales executives focused specifically on pursuing new enterprise customer opportunities. ZFlex remains an important part of our go-to-market strategy. It provides customers with multi-year commitments the flexibility to activate or swap modules without starting a new procurement cycle, while also providing premium deployment assistance and support. We saw strong momentum again this quarter with ZFlex, driving meaningful upsell, shorter sales cycles, and greater forward visibility. In Q4, Z-Flex generated over $770 million in TCV, up more than 60% quarter over quarter. For fiscal 26, Z-Flex customers saw an ARR uplift averaging nearly 30%. For fiscal 26, Z-Flex generated more than $1.7 billion in TCV, underscoring customers' long-term commitment to Zscaler. Two recent examples illustrate the value of this model. In a five-year, eight-figure ZFlex deal, a Global 2000 services customer increased its ARR by nearly 90%, crossing $5 million this quarter and driven by expansion with existing products and adoption of new products, including our security for AI and zero-trust cloud solutions. In another example, an existing seven-figure ARR Global 2000 Retail and Wholesale customer increased its annual spend with us by 140% in a three-year, eight-figure Z-Flex deal. This customer expanded adoption across nine existing modules and adopted six new modules, including our Security for AI solution. Turning to operating performance, we delivered strong profitability while continuing to invest in the business. Non-GAAP gross margin was 80.2% compared to 79.3% a year ago. The year-ago period included a one-time deployment of a large private cloud in a government customer's data center, which included a hardware component that carried a lower gross margin profile. We also delivered significant operating leverage in the quarter. Non-GAAP operating income was $218 million, up $60 million, or 37%, compared to $159 million last year. Non-GAAP operating margin was 24.3%, up 220 basis points year-over-year. For the full year, non-GAAP gross margin was 80.3%, up 20 basis points year-over-year. Non-GAAP operating margin was 22.9%, up 120 basis points year-over-year. This performance reflects the strength of our business model, disciplined execution, and our ability to deliver durable growth with expanding profitability while continuing to invest in the significant market opportunity ahead. Turning to the balance sheet, we ended the quarter with approximately $3.5 billion in cash, cash equivalents, and short-term investments, and $1.7 billion of debt. In Q4, we generated $279 million in operating cash flow, and CapEx was $200 million, or 22% of revenue. This brought our full-year CapEx to $277 million, or 8% of revenue, and coupled with capitalized internal use software of $73 million, resulted in free cash flow of $779 million for the full fiscal 26, or a free cash flow margin of 23%, down from 27% last year. The year-over-year declines reflect the timing of cash collections and CapEx expenditures. Looking ahead, I want to provide an update on our expectations for capital expenditures to support our growth. As I shared last quarter, we are seeing higher prices and tighter availability for memory, storage and processors. These components support our data center infrastructure and our Zero Trust branch appliances. In Q4, we opportunistically accelerated certain purchases where data center equipment was available. As a result, Fiscal 26 CapEx was 8% of revenue, consistent with the expectations we provided last quarter for CapEx of high single digits as a percentage of revenue. We expect CapEx to remain elevated during Fiscal 27 due to higher component pricing, especially memory. We'll continue to monitor our costs and share regular updates about the impact. To provide additional capacity to support our AI and growth initiatives, we are strategically reallocating resources through a workforce restructuring. This action is expected to affect approximately 3% of employees and result in restructuring charges of approximately $30 million to $33 million. Turning to guidance. Let me provide our outlook for Q1 and full year fiscal 27. As a reminder, these numbers are all on a non-GAAP basis. For the first quarter, we expect revenue of $935 million to $939 million, approximately 19% year-over-year growth. Gross margin of approximately 80%. Operating profit of $215 million to $217 million, up approximately 25% to 26% year-over-year, representing a 23% operating margin, net other income of approximately $33 million, and earnings per share of approximately $1.15 to $1.16 per share, assuming a 21% tax rate and $170 million fully diluted shares. For the full year fiscal 27, we expect ARR of $4.396 billion to $4.426 billion, or year-over-year growth of approximately 16.6% to 17.4%. For net new ARR seasonality, we expect approximately 37% of net new ARR in the first half of fiscal 27, with 15% in Q1 fiscal 27. Revenue of $3.908 billion to $3.908 $938 billion, reflecting year-over-year growth of 16.6% to 17.5%. Gross margin of approximately 80%. Operating profit of $924 million to $932 million, up approximately 21% year-over-year, and equating to an operating margin of approximately 23.7%. percent. Net other income, approximately $140 million to $142 million. Earnings per share of $4.86 to $4.90, assuming a 21% tax rate and approximately $173 million fully diluted shares. And free cash flow margin of approximately 23% to 23.5%, reflecting CapEx not including internal use software in the low teens as a percentage of revenue. We expect free cash flow margin to be seasonally stronger in Q1 and Q4, reflecting timing of CapEx and cash collections. Looking ahead, we are excited by the opportunities we see to continue scaling our rapidly expanding AI security portfolio, accelerating Zero Trust Everywhere adoption, and growing our data security revenue. In summary, we are pleased with the results we delivered in fiscal 26. We achieved 25% year-over-year ARR growth, record operating income, and operating margin. We also saw continued momentum with ZFlex and closed an all-time record number of $1 million plus ARR deals. I'm excited about the substantial opportunity ahead in fiscal 27. We are confident in our ability to continue to drive profitable growth across multiple vectors, including product innovation, go-to-market, and customer expansion, and creating value for our shareholders. To learn more about our strategy and plans for the future, please join us at our upcoming Investor Day on October 6th in New York City. I want to thank our employees, customers, and partners for their continued support. With that, Operator, you may now open the call for questions. Thank you.

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please limit yourself to one question. Our first question comes from Saket Kalia with Barclays. You may proceed. Okay, great. Hey, guys, thanks for taking my question here, and nice close to the year.

I'll keep it to one, but maybe address it to both you, Jay, and Kevin.

It's great to see the higher growth rate for next year in ARR. Maybe the question is, how are we thinking about the impact of some of the sales churn here that we talked about last quarter in terms of productivity, and do we feel like the sales churn here is stabilized as we go into 27?

Let me start. Over the past few quarters, we have gone through transformation of our sales organization, where we expanded from opportunity-led sales to account-focused sales. The strong results of Q4 kind of show that the transformation, the changes we've driven are working well. If you look at the sales productivity, actually the sales productivity in Q4 was the highest. I think we're very well positioned with a strong sales team, with good channel partnership, and a very strong product portfolio as we enter fiscal 27. Kevin?

Yeah, thanks, Jay and Sakit. Maybe just to reemphasize the point, so Q4 marked the highest productivity quarter that we've ever seen, and fiscal 26 was the highest annual sales productivity in four years. So I think we're really positioned and set up well going into fiscal 27. Just as a reminder, we did have two sales leaders depart last quarter. One was a geo leader, and the other was a vertical leader. We backfilled and internally promoted the vertical leader. Since then, a new leader has accepted the offer for the geo position. Just keep in mind that certain geos may take longer to onboard than others. And finally, as we think about the shape of the transition, we expect that the leadership transition will play out in the first half of this fiscal, and that is reflected in our And I am excited about how this leadership team is coming together as we think about augmenting our existing team into this year.

Very helpful.

Thanks, Akit.

Thank you. Our next question comes from Fathom Abulani with Citi. You may proceed.

Oh, good afternoon. Thank you for taking my question. I was hoping to have you unpack some of the discrete drivers of that organic net new acceleration in the quarter, you know, provided that this is your fourth fiscal quarter, it's an abundant period of renewals and expansionary behavior from customers. So I'd like to kind of have you stack rank, you know, between some of those inputs and, you know, how did you feel and think about your new local activity in the quarter? Just wanted to get a sense of the most sensitive drivers of upside and strength there relative to what we were looking for.

I'll start from Kevin Panetto. Q4 was a very strong quarter from almost all measurements. You saw all the metrics. We did very well. Our product portfolio has become pretty broad. Zero Trust everywhere has been driving a lot of our sales. AI security fears are growing out there. And one of the things AI security needs is Zero Trust architecture, Zero Trust solutions. Our solution, like ZeroTouch Branch, did extremely well. Data security drove a big part of our business. And even the young offerings of security for AI has grown very nice. So the old products actually did very well. Kevin?

Yeah, thanks. So maybe just a couple other points to emphasize. We did have broad-based strength in the quarter. So I think that's number one to reflect. NRR, although it's not a metric that we provide each and every quarter, it was consistent each quarter this year at 115%. So we've seen very consistent performance in terms of our upsell motion that I think is important to appreciate. Maybe one other comment I'll make is, as Jay mentioned, the early success with our securing AI, obviously it had a strong performance in the quarter, but another optimistic point of view is that we also saw a 75% increase in pipeline in security for AI as we think about what that sets up for 27.

If I may add two more points, from a new logo point of view, our Fortune 500 penetration moved up from 45% to 50%. That's pretty remarkable. And also worth noting is the million-dollar-plus teams with a record quarter for new million ACV teams.

And Fatima, my reference to the increase in the pipeline relative to AI was quarter-over-quarter, sequential, not year-over-year.

I appreciate it. Thank you very much.

Thank you. Our next question comes from Roger Boyd with UBS. You may proceed.

Awesome. Thanks for taking the questions. Jay, I wanted to touch on the competitive environment you're seeing with some of these AI security wins. And I want to maybe pick on the seven-figure upsell you called out with an airline company where you won over two other platform competitors. Can you just talk about what you're seeing in these bake-offs? Presumably, companies are taking these decisions pretty seriously and trying to make strategic bets on which layer of security they see as best positioned to secure AI. But I'd be curious to see what you're seeing and what's causing you to win these large deals.

You know, AI security is in demand. And there are probably lots and lots of AI security companies, probably tons of startups as well. So one of the things we see out there is our customers tell us that they don't want one more or three more AI security products. They're looking for an integrated solution, not only for AI security, but also that works for the rest of security as well. So this transportation customers that we highlighted, they are a Z-scaler customer for zero trust everywhere. and it's natural for them to say, if I need to expand into AI security and tomorrow I need to be ready for my agent decommunication, we are zero to six change to be able to ensure policy for agents. We were the natural choice for that to happen. And yes, every company is offering AI security, but they all come from different sides of it. Our differentiation is we have an interior solution from asset management to communication to actually a relationship, figuring out the access graph, as well as agentic communication. That's really what's setting us apart. Thanks for the question.

Thank you. Our next question comes from Richard Poland with Wells Fargo. You may proceed.

Thanks for taking my question. I just wanted to get a sense for unpacking some of the verticals in the quarter? I guess when we think about federal, I know last year federal was a little bit softer than we would have hoped for, but just as we think about this quarter and hitting into fiscal year end for federal, anything to keep in mind there?

Thanks.

Yeah, I'll take that quickly. You know, look, the federal business contributed high single digits to new ACV in 26. That was very similar to 25. Expectations for fiscal 27 are similar. There's nothing in particular that I would point out. Obviously, earlier in the year with Doge, it was a difficult environment, but we've seen it perform fairly consistently with the last several years.

Thank you. Thank you. Our next question comes from Joseph Gallo with Jeffries. You may proceed.

Hey, guys. Thanks for the question. Nice job on the quarter. I was just hoping if you could break out the symmetry contribution to net new ARR and F4Q. And then just as a part of that really strong strength and non-seats in fiscal 26, what are the expectations as we go into fiscal 27? Because you're obviously offering more and more there. So is it fair to expect a larger mix of the new business comes from that non-seats? Thank you.

So symmetry is a very innovative technology that essentially connects the dots between different entries accessing different data sources. As we have seen proliferation of AI agents, this innovative technology becomes extremely important. This was essentially acquired as a technology company with little, very little revenue for it. But it's becoming an important part of zero-trusted change, not only for agents, for zero-trust cloud workloads and zero-trust devices because understanding relationships of entities to what they access is foundational piece. That's where it's fitting in. Regarding non-seek, at a broader level, the comment I'll make is, while early on, our products like ZIA for users, CPA for users, were largely user-centric. A lot of our offerings subsequently have not been user-centric. For example, Zero Trust for Cloud Workloads, it's all about workloads. It's essentially consumption-based. Zero Trust Branch, which is largely about branch devices, IoT, IoT devices communicating, is all about non-seeds. Data security, some of the modules are seed-based. Others are data volume-based. And almost all of our AI security products or security for AI products are essentially consumption-based, linked to queries, essentially translated to token consumption fundamentally.

Yeah, so with respect to Symmetry, again, to Jay's point, it really was a technology and talent acquisition and provided the access graph technology for us. the results are immaterial to our results and nothing else to call out there.

Thank you.

Thank you. Our next question comes from John Devucci with Guggenheim Securities. You may proceed.

Thank you. I apologize. I have a three-part question, but I promise it's all related. You said you're adding new enterprise reps to go after enterprise accounts while also restructuring, and that's going to affect 3% of your employees. Can you give more color around this one what kind of employees will be affected and what will be the net employee count effect and then also where are these new reps needed is it specialized sales or will it be broadly across your geos and product and finally what's driving this is it an inflection point in demand that jay talks about about ai or is it just as you said you also said here you're seeing very good sales productivity, so now's just the time to be hiring more to keep on growing. Thanks.

Yeah, let me start. So, first of all, the reduction you pointed out, it's essentially rebalancing, reallocation of some of our resources with better leverage and also better investments in the AI area we are looking at. That's fairly straightforward. And if you look at adding our sales resources, when a company is growing at a pretty good pace, it's natural to add resources. We have essentially almost always done it. Now, the question is, where do we add the most of the resources? We do have specialty teams, and we have account execs. Our specialty teams have been making a pretty meaningful contribution. I'm extremely proud of it. our CRO, Mike Rich, and his team evolved the idea of takeoff teams that we had started about three years ago and has become a very good specialty team and we are adding resources to specialty teams. But also, in GEOS too, a number of account execs are being added. One of the areas for addition of account execs is probably the enterprise. If you look at the top end of the enterprise, we're pretty well covered As you come down in the enterprise market, our coverage has been thinner. We are making that coverage. We are also investing on some of the channel resources because channel is helping us expand in the mid-market and like.

Kevin? Yeah, John, the only thing I would add is, you know, the restructuring is about 3%. So, you know, it's modest, about $30 to $33 million in restructuring charges. Maybe just to also double down on what Jay mentioned, you know, Mike is adding people to the organization both to address opportunities we have with new logos as well as Upsell. We have about 4,600 of 20,000 targeted companies, so there's a big opportunity just with new logos alone. And so, you know, Mike does see an opportunity to do that through dedicated new logo hunters along with reps that hold both existing customers and prospecting territories. So there's opportunity for us to continue to expand across both of those dimensions.

So just to be clear, guys, and thank you for that detail. It's more about, hey, listen, our sales force is getting really good and productivity has gone up. So in order to continue to grow, and you're bigger too, the law of large numbers, you just need to hire more salespeople. But it's more that than it is when Jay talked about AI changing demand for security out there. Am I reading you right?

I don't think it's either or, to be honest. I mean, we certainly are seeing strong tailwinds with respect to AI broadly, whether it's specific to security for AI or just broad-based interest in zero trust and our existing kind of core zero trust exchange. So I wouldn't limit the discussion to simply just generally continuing to hire to grow. I think there is a unique momentum at the moment with respect to kind of this AI tailwind.

Perfect. Thank you, Kevin. Thank you, Jay.

Thank you.

Thank you. Our next question goes from Brian Essex. With JP Morgan, you may proceed.

Great. Good afternoon. Thank you for taking the question. I guess I want to take the other side of the coin relative to what Fatima asked. And I want to ask about the health of the Red Canary business i know when you entered the year there was some question of what the renewal experience would be on that platform and you know you've now had a year worth of renewal experience i think it's performed relatively well um but you also commented the thing at the beginning at the beginning of the year that you know some of those customers aren't your typical z scale of customers so now that you've kind of like had a year of experience what is your expectation for the growth of that business um the durable and i totally understand the rationale behind the you know the ip acquisition and the value that's going to provide to the products being released very shortly but i just want to kind of get a baseline of you know what is your view of the cut the health of that customer base um the renewals and and growth of that base business going forward so we can kind of gauge what um how to interpret um you know the outlook for fiscal 27. thank you I will start with a broader comment.

Acquisition of Red Canary was, number one, to make sure we have a genetic technology that could become part of our SecOps platform. Number two, we don't have any SecOps expertise. Red Canary had 10 years' experience about understanding how a SecOps runs, and that was important for us. In that area, we've done a pretty good job integrating their technology with our technology. And that's becoming an important part of our SACOP solution.

Regarding financials, Kevin? So, look, fiscal 26 was really focused on integrating the Red Canary technology into our Agentex SOC solution that's launching next week. When we closed the acquisition a year ago, we did not know what portion of their business was going to be durable. So we took a conservative approach in how we picked up ARR. Quite frankly, we're pleased with the ability to maintain the book of business while going through the integration. As I mentioned last quarter, as we think about fiscal 27, we are integrating their technology. It is a combined integrated offering that launches next week. And so as it relates to Red Canary, we're not expecting any net new ARR contribution. all of that will show up in the integrated solution going forward. Very helpful.

Do you think the churn is pretty much in the rearview mirror at this point in terms of any churn on that platform that may have happened?

I mean, look, we've talked, I think, ad nauseum about the different churn rates that MDR businesses experience discreetly different from ours, and that played out that way. We did see elevated churn in Red Canary's business in 26. Despite that, we were able to continue to maintain its book of business, as I mentioned. I would expect that as it relates to accounts that are up for renewal, that we'll continue to see the higher, more traditional churn rates of an MDR business, not our rates, but that has all been contemplated in the guide.

Very, very helpful. Thank you very much.

Thank you.

Thank you. Our next question comes from Metta Marshall with Morgan Stanley. You may proceed.

I wanted to ask a question about the Z-Flex traction that you're seeing. And just, you know, as you continue to expand the platform with AI security and Agentex SOC, do you envision kind of mandating flex plans more with some of these new products? And just how is it impacting sales cycles relative to the traditional sales approach?

On start. So ZFlex is not about mandating. ZFlex is about providing flexibility. As our platform is getting bigger, many times our customers will be looking at evaluating product A or B or C or D, and they're not sure which one do they want, and this will take longer time. by giving them the flexibility that you can start with a certain number of products. You can swap other products without going through, again, typical procurement level. This is one of the biggest things that we needed. And sometimes they wanted the ability to ramp because if they bought six products rather than three of them, they wanted some ability to ramp. That became part of the flex deal, and they also wanted longer duration. The customer engagement with us are not transactional. They're generally long-term. Once they deploy us, they invest. They want to stay with us for the longer time. And they also want the ability to buy additional product from a straight car. All those things are very good for business, for customers, and good for us as well. But it's true, as our platform becomes bigger, all the products will be available as a part of our Z-Flex offering.

Yeah, and one of the other advantages, it was in my prepared remarks, is it does it eliminates the need to go through new procurement cycles every time a customer wants to adopt and implement new modules or features on the platform. So you go through that discussion once. They have the complete flexibility to choose what's appropriate for them to use with their business at different points in time. And these are longer term commitments, so we can offer that level of flexibility. So we've been very pleased with the momentum with ZFlex. And as I mentioned, we ended fiscal 26 with more than $1.7 billion in Z-Flex bookings. So it's been very, very well received.

Great. Thanks.

Thank you. Our next question comes from Shrenik Kothari with Baird. You may proceed.

Shrenik, your line is now open.

Our next question comes from Itai Kidron with Oppenheimer and Company. You may proceed.

Thanks, and a solid finish for Kevin, I want to dig into your outlook for fiscal 27 specifically on the ARR fund. I would love if you can give us a little bit more insights into the puts and takes that you've taken into account into that ARR guide. Clearly, you've had very good momentum here with net new ARR. If my math is right, that declines to 4% at the midpoint for your guide for fiscal 27. So we'll love to kind of get a little bit more kind of color as to what's included with respect to the go-to-market, the new products, and any other components that you think it's important to call out.

Appreciate it.

Yeah, thanks, Atai. Maybe at the highest level, what I would say is we're very optimistic with the momentum that we do carry into 27, especially after a 17% new ARR growth in Q4, excluding Red Canary. I am considering the time it will take for the sales transition that we've talked about, both in terms of the geo and the verticals, as well as the pace of the uptake of the integrated SecOps solution. In addition to that, look, as I mentioned, we have had consistent NRR. I mentioned each of the quarters of fiscal 26, it was 115. So I do expect that to continue. We also have an opportunity to accelerate new logo growth, which we've talked about. We're adding dedicated new logo sales executives, specifically focused on enterprise customers. We also have, from a product point of view, a larger opportunity to land new logos with a variety of products, very different than was the case, you know, years ago. And so I'm pretty optimistic in terms of, you know, the different dimensions that we think about for 27 and opportunities for us to continue to grow. And AI Security is adding further tailpins, actually.

Is the AI security contemplated materially into your outlook? Because a lot of that portfolio still needs to come.

Yeah, we haven't specifically called out the contributions from security for AI in the guidance. But, you know, as I mentioned, AI is very quickly becoming a strong and durable tailwind for the business. And it is driving demand, not just for security for AI solutions, but Zero Trust Everywhere and data security. and we expect that these drivers will persist in 27th.

Appreciate it. Good luck.

Thank you. Our next question comes from Greg Moskowitz with Mizuho. You may proceed.

Great. Thank you for taking the question. Jay, as you mentioned, you're hosting a launch event for Agenda SecOps next Wednesday. Quite frankly, a lot of time has passed since you acquired Red Canary and now that the day is upon us or almost upon us, It would be helpful to hear just a bit more from you as to what might be unique about your identity checkouts and what it will unlock for your customers.

Yeah, very good question. So, our customers have been talking to us for the last few years. They're telling us that we have the best data, best telemetry across the network. It's because sitting in line from endpoints, we're sitting on the endpoint, and cloud as we're sitting on cloud workloads as well. This is resulting in over 750 billion transaction logs per day. That's a starting point of really good SecOps. So our customers were saying, we have to send this data to another vendor. You've got the data right there. Why can't you give us more meaningful information that's needed for SecOps, which is natural? We should be doing that. That was number one drive. Number two was we observed over the years that there was a first generation of SecOps solution. Then second generation came where they're still human-centric but automation-driven. They're essentially human-driven. We saw the opportunity to really fill this SecOps solution truly agent-native. Agents are driving, detecting, and able to investigate this thing at machine speed versus a traditional solution. I think it's an opportunity to disrupt traditional SecOps solution, even the one that they call themselves next in SecOps. And the last factor was closed-loop remediation. These days, the time between a vulnerability being discovered and exploitation is shrinking. Typically, it takes days or weeks for a typical SAC-up solution to get all that telemetry, do all the detection and finding, and really take an action. With Zscaler, since we have most of the data, we could do it within minutes. Those were the big drivers for us. We have a large number of customers waiting for our solution to really be deployed. So we are pretty excited about it. I think we'll have a meaningful opportunity for us. In the first half of the year, it's going to take some time to take off, but it should start contributing in second half and then fiscal 28th.

Very helpful. Thank you.

Thank you. I would now like to turn the call back over to Jay Choudhury for any closing remarks.

Thank you all for joining us today. We hope to see you at one of the investor conferences. Thank you again.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.