Hello, and welcome to Zscaler Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. We ask that you limit yourself to one question only. I would now like to turn the conference over to Ashwin Kesireddy, Vice President of Investor Relations and Strategic Finance. Sir, you may begin.

Good afternoon, everyone, and welcome to the Zscaler Fourth Quarter Fiscal Year 2025 Earnings Conference Call. On the call with me today are Jay Chaudhry, Chairman and CEO, and Kevin Rubin, CFO. Please note we have posted our earnings release 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. 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, calculated billings, operating performance, gross margin, operating expenses, operating income, net income, free cash flow, dollar-based net retention rate, future hiring decisions, remaining performance obligations, income taxes, earnings per share, or objectives and outlook, our customer response to our products, and our market share and market opportunity. 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: City Global TMT Conference on September 4, Truist Securities Technology Symposium on September 4, Goldman Sachs Communicopia Plus Technology Conference on September 10, Wolfe Research TMT Conference on September 10. Now I'll turn the call over to Jay. Thank you, Ashwin.

We had an outstanding Q4, and I am very pleased to share our strong growth which once again exceeded our guidance. Our revenue grew 21% year over year, and operating margin exceeded 22%, which is a quarterly record for us. We are seeing growing demand for our large and expanding platform, which provides best-in-class cyber and AI security while eliminating complexity and reducing cost. We are seeing significant customer interest in our powerful AI security solutions, including our new AI Guard and GenAI security offerings. An increasing number of enterprises are choosing 40% of the global 2,000 and over 45% of the Fortune 500 companies. Driven by the strong customer demand, our annual recurring revenue or ARR increased about 22% year over year and surpassed $3 billion, making us one of the only two pure-play SaaS security vendors to achieve this milestone. For fiscal year 2025, with our revenue growth of 23% and free cash flow margin of 27%, we operated at rule of 50. While many public SaaS companies strive for rule of 40 results, we have consistently exceeded the sought-after industry benchmark. Heading into fiscal 2026, we are accelerating our platform innovations across three growth factors: AI security, zero trust everywhere, and data security everywhere, which together surpassed $1 billion in ARR in Q4. Let me share more details on our innovations in these three areas starting with AI security. We have entered an era of omnipresent AI, which is fundamentally transforming enterprises and is leading to an explosive growth of AIML traffic. The scale of this transformation is truly remarkable. Our ThreatLabs report revealed that AIML transactions on our cloud increased 3500% in the past year. The adoption of AI at this breakneck pace is creating new security challenges, such as model jailbreaking, prompt injection, model poisoning,…

Thank you, Jay, and good afternoon, everyone. Our Q4 results represent a strong finish to fiscal 2025, reinforcing the demand for our solutions and our operational scale. We operated at rule of 50 in fiscal 2025, demonstrating our commitment to growth. We ended fiscal 2025 with over $3 billion in ARR, a milestone that reflects approximately 22% year-over-year growth. Notably, as Jay mentioned, we are one of only two pure-play SaaS security companies to surpass this level of ARR. ARR represents the next twelve months' revenue from existing customer contracts active at the end of the period. For modeling purposes, quarterly ARR figures from prior year periods are included in the supplemental materials accompanying our Q4 results. Q4 revenue was $719 million, growing 21% year over year, 6% sequentially, and exceeding the high end of our guidance. Geographically, the Americas accounted for 55% revenue, EMEA for 29%, and APJ for 16%. For the full fiscal year, total revenue reached $2.7 billion, representing 23% year-over-year growth and surpassing our guidance. Our remaining performance obligation or RPO grew approximately 31% year over year to $5.8 billion, with approximately 46% classified as current RPO. We closed fiscal 2025 with over 9,400 customers, including 664 customers generating over $1 million in ARR, and 3,494 customers exceeding $100,000 in ARR. We now serve nearly 40% of the global 2,000, and over 45% of Fortune 500 companies, demonstrating the strategic role we play in customers' digital transformation journeys. Turning to the rest of our Q4 financial performance, our gross margin was 79.3%, as compared to 81.1% last fiscal year Q4. Our gross margin this quarter is lower than our historical target of 80% due to a one-time deployment of a large private cloud in a government customer's data center, which included a hardware component that carries…

Thank you. Ladies and gentlemen, as a reminder to ask a question, to withdraw your question, please press 11 again. Please limit yourself to one question only. Our first question comes from the line of Saket Kalia with Barclays. Your line is open.

Okay, great. Hey, Jay. Hey, Kevin. Thanks for taking my question here, and nice finish to the year. Jay, maybe for you, you know, there were times when SASE was a healthy space in the past, despite firewalls being healthy as well. But now it seems like firewall appliance growth is starting to slow. And you touched on this a little bit in your prepared remarks, but to what extent do you think SASE is replacing firewall appliances? I know we all think we all know that it's replacing secure web gateway appliances. But what does the velocity look like on firewall appliances?

So, Saket, a very good question. First of all, I basically said that if you want zero trust, you can depend on firewall or security. So firewalls have to go. Some of these old boxes take a lot longer to go sometimes than we want them to. First, I think the spiral appliances in the branch are the first to go. And the launch of Zero Trust branch by Zscaler has been playing an important role. And since we introduced our unified zero trust branch, which combines active segmentation ear gap segmentation with elimination of firewalls alike, the interest has gone through. In fact, the only two products that Cisco has seen that don't any demand generation because there's so much demand out there. One is zero plus branch. And second is AI security. Now branch will go first think data center firewalls will impact the second. And the virtual firewalls will be the third and last I think it's a matter of time when firewalls will become like mainframes. Now I'm talking about SASE. Unfortunately, SASE is one of those terms which means anything and everything. SASE includes firewall. SASE include SD WAN. SASE include SD WAN. That's why we don't even like to use the term SASE too much. Or if we do, we like to use the term zero trust SASE. With the momentum we are seeing, I think you'll see acceleration. In the elimination of branch firewalls. With zero plus architecture. If we have c s one zero security we need to go in zero trust all the way I hope it helps.

Thank you. Please stand by for our next question. Our next question comes from the line of Brad Zelnick with Deutsche Bank. Your line is open.

Excellent. Thank you so much for taking my question. And Jay, Kevin, unbelievable. Congrats on a strong close to the year and a very healthy outlook for fiscal 2026. Jay, I wanted to ask about Z Flex. 50% sequential growth in TCV bookings. Clearly a vehicle for getting more strategic with your customers. Can you talk about how your Salesforce will use Flex to exceed their goals in fiscal 2026? Is it available broadly to everybody in the field? And maybe more generally, what's Mike Rich's playbook coming out of sales kickoff this year? Thanks.

VFax is an important program that built upon two very important foundational pieces we put in place before. The first thing was to really eliminate the bunch of point products we end up doing architectural workshop that identify what else go out. Two, our business value assessment team quantifies if those pieces are removed when can they move, and how much cost can be saved. Then Z Flex come on top of that and say, how do I make pricing flexible to meet the needs of the customer? For example, the customer may select to use say, six modules They're not sure if they can use three of them upfront or two when and when do they do the last one. We give them flexibility to use the modules they need to use There's a term of the deal, which could be three years and often five years. And their ability to add more modules within the window or we have a rate card. To really buy more. So it gives the flexibility for the customers and allows the deal to fit in the budget. So combination of our architecture business value and our Z Flex makes it easier for us to do larger and better deals. And that's what we're driving We start this program is relatively new. Only about four, four and a half months old. And we started with a smaller set of larger customers, Now we expanded to the next level of customers as well as our partners.

Thank you.

Our next question comes from the line of Mike Cikos with Needham. Your line is open.

Hey, guys. Thanks for taking the questions here, and echo my congrats on the quarter. I wanted to cycle back to the Zero Trust Everywhere stat that we have around customer growth. And, Jay, I think you're gonna need to update that 390 plus target pretty soon. But wanted to get a sense first Can you help us think about I know you've given some customer examples, but what does the average customer look like when they are deemed a Zero Trust Everywhere customer? How do you spend materially change? What is the number of modules they're taking on? Versus the Mhmm. The remaining cohort of customers? And then secondly our do sales reps have quota set against the zero trust everywhere metric, or is this more just hey. The market is coming to Zscaler in this fashion? We just like to parse out those different elements. Thank you.

Sure. Very good question. So first of all, as you know, to do full security, you need to make sure you're able to implement zero trust not just for users, but also your branches. So each branch becomes like an intern cafe as well as cloud workloads. You can have zero trust communication among workloads. Our customers early on started with zero trust by users. We've done a very good job in that. The next natural thing for customers to worry about is open branches. That should be going to zero branch. And that's actually eliminating a lot of firewalls and SD WANs out there. And cloud is the next big thing. And with AI, workloads building up, we see more demand, more adoption, of zero trust in the cloud. So it's a natural part of the journey. We are seeing what we expected. So that's the adoption part. Now what kind of impact can we have We're seeing a large number of deals where ARR has gone to two x or three x and sometimes higher. And as you know, with time, workloads will grow even though users may not grow over time. So we expect this trend to be a very good thing. From incentive point of view, we don't really give our sales team targets for each product. But we do give them additional incentive from time to time for certain new products or new logos type of stuff. But it is true that the demand is pretty good in these areas And a customer with zero trust. Users, zero to branch, and zero trust cloud. Becomes zero trust every other customer. And we're excited with the opportunity we have to take a large install base of users to the next two pillars. I hope that helps.

Thank you. Please stand by for our next question. Our next question comes from the line of Meta Marshall with Morgan Stanley. Your line is open. Question for you on the AI security front. When customers start looking towards the AI security product adoption, just where are they looking for first, kind of the security for AI with some of the data security or agentic solutions or that AI for security kind of on the security ops side.

Thanks.

Sure. Thank you. Our customers first start to have secure use of public AI such as Gemini of the world, we offered the solution starting about eighteen months ago. It's fairly well deployed. Now you the goal is to make sure we secure the so it doesn't leak out to public applications. The next piece became how about secure my private applications, my private models that are sitting in my data center? Or my public cloud. From there, we recently launched an offering We call it AI guardrails. It's early stage, but it is having tremendous interest. From futuristic point of view, the next big interest is coming from agent to agent communication. Zero trust communication with all these agents and we got a serious amount of effort going on in this area. And it's a natural area for us to work with. We have been doing zero plus communication among workloads. Users, branches, and devices. And this is a natural thing. And we expect it to be a sizable opportunity for us. Thank you.

Thank you. Our next question comes from the line of Joshua Tilton with Wolfe Research. Hey, guys.

Thanks for taking my question. Congrats on a great end to the year. I guess what I'm trying to just get a better handle on is it looks like if you strip out Red Canary from the guy for next year, but you guys are guiding to net new ARR growth. Which does scream like it's strong. But I guess what I'm just trying to understand is is there any way you can give us a sense of what net new ARR grew this year? So we can kinda gauge you know, where you're guiding from. Like, are you guiding to an acceleration? Are you guiding to a deceleration? There anything you could help us understand for the trajectory of the net new ARR that you're guiding to for next year?

Yeah. Thank you for the question. We are guiding for high single-digit net new ARR growth in fiscal 2026 on an organic basis.

Thank you.

Please standby for our next question. Our next question comes from the line of Andrew Nowinski with Wells Fargo. Your line is open.

Okay. Congratulations on a strong finish to fiscal 2025. I wanted to ask you guys about the data security portfolio. I know $425 million was pretty impressive from an ARR perspective. I think you added about $75 million this quarter alone. And I know that's a stand-alone suite of solutions, but it seems like those products go hand in hand with Zero Trust Everywhere solution. So I'm just wondering if you're seeing customers possibly buying both solutions or if they will, maybe you'll see more of that trend this coming year. Thank you.

So we are seeing data security being bought along with Zero Trust everywhere and many times even without that. For example, you may have zero trusted users, and if you don't have data security, you could add data security on top of that. Or in many deals, our customer says, I need to save more money and remove a lot of boxes in their branches, in their cloud, and my data security. So we have done deals where customers are moving to embrace data security and cloud and branch. And now within data security, we have about eight modules and there's an opportunity. So many times customers go from zero to four or two to five or seven and that module count is going up. To give you a little bit of quantitative idea, only 30% of our data security customers have more than three or more modules. And only 10% have four or more modules. That means that quite a few customers who have bought in line DLP. But have the opportunity to sell additional modules. So we are excited. We think we will have pretty good growth rate for data security. In fact, if data security business we have for an independent company, stand-alone company. It'll probably be one of the largest data security companies out there. Thank you.

Please stand by for our next question. Our next question comes from the line of Fatima Boolani with Citi. Your line is open. Good afternoon. Thank you for taking my question. Kevin, this one's for you. It's a little bit more tactical with respect to Z Flex, so about four, four and a half months of learning under your belt. But could you clarify for us if this is a vehicle or a conduit for attracting new customers Or is it principally being pitched to existing customers whereby if you can sort of talk to us about what the downstream impact on some of your KPIs would necessarily or hypothetically be, say, a net retention rate perspective, from a billings perspective. So anything you can help us there with regards to Z Flex's impact on the financial model, whether it's for new customers or existing customers porting over to the Z Flex. Program. Thank you.

Thanks for the question. The truth is that Z Flex is available and applicable to both new logo and existing customers. I think we actually spoke on the last conference call about the fact that Z Flex is not fundamentally changing the financial model in any way. As Jay mentioned, it does have the result of significantly increasing potential deal sizes as customers have the flexibility to deploy multiple models and have price visibility as well. But there isn't any direct consequence to any of the financial metrics as a result of tactically purchasing Z Flex. They can be predefined rates kind of stuff. But Kobuno is in increasing our TCV as well as our ARR. Thank you. Please stand by for our next question. Next question comes from the line of Gray Powell with BTIG.

Oh, great. Thanks for taking the question, and congratulations on the good results. So yeah, I wanted to follow-up on wanna follow-up on the earlier questions on Zero Trust Everywhere. If I just look at, like, the components of that pillar, so there's zero trust for users in cloud. Those are more mature components. I would guess they're just for, like, the larger part of it. Then there's zero trust for branch, which is new. It sounds like it's getting a lot of traction. So just like, how excited can we get on the potential there And then is that demand, is it being driven more by, like, SD WAN replacement? Is it the segmentation piece, or just is it something else? I just wanna make sure I'm thinking about that correctly.

Yeah. So thank you. Yes. It is true that user is most mature Cloud started out with small deployments, and customers are saying I never seen anything like zero trust cloud. What is this? Because we are the pioneers. We really introduced the notion in the cloud. And that's growing very nicely. And the branch we needed to offer a plug and play solution And then with a few capabilities, which we basically evolved over time. Now we have very mature wonderful solution. And I mentioned earlier, this is an area where I don't need to do any demand gen because the demand is exceeding all our expectations. So where is it coming from? Customers have a lot of SD WANs already deployed on SD. They're finding that they are not easy to manage. There's a lot of operational overhead, round table management. But more importantly, SD WAN enables lateral threat movement. A single infected machine in one branch office can traverse the whole network It's a mesh network and bring all other things down. That's the biggest problem we fix. That's what our customers are looking for. So we replace SD WAN or replace whatever old school network. They have in place. It's an exciting area for us. I have been personally passionate about eliminating all these firewalls all these branches I think we're getting closer to it. Thank you.

Please stand by for our next question. Next question comes from the line of Eric Heath with KeyBanc. Your line is open.

Hey. Thanks for taking the question. I'll echo my congrats as well. Maybe just to follow on on your comments regarding Gray's question on the branch. One thing I wanted to ask you, Jay, is there was a lot of strength in the retail sector coming out of COVID. Buying branch firewalls. Could you just talk about your exposure to retail and specifically as we think about fiscal 2026, calendar 2026, how are you thinking about the opportunity for Zero Trust branch in the retail segment as we kind of come up on that five-year depreciation life cycle in that sector?

Yes. Retail is a great segment. In fact, if you look at where our customers are going, they want to start from the smaller branches. And to larger and then to plants and factories. Here's a typical dialogue that goes me with a customer. Let's start with a simple grant. What's the difference between you sitting in a branch office as you sitting at home? The answer typically is nothing. Second question, do you have an SD WAN at home? No. Do you have in the branch office? Yes. Do you have a corporate firewall at home? No. You have it in the branch office? Yes. Why? The only reason is you always done it that way. So we are starting with the low-end firewalls, which are relatively easy, then we go to the next level. Retail is a fairly easy and simple segment. Yes. There's some very large stores out there, but lots and lots of retail stores are straightforward. And simple. They're very similar to each other. So the deployment rollout becomes easier. So we're counting on retail among other areas for our business growth from zero trust branch in FY '26. Thank you.

Our next question comes from the line of Patrick Colville with Scotiabank. Your line is open.

Thank you for taking my question. This one is for Jay or Kevin. When I look at the metrics you disclosed around the proportion of net new ACV from ZPA, ZIA, and then emerging products. To me, one of the kind of big standouts this fiscal year was the kind of inflection up in emerging products. If I got it right, going from 22% of new ACV to twenty-seven, Can you, I guess, just double click, on where you think that might go in fiscal 2026? And then also, know, it seems like there's just a lot of health left in ZPA and ZLAA. So just talk about, like, where that continued momentum from those core products is coming from Thank you.

Yeah. Very good question. We have been very pleased with the contribution of emerging products. We delivered good results. Very pleased with it. But as we move forward, I think we are shifting our focus on three significant growth factors to better package rather than leave them as one bucket of emerging products. AI securities, one, Zero trust. Everywhere being two, and data security being three. And these three areas for us are actually billion dollar in ARR. So we'll be tracking each of these three segments for us to grow. We already talked with data security growing at a very good pace at scale. AI security is somewhat smaller, but we expect it to grow at a faster pace as well. Your ZPA is the heart of all the zero trust communication And so overall strength of ZPA will be good. We added some of the zero trust segmentation, micro segmentation offerings for workloads for ZPA. We expect ZPA to give us good growth as well. So overall, I think our portfolio is growing very rapidly. The main thing I'm personally focused on is to make sure the sales execution we which we did very well in fiscal 2025, keep on getting better and better in fiscal 2026. Thank you.

Our next question comes from the line of Joseph Gallo with Jefferies.

Hey, guys. Thanks for the question. I wanted to follow-up on Josh earlier question. Kevin, appreciate all the guys' color. Given this is your first fiscal year guidance, can you just talk through your methodology, maybe relative to the Zscaler's historical approach, any changes to process? Then just any considerations for macro or fed in your guidance? Thank you.

Yeah. Thank you for the question. You know, look, there is no fundamental shift in guidance philosophy. I think we have historically been prudent with how we've set it set our guidance, and I expect to continue that. Fed in particular, was about high single digits as a percentage of the business in 2025. We're expecting similar performance going forward. But, fundamentally, you should not expect anything any philosophical or shifts in methodology with respect to guidance. The only obvious change is we are moving from billings to ARR going forward as we believe that metric is better aligned to our go-to-market and how we're running the business. Today. If I may add, regarding the macro, we aren't expecting any meaningful change in macro. Macro pretty much has kinda remained the way it is. So no changes assumed in that. Thank you.

Our next question comes from the line of Brian Essex with JPMorgan. Your line is open.

Hi, good afternoon, thank you for taking the Jay, appreciate the comments on Agentyx SecOps and AgenTek IT ops. I would love if you could maybe peel back a layer and help understand some of the conversations that you're having with customers from the particularly from the perspective of, you know, are they primarily focused on what you've done combining, like, Avalor and Red Canary for more of a streaming-based analytics platform, particularly on the SecOps side. Or are they leveraging that to address AI? Or are they leveraging that to target more kind of, like, legacy SIM business? I know everyone's kinda pointing their finger at you know, displacing Splunk and QRadar type business. Would love to hear a little bit more about your conversations and how you're Yeah. Leveraging into that space.

Yes. So agentic operation for us foreign. Two broad buckets. One is security operations. Here, we are combining a number of products to build unified vulnerability management that Avalara brought to us, asset exposure management we built on our data fabric platform. And then we basically are building the SecOps taking a genetic technology for RedCray together. We think this is going to accelerate us to become a leading player in the area where in the new world, we don't think customers should be paying for building these data lakes. I think customers should be paying for outcomes. And that's the model we're building towards based on outcomes, don't charge in based on how many gigabytes data is coming to you. That's one part. The second part, what we call it, agentic IT operations. AI and agents can help us to figure performance issues and, therefore, on an two buckets. One is user performance. Here, we've taken our CDX product. Added a bunch of agentic technology to make sure we can identify and troubleshoot those things. Very quickly. Next, we are expanding our ZDX to known human entities. That's machine to machine. Because as more and more of these agents and models will talk to each other, their detection of performance, latency issues will become important. And we are in a good position to detect and identify them. So both areas are both big opportunities for us traditional security operations, disruption, as well as performance and troubleshooting that is needed for a lot of these applications and users. I hope that helps.

Thank you. Our next question comes from the line of Shrenik Kothari with Baird. Your line is open.

Hey. Thanks for taking my question. Again, congrats on the great execution. Jay, just to double click on AI security. Right? You mentioned, of course, about the key focus areas, securing agentless workload and user to agent. Again, that's quite distinct from the legacy posture. Since AI is evolving fast and the new billion-dollar opportunity, just how can you elaborate how that plays into the new logo focus now, right, that you highlighted Zenith Live and now in light of this new AI security opportunity, just can elaborate on how are you adjusting go to market as well across new logo and platform. Thanks a lot.

So first of all, we have both big opportunities. We have new logos sitting at about 45% of Fortune 500 or nearly 40% of Global 2,000. There's a plenty of market on the high end of the market where we do extremely well. But the platform is so big that we can keep on upselling and upselling both opportunities are big. So with that, we don't really focus and say, you've got to do new logos. We do provide some financial incentive for new logos. Now when it comes to solution like AI security, or some of the new solutions we do, Generally, not always, generally, our customer base is much easier to solve because we got so much credibility. We got relationship with the CIO at the CSO level. So we're able to go. In fact, we are able to build some of these solutions with some of these customers as design partners with us. So if I just tell you, most of the new stuff we bring in majority of that will come from upsell opportunity but there are many solutions that are opening doors for new logos as well. Thank you.

Please stand by for our next question. Our next question comes from the line of Todd Weller with Stephens. Your line is open.

Jay, just a follow-up on the SecOps piece of AgenTek operations. When do you anticipate kinda having that full-fledged kinda next-gen next-gen SOC platform available? And then what's your take kind of filtering pipeline capabilities? At Zenith, one of your SI partners did a presentation where they combined Data Fabric with Cribl. To upgrade a customer to a next-gen platform. And, obviously, CrowdStrike just made a move there. So curious to your thoughts on that.

It's a good question. You know, we look at the overall big picture. In the data area in two main buckets Exposure management is one of them. And security operations and threat management is the second one. First of all, this exposure management is a fragmented market today. No one really dominates the market out there. This is where a number of our products built on top of our data fabric are offering good opportunities for us. And this severe your unified vulnerability management comes in, This is where your asset exposure management are surface management, as well as our risk three sixty comes in. That's one bucket. Fairly well differentiated unified offer by one vendor rather than five different point product vendors. Now moving to the right side, which is a security operations area. Yes. This has been done in a traditional way. Here's my massive data lake or Delta Lake, and here are my tools on top of that. Our data fabric approach allows us to bring in logs, but synthesize them and really create entity relationships. So I don't really need to keep all these dogs. My security analyst don't need to go against a billion logs a day. So architecturally, they're very different. So we're going in in an incremental fashion. And I think over the coming few quarters, we'll be able to say we take care of the whole thing. So it's kind of a journey. Even if I had everything today, a customer will take a few quarters to get out of where they need to. But we are moving towards pretty rapidly to offer a solution where you can replace whatever PC you need to replace. But having said that, we are not against the notion that if I got saved 100 terabytes of data sitting in my old school SIM, If I can take out 50 terabytes of it in the first three or four months, I'm gonna cut the cost into half to start with. And it may take a couple of quarters to remove the rest of it. So we look at it as a phased, meaningful approach working with the customers as a partner. And Red Canary starts playing an important role. I was talking to the seesaw, a very large customer, a Zscaler customer, who a couple of quarters ago bought Radclinic. In fact, they need Red Clanic, he said. My current SIEM solution can't find some of the threats. I can find with the help of Red Canary. So Red Canary can play a very good complementary role there as well. So we think we all got all the key pieces to execute in this market, which is ready to be disrupted. Thank you.

Our next question comes from the line of Adam Borg with Stifel. Awesome. Thanks for most excuse me. Thanks so much for taking the question. Maybe just building off the last question on Red Canary. So obviously, great to see the acquisition closed. Big part of the AgenTeq operations opportunity. Maybe you could just remind us of the top R&D and sales and marketing priorities as we play out this year. Thanks so much.

Tony, can you repeat the last statement you made?

Sure. Just the top R&D and sales and marketing priorities for fiscal 2026.

Overall for Zscaler?

Specifically for Red Canary.

Okay. So number one, the acquisition we made was driven by technology Our teams are working well together to make sure we can take that agentic technology, and they have very sophisticated agent technology for detection and investigation. That gets integrated with our data fabric So we build a strong solution that can be taken to market. Number one. Number two, that can sales team is acting like a specialist team for the security operations. And getting leverage from Zscaler wider sales team that can uncover opportunities, and Red Canary team is a specialist. Team that can close deals. And grow business. MDR, remains an important part of the business for us at Red Granary, and we keep on focused on serving those customers. Now the data gets better the brand gets better, opening door gets better. So we are expecting good results. On both product integration side as well as go to market execution side. And all is going very well so far. Thank you.

Please stand by for our next question. Our next question comes from the line of Andrew DeCasperi with BNP Paribas. Your line is open.

Thanks, and congrats on the $3 billion milestone. That's something to be proud of. One question I had is on the guidance for Red Canary contribution for this year. I think on the last earnings call, you said that we're contributing about half of the $140 million of ARR. I think now you're saying it's about $95 million I'm just wondering is that 35% increase driven by anything? Or is that what the asset is growing at? Or are you doing something different based on the answer to the last question you just made?

Yeah. Thanks for the question. So the commentary on the last call was with respect to how much we would anticipate recognizing at the close. What we ultimately determine at the closing is that we recognized $83 million of ARR We are assuming low double-digit growth. In the Red Canary business for '26. And so for the guidance for '26, we've assumed $95 million in contribution from Red Canary. The last thing I would just keep in mind is you know, MER providers have historically had higher churn rate than our business. And this is a new business segment for us. So while we are engaging very closely with Red Canary customers, and considering all the different moving parts here, we are taking a prudent approach to how we're treating their ARR. Thank you.

Ladies and gentlemen, due to the interest of time, I would now like to turn the call back over to Jay for closing remarks.

Thank you all for your interest in Zscaler. We look forward to seeing you in many of the investor conferences we plan to attend. Thank you for your time.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect. Goodbye.