Citi Global TMT Conf. 2025: ZS Mgmt on ARR Transition, Growth Strat, AI Sec, & Red Canary Acq.

Key Takeaways

TL;DR: ZS posted strong Q4/FY25, beating all key metrics and surpassing $3B ARR (+22% ARR, +32% billings). Shifting to industry-standard ARR as core metric (FY26 guide: +22–23% ARR incl. $95M from Red Canary, >19% organic), de-emphasizing billings/NRR. Mgmt sees large runway in Zero Trust & DataSec (DataSec ARR $400M, big upsell in large enterprise). Recent product/pricing (Z-Flex) and Red Canary (AI SecOps/Agentic AI) acq. support scalable, platform-led growth. Capex remains disciplined, reinvestment focused on innovation and targeted M&A.

1. Fin. Perf. & Guide

• FY25 perf.:
  • Beat all key metrics (ARR, billings, FCF)
  • Crossed $3B ARR (one of only two pure-play SaaS sec. cos.)
  • ARR: +22%
  • Billings: +32%
  • FCF margin: 27%
  • "Ended the year as a Rule of 50 co." – Kevin Rubin, CFO
• Metric shift: Billings → ARR:
  • ARR now key growth/forecasting metric; comp & guide aligned
  • New ARR def.: Next 12mo recurring rev. (not contract exit value)
  • Old ARR def. would have shown $3.1B vs $3.0B (new)
  • Quote: "Guidance... based on [the new] ARR def... more comparable, aligns w/ how we're recognizing rev."
• FY26 Guide:
  • +22–23% ARR growth (incl. Red Canary)
  • Red Canary: $95M (2.5% of growth); organic >19%
  • Mgmt: Outlook prudent, expect to accel. as new sales model/metric shift settle

2. Sales Model, Comp, & KPIs

• Sales struct.:
  • Sales comp focused on new ACV w/ churn, increasingly aligned to ARR (mgmt comp fully ARR-aligned)
  • "Sales team hasn't changed... mgmt comp more aligned w/ ARR, de-emphasizing billings." – Jay Chaudhry, CEO
• End of NRR focus:
  • De-emphasizing NRR as core KPI
  • Last NRR: 114% for Q4; will discontinue regular updates
  • Quote: "NRR never part of my philosophy... upsell vs new ACV more meaningful."
  • Focus: Periodic ARR growth, new logo growth, upsell growth

3. Mkt Opp. & Core Segments

• Zero Trust/SASE penetration early:
  • Core Zero Trust mkt far from saturation
  • Legacy comp (Blue Coat, Websense, McAfee, Cisco) "essentially gone"
  • Only 350/4,000 enterprise customers on "Zero Trust Everywhere" (full platform); ZS serves 45% of F500
  • Quote: "Most of the mkt is sitting up there. Tons of opp. in Zero Trust."
• Workload & AI Agent growth drivers:
  • Cloud workloads & agent-based (AI/Agentic) computing to drive seat/data expansion
  • "Workloads going up significantly. Agents will grow in billions... Well positioned..." – Jay Chaudhry

4. DataSec Segment Momentum

• High-growth area:
  • DataSec ARR now $400M; seeing "renaissance"
  • Broadest coverage: in-line DLP, DSPM, endpoint DLP, email DLP, etc. (8 modules)
  • Quote: "If my DataSec BU were independent, it'd be the largest DataSec co."
  • Pricing evolving: user-based → usage/volume-based for cloud/data; will keep evolving as data/AI grows