Zscaler, Inc. (ZS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Zscaler Fourth Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. 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 risks and uncertainty, some of which are beyond our control. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. 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 9; Goldman Sachs Communacopia and Technology Conference on September 9; Wolfe Research TMT Conference 2026 on September 9; and JPMorgan 2026 Software Forum on October 1. 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 veterinary, 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, we are also enabling organizations to 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 vulnerability is 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 that takeaways have been incredibly revealing. Over 90% of organizations had AI applications, models and other servers exposed to the Internet and more than 1/3 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. They have already been multiple high-profile incidents from 3 leading frontier model companies where agents went Rogue and took on authorized actions. 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 copay 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 3 essential business challenges. First, how do we secure an environment when we can't had security vulnerabilities fast enough, our Zero Trust Exchange makes applications, AI models and data invisible. And attacker human or agent cannot reach 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 agenetic 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 in-line security cloud, processing more than 750 billion transactions per day. This scale provides unmatched high-fidelity calmetry that continuously improves our AI-powered security capabilities. In the AI era, Zero Trust is now an imperative and we're not alone in this belief. Anthropic published a white paper in late May and crushing 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 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 are 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 are permitted to perform? We are often asked why our solutions are needed alongside identity for AI security. While Identity Solutions answer who is requesting access our in-line exchange determines what that user or agent should be allowed to do and enforces that policy in real time. But 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 and 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 AgenticSEcOp solution. Just as AI is increasing the threat surface, it is also stressing a 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 decades plus of experience in managed detection and response or MDR. Our AgenticSEcOp 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 Agent 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 AgentecSecop solution with a webcast on September 9, which will be streamed on our website. Our approach for securing users and known 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 7-figure upsell Z Flex win with a Fortune 500 transportation customer who deployed our security for AI portfolio to secure their full AI life cycle. Our security for AI solution provides an integrated approach to secure AIUs 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 for transactions and continuous red-teaming assessments. This customer selected our security for AI solution over 2 major platform competitors and with this win, the customers' ARR grew to nearly $10 million. In another 7 figures, ZFlex upsell, a Fortune 500 semiconductor manufacturer expanded its adoption of the Zscaler platform to secure a company-wide rollout of cloud cohort. After assessing several vendors, this client determined Zscaler security for AI was the only solution capable of securing the customers 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 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 agent AI, they're confronting a new wave of data exfiltration risks, including databus and over privileged access to data. Our in-line 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 end point 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 7-figure ZFlex upsell win with a large global asset management firm. The customer selected Zscaler's data security posture management solution over a privately held ESPM vendor. This customer chose Zscaler to address gaps related to sensor 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 SE solutions including customers expanding their Zero Trust as deployments. For example, this quarter, we signed a 7-figure flex upsell with a Global 2000 financial services customer who upgraded to Zscaler private access to AI-powered app segmentation or 120,000 users, increasing their ARR by nearly 50%. We are also driving new logos. We closed a 7-figure new logo Flex win with a Fortune 500 life sciences company that is deploying our Zero Trust and security for AI platform across 75,000 users and displacing a legacy fiber-based SaaS platform. This customer led by a newly appointed CECL who is a 3x 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 journey by securing nonuser environments. For example, we closed a 7-figure new logo win with a Global 2000 health care 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 0 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 known user deal win, we closed a 7-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% to over $5 million. 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 are seeing in Zero Trust branch and Zero Trust Cloud is translating to meaningful momentum with Zero Trust everywhere enterprises, those that have purchased 0-plus users, Zero Trust branch and Zero Trust Cloud. We exited Q4 with more than 950 Zero Trust enterprises versus over 700 in Q3 and over 350 at the end of fiscal 2025. To summarize, AI represents 1 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 Sasi, Agenticsecomps, 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 XPlex 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% year-over-year, and total ARR was up 20%. Importantly, this marks a continued acceleration in net new ARR growth from 7% 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 was broad-based with strength across the 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 full 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% EMEA 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 Carasoft 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. XPlex remains an important part of our go-to-market strategy. It provides customers with multiyear 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 Zeflex, driving meaningful upsell, shorter sales cycles and greater forward visibility. In Q4, Zflex generated over $770 million in TCV up more than 60% quarter-over-quarter. For fiscal '26, Flex customers saw an ARR uplift averaging nearly 30%. For fiscal '26, 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 5-year 8-figure XPlex 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 7-figure ARR Global 2000 retail and wholesale customer increased its annual spend with us by 140% in a 3-year 8-figure XPlex deal. This customer expanded adoption across 9 existing modules, and adopted 6 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 onetime 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 2017, 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 $3.938 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%. 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 XPlex 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 6 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.

[Operator Instructions] Our first question comes from Saket Kalia with Barclays.

A 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 has stabilized as we go into '27?

Okay. 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 are different are working well. If you look at the sales productivity, actually, the sales productivity in Q4 was the highest I think we are very well positioned with a strong sales team with good channel partnership and a very strong product portfolio as we enter fiscal '27. Kevin?

Yes. Thanks, Jay and Saket. 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 4 years. So I think we're really positioned and set up well going into fiscal '27. Just as a reminder, we did have 2 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 guidance. And I am excited about how this leadership team has come together as we think about augmenting our existing team into this year.

Our next question comes from Fatima Boolani with Citi..

I was hoping to have you unpack some of the discrete drivers of that organic net new acceleration in the quarter. Provided that this is your fourth fiscal quarter, it's an abundant period of renewals and behavior from customers. So I'd love to kind of how you stack rank between some of those inputs. And 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 and Kevin. 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. A security fears are growing out there. And 1 of the things AI security needs zero-trust architecture, Zero Trust solutions. Our solution like Zero Trust Branch did extremely well. Data security drug on a big part of our business. And even the young offerings of security for AI has grown very nice so. All products actually did very well. Kevin?

Yes. So maybe just a couple of other points to emphasize. We did have broad-based strength in the quarter. So I think that's number 1 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 1 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 increase in pipeline in security for AI as we think about what that sets up for '27.

If I may add 2 more points from a new logo point of view, -- for penetration moved up from 45% to 50%. That's pretty remarkable. And also worth noting is the million-dollar pastels we had a record quarter for New Millan ACV teams.

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

Our next question comes from Roger Boyd with UBS.

Awesome. 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 7-figure upsell you called out with an airline company where you won over to 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?

Yes. AI security is in demand and they're lots and lots of AI security companies, probably tons of startups as well. So 1 of the things we see out there is our customers tell us that they don't want 1 more or 3 more AI security products. They're looking for an integrated solution, not only for AI security, but also that works with the rest of security as well. So this transformation customers that we highlighted. They are a Zscaler customer Zero Trust everywhere. And it is natural for them to say, if I need to expand into security. And tomorrow, I need to be ready for my agent communication where 0 to exchange 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 for asset management through communication to us actually relationship figuring out the access graph as well as agent communication actually was setting us support.

Our next question comes from Richard Poland with Wells Fargo.

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 heading into fiscal year end, et cetera, anything to keep in mind there?

Yes. I'll take that quickly. 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 Doc, it was a difficult environment, but we've seen it perform fairly consistently with the last several years.

Our next question comes from Joseph Gallo with Jefferies.

On a quarter. I was just hoping if you could break out the symmetry contribution to net new ARR in -- and then just as a part of that really strong strength in non-seat in fiscal 2016, what are the expectations as we go into fiscal '27? Because you're obviously offering more and more there. So the third expects a larger mix of the new business comes from that note.

So metri is a very innovative technology that essentially connects the dot 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 value the revenue for it. But it's becoming an important part of Zero trusted change not only for agents, but 0 trust cloud workloads and devices because understanding relationships of entities to what they access is foundational piece. That's where it's fitting in. Regarding known set at a broader level, the comment I'll make is, while early on, or products like ZIA for users, CPousers or largely user-centric. A lot of our offerings subsequently have not been user-centric. For example, sees for cloud workloads. It's all about workloads. It's essentially consumption was Zero Trust, which is largely about brand devices, IoT devices communicating is all of our known seeds. Data security, some of the modules are used seat-based. Others are data volume based. And almost all of our AI security products or security for AI products outset consumption base linked to queries, essentially transferred to token consumption fundamentally.

Yes. So with respect to symmetry again, to Jay's point, it really was a technology and talent acquisition and provided the access graft technology for us. The results are immaterial to our results. And nothing else to call out there.

Our next question comes from John DiFucci with Guggenheim Securities.

I have -- I apologize. I have a 3-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 AI? Or is it just as you said -- you also said here, you're seeing very good sales productivity. So now it's just the time to be hiring more to keep on growing.