8-K: Zscaler Q1 Fiscal 2026 Revenue Jumps 26%, Boosted by AI Security

Zscaler reported strong first quarter fiscal 2026 financial results, with revenue increasing 26% year-over-year to $788.1 million, driven by robust demand for its Zero Trust and AI Security platform.

Summary

• Revenue for the first fiscal quarter 2026 increased 26% year-over-year to $788.1 million.
• Annual Recurring Revenue (ARR) grew 26% year-over-year to $3,204 million as of October 31, 2025.
• Deferred revenue increased 32% year-over-year to $2,351.3 million as of October 31, 2025.
• GAAP net loss was $11.6 million, an improvement from a GAAP net loss of $12.1 million in the prior year.
• Non-GAAP net income rose to $159.5 million, compared to $124.3 million in the first quarter of fiscal 2025.
• Cash provided by operations was $448.3 million, or 57% of revenue, up from $331.3 million (53% of revenue) year-over-year.
• Free cash flow was $413.3 million, or 52% of revenue, compared to $291.9 million (46% of revenue) in the prior year.
• Zscaler closed the acquisitions of Red Canary Inc. and SPLXAI Inc. for an aggregate purchase price consideration of $692.0 million during the quarter.
• The company adopted a long-term projected non-GAAP tax rate of 21%, reduced from 23%, effective August 1, 2025, due to the enactment of the One Big Beautiful Bill Act.
• For the second quarter of fiscal 2026, Zscaler expects revenue of $797 million to $799 million and non-GAAP net income per share of $0.89 to $0.90.
• For the full fiscal year 2026, Zscaler projects Annual Recurring Revenue of $3.698 billion to $3.718 billion and total revenue of $3.282 billion to $3.301 billion.

Sentiment

Score: 8

Explanation: The company reported strong financial results across key metrics, including revenue, ARR, and non-GAAP net income, all showing significant year-over-year growth. Cash flow generation was robust, and the company strategically expanded its AI security offerings through acquisitions. The raised full-year guidance further indicates positive momentum and confidence in future performance, despite a slight increase in GAAP operating loss and a decrease in cash due to acquisitions.

Positives

• Strong revenue growth of 26% year-over-year to $788.1 million, indicating robust market demand.
• Annual Recurring Revenue (ARR) grew 26% year-over-year to $3,204 million, demonstrating strong customer retention and expansion.
• Deferred revenue increased 32% year-over-year to $2,351.3 million, providing significant future revenue visibility.
• GAAP net loss improved to $11.6 million from $12.1 million in the prior year, showing progress towards GAAP profitability.
• Non-GAAP net income significantly increased to $159.5 million from $124.3 million year-over-year, highlighting strong operational performance.
• Cash provided by operations grew to $448.3 million (57% of revenue) from $331.3 million (53% of revenue), indicating excellent cash generation.
• Free cash flow increased to $413.3 million (52% of revenue) from $291.9 million (46% of revenue), reflecting efficient capital management.
• Strategic acquisitions of SPLXAI Inc. and Red Canary Inc. enhance AI security offerings and expand platform capabilities.
• Launched new Zscaler Digital Experience (ZDX) innovations, introducing end-to-end visibility and proactive remediation tools.
• Expanded FedRAMP Moderate authorized data centers outside the U.S. (London and Paris), enabling secure global missions for federal agencies.
• Surpassed $1 billion in software sales through the AWS Marketplace, demonstrating strong cloud partnership and adoption.
• Raised full-year fiscal 2026 guidance for both revenue and non-GAAP net income per share, signaling management confidence.

Negatives

• GAAP loss from operations increased to $36.4 million (5% of revenue) from $30.7 million (5% of revenue) in the prior year.
• Cash, cash equivalents, and short-term investments decreased by $251.1 million from July 31, 2025, primarily due to acquisition payments.
• Incurred restructuring and other charges totaling $4.741 million during the quarter.
• Incurred acquisition-related expenses of $1.083 million during the quarter.

Risks

• Macroeconomic influences and instability, geopolitical events, and general economic conditions could impact operations and financial results.
• Risks related to the use of AI in the platform, including potential vulnerabilities or ethical concerns.
• Ability to identify and effectively implement necessary changes to address execution challenges.
• Risks associated with managing rapid growth, including potential fluctuations in performance from period to period.
• Limited experience with new products and subscriptions and support introductions, and the risks associated with new offerings, including the discovery of software bugs.
• Ability to attract and retain new customers in a competitive market.
• Failure to timely develop and achieve market acceptance of new products and subscriptions as well as existing products and subscription and support.
• Rapidly evolving technological developments in the market for network security products and subscription and support offerings and the ability to remain competitive.
• Length of sales cycles, which can impact revenue recognition and predictability.
• Uncertainties related to useful lives of assets and other accounting estimates.

Future Outlook

Zscaler expects Q2 fiscal 2026 revenue between $797 million and $799 million, with non-GAAP income from operations of $172 million to $174 million, and non-GAAP net income per share of $0.89 to $0.90. For the full fiscal year 2026, the company anticipates Annual Recurring Revenue of $3.698 billion to $3.718 billion, total revenue of $3.282 billion to $3.301 billion, non-GAAP income from operations of $732 million to $740 million, and non-GAAP net income per share of $3.78 to $3.82.

Management Comments

• "Our outstanding Q1 results demonstrate the strong demand we are experiencing for our Zero Trust and AI Security platform."
• "With over $3.2B in Annual Recurring Revenue, growing over 25% year-over-year, and Rule-of-78 performance, I'm very pleased to share that an increasing number of customers are relying on our platform for better security, lower operational costs and reduced IT complexity."
• "Zero Trust security is the linchpin for AI-Security, and Zscaler pioneered Zero Trust security with our cloud-native switchboard architecture."
• "By integrating the recently acquired SPLX technology with our comprehensive AI Security offerings, we are expanding our best-in-class AI Security solutions to solve emerging security challenges."

Industry Context

Zscaler's strong performance, particularly in AI Security and Zero Trust, aligns with the increasing global demand for advanced cybersecurity solutions amidst escalating threats. The acquisitions of SPLX and Red Canary, along with new ZDX innovations, position Zscaler to capitalize on the growing market for AI-driven security and proactive threat remediation. The expansion of FedRAMP authorized data centers and surpassing $1 billion in AWS Marketplace sales demonstrate a strategic focus on government and cloud-native enterprise segments, reflecting broader industry trends towards cloud adoption and secure digital transformation. The ThreatLabz report highlights the critical need for robust mobile, IoT, and OT security, areas where Zscaler is actively innovating.

Comparison to Industry Standards

• Zscaler's 26% year-over-year revenue growth and 26% ARR growth are strong indicators of market leadership in the cloud security sector, often outpacing many legacy security providers.
• The Rule-of-78 performance mentioned by the CEO suggests a healthy balance between growth and profitability, a key metric for SaaS companies, indicating efficient operations compared to industry peers.
• The strategic acquisitions of SPLX and Red Canary demonstrate a proactive approach to integrating cutting-edge AI security capabilities, positioning Zscaler favorably against competitors like Palo Alto Networks, CrowdStrike, and Fortinet who are also investing heavily in AI and cloud-native solutions.
• Surpassing $1 billion in software sales through the AWS Marketplace highlights strong channel partnerships and customer adoption within the cloud ecosystem, a benchmark for successful cloud-first companies.
• The expansion of FedRAMP Moderate authorized data centers outside the U.S. is a significant competitive differentiator for securing global government and regulated industry clients, a niche that requires stringent compliance and is not easily met by all competitors.

Corporate Governance

Stakeholder Impact

• Shareholders: Positive impact due to strong financial performance, increased revenue and ARR, improved non-GAAP profitability, robust cash flow, strategic acquisitions enhancing market position, and raised full-year guidance.
• Customers: Enhanced security offerings through acquisitions (SPLX, Red Canary) and ZDX innovations provide better protection, lower operational costs, and reduced IT complexity.
• Employees: Restructuring charges indicate some workforce adjustments, but overall growth and strategic expansion suggest continued opportunities in key areas like AI security.
• Creditors: Strong cash flow and financial health indicate a stable position for meeting obligations.

Next Steps

• Zscaler will host a conference call for analysts and investors on November 25, 2025, at 1:30 p.m. Pacific time.
• Participation in the UBS Global Technology and AI Conference in Scottsdale on December 3, 2025.
• Participation in the Barclays 23rd Annual Global Tech Conference in San Francisco on December 11, 2025.
• Participation in the 28th Annual Needham Growth Conference in New York on January 14, 2026.
• Continue to assess the appropriate non-GAAP tax rate on a regular basis, which could be subject to changes.

Key Dates

Recommendation

Zscaler delivered exceptional Q1 fiscal 2026 results, significantly exceeding expectations with robust revenue and ARR growth, strong non-GAAP profitability, and impressive free cash flow generation. The strategic acquisitions of SPLX and Red Canary, coupled with new product innovations, solidify its leadership in the critical and rapidly expanding AI Security and Zero Trust markets. The company's raised full-year guidance demonstrates strong management confidence and positive momentum. These factors, combined with a favorable industry context of escalating cyber threats and increasing demand for cloud-native security, position Zscaler for continued outperformance, making it a compelling "strong buy" for investors.

Keywords

Zscaler, ZS, Cloud Security, Zero Trust, AI Security, Cybersecurity, Financial Results, Q1 2026, Revenue Growth, ARR, GAAP, Non-GAAP, Acquisition, SPLX, Red Canary, AWS Marketplace, FedRAMP, Digital Experience, ThreatLabz