8-K: Zscaler Soars Past Q2 Estimates, Boosts FY26 ARR Guidance

Zscaler, Inc. announced strong second-quarter fiscal 2026 financial results, exceeding revenue and profitability guidance and raising its full-year ARR outlook to 24% growth.

Summary

• Revenue grew 26% year-over-year to $815.8 million.
• Annual Recurring Revenue (ARR) increased 25% year-over-year to $3,359 million.
• Non-GAAP operating margin reached an all-time high over 22%.
• Operating cash flow grew 14% year-over-year to $204.1 million.
• Free cash flow grew 18% year-over-year to $169.1 million.
• Acquired Red Canary Inc., SPLXAI Inc., and SquareX Holdings, Inc. for an aggregate purchase price of $692.0 million.
• Raised fiscal 2026 ARR guidance to $3.730 billion to $3.745 billion (24% growth), up from previous guidance of $3.698 billion to $3.718 billion (23% growth).
• Raised fiscal 2026 revenue guidance to $3.309 billion to $3.322 billion (24% growth), up from prior guidance of $3.282 billion to $3.301 billion (23% growth).
• Raised fiscal 2026 non-GAAP income from operations guidance to $742 million to $748 million (28-29% growth), up from prior guidance of $732 million to $740 million (26-28% growth).
• Raised fiscal 2026 non-GAAP net income per share guidance to $3.99 to $4.02 (22-23% growth), up from previous guidance of $3.78 to $3.82 million (15-16% growth).

Sentiment

Score: 9

Explanation: StockSavvy.ai views this as a highly positive report, driven by strong financial performance, significant guidance raises, and strategic advancements in the high-growth AI security market, indicating robust execution and future potential.

Positives

• Revenue of $815.8 million exceeded guidance, growing 26% year-over-year.
• ARR grew 25% year-over-year to $3,359 million, with $155.5 million in net new ARR during Q2 FY26.
• Non-GAAP operating margin reached an all-time high over 22%, demonstrating strong profitability.
• Operating cash flow increased 14% year-over-year to $204.1 million.
• Free cash flow increased 18% year-over-year to $169.1 million.
• Achieved a Rule-of-62 fiscal year-to-date, significantly outperforming the Rule-of-40 benchmark.
• Raised full-year fiscal 2026 guidance for ARR, revenue, non-GAAP income from operations, and non-GAAP net income per share.
• Strategic acquisitions (SquareX, Red Canary, SPLXAI) enhance Zero Trust and AI security capabilities.
• Strong focus on AI security innovations (Zscaler AI Protect) and leadership in agentic AI security.
• Received 2025 AWS Marketplace Partner of the Year award, validating cloud and AI transformation capabilities.
• Expanded global infrastructure with a new data center in Kuala Lumpur, Malaysia, supporting demand in Southeast Asia.
• Customer AI activity quadrupled in the last 12 months, with data transfers to AI/ML applications increasing by 93%, indicating strong market demand for Zscaler's solutions.

Negatives

• GAAP loss from operations was $51.8 million, or 6% of revenue, compared to $40.1 million (6% of revenue) in Q2 FY25, indicating a larger GAAP operating loss.
• GAAP net loss was $34.3 million, compared to $7.7 million in Q2 FY25, showing an increased GAAP net loss.
• GAAP net loss per share was $0.21, compared to $0.05 in Q2 FY25, reflecting a higher GAAP loss per share.
• Cash, cash equivalents, and short-term investments decreased by $59.7 million from July 31, 2025, primarily due to acquisitions.

Risks

• Macroeconomic influences and instability, geopolitical events, operations and financial results, and the economy in general.
• Risks related to the use of AI in the platform.
• Ability to identify and effectively implement necessary changes to address execution challenges.
• Risks associated with managing rapid growth, including fluctuations from period to period.
• Limited experience with new products and subscriptions and support introductions, and risks associated with new offerings, including the discovery of software bugs.
• Ability to attract and retain new customers.
• 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.
• Useful lives of assets and other estimates.
• General market, political, economic, and business conditions.

Future Outlook

For the third quarter of fiscal 2026, Zscaler expects revenue of $834 million to $836 million (23% growth), non-GAAP income from operations of $187 million to $189 million (28-29% growth), and non-GAAP net income per share of $1.00 to $1.01 (19-20% growth). For the full fiscal year 2026, the company raised its guidance, now expecting ARR of $3.730 billion to $3.745 billion (24% growth), revenue of $3.309 billion to $3.322 billion (24% growth), non-GAAP income from operations of $742 million to $748 million (28-29% growth), and non-GAAP net income per share of $3.99 to $4.02 (22-23% growth).

Management Comments

• "We believe Zscaler is the cybersecurity platform for the AI age our in-line Zero Trust platform is uniquely architected to secure the unprecedented speed and scale of AI and agentic workflows. Organizations racing to adopt AI are looking to us to provide the security solution they trust, and we're just scratching the surface of this massive future growth opportunity." Jay Chaudhry, CEO, Chairman and Founder of Zscaler.
• "We continue to see robust demand across all three of our growth pillars: AI Security, Zero Trust Everywhere, and Data Security, giving us a highly durable runway for long-term growth." Jay Chaudhry.
• "We delivered strong second quarter fiscal 2026 results. ARR grew 25%, or 21% excluding the contribution from the Red Canary acquisition, while profitability reached an all-time high with non-GAAP operating margin over 22%." Kevin Rubin, Chief Financial Officer of Zscaler.
• "Our innovation, combined with disciplined execution, enabled us to operate at a Rule-of-62 fiscal year-to-date, significantly outperforming the Rule-of-40 benchmark." Kevin Rubin.

Industry Context

StockSavvy.ai notes that Zscaler's strong performance and strategic focus on AI security and Zero Trust align with the accelerating enterprise adoption of AI and the increasing need for robust cybersecurity solutions. The reported 91% year-over-year surge in enterprise AI usage and quadrupling of AI application activity underscore a significant market opportunity that Zscaler is actively addressing through its platform enhancements and acquisitions. The AWS Partner Award and collaboration with Microsoft Entra Agent ID ecosystem demonstrate Zscaler's strong positioning within critical cloud and identity management ecosystems, which are central to modern enterprise IT strategies.

Comparison to Industry Standards

• Zscaler's fiscal year-to-date Rule-of-62 significantly outperforms the Rule-of-40 benchmark, indicating exceptional balance between growth and profitability for a SaaS company.
• The 91% year-over-year surge in enterprise AI usage and quadrupling of AI application activity across more than 3,400 applications, as reported in the ThreatLabz 2026 AI Threat Report, highlights a rapid industry shift that Zscaler is capitalizing on, positioning it favorably against competitors who may be slower to adapt.
• The expansion of global infrastructure with a new data center in Kuala Lumpur, Malaysia, demonstrates a commitment to regional market growth and data residency needs, a competitive advantage in serving multinational clients compared to providers with less localized infrastructure.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders: Positive impact due to strong financial results, raised guidance, and strategic positioning in high-growth markets (AI security, Zero Trust), potentially leading to increased share value.
• Employees: Management changes in key areas like marketing and AI security engineering indicate strategic growth and focus, potentially creating new opportunities.
• Customers: Enhanced security offerings through acquisitions (SquareX, Red Canary, SPLXAI) and AI innovations (Zscaler AI Protect), along with expanded global infrastructure (Kuala Lumpur data center), provide better performance and more comprehensive protection.
• Competitors: Zscaler's strong performance and strategic moves in AI security and Zero Trust may intensify competition in the cloud security market.

Next Steps

• Host a conference call for analysts and investors on February 26, 2026, at 1:30 p.m. Pacific time (4:30 p.m. Eastern time).
• Participate in the Morgan Stanley Technology, Media & Telecom Conference on Monday, March 2, 2026.
• Participate in the Loop Capital Markets 2026 Investor Conference on Tuesday, March 10, 2026.
• Participate in the Stifel 2026 NYC Technology One-on-One Conference on Tuesday, March 10, 2026.
• Participate in the 2026 Cantor Global Technology & Industrial Growth Conference on Wednesday, March 11, 2026.
• Participate in the Wells Fargo 2026 Software Symposium on Wednesday, April 8, 2026.

Key Dates

Recommendation

The company delivered exceptionally strong second-quarter results, significantly exceeding its own guidance for revenue and profitability. Furthermore, Zscaler raised its full-year fiscal 2026 guidance across all key metrics, including ARR, revenue, non-GAAP operating income, and non-GAAP EPS, indicating robust confidence in future performance. Strategic acquisitions and a clear focus on the rapidly expanding AI security and Zero Trust markets position Zscaler for sustained long-term growth. The achievement of a Rule-of-62, far surpassing the Rule-of-40 benchmark, underscores superior operational efficiency and market leadership. These factors collectively suggest a strong investment opportunity.

Keywords

Zscaler, cloud security, cybersecurity, Zero Trust, AI security, financial results, ARR, revenue, operating margin, cash flow, acquisitions, SaaS, network security, enterprise security, AWS, Microsoft Entra