Zscaler Earnings: Beats Estimates, Narrows Revenue Outlook
Zscaler earnings, company beat quarterly estimates but narrowed full-year revenue guidance and reported a wider GAAP loss, prompting investor repricing.
KEY TAKEAWAYS
- Zscaler beat fiscal Q2 estimates with revenue of $816 million and ARR of $3.4 billion.
- It narrowed fiscal 2026 revenue guidance to $3.309-$3.322 billion while raising ARR and operating income targets.
- Management cited higher spending and Red Canary churn for a wider GAAP net loss.
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On Feb. 26, 2026, Zscaler Inc. reported fiscal second-quarter results that exceeded analyst estimates but narrowed its full-year revenue outlook. The company disclosed a wider GAAP loss linked to increased spending while raising its annual recurring revenue (ARR) and operating-income targets.
Quarter Results and Cash Flow
For the quarter ended Jan. 31, 2026, Zscaler posted revenue of $816 million, up 26.0% year-over-year and 4.0% sequentially. ARR reached $3.4 billion, a 25.0% increase from the prior year. Non-GAAP earnings per share were $1.01, with net new ARR totaling $156 million, or $139 million excluding the recently acquired Red Canary.
Non-GAAP operating income rose 29.0% year-over-year to $181 million, yielding a 22.2% operating margin, up 50 basis points. Operating cash flow increased 14.0% to $204.1 million, and free cash flow was $169.1 million, representing a 20.7% margin.
The company reported 728 customers with more than $1 million in ARR and 3,886 customers with over $100,000 in ARR, both up 18.0% year-over-year. Remaining performance obligation (RPO) stood at $6.1 billion, a 31.0% increase, with 47.0% classified as current.
Revenue remained concentrated in the Americas, which accounted for 57.0% of sales and grew 31.0% year-over-year. Europe, the Middle East, and Africa (EMEA) represented 28.0% of revenue, up 18.0%, while Asia-Pacific and Japan (APJ) made up 15.0%, rising 23.0%. The Z-Flex commercial program recorded total contract value above $290 million in the quarter, a 65.0% increase from the prior quarter, and has totaled about $650 million since launch.
On a GAAP basis, Zscaler recorded a wider net loss, which management attributed to higher sales, marketing, and research-and-development expenses as it invests to defend and expand market share.
Guidance and Acquisition Impact
Zscaler raised its full-year ARR and operating-income targets but narrowed its revenue guidance for fiscal 2026. For the third quarter, the company projected non-GAAP revenue between $834 million and $836 million, operating income of $187 million to $189 million (a 22.4% to 22.6% margin), and non-GAAP EPS of $1.00 to $1.01, assuming a 21% tax rate and about 167 million diluted shares.
For fiscal 2026, management forecast ARR of $3.730 billion to $3.745 billion, revenue of $3.309 billion to $3.322 billion, operating income of $742 million to $748 million, non-GAAP EPS of $3.99 to $4.02, and a free-cash-flow margin of 26.5% to 27.0%. These projections assume mid-single-digit capital expenditures and that roughly 40% of second-half net new ARR will fall in the third quarter.
Red Canary contributed $114 million of ARR at the end of the quarter, with management noting elevated post-acquisition churn. The company now expects Red Canary to contribute about $130 million to fiscal 2026 ARR, up from prior guidance, and anticipates net new ARR from the unit of approximately $6 million in the third quarter and $10 million in the fourth. Separate ARR reporting for Red Canary will continue through the second half of the year.
