Summary
Zscaler posted $788.1 million in revenue for the first quarter of fiscal 2026, up 26% year over year. Annual recurring revenue reached $3,204 million, also up 26%. Deferred revenue was $2.35 billion, up 31.8% year over year. Remaining performance obligations were $5.93 billion, up 34.5%. Those figures point to solid demand for the company's Zero Trust and AI Security platform. Profitability stayed mixed. The GAAP operating loss was $36.4 million, down $5.70 million from the prior-year quarter as the loss widened. GAAP net loss was $11.6 million, up $0.44 million from the prior-year quarter as the loss narrowed. GAAP diluted EPS was -$0.07, up $0.01 from the prior-year quarter. Gross margin was 76.6%, down 0.9 percentage points from the prior-year quarter. Operating margin was -4.6%, up 0.3 percentage points from the prior-year quarter.
Non-GAAP results were much stronger. Non-GAAP income from operations was $171.9 million, or 22% of revenue, compared to $134.1 million, or 21% of revenue, in the prior-year quarter. Non-GAAP net income was $159.5 million, compared to $124.3 million. Non-GAAP net income per share was $0.96, compared to $0.77. Free cash flow was $413.3 million, or 52% of revenue, compared to $291.9 million, or 46%. Operating cash flow was $448.3 million, up 35.3% year over year. Capital expenditures were $17.3 million, up 1.7% year over year. The company changed its long-term projected non-GAAP tax rate to 21% from 23%, effective August 1, 2025, tied to the One Big Beautiful Bill Act.
The quarter included two acquisitions. Zscaler closed Red Canary and SPLXAI for an aggregate purchase price consideration of $692.0 million. SPLXAI works on AI security, and the company said the deal will extend the Zero Trust Exchange platform with shift-left AI asset discovery and automated red teaming. Zscaler also launched new Zscaler Digital Experience innovations, published the ThreatLabz 2025 Mobile, IoT, and OT Threat Report, and opened FedRAMP Moderate authorized data centers in London and Paris. The report found a 67% increase in Android malware transactions and a 40% increase in IoT attacks targeting critical infrastructure. The company also surpassed $1 billion of software sales through the AWS Marketplace to date.
Customer metrics and retention give context. As of July 31, 2025, Zscaler had over 9,400 customers, compared to over 8,650 a year earlier. The dollar-based net retention rate was 115% for the trailing 12 months ended October 31, 2025, compared to 114% for the trailing 12 months ended October 31, 2024. Management said it will stop reporting dollar-based net retention rate beginning in the quarterly report for the second quarter of fiscal 2026. Revenue growth came primarily from an increase in users and sales of additional subscriptions to existing customers, along with new customers and revenue from the Red Canary acquisition, which together drove the $160.2 million increase.
Guidance points to continued growth. For the second quarter of fiscal 2026, management expects revenue of $797 million to $799 million, non-GAAP income from operations of $172 million to $174 million, and non-GAAP net income per share of approximately $0.89 to $0.90, assuming roughly 170 million fully diluted shares and a 21% non-GAAP tax rate. For the full year of fiscal 2026, the company expects ARR of $3.698 billion to $3.718 billion, revenue of approximately $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, assuming roughly 170.5 million fully diluted shares.
Risks remain. Management pointed to macroeconomic and geopolitical uncertainty, customer scrutiny, and elongated approval processes for larger deals. Those factors can lengthen sales cycles and shift the timing of large deals. The company also cited risks tied to managing rapid growth, limited experience with new products, software bugs, competition, rapidly evolving technology, and the use of AI in its platform. Zscaler expects to keep incurring operating losses. It also maintained a valuation allowance on U.S. federal, state, and certain foreign deferred tax assets because of a history of losses in certain jurisdictions. The gap between GAAP and non-GAAP profitability also remains wide, largely because stock-based compensation and related payroll taxes stay significant.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2026 | Q4 FY2025 | QoQ | Q1 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $788.1M | $719.2M | +9.6% | $628.0M | +25.5% |
| Gross profit | $603.4M | $547.0M | +10.3% | $486.5M | +24.0% |
| Gross margin | 76.6% | 76.0% | +0.5 pp | 77.5% | -0.9 pp |
| Research & development | $200.5M | $177.6M | +12.9% | $154.3M | +30.0% |
| Sales & marketing | $373.6M | $330.6M | +13.0% | $306.1M | +22.0% |
| General & administrative | $65.7M | $71.0M | -7.6% | $56.8M | +15.6% |
| Total operating expenses | $639.7M | $579.2M | +10.4% | $517.2M | +23.7% |
| Operating income (loss) | -$36.4M | -$32.2M | -12.8% | -$30.7M | -18.6% |
| Operating margin | -4.6% | -4.5% | -0.1 pp | -4.9% | +0.3 pp |
| Net income (loss) | -$11.6M | -$17.6M | +33.9% | -$12.1M | +3.6% |
| Net margin | -1.5% | -2.4% | +1.0 pp | -1.9% | +0.4 pp |
| Diluted EPS | -$0.07 | -$0.27 | +$0.20 | -$0.08 | +$0.01 |
| Customers | 9,400 | 9,400 | ±0.0% | 8,650 | +8.7% |
| Net retention rate | 115.0% | 114.0% | +1.0 pp | 114.0% | +1.0 pp |
Risks
In July 2025 Zscaler issued $1,725.0 million aggregate principal amount of 0.0% Convertible Senior Notes due 2028, which mature on July 15, 2028. The filing states holders may require repurchase upon a fundamental change, and repayment may require significant cash or dilution; it also notes counterparty risk with the capped call transactions.
MD&A states Zscaler continues to see customer scrutiny of and elongated approval processes for transactions, particularly larger deals, with multiple approvals required for large expenditures in response to the uncertain economic environment.
Risk factors state AI and ML are changing how the industry identifies and responds to cyber threats, and competitors may introduce AI-enabled technologies at lower prices or greater efficiency. MD&A also highlights rapid AI adoption as creating new cybersecurity threats and IT challenges.
MD&A says customer cautiousness is expected to continue in the near term, elongating sales cycles and the timing of large deals. Risk factors note sales cycles can be long and unpredictable, especially for large organizations and government entities.
Risk factors state sales through the top five channel partners and their affiliates represented 30% of revenue for the three months ended October 31, 2025 and 26% for the three months ended October 31, 2024. Agreements with channel partners are generally non-exclusive and partners may promote competing products.
The risk factor summary says failure to effectively manage risks and challenges related to India operations could harm the business. As of July 31, 2025, approximately 63% of Zscaler's full-time employees were located outside the United States.
MD&A attributes revenue growth and headcount increases partly to the Red Canary acquisition, and investing activities included $672.8 million of payments for business acquisitions, net of cash acquired, for the three months ended October 31, 2025. Risk factors cite difficulties integrating acquired businesses, technologies, and personnel.
Risk factors state Zscaler is highly dependent on CEO Jay Chaudhry and has experienced significant senior management changes. Competition is intense for cybersecurity, cloud application, and AI and ML personnel in the San Francisco Bay Area and other locations.
Risk factors note that under the new EU Data Act, customers may cancel subscriptions without cause either at any time or upon advance written notice commonly ranging from 30 days to 60 days, typically subject to an early termination penalty for unused services.
SaaS KPIs
All quarters →Free Cash Flow Margin
Non-GAAP Operating Margin
Total Customers
Customer Base Growth (YoY)
Forbes Global 2000 customers
Summary, forecast, risks and KPIs are extracted from Zscaler, Inc.'s SEC filings for Q1 FY2026 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.