Summary
Zscaler's fiscal 2026 third quarter revenue rose 25.4% to $850.5 million. Gross profit increased 26.0% to $657.8 million, and gross margin was 77.3%, up 0.4 percentage points from the prior-year quarter. The company still posted an operating loss of $29.6 million, and that loss widened. Operating margin was negative 3.5%, up 0.3 percentage points from the prior-year quarter. Net loss was $13.9 million, and it widened. Diluted EPS was negative $0.09, and the loss widened. The top line and gross profit grew at similar rates, but the bottom line remains negative as Zscaler invests heavily in growth.
Cash generation was mixed. Operating cash flow was $198.0 million for the quarter, down 6.2%. For the nine months ended April 30, 2026, operating cash flow was $850.4 million, up 17.8%. Capital expenditures were $42.4 million in the quarter, down 41.2%, and $77.5 million for the nine months, down 25.7%. Free cash flow, a non-GAAP measure that subtracts purchases of property, equipment and other assets and capitalized internal-use software from net cash provided by operating activities, was $136.0 million for the quarter and $718.4 million for the nine months. Deferred revenue rose 24.8% to $2.48 billion. Remaining performance obligations rose 29.8% to $6.46 billion. The deferred revenue and RPO gains suggest billed and unbilled backlog continued to build, while the quarterly operating cash flow decline shows timing can swing results.
Key customer and adjusted profitability metrics also expanded. ARR as of April 30, 2026 was $3,525 million, up from $2,817 million a year earlier. The customer base grew 17% from April 30, 2025 to April 30, 2026. As of July 31, 2025, Zscaler had over 9,400 customers and roughly 40% of the Forbes Global 2000 as customers. Subscription and related support services were about 98% of revenue in both the quarter and nine months. Non-GAAP gross profit was $686.7 million and non-GAAP gross margin was 81% for the quarter, compared with $544.1 million and 80% a year earlier. Non-GAAP income from operations was $195.8 million, and non-GAAP operating margin was 23%. Those adjusted figures exclude stock-based compensation and related payroll taxes, amortization of acquired intangibles, restructuring and other charges, and acquisition-related expenses.
Management continues to flag a difficult buying environment. The 10-Q says customers are scrutinizing transactions and requiring multiple approvals for large expenditures, which elongates sales cycles and delays large deals. Macroeconomic and geopolitical conditions, inflation responses, tariffs or retaliatory measures, supply chain disruptions, energy shortages, and the emergence of AI add uncertainty. The company also expects to keep investing in sales and marketing, research and development, and general and administrative functions, and it says it will continue to incur net losses for the foreseeable future. Legal matters and related accruals are another watch item.
On the product side, Zscaler argues that cloud adoption, workforce mobility, and AI adoption will increase demand for its cloud platform. It plans to use its land-and-expand model to sell more users, advanced capabilities, and new products to existing accounts. The quarter's revenue growth, deferred revenue increase, and RPO expansion support that expansion story. The main question is whether the company can keep spending under control while it chases that opportunity. The stock story now depends on durable large-deal momentum and on whether adjusted profitability can keep improving even as GAAP losses persist.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2026 | Q2 FY2026 | QoQ | Q3 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $850.5M | $815.8M | +4.3% | $678.0M | +25.4% |
| Gross profit | $657.8M | $624.5M | +5.3% | $522.1M | +26.0% |
| Gross margin | 77.3% | 76.5% | +0.8 pp | 77.0% | +0.3 pp |
| Research & development | $232.3M | $229.1M | +1.4% | $169.8M | +36.8% |
| Sales & marketing | $371.9M | $368.9M | +0.8% | $314.6M | +18.2% |
| General & administrative | $83.2M | $78.2M | +6.5% | $63.1M | +31.9% |
| Total operating expenses | $687.5M | $676.3M | +1.7% | $547.5M | +25.6% |
| Operating income (loss) | -$29.6M | -$51.8M | +42.8% | -$25.4M | -16.6% |
| Operating margin | -3.5% | -6.3% | +2.9 pp | -3.8% | +0.3 pp |
| Net income (loss) | -$13.9M | -$34.3M | +59.5% | -$4.1M | -236.6% |
| Net margin | -1.6% | -4.2% | +2.6 pp | -0.6% | -1.0 pp |
| Diluted EPS | -$0.09 | -$0.21 | +$0.12 | -$0.03 | -$0.06 |
| Customers | 9,400 | 9,400 | ±0.0% | 8,650 | +8.7% |
Risks
Risk factor states AI technologies may lower barriers to entry for new competitors, including large AI providers, and enable faster development of alternative security solutions. That could intensify competition, cause price reductions and loss of market share.
MD&A says customer scrutiny and elongated approval processes continue for transactions, particularly larger deals, with multiple approvals required. It expects customer cautiousness to continue, elongating sales cycles and the timing of large deals.
Sales through the top five channel partners and their affiliates represented 30% of revenue for the nine months ended April 30, 2026, up from 27% for the nine months ended April 30, 2025. These partners are generally non-exclusive and may promote competitors.
The filing discloses that two sales leaders recently departed and warns that significant senior management transitions could hinder strategic planning and execution. It also cites intense competition for AI, ML and cybersecurity talent.
The filing warns customers may renew for fewer users, elect not to renew non-user-based services, renew for shorter contract lengths or switch to a lower-cost product suite. As customers deploy AI agents, success increasingly depends on monetizing non-user-based traffic.
The filing says AI-enabled vulnerability tools are surfacing a substantially greater volume of issues requiring remediation than in the past. Engineering capacity for patching, regression testing and re-validation may reduce resources for new feature development and delay releases.
The $1,725 million 0.0% Convertible Senior Notes due 2028 mature on July 15, 2028. Repayment may require significant cash, reducing funds for working capital and other corporate purposes, and holders can require repurchase upon a fundamental change.
Under the EU Data Act, customers may cancel subscriptions without cause either at any time or upon 30 to 60 days advance written notice, typically subject to an early termination penalty for unused services. This could increase churn or impair deferred contract acquisition costs.
Risk factors and MD&A cite uncertainty from tariffs or retaliatory measures, global conflicts, inflation and geopolitical conditions. Customers are scrutinizing large expenditures and requiring multiple approvals, which can delay or reduce purchases.
MD&A repeatedly refers to addressing legal matters and related accruals, and G&A expenses increased partly due to legal matters. The filing warns litigation can be time-consuming, divert management and result in significant expenses or liability.
Payments for business acquisitions, net of cash acquired, were $770.0 million in the nine months ended April 30, 2026. Integrating acquired technologies and acquisition-related expenses may strain resources or fail to deliver expected benefits.
MD&A says the OECD January 2026 Side-by-Side Safe Harbor may exempt U.S. operations from certain global minimum tax rules, but relief does not extend to foreign jurisdictions where local minimum tax requirements remain. The company is assessing the impact beginning fiscal 2027.
SaaS KPIs
All quarters →Customer Base Growth (YoY)
Summary, forecast, risks and KPIs are extracted from Zscaler, Inc.'s SEC filings for Q3 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.