0001713683-26-000048
SEC filingRevenue grew 26% to $815.8M, gross margin steady at 77%, but operating loss widened on higher R&D and S&M investment.
In Q2 FY2026, Zscaler reported revenue of $815.8 million, up 26% year-over-year from $647.9 million. Growth was driven by existing customer expansions ($96.9M) and a 15% increase in customer base. Gross profit rose 25% to $624.5 million, though gross margin held steady at 77% as cost of revenue grew 29% due to higher data center and employee costs. GAAP operating loss widened to $(51.8M) from $(40.1M), reflecting a 25% increase in operating expenses. Sales and marketing expenses grew 20% to $368.9M, research and development rose 34% to $229.1M, and general and administrative increased 29% to $78.2M. Stock-based compensation remains a significant non-cash charge, totaling $220.4M in the quarter. Net loss was $(34.3M) compared to $(7.7M) in the prior year, impacted by a $17.2M non-recurring tax benefit in the prior year period. Non-GAAP operating income improved 29% to $181.0M, with non-GAAP operating margin stable at 22%. Free cash flow reached $169.1M, a 21% margin, up from $143.4M and 22% margin in Q2 FY2025.
Zscaler operates as a single reportable segment. Revenue growth continues to be fueled by the land-and-expand model, with existing customers contributing $96.9M of the $167.9M quarterly increase. New customer acquisition also contributed, with the total customer count exceeding 9,400 as of July 31, 2025. The company notes that larger deals face elongated approval processes due to macroeconomic caution, but long-term demand for cloud security remains strong. Gross margin stability indicates effective cost management despite scaling infrastructure.
Management expects to continue investing in sales and marketing, research and development, and general and administrative functions to capture market share and enhance the platform. Consequently, net losses are anticipated for the foreseeable future. The company highlighted that macroeconomic conditions are causing customers to scrutinize spending, potentially elongating sales cycles, especially for larger transactions. No specific numeric guidance was provided in the MD&A. The company believes its existing cash and investments ($3.5B) are sufficient for at least 12 months. Key focus areas include expanding AI-enabled security features, deepening channel partnerships, and balancing growth investments with cost discipline.