0001713683-26-000096
SEC filingZscaler's Q2 FY26 revenue grew 25% YoY to $850.5M, with stable gross margin at 77%, while net loss widened on increased investments.
For the three months ended April 30, 2026, Zscaler reported revenue of $850.5 million, a 25% increase from $678.0 million in the prior-year quarter. Growth was driven primarily by existing customer expansions ($102.7M) and new customer additions, with the customer base growing 17% year-over-year. Cost of revenue increased 24% to $192.7 million, largely due to higher data center and equipment costs from expanded cloud platform usage. Gross margin remained flat at 77% as scale benefits offset cost increases. Operating expenses grew 26% to $687.5 million, with sales & marketing up 18%, R&D up 37%, and G&A up 32%. The increase in R&D reflects continued investment in platform enhancements and integration of acquired technologies. GAAP loss from operations widened to $29.6 million from $25.4 million, while non-GAAP income from operations increased to $195.8 million from $146.7 million, representing margins of 23% vs 22%. Net loss increased to $13.9 million from $4.1 million due to higher operating loss and tax provisions. Free cash flow was $136.0 million, or 16% of revenue, down from 18% in the prior year due to higher capital expenditures.
Zscaler operates as a single reportable segment, with all revenue derived from subscriptions (98%) and professional services. The subscription model provides recurring revenue visibility, with deferred revenue of $2.48 billion as of April 30, 2026. ARR grew 25% to $3.525 billion, indicating strong momentum in both new and existing customer relationships. The land-and-expand strategy continues to drive growth, with existing customers contributing the majority of revenue increases through expanded user counts, upselling to advanced capabilities, and cross-selling solutions like data security and AI security.
Management expects operating expenses to increase in absolute dollars as the company invests in sales & marketing, R&D, and general & administrative functions to support growth. Gross margin is expected to remain relatively consistent, though subject to mix shifts and data center costs. Macroeconomic conditions, including inflation and geopolitical uncertainties, are leading to longer sales cycles and more scrutiny on large deals. The company intends to balance growth investments with cost discipline, targeting long-term margin expansion. No specific numeric guidance was provided for future periods.
As of April 30, 2026, Zscaler held $982.1 million in cash and cash equivalents and $2.56 billion in short-term investments, totaling $3.54 billion in highly liquid assets. This represents a decrease from $3.57 billion at July 31, 2025, primarily due to $770.0 million in cash used for business acquisitions. Total assets were $7.10 billion, up from $6.42 billion at fiscal year-end 2025, driven by $676.7 million in goodwill additions and $144.4 million in acquired intangible assets from the Red Canary, SPLXAI, and SquareX acquisitions. Stockholders' equity increased to $2.37 billion from $1.80 billion, largely due to $617.4 million in stock-based compensation.
Deferred revenue, representing contract liabilities, totaled $2.48 billion (current: $2.10 billion; noncurrent: $380.1 million). Remaining performance obligations (RPO) were $6.46 billion, with 46% expected to be recognized within 12 months and 91% within three years. The company disclosed non-cancelable purchase obligations for cloud infrastructure, technology, and services, but noted no material changes outside the ordinary course from the prior fiscal year. Operating lease liabilities totaled $161.5 million, with a new headquarters lease in Santa Clara contributing $29.4 million in liabilities.
Zscaler did not repurchase any shares or pay dividends during the period. Capital expenditures (property, equipment, and capitalized software) totaled $132.0 million for the nine months ended April 30, 2026, representing 5.4% of revenue. The company issued $1.725 billion in 0.0% convertible senior notes due 2028 (net proceeds $1.70 billion) and repaid the $1.15 billion 2025 Notes in full at maturity. Interest expense was $9.0 million for the nine-month period, primarily from amortization of debt issuance costs.
Zscaler operates as a single reportable segment. Revenue by geography: United States 53%, Europe/Middle East/Africa 28%, Asia Pacific 16%, and Other 3%. Channel partners contributed 84% of revenue ($2.07 billion) and direct customers 16% ($381.0 million) for the nine-month period. No single customer accounted for 10% or more of revenue, but one channel partner represented 12% of accounts receivable at period end.
Net loss of $59.8M was more than offset by non-cash charges including $610.3M in stock-based compensation, $105.6M depreciation and amortization, and $149.7M amortization of deferred contract costs, leading to strong operating cash flow of $850.4M. Working capital provided $155.1M, primarily from a $280.0M decrease in accounts receivable, partially offset by a $65.9M decline in deferred revenue and $184.7M increase in deferred contract acquisition costs.
Capital expenditures totaled $132.0M (property/equipment $77.5M and software $54.5M), representing a 15.5% capex intensity relative to operating cash flow. Investing activities were heavily negative at $(2.3)B due to $770M in business acquisitions and $1.97B in short-term investment purchases, partially offset by $596.2M in maturities and sales.
Financing activities contributed $24.5M from stock issuances. The company ended the period with $982.1M in cash, down from $2.4B at the start. No share repurchases or dividends were reported.
Anomalies: The large acquisition spend ($770M) and investment portfolio activity caused significant cash outflow. The decline in deferred revenue (despite business growth) warrants monitoring.