The Earnings Debate

Zscaler, Inc. reported financial results for the fourth quarter and full fiscal year 2026.

For the fourth quarter, revenue was $898 million, representing an increase of 25 percent year-over-year and 6 percent sequentially.

Non-GAAP operating income for the fourth quarter was $218 million, up 37 percent year-over-year, with a record non-GAAP operating margin of 24.3 percent and non-GAAP gross margin of 80.2 percent.

For the full fiscal year 2026, revenue reached $3.4 billion, growing 25 percent year-over-year, and total annual recurring ARR reached $3.8 billion, also up 25 percent.

Full-year non-GAAP operating margin was 22.9 percent, and full-year free cash flow was $779 million, representing a free cash flow margin of 23 percent.

The company ended the fiscal year with approximately $3.5 billion in cash, cash equivalents, and short-term investments, against $1.7 billion of debt.In terms of strategic updates, Zscaler announced a workforce restructuring affecting approximately 3 percent of its employees to strategically reallocate resources to support AI and growth initiatives.

This action is expected to result in restructuring charges of approximately $30 million to $33 million.

The company highlighted strong adoption of its Zero Trust Everywhere platform, exiting the fiscal year with more than 950 Zero Trust Everywhere enterprises, up from over 700 in the third quarter.

Zscaler’s Z-Flex procurement program continues to show momentum, generating over $770 million in total contract value during the fourth quarter and more than $1.7 billion for the full fiscal year.

The company discussed its upcoming Agentic SecOps solution, which integrates Zscaler’s in-line telemetry with Red Canary’s managed detection and response experience, launching on September 9. Additionally, Zscaler highlighted an expanded partnership with Carahsoft to penetrate commercial and SMB segments, and extended its Zero Trust Cloud solution by offering a managed service through Google Cloud.

For the first quarter of fiscal 2027, Zscaler expects revenue of $935 million to $939 million, representing approximately 19 percent year-over-year growth, and non-GAAP operating profit of $215 million to $217 million.

For the full fiscal year 2027, the company guided for revenue of $3.908 billion to $3.938 billion, reflecting year-over-year growth of 16.6 percent to 17.5 percent, and total annual recurring ARR of $4.396 billion to $4.426 billion.

Non-GAAP operating profit for the full year is projected to be between $924 million and $932 million, representing an operating margin of approximately 23.7 percent, and free cash flow margin is expected to be approximately 23 percent to 23.5 percent.

Management noted that capital expenditures are expected to remain elevated in fiscal 2027 due to higher component pricing, particularly for memory, storage, and processors.

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