Zscaler, Inc. (ZS) — Form 8-K Filing Summary for Third Quarter Fiscal 2026

Introduction

Zscaler, Inc., the cloud-native cybersecurity leader recognized by CEO Jay Chaudhry as "the cybersecurity platform for the AI era," reported its financial and operational results for the third quarter of fiscal 2026, ended April 30, 2026, in a Form 8-K filing with the Securities and Exchange Commission. The filing paints a picture of a company operating with remarkable momentum across virtually every dimension of its business: revenue surged 25% year-over-year to $850.5 million, Annual Recurring Revenue (ARR) reached $3,525 million with an equivalent growth rate, free cash flow grew 14% to $136.0 million, and the company posted a record non-GAAP operating margin of 23% [Third Quarter Highlights, ¶1] [Third Quarter Highlights, ¶2]. These results reflect Zscaler's accelerating innovation cycle in artificial intelligence, its expanding footprint across enterprise and government sectors, deepening strategic partnerships, and disciplined execution against a clearly articulated strategy of balancing growth with improving profitability. This assembled summary combines the business highlights, detailed financial results, and non-GAAP reconciliation information contained in the filing to provide investors and stakeholders with a comprehensive, integrated view of Zscaler's third-quarter performance and strategic trajectory.

I. Business Highlights and Strategic Developments

Zscaler delivered a strong operational performance in the third quarter of fiscal 2026, with revenue growing 25% year-over-year to $850.5 million and Annual Recurring Revenue (ARR) reaching $3,525 million, also up 25% year-over-year. Free cash flow grew 14% to $136.0 million, underscoring improved capital efficiency alongside top-line expansion [Third Quarter Highlights, ¶1]. The company achieved a record non-GAAP operating margin of 23%, reflecting disciplined cost management and operating leverage as the business scales [Third Quarter Highlights, ¶2]. These headline metrics, taken together, tell a story of balanced growth: revenue and ARR are expanding in lockstep, suggesting consistent deal velocity and healthy renewal rates, while the free cash flow and margin figures confirm that this growth is not being purchased at the expense of financial discipline.

Platform Innovation and AI-First Strategy

Zscaler continued to strengthen its position as what CEO Jay Chaudhry called "the cybersecurity platform for the AI era," with its differentiated Zero Trust SASE architecture designed to hide applications from attackers and eliminate lateral movement [Third Quarter Highlights, ¶1]. During the quarter, the company announced its intent to acquire Symmetry Systems, combining Zscaler's Zero Trust Exchange platform with Symmetry's access graph technology to govern AI agent communication at scale. This acquisition is strategically significant because it addresses a nascent but rapidly growing security challenge: as enterprises deploy AI agents that communicate autonomously with each other and with external systems, traditional perimeter-based security models become inadequate, and Zscaler is positioning itself to provide the governance layer for this new paradigm. Zscaler also joined Anthropic's Project Glasswing, integrating the Claude Mythos Preview model into its secure software development lifecycle to rapidly identify vulnerabilities, and partnered with OpenAI via the DayBreak program to embed the GPT 5.5-Cyber model and Codex Security into its multi-agent security architecture [Recent Business Highlights, ¶1]. The launch of Project AI-Guardian further extends this AI focus by pairing Zscaler's advanced AI security platform with global system integrator consulting expertise, helping enterprises accelerate AI adoption while maintaining robust data protection and regulatory compliance [Recent Business Highlights, ¶2]. What is particularly noteworthy about these initiatives is their dual nature: Zscaler is both consuming AI to improve its own products (through Project Glasswing and DayBreak) and providing AI security solutions for customers (through Symmetry Systems integration and Project AI-Guardian), effectively creating a virtuous cycle where internal AI expertise informs external product development and vice versa.

Customer Wins, Market Recognition, and Public Sector Milestones

Zscaler's go-to-market momentum was validated by several notable achievements. The company won the 2026 Google Cloud Partner of the Year Award for Security in the Application category, recognizing its leadership in protecting modern applications within the Google Cloud ecosystem. This award is meaningful not only as a branding achievement but as a signal of deepening technical integration with one of the three major cloud hyperscalers, which can drive joint go-to-market motions and co-selling opportunities. On the public sector front, Zscaler achieved Provisional Authorization at Impact Level 5 (IL5) from the Department of War for Zscaler Internet Access, a milestone that enables U.S. warfighters and defense agencies to operate at mission speed using a cloud-native Zero Trust architecture for sensitive and unclassified workloads [Recent Business Highlights, ¶2]. The IL5 authorization is among the most significant regulatory milestones a cybersecurity company can achieve in the federal market, as it opens up access to classified and sensitive Department of War networks that represent a substantial portion of federal IT spending. For context, Impact Level 5 covers Controlled Unclassified Information (CUI) and is a prerequisite for many large-scale Department of War contracts, meaning this authorization could serve as a catalyst for federal revenue growth in coming quarters.

Strategic Partnerships and Global Expansion

The company significantly expanded global sovereignty capabilities on the Zero Trust Exchange platform, allowing enterprises and government entities to maintain precise control over digital assets and comply with local data regulations across jurisdictions. As data sovereignty requirements proliferate globally — from the EU's GDPR to emerging regulations in India, Southeast Asia, and Latin America — Zscaler's ability to offer localized data processing and storage within its cloud architecture becomes an increasingly important competitive differentiator, particularly for multinational enterprises that need a single security platform capable of operating across dozens of regulatory regimes. Zscaler also partnered with Singtel Singapore to bring Zero Trust security to cellular IoT and operational technology deployments across Southeast Asia, leveraging Zscaler Cellular to connect highly distributed infrastructure to the Zero Trust Exchange [Recent Business Highlights, ¶3]. This partnership is strategically important because it extends Zscaler's reach into the operational technology (OT) and Internet of Things (IoT) security markets, which are growing rapidly as industrial enterprises digitize their operations and face increasing cyber threats targeting critical infrastructure. Additionally, Zscaler launched the India AI & Cyber Threat Research Center in partnership with Bharti Airtel, a joint initiative focused on producing threat intelligence research targeting Indian infrastructure, promoting cyber resilience, and developing cybersecurity curriculum with local educational institutions to cultivate the next generation of cyber professionals [Recent Business Highlights, ¶4]. The India research center represents a longer-term strategic bet on the Indian market, which is one of the fastest-growing digital economies globally and faces escalating cyber threats as its digital infrastructure expands.

Collectively, these achievements demonstrate Zscaler's accelerating innovation cycle, expanding addressable market across enterprise, government, and geographies, and strong execution against its strategy of profitable growth in the AI-driven cybersecurity landscape. The common thread across all these initiatives — whether AI, public sector, or geographic expansion — is that Zscaler is investing ahead of the curve, building capabilities today that position the company for growth opportunities that may fully materialize over the next two to three years.

II. Financial Performance and Key Metrics

Zscaler delivered strong financial results for the third quarter of fiscal 2026, ended April 30, 2026, with total revenue growing 25% year-over-year to $850.5 million. The company's Annual Recurring Revenue (ARR) also grew 25% year-over-year to $3,525 million, and excluding the contribution from the Red Canary acquisition, ARR grew 21% to $3,398 million [Third Quarter Highlights, ¶1] [Third Quarter Fiscal 2026 Financial Highlights, ¶1]. The consistency between reported revenue growth and ARR growth is a positive signal of operational health, indicating that the company is converting new business into recurring revenue streams without unusual acceleration or deceleration dynamics. The 21% organic ARR growth (excluding Red Canary) demonstrates that core business momentum remains robust even when adjusting for acquisition contributions, and the fact that organic ARR is above 20% at Zscaler's current scale — with a base approaching $3.4 billion — is a testament to the company's sustained market relevance and competitive positioning.

On a GAAP basis, Zscaler reported a net loss of $13.9 million for the quarter, compared to a net loss of $4.1 million in the prior-year period. GAAP diluted net loss per share was $0.09, compared to $0.03 in Q3 fiscal 2025. However, on a non-GAAP basis, the company generated net income of $177.9 million, up from $136.8 million in the same quarter last year, and non-GAAP diluted earnings per share improved to $1.08, compared to $0.84 in the prior-year period [Third Quarter Fiscal 2026 Financial Highlights, ¶1]. This improvement of $0.24 per share year-over-year on a non-GAAP basis, combined with the record operating margin, illustrates that Zscaler's growth is becoming increasingly profitable as the company scales. The divergence between GAAP net loss and non-GAAP net income — a swing of nearly $192 million — is almost entirely attributable to stock-based compensation, which is discussed in detail in Section III of this summary.

The company's GAAP gross profit reached $657.8 million. When adjusted for non-GAAP items — including stock-based compensation expense of $21.6 million and amortization of acquired intangible assets of $7.2 million — non-GAAP gross profit was approximately $686.7 million, implying a non-GAAP gross margin of roughly 80.7% [Non-GAAP Gross Profit and Non-GAAP Gross Margin, ¶1]. This high gross margin is characteristic of well-run software-as-a-service business models and provides Zscaler with significant operating leverage as it continues to scale its customer base. An 80.7% gross margin means that for every dollar of revenue, roughly $0.81 is available to cover operating expenses and generate profit, leaving Zscaler with substantial room to invest in sales, marketing, and research and development while still moving toward sustained GAAP profitability.

Zscaler reported a GAAP loss from operations of $29.6 million, or negative 3% of revenue, which improved slightly from a loss of $25.4 million, or 4% of revenue, in the year-ago period [Third Quarter Fiscal 2026 Financial Highlights, ¶1]. On a non-GAAP basis, income from operations was $195.8 million, or a record 23% of revenue, up from $146.7 million, or 22% of revenue, in Q3 fiscal 2025, representing an all-time high operating margin for the company [Third Quarter Highlights, ¶2]. The improvement from 22% to 23% non-GAAP operating margin may appear incremental on the surface, but in the context of an $850.5 million revenue base, each percentage point of margin improvement represents approximately $8.5 million in additional operating income. The fact that Zscaler improved margins while also growing revenue by 25% indicates that operating expenses grew at a slower rate than revenue — a classic sign of operating leverage and a hallmark of a maturing software business that is transitioning from high-growth to high-growth-and-profitable mode.

Several significant one-time and non-cash items affected the reported GAAP results. Stock-based compensation expense and related payroll taxes totaled $212.3 million for the quarter, with the largest components in research and development ($88.8 million) and sales and marketing ($72.2 million) [Condensed Consolidated Statements of Operations, ¶2]. Amortization of acquired intangible assets added $11.4 million in expenses, while acquisition-related expenses contributed $1.8 million to operating costs [Condensed Consolidated Statements of Operations, ¶2] [Non-GAAP Income from Operations and Non-GAAP Operating Margin, ¶1]. The concentration of stock-based compensation in research and development and sales and marketing is strategic: Zscaler is using equity awards to attract and retain top-tier engineering talent in a hyper-competitive cybersecurity labor market, while also incentivizing its sales force to drive growth. These adjustments, along with restructuring and other charges and amortization of debt issuance costs, explain the significant gap between GAAP net loss and non-GAAP net income, underscoring the importance of reviewing both GAAP and non-GAAP metrics when evaluating Zscaler's underlying operating performance.

III. Non-GAAP Financial Measures and Reconciliation

Zscaler, Inc. provides non-GAAP financial measures as supplemental information to help investors and management evaluate the company's underlying operating performance and trends. The company believes that presenting these measures alongside GAAP results offers consistency and comparability with past financial performance, as non-GAAP figures exclude certain items that management does not consider reflective of Zscaler's ongoing operational results [Use of Non-GAAP Financial Information, ¶1]. These measures are used internally for planning, budgeting, and forecasting purposes, and are not intended to replace GAAP disclosures but rather to supplement them [Explanation of Non-GAAP and Other Financial Measures, ¶1]. For investors, the key insight here is that Zscaler's management team itself uses non-GAAP metrics to run the business — to set budgets, evaluate performance, and make resource allocation decisions — which gives these metrics a level of operational credibility beyond mere investor relations presentation.

The primary adjustments that Zscaler excludes from its non-GAAP results include stock-based compensation expense and related employer payroll taxes, amortization of acquired intangible assets, amortization of debt issuance costs from convertible senior notes, acquisition-related expenses, and restructuring and other charges. Stock-based compensation is excluded primarily because it is a non-cash expense that management believes is not reflective of ongoing operational performance. Similarly, amortization of acquired intangible assets and debt issuance costs are excluded as non-cash items. Acquisition-related costs and restructuring charges are excluded because they fluctuate in amount and frequency and are not representative of the company's core business operating performance [Expenses Excluded from Non-GAAP Measures, ¶1]. It is worth noting that while stock-based compensation is non-cash in the traditional sense (no cash leaves the company when options are granted or restricted stock units vest), it does have a real economic cost to existing shareholders through dilution — each equity award issued to an employee increases the total share count, reducing the proportional ownership of existing shareholders. Sophisticated investors therefore typically evaluate both the non-GAAP operational metrics and the dilution trajectory when forming a complete picture of shareholder value creation.

The impact of these adjustments is significant across gross margin, operating margin, and net income. On a GAAP basis, Zscaler reported gross profit of $657.8 million for the three months ended April 30, 2026. After adding back $21.6 million in stock-based compensation, $7.2 million in amortization of acquired intangible assets, and restructuring charges, non-GAAP gross profit was $686.7 million. Similarly, GAAP loss from operations was $(29.6) million for the same period, which converted to non-GAAP income from operations of $195.8 million after adding back $212.3 million in stock-based compensation, $11.4 million in amortization of intangible assets, $1.8 million in acquisition-related expenses, and restructuring charges [Non-GAAP Gross Profit and Non-GAAP Gross Margin, ¶1] [Non-GAAP Income from Operations and Non-GAAP Operating Margin, ¶1]. The transformation of a GAAP operating loss of $29.6 million into non-GAAP operating income of $195.8 million — a swing of $225.4 million — illustrates just how dramatically stock-based compensation affects Zscaler's reported financial statements.

The reconciliation of GAAP net loss to non-GAAP net income most clearly illustrates the effect of these adjustments. For the three months ended April 30, 2026, Zscaler reported a GAAP net loss of $(13.9) million, or $(0.09) per diluted share [Condensed Consolidated Statements of Operations, ¶1]. To arrive at non-GAAP net income, the company starts with GAAP income before income taxes, then adds back stock-based compensation ($212.3 million), amortization of acquired intangible assets ($11.4 million), amortization of debt issuance costs ($2.0 million), acquisition-related expenses ($1.8 million), and restructuring charges. After applying a non-GAAP tax provision (using a long-term projected rate of 21%), the resulting non-GAAP net income for the three months ended April 30, 2026 was $177.9 million [Non-GAAP Net Income per Share, Diluted, ¶1]. The use of a 21% long-term projected tax rate for non-GAAP purposes, rather than the actual GAAP effective tax rate, is a standard practice that provides consistency across reporting periods by smoothing out tax rate fluctuations caused by discrete items, valuation allowance changes, and other one-time tax events.

On a per-share basis, non-GAAP diluted net income per share was $1.08 for the three months ended April 30, 2026, compared to $0.84 in the prior-year period. The per-share reconciliation shows that the largest driver of the difference between GAAP net loss per share of $(0.09) and non-GAAP diluted earnings per share of $1.08 was stock-based compensation, which added $1.28 per diluted share [Non-GAAP net income$177,877 $136,767 $506,015 $388,111, ¶1]. These non-GAAP measures provide a clearer view of Zscaler's operational profitability by removing non-cash and non-recurring charges that can obscure underlying business performance. The $0.24 year-over-year improvement in non-GAAP EPS — from $0.84 to $1.08, representing 29% growth — actually exceeded the 25% revenue growth rate, further reinforcing the narrative of improving operational efficiency and earnings power as the company scales.

Conclusion

Zscaler's third-quarter fiscal 2026 results portray a company executing at a high level across multiple dimensions of its business. The 25% revenue and ARR growth, combined with a record 23% non-GAAP operating margin and $136.0 million in free cash flow, demonstrate that Zscaler is successfully balancing top-line expansion with margin improvement [Third Quarter Highlights, ¶1] [Third Quarter Highlights, ¶2]. Strategically, the company is deepening its AI capabilities through strategic acquisitions (Symmetry Systems), high-profile partnerships (Anthropic, OpenAI, Singtel, Bharti Airtel), and internal innovation initiatives (Project AI-Guardian, global sovereignty platform expansion), while simultaneously opening new addressable markets through public sector authorizations such as the Department of War IL5 milestone and targeted geographic expansion across Southeast Asia and India [Recent Business Highlights, ¶1] [Recent Business Highlights, ¶2] [Recent Business Highlights, ¶3] [Recent Business Highlights, ¶4]. The wide gap between GAAP net loss ($13.9 million) and non-GAAP net income ($177.9 million) underscores the importance of understanding Zscaler's compensation structure, which relies heavily on stock-based awards to attract and retain engineering and sales talent in a hyper-competitive cybersecurity labor market. As the AI-driven transformation of cybersecurity accelerates and Zero Trust architecture adoption becomes increasingly mandated across government and enterprise sectors, Zscaler's platform strategy, expanding partner ecosystem, and global infrastructure position the company to capitalize on what remains a large and growing total addressable market. The third-quarter results offer compelling evidence that Zscaler's strategy of investing in innovation while steadily improving profitability is delivering measurable results, and the company appears well-positioned to sustain its growth trajectory through the remainder of fiscal 2026 and beyond.