Zscaler, Inc. Q1 FY2026 earnings call

• Three growth pillars - AI security, Zero Trust everywhere, and data security everywhere - are driving strong top-line performance. AI security ARR grew over 80% year over year and exceeded the FY '26 target early. Zero Trust Everywhere has over 450 enterprises adopting it, reducing cost and complexity. Data Security Everywhere ARR accelerated to approximately $450 million. The Z Flex program generated over $175 million in TCV, growing over 70% quarter over quarter. Recently acquired SPLX extends AI SPM capabilities. Red Canary acquisition combined with data fabric technology to deliver actionable SOC insights. ZDX innovations are driving growth in agentic IT ops.

In Q1, annual recurring revenue (ARR) growth accelerated to 26% year over year. The AI security pillar grew over 80% year over year and had already exceeded the FY '26 target of $400 million ARR. Zero Trust Everywhere had over 450 enterprises adopting it, achieving the goal three quarters ahead of target. Data Security Everywhere ARR accelerated to approximately $450 million. Geographically, Americas accounted for 58% of revenue, EMEA for 27%, and APJ for 15%. Remaining performance obligation (RPO) grew approximately 35% year over year to $5.9 billion, with approximately 47% classified as current RPO.

• For the second quarter, revenue is expected in the range of $797 million to $799 million, reflecting year-over-year growth of approximately 23%. Gross margins are expected to be approximately 80%, operating profit in the range of $172 million to $174 million, net other income of approximately $19 million, and earnings per share in the range of $0.89 to $0.90. For the full year fiscal 2026, ARR is in the range of $3.698 billion to $3.718 billion, reflecting year-over-year growth of 22.7% to 23.3%. Revenue is in the range of $3.282 billion to $3.301 billion, operating profit in the range of $732 million to $740 million, earnings per share in the range of $3.78 to $3.82, and free cash flow margin to be approximately 20% to 26.5%.

Forward-looking statements are subject to risk and uncertainty, including market competition, technological developments, and regulatory changes, as discussed in SEC filings and the earnings release.

Q: Brad Zelnick asked about Zero Trust Branch's product and go-to-market fine-tuning.

A: Jay Chaudhry said the product is in great shape, the go-to-market has a specialty team, and there is strong demand with many potential customers.

Q: Saket Kalia asked about the $2 billion ARR and growth rate.

A: Jay Chaudhry said the remaining $2 billion has a big part in ICPA and can emerge into Zero Trust Everywhere.

Q: Meta Marshall asked about Red Canary's performance.

A: Jay Chaudhry said the incubation is going well, integrating engineering and go-to-market; Kevin Rubin said Red Canary is trending slightly better than previous guidance but not material to the overall business.

Q: Tal Liani asked about revenue strength drivers.

A: Jay Chaudhry said the three growth pillars - AI security, Zero Trust everywhere, and data security everywhere - are driving growth; Kevin Rubin said organic growth was consistent and the business came in better than internal expectations.

Q: Joseph Gallo asked about customer spending priorities.

A: Jay Chaudhry said customers prioritize zero trust security and AI security, with zero trust under less pressure and AI security due to CIOs not wanting to be laggards.

Q: Mike Cikos asked about SASE market trends.

A: Jay Chaudhry said Zscaler's expansion is due to new functionality for Zero Trust Everywhere and creating more distance among vendors.

Q: Brian Essex asked about organic net new ARR and Red Canary/Avalor/SPLX integration.

A: Kevin Rubin said organic growth was consistent; Jay Chaudhry said Avalor and Red Canary enhance data and security operations, and SPLX accelerates AI security solution completion.

Q: Shrenik Kothari asked about AI security module traction and margin investment.

A: Jay Chaudhry said AI security modules are growing with different stages; Kevin Rubin said the margin profile is pleased and the Q2 guide is comfortable with margin expansion in the back half.

Q: Roger Boyd asked about Zero Trust Gateway demand.

A: Jay Chaudhry said Zero Trust Cloud eliminates legacy firewalls, making deployment easier.

Q: Eric Heath asked about Zero Trust Everywhere outperformance.

A: Jay Chaudhry said customers are interested for cost savings, operational simplicity, and better cyber protection.

Q: Fatima Boolani asked about SAP RISE migration impact.

A: Jay Chaudhry said SAP RISE migration provides opportunities for cloud zero to cloud technology and user access improvement.

Q: Gray Powell asked about Z Flex bookings and visibility.

A: Kevin Rubin said Z Flex offers flexibility, greater visibility, and is a win-win for customers and Zscaler.

Q: Joshua Tilton asked about Red Canary's ARR contribution and organic growth.

A: Kevin Rubin said Red Canary is slightly better than guidance but not material; organic growth was consistent and beat internal expectations.

Q: Jonathan Rukaver asked about Red Canary and data security portfolio synergies.

A: Jay Chaudhry said Zscaler's data security portfolio, AI classification, and closed-loop system with Red Canary differentiate from others.

Q: Matt Hedberg asked about Z Flex average upsell and pipeline.

A: Jay Chaudhry said Z Flex provides flexibility and better deal closing; Kevin Rubin said Z Flex facilitates customer adoption of technologies.