Q1 2026 Zscaler Inc Earnings Call Transcript
Key Points
- Zscaler Inc (ZS) reported a strong start to fiscal year 2026 with annual recurring revenue (ARR) growth accelerating to 26% year over year.
- The company's AI Security pillar grew over 80% year over year, exceeding the FY26 target of $400 million ARR three quarters earlier than expected.
- Zscaler Inc (ZS) achieved a free cash flow margin of 52%, contributing to its operation at a rule of 78, surpassing the rule of 40 metric.
- The company has successfully expanded its Zero Trust Everywhere initiative, securing over 4500 enterprises, surpassing its target three quarters ahead of schedule.
- Zscaler Inc (ZS) introduced the ZFlex program, which generated over $175 million in total contract value, growing over 70% quarter over quarter, and providing customers with flexibility in module adoption.
- Gross margin slightly decreased to 79.9% compared to 80.6% in the previous fiscal year Q1, influenced by the introduction of new products optimized for faster go-to-market rather than margins.
- Operating expenses increased by 11% sequentially and 23% year over year, reaching $458 million.
- Despite strong performance, the core business, including ZIA and ZPA, is expected to grow at a smaller rate compared to the emerging areas.
- The competitive landscape remains challenging with new entrants from firewall companies, although Zscaler Inc (ZS) maintains a strong brand presence.
- IT budgets remain tight, with scrutiny for large deals, although cybersecurity spending is under less pressure compared to other IT areas.
Good day, and thank you for standing by. Welcome to the Zscaler first-quarter 2026 earnings call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. (Operator Instructions)
I would now like to hand the conference over to your speaker today, Ashwin Kesireddy, VP IR and Strategic Finance.
Good afternoon, everyone, and welcome to the Zscaler first-quarter fiscal year 2026 earnings conference call. On the call with me today are Jay Chaudhry, Chairman and CEO, and Kevin Rubin, CFO. Please note, we have posted our earnings release and a supplemental financial schedule to our investor relations website. Unless otherwise noted, all numbers we talk about today will be on an adjusted, non-GAAP basis. You will find the reconciliation of GAAP to non-GAAP financial measures in our earnings release.
Iâd like to remind you that todayâs discussion will contain forward-looking statements, including but
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