Core Insights - Zscaler reported strong fiscal Q2 2026 results with a 25% year-over-year growth in annual recurring revenue (ARR) and raised guidance for the remainder of the year [3][5] - The company emphasized the impact of AI adoption on customer demand and security needs, highlighting significant growth in large deals and customer acquisitions [2][4] Financial Performance - Revenue for Q2 reached $816 million, reflecting a 26% year-over-year increase, exceeding guidance [5][18] - Total ARR grew to $3.4 billion, up 25% year-over-year, with net new ARR of $156 million, a 19% increase [2][5] - Non-GAAP gross margin was reported at 80.2%, with operating income of $181 million, up 29% year-over-year [16] Customer and Market Dynamics - The Americas accounted for 57% of revenue, with a 31% year-over-year increase, while EMEA and APJ regions saw revenue growth of 18% and 23% respectively [1] - Zscaler ended the quarter with 728 customers generating over $1 million in ARR, an 18% increase year-over-year [2] Product and Service Innovations - The company is shifting towards metered, non-seat usage solutions, contributing over a quarter of new annual contract value (ACV) in Q2, with ARR from these offerings growing more than 100% year-over-year [12] - Zscaler introduced AI Protect to manage AI assets and prevent data leaks, processing nearly 1 trillion AI transactions in 2025 [4][7] Strategic Acquisitions and Growth Initiatives - Zscaler completed the acquisition of SquareX to enhance its Zero Trust capabilities, focusing on securing access on unmanaged devices [14] - The company raised its ARR guidance for Red Canary to approximately $130 million for FY26, up from previous estimates [19] Future Outlook - For Q3, Zscaler guided revenue between $834 million and $836 million, projecting about 23% year-over-year growth [18] - Full-year fiscal 2026 guidance includes ARR of $3.730 billion to $3.745 billion, indicating about 24% growth [18]

Financial Data and Key Metrics Changes - The company reported a revenue of $816 million, representing a 26% year-over-year growth and a 4% sequential increase, exceeding guidance [25][27] - Annual Recurring Revenue (ARR) grew to $3.4 billion, up 25% year-over-year, with net new ARR of $156 million, a 19% increase [25][27] - Non-GAAP operating income reached $181 million, a 29% increase from $140 million last year, with an operating margin of 22.2% [31] Business Line Data and Key Metrics Changes - The Zero Trust Internet Access (ZIA) and Zero Trust Private Access (ZPA) ARR remained healthy, growing in the mid-teens [26] - The number of Zero Trust Everywhere enterprises increased to over 550, up from over 130 a year ago, indicating strong adoption [17] - Non-seat-based metered usage solutions contributed over a quarter of new Annual Contract Value (ACV), with ARR tied to these offerings growing more than 100% year-over-year [26] Market Data and Key Metrics Changes - The Americas accounted for 57% of revenue, growing approximately 31% year-over-year, while EMEA and APJ accounted for 28% and 15% of revenue, growing approximately 18% and 23% respectively [27] - Remaining performance obligation (RPO) grew to $6.1 billion, up approximately 31%, with about 47% classified as current RPO [27] Company Strategy and Development Direction - The company is focusing on AI security, Zero Trust Everywhere, and Data Security Everywhere as its three growth pillars, with significant demand expected in these areas [11][22] - The company aims to secure AI applications and agent communication, positioning itself as a leader in the AI security market [6][10] - The Z-Flex program is designed to provide customers with flexibility in module activation, driving upsell opportunities and shorter sales cycles [28][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook for the second half of fiscal 2026, citing a strong pipeline of deals and robust demand for their platform [6][25] - The urgency of securing AI is a top concern among CEOs and CIOs, presenting a significant opportunity for the company [7][10] - The company expects to continue expanding its partnerships and customer base, with a focus on long-term growth and profitability [24][36] Other Important Information - The company closed the acquisition of SquareX, enhancing its zero trust capabilities for browser security [30][92] - The integration of Red Canary is ongoing, with elevated churn levels noted but expected to stabilize as integration progresses [30][67] Q&A Session Summary Question: Competitive backdrop and win rates - Management noted no significant changes in competitive dynamics, with record pipeline conversion and large deal wins indicating strong performance [39][40] Question: Full year ARR expectations and seasonal anomalies - Management highlighted confidence in the second half of the year, attributing the increase in ARR expectations to overall business strength and seasonality [45] Question: Non-seat-based meter usage solutions - Management confirmed that non-seat-based solutions are resonating well with customers, contributing significantly to new ACV [50] Question: AI security project budgets - CIOs are allocating budgets for AI security projects, viewing security spending as a nominal cost compared to overall AI project budgets [56] Question: Sales cycles for AI-inclusive deals - Sales cycles are generally faster for AI-inclusive deals, with customers seeking integrated solutions [62] Question: Red Canary's elevated churn and financial contribution - Management clarified that while Red Canary has higher churn, securing renewals positively impacts ARR [67] Question: Sales productivity and transformational deals - Management reported double-digit sales productivity growth, driven by engagement in transformational deals [72][73] Question: Core ZIA/ZPA growth expectations - Management indicated consistent performance in ZIA/ZPA, with significant upsell opportunities remaining [75][76]

Financial Data and Key Metrics Changes - The company reported a revenue of $816 million, representing a 26% year-over-year growth and a 4% sequential increase, exceeding guidance [25][28] - Annual Recurring Revenue (ARR) grew to $3.4 billion, up 25% year-over-year, with net new ARR of $156 million, a 19% increase [25][27] - Non-GAAP operating income reached $181 million, a 29% increase from $140 million last year, with an operating margin of 22.2% [32] Business Line Data and Key Metrics Changes - The Zero Trust Internet Access (ZIA) and Zero Trust Private Access (ZPA) ARR grew in the mid-teens, indicating steady performance [26][77] - The company saw significant growth in its AI security solutions, with AI Protect and agentic operations driving demand [12][16] - The Zero Trust Everywhere segment expanded rapidly, with over 550 enterprises adopting the architecture, up from over 130 a year ago [18] Market Data and Key Metrics Changes - The Americas accounted for 57% of revenue, growing approximately 31% year-over-year, while EMEA and APJ grew by 18% and 23%, respectively [28] - The remaining performance obligation (RPO) grew to $6.1 billion, up approximately 31% [28] Company Strategy and Development Direction - The company is focused on securing AI applications and agent communication, positioning itself as a leader in AI security [8][10] - Zscaler aims to leverage its Zero Trust architecture to minimize attack surfaces and enhance security for AI agents [22][24] - The company is expanding its offerings through acquisitions, such as SquareX, to enhance browser security capabilities [31][95] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook for the second half of fiscal 2026, citing strong demand and a robust pipeline of deals [7][47] - The urgency of securing AI is a top concern for many CEOs and CIOs, presenting a significant opportunity for Zscaler [8][10] - The company anticipates continued growth driven by the expansion of AI security and Zero Trust Everywhere adoption [38] Other Important Information - The company achieved a free cash flow margin of 36% in Q2, indicating strong cash generation [25] - The Z-Flex program has generated over $290 million in total contract value (TCV), reflecting strong customer commitment [29][30] Q&A Session Summary Question: Competitive backdrop and win rates - Management noted no significant changes in competitive dynamics, with record pipeline conversion and large deal wins indicating strong performance [41][42] Question: Full year ARR expectations and seasonal anomalies - Management highlighted confidence in the second half of the year, attributing strength to overall business performance and seasonality [47] Question: Non-seat-based meter usage solutions - Management confirmed that non-seat-based solutions are resonating well with customers, contributing significantly to new ACV [51][53] Question: AI security project budgets - CIOs are increasingly allocating budgets for AI security projects, viewing it as essential to their AI initiatives [57] Question: Sales cycles for AI-inclusive deals - Sales cycles are generally faster for AI-inclusive deals, with customers seeking integrated solutions [62] Question: Elevated churn in Red Canary - Management clarified that while Red Canary has higher churn, it is expected to positively impact ARR as renewals are secured [68][69] Question: Sales productivity and transformational deals - Management reported double-digit sales productivity growth, driven by improved engagement and larger transformational deals [72][74] Question: Core ZIA/ZPA growth expectations - Management indicated consistent performance in ZIA/ZPA, with significant upsell opportunities remaining [76][78]

Financial Data and Key Metrics Changes - The company reported a revenue of $816 million, reflecting a 26% year-over-year growth and a 4% sequential increase, exceeding the high end of guidance [27] - Total Annual Recurring Revenue (ARR) reached $3.4 billion, up 25% year-over-year, with net new ARR of $156 million, a 19% increase [25][26] - Non-GAAP operating income was $181 million, growing 29% year-over-year, with a non-GAAP operating margin of 22.2% [32] Business Line Data and Key Metrics Changes - The Zero Trust Internet Access (ZIA) and Zero Trust Private Access (ZPA) ARR grew in the mid-teens, indicating healthy performance in core offerings [26] - The Zero Trust Everywhere segment saw significant growth, with over 550 enterprises adopting the solution, up from over 130 a year ago [17] - AI Security, including the newly introduced AI Protect solution, is rapidly gaining traction, with demand accelerating and several large enterprises adopting the solution [12][13] Market Data and Key Metrics Changes - The Americas accounted for 57% of revenue, growing approximately 31% year-over-year, while EMEA and APJ accounted for 28% and 15% of revenue, growing approximately 18% and 23% respectively [27] - The remaining performance obligation (RPO) grew approximately 31% to $6.1 billion, with about 47% classified as current RPO [27] Company Strategy and Development Direction - The company is positioning itself as the cybersecurity platform for the AI era, emphasizing the importance of securing AI applications and agent communication [5][6] - The strategy includes expanding the Zero Trust Exchange to secure AI applications and agentic workflows, which is seen as a significant growth opportunity [8][9] - The company aims to drive durable, profitable growth with strong cash generation while expanding its AI security portfolio and Zero Trust Everywhere adoption [36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook for the second half of fiscal 2026, citing strong demand for the platform and an increasing guidance across the board [5][36] - The urgency of securing AI is a top concern for many CEOs and CIOs, indicating a growing market opportunity for the company's solutions [6][9] - The company expects to continue expanding its partnerships and customer base, with a significant runway for long-term growth [24] Other Important Information - The company closed the acquisition of SquareX, enhancing its zero trust capabilities for unmanaged devices [31] - The Z-Flex program has generated over $290 million in Total Contract Value (TCV), indicating strong customer commitment and upsell opportunities [28][29] Q&A Session Summary Question: Competitive backdrop and win rates - Management noted that competitive dynamics have not changed significantly, with record pipeline conversion and large deal wins indicating strong performance [41][42] Question: Full year ARR expectations and seasonal anomalies - Management highlighted confidence in the second half of the year, attributing the increase in ARR expectations to overall business strength and seasonality [46] Question: Non-seat-based meter usage solutions - Management confirmed that non-seat-based solutions are growing rapidly, contributing significantly to new ACV and expected to continue growing with AI agents [51][53] Question: AI security project budgets - CIOs are increasingly allocating budgets for AI security projects, viewing security spending as nominal compared to overall AI project costs [57] Question: Sales cycles for AI-inclusive deals - Sales cycles are generally faster for AI-inclusive deals, with customers seeking integrated solutions and starting with smaller projects that can grow over time [63][64] Question: Red Canary's elevated churn and financial contribution - Management clarified that while Red Canary has higher churn, securing renewals positively impacts ARR, and integration efforts are ongoing [68] Question: Sales productivity and transformational projects - Management reported double-digit sales productivity growth, driven by transformational deals and improved customer engagement [72][74] Question: Core ZIA/ZPA growth expectations - Core ZIA/ZPA has shown consistent performance, with significant upsell opportunities remaining within existing customers [76][78] Question: Z-Flex deal dynamics - Z-Flex deals provide flexibility and strategic engagement, with similar ARR dynamics to traditional contracts but potentially longer-term commitments [87][88] Question: SquareX acquisition and browser security - The acquisition allows for enhanced security functionality via browser extensions, expanding the total addressable market without the vulnerabilities of a full enterprise browser [93][94] Question: Monetizing increased traffic from AI agents - Increased traffic from AI agents is expected to enhance revenue opportunities as more agents generate more value through the Zero Trust Exchange [98]