ZS

Business Context and Reporting Period

Company: Zscaler, Inc.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal Year ended July 31, 2026
Business Overview: Zscaler provides a cloud-native zero trust security platform designed to protect enterprises, workloads, and AI agents. The company operates as a single reportable segment, delivering security services via a subscription model. As of July 31, 2026, Zscaler served approximately 11,000 customers globally, including over 40% of the Forbes Global 2000.

Key Financial Metrics

Note: Non-GAAP Operating Income for Fiscal 2026 was $767.1 million (23% margin), excluding stock-based compensation, amortization, and restructuring charges.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 25% year-over-year to $3.35 billion, driven by a $474.6 million increase from existing customers (expansion) and $204.8 million from new customer acquisition.
• Operating Expenses: Total operating expenses rose to $2.71 billion (up 24%).
  • Sales & Marketing: Increased 19% to $1.50 billion due to headcount growth and higher commissions.
  • Research & Development: Increased 34% to $903.4 million, driven by investments in AI capabilities and integration of acquired technologies.
  • General & Administrative: Increased 23% to $309.0 million.
• Net Loss: Net loss widened to $63.2 million from $41.5 million in the prior year, primarily due to increased operating expenses and a higher provision for income taxes ($46.0 million vs. $23.2 million).
• Acquisitions: The company completed four significant acquisitions in Fiscal 2026 (Red Canary, SPLXAI, SquareX, and Symmetry Systems), totaling approximately $918 million in cash consideration, net of cash acquired.

Guidance, Outlook, and Risks

• Strategic Focus: Management emphasizes the convergence of Zero Trust and AI, positioning the platform to secure autonomous AI agents and models. The company continues to invest heavily in R&D and sales to capture market share in the AI security sector.
• Liquidity: Zscaler maintains a strong liquidity position with $3.47 billion in cash and investments. Management believes this is sufficient to fund operations and debt obligations for at least the next 12 months.
• Debt Obligations: The company holds $1.725 billion in 0.0% Convertible Senior Notes due 2028. These notes are convertible at the holder's option after April 15, 2028, or under specific conditions prior to that date. The company intends to settle conversions in cash.
• Restructuring: In a subsequent event (September 1, 2026), the company announced a plan to reduce its workforce by approximately 3%, expecting non-recurring charges of $30.0 million to $33.0 million in Fiscal 2027.
• Risks: Key risks include intense competition from legacy and cloud vendors, the rapid evolution of AI threats, reliance on channel partners (top 5 partners accounted for 31% of revenue), and potential impacts from geopolitical conflicts and trade regulations.

Investor Verification Checklist

• Profitability Trajectory: Verify the timeline for achieving GAAP profitability given the widening net loss despite strong revenue growth and positive free cash flow.
• Acquisition Integration: Assess the integration progress and revenue contribution of the four major acquisitions (Red Canary, SPLXAI, SquareX, Symmetry) completed in Fiscal 2026.
• Debt Settlement Strategy: Confirm the company's cash settlement election for the 2028 Convertible Notes and the sufficiency of cash reserves to meet the $1.725 billion principal obligation at maturity or upon conversion.
• AI Monetization: Evaluate the specific revenue impact of new "Security for AI" and "Agentic Security" offerings versus traditional Zero Trust SASE products.
• Customer Concentration: Review the dependency on the top five channel partners, which generated 31% of total revenue in Fiscal 2026.