Zscaler reported stronger-than-expected third-quarter fiscal 2026 results on Tuesday, driven by continued demand for its AI-focused cybersecurity offerings and Zero Trust platform, while slashing its annual free cash flow expectations.
Shares in the company dived nearly 17% in extended hours of trading on Tuesday.
The company said it is slashing its full year free cash flow margin of approximately 22.8 to 23.3%, down from our prior expectation of 26.5 to 27%, reflecting capex in the high single-digits as a percent of revenue.
The cloud security company said revenue rose 25% year-over-year to $850.5 million for the quarter ended April 30, while annual recurring revenue (ARR) also increased 25% to $3.53 billion. Adjusted operating income climbed to $195.8 million, representing a record 23% operating margin.
Zscaler posted a net loss of $13.9 million, compared with a loss of $4.1 million a year earlier, while adjusted net income rose to $177.9 million from $136.8 million. Adjusted earnings per share increased to $1.08 from $0.84 a year ago and also beat analyst estimates of $1.01 per share.
Chief Executive Jay Chaudhry said the company was “ideally positioned as the cybersecurity platform for the AI era,” citing rising demand for Zero Trust architectures as enterprises confront threats linked to AI agents and advanced models.
The company highlighted several AI and security initiatives during the quarter, including partnerships with Anthropic and OpenAI, the launch of its “Project AI-Guardian” platform, and plans to acquire Symmetry Systems to strengthen AI governance capabilities.
“Looking ahead, we remain focused on driving profitable growth across multiple vectors, including product innovation, go-to-market, and customer expansion,” said Kevin Rubin, chief financial officer of Zscaler.
For the fourth quarter, Zscaler forecast revenue of $875 million to $878 million, representing growth of about 22%, and projected adjusted earnings per share of $1.08 to $1.09.
The company also raised its full-year fiscal 2026 outlook, now expecting revenue of about $3.33 billion that edged above analyst estimates of $3.32 billion.
source https://www.investing.com/news/earnings/zscaler-shares-tumble-as-lower-free-cash-flow-outlook-overshadows-upbeat-q3-result-4710786
