How large was the 8-figure federal deal in Q3, and how does the underlying business perform if that deal is excluded?

Kevin Rubin clarified that the 8-figure deal was Total Contract Value (TCV) and included renewals, so it wasn't entirely new ARR. Jay Chaudhry added that the company typically points out 'unusually large' deals, implying this one was not exceptional in its new ARR contribution. “keep in mind that these contract wins, as you see them get reported, first of all, it is TCV. And second, that part of the -- along with the upsell was also a large part of that deal was renewals.”

Given the FY27 outlook implies flat organic net new ARR, what are the contributing factors, including traditional Zscaler business, Red Canary, and new logos?

Kevin Rubin explained the FY27 outlook incorporates continued strong upsells (net retention of 115%), a tempered view on new logo contributions (despite being a strategic focus), and Red Canary's net new ARR growing slower than the overall business due to uncertainty around integrated SecOps uptake. “The area that we haven't been performing as well as we'd like is new logo. It certainly is a large priority for us, but I did take a tempered view of new logos going into '27.”

Could you elaborate on why new logo growth is tempered for next year, specifically regarding sales relationships and customer pipeline?

Kevin Rubin clarified that he took a 'tempered approach' to *expectations* for new logo contributions in the early FY27 outlook, not that new logo growth *is* tempering. He emphasized that new logos remain a strategic focus, and Jay Chaudhry highlighted the significant untapped market of 20,000 enterprises with only 4,500 current customers. “Just to clarify, I was not trying to suggest that new logo growth is tempering. What I was intending to convey is that my expectations relative to the early look for next year took a tempered approach to how we thought about the contributions of new logos.”

Zscaler (ZS) Q3 FY26 earnings call: guidance and Q&A

Earnings call· Apr 2026 (Q3 FY26)· Information Technology· May 26, 2026

Source: earnings call transcript

Executive summary

Zscaler Q3 FY26 — Strong ARR Growth and Record Operating Margin Driven by AI and Zero Trust Adoption

Zscaler delivered strong Q3 FY26 results, with robust ARR growth and record operating margins, driven by increasing adoption of its Zero Trust SASE solution and AI Protect offerings. The company is positioning itself as the cybersecurity platform for the AI era, leveraging its unique architecture to address emerging threats from AI agents and frontier models. While sales leadership transitions and rising hardware costs introduce some near-term prudence in guidance, the long-term market opportunity, particularly around AI-driven security, remains substantial.

Highlights

Annual Recurring Revenue (ARR) grew 25% year-over-year to $3.5 billion.
Non-GAAP operating margin hit an all-time high at 23%, increasing 140 basis points year-over-year.
Revenue grew 25% year-over-year to $850 million, exceeding the high end of guidance.
AI Protect solution bookings crossed $100 million over the past 12 months, demonstrating strong customer adoption.
The number of Zero Trust Everywhere enterprises increased to over 700 in Q3, up from over 550 in Q2.

Concerns

Sales leadership changes led to a prudent approach in Q4 and FY27 guidance, implying potential short-term disruption.
CapEx as a percentage of revenue is expected to increase to high single digits for FY26 and up to 200 basis points higher in FY27 due to rising hardware costs.
The FY27 total ARR and revenue growth outlook of 16% to 17% implies deceleration, partly due to tempered new logo expectations.
Free cash flow margin guidance for FY26 was lowered to 22.8%-23.3% from 26.5%-27%, reflecting the higher CapEx expectations.
EMEA revenue growth of 16% year-over-year was slower compared to other geographies, indicating areas for execution improvement.

Guidance & targets

Category	Target	Timeline	Confidence
Revenue	$875 million to $878 million high materiality	Q4 · FY26	High
Gross Margin	approximately 80% medium materiality	Q4 · FY26	High
Operating Profit	$206 million to $208 million high materiality	Q4 · FY26	High
Net Other Income	approximately $24.5 million low materiality	Q4 · FY26	High
Earnings Per Share	approximately $1.08 to $1.09 per share high materiality	Q4 · FY26	High
ARR	$3.740 billion to $3.749 billion high materiality	FY26	High
Net New ARR Growth (excluding Red Canary)	approximately 9.5% high materiality	FY26	High
Red Canary ARR	approximately $137 million medium materiality	FY26	High
Red Canary Net New ARR	approximately $10 million medium materiality	Q4 · FY26	High
Revenue	$3.3295 billion to $3.3325 billion high materiality	FY26	High
Red Canary Revenue	approximately $137 million medium materiality	FY26	High
Operating Profit	$755 million to $757 million high materiality	FY26	High
Earnings Per Share	$4.10 to $4.11 high materiality	FY26	High
Free Cash Flow Margin	approximately 22.8% to 23.3% high materiality	FY26	High
CapEx as a percentage of revenue	high single digits high materiality	FY26	High
Total ARR and Revenue Growth	16% to 17% high materiality	FY27	Medium
CapEx as a percentage of revenue	increase up to 200 basis points compared to fiscal '26 levels high materiality	FY27	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Americas Accounted for 56% of total revenue.	56%	approximately 31%	—	—
EMEA Accounted for 28% of total revenue. Management noted areas for execution improvement.	28%	approximately 16%	—	—
APJ Accounted for 16% of total revenue. Saw strong growth in $1M+ deals, up over 150% YoY.	16%	approximately 23%	—	—
Data Security Crossed $500 million in ARR, growing over 30% year-over-year. ARR: $500M	—	over 30%	—	—
Zero Trust Branch Seeing particular momentum with ARR approximately tripling year-over-year.	—	approximately tripled	—	—

ZS operating KPIs by quarter

ZS operating KPIs stated on its earnings calls, by fiscal quarter
KPI	This call Apr 2026 Q3 FY26	Jul 2026 Q4 FY26	Change vs prior quarter
Annual recurring revenue (ARR)	$3.5B Our Q3 '26 net new ARR was $166 million, up 24%, bringing total ARR to $3.5 billion, up 25% year-over-year. Source: earnings call transcript	$3.8B Total net new ARR was $246 million, up 24% bringing total ARR to $3.8 billion, up 25% year-over-year. Source: earnings call transcript	+8.6%
Annual recurring revenue (ARR) Red Canary	$127M Red Canary exited Q3 with $127 million of ARR. Source: earnings call transcript	$141M Red Canary exited Q4 with $141 million of ARR. Source: earnings call transcript	+11%
Customers above an annual spend threshold Over $1 million ARR	748 We closed Q3 with 748 customers generating more than $1 million of ARR and 4,003 customers exceeding $100,000 of ARR, growing 18% and 19% year-over-year, respectively. Source: earnings call transcript	785 We ended the quarter with 785 customers generating over $1 million in ARR and 4,182 customers generating more than $100,000 in ARR growing 18% and 20% year-over-year, respectively. Source: earnings call transcript	+4.9%
Customers above an annual spend threshold Over $100,000 ARR	4,003 We closed Q3 with 748 customers generating more than $1 million of ARR and 4,003 customers exceeding $100,000 of ARR, growing 18% and 19% year-over-year, respectively. Source: earnings call transcript	4,182 We ended the quarter with 785 customers generating over $1 million in ARR and 4,182 customers generating more than $100,000 in ARR growing 18% and 20% year-over-year, respectively. Source: earnings call transcript	+4.5%
Remaining performance obligation (RPO)	~$6.5B Remaining performance obligation, or RPO, of approximately $6.5 billion grew approximately 30%, including approximately 46% classified as current RPO. Source: earnings call transcript	~$7.4B Remaining performance obligation, or RPO, of approximately $7.4 billion grew approximately 27% with approximately 45% classified as current RPO. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Remaining Performance Obligation (RPO) approximately $6.5 billion Q3 FY26

approximately 30%

Approximately 46% classified as current RPO.

AI Protect bookings $100 million past 12 months

Bookings for the AI Protect solution.

Deals & partnerships

Symmetry Systems Intent to acquire a company specializing in Access Graph technology.

Symmetry provides an Access Graph that maps how identities, applications, and data sources connect across the enterprise, which Zscaler will integrate into its Zero Trust Exchange for agentic security.

Anthropic Collaboration on Project Glasswing.

Partnering with Anthropic on Project Glasswing.

OpenAI Collaboration as part of its Daybreak program (formerly Trusted Access for Cyber or TAC).

Partnering with OpenAI to access frontier models to proactively harden Zscaler's systems and deliver better security.

Key GSI partners Strategic collaboration for Project AI-Guardian.

Project AI-Guardian will help partners extend Zero Trust architecture to AI assets, leveraging Zscaler's AI Protect portfolio to build specialized AI discovery and risk mitigation services.

Fortune 500 financial technology company Upsell deal for AI Protect solution. 7-figure

Chose Zscaler to secure rapid enterprise adoption of AI, using AI Protect for asset discovery, guardrails, and continuous red teaming to manage AI assets and prevent data leaks/attacks.

Federal agency Upsell deal for data security and GenAI security. 7-figure

Expanded deployment to modernize and unify data security strategy, using 6 of Zscaler's 8 data security modules (classification, e-mail DLP, endpoint DLP, in-line DLP) and GenAI security solution.

Leading health care system Largest branch deal in Zscaler history for unified Zero Trust Branch solution. 8-figure

Deploying unified Zero Trust Branch across 2,000 sites, displacing a major firewall incumbent and a legacy VPN incumbent.

Leading health care technology company New logo win for platform-wide adoption. 7-figure

Adopted Zero Trust Cloud, Zero Trust Branch, and 4 data security modules, illustrating conversion from a limited initial request to a comprehensive platform win.

Large automotive manufacturer Upsell deal for Zero Trust Cloud solution. 7-figure

Extended existing Zero Trust SASE footprint by expanding Zero Trust Cloud deployment, improving security posture and securing its massive multi-cloud environment. ARR with this customer is up tenfold in the last 7 years.

Fortune 500 finance and insurance customer Z-Flex deal for module expansion. 8-figure 5-year

Increased ARR by nearly 50%, expanding module adoption across 4 existing modules and adopting 6 new modules, including AI Protect solution. Spends more than $5 million annually.

Global 2000 semiconductor manufacturing customer Z-Flex deal for module expansion. 8-figure 3-year

Increased annual spend by 60%, expanding adoption across 6 existing modules and adopting 6 new modules, including AI Protect and Zero Trust Branch solutions.

Risks & headwinds

Sales leadership turnover Q3 FY26

Two sales leaders departed

Mitigation:One internal replacement appointed, second in late stages of hiring; taking a prudent approach to guidance.

Rising hardware costs and CapEx increase FY26, FY27

FY26 CapEx to high single digits as % of revenue (up from mid-single digits); FY27 CapEx up to 200 bps compared to FY26 levels

Mitigation:Implemented price increase on branch appliances; opportunistically locking in data center equipment prices; periodically reviewing pricing.

Tempered new logo growth expectations FY27

Tempered view of new logo contributions in FY27 outlook

Mitigation:Strategic focus on new logos, plans for increased sales capacity in lower-end enterprise market, specific VAR channel programs, GSI partnerships, and focus on major accounts.

Uncertain pace of integrated SecOps uptake FY27

Red Canary's net new ARR expected to grow at a slower rate than overall business in FY27

Mitigation:Rolling out integrated SecOps solution in FY27, monitoring pace of uptake among existing customers.

Slower growth in EMEA Q3 FY26

EMEA revenue up approximately 16% YoY in Q3, slower than Americas (31%) and APJ (23%)

Mitigation:Focused on improving execution in EMEA to turn it into a high-growth area again.

What to watch in Q4 FY26

FY27 Total ARR and Revenue Growth Outlook

Next quarter (Q4 FY26 earnings call)

Current FY27 outlook of 16%-17%

Target Reaffirmation or upward revision of FY27 growth outlook

Why it matters

This is the primary growth metric, and its trajectory is key to the investment thesis, especially given the prudent initial outlook following sales leadership changes.

Sitting here today, our view is for total ARR and revenue growth for fiscal '27 of 16% to 17%.

Find out whether ZS delivers this. Inve re-checks your case every morning.

Q&A highlights

Can you elaborate on the sales leadership changes, their nature (voluntary/involuntary, seniority), and how they impact guidance, especially what guidance would have been without these changes?

Management confirmed two sales leaders departed from the CRO's team. They are taking a 'prudent approach' to guidance due to potential short-term disruption, but did not quantify the exact impact. One internal replacement has been appointed, and the second is in late-stage hiring.

“we are taking a prudent approach to our guidance during this transition.”

asked by Brad Zelnick · answered by Kevin Rubin

3 min read 8 chapters

Detailed narrative

AI as a Catalyst for Cybersecurity

Zscaler is positioning itself as the cybersecurity platform for the AI era, highlighting its unique architecture to protect against emerging threats from AI agents and frontier models like Mythos. The company emphasizes that its Zero Trust Exchange hides applications from attackers and eliminates lateral movement, which are critical defenses against vulnerabilities uncovered at machine speed by new AI models.

Management notes an unprecedented number of inbound calls from concerned CIOs and CISOs seeking solutions for AI-driven threats.

Zero Trust Everywhere Strategy and Adoption

The company is expanding its Zero Trust platform beyond users to secure branches, cloud workloads, and IoT/OT devices, driving adoption of 'Zero Trust Everywhere.' This strategy is resonating with customers, as evidenced by the increase in Zero Trust Everywhere enterprises from over 550 in Q2 to over 700 in Q3.

This comprehensive approach differentiates Zscaler from firewall-based SASE solutions that connect users to networks, enabling lateral movement.

AI Protect Solution Momentum

Zscaler's AI Protect solution, introduced in January, is gaining significant traction, with bookings crossing $100 million over the past 12 months. This solution helps customers discover and manage AI assets, enforce safe access to approved applications, and inspect prompts and responses in real time to prevent data leaks and attacks like prompt injection. The robust pipeline for AI Protect indicates strong market demand.

Strategic Partnerships and Go-to-Market Enhancements

Zscaler is deepening partnerships with Global System Integrators (GSIs) through initiatives like Project AI-Guardian, a strategic collaboration to extend Zero Trust architecture to AI assets. The company is also expanding its cloud marketplace motion, which transacted approximately $900 million in TCV year-to-date, more than doubling year-over-year. These efforts aim to expand reach and simplify procurement for larger strategic engagements.

Z-Flex Program Success

The Z-Flex program, which offers customers with multiyear commitments the flexibility to activate or swap modules without new procurement cycles, generated over $480 million in TCV in Q3, up more than 60% quarter-over-quarter. Over the last 12 months, Z-Flex has delivered over $1 billion in TCV with an average 4-year term, driving meaningful upsells, shorter sales cycles, and greater forward visibility.

Symmetry Systems Acquisition for Agentic Security

Zscaler announced its intent to acquire Symmetry Systems, a company that pioneered an Access Graph technology mapping identity to data sources. This technology will be integrated into the Zero Trust Exchange to enhance agentic security, enabling enforcement of policies for AI agents communicating with models, applications, and data sources. This acquisition is seen as a forward-looking step to differentiate Zscaler's exchange for the AI era.

Sales Leadership Transition and Prudent Guidance

The departure of two sales leaders led to a prudent approach in Q4 and FY27 guidance. While replacements are being sought, management acknowledges potential short-term disruption, influencing the FY27 ARR and revenue growth outlook of 16-17%. The company is strategically focused on improving new logo acquisition, particularly in the 2,000-10,000 user enterprise market segment, through increased sales capacity and channel programs.

CapEx Increase Due to Rising Hardware Costs

Rising memory, storage, and processor prices, driven by demand from AI data centers, are leading to higher CapEx expectations. FY26 CapEx as a percentage of revenue is now expected to be in the high single digits, up from prior mid-single-digit expectations.

For FY27, CapEx as a percentage of revenue could increase by up to 200 basis points compared to FY26 levels, reflecting the dynamic market for data center equipment.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.