Zscaler Inc. (NASDAQ:ZS) reported fiscal fourth-quarter revenue and adjusted profit that topped Wall Street estimates on Friday, but a sharp decline in free cash flow sent shares of the cybersecurity company down 3.5%.
Free cash flow came in at $60.8 million, missing estimates of $66.9 million and falling 65% from a year earlier, even as the company posted revenue of $898.2 million for the quarter, above analyst estimates of $877 million and up 25% from a year earlier. Adjusted earnings per share came in at $1.19, compared with estimates of $1.09, marking a 34% increase year-over-year.
Annual recurring revenue (ARR) reached $3.77 billion, up 25% from the same period last year, while non-GAAP operating income was $218.4 million against estimates of $207 million, representing a 24% margin.
Net new ARR totaled $246 million, up 24% year-over-year. Deferred revenue rose 19% to $2.93 billion.
For fiscal 2027, Zscaler guided revenue of approximately $3.91 billion to $3.94 billion, roughly in line with estimates of $3.9 billion. The company forecast non-GAAP operating income of $924 million to $932 million, above estimates of $903 million, and adjusted EPS of $4.86 to $4.90, topping estimates of $4.60. The company expects ARR of $4.40 billion to $4.43 billion, gross margin of approximately 80%, and free cash flow margin of 23% to 23.5%.
For the first quarter, Zscaler guided revenue of $935 million to $939 million, above estimates of $927 million. The company forecast non-GAAP operating income of $215 million to $217 million, versus estimates of $209 million, and adjusted EPS of approximately $1.15 to $1.16, above estimates of $1.08. Gross margin is expected to be approximately 80%.
Jefferies said Zscaler's results reflected improved sales execution despite an ongoing leadership transition, with the firm pointing to record quarterly sales productivity as evidence that disruption concerns were outweighed by strong performance. The firm characterized fiscal 2027 guidance as intentionally cautious, tied to the time needed for new sales leaders to settle in and for newer AI security offerings to scale, and framed the outlook as back-end weighted toward the second half of the year.
Jefferies said it believes the guidance leaves room for upside once both leadership changes are complete and the newer products have ramped further.
