Zscaler Inc (ZS) Q1 2025 Earnings Report

Revenue and profitability
- Revenue: $627.96 million, up 26% YoY and 6% QoQ. YoY growth aligns with the ongoing secular demand for Zero Trust and AI-enabled security, while the sequential uptick reflects seasonal and pipeline strength.
- Gross profit and margin: Gross profit $486.49 million; gross margin 77.47% (vs 77.54% prior-year). QoQ margin was roughly flat to down slightly, indicative of continued investment in data center and AI-related infrastructure.
- Operating income and margins: GAAP operating income was -$30.67 million (operating margin -4.88%), reflecting ongoing investments in growth initiatives. Non-GAAP operating margin stood around 21% as highlighted by management, illustrating substantial leverage in the model once scale is achieved.
- Net income and EPS: Net income -$12.05 million; EPS -$0.079 (diluted) for the quarter, in line with large-scale investments and product expansion.
- Cash flow and liquidity: Free cash flow margin 46% (noting data center capex ~3% of revenue). Net cash provided by operating activities $331.34 million. Cash and equivalents plus short-term investments totaled approximately $2.707 billion, underpinning strong liquidity and capacity for continued investments in AI-enabled infrastructure and GTM expansion.
- Billings and RPO: Total calculated billings $517.0 million, up 13% YoY. Unscheduled billings grew >20% YoY, contributing to the strength in bookings. RPO rose 26% YoY to $4.411 billion; current RPO represented ~49% of total RPO, signaling solid visibility.
- Customer metrics: 585 customers with ARR >$1 million; 3,165 customers with ARR >$100,000; over 65 customers with ARR >$5 million. Net dollar-based retention (NDR) for trailing twelve months: 114%.
- Emerging products: ARR in emerging products growing at about twice the rate of core products, underpinning accelerating deal sizes and multi-pillar expansions. Management cited strong contributions from ZDX, Zero Trust for Branch, Cloud and AI analytics, and AI-powered data protection.
- Geographic mix: Q1 revenue by region – Americas 54%, EMEA 30%, APJ 16%.
- Guidance and timing: Q2 revenue guidance of $633–$635 million (~21% YoY), gross margin ~80%, operating profit $126–$128 million, EPS $0.68–$0.69. Full-year 2025 billings guidance of $3.124–$3.149 billion (+19% to +20%), revenue $2.623–$2.643 billion (+21% to +22%), operating profit $549–$559 million, EPS $2.94–$2.99, and free cash flow margin 23.5–24%.

Strategy and market positioning
- Jay Chaudhry: “We delivered a strong Q1 with all metrics once again exceeding the high-end of our guidance... Revenue grew 26% year-over-year and bookings growth accelerated to over 30%.” This underscores the market acceptance of Zscaler’s platform and the AI-enabled value proposition.
- Jay Chaudhry: “The combination of Zero Trust and AI is creating exciting new opportunities, which we are well-positioned to capture with our large and expanding platform.” This highlights the strategic emphasis on AI-driven security alongside Zero Trust.
- Jay Chaudhry: “We are fighting AI with AI.” This signals competitive differentiation through in-line security and data-driven AI controls.
- Jay Chaudhry: “Zscaler for copilots” enables secure adoption of public AI apps (e.g., ChatGPT, Copilot) and private AI apps, with granular visibility, access control, and policy enforcement. This is a key growth vector in the AI security space.
- Jay Chaudhry: “Emerging products ARR is growing twice as fast as our core products.” This confirms accelerating contribution from ZDX, Zero Trust for Branch/Cloud, and AI analytics to the top line.
Execution and GTM
- Remo Canessa: “Our Q1 results exceeded our guidance on growth and profitability” and “Revenue was $628 million, up 26% YoY and up 6% sequentially.” These points anchor the quarterly performance and validate guidance.
- Remo Canessa: “Unscheduled billings grew over 20% YoY” and “12-month trailing DBD net retention rate is 114%.” This underscores continued upsell momentum and healthy retention, albeit with potential long-term pressure on NRR from multi-pillar deals.
- Remo Canessa: “ARR target for the end of the year is $3 billion. And so we are on track for that $3 billion.” The ARR objective provides a clear long-term milestone against the current growth trajectory.
- Remo Canessa: “Guidance for the second half... scheduled billings in the first half and larger proportion in the second half.” This sheds light on the cadence of bookings and the operational plan to sustain growth.

Overall, Zscaler offers a compelling long-term investment thesis anchored in a secular shift to Zero Trust security and AI-enabled cyber defense. The QQ1 results reinforce the company’s ability to generate rapid top-line growth, expand ARR, and monetize multi-pillar deals through emerging products. The AI portfolio complements the core Zero Trust platform, enabling larger ARR per customer and higher cross-sell potential. Positive catalysts include accelerating ZPA-driven VPN replacements, expanding data protection in AI contexts, federal sector adoption, and stronger GTM execution via account-centric selling and GSIs. Risks to monitor include the CFO transition, potential margin pressures as new products scale, and macro uncertainty that could affect enterprise buying cycles. Given management’s guidance and the sustained demand signals, the path to the $3B ARR target appears achievable if pipeline momentum remains robust and large multi-year deals close on-plan. Investors should track ARR progression, gross margin progression as new products scale, and the contribution of emerging products to the overall mix.