Executive Summary
Zscalerâs QQ2 2025 results underscore sustained topâline momentum and platform expansion, driven by aggressively improving goâtoâmarket efficiency and a multiâpillar product strategy. Revenue reached $647.9 million, up 23% year over year and roughly 3% quarter over quarter, while ARR exited above $2.7 billionâup 23% YoY. Management reiterated confidence in reaching $3.0+billion+ ARR by yearâend, anchored by growing pipeline, higher sales productivity, and expanding adoption of Zero Trust Everywhere across users, workloads, and the cloud. NonâGAAP operating margin remained strong at roughly the midâteens to lowâ20s percentage range (and the company highlighted a 22% operating margin for the quarter on a nonâGAAP basis), with free cash flow margin at a record 22%. The balance sheet remains highly liquid, with roughly $2.9 billion in cash, cash equivalents and shortâterm investments, and a net cash position (net debt) of about $520 million.
Key growth catalysts cited by management include: (1) Zero Trust Everywhere as a framework driving broader platform adoption and higher ACV, (2) Zero Trust Branch as a streamlined replacement for legacy firewalls/SDâWANs at the edge, and (3) AIâenabled data protection and analytics that enhance policy enforcement, reduce risk, and unlock higherâmargin product bundles. Management also highlighted meaningful customer momentum with large, multiâpillar deployments, GSIs accelerating deal closures, and government/public sector traction. While nearâterm GAAP profitability remains pressured by ongoing investments and ânew productâ mix, the company continues to generate strong cash flow and leverage in the business model. However, investors should monitor macro headwinds, deal scrutiny on large deployments, and the tempo of new logo vs. upsell mix as important risk factors.
Key Performance Indicators
QoQ: -30.89% | YoY:14.72%
Key Insights
Revenue: $647.9 million, up 23% YoY and ~3% QoQ. ARR: >$2.7 billion, up 23% YoY. RPO: $4.615 billion, up 28% YoY; Current RPO ~49% of total RPO. Billings: $743 million, up 18% YoY; Unscheduled billings up >25% YoY; Current billings up ~19% YoY. Customers with ARR >$1M: 620; ARR >$100k: 3,291. Gross margin (GAAP): 80.4% (gross profit margin reported as ~77.1% in the income statement), NonâGAAP gross margin around 77%â80% depending on adjustments. Operating profit: GAAP around â$...
Financial Highlights
Revenue: $647.9 million, up 23% YoY and ~3% QoQ. ARR: >$2.7 billion, up 23% YoY. RPO: $4.615 billion, up 28% YoY; Current RPO ~49% of total RPO. Billings: $743 million, up 18% YoY; Unscheduled billings up >25% YoY; Current billings up ~19% YoY. Customers with ARR >$1M: 620; ARR >$100k: 3,291. Gross margin (GAAP): 80.4% (gross profit margin reported as ~77.1% in the income statement), NonâGAAP gross margin around 77%â80% depending on adjustments. Operating profit: GAAP around â$40.1 million (â6.2% of revenue); NonâGAAP operating margin ~22% (as highlighted by management). Net income: â$7.72 million; EPS: â$0.0503. Free cash flow margin: 22%; Cash at end of period: ~$1.758 billion; Cash, equivalents and shortâterm investments: ~$2.889 billion. Net debt: â$520.2 million (net cash). 12âmonth trailing/diluted shares: ~153.67 million diluted shares. 3Q23/24 guidance: Q3 revenue guidance of $665â$667 million (+20% to +21% YoY); Q3 gross margin ~80%; Q3âtoâQ3 operating profit $140â$142 million; Q3 EPS $0.75â$0.76; Full year FY2025 billed as $3.153â$3.168 billion; Full year revenue guidance $2.64â$2.654 billion (+~22% YoY); Free cash flow margin target ~24.5%â25%; 163.5 million diluted shares.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
647.90M |
23.41% |
3.18% |
| Gross Profit |
499.40M |
22.67% |
2.65% |
| Operating Income |
-40.14M |
14.72% |
-30.89% |
| Net Income |
-7.72M |
72.87% |
35.91% |
| EPS |
-0.05 |
73.55% |
36.38% |
Key Financial Ratios
operatingProfitMargin
-6.2%
operatingCashFlowPerShare
$1.17
freeCashFlowPerShare
$0.93
priceEarningsRatio
-1007.65
Management Commentary
Themes from the earnings call include: (i) Growth and execution: Jay Chaudhry cited accelerating billings and 23% YoY revenue growth, with ARR surpassing $2.7B and NRR at 115%, underscoring product breadth and stickiness. (ii) Platform expansion and AI: Data protection ACV growth >40% YoY; ZDX Copilot adoption and AI analytics solutions (Risk 360, Unified Vulnerability Management, Business Insights) highlighted as catalysts for multiâpillar expansion and higher ACV. (iii) Zero Trust Everywhere strategy: Management highlighted 130+ enterprises at quarter end achieving Zero Trust Everywhere with a plan to triple that number in 18 months, and stated 57% of Zero Trust Branch customers were new logos, signaling broadening reach beyond existing customers. (iv) GTM transformation and partnerships: Goâtoâmarket investments are driving stronger pipeline, higher new ACV in double digits, and increasing enterprise executive engagement; GSIs are playing a larger role in closing large deals and expanding deployments. (v) Government/public sector and renewals: Federal and APJ government wins (including an 8âfigure APAC government deal) were highlighted as proof points of cost/efficiency and security advantages. (vi) Forward guidance and risk:Management reaffirmed ARR target of $3B+ and guided Q3 revenue of $665â$667M, with gross margins around 80% and a 24.5%â25% free cash flow margin guidance; they also cautioned about macro uncertainty and largeâdeal scrutiny that could modulate NRR and pace of fresh logo adoption. Key quotes: ARR 23% YoY and NRR 115%; Zero Trust Everywhere reaching 130+ enterprises with a plan to triple; 57% of Zero Trust Branch customers are new logos; ZDX Copilot bookings rising >45% to ~$50M; AI analytics bookings nearly doubled YoY.
"ARR grew 23% yearâoverâyear in Q2 to over $2.7 billion, and our net retention rate or NRR improved to 115%."
â Jay Chaudhry
"As of the end of Q2, we surpassed 130 enterprises that have become Zero Trust Everywhere. And my mandate to our teams is to triple that number in the next 18 months."
â Jay Chaudhry
Forward Guidance
Guidance indicates continued robust growth through FY2025, albeit with a shift toward higherâgrowth but potentially lowerâmargin new product offerings. For Q3, revenue is guided to $665â$667 million, up ~20%â21% YoY, with approximately 80% gross margin and operating profit of $140â$142 million. EPS is guided to $0.75â$0.76, with ~23% tax rate and ~163 million diluted shares. Fullâyear billings guided to $3.153â$3.168 billion (+20%â21%), and revenue guidance to $2.64â$2.654 billion (+~22% YoY). Free cash flow margin targeted at 24.5%â25%. Management framed the new product slate as growth engines rather than margin accelerants in the near term, signaling prudent margin optimization as the product mix scales. Key factors investors should monitor include: (1) progression of Zero Trust Everywhere deployments and the success of Zero Trust Branch in driving replacement of onâpremise appliances; (2) rate of ACV expansion within existing customers and the mix between new logos and upsell; (3) the pace of AIâenabled product adoption (ZDX Copilot, agentic AI, risk analytics) and their impact on pricing/tiering; (4) geopolitical and macro conditions and their impact on largeâdeal timing; (5) government/public sector contract wins and the extent of leverage for growth in APJ/EU regions. Based on the current trajectory, the outlook remains constructive with significant optionality from AI, data protection, and broader platform expansion, but investors should remain mindful of potential nearâterm volatility in large deals and macro constraints.