Q1 2025 Summary
Published Mar 5, 2025, 11:20 PM UTC- Zscaler reported 30% bookings growth, with unscheduled billings growing over 20%, demonstrating robust demand and effective sales execution.
- The emerging products segment, including AI analytics solutions, grew 90% year-over-year, highlighting significant growth potential in new offerings and contributing to increased new business and upsell opportunities.
- Data protection solutions are growing faster than the overall business, driven by customer concerns over data security in AI applications. Zscaler's comprehensive data protection platform positions it to capitalize on this demand.
- The company noted ongoing customer scrutiny of large deals, which may lead to longer sales cycles or deal delays.
- Potential decrease in the net retention rate due to customers purchasing more upfront and larger initial deals, which could reduce future upsell opportunities. ,
- The retirement announcement of the CFO, Remo Canessa, may introduce uncertainty in the company's financial leadership during the transition period.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q1 Fiscal 2025 | $604 million to $606 million | no current guidance | no current guidance |
Gross Margin | Q1 Fiscal 2025 | 80% | no current guidance | no current guidance |
Operating Profit | Q1 Fiscal 2025 | $114 million to $116 million | no current guidance | no current guidance |
Net Other Income | Q1 Fiscal 2025 | $18 million | no current guidance | no current guidance |
Income Taxes | Q1 Fiscal 2025 | $31 million | no current guidance | no current guidance |
EPS | Q1 Fiscal 2025 | $0.62 to $0.63 | no current guidance | no current guidance |
Revenue | Q2 2025 | no prior guidance | $633 million to $635 million | no prior guidance |
Gross Margins | Q2 2025 | no prior guidance | Approximately 80% | no prior guidance |
Operating Profit | Q2 2025 | no prior guidance | $126 million to $128 million | no prior guidance |
Net Other Income | Q2 2025 | no prior guidance | $18 million | no prior guidance |
EPS | Q2 2025 | no prior guidance | $0.68 to $0.69 | no prior guidance |
Billings | FY 2025 | $3.110 billion to $3.135 billion | $3.124 billion to $3.149 billion | raised |
Revenue | FY 2025 | $2.6 billion to $2.62 billion | $2.623 billion to $2.643 billion | raised |
Operating Profit | FY 2025 | $530 million to $540 million | $549 million to $559 million | raised |
EPS | FY 2025 | $2.81 to $2.87 | $2.94 to $2.99 | raised |
Free Cash Flow Margin | FY 2025 | Approximately 23.5% to 24% | Approximately 23.5% to 24% | no change |
Data Center CapEx | FY 2025 | Data center CapEx expected to be approximately 3 percentage points higher as a percent of revenue compared to fiscal 2024 | Expected to be approximately 3 points higher as a percentage of revenue compared to fiscal 2024 | no change |
Income Taxes | FY 2025 | Approximately $140 million | no current guidance | no current guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Robust Sales Execution and Bookings Growth | In Q3, the company highlighted robust sales execution with a team‐based approach and strong bookings growth (e.g., 30% YoY growth, significant RPO expansion). In Q4, they celebrated milestone quarterly bookings of $1 billion driven by accelerated new and upsell business. | In Q1 2025, Zscaler reported over 30% bookings growth driven by strong sales execution with account‑centric motions, strategic GSIs partnerships, and improved sales capacity. | Recurring topic with consistent positive performance and strengthened execution. |
Emerging AI Analytics Solutions | In Q3, emerging AI analytics was discussed in terms of training AI security models and introducing Gen AI app security to enhance threat detection. In Q4, the solution contributed around 3 percentage points to growth and was noted for its strong traction. | Q1 2025 emphasized that the Emerging Products ARR—including AI analytics, ZDX, and Zero Trust for branch/cloud—is growing twice as fast as core products, driving large 7‑figure deals. | Recurring topic with increased impact and broader product contribution. |
Accelerated Data Protection Growth | Q3 discussions included the expansion of data protection capabilities such as DSPM and Gen AI app security, with significant customer adoption. In Q4, it was highlighted as one of the fastest-growing pillars, with high‑value deals like an 8‑figure TCV win. | In Q1 2025, accelerated data protection growth is noted as being fueled by rising AI adoption and strong demand—illustrated by significant 7‑figure ACV deals and a comprehensive data protection platform. | Recurring topic with continued strong demand and clear importance. |
Customer Deal Scrutiny and Changing Purchasing Behavior | In Q3, executives mentioned heightened customer scrutiny amid a tough macro environment, with a noted decline in NRR due to larger bundled deals. In Q4, similar scrutiny was discussed alongside strong upsell performance and a 12‑month trailing NRR of 115%. | In Q1 2025, customer scrutiny remains a factor, with leaders underscoring that customers are focused on cost and complexity reduction; the reported 12‑month trailing dollar‑based net retention rate was 114%, with cautious commentary on potential future variability. | Recurring topic with stable performance but continued caution in the broader economic context. |
Leadership Transitions and Sales Attrition Challenges | Q3 highlighted higher-than‑expected sales attrition, partly due to leadership changes, while Q4 noted a transition in sales leadership with efforts to stabilize attrition and improve team quality. | In Q1 2025, the CFO announced his retirement—a significant leadership transition—and lower sales attrition further strengthened the sales capacity. | Recurring topic with notable improvements in sales attrition and positive leadership updates. |
Competitive Differentiation through Architectural Superiority and Continuous Innovation | In Q3, the firm stressed its Zero Trust Exchange architecture and continuous innovation (e.g., AI-powered solutions) as key differentiators. In Q4, emphasis was placed on the unique proxy‑based multitenant architecture and continuous AI/analytics innovations that create a competitive moat. | Q1 2025 reinforced this narrative by highlighting innovations like expanded Zero Trust architecture, AI‑powered copilots for securing public AI applications, and rapid product development. | Recurring topic with sustained focus and enhanced competitive differentiation narrative. |
Operational Forecasting Challenges and Billings Growth Deceleration | Q3 noted challenges with forecasting due to high sales attrition and ramp‑up delays, while Q4 detailed operational forecasting challenges tied to seasonality (7% growth H1 vs 23% in H2) and a deceleration in early billings growth. | Q1 did not explicitly mention operational forecasting challenges; instead, the focus was on strong overall billings growth with explanations around scheduled billings and ramp‑up already embedded in guidance. | No mention in the current period, suggesting the topic may have been resolved or de‑emphasized. |
Enhanced Focus on Resilience and Business Continuity | In Q4 2024, Zscaler emphasized an enhanced focus on resilience and business continuity—especially after competitor outages—with significant customer engagement and strategic briefings on their business continuity service. In Q3, this topic was not mentioned. | Q1 2025 contains no mention of enhanced focus on resilience and business continuity. | Topic no longer mentioned in the current period. |
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30% Bookings Growth
Q: Can you unpack the strong 30% bookings growth?
A: Management reported a robust 30% bookings growth, propelled by over 20% growth in unscheduled billings in both the first and second halves of the year. This performance reflects strong customer demand across both core and emerging products. -
Emerging Products Impact
Q: How are emerging products impacting growth?
A: Emerging products are growing at twice the rate of core products, contributing to an expected mid-20% of new and upsell opportunities, up from 22% last year. Solutions like ZDX, Zero Trust SD-WAN, and AI-powered offerings are driving this growth. -
Data Protection Momentum
Q: Can you update on the data protection business scale?
A: Data protection solutions are growing faster than the overall business, fueled by concerns over data leakage with the rise of AI services like ChatGPT and Microsoft Copilot. Zscaler's comprehensive platform secures data across in-line traffic, endpoints, SaaS applications, and cloud environments. -
Firewall Replacement Opportunity
Q: Are firewall refresh cycles opportunities for Zscaler?
A: Management views firewall refresh as a significant opportunity. With Zero Trust SD-WAN and device segmentation, Zscaler can replace most traditional firewalls in data centers, branches, and cloud environments, meeting customer interest in reducing or eliminating firewalls. -
Guidance and Outlook
Q: Why is second-quarter billings guidance lower despite strong Q1?
A: The guidance reflects seasonal billing patterns, with scheduled billings at 7% in the first half and 23% in the second half. The strong pipeline supports the full-year guidance, and there are no fundamental changes from prior expectations. -
GSI Partnerships Contribution
Q: How are GSI partnerships affecting deals?
A: Global System Integrators are contributing significantly to larger deals, especially in large accounts. GSIs are standardizing on Zscaler's solutions, helping to eliminate legacy products like firewalls and VPNs, and driving larger, strategic engagements. -
Scaling with Avalor Acquisition
Q: How are customers evaluating scaling with Avalor?
A: The Avalor acquisition enables Zscaler to build a data fabric without relying on massive data lakes, enhancing scalability. Customers benefit from solutions like Risk360 and unified vulnerability management, which prioritize and address threats effectively. -
Federal Market Progress
Q: Any updates on federal projects like DoD and Thunderdome?
A: Zscaler is gaining share in the federal market, now serving 14 of the 15 Cabinet-level agencies. With a focus on cost reduction and eliminating legacy technologies, there are significant opportunities that align with Zscaler's offerings. -
Customer Scrutiny on Deals
Q: Is customer scrutiny affecting sales cycles?
A: The ongoing customer scrutiny is a general economic condition, with no significant changes observed. Zscaler's ability to reduce costs and complexity, combined with AI as a catalyst, continues to motivate customers.