Executive Summary

Zscaler delivered a solid Q2 FY25: revenue $647.9M (+23% YoY, +3% QoQ) and non-GAAP EPS $0.78, with non-GAAP operating margin at 22% and free cash flow (FCF) margin at 22% .
Billings accelerated to $742.7M (+18% YoY), RPO reached $4.615B (+28% YoY), ARR surpassed $2.7B (+23% YoY), and NRR improved to 115% as large-customer momentum continued (620 customers >$1M ARR) .
Management raised FY25 guidance across revenue ($2.640–$2.654B), billings ($3.153–$3.168B), non-GAAP operating income ($562–$572M), and non-GAAP EPS ($3.04–$3.09), citing stronger pipeline, sales productivity, and platform breadth .
Key catalysts: momentum in Zero Trust Branch (57% of purchasers were new logos), data protection net new ACV growth >40%, and deepening GSI engagement; management reiterated a path to “$3B or more” ARR by FY25 year-end .

What Went Well and What Went Wrong

What Went Well

Billings/ARR/RPO momentum: Q2 billings +18% YoY to $742.7M; ARR >$2.7B (+23% YoY); RPO $4.615B (+28% YoY). CEO: “Billings accelerated in Q2… ARR grew 23%… NRR improved to 115%.”
Product traction and platform expansion: Data protection net new ACV grew >40% YoY; Zero Trust Branch adoption strong with 57% of buyers as new logos; $1M+ ARR customers grew to 620 (+25% YoY) .
Go-to-market productivity and partner leverage: Management cited increased sales productivity, lower sales attrition, and growing GSI contributions to large deals; “I expect sales productivity to continue [to] grow in the second half” .

What Went Wrong

Ongoing deal scrutiny and tight macro: “Our Q2 results exceeded… even with ongoing customer scrutiny of large deals”; macro still tight; federal deals are “lumpy” and not baked as a strong 2H driver .
Gross margin modestly pressured by new product mix: Total gross margin ~80% with commentary that new, fast-growing products are optimized for go-to-market over margins near term .
GAAP profitability remains negative (improved): GAAP net loss was $7.7M; GAAP tax benefit included a $17.2M one-time valuation allowance release in the UK, which does not affect non-GAAP results .

Financial Results

Income Statement and Margins (USD Millions, per-share; chronological: Q4 FY24 → Q1 FY25 → Q2 FY25)

Metric	Q4 FY24	Q1 FY25	Q2 FY25
Revenue ($M)	$592.9	$628.0	$647.9
GAAP Net Loss ($M)	$(14.9)	$(12.1)	$(7.7)
GAAP EPS, Diluted	$(0.10)	$(0.08)	$(0.05)
Non-GAAP EPS, Diluted	$0.88	$0.77	$0.78
GAAP Gross Margin (%)	78%	77%	77%
Non-GAAP Gross Margin (%)	81%	81%	80%
Non-GAAP Operating Margin (%)	22%	21%	22%

Notes: Q2 revenue +23% YoY and +3% QoQ; CFO highlighted 80% gross margin near term, with mix effects from new products .

Cash Flow and Billings (USD Millions; chronological: Q4 FY24 → Q1 FY25 → Q2 FY25)

Metric	Q4 FY24	Q1 FY25	Q2 FY25
Cash from Operations ($M)	$203.6	$331.3	$179.4
Free Cash Flow ($M)	$136.3	$291.9	$143.4
FCF Margin (%)	23%	46%	22%
Calculated Billings ($M)	$910.8	$516.7	$742.7

Balance Sheet / Contracting KPIs (chronological: Q4 FY24 → Q1 FY25 → Q2 FY25)

Metric	Q4 FY24	Q1 FY25	Q2 FY25
Deferred Revenue (End) ($M)	$1,895.0	$1,783.7	$1,878.5
RPO ($B)	—	$4.411	$4.615
Current RPO (% of RPO)	—	~49%	~49%
ARR ($B)	—	—	>$2.7
NRR (12-mo trailing)	—	114%	115%
Customers >$1M ARR	—	585	620
Cash, Cash Eq. & ST Inv. ($M)	$2,409.7	$2,707.9	$2,880.2

Geographic Mix (Q2 FY25 revenue)

Americas 54%, EMEA 30%, APJ 16% .

Non-GAAP adjustments: Company uses a 23% long-term projected non-GAAP tax rate effective FY25; prior periods recast; Q2 GAAP tax included a one-time $17.2M benefit from releasing a UK valuation allowance (excluded from non-GAAP) .

Guidance Changes

Metric	Period	Previous Guidance (as of Q1 FY25)	Current Guidance (Q2 FY25)	Change
Revenue ($B)	FY25	$2.623–$2.643	$2.640–$2.654	Raised
Calculated Billings ($B)	FY25	$3.124–$3.149	$3.153–$3.168	Raised
Non-GAAP Income from Operations ($M)	FY25	$549–$559	$562–$572	Raised
Non-GAAP EPS, Diluted	FY25	$2.94–$2.99 (23% tax; ~164M shares)	$3.04–$3.09 (23% tax; ~163.5M shares)	Raised
Revenue ($M)	Q3 FY25	—	$665–$667	New
Non-GAAP Op Income ($M)	Q3 FY25	—	$140–$142	New
Non-GAAP EPS, Diluted	Q3 FY25	—	~$0.75–$0.76 (23% tax; ~163M shares)	New

Management reiterated gross margin around ~80% near term given mix (optimize over time) .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY24 and Q1 FY25)	Current Period (Q2 FY25)	Trend
AI initiatives	Surpassed 0.5T daily transactions; launched AI Data Protection innovations; NVIDIA collaboration . Q1: Expanded AI portfolio (ZDX Copilot, LLM proxy, Risk360, UVM); bookings acceleration >30% .	ZDX Copilot bookings +45% to nearly $50M; adding Agentic AI; EVP of AI Innovations hired; AI analytics ACV nearly doubled YoY .	Strengthening
Zero Trust Branch / firewall refresh	Q1: Introduced Zero Trust SD-WAN/segmentation; 7-figure branch deals; positioning to displace firewalls/SD-WAN .	57% of Zero Trust Branch customers were new logos; targeted refresh-cycle campaigns; 130+ enterprises at Zero Trust Everywhere .	Accelerating
Data Protection	Q4: AI Data Protection launches . Q1: Data protection driving large 7-figure wins; comprehensive coverage; expected as key driver .	Net new ACV >40% YoY; multiple large upsells; AI elevates DLP importance (public/private AI) .	Strong, broadening
GSIs/Partners	Q1: Growing GSI role; embedding Zscaler; helping close 7-figure deals .	“Sea change” in GSI engagements; GSIs critical in multiple 7-figure wins .	Increasing leverage
Federal/Public Sector	Q1: 14 of 15 cabinet agencies; continued expansion .	FedRAMP authorization for Zero Trust Browser; large APJ government win (8-figure TCV); efficiency measures seen as tailwind .	Positive momentum
Macro/tariffs	Q1: Deal scrutiny ongoing; macro impacts unchanged .	Deal scrutiny persists; limited expected tariff impact; federal deals lumpy .	Unchanged headwind
Profitability/margins	Q1: Non-GAAP op margin 21%, FCF margin 46% .	Non-GAAP op margin 22%, FCF margin 22%; gross margin ~80% given new products .	Stable op margin; gross margin mix pressure

Management Commentary

“Billings accelerated in Q2 and revenue grew by 23% year-over-year… ARR grew 23%… NRR improved to 115%.”
“With our growing pipeline and better sales productivity, I expect us to achieve $3 billion or more in ARR by the end of the fiscal year.”
“Zero Trust Branch is seeing tremendous customer interest… 57% of customers who purchased Zero Trust Branch are new logo customers.”
“Data protection… experienced over 40% year-over-year growth in net new ACV.”
“We’re introducing new products… optimized for faster go-to-market rather than margins. This will continue to influence our gross margins.”
CEO on strategy: “We are leading the industry towards Zero Trust Everywhere… By combining AI with Zero Trust, we are delivering… innovations to secure… AI applications.” .

Q&A Highlights

Go-to-market transformation durability: Pipeline quality up, double-digit new ACV growth, rising C-level engagement; GSIs embedded earlier and contributing to larger deals .
Billings phasing: Scheduled vs unscheduled assumptions unchanged; more bullish outlook supported by pipeline/visibility .
Firewall refresh catalyst: Targeted campaigns; Zero Trust Branch underpinning displacement of firewalls/SD-WAN; strong early traction .
Data Protection and AI: Platform handles inline and at-rest controls; AI-enhanced classification; securing public (e.g., Copilot) and private AI usage drives demand .
Macro and deal scrutiny: Persistent, but Zscaler’s ability to reduce both risk and cost improves deal sponsorship; federal modeled prudently due to lumpiness .

Estimates Context

We attempted to retrieve S&P Global consensus for revenue, EPS, EBITDA, and target price for Q2–Q4 FY25 but were unable to due to a vendor daily request limit. As a result, we cannot quantify beats/misses versus Wall Street consensus in this report. We recommend revisiting once S&P Global access is available to anchor comparisons to consensus.

Key Takeaways for Investors

Execution improving: Acceleration in billings, ARR >$2.7B, rising $1M+ customer cohort, and raised FY25 guide indicate durable demand and better sales productivity .
Platform breadth driving larger lands and upsells: Strong data protection growth, Zero Trust Branch new-logo mix, and GSI leverage support multi-pillar consolidation narratives and larger TCVs .
AI is a multi-dimensional tailwind: Monetization through AI-powered ZDX, analytics (Risk360, UVM), and securing AI app usage (public/private) expands TAM and upsell pathways .
Margin profile stable near term with mix headwind: Gross margin around ~80% given new product mix; non-GAAP operating margin at ~22% with FCF margin 22% in Q2; longer-term potential as newer products scale .
Federal and international public sector opportunities: FedRAMP progress and landmark APJ government deployment underline public sector runway, albeit with lumpiness .
Model watch items: Monitor NRR trajectory (management cautions bigger initial bundles can mathematically lower NRR), billings phasing in 2H, and gross margin optimization pacing .
Near-term trading lens: “Raise and beat” quarter with visible catalysts (branch/firewall refresh, AI and data protection, GSI momentum) should support sentiment pending consensus validation when S&P estimates are accessible .

Appendix: Other Q2 FY25 Press Releases

EY alliance to help secure and simplify customer environments .
New application extending Exposure Management Solution .
Investor conference participation and earnings call logistics .

All financial and qualitative information is sourced from company filings and earnings materials as cited.

Zscaler, Inc. (ZS)·Q2 2025 Earnings Summary