Q2 2025 Summary
Published Mar 10, 2025, 8:45 PM UTC- Improved Sales Productivity and Strong Pipeline Growth: Zscaler's go-to-market changes are yielding positive results, leading to increased sales productivity and double-digit new Annual Contract Value (ACV) growth. Additionally, data protection is growing over 40%, and there's a stronger pipeline with quality engagements at the C-level in large enterprises.
- Success of the Zero Trust Everywhere Campaign: The Zero Trust Everywhere campaign is off to a very good start, especially among larger enterprises. It's helping Zscaler secure larger deals and drive new customer adoption. The focus on Zero Trust is resonating with customers, enabling them to eliminate legacy security stacks and adopt a comprehensive security transformation.
- Strong Upsell Opportunities and Improved Net Retention Rate: With a growing customer base, Zscaler is capitalizing on significant upsell opportunities, which constitute about two-thirds of new ACV. The company's Net Retention Rate (NRR) improved to 115%, indicating strong customer loyalty and potential for future revenue growth.
- Ongoing scrutiny on large deals due to macroeconomic conditions could delay deal closings and impact revenue growth. The executives mentioned that the macro environment is still tight, with large deal scrutiny, and uncertainties about federal spending.
- The company's growth is increasingly reliant on upselling to existing customers rather than acquiring new ones. Contribution from net new customers has been declining, with new logos making up a smaller portion of growth.
- The expected growth from the firewall refresh cycle, including the Zero Trust branch solution, may not materialize in the near term, potentially delaying the anticipated revenue boost from this opportunity.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +30% (Q2 2025: $647.9M vs Q2 2024: $496.7M) | Strong revenue growth driven by increased customer adoption of Zscaler’s platforms (e.g., Zero Trust and AI solutions) and record new large deals, building on the momentum seen in earlier quarters. This underscores robust demand amid shifting market conditions toward digital transformation. |
Net Loss | -77% improvement (Q2 2025: $7.7M vs Q2 2024: $33.5M) | The dramatic improvement reflects enhanced operational efficiency and strong revenue growth that helped absorb fixed costs, a trend that continued from previous periods of narrowing losses. This improvement indicates that the company's cost management initiatives and scaling strategies are beginning to positively impact profitability. |
R&D Expenses | +50% increase (Q2 2025: $170.9M vs Q2 2024: $113.5M) | The significant rise in R&D spending reflects heightened investment in innovation and product development, accelerating headcount and development of new capabilities, which builds upon earlier quarter trends of increased expenditures to support the company’s evolving cloud security solutions. This investment positions the company well for future market competitiveness. |
Operating Loss | 13% reduction (Q2 2025: $40.1M vs Q2 2024: $46.1M) | Improved operating margins from revenue growth and better cost control contributed to a lower operating loss. This follows past periods where amplified revenue outpaced the slower-growing operating expenses, suggesting the company’s ability to leverage scale effectively as it continues its digital transformation efforts. |
Interest Expense | -26% decrease (Q2 2025: $2.3M vs Q2 2024: $3.2M) | The reduction in interest expense is attributed to better financing conditions and effective use of hedging strategies. More favorable interest rates and improved financial management compared to the previous period have eased the financing costs, supporting overall profitability. |
Cash and Cash Equivalents | +22% increase (Q2 2025: $1.76B vs Q2 2024: $1.44B) | Stronger operational cash flows generated higher free cash flow despite modest capital expenditures. This mirrors trends from earlier quarters where efficient cash management helped bolster liquidity even as the company invested in growth, signaling resilience and potential for further strategic investments. |
Total Assets | +27% increase (Q2 2025: $5.01B vs Q2 2024: $3.93B) | The balance sheet expansion is driven by a combination of increased cash, higher short-term investments, and capital expenditure in property and equipment. This solid asset base, building on improvements from prior periods, reflects successful reinvestment of operational gains and a focus on enhancing long-term technological and infrastructural capabilities. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q3 2025 | $633 million to $635 million | $665 million to $667 million | raised |
Gross Margins | Q3 2025 | Approximately 80% | Approximately 80% | no change |
Operating Profit | Q3 2025 | $126 million to $128 million | $140 million to $142 million | raised |
Net Other Income | Q3 2025 | $18 million | $18 million | no change |
EPS | Q3 2025 | $0.68 to $0.69 | $0.75 to $0.76 | raised |
Billings Growth | Q3 2025 | no prior guidance | Expected to improve sequentially by 200 to 260 basis points | no prior guidance |
Billings | FY 2025 | $3.124 billion to $3.149 billion | $3.153 billion to $3.168 billion | raised |
Revenue | FY 2025 | $2.623 billion to $2.643 billion | $2.64 billion to $2.654 billion | raised |
Operating Profit | FY 2025 | $549 million to $559 million | $562 million to $572 million | raised |
EPS | FY 2025 | $2.94 to $2.99 | $3.04 to $3.09 | raised |
Free Cash Flow Margin | FY 2025 | Approximately 23.5% to 24% | Approximately 24.5% to 25% | raised |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q2 2025 | $633M – $635M | $647.9M | Beat |
Gross Margin | Q2 2025 | 80% | 77% | Missed |
Operating Profit | Q2 2025 | $126M – $128M | ($40.14M) | Missed |
Net Other Income | Q2 2025 | $18M | ($4.94M) | Missed |
EPS | Q2 2025 | $0.68 – $0.69 | ($0.05) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Sales Productivity | Consistently highlighted across Q1 2025 , Q4 2024 , and Q3 2024 with improvements despite attrition challenges. | Continued improvement driven by strong demand, effective ramp-up of sales reps, and renewed go‐to‐market focus. | Positive continuity with enhanced efficiency and a focus on expanding sales capacity. |
Pipeline Growth | Emphasized as a robust indicator in Q1 2025 , Q4 2024 , and Q3 2024 with steady engagement and quality enhancements. | Demonstrated growing quantity and quality along with customer education initiatives (Zero Trust Everywhere). | Steady and strong pipeline remains a key growth driver, with improved targeting. |
Deal Execution | Noted in Q1 2025 , Q4 2024 , and Q3 2024 as effective with large deals and refined value assessments amid scrutiny. | Continued focus on tightening business value assessments and handling large deals effectively. | Consistent improvement and refined execution, ensuring better alignment with CFO requirements. |
Upsell Opportunities & Net Retention | Repeatedly discussed in Q1 2025 , Q4 2024 , and Q3 2024 with strong upsell deals and healthy net retention, albeit with caution regarding bundle sizes. | Reported robust upsell contributions (65% of new ACV) and an improved NRR of 115%, reflecting expansion within existing accounts. | Continued strength as upsell and retention metrics grow, reinforcing customer expansion strategies. |
Zero Trust Strategy Adoption & Transformation | Widely addressed in Q1 2025 , Q4 2024 , and Q3 2024 with broad customer wins and a push to replace legacy systems. | Emphasized through the Zero Trust Everywhere campaign, new hardware refresh opportunities, and significant customer wins (e.g., 130+ enterprise adoptions). | Persistent and expanding focus with a strategic shift toward replacing legacy stacks and wide-scale adoption. |
Data Protection & Cybersecurity (AI) | Highlighted in Q1 2025 , Q4 2024 , and Q3 2024 with evolving AI-powered solutions and growing security concerns. | Intensified focus on using Gen AI for automated data classification, securing AI applications, and addressing data leakage risks. | Accelerating importance with AI integration driving both innovation and risk management. |
Emerging Product Segments & AI Analytics Solutions | Covered in Q1 2025 , Q4 2024 , and Q3 2024 with notable traction in new offerings and AI analytics growth. | Highlighted by strong YoY growth (e.g., doubling ACV for AI analytics) and growing emerging product contributions to upsell opportunities. | Growth-oriented innovation with increasing emphasis on AI analytics and emerging product segments. |
Competitive Advantage through Cloud-Native Architecture | Implicitly referenced in Q1 2025 , strongly detailed in Q4 2024 , and emphasized in Q3 2024 as a differentiator over legacy systems. | Not mentioned explicitly in Q2 2025. | Less emphasized in the current period, although previous discussions underline its ongoing strategic importance. |
Macroeconomic Headwinds & Scrutiny of Large Enterprise Deals | Raised in Q1 2025 , Q4 2024 , and Q3 2024 with concerns over tighter budgets and increased deal scrutiny. | Continued acknowledgment of a tight macro environment with heightened scrutiny, but balanced by cost-saving arguments and strong execution. | Persistent challenge being managed effectively through strategic partner engagement and cost-focused messaging. |
Leadership Changes & Sales Attrition Impact | Discussed with leadership transitions and variable attrition in Q1 2025 , Q4 2024 , and Q3 2024. | Highlighted lower sales attrition and effective new leadership driving improved ramp and relationships. | Improving trend with strengthened leadership and reduced attrition bolstering operational stability. |
Customer Consolidation Reluctance & Cross-Selling Challenges | Not addressed in Q1 2025; noted in Q4 2024 and Q3 2024 as customers preferring selective consolidation and demanding clear value. | Not mentioned in Q2 2025. | Reduced focus suggests either resolution of previous concerns or a shift in strategic priorities. |
Billings Growth Deceleration & Capacity Constraints | Q1 2025 showed steady growth ; Q4 2024 provided detailed commentary on first-half deceleration due to contract timing and ramp-up challenges ; Q3 2024 noted some headwinds from ramp-up. | Q2 2025 did not specifically mention deceleration or capacity constraints, with focus shifting to overall strong bookings growth. | Mixed signals—earlier periods flagged deceleration and ramp challenges, while Q2 appears less constrained, suggesting potential recovery or resolution of earlier capacity issues. |
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NRR Improvement and Upsell Growth
Q: Can you provide insight into NRR improving to 115%?
A: Remo Canessa explained that Net Retention Rate (NRR) improved to 115%, an outstanding metric reflecting larger deals and significant upsell opportunities. The company expected over 65% upsell this year, which was achieved during the quarter. They are landing bigger deals, emphasizing customers greater than $1 million. -
Zero Trust Everywhere Expansion
Q: How are you progressing with your Zero Trust Everywhere initiative?
A: Jay Chaudhry stated that over 130 enterprises have adopted Zero Trust Everywhere, focusing on larger enterprises. They are bullish and aim to triple this number in the next 18 months, based on positive customer feedback and reception. -
Landmark 8-Figure APAC Government Deal
Q: Can you provide details on the 8-figure APAC government deal?
A: The company secured a landmark 8-figure deal with an APAC government, involving Zero Trust access for all users, whether at home or in the office, accessing Internet SaaS or internal applications. This deal wasn't driven by ROI but by the need for better cybersecurity protection. They are engaged with other U.S.-friendly countries, though government deals can be lengthy and lumpy. -
Sales Productivity Improvements
Q: Is sales productivity ahead of expectations, and how does it affect guidance?
A: Remo Canessa noted that sales productivity increased in Q2 as expected, and they anticipate it will continue to improve. The sales productivity supports their guidance, and they feel their guidance is prudent. -
Go-to-Market Strategy Success
Q: How are the go-to-market changes proving their effectiveness and durability?
A: Jay Chaudhry highlighted the growing strength of their pipeline, with new ACV up double digits. Data protection is growing over 40%, and engagement with C-level executives in large enterprises is stronger due to the new sales leadership and account relationships. -
AI Enhancing Competitive Position
Q: How does AI change your competitive positioning and solutions?
A: Jay Chaudhry explained that AI is integral to their Zero Trust Exchange platform, which processes over 5 billion transaction logs daily. They are building products powered by AI, such as unified vulnerability management and asset risk management. They are enhancing their digital experience and data protection solutions with AI, including building an LLM proxy to inspect and enforce policies for customers using public or private AI applications. -
Pipeline and Billings Outlook
Q: Any changes to scheduled versus unscheduled billings timing and outlook?
A: Remo Canessa confirmed that there are no changes to the billings assumptions. Scheduled billings are expected to be 7% in the first half and 23% in the second half, unchanged. They have raised guidance and feel more bullish based on their strong pipeline and visibility. -
Differentiation in Zero Trust and Competition
Q: What does Zero Trust mean for Zscaler, and how does it affect competition?
A: Jay Chaudhry explained that Zero Trust means eliminating network dependency and lateral movement. Their Zero Trust branch eliminates the need for SD-WAN, MPLS, VLAN segmentation, and internal firewalls, using air gap technology. Their competition is primarily legacy firewall vendors and NAC vendors. They offer a new Zero Trust approach versus traditional methods. -
Impact of Macro Factors and Tariffs
Q: How are macro factors, trade wars, and tariffs impacting your business and customer conversations?
A: Jay Chaudhry stated they expect limited direct impact from tariffs. While the macro environment is tight with large deal scrutiny, budgets for cybersecurity remain high. Offering Zero Trust cybersecurity that can also reduce costs is driving their pipeline. GSIs are helping drive transformation, and showing cost savings helps deals get done. -
Data Protection Growth
Q: Is your platform meeting the need for data discovery and classification?
A: Jay Chaudhry noted that data protection solutions are growing nicely, with ACV growing 40% year-over-year. They use Gen AI technology for data classification and can scan data in OneDrive, SharePoint, and other locations. They also integrate with classifications from other providers to enforce policies, offering a single policy engine to avoid multiple point products. -
Agentic and Impact on Business Model
Q: How does the use of agents and AI agents affect your business model?
A: Jay Chaudhry mentioned that while agents could reduce headcount, leading to concerns about user-based pricing models, they have not seen significant changes yet. As communication among users, machines, workloads, and AI agents increases, it leads to more traffic and value delivered. They expect pricing to evolve as agent traffic grows and are charging higher prices for products utilizing agent technology. -
Firewall Refresh Opportunity Timing
Q: When will the firewall refresh opportunity materialize meaningfully?
A: Jay Chaudhry explained that their Zero Trust branch solution underpins the move to replace branch firewalls. Large enterprises with hundreds or thousands of branches seek to simplify branch access. The Zero Trust branch helps grow their new customer base, with 57% of customers who bought Zero Trust branch being new customers. This opportunity is already contributing to growth and expected to continue. -
Contribution from Net New Customers
Q: Should we expect lower contribution from net new customers going forward?
A: Jay Chaudhry noted that as the company grows and has over 45% of Fortune 500 companies as customers, upsell opportunities increase. Currently, upsell accounts for about two-thirds of new ACV, with new logos being smaller. They expect upsell to keep increasing due to their larger installed base but still see opportunities for new logos. -
Business Mix and Platform Products
Q: How much of your business comes from ZIA and Secure Web Gateway replacements versus broader platform products?
A: Jay Chaudhry stated that while ZIA was the starting point, they now often start with a platform including ZIA, ZPA, and ZDX. The Zero Trust branch is becoming an important starting point, with 57% of customers on Zero Trust branch being new logos. They are expanding the platform and taking Zero Trust to users, branches, and the cloud. -
Sales Productivity Expectations
Q: Is sales productivity ahead of expectations, and how does it need to progress to meet guidance?
A: Remo Canessa said that sales productivity increased as expected in Q2 and is anticipated to continue improving throughout the year. It supports their guidance, and they feel their guidance is prudent. -
Scheduled Billings Timing
Q: Does the acceleration in scheduled billings peak in Q4, and how should we think about it moving into fiscal '26?
A: Remo Canessa replied that they are not commenting on fiscal '26 but confirmed that scheduled billings do increase in the report. -
AI Agents and Future Opportunities
Q: How will AI agents impact your business model and opportunities?
A: Jay Chaudhry believes that AI agents represent another entity for policy enforcement in their Zero Trust Exchange. Increased communication among users, machines, workloads, and AI agents leads to more traffic and value delivered. They expect to play an active role in securing agent communication and to evolve their pricing as agent traffic grows.