ZS Q3 2025: Unscheduled Billings Soar 28% YoY, NRR Hits 114%
- Z-Flex traction: The flexible purchasing mechanism has resonated well with customers by enabling module swaps without repeated procurement cycles, which is supporting multi-year contract extensions and contributed over $65 million in TCV bookings in Q3.
- Strong go-to-market execution: The firm’s disciplined sales approach is supported by robust unscheduled billings growth (around 28% YoY) and high new-logo adoption, underpinning recurring revenue expansion and reinforcing customer stickiness.
- Accelerating emerging products: New security segments—such as gen AI security and Agentic Operations—have shown impressive growth (with some products growing up to 120% YoY), which expands the platform’s market opportunity beyond traditional Zero Trust offerings.
- Economic and demand uncertainty: Q&A participants noted that ongoing macro challenges and tighter IT budgets are causing large deal scrutiny, which could slow future revenue momentum.
- Acquisition integration risks: The Red Canary deal is expected to retain only about half of its ARR post-integration, raising concerns about execution risk and potential dilution of future growth.
- Reliance on emerging products and new sales models: Heavy reliance on new purchasing programs like Z-Flex and emerging product categories could introduce revenue volatility, especially with observed variations in unscheduled vs. scheduled billings and net retention trends.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +22.6% (from $553.2M in Q3 2024 to $678.0M in Q3 2025) | The 22.6% revenue increase was driven by continued growth in subscriptions and expansion into new geographies, echoing previous periods’ drivers but at a slightly moderated pace relative to earlier Q2 increases. |
Gross Profit | Margin declined from 79% in Q3 2024 to 77% in Q3 2025 | Although gross profit rose to $522.1M due to higher revenue, the margin compression from 79% to 77% indicates escalating cost pressures and a less favorable product mix, building on previous trends where rising infrastructure or service costs began to erode margin efficiency. |
Operating Loss | Increased from $3.0M loss in Q3 2024 to $25.4M loss in Q3 2025 | A significant deepening of the operating loss by over 8 times reflects substantial increases in operating expenses, potentially from higher sales & marketing and R&D costs, contrasting sharply with prior periods where tighter cost control helped maintain near-break-even operating results. |
Net Loss | Swung from net income of $19.1M in Q3 2024 to a $4.1M loss in Q3 2025 | The dramatic swing in bottom‐line results—from a net profit to a modest net loss—suggests that despite revenue gains, higher operating expenses and possibly other non‐operating items or tax factors reversed profitability established in the previous period. |
Operating Cash Flow | Increased by 22% (from $173.4M in Q3 2024 to $211.1M in Q3 2025) | Improved operating cash flow reflects better liquidity management, enhanced by higher non-cash adjustments and working capital improvements such as stronger collections or deferred revenue adjustments, consistent with previous period trends that balanced operating losses. |
Stockholders’ Equity | Grew to $1,804.9M in Q3 2025 | The rise in stockholders’ equity underscores an improved financial position, bolstered by additional stock issuances, stock-based compensation impacts, and reduced accumulated deficits compared to prior reporting periods, contributing to a stronger balance sheet. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Billings | FY 2025 | $3.153B to $3.168B | $3.84B to $3.89B | raised |
Revenue | FY 2025 | $2.64B to $2.654B | $2.659B to $2.661B | raised |
Operating Profit | FY 2025 | $562M to $572M | $573M to $575M | raised |
EPS | FY 2025 | $3.04 to $3.09 | $3.18 to $3.19 | raised |
Free Cash Flow Margin | FY 2025 | Approximately 24.5% to 25% | Approximately 25.5% to 26% | raised |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q3 2025 | $665M – $667M | $678.0M | Beat |
Gross Margin | Q3 2025 | ~80% | ~77% (calculated from revenueAnd cost of revenue) | Missed |
Operating Profit | Q3 2025 | $140M – $142M | -$25.4M (Loss from operations is ($25,411,000)) | Missed |
Net Other Income | Q3 2025 | $18M | ~$30.0M (calculated from interest income, interest expense, and other income) | Beat |
EPS | Q3 2025 | $0.75 – $0.76 | -$0.03 | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Sales Execution and Go-to-Market Transformation | In Q4 2024, Q1 2025, and Q2 2025, the discussion focused on the shift to an account‐centric sales process, improved sales productivity, and leadership developments that drove large deals and upsells. | In Q3 2025, executives detailed a two-tier sales model with specialized “take‐up teams” and introduced the Z-Flex program, enhancing the traditional sales model. | Consistent with further refinement. The focus remains strong while new initiatives (e.g. Z-Flex) are added to drive scalable growth. |
Emerging Products and AI-Driven Security Innovations | Q4 2024, Q1 2025, and Q2 2025 emphasized emerging products, including AI integrations, ZDX growth, and early AI analytics wins—all contributing to mid-20% new business and rapid growth. | Q3 2025 provided detailed metrics on categories like Zero Trust Everywhere, Data Security Everywhere, and Agentic Operations, along with clear adoption of AI-driven security features. | Accelerating and bullish. The narrative has become increasingly detailed and positive, underscoring high-growth potential. |
Z-Flex Flexible Purchasing Program | Not mentioned in Q4 2024, Q1 2025, or Q2 2025. | Introduced in Q3 2025 with strong initial traction ($65 million TCV) and strategic focus for extending contract durations and easing procurement. | New and promising. A fresh initiative that has emerged to drive customer flexibility and deepen platform adoption. |
Data Protection and Zero Trust Security Initiatives | Across Q4 2024, Q1 2025, and Q2 2025, the discussions highlighted comprehensive data protection, AI integration for data security, and the broad application of Zero Trust strategies across users, cloud workloads, and branches. | Q3 2025 maintained the same focus with robust customer wins, expanded solutions (including gen AI modules), and clear growth in Zero Trust Everywhere adoption. | Consistent and growing. These pillars continue to be central to Zscaler’s strategy with amplified emphasis on integrating AI for enhanced security. |
Macro-Economic Uncertainty and Large Deal Scrutiny | Q4 2024, Q1 2025, and Q2 2025 acknowledged a challenging spending environment with heightened scrutiny on large deals, though strategic ROI messaging and cost-saving benefits helped drive deals. | Q3 2025 noted that, despite macro uncertainty and ongoing large-deal scrutiny, cybersecurity remained a high priority enabling effective partnerships and cost reduction narratives. | Steady with nuanced messaging. Market challenges persist but are increasingly addressed via ROI-focused solutions. |
Integration and Leadership Transition Risks | Q4 2024 and Q1 2025 mentioned leadership transitions and integration examples (e.g. CFO retirements, M&A integration with ZPA) while showing overall confidence. Q2 2025 did not address these risks explicitly. | Q3 2025 indirectly referenced the integration of the Red Canary acquisition and highlighted a smooth transition with a new CFO appointment. | Diminishing concern. While still on the radar, integration and leadership transitions are framed positively and appear well-managed. |
Upsell Opportunities and Customer Retention Dynamics | Q4 2024, Q1 2025, and Q2 2025 frequently discussed substantial upsell wins, high net retention rates (around 114–115%), and expanding large customer deals. | Q3 2025 reinforced strong upsell opportunities—with examples of upsells in Zero Trust branch, data security, and SecOps—and maintained high retention metrics, along with notable customer repeat-buy signals. | Strengthening over time. Continued positive sentiment as upsell opportunities and customer retention dynamics drive growth. |
Firewall Refresh Cycle Uncertainty | Q1 2025 explicitly recognized tremendous customer interest in replacing firewalls under cost takeout initiatives, while Q2 discussed the opportunity in shifting from legacy systems. Q4 2024 mentioned related pricing and product displacement issues but not explicitly uncertainty. | Q3 2025 did not explicitly raise uncertainty; instead, the conversation centered on a broader strategy for eliminating legacy security products, implying that the issue is evolving into opportunity. | Shifting from uncertainty to opportunity. The discussion has moved from questioning refresh cycle impacts to emphasizing a proactive replacement strategy. |
Competitive Differentiation via Cloud-Native Architecture and Brand Strength | Q4 2024, Q1 2025, and Q2 2025 underscored the unique cloud-native, Zero Trust architecture and high NPS and adoption rates among Global 2000 and Fortune 500 companies, reinforcing market leadership. | In Q3 2025, while not explicitly highlighted, underlying references to robust data utilization and the platform’s scale continue to support Zscaler’s competitive differentiation. | Consistently positive. The strong technical foundation and market trust remain key strategic advantages with ongoing reinforcement across periods. |
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Revenue Composition
Q: What drives scheduled vs unscheduled growth?
A: Management explained that unscheduled billings grew 28% YoY while scheduled billing continued at a healthy pace with an NRR of 114%, underscoring strong revenue quality and persistent customer demand . -
Emerging Growth
Q: How do new categories compare to overall ARR?
A: They noted that emerging segments—spanning data security and AI operations—are growing robustly (some areas at 60% QoQ and in the high 20% range) and are helping steer overall ARR towards $2.9B . -
Acquisition Value
Q: How does Red Canary fit overall strategy?
A: Management described the Red Canary acquisition, valued at $675M plus equity, as a strategic enhancer that brings advanced agentic AI and seasoned expertise to accelerate their SOC capabilities, with a neutral impact on FY26 operating margins . -
Contract Flexibility
Q: How is Z-Flex structured and its duration?
A: They highlighted that Z-Flex allows customers to flexibly swap modules without renewed procurement every time, with contracts now extending to 4–5 years, which strengthens customer retention and platform stickiness . -
Customer Spending
Q: How are customers managing large deal sizes?
A: Management remarked that customers are avoiding traditional ELAs in favor of targeted, modular platform purchases that deliver immediate cost savings and faster deployments, thereby reducing costly shelf ware . -
Sales Focus
Q: How do sales teams drive Z-Flex growth?
A: They emphasized a dual approach with a ground sales team and specialist take-up teams that focus on new product areas, evidenced by Z-Flex’s early success of over $65M in TCV bookings in Q3 . -
Macro Environment
Q: How does the macro context affect deals?
A: Management observed that despite overall IT budget pressures, cybersecurity remains a top priority due to clear ROI benefits, and recent months haven’t shown any marked softening in deal momentum . -
AI Product Attach
Q: What attach rates are seen for Gen AI modules?
A: They reported early, impressive traction for Gen AI solutions across public and private AI security initiatives, expecting these modules to scale further as adoption increases . -
Branch Adoption
Q: Why is Branch Connector winning new logos?
A: The plug-and-play design and simplicity of the Branch Connector have led to 59% of new customers adopting Zero Trust Branch offerings, easing deployment and enhancing cost savings . -
Federal Business
Q: How is federal demand performing?
A: Federal business met expectations this quarter, with management not foreseeing any significant acceleration in Q4 despite steady, consistent performance across large contracts . -
Alternate Red Canary Factor
Q: What distinguishes Red Canary from competitors?
A: Besides its attractive valuation, Red Canary brings proven production technology and deep detection expertise—key factors that complement and expand their existing capabilities . -
ROI vs GTM
Q: What drives success: ROI or go-to-market?
A: Management attributed their success to a mix of clear ROI messaging, effective cost savings for customers, and robust go-to-market productivity working in tandem .
Research analysts covering Zscaler.