Zscaler Reports Second Quarter Fiscal 2025 Financial Results

Zscaler, Inc. (Nasdaq: ZS), the leader in cloud security, today announced financial results for its second quarter of fiscal year 2025, ended January 31, 2025.

“Growing adoption of Zero Trust and AI is driving strong demand for our platform, resulting in yet another strong quarter that exceeded our guidance on both top and bottom line. We are leading the industry towards Zero Trust Everywhere by transforming security from legacy appliance-based to a Zero Trust architecture,” said Jay Chaudhry, Chairman and CEO of Zscaler. “By combining AI with Zero Trust, we are delivering several key innovations to secure our customers’ use of AI applications, creating new avenues of growth.”

Second Quarter Fiscal 2025 Financial Highlights

• Revenue: $647.9 million, an increase of 23% year-over-year.
• Income (loss) from operations: GAAP loss from operations was $40.1 million, or 6% of revenue, compared to $45.5 million, or 9% of revenue, in the second quarter of fiscal 2024. Non-GAAP income from operations was $140.5 million, or 22% of revenue, compared to $103.2 million, or 20% of revenue, in the second quarter of fiscal 2024.
• Net income (loss): GAAP net loss was $7.7 million, compared to $28.5 million in the second quarter of fiscal 2024. Non-GAAP net income was $127.1 million, compared to $99.4 million in the second quarter of fiscal 2024.
• Net income (loss) per share, diluted: GAAP net loss per share was $0.05, compared to $0.19 in the second quarter of fiscal 2024. Non-GAAP net income per share was $0.78, compared to $0.63 in the second quarter of fiscal 2024.
• Cash flows: Cash provided by operations was $179.4 million, or 27% of revenue, compared to $142.1 million, or 27% of revenue, in the second quarter of fiscal 2024. Free cash flow was $143.4 million, or 22% of revenue, compared to $100.8 million, or 19% of revenue, in the second quarter of fiscal 2024.
• Deferred revenue: $1,878.5 million as of January 31, 2025, an increase of 25% year-over-year.
• Cash, cash equivalents and short-term investments: $2,880.2 million as of January 31, 2025, an increase of $470.6 million from July 31, 2024.

Recent Business Highlights

• Introduced the industry’s first Zero Trust Segmentation solution for branches and cloud environments. The new solution improves customers’ security posture by preventing lateral movement from ransomware attacks, while cutting firewall and infrastructure spend in half.
• Started offering the Zero Trust Network Access (ZTNA) service natively integrated within RISE with SAP. Zscaler Private Access™ (ZPA™) for SAP helps enable SAP customers with on-premises ERP workloads to simplify and de-risk their cloud migration, without the complexity and risk associated with traditional VPNs.
• Appointed Phil Tee as EVP of AI Innovations. Tee previously co-founded an enterprise AI-driven provider of intelligent monitoring solutions for DevOps and ITOps.
• Achieved FedRAMP authorization for Zscaler Zero Trust Browser. The authorization assures agencies of compliance with rigorous security standards, facilitating cloud adoption and streamlining the procurement process.
• Announced that Nokia, a multinational technology leader, is migrating from its traditional firewall-based security model to the Zscaler Zero Trust Exchange to enhance its security, improve operational efficiency, and strengthen cloud capabilities.

Change in Non-GAAP Measures Presentation

Effective August 1, 2024, the beginning of our fiscal year ending July 31, 2025, we are using a long-term projected non-GAAP tax rate of 23% for the purpose of determining our non-GAAP net income and non-GAAP net income per share to provide better consistency across interim reporting periods in fiscal 2025 and beyond. Given the significant growth of our business and non-GAAP operating income, we believe this change is necessary to better reflect the performance of our business. We will continue to assess the appropriate non-GAAP tax rate on a regular basis, which could be subject to changes for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix, or other changes to our strategy or business operations. Prior period amounts have been recast to reflect this change.

Financial Outlook

For the third quarter of fiscal 2025, we expect:

• Revenue of $665 million to $667 million
• Non-GAAP income from operations of $140 million to $142 million
• Non-GAAP net income per share of approximately $0.75 to $0.76, assuming approximately 163 million fully diluted shares outstanding and a non-GAAP tax rate of 23%

For the full year of fiscal 2025, we expect:

• Revenue of approximately $2.640 billion to $2.654 billion
• Calculated billings of $3.153 billion to $3.168 billion
• Non-GAAP income from operations of $562 million to $572 million
• Non-GAAP net income per share of $3.04 to $3.09, assuming approximately 163.5 million fully diluted shares outstanding and a non-GAAP tax rate of 23%

These statements are forward-looking and actual results may differ materially. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

Guidance for non-GAAP income from operations excludes stock-based compensation expense and related employer payroll taxes, amortization of debt issuance costs, and amortization expense of acquired intangible assets. We have not reconciled our expectations of non-GAAP income from operations and non-GAAP net income per share to their most directly comparable GAAP measures because certain items are out of our control or cannot be reasonably predicted. For those reasons, we are also unable to address the probable significance of the unavailable information, the variability of which may have a significant impact on future results. Accordingly, a reconciliation for the guidance for non-GAAP income from operations and non-GAAP net income per share is not available without unreasonable effort.

For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the “Explanation of Non-GAAP Financial Measures” section of this press release.

Conference Call and Webcast Information

Zscaler will host a conference call for analysts and investors to discuss its second quarter of fiscal 2025 and outlook for its third quarter of fiscal 2025 and full year fiscal 2025 today at 1:30 p.m. Pacific time (4:30 p.m. Eastern time).

Upcoming Conferences

Third quarter of fiscal 2025 investor conference participation schedule:

• Morgan Stanley Technology, Media and Telecom Conference in San Francisco
  Thursday, March 6, 2025

• Susquehanna Travel, Tech + Gambling Forum (Virtual)
  Friday, March 7, 2025

• Loop Capital Markets 2025 Investor Conference (Virtual)
  Monday, March 10, 2025

• Stifel Technology 2025 Technology One-on-One Conference in New York City
  Tuesday, March 11, 2025

• Cantor Global Technology Conference in New York City
  Wednesday, March 12, 2025

Sessions which offer a webcast will be available on the Investor Relations section of the Zscaler website at https://ir.zscaler.com/

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including, but not limited to, statements regarding our future financial and operating performance, including our financial outlook for the third quarter of fiscal 2025 and full year fiscal 2025. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including but not limited to: macroeconomic influences and instability, geopolitical events, operations and financial results and the economy in general; risks related to the use of AI in our platform; our ability to identify and effectively implement the necessary changes to address execution challenges; risks associated with managing our rapid growth, including fluctuations from period to period; our limited experience with new products and subscriptions and support introductions and the risks associated with new products and subscription and support offerings, including the discovery of software bugs; our ability to attract and retain new customers; the failure to timely develop and achieve market acceptance of new products and subscriptions as well as existing products and subscription and support; rapidly evolving technological developments in the market for network security products and subscription and support offerings and our ability to remain competitive; length of sales cycles; useful lives of our assets and other estimates; and general market, political, economic and business conditions.

Additional risks and uncertainties that could affect our financial results are included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth from time to time in our filings and reports with the Securities and Exchange Commission (“SEC”), including our Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2024 filed on December 5, 2024 and our Annual Report on Form 10-K for the fiscal year ended July 31, 2024 filed on September 12, 2024, as well as future filings and reports by us, copies of which are available on our website at ir.zscaler.com and on the SEC’s website at www.sec.gov. You should not rely on these forward-looking statements, as actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of such risks and uncertainties. Additional information will also be set forth in other filings that we make with the SEC from time to time. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

Use of Non-GAAP Financial Information

We believe that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to our financial condition and results of operations. For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the “Explanation of Non-GAAP Financial Measures” section of this press release.