Summary
Zscaler reported fiscal second-quarter revenue of $647.9 million, up 23.4% from the prior-year quarter. Gross profit rose 22.5% to $499.4 million, while gross margin slipped to 77.1%, down 0.6 percentage points. The company still posted a GAAP operating loss of $40.1 million, but that loss narrowed from the prior-year quarter. GAAP net loss was $7.7 million, and GAAP net loss per diluted share was $0.05. Both improved from the prior-year quarter as the net loss narrowed 72.9% and the diluted loss per share narrowed 73.7%. Operating margin was -6.2%, an improvement of 2.5 percentage points. Revenue growth came from more users and additional subscriptions sold to existing customers, plus new customer additions. The gross margin decline was primarily due to higher data center operating costs as the company expanded capacity and footprint.
Cash generation remained a bright spot. Operating cash flow was $179.4 million, up 26.3% from the prior-year quarter. Free cash flow, a non-GAAP measure, was $143.4 million, or 22% of revenue, compared with $100.8 million, or 19% of revenue, a year earlier. Capital expenditures were $15.0 million, down 51.4%. Deferred revenue rose 25.0% to $1.88 billion, and remaining performance obligations rose 27.7% to $4.62 billion. Those metrics point to a healthy backlog and continued invoicing momentum. The net loss narrowed even with higher operating expenses, helped by a $17.2 million tax benefit from the release of a valuation allowance on U.K. deferred tax assets.
Non-GAAP results also improved. Non-GAAP net income was $127.1 million, or $0.78 per diluted share, compared with $99.4 million, or $0.63 per diluted share, in the prior-year quarter. Non-GAAP income from operations was $140.5 million, or 22% of revenue, compared with $103.2 million, or 20% of revenue. Calculated billings grew 18% to $742.7 million.
The dollar-based net retention rate was 115% for the trailing 12 months ended January 31, 2025, down from 117% a year earlier. The customer base grew 11% from January 31, 2024 to January 31, 2025. Management said calculated billings growth should trend down over time as the metric grows in absolute terms. That is a notable caveat for a company whose valuation leans on durable growth.
Zscaler used the quarter to push several product and partnership initiatives. It introduced Zero Trust Segmentation for branches and cloud environments, which the company says cuts firewall and infrastructure spend in half. It began offering ZTNA natively integrated within RISE with SAP. It appointed Phil Tee as EVP of AI Innovations. It achieved FedRAMP authorization for Zscaler Zero Trust Browser. Nokia is migrating from a traditional firewall-based security model to the Zscaler Zero Trust Exchange.
Guidance covers the third quarter of fiscal 2025 and the full fiscal year 2025. For the third quarter, the company expects non-GAAP income from operations of $140 million to $142 million and non-GAAP net income per share of approximately $0.75 to $0.76, assuming about 163 million fully diluted shares and a 23% non-GAAP tax rate. For the full fiscal year 2025, it expects calculated billings of $3.153 billion to $3.168 billion, non-GAAP income from operations of $562 million to $572 million, and non-GAAP net income per share of $3.04 to $3.09, assuming about 163.5 million fully diluted shares and a 23% non-GAAP tax rate. The company did not reconcile its non-GAAP guidance to GAAP because certain items are out of its control or cannot be reasonably predicted.
Risks remain familiar. Macroeconomic and geopolitical uncertainty could pressure demand. Customers continue to scrutinize large purchases and require multiple approvals, which elongates sales cycles and delays large deals. The company also faces execution challenges, rapid growth, new product introductions, software bugs, competition, AI-related risks, legal matters, and tax changes. Zscaler has incurred net losses in all annual periods since inception and expects to continue to incur net losses for the foreseeable future.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2025 | Q1 FY2025 | QoQ | Q2 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $647.9M | $628.0M | +3.2% | $525.0M | +23.4% |
| Gross profit | $499.4M | $486.5M | +2.7% | $407.8M | +22.5% |
| Gross margin | 77.1% | 77.5% | -0.4 pp | 77.7% | -0.6 pp |
| Research & development | $170.9M | $154.3M | +10.8% | $122.2M | +39.8% |
| Sales & marketing | $307.9M | $306.1M | +0.6% | $276.5M | +11.4% |
| General & administrative | $60.8M | $56.8M | +7.0% | $54.6M | +11.4% |
| Total operating expenses | $539.5M | $517.2M | +4.3% | $453.3M | +19.0% |
| Operating income (loss) | -$40.1M | -$30.7M | -30.9% | -$45.5M | +11.7% |
| Operating margin | -6.2% | -4.9% | -1.3 pp | -8.7% | +2.5 pp |
| Net income (loss) | -$7.7M | -$12.1M | +35.9% | -$28.5M | +72.9% |
| Net margin | -1.2% | -1.9% | +0.7 pp | -5.4% | +4.2 pp |
| Diluted EPS | -$0.05 | -$0.08 | +$0.03 | -$0.19 | +$0.14 |
| Customers | 8,650 | 8,650 | ±0.0% | 7,700 | +12.3% |
| Net retention rate | 115.0% | 114.0% | +1.0 pp | 117.0% | -2.0 pp |
Risks
MD&A reports continued customer scrutiny and elongated approval processes for transactions, particularly larger deals, with multiple approvals required in an uncertain economic environment. Management expects customer cautiousness to continue near term and elongate sales cycles and timing of large deals. For FY2025 Q2, revenue rose 23.4% year over year to $647.9 million, but the risk may pressure future bookings.
Risk factors cite global economic disruptions and changing macroeconomic and geopolitical conditions as uncertain and potentially material adverse. MD&A notes customers are carefully considering purchasing decisions, especially large expenditures, and that macroeconomic conditions may impact future demand for cloud platform subscriptions.
Risk factors disclose that the CFO plans to retire and a successor must be appointed, and that several new senior management employees were added in the last year. Zscaler is also highly dependent on CEO Jay Chaudhry. Nearly simultaneous leadership changes could hinder strategic planning and execution.
Risk factors state advancements in AI and ML are changing how the industry identifies and responds to cyber threats, and businesses slow to adopt these technologies may face a competitive disadvantage. AI-enabled competitor products could deliver lower-cost or more effective security. MD&A notes growing AI usage has increased exposure to malicious or compromised websites and sophisticated hackers.
MD&A reports the dollar-based net retention rate was 115% for the trailing 12 months ended January 31, 2025, down from 117% for the trailing 12 months ended January 31, 2024, indicating a decline in expansion revenue from existing customers. Continued declines in retention or upsell rates could harm future results.
Sales through the top five channel partners and affiliates represented 27% of revenue for the six months ended January 31, 2025 and 25% for the six months ended January 31, 2024. These partners are generally non-exclusive and could promote competing products or cease reselling Zscaler.
Zscaler has $1,150 million of 0.125% convertible senior notes due July 1, 2025, classified as current liabilities as of July 31, 2024. Servicing or repaying the notes could require significant cash. MD&A states cash, cash equivalents and short-term investments totaled $2,880.2 million as of January 31, 2025 and are believed sufficient for at least the next 12 months including note repayment.
MD&A says general and administrative expenses include litigation-related expenses and that legal matters and related accruals may cause significant period-to-period fluctuations. Note 10 covers commitments and contingencies, and these matters could divert management attention and increase costs.
SaaS KPIs
All quarters →Free Cash Flow Margin
Free Cash Flow
Non-GAAP Operating Margin
Calculated Billings
Non-GAAP Gross Margin
Total Customers
Customer Base Growth (YoY)
Deferred Revenue
Summary, forecast, risks and KPIs are extracted from Zscaler, Inc.'s SEC filings for Q2 FY2025 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.