Summary
Zscaler reported FY2025 Q3 revenue of $678.0 million, up 22.6% from the prior-year quarter. Calculated billings rose 25% to $784.5 million. Deferred revenue was $1,985.0 million, up 25.9%, and remaining performance obligations reached $4.98 billion, up 30.2%. Gross profit of $522.1 million rose 20.0%, but gross margin fell to 77.0%, down 1.6 percentage points, as data center, equipment and employee costs grew faster than revenue. The GAAP operating loss of $25.4 million widened from the prior-year quarter, and operating margin was -3.7%. The GAAP net loss of $4.1 million was a swing from GAAP net income in the prior-year quarter, and GAAP diluted EPS of -$0.03 also swung to a loss.
The gap between GAAP and non-GAAP results stays wide. Non-GAAP income from operations was $146.7 million, or 22% of revenue, compared with $121.8 million, or 22% of revenue, in the prior-year quarter. Non-GAAP net income was $136.8 million, compared with $113.0 million, and non-GAAP diluted EPS was $0.84, compared with $0.71. Stock-based compensation expense and related payroll taxes, plus amortization expense of acquired intangible assets, are excluded from the non-GAAP measures. Management also adopted a long-term projected non-GAAP tax rate of 23% and recast prior-period amounts, and the quarter included a benefit from the release of a valuation allowance on United Kingdom deferred tax assets.
Cash generation held up better than earnings. Operating cash flow was $211.1 million, up 21.7%, and capital expenditures were $72.2 million, up 102.4%. Free cash flow, which is a non-GAAP measure, was $119.5 million, or 18% of revenue, compared with $123.1 million, or 22% of revenue, in the prior-year quarter. The lower free cash flow margin reflects the step up in purchases of property, equipment and other assets and capitalized internal-use software. The dollar-based net retention rate was 114% for the trailing 12 months ended April 30, 2025, compared with 116% a year earlier, and the customer base grew 10% from April 30, 2024 to April 30, 2025. Revenue growth was driven mainly by more users and additional subscriptions sold to existing customers.
Business momentum carried into the quarter. Zscaler signed a definitive agreement to acquire Red Canary, a managed detection and response vendor, appointed Kevin Rubin as Chief Financial Officer, and named Raj Judge to the board. It introduced Zscaler Asset Exposure Management and was recognized as a Leader in the 2025 Gartner Magic Quadrant for Security Service Edge for the fourth year in a row. Risks are real, though. Macroeconomic and geopolitical conditions create uncertainty, and customers keep scrutinizing larger deals and requiring multiple approvals, which stretches sales cycles and pushes out the timing of big transactions. Management expects to keep incurring net losses and has maintained a valuation allowance against U.S. federal, state and certain foreign deferred tax assets. It also warned that calculated billings growth should trend down over time and that multi-year in advance billings can pull billings forward and reduce what can be invoiced later.
For the fourth quarter of fiscal 2025, guidance calls for non-GAAP income from operations of $152 million to $154 million and non-GAAP net income per share of approximately $0.79 to $0.80, assuming approximately 164 million fully diluted shares outstanding and a non-GAAP tax rate of 23%. For the full year of fiscal 2025, the company expects calculated billings of $3.184 billion to $3.189 billion, non-GAAP income from operations of $573 million to $575 million, and non-GAAP net income per share of $3.18 to $3.19, assuming approximately 163 million fully diluted shares outstanding and a non-GAAP tax rate of 23%.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2025 | Q2 FY2025 | QoQ | Q3 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $678.0M | $647.9M | +4.7% | $553.2M | +22.6% |
| Gross profit | $522.1M | $499.4M | +4.5% | $434.9M | +20.0% |
| Gross margin | 77.0% | 77.1% | -0.1 pp | 78.6% | -1.6 pp |
| Research & development | $169.8M | $170.9M | -0.6% | $125.0M | +35.9% |
| Sales & marketing | $314.6M | $307.9M | +2.2% | $262.4M | +19.9% |
| General & administrative | $63.1M | $60.8M | +3.8% | $50.5M | +25.0% |
| Total operating expenses | $547.5M | $539.5M | +1.5% | $437.9M | +25.0% |
| Operating income (loss) | -$25.4M | -$40.1M | +36.7% | -$3.0M | -743.4% |
| Operating margin | -3.8% | -6.2% | +2.5 pp | -0.5% | -3.2 pp |
| Net income (loss) | -$4.1M | -$7.7M | +46.6% | $19.1M | -121.6% |
| Net margin | -0.6% | -1.2% | +0.6 pp | 3.5% | -4.1 pp |
| Diluted EPS | -$0.03 | -$0.05 | +$0.02 | $0.12 | -$0.15 |
| Customers | 8,650 | 8,650 | ±0.0% | 7,700 | +12.3% |
| Net retention rate | 114.0% | 115.0% | -1.0 pp | 116.0% | -2.0 pp |
Risks
MD&A states customer scrutiny and elongated approval processes for transactions, particularly larger deals, continue as customers carefully consider purchasing decisions in an uncertain economic environment. Zscaler expects customer cautiousness to continue in the near term, elongating sales cycles and the timing of large deals.
Risk factors say sales cycles can be long and unpredictable, especially with large organizations and government entities, and purchases are frequently subject to budget constraints, multiple approvals and delays. MD&A also highlights elongated approval processes and timing of large deals.
Risk factors disclose dependence on CEO Jay Chaudhry and state the CFO plans to retire and a successor must be appointed, with several new senior management employees added in the last year. It warns that nearly simultaneous leadership changes and failure to transition or retain new leaders could hinder strategic planning and business execution.
The $1,150 million 0.125% Convertible Senior Notes mature on July 1, 2025, and Zscaler elected on April 1, 2025 to satisfy a portion of conversion obligations by paying cash equal to principal. The Notes are classified as current liabilities, which may reduce net working capital and require significant cash.
GAAP operating loss widened to $25.4 million in FY2025 Q3 from $3.0 million in FY2024 Q3, and net income swung to a $4.1 million loss from $19.1 million income in the prior-year quarter. Risk factors state Zscaler has incurred net losses in all annual periods since inception and may not achieve or sustain profitability.
Risk factors note advancements in AI and ML are changing how the industry identifies and responds to cyber threats, and companies slow to adopt these technologies may face a competitive disadvantage. Zscaler says competitors could introduce AI-enabled products that are lower cost, more efficient, more convenient or more secure.
Risk factors state sales through the top five channel partners and their affiliates represented 27% of revenue for the nine months ended April 30, 2025 and 25% for the nine months ended April 30, 2024. Partners are generally non-exclusive and may promote competitors or cease reselling with limited or no notice.
GAAP gross margin decreased to 77.0% in FY2025 Q3 from 78.6% in FY2024 Q3, down 1.6 percentage points. MD&A attributes the decline primarily to higher employee-related expenses, stock-based compensation and data center operating costs as capacity and footprint expanded.
Dollar-based net retention rate decreased to 114% for the trailing 12 months ended April 30, 2025 from 116% for the trailing 12 months ended April 30, 2024. Risk factors note customers may renew for fewer users, renew for shorter contract lengths or switch to a lower-cost product suite.
MD&A states general and administrative expenses may increase due to legal matters and related accruals described in Note 11, and litigation-related expenses may fluctuate significantly because they are difficult to estimate. Risk factors note claims or lawsuits could result in significant costs and harm to the business.
Risk factors state Zscaler derives a significant portion of revenue from government organizations and public sector sales are subject to FedRAMP certification, procurement regulations, audits and government shutdown or funding risks. Failure to maintain certifications could restrict its ability to sell to government customers.
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
Non-GAAP Income from Operations
Summary, forecast, risks and KPIs are extracted from Zscaler, Inc.'s SEC filings for Q3 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.