01—Abstract
Summary
Summary of the 10-Q filed March 10, 2025. Cited figures are marked; the original filing is the authoritative source.
Zscaler, Inc. reported revenue of $647.9 milliona for the three months ended January 31, 2025, up from $525.0 million a year earlier, and $1,275.9 million for the six months, up from $1,021.7 million.
Loss from operations narrowed to $40.1 millionb for the quarter from $45.5 million, and net loss was $7.7 million, compared with $28.5 million in the prior-year quarter. The quarter's results include a $17.2 million income tax benefit from releasing the valuation allowance on U.K. deferred tax assets, which the company attributes to sustained U.K. profitability over the prior twelve quarters. Non-GAAP operating income was $140.5 million for the quarter, or 22% of revenue, compared with $103.2 million (20%) a year earlier.
Net cash provided by operating activities for the six months was $510.8 millionc, and free cash flow was $435.3 million. Calculated billings rose $115.1 million, or 18%, for the quarter. Remaining performance obligations totaled $4,615.3 million, with 49% expected to be recognized over the next 12 months.
The dollar-based net retention rate was 115% for the trailing twelve months, down from 117%. The balance sheet shows cash, cash equivalents and short-term investments of $2,880.2 milliond as of January 31, 2025.
The company's $1,150.0 million of 0.125% convertible senior notes mature on July 1, 2025, and are carried at $1,147.5 million on the balance sheet. Management states that existing cash is sufficient for at least the next 12 months, including repayment of the notes.
02—Key points
Key Highlights
- Revenue rose to $647.9 million in the quarter (up 23%) and $1,275.9 million for the six months (up 25%), driven mainly by additional subscriptions from existing customers.
- GAAP net loss narrowed to $7.7 million for the quarter from $28.5 million, helped by a $17.2 million tax benefit from releasing the U.K. deferred tax valuation allowance.
- Gross margin was 77% for the quarter versus 78% a year earlier, which the company attributed mainly to higher data center operating costs.
- Research and development expenses rose 40% to $170.9 million in the quarter, while sales and marketing rose 11% to $307.9 million.
- Free cash flow was $435.3 million for the six months, a 34% free cash flow margin, versus $325.5 million a year earlier.
- Dollar-based net retention rate was 115% for the trailing twelve months, down from 117%.
- The $1,150.0 million convertible senior notes mature on July 1, 2025; the company states existing cash, cash equivalents and short-term investments are sufficient to cover repayment over the next 12 months.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q2 FY2025, Zscaler lost $0.01.
- Revenue$647.9M100.0%
- Cost of revenue−$148.5M22.9%
- Gross profit$499.4M77.1%
- Operating costs−$539.5M83.3%
- Operating income−$40.1M6.2%
- Interest, other & tax$32.4M5.0%
- Net income−$7.7M1.2%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2025filed March 10, 2025Financial Statements
Q2 FY2025 against Q2 FY2024
| Line item | Q2 FY2025Q2 FY2024 | Change |
|---|---|---|
| Revenue | $647.90M$525.00M | +23.4% |
| Cost of Revenue | $148.50M$117.20M | +26.7% |
| Gross Profit | $499.40M$407.80M | +22.5% |
| R&D Expenses | $170.86M$122.18M | +39.8% |
| Operating Expenses | $539.54M$453.26M | +19.0% |
| Operating Income | -$40.14M-$45.46M | +11.7% |
| Interest Expense | $1.34M$1.34M | +0.3% |
| Net Income | -$7.72M-$28.47M | +72.9% |
| EPS (Basic) | $-0.05$-0.19 | +73.7% |
| EPS (Diluted) | $-0.05$-0.19 | +73.7% |
| Shares Outstanding (Basic) | 153.67M148.95M | +3.2% |
| Shares Outstanding (Diluted) | 153.67M148.95M | +3.2% |
05—Questions
Frequently Asked Questions
How did Zscaler's revenue and profitability trend in the quarter ended January 31, 2025?
Revenue grew 23% to $647.9 million, and loss from operations narrowed to $40.1 million from $45.5 million, which the company reports as a GAAP operating margin of (6)%. Net loss was $7.7 million, or $0.05 per share, compared with $28.5 million, or $0.19 per share, a year earlier. The net loss improvement was aided by a $17.2 million tax benefit.
Is the company's ability to repay its convertible notes a concern?
The Notes, $1,150.0 million principal due July 1, 2025, are classified as a current liability. Management states that cash, cash equivalents and short-term investments of $2,880.2 million as of January 31, 2025 will be sufficient to fund working capital, capital expenditures and Notes repayment for at least the next 12 months. The filing also notes that conversion conditions were not met during the quarter, and that holders may convert at any time on or after April 1, 2025.
What drove the decline in dollar-based net retention rate?
The filing reports the dollar-based net retention rate was 115% for the trailing twelve months ended January 31, 2025, compared with 117% a year earlier. The filing lists factors that can affect the rate, including customer renewals, the pace of expansion among existing customers, and the performance of the cloud platform, but it does not attribute the change to a specific cause.
What does the company's remaining performance obligation tell investors?
Remaining performance obligations were $4,615.3 million as of January 31, 2025. The company expects to recognize 49% of this amount over the next 12 months and 93% over the next three years. Subscription terms are typically one to three years, and most contracts are non-cancelable over their term.
What did management say about the effect of macroeconomic conditions on demand?
Management reports continued customer scrutiny of purchasing decisions, longer approval processes, and multiple approvals for large expenditures, particularly for larger deals. It expects this customer cautiousness to continue in the near term, which could lengthen sales cycles and the timing of large deals.
06—Continue