Zscaler(ZS) - 2025 Q4 - Annual Results

Executive Summary Introduction and CEO Commentary Zscaler reported strong Q4 and full-year FY2025 results, exceeding $3 billion in ARR and achieving record quarterly operating margin, driven by robust demand for zero trust and AI security solutions - Zscaler achieved a new milestone in Q4 FY2025 with Annual Recurring Revenue (ARR) exceeding $3 billion, alongside its highest operating margin for the quarter[4] - CEO Jay Chaudhry stated that Zscaler's zero trust and AI security solutions are crucial in today's world, driving strong market demand[4] - Zscaler recently launched AI Guardrails for public and private applications and is rapidly expanding its AI security portfolio to address emerging risks from AI models and applications[4] About Zscaler Zscaler is a cloud security leader, accelerating customer digital transformation with its Zero Trust Exchange™ platform, the world's largest inline cloud security platform - Zscaler's Zero Trust Exchange™ platform protects customers from cyberattacks and data loss by securely connecting users, devices, and applications[21] - This SASE-based Zero Trust Exchange platform is deployed in over 160 data centers globally, making it the world's largest inline cloud security platform[21] Financial Performance Fourth Quarter Fiscal 2025 Financial Highlights Zscaler achieved strong Q4 FY2025 financial growth with revenue up 21% to $719.2 million and calculated billings increasing by 32% 2025 Fiscal Year Fourth Quarter Key Financial Data | Metric | Q4 FY2025 | Q4 FY2024 | YoY Change | | :-------------------------------- | :---------- | :---------- | :--------- | | Revenue | $719.2 million | $592.9 million | +21% | | Annual Recurring Revenue (ARR) | $3,015 million | $2,471 million | +22% | | Calculated Billings | $1,202.3 million | $910.8 million | +32% | | Deferred Revenue | $2,468.0 million | $1,894.9 million | +30% | | GAAP Net Loss | $(17.6) million | $(14.9) million | -18.1% | | Non-GAAP Net Income | $146.7 million | $115.8 million | +26.7% | | GAAP Net Loss per Share, Diluted | $(0.11) | $(0.10) | -10% | | Non-GAAP Net Income per Share, Diluted | $0.89 | $0.72 | +23.6% | | Cash Provided by Operations | $250.6 million | $203.6 million | +23.1% | | Free Cash Flow | $171.9 million | $136.3 million | +26.1% | - Cash, cash equivalents, and short-term investments increased to $3.5724 billion as of July 31, 2025, an increase of $1.1628 billion from July 31, 2024, partly due to the issuance of $1.725 billion in 2028 convertible senior notes and the repayment of $1.15 billion in 2025 notes[8] Full Year Fiscal 2025 Financial Highlights For full-year FY2025, Zscaler reported 23% revenue growth to $2.6731 billion, with strong non-GAAP profitability and cash generation 2025 Fiscal Year Full Year Key Financial Data | Metric | FY2025 | FY2024 | YoY Change | | :-------------------------------- | :---------- | :---------- | :--------- | | Revenue | $2,673.1 million | $2,167.8 million | +23% | | GAAP Loss from Operations | $(128.5) million | $(121.5) million | -5.8% | | Non-GAAP Income from Operations | $580.1 million | $442.2 million | +31.2% | | GAAP Net Loss | $(41.5) million | $(57.7) million | +28.1% | | Non-GAAP Net Income | $534.8 million | $414.6 million | +29.0% | | GAAP Net Loss per Share, Diluted | $(0.27) | $(0.39) | +30.8% | | Non-GAAP Net Income per Share, Diluted | $3.28 | $2.60 | +26.2% | | Cash Provided by Operations | $972.5 million | $779.8 million | +24.7% | | Free Cash Flow | $726.7 million | $585.0 million | +24.2% | - Full-year FY2025 revenue reached $2.6731 billion, representing a 23% year-over-year increase[6] Business Developments and Future Outlook Recent Business Highlights Zscaler made strategic advancements in AI-driven security and zero trust, including the acquisition of Red Canary and the launch of AI Guard and Zscaler Cellular - Acquisition of Red Canary aims to redefine security operations through proxy-AI-driven threat intelligence and automation, enhancing customer cyber risk management[10] - Introduction of AI-driven security innovations, including Zscaler AI Guard, to block attacks, protect sensitive data, and ensure compliance, enabling enterprises to safely adopt AI[10] - Launch of Zscaler Cellular, the industry's first SIM-only zero trust solution for IoT/OT connectivity, eliminating VPNs and ensuring resilient global communication[10] - Expansion of the "Zero Trust Everywhere" suite with new advanced solutions, enabling enterprises to secure data across branch offices, multi-cloud, and remote environments with seamless end-to-end segmentation and scalability[10] - Achieved U.S. Department of Defense CMMC Level 2 certification and became the first independent software vendor (ISV) to earn AWS ISV Competency in Healthcare, Education, and all relaunched Government capability subcategories[10] - A new report utilizing Marsh McLennan's cyber loss dataset indicates that zero trust architecture can reduce cyber incident claims by 31%, potentially saving $465 billion annually[10] Financial Outlook Zscaler provides optimistic financial guidance for Q1 and full-year FY2026, projecting continued revenue growth and enhanced non-GAAP profitability First Quarter Fiscal 2026 Outlook Zscaler forecasts Q1 FY2026 revenue between $772 million and $774 million, with non-GAAP operating income of $166 million to $168 million 2026 Fiscal Year First Quarter Financial Guidance | Metric | Q1 FY2026 Guidance | | :----------------------------- | :----------------- | | Revenue | $772 million to $774 million | | Non-GAAP Income from Operations | $166 million to $168 million | | Non-GAAP Net Income per Share | $0.85 to $0.86 | | Fully Diluted Shares Outstanding | ~167 million | | Non-GAAP Tax Rate | 23% | Full Year Fiscal 2026 Outlook Zscaler projects full-year FY2026 Annual Recurring Revenue (ARR) between $3.676 billion and $3.698 billion, with total revenue from $3.265 billion to $3.284 billion 2026 Fiscal Year Full Year Financial Guidance | Metric | FY2026 Guidance | | :----------------------------- | :----------------- | | Annual Recurring Revenue (ARR) | $3.676 billion to $3.698 billion | | Revenue | $3.265 billion to $3.284 billion | | Non-GAAP Income from Operations | $728 million to $736 million | | Non-GAAP Net Income per Share | $3.64 to $3.68 | | Fully Diluted Shares Outstanding | ~169 million | | Non-GAAP Tax Rate | 23% | GAAP Financial Statements Condensed Consolidated Statements of Operations The condensed consolidated statements of operations detail Zscaler's GAAP financial performance for Q4 and full-year FY2025, including revenue, expenses, and net loss Condensed Consolidated Statements of Operations (GAAP, in thousands) | Metric (in thousands) | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :-------------------------------- | :-------- | :-------- | :------- | :------- | | Revenue | $719,226 | $592,868 | $2,673,115 | $2,167,771 | | Cost of Revenue | $172,240 | $130,205 | $618,178 | $477,129 | | Gross Profit | $546,986 | $462,663 | $2,054,937 | $1,690,642 | | Sales and Marketing | $330,594 | $294,200 | $1,259,158 | $1,100,239 | | Research and Development | $177,606 | $139,150 | $672,485 | $499,828 | | General and Administrative | $71,028 | $56,263 | $251,754 | $212,052 | | Total Operating Expenses | $579,228 | $489,613 | $2,183,397 | $1,812,119 | | Loss from Operations | $(32,242) | $(26,950) | $(128,460) | $(121,477) | | Net Loss | $(17,578) | $(14,878) | $(41,478) | $(57,706) | | Net Loss per Share, Basic and Diluted | $(0.11) | $(0.10) | $(0.27) | $(0.39) | - Stock-based compensation expense and related employer payroll taxes were $180.8 million in Q4 FY2025 and $685.5 million for the full FY2025[25] Condensed Consolidated Balance Sheets Zscaler's total assets increased to $6.42 billion as of July 31, 2025, driven by higher cash and investments, with liabilities also rising due to convertible notes Condensed Consolidated Balance Sheets (GAAP, in thousands) | Metric (in thousands) | July 31, 2025 | July 31, 2024 | YoY Change | | :-------------------------------- | :------------ | :------------ | :--------- | | Total Assets | $6,419,888 | $4,704,968 | +36.4% | | Cash and Cash Equivalents | $2,389,023 | $1,423,080 | +67.9% | | Short-term Investments | $1,183,386 | $986,574 | +19.9% | | Accounts Receivable, net | $992,181 | $736,529 | +34.7% | | Deferred Revenue (Current) | $2,054,417 | $1,643,919 | +25.0% | | Convertible Senior Notes (Current) | $0 | $1,142,275 | -100% | | Convertible Senior Notes (Noncurrent) | $1,700,727 | $0 | N/A | | Total Liabilities | $4,620,615 | $3,430,866 | +34.7% | | Total Stockholders' Equity | $1,799,273 | $1,274,102 | +41.2% | - The company issued $1.725 billion in 2028 convertible senior notes and fully repaid $1.15 billion in 2025 convertible senior notes with cash, impacting both current and noncurrent liabilities[8][27] Condensed Consolidated Statements of Cash Flows Zscaler's FY2025 cash flow statement shows a 24.7% increase in net cash from operating activities to $972.5 million, with significant financing activity from convertible notes Condensed Consolidated Statements of Cash Flows (GAAP, in thousands) | Metric (in thousands) | FY2025 | FY2024 | YoY Change | | :-------------------------------- | :------- | :------- | :--------- | | Net Cash Provided by Operating Activities | $972,453 | $779,846 | +24.7% | | Net Cash Used in Investing Activities | $(427,022) | $(683,180) | +37.5% | | Net Cash Provided by Financing Activities | $420,512 | $64,208 | +554.9% | | Net Increase in Cash and Cash Equivalents | $965,943 | $160,874 | +500.0% | | Cash and Cash Equivalents at End of Period | $2,389,023 | $1,423,080 | +67.9% | - Financing activities were significantly impacted by the issuance of $1.725 billion in 2028 convertible senior notes and the cash settlement of $1.15 billion in 2025 convertible senior notes[8][30] Non-GAAP Financial Measures Reconciliation of GAAP to Non-GAAP Financial Measures This section provides detailed reconciliations of Zscaler's GAAP to non-GAAP financial metrics, including gross profit, operating income, and diluted net income per share Non-GAAP Gross Profit and Operating Income Reconciliation Zscaler's FY2025 non-GAAP gross profit reached $2.141 billion with an 80% margin, and non-GAAP operating income increased to $580.1 million with a 22% margin Non-GAAP Gross Profit and Operating Income Reconciliation (in thousands) | Metric (in thousands) | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :-------------------------------- | :-------- | :-------- | :------- | :------- | | GAAP Gross Profit | $546,986 | $462,663 | $2,054,937 | $1,690,642 | | Non-GAAP Gross Profit | $570,103 | $481,036 | $2,141,048 | $1,756,287 | | GAAP Gross Margin | 76% | 78% | 77% | 78% | | Non-GAAP Gross Margin | 79% | 81% | 80% | 81% | | GAAP Loss from Operations | $(32,242) | $(26,950) | $(128,460) | $(121,477) | | Non-GAAP Income from Operations | $158,870 | $127,544 | $580,131 | $442,247 | | GAAP Operating Margin | (4)% | (5)% | (5)% | (6)% | | Non-GAAP Operating Margin | 22% | 22% | 22% | 20% | Non-GAAP Net Income per Share Reconciliation Zscaler's FY2025 non-GAAP net income was $534.8 million, resulting in diluted non-GAAP net income per share of $3.28, up from $2.60 in FY2024 Non-GAAP Net Income per Share Reconciliation (in thousands, except per share) | Metric (in thousands, except per share) | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :-------------------------------------- | :-------- | :-------- | :------- | :------- | | GAAP Net Loss | $(17,578) | $(14,878) | $(41,478) | $(57,706) | | Non-GAAP Net Income | $146,725 | $115,785 | $534,836 | $414,575 | | GAAP Net Loss per Share, Diluted | $(0.11) | $(0.10) | $(0.27) | $(0.39) | | Non-GAAP Net Income per Share, Diluted | $0.89 | $0.72 | $3.28 | $2.60 | | Weighted-average shares used in computing non-GAAP net income per share, diluted | 165,584 | 160,497 | 163,412 | 159,817 | - Effective August 1, 2024 (the start of FY2025), Zscaler adopted a 23% long-term projected non-GAAP tax rate for determining non-GAAP net income and net income per share, with prior period data restated[35][42] Calculated Billings and Free Cash Flow Reconciliation Zscaler's FY2025 calculated billings grew 23.8% to $3.2462 billion, with free cash flow reaching $726.7 million and a 27% margin Calculated Billings and Free Cash Flow Reconciliation (in thousands, except percentages) | Metric (in thousands, except percentages) | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :---------------------------------------- | :-------- | :-------- | :------- | :------- | | Calculated Billings | $1,202,267 | $910,828 | $3,246,167 | $2,623,069 | | Net Cash Provided by Operating Activities | $250,604 | $203,557 | $972,453 | $779,846 | | Free Cash Flow | $171,921 | $136,318 | $726,693 | $584,950 | | Free Cash Flow Margin | 24% | 23% | 27% | 27% | Explanation of Non-GAAP Financial Measures This section explains the rationale for using non-GAAP financial measures, detailing specific exclusions and defining key non-GAAP metrics for consistent performance evaluation - Non-GAAP financial information is provided to offer supplementary insights, aiding management and investors in assessing financial and business trends and ensuring consistency and comparability with past financial performance[40] - Expenses excluded from non-GAAP measures primarily include stock-based compensation expense and related employer payroll taxes, amortization of acquired intangible assets, amortization of debt issuance costs, acquisition-related expenses, and restructuring and other charges[41] - Key non-GAAP metrics are defined as follows: - Non-GAAP Gross Profit and Non-GAAP Gross Margin: GAAP gross profit adjusted for stock-based compensation expense and related employer payroll taxes and amortization of acquired intangible assets[43] - Non-GAAP Income from Operations and Non-GAAP Operating Margin: GAAP loss from operations adjusted for stock-based compensation expense and related employer payroll taxes, amortization of acquired intangible assets, restructuring and other charges, and acquisition-related expenses[44] - Non-GAAP Net Income per Share, Diluted: GAAP net loss adjusted for various non-GAAP items and non-GAAP income tax provision, divided by diluted weighted-average shares[45] - Calculated Billings: Revenue plus the change in deferred revenue, reflecting amounts invoiced for subscriptions and related support services[46] - Annual Recurring Revenue (ARR): The revenue from subscription contracts over the next 12 months as of the measurement date[47] - Free Cash Flow and Free Cash Flow Margin: Net cash provided by operating activities less purchases of property, equipment, and other assets and capitalized internal-use software[48] Corporate Information and Disclosures Forward-Looking Statements This section provides a cautionary note on forward-looking statements, highlighting that actual results may differ significantly due to various risks and uncertainties - This press release contains forward-looking statements regarding future financial and operating performance, including the financial outlook for Q1 and full-year FY2026, and the anticipated impact of the Red Canary acquisition[18] - Actual results may differ materially due to factors such as macroeconomic impacts and instability, geopolitical events, risks from AI platform use, execution challenges, managing rapid growth, limited experience with new product and subscription introductions, technological developments, length of sales cycles, and general market, political, economic, and business conditions[18] - Investors should not place undue reliance on these forward-looking statements and should consult additional risks and uncertainties listed in the company's periodic reports filed with the SEC, such as Form 10-Q[19] Conference Call and Investor Information Zscaler announced details for its Q4 FY2025 earnings conference call on September 2, 2025, and listed upcoming investor conference participations - Zscaler held a conference call on September 2, 2025, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss Q4 FY2025 results and the outlook for Q1 and full-year FY2026[14][15] - The company plans to participate in a series of investor conferences during Q1 FY2026, including the Citi 2025 Global TMT Conference, the 2025 Truist Securities Technology Symposium, Goldman Sachs Communacopia + Technology 2025, and the Wolfe Research TMT 2025 Conference[17] Investor Relations Contacts Contact information for Zscaler's investor relations and media relations is provided for inquiries - Ashwin Kesireddy, VP of Investor Relations, can be reached at (415) 798-1475 or ir@zscaler.com[23] - Pavel Radda, Media Relations contact, can be reached at press@zscaler.com[23]