Zscaler, Inc. Q1 FY2025 earnings call

• Delivered strong Q1 with revenue up 26% YOY, bookings growth over 30%, operating profit up 50%, operating margin 21%, and free cash flow margin 46%.
• AI innovations in three areas: securing public and private AI apps, AI-powered automated digital experience, and AI-powered security products for cyber/data protection and SecOps automation.
• Data protection driving large deals, with emerging products ARR growing twice as fast as core products.
• Federal vertical added 14 cabinet-level agencies, with significant upsell opportunities.
• Account-centric go-to-market motion driving large seven-figure deals, with strong hiring and lower attrition.

Revenue was $628 million, up 26% year-over-year. Americas represented 54% of revenue, EMEA 30%, and APJ 16%. Total calculated billings in Q1 grew 13% year-over-year to $517 million. Remaining performance obligations (RPO) grew 26% from a year ago to $4.411 billion. Current RPO was approximately 49% of the total RPO. Ended Q1 with 585 customers with over $1 million in ARR and 3,165 customers with over $100,000 in ARR. 12-month trailing dollar-based net retention rate was 114%.

• Q2 revenue expected in range of $633 million to $635 million (21% YOY growth), gross margins ~80%, operating profit $126 million to $128 million, EPS $0.68 to $0.69.
• Full-year fiscal 2025 billings expected $3.124 billion to $3.149 billion (19%-20% YOY growth), revenue $2.623 billion to $2.643 billion (21%-22% YOY growth), operating profit $549 million to $559 million, EPS $2.94 to $2.99, free cash flow margin ~23.5%-24%.

• Forward-looking statements subject to risks and uncertainties beyond control.
• Ongoing customer scrutiny on large deals, which was a general economic comment.

Q: Saket Kalia asked about unscheduled billings growth of 20% this quarter and context vs. expectation.

A: Remo said 20% growth was expected and exceeded, with scheduled contracted billings 7% in first half and 23% in second half, expecting unscheduled billings to be 20%+ in second half.

Q: Andrew Nowinski asked about ZDX Copilot and Microsoft support.

A: Jay said they leveraged work with Microsoft, sitting in traffic path for Office 365, with real deals like a G 2000 company using their AI-powered data protection solution for Microsoft Copilot.

Q: Gabriela Borges asked about ZPA and VPN replacement.

A: Jay said VPN is a beachhead, ZPA is over 40% of new and upsell mix, with opportunity in VPN replacement, entire inbound DMZ, and segmentation, and Zscaler has an advantage over competition spinning up virtual VPN in cloud.

Q: Brad Zelnick asked about bookings growth and firewall refresh.

A: Jay said firewall refresh is an opportunity, with Zscaler targeting customers with cost takeout programs, and Remo said 30% bookings growth is strong, with CRPO and RPO growing.

Q: Mike Cikos asked about emerging products ARR growing twice as fast as core.

A: Remo said it's across the board, including emerging products like AI, workload protection, ZDX, with ZDX and workloads doing well.

Q: Ittai Kidron asked about ARR target and emerging products.

A: Remo said ARR target for end of year is $3 billion, Jay said emerging products include CDX, Zero Trust branch, Zero Trust workloads/cloud, AI products, with mid-20% range for new business and upsell opportunity.

Q: Rob Owens asked about customer scrutiny on large deals.

A: Remo said it was a general economic comment, no change seen.

Q: Brian Essex asked about SecOps and Avalor.

A: Jay said SecOps market is ready for disruption, with Avalor acquisition helping, and increasing investment in breach prediction and threat hunting.

Q: Joel Fishbein asked about public sector updates.

A: Jay said Zscaler has 14 of 15 cabinet-level agencies as customers, with big opportunities in federal market.

Q: Fatima Boolani asked about second-quarter billings.

A: Remo said guide for second quarter is up, pipeline supports guidance, hiring and go-to-market execution strong.

Q: Shrenik Kothari asked about GSI-led deals.

A: Jay said increasing contribution of GSIs in large accounts, with examples like auto supply parts and G2K services companies, and GSI working closely with customers starting early stage.

Q: Matt Hedberg asked about data protection scale.

A: Jay said data protection keeps growing faster than overall business, with AI driving growth, and Zscaler sitting in line for SSL/TLS inspection, natural to grow.

Q: Roger Boyd asked about data security influencing ZPA/ZIA deals.

A: Jay said data protection comes with ZIA, ZPA, with some prospects starting with data protection, and products like Airgaps and unified vulnerability management helping in new logos without ZIA, ZPA.