Zscaler, Inc. Q3 FY2025 earnings call

• Strong Q3 results with TCV bookings over $1B and RPO near $5B. Platform now secures over 50M users, providing network effect, AI data, and advanced security solutions. - Macro environment: Customers cautious on IT spending but prioritize cyber and data protection; cost-taker program and Z Flex launched to help customers reduce cost and scale adoption. - Product categories: Zero Trust Everywhere growing with 60% quarter-over-quarter growth in Zero Trust Everywhere enterprises; Data Security Everywhere expanding as data security becomes important to all industries; Agentic Operations expanding in IT ops and SecOps with significant growth in bookings and ACV. - Appointed Kevin Rubin as new CFO, with Remo Canessa in advisory capacity until end of fiscal year.

Zscaler reported Q3 revenue of $678 million, up 23% year over year. Annual recurring revenue (ARR) was approximately $2.9 billion, representing the third straight quarter of 23% year-over-year growth. They achieved TCV bookings of over $1 billion and remaining performance obligations (RPO) near $5 billion. Geographic revenue breakdown: Americas 54%, EMEA 30%, APJ 16%. Product segments: Zero Trust Everywhere saw 59% of new logo customers for Zero Trust branch, with growth in Zero Trust cloud and users; Data Security Everywhere had strong growth with comprehensive data security capabilities resonating with customers; Agentic Operations showed growth in IT ops (ZDX Copilot bookings up over 70% YOY to nearly $75 million) and SecOps (over 120% YOY growth in SecOps ACV).

• Q4 revenue expected in range of $705 million to $707 million, +19% YOY; gross margin ~80%; operating profit $152M-$154M; net other income $16M; EPS $0.79-$0.80. - Full-year fiscal 2025: Billings $3.184B-$3.189B (+21%-22% YOY); revenue $2.659B-$2.661B (+23% YOY); operating profit $573M-$575M; free cash flow margin ~25.5%-26%.

• Forward-looking statements subject to risk and uncertainty beyond control. - Macro economic uncertainty may impact IT spending. - Variability in dollar-based net retention rate due to selling bigger bundles and faster upsells.

Q: Thoughts on Salesforce focus and Z Flex scope?

A: Jay Chaudhry mentioned a two-tier sales model with broad sales team and takeoff teams for new product areas; Z Flex is for customer flexibility in scaling and swapping modules, starting with larger customers and expanding.

Q: Macro trends impact?

A: Jay Chaudhry said spending environment challenging but cyber priority; Remo Canessa highlighted strong sales organization emulating ServiceNow model.

Q: Z Flex structure and billing metric?

A: Remo Canessa said billing is right metric, moving to ARR in fiscal 2026; Jay Chaudhry said Z Flex gives customer flexibility in swapping and adding modules with pre-agreed pricing.

Q: Red Canary acquisition?

A: Jay Chaudhry said Red Canary brings detect and threat intel engineers, agentic AI technology, and sales team to accelerate Zscaler's platform expansion.

Q: BranchConnector adoption?

A: Jay Chaudhry said BranchConnector's plug-and-play and zero trust segmentation features are driving adoption, with 59% of new logo customers using it in past two quarters.

Q: Federal business impact?

A: Jay Chaudhry said Fed business in line with expectations, and Zscaler benefits from cost-cutting in security space; Remo Canessa said not expecting significant strength in Q4 from Fed.

Q: New growth categories?

A: Jay Chaudhry said Zero Trust Everywhere, Data Security Everywhere, and Agentic Operations are growing, with combined ARR approaching $1B.

Q: Red Canary acquisition reasons?

A: Jay Chaudhry said Red Canary's talent, AI technology, and go-to-market team complement Zscaler's data fabric and accelerate security solutions.

Q: Gen AI impact?

A: Jay Chaudhry said Gen AI is driving growth in security operations and IT ops areas, with traction in public AI app security and agentic AI for operations.

Q: Federal business outlook?

A: Jay Chaudhry said Fed wants cost cuts, and Zscaler's solution helps reduce legacy security costs; Remo Canessa said no significant Q4 strength expected from Fed.