Q3 2025 Zscaler Inc Earnings Call Transcript
Key Points
- Zscaler Inc (ZS) achieved its best Q3 with TCV bookings of over $1 billion and remaining performance obligations nearing $5 billion.
- The company reported a strong year-over-year growth in new logo ACV of over 40% and total new ACV up double digits.
- Zscaler Inc (ZS) maintained a robust annual recurring revenue (ARR) of approximately $2.9 billion, marking the third consecutive quarter of 23% year-over-year growth.
- The company's free cash flow margin of 28% combined with a 24% revenue growth resulted in a Rule of 52 performance, surpassing the industry benchmark of Rule of 40.
- Zscaler Inc (ZS) continues to expand its platform with significant growth in Zero Trust Everywhere, Data Security Everywhere, and Agentic Operations, with these categories approaching $1 billion in ARR.
- The macroeconomic environment remains challenging, with ongoing economic uncertainty causing customers to be cautious about IT spending.
- Zscaler Inc (ZS) faces increased scrutiny of large deals, which could impact the timing and closure of significant contracts.
- The company's total gross margin decreased to 80.3% from 81.4% in the year-ago quarter, influenced by the introduction of new products optimized for faster go-to-market rather than margins.
- There is potential variability in the dollar-based net retention rate due to the company's success in selling bigger bundles and faster upsells, which could affect future metrics.
- The acquisition of Red Canary, valued at $675 million, is expected to be largely neutral to FY26 consensus operating margin, indicating limited immediate financial benefit.
Thank you for standing by and welcome to the Zscaler's third-quarter fiscal year 2025 earnings conference call. At this time, all participants are in a list in the only mode. After the speaker presentation, there will be a question-and-answer session. (Operator Instructions)
I would now like to hand the call over to Ashwin Kesireddy, Vice President, Investor Relations and Strategic Finance. Please go ahead.
Good afternoon, everyone, and welcome to the Zscaler third-quarter fiscal year 2025 earnings conference call. On the call with me today are Jay Chaudhry, Chairman and CEO; and Remo Canessa, CFO.
Please note, we have posted our earnings release and a supplemental financial schedule to our Investor Relations website. Unless otherwise noted, all numbers we talk about today will be on an adjusted non-GAAP basis. You will find the reconciliation of GAAP to the non-GAAP financial measures in our earnings release.
I'd like to remind you that today's
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