0001713683-25-000205
SEC filingRevenue grew 26% YoY to $788.1M, while non-GAAP operating margin improved to 22% from 21%, driven by subscription growth and cost discipline.
For the three months ended October 31, 2025, Zscaler reported revenue of $788.1 million, a 26% increase compared to $628.0 million in the same period last year. The growth was primarily driven by an increase in users and sales of additional subscriptions to existing customers, which contributed $86.2 million, as well as a 14% increase in the customer base and revenue from the Red Canary acquisition. Gross margin remained flat at 77% YoY, while non-GAAP gross margin decreased to 80% from 81% due to higher cost of revenue, which increased 31% to $184.8 million, outpacing revenue growth. This increase in cost of revenue was driven by expanded use of the cloud platform by existing and new customers, leading to $31.7 million in higher data center and equipment-related costs, and an $8.6 million rise in employee-related expenses, including stock-based compensation.
Operating expenses grew 24% to $639.7 million, driven by increases in sales and marketing (up 22% to $373.6 million), research and development (up 30% to $200.5 million), and general and administrative (up 16% to $65.7 million). These increases were primarily attributable to higher headcount, including from the Red Canary acquisition, and increased marketing, travel, and facility costs. Despite these investments, the GAAP loss from operations widened modestly to $36.4 million from $30.7 million, while non-GAAP income from operations improved to $171.9 million from $134.1 million, with non-GAAP operating margin rising to 22% from 21%.
Net loss narrowed to $11.6 million from $12.1 million, aided by higher interest income ($33.2 million vs. $30.0 million) and a lower provision for income taxes ($3.2 million vs. $7.6 million). Free cash flow was $413.3 million, up from $291.9 million, representing a free cash flow margin of 52%, compared to 46% in the prior year period.
Zscaler operates as a single reportable segment. Within this, subscription and support services accounted for approximately 98% of revenue in both periods. The company highlighted that its land-and-expand model drives incremental revenue through expanding user deployment, upgrading to advanced capabilities, and cross-selling additional solutions (e.g., ZPA to ZIA customers). Dollar-Based Net Retention Rate was 115% for the trailing 12 months ended October 31, 2025, up from 114% in the prior year, indicating strong expansion within the existing customer base. However, management noted this metric will no longer be reported beginning in Q2 fiscal 2026.
Management expects operating expenses to increase in absolute dollars in the foreseeable future due to continued investments in sales and marketing, research and development, and general and administrative functions, including costs related to legal matters and public company operations. However, the company intends to balance these investments with a focus on managing results of operations and investing judiciously. Over the long term, management anticipates gross profit to increase in absolute dollars and gross margin to increase slightly, while operating expenses are expected to decrease as a percentage of revenue. The company expects to continue incurring net losses for the foreseeable future as it invests to maximize market opportunity and enhance its cloud platform. No formal guidance ranges for future periods were provided in the MD&A.