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Following in the footsteps of fellow cybersecurity companies Palo Alto Networks (PANW) and CrowdStrike (CRWD), Zscaler (ZS) reported strong quarterly results that exceeded EPS and revenue estimates but offered guidance that failed to live up to the market's lofty expectations. Adding to investors' dismay, the company also disclosed that longtime CFO Remo Canessa plans to retire after serving in that role since 2017. Given that ZS is still working through a new go-to-market sales strategy amid a challenging and highly competitive market, the timing of departure is creating some unease, especially surrounding the company's 2H25 guidance.

• During last night's Q1 earnings call, ZS reiterated that it still expects scheduled contracted billings growth of just 7% in 1H25, with growth accelerating meaningfully to 23% in 2H25. Attaining that jump in growth will be a tough task for whoever the incoming CFO will be. However, there are a few factors giving ZS confidence that it will reach its target. Specifically, the company is seeing strong signs of interest for its new AI offerings, it has a healthy and growing pipeline, and the ramp up of its sales capacity has accelerated.
• Still, the company's updated outlook for FY25 fell flat with investors who were looking for more. While ZS nudged its EPS and revenue guidance higher to $2.94-$2.99 and $2.623-$2.643 bln, respectively, the amount it increased its FY25 forecast by is essentially the same amount it beat Q2 EPS and revenue estimates by. In other words, the company's outlook for the remainder of FY25 is merely in line with analysts' expectations.
• Mr. Canessa commented that customer scrutiny surrounding large deals continued in Q1, which likely contributed to the company's cautious outlook for FY25. Furthermore, ZS is still transitioning its go-to-market strategy to account-centric selling as opposed to opportunity-based selling -- a shift it began in November 2023. Although the company has made significant progress and is starting to see strong customer engagements, better close rates, and a higher quality pipeline, its sales productivity isn't as effective as it can be.
• The company is also excited about its AI growth opportunities as it launches new innovations and products. For example, Zscaler for Copilots is helping customers to securely adopt AI apps such as ChatGPT, Microsoft Copilot, and GitHub Copilot. Additionally, the company's ZDX Copilot, its automated digital experience tool, is contributing to larger deal wins.

While ZS delivered another solid quarterly performance, especially in terms of upsells and winning larger deals ($1.0+ mln ARR customers grew 25% yr/yr), its guidance underwhelmed investors and the unexpected retirement of CFO Remo Canessa is adding another layer of uncertainty.