Good day, and thank you for standing by. Welcome to the Zscaler second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one again. I would now like to hand the conference over to your speaker today, Ashwin Kesireddy, Vice President, Investor Relations and Strategic Finance.
Good afternoon, everyone, and welcome to the Zscaler second 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'll find the reconciliation of GAAP to the non-GAAP financial measures in our earnings release.
I'd like to remind you that today's discussion will contain forward-looking statements, including, but not limited to, the company's anticipated future revenue, annual recurring revenue, calculated billings, operating performance, gross margin, operating expenses, operating income, net income, free cash flow, dollar-based net retention rate, future hiring decisions, remaining performance obligations, income taxes, earnings per share, our objectives and outlook, our customer response to our products, and our market share and market opportunity. These statements and other comments are not guarantees of future performance, but rather are subject to risk and uncertainty, some of which are beyond our control. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call.
For a more complete discussion of the risks and uncertainties, please see our filings with the SEC, as well as in today's earnings release. I also want to inform you that we'll be attending the following conferences: Morgan Stanley TMT Conference on March 6th, Susquehanna Travel Tech Plus Gambling Forum on March 7th, Loop Capital Markets Investor Conference on March 10th, Stifel Technology Conference on March 11th, and Cantor Global Technology Conference on March 12th. Now, I'll turn the call over to Jay.
Thank you, Ashwin. Our outstanding Q2 results demonstrate the improvements in our go-to-market execution against a backdrop of growing customer demand for our platform. Billings accelerated in Q2, and revenue grew by 23% year over year, with both metrics coming in above the high-end offer guidance. Our go-to-market investments are resulting in increased sales productivity, double-digit new and upsell business growth, and lower sales attrition. I expect sales productivity to continue growth in the second half, driven by ongoing success of our go-to-market initiatives and growing number of ramped sales reps. Our annual recurring revenue, or ARR, grew 23% year over year in Q2 to over $2.7 billion, and our net retention rate, or NRR, improved to 115%. With our growing pipeline and better sales productivity, I expect us to achieve $3 billion or more in ARR by the end of the fiscal year.
Q2 was also a strong quarter for profitability, with 36% growth in operating profit, driving 2 percentage points improvement in operating margin to nearly 22%. Free cash flow margin was also a Q2 record of 22%. Driven by strong revenue growth and free cash flow margin, we operated above the Rule of 45, placing us in the rarefied category of large publicly traded SaaS companies that are growing rapidly at scale. Zscaler pioneered Zero Trust Architecture, which enables our customers' workforces to securely access applications wherever they reside. Prior to Zscaler, enterprises relied on firewall and VPN-based security, which allowed attackers to exploit their vulnerabilities and move unchecked across corporate networks. Many vendors are marketing SASE built on SD-WANs, which only worsens the growing issue of ransomware attacks.
We have gone far beyond SASE by pioneering our Zero Trust Exchange built on true Zero Trust Architecture, which eliminates lateral propagation of threats and dramatically reduces attack surface. Building upon our success in securing users, we expanded our platform to secure workloads, IoT/ OT devices, B2B users, B2B systems, and more. Today, we are elevating the concept of Zero Trust to a new standard that we call Zero Trust Everywhere. For a customer to be Zero Trust Everywhere, they need Zero Trust Users where users are untrusted and never put on the corporate network, Zero Trust Cloud where workloads are untrusted and can communicate only through our Exchange, and Zero Trust Branch where branches, factories, warehouses, or IoT/ OT devices are islands of their own. Our mission is to create a Zero Trust Everywhere world.
With the upcoming hardware refresh cycle, CXOs are increasingly looking for ways to eliminate the legacy security stack, including firewalls, VPNs, SD-WANs, and more. We are leaning into the opportunity presented by the refresh cycle with surgical field campaigns to educate our customers on how they can leapfrog to Zero Trust Everywhere and free themselves from firewalls and other legacy appliances forever. I'm happy to share that we are seeing initial success from these campaigns. As of the end of Q2, we surpassed 130 enterprises that have become Zero Trust Everywhere, and my mandate to our teams is to triple that number in the next 18 months. One of the core solutions of Zero Trust Everywhere is Zero Trust Branch, which is seeing tremendous customer interest. Let me share a customer example.
An existing Global 2000 manufacturing customer purchased our Zero Trust Branch in a seven-figure deal, adding to their ZIA and ZPA commitments. This customer is leveraging Zscaler to secure all their critical manufacturing sites, eliminating the need for firewalls, NACs, expensive switches, and routers at these sites. Next, we are working with this customer to upsell Zero Trust Cloud to put them on the path to become Zero Trust Everywhere. In another example, a large communications equipment company purchased our Zero Trust Branch to phase out their existing SD-WAN. We are excited to work with this customer to help them realize better security and operational simplicity of our platform. Zero Trust Branch is also helping us win new logo customers. In Q2, 57% of customers who purchase Zero Trust Branch are new logo customers.