First Quarter Highlights
- Revenue grows 40% year-over-year to $496.7 million
- Calculated billings grows 34% year-over-year to $456.6 million
- Deferred revenue grows 39% year-over-year to $1,399.5 million
- GAAP net loss of $33.5 million compared to GAAP net loss of $68.2 million on a year-over-year basis
- Non-GAAP net income of $106.5 million compared to non-GAAP net income of $44.0 million on a year-over-year basis
SAN JOSE, Calif., Nov. 27, 2023 (GLOBE NEWSWIRE) -- Zscaler, Inc. (NASDAQ:ZS), the leader in cloud security, today announced financial results for its first quarter of fiscal year 2024, ended October 31, 2023.
"We had a strong start to our fiscal year with all key metrics coming above our guidance. We are enabling enterprises to move forward with their key transformative initiatives - Zero Trust and AI - which is driving demand for our Zero Trust Exchange," said Jay Chaudhry, Chairman and CEO of Zscaler. "In order to meet this growing need, we are scaling our go-to-market and R&D organizations, strengthening our foundation for the long-term growth of our business."
First Quarter Fiscal 2024 Financial Highlights
- Revenue: $496.7 million, an increase of 40% year-over-year.
- Income (loss) from operations: GAAP loss from operations was $46.1 million, or 9% of revenue, compared to $69.1 million, or 19% of revenue, in the first quarter of fiscal 2023. Non-GAAP income from operations was $89.7 million, or 18% of revenue, compared to $42.1 million, or 12% of revenue, in the first quarter of fiscal 2023.
- Net income (loss): GAAP net loss was $33.5 million, compared to $68.2 million in the first quarter of fiscal 2023. Non-GAAP net income was $106.5 million, compared to $44.0 million in the first quarter of fiscal 2023.
- Net income (loss) per share: GAAP net loss per share was $0.23, compared to $0.48 in the first quarter of fiscal 2023. Non-GAAP net income per share was $0.67, compared to $0.29 in the first quarter of fiscal 2023.
- Cash flows: Cash provided by operations was $260.8 million, or 53% of revenue, compared to $128.5 million, or 36% of revenue, in the first quarter of fiscal 2023. Free cash flow was $224.7 million, or 45% of revenue, compared to $95.6 million, or 27% of revenue, in the first quarter of fiscal 2023.
- Deferred revenue: $1,399.5 million as of October 31, 2023, an increase of 39% year-over-year.
- Cash, cash equivalents and short-term investments: $2,324.4 million as of October 31, 2023, an increase of $224.2 million from July 31, 2023.
Recent Business Highlights
- Appointed two go-to-market leaders to scale Zscaler's cloud security business to $5 billion in ARR and beyond. Mike Rich was appointed as Zscaler's Chief Revenue Officer (CRO) and President of Global Sales, with worldwide responsibility for all aspects related to revenue growth and sales strategy. Joyce Kim has joined as the Chief Marketing Officer (CMO) and is responsible for scaling global marketing execution to accelerate Zscaler's next phase of growth.
- Announced a joint solution with technology partners CrowdStrike and Imprivata to deliver a purpose-built zero trust security solution for healthcare organizations. The integration will provide visibility, threat protection and traceability for end-to-end, multi-user, shared device access control that are required for healthcare organizations to meet regulatory compliance requirements, such as HIPAA and HITECH.
- Named as one of Fortune's Best Workplaces in Technology for 2023, a ranking that is based on over 162,000 responses from employees at companies across the technology industry.
- Released the findings of the ThreatLabZ 2023 Enterprise IoT and OT Threat Report, which provides an in-depth analysis of malware activity over a six-month period. This report found a 400% increase in IoT malware attacks year-over-year with the manufacturing industry being the top targeted sector for IoT and OT malware attacks.
- Announced the appointments of Claudionor Coelho Jr. as Chief AI Officer and Mohamed Shabar as EVP, Data & AI Platforms, reinforcing Zscaler's continued investment and focus on driving rapid innovation in the areas of advanced Artificial Intelligence (AI) and Machine Learning (ML) to define the future of cloud-based security technologies.
- Introduced a series of industry-first, zero trust innovations to the Zscaler Workloads Communications solution designed to radically simplify and improve cloud workload security through native integration with AWS user-defined tags. The advancements are designed to deliver granular zero trust VPC segmentation for cloud-based VDI and enable customers to connect and protect workloads across the full spectrum of cloud environments - including Government Cloud.
- Published the 2023 Impact and ESG Report, which provides a progress report and update on Zscaler's ESG initiatives, reaffirming Zscaler's commitment to operating its business in a responsible and sustainable manner.
Financial Outlook
For the second quarter of fiscal 2024, we expect:
- Revenue of $505 million to $507 million
- Non-GAAP income from operations of $84 million to $86 million
- Non-GAAP net income per share of approximately $0.57 to $0.58, assuming approximately 160 million fully diluted shares outstanding
For the full year fiscal 2024, we expect:
- Revenue of approximately $2.09 billion to $2.10 billion
- Calculated billings of $2.52 billion to $2.56 billion
- Non-GAAP income from operations of $360 million to $365 million
- Non-GAAP net income per share of $2.45 to $2.48, assuming approximately 161 million fully diluted shares outstanding
These statements are forward-looking and actual results may differ materially. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.
In August 2023, we completed an assessment of the useful lives of our servers and networking equipment, which resulted in an extension of their useful lives from four to five years. This change was effective beginning in fiscal year 2024. Based on the carrying amount of these assets as of July 31, 2023, the impact for the three months ended October 31, 2023 was approximately a 60 basis point benefit to our gross margin.
Guidance for non-GAAP income from operations excludes stock-based compensation expense and related employer payroll taxes, amortization of debt issuance costs, and amortization expense of acquired intangible assets. We have not reconciled our expectations of non-GAAP income from operations and non-GAAP net income per share to their most directly comparable GAAP measures because certain items are out of our control or cannot be reasonably predicted. For those reasons, we are also unable to address the probable significance of the unavailable information, the variability of which may have a significant impact on future results. Accordingly, a reconciliation for the guidance for non-GAAP income from operations and non-GAAP net income per share is not available without unreasonable effort.
For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the "Explanation of Non-GAAP Financial Measures" section of this press release.
Conference Call and Webcast Information
Zscaler will host a conference call for analysts and investors to discuss its first quarter of fiscal 2024 and outlook for its second quarter of fiscal 2024 and full year fiscal 2024 today at 1:30 p.m. Pacific time (4:30 p.m. Eastern time).
Date: | Monday, November 27, 2023 |
Time: | 1:30 p.m. PT |
Webcast: | https://ir.zscaler.com |
Dial-in: | To join by phone, register at the following link: (https://register.vevent.com/register/BI3a027a348d7c4302bd3280cc21737d33). After registering, you will be provided with a dial-in number and a personal PIN that you will need to join the call. |
Upcoming Conferences
Second quarter of fiscal 2024 investor conference participation schedule:
- UBS Global Technology Conference
Tuesday, November 28, 2023
- Scotiabank Global Technology Conference
Tuesday, December 5, 2023
- Barclays Global Technology Conference
Wednesday, December 6, 2023
- Citadel Investor Conference
Tuesday, December 12, 2023
Sessions which offer a webcast will be available on the Investor Relations section of the Zscaler website at https://ir.zscaler.com.
Forward-Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties, including, but not limited to, statements regarding our future financial and operating performance, including our financial outlook for the second quarter of fiscal 2024 and full year fiscal 2024. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including but not limited to: macroeconomic influences and instability, including the ongoing effects of inflation, geopolitical events, operations and financial results and the economy in general; risks related to the use of AI in our platform; the impact of a government default or shut-down; our limited operating history; our ability to identify and effectively implement the necessary changes to address execution challenges; risks associated with managing our rapid growth, including fluctuations from period to period; our limited experience with new products and subscriptions and support introductions and the risks associated with new products and subscription and support offerings, including the discovery of software bugs; our ability to attract and retain new customers; the failure to timely develop and achieve market acceptance of new products and subscriptions as well as existing products and subscription and support; rapidly evolving technological developments in the market for network security products and subscription and support offerings and our ability to remain competitive; length of sales cycles; useful lives of our assets and other estimates; and general market, political, economic and business conditions.
Additional risks and uncertainties that could affect our financial results are included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth from time to time in our filings and reports with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the fiscal year ended July 31, 2023 filed on September 14, 2023, as well as future filings and reports by us, copies of which are available on our website at ir.zscaler.com and on the SEC's website at www.sec.gov. You should not rely on these forward-looking statements, as actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of such risks and uncertainties. Additional information will also be set forth in other filings that we make with the SEC from time to time. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.
Use of Non-GAAP Financial Information
We believe that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to our financial condition and results of operations. For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the "Explanation of Non-GAAP Financial Measures" section of this press release.
About Zscaler
Zscaler (NASDAQ:ZS) accelerates digital transformation so customers can be more agile, efficient, resilient, and secure. The Zscaler Zero Trust Exchange™ platform protects thousands of customers from cyberattacks and data loss by securely connecting users, devices, and applications in any location. Distributed across more than 150 data centers globally, the SSE-based Zero Trust Exchange is the world's largest in-line cloud security platform.
Zscaler™ and the other trademarks listed at https://www.zscaler.com/legal/trademarks are either (i) registered trademarks or service marks or (ii) trademarks or service marks of Zscaler, Inc. in the United States and/or other countries. Any other trademarks are the properties of their respective owners.
Investor Relations Contacts
Bill Choi, CFA
SVP, Investor Relations and Strategic Finance
(408) 816-1478
ir@zscaler.com
Natalia Wodecki
Media Relations Contact
press@zscaler.com
ZSCALER, INC. | |||||||
Condensed Consolidated Statements of Operations | |||||||
(in thousands, except per share amounts) | |||||||
(unaudited) | |||||||
Three Months Ended | |||||||
October 31, | |||||||
2023 | 2022 | ||||||
Revenue | $ | 496,703 | $ | 355,548 | |||
Cost of revenue (1) (2) | 111,394 | 76,697 | |||||
Gross profit | 385,309 | 278,851 | |||||
Operating expenses: | |||||||
Sales and marketing (1) (2) | 267,111 | 228,836 | |||||
Research and development (1) (2) | 113,539 | 74,946 | |||||
General and administrative (1) | 50,716 | 44,156 | |||||
Total operating expenses | 431,366 | 347,938 | |||||
Loss from operations | (46,057 | ) | (69,087 | ) | |||
Interest income | 25,942 | 7,865 | |||||
Interest expense (3) | (3,159 | ) | (1,331 | ) | |||
Other expense, net | (1,212 | ) | (863 | ) | |||
Loss before income taxes | (24,486 | ) | (63,416 | ) | |||
Provision for income taxes (4) | 8,997 | 4,746 | |||||
Net loss | $ | (33,483 | ) | $ | (68,162 | ) | |
Net loss per share, basic and diluted | $ | (0.23 | ) | $ | (0.48 | ) | |
Weighted-average shares used in computing net loss per share, basic and diluted | 147,625 | 143,476 |
(1) Includes stock-based compensation expense and related payroll taxes as follows:
Cost of revenue | $ | 12,955 | $ | 8,661 | |||
Sales and marketing | 58,668 | 55,469 | |||||
Research and development | 41,043 | 25,233 | |||||
General and administrative | 20,063 | 19,273 | |||||
Total | $ | 132,729 | $ | 108,636 |
(2) Includes amortization expense of acquired intangible assets as follows:
Cost of revenue | $ | 2,717 | $ | 1,939 | |||
Sales and marketing | 226 | 178 | |||||
Research and development | 93 | 435 | |||||
Total | $ | 3,036 | $ | 2,552 |
(3) Includes amortization of debt issuance costs as follows: | $ | 977 | $ | 972 |
(4) Includes tax expense associated with the integration of a business acquisition as follows: | $ | 3,259 | $ | — |
ZSCALER, INC. | |||||||
Condensed Consolidated Balance Sheets | |||||||
(in thousands) | |||||||
(unaudited) | |||||||
October 31, | July 31, | ||||||
2023 | 2023 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,361,723 | $ | 1,262,206 | |||
Short-term investments | 962,681 | 838,026 | |||||
Accounts receivable, net | 366,843 | 582,636 | |||||
Deferred contract acquisition costs | 119,417 | 115,827 | |||||
Prepaid expenses and other current assets | 80,926 | 91,619 | |||||
Total current assets | 2,891,590 |