Zscaler, Inc. (Nasdaq: ZS), the leader in cloud security,
today announced financial results for its first quarter of fiscal
year 2023, ended October 31, 2022.
"We delivered strong top line growth with
improved operating profitability and increased free cash flow, once
again performing at the Rule-of-80. We are seeing customers
committing to our broader platform, driven by vendor consolidation
and an elevated threat environment," said Jay Chaudhry, Chairman
and CEO of Zscaler. "Customers are engaging with us to embrace zero
trust architecture, eliminate point products, simplify IT and
standardize on the Zscaler platform, all of which delivers better
security and lower cost.”
First Quarter
Fiscal 2023 Financial
Highlights
-
Revenue: $355.5 million, an increase
of 54% year-over-year.
-
Income (loss) from operations: GAAP loss from
operations was $69.1 million, or 19% of total
revenue, compared to $74.4 million, or 32% of total
revenue, in the first quarter of fiscal 2022.
Non-GAAP income from operations was $42.1 million,
or 12% of total revenue, compared to $23.9 million,
or 10% of total revenue, in the first quarter
of fiscal 2022.
-
Net income (loss): GAAP net loss was $68.2
million, compared to $90.8 million in the first
quarter of fiscal 2022. Non-GAAP net income was $44.0
million, compared to $21.0 million in the first quarter
of fiscal 2022.
-
Net income (loss) per share: GAAP net loss per
share was $0.48, compared to $0.65 in the first
quarter of fiscal 2022. Non-GAAP net income per share was
$0.29, compared to $0.14 in the first quarter of fiscal 2022.
- Cash flow: Cash provided by operations
was $128.5 million, or 36% of revenue, compared to $93.3
million, or 40% of revenue, in the first quarter of
fiscal 2022. Free cash flow was $95.6 million,
or 27% of revenue, compared to $83.4 million, or 36% of
revenue, in the first quarter of fiscal 2022.
-
Deferred revenue: $1,005.7 million as of October
31, 2022, an increase of 55% year-over-year.
-
Cash, cash equivalents and short-term investments:
$1,824.8 million as of October 31, 2022, an increase of
$93.5 million from July 31, 2022.
Recent Business Highlights
- Announced that Zscaler Internet
Access™ achieved Federal Risk and Authorization Management Program
(FedRAMP) High Authority to Operate from the FedRAMP Joint
Authorization Board (JAB). Zscaler Internet Access is currently the
only Secure Access Service Edge (SASE) Trusted Internet Connections
(TIC) 3.0 solution that has achieved FedRAMP’s highest
authorization to meet civilian agencies’ high security
requirements, the Department of Defense (DoD), and other related
intelligence organizations
- Released the findings of its annual
VPN Risk Report, which shows a growing number of VPN-specific
security threats and a need for Zero Trust security architecture in
enterprise-level organizations. Despite high awareness of VPN
risks, remote working forced many companies to rely more heavily on
legacy access methods during the pandemic. As a result,
cybercriminals continue to take advantage of security
vulnerabilities and increased attacks on enterprises using
VPNs.
- Announced the acquisition of
ShiftRight, a leader in closed loop security workflow automation.
ShiftRight’s workflow automation technology is currently being
integrated into the Zscaler platform to automate security
management for the growing influx of risks and incidents
organizations are experiencing. It will provide a simple,
sophisticated solution to reduce incident resolution time
dramatically.
- Introduced new data protection
innovations that build upon a rich heritage of securing data across
all cloud apps for data in motion, data at rest, and BYOD assets
with unprecedented accuracy and scale. The new advancements
accelerate data protection programs from months to hours with zero
configuration for data loss prevention (DLP) and mitigates security
risks by unifying data protection across all channels—simplifying
operations by automating workflows.
Recently Issued Accounting Pronouncements
Effective August 1, 2022, the beginning of our
fiscal year ending July 31, 2023, we adopted Accounting Standards
Update No. 2020-06, Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity’s Own Equity (Subtopic 815-40), using the modified
retrospective transition method. The adoption of this standard
resulted in the elimination of the debt discount and related
amortization as interest expense and the classification of the
portion of the debt issuance costs initially allocated to equity
within the carrying amount of our senior convertible debt, which
will be amortized as interest expense. Additionally, ASU 2020-06
amended the calculation of diluted earnings per share for certain
convertible debt instruments, eliminating the treasury stock method
and requiring the use of the if-converted method to compute the
underlying potentially diluted shares. Accordingly, to account for
the potentially diluted shares related to our senior convertible
notes, we are required to add back the non-GAAP interest expense to
our non-GAAP net income and include approximately 7.63 million
shares related to our senior convertible notes beginning in our
first quarter of fiscal year 2023.
Financial Outlook
For the second quarter of fiscal 2023, we expect:
- Total revenue
of $364 million to $366 million
- Non-GAAP income from operations of $42 million to $43
million
- Non-GAAP net income
per share of approximately $0.29 to $0.30,
assuming approximately 156 million common shares outstanding
using the "if-converted" method for our senior convertible
notes
For the full year fiscal 2023, we expect:
- Total revenue
of approximately $1.525 billion to $1.530 billion
- Calculated billings
of $1.930 billion to $1.940 billion. First half mix of
billings to be approximately 43% of full-year
- Non-GAAP income from
operations of $179 million to $183 million
- Non-GAAP net income
per share of $1.23 to $1.25, assuming approximately 157
million common shares outstanding using the "if-converted" method
for our senior convertible notes
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.
Guidance for non-GAAP income from operations
excludes stock-based compensation expense and related employer
payroll taxes, amortization expense of acquired intangible assets,
amortization of debt discount and issuance costs. As a result of
the adoption of ASU 2020-06 on August 1, 2022, guidance for
non-GAAP net income per share uses the if-converted method to
calculate the potentially diluted shares related to the convertible
senior notes. Accordingly, we are required to add back the non-GAAP
interest expense to our non-GAAP net income and include
approximately 7.63 million shares related to our senior convertible
notes. Additionally, we include the anti-dilutive impact of the
capped call transactions entered into in connection with the
convertible senior notes. We have not reconciled our expectations
to 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. 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.
Conference Call and Webcast Information
Zscaler will host a conference call for analysts and investors
to discuss its first quarter fiscal 2023 and outlook for its second
quarter of fiscal 2023 and full year fiscal 2023 today at 1:30 p.m.
Pacific time (4:30 p.m. Eastern time).
Date: |
Thursday, December 1, 2022 |
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/BI9b4b8cd8fd434135a0efc391d5d57450).
After registering, you will be provided with a dial-in number and
personal PIN required to join the call. |
Upcoming Conferences
Second quarter of fiscal 2023 investor conference participation
schedule:
- UBS Global TMT ConferenceMonday, December 5, 2022
- NASDAQ Investor Conference in LondonTuesday, December 6,
2022
- Needham Growth ConferenceThursday, January 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 2023 and full year fiscal 2023. 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 factors such as the duration and
global impact of COVID-19, effects of inflation and international
conflicts like the Russia-Ukraine crisis on our business,
operations and financial results and the economy in general; 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 product and subscription 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; 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 Security Exchange Commission
(SEC), including our Annual Report on Form 10-K for the fiscal year
ended July 31, 2022 filed on September 15, 2022, 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 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, CFASVP, Investor Relations and Strategic Finance(408)
816-1478ir@zscaler.com
Natalia WodeckiMedia Relations Contactpress@zscaler.com
|
ZSCALER, INC. |
Condensed Consolidated Statements of
Operations |
(in thousands, except per share amounts) |
(unaudited) |
|
|
|
|
|
Three Months Ended |
|
October 31, |
|
|
2022 |
|
|
|
2021 |
|
Revenue |
$ |
355,548 |
|
|
$ |
230,517 |
|
Cost of revenue (1) (2) |
|
76,697 |
|
|
|
52,169 |
|
Gross profit |
|
278,851 |
|
|
|
178,348 |
|
Operating expenses: |
|
|
|
Sales and marketing (1) (2) |
|
228,836 |
|
|
|
153,786 |
|
Research and development (1) (2) |
|
74,946 |
|
|
|
65,216 |
|
General and administrative (1) |
|
44,156 |
|
|
|
33,717 |
|
Total operating expenses |
|
347,938 |
|
|
|
252,719 |
|
Loss from operations |
|
(69,087 |
) |
|
|
(74,371 |
) |
Interest income |
|
7,865 |
|
|
|
473 |
|
Interest expense (3) (4) |
|
(1,331 |
) |
|
|
(13,835 |
) |
Other expense, net |
|
(863 |
) |
|
|
(589 |
) |
Loss before income taxes |
|
(63,416 |
) |
|
|
(88,322 |
) |
Provision for income taxes |
|
4,746 |
|
|
|
2,479 |
|
Net loss |
$ |
(68,162 |
) |
|
$ |
(90,801 |
) |
Net loss per share, basic and diluted |
$ |
(0.48 |
) |
|
$ |
(0.65 |
) |
Weighted-average shares used in computing net loss per share, basic
and diluted |
|
143,476 |
|
|
|
139,296 |
|
(1) Includes stock-based compensation expense and related
payroll taxes as follows:
Cost of revenue |
$ |
8,661 |
|
|
$ |
5,319 |
|
Sales and marketing |
|
55,469 |
|
|
|
43,464 |
|
Research and development |
|
25,233 |
|
|
|
28,570 |
|
General and
administrative |
|
19,273 |
|
|
|
18,741 |
|
Total |
$ |
108,636 |
|
|
$ |
96,094 |
|
(2) Includes amortization expense of acquired intangible
assets as follows:
Cost of revenue |
$ |
1,939 |
|
|
$ |
2,056 |
|
Sales and marketing |
|
178 |
|
|
|
170 |
|
Research and development |
|
435 |
|
|
|
— |
|
Total |
$ |
2,552 |
|
|
$ |
2,226 |
|
(3) Includes amortization of debt discount and issuance costs as
follows (4): |
$ |
972 |
|
|
$ |
13,476 |
|
(4) Effective August 1, 2022, we adopted ASU
2020-06 using the modified retrospective method under which prior
period amounts have not been adjusted. The adoption of this
standard resulted in the elimination of the debt discount and
related amortization as interest expense and the classification of
the portion of the debt issuance costs initially allocated to
equity within the carrying amount of the senior convertible notes,
which will be amortized as interest expense.
|
ZSCALER, INC. |
Condensed Consolidated Balance Sheets |
(in thousands) |
(unaudited) |
|
October 31, |
|
July 31, |
|
|
2022 |
|
|
|
2022 |
|
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
1,084,945 |
|
|
$ |
1,013,210 |
|
Short-term investments |
|
739,845 |
|
|
|
718,129 |
|
Accounts receivable, net |
|
268,718 |
|
|
|
399,745 |
|
Deferred contract acquisition costs |
|
90,004 |
|
|
|
86,210 |
|
Prepaid expenses and other current assets |
|
49,849 |
|
|
|
39,353 |
|
Total current assets |
|
2,233,361 |
|
|
|
2,256,647 |
|
Property and equipment,
net |
|
183,425 |
|
|
|
160,633 |
|
Operating lease right-of-use
assets |
|
76,199 |
|
|
|
72,357 |
|
Deferred contract acquisition
costs, noncurrent |
|
211,468 |
|
|
|
210,792 |
|
Acquired intangible assets,
net |
|
29,267 |
|
|
|
31,819 |
|
Goodwill |
|
78,547 |
|
|
|
78,547 |
|
Other noncurrent assets |
|
23,465 |
|
|
|
21,870 |
|
Total assets |
$ |
2,835,732 |
|
|
$ |
2,832,665 |
|
|
|
|
|
Liabilities and Stockholders’
Equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
29,717 |
|
|
$ |
26,154 |
|
Accrued expenses and other current liabilities |
|
60,229 |
|
|
|
46,496 |
|
Accrued compensation |
|
79,587 |
|
|
|
111,948 |
|
Deferred revenue |
|
913,104 |
|
|
|
923,749 |
|
Operating lease liabilities |
|
28,646 |
|
|
|
26,100 |
|
Total current liabilities |
|
1,111,283 |
|
|
|
1,134,447 |
|
Convertible senior notes, net
(1) |
|
1,139,542 |
|
|
|
968,674 |
|
Deferred revenue,
noncurrent |
|
92,609 |
|
|
|
97,374 |
|
Operating lease liabilities,
noncurrent |
|
51,065 |
|
|
|
50,948 |
|
Other noncurrent
liabilities |
|
9,958 |
|
|
|
7,922 |
|
Total liabilities |
|
2,404,457 |
|
|
|
2,259,365 |
|
Stockholders’ Equity |
|
|
|
Common stock |
|
144 |
|
|
|
143 |
|
Additional paid-in
capital |
|
1,425,156 |
|
|
|
1,590,885 |
|
Accumulated other
comprehensive loss |
|
(37,824 |
) |
|
|
(25,850 |
) |
Accumulated deficit |
|
(956,201 |
) |
|
|
(991,878 |
) |
Total stockholders’ equity |
|
431,275 |
|
|
|
573,300 |
|
Total liabilities and stockholders’ equity |
$ |
2,835,732 |
|
|
$ |
2,832,665 |
|
_________(1) Effective August 1, 2022, we
adopted ASU 2020-06 using the modified retrospective method under
which prior period amounts have not been adjusted. The adoption of
this standard resulted in the elimination of the debt discount and
the classification of the portion of the debt issuance costs
initially allocated to equity within the carrying amount of our
senior convertible debt, which will be recognized as interest
expense.
|
ZSCALER, INC. |
Condensed Consolidated Statements of Cash
Flows |
(in thousands) |
(unaudited) |
|
Three Months Ended |
|
October 31, |
|
|
2022 |
|
|
|
2021 |
|
Cash Flows from Operating Activities |
|
|
|
Net loss |
$ |
(68,162 |
) |
|
$ |
(90,801 |
) |
Adjustments to reconcile net
loss to cash provided by operating activities: |
|
|
|
Depreciation and amortization expense |
|
11,876 |
|
|
|
9,017 |
|
Amortization expense of acquired intangible assets |
|
2,552 |
|
|
|
2,226 |
|
Amortization of deferred contract acquisition costs |
|
22,325 |
|
|
|
14,912 |
|
Amortization of debt discount and issuance costs (1) |
|
972 |
|
|
|
13,476 |
|
Non-cash operating lease costs |
|
7,108 |
|
|
|
6,031 |
|
Stock-based compensation expense |
|
105,173 |
|
|
|
89,903 |
|
Amortization (accretion) of investments purchased at a premium
(discount) |
|
(165 |
) |
|
|
2,671 |
|
Deferred income taxes |
|
65 |
|
|
|
(223 |
) |
Other |
|
248 |
|
|
|
(13 |
) |
Changes in operating assets
and liabilities |
|
|
|
Accounts receivable |
|
130,636 |
|
|
|
84,927 |
|
Deferred contract acquisition costs |
|
(26,795 |
) |
|
|
(23,985 |
) |
Prepaid expenses, other current and noncurrent assets |
|
(7,579 |
) |
|
|
(4,126 |
) |
Accounts payable |
|
3,000 |
|
|
|
(1,088 |
) |
Accrued expenses, other current and noncurrent liabilities |
|
3,627 |
|
|
|
(192 |
) |
Accrued compensation |
|
(32,797 |
) |
|
|
(20,955 |
) |
Deferred revenue |
|
(15,340 |
) |
|
|
17,381 |
|
Operating lease liabilities |
|
(8,287 |
) |
|
|
(5,890 |
) |
Net cash provided by operating activities |
|
128,457 |
|
|
|
93,271 |
|
Cash Flows from Investing Activities |
|
|
|
Purchases of property, equipment and other assets |
|
(25,202 |
) |
|
|
(6,454 |
) |
Capitalized internal-use software |
|
(7,641 |
) |
|
|
(3,450 |
) |
Strategic investments |
|
(700 |
) |
|
|
— |
|
Purchases of short-term investments |
|
(210,255 |
) |
|
|
(312,840 |
) |
Proceeds from maturities of short-term investments |
|
186,096 |
|
|
|
322,677 |
|
Net cash used in investing activities |
|
(57,702 |
) |
|
|
(67 |
) |
Cash Flows from Financing Activities |
|
|
|
Proceeds from issuance of common stock upon exercise of stock
options |
|
982 |
|
|
|
2,644 |
|
Payment of deferred consideration related to business
acquisitions |
|
— |
|
|
|
(50 |
) |
Other |
|
(2 |
) |
|
|
— |
|
Net cash provided by financing activities |
|
980 |
|
|
|
2,594 |
|
Net increase in cash and cash
equivalents (2) |
|
71,735 |
|
|
|
95,798 |
|
Cash and cash equivalents at
beginning of period (2) |
|
1,013,210 |
|
|
|
275,898 |
|
Cash and cash equivalents at
end of period (2) |
$ |
1,084,945 |
|
|
$ |
371,696 |
|
_________
(1) Effective August 1, 2022, we adopted ASU
2020-06 using the modified retrospective method under which prior
period amounts have not been adjusted. The adoption of this
standard resulted in the elimination of the debt discount and
related amortization as interest expense and the classification of
the portion of the debt issuance costs initially allocated to
equity within the carrying amount of the senior convertible notes,
which will be amortized as interest expense.
(2) We did not hold restricted cash for any
periods presented.
|
ZSCALER, INC. |
Reconciliation of GAAP to Non-GAAP Financial
Measures |
(in thousands, except percentages) |
(unaudited) |
|
|
|
|
|
Three Months Ended |
|
October 31, |
|
|
2022 |
|
|
|
2021 |
|
|
|
|
|
Revenue |
$ |
355,548 |
|
|
$ |
230,517 |
|
|
|
|
|
Non-GAAP Gross Profit
and Non-GAAP Gross Margin |
|
|
|
GAAP gross profit |
$ |
278,851 |
|
|
$ |
178,348 |
|
Add: Stock-based compensation expense and related payroll
taxes |
|
8,661 |
|
|
|
5,319 |
|
Add: Amortization expense of acquired intangible assets |
|
1,939 |
|
|
|
2,056 |
|
Non-GAAP gross profit |
$ |
289,451 |
|
|
$ |
185,723 |
|
GAAP gross margin |
|
78 |
% |
|
|
77 |
% |
Non-GAAP gross margin |
|
81 |
% |
|
|
81 |
% |
|
|
|
|
Non-GAAP Income from
Operations and Non-GAAP Operating Margin |
|
|
|
GAAP loss from operations |
$ |
(69,087 |
) |
|
$ |
(74,371 |
) |
Add: Stock-based compensation expense and related payroll
taxes |
|
108,636 |
|
|
|
96,094 |
|
Add: Amortization expense of acquired intangible assets |
|
2,552 |
|
|
|
2,226 |
|
Non-GAAP income from
operations |
$ |
42,101 |
|
|
$ |
23,949 |
|
GAAP operating margin |
|
(19 |
)% |
|
|
(32 |
)% |
Non-GAAP operating margin |
|
12 |
% |
|
|
10 |
% |
|
ZSCALER, INC. |
Reconciliation of GAAP to Non-GAAP Financial
Measures |
(in thousands, except per share amounts) |
(unaudited) |
|
|
|
|
|
Three Months Ended |
|
October 31, |
|
|
2022 |
|
|
|
2021 |
|
Non-GAAP Net Income
per Share, Diluted |
|
|
|
GAAP net loss |
$ |
(68,162 |
) |
|
$ |
(90,801 |
) |
Stock-based compensation expense and related payroll taxes |
|
108,636 |
|
|
|
96,094 |
|
Amortization expense of acquired intangible assets |
|
2,552 |
|
|
|
2,226 |
|
Amortization of debt discount and issuance costs (1) |
|
972 |
|
|
|
13,476 |
|
Benefit for income taxes (2) |
|
— |
|
|
|
— |
|
Non-GAAP net income |
$ |
43,998 |
|
|
$ |
20,995 |
|
|
|
|
|
Add: Non-GAAP interest expense
(1) |
|
359 |
|
|
|
— |
|
Numerator used in computing
non-GAAP net income per share, diluted |
$ |
44,357 |
|
|
$ |
20,995 |
|
|
|
|
|
GAAP net loss per share,
diluted |
$ |
(0.48 |
) |
|
$ |
(0.65 |
) |
Stock-based compensation expense and related payroll taxes |
|
0.70 |
|
|
|
0.65 |
|
Amortization expense of acquired intangible assets |
|
0.02 |
|
|
|
0.02 |
|
Amortization of debt discount and issuance costs |
|
0.01 |
|
|
|
0.09 |
|
Benefit for income taxes (2) |
|
— |
|
|
|
— |
|
Non-GAAP interest expense (1) |
|
— |
|
|
|
— |
|
Adjustment to total fully diluted earnings per share (3) |
|
0.04 |
|
|
|
0.03 |
|
Non-GAAP net income per share,
diluted (1) |
$ |
0.29 |
|
|
$ |
0.14 |
|
|
|
|
|
Weighted-average shares used
in computing GAAP net loss per share, diluted |
|
143,476 |
|
|
|
139,296 |
|
Add: Outstanding equity incentive awards |
|
3,689 |
|
|
|
7,559 |
|
Add: Senior convertible notes (1) |
|
7,626 |
|
|
|
3,385 |
|
Less: Antidilutive impact of capped call transactions (4) |
|
(588 |
) |
|
|
(2,699 |
) |
Weighted-average shares used
in computing non-GAAP net income per share, diluted (1) |
|
154,203 |
|
|
|
147,541 |
|
___________
(1) Effective August 1, 2022, we adopted ASU
2020-06 using the modified retrospective method under which prior
period amounts have not been adjusted. The adoption of this
standard resulted in the elimination of the debt discount and
related amortization as interest expense and the classification of
the portion of the debt issuance costs initially allocated to
equity within the carrying amount of the senior convertible notes,
which will be amortized as interest expense. Additionally, this
standard amended the calculation of diluted earnings per share for
certain convertible debt instruments, eliminating the treasury
stock method and requiring the use of the if-converted method to
compute the underlying potentially diluted shares. Accordingly, to
account for the potentially diluted shares related to the senior
convertible notes, we are required to add back the non-GAAP
interest expense to our non-GAAP net income and include
approximately 7.63 million shares related to the senior convertible
notes beginning in our first quarter of fiscal year 2023.
(2) We use our GAAP provision for income taxes
for purposes of determining our non-GAAP income tax expense. The
difference between our GAAP and non-GAAP income tax expense
represents the effects of stock-based compensation expense
recognized in foreign jurisdictions. The income tax benefit related
to stock-based compensation expense included in the GAAP provision
for income taxes was not material for all periods presented.
(3) The sum of the fully diluted earnings per
share impact of individual reconciling items may not total to fully
diluted non-GAAP net income per share due to the weighted-average
shares used in computing the GAAP net loss per share differing from
the weighted-average shares used in computing the non-GAAP net
income per share and due to rounding of the individual reconciling
items. The GAAP net loss per share calculation uses a lower share
count as it excludes potentially dilutive shares, which are
included in calculating the non-GAAP net income per share.
(4) We exclude the in-the-money portion of the
convertible senior notes for non-GAAP weighted-average diluted
shares as they are covered by our capped call transactions. Our
outstanding capped call transactions are antidilutive under GAAP,
but are expected to mitigate the dilutive effect of the convertible
notes and therefore are included in the calculation of non-GAAP
diluted shares outstanding.
|
ZSCALER, INC. |
Reconciliation of GAAP to Non-GAAP Financial
Measures |
(in thousands, except percentages) |
(unaudited) |
|
|
|
|
|
Three Months Ended |
|
October 31, |
|
|
2022 |
|
|
|
2021 |
|
Calculated
billings |
|
|
|
Revenue |
$ |
355,548 |
|
|
$ |
230,517 |
|
Add: Total deferred revenue, end of period |
|
1,005,713 |
|
|
|
647,816 |
|
Less: Total deferred revenue, beginning of period |
|
(1,021,123 |
) |
|
|
(630,601 |
) |
Calculated
billings |
$ |
340,138 |
|
|
$ |
247,732 |
|
|
|
|
|
Free cash
flow |
|
|
|
Net cash provided by operating
activities |
$ |
128,457 |
|
|
$ |
93,271 |
|
Less: Purchases of property, equipment and other assets |
|
(25,202 |
) |
|
|
(6,454 |
) |
Less: Capitalized internal-use software |
|
(7,641 |
) |
|
|
(3,450 |
) |
Free cash
flow |
$ |
95,614 |
|
|
$ |
83,367 |
|
|
|
|
|
Free cash flow
margin |
|
|
|
Net cash provided by operating
activities, as a percentage of revenue |
|
36 |
% |
|
|
40 |
% |
Less: Purchases of property, equipment and other assets, as a
percentage of revenue |
|
(7 |
)% |
|
|
(3 |
)% |
Less: Capitalized internal-use software, as a percentage of
revenue |
|
(2 |
)% |
|
|
(1 |
)% |
Free cash flow
margin |
|
27 |
% |
|
|
36 |
% |
ZSCALER, INC.Explanation
of Non-GAAP Financial Measures
In addition to our results determined in
accordance with generally accepted accounting principles in the
United States of America (GAAP), we believe the following non-GAAP
measures are useful in evaluating our operating performance. We use
the following non-GAAP financial information to evaluate our
ongoing operations and for internal planning and forecasting
purposes. We believe that non-GAAP financial information, when
taken collectively, may be helpful to investors because it provides
consistency and comparability with past financial performance.
However, non-GAAP financial information is presented for
supplemental informational purposes only, has limitations as an
analytical tool and should not be considered in isolation or as a
substitute for financial information presented in accordance with
GAAP. In particular, free cash flow is not a substitute for cash
provided by operating activities. Additionally, the utility of free
cash flow as a measure of our liquidity is further limited as it
does not represent the total increase or decrease in our cash
balance for a given period. In addition, other companies, including
companies in our industry, may calculate similarly-titled non-GAAP
measures differently or may use other measures to evaluate their
performance, all of which could reduce the usefulness of our
non-GAAP financial measures as tools for comparison. A
reconciliation of our historical non-GAAP financial measures to
their most directly comparable financial measures stated in
accordance with GAAP has been included in this press release.
Investors are cautioned that there are a number of limitations
associated with the use of non-GAAP financial measures and key
metrics as analytical tools. Investors are encouraged to review
these reconciliations, and not to rely on any single financial
measure to evaluate our business.
Expenses Excluded from Non-GAAP
Measures
Stock-based compensation expense is excluded
primarily because it is a non-cash expense that management believes
is not reflective of our ongoing operational performance. Employer
payroll taxes related to stock-based compensation, which is a cash
expense, are excluded because these are tied to the timing and size
of the exercise or vesting of the underlying equity awards and the
price of our common stock at the time of vesting or exercise, which
may vary from period to period independent of the operating
performance of our business. Amortization expense of intangible
assets acquired in business acquisitions and related income tax
effects, if applicable, are excluded because these are considered
by management to be outside of our core business operating
performance. Amortization of debt discount and issuance costs from
the convertible senior notes are excluded because these are
non-cash expenses and are not reflective of our ongoing operational
performance. We estimate the tax effect of these items on our
non-GAAP results and may adjust our GAAP provision for income
taxes, if such effects have a material impact to our non-GAAP
results.
Non-GAAP Financial Measures
Non-GAAP Gross Profit and Non-GAAP Gross
Margin. We define non-GAAP gross profit as GAAP gross
profit excluding stock-based compensation expense and related
employer payroll taxes and amortization expense of acquired
intangible assets. We define non-GAAP gross margin as non-GAAP
gross profit as a percentage of revenue.
Non-GAAP Income from Operations and
Non-GAAP Operating Margin. We define non-GAAP income from
operations as GAAP loss from operations excluding stock-based
compensation expense and related employer payroll taxes and
amortization expense of acquired intangible assets. We define
non-GAAP operating margin as non-GAAP income from operations as a
percentage of revenue.
Non-GAAP Net Income per Share,
Diluted. We define non-GAAP net income as GAAP net loss
excluding stock-based compensation expense and related employer
payroll taxes, amortization expense of acquired intangible assets,
amortization of debt discount and issuance costs, and income tax
effects generated by the effects of stock-based compensation
expense recognized in foreign jurisdictions. We define non-GAAP net
income per share, diluted, as non-GAAP net income plus the non-GAAP
interest expense divided by the weighted-average diluted shares
outstanding, which includes the effect of potentially diluted
common stock equivalents outstanding during the period and the
anti-dilutive impact of the capped call transactions entered into
in connection with the convertible senior notes.
Calculated Billings. We define
calculated billings as total revenue plus the change in deferred
revenue in a period. Calculated billings in any particular period
aims to reflect amounts invoiced for subscriptions to access our
cloud platform, together with related support services for our new
and existing customers. We typically invoice our customers annually
in advance, and to a lesser extent quarterly in advance, monthly in
advance or multi-year in advance.
Free Cash Flow and Free Cash Flow
Margin. We define free cash flow as net cash provided by
operating activities less purchases of property, equipment and
other assets and capitalized internal-use software. We define free
cash flow margin as free cash flow divided by revenue. We believe
that free cash flow and free cash flow margin are useful indicators
of liquidity that provide information to management and investors
about the amount of cash generated from our operations that, after
the investments in property, equipment and other assets and
capitalized internal-use software, can be used for strategic
initiatives.
Zscaler (NASDAQ:ZS)
Historical Stock Chart
From Mar 2024 to Apr 2024
Zscaler (NASDAQ:ZS)
Historical Stock Chart
From Apr 2023 to Apr 2024