Zscaler, Inc. (Nasdaq: ZS), the leader in cloud security,
today announced financial results for its third quarter of fiscal
year 2023, ended April 30, 2023.
"The business value delivered by our Zero Trust
security platform is continuing to drive customer adoption across
all sectors globally, leading to another quarter of strong growth.
On a year-over-year basis, we delivered 46% revenue growth, 40%
billings growth, and 135% operating profit growth, all exceeding
our guidance from last quarter”, said Jay Chaudhry, Chairman and
CEO of Zscaler. "We believe our highly-scalable, extensible
platform enables customers to dramatically elevate their security
posture, reduce IT complexity and increase employee productivity,
providing a competitive advantage to our customers and helping to
ensure their business success in this uncertain macroeconomic
environment."
Third Quarter
Fiscal 2023 Financial
Highlights
- Revenue: $418.8 million, an increase
of 46% year-over-year.
- Income (loss) from operations: GAAP loss from
operations was $55.7 million, or 13% of revenue,
compared to $86.6 million, or 30% of revenue, in
the third quarter of fiscal 2022. Non-GAAP income from
operations was $63.9 million, or 15% of revenue,
compared to $27.2 million, or 9% of revenue, in
the third quarter of fiscal 2022.
- Net income (loss): GAAP net loss
was $46.0 million, compared to $101.4 million in
the third quarter of fiscal 2022. Non-GAAP net income
was $74.6 million, compared to $24.7 million in
the third quarter of fiscal 2022.
- Net income (loss) per share: GAAP net loss per
share was $0.32, compared to $0.72 in the third
quarter of fiscal 2022. Non-GAAP net income per share was
$0.48, compared to $0.17 in the third quarter of fiscal 2022.
- Cash flow: Cash provided by operations
was $108.5 million, or 26% of revenue, compared to $77.2
million, or 27% of revenue, in the third quarter of
fiscal 2022. Free cash flow was $73.9 million,
or 18% of revenue, compared to $43.7 million, or 15% of
revenue, in the third quarter of fiscal 2022.
- Deferred revenue: $1,175.4 million as of April
30, 2023, an increase of 44% year-over-year.
- Cash, cash equivalents and short-term
investments: $1,968.4 million as of April 30,
2023, an increase of $237.1 million from July 31, 2022.
Recent Business Highlights
- Announced the appointment of Syam Nair as Chief Technology
Officer and EVP of Research and Development. Nair joined the
company in May 2023 and is responsible for driving the research and
development engines to expand Zscaler’s Zero Trust Exchange
platform, accelerate AI/ML innovations, and further scale the
largest security cloud in the world.
- Announced the appointment of Karl Soderlund as Senior Vice
President, Worldwide Partners, and Alliances. In this role,
Soderlund is responsible for elevating and modernizing the Zscaler
partner program by developing and executing a competitive
go-to-market strategy and leading a world-class channel team.
- Launched advanced AI-powered insights for Zscaler Digital
Experience (ZDX™) to provide IT operations and service desk teams
with improved diagnostics and remediation. This innovation helps to
ensure flawless digital experiences for employees and accelerate
the IT troubleshooting process to reduce remediation time from
hours, days, or weeks to a few minutes.
- Integrated data loss prevention (DLP) and ThreatLabz threat
intelligence with Zscaler Posture Control to make it the only cloud
native application protection platform (CNAPP) that delivers an
accurate cloud risk view by correlating risk impact and likelihood
using Zscaler sensitive data discovery and security signals.
- Announced Zscaler was again recognized as a Leader in the 2023
Gartner Magic Quadrant for Security Service Edge (SSE) for the
second consecutive year following 10 consecutive years as Leader in
the Gartner Secure Web Gateways (SWG) Magic Quadrant.
- Released findings of Zscaler's 2023 ThreatLabz Phishing Report
which views 12 months of global phishing data from the world’s
largest in-line security cloud to identify the latest trends,
emerging tactics, and the industries and regions that are most
impacted by phishing attacks. Overall, phishing attacks around the
world rose nearly 50% in 2022 compared to 2021.
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) (ASU 2020-06), 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 convertible senior notes,
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
convertible senior notes, we are required to add back the non-GAAP
interest expense related to the convertible senior notes to our
non-GAAP net income and include approximately 7.63 million shares
related to our convertible senior notes beginning in our first
quarter of fiscal year 2023.
Financial Outlook
For the fourth quarter of fiscal 2023, we
expect:
- Revenue of $429 million to $431 million
- Non-GAAP income from operations of $69 million to $70
million
- Non-GAAP net income per share of approximately $0.49,
assuming approximately 157 million fully diluted shares
outstanding using the "if-converted" method for our convertible
senior notes
For the full year fiscal 2023, we
expect:
- Revenue of approximately $1.591 billion to $1.593
billion
- Calculated billings of $1.974 billion
to $1.978 billion
- Non-GAAP income from operations of $224 million
to $225 million
- Non-GAAP net income per share of $1.63 to $1.64, assuming
approximately 156 million fully diluted shares outstanding using
the "if-converted" method for our convertible senior 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
and restructuring and other charges. 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 related to the convertible senior notes to our non-GAAP net
income and include approximately 7.63 million shares related to our
convertible senior 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. 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.
In the third quarter of fiscal 2023, we updated
our definition of non-GAAP income from operations to include
restructuring and other charges.
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 third quarter of fiscal 2023 and
outlook for its fourth 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, June 1, 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/BI6f383ee7eb99419bbaf4c735a7ddf66a).
After registering, you will be provided with a dial-in number and
personal PIN required to join the call. |
Upcoming Conferences
Fourth quarter of fiscal 2023 investor
conference participation schedule:
- Bank of America Global Tech Conference in San
FranciscoWednesday, June 7, 2023
- Cantor Security and Infrastructure ConferenceFriday, June 9,
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 fourth 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 influences and instability,
including the ongoing effects of inflation, geopolitical events and
the COVID-19 pandemic on our business, operations and financial
results and the economy in general; the uncertainty about the
raising of the U.S. federal government debt limit and 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 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 Securities and Exchange Commission
(SEC), including our Quarterly Report on Form 10-Q for the fiscal
quarter ended January 31, 2023 filed on March 8, 2023 and 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™ 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, 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 |
|
Nine Months Ended |
|
April 30, |
|
April 30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Revenue |
$ |
418,800 |
|
|
$ |
286,807 |
|
|
$ |
1,161,946 |
|
|
$ |
772,887 |
|
Cost of revenue (1) (2) |
|
95,849 |
|
|
|
64,022 |
|
|
|
260,150 |
|
|
|
173,974 |
|
Gross profit |
|
322,951 |
|
|
|
222,785 |
|
|
|
901,796 |
|
|
|
598,913 |
|
Operating expenses: |
|
|
|
|
|
|
|
Sales and marketing (1) (2) |
|
236,273 |
|
|
|
192,132 |
|
|
|
701,054 |
|
|
|
520,991 |
|
Research and development (1) (2) |
|
92,637 |
|
|
|
76,578 |
|
|
|
253,348 |
|
|
|
210,989 |
|
General and administrative (1) |
|
43,486 |
|
|
|
40,672 |
|
|
|
131,164 |
|
|
|
111,833 |
|
Restructuring and other charges (1) |
|
6,301 |
|
|
|
— |
|
|
|
6,301 |
|
|
|
— |
|
Total operating expenses |
|
378,697 |
|
|
|
309,382 |
|
|
|
1,091,867 |
|
|
|
843,813 |
|
Loss from operations |
|
(55,746 |
) |
|
|
(86,597 |
) |
|
|
(190,071 |
) |
|
|
(244,900 |
) |
Interest income |
|
18,577 |
|
|
|
949 |
|
|
|
39,111 |
|
|
|
1,979 |
|
Interest expense (3) (4) |
|
(1,383 |
) |
|
|
(14,246 |
) |
|
|
(4,047 |
) |
|
|
(42,121 |
) |
Other expense, net |
|
(809 |
) |
|
|
(2,001 |
) |
|
|
(1,531 |
) |
|
|
(3,434 |
) |
Loss before income taxes |
|
(39,361 |
) |
|
|
(101,895 |
) |
|
|
(156,538 |
) |
|
|
(288,476 |
) |
Provision (benefit) for income taxes |
|
6,685 |
|
|
|
(490 |
) |
|
|
15,123 |
|
|
|
4,150 |
|
Net loss |
$ |
(46,046 |
) |
|
$ |
(101,405 |
) |
|
$ |
(171,661 |
) |
|
$ |
(292,626 |
) |
Net loss per share, basic and
diluted |
$ |
(0.32 |
) |
|
$ |
(0.72 |
) |
|
$ |
(1.19 |
) |
|
$ |
(2.08 |
) |
Weighted-average shares used
in computing net loss per share, basic and diluted |
|
145,354 |
|
|
|
141,422 |
|
|
|
144,442 |
|
|
|
140,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based
compensation expense and related payroll taxes as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
$ |
10,025 |
|
|
$ |
6,511 |
|
|
$ |
28,281 |
|
|
$ |
17,596 |
|
Sales and marketing |
|
51,417 |
|
|
|
53,576 |
|
|
|
162,099 |
|
|
|
144,706 |
|
Research and development |
|
31,796 |
|
|
|
31,366 |
|
|
|
86,409 |
|
|
|
89,936 |
|
General and
administrative |
|
17,112 |
|
|
|
20,113 |
|
|
|
53,715 |
|
|
|
59,467 |
|
Restructuring and other
charges |
|
1,036 |
|
|
|
— |
|
|
|
1,036 |
|
|
|
— |
|
Total |
$ |
111,386 |
|
|
$ |
111,566 |
|
|
$ |
331,540 |
|
|
$ |
311,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) Includes amortization
expense of acquired intangible assets as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
$ |
2,695 |
|
|
$ |
1,980 |
|
|
$ |
6,809 |
|
|
$ |
6,036 |
|
Sales and marketing |
|
200 |
|
|
|
178 |
|
|
|
556 |
|
|
|
526 |
|
Research and development |
|
80 |
|
|
|
80 |
|
|
|
713 |
|
|
|
133 |
|
Total |
$ |
2,975 |
|
|
$ |
2,238 |
|
|
$ |
8,078 |
|
|
$ |
6,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) Includes amortization of
debt discount and issuance costs as follows (4): |
$ |
974 |
|
|
$ |
13,887 |
|
|
$ |
2,919 |
|
|
$ |
41,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
convertible senior notes, which will be recognized as interest
expense. |
ZSCALER, INC. |
Condensed Consolidated Balance Sheets |
(in thousands) |
(unaudited) |
|
April 30, |
|
July 31, |
|
2023 |
|
2022 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
1,275,297 |
|
|
$ |
1,013,210 |
|
Short-term investments |
|
693,110 |
|
|
|
718,129 |
|
Accounts receivable, net |
|
376,339 |
|
|
|
399,745 |
|
Deferred contract acquisition costs |
|
103,896 |
|
|
|
86,210 |
|
Prepaid expenses and other current assets |
|
78,608 |
|
|
|
39,353 |
|
Total current assets |
|
2,527,250 |
|
|
|
2,256,647 |
|
Property and equipment,
net |
|
222,801 |
|
|
|
160,633 |
|
Operating lease right-of-use
assets |
|
68,526 |
|
|
|
72,357 |
|
Deferred contract acquisition
costs, noncurrent |
|
232,304 |
|
|
|
210,792 |
|
Acquired intangible assets,
net |
|
28,841 |
|
|
|
31,819 |
|
Goodwill |
|
89,192 |
|
|
|
78,547 |
|
Other noncurrent assets |
|
31,798 |
|
|
|
21,870 |
|
Total assets |
$ |
3,200,712 |
|
|
$ |
2,832,665 |
|
|
|
|
|
Liabilities and Stockholders’
Equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
24,783 |
|
|
$ |
26,154 |
|
Accrued expenses and other current liabilities |
|
51,209 |
|
|
|
46,496 |
|
Accrued compensation |
|
123,195 |
|
|
|
111,948 |
|
Deferred revenue |
|
1,058,901 |
|
|
|
923,749 |
|
Operating lease liabilities |
|
31,054 |
|
|
|
26,100 |
|
Total current liabilities |
|
1,289,142 |
|
|
|
1,134,447 |
|
Convertible senior notes,
net(1) |
|
1,140,840 |
|
|
|
968,674 |
|
Deferred revenue,
noncurrent |
|
116,472 |
|
|
|
97,374 |
|
Operating lease liabilities,
noncurrent |
|
42,884 |
|
|
|
50,948 |
|
Other noncurrent
liabilities |
|
10,100 |
|
|
|
7,922 |
|
Total liabilities |
|
2,599,438 |
|
|
|
2,259,365 |
|
Stockholders’ Equity |
|
|
|
Common stock |
|
146 |
|
|
|
143 |
|
Additional paid-in
capital |
|
1,660,930 |
|
|
|
1,590,885 |
|
Accumulated other
comprehensive loss |
|
(102 |
) |
|
|
(25,850 |
) |
Accumulated deficit |
|
(1,059,700 |
) |
|
|
(991,878 |
) |
Total stockholders’ equity |
|
601,274 |
|
|
|
573,300 |
|
Total liabilities and stockholders’ equity |
$ |
3,200,712 |
|
|
$ |
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
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 convertible senior notes,
which will be recognized as interest expense.
ZSCALER, INC. |
Condensed Consolidated Statements of Cash
Flows |
(in thousands) |
(unaudited) |
|
Nine Months Ended |
|
April 30, |
|
2023 |
|
2022 |
Cash Flows from
Operating Activities |
|
|
|
Net loss |
$ |
(171,661 |
) |
|
$ |
(292,626 |
) |
Adjustments to reconcile net
loss to cash provided by operating activities: |
|
|
|
Depreciation and amortization expense |
|
39,769 |
|
|
|
29,437 |
|
Amortization expense of acquired intangible assets |
|
8,078 |
|
|
|
6,695 |
|
Amortization of deferred contract acquisition costs |
|
71,368 |
|
|
|
48,793 |
|
Amortization of debt discount and issuance costs (1) |
|
2,919 |
|
|
|
41,043 |
|
Non-cash operating lease costs |
|
23,320 |
|
|
|
18,988 |
|
Stock-based compensation expense |
|
322,730 |
|
|
|
294,745 |
|
Amortization (accretion) of investments purchased at a premium
(discount) |
|
(3,389 |
) |
|
|
5,942 |
|
Deferred income taxes |
|
158 |
|
|
|
(521 |
) |
Other |
|
(2,087 |
) |
|
|
649 |
|
Changes in operating assets
and liabilities, net of effects of business acquisitions |
|
|
|
Accounts receivable |
|
23,005 |
|
|
|
(15,449 |
) |
Deferred contract acquisition costs |
|
(110,566 |
) |
|
|
(99,062 |
) |
Prepaid expenses, other current and noncurrent assets |
|
(29,605 |
) |
|
|
(10,354 |
) |
Accounts payable |
|
(4,079 |
) |
|
|
2,966 |
|
Accrued expenses, other current and noncurrent liabilities |
|
14,861 |
|
|
|
10,150 |
|
Accrued compensation |
|
10,933 |
|
|
|
9,056 |
|
Deferred revenue |
|
154,256 |
|
|
|
188,595 |
|
Operating lease liabilities |
|
(23,603 |
) |
|
|
(20,273 |
) |
Net cash provided by operating activities |
|
326,407 |
|
|
|
218,774 |
|
Cash Flows from
Investing Activities |
|
|
|
Purchases of property, equipment and other assets |
|
(70,127 |
) |
|
|
(48,046 |
) |
Capitalized internal-use software |
|
(23,962 |
) |
|
|
(14,167 |
) |
Payments for business acquisitions, net of cash acquired |
|
(15,643 |
) |
|
|
(380 |
) |
Purchase of strategic investments |
|
(2,200 |
) |
|
|
— |
|
Purchases of short-term investments |
|
(740,239 |
) |
|
|
(810,111 |
) |
Proceeds from maturities of short-term investments |
|
748,166 |
|
|
|
955,279 |
|
Proceeds from sale of short-term investments |
|
25,083 |
|
|
|
— |
|
Net cash provided by (used in) investing
activities |
|
(78,922 |
) |
|
|
82,575 |
|
Cash Flows from
Financing Activities |
|
|
|
Proceeds from issuance of common stock upon exercise of stock
options |
|
3,194 |
|
|
|
6,190 |
|
Proceeds from issuance of common stock under the employee stock
purchase plan |
|
11,410 |
|
|
|
11,509 |
|
Payment of deferred consideration related to business
acquisitions |
|
— |
|
|
|
(50 |
) |
Other |
|
(2 |
) |
|
|
(3 |
) |
Net cash provided by financing activities |
|
14,602 |
|
|
|
17,646 |
|
Net increase in cash and cash
equivalents |
|
262,087 |
|
|
|
318,995 |
|
Cash and cash equivalents at
beginning of period |
|
1,013,210 |
|
|
|
275,898 |
|
Cash and cash equivalents at
end of period |
$ |
1,275,297 |
|
|
$ |
594,893 |
|
_________(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 convertible senior notes,
which will be recognized as interest expense.
ZSCALER, INC. |
Reconciliation of GAAP to Non-GAAP Financial
Measures |
(in thousands, except percentages) |
(unaudited) |
|
|
Three Months Ended |
|
Nine Months Ended |
|
April 30, |
|
April 30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
|
|
|
|
|
|
|
Revenue |
$ |
418,800 |
|
|
$ |
286,807 |
|
|
$ |
1,161,946 |
|
|
$ |
772,887 |
|
|
|
|
|
|
|
|
|
Non-GAAP Gross Profit
and Non-GAAP Gross Margin |
|
|
|
|
|
|
|
GAAP gross profit |
$ |
322,951 |
|
|
$ |
222,785 |
|
|
$ |
901,796 |
|
|
$ |
598,913 |
|
Add: Stock-based compensation expense and related payroll
taxes |
|
10,025 |
|
|
|
6,511 |
|
|
|
28,281 |
|
|
|
17,596 |
|
Add: Amortization expense of acquired intangible assets |
|
2,695 |
|
|
|
1,980 |
|
|
|
6,809 |
|
|
|
6,036 |
|
Non-GAAP gross profit |
$ |
335,671 |
|
|
$ |
231,276 |
|
|
$ |
936,886 |
|
|
$ |
622,545 |
|
GAAP gross margin |
|
77 |
% |
|
|
78 |
% |
|
|
78 |
% |
|
|
77 |
% |
Non-GAAP gross margin |
|
80 |
% |
|
|
81 |
% |
|
|
81 |
% |
|
|
81 |
% |
|
|
|
|
|
|
|
|
Non-GAAP Income from
Operations and Non-GAAP Operating Margin |
|
|
|
|
|
|
|
GAAP loss from operations |
$ |
(55,746 |
) |
|
$ |
(86,597 |
) |
|
$ |
(190,071 |
) |
|
$ |
(244,900 |
) |
Add: Stock-based compensation expense and related payroll taxes
(1) |
|
111,386 |
|
|
|
111,566 |
|
|
|
331,540 |
|
|
|
311,705 |
|
Add: Amortization expense of acquired intangible assets |
|
2,975 |
|
|
|
2,238 |
|
|
|
8,078 |
|
|
|
6,695 |
|
Add: Restructuring and other charges, excluding stock-based
compensation expense (1) |
|
5,265 |
|
|
|
— |
|
|
|
5,265 |
|
|
|
— |
|
Non-GAAP income from
operations |
$ |
63,880 |
|
|
$ |
27,207 |
|
|
$ |
154,812 |
|
|
$ |
73,500 |
|
GAAP operating margin |
(13 |
)% |
|
(30 |
)% |
|
(16 |
)% |
|
(32 |
)% |
Non-GAAP operating margin |
|
15 |
% |
|
|
9 |
% |
|
|
13 |
% |
|
|
10 |
% |
(1) In connection with a restructuring plan
announced in March 2023, we incurred stock-based compensation
expense of approximately $1.0 million, which is included in
stock-based compensation expense and related payroll taxes.
ZSCALER, INC. |
Reconciliation of GAAP to Non-GAAP Financial
Measures |
(in thousands, except per share amounts) |
(unaudited) |
|
|
Three Months Ended |
|
Nine months ended |
|
April 30, |
|
April 30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Non-GAAP Net Income
per Share, Diluted |
|
|
|
|
|
|
|
GAAP net loss |
$ |
(46,046 |
) |
|
$ |
(101,405 |
) |
|
$ |
(171,661 |
) |
|
$ |
(292,626 |
) |
Stock-based compensation expense and related payroll taxes (1) |
|
111,386 |
|
|
|
111,566 |
|
|
|
331,540 |
|
|
|
311,705 |
|
Amortization expense of acquired intangible assets |
|
2,975 |
|
|
|
2,238 |
|
|
|
8,078 |
|
|
|
6,695 |
|
Restructuring and other charges, excluding stock-based compensation
expense (1) |
|
5,265 |
|
|
|
— |
|
|
|
5,265 |
|
|
|
— |
|
Amortization of debt discount and issuance costs (2) |
|
974 |
|
|
|
13,887 |
|
|
|
2,919 |
|
|
|
41,043 |
|
Benefit for income taxes (3) |
|
— |
|
|
|
(1,554 |
) |
|
|
— |
|
|
|
(1,915 |
) |
Non-GAAP net income |
$ |
74,554 |
|
|
$ |
24,732 |
|
|
$ |
176,141 |
|
|
$ |
64,902 |
|
|
|
|
|
|
|
|
|
Add: Non-GAAP interest expense
(2) |
|
359 |
|
|
|
— |
|
|
|
1,078 |
|
|
|
— |
|
Numerator used in computing
non-GAAP net income per share, diluted |
$ |
74,913 |
|
|
$ |
24,732 |
|
|
$ |
177,219 |
|
|
$ |
64,902 |
|
|
|
|
|
|
|
|
|
GAAP net loss per share,
diluted |
$ |
(0.32 |
) |
|
$ |
(0.72 |
) |
|
$ |
(1.19 |
) |
|
$ |
(2.08 |
) |
Stock-based compensation expense and related payroll taxes (1) |
|
0.72 |
|
|
|
0.76 |
|
|
|
2.13 |
|
|
|
2.11 |
|
Amortization expense of acquired intangible assets |
|
0.02 |
|
|
|
0.02 |
|
|
|
0.05 |
|
|
|
0.05 |
|
Restructuring and other charges, excluding stock-based compensation
expense (1) |
|
0.03 |
|
|
|
— |
|
|
|
0.03 |
|
|
|
— |
|
Amortization of debt discount and issuance costs |
|
0.01 |
|
|
|
0.09 |
|
|
|
0.02 |
|
|
|
0.28 |
|
Benefit for income taxes (3) |
|
— |
|
|
|
(0.01 |
) |
|
|
— |
|
|
|
(0.01 |
) |
Non-GAAP interest expense (2) |
|
— |
|
|
|
— |
|
|
|
0.01 |
|
|
|
— |
|
Adjustment to total fully diluted earnings per share (4) |
|
0.02 |
|
|
|
0.03 |
|
|
|
0.09 |
|
|
|
0.09 |
|
Non-GAAP net income per share,
diluted (2) |
$ |
0.48 |
|
|
$ |
0.17 |
|
|
$ |
1.14 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
Weighted-average shares used
in computing GAAP net loss per share, diluted |
|
145,354 |
|
|
|
141,422 |
|
|
|
144,442 |
|
|
|
140,403 |
|
Add: Outstanding equity incentive awards |
|
2,492 |
|
|
|
5,493 |
|
|
|
3,249 |
|
|
|
6,798 |
|
Add: Convertible senior notes (2) |
|
7,626 |
|
|
|
2,740 |
|
|
|
7,626 |
|
|
|
3,377 |
|
Less: Antidilutive impact of capped call transactions (5) |
|
— |
|
|
|
(2,740 |
) |
|
|
— |
|
|
|
(2,704 |
) |
Weighted-average shares used
in computing non-GAAP net income per share, diluted (2) |
|
155,472 |
|
|
|
146,915 |
|
|
|
155,317 |
|
|
|
147,874 |
|
___________
(1) In connection with a restructuring plan
announced in March 2023, we incurred stock-based compensation
expense of approximately $1.0 million, which is included in
stock-based compensation expense and related payroll taxes.
(2) 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 convertible senior notes,
which will be recognized 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
convertible senior notes, we are required to add back the non-GAAP
interest expense related to the convertible senior notes to our
non-GAAP net income and include approximately 7.63 million shares
related to the convertible senior notes beginning in our first
quarter of fiscal year 2023.
(3) 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.
(4) 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.
(5) 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
senior notes and therefore are included in the calculation of
non-GAAP diluted shares outstanding. No antidilutive impact was
reflected in the three and nine months ended April 30, 2023, as the
average stock price of our common stock during such periods was
lower than the capped calls’ exercise price.
ZSCALER, INC. |
Reconciliation of GAAP to Non-GAAP Financial
Measures |
(in thousands, except percentages) |
(unaudited) |
|
|
Three Months Ended |
|
Nine Months Ended |
|
April 30, |
|
April 30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Calculated
billings |
|
|
|
|
|
|
|
Revenue |
$ |
418,800 |
|
|
$ |
286,807 |
|
|
$ |
1,161,946 |
|
|
$ |
772,887 |
|
Add: Total deferred revenue, end of period |
|
1,175,373 |
|
|
|
818,743 |
|
|
|
1,175,373 |
|
|
|
818,743 |
|
Less: Total deferred revenue, beginning of period |
|
(1,111,880 |
) |
|
|
(759,931 |
) |
|
|
(1,021,123 |
) |
|
|
(630,601 |
) |
Calculated
billings |
$ |
482,293 |
|
|
$ |
345,619 |
|
|
$ |
1,316,196 |
|
|
$ |
961,029 |
|
|
|
|
|
|
|
|
|
Free cash
flow |
|
|
|
|
|
|
|
Net cash provided by operating
activities |
$ |
108,469 |
|
|
$ |
77,241 |
|
|
$ |
326,407 |
|
|
$ |
218,774 |
|
Less: Purchases of property, equipment and other assets |
|
(26,244 |
) |
|
|
(27,604 |
) |
|
|
(70,127 |
) |
|
|
(48,046 |
) |
Less: Capitalized internal-use software |
|
(8,339 |
) |
|
|
(5,892 |
) |
|
|
(23,962 |
) |
|
|
(14,167 |
) |
Free cash
flow |
$ |
73,886 |
|
|
$ |
43,745 |
|
|
$ |
232,318 |
|
|
$ |
156,561 |
|
|
|
|
|
|
|
|
|
Free cash flow
margin |
|
|
|
|
|
|
|
Net cash provided by operating
activities, as a percentage of revenue |
|
26 |
% |
|
|
27 |
% |
|
|
28 |
% |
|
|
28 |
% |
Less: Purchases of property, equipment and other assets, as a
percentage of revenue |
(6 |
)% |
|
(10 |
)% |
|
(6 |
)% |
|
(6 |
)% |
Less: Capitalized internal-use software, as a percentage of
revenue |
(2 |
)% |
|
(2 |
)% |
|
(2 |
)% |
|
(2 |
)% |
Free cash flow
margin |
|
18 |
% |
|
|
15 |
% |
|
|
20 |
% |
|
|
20 |
% |
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. Restructuring and other charges includes severance and
termination benefits in connection with a restructuring plan to
streamline operations and to align people, roles and projects to
our strategic priorities. These expenses are excluded because they
fluctuate in amount and frequency and are not reflective 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,
amortization expense of acquired intangible assets and
restructuring and other charges. 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,
restructuring and other charges, 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 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