01—Abstract
Summary
Summary of the 10-K filed September 16, 2021. Cited figures are marked; the original filing is the authoritative source.
Zscaler, Inc. (ZS) reported fiscal 2021 (year ended July 31, 2021) revenue of $673.1 milliona, up from $431.3 million in fiscal 2020 and $302.8 million in fiscal 2019, representing year-over-year growth of 56% and 42%, respectively.
The company remained unprofitable, with a net loss of $262.0 millionb in fiscal 2021, compared with $115.1 million in fiscal 2020 and $28.7 million in fiscal 2019. Management states it expects to continue incurring net losses for the foreseeable future as it invests in sales and marketing, research and development, and public-company compliance. Non-GAAP income from operations was $78.0 million, a 12% non-GAAP operating margin, while GAAP loss from operations was $207.8 million.
Net cash provided by operating activities was $202.0 millionc and free cash flow was $143.7 million. The company reported over 5,600 customers, including more than 500 of the Forbes Global 2000, and a dollar-based net retention rate of 128% for the trailing 12 months ended July 31, 2021. Approximately 51% of revenue came from customers outside the United States.
Channel partners accounted for 94% of fiscal 2021 revenue, and the top five channel partners represented 34% of revenue. Calculated billings rose $384.1 milliond, or 70%, to $933.9 million. Deferred revenue reached $630.6 million, and cash, cash equivalents and short-term investments totaled $1,502.6 million at July 31, 2021.
The balance sheet carries $1,150.0 million of 0.125% Convertible Senior Notes due 2025, issued in June 2020. The conversion condition was met in the quarter ended July 31, 2021, making the notes convertible from August 1, 2021 through October 31, 2021. The company intends to settle principal in cash.
Accumulated deficit stood at $601.6 million. Key risks disclosed include competition from larger vendors, dependence on channel partners, COVID-19 effects (particularly in India), and the cash and dilution implications of the convertible notes.
02—Key points
Key Highlights
- Revenue grew 56% to $673.1 million in fiscal 2021, versus $431.3 million in fiscal 2020.
- GAAP net loss widened to $262.0 million in fiscal 2021 from $115.1 million in fiscal 2020; the company expects continued losses.
- Non-GAAP income from operations was $78.0 million (12% non-GAAP operating margin), compared with $38.2 million (9%) in fiscal 2020.
- Free cash flow was $143.7 million (21% margin) versus $27.5 million (6%) in fiscal 2020; operating cash flow was $202.0 million.
- Dollar-based net retention rate was 128% for the trailing 12 months ended July 31, 2021, up from 120% a year earlier; customers grew to over 5,600.
- Calculated billings increased 70% to $933.9 million, and deferred revenue reached $630.6 million.
- The $1,150.0 million 0.125% convertible notes became convertible from August 1, 2021 through October 31, 2021 after the price condition was met; the company intends to settle principal in cash.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2021, Zscaler lost $0.39.
- Revenue$673.1M100.0%
- Cost of revenue−$150.3M22.3%
- Gross profit$522.8M77.7%
- Operating costs−$730.6M108.5%
- Operating income−$207.8M30.9%
- Interest, other & tax−$54.2M8.1%
- Net income−$262.0M38.9%
04—Financials
Financial Highlights
Figures from 10-KFY2021filed September 16, 2021Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $673.10M$431.27M | +56.1% |
| Cost of Revenue | $150.32M$95.73M | +57.0% |
| Gross Profit | $522.78M$335.54M | +55.8% |
| R&D Expenses | $174.65M$97.88M | +78.4% |
| Operating Expenses | $730.60M$449.49M | +62.5% |
| Operating Income | -$207.81M-$113.96M | −82.4% |
| Interest Expense | $53.36M$5.03M | +962.0% |
| Net Income | -$262.03M-$115.12M | −127.6% |
| EPS (Basic) | $-1.93$-0.89 | −116.9% |
| EPS (Diluted) | $-1.93$-0.89 | −116.9% |
| Shares Outstanding (Basic) | 135.65M129.32M | +4.9% |
| Shares Outstanding (Diluted) | 135.65M129.32M | +4.9% |
05—Questions
Frequently Asked Questions
How fast is Zscaler growing and is it becoming profitable?
Revenue rose 56% to $673.1 million in fiscal 2021. The company still posted a GAAP net loss of $262.0 million, which it expects to continue for the foreseeable future. On a non-GAAP basis, operating income was positive at $78.0 million, a 12% margin, though GAAP loss from operations was $207.8 million, largely due to stock-based compensation of $278.6 million.
How much cash does Zscaler have, and does it generate cash from operations?
Cash, cash equivalents and short-term investments totaled $1,502.6 million at July 31, 2021. Net cash provided by operating activities was $202.0 million in fiscal 2021, up from $79.3 million in fiscal 2020, and free cash flow was $143.7 million. The company stated its existing resources should be sufficient for at least the next 12 months.
What are the main risks related to the convertible notes?
The $1,150.0 million 0.125% Convertible Senior Notes due 2025 became convertible from August 1, 2021 through October 31, 2021 because the stock price condition was met. If holders convert and the company does not settle in shares, it would need to pay cash, which could affect liquidity. The company also noted that it may need to reclassify the notes as a current liability, which would reduce net working capital, and that accounting rules increase interest expense through debt discount amortization.
How dependent is Zscaler on channel partners and international markets?
Channel partners generated 94% of fiscal 2021 revenue, and the top five channel partners accounted for 34% of revenue. Approximately 51% of revenue came from customers outside the United States. The filing identifies channel partner dependence and international operating risks, including currency exposure, as material risk factors.
How are customers retained and expanded?
Zscaler's dollar-based net retention rate was 128% for the trailing 12 months ended July 31, 2021, compared with 120% in fiscal 2020 and 118% in fiscal 2019. Revenue growth from existing customers contributed $179.5 million of the fiscal 2021 increase, while customers grew 23% to over 5,600 during the year.
06—Continue