01—Abstract
Summary
Summary of the 10-K filed September 15, 2022. Cited figures are marked; the original filing is the authoritative source.
Zscaler, Inc. filed its Form 10-K for the fiscal year ended July 31, 2022, reporting revenue of $1,090.9 milliona in fiscal 2022, up from $673.1 million in fiscal 2021 and $431.3 million in fiscal 2020, representing year-over-year revenue growth of 56% and 62%.
The company remains unprofitable, with a net loss of $390.3 millionb in fiscal 2022 (compared with $262.0 million in fiscal 2021 and $115.1 million in fiscal 2020) and an accumulated deficit of $991.9 million. Management states it expects to keep incurring net losses and intends to prioritize long-term growth over near-term profitability, with operating expenses expected to keep rising in absolute dollars. Gross margin was steady at 78%, and non-GAAP operating margin was 10%, with free cash flow of $231.3 million.
The balance sheet and cash flow profile are stronger than the GAAP loss suggests. Cash, cash equivalents and short-term investments totaled $1,731.3 millionc at July 31, 2022, and operating cash flow was $321.9 million. Deferred revenue reached $1,021.1 million, and remaining performance obligations were $2,607.2 million, with 49% expected to be recognized over the next 12 months.
Against this, the company carries $1,150.0 milliond of 0.125% Convertible Senior Notes due 2025, and management states it intends to settle the principal in cash. Customer metrics show over 6,700 customers, including over 600 of the Forbes Global 2000, and a dollar-based net retention rate above 125%. Investors should also note concentration and governance factors described in the filing.
Sales through the top five channel partners represented 28% of revenue in fiscal 2022, and insiders together beneficially owned approximately 50.5% of common stock, with Jay Chaudhry and affiliates holding approximately 18.8%. The filing also discloses that adoption of ASU 2020-06 on August 1, 2022 will increase the carrying amount of the convertible notes by $169.9 million and reduce additional paid-in capital by $273.7 million.
02—Key points
Key Highlights
- Revenue of $1,090.9 million in fiscal 2022, up from $673.1 million in fiscal 2021, with growth of 62% stated for fiscal 2022.
- Net loss of $390.3 million in fiscal 2022 and an accumulated deficit of $991.9 million; management expects net losses to continue.
- GAAP gross margin of 78%, non-GAAP gross margin of 81%, and non-GAAP operating margin of 10% in fiscal 2022.
- Free cash flow of $231.3 million in fiscal 2022 versus $143.7 million in fiscal 2021; net cash from operations of $321.9 million.
- Cash, cash equivalents and short-term investments of $1,731.3 million at July 31, 2022, against $1,150.0 million of 0.125% Convertible Senior Notes due 2025.
- Deferred revenue of $1,021.1 million and remaining performance obligations of $2,607.2 million, with 49% expected to be recognized within 12 months.
- Top five channel partners accounted for 28% of fiscal 2022 revenue; insiders beneficially owned approximately 50.5% of common stock.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2022, Zscaler lost $0.36.
- Revenue$1.09B100.0%
- Cost of revenue−$242.3M22.2%
- Gross profit$848.7M77.8%
- Operating costs−$1.18B107.8%
- Operating income−$327.4M30.0%
- Interest, other & tax−$62.8M5.8%
- Net income−$390.3M35.8%
04—Financials
Financial Highlights
Figures from 10-KFY2022filed September 15, 2022Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $1.09B$673.10M | +62.1% |
| Cost of Revenue | $242.28M$150.32M | +61.2% |
| Gross Profit | $848.66M$522.78M | +62.3% |
| R&D Expenses | $289.14M$174.65M | +65.6% |
| Operating Expenses | $1.18B$730.60M | +61.0% |
| Operating Income | -$327.43M-$207.81M | −57.6% |
| Interest Expense | $56.58M$53.36M | +6.0% |
| Net Income | -$390.28M-$262.03M | −48.9% |
| EPS (Basic) | $-2.77$-1.93 | −43.5% |
| EPS (Diluted) | $-2.77$-1.93 | −43.5% |
| Shares Outstanding (Basic) | 140.90M135.65M | +3.9% |
| Shares Outstanding (Diluted) | 140.90M135.65M | +3.9% |
05—Questions
Frequently Asked Questions
How fast did Zscaler's revenue grow in fiscal 2022?
Revenue increased to $1,090.9 million in fiscal 2022 from $673.1 million in fiscal 2021, a 62% increase. Fiscal 2021 revenue had grown 56% from $431.3 million in fiscal 2020. The filing attributes $337.6 million of the fiscal 2022 increase to more users and additional subscriptions from existing customers.
Is Zscaler profitable, and does management expect that to change?
No. Zscaler reported a net loss of $390.3 million in fiscal 2022, and it has incurred net losses in every period since inception. Management states it expects to continue incurring net losses for the foreseeable future and intends to focus on long-term growth over short-term profitability, with operating expenses expected to rise in absolute dollars.
What are the main risks from the convertible notes?
The $1,150.0 million of 0.125% Convertible Senior Notes due July 1, 2025 could require cash payments if holders convert, which could affect liquidity. The filing states the company currently intends to settle principal in cash. Adopting ASU 2020-06 on August 1, 2022 is expected to increase the carrying amount of the notes by $169.9 million and reduce additional paid-in capital by $273.7 million.
How concentrated is Zscaler's revenue and ownership?
Channel partners generated 93% of fiscal 2022 revenue, and the top five channel partners and their affiliates represented 28% of revenue. No single end customer contributed more than 10% of revenue. On ownership, executive officers, directors, and 5% holders together owned approximately 50.5% of common stock, with Chief Executive Officer Jay Chaudhry and affiliates owning approximately 18.8%, which the filing notes gives them significant control over stockholder matters.
06—Continue