01—Abstract
Summary
Summary of the 10-K filed September 14, 2023. Cited figures are marked; the original filing is the authoritative source.
Zscaler, Inc. (ZS) reported its fiscal 2023 annual results for the year ended July 31, 2023, with revenue of $1,617.0 milliona, up from $1,090.9 million in fiscal 2022 and $673.1 million in fiscal 2021, and a net loss of $202.3 million, compared with net losses of $390.3 million in fiscal 2022 and $262.0 million in fiscal 2021.
Gross margin held at 78%, and loss from operations narrowed to $234.6 millionb from $327.4 million. Interest income rose to $60.5 million, while interest expense fell to $6.5 million after the adoption of ASU 2020-06. Operating cash flow was $462.3 million, and free cash flow was $333.6 million, or 21% of revenue.
The company ended the year with cash, cash equivalents and short-term investments of $2,100.2 millionc, against $1,150.0 million of 0.125% Convertible Senior Notes due 2025. The filing highlights growth driven by subscriptions to additional users and the addition of new customers, with more than 7,700 customers including over 640 of the Forbes Global 2000. Dollar-based net retention was 121% for the trailing 12 months ended July 31, 2023, versus above 125% a year earlier.
Calculated billings rose $554.0 milliond, or 37%, to $2,035.5 million. Management noted that customers are taking longer to make purchasing decisions and seeking more approvals for large deals amid high inflation and macroeconomic uncertainty.
Remaining performance obligations totaled $3,513.6 million, with 49% expected to be recognized over the next 12 months. Risk factors emphasize the company's history of net losses, intense competition from legacy appliance vendors and larger rivals, dependence on channel partners (top five partners represented 26% of fiscal 2023 revenue), and the concentration of ownership, with executive officers, directors and 5% holders together beneficially owning approximately 44.8% of common stock.
02—Key points
Key Highlights
- Revenue grew to $1,617.0 million in fiscal 2023 from $1,090.9 million in fiscal 2022, an increase of $526.0 million, or 48%.
- Net loss narrowed to $202.3 million in fiscal 2023 from $390.3 million in fiscal 2022; loss from operations improved to $234.6 million from $327.4 million.
- Gross margin was steady at 78%, and non-GAAP operating margin rose to 15% from 10% in fiscal 2022.
- Net cash provided by operating activities was $462.3 million and free cash flow was $333.6 million, 21% of revenue.
- Cash, cash equivalents and short-term investments totaled $2,100.2 million as of July 31, 2023, against $1,150.0 million of 0.125% Convertible Senior Notes due July 1, 2025.
- Dollar-based net retention rate was 121% for the trailing 12 months ended July 31, 2023, down from above 125% the prior year; customer count reached over 7,700.
- Customers are facing longer approval processes for large purchases amid inflation and macroeconomic uncertainty, and the company expects its growth rate to trend down over time as its revenue base increases.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2023, Zscaler lost $0.13.
- Revenue$1.62B100.0%
- Cost of revenue−$362.8M22.4%
- Gross profit$1.25B77.6%
- Operating costs−$1.49B92.1%
- Operating income−$234.6M14.5%
- Interest, other & tax$32.3M2.0%
- Net income−$202.3M12.5%
04—Financials
Financial Highlights
Figures from 10-KFY2023filed September 14, 2023Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $1.62B$1.09B | +48.2% |
| Cost of Revenue | $362.83M$242.28M | +49.8% |
| Gross Profit | $1.25B$848.66M | +47.8% |
| R&D Expenses | $350.79M$289.14M | +21.3% |
| Operating Expenses | $1.49B$1.18B | +26.6% |
| Operating Income | -$234.62M-$327.43M | +28.3% |
| Interest Expense | $5.33M$56.58M | −90.6% |
| Net Income | -$202.34M-$390.28M | +48.2% |
| EPS (Basic) | $-1.40$-2.77 | +49.5% |
| EPS (Diluted) | $-1.40$-2.77 | +49.5% |
| Shares Outstanding (Basic) | 144.94M140.90M | +2.9% |
| Shares Outstanding (Diluted) | 144.94M140.90M | +2.9% |
05—Questions
Frequently Asked Questions
How fast is Zscaler growing and is it profitable?
Revenue rose 48% to $1,617.0 million in fiscal 2023. The company still posted a net loss of $202.3 million, though this was smaller than the $390.3 million loss in fiscal 2022, and it expects to keep incurring net losses for the foreseeable future.
What is driving revenue growth?
The filing attributes $440.6 million of the fiscal 2023 revenue increase to more users and additional subscriptions sold to existing customers. The rest came mainly from new customers, and the customer base grew 14% to over 7,700.
Has customer retention or expansion weakened?
The dollar-based net retention rate was 121% for the trailing 12 months ended July 31, 2023, compared with above 125% a year earlier. Management also cited longer approval cycles and greater customer caution for large deals in the current economic environment.
How is the balance sheet positioned for debt repayment?
The company had $2,100.2 million in cash, cash equivalents and short-term investments against $1,150.0 million principal of 0.125% convertible notes due July 1, 2025. Management stated it currently intends to settle the principal in cash and believes existing resources will be sufficient for at least the next 12 months.
What are the main risks to the investment thesis?
Key risks include intense competition from larger vendors with greater resources, reliance on channel partners (top five represented 26% of fiscal 2023 revenue), macroeconomic pressure on IT spending, and the concentration of ownership, with insiders and 5% holders owning about 44.8% of common stock.
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