01—Abstract
Summary
Summary of the 10-Q filed December 6, 2023. Cited figures are marked; the original filing is the authoritative source.
Zscaler, Inc. (ZS) reported results for the three months ended October 31, 2023 (fiscal 2024 first quarter).
Revenue was $496.7 milliona, up from $355.5 million a year earlier, and the filing states the increase was $141.2 million, or 40%. Subscription and support revenue accounted for approximately 97% of revenue. Net loss narrowed to $33.5 million from $68.2 million, or $(0.23) per share versus $(0.48).
GAAP operating loss was $46.1 millionb, compared with $69.1 million in the prior-year period. Non-GAAP income from operations was $89.7 million, or 18% of revenue, versus $42.1 million, or 12%, a year earlier. Cash flow strengthened considerably.
Net cash provided by operating activities was $260.8 millionc, versus $128.5 million, and free cash flow was $224.7 million, or a 45% free cash flow margin, compared with $95.6 million and 27% in the prior year. Cash, cash equivalents and short-term investments totaled $2,324.4 million as of October 31, 2023. Deferred revenue was $1,399.5 million, and remaining performance obligations were $3,487.4 million, of which 51% is expected to be recognized over the next 12 months.
The dollar-based net retention rate was 120%d for the trailing 12 months, compared with above 125% a year earlier. The filing also notes ongoing macroeconomic pressure, including customer scrutiny and longer approval processes for large deals.
Stock-based compensation was $129.1 million in operating cash flow adjustments, and the Company's $1,150.0 million of 0.125% convertible senior notes due 2025 remained outstanding, with the conversion conditions not met during the quarter. Management expects to keep investing heavily in sales and marketing and research and development, and expects continued losses for the foreseeable future.
02—Key points
Key Highlights
- Revenue of $496.7 million, up 40% from $355.5 million for the three months ended October 31, 2022
- Net loss narrowed to $33.5 million ($0.23 per share) from $68.2 million ($0.48 per share) a year earlier
- Non-GAAP income from operations of $89.7 million (18% operating margin) versus $42.1 million (12%) in the prior-year period
- Net cash provided by operating activities of $260.8 million; free cash flow of $224.7 million, a 45% margin versus 27% a year earlier
- Cash, cash equivalents and short-term investments of $2,324.4 million as of October 31, 2023
- Dollar-based net retention rate of 120% for the trailing 12 months, versus above 125% a year earlier
- Remaining performance obligations of $3,487.4 million, with 51% expected to be recognized over the next 12 months
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q1 FY2024, Zscaler lost $0.07.
- Revenue$496.7M100.0%
- Cost of revenue−$111.4M22.4%
- Gross profit$385.3M77.6%
- Operating costs−$431.4M86.8%
- Operating income−$46.1M9.3%
- Interest, other & tax$12.6M2.5%
- Net income−$33.5M6.7%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed December 6, 2023Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $496.70M$355.55M | +39.7% |
| Cost of Revenue | $111.39M$76.70M | +45.2% |
| Gross Profit | $385.31M$278.85M | +38.2% |
| R&D Expenses | $113.54M$74.95M | +51.5% |
| Operating Expenses | $431.37M$347.94M | +24.0% |
| Operating Income | -$46.06M-$69.09M | +33.3% |
| Interest Expense | $1.34M$1.33M | +0.4% |
| Net Income | -$33.48M-$68.16M | +50.9% |
| EPS (Basic) | $-0.23$-0.48 | +52.1% |
| EPS (Diluted) | $-0.23$-0.48 | +52.1% |
| Shares Outstanding (Basic) | 147.63M143.48M | +2.9% |
| Shares Outstanding (Diluted) | 147.63M143.48M | +2.9% |
05—Questions
Frequently Asked Questions
How did Zscaler's revenue and profitability change in the first quarter of fiscal 2024?
Revenue rose $141.2 million, or 40%, to $496.7 million. GAAP loss from operations narrowed to $46.1 million from $69.1 million, and net loss narrowed to $33.5 million from $68.2 million. Gross margin was 78% in both periods.
What drove the revenue increase?
The filing attributes $95.7 million of the increase to more users and additional subscriptions sold to existing customers. The remainder came mainly from new customers, and the customer base grew 14% from October 31, 2022 to October 31, 2023.
Is the company generating cash, and how much liquidity does it have?
Operating cash flow was $260.8 million, compared with $128.5 million a year earlier, and free cash flow was $224.7 million. Cash, cash equivalents and short-term investments totaled $2,324.4 million, and management believes this is sufficient for at least the next 12 months.
What risks does the filing highlight for investors?
The filing cites macroeconomic pressure, including inflation and geopolitical events, which has led to customer scrutiny and longer approval processes for larger deals. Dollar-based net retention fell to 120% from above 125%. The company also expects to continue incurring net losses and investing heavily in sales, marketing and R&D, and it has $1,150.0 million of convertible senior notes due 2025 outstanding.
What is the outlook for operating expenses and margins?
The filing says the company expects sales and marketing to remain its largest operating expense category and expects operating expenses to increase in absolute dollars. It also expects gross margin to increase slightly over the long term, while noting that operating expenses are expected to rise as the company continues investing in growth.
06—Continue