01—Abstract
Summary
Summary of the 10-Q filed June 7, 2024. Cited figures are marked; the original filing is the authoritative source.
Zscaler, Inc. reported revenue of $553.2 milliona for the three months ended April 30, 2024, up 32% from $418.8 million a year earlier, and $1,574.9 million for the nine months, up 36%.
Gross margin was 79% for the quarter, and GAAP loss from operations narrowed to $3.0 millionb from $55.7 million. The company reported net income of $19.1 million for the quarter, compared with a net loss of $46.0 million in the prior-year quarter. For the nine months, the net loss was $42.8 million.
Non-GAAP operating margin for the quarter was 22%, and free cash flow for the nine months was $448.6 millionc, a 28% free cash flow margin. The balance sheet shows cash, cash equivalents and short-term investments of $2,240.0 million as of April 30, 2024, against $1,137.7 million of convertible senior notes, net. Deferred revenue totaled $1,577.0 million, and remaining performance obligations were $3,824.1 million, with 51% expected to be recognized over the next 12 months.
Calculated billings rose 30% for both the quarter and the nine months. The company completed the Avalor and Airgap acquisitions for purchase prices of $256.7 milliond and $124.4 million, respectively, and reported goodwill of $417.0 million. The filing notes management's view that customers are scrutinizing purchasing decisions and requiring multiple approvals for large expenditures amid the macroeconomic environment.
Dollar-based net retention was 116% for the trailing 12 months ended April 30, 2024, compared with above 125% a year earlier. The company stated that the conditions allowing holders of its 0.125% convertible notes due 2025 to convert were not met during the quarter.
02—Key points
Key Highlights
- Revenue of $553.2 million for Q3 fiscal 2024, up 32% year over year; nine-month revenue of $1,574.9 million, up 36%.
- GAAP net income of $19.1 million for the quarter versus a net loss of $46.0 million in the prior-year quarter; GAAP loss from operations narrowed to $3.0 million.
- Non-GAAP operating margin of 22% for the quarter, compared with 15% a year earlier; non-GAAP gross margin of 81%.
- Free cash flow of $448.6 million for the nine months ended April 30, 2024, a 28% free cash flow margin; net cash from operating activities was $576.3 million.
- Cash, cash equivalents and short-term investments totaled $2,240.0 million; deferred revenue was $1,577.0 million and remaining performance obligations were $3,824.1 million.
- Calculated billings increased 30% to $628.0 million for the quarter and 30% to $1,712.2 million for the nine months.
- Acquired Avalor Technologies (purchase price $256.7 million) and Airgap Networks ($124.4 million) during the nine months; goodwill rose to $417.0 million from $89.2 million.
- Dollar-based net retention rate was 116% for the trailing 12 months, versus above 125% a year earlier; the filing states customers increased 14% from April 30, 2023 to April 30, 2024.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2024, Zscaler kept $0.03.
- Revenue$553.2M100.0%
- Cost of revenue−$118.3M21.4%
- Gross profit$434.9M78.6%
- Operating costs−$437.9M79.2%
- Operating income−$3.0M0.5%
- Interest, other & tax$22.1M4.0%
- Net income$19.1M3.5%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed June 7, 2024Financial Statements
Q3 FY2024 against Q3 FY2023
| Line item | Q3 FY2024Q3 FY2023 | Change |
|---|---|---|
| Revenue | $553.20M$418.80M | +32.1% |
| Cost of Revenue | $118.33M$95.85M | +23.5% |
| Gross Profit | $434.87M$322.95M | +34.7% |
| R&D Expenses | $124.96M$92.64M | +34.9% |
| Operating Expenses | $437.88M$378.70M | +15.6% |
| Operating Income | -$3.01M-$55.75M | +94.6% |
| Interest Expense | $1.34M$1.33M | +0.4% |
| Net Income | $19.12M-$46.05M | +141.5% |
| EPS (Basic) | $0.13$-0.32 | +140.6% |
| EPS (Diluted) | $0.12$-0.32 | +137.5% |
| Shares Outstanding (Basic) | 150.29M145.35M | +3.4% |
| Shares Outstanding (Diluted) | 154.08M145.35M | +6.0% |
05—Questions
Frequently Asked Questions
How did Zscaler's revenue and profitability change in the quarter ended April 30, 2024?
Revenue rose 32% to $553.2 million from $418.8 million. Gross profit was $434.9 million, and loss from operations narrowed to $3.0 million from $55.7 million. The company reported net income of $19.1 million, compared with a net loss of $46.0 million a year earlier, and diluted earnings per share of $0.12.
What drove the revenue growth?
The filing states that growth was driven primarily by more users and additional subscriptions sold to existing customers, which contributed $91.4 million of the quarter's increase. The remainder was attributed mainly to new customers.
What is the company's liquidity and debt position?
Cash, cash equivalents and short-term investments totaled $2,240.0 million as of April 30, 2024. Convertible senior notes, net, were $1,137.7 million, with principal of $1,150.0 million due July 1, 2025. The company stated its existing resources are sufficient for at least the next 12 months.
What do the deferred revenue and remaining performance obligations indicate?
Deferred revenue totaled $1,577.0 million, of which $1,376.7 million is current. Remaining performance obligations were $3,824.1 million, with 51% expected to be recognized over the next 12 months and 95% over the next three years.
What macroeconomic or demand concerns does management highlight?
Management stated that it continues to see customer scrutiny of purchasing decisions, elongated approval processes, particularly for larger deals, and multiple approvals required for large expenditures. Dollar-based net retention fell to 116% for the trailing 12 months ended April 30, 2024, from above 125% a year earlier.
06—Continue