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Zscaler Reports Fourth Quarter and Fiscal 2022 Financial Results

·26 min read
Zscaler, Inc.
Zscaler, Inc.

Fourth Quarter Highlights

  • Revenue grows 61% year-over-year to $318.1 million

  • Calculated billings grows 57% year-over-year to $520.4 million

  • Deferred revenue grows 62% year-over-year to $1,021.1 million

  • GAAP net loss of $97.7 million compared to GAAP net loss of $81.0 million on a year-over-year basis

  • Non-GAAP net income of $36.4 million compared to non-GAAP net income of $20.3 million on a year-over-year basis

SAN JOSE, Calif., Sept. 08, 2022 (GLOBE NEWSWIRE) -- Zscaler, Inc. (Nasdaq: ZS), the leader in cloud security, today announced financial results for its fiscal fourth quarter and fiscal year ended July 31, 2022.

"We delivered outstanding results for the fourth quarter with 61% revenue growth and 57% billings growth year over year, while driving operational efficiency across the company and delivering on Rule of 80 for the quarter and for the full year," said Jay Chaudhry, Chairman and CEO of Zscaler. "Our customers are realizing immense value from the new, innovative services and advanced capabilities being integrated into our Zero Trust security platform. Despite the uncertain macroeconomic landscape which continues to evolve, we continue to see favorable demand for our Zero Trust Exchange platform because it makes businesses more secure, simplifies IT, and reduces cost.”

Fourth Quarter Fiscal 2022 Financial Highlights

  • Revenue: $318.1 million, an increase of 61% year-over-year.

  • Income (loss) from operations: GAAP loss from operations was $82.5 million, or 26% of total revenue, compared to $67.4 million, or 34% of total revenue, in the fourth quarter of fiscal 2021. Non-GAAP income from operations was $38.1 million, or 12% of total revenue, compared to $20.6 million, or 10% of total revenue, in the fourth quarter of fiscal 2021.

  • Net income (loss): GAAP net loss was $97.7 million, compared to $81.0 million in the fourth quarter of fiscal 2021. Non-GAAP net income was $36.4 million, compared to $20.3 million in the fourth quarter of fiscal 2021.

  • Net income (loss) per share: GAAP net loss per share was $0.69, compared to $0.59 in the fourth quarter of fiscal 2021. Non-GAAP net income per share was $0.25, compared to $0.14 in the fourth quarter of fiscal 2021.

  • Cash flow: Cash provided by operations was $103.1 million, or 32% of revenue, compared to $44.7 million, or 23% of revenue, in the fourth quarter of fiscal 2021. Free cash flow was $74.8 million, or 24% of revenue, compared to $27.7 million, or 14% of revenue, in the fourth quarter of fiscal 2021.

  • Deferred revenue: $1,021.1 million as of July 31, 2022, an increase of 62% year-over-year.

  • Cash, cash equivalents and short-term investments: $1,731.3 million as of July 31, 2022, an increase of $228.8 million from July 31, 2021.

Full Year Fiscal 2022 Financial Highlights

  • Revenue: $1,090.9 million, an increase of 62% year-over-year.

  • Income (loss) from operations: GAAP loss from operations was $327.4 million, or 30% of total revenue, compared to $207.8 million, or 31% of total revenue, in fiscal 2021. Non-GAAP income from operations was $111.6 million, or 10% of total revenue, compared to $78.0 million, or 12% of total revenue, in fiscal 2021.

  • Net income (loss): GAAP net loss was $390.3 million, compared to $262.0 million in fiscal 2021. Non-GAAP net income was $101.3 million, compared to $75.7 million in fiscal 2021.

  • Net income (loss) per share: GAAP net loss per share was $2.77, compared to $1.93 in fiscal 2021. Non-GAAP net income per share was $0.69, compared to $0.52 in fiscal 2021.

  • Cash flow: Cash provided by operations was $321.9 million, or 30% of revenue, compared to $202.0 million, or 30% of revenue, in fiscal 2021. Free cash flow was $231.3 million, or 21% of revenue, compared to $143.7 million, or 21% of revenue, in fiscal 2021.

Recent Business Highlights

  • Announced our Posture Control™ solution which is designed to give organizations unified Cloud-Native Application Protection Platform (CNAPP) functionality tailor-made to secure cloud workloads. Integrated into the Zscaler Zero Trust Exchange™ platform, the Posture Control solution enables DevOps and security teams to efficiently prioritize and remediate risks in cloud-native applications earlier in the development lifecycle.

  • Released innovations, including CNAPP and Zero Trust for Workloads, built on Zscaler’s platform and Amazon Web Services (AWS) to help enterprises securely accelerate their transition to the cloud. Working together, the companies will deliver customers a unified solution to consolidate and simplify cloud security operations while helping organizations advance their security architecture from ineffective legacy models to a modern Zero Trust approach designed for the cloud.

  • Launched advanced AI/ML innovations to deliver unparalleled user protection and digital experience monitoring. The new capabilities enhance Zscaler’s Zero Trust Exchange™ platform to enable organizations to implement a security service edge (SSE) that protects enterprises against the most advanced cyberattacks, while delivering exceptional digital experiences for users and simplifying adoption of a Zero Trust architecture.

  • Announced that Zscaler and Siemens are delivering an all-in-one solution to accelerate secure digitalization for OT environments. The new solution enables customers to securely manage, control quality assurance, and analyze production OT infrastructures and its applications from any workplace in any location.

  • Released the findings of the Zscaler ThreatLabz annual Ransomware Report, which revealed a record number of ransomware attacks across critical industries, including manufacturing and healthcare. The report analyzed more than a year of data from the Zero Trust Exchange cloud security platform.

  • Achieved carbon neutral status for 2022 covering scopes 1 & 2 and broader scope 3 emissions from business travel, procurement, customer, and public cloud usage. Set a new goal to reach net zero emissions by 2025. These significant milestones align with our customers' climate goals and help them to reduce the carbon footprint associated with their security program.

Recently Issued Accounting Pronouncements

Effective August 1, 2022, the beginning of our fiscal year ending July 31, 2023, we adopted the ASU 2020-06, regarding ASC Topic 470 “Debt” and ASC Topic 815 “Derivatives and Hedging” (“ASU 2020-06”), which simplifies the accounting for convertible debt. ASU 2020-06 amended the calculation of diluted earnings per share for certain convertible debt instruments, among other changes. As a result of the adoption of the ASU 2020-06, we are required to use the “if-converted” method to calculate the non-GAAP net income per diluted share related to our senior convertible notes, which assumes conversion at the beginning of the reporting period, with settlement entirely in shares of common stock, unless the results would be anti-dilutive. Accordingly, to account for our potentially diluted shares related to our senior convertible notes, we are required to add back the non-GAAP interest expense to our non-GAAP net income and include approximately 7.63 million shares related to our senior convertible notes beginning in the first quarter of fiscal 2023.

Financial Outlook

For the first quarter of fiscal 2023, we expect:

  • Total revenue of $339 million to $341 million

  • Non-GAAP income from operations of $37 million to $38 million

  • Non-GAAP net income per share of approximately $0.26, assuming approximately 155 million common shares outstanding using the "if-converted" method for our senior convertible notes

For the full year fiscal 2023, we expect:

  • Total revenue of approximately $1.49 billion to $1.50 billion

  • Calculated billings of $1.92 billion to $1.94 billion

  • Non-GAAP income from operations of $173 million to $176 million

  • Non-GAAP net income per share of $1.16 to $1.18, assuming approximately 157 million common shares outstanding using the "if-converted" method for our senior convertible notes

These statements are forward-looking and actual results may differ materially. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

Guidance for non-GAAP income from operations excludes stock-based compensation expense and related employer payroll taxes, amortization expense of acquired intangible assets, amortization of debt issuance costs and income tax effects generated by intangible assets acquired in business acquisitions. As a result of the adoption of ASU 2020-06 on August 1, 2022, guidance for non-GAAP net income per share uses the if-converted method to calculate the non-GAAP net income per diluted share related to our convertible senior notes. Accordingly, to account for the potentially diluted shares related to our senior convertible notes, we are required to add back the underlying non-GAAP interest expense to our non-GAAP net income and include approximately 7.63 million shares related to our senior convertible notes. Additionally, we include the anti-dilutive impact of the capped call transactions entered into in connection with our convertible senior notes. We have not reconciled our expectations to non-GAAP income from operations and non-GAAP net income per share to their most directly comparable GAAP measures because certain items are out of our control or cannot be reasonably predicted. Accordingly, a reconciliation for the guidance for non-GAAP income from operations and non-GAAP net income per share is not available without unreasonable effort.

Conference Call and Webcast Information

Zscaler will host a conference call for analysts and investors to discuss its fourth quarter fiscal 2022 and full year fiscal 2022 earnings results and outlook for its first quarter of fiscal 2023 and full year fiscal 2023 today at 1:30 p.m. Pacific time (4:30 p.m. Eastern time).

Date:

Thursday, September 8, 2022

Time:

1:30 p.m. PT

Webcast:

https://ir.zscaler.com

Dial-in:

To join by phone, register at the following link here. After registering, you will be provided with a dial-in number and personal PIN required to join the call.


Upcoming Conferences

First quarter of fiscal 2023 virtual investor conference participation schedule:

  • Goldman Sachs Communacopia + Technology Conference
    Tuesday, September 13, 2022

  • 4th Annual Mizuho Software Summit 2022
    Wednesday, September 28, 2022

Sessions which offer a webcast will be available on the Investor Relations section of the Zscaler website at https://ir.zscaler.com.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including, but not limited to, statements regarding our future financial and operating performance, including our financial outlook for the first quarter of fiscal 2023 and full year fiscal 2023. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including but not limited to: macroeconomic factors such as the duration and global impact of COVID-19, effects of inflation and international conflicts like the Russia-Ukraine crisis on our business, operations and financial results and the economy in general; our limited operating history; our ability to identify and effectively implement the necessary changes to address execution challenges; risks associated with managing our rapid growth, including fluctuations from period to period; our limited experience with new product and subscription and support introductions and the risks associated with new products and subscription and support offerings, including the discovery of software bugs; our ability to attract and retain new customers; the failure to timely develop and achieve market acceptance of new products and subscriptions as well as existing products and subscription and support; rapidly evolving technological developments in the market for network security products and subscription and support offerings and our ability to remain competitive; length of sales cycles; and general market, political, economic and business conditions.

Additional risks and uncertainties that could affect our financial results are included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth from time to time in our filings and reports with the Security Exchange Commission (SEC), including our Quarterly Report on Form 10-Q for the three months ended April 30, 2022 filed on June 9, 2022, as well as future filings and reports by us, copies of which are available on our website at ir.zscaler.com and on the SEC’s website at www.sec.gov. You should not rely on these forward-looking statements, as actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of such risks and uncertainties. Additional information will also be set forth in other filings that we make with the SEC from time to time. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

Use of Non-GAAP Financial Information

We believe that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to our financial condition and results of operations. For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the “Explanation of Non-GAAP Financial Measures" section of this press release.

About Zscaler

Zscaler (Nasdaq: ZS) accelerates digital transformation so customers can be more agile, efficient, resilient, and secure. The Zscaler Zero Trust Exchange protects thousands of customers from cyberattacks and data loss by securely connecting users, devices, and applications in any location. Distributed across more than 150 data centers globally, the SSE-based Zero Trust Exchange is the world’s largest in-line cloud security platform.

Zscaler™ and the other trademarks listed at https://www.zscaler.com/legal/trademarks are either (i) registered trademarks or service marks or (ii) trademarks or service marks of Zscaler, Inc. in the United States and/or other countries. Any other trademarks are the properties of their respective owners.

Investor Relations Contacts

Bill Choi, CFA
SVP, Investor Relations and Strategic Finance
(408) 816-1478
ir@zscaler.com

Natalia Wodecki
Media Relations Contact
press@zscaler.com

ZSCALER, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

July 31,

 

July 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Revenue

$

318,059

 

 

$

197,074

 

 

$

1,090,946

 

 

$

673,100

 

Cost of revenue(1) (2)

 

68,308

 

 

 

45,478

 

 

 

242,282

 

 

 

150,317

 

Gross profit

 

249,751

 

 

 

151,596

 

 

 

848,664

 

 

 

522,783

 

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing(1) (2)

 

214,228

 

 

 

136,385

 

 

 

735,219

 

 

 

459,407

 

Research and development(1) (2)

 

78,150

 

 

 

56,180

 

 

 

289,139

 

 

 

174,653

 

General and administrative(1) (3)

 

39,902

 

 

 

26,428

 

 

 

151,735

 

 

 

96,535

 

Total operating expenses

 

332,280

 

 

 

218,993

 

 

 

1,176,093

 

 

 

730,595

 

Loss from operations

 

(82,529

)

 

 

(67,397

)

 

 

(327,429

)

 

 

(207,812

)

Interest income

 

2,607

 

 

 

524

 

 

 

4,586

 

 

 

2,812

 

Interest expense(4)

 

(14,458

)

 

 

(13,634

)

 

 

(56,579

)

 

 

(53,364

)

Other income (expense), net

 

(774

)

 

 

329

 

 

 

(4,208

)

 

 

1,186

 

Loss before income taxes

 

(95,154

)

 

 

(80,178

)

 

 

(383,630

)

 

 

(257,178

)

Provision for income taxes

 

2,498

 

 

 

845

 

 

 

6,648

 

 

 

4,851

 

Net loss

$

(97,652

)

 

$

(81,023

)

 

$

(390,278

)

 

$

(262,029

)

Net loss per share, basic and diluted

$

(0.69

)

 

$

(0.59

)

 

$

(2.77

)

 

$

(1.93

)

Weighted-average shares used in computing net loss per share, basic and diluted

 

142,355

 

 

 

137,778

 

 

 

140,895

 

 

 

135,654

 

(1) Includes stock-based compensation expense and related payroll taxes as follows:

Cost of revenue

$

7,696

 

 

$

5,033

 

 

$

25,292

 

 

$

15,272

 

Sales and marketing

 

57,505

 

 

 

42,957

 

 

 

202,211

 

 

 

144,273

 

Research and development

 

33,486

 

 

 

25,558

 

 

 

123,422

 

 

 

73,238

 

General and administrative

 

19,628

 

 

 

12,395

 

 

 

79,095

 

 

 

45,779

 

Total

$

118,315

 

 

$

85,943

 

 

$

430,020

 

 

$

278,562

 

(2) Includes amortization expense of acquired intangible assets as follows:

Cost of revenue

$

1,939

 

 

$

1,958

 

 

$

7,975

 

 

$

6,468

 

Sales and marketing

 

178

 

 

 

108

 

 

 

704

 

 

 

327

 

Research and development

 

198

 

 

 

 

 

 

331

 

 

 

 

Total

$

2,315

 

 

$

2,066

 

 

$

9,010

 

 

$

6,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3) Includes asset impairment related to facility exit as follows:

$

 

 

$

 

 

$

 

 

$

416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4) Includes amortization of debt discount and issuance costs as follows:

$

14,098

 

 

$

13,274

 

 

$

55,141

 

 

$

51,923

 


ZSCALER, INC.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

July 31,

 

 

2022

 

 

 

2021

 

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

1,013,210

 

 

$

275,898

 

Short-term investments

 

718,129

 

 

 

1,226,654

 

Accounts receivable, net

 

399,745

 

 

 

257,109

 

Deferred contract acquisition costs

 

86,210

 

 

 

57,373

 

Prepaid expenses and other current assets

 

39,353

 

 

 

31,269

 

Total current assets

 

2,256,647

 

 

 

1,848,303

 

Property and equipment, net

 

160,633

 

 

 

108,576

 

Operating lease right-of-use assets

 

72,357

 

 

 

44,339

 

Deferred contract acquisition costs, noncurrent

 

210,792

 

 

 

149,657

 

Acquired intangible assets, net

 

31,819

 

 

 

32,129

 

Goodwill

 

78,547

 

 

 

58,977

 

Other noncurrent assets

 

21,870

 

 

 

15,650

 

Total assets

$

2,832,665

 

 

$

2,257,631

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

26,154

 

 

$

12,547

 

Accrued expenses and other current liabilities

 

46,496

 

 

 

22,908

 

Accrued compensation

 

111,948

 

 

 

93,622

 

Deferred revenue

 

923,749

 

 

 

571,286

 

Operating lease liabilities

 

26,100

 

 

 

19,842

 

Total current liabilities

 

1,134,447

 

 

 

720,205

 

Convertible senior notes, net

 

968,674

 

 

 

913,538

 

Deferred revenue, noncurrent

 

97,374

 

 

 

59,315

 

Operating lease liabilities, noncurrent

 

50,948

 

 

 

31,225

 

Other noncurrent liabilities

 

7,922

 

 

 

4,453

 

Total liabilities

 

2,259,365

 

 

 

1,728,736

 

Stockholders’ Equity

 

 

 

Common stock

 

143

 

 

 

139

 

Additional paid-in capital

 

1,590,885

 

 

 

1,131,006

 

Accumulated other comprehensive loss

 

(25,850

)

 

 

(650

)

Accumulated deficit

 

(991,878

)

 

 

(601,600

)

Total stockholders’ equity

 

573,300

 

 

 

528,895

 

Total liabilities and stockholders’ equity

$

2,832,665

 

 

$

2,257,631

 


ZSCALER, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

Year Ended

 

July 31,

 

 

2022

 

 

 

2021

 

Cash Flows From Operating Activities

 

 

 

Net loss

$

(390,278

)

 

$

(262,029

)

Adjustments to reconcile net loss to cash provided by operating activities:

 

 

 

Depreciation and amortization expense

 

40,456

 

 

 

29,663

 

Amortization expense of acquired intangible assets

 

9,010

 

 

 

6,795

 

Amortization of deferred contract acquisition costs

 

68,531

 

 

 

40,558

 

Amortization of debt discount and issuance costs

 

55,141

 

 

 

51,923

 

Non-cash operating lease costs

 

25,626

 

 

 

20,995

 

Stock-based compensation expense

 

409,562

 

 

 

258,535

 

Amortization of investment premiums, net of accretion of purchase discounts

 

6,580

 

 

 

11,715

 

Deferred income taxes

 

(562

)

 

 

(2,406

)

Impairment of assets

 

 

 

 

416

 

Other

 

395

 

 

 

307

 

Changes in operating assets and liabilities, net of effects of business acquisitions

 

 

 

Accounts receivable

 

(143,336

)

 

 

(111,605

)

Deferred contract acquisition costs

 

(158,503

)

 

 

(137,673

)

Prepaid expenses, other current and noncurrent assets

 

(10,287

)

 

 

(3,388

)

Accounts payable

 

14,358

 

 

 

7,451

 

Accrued expenses, other current and noncurrent liabilities

 

13,377

 

 

 

6,532

 

Accrued compensation

 

18,326

 

 

 

43,877

 

Deferred revenue

 

391,179

 

 

 

262,425

 

Operating lease liabilities

 

(27,663

)

 

 

(22,051

)

   Net cash provided by operating activities

 

321,912

 

 

 

202,040

 

Cash Flows From Investing Activities

 

 

 

Purchases of property, equipment and other assets

 

(69,296

)

 

 

(48,165

)

Capitalized internal-use software

 

(21,284

)

 

 

(10,132

)

Payments for business acquisitions, net of cash acquired

 

(25,287

)

 

 

(40,530

)

Strategic investments

 

 

 

 

(3,077

)

Purchases of short-term investments

 

(844,944

)

 

 

(815,480

)

Proceeds from maturities of short-term investments

 

1,334,874

 

 

 

785,217

 

Proceeds from sale of short-term investments

 

 

 

 

22,499

 

   Net cash provided by (used in) investing activities

 

374,063

 

 

 

(109,668

)

Cash Flows From Financing Activities

 

 

 

Proceeds from issuance of common stock upon exercise of stock options

 

6,943

 

 

 

18,221

 

Proceeds from issuance of common stock under the employee stock purchase plan

 

34,649

 

 

 

25,704

 

Payment of deferred consideration related to business acquisitions

 

(250

)

 

 

(2,250

)

Other

 

(5

)

 

 

 

   Net cash provided by financing activities

 

41,337

 

 

 

41,675

 

Net increase in cash and cash equivalents (1)

 

737,312

 

 

 

134,047

 

Cash and cash equivalents at beginning of period (1)

 

275,898

 

 

 

141,851

 

Cash and cash equivalents at end of period (1)

$

1,013,210

 

 

$

275,898

 

_________

(1) We did not hold restricted cash for any periods presented.

ZSCALER, INC.

Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands, except percentages)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

July 31,

 

July 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

 

Revenue

$

318,059

 

 

$

197,074

 

 

$

1,090,946

 

 

$

673,100

 

 

 

 

 

 

 

 

 

Non-GAAP Gross Profit and Non-GAAP Gross Margin

 

 

 

 

 

 

 

GAAP gross profit

$

249,751

 

 

$

151,596

 

 

$

848,664

 

 

$

522,783

 

Add:

 

 

 

 

 

 

 

Stock-based compensation expense and related payroll taxes

 

7,696

 

 

 

5,033

 

 

 

25,292

 

 

 

15,272

 

Amortization expense of acquired intangible assets

 

1,939

 

 

 

1,958

 

 

 

7,975

 

 

 

6,468

 

Non-GAAP gross profit

$

259,386

 

 

$

158,587

 

 

$

881,931

 

 

$

544,523

 

GAAP gross margin

 

79

%

 

 

77

%

 

 

78

%

 

 

78

%

Non-GAAP gross margin

 

82

%

 

 

80

%

 

 

81

%

 

 

81

%

 

 

 

 

 

 

 

 

Non-GAAP Income from Operations and Non-GAAP Operating Margin

 

 

 

 

 

 

 

GAAP loss from operations

$

(82,529

)

 

$

(67,397

)

 

$

(327,429

)

 

$

(207,812

)

Add:

 

 

 

 

 

 

 

Stock-based compensation expense and related payroll taxes

 

118,315

 

 

 

85,943

 

 

 

430,020

 

 

 

278,562

 

Amortization expense of acquired intangible assets

 

2,315

 

 

 

2,066

 

 

 

9,010

 

 

 

6,795

 

Asset impairment related to facility exit(1)

 

 

 

 

 

 

 

 

 

 

416

 

Non-GAAP income from operations

$

38,101

 

 

$

20,612

 

 

$

111,601

 

 

$

77,961

 

GAAP operating margin

 

(26

)%

 

 

(34

)%

 

 

(30

)%

 

 

(31

)%

Non-GAAP operating margin

 

12

%

 

 

10

%

 

 

10

%

 

 

12

%

___________

(1) Consists of asset impairment charges related to the relocation of our corporate headquarters.

ZSCALER, INC.

Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands, except per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

July 31,

 

July 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Non-GAAP Net Income per Share, Diluted

 

 

 

 

 

 

 

GAAP net loss

$

(97,652

)

 

$

(81,023

)

 

$

(390,278

)

 

$

(262,029

)

Stock-based compensation expense and related payroll taxes

 

118,315

 

 

 

85,943

 

 

 

430,020

 

 

 

278,562

 

Amortization expense of acquired intangible assets

 

2,315

 

 

 

2,066

 

 

 

9,010

 

 

 

6,795

 

Asset impairment related to facility exit(1)

 

 

 

 

 

 

 

 

 

 

416

 

Amortization of debt discount and issuance costs

 

14,098

 

 

 

13,274

 

 

 

55,141

 

 

 

51,923

 

Benefit for income taxes(2)

 

(682

)

 

 

 

 

 

(2,597

)

 

 

 

Non-GAAP net income

$

36,394

 

 

$

20,260

 

 

$

101,296

 

 

$

75,667

 

 

 

 

 

 

 

 

 

GAAP net loss per share, diluted

$

(0.69

)

 

$

(0.59

)

 

$

(2.77

)

 

$

(1.93

)

Stock-based compensation expense and related payroll taxes

 

0.81

 

 

 

0.59

 

 

 

2.92

 

 

 

1.92

 

Amortization expense of acquired intangible assets

 

0.02

 

 

 

0.01

 

 

 

0.06

 

 

 

0.05

 

Asset impairment related to facility exit(1)

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt discount and issuance costs

 

0.10

 

 

 

0.09

 

 

 

0.37

 

 

 

0.36

 

Benefit for income taxes(2)

 

 

 

 

 

 

 

(0.02

)

 

 

 

Adjustment to total fully diluted earnings per share(3)

 

0.01

 

 

 

0.04

 

 

 

0.13

 

 

 

0.12

 

Non-GAAP net income per share, diluted

$

0.25

 

 

$

0.14

 

 

$

0.69

 

 

$

0.52

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

Weighted-average shares used in computing GAAP net loss per share, diluted

 

142,355

 

 

 

137,778

 

 

 

140,895

 

 

 

135,654

 

Potentially diluted shares

 

4,260

 

 

 

9,869

 

 

 

9,232

 

 

 

10,361

 

Antidilutive impact of capped call transactions(4)

 

(208

)

 

 

(1,973

)

 

 

(2,875

)

 

 

(1,167

)

Weighted-average shares used in computing non-GAAP net income per share, diluted

 

146,407

 

 

 

145,674

 

 

 

147,252

 

 

 

144,848

 

___________
(1) Consists of asset impairment charges related to the relocation of our corporate headquarters.

(2) We use our GAAP provision for income taxes for purposes of determining our non-GAAP income tax expense. The difference between our GAAP and non-GAAP income tax expense represents the effects of stock-based compensation expense recognized in foreign jurisdictions and any income tax benefits associated with business combinations. The income tax benefit related to stock-based compensation expense included in the GAAP provision for income taxes was not material for all periods presented. In the fiscal quarters ended July 31, 2022 and January 31, 2022, we recorded a tax benefit of $0.7 million and $0.4 million, respectively, generated by intangible assets acquired in business acquisitions. In the fiscal quarter ended April 30, 2022, we recorded a tax benefit of $1.5 million associated with a refund of certain foreign withholding taxes relating to the prior fiscal year.

(3) The sum of the fully diluted earnings per share impact of individual reconciling items may not total to fully diluted Non-GAAP net income per share due to the weighted-average shares used in computing the GAAP net loss per share differs from the weighted-average shares used in computing the Non-GAAP net income per share and due to rounding of the individual reconciling items. The GAAP net loss per share calculation uses a lower share count as it excludes potentially dilutive shares, which are included in calculating the non-GAAP net income per share.

(4) We exclude the in-the-money portion of our convertible senior notes for non-GAAP weighted-average diluted shares as they are covered by our capped call transactions. Our outstanding capped call transactions are antidilutive under GAAP, but are expected to mitigate the dilutive effect of our convertible notes and therefore are included in the calculations of non-GAAP diluted shares outstanding.

ZSCALER, INC.

Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands, except percentages)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

July 31,

 

July 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Calculated billings

 

 

 

 

 

 

 

Revenue

$

318,059

 

 

$

197,074

 

 

$

1,090,946

 

 

$

673,100

 

Add: Total deferred revenue, end of period

 

1,021,123

 

 

 

630,601

 

 

 

1,021,123

 

 

 

630,601

 

Less: Total deferred revenue, beginning of period

 

(818,743

)

 

 

(495,434

)

 

 

(630,601

)

 

 

(369,767

)

Calculated billings

$

520,439

 

 

$

332,241

 

 

$

1,481,468

 

 

$

933,934

 

 

 

 

 

 

 

 

 

Free cash flow

 

 

 

 

 

 

 

Net cash provided by operating activities

$

103,138

 

 

$

44,736

 

 

$

321,912

 

 

$

202,040

 

Less: Purchases of property, equipment and other assets

 

(21,250

)

 

 

(13,950

)

 

 

(69,296

)

 

 

(48,165

)

Less: Capitalized internal-use software

 

(7,117

)

 

 

(3,085

)

 

 

(21,284

)

 

 

(10,132

)

Free cash flow

$

74,771

 

 

$

27,701

 

 

$

231,332

 

 

$

143,743

 

 

 

 

 

 

 

 

 

Free cash flow margin

 

 

 

 

 

 

 

Net cash provided by operating activities, as a percentage of revenue

 

32

%

 

 

23

%

 

 

30

%

 

 

30

%

Less: Purchases of property, equipment and other assets, as a percentage of revenue

 

(6

)%

 

 

(7

)%

 

 

(7

)%

 

 

(7

)%

Less: Capitalized internal-use software, as a percentage of revenue

 

(2

)%

 

 

(2

)%

 

 

(2

)%

 

 

(2

)%

Free cash flow margin

 

24

%

 

 

14

%

 

 

21

%

 

 

21

%

ZSCALER, INC.
Explanation of Non-GAAP Financial Measures

In addition to our results determined in accordance with generally accepted accounting principles in the United States of America (GAAP), we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In particular, free cash flow is not a substitute for cash provided by operating activities. Additionally, the utility of free cash flow as a measure of our liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation of our historical non-GAAP financial measures to their most directly comparable financial measures stated in accordance with GAAP has been included in this press release. Investors are cautioned that there are a number of limitations associated with the use of non-GAAP financial measures and key metrics as analytical tools. Investors are encouraged to review these reconciliations, and not to rely on any single financial measure to evaluate our business.

Expenses Excluded from Non-GAAP Measures

Stock-based compensation expense is excluded primarily because it is a non-cash expense that management believes is not reflective of our ongoing operational performance. Employer payroll taxes related to stock-based compensation, which is a cash expense, are excluded because these are tied to the timing and size of the exercise or vesting of the underlying equity awards and the price of our common stock at the time of vesting or exercise, which may vary from period to period independent of the operating performance of our business. Amortization expense of intangible assets acquired in business acquisitions and related income tax effects, if applicable, are excluded because these are considered by management to be outside of our core business operating performance. Asset impairments related to facility exit costs are excluded because such charges are not reflective of our ongoing operational performance. Amortization of debt discount and issuance costs from our convertible senior notes are excluded because these are non-cash expenses and are not reflective of our ongoing operational performance. We estimate the tax effect of these items on our non-GAAP results and may adjust our GAAP provision for income taxes, if such effects have a material impact to our non-GAAP results.

Non-GAAP Financial Measures

Non-GAAP Gross Profit and Non-GAAP Gross Margin. We define non-GAAP gross profit as GAAP gross profit excluding stock-based compensation expense and related employer payroll taxes and amortization expense of acquired intangible assets. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of revenue.

Non-GAAP Income from Operations and Non-GAAP Operating Margin. We define non-GAAP income from operations as GAAP loss from operations excluding stock-based compensation expense and related employer payroll taxes, amortization expense of acquired intangible assets and asset impairment related to facility exit. We define non-GAAP operating margin as non-GAAP income from operations as a percentage of revenue.

Non-GAAP Net Income per Share, Diluted. We define non-GAAP net income as GAAP net loss excluding stock-based compensation expense and related employer payroll taxes, amortization expense of acquired intangible assets, asset impairment related to facility exit, amortization of debt discount and issuance costs, any income tax benefits associated with business combinations and refunds of certain foreign withholding taxes related to prior fiscal periods. We define non-GAAP net income per share, diluted, as non-GAAP net income divided by the weighted-average diluted shares outstanding, which includes the effect of potentially diluted common stock equivalents outstanding during the period and the anti-dilutive impact of the capped call transactions entered into in connection with our convertible senior notes.

Calculated Billings. We define calculated billings as total revenue plus the change in deferred revenue in a period. Calculated billings in any particular period aims to reflect amounts invoiced for subscriptions to access our cloud platform, together with related support services for our new and existing customers. We typically invoice our customers annually in advance, and to a lesser extent quarterly in advance, monthly in advance or multi-year in advance.

Free Cash Flow and Free Cash Flow Margin. We define free cash flow as net cash provided by operating activities less purchases of property, equipment and other assets and capitalized internal-use software. We define free cash flow margin as free cash flow divided by revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our operations that, after the investments in property, equipment and other assets and capitalized internal-use software, can be used for strategic initiatives.