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Zscaler ZS delivered better-than-anticipated fourth-quarter fiscal 2021 performance.
The company reported non-GAAP earnings of 14 cents per share beating the Zacks Consensus Estimate of 9 cents per share. The bottom line improved 75% from earnings of 8 cents reported in the year-ago quarter.
The fiscal fourth-quarter revenues were $197.1 million surpassing the Zacks Consensus Estimate of $187.8 million. The top line rose 57% from the prior-year reported figure.
In the fourth quarter, Zscaler was chosen by the National Institute of Standard and Technology’s National Cybersecurity Center of Excellence for implementing its new Zero Trust architecture offering.
During the fourth quarter of fiscal 2021, calculated billings jumped 70% year over year to $332.2 million.
Geographically, the Americas accounted for 51% of revenues, while the EMEA contributed 38%. The remaining 11% came in from the Asia Pacific and Japan.
Zscaler’s quarterly results benefited from sustained demand for its products given the healthy environment of the global security market. Increased cybersecurity risks and accelerating digital transformation contributed significantly to growth. Its Zero Trust Exchange platform acted as a key catalyst.
Zscaler, Inc. Price, Consensus and EPS Surprise
Zscaler, Inc. price-consensus-eps-surprise-chart | Zscaler, Inc. Quote
In the fourth quarter, Zscaler continued to win multiple customers in each of its three market segments: financial services, enterprise market and federal. It added 20 federal customers during the quarter under review.
The cloud-security leader’s net dollar-based retention rate was at 128% compared with the previous quarter’s 126% and the year-ago quarter’s 120%.
Remaining Performance Obligations (RPO) representing Zscaler’s committed non-cancellable future revenues were $1.6 billion as of Jul 31, significantly up 98% year over year.
During the fourth quarter, Zscaler had 202 customers with $1 million or higher annualized recurring revenue (“ARR”). The figure, which is the highest so far, improved 87% year over year.
The company had 1,480 customers with $100,000 or higher ARR. The figure reflected year-over-year growth of 52.1%.
In the fourth quarter, non-GAAP gross margin expanded 100 basis points (bps) year over year to 80%. Sequentially, non-GAAP gross margin contracted 100 bps.
Non-GAAP research & development (16% of revenues), sales & marketing (47% of revenues), and general & administrative (7% of total revenues) expenses flared up 58.4%, 63.4% and 39.6% to $30.6 million, $93.3 million and $14.0 million, respectively.
Total non-GAAP operating expenses, accounting for 70% of total revenues, climbed 59.5% to $138 million. Operating expenses as a percentage of revenues surged 130 bps primarily due to increased hiring, higher compensation expenses and a $2 million expense related to the recently acquired Trustdome and SmokeScreen’s operational activities.
Non-GAAP operating margin remained flat year over year at 10%. Non-GAAP operating income was $20.6 million compared with the year-ago quarter’s $12.4 million.
Balance Sheet & Cash Flow
As of Jul 31, 2021, Zscaler had $1.50 billion in cash, cash equivalents and short-term investments compared with the previous quarter’s $1.47 billion.
Cash flow generated through operating activities was $44.7 million in the fourth quarter and $202 million in the full fiscal 2021. It generated free cash flow of $27.7 million in the fourth quarter, while the same amounted to $143.7 million in fiscal 2021.
Free cash flow margin expanded 500 bps to 14% during the reported quarter. Meanwhile, the same soared 1500 bps to 21% in the full fiscal 2021.
Deferred revenues were $630.6 million, up 71% year over year.
Zscaler reported revenues of $673.1 million in full-year fiscal 2021, up 56% year over year. Revenues from Zscaler Private Access (“ZPA”) significantly improved 166% year over year while surpassing the $100 million band. ZPA constituted 17% of total revenues.
Calculated billings were $933.9 million, reflecting a 69.9% year-over-year surge.
Zscaler exited the fiscal 2021 with over 5,600 customers. The company noted that this higher growth in customers was on account of increased investments on partner programs and expansion of field operations.
Non-GAAP earnings per share increased 73.3% year over year to 52 cents.
Non-GAAP operating income for fiscal 2021 soared 104.2% year over year to $78 million. The operating margin expanded 300 bps to 12%.
Non-GAAP gross margin expanded 100 bps to 81%.
For the first quarter of fiscal 2022, Zscaler projects revenues between $210 million and $212 million. Non-GAAP earnings are projected to be approximately 12 cents per share.
Non-GAAP income from operations is estimated to be $18-$19 million.
Zscaler expects fiscal 2022 revenues of $940-$950 million, suggesting year-over-year growth of 40-41%. Calculated billings are anticipated between $1.23 billion and $1.25 billion, indicating 32-34% year-over-year growth.
Non-GAAP earnings for fiscal 2022 are expected to be 52-56 cents per share.
For fiscal 2022, non-GAAP operating income is estimated to be $85-$90 million.
Zacks Rank & Key Picks
Zscaler carries a Zacks Rank #3 (Hold) at present.
Some better-ranked stocks in the broader technology sector include Avnet AVT, CyberOptics Corporation CYBE and Nvidia NVDA. While Avnet and CyberOptics sport a Zacks Rank #1 (Strong Buy), Nvidia carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term earnings growth rate for Avnet, CyberOptics and Nvidia is currently pegged at 25.4%, 12% and 17.7%, respectively.
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