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Zscaler's (ZS) Q1 Earnings and Revenues Top Estimates, Up Y/Y

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Zacks Equity Research
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Zscaler ZS reported first-quarter fiscal 2021 adjusted earnings of 14 cents per share that beat the Zacks Consensus Estimate by a whopping 133.3%. Moreover, quarterly earnings soared more than three-fold from the year-ago quarter’s earnings of 4 cents per share.

Revenues of $142.6 million surged 52% year over year on rise in adoption of the company’s cloud platform security solutions by global enterprises. The figure surpassed the consensus mark by 7.7%.

Americas accounted for 51% of revenues, while EMEA contributed 39%. The remaining came in from the Asia Pacific and Japan.

Calculated billings jumped 64% year over year to $144.7 million in the reported quarter.

Zscaler, Inc. Price, Consensus and EPS Surprise

Zscaler, Inc. Price, Consensus and EPS Surprise
Zscaler, Inc. Price, Consensus and EPS Surprise

Zscaler, Inc. price-consensus-eps-surprise-chart | Zscaler, Inc. Quote

Zscaler’s quarterly results benefited from continued solid demand for its products, given the healthy environment of the global security market.

Also, a huge global workforce is working remotely in an effort to contain the spread of coronavirus. However, an increasing number of people logging into employers' networks has been prompting a greater need for security. This trend spurred demand for Zscaler’s products during the fiscal first quarter.

Customer Details

Zscaler continued to win customers and its net dollar retention rate was strong at 120% compared with the 120% recorded in the previous quarter as well in the year-ago quarter.

Remaining Performance Obligations (RPO), which represent Zscaler’s committed non-cancelable future revenues, were $864 million as of Oct 31, up 56% year over year.

Operating Details

In the reported quarter, non-GAAP gross margin remained flat year over year at 81%. Sequentially, non-GAAP gross margin witnessed an expansion of 200 basis points (bps), mainly driven by better timing of expenses and migration of most of its ZPA infrastructure to its data centers.

Non-GAAP research & development (R&D), sales & marketing (S&M) and general & administrative (G&A) expenses flared up 42%, 31% and 29% to $20.9 million, $64.2 million and $10.9 million, respectively.

Non-GAAP operating income was $19.7 million in the fiscal first quarter compared with the year-ago quarter’s $3.7 million.

Balance Sheet & Cash Flow

As of Oct 31, Zscaler had $1.42 billion in cash, cash equivalents and short-term investments compared with the previous quarter’s $1.37 billion. Notably, the company had issued convertible senior notes worth $1.15 billion in June 2020.

In the reported quarter, cash provided by operations was $53.5 million. Free cash flow was $42.2 million.

Deferred revenues surged 51% year on year to $371.9 million.

Guidance

For second-quarter fiscal 2021, Zscaler expects revenues between $146 million and $148 million. Non-GAAP income from operations is expected between $11 million and $12 million. Non-GAAP earnings are projected between 7 cent and 8 cents per share.

For fiscal 2021, Zscaler raised the revenue guidance range to $608-$612 million from the $580-$590 million projected earlier. Non-GAAP income from operations is now expected to be $55-$57 million, up from the previous forecast of $44-$46 million. Non-GAAP earnings estimate has been revised upward to 37-38 cents per share from 28-30 cents per share.

The company’s fiscal 2021 calculated billings are estimated now between $755 million and $765 million, up from the earlier guided range of $710-$720 million.

Zacks Rank & Stocks to Consider

Zscaler currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the broader technology sector include NVIDIA Corporation NVDA, Arrow Electronics ARW and Texas Instruments TXN, all carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for NVIDIA, Arrow and Texas is currently pegged at 20.4%, 9.8% and 9.3%, respectively.

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