Zscaler Reports Fourth Quarter and Fiscal 2022 Financial

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 income grows 62% year-over-year to $1,021.1 million
• GAAP internet lack of $97.7 million in comparison with GAAP internet lack of $81.0 million on a year-over-year foundation
• Non-GAAP internet revenue of $36.4 million in comparison with non-GAAP internet revenue of $20.3 million on a year-over-year foundation

SAN JOSE, Calif., Sept. 08, 2022 (GLOBE NEWSWIRE) — Zscaler, Inc. (Nasdaq: ZS), the chief in cloud safety, immediately introduced monetary outcomes for its fiscal fourth quarter and fiscal 12 months 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,” stated 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).

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” part of this press launch.

About Zscaler

Zscaler (Nasdaq: ZS) accelerates digital transformation so clients might be extra agile, environment friendly, resilient, and safe. The Zscaler Zero Trust Exchange protects hundreds of consumers from cyberattacks and knowledge loss by securely connecting customers, gadgets, and purposes in any location. Distributed throughout greater than 150 knowledge facilities globally, the SSE-based Zero Trust Exchange is the world’s largest in-line cloud safety platform.

Zscaler™ and the opposite logos listed at https://www.zscaler.com/legal/trademarks are both (i) registered logos or service marks or (ii) logos or service marks of Zscaler, Inc. within the United States and/or different international locations. Any different logos are the properties of their respective homeowners.

Investor Relations Contacts

Bill Choi, CFA
SVP, Investor Relations and Strategic Finance
(408) 816-1478
[email protected] 

Natalia Wodecki
Media Relations Contact
[email protected] 

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

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

_________

⁽¹⁾ We didn’t maintain restricted money for any durations offered.

___________

⁽¹⁾ Consists of asset impairment expenses associated to the relocation of our company headquarters.

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⁽¹⁾ Consists of asset impairment expenses associated to the relocation of our company headquarters.

⁽²⁾ We use our GAAP provision for revenue taxes for functions of figuring out our non-GAAP revenue tax expense. The distinction between our GAAP and non-GAAP revenue tax expense represents the consequences of stock-based compensation expense acknowledged in overseas jurisdictions and any revenue tax advantages related to business mixtures. The revenue tax profit associated to stock-based compensation expense included within the GAAP provision for revenue taxes was not materials for all durations offered. In the fiscal quarters ended July 31, 2022 and January 31, 2022, we recorded a tax good thing about $0.7 million and $0.4 million, respectively, generated by intangible belongings acquired in business acquisitions. In the fiscal quarter ended April 30, 2022, we recorded a tax good thing about $1.5 million related to a refund of sure overseas withholding taxes regarding the prior fiscal 12 months.

⁽³⁾ The sum of the totally diluted earnings per share influence of particular person reconciling gadgets might not whole to completely diluted Non-GAAP internet revenue per share because of the weighted-average shares utilized in computing the GAAP internet loss per share differs from the weighted-average shares utilized in computing the Non-GAAP internet revenue per share and because of rounding of the person reconciling gadgets. The GAAP internet loss per share calculation makes use of a decrease share rely because it excludes doubtlessly dilutive shares, that are included in calculating the non-GAAP internet revenue per share.

⁽⁴⁾ We exclude the in-the-money portion of our convertible senior notes for non-GAAP weighted-average diluted shares as they’re coated by our capped name transactions. Our excellent capped name transactions are antidilutive beneath GAAP, however are anticipated to mitigate the dilutive impact of our convertible notes and due to this fact are included within the calculations of non-GAAP diluted shares excellent.

ZSCALER, INC.
Explanation of Non-GAAP Financial Measures

In addition to our outcomes decided in accordance with usually accepted accounting rules within the United States of America (GAAP), we imagine the next non-GAAP measures are helpful in evaluating our working efficiency. We use the next non-GAAP monetary data to guage our ongoing operations and for inside planning and forecasting functions. We imagine that non-GAAP monetary data, when taken collectively, could also be useful to traders as a result of it gives consistency and comparability with previous monetary efficiency. However, non-GAAP monetary data is offered for supplemental informational functions solely, has limitations as an analytical instrument and shouldn’t be thought-about in isolation or as an alternative choice to monetary data offered in accordance with GAAP. In specific, free money move is just not an alternative choice to money supplied by working actions. Additionally, the utility of free money move as a measure of our liquidity is additional restricted because it doesn’t symbolize the entire improve or lower in our money stability for a given interval. In addition, different corporations, together with corporations in our trade, might calculate similarly-titled non-GAAP measures otherwise or might use different measures to guage their efficiency, all of which might cut back the usefulness of our non-GAAP monetary measures as instruments for comparability. A reconciliation of our historic non-GAAP monetary measures to their most immediately comparable monetary measures said in accordance with GAAP has been included on this press launch. Investors are cautioned that there are a variety of limitations related to using non-GAAP monetary measures and key metrics as analytical instruments. Investors are inspired to overview these reconciliations, and to not depend on any single monetary measure to guage our business.

Expenses Excluded from Non-GAAP Measures

Stock-based compensation expense is excluded primarily as a result of it’s a non-cash expense that administration believes is just not reflective of our ongoing operational efficiency. Employer payroll taxes associated to stock-based compensation, which is a money expense, are excluded as a result of these are tied to the timing and dimension of the train or vesting of the underlying fairness awards and the worth of our frequent inventory on the time of vesting or train, which can differ from interval to interval unbiased of the working efficiency of our business. Amortization expense of intangible belongings acquired in business acquisitions and associated revenue tax results, if relevant, are excluded as a result of these are thought-about by administration to be outdoors of our core business working efficiency. Asset impairments associated to facility exit prices are excluded as a result of such expenses are usually not reflective of our ongoing operational efficiency. Amortization of debt low cost and issuance prices from our convertible senior notes are excluded as a result of these are non-cash bills and are usually not reflective of our ongoing operational efficiency. We estimate the tax impact of this stuff on our non-GAAP outcomes and might regulate our GAAP provision for revenue taxes, if such results have a fabric influence to our non-GAAP outcomes.

Non-GAAP Financial Measures

Non-GAAP Gross Profit and Non-GAAP Gross Margin. We outline non-GAAP gross revenue as GAAP gross revenue excluding stock-based compensation expense and associated employer payroll taxes and amortization expense of acquired intangible belongings. We outline non-GAAP gross margin as non-GAAP gross revenue as a share of income.

Non-GAAP Income from Operations and Non-GAAP Operating Margin. We outline non-GAAP revenue from operations as GAAP loss from operations excluding stock-based compensation expense and associated employer payroll taxes, amortization expense of acquired intangible belongings and asset impairment associated to facility exit. We outline non-GAAP working margin as non-GAAP revenue from operations as a share of income.

Non-GAAP Net Income per Share, Diluted. We outline non-GAAP internet revenue as GAAP internet loss excluding stock-based compensation expense and associated employer payroll taxes, amortization expense of acquired intangible belongings, asset impairment associated to facility exit, amortization of debt low cost and issuance prices, any revenue tax advantages related to business mixtures and refunds of sure overseas withholding taxes associated to prior fiscal durations. We outline non-GAAP internet revenue per share, diluted, as non-GAAP internet revenue divided by the weighted-average diluted shares excellent, which incorporates the impact of doubtless diluted frequent inventory equivalents excellent in the course of the interval and the anti-dilutive influence of the capped name transactions entered into in reference to our convertible senior notes.

Calculated Billings. We outline calculated billings as whole income plus the change in deferred income in a interval. Calculated billings in any specific interval goals to replicate quantities invoiced for subscriptions to entry our cloud platform, along with associated assist companies for our new and current clients. We sometimes bill our clients yearly prematurely, and to a lesser extent quarterly prematurely, month-to-month prematurely or multi-year prematurely.

Free Cash Flow and Free Cash Flow Margin. We outline free money move as internet money supplied by working actions much less purchases of property, tools and different belongings and capitalized internal-use software program. We outline free money move margin as free money move divided by income. We imagine that free money move and free money move margin are helpful indicators of liquidity that present data to administration and traders about the amount of money generated from our operations that, after the investments in property, tools and different belongings and capitalized internal-use software program, can be utilized for strategic initiatives.