Zscaler Reports Fourth Quarter and Fiscal 2024 Financial Results

Fourth Quarter Highlights

Revenue grows 30% year-over-year to $592.9 million

Calculated billings grows 27% year-over-year to $910.8 million

Deferred revenue grows 32% year-over-year to $1,895.0 million

GAAP net loss of $14.9 million compared to GAAP net loss of $30.7 million on a year-over-year basis

Non-GAAP net income of $140.6 million compared to non-GAAP net income of $100.9 million on a year-over-year basis

SAN JOSE, Calif., Sept. 03, 2024 (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, 2024.

"We ended a successful Fiscal 2024 with Q4 results exceeding the high end of our guidance across all metrics," said Jay Chaudhry, Chairman and CEO of Zscaler. "Customers adoption of our Zero Trust Exchange platform is stronger than ever, and I'm thrilled to share that we have achieved a major milestone with our cloud platform surpassing over half a Trillion transactions daily. I'm excited about the year ahead, as we enter Fiscal 2025 with a strong go-to-market machine and a high pace of innovation."

Fourth Quarter Fiscal 2024 Financial Highlights

Revenue: $592.9 million, an increase of 30% year-over-year.

Income (loss) from operations: GAAP loss from operations was $27.0 million, or 5% of revenue, compared to $44.6 million, or 10% of revenue, in the fourth quarter of fiscal 2023. Non-GAAP income from operations was $127.5 million, or 22% of revenue, compared to $86.0 million, or 19% of revenue, in the fourth quarter of fiscal 2023.

Net income (loss): GAAP net loss was $14.9 million, compared to $30.7 million in the fourth quarter of fiscal 2023. Non-GAAP net income was $140.6 million, compared to $100.9 million in the fourth quarter of fiscal 2023.

Net income (loss) per share, diluted: GAAP net loss per share, diluted, was $0.10, compared to $0.21 in the fourth quarter of fiscal 2023. Non-GAAP net income per share was $0.88, compared to $0.64 in the fourth quarter of fiscal 2023.

Cash flows: Cash provided by operations was $203.6 million, or 34% of revenue, compared to $135.9 million, or 30% of revenue, in the fourth quarter of fiscal 2023. Free cash flow was $136.3 million, or 23% of revenue, compared to $101.3 million, or 22% of revenue, in the fourth quarter of fiscal 2023.

Deferred revenue: $1,895.0 million as of July 31, 2024, an increase of 32% year-over-year.

Cash, cash equivalents and short-term investments: $2,409.7 million as of July 31, 2024, an increase of $309.4 million from July 31, 2023.

Full Year Fiscal 2024 Financial Highlights

Revenue: $2,167.8 million, an increase of 34% year-over-year.

Income (loss) from operations: GAAP loss from operations was $121.5 million, or 6% of revenue, compared to $234.6 million, or 15% of revenue, in fiscal 2023. Non-GAAP income from operations was $442.2 million, or 20% of revenue, compared to $240.8 million, or 15% of revenue, in fiscal 2023.

Net income (loss): GAAP net loss was $57.7 million, compared to $202.3 million in fiscal 2023. Non-GAAP net income was $508.1 million, compared to $277.0 million in fiscal 2023.

Net income (loss) per share, diluted: GAAP net loss per share, diluted, was $0.39, compared to $1.40 in fiscal 2023. Non-GAAP net income per share was $3.19, compared to $1.79 in fiscal 2023.

Cash flows: Cash provided by operations was $779.8 million, or 36% of revenue, compared to $462.3 million, or 29% of revenue, in fiscal 2023. Free cash flow was $585.0 million, or 27% of revenue, compared to $333.6 million, or 21% of revenue, in fiscal 2023.

Recent Business Highlights

Surpassed half a trillion daily transactions, further demonstrating Zscaler's position as a leader in the Zero Trust cloud security market.

Published the Zscaler ThreatLabz 2024 Ransomware Report, which analyzed the ransomware threat landscape from April 2023 through April 2024. Findings in the report uncovered an 18% overall increase in ransomware attacks year-over-year, as well as a record-breaking ransom payment of US$75 million, nearly double the highest publicly known ransomware payout, to the Dark Angels ransomware group.

Collaborated with Google Chrome Enterprise to bring the power of Zscaler Private Access™ (ZPA™) zero trust secure access and advanced threat and data protection to private applications. The integration with Chrome Enterprise will provide hundreds of millions of enterprise users with advanced threat and data protection without the need for legacy VPNs or requiring additional browsers.

Launched multiple innovations to its AI Data Protection capabilities. These innovations make Zscaler's AI Data Protection a leading comprehensive data protection solution to protect structured and unstructured data in-motion, at-rest, and in-use, data across inline channels including Web, SaaS, Email, BYOD, and private applications in data centers and public cloud.

Launched Zscaler AI/ML-powered URL categorization that classifies web URLs and assigns them specific categories by using AI and ML to analyze text and visuals.

Announced the appointment of James Beer to its Board of Directors and also to the audit committee of the Board of Directors.

Announced a collaboration with NVIDIA to accelerate AI-powered security-centric copilot services for the enterprise.

Change in Non-GAAP Measures Presentation

Effective August 1, 2024, the beginning of Zscaler's fiscal year ending July 31, 2025, we are using a long-term projected non-GAAP tax rate of 23% for the purpose of determining our non-GAAP net income and non-GAAP net income per share to provide better consistency across interim reporting periods in fiscal 2025 and beyond. Given the significant growth of our business and non-GAAP operating income, we believe this change is necessary to better reflect the performance of our business. We have included a table in this earnings release illustrating the impact of this change to these non-GAAP financial measures to all periods presented. We will continue to assess the appropriate non-GAAP tax rate on a regular basis, which could be subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix, or other changes to our strategy or business operations.

Financial Outlook

For the first quarter of fiscal 2025, we expect:

Revenue of $604 million to $606 million

Non-GAAP income from operations of $114 million to $116 million

Non-GAAP net income per share of approximately $0.62 to $0.63, assuming approximately 164 million fully diluted shares outstanding and a non-GAAP tax rate of 23%

For the full year fiscal 2025, we expect:

Revenue of approximately $2.60 billion to $2.62 billion

Calculated billings of $3.110 billion to $3.135 billion

Non-GAAP income from operations of $530 million to $540 million

Non-GAAP net income per share of $2.81 to $2.87, assuming approximately 164 million fully diluted shares outstanding and a non-GAAP tax rate of 23%

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.

In August 2023, we completed an assessment of the useful lives of our servers and networking equipment, which resulted in an extension of their useful lives from four to five years. This change was effective beginning in fiscal year 2024. Based on the carrying amount of these assets as of July 31, 2023, the impact was approximately a 60 basis point benefit to our gross margin for the fourth quarter of fiscal 2024 and full year fiscal 2024.

Guidance for non-GAAP income from operations excludes stock-based compensation expense and related employer payroll taxes, amortization of debt issuance costs, and amortization expense of acquired intangible assets. We have not reconciled our expectations of 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. For those reasons, we are also unable to address the probable significance of the unavailable information, the variability of which may have a significant impact on future results. 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.

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.

Conference Call and Webcast Information

Zscaler will host a conference call for analysts and investors to discuss its fourth quarter of fiscal 2024 and outlook for its first quarter of fiscal 2025 and full year fiscal 2025 today at 1:30 p.m. Pacific time (4:30 p.m. Eastern time).

Date:

Tuesday, September 3, 2024

Time:

1:30 p.m. PT

Webcast:

https://ir.zscaler.com

Dial-in:

To join by phone, register at the following link: (https://register.vevent.com/register/BIfba5c76db32d45fa97aa1227ae1a06d3). After registering, you will be provided with a dial-in number and a personal PIN that you will need to join the call.

 

 

Upcoming Conferences

First quarter of fiscal 2025 investor conference participation schedule:

Citi Global TMT Conference in New York CityThursday, September 5, 2024

Goldman Sachs Communacopia + Technology Conference in San FranciscoWednesday, September 11, 2024

Wolfe Research TMT Conference in San FranciscoWednesday, September 11, 2024

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 2025 and full year fiscal 2025. 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 influences and instability, geopolitical events, operations and financial results and the economy in general; risks related to the use of AI in our platform; 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 products and subscriptions 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; useful lives of our assets and other estimates; 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 Securities and Exchange Commission (SEC), including our Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2024, filed on June 7, 2024, 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™ platform protects thousands of customers from cyberattacks and data loss by securely connecting users, devices, and applications in any location. Distributed across more than 160 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

Ashwin Kesireddy VP, Investor Relations and Strategic Finance(415)

Natalia WodeckiMedia Relations

 

ZSCALER, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

July 31,

 

July 31,

 

 

2024

 

 

 

2023

 

 

 

2024

 

 

 

2023

 

Revenue

$

592,868

 

 

$

455,006

 

 

$

2,167,771

 

 

$

1,616,952

 

Cost of revenue (1) (2)

 

130,205

 

 

 

102,682

 

 

 

477,129

 

 

 

362,832

 

Gross profit

 

462,663

 

 

 

352,324

 

 

 

1,690,642

 

 

 

1,254,120

 

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing (1) (2)

 

294,200

 

 

 

252,810

 

 

 

1,100,239

 

 

 

953,864

 

Research and development (1) (2)

 

139,150

 

 

 

96,387

 

 

 

499,828

 

 

 

349,735

 

General and administrative (1)

 

56,263

 

 

 

46,380

 

 

 

212,052

 

 

 

177,544

 

Restructuring and other charges (1)

 

—

 

 

 

1,299

 

 

 

—

 

 

 

7,600

 

Total operating expenses

 

489,613

 

 

 

396,876

 

 

 

1,812,119

 

 

 

1,488,743

 

Loss from operations

 

(26,950

)

 

 

(44,552

)

 

 

(121,477

)

 

 

(234,623

)

Interest income

 

27,233

 

 

 

21,351

 

 

 

109,130

 

 

 

60,462

 

Interest expense (3)

 

(3,604

)

 

 

(2,494

)

 

 

(13,132

)

 

 

(6,541

)

Other expense, net

 

(1,783

)

 

 

(331

)

 

 

(3,750

)

 

 

(1,862

)

Loss before income taxes

 

(5,104

)

 

 

(26,026

)

 

 

(29,229

)

 

 

(182,564

)

Provision for income taxes (4)

 

9,774

 

 

 

4,648

 

 

 

28,477

 

 

 

19,771

 

Net loss

$

(14,878

)

 

$

(30,674

)

 

$

(57,706

)

 

$

(202,335

)

Net loss per share, basic and diluted

$

(0.10

)

 

$

(0.21

)

 

$

(0.39

)

 

$

(1.40

)

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

 

151,497

 

 

 

146,424

 

 

 

149,586

 

 

 

144,942

 

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

Cost of revenue

$

13,890

 

 

$

12,016

 

 

$

52,766

 

 

$

40,297

 

Sales and marketing

 

60,584

 

 

 

60,181

 

 

 

230,597

 

 

 

222,280

 

Research and development

 

54,598

 

 

 

34,742

 

 

 

186,107

 

 

 

121,151

 

General and administrative

 

20,298

 

 

 

19,336

 

 

 

79,630

 

 

 

73,051

 

Restructuring and other charges

 

—

 

 

 

—

 

 

 

—

 

 

 

1,036

 

Total

$

149,370

 

 

$

126,275

 

 

$

549,100

 

 

$

457,815

 

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

Cost of revenue

$

4,483

 

 

$

2,765

 

 

$

12,879

 

 

$

9,574

 

Sales and marketing

 

501

 

 

 

217

 

 

 

1,232

 

 

 

773

 

Research and development

 

140

 

 

 

—

 

 

 

513

 

 

 

713

 

Total

$

5,124

 

 

$

2,982

 

 

$

14,624

 

 

$

11,060

 

 

(3) Includes amortization of debt issuance costs

$

980

 

 

$

975

 

 

$

3,914

 

 

$

3,894

 

 

(4) Includes tax benefit associated with business acquisitions

$

—

 

 

$

—

 

 

$

(1,864

)

 

$

—

 

 

 

ZSCALER, INC.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

July 31,

 

July 31,

 

 

2024

 

 

 

2023

 

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

1,423,080

 

 

$

1,262,206

 

Short-term investments

 

986,574

 

 

 

838,026

 

Accounts receivable, net

 

736,529

 

 

 

582,636

 

Deferred contract acquisition costs

 

148,873

 

 

 

115,827

 

Prepaid expenses and other current assets

 

101,561

 

 

 

91,619

 

Total current assets

 

3,396,617

 

 

 

2,890,314

 

Property and equipment, net

 

383,121

 

 

 

242,355

 

Operating lease right-of-use assets

 

89,758