Zscaler(US:ZS)2024-12-05 21:05PART I. FINANCIAL INFORMATION This section presents Zscaler's unaudited condensed consolidated financial information for the quarter ended October 31, 2024 Item 1. Financial Statements (unaudited) This section presents Zscaler's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, with accompanying notes Condensed Consolidated Balance Sheets Zscaler's total assets slightly increased to $4.71 billion, with cash and investments rising, while liabilities decreased, leading to higher stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | October 31, 2024 | July 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,553,645 | $1,423,080 | | Short-term investments | $1,154,252 | $986,574 | | Total current assets | $3,393,780 | $3,396,617 | | Total assets | $4,709,002 | $4,704,968 | | Liabilities & Equity | | | | Deferred revenue (current) | $1,533,080 | $1,643,919 | | Total current liabilities | $2,963,610 | $3,112,887 | | Total liabilities | $3,280,457 | $3,430,866 | | Total stockholders' equity | $1,428,545 | $1,274,102 | Condensed Consolidated Statement of Operations Revenue grew 26.4% to $628.0 million, narrowing the operating loss to $30.7 million and significantly reducing net loss to $12.1 million Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Oct 31, 2024 | Three Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Revenue | $627,955 | $496,703 | | Gross Profit | $486,493 | $385,309 | | Total operating expenses | $517,160 | $431,366 | | Loss from operations | $(30,667) | $(46,057) | | Net loss | $(12,051) | $(33,483) | | Net loss per share, basic and diluted | $(0.08) | $(0.23) | Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $331.3 million, with cash and cash equivalents rising by $130.6 million to $1.55 billion at quarter-end Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Oct 31, 2024 | Three Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $331,335 | $260,806 | | Net cash used in investing activities | $(201,660) | $(162,545) | | Net cash provided by financing activities | $890 | $1,256 | | Net increase in cash and cash equivalents | $130,565 | $99,517 | | Cash and cash equivalents at end of period | $1,553,645 | $1,361,723 | Notes to Unaudited Condensed Consolidated Financial Statements Detailed notes explain accounting policies, revenue disaggregation, contract balances, fair value measurements, convertible notes, and significant commitments - Subscription and support revenue accounted for approximately 97% of total revenue for the three months ended October 31, 2024 and 202346 Revenue by Region (in thousands) | Region | Q1 FY25 Revenue | % of Total | Q1 FY24 Revenue | % of Total | | :--- | :--- | :--- | :--- | :--- | | United States | $319,312 | 51% | $247,531 | 50% | | Europe, Middle East and Africa | $186,069 | 30% | $157,245 | 32% | | Asia Pacific | $99,382 | 16% | $75,080 | 15% | | Other | $23,192 | 3% | $16,847 | 3% | - As of October 31, 2024, the aggregate amount of remaining performance obligations (RPO) was $4.41 billion, with 49% expected to be recognized over the next 12 months49 - In November 2024, the company entered into a non-cancelable agreement with a public cloud provider for a minimum purchase commitment of $300.0 million over five years119 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the quarter's financial performance, highlighting 26% revenue growth, a 114% dollar-based net retention rate, and strong free cash flow despite macroeconomic scrutiny Key Business Metrics and Financial Measures (in millions) | Metric | Three Months Ended Oct 31, 2024 | Three Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Revenue | $628.0 million | $496.7 million | | Calculated Billings | $516.7 million | $456.6 million | | Non-GAAP Income from Operations | $134.1 million | $89.7 million | | Free Cash Flow | $291.9 million | $224.7 million | | Free Cash Flow Margin | 46% | 45% | - The dollar-based net retention rate for the trailing 12 months ended October 31, 2024, was 114%, compared to 120% for the same period in 2023136 - The company continues to experience customer scrutiny and elongated approval processes for transactions, particularly larger deals, due to the uncertain economic environment125 - Zscaler plans to continue significant investments in R&D and sales and marketing to enhance its cloud platform and grow its customer base132133 Item 3. Quantitative and Qualitative Disclosures about Market Risk Zscaler manages market risks from interest rate fluctuations on investments and convertible notes, and foreign currency exposure through hedging programs - A hypothetical 100 basis point change in interest rates would alter the fair value of available-for-sale securities by $11.2 million as of October 31, 2024217 - The company uses interest rate swaps to economically convert fixed-rate Convertible Senior Notes to floating rates, mitigating fair value risk218 - Foreign currency risk from operating expenses in various currencies is hedged using foreign currency forward contracts221224 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of October 31, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level as of October 31, 2024226 - No material changes occurred in internal control over financial reporting during the quarter228 PART II. OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is involved in various litigation matters but believes no pending or threatened proceedings will materially adversely affect its financial results or operations - The company believes no pending or threatened legal proceeding is likely to have a material adverse effect on its future financial results or operations99232 Item 1A. Risk Factors Zscaler faces numerous risks, including a history of losses, intense competition, operational challenges, international exposure, and risks related to its convertible debt and stock ownership concentration - The company has a history of net losses, with an accumulated deficit of $1.16 billion as of October 31, 2024, and expects continued losses237 - Intense competition from established vendors and other IT security providers could lead to price reductions and market share loss260261 - Approximately 50% of fiscal 2024 revenue from international customers exposes the company to political, regulatory, and currency risks320 - The $1.15 billion 0.125% Convertible Senior Notes mature on July 1, 2025, potentially requiring significant cash for servicing427430 - Executive officers, directors, and 5%+ stockholders beneficially owned approximately 43.0% of common stock as of October 31, 2024, limiting other stockholders' influence404 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, Zscaler reported no unregistered sales of equity securities or issuer purchases of its own equity securities - There were no unregistered sales of equity securities or issuer purchases of equity securities during the reported period458459 Item 5. Other Information No director or executive officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended October 31, 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the three months ended October 31, 2024460 Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL data files - The report includes filed exhibits such as CEO and CFO certifications and XBRL interactive data files461462