Zscaler(US:ZS)2023-06-06 16:00Financial Performance - For the nine months ended April 30, 2023, Zscaler's revenue was $1,161.9 million, a 50.4% increase from $772.9 million in the same period of 2022[130]. - The net loss for the nine months ended April 30, 2023, was $171.7 million, compared to a net loss of $292.6 million for the same period in 2022[130]. - For the three months ended April 30, 2023, the company reported a GAAP loss from operations of $55.7 million, an improvement from a loss of $86.6 million in the same period of 2022[150]. - The net loss for the three months ended April 30, 2023, was $46.0 million, compared to a net loss of $101.4 million in the same period of 2022[172]. - Revenue for the three months ended April 30, 2023, was $418.8 million, up from $286.8 million in the same period of 2022, representing a growth of 46%[156]. - Revenue increased by $389.1 million, or 50%, for the nine months ended April 30, 2023, driven by a 15% increase in the customer base and additional subscriptions contributing $302.2 million[191]. Customer Metrics - As of July 31, 2022, Zscaler had over 6,700 customers, including more than 600 of the Forbes Global 2000, indicating strong market penetration[129][134]. - The dollar-based net retention rate for the trailing 12 months ended April 30, 2023, was above 125%, reflecting the company's ability to retain and expand revenue from existing customers[142]. Expenses and Costs - Non-GAAP gross profit for the nine months ended April 30, 2023, was $936.9 million, with a non-GAAP gross margin of 81%[148]. - Cost of revenue increased by $31.8 million, or 50%, to $95.8 million for the three months ended April 30, 2023, primarily due to increased data center and equipment costs and a 29% increase in headcount[176]. - Sales and marketing expenses rose by $44.1 million, or 23%, to $236.3 million for the three months ended April 30, 2023, mainly due to a 29% increase in headcount and higher employee-related expenses[178]. - Research and development expenses increased by $16.1 million, or 21%, to $92.6 million for the three months ended April 30, 2023, driven by a 37% increase in headcount and higher employee-related costs[179]. - General and administrative expenses rose by $2.8 million, or 7%, to $43.5 million for the three months ended April 30, 2023, primarily due to increased employee-related expenses[180]. - Cost of revenue increased by $86.2 million, or 50%, for the nine months ended April 30, 2023, primarily due to increased data center and equipment costs and a 29% increase in headcount[192]. - Sales and marketing expenses rose by $180.1 million, or 35%, for the nine months ended April 30, 2023, largely due to a 29% increase in headcount and related employee expenses[194]. - Research and development expenses increased by $42.4 million, or 20%, for the nine months ended April 30, 2023, driven by a 37% increase in headcount and additional facility-related expenses[196]. - General and administrative expenses grew by $19.3 million, or 17%, for the nine months ended April 30, 2023, primarily due to a 30% increase in headcount and higher professional service costs[197]. Cash Flow and Investments - Free cash flow for the three months ended April 30, 2023, was $73.9 million, compared to $43.7 million for the same period in 2022, indicating a year-over-year increase of 69%[154]. - Net cash provided by operating activities for the nine months ended April 30, 2023, was $326.4 million, compared to $218.8 million for the same period in 2022, reflecting an increase of 49.3%[215]. - Net cash used in investing activities during the nine months ended April 30, 2023, was $78.9 million, primarily due to purchases of short-term investments totaling $740.2 million[218]. - Net cash provided by financing activities for the nine months ended April 30, 2023, was $14.6 million, primarily from proceeds of $11.4 million from the issuance of common stock under the ESPP[220]. Deferred Revenue and Taxation - Total deferred revenue at the end of the period was $1.175 billion, compared to $818.7 million at the end of the same period in 2022, showing a growth of 43.7%[156]. - The provision for income taxes increased by $11.0 million to $15.1 million for the nine months ended April 30, 2023, representing a 264% increase compared to the same period in 2022[203]. - The company expects to maintain a full valuation allowance on deferred tax assets due to a history of losses, impacting future tax realizations[171]. - The company has maintained a valuation allowance on its U.S. federal, state, and U.K. deferred tax assets due to the likelihood of not realizing these assets[206]. Future Outlook and Strategic Initiatives - Zscaler plans to continue investing significantly in sales and marketing to enhance brand awareness and expand its customer base, despite expected increases in operating expenses[139]. - Zscaler intends to invest in research and development to enhance its cloud platform and offer new solutions, aiming for long-term growth[138]. - The company expects calculated billings growth rates to trend down over time due to seasonality and the mix of billings in each reporting period[155]. - The company expects to continue incurring operating losses, with an accumulated deficit of $1,059.7 million as of April 30, 2023[209]. - The company may require additional equity or debt financing in the future, which may not be available on acceptable terms[211]. Interest and Currency Risks - Interest income surged by $17.6 million, or 1,858%, to $18.6 million for the three months ended April 30, 2023, driven by higher interest rates and increased cash equivalents[183]. - Interest income surged by $37.1 million, or 1,876%, for the nine months ended April 30, 2023, mainly due to higher interest rates and increased cash equivalents[200]. - Interest expense decreased by $12.9 million, or 90%, for the three months ended April 30, 2023, compared to the same period in 2022, primarily due to the derecognition of the unamortized debt discount[184]. - The company has a foreign currency risk management program and uses foreign currency forward contracts to hedge a portion of forecasted foreign currency-denominated expenses[234]. - The effect of a hypothetical 10% change in foreign currency exchange rates would not have a material impact on the company's financial statements for the nine months ended April 30, 2023[233]. - The company recognizes transaction gains and losses in its consolidated statements of operations due to fluctuations in foreign currency exchange rates[232].