Zscaler Reports First Quarter Fiscal 2019 Financial Results
- Revenue grows 59% year-over-year to
$63.3 million - Calculated billings grow 56% year-over-year to
$64.6 million - Deferred revenue grows 68% year-over-year to
$165.3 million - GAAP net loss of
$7.6 million compared to GAAP net loss of $11.4 million on a year-over-year basis - Non-GAAP net income of
$2.0 million compared to Non-GAAP net loss of $7.5 million on a year-over-year basis
"We are executing on our vision and seeing good momentum in our business, as reflected in our strong first quarter financial results and increased outlook for the second quarter and full year fiscal 2019. We are seeing significant demand for our high-end Transformation bundle as well as rapid growth in Zscaler Private Access, as more enterprises embrace cloud transformation,” said
First Quarter Fiscal 2019 Financial Highlights
- Revenue: $63.3 million, an increase of 59% year-over-year.
- Income (loss) from operations: GAAP loss from operations was $8.7 million, or 14% of total revenue, compared to
$11.3 million in the first quarter of fiscal 2018, or 28% of total revenue. Non-GAAP income from operations was $1.2 million, or 2% of total revenue, compared to loss from operations of$7.4 million in the first quarter of fiscal 2018, or 19% of total revenue. - Net Income (Loss): GAAP net loss was $7.6 million, compared to $11.4 million in the first quarter of fiscal 2018. Non-GAAP net income was $2.0 million, compared to net loss of
$7.5 million in the first quarter of fiscal 2018. - Net Income (Loss) Per Share: GAAP net loss per share was $0.06, compared to $0.45 in the first quarter of fiscal 2018. Pro forma non-GAAP net income per share was
$0.01 , compared to net loss per share of$0.07 in the first quarter of fiscal 2018. - Cash Flow: Cash provided by operations was $11.0 million, or 17% of revenue, compared to cash used in operations of
$4.4 million , or 11% of revenue, in the first quarter of fiscal 2018. Positive free cash flow was$5.2 million , or 8% of revenue, compared to negative free cash flow of$8.9 million , or 22% of revenue, in the first quarter of fiscal 2018. - Deferred Revenue:
$165.3 million atOctober 31, 2018 , an increase of 68% year-over-year. - Cash, cash equivalents and short-term investments:
$314.0 million as of October 31, 2018, an increase of$15.5 million fromJuly 31, 2018 and no debt.
Recent Business Highlights
- On
November 26, 2018 , Zscaler was named a leader in Gartner Secure Web Gateways Magic Quadrant for the 8th year in a row. Zscaler released inline Exact Data Match (EDM) with native SSL inspection as part of its Cloud Data Loss Prevention (DLP) service providing more precision while reducing the number of false positives. While traditional DLP-EDM solutions were designed for the “castle-and-moat” security model in a few data centers, Zscaler’s DLP-EDM service can scale to meet the needs of large enterprises with the capacity of one billion data points per customer across 100 data centers globally to protect all users, irrespective of the location.- Zenith Live Europe, Zscaler’s inaugural European Cloud Summit, took place in
London with key industry leaders from global organizations such asMicrosoft , Orange Business Services, Boehringer Ingelheim,Carlsberg Group andThyssenkrupp sharing insights and best practices for secure cloud transformation. - Zscaler Private Access™ (ZPA™) became the first zero trust architecture to achieve Amazon Web Service (AWS) Security Competency status. AWS established the AWS Competency Program to help customers identify Consulting and
Technology Partners in the Amazon Partner Network (APN) with deep industry experience and expertise.
Financial Outlook
For the second quarter of fiscal 2019, we expect:
- Total revenue of $65 to $67 million
- Non-GAAP loss from operations of $1 to $3 million
- Pro forma non-GAAP net loss per share of $0.00 to $0.02, assuming approximately 122 to 123 million common shares outstanding
For the full fiscal 2019, we expect:
- Total revenue of $268 to $272 million
- Non-GAAP loss from operations of $4 to $6 million
- Pro forma non-GAAP net loss per share of $0.01 to $0.03, assuming approximately 124 million common shares outstanding
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 financial measures excludes stock-based compensation expense, amortization expense of acquired intangibles, significant litigation-related expenses and tax effects associated with these items. We have not reconciled our expectations as to non-GAAP loss from operations and pro forma non-GAAP net loss per share to their most directly comparable GAAP measure because certain items are out of our control or cannot be reasonably predicted. Accordingly, a reconciliation for non-GAAP loss from operations and pro forma non-GAAP net loss per share is not available without unreasonable effort.
Conference Call Information
Date: | Tuesday, December 4 | |
Time: | 1:30 p.m. PT (4:30 p.m. ET) | |
Webcast: | https://ir.zscaler.com/ | |
Dial-in number: | 334-323-0522 or 877-260-1479 |
A live webcast of the conference call will be accessible from the
Forward-Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding our future financial and operating performance, including our financial outlook for the second quarter of fiscal 2019 and full year fiscal 2019. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: 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; 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; 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
Use of Non-GAAP Financial Information
About
Investor Relations Contact:
Vice President, Investor Relations
(669) 255-0767
ir@zscaler.com
Media Relations Contact:
Manager, PR
(408) 313-5358
abadagliacco@zscaler.com
Zscaler, Inc. | |||||||
Condensed Consolidated Statements of Operations | |||||||
(In thousands, except per share amounts) | |||||||
(Unaudited) | |||||||
Three Months Ended October 31, |
|||||||
2018 | 2017 | ||||||
Revenue | $ | 63,298 | $ | 39,861 | |||
Cost of revenue (1) | 12,099 | 8,271 | |||||
Gross profit | 51,199 | 31,590 | |||||
Operating expenses: | |||||||
Sales and marketing (1) | 36,545 | 26,928 | |||||
Research and development (1)(2) | 13,186 | 8,809 | |||||
General and administrative (1)(3) | 10,131 | 7,130 | |||||
Total operating expenses | 59,862 | 42,867 | |||||
Loss from operations | (8,663 | ) | (11,277 | ) | |||
Interest income, net | 1,590 | 195 | |||||
Other expense, net | (188 | ) | (27 | ) | |||
Loss before income taxes | (7,261 | ) | (11,109 | ) | |||
Provision for income taxes | 327 | 289 | |||||
Net loss | $ | (7,588 | ) | $ | (11,398 | ) | |
Accretion of Series C and D redeemable convertible preferred stock | — | (2,530 | ) | ||||
Net loss attributable to common stockholders | $ | (7,588 | ) | $ | (13,928 | ) | |
Net loss per share attributable to common stockholders, basic and diluted | $ | (0.06 | ) | $ | (0.45 | ) | |
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted | 120,587 | 30,793 |
(1) Includes stock-based compensation expense as follows:
Three Months Ended October 31, |
|||||||
2018 | 2017 | ||||||
Cost of revenue | $ | 503 | $ | 109 | |||
Sales and marketing | 2,801 | 785 | |||||
Research and development | 2,795 | 398 | |||||
General and administrative | 1,487 | 441 | |||||
Total stock-based compensation expense | $ | 7,586 | $ | 1,733 | |||
(2) Includes amortization expense of acquired intangible assets as follows: | Three Months Ended October 31, |
||||||
2018 | 2017 | ||||||
Amortization expense of acquired intangible assets | $ | 95 | $ | — | |||
(3) Includes litigation-related expenses as follows: | Three Months Ended October 31, |
||||||
2018 | 2017 | ||||||
Litigation-related expenses | $ | 2,174 | $ | 2,146 |
Zscaler, Inc. | |||||||
Condensed Consolidated Balance Sheets | |||||||
(In thousands) | |||||||
(Unaudited) | |||||||
October 31, | July 31, | ||||||
2018 | 2018 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 42,786 | $ | 135,579 | |||
Short-term investments | 271,254 | 162,960 | |||||
Accounts receivable, net | 49,228 | 61,611 | |||||
Deferred contract acquisition costs | 16,387 | 16,136 | |||||
Prepaid expenses and other current assets | 11,949 | 10,878 | |||||
Total current assets | 391,604 | 387,164 | |||||
Property and equipment, net | 24,132 | 19,765 | |||||
Deferred contract acquisition costs, noncurrent | 39,591 | 39,774 | |||||
Other noncurrent assets | 2,767 | 1,078 | |||||
Total assets | $ | 458,094 | $ | 447,781 | |||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 4,573 | $ | 4,895 | |||
Accrued expenses and other current liabilities | 14,925 | 12,313 | |||||
Accrued compensation | 18,686 | 23,393 | |||||
Liability for early exercised stock options | 1,249 | 1,561 | |||||
Deferred revenue | 144,472 | 140,670 | |||||
Total current liabilities | 183,905 | 182,832 | |||||
Deferred revenue, noncurrent | 20,807 | 23,353 | |||||
Other noncurrent liabilities | 1,204 | 1,360 | |||||
Total liabilities | 205,916 | 207,545 | |||||
Stockholders’ Equity | |||||||
Common stock | 122 | 119 | |||||
Additional paid-in capital | 455,761 | 438,392 | |||||
Notes receivable from stockholders | — | (2,051 | ) | ||||
Accumulated other comprehensive loss | (317 | ) | (124 | ) | |||
Accumulated deficit | (203,388 | ) | (196,100 | ) | |||
Total stockholders’ equity | 252,178 | 240,236 | |||||
Total liabilities and stockholders’ equity | $ | 458,094 | $ | 447,781 |
Zscaler, Inc. | |||||||
Condensed Consolidated Statements of Cash Flows | |||||||
(In thousands) | |||||||
(Unaudited) | |||||||
Three Months Ended October 31, |
|||||||
2018 | 2017 | ||||||
Cash Flows From Operating Activities | |||||||
Net Loss | $ | (7,588 | ) | $ | (11,398 | ) | |
Adjustments to reconcile net loss to cash provided by operating activities: | |||||||
Depreciation and amortization expense | 2,170 | 1,921 | |||||
Amortization of acquired intangible assets | 95 | — | |||||
Amortization of deferred contract acquisition costs | 4,324 | 2,868 | |||||
Stock-based compensation expense | 7,586 | 1,733 | |||||
Other | (317 | ) | (47 | ) | |||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 12,383 | 8,621 | |||||
Deferred contract acquisition costs | (4,392 | ) | (4,208 | ) | |||
Prepaid expenses and other assets | (1,138 | ) | (686 | ) | |||
Accounts payable | (768 | ) | (2,065 | ) | |||
Accrued expenses and other liabilities | 2,110 | 755 | |||||
Accrued compensation | (4,707 | ) | (3,493 | ) | |||
Deferred revenue | 1,256 | 1,647 | |||||
Net cash provided by (used in) operating activities | 11,014 | (4,352 | ) | ||||
Cash Flows From Investing Activities | |||||||
Purchases of property and equipment | (5,414 | ) | (4,010 | ) | |||
Capitalized internal-use software | (356 | ) | (534 | ) | |||
Acquired intangible assets | (1,480 | ) | — | ||||
Purchases of short-term investments | (137,429 | ) | — | ||||
Proceeds from maturities of short-term investments | 29,333 | — | |||||
Net cash used in investing activities | (115,346 | ) | (4,544 | ) | |||
Cash Flows From Financing Activities | |||||||
Payments of costs related to initial public offering | (230 | ) | (1,443 | ) | |||
Proceeds from issuance of common stock upon exercise of stock options | 9,796 | 1,211 | |||||
Repurchases of unvested common stock | (22 | ) | (3,090 | ) | |||
Repayments of notes receivable from stockholders | 1,905 | — | |||||
Net cash provided by (used in) financing activities | 11,449 | (3,322 | ) | ||||
Net decrease in cash, cash equivalents and restricted cash | (92,883 | ) | (12,218 | ) | |||
Cash, cash equivalents and restricted cash at beginning of period | 136,147 | 88,546 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 43,264 | $ | 76,328 | |||
Reconciliation of cash, cash equivalents, and restricted cash within the condensed consolidated balance sheets to the amounts shown in the statements of cash flows above: | |||||||
Cash and cash equivalents | $ | 42,786 | $ | 75,760 | |||
Restricted cash, current | 186 | 180 | |||||
Restricted cash, non-current | 292 | 388 | |||||
Total cash, cash equivalents and restricted cash | $ | 43,264 | $ | 76,328 |
Zscaler, Inc. | |||||||
Reconciliation of GAAP to Non-GAAP Financial Measures | |||||||
(In thousands) | |||||||
(Unaudited) | |||||||
Three Months Ended October 31, |
|||||||
2018 | 2017 | ||||||
Revenue | $ | 63,298 | $ | 39,861 | |||
Non-GAAP Gross Profit and Non-GAAP Gross Margin | |||||||
GAAP gross profit | $ | 51,199 | $ | 31,590 | |||
Add: Stock-based compensation expense included in cost of revenue | 503 | 109 | |||||
Non-GAAP gross profit | $ | 51,702 | $ | 31,699 | |||
GAAP gross margin | 81 | % | 79 | % | |||
Non-GAAP gross margin | 82 | % | 80 | % | |||
Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin | |||||||
GAAP loss from operations | $ | (8,663 | ) | $ | (11,277 | ) | |
Add: | |||||||
Stock-based compensation expense | 7,586 | 1,733 | |||||
Litigation-related expenses | 2,174 | 2,146 | |||||
Amortization expense of acquired intangible assets | 95 | — | |||||
Non-GAAP income (loss) from operations | $ | 1,192 | $ | (7,398 | ) | ||
GAAP operating margin | (14 | )% | (28 | )% | |||
Non-GAAP operating margin | 2 | % | (19 | )% |
Zscaler, Inc. | ||||||||
Reconciliation of GAAP to Non-GAAP Financial Measures | ||||||||
(In thousands, except per share amounts) | ||||||||
(Unaudited) | ||||||||
Three Months Ended October 31, |
||||||||
2018 | 2017 | |||||||
Non-GAAP Net Income (Loss) per Share Attributable to Common Stockholders, Diluted | ||||||||
GAAP net loss attributable to common stockholders | $ | (7,588 | ) | $ | (13,928 | ) | ||
Stock-based compensation expense | 7,586 | 1,733 | ||||||
Litigation-related expenses | 2,174 | 2,146 | ||||||
Amortization expense of acquired intangible assets | 95 | — | ||||||
Accretion of Series C and D redeemable convertible preferred stock | — | 2,530 | ||||||
Income tax expense effects (1) | (261 | ) | — | |||||
Non-GAAP net income (loss) attributable to common stockholders | $ | 2,006 | $ | (7,519 | ) | |||
GAAP net loss per share attributable to common stockholders, diluted | $ | (0.06 | ) | $ | (0.45 | ) | ||
Stock-based compensation expense | 0.06 | 0.06 | ||||||
Litigation-related expenses | 0.02 | 0.07 | ||||||
Amortization expense of acquired intangible assets | — | — | ||||||
Accretion of Series C and D redeemable convertible preferred stock | — | 0.08 | ||||||
Income tax expense effects | — | — | ||||||
Non-GAAP net income (loss) per share attributable to common stockholders, basic and diluted (2) | $ | 0.01 | $ | (0.24 | ) | |||
Weighted-average shares used in computing non-GAAP net loss per share attributable to common stockholders, diluted | 133,845 | 30,793 |
___________
(1) The income tax expense effects for our fiscal quarter ended
(2) The sum of the non-GAAP per share attributable to common stockholders of individual line items excluded from our non-GAAP net income (loss) may not total to the non-GAAP net income (loss) per share attributable to common stockholders due to rounding.
Zscaler, Inc. | ||||||||
Reconciliation of GAAP to Non-GAAP Financial Measures | ||||||||
(In thousands, except per share data) | ||||||||
(Unaudited) | ||||||||
Three Months Ended October 31, | ||||||||
2018 | 2017 | |||||||
Pro Forma Non-GAAP Net Income (Loss) per Share Attributable to Common Stockholders | ||||||||
Numerator: | ||||||||
GAAP net loss attributable to common stockholders | $ | (7,588 | ) | $ | (13,928 | ) | ||
Stock-based compensation expense | 7,586 | 1,733 | ||||||
Litigation-related expenses | 2,174 | 2,146 | ||||||
Amortization expense of acquired intangible assets | 95 | — | ||||||
Accretion of Series C and D redeemable convertible preferred stock | — | 2,530 | ||||||
Income tax expense effects (1) | (261 | ) | — | |||||
Non-GAAP net income (loss) attributable to common stockholders | $ | 2,006 | $ | (7,519 | ) | |||
Denominator: | ||||||||
Weighted-average shares used in computing GAAP net loss per share attributable to common stockholders, diluted | 120,587 | 30,793 | ||||||
Potentially diluted shares | 13,258 | — | ||||||
Pro forma adjustment to reflect assumed conversion of our convertible preferred stock as of the beginning of the period (2) | — | 72,500 | ||||||
Weighted-average shares used in computing pro forma non-GAAP net income (loss) per share attributable to common stockholders, diluted (2) | 133,845 | 103,293 | ||||||
Pro forma non-GAAP net income (loss) per share attributable to common stockholders, diluted (2) | $ | 0.01 | $ | (0.07 | ) |
___________
(1) The income tax expense effects for our fiscal quarter ended
(2) We define pro forma non-GAAP net income (loss) per share attributable to common stockholders as the weighted-average shares used in computing the GAAP net loss per share attributable to common stockholders plus a pro forma adjustment to give effect to the automatic conversion of our redeemable convertible preferred stock into 72,500,750 shares of common stock as though the conversion had occurred as of the beginning of the periods presented. Upon the closing of our initial public offering on
Zscaler, Inc. | |||||||
Reconciliation of GAAP to Non-GAAP Financial Measures | |||||||
(In thousands) | |||||||
(Unaudited) | |||||||
Three Months Ended October 31, |
|||||||
2018 | 2017 | ||||||
Calculated Billings | |||||||
Revenue | $ | 63,298 | $ | 39,861 | |||
Add: Total deferred revenue, end of period | 165,279 | 98,266 | |||||
Less: Total deferred revenue, beginning of period | (164,023 | ) | (96,619 | ) | |||
Calculated billings | $ | 64,554 | $ | 41,508 | |||
Three Months Ended October 31, |
|||||||
2018 | 2017 | ||||||
Free Cash Flow | |||||||
Net cash provided by (used in) operating activities | $ | 11,014 | $ | (4,352 | ) | ||
Less: | |||||||
Purchases of property and equipment | (5,414 | ) | (4,010 | ) | |||
Capitalized internal-use software | (356 | ) | (534 | ) | |||
Free cash flow | $ | 5,244 | $ | (8,896 | ) | ||
As a percentage of revenue: | |||||||
Net cash provided by (used in) operating activities | 17 | % | (11 | )% | |||
Less: | |||||||
Purchases of property and equipment | (8 | ) | (10 | ) | |||
Capitalized internal-use software | (1 | ) | (1 | ) | |||
Free cash flow margin | 8 | % | (22 | )% | |||
First Quarter Fiscal 2019 Financial Results
Explanation of Non-GAAP Financial Measures and Other Key Metrics
In addition to our results determined in accordance with generally accepted accounting principles in
Non-GAAP Gross Profit and Non-GAAP Gross Margin. We define non-GAAP gross profit as GAAP gross profit excluding stock-based compensation expense. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of revenue.
Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin. We define non-GAAP income (loss) from operations and non-GAAP operating margin as GAAP loss from operations and GAAP operating margin, respectively, excluding stock-based compensation expense, certain litigation-related expenses and amortization expense of acquired intangible assets. These excluded litigation-related expenses are professional fees and related costs incurred by us in defending against significant claims that we deem not to be in the ordinary course of our business and, if applicable, accruals related to estimated losses in connection with these claims. There are many uncertainties and potential outcomes associated with any litigation, including the expense of litigation, timing of such expenses, court rulings, unforeseen developments, complications and delays, each of which may affect our results of operations from period to period, as well as the unknown magnitude of the potential loss relating to any lawsuit, all of which are inherently subject to change, difficult to estimate and could adversely affect our results of operations.
Non-GAAP Net Income (Loss) and Non-GAAP Net Income (Loss) per Share Attributable to Common Stockholders Diluted. We define non-GAAP net income (loss) as GAAP net loss plus stock-based compensation, litigation-related expenses, amortization expense of acquired intangible assets, accretion of Series C and Series D redeemable convertible preferred stock and tax effects associated with these items. We estimate the tax effect of these items to determine a non-GAAP annual effective tax rate applied to the pretax amount in order to calculate the non-GAAP provision for income taxes. We define non-GAAP net income (loss) per share attributable to common stockholders, diluted, as non-GAAP net income (loss) divided by the weighted-average diluted shares outstanding, which includes the dilutive effect of potentially diluted common stock equivalents outstanding during the period. We believe that excluding these items from non-GAAP net income (loss) and non-GAAP net income (loss) per share attributable to common stockholders, diluted, provides management and investors with greater visibility into the underlying performance of our core business operating results.
Pro Forma Non-GAAP Net Income (Loss) per Share Attributable to Common Stockholders, Diluted. We define pro forma non-GAAP net income (loss) per share attributable to common stockholders, diluted, as the weighted-average shares used in computing the GAAP net loss per share attributable to common stockholders, diluted, plus a pro forma adjustment to give effect to the automatic conversion of our redeemable convertible preferred stock into 72,500,750 shares of common stock as though the conversion had occurred as of the beginning of the periods presented. Upon the closing of our initial public offering on
Calculated Billings. We define calculated billings as total revenue plus the change in deferred revenue in a period. Calculated billings in any particular period aims to reflect amounts invoiced for subscriptions to access our cloud platform, together with related support services related to our new and existing customers. We typically invoice our customers annually in advance, and to a lesser extent quarterly in advance, monthly in advance or multi-year in advance.
Free Cash Flow and Free Cash Flow Margin. We define free cash flow as net cash used in operating activities less purchases of property and equipment and capitalized internal-use software. We define free cash flow margin as free cash flow divided by revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our operations that, after the investments in property and equipment and capitalized internal-use software, can be used for strategic initiatives, including investing in our business and strengthening our financial position.
Source: Zscaler, Inc.