Zscaler (ZS) Fourth Quarter Earnings and Revenue Beat Estimates, Up Year Over Year – September 9, 2022

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Z-scale (SZ Free Report) performed better than expected in the fourth quarter of fiscal 2022.

The company reported non-GAAP earnings of 25 cents per share, which beat Zacks’ consensus estimate of 20 cents. Net income jumped 78.6% year-over-year.

Zscaler’s revenue in the fourth quarter of fiscal 2022 was $318.1 million, beating Zacks’ consensus estimate of $305.6 million. Turnover improved by 61% compared to the previous year’s figure.

Front line details

During the fourth quarter of fiscal 2022, Zscaler calculated billings increased 57% year-over-year to $520.4 million.

Geographically, the Americas accounted for 52% of revenue, while EMEA contributed 33%. Asia-Pacific and Japan accounted for the remaining 15%.

ZS’s Zero Trust Exchange platform was a key catalyst in the fourth quarter. The company benefited from strong demand for its products, given the healthy environment in the global security market. Rising cyberware and ransomware risks, coupled with accelerated digital transformation, contributed significantly to growth.

Customer Details

During the fourth fiscal quarter, Zscaler continued to win many customers in each of its three market segments: financial services, enterprise market and federal. Its net dollar retention rate was over 125%.

Remaining performance obligations, representing committed non-cancellable future revenue from ZS, were $2.61 billion as of July 31, up a significant 68% year-over-year.

During the fourth fiscal quarter, the company had 327 customers with $1 million or more in annualized recurring revenue (“ARR”). This figure, which is the highest to date, jumped 62% year-on-year.

The company had 2,089 customers with an ARR of $100,000 or more. This figure reflects growth of 41.1% year over year.

Operation details

In the fiscal fourth quarter, non-GAAP gross profit was $259.4 million. Non-GAAP gross margin increased 200 basis points (bps) to 82% on an annual basis and 100 bps on a quarterly basis.

Expenses for non-GAAP research and development (14% of revenue), sales and marketing (49.2% of revenue) and general and administrative expenses (6.4% of total revenue) increased by 45. 4%, 67.7% and 45% to reach $44.5 million, $156.5 million. and $20.3 million, respectively.

Total non-GAAP operating expenses, which represent 69.6% of revenue, increased 60.4% to $221.3 million.

Non-GAAP operating profit was $38.1 million, compared to $27.2 million in the prior quarter and $20.6 million in the prior quarter. Non-GAAP operating margin increased 200 basis points year over year to 12%. Sequentially, the margin increased by 300 basis points.

Balance sheet and cash flow

As of July 31, 2022, Zscaler had $1.73 billion in cash, cash equivalents and short-term investments, compared to $1.66 billion in the prior quarter.

Cash provided by operating activities was $103.1 million, up from $77.2 million in the prior quarter. As a result, free cash flow was $74.8 million, significantly higher than the $43.7 million in the third quarter of fiscal 2022.

Free cash flow margin increased by 1,000 basis points to 24% in the reported quarter. Deferred revenue was $1.02 billion, up 62% year over year.

In fiscal 2022, Zscaler generated $321.9 million in cash from operations and $231.3 million in free cash flow. The free cash flow margin remained stable at 21% over the period.

Highlights of the year

ZS reported revenue of $1.09 billion for fiscal 2022, up 62% year-over-year. Calculated billings were $1.48 billion, reflecting a 58.6% year-over-year increase.

Non-GAAP earnings per share rose 32.7% year over year to 69 cents.

Non-GAAP operating income for fiscal 2022 increased 43.1% year-over-year to $111.6 million. However, the operating margin contracted by 200 basis points to 10%.

Non-GAAP gross margin remained stable at 81%.

Tips

For the first quarter of fiscal 2023, Zscaler expects revenue between $339 million and $341 million. Non-GAAP earnings are expected to be around 26 cents per share.

Non-GAAP operating income is estimated at $37-38 million.

For the full 2023 fiscal year, Zscaler projects revenue of approximately $1.49 billion to $1.50 billion. Calculated billings are expected to be between $1.92 billion and $1.94 billion.

Non-GAAP earnings for fiscal 2023 are expected to be $1.16 to $1.18 per share. Non-GAAP operating profit is estimated at $173 million to $176 million.

Shares of ZS have plunged 44.9% over the past year.

Zacks Ranking and Stocks to Consider

Zscaler currently has a Zacks rank #3 (Hold).

Some higher-ranked stocks in the broader IT and technology sector are Free field (CLFD free report), Silicon Laboratories (SLAB free report) and Taiwan semiconductor (TSM free report). While Clearfield and Silicon Laboratories carry a Zacks rank #1 (strong buy), Taiwan Semiconductor carries a Zacks rank #2 (buy). You can see the full list of today’s Zacks #1 Rank stocks here.

Zacks’ consensus estimate for Clearfield’s fourth-quarter fiscal 2022 earnings has been revised down 10 cents north to 80 cents per share in the past 60 days. For fiscal 2022, earnings estimates have moved 36 cents north to $3.13 per share in the past 60 days.

Clearfield’s earnings have exceeded the Zacks consensus estimate in each of the previous four quarters, with the average surprise being 33.9%. CLFD shares are up 123.7% over the past year.

The Zacks consensus estimate for Silicon Laboratories’ third quarter 2022 earnings rose 36% to $1.13 per share in the past 60 days. For 2022, earnings estimates have risen 25% to $1.05 per share over the past 60 days.

Silicon Laboratories’ earnings have exceeded the Zacks consensus estimate in each of the previous four quarters, with the average surprise being 63.6%. Shares of SLAB are down 12.7% over the past year.

The Zacks consensus estimate for Taiwan Semiconductor’s third-quarter 2022 earnings has been revised south by a penny to $1.69 per share in the past 30 days. For 2022, earnings estimates have moved 41 cents north to $6.30 per share in the past 60 days.

TSM’s earnings have exceeded the Zacks consensus estimate in each of the past four quarters, with the average surprise being 3.9%. Shares of the company are down 34.6% over the past year.

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