Zscaler, Inc. (Nasdaq: ZS), the leader in cloud security,
today announced financial results for its second quarter of fiscal
year 2020, ended January 31, 2020.
"In the quarter, we delivered strong earnings
results while making tremendous progress on our go-to-market
initiatives," said Jay Chaudhry, Chairman and CEO of Zscaler.
"Momentum is continuing to build across our business as our
customers embrace and accelerate their cloud transformation."
Second Quarter Fiscal 2020 Financial
Highlights
- Revenue: $101.3 million, an increase
of 36% year-over-year.
- Income (loss) from operations: GAAP loss from
operations was $30.3 million, or 30% of total
revenue, compared to $5.2 million, or 7% of total
revenue, in the second quarter of fiscal 2019.
Non-GAAP income from operations was $10.9 million,
or 11% of total revenue, compared to $10.0 million,
or 13% of total revenue, in the second quarter
of fiscal 2019.
- Net income (loss): GAAP net loss
was $29.2 million, compared to $3.6 million in
the second quarter of fiscal 2019. Non-GAAP net income
was $12.0 million, compared to $11.6 million in
the second quarter of fiscal 2019.
- Net income (loss) per share: GAAP net loss per
share was $0.23, compared to $0.03 in
the second quarter of fiscal 2019. Non-GAAP net
income per share was $0.09, compared to $0.09 in the second quarter
of fiscal 2019.
- Cash flow: Cash provided by operations
was $5.4 million, or 5% of revenue, compared to $15.7 million,
or 21% of revenue, in the second quarter of
fiscal 2019. Free cash flow was negative $1.9 million,
or negative 2% of revenue, compared to free cash flow of
$12.0 million, or 16% of revenue, in the second quarter
of fiscal 2019. Decrease in free cash flow was primarily due
to a $15.0 million cash payment as a result of a legal settlement
agreement. Excluding this settlement, free cash flow would have
been $13.1 million, or 13% of revenue.
- Deferred revenue: $280.0 million as of January
31, 2020, an increase of 36% year-over-year.
- Cash, cash equivalents and short-term
investments: $384.9 million as of January 31,
2020, an increase of $20.3 million from July 31, 2019.
Financial Outlook
For the third quarter of fiscal 2020, we expect:
- Total revenue of $105 million
to $107 million
- Non-GAAP income from operations of $1 million to $3
million
- Non-GAAP earnings per share of approximately $0.01 to
$0.03, assuming approximately 139 million common shares
outstanding
For the full year fiscal 2020, we expect:
- Total revenue of $414 million to $417 million
- Calculated billings of $512 million
to $517 million
- Non-GAAP income from operations of $16 million to $18
million
- Non-GAAP earnings per share of $0.14 to $0.16,
assuming approximately 139 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 intangible assets, asset impairment related to facility
exit, certain litigation-related expenses and income tax effects
generated by intangible assets acquired in business acquisitions.
We have not reconciled our expectations to 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. Accordingly, a
reconciliation for non-GAAP income from operations and non-GAAP net
income per share is not available without unreasonable effort.
Conference Call and Webcast Information
Zscaler will host a conference call for analysts and investors
to discuss its second quarter fiscal 2020 earnings results and
outlook for its third quarter of fiscal 2020 and full year fiscal
2020 today at 1:30 p.m. Pacific time (4:30 p.m. Eastern time).
Date: |
Thursday, February 20, 2020 |
Time: |
1:30 p.m.
PT |
Webcast: |
https://ir.zscaler.com/ |
Dial-in number: |
334-777-6978 |
Upcoming Conferences
Third Quarter of Fiscal 2020 Investor Conference Participation
Schedule:
- Morgan Stanley 2020 Media, Telecommunications & Technology
ConferenceMarch 4, 2020 – San Francisco, CA
- SunTrust Robinson Humphrey 2020 Technology, Internet &
Services ConferenceMarch 11, 2020 – New York, NY
- Credit Suisse Investor Relations 1x1 ConferenceMarch 12, 2020 –
New York, NY
Zscaler's conference presentations are expected to be available
via webcast on the Investor Relations section of the company's
website. To hear these presentations and to access the most updated
information, please visit the Investor Relations section of
Zscaler’s website at https://ir.zscaler.com.
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 third quarter
of fiscal 2020 and full year fiscal 2020. 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: 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 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 and our ability to remain
competitive; 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 Security Exchange Commission
(SEC), including our Annual Report on Form 10-K for the fiscal year
ended July 31, 2019 filed on September 18, 2019, 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 enables the world’s leading
organizations to securely transform their networks and applications
for a mobile and cloud-first world. Its flagship services, Zscaler
Internet Access™ and Zscaler Private Access™, create fast, secure
connections between users and applications, regardless of device,
location, or network. Zscaler services are 100 percent
cloud-delivered and offer the simplicity, enhanced security and
improved user experience that traditional appliances are unable to
match. Used in more than 185 countries, Zscaler operates a
multi-tenant distributed cloud security platform, protecting
thousands of customers from cyberattacks and data loss. Learn more
at zscaler.com or follow us on Twitter @zscaler.
Zscaler™, Zscaler Internet Access™, and Zscaler
Private Access™, ZIA™ and ZPA™ 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 Contact:
Bill Choi, CFA
Vice President, Investor Relations(669)
255-0767ir@zscaler.com
ZSCALER, INC. |
Condensed Consolidated Statements of
Operations |
(in thousands, except per share amounts) |
(unaudited) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six months ended |
|
January 31, |
|
January 31, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Revenue |
$ |
101,268 |
|
|
$ |
74,302 |
|
|
$ |
194,858 |
|
|
$ |
137,600 |
|
Cost of revenue (1) (2) |
20,238 |
|
|
15,271 |
|
|
39,796 |
|
|
27,370 |
|
Gross profit |
81,030 |
|
|
59,031 |
|
|
155,062 |
|
|
110,230 |
|
Operating expenses: |
|
|
|
|
|
|
|
Sales and marketing (1) (2) |
61,621 |
|
|
38,756 |
|
|
121,032 |
|
|
75,301 |
|
Research and development (1) (2) |
20,706 |
|
|
15,071 |
|
|
40,977 |
|
|
28,257 |
|
General and administrative (1) (3) (4) |
28,983 |
|
|
10,386 |
|
|
41,608 |
|
|
20,517 |
|
Total operating expenses |
111,310 |
|
|
64,213 |
|
|
203,617 |
|
|
124,075 |
|
Loss from operations |
(30,280 |
) |
|
(5,182 |
) |
|
(48,555 |
) |
|
(13,845 |
) |
Interest income, net |
1,855 |
|
|
1,924 |
|
|
3,877 |
|
|
3,514 |
|
Other income (expense), net |
(13 |
) |
|
250 |
|
|
(42 |
) |
|
62 |
|
Loss before income taxes |
(28,438 |
) |
|
(3,008 |
) |
|
(44,720 |
) |
|
(10,269 |
) |
Provision for income taxes |
716 |
|
|
547 |
|
|
1,510 |
|
|
874 |
|
Net loss |
$ |
(29,154 |
) |
|
$ |
(3,555 |
) |
|
$ |
(46,230 |
) |
|
$ |
(11,143 |
) |
Net loss per share, basic and
diluted |
$ |
(0.23 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.36 |
) |
|
$ |
(0.09 |
) |
Weighted-average shares used in
computing net loss per share, basic and diluted |
128,408 |
|
|
122,741 |
|
|
127,978 |
|
|
121,664 |
|
(1) Includes stock-based compensation expense as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
$ |
1,580 |
|
|
$ |
619 |
|
|
$ |
2,961 |
|
|
$ |
1,122 |
|
Sales and marketing |
11,943 |
|
|
5,517 |
|
|
21,982 |
|
|
8,318 |
|
Research and development |
6,077 |
|
|
4,398 |
|
|
10,951 |
|
|
7,193 |
|
General and
administrative |
4,266 |
|
|
2,693 |
|
|
6,348 |
|
|
4,180 |
|
Total |
$ |
23,866 |
|
|
$ |
13,227 |
|
|
$ |
42,242 |
|
|
$ |
20,813 |
|
(2) Includes amortization expense of acquired intangible
assets as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
$ |
205 |
|
|
$ |
144 |
|
|
$ |
410 |
|
|
$ |
144 |
|
Sales and marketing |
8 |
|
|
— |
|
|
16 |
|
|
— |
|
Research and development |
429 |
|
|
— |
|
|
995 |
|
|
95 |
|
Total |
$ |
642 |
|
|
$ |
144 |
|
|
$ |
1,421 |
|
|
$ |
239 |
|
(3) Includes asset impairment related to facility exit as
follows: |
$ |
316 |
|
|
$ |
— |
|
|
$ |
316 |
|
|
$ |
— |
|
(4) Includes litigation-related expenses as follows: |
$ |
16,334 |
|
|
$ |
1,768 |
|
|
$ |
18,341 |
|
|
$ |
3,942 |
|
ZSCALER,
INC. |
Condensed
Consolidated Balance Sheets |
(in
thousands) |
(unaudited) |
|
January
31, |
|
July
31, |
|
2020
(*) |
|
2019 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
76,534 |
|
|
$ |
78,484 |
|
Short-term investments |
308,380 |
|
|
286,162 |
|
Accounts receivable, net |
94,784 |
|
|
93,341 |
|
Deferred contract acquisition costs |
23,527 |
|
|
21,219 |
|
Prepaid expenses and other current assets |
19,917 |
|
|
16,880 |
|
Total current assets |
523,142 |
|
|
496,086 |
|
Property and equipment,
net |
52,355 |
|
|
41,046 |
|
Operating lease right-of-use
assets |
32,142 |
|
|
— |
|
Deferred contract acquisition
costs, noncurrent |
50,523 |
|
|
48,566 |
|
Acquired intangible assets,
net |
7,287 |
|
|
8,708 |
|
Goodwill |
7,479 |
|
|
7,479 |
|
Other noncurrent assets |
3,497 |
|
|
2,277 |
|
Total assets |
$ |
676,425 |
|
|
$ |
604,162 |
|
|
|
|
|
Liabilities and
Stockholders’ Equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
2,675 |
|
|
$ |
6,208 |
|
Accrued expenses and other current liabilities |
13,606 |
|
|
12,810 |
|
Accrued compensation |
25,019 |
|
|
21,544 |
|
Deferred revenue |
251,221 |
|
|
221,387 |
|
Operating lease liabilities |
11,142 |
|
|
— |
|
Total current liabilities |
303,663 |
|
|
261,949 |
|
Deferred revenue,
noncurrent |
28,801 |
|
|
29,815 |
|
Operating lease liabilities,
noncurrent |
23,300 |
|
|
— |
|
Other noncurrent
liabilities |
1,497 |
|
|
3,840 |
|
Total liabilities |
357,261 |
|
|
295,604 |
|
Stockholders’
Equity |
|
|
|
Common stock |
129 |
|
|
127 |
|
Additional paid-in
capital |
589,229 |
|
|
532,618 |
|
Accumulated other
comprehensive income |
491 |
|
|
268 |
|
Accumulated deficit |
(270,685 |
) |
|
(224,455 |
) |
Total stockholders’ equity |
319,164 |
|
|
308,558 |
|
Total liabilities and stockholders’ equity |
$ |
676,425 |
|
|
$ |
604,162 |
|
(*) On August 1, 2019, we adopted Topic 842 using the transition
option that allows to be applied prospectively at the beginning of
the fiscal year of adoption. As such, the condensed consolidated
balance sheets for prior periods are not comparable to our fiscal
2020 periods. The adoption of this standard resulted in the
recognition of the operating lease right-of-use assets and
operating lease liabilities related to our real estate and
co-location arrangements.
ZSCALER,
INC. |
Condensed
Consolidated Statements of Cash Flows |
(in
thousands) |
(unaudited) |
|
Six Months Ended |
|
January 31, |
|
2020 |
|
2019 |
Cash Flows From
Operating Activities |
|
|
|
Net loss |
$ |
(46,230 |
) |
|
$ |
(11,143 |
) |
Adjustments to reconcile net
loss to cash provided by operating activities |
|
|
|
Depreciation and amortization expense |
7,508 |
|
|
4,662 |
|
Impairment of assets |
316 |
|
|
— |
|
Amortization expense of acquired intangible assets |
1,421 |
|
|
239 |
|
Amortization of deferred contract acquisition costs |
11,425 |
|
|
8,781 |
|
Noncash operating lease costs |
6,215 |
|
|
— |
|
Stock-based compensation expense |
42,242 |
|
|
20,813 |
|
Accretion of purchased discounts, net of amortization of investment
premiums |
(442 |
) |
|
(1,125 |
) |
Other |
248 |
|
|
202 |
|
Changes in operating assets
and liabilities, net of effects of business acquisitions: |
|
|
|
Accounts receivable |
(1,432 |
) |
|
(13,859 |
) |
Deferred contract acquisition costs |
(15,690 |
) |
|
(13,472 |
) |
Prepaid expenses, other current and noncurrent assets |
(3,981 |
) |
|
(2,778 |
) |
Accounts payable |
(603 |
) |
|
(786 |
) |
Accrued expenses, other current and noncurrent liabilities |
(1,243 |
) |
|
1,042 |
|
Accrued compensation |
3,475 |
|
|
(7,852 |
) |
Deferred revenue |
28,820 |
|
|
41,997 |
|
Operating lease liabilities |
(5,189 |
) |
|
— |
|
Net cash provided by operating activities |
26,860 |
|
|
26,721 |
|
Cash Flows From
Investing Activities |
|
|
|
Purchases of property, equipment and other |
(15,099 |
) |
|
(8,607 |
) |
Capitalized internal-use software |
(4,273 |
) |
|
(903 |
) |
Acquired intangible assets |
— |
|
|
(1,480 |
) |
Purchases of short-term investments |
(147,543 |
) |
|
(179,896 |
) |
Proceeds from maturities of short-term investments |
126,013 |
|
|
71,603 |
|
Net cash used in investing activities |
(40,902 |
) |
|
(119,283 |
) |
Cash Flows From
Financing Activities |
|
|
|
Payments of offering costs related to initial public offering |
— |
|
|
(1,797 |
) |
Proceeds from issuance of common stock upon exercise of stock
options |
6,758 |
|
|
15,493 |
|
Proceeds from issuance of common stock under the employee stock
purchase plan |
5,334 |
|
|
8,691 |
|
Repurchases of unvested common stock |
— |
|
|
(22 |
) |
Repayments of notes receivable from stockholders |
— |
|
|
1,905 |
|
Net cash provided by financing activities |
12,092 |
|
|
24,270 |
|
Net decrease in cash, cash
equivalents and restricted cash |
(1,950 |
) |
|
(68,292 |
) |
Cash, cash equivalents and
restricted cash at beginning of period |
78,484 |
|
|
136,147 |
|
Cash, cash equivalents and
restricted cash at end of period |
$ |
76,534 |
|
|
$ |
67,855 |
|
Reconciliation of
cash, cash equivalents and restricted cash to the condensed
consolidated balance sheets: |
|
|
|
Cash and cash equivalents |
$ |
76,534 |
|
|
$ |
67,467 |
|
Restricted cash, current |
— |
|
|
96 |
|
Restricted cash, non-current |
— |
|
|
292 |
|
Total cash, cash equivalents and restricted
cash |
$ |
76,534 |
|
|
$ |
67,855 |
|
ZSCALER,
INC. |
Reconciliation of GAAP to Non-GAAP Financial
Measures |
(in thousands) |
(unaudited) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
January 31, |
|
January 31, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
Revenue |
$ |
101,268 |
|
|
$ |
74,302 |
|
|
$ |
194,858 |
|
|
$ |
137,600 |
|
|
|
|
|
|
|
|
|
Non-GAAP Gross Profit
and Non-GAAP Gross Margin |
|
|
|
|
|
|
|
GAAP gross profit |
$ |
81,030 |
|
|
$ |
59,031 |
|
|
$ |
155,062 |
|
|
$ |
110,230 |
|
Add: |
|
|
|
|
|
|
|
Stock-based compensation expense |
1,580 |
|
|
619 |
|
|
2,961 |
|
|
1,122 |
|
Amortization expense of acquired intangible assets |
205 |
|
|
144 |
|
|
410 |
|
|
144 |
|
Non-GAAP gross profit |
$ |
82,815 |
|
|
$ |
59,794 |
|
|
$ |
158,433 |
|
|
$ |
111,496 |
|
GAAP gross margin |
80 |
% |
|
79 |
% |
|
80 |
% |
|
80 |
% |
Non-GAAP gross margin |
82 |
% |
|
80 |
% |
|
81 |
% |
|
81 |
% |
|
|
|
|
|
|
|
|
Non-GAAP Income from
Operations and Non-GAAP Operating Margin |
|
|
|
|
|
|
|
GAAP loss from operations |
$ |
(30,280 |
) |
|
$ |
(5,182 |
) |
|
$ |
(48,555 |
) |
|
$ |
(13,845 |
) |
Add: |
|
|
|
|
|
|
|
Stock-based compensation expense |
23,866 |
|
|
13,227 |
|
|
42,242 |
|
|
20,813 |
|
Litigation-related expenses |
16,334 |
|
|
1,768 |
|
|
18,341 |
|
|
3,942 |
|
Amortization expense of acquired intangible assets |
642 |
|
|
144 |
|
|
1,421 |
|
|
239 |
|
Asset impairment related to facility exit (1) |
316 |
|
|
— |
|
|
316 |
|
|
— |
|
Non-GAAP income from
operations |
$ |
10,878 |
|
|
$ |
9,957 |
|
|
$ |
13,765 |
|
|
$ |
11,149 |
|
GAAP operating margin |
(30 |
)% |
|
(7 |
)% |
|
(25 |
)% |
|
(10 |
)% |
Non-GAAP operating margin |
11 |
% |
|
13 |
% |
|
7 |
% |
|
8 |
% |
___________
(1) Consists of asset impairment charges related to the
relocation of our corporate headquarters.
ZSCALER,
INC. |
Reconciliation of GAAP to Non-GAAP Financial
Measures |
(in thousands,
except per share amounts) |
(unaudited) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
January 31, |
|
January 31, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Non-GAAP Net Income
per Share, Diluted |
|
|
|
|
|
|
|
GAAP net loss |
$ |
(29,154 |
) |
|
$ |
(3,555 |
) |
|
$ |
(46,230 |
) |
|
$ |
(11,143 |
) |
Stock-based compensation expense |
23,866 |
|
|
13,227 |
|
|
42,242 |
|
|
20,813 |
|
Litigation-related expenses |
16,334 |
|
|
1,768 |
|
|
18,341 |
|
|
3,942 |
|
Amortization expense of acquired intangible assets |
642 |
|
|
144 |
|
|
1,421 |
|
|
239 |
|
Asset impairment related to facility exit (1) |
316 |
|
|
— |
|
|
316 |
|
|
— |
|
Provision for income taxes (2) |
— |
|
|
— |
|
|
— |
|
|
— |
|
Non-GAAP net income |
$ |
12,004 |
|
|
$ |
11,584 |
|
|
$ |
16,090 |
|
|
$ |
13,851 |
|
|
|
|
|
|
|
|
|
GAAP net loss per share,
diluted |
$ |
(0.23 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.36 |
) |
|
$ |
(0.09 |
) |
Stock-based compensation expense |
0.17 |
|
|
0.10 |
|
|
0.31 |
|
|
0.16 |
|
Litigation-related expenses |
0.12 |
|
|
0.01 |
|
|
0.13 |
|
|
0.03 |
|
Amortization expense of acquired intangible assets |
— |
|
|
— |
|
|
0.01 |
|
|
— |
|
Asset impairment related to facility exit (1) |
— |
|
|
— |
|
|
— |
|
|
— |
|
Provision for income taxes (2) |
— |
|
|
— |
|
|
— |
|
|
— |
|
Adjustment to total fully diluted earnings per share (3) |
0.03 |
|
|
0.01 |
|
|
0.03 |
|
|
— |
|
Non-GAAP net income per share,
diluted |
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.12 |
|
|
$ |
0.10 |
|
Weighted-average shares used
in computing non-GAAP net income per share, diluted |
136,663 |
|
|
134,246 |
|
|
136,843 |
|
|
134,059 |
|
___________
(1) Consists of asset impairment charges related to the
relocation of our corporate headquarters.
(2) We use our GAAP provision for income taxes for purposes of
determining our non-GAAP income tax expense. The difference between
our GAAP and non-GAAP income tax expense represents the excess tax
deduction of stock-based compensation expense recognized in foreign
jurisdictions and any income tax benefits associated with business
combinations. The income tax benefit related to stock-based
compensation expense included in the GAAP provision for income
taxes was not material for all periods presented.
(3) The sum of the fully diluted earnings per share impact of
individual reconciling items may not total to fully diluted
Non-GAAP net income per share due to the basic share counts used to
calculate the GAAP net loss per share differ from the fully diluted
share counts used to calculate the non-GAAP net income per share
and due to rounding of the individual reconciling items. The GAAP
net loss per share calculation uses a lower share count as it
excludes potentially dilutive shares, which are included in
calculating the non-GAAP income per share.
ZSCALER,
INC. |
|
|
|
|
|
|
|
Reconciliation of GAAP to Non-GAAP Financial
Measures |
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
January 31, |
|
January 31, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Calculated
Billings |
|
|
|
|
|
|
|
Revenue |
$ |
101,268 |
|
|
$ |
74,302 |
|
|
$ |
194,858 |
|
|
$ |
137,600 |
|
Add: Total deferred revenue, end of period |
280,022 |
|
|
206,020 |
|
|
280,022 |
|
|
206,020 |
|
Less: Total deferred revenue, beginning of period |
(245,869 |
) |
|
(165,279 |
) |
|
(251,202 |
) |
|
(164,023 |
) |
Calculated billings |
$ |
135,421 |
|
|
$ |
115,043 |
|
|
$ |
223,678 |
|
|
$ |
179,597 |
|
|
|
|
|
|
|
|
|
Free Cash
Flow |
|
|
|
|
|
|
|
Net cash provided by operating
activities |
$ |
5,431 |
|
|
$ |
15,707 |
|
|
$ |
26,860 |
|
|
$ |
26,721 |
|
Less: Purchases of property, equipment and other |
(4,889 |
) |
|
(3,193 |
) |
|
(15,099 |
) |
|
(8,607 |
) |
Less: Capitalized internal-use software |
(2,471 |
) |
|
(547 |
) |
|
(4,273 |
) |
|
(903 |
) |
Free cash flow |
$ |
(1,929 |
) |
|
$ |
11,967 |
|
|
$ |
7,488 |
|
|
$ |
17,211 |
|
As a percentage of
revenue: |
|
|
|
|
|
|
|
Net cash provided by operating
activities |
5 |
% |
|
21 |
% |
|
14 |
% |
|
20 |
% |
Less: Purchases of property, equipment and other |
(5 |
)% |
|
(4 |
)% |
|
(8 |
)% |
|
(6 |
)% |
Less: Capitalized internal-use software |
(2 |
)% |
|
(1 |
)% |
|
(2 |
)% |
|
(1 |
)% |
Free cash flow margin |
(2 |
)% |
|
16 |
% |
|
4 |
% |
|
13 |
% |
ZSCALER, INC.Explanation
of Non-GAAP Financial Measures
In addition to our results determined in
accordance with generally accepted accounting principles in the
United States of America (GAAP), we believe the following non-GAAP
measures are useful in evaluating our operating performance. We use
the following non-GAAP financial information to evaluate our
ongoing operations and for internal planning and forecasting
purposes. We believe that non-GAAP financial information, when
taken collectively, may be helpful to investors because it provides
consistency and comparability with past financial performance.
However, non-GAAP financial information is presented for
supplemental informational purposes only, has limitations as an
analytical tool and should not be considered in isolation or as a
substitute for financial information presented in accordance with
GAAP. In particular, free cash flow is not a substitute for cash
used in operating activities. Additionally, the utility of free
cash flow as a measure of our liquidity is further limited as it
does not represent the total increase or decrease in our cash
balance for a given period. In addition, other companies, including
companies in our industry, may calculate similarly-titled non-GAAP
measures differently or may use other measures to evaluate their
performance, all of which could reduce the usefulness of our
non-GAAP financial measures as tools for comparison. A
reconciliation of the Company's historical non-GAAP financial
measures to their most directly comparable financial measure stated
in accordance with GAAP has been included in this press release.
Investors are cautioned that there are a number of limitations
associated with the use of non-GAAP financial measures and key
metrics as analytical tools. Investors are encouraged to review
these reconciliations, and not to rely on any single financial
measure to evaluate our business.
Expenses Excluded from Non-GAAP
Measures
Stock-based compensation expense is excluded
primarily because they are non-cash expenses that management
believes are not reflective of our ongoing operational performance.
Amortization expense of acquired intangible assets is excluded
because these are considered by management to be outside of the
Company's core business operating performance. Asset impairments
related to facility exit costs are excluded because such charges
are not reflective of our ongoing operational performance. We also
exclude certain litigation-related expenses consisting of
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, actual losses and
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 predict
and could adversely affect our results of operations. We estimate
the tax effect of these items on our non-GAAP results and may
adjust our GAAP provision for income taxes, if such effects have a
material impact to our non-GAAP results.
Non-GAAP Financial Measures
Non-GAAP Gross Profit and Non-GAAP Gross
Margin. We define non-GAAP gross profit as GAAP gross
profit excluding stock-based compensation expense and amortization
expense of acquired intangible assets. We define non-GAAP gross
margin as non-GAAP gross profit as a percentage of revenue.
Non-GAAP Income from Operations
and Non-GAAP Operating Margin. We define non-GAAP income
from operations as GAAP loss from operations excluding stock-based
compensation expense, amortization expense of acquired intangible
assets, asset impairment related to facility exit and certain
litigation-related expenses. We defined non-GAAP operating margin
as non-GAAP income from operations as a percentage of revenue.
Non-GAAP Net Income per Share,
Diluted. We define non-GAAP net income as GAAP net loss
plus stock-based compensation expense, amortization expense of
acquired intangible assets, asset impairment related to facility
exit, certain litigation-related expenses, income tax effects
generated by the excess tax deduction of stock-based compensation
expense recognized in foreign jurisdictions and any income tax
benefits associated with business combinations. We define non-GAAP
net income per share, diluted, as non-GAAP net income divided by
the weighted-average diluted shares outstanding, which includes the
dilutive effect of potentially diluted common stock equivalents
outstanding during the period.
Free Cash Flow and Free Cash Flow
Margin. We define free cash flow as net cash provided by
operating activities less purchases of property, equipment and
other 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 meaningful indicators
of liquidity information to management and investors about the
amount of cash generated from our operations that, after the
investments in property, equipment and other and capitalized
internal-use software, can be used for strategic initiatives.
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.
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