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Information Technology : Software | Mid Cap Growth
Company profile

Zscaler, Inc. is a cloud-based security company. The Company provides a platform that is built as a multi-tenant, distributed cloud service designed to scale and deliver real-time insights into security issues. The Company offers two principal cloud services, such as Zscaler Internet Access (ZIA), and Zscaler Private Access (ZPA). The Company’s ZIA securely connects users to externally managed applications, including with software as a service (SaaS) applications and Internet destinations, regardless of device, location or network. ZPA offers authorized users secure and access to internally managed applications hosted in enterprise data centers or the public cloud. ZPA solution connects a specific user to a specific application, without bringing the user on the network, resulting in better security. Its cloud architecture platform includes Secure Sockets Layer (SSL) inspection, data privacy and security, and Zscaler application.

Price
Delayed
$208.51
Day's Change
3.47 (1.69%)
Bid
--
Ask
--
B/A Size
--
Day's High
211.14
Day's Low
202.18
Volume
(Below Average)

Today's volume of 1,223,166 shares is on pace to be lower than ZS's 10-day average volume of 2,191,139 shares.

1,223,166

Zscaler Reports First Quarter Fiscal 2021 Financial Results

4:05 pm ET December 2, 2020 (Globe Newswire) Print

First Quarter Highlights

Zscaler, Inc. (Nasdaq: ZS), the leader in cloud security, today announced financial results for its first quarter of fiscal year 2021, ended October 31, 2020.

"Our customers are accelerating their digital transformation, and this drove our strong first quarter results," said Jay Chaudhry, Chairman and CEO of Zscaler. "Organizations are turning to the Zscaler(TM) Zero Trust Exchange platform for the right security architecture, which can be implemented easily and rapidly. Our visibility and business momentum remain strong, and we are pleased to increase our fiscal year guidance."

First Quarter Fiscal 2021 Financial Highlights

Recent Business Highlights

Change in Non-GAAP Measures Presentation

Effective August 1, 2020, the beginning of our fiscal year ending July 31, 2021, we have presented employer payroll taxes related to employee equity award transactions, which is a cash expense, as part of stock-based compensation expense in our non-GAAP results. These payroll taxes have been excluded from our non-GAAP results as these are tied to the timing and size of the exercise or vesting of the underlying equity awards and the price of our common stock at the time of vesting or exercise, which may vary from period to period independent of the operating performance of our business. Prior period amounts have been recasted to conform with the current period presentation.

Financial Outlook

For the second quarter of fiscal 2021, we expect:

-- Non-GAAP income from operations of $11 million to $12 million

For the full year fiscal 2021, we expect:

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 and related payroll taxes, amortization expense of acquired intangible assets, asset impairment related to facility exit, certain litigation-related expenses, amortization of debt discount and issuance costs 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 the guidance 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 first quarter fiscal 2021 earnings results and outlook for its second quarter of fiscal 2021 and full year fiscal 2021 today at 1:30 p.m. Pacific time (4:30 p.m. Eastern time).

Date:           Wednesday, December 2, 2020
Time:           1:30 p.m. PT
Webcast:        https://ir.zscaler.com/
Dial-in number: 918-922-3018

Upcoming Conferences

First Quarter of Fiscal 2021 Virtual Investor Conference Participation Schedule:

Thursday, December 3, 2020

Monday, December 7, 2020

Thursday, December 10, 2020

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 second quarter of fiscal 2021 and full year fiscal 2021. 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: the duration and global impact of COVID-19 on our business, operations and financial results and the economy in general; our ability as an organization to acquire and integrate other companies, products or technologies in a successful manner; 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, 2020 filed on September 17, 2020, 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 (Nasdaq: ZS) accelerates digital transformation so customers can be more agile, efficient, resilient, and secure. The Zscaler Zero Trust Exchange protects thousands of customers from cyberattacks and data loss by securely connecting users, devices, and applications in any location. Distributed across more than 150 data centers globally, the SASE-based Zero Trust Exchange is the world's largest in-line cloud security platform.

Zscaler(TM) and the other trademarks listed at https://www.zscaler.com/legal/trademarks 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 Contacts:

Bill Choi, CFA

Senior Vice President, Investor Relations

(408) 816-1478

ir@zscaler.com

Tom Stilwell

Media Contact

press@zscaler.com

ZSCALER, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
                                                                                Three Months Ended
                                                                                October 31,
                                                                                2020             2019
Revenue                                                                         $     142,578    $     93,590
Cost of revenue                                                                 31,727           19,558
Gross profit                                                                    110,851          74,032
Operating expenses:
Sales and marketing                                                             96,889           59,411
Research and development                                                        35,770           20,271
General and administrative                                                      20,859           12,625
Total operating expenses                                                        153,518          92,307
Loss from operations                                                            (42,667       )  (18,275       )
Interest income                                                                 940              2,022
Interest expense                                                                (13,049       )  --
Other income (expense), net                                                     268              (29           )
Loss before income taxes                                                        (54,508       )  (16,282       )
Provision for income taxes                                                      498              794
Net loss                                                                        $     (55,006 )  $     (17,076 )
Net loss per share, basic and diluted                                           $     (0.41   )  $     (0.13   )
Weighted-average shares used in computing net loss per share, basic and diluted 133,452          127,548

Includes stock-based compensation expense and related payroll taxes as follows:

Cost of revenue            $   3,266    $   1,414
Sales and marketing        32,654       10,586
Research and development   14,900       5,054
General and administrative 9,509        2,167
Total                      $   60,329   $   19,221

Includes amortization expense of acquired intangible assets as follows:

Cost of revenue          $ 1,504   $ 205
Sales and marketing      73        8
Research and development --        566
Total                    $ 1,577   $ 779
Includes asset impairment related to facility exit as follows: $ 416   $ --
Includes litigation-related expenses as follows: $ --   $ 2,007
Includes amortization of debt discount and issuance costs as follows: $ 12,690   $ --
ZSCALER, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
                                                October 31,          July 31,
                                                2020                 2020
Assets
Current assets:
Cash and cash equivalents                       $    102,016         $    141,851
Short-term investments                          1,313,938            1,228,722
Accounts receivable, net                        105,942              147,584
Deferred contract acquisition costs             35,589               32,240
Prepaid expenses and other current assets       22,040               31,396
Total current assets                            1,579,525            1,581,793
Property and equipment, net                     83,976               75,734
Operating lease right-of-use assets             45,586               36,119
Deferred contract acquisition costs, noncurrent 83,690               77,675
Acquired intangible assets, net                 22,447               24,024
Goodwill                                        30,059               30,059
Other noncurrent assets                         7,664                8,054
Total assets                                    $    1,852,947       $    1,833,458
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                                $    7,663           $    5,233
Accrued expenses and other current liabilities  13,871               16,361
Accrued compensation                            37,097               49,444
Deferred revenue                                340,035              337,263
Operating lease liabilities                     17,796               15,600
Total current liabilities                       416,462              423,901
Convertible senior notes, net                   874,359              861,615
Deferred revenue, noncurrent                    31,865               32,504
Operating lease liabilities, noncurrent         35,266               28,023
Other noncurrent liabilities                    2,890                2,586
Total liabilities                               1,360,842            1,348,629
Stockholders' Equity
Common stock                                    134                  133
Additional paid-in capital                      886,815              823,804
Accumulated other comprehensive income (loss)   (267           )     463
Accumulated deficit                             (394,577       )     (339,571       )
Total stockholders' equity                      492,105              484,829
Total liabilities and stockholders' equity      $    1,852,947       $    1,833,458
ZSCALER, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
                                                                                                           Three Months Ended
                                                                                                           October 31,
                                                                                                           2020                2019
Cash Flows From Operating Activities
Net loss                                                                                                   $    (55,006 )      $    (17,076 )
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense                                                                      6,092               3,582
Amortization expense of acquired intangible assets                                                         1,577               779
Amortization of deferred contract acquisition costs                                                        8,678               5,535
Amortization of debt discount and issuance costs                                                           12,690              --
Noncash operating lease costs                                                                              4,513               2,596
Stock-based compensation expense                                                                           57,185              18,376
Amortization (accretion) of investments purchased at a premium (discount)                                  2,605               (300         )
Deferred income taxes                                                                                      (520         )      (49          )
Impairment of assets                                                                                       416                 --
Other                                                                                                      29                  223
Changes in operating assets and liabilities:
Accounts receivable                                                                                        41,634              22,859
Deferred contract acquisition costs                                                                        (18,042      )      (6,176       )
Prepaid expenses, other current and noncurrent assets                                                      7,883               (2,471       )
Accounts payable                                                                                           76                  (38          )
Accrued expenses, other current and noncurrent liabilities                                                 (1,243       )      (466         )
Accrued compensation                                                                                       (12,347      )      1,382
Deferred revenue                                                                                           2,133               (5,333       )
Operating lease liabilities                                                                                (4,821       )      (1,994       )
Net cash provided by operating activities                                                                  53,532              21,429
Cash Flows From Investing Activities
Purchases of property, equipment and other assets                                                          (8,904       )      (10,210      )
Capitalized internal-use software                                                                          (2,401       )      (1,802       )
Purchases of short-term investments                                                                        (174,663     )      (88,410      )
Proceeds from maturities of short-term investments                                                         76,582              66,796
Proceeds from sale of short-term investments                                                               11,500              --
Net cash used in investing activities                                                                      (97,886      )      (33,626      )
Cash Flows From Financing Activities
Proceeds from issuance of common stock upon exercise of stock options                                      4,519               3,059
Net cash provided by financing activities                                                                  4,519               3,059
Net decrease in cash, cash equivalents and restricted cash                                                 (39,835      )      (9,138       )
Cash, cash equivalents and restricted cash at beginning of period                                          141,851             78,484
Cash, cash equivalents and restricted cash at end of period                                                $    102,016        $    69,346
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents                                                                                  $    102,016        $    69,346
Restricted cash, current and non-current                                                                   --                  --
Total cash, cash equivalents and restricted cash                                                           $    102,016        $    69,346
ZSCALER, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands)
(unaudited)
                                                              Three Months Ended
                                                              October 31,
                                                              2020               2019
Revenue                                                       $     142,578      $     93,590
Non-GAAP Gross Profit and Non-GAAP Gross Margin
GAAP gross profit                                             $     110,851      $     74,032
Add:
Stock-based compensation expense and related payroll taxes    3,266              1,414
Amortization expense of acquired intangible assets            1,504              205
Non-GAAP gross profit                                         $     115,621      $     75,651
GAAP gross margin                                             78              %  79              %
Non-GAAP gross margin                                         81              %  81              %
Non-GAAP Income from Operations and Non-GAAP Operating Margin
GAAP loss from operations                                     $     (42,667 )    $     (18,275 )
Add:
Stock-based compensation expense and related payroll taxes    60,329             19,221
Litigation-related expenses                                   --                 2,007
Amortization expense of acquired intangible assets            1,577              779
Asset impairment related to facility exit                     416                --
Non-GAAP income from operations                               $     19,655       $     3,732
GAAP operating margin                                         (30           ) %  (20           ) %
Non-GAAP operating margin                                     14              %  4               %

___________

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
                                                                                 October 31,
                                                                                 2020              2019
Non-GAAP Net Income per Share, Diluted
GAAP net loss                                                                    $     (55,006 )   $     (17,076 )
Stock-based compensation expense and related payroll taxes                       60,329            19,221
Litigation-related expenses                                                      --                2,007
Amortization expense of acquired intangible assets                               1,577             779
Asset impairment related to facility exit                                        416               --
Amortization of debt discount and issuance costs                                 12,690            --
Provision for income taxes                                                       --                --
Non-GAAP net income                                                              $     20,006      $     4,931
GAAP net loss per share, diluted                                                 $     (0.41   )   $     (0.13   )
Stock-based compensation expense and related payroll taxes                       0.42              0.14
Litigation-related expenses                                                      --                0.01
Amortization expense of acquired intangible assets                               0.01              0.01
Asset impairment related to facility exit                                        --                --
Amortization of debt discount and issuance costs                                 0.09              --
Provision for income taxes                                                       --                --
Adjustment to total fully diluted earnings per share                             0.03              0.01
Non-GAAP net income per share, diluted                                           $     0.14        $     0.04
Weighted-average shares used in computing non-GAAP net income per share, diluted 143,372           136,860

___________

Consists of asset impairment charges related to the relocation of our corporate headquarters.

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 effects 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.

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 as compared to fully diluted share count used for 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
                                                        October 31,
                                                        2020               2019
Calculated Billings
Revenue                                                 $     142,578      $     93,590
Add: Total deferred revenue, end of period              371,900            245,869
Less: Total deferred revenue, beginning of period       (369,767      )    (251,202     )
Calculated billings                                     $     144,711      $     88,257
Free Cash Flow
Net cash provided by operating activities               $     53,532       $     21,429
Less: Purchases of property, equipment and other assets (8,904        )    (10,210      )
Less: Capitalized internal-use software                 (2,401        )    (1,802       )
Free cash flow                                          $     42,227       $     9,417
As a percentage of revenue:
Net cash provided by operating activities               38              %  23             %
Less: Purchases of property, equipment and other assets (6            ) %  (11          ) %
Less: Capitalized internal-use software                 (2            ) %  (2           ) %
Free cash flow margin                                   30              %  10             %

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 our 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. Effective August 1, 2020, the beginning of our fiscal year ending July 31, 2021, we have presented employer payroll taxes related to employee equity award transactions, which is a cash expense, as part of stock-based compensation expense in our non-GAAP results. These payroll taxes have been excluded from our non-GAAP results as these are tied to the timing and size of the exercise or vesting of the underlying equity awards and the price of our common stock at the time of vesting or exercise, which may vary from period to period independent of the operating performance of our business. Prior period amounts have been recasted to conform with the current period presentation. Amortization expense of acquired intangible assets is excluded because these are considered by management to be outside of our core business operating performance. Asset impairments related to facility exit costs are excluded because such charges are not reflective of our ongoing operational performance. Amortization of debt discount and issuance costs from the convertible senior notes is excluded because they are non-cash expenses and 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 related payroll taxes 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 and related payroll taxes, 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 and related payroll taxes, amortization expense of acquired intangible assets, asset impairment related to facility exit, amortization of debt discount and issuance costs, certain litigation-related expenses, income tax effects generated by the effects 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 assets 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 assets 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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