Summary
Zscaler opened fiscal 2022 with revenue of $230.5 million in the first quarter, up 61.7% from the prior-year quarter. Calculated billings rose 71% to $247.7 million. Deferred revenue was $647.8 million as of October 31, 2021. Remaining performance obligations were $1.71 billion, up 97.4% from the prior-year quarter. Annual recurring revenue passed $1 billion, and management set a target of $5 billion in ARR. Gross margin slipped to 77.4%, down 0.4 percentage points from the prior-year quarter. Dollar-based net retention rate was above 125% for the trailing 12 months ended October 31, 2021, compared with 122% for the trailing 12 months ended October 31, 2020. The customer base grew 23% from October 31, 2020 to October 31, 2021. The company said the revenue gain came from more users and additional subscriptions to existing customers, plus growth in new customers.
Operationally, Zscaler pushed several product and partnership updates. It announced enhancements to Zscaler Digital Experience, including monitoring for unified communications as a service applications and visibility into private apps secured by Zero Trust. The U.S. Department of Defense granted Zscaler ZPA a Provisional Authorization to Operate at Impact Level 5, which the company said makes it the first and currently only Zero Trust Network Access solution to meet that requirement. Zscaler extended its partnership with Siemens to secure operational technology systems in production networks. It also expanded integrations with CrowdStrike so ZIA can use CrowdStrike Falcon Zero Trust Assessment device scores for access policies. The ThreatLabZ team released its annual State of Encrypted Attacks Report, which analyzed more than 200 billion daily transactions and tracked more than 20 billion threats blocked over HTTPS, an increase of more than 314% year-over-year. Management framed the demand backdrop around zero trust adoption, citing rising cyber and ransomware risks and accelerating digital transformation.
Profitability remained the weak spot. GAAP loss from operations was $74.4 million, and the operating margin was negative 32.3%, down 2.3 percentage points from the prior-year quarter. GAAP net loss was $90.8 million, and diluted EPS was negative $0.65. Both losses widened from the prior-year quarter. On a non-GAAP basis, income from operations was $23.9 million, net income was $21.0 million, and diluted EPS was $0.14. The gap between GAAP and non-GAAP results reflects stock-based compensation and other adjustments that management excludes. Operating expenses again grew faster than revenue, leaving the company with a wider GAAP loss even as non-GAAP profit held steady.
Cash generation was a bright spot. Operating cash flow was $93.3 million, up 74.2% from the prior-year quarter. Free cash flow, a non-GAAP measure, was $83.4 million, or 36% of revenue. Capital expenditures were $6.5 million, down from the prior-year quarter. The company still carries convertible senior notes, and it expects to keep investing in growth.
Guidance points to continued expansion. For the second quarter of fiscal 2022, management guided revenue to $240 million to $242 million, non-GAAP income from operations to $20 million to $21 million, and non-GAAP net income per share to approximately $0.11. For the full year fiscal 2022, Zscaler guided revenue to $1.00 billion to $1.01 billion, calculated billings to $1.300 billion to $1.305 billion, non-GAAP income from operations to $90 million to $93 million, and non-GAAP net income per share to $0.50 to $0.52. The guidance assumes roughly 150 million shares for the quarter and 150 million to 151 million shares for the full year. Risks include the COVID-19 pandemic, the difficulty of managing rapid growth, competition, long sales cycles, new product introductions, software bugs, customer retention, and legal matters. The company also warned that it will likely continue to incur net losses for the foreseeable future. It also said calculated billings growth should trend down over time as the absolute base grows.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $230.5M | $197.1M | +17.0% | $142.6M | +61.7% |
| Gross profit | $178.3M | $151.6M | +17.6% | $110.9M | +60.9% |
| Gross margin | 77.4% | 76.9% | +0.5 pp | 77.8% | -0.4 pp |
| Research & development | $65.2M | $56.2M | +16.1% | $35.8M | +82.3% |
| Sales & marketing | $153.8M | $136.4M | +12.8% | $96.9M | +58.7% |
| General & administrative | $33.7M | $26.4M | +27.6% | $20.9M | +61.6% |
| Total operating expenses | $252.7M | $219.0M | +15.4% | $153.5M | +64.6% |
| Operating income (loss) | -$74.4M | -$67.4M | -10.3% | -$42.7M | -74.3% |
| Operating margin | -32.3% | -34.2% | +1.9 pp | -29.9% | -2.3 pp |
| Net income (loss) | -$90.8M | -$81.0M | -12.1% | -$55.0M | -65.1% |
| Net margin | -39.4% | -41.1% | +1.7 pp | -38.6% | -0.8 pp |
| Diluted EPS | -$0.65 | -$0.60 | -$0.05 | — | — |
| Customers | 5,600 | 5,600 | ±0.0% | 4,500 | +24.4% |
| Net retention rate | 125.0% | 128.0% | -3.0 pp | 122.0% | +3.0 pp |
Risks
The ongoing COVID-19 pandemic remains highly uncertain and may adversely impact Zscaler's business, particularly in India and other regions where it has significant operations and personnel. The filing cites new variants, vaccine efficacy uncertainties, and the possibility that customers reduce or delay spending, which could lower demand and lengthen collection periods.
The network security market is intensely competitive, and Zscaler faces established vendors with greater resources, broader product suites, and legacy appliance-based customer relationships. Competitors may bundle products, offer concessions, or sell at zero or negative margins, which could pressure pricing, revenue, gross margins, and market share.
Zscaler is highly dependent on key personnel, including president, CEO, and chairman Jay Chaudhry, and faces intense competition for cybersecurity, cloud engineering, and sales talent. Remote work during the pandemic has made hiring, onboarding, and integration more difficult, and the company reported a 58% increase in sales and marketing headcount and higher stock-based compensation expense.
The conditional conversion feature of the Notes was triggered during the three months ended October 31, 2021, so holders are entitled to convert their Notes at any time from November 1, 2021 through January 31, 2022. If holders convert, Zscaler may need to settle in cash, which could adversely affect liquidity, or reclassify outstanding principal as a current liability, reducing net working capital.
Revenue was up 61.7% for FY2022 Q1 compared with FY2021 Q1, but the filing cautions that rapid recent growth may not be indicative of future performance and revenue growth rates may decline. Operating loss widened 74.3% to $74.4 million and net loss widened 65.1% to $90.8 million for FY2022 Q1, and MD&A expects continued net losses and significant investments.
Zscaler's sales cycles can be long and unpredictable, especially for large enterprises and government entities that require extensive evaluation and multiple approvals. The filing notes COVID-19 may further extend sales cycles, and the company spends substantial time and resources on sales efforts without assurance of a sale.
Zscaler derives most revenue through channel partners, and the top five channel partners and their affiliates represented 31% of revenue for the three months ended October 31, 2021, down from 36% for the three months ended October 31, 2020 but still a concentrated channel. Partners are generally non-exclusive and may promote competitors' products or cease marketing Zscaler's platform with limited notice.
Zscaler delivers its cloud platform from a global network of over 150 third-party data centers and depends on network bandwidth providers. Service interruptions, capacity constraints, or decisions by data center operators could disrupt delivery, and the filing notes temporary increased use of public cloud infrastructure to handle ZPA traffic from remote work was substantially more expensive than its own data centers.
Gross margin decreased 0.4 percentage points to 77.4% for FY2022 Q1 compared with FY2021 Q1, and MD&A attributes the decline primarily to additional hardware costs. The filing also notes non-GAAP operating margin declined to 10% from 14% for the three months ended October 31, 2021 compared with October 31, 2020, and further hardware or public cloud infrastructure costs could pressure profitability.
SaaS KPIs
All quarters →Free Cash Flow Margin
Free Cash Flow
Non-GAAP Operating Margin
Calculated Billings
Total Customers
Deferred Revenue
Summary, forecast, risks and KPIs are extracted from Zscaler, Inc.'s SEC filings for Q1 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.