Summary
Zscaler reported revenue of $496.7 million for the first quarter of fiscal 2024, up 39.7% from $355.5 million in the same quarter a year earlier. Gross profit rose 38.2% to $385.3 million. Gross margin of 77.6% was down 0.9 percentage points from 78.4%, a sign that data center and support costs still scale with the platform. The bottom line improved faster than the top line. Loss from operations was $46.1 million, narrower than the $69.1 million loss a year earlier. Net loss was $33.5 million against $68.2 million, and diluted net loss per share was $0.23 against $0.48. Operating margin was -9.3%, up 10.2 percentage points from -19.4%.
Cash generation was the standout. Operating cash flow was $260.8 million, up 103.0% from $128.5 million, equal to 53% of revenue. Free cash flow, which the company defines as operating cash flow less purchases of property, equipment and other assets and capitalized internal-use software, was $224.7 million, or 45% of revenue, compared with $95.6 million, or 27%, a year earlier. Capital expenditures of $28.7 million were up 13.7% from $25.2 million. Deferred revenue reached $1.40 billion, up 39.2% year over year, and remaining performance obligations were $3.49 billion, up 30.0%.
The non-GAAP numbers show a profitable business inside the GAAP loss. Non-GAAP net income was $106.5 million against $44.0 million a year earlier, and non-GAAP net income per share was $0.67 against $0.29. Non-GAAP income from operations was $89.7 million, an 18% margin, up from $42.1 million and 12%. Calculated billings, a non-GAAP measure equal to revenue plus the change in deferred revenue, grew 34% to $456.6 million. The wide gap between the two sets of results keeps GAAP profitability out of reach for now.
Not every metric moved in the same direction. The dollar-based net retention rate was 120% for the trailing twelve months ended October 31, 2023, versus above 125% for the same period a year earlier. Management ties the moderation to customer scrutiny and longer approval cycles on large deals rather than to churn. Subscription and support represented about 97% of revenue in both quarters, and Zscaler counted over 7,700 customers as of July 31, 2023, including more than 640 of the Forbes Global 2000.
The quarter also brought a run of leadership changes and product news. Mike Rich joined as chief revenue officer and president of global sales, Joyce Kim as chief marketing officer, Claudionor Coelho Jr. as chief AI officer and Mohamed Shabar as executive vice president of data and AI platforms. Zscaler announced a joint zero trust solution for healthcare with CrowdStrike and Imprivata, released a ThreatLabZ report showing a 400% year-over-year increase in IoT malware attacks, and published its 2023 Impact and ESG Report. One accounting change deserves attention. The company extended the useful lives of its servers and networking equipment from four to five years starting in fiscal 2024, which produced about a 60 basis point benefit to gross margin in the quarter. That benefit flatters the current margin picture and will not repeat as a year-over-year tailwind forever.
Guidance points to slower sequential growth. For the second quarter of fiscal 2024, the company guided to revenue growth, non-GAAP income from operations of $84 million to $86 million and non-GAAP net income per share of approximately $0.57 to $0.58 on roughly 160 million fully diluted shares. For the full fiscal year 2024, it guided to further revenue growth, calculated billings of $2.52 billion to $2.56 billion, non-GAAP income from operations of $360 million to $365 million and non-GAAP net income per share of $2.45 to $2.48 on about 161 million fully diluted shares.
The risks in the 10-Q are mostly macro and execution related. Management cites high inflation, potential recessionary conditions and geopolitical conflicts including the Russia-Ukraine and Israel-Hamas crises. Larger deals face multiple approvals and extended sales cycles, which management expects to persist in the near term. Seasonality matters too, since Zscaler books a higher percentage of new and renewal agreements in its second and fourth fiscal quarters, and it expects calculated billings growth to trend down as the absolute base grows. The filing also flags reliance on AI in the platform, a limited operating history, competition, the chance of software bugs, and the estimates behind asset useful lives as factors that could change results.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2024 | Q4 FY2023 | QoQ | Q1 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $496.7M | $455.0M | +9.2% | $355.5M | +39.7% |
| Gross profit | $385.3M | $352.3M | +9.4% | $278.9M | +38.2% |
| Gross margin | 77.6% | 77.4% | +0.1 pp | 78.4% | -0.9 pp |
| Research & development | $113.5M | $96.4M | +17.8% | $74.9M | +51.5% |
| Sales & marketing | $267.1M | $252.8M | +5.7% | $228.8M | +16.7% |
| General & administrative | $50.7M | $46.4M | +9.3% | $44.2M | +14.9% |
| Total operating expenses | $431.4M | $396.9M | +8.7% | $347.9M | +24.0% |
| Operating income (loss) | -$46.1M | -$44.6M | -3.4% | -$69.1M | +33.3% |
| Operating margin | -9.3% | -9.8% | +0.5 pp | -19.4% | +10.2 pp |
| Net income (loss) | -$33.5M | -$30.7M | -9.2% | -$68.2M | +50.9% |
| Net margin | -6.7% | -6.7% | ±0.0 pp | -19.2% | +12.4 pp |
| Diluted EPS | -$0.23 | -$0.21 | -$0.02 | -$0.48 | +$0.25 |
| Customers | 7,700 | 7,700 | ±0.0% | 6,700 | +14.9% |
| Net retention rate | 120.0% | 121.0% | -1.0 pp | 125.0% | -5.0 pp |
Risks
High inflation, potential recession, and geopolitical crises (Russia-Ukraine, Israel-Hamas) have caused increased customer scrutiny and elongated approval processes, particularly for larger deals, elongating sales cycles and potentially reducing demand for subscriptions.
Sales cycles are long and unpredictable, especially for large enterprises, and have been further lengthened by macroeconomic conditions, with customers requiring multiple approvals for large expenditures, delaying revenue recognition.
The rapid evolution of AI and ML, including generative AI, requires continuous R&D investment and adaptation; failure to adopt or keep pace may create a competitive disadvantage, while evolving regulations (e.g., EU AI legislation) could increase costs and lead to legal liability.
Intense competition from established vendors (e.g., Palo Alto Networks, Fortinet, Cisco) and cloud-based point solutions, many with greater resources, could lead to price reductions, reduced revenue and gross margins, and loss of market share.
Heavy dependence on key personnel, particularly CEO Jay Chaudhry, and intense competition for experienced sales professionals and engineers with AI/ML and cybersecurity expertise, exacerbated by workforce shortages and significant equity vesting, could impair our ability to attract and retain talent.
Dollar-based net retention rate declined to 120% for the trailing 12 months ended October 31, 2023, from above 125% in the prior-year period, indicating potential challenges in expanding existing customer subscriptions and renewals, which could harm future results.
Sales through our top five channel partners represented 25% of revenue for the three months ended October 31, 2023, down from 27% in the prior-year period, but remains a concentration risk as partners are non-exclusive and may promote competitors' products.
SaaS KPIs
All quarters →Free Cash Flow Margin
Free Cash Flow
Non-GAAP Operating Margin
Calculated Billings
Non-GAAP Gross Margin
Total Customers
Customer Base Growth (YoY)
Deferred Revenue
Forbes Global 2000 customers
Summary, forecast, risks and KPIs are extracted from Zscaler, Inc.'s SEC filings for Q1 FY2024 (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.