Summary
Zscaler posted strong top-line growth in its fiscal 2022 second quarter ended January 31, 2022. Revenue rose 62.7% to $255.6 million from $157.0 million in the prior-year quarter. Gross profit increased 60.9% to $197.8 million, while gross margin slipped to 77.4% from 78.3%. The company remained deeply unprofitable on a GAAP basis. Operating loss widened to $83.9 million from $53.9 million, net loss widened to $100.4 million from $67.5 million, and diluted loss per share widened to $0.71 from $0.50. On a non-GAAP basis, net income was $19.2 million, compared with $14.0 million in the prior-year quarter. For the first six months of fiscal 2022, revenue rose 62.2% to $486.1 million. The year-to-date net loss widened to $191.2 million, and diluted loss per share widened to $1.37 from $0.91.
Calculated billings, a non-GAAP metric, increased 59% to $367.7 million. Deferred revenue was $759.9 million as of January 31, 2022. Remaining performance obligations rose 90.2% to $1.95 billion from $1.02 billion. Operating cash flow was $48.3 million, up 58.7% from $30.4 million. Capital expenditures were $14.0 million, up 33.2%. Free cash flow, a non-GAAP measure, was $29.4 million, or 12% of revenue, compared with $18.0 million, or 11% of revenue.
Operationally, management pointed to a dollar-based net retention rate above 125% for the trailing 12 months ended January 31, 2022. The customer base grew 23% from January 31, 2021 to January 31, 2022. Zscaler launched general availability of its Workload Communications solution, which extends Zero Trust security to workloads and applications in public clouds. The company was named a Leader in the inaugural Gartner 2022 Magic Quadrant for Security Service Edge and held the highest Ability to Execute among the 11 vendors recognized. Its cloud platform processed more than 210 billion transactions per day. Zscaler also reported achieving 100% renewable energy for its offices and more than 150 data centers through purchases and renewable energy credits.
Guidance for the third quarter of fiscal 2022 includes non-GAAP income from operations of $19 million to $20 million and non-GAAP net income per share of approximately $0.10 to $0.11, assuming approximately 149 million to 150 million common shares outstanding. For the full fiscal year 2022, the company expects calculated billings of $1.365 billion to $1.37 billion, non-GAAP income from operations of $95 million to $98 million, and non-GAAP net income per share of $0.54 to $0.56, on the same share count assumption. Management also said it expects calculated billings growth to trend down over time as that metric grows in absolute terms.
Risks remain substantial. Zscaler has incurred net losses in all periods since inception and expects to continue incurring net losses for the foreseeable future. The COVID-19 pandemic continues to create uncertainty around sales cycles, sales execution, and customer, vendor, and partner businesses. Rapid growth brings execution challenges, including managing a larger sales force, integrating new products, and avoiding software bugs. Competition and rapidly evolving technology in network security add pressure. The company also faces general market, political, economic, and business conditions, plus potential litigation and related accruals. Non-cancelable purchase arrangements increased to $95.2 million as of January 31, 2022 from $58.3 million as of July 31, 2021, mostly for hardware equipment to support cloud platform growth. Zscaler expects to maintain a full valuation allowance on its U.S. federal, state, and U.K. deferred tax assets because of its history of losses.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $255.6M | $230.5M | +10.9% | $157.0M | +62.7% |
| Gross profit | $197.8M | $178.3M | +10.9% | $122.9M | +60.9% |
| Gross margin | 77.4% | 77.4% | +0.0 pp | 78.3% | -0.9 pp |
| Research & development | $69.2M | $65.2M | +6.1% | $41.8M | +65.7% |
| Sales & marketing | $175.1M | $153.8M | +13.8% | $110.4M | +58.6% |
| General & administrative | $37.4M | $33.7M | +11.1% | $24.7M | +51.9% |
| Total operating expenses | $281.7M | $252.7M | +11.5% | $176.8M | +59.3% |
| Operating income (loss) | -$83.9M | -$74.4M | -12.9% | -$53.9M | -55.7% |
| Operating margin | -32.8% | -32.3% | -0.6 pp | -34.3% | +1.5 pp |
| Net income (loss) | -$100.4M | -$90.8M | -10.6% | -$67.5M | -48.7% |
| Net margin | -39.3% | -39.4% | +0.1 pp | -43.0% | +3.7 pp |
| Diluted EPS | -$0.71 | -$0.65 | -$0.06 | — | — |
| Customers | 5,600 | 5,600 | ±0.0% | 4,500 | +24.4% |
| Net retention rate | 125.0% | 125.0% | ±0.0 pp | 127.0% | -2.0 pp |
Risks
COVID-19 impact remains highly uncertain, with new variants, vaccine efficacy questions, possible reinstated restrictions, higher prices, limited product availability, and supply chain disruptions. MD&A says the pandemic could affect the sales cycle, sales execution, and the business of customers, vendors, and partners.
The Russia-Ukraine crisis is repeatedly cited as increasing state-sponsored cyberattack risk, with attacks potentially spreading globally. The same conflict is also noted as a possible source of data center, sanctions, and broader economic disruption.
The conditional conversion feature of the Notes was triggered during the three months ended January 31, 2022, so holders may convert from February 1, 2022 through April 29, 2022. If holders convert, Zscaler may need to settle in cash, which could hurt liquidity, or reclassify principal as a current liability, materially reducing net working capital.
Because Zscaler is a security provider, an actual or perceived breach of its cloud platform or internal systems could be especially detrimental to reputation and customer confidence. Remote work during the COVID-19 pandemic may pose additional data security risks.
ASU 2020-06 eliminates the treasury stock method for the Notes and requires the if-converted method beginning August 1, 2022. That method is typically more dilutive and may adversely affect diluted earnings per share.
Non-cancelable purchase arrangements increased to $95.2 million as of January 31, 2022 from $58.3 million as of July 31, 2021, primarily for hardware equipment to support cloud platform growth amid current delivery lead times. Payments for these hardware orders are primarily due within the next 12 months.
Sales and marketing headcount increased 56% from January 31, 2021 to January 31, 2022, and a large percentage of the sales and marketing team is new to Zscaler and its solutions. That may make the team less effective while competition for skilled sales personnel remains significant.
Sales cycles are long and unpredictable, especially with large enterprises and government entities, and can be further lengthened by economic conditions, COVID-19, international conflicts, and inflation. Those factors can reduce sales and lower prices.
MD&A repeatedly cites potential legal matters and related accruals, and general and administrative expenses include litigation-related costs that may fluctuate significantly period to period. Zscaler expects G&A to increase partly due to addressing legal matters.
Sales through the top five channel partners and their affiliates represented 31% of revenue for the six months ended January 31, 2022 and 36% for the six months ended January 31, 2021. These agreements are generally non-exclusive, so partners 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
Summary, forecast, risks and KPIs are extracted from Zscaler, Inc.'s SEC filings for Q2 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.