Summary
Zscaler reported fiscal 2024 second-quarter results for the period ended January 31, 2024. Revenue was $525.0 million, up 35.4% from the prior-year quarter. Deferred revenue reached $1,502.2 million, up 35.1% year over year, and calculated billings were $627.6 million, up 27%. The GAAP loss narrowed. Loss from operations narrowed to $45.5 million from $65.2 million in the prior-year quarter. Operating margin was negative 8.7%, up from negative 16.8%. Net loss narrowed to $28.5 million from $57.5 million. Diluted net loss per share narrowed to $0.19 from $0.40. Non-GAAP income from operations was $103.2 million, or 20% of revenue, compared with $48.8 million, or 13% of revenue. Non-GAAP net income was $121.1 million, compared with $57.6 million, and non-GAAP diluted net income per share was $0.76, compared with $0.37. Gross margin was 77.7%, up 0.3 percentage points from 77.4%.
Through the first six months of fiscal 2024, revenue was $1.02 billion, up 37.5% from the prior-year period. Gross profit was $793.11 million, up 37.0%. The operating loss narrowed to $91.51 million from $134.32 million, and the net loss narrowed to $61.95 million from $125.62 million. Diluted net loss per share narrowed to $0.42 from $0.87. Operating cash flow was $402.88 million, up 84.9%, while capital expenditures were $59.55 million, up 35.7%. The second quarter alone produced operating cash flow of $142.1 million, up 58.8% from $89.5 million in the prior-year quarter. Free cash flow, a non-GAAP measure, was $100.8 million, compared with $62.8 million. Remaining performance obligations were $3.61 billion, up 28.6% from the prior-year quarter.
Zscaler kept adding customers and expanding existing accounts. The 10-Q states that the customer base grew 14% from January 31, 2023 to January 31, 2024. Dollar-based net retention rate was 117% for the trailing 12 months ended January 31, 2024, compared with above 125% in the prior-year period. Revenue growth in the second quarter came from existing customers buying additional subscriptions and from new customers. The company also reported a gross margin benefit from extending the useful life of servers and networking equipment from four to five years, effective at the start of fiscal 2024. That change added roughly a 60 basis point benefit to gross margin for the three and six months ended January 31, 2024.
Operationally, Zscaler introduced Zero Trust SASE, which pairs its SSE with Zero Trust SD-WAN, and launched Business Insights within its Business Analytics portfolio. It was named a leader in the calendar Q4 2023 Forrester Wave for SaaS Security Posture Management. The company appointed Steve McMahon as Chief Customer Success Officer. Its 2023 ThreatLabz State of Encrypted Attacks Report found that 86% of cyber threats, including malware, ransomware, and phishing attacks, are delivered over encrypted channels. Zscaler also cited recognition on Built In's Best Places to Work list.
Management also issued guidance covering revenue for the third quarter of fiscal 2024 and the full fiscal year 2024. The third-quarter non-GAAP outlook includes income from operations of $98 million to $100 million and non-GAAP net income per share of approximately $0.64 to $0.65, assuming approximately 161 million fully diluted shares. For the full fiscal year 2024, the company guided to calculated billings of $2.55 billion to $2.57 billion, non-GAAP income from operations of $395 million to $400 million, and non-GAAP net income per share of $2.73 to $2.77, assuming approximately 161 million fully diluted shares. Risks include high inflation, potential recessionary conditions, geopolitical conflicts such as Russia-Ukraine and Israel-Hamas, customer scrutiny and elongated approval processes for large deals, execution challenges tied to rapid growth, new product introductions, competition, useful life estimates, and legal matters. The 10-Q also notes that Zscaler has incurred net losses in all periods since inception and expects to continue to incur net losses for the foreseeable future.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $525.0M | $496.7M | +5.7% | $387.6M | +35.4% |
| Gross profit | $407.8M | $385.3M | +5.8% | $300.0M | +35.9% |
| Gross margin | 77.7% | 77.6% | +0.1 pp | 77.4% | +0.3 pp |
| Research & development | $122.2M | $113.5M | +7.6% | $85.8M | +42.5% |
| Sales & marketing | $276.5M | $267.1M | +3.5% | $235.9M | +17.2% |
| General & administrative | $54.6M | $50.7M | +7.6% | $43.5M | +25.4% |
| Total operating expenses | $453.3M | $431.4M | +5.1% | $365.2M | +24.1% |
| Operating income (loss) | -$45.5M | -$46.1M | +1.3% | -$65.2M | +30.3% |
| Operating margin | -8.7% | -9.3% | +0.6 pp | -16.8% | +8.2 pp |
| Net income (loss) | -$28.5M | -$33.5M | +15.0% | -$57.5M | +50.4% |
| Net margin | -5.4% | -6.7% | +1.3 pp | -14.8% | +9.4 pp |
| Diluted EPS | -$0.19 | -$0.23 | +$0.04 | -$0.40 | +$0.21 |
| Customers | 7,700 | 7,700 | ±0.0% | 6,700 | +14.9% |
| Net retention rate | 117.0% | 120.0% | -3.0 pp | 125.0% | -8.0 pp |
Risks
The trailing 12-month dollar-based net retention rate was 117% for the period ended January 31, 2024, compared with above 125% for the period ended January 31, 2023. MD&A notes customers may renew for fewer users, renew for shorter contract lengths, or switch to a lower-cost suite, which could harm future results.
MD&A states high inflation, potential recessionary environments, and geopolitical factors such as the Russia-Ukraine and Israel-Hamas crises are causing uncertainty, customer scrutiny, and elongated approval processes for transactions, particularly larger deals, which may elongate sales cycles and impact demand.
Risk factors describe intense and increasing competition from legacy appliance vendors and cloud security providers such as Palo Alto Networks, Fortinet, Cisco, Microsoft, and Netskope. Larger competitors may bundle products or sell at zero or negative margins, potentially pressuring pricing and gross margins.
During the three months ended January 31, 2024, the conditions allowing holders of the Notes to convert were met, and the Notes are convertible from February 1, 2024 through April 30, 2024. Conversion could require cash settlement, adversely affect liquidity, or require reclassifying principal as a current rather than long-term liability and materially reduce net working capital.
The filing says Zscaler is increasingly utilizing and recently began building and executing AI and ML capabilities, including generative AI and large language models, into its product offerings. It cites an uncertain regulatory environment, including new proposed rules and legislation regulating AI in jurisdictions such as the European Union, that could increase research and development costs, divert resources, and create legal liability.
Sales through the top five channel partners and their affiliates represented 25% of revenue for the six months ended January 31, 2024 and 27% for the six months ended January 31, 2023. Agreements with channel partners are generally non-exclusive and partners may offer competing products, creating risk if they fail to perform or shift promotion to competitors.
SaaS KPIs
All quarters →Free Cash Flow Margin
Free Cash Flow
Non-GAAP Operating Margin
Calculated Billings
Customer Base Growth (YoY)
Summary, forecast, risks and KPIs are extracted from Zscaler, Inc.'s SEC filings for Q2 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.