Summary
Zscaler reported revenue of $286.8 million for the third quarter of fiscal 2022, up 62.6% from $176.4 million in the same quarter a year earlier. Revenue for the nine months ended April 30, 2022 was $772.9 million, up 62.4% from $476.0 million. Calculated billings, a non-GAAP measure equal to revenue plus the change in deferred revenue, was $345.6 million, up 54% year over year. Remaining performance obligations reached $2.22 billion, up 83.5% from $1.21 billion a year earlier, and deferred revenue was $818.7 million as of April 30, 2022. Management attributes the growth to enterprises consolidating point products into an integrated Zero Trust platform, which is producing larger multi-year commitments.
Margins show the strain. Gross profit was $222.8 million, up 62.1%, while gross margin was 77.7%, down 0.2 percentage points year over year. The operating loss widened to $86.6 million, and operating margin was negative 30.2%, down 5.3 percentage points. The net loss was $101.4 million, compared with a net loss of $58.5 million a year earlier, and diluted loss per share was $0.72, compared with $0.43. Headcount is the main driver of the expense base. Customer support and cloud operations headcount rose 79% year over year, sales and marketing 54%, research and development 57%, and general and administrative 69%. Non-GAAP results look very different because stock-based compensation and related payroll taxes, amortization of acquired intangibles and amortization of debt discount are excluded. Non-GAAP income from operations was $27.2 million, or 9% of revenue, against $22.9 million, or 13% a year earlier, and non-GAAP net income was $24.7 million, or $0.17 per diluted share, against $21.4 million, or $0.15.
Cash generation held up better than reported earnings. Operating cash flow was $77.2 million for the quarter, up 5.3% from $73.4 million a year earlier, and $218.8 million for the nine months ended April 30, 2022, up 39.1% from $157.3 million. Capital expenditures rose to $27.6 million in the quarter, up 86.4% from $14.8 million, and to $48.0 million for the nine months, up 40.4% from $34.2 million. Free cash flow, which is operating cash flow less purchases of property, equipment and other assets and capitalized internal-use software, was $43.7 million, or 15% of revenue, compared with $55.8 million, or 32% of revenue a year earlier. Cash, cash equivalents and short-term investments totaled $1,657.9 million as of April 30, 2022, an increase of $155.3 million from July 31, 2021.
Guidance for the fourth quarter of fiscal 2022 includes non-GAAP income from operations of $33 million to $34 million and non-GAAP net income per share of roughly $0.20 to $0.21 on about 146 million to 147 million shares. For the full fiscal year 2022, the company guides to calculated billings of $1.425 billion to $1.430 billion, non-GAAP income from operations of $106 million to $108 million, and non-GAAP net income per share of $0.64 to $0.65 on roughly 147 million to 148 million shares. The release says the company is raising fiscal year guidance on all financial metrics. Management also expects the calculated billings growth rate to trend down over time as the absolute base grows.
The risk list is long and familiar. Zscaler cites the duration and impact of COVID-19 and its variants, the Russia-Ukraine crisis, a limited operating history, execution challenges, the strains of managing rapid growth, reliance on new product introductions that can come with software bugs, the need to attract and retain customers, competition in network security, long sales cycles and general market, political and economic conditions. It also points to litigation matters and related accruals, expects to keep reporting net losses for the foreseeable future, and keeps a full valuation allowance against its U.S. federal, state and U.K. deferred tax assets because of its loss history. Retention is a counterweight. The dollar-based net retention rate was above 125% for the trailing 12 months ended April 30, 2022 and 2021, and the customer base grew 23% from April 30, 2021 to April 30, 2022.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $286.8M | $255.6M | +12.2% | $176.4M | +62.6% |
| Gross profit | $222.8M | $197.8M | +12.6% | $137.4M | +62.1% |
| Gross margin | 77.7% | 77.4% | +0.3 pp | 77.9% | -0.2 pp |
| Research & development | $76.6M | $69.2M | +10.7% | $41.0M | +87.0% |
| Sales & marketing | $192.1M | $175.1M | +9.7% | $115.7M | +66.0% |
| General & administrative | $40.7M | $37.4M | +8.6% | $24.6M | +65.4% |
| Total operating expenses | $309.4M | $281.7M | +9.8% | $181.3M | +70.7% |
| Operating income (loss) | -$86.6M | -$83.9M | -3.2% | -$43.9M | -97.5% |
| Operating margin | -30.2% | -32.8% | +2.7 pp | -24.9% | -5.3 pp |
| Net income (loss) | -$101.4M | -$100.4M | -1.0% | -$58.5M | -73.5% |
| Net margin | -35.4% | -39.3% | +3.9 pp | -33.1% | -2.2 pp |
| Diluted EPS | -$0.72 | -$0.71 | -$0.01 | — | — |
| Customers | 5,600 | 5,600 | ±0.0% | 4,500 | +24.4% |
| Net retention rate | 125.0% | 125.0% | ±0.0 pp | 126.0% | -1.0 pp |
Risks
Zscaler has incurred net losses in all periods since inception and had an accumulated deficit of $894.2 million as of April 30, 2022. In FY2022 Q3, GAAP net loss widened to $101.4 million from $58.5 million in FY2021 Q3, and GAAP operating loss widened to $86.6 million from $43.9 million.
Risk factors describe intense and increasing competition from legacy appliance vendors such as Check Point, Fortinet, Palo Alto Networks and Cisco, as well as cloud-based point solutions, which could cause price reductions, reduced gross margins and loss of market share.
The filing states Zscaler's sales cycles can be long and unpredictable, particularly with large organizations and government entities, and that economic conditions including COVID-19, international conflicts and inflation could lengthen sales cycles and lower prices.
Zscaler derives most revenue through channel partners. Sales through its top five channel partners and affiliates represented 34% of revenue for fiscal 2021 and 29% for the nine months ended April 30, 2022, and partners are generally non-exclusive and may promote competitors' products.
As a security provider, actual or perceived failure of its cloud platform to block malware or prevent a breach could damage reputation and customer trust. The filing highlights increasingly sophisticated state-sponsored attacks, including those tied to the Russia-Ukraine crisis.
The conditional conversion feature of the convertible Notes was triggered during the three months ended April 30, 2022, so holders may convert from May 1, 2022 through July 29, 2022. Cash settlement or reclassification of principal as a current liability could reduce liquidity and net working capital.
The filing re-emphasizes ongoing COVID-19 uncertainty, including April 2022 office reopenings and possible return to remote work, and cites inflation plus the Russia-Ukraine crisis as factors that could reduce sales, lengthen sales cycles and lower prices for Zscaler's services.
The filing notes significant competition for sales personnel and that a large percentage of the sales and marketing team is new. Headcount grew sharply from April 30, 2021 to April 30, 2022, including 54% in sales and marketing, 57% in research and development, 69% in general and administrative, and 79% in customer support and cloud operations.
MD&A says general and administrative expenses include certain litigation-related expenses and accruals, and risk factors identify lawsuits and regulatory investigations as risks that could result in significant costs and divert management attention.
Zscaler hosts its cloud platform and serves customers from over 150 data centers, largely operated by third parties. Service interruptions, data center capacity constraints, or increased reliance on more expensive public cloud infrastructure could harm operations and financial results.
MD&A says calculated billings increased 54% for the three months ended April 30, 2022 and 60% for the nine months ended April 30, 2022, but expects the calculated billings growth rate to trend down over time, with seasonality in the second and fourth fiscal quarters affecting cash flow predictability.
SaaS KPIs
All quarters →Free Cash Flow Margin
Free Cash Flow
Non-GAAP Operating Margin
Calculated Billings
Customer Base Growth (YoY)
Deferred Revenue
Non-GAAP Income from Operations
Summary, forecast, risks and KPIs are extracted from Zscaler, Inc.'s SEC filings for Q3 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.