Summary
Zscaler's fiscal 2023 third quarter revenue came in at $418.80 million, up 46.0% from $286.81 million a year earlier. The May 8 preliminary release had guided the quarter to $415 million to $419 million, against an earlier range of $396 million to $398 million. Revenue for the nine months ended April 30, 2023 was $1.16 billion, up 50.3%. Subscription and support accounted for roughly 97% of revenue. Gross profit of $322.95 million rose 45.0%. Gross margin dipped to 77.1% from 77.7%, a decline of 0.6 percentage points, as heavier traffic through public cloud infrastructure raised the cost of delivering the service. The nine-month gross margin was 77.6%, up 0.1 percentage point.
The operating loss narrowed to $55.75 million from $86.60 million, and operating margin improved to -13.3% from -30.2%, a gain of 16.9 percentage points. Headcount grew 29% in sales and marketing and 37% in research and development from April 30, 2022, and the customer support and cloud operations group was also up 29%. A restructuring plan announced on March 1 cut about 3% of worldwide headcount and is expected to cost roughly $7.0 million in total, with about $0.7 million still to come in the fourth quarter. Non-GAAP income from operations was $63.88 million for the quarter against $27.21 million a year earlier, and non-GAAP operating margin was 15% versus 9%. Non-GAAP gross margin slipped to 80% from 81%. Zscaler posted a net loss of $46.05 million and a diluted loss per share of $0.32, against a loss of $101.40 million and $0.72 per share in the prior-year quarter.
Cash generation was the strongest part of the print. Operating cash flow for the quarter was $108.47 million, up 40.4% from $77.24 million, and nine-month operating cash flow was $326.41 million, up 49.2%. Capital expenditures of $26.24 million were down 4.9% year over year, while the nine-month figure of $70.13 million was up 46.0% as the company kept building out its cloud platform. Free cash flow, which deducts purchases of property and equipment and capitalized internal-use software, was $73.89 million for the quarter against $43.75 million, and free cash flow margin was 18% versus 15%. Cash, cash equivalents and short-term investments stood at $1,968.4 million on April 30, 2023, alongside an accumulated deficit of $1,059.7 million.
Deferred revenue of $1.18 billion was up 43.6% from a year earlier, and remaining performance obligations of $3.02 billion were up 36.4%. Calculated billings, a non-GAAP measure the company tracks closely, were $482.29 million for the quarter, up 40% and $136.7 million from the prior-year quarter; the preliminary release had pointed to approximately $478 million to $482 million and growth of approximately 38% to 39%. Nine-month billings were $1.32 billion, up 37%. Dollar-based net retention for the trailing 12 months ended April 30, 2023 was above 125%, and the customer base grew 15% from April 30, 2022.
Guidance moved up for the full fiscal year. Zscaler now expects fiscal 2023 calculated billings of $1,970 million to $1,974 million and a non-GAAP loss from operations of $220 million to $224 million, against a prior outlook of $1,935 million to $1,945 million and $213 million to $215 million. The full-year revenue target was raised as well. The company said it could not reconcile the non-GAAP operating outlook to the comparable GAAP measure without unreasonable effort.
The macro backdrop remains the central risk. The 10-Q points to increased scrutiny and a longer approval process for transactions, particularly larger deals, as customers take longer to make purchasing decisions and require more sign-offs on big expenditures. Management expects that caution to persist in the near term, elongating sales cycles and the timing of large deals. Named risks also include high inflation and potential recessionary conditions, geopolitical events, the uncertainty around raising the U.S. federal debt limit and the impact of a government default or shutdown, rapid growth, the introduction of new products, competition and general market conditions. Full results for the quarter were scheduled for release on June 1, 2023, after the market close.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $418.8M | $387.6M | +8.1% | $286.8M | +46.0% |
| Gross profit | $323.0M | $300.0M | +7.7% | $222.8M | +45.0% |
| Gross margin | 77.1% | 77.4% | -0.3 pp | 77.7% | -0.6 pp |
| Research & development | $92.6M | $85.8M | +8.0% | $76.6M | +21.0% |
| Sales & marketing | $236.3M | $235.9M | +0.1% | $192.1M | +23.0% |
| General & administrative | $43.5M | $43.5M | -0.1% | $40.7M | +6.9% |
| Total operating expenses | $378.7M | $365.2M | +3.7% | $309.4M | +22.4% |
| Operating income (loss) | -$55.7M | -$65.2M | +14.5% | -$86.6M | +35.6% |
| Operating margin | -13.3% | -16.8% | +3.5 pp | -30.2% | +16.9 pp |
| Net income (loss) | -$46.0M | -$57.5M | +19.9% | -$101.4M | +54.6% |
| Net margin | -11.0% | -14.8% | +3.8 pp | -35.4% | +24.4 pp |
| Diluted EPS | -$0.32 | -$0.40 | +$0.08 | -$0.72 | +$0.40 |
| Customers | 6,700 | 6,700 | ±0.0% | 5,600 | +19.6% |
| Net retention rate | 125.0% | 125.0% | ±0.0 pp | 125.0% | ±0.0 pp |
Risks
MD&A states challenging macroeconomic conditions, including high inflation and potential recession, have caused increased scrutiny and a longer approval process for transactions, particularly larger deals, and elongated sales cycles. Potential new customers are taking longer to make purchasing decisions for large expenditures.
MD&A attributes the quarter's gross margin decrease from 78% to 77% for the three months ended April 30, 2023 primarily to costs incurred for increased use of public cloud infrastructure to manage higher traffic. The risk factors note that further reliance on public cloud infrastructure, which is more expensive than owned data centers, could negatively impact results of operations.
Risk factors state advancements in artificial intelligence and machine learning are changing how the industry identifies and responds to cyber threats, and businesses slow to adopt these technologies may face a competitive disadvantage. This could impair Zscaler's ability to keep pace with new products and services.
Risk factors disclose that sales through the top five channel partners and their affiliates represented 26% of revenue for the nine months ended April 30, 2023 and 29% for the nine months ended April 30, 2022. The company derives most revenue through channel partners, and partners may offer competing products or cease marketing with limited notice.
In March 2023 the company committed to a restructuring plan reducing worldwide headcount by approximately 3%, incurring $6.3 million of restructuring charges in the nine months ended April 30, 2023. Risk factors note restructuring may negatively impact employee morale and make it more difficult to attract and retain talent.
Risk factors highlight the conditional conversion feature of the Notes and the adoption of ASU 2020-06, under which the if-converted method is used for diluted EPS. If holders convert, the company may need to settle in cash, which could adversely affect liquidity, and counterparty risk exists on capped call transactions.
Risk factors state the market is intensely competitive, with established network and security vendors aggressively competing with legacy appliance-based solutions and introducing cloud-based services. Larger competitors may bundle products, sell at zero or negative margins, or offer free services, potentially causing price reductions and loss of market share.
SaaS KPIs
All quarters →Free Cash Flow Margin
Free Cash Flow
Non-GAAP Operating Margin
Calculated Billings
Customer Base Growth (YoY)
Non-GAAP Income from Operations
Summary, forecast, risks and KPIs are extracted from Zscaler, Inc.'s SEC filings for Q3 FY2023 (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.