Summary
Zscaler closed fiscal 2024 third quarter with revenue of $553.2 million, up 32.1% from the prior-year quarter. Calculated billings reached $628.0 million, up 30% year over year, and deferred revenue was $1,577.0 million, up 34.2%. Remaining performance obligations totaled $3.82 billion, up 26.5%. The customer base increased 14% from April 30, 2023 to April 30, 2024. Dollar-based net retention rate was 116% for the trailing 12 months ended April 30, 2024, compared with above 125% a year earlier. That retention figure points to slower expansion within existing accounts, even as new customer additions and larger deal activity supported the top line. The company also completed two acquisitions: Avalor Technologies in March 2024 and Airgap Networks in April 2024.
Profitability improved sharply on a GAAP basis. Gross profit was $434.9 million, up 34.7%, and gross margin was 78.6%, up 1.5 percentage points from 77.1%. The company reported an operating loss of $3.0 million, a narrower loss than $55.7 million in the prior-year quarter, and operating margin was -0.5%, up 12.8 percentage points from -13.3%. Net income was $19.1 million, compared with a net loss of $46.0 million a year earlier, and diluted EPS was $0.12, compared with a loss per share of $0.32. Non-GAAP results also expanded: non-GAAP net income was $139.8 million, compared with $74.6 million, and non-GAAP income from operations was $121.8 million, or 22% of revenue, compared with $63.9 million, or 15% of revenue. Management said the useful life change for servers and networking equipment, from four to five years, added about 60 basis points to gross margin in the quarter.
Cash generation remained a bright spot. Operating cash flow was $173.4 million, up 59.9% from $108.5 million. Capital expenditures were $35.7 million, up 35.8%. Free cash flow, a non-GAAP measure, was $123.1 million, or 22% of revenue, compared with $73.9 million, or 18% of revenue. For the nine months ended April 30, 2024, operating cash flow was $576.3 million, up 76.6%, and free cash flow was $448.6 million, or 28% of revenue, compared with $232.3 million, or 20% of revenue.
Guidance points to continued growth but also to deceleration. For the fourth quarter of fiscal 2024, Zscaler expects revenue of $565 million to $567 million, non-GAAP income from operations of $107 million to $109 million, and non-GAAP net income per share of approximately $0.69 to $0.70, assuming approximately 165 million fully diluted shares. For the full year fiscal 2024, the company expects revenue of approximately $2.140 billion to $2.142 billion, calculated billings of $2.603 billion to $2.606 billion, non-GAAP income from operations of $422 million to $424 million, and non-GAAP net income per share of $2.99 to $3.01, assuming approximately 161 million fully diluted shares. The outlook does not reconcile non-GAAP income from operations and non-GAAP net income per share to GAAP measures because certain items are out of the company's control or cannot be reasonably predicted.
Risks remain familiar for a high-growth security vendor. Management cited macroeconomic influences, high inflation, high interest rates, potential recessionary environments, and geopolitical events. Customers continue to scrutinize purchasing decisions and require multiple approvals for large expenditures, which elongates sales cycles and the timing of large deals. Zscaler has incurred net losses in all annual periods since inception and expects to continue to incur net losses for the foreseeable future. The company maintains a full valuation allowance on its U.S. federal, state, and U.K. deferred tax assets. The quarter's GAAP profitability came alongside heavy spending to grow the business, and the retention decline is a metric worth watching.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2024 | Q2 FY2024 | QoQ | Q3 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $553.2M | $525.0M | +5.4% | $418.8M | +32.1% |
| Gross profit | $434.9M | $407.8M | +6.6% | $323.0M | +34.7% |
| Gross margin | 78.6% | 77.7% | +0.9 pp | 77.1% | +1.5 pp |
| Research & development | $125.0M | $122.2M | +2.3% | $92.6M | +34.9% |
| Sales & marketing | $262.4M | $276.5M | -5.1% | $236.3M | +11.1% |
| General & administrative | $50.5M | $54.6M | -7.5% | $43.5M | +16.1% |
| Total operating expenses | $437.9M | $453.3M | -3.4% | $378.7M | +15.6% |
| Operating income (loss) | -$3.0M | -$45.5M | +93.4% | -$55.7M | +94.6% |
| Operating margin | -0.5% | -8.7% | +8.1 pp | -13.3% | +12.8 pp |
| Net income (loss) | $19.1M | -$28.5M | +167.2% | -$46.0M | +141.5% |
| Net margin | 3.5% | -5.4% | +8.9 pp | -11.0% | +14.4 pp |
| Diluted EPS | $0.12 | -$0.19 | +$0.31 | -$0.32 | +$0.44 |
| Customers | 7,700 | 7,700 | ±0.0% | 6,700 | +14.9% |
| Net retention rate | 116.0% | 117.0% | -1.0 pp | 125.0% | -9.0 pp |
Risks
MD&A states that customers continue to scrutinize purchasing decisions and require multiple approvals for large expenditures in response to the challenging economic environment, elongating sales cycles and the timing of large deals. The filing notes that potential new customers are carefully considering purchasing decisions, particularly for large expenditures.
The company notes that sales cycles can be long and unpredictable, particularly with large organizations and government entities that undertake significant evaluation processes before entering or expanding a relationship. This is compounded by increased scrutiny and longer approval processes for initial purchases by new customers.
Dollar-based net retention rate was 116% for the trailing 12 months ended April 30, 2024, compared with above 125% for the trailing 12 months ended April 30, 2023. The filing attributes potential fluctuation to factors including the timing and rate of ARR expansion of existing customers and potential changes in renewal rates.
The market for network security solutions is intensely competitive, with many established vendors aggressively competing against the cloud platform using legacy appliance-based solutions and also introducing cloud-based services. The filing notes that larger competitors could leverage broader product offerings to sell at zero or negative margins, offer free services, or bundle products to discourage users from purchasing the company's services.
The company is increasingly utilizing AI and ML capabilities including generative AI and large language models in its product offerings, and warns that a quickly evolving legal and regulatory environment may cause it to incur increased research and development costs or divert resources to address social and ethical issues. Advancements in AI and ML are also changing how the industry identifies and responds to cyber threats, and slow adopters may face a competitive disadvantage.
Sales through the top five channel partners and their affiliates represented 25% of revenue for the nine months ended April 30, 2024 and 26% for the nine months ended April 30, 2023. Most revenue is derived from sales through the channel partner network, and agreements with channel partners are generally non-exclusive and can be terminated with limited or no notice.
The company relies on key technical, sales and management personnel, and the filing notes a reversal in February 2024 of $11.7 million of stock-based compensation expense associated with the cancellation of unvested equity awards as a result of the departure of the Chief Operating Officer who led sales activities. The company also references its prior President's departure in October 2022 and associated stock-based compensation reversal.
The company hosts its cloud platform from a global network of over 150 data centers, mostly operated by third parties, and does not control the operation of these facilities. Service disruptions or capacity strain could result in performance degradation, service level commitment failures, or the need to temporarily increase use of more expensive public cloud infrastructure.
The convertible senior notes include a conditional conversion feature that, when triggered, could require cash settlement or reclassification of the outstanding principal as a current liability, materially reducing net working capital. The company also faces counterparty risk on capped call transactions entered into in connection with the notes.
SaaS KPIs
All quarters →Free Cash Flow Margin
Free Cash Flow
Non-GAAP Operating Margin
Calculated Billings
Non-GAAP Gross Margin
Customer Base Growth (YoY)
Deferred Revenue
Summary, forecast, risks and KPIs are extracted from Zscaler, Inc.'s SEC filings for Q3 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.