Summary
Zscaler closed fiscal 2023 with fourth-quarter revenue of $455.0 million, up 43.1% from $318.1 million in the prior-year quarter. Full-year revenue rose 48.2% to $1.62 billion. Management tied the annual increase mainly to higher usage and additional subscriptions from existing customers, which added $440.6 million of revenue, plus a customer base that grew 14%. Calculated billings, a non-GAAP measure, grew 38% year over year to $719.3 million. Deferred revenue reached $1,439.7 million, up 41%, and remaining performance obligations were $3.51 billion, up 34.8%. Annual recurring revenue passed the $2 billion mark, a milestone management said took less than two years.
Profitability improved on both a GAAP and non-GAAP basis. GAAP loss from operations was $44.6 million, narrower than the $82.5 million loss in the prior-year quarter, and the operating margin was -9.8%, up 16.2 percentage points. GAAP net loss was $30.7 million versus $97.7 million a year earlier. Non-GAAP income from operations was $86.0 million compared with $38.1 million, and non-GAAP net income was $100.9 million against $36.4 million. Non-GAAP diluted net income per share was $0.64 versus $0.25. Gross margin slipped to 77.4%, down 1.1 percentage points, while non-GAAP gross margin was 81%. For the full year, the GAAP net loss narrowed to $202.3 million from $390.3 million, and diluted loss per share narrowed to $1.40 from $2.77.
Cash generation held up. Operating cash flow for the quarter was $135.9 million, up 31.8%, while capital expenditures were $27.1 million, up 27.4%. For the full year, operating cash flow was $462.3 million, up 43.6%, and capital expenditures were $97.2 million, up 40.3%. Free cash flow, a separate non-GAAP measure the company defines as operating cash flow less purchases of property and equipment and capitalized internal-use software, was $101.3 million for the quarter and $333.6 million for the year.
Guidance for the first quarter of fiscal 2024 includes non-GAAP income from operations of $70 million to $72 million and non-GAAP net income per share of approximately $0.48 to $0.49, assuming roughly 159 million fully diluted shares. For the full fiscal year 2024, the company guided to calculated billings of $2.52 billion to $2.56 billion, non-GAAP income from operations of $330 million to $340 million, and non-GAAP net income per share of $2.20 to $2.25 on about 161 million shares. Zscaler also extended the estimated useful lives of its servers and networking equipment from four to five years starting in fiscal 2024, an accounting change it expects to help margins by about 50 basis points for the full year.
A few underlying metrics warrant attention. The dollar-based net retention rate for the trailing 12 months ended July 31, 2023 was 121%, below the above 125% reported for the prior year. Customer count grew to more than 7,700 from over 6,700, and more than 640 of those customers were in the Forbes Global 2000. Management described a tougher buying environment, with customers taking longer to make decisions and requiring more approvals for large expenditures, which lengthens sales cycles and pushes out the timing of big deals. Zscaler still expects to incur net losses for the foreseeable future, and it has not moved off that stance. Fiscal 2023 also carried $7.6 million of restructuring and other charges tied to a plan announced in March 2023 that cut worldwide headcount by approximately 3%. Named risks include inflation and macroeconomic instability, the use of AI in the platform, competition, and execution challenges tied to rapid growth.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2023 | Q3 FY2023 | QoQ | Q4 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $455.0M | $418.8M | +8.6% | $318.1M | +43.1% |
| Gross profit | $352.3M | $323.0M | +9.1% | $249.8M | +41.1% |
| Gross margin | 77.4% | 77.1% | +0.3 pp | 78.5% | -1.1 pp |
| Research & development | $96.4M | $92.6M | +4.0% | $78.2M | +23.3% |
| Sales & marketing | $252.8M | $236.3M | +7.0% | $214.2M | +18.0% |
| General & administrative | $46.4M | $43.5M | +6.7% | $39.9M | +16.2% |
| Total operating expenses | $396.9M | $378.7M | +4.8% | $332.3M | +19.4% |
| Operating income (loss) | -$44.6M | -$55.7M | +20.1% | -$82.5M | +46.0% |
| Operating margin | -9.8% | -13.3% | +3.5 pp | -25.9% | +16.2 pp |
| Net income (loss) | -$30.7M | -$46.0M | +33.4% | -$97.7M | +68.6% |
| Net margin | -6.7% | -11.0% | +4.3 pp | -30.7% | +24.0 pp |
| Diluted EPS | -$0.21 | -$0.32 | +$0.11 | -$2.77 | +$2.56 |
| Customers | 7,700 | 6,700 | +14.9% | 6,700 | +14.9% |
| Net retention rate | 121.0% | 125.0% | -4.0 pp | 125.0% | -4.0 pp |
Risks
MD&A states that in fiscal 2023 Zscaler saw increased customer scrutiny and a longer approval process for transactions, particularly larger deals, and expects customer cautiousness to continue in the near term, elongating sales cycles and the timing of large deals.
The 10-K adds risk that Zscaler's increasing use of AI and ML in product offerings and internal operations, including generative AI, may expose it to legal liability, regulatory action under proposed AI legislation such as in the European Union, increased R&D costs and reputational harm.
The 10-K warns that intense competition from established network and security vendors, including Check Point, Fortinet, Palo Alto Networks, Cisco and Microsoft, could pressure pricing and gross margins as larger competitors bundle security features, sell at zero or negative margins or offer free services.
The 10-K highlights that actual or perceived failure of the cloud platform to block malware or prevent a security breach could harm Zscaler's reputation, cause loss of customers and lead to legal claims, and notes increasing state-sponsored cyber activity including from the Russia-Ukraine crisis.
Most revenue is derived through channel partners, and sales through the top five channel partners and their affiliates represented 26% of revenue for fiscal 2023, compared with 28% for fiscal 2022 and 34% for fiscal 2021; partners are generally non-exclusive and may promote competitors.
The 10-K says Zscaler depends on key technical, sales and management personnel, and that a large percentage of its sales and marketing team is new to the company; a March 2023 restructuring reduced worldwide headcount by approximately 3% and could affect morale or retention.
The summary of risk factors identifies inability to effectively manage risks and challenges related to India operations as a principal factor that could harm the business, and the 10-K notes Zscaler has a significant facility in India.
The 10-K describes risks from the convertible senior Notes, including possible cash settlement upon conversion and accounting changes; adoption of ASU 2020-06 on August 1, 2022 increased the carrying amount of the Notes by $169.9 million and reduced additional paid-in capital by $273.7 million.
Zscaler hosts its cloud platform from a global network of over 150 data centers operated by third parties, and the 10-K warns service disruptions, capacity constraints or greater reliance on more expensive public cloud infrastructure could negatively impact results.
The trailing 12 months ended July 31, 2023 dollar-based net retention rate was 121%, compared with above 125% for the trailing 12 months ended July 31, 2022, a key metric the MD&A uses to measure long-term customer value.
MD&A states calculated billings increased $554.0 million, or 37%, in fiscal 2023 over fiscal 2022, after increasing $547.5 million, or 59%, in fiscal 2022 over fiscal 2021, and expects the calculated billings growth rate to trend down over time.
SaaS KPIs
All quarters →Free Cash Flow Margin
Free Cash Flow
Non-GAAP Operating Margin
Calculated Billings
Total Customers
Forbes Global 2000 customers
Summary, forecast, risks and KPIs are extracted from Zscaler, Inc.'s SEC filings for Q4 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.