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Zscaler (ZS) Earnings & Revenues Surpass Estimates in Q1

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Zscaler (ZS - Free Report) delivered better-than-anticipated first-quarter fiscal 2022 performance.

Zscaler reported non-GAAP earnings of 14 cents per share, which beat the Zacks Consensus Estimate of 12 cents per share. The bottom line remained flat year over year.

The fiscal first-quarter revenues were $230.5 million surpassing the Zacks Consensus Estimate of $212.3 million. The top line rose 62% from the prior-year reported figure.

Top-Line Details

During the first quarter of fiscal 2022, calculated billings jumped 71% year over year to $247.7 million.

Geographically, the Americas accounted for 51% of revenues, while the EMEA contributed 35%. The Asia Pacific and Japan made up the remaining 14%.

Zscaler’s quarterly results benefited from sustained demand for its products given the healthy environment of the global security market. Increased cyber and ransom ware risks, coupled with accelerating digital transformation contributed significantly to growth. Its Zero Trust Exchange platform acted as a key catalyst.

Zscaler, Inc. Price, Consensus and EPS Surprise Zscaler, Inc. Price, Consensus and EPS Surprise

Zscaler, Inc. price-consensus-eps-surprise-chart | Zscaler, Inc. Quote

Customer Details

In the first quarter, Zscaler continued to win multiple customers in each of its three market segments: financial services, enterprise market and federal. Its net dollar-based retention rate was at 125% compared with the previous quarter’s 128%.

Remaining Performance Obligations (RPO) representing Zscaler’s committed non-cancellable future revenues were $1.71 billion as of Oct 31, significantly up 97% year over year.

During the first quarter, Zscaler had 224 customers with $1 million or higher annualized recurring revenue (“ARR”). The figure, which is the highest so far, improved 86.7% year over year.

The company had 1,616 customers with $100,000 or higher ARR. The figure reflected year-over-year growth of 52.9%.

Operating Details

In the first quarter, non-GAAP gross margin remained flat year over year at 81%. Sequentially, non-GAAP gross margin expanded 100 basis points (bps).

Non-GAAP research & development (16% of revenues), sales & marketing (48% of revenues), and general & administrative (7% of total revenues) expenses flared up 75.6%, 71.7% and 37% to $36.6 million, $110.2 million and $15.0 million, respectively.

Total non-GAAP operating expenses, accounting for 71% of total revenues, climbed 68.6% to $161.8 million. Operating expenses as a percentage of revenues surged 300 bps primarily due to increased hiring, higher compensation expenses and investments related to the acquisition of Trustdome and SmokeScreen.

Non-GAAP operating margin contracted 400 bps year over year to 10%. Non-GAAP operating income was $23.9 million compared with the year-ago quarter’s $19.7 million.

Balance Sheet & Cash Flow

As of Oct 31, 2021, Zscaler had $1.58 billion in cash, cash equivalents and short-term investments compared with the previous quarter’s $1.50 billion.

Cash flow generated through operating activities was $93.3 million, while it generated free cash flow of $83.4 million in the first quarter of fiscal 2022.

Free cash flow margin expanded 600 bps to 36% during the reported quarter. Deferred revenues were $647.8 million, up 74% year over year.

Guidance

For the second quarter of fiscal 2022, Zscaler projects revenues between $240 million and $242 million. Non-GAAP earnings are projected to be approximately 11 cents per share.

Non-GAAP income from operations is estimated to be $20-$21 million.

Zscaler updated its fiscal 2022 guidance. It anticipates revenues of $1.00-$1.01 billion, up from the previous guidance of $940-$950 million.

Calculated billings are anticipated in the range of $1.300 billion and $1.305 billion, up from the previously guided range of $1.23-$1.25 billion.

Non-GAAP earnings for fiscal 2022 are expected to be 50-52 cents per share, down from previous forecast 52-56 cents.

Non-GAAP operating income is estimated to be $90-$93 million, up from previous guidance of $85-$90 million.

Zacks Rank & Stocks to Consider

Zscaler currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector are Advanced Micro Devices (AMD - Free Report) , Qualcomm (QCOM - Free Report) and CDW Corporation (CDW - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Advanced Micro Devices’ fourth-quarter 2021 earnings has been revised upward by 7 cents to 75 cents per share over the past 60 days. For 2021, earnings estimates have moved north by 1 cent to $2.64 per share in the last 60 days.

Advanced Micro Devices’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 14%. Shares of AMD have rallied 72.7% in the YTD period.

The consensus mark for Qualcomm’s first-quarter fiscal 2022 earnings has been raised to $3.01 per share from $2.63 in the past 30 days. For fiscal 2022, earnings estimates have been revised upward by 14.1% to $10.49 per share in the past 30 days.

Qualcomm’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 11.2%. Shares of QCOM stock have gained 18.5% YTD.

CDW’s consensus estimate for fourth-quarter fiscal 2021 earnings has been raised to $1.87 per share from $1.83 in the past 30 days. For fiscal 2021, earnings estimates have moved north by 1.4% to $7.81 per share over the past 30 days.

CDW’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 12.2%. Shares of CDW stock have appreciated 43.7% YTD.