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Zscaler (ZS) Q1 Earnings Beat Estimates, Revenues Rise Y/Y

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Zscaler ZS reported first-quarter fiscal 2020 adjusted earnings of 3 cents per share that beat the Zacks Consensus Estimate by 200%. The figure jumped 50% from the year-ago quarter.

Revenues of $93.6 million surged 47.9% year over year driven by growing adoption of the company’s cloud platform security solutions by global enterprises. The figure comfortably surpassed the consensus mark by 5.6%.

Americas accounted for 51% of revenues, while EMEA contributed 41%. The rest came from APJ.

Calculated billings increased 37% year over year to $88.3 million in the reported quarter.

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

Zscaler continued to win customers and its net dollar retention rate was strong at 120%.

The company ended first-quarter fiscal 2020 with more than 3,900 customers. Total global 2,000 customers increased to more than 400 as of Oct 31, up from more than 300 a year ago. Moreover, 100 of the Fortune 500 companies are Zscaler’s customers.

Remaining Performance Obligations (RPO) were $555 million on Oct 31, up 35% year over year.

Operating Details

In the reported quarter, gross margin contracted 180 basis points (bps) to 79.1%.

Sales & marketing (S&M), research & development (R&D) and general & administrative (G&A) expenses jumped 62.6%, 53.7% and 24.6% to $59.4 million, $20.3 million and $12.6 million, respectively.

However, as a percentage of revenues, S&M, and R&D expenses expanded 570 bps and 80 bps while G&A expenses declined 250 bps, respectively.

Non-GAAP operating income was $2.9 million in the reported quarter compared with $1.2 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Oct 31, Zscaler had $377.6 million in cash, cash equivalents and short-term investments compared with $364.6 million in the previous quarter.

In the reported quarter, cash provided by operations was $21.4 million. Free cash flow was $9.4 million.

Deferred revenues soared 49% year over year to $245.9 million.


For second-quarter fiscal 2020, Zscaler expects revenues between $97 million and $100 million.

Non-GAAP income from operations is expected between $3 million and $4 million. Non-GAAP earnings is projected to be around 3 cents per share.

For fiscal 2020, Zscaler expects revenues between $405 million and $413 million.

Non-GAAP income from operations is expected to be $15-$18 million. Non-GAAP earnings are expected between 13 cents and 15 cents per share.

The company’s fiscal 2020 calculated billings are expected between $500 million and $510 million, indicating growth of 28% to 31%.

Zacks Rank & Stocks to Consider

Currently, Zscaler carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Marchex, Inc. (MCHX - Free Report) , Fortinet, Inc. FTNT and Baidu, Inc. BIDU. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Marchex, Fortinet and Baidu is currently pegged at 15%, 14% and 2.27%, respectively.

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