Third Quarter Highlights Revenue grows 32% year-over-year to $553.2 million Calculated billings grows 30% year-over-year to $628.0 million Deferred revenue grows 34% year-over-year to $1,577.0 million GAAP net income of $19.1 million compared to GAAP net loss of $46.0 million on a year-over-year basis Non-GAAP net income of $139.8 million compared to non-GAAP net income of $74.6 million on a year-over-year basis SAN JOSE, Calif., May 30, 2024 (GLOBE NEWSWIRE) -- Zscaler, Inc. (NASDAQ:ZS), the leader in cloud security, today announced financial results for its third quarter of fiscal year 2024, ended April 30, 2024. "We delivered an outstanding quarter driven by growing customer interest in our Zero Trust Exchange platform," said Jay Chaudhry, Chairman and CEO of Zscaler. "As threat actors evolve and continue to exploit firewall-based security, Zero Trust security remains a top IT priority, and an increasing number of enterprises are adopting our platform. To meet this demand, we are accelerating innovation, expanding our platform and building a strong go-to-market team to scale our business to $5 billion and beyond in ARR." Third Quarter Fiscal 2024 Financial Highlights Revenue: $553.2 million, an increase of 32% year-over-year. Income (loss) from operations: GAAP loss from operations was $3.0 million, or 1% of revenue, compared to $55.7 million, or 13% of revenue, in the third quarter of fiscal 2023. Non-GAAP income from operations was $121.8 million, or 22% of revenue, compared to $63.9 million, or 15% of revenue, in the third quarter of fiscal 2023. Net income (loss): GAAP net income was $19.1 million, compared to GAAP net loss of $46.0 million in the third quarter of fiscal 2023. Non-GAAP net income was $139.8 million, compared to $74.6 million in the third quarter of fiscal 2023. Net income (loss) per share: GAAP net income per share, diluted, was $0.12, compared to GAAP net loss per share, diluted, of $0.32 in the third quarter of fiscal 2023. Non-GAAP net income per share was $0.88, compared to $0.48 in the third quarter of fiscal 2023. Cash flows: Cash provided by operations was $173.4 million, or 31% of revenue, compared to $108.5 million, or 26% of revenue, in the third quarter of fiscal 2023. Free cash flow was $123.1 million, or 22% of revenue, compared to $73.9 million, or 18% of revenue, in the third quarter of fiscal 2023. Deferred revenue: $1,577.0 million as of April 30, 2024, an increase of 34% year-over-year. Cash, cash equivalents and short-term investments: $2,240.0 million as of April 30, 2024, an increase of $139.8 million from July 31, 2023. Recent Business Highlights In March 2024, acquired Avalor Technologies to advance artificial intelligence (AI) innovations. By combining Zscaler's massive data foundation from its more than 400 billion daily transactions with Avalor's Data Fabric for Security, including its over 150 pre-built integrations, this acquisition allows us to better enable customers to proactively identify critical vulnerabilities as well as improve operational efficiencies. In April 2024, acquired Airgap Networks to extend Zscaler's Zero Trust SASE leadership. By combining Zscaler's Zero Trust SD-WAN and Airgap's agentless segmentation technology, Zscaler can transform how enterprises implement Zero Trust Segmentation to IoT/OT devices and critical infrastructure across branches, campuses, factories, and data centers, including east-west connectivity. Announced adding ZDX Copilot, Hosted Monitoring, and Data Explorer to the Zscaler Digital Experience™ (ZDX™) service. Our new AI assistant, ZDX Copilot, instantly analyzes and harnesses knowledge from over 500 trillion data points to provide IT operations, service desk, and security teams the insights they need. Named a Leader in the first-ever Forrester Wave™ Security Service Edge Solutions report for Q1 2024. Recognized as a Leader in the 2024 Gartner Magic Quadrant for Security Service Edge (SSE) for the third year in a row. Financial Outlook For the fourth quarter of fiscal 2024, we expect: Revenue of $565 million to $567 million Non-GAAP income from operations of $107 million to $109 million Non-GAAP net income per share of approximately $0.69 to $0.70, assuming approximately 165 million fully diluted shares outstanding For the full year fiscal 2024, we expect: 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 Non-GAAP net income per share of $2.99 to $3.01, assuming approximately 161 million fully diluted shares outstanding These statements are forward-looking and actual results may differ materially. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements. In August 2023, we completed an assessment of the useful lives of our servers and networking equipment, which resulted in an extension of their useful lives from four to five years. This change was effective beginning in fiscal year 2024. Based on the carrying amount of these assets as of July 31, 2023, the impact for each of the three and nine months ended April 30, 2024 was approximate a 60 basis point, benefit to our gross margin. Guidance for non-GAAP income from operations excludes stock-based compensation expense and related employer payroll taxes, amortization of debt issuance costs, and amortization expense of acquired intangible assets. We have not reconciled our expectations of non-GAAP income from operations and non-GAAP net income per share to their most directly comparable GAAP measures because certain items are out of our control or cannot be reasonably predicted. For those reasons, we are also unable to address the probable significance of the unavailable information, the variability of which may have a significant impact on future results. Accordingly, a reconciliation for the guidance for non-GAAP income from operations and non-GAAP net income per share is not available without unreasonable effort. For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the "Explanation of Non-GAAP Financial Measures" section of this press release. Conference Call and Webcast Information Zscaler will host a conference call for analysts and investors to discuss its third quarter of fiscal 2024 and outlook for its fourth quarter of fiscal 2024 and full year fiscal 2024 today at 1:30 p.m. Pacific time (4:30 p.m. Eastern time). Date: Thursday, May 30, 2024 Time: 1:30 p.m. PT Webcast: https://ir.zscaler.com  Dial-in: To join by phone, register at the following link: (https://register.vevent.com/register/BIe2c2c82d1e694dd3a00b3debc6f30548). After registering, you will be provided with a dial-in number and a personal PIN that you will need to join the call.     Upcoming Conferences Fourth quarter of fiscal 2024 investor conference participation schedule: Bank of America Global Technology Conference in San FranciscoWednesday, June 5, 2024 Sessions which offer a webcast will be available on the Investor Relations section of the Zscaler website at https://ir.zscaler.com/  Forward-Looking Statements This press release contains forward-looking statements that involve risks and uncertainties, including, but not limited to, statements regarding our future financial and operating performance, including our financial outlook for the fourth quarter of fiscal 2024 and full year fiscal 2024. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including but not limited to: macroeconomic influences and instability, including the ongoing effects of inflation, geopolitical events, operations and financial results and the economy in general; risks related to the use of AI in our platform; the impact of a government default or shut-down; our limited operating history; our ability to identify and effectively implement the necessary changes to address execution challenges; risks associated with managing our rapid growth, including fluctuations from period to period; our limited experience with new products and subscriptions and support introductions and the risks associated with new products and subscription and support offerings, including the discovery of software bugs; our ability to attract and retain new customers; the failure to timely develop and achieve market acceptance of new products and subscriptions as well as existing products and subscription and support; rapidly evolving technological developments in the market for network security products and subscription and support offerings and our ability to remain competitive; length of sales cycles; useful lives of our assets and other estimates; and general market, political, economic and business conditions. Additional risks and uncertainties that could affect our financial results are included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth from time to time in our filings and reports with the Securities and Exchange Commission (SEC), including our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2024, filed on March 6, 2024, and our Annual Report on Form 10-K for the fiscal year ended July 31, 2023, filed on September 14, 2023, as well as future filings and reports by us, copies of which are available on our website at ir.zscaler.com and on the SEC's website at www.sec.gov. You should not rely on these forward-looking statements, as actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of such risks and uncertainties. Additional information will also be set forth in other filings that we make with the SEC from time to time. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made. Use of Non-GAAP Financial Information We believe that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to our financial condition and results of operations. For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the "Explanation of Non-GAAP Financial Measures" section of this press release. About Zscaler Zscaler (NASDAQ:ZS) accelerates digital transformation so customers can be more agile, efficient, resilient, and secure. The Zscaler Zero Trust Exchange™ platform protects thousands of customers from cyberattacks and data loss by securely connecting users, devices, and applications in any location. Distributed across more than 150 data centers globally, the SSE-based Zero Trust Exchange is the world's largest in-line cloud security platform. Zscaler™ and the other trademarks listed at https://www.zscaler.com/legal/trademarks are either (i) registered trademarks or service marks or (ii) trademarks or service marks of Zscaler, Inc. in the United States and/or other countries. Any other trademarks are the properties of their respective owners. Investor Relations Contacts Ashwin Kesireddy VP, Investor Relations and Strategic Finance(415) Natalia WodeckiMedia Relations ZSCALER, INC. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited)                   Three Months Ended   Nine Months Ended   April 30,   April 30,     2024       2023       2024       2023   Revenue $ 553,201     $ 418,800     $ 1,574,903     $ 1,161,946   Cost of revenue(1) (2)   118,331       95,849       346,924       260,150   Gross profit   434,870       322,951       1,227,979       901,796   Operating expenses:               Sales and marketing(1) (2)   262,447       236,273       806,039       701,054   Research and development(1) (2)   124,958       92,637       360,678       253,348   General and administrative(1)   50,478       43,486       155,789       131,164   Restructuring and other charges(1)   —       6,301       —       6,301   Total operating expenses   437,883       378,697       1,322,506       1,091,867   Loss from operations   (3,013 )     (55,746 )     (94,527 )     (190,071 ) Interest income   27,570       18,577       81,897       39,111   Interest expense(3)   (2,764 )     (1,383 )     (9,528 )     (4,047 ) Other expense, net   (927 )     (809 )     (1,967 )     (1,531 ) Income (loss) before income taxes   20,866       (39,361 )     (24,125 )     (156,538 ) Provision for income taxes(4)   1,742       6,685       18,703       15,123   Net income (loss) $ 19,124     $ (46,046 )   $ (42,828 )   $ (171,661 ) Net income (loss) per share               Basic $ 0.13     $ (0.32 )   $ (0.29 )   $ (1.19 ) Diluted $ 0.12     $ (0.32 )   $ (0.29 )   $ (1.19 ) Weighted-average shares used in computing net income (loss) per share               Basic   150,290       145,354       148,945       144,442   Diluted   154,081       145,354       148,945       144,442   (1) Includes stock-based compensation expense and related payroll taxes as follows: Cost of revenue $ 12,487     $ 10,025     $ 38,876     $ 28,281   Sales and marketing   45,490       51,417       170,013       162,099   Research and development   46,346       31,796       131,509       86,409   General and administrative   17,142       17,112       59,332       53,715   Restructuring and other charges   —       1,036       —       1,036   Total $ 121,465     $ 111,386     $ 399,730     $ 331,540   (2) Includes amortization expense of acquired intangible assets as follows: Cost of revenue $ 2,962     $ 2,695     $ 8,396     $ 6,809   Sales and marketing   279       200       731       556   Research and development   140       80       373       713   Total $ 3,381     $ 2,975     $ 9,500     $ 8,078   (3) Includes amortization of debt issuance costs: $ 979     $ 974     $ 2,934     $ 2,919   (4) Includes tax benefit associated with business acquisitions: $ (5,123 )   $ —