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

Zscaler ZS delivered a better-than-anticipated first-quarter fiscal 2023 performance.

The company reported non-GAAP earnings of 29 cents per share, which beat the Zacks Consensus Estimate of 26 cents. The bottom line jumped 107.1% year over year.

Zscaler’s first-quarter fiscal 2023 revenues were $355.5 million, surpassing the Zacks Consensus Estimate of $341.1 million. The top line improved 54% from the prior-year reported figure.

Top-Line Details

During the fiscal first quarter, Zscaler’s calculated billings increased 37% year over year to $340.1 million.

Region-wise, the Americas accounted for 52% of revenues, while the EMEA contributed 33%. The Asia Pacific and Japan made up the remaining 15%.

ZS' Zero Trust Exchange platform acted as a key catalyst in the fiscal first quarter. The company benefited from sustained demand for its products, given the healthy environment of the global security market. Increased cyber and ransomware risks, coupled with accelerated digital transformation, contributed significantly to the growth.

Zscaler, Inc. Price, Consensus and EPS Surprise

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 fiscal 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 over 125%.

Remaining Performance Obligations, representing ZS’ committed non-cancellable future revenues, were $2.68 billion as of Oct 31, significantly up 57% year over year.

During the quarter, the company had 348 customers with $1 million or higher annualized recurring revenues (ARR). The figure, which is the highest so far, surged 55% year over year.

The company added 128 customers during the quarter that pay $100,000 annually. The total count of such customers reached 2,217 at the end of the fiscal first quarter.

Operating Details

In the fiscal first quarter, non-GAAP gross profit was $289.5 million. Non-GAAP gross margin remained flat on a year-over-year basis at 81%.

Total non-GAAP operating expenses, accounting for 55.6% of revenues, climbed 52.9% to $247.4 million.

Non-GAAP operating income was $42.1 million compared with the previous quarter’s $38.1 million and the year-ago quarter’s $23.9 million. Non-GAAP operating margin expanded 200 basis points year over year to 12%. Sequentially, the margin remained flat.

Balance Sheet & Cash Flow

As of Oct 31, 2022, Zscaler had $1.82 billion in cash, cash equivalents and short-term investments compared with the previous quarter’s $1.73 billion.

The company generated operating and free cash flows of $128.5 million and $95.6 million, respectively.

Guidance Update

Zscaler raised its guidance for fiscal 2023. For the full fiscal, the company now anticipates revenues between $1.525 billion and $1.53 billion, up from the earlier forecast of $1.49-$1.50 billion. Calculated billings are now expected in the range of $1.93-$1.94 billion, up from the previous band of $1.92-$1.94 billion.

Non-GAAP operating income is estimated to be $179-$183 million instead of the earlier projection of $173-$176 million. Non-GAAP earnings for fiscal 2023 are now expected to be $1.23-$1.25 per share, up from $1.16-$1.18 per share forecasted previously.

For the second quarter of fiscal 2023, Zscaler projects revenues between $364 million and $366 million. Non-GAAP income from operations is estimated to be $42-$43 million. Non-GAAP earnings are projected to be between 29 cents and 30 cents per share.

Zacks Rank & Other Key Picks

Currently, Zscaler carries a Zacks Rank #2 (Buy). The stock has plunged 58.4% year to date (YTD).

Some other top-ranked stocks from the broader technology sector are Celestica CLS, Oracle ORCL and Blackbaud BLKB. Celestica sports a Zacks Rank #1 (Strong Buy) at present, while Oracle and Blackbaud each carry a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Celestica’s fourth-quarter 2022 earnings has increased by 9 cents to 53 cents per share over the past 60 days. For 2022, earnings estimates have moved up 9.4% to $1.86 per share in the past 60 days.

CLS' earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 11.8%. Shares of the company have gained 0.3% YTD.

The Zacks Consensus Estimate for Oracle's third-quarter fiscal 2023 earnings has been revised a penny south to $1.17 per share over the past 60 days. For fiscal 2023, earnings estimates have moved a penny lower to $4.96 per share in the past 30 days.

ORCL’s earnings beat the Zacks Consensus Estimate twice in the preceding four quarters, the average surprise being 3.4%. Shares of the company have declined 6.5% YTD.

The Zacks Consensus Estimate for Blackbaud's fourth-quarter 2022 earnings has been revised 3 cents southward to 58 cents per share over the past 30 days. For 2022, earnings estimates have moved upward by 4 cents to $2.59 per share in the past 30 days.

Blackbaud's earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing the same on one occasion, the average surprise being 4.9%. Shares of BLKB have slumped 24.9% YTD.

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