Zscaler Reports Q4 2021

-Looked like a very solid Quarter for Zscaler at first glance, Stock up ~2% After Hours. Unfortunately the stock was up 60% YoY last quarter (mostly due to a weak Covid comp in Q3 of 2020)

-Looks like a high 50% grower over the short/medium term.

-Revenue up 57% year-over-year to $197.1 million (up 12% sequentially)

-Calculated billings grows 70% year-over-year to $332.2 million

-Deferred revenue grows 71% year-over-year to $630.6 million

-GAAP net loss of $81.0 million compared to GAAP net loss of $49.5 million on a year-over-year basis

-Non-GAAP net income of $20.3 million compared to non-GAAP net income of $12.0 million on a year-over-year basis (up 69.2%)

-Cash provided by operations was $44.7 million, or 23% of revenue, compared to $31.6 million, or 25% of
revenue, in the fourth quarter of fiscal 2020. FCF was $27.7 million, or 14% of revenue, compared to $10.9 million, or 9% of revenue, in the fourth quarter of fiscal 2020.

-DBNRR was 128% compared to 126% last quarter and 120% a year ago

-GM of 80% (declined by 1% qoq and improved by 1% YoY)

-Strong Customer Growth - 202 customers with ARR greater than $1 million, up 87% from 108 in the
prior year. 1,480 customers with ARR greater than $100,000, vs 973
customers last year. “Our new customer adds accelerated in FY21. We organically added approximately 1,000 new logos in FY21 excluding acquisitions and we ended the year with over 5,600 customers.”

Financial Outlook:

-Total revenue of $210 million to $212 million (represents 47-49% revenue growth)

-Non-GAAP income from operations of $18 million to $19 million

-Non-GAAP net income per share of approximately $0.12, assuming approximately 148 million common shares

Some comments that stood out:

“With a record number of 7-figure ACV deals in Q4, we now have over 200 customers with greater than
$1 million in ARR. Over 5,600 enterprises, including 35% of the Fortune 500, trust Zscaler to secure
their transformation journey. While the average Net Promoter Score of SaaS companies is 30, Zscaler’s
is 74, which is 2.5 times higher, proof of the value Zscaler delivers.”

“We are seeing revenue growth across all verticals, customer segments and geographies. 51% of revenue was from outside the United States.”

“I’m very excited to see our ARR approaching $1 billion, and pleased to note that our new annualized
bookings and new logo acquisition accelerated throughout the year.”

“All product pillars of our platform saw strong demand. Notably, ZPA revenue surpassed $100 million in
fiscal 21, growing 166% year over year.”

Full Press Release:


Supplemental Info


Prepared Commentary



I will add a few more things that seemed significant to me.

I. On long-term profitability. Earlier target was 20-22% operating margins in FY2024. However, their “outstanding results” since setting said target make them–assuming results continue to be as strong–“committed to investing aggressively” in themselves as a higher priority as they exploit favorable circumstances and strong momentum.

II. On why the Q4 [Calendar Q2] RPO and billings numbers are so good and yet the revenue ticked down rather than up: because Feb-Apr 2020 was relatively poor which made for easy comps in Q3 [Q1] 2021 vs 2020. However, things were really strong early in May-Jul period of 2020 which made the 2021 Q4 [Q2] a tougher comp.

So I went to see how calendar Q1 2021 compares to Q1 2019 and the answer is 123%. The same for the second calendar quarter is 129% 2021 vs 2019. If we take the average growth of the first calendar quarters of 2020 and 2021 it is 50% and the average growth of the second calendar quarters is 51.5%.

III. On federal business: ZS had been working for years, had the team in place, had the certifications in place already. Now, they also have the green light. Their federal business used to be mid-single digits and is now mid to high single digits. They are noncommittal re: 2022 stressing green pastures, otoh, but, otoh, that “federal takes time.” Specific numbers of agencies were provided earlier in the call.

IV. Awkward presentation of net retention rate (128 vs 126 previously) and indeed an analyst picked on that and asked why they seem to downplay it (which is how it came across to me). The answer was that while net retention matters, they are not focusing on it. If they can sell a bigger platform upfront, they they are happy to pay with lower net retention (I am the wrong person to explain that). ARPU is increasing substantially. The analyst did not seem fully satisfied/convinced judging by the tone of his acknowledgement :slight_smile: Also, ZS touted a net promoter score of 74 and claimed that the average is 30. They even calculated how much 74 is more than 30 to emphasize the point :slight_smile:

V. 5-6k employees is the strongest growing segment with more and more starting with a bigger platform. Enterprises do tend to go bigger from the start.

VI. On competition: legacy does have to do something not to become obsolete (read: overnight). They have to educate clients all the time about what is ZT and what is just firewall in the cloud and why the latter can never be turned into the former.

Analysts were not as exuberant early on as they were on the previous call, but congrats started to come in nicely as the call went on.


“ZS touted a net promoter score of 74 and claimed that the average is 30. They even calculated how much 74 is more than 30 to emphasize the point :)”

In the industry, NPS 74 is world-class. You will find so many different opinions about what’s the average for tech companies, (30s, 40s), but anything above 50 is considered excellent.

On a NPS of 74, which likely carries almost no detractors, it’s safe to assume that the customers would only drop the tech for strong ROI offered by competitors, but it’s hard to sell that change through the IT ranks.