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Zscaler (ZS) Q2 Earnings Beat Estimates, Revenues Rise Y/Y

Zacks Equity Research
·4-min read

Zscaler ZS reported second-quarter fiscal 2020 adjusted earnings of 9 cents per share that beat the Zacks Consensus Estimate by 200%. The figure remained flat year over year.

Revenues of $101.3 million surged 36.3% year over year driven by rise in adoption of the company’s cloud platform security solutions by global enterprises. The figure surpassed the consensus mark by 2.3%.

Americas accounted for 51% of revenues, while EMEA contributed 40%. The rest came from Asia Pacific and Japan.

Calculated billings increased 18% year over year to $135.4 million in the reported quarter.

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

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Customer Details

Zscaler continued to win customers and its net dollar retention rate was strong at 116%.

The company ended second-quarter fiscal 2020 with more than 3,900 customers. Moreover, 100 of the Fortune 500 companies are Zscaler’s customers.

Notably, the company became the first cloud security provider to be a certified partner in the Microsoft’s MSFT Networking Partner Program (NPP) for Office 365 in the second quarter.

Zscaler cloud’s capability to effectively handle web traffic and block any unnecessary interference on Office 365 is noteworthy.

Remaining Performance Obligations (RPO) were $609 million as of Jan 31, up 32% year over year.

Operating Details

In the reported quarter, gross margin expanded 60 basis points (bps) to 80%.

Research & development (R&D), sales & marketing (S&M) and general & administrative (G&A) expenses jumped 37.4%, 59% and 179.1% to $20.7 million, $61.7 million and $29 million, respectively.

As a percentage of revenues, R&D and S&M expenses expanded 20 bps and 870 bps to 20.4% and 60.8%, respectively. Meanwhile G&A expenses were 28.6% of revenues, up from 14% in the year-ago quarter.

Non-GAAP operating income was $10.9 million in the reported quarter compared with $10 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Jan 31, Zscaler had $384.9 million in cash, cash equivalents and short-term investments compared with $377.6 million in the previous quarter.

In the reported quarter, cash provided by operations was $5.4 million. Free cash flow was ($1.9 million).

Deferred revenues soared 36% year over year to $280 million.

Guidance

For third-quarter fiscal 2020, Zscaler expects revenues between $105 million and $107 million.

Non-GAAP income from operations is expected between $1 million and $3 million. Non-GAAP earnings are projected between 1 cent and 3 cents per share.

For fiscal 2020, Zscaler expects revenues between $414 million and $417 million.

Non-GAAP income from operations is expected to be $16-$18 million. Non-GAAP earnings are expected between 14 cents and 16 cents per share.

The company’s fiscal 2020 calculated billings are expected between $512 million and $517 million.

Zacks Rank & Stocks to Consider

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

A few better-ranked stocks in the broader technology sector are Q2 Holdings, Inc. QTWO and SYNNEX SNX, both sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Q2 Holdings and SYNNEX is currently pegged at 20% and 10.37%, respectively.

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