My take on the Zscaler results:
Sept 2019 – July Quarter and Fiscal Year results
Quarter Highlights
Our strong fiscal 2019 results demonstrate our ability to drive growth and profitability while investing in our business, as we continue to see enterprises transforming their network and security to realize the benefits of the cloud. I am also excited to welcome Dali Rajic as our new President of Go-to-Market and Chief Revenue Officer and look forward to working together to scale our business.
• Revenue up 53% $86 million
• Billings up 32% to $126 million (Weak, but they warned of tough comparison)
• Deferred revenue up 53% to $251 million
• Adj net income of $9.1 million up from a LOSS of $1.4 million
• Adj Op Income was $7.9 million, or 9% of revenue, up from a LOSS of $2.4 million, or 4% of revenue, a yr ago…
• Adj EPS was 7 cents, up from a LOSS of 1 cent a year ago.
• Op Cash Flow was $17.8 million, or 21% of revenue, compared to $14.7 million, or 26% of revenue, a year ago. Free cash flow was $7.6 million, or 9% of revenue, compared to $11.9 million, or 21% of revenue, a year ago. [They fell back on Cash Flow but remained positive]
• Deferred revenue: $251 million, up 53%
• Cash of $365 million , up $66 million yoy.
Full Year Fiscal 2019
• Revenue: $303 million, up 59% .
• Op Income was $25 million, or 8% of revenue, improved from a LOSS of $15 million, or 8% of revenue, last year.
• Adj net income was $30 million, improved from a LOSS of $14 million a year ago.
• Adj EPS was +22 cents, up from a loss of 13 cents.
• Op cash flow was $58 million, or 19% of revenue, up from $17 million, or 9% of revenue, a year ago.
• Free cash flow was $29 million, or 10% of revenue, up from $2 million, or 1% of revenue, a year ago.
Saul: My Take: The numbers were great except for the quarterly billings, but people were really worried about guidance and the stock sold off a lot.
Austin pointed out that they guided low a year ago too:
I was a bit worried about the 32% guidance for FY 2020… this is really no different than what they did in a year ago. I think ZS’ future is very bright with a lot of disrupting legacy providers ahead. It seems like PANW is very scared and worst-case scenario, I think someone like MSFT would acquire ZS in a heartbeat (hope that doesn’t happen)
They just guided for revenue of $400 million for the fiscal year, up 32%, BUT :
A year ago, guidance was for revenue this past year of $255 million, up 34%. This year they actually brought in revenue of $303 million, which was up 59%.
I (Saul) responded :
Austin, The numbers aren’t different but the talk is. They sound like they have a problem. They are clear that the problem is not competition, and I believe it, but the legacy players have now become aware of them and are fighting back as best as they can. But ZS is talking about an execution problem: They say that to scale up they need an expanded, better, and revised, sales and marketing system. They hired a bunch of people in the quarter. They also make too many excuses about last years big sale causing tough comparisons (so why didn’t they make another big sale this year?) It’s my second biggest position so I reduced it a little, but it’s still second biggest by far. (Maybe about 15% of my portfolio). I think they do have all the tailwinds and inevitability they talk about, but they still have to go out and do it! I didn’t want to sell other companies that aren’t having the same hiccups in order to add to ZS, but I doubt I will reduce it further.
Now, after looking further at this year’s results (which I admit is looking backward instead of forward), I see that they had a beyond great year! I see that the last four year’s revenue increases were 50%, 57%, 51%, and now 59%, so this was their highest revenue growth of all of them.
Operating income was $25 million, up from a LOSS of $15 million.
Adj net income was $30 million, up from a LOSS of $14 million a year ago.
Adj EPS was +22 cents, up from a LOSS of 13 cents.
Op cash flow was $58 million, or 19% of revenue, up from $17 million, or 9% of revenue, a year ago.
Free cash flow was $29 million, or 10% of revenue, up from $2 million, or 1% of revenue, a year ago.
Saul again: And with results like that they are down 50% from their highs???
Granted that they guided low, the way they did last year, and quarterly billings growth came in low at up 32%, but quarterly billings weren’t low! At $126 million they were the highest billings they’ve ever had by $11 million, and were up by $41 million sequentially, or up 48% sequentially!!! The problem is that they were compared to the extraordinary $95 million that they had in the July quarter a year ago, so it looked like they were weak at 32% growth, but last year. That $95 million really was extraordinary! That $95 million was surrounded by billings of $55 million and $65 million in the quarters before and after. I’d say that was extraordinary, and an unfair comparison, but that’s just me.
This company is not dead AT ALL.
Saul