Zscaler stock falls as execs focus on 'challenging' environment after beat-and-raise earnings

By Wallace Witkowski

Noting 'uncertain' conditions, executives say closing deals within 90 days 'remains challenging'

Zscaler Inc.'s shares swung to a loss in the extended session Tuesday after the cybersecurity company's strong quarter and outlook topped Wall Street's expectations but executives said deals were taking longer to close in the current business environment.

Zscaler shares (ZS) swung to a loss after hours about 10 minutes into prepared remarks from Chief Executive Jay Chaudry, around the time he noted the company was executing well "while the macro environment remains challenging," racking up accolades like gross margins above 80% and doubling annual recurring revenue to more than $2 billion.

The stock, which had been up as much as 5% right after the release of earnings, was down as much as 3% during the call, after having finished the regular session with a 2.8% gain to close at $162.74.

"The global macro environment remains uncertain," Chief Financial Officer Remo Canessa further explained, adding that with growing economic uncertainty, they were "mindful" in this environment that closing deals within 90 days "remains challenging."

"From our perspective, the global macro remains uncertain and customers continue to scrutinize large deals," Canessa told analysts. "In addition, in select instances, we will continue to enable new strategic customers to ramp into larger subscription commitments. Typically, these ramp deals reduce our first-year billings, but will grow into a higher annual run-rate level in the second year."

The company forecast adjusted earnings of about 48 cents to 49 cents a share on revenue of $472 million to $474 million for the fiscal first quarter. Analysts surveyed by FactSet had estimated 45 cents a share on revenue of $464.8 million and billings of $434.1 million for the quarter.

Zscaler forecast full-year earnings of $2.20 to $2.25 a share on revenue of $2.05 billion to $2.07 billion and billings of $2.52 billion to $2.56 billion. Analysts had forecast $2.11 a share on revenue of $2.05 billion and billings of $2.47 billion.

The company reported a fiscal fourth-quarter loss of $30.7 million, or 21 cents a share, compared with a loss of $97.7 million, or 69 cents a share, in the year-ago period. Adjusted net income, which excludes stock-based compensation and other items, was 64 cents a share, compared with 25 cents a share in the year-ago period.

Revenue rose to $455 million from $318.1 million in the year-ago quarter, the company said, as billings grew 38% to $719.3 million.

The company had forecast adjusted earnings of about 49 cents a share on revenue of $429 million to $431 million, while analysts surveyed by FactSet had estimated 49 cents a share on revenue of $430.4 million and billings of $657.5 million for the quarter.

As of Tuesday's close, Zscaler's stock is up 45.4% year to date, compared with a 17.1% gain by the S&P 500 , a 34% increase by the tech-heavy Nasdaq Composite and a 20.9% gain by the ETFMG Prime Cyber Security exchange-traded fund (HACK).

-Wallace Witkowski

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09-06-23 0820ET

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