Zscaler CEO: ‘We Are Barely Scratching The Surface Of The Federal Market’

Zscaler added 20 new U.S. government customers last quarter, and has been tapped to run a pilot program driving zero trust implementation in support of the Biden administration’s cybersecurity executive order.

Zscaler has been tapped to run a pilot program driving adoption of zero trust architectures in support of the Biden administration’s executive order on cybersecurity.

The San Jose, Calif.-based cloud security vendor added 20 new U.S. government customers during the fiscal quarter ended July 31 and now has more than 100 government agencies and federal integrators as customers, said Founder, Chairman and CEO Jay Chaudhry. Zscaler was also among a select group of companies chosen by the National Institute of Standards and Technology (NIST) to do the pilot program.

“We continue to invest to capture our large federal opportunity,” Chaudhry told investors Thursday. “We are excited about this opportunity to help our country dramatically improve our security posture while significantly reducing legacy IT costs.”

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The new federal customers each have an annual contract value of over $1 million thanks to purchasing both Zscaler Internet Access (ZIA) secure web gateway and Zscaler Private Access (ZPA) zero trust network access together. Chaudhry said the Biden administration’s executive order has also driven increased interest in Zscaler’s Zero Trust Exchange (ZTX) platform across all levels of the government.

Chaudhry said Zscaler started investing in the federal market about three-and-a-half years ago, and today has a sizable federal sales team as well as the highest FedRAMP certification, which provides a standardized approach to security and risk assessment for cloud technologies. He said Biden’s executive order and meetings with high-profile CEOs about cybersecurity have helped raise visibility in the space.

“We already have pretty good business, but we are barely scratching the surface of the federal market,” Chaudhry said. “All in all, we are excited, but we also know that some of these federal deals take a long time.”

The federal government today still largely takes a castle-and-moat approach to network security which relies upon legacy technologies like firewalls and VPNs, according to Chaudhry. He was very pleased, though, to see the Biden administration’s executive order is focused on implementing zero trust architectures.

“We feel there’s a very big opportunity and we also feel it could be a substantial portion of our business, but it takes time with federal,” Zscaler CFO Remo Canessa told investors Thursday. “But we’re very well-positioned.”

Revenue for Zscaler’s quarter ended July 30 skyrocketed to $197.1 million, up 56.5 percent from $125.9 million a year ago. That beat Seeking Alpha’s estimate of $187.4 million.

Net losses increased to $81 million, or $0.59 per diluted share, 63.5 percent worse than the net loss of $49.5 million, or $0.38 per diluted share, recorded a year earlier. On a non-GAAP basis, net income jumped to $20.3 million, or $0.14 per diluted share, up 68.5 percent from $12 million, or $0.08 per diluted share, a year earlier. That beat Seeking Alpha’s non-GAAP earnings projection of $0.09 per share.

Zscaler’s stock inched ahead $3.78 (1.35 percent) to $284 per share in after-hours trading. Earnings were announced after the market closed Thursday.

On a full-year basis, Zscaler’s revenue jumped to $673.1 million, up 56.1 percent from $431.3 million the year prior. Net loss for fiscal 2021 worsened to $262 million, or $1.93 per diluted share, 127.6 percent more than a net loss of $115.1 million, or $0.89 per diluted share, last year.

For the quarter ended Oct. 31, Zscaler expects non-GAAP earnings of $0.12 per share on sales of between $210 million to $212 million. Analysts had been expecting non-GAAP earnings of $0.12 per share on sales of $199.9 million, according to Seeking Alpha.