Zscaler Reports Second Quarter Fiscal 2025 Financial Results

Second Quarter Highlights Revenue grows 23% year-over-year to $647.9 millionCalculated billings grows 18% year-over-year to $742.7 millionDeferred revenue grows 25% year-over-year to $1,878.5 millionGAAP net loss of $7.7 million compared to GAAP net loss of $28.5 million on a year-over-year basis Non-GAAP net income of $127.1 million compared to non-GAAP net income of $99.4 million on a year-over-year basis SAN JOSE, Calif., March 05, 2025 (GLOBE NEWSWIRE) -- Zscaler, Inc. (Nasdaq: ZS), the leader in cloud security, today announced financial results for its second quarter of fiscal year 2025, ended January 31, 2025. “Growing adoption of Zero Trust and AI is driving strong demand for our platform, resulting in yet another strong quarter that exceeded our guidance on both top and bottom line. We are leading the industry towards Zero Trust Everywhere by transforming security from legacy appliance-based to a Zero Trust architecture,” said Jay Chaudhry, Chairman and CEO of Zscaler. “By combining AI with Zero Trust, we are delivering several key innovations to secure our customers’ use of AI applications, creating new avenues of growth.” Second Quarter Fiscal 2025 Financial Highlights Revenue: $647.9 million, an increase of 23% year-over-year.Income (loss) from operations: GAAP loss from operations was $40.1 million, or 6% of revenue, compared to $45.5 million, or 9% of revenue, in the second quarter of fiscal 2024. Non-GAAP income from operations was $140.5 million, or 22% of revenue, compared to $103.2 million, or 20% of revenue, in the second quarter of fiscal 2024.Net income (loss): GAAP net loss was $7.7 million, compared to $28.5 million in the second quarter of fiscal 2024. Non-GAAP net income was $127.1 million, compared to $99.4 million in the second quarter of fiscal 2024.Net income (loss) per share, diluted: GAAP net loss per share was $0.05, compared to $0.19 in the second quarter of fiscal 2024. Non-GAAP net income per share was $0.78, compared to $0.63 in the second quarter of fiscal 2024.Cash flows: Cash provided by operations was $179.4 million, or 27% of revenue, compared to $142.1 million, or 27% of revenue, in the second quarter of fiscal 2024. Free cash flow was $143.4 million, or 22% of revenue, compared to $100.8 million, or 19% of revenue, in the second quarter of fiscal 2024.Deferred revenue: $1,878.5 million as of January 31, 2025, an increase of 25% year-over-year.Cash, cash equivalents and short-term investments: $2,880.2 million as of January 31, 2025, an increase of $470.6 million from July 31, 2024. Recent Business Highlights Introduced the industry’s first Zero Trust Segmentation solution for branches and cloud environments. The new solution improves customers’ security posture by preventing lateral movement from ransomware attacks, while cutting firewall and infrastructure spend in half.Started offering the Zero Trust Network Access (ZTNA) service natively integrated within RISE with SAP. Zscaler Private Access™ (ZPA™) for SAP helps enable SAP customers with on-premises ERP workloads to simplify and de-risk their cloud migration, without the complexity and risk associated with traditional VPNs.Appointed Phil Tee as EVP of AI Innovations. Tee previously co-founded an enterprise AI-driven provider of intelligent monitoring solutions for DevOps and ITOps.Achieved FedRAMP authorization for Zscaler Zero Trust Browser. The authorization assures agencies of compliance with rigorous security standards, facilitating cloud adoption and streamlining the procurement process.Announced that Nokia, a multinational technology leader, is migrating from its traditional firewall-based security model to the Zscaler Zero Trust Exchange to enhance its security, improve operational efficiency, and strengthen cloud capabilities. Change in Non-GAAP Measures Presentation Effective August 1, 2024, the beginning of our fiscal year ending July 31, 2025, we are using a long-term projected non-GAAP tax rate of 23% for the purpose of determining our non-GAAP net income and non-GAAP net income per share to provide better consistency across interim reporting periods in fiscal 2025 and beyond. Given the significant growth of our business and non-GAAP operating income, we believe this change is necessary to better reflect the performance of our business. We will continue to assess the appropriate non-GAAP tax rate on a regular basis, which could be subject to changes for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix, or other changes to our strategy or business operations. Prior period amounts have been recast to reflect this change. Financial Outlook For the third quarter of fiscal 2025, we expect: Revenue of $665 million to $667 millionNon-GAAP income from operations of $140 million to $142 millionNon-GAAP net income per share of approximately $0.75 to $0.76, assuming approximately 163 million fully diluted shares outstanding and a non-GAAP tax rate of 23% For the full year of fiscal 2025, we expect: Revenue of approximately $2.640 billion to $2.654 billionCalculated billings of $3.153 billion to $3.168 billionNon-GAAP income from operations of $562 million to $572 millionNon-GAAP net income per share of $3.04 to $3.09, assuming approximately 163.5 million fully diluted shares outstanding and a non-GAAP tax rate of 23% These statements are forward-looking and actual results may differ materially. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements. Guidance for non-GAAP income from operations excludes stock-based compensation expense and related employer payroll taxes, amortization of debt issuance costs, and amortization expense of acquired intangible assets. We have not reconciled our expectations of non-GAAP income from operations and non-GAAP net income per share to their most directly comparable GAAP measures because certain items are out of our control or cannot be reasonably predicted. For those reasons, we are also unable to address the probable significance of the unavailable information, the variability of which may have a significant impact on future results. Accordingly, a reconciliation for the guidance for non-GAAP income from operations and non-GAAP net income per share is not available without unreasonable effort. For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the "Explanation of Non-GAAP Financial Measures" section of this press release. Conference Call and Webcast Information Zscaler will host a conference call for analysts and investors to discuss its second quarter of fiscal 2025 and outlook for its third quarter of fiscal 2025 and full year fiscal 2025 today at 1:30 p.m. Pacific time (4:30 p.m. Eastern time). Date:Wednesday, March 5, 2025Time:1:30 p.m. PTWebcast:https://ir.zscaler.com Dial-in:To join by phone, register at the following link: (https://register.vevent.com/register/BI81201a44d72f48cab018ea30aa79b03b). After registering, you will be provided with a dial-in number and a personal PIN that you will need to join the call. Upcoming Conferences Third quarter of fiscal 2025 investor conference participation schedule: Morgan Stanley Technology, Media and Telecom Conference in San FranciscoThursday, March 6, 2025 Susquehanna Travel, Tech + Gambling Forum (Virtual) Friday, March 7, 2025 Loop Capital Markets 2025 Investor Conference (Virtual)Monday, March 10, 2025 Stifel Technology 2025 Technology One-on-One Conference in New York City Tuesday, March 11, 2025 Cantor Global Technology Conference in New York CityWednesday, March 12, 2025 Sessions which offer a webcast will be available on the Investor Relations section of the Zscaler website at https://ir.zscaler.com/ Forward-Looking Statements This press release contains forward-looking statements that involve risks and uncertainties, including, but not limited to, statements regarding our future financial and operating performance, including our financial outlook for the third quarter of fiscal 2025 and full year fiscal 2025. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including but not limited to: macroeconomic influences and instability, geopolitical events, operations and financial results and the economy in general; risks related to the use of AI in our platform; our ability to identify and effectively implement the necessary changes to address execution challenges; risks associated with managing our rapid growth, including fluctuations from period to period; our limited experience with new products and subscriptions and support introductions and the risks associated with new products and subscription and support offerings, including the discovery of software bugs; our ability to attract and retain new customers; the failure to timely develop and achieve market acceptance of new products and subscriptions as well as existing products and subscription and support; rapidly evolving technological developments in the market for network security products and subscription and support offerings and our ability to remain competitive; length of sales cycles; useful lives of our assets and other estimates; and general market, political, economic and business conditions. Additional risks and uncertainties that could affect our financial results are included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth from time to time in our filings and reports with the Securities and Exchange Commission ("SEC"), including our Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2024 filed on December 5, 2024 and our Annual Report on Form 10-K for the fiscal year ended July 31, 2024 filed on September 12, 2024, as well as future filings and reports by us, copies of which are available on our website at ir.zscaler.com and on the SEC’s website at www.sec.gov. You should not rely on these forward-looking statements, as actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of such risks and uncertainties. Additional information will also be set forth in other filings that we make with the SEC from time to time. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made. Use of Non-GAAP Financial Information We believe that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to our financial condition and results of operations. For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the “Explanation of Non-GAAP Financial Measures” section of this press release. About Zscaler Zscaler (Nasdaq: ZS) accelerates digital transformation so customers can be more agile, efficient, resilient, and secure. The Zscaler Zero Trust Exchange™ platform protects thousands of customers from cyberattacks and data loss by securely connecting users, devices, and applications in any location. Distributed across more than 160 data centers globally, the SASE-based Zero Trust Exchange is the world’s largest in-line cloud security platform. Zscaler™ and the other trademarks listed at https://www.zscaler.com/legal/trademarks are either (i) registered trademarks or service marks or (ii) trademarks or service marks of Zscaler, Inc. in the United States and/or other countries. Any other trademarks are the properties of their respective owners. Investor Relations Contacts Ashwin Kesireddy VP, Investor Relations and Strategic Finance(415) 798-1475ir@zscaler.com Natalia WodeckiMedia Relations Contactpress@zscaler.com ZSCALER, INC.Condensed Consolidated Statements of Operations(in thousands, except per share amounts)(unaudited) Three Months Ended Six Months Ended January 31, January 31, 2025 2024 2025 2024Revenue$647,900 $524,999 $1,275,855 $1,021,702 Cost of revenue(1) (2) 148,498 117,199 289,960 228,593 Gross profit 499,402 407,800 985,895 793,109 Operating expenses: Sales and marketing(1) (2) 307,872 276,481 613,959 543,592 Research and development(1) (2) 170,860 122,181 325,114 235,720 General and administrative(1) 60,810 54,595 117,629 105,311 Total operating expenses 539,542 453,257 1,056,702 884,623 Loss from operations (40,140) (45,457) (70,807) (91,514)Interest income 30,878 28,385 60,926 54,327 Interest expense(3) (2,339) (3,605) (5,482) (6,764)Other income (expense), net (4,936) 172 (5,588) (1,040)Loss before income taxes (16,537) (20,505) (20,951) (44,991)Provision for (benefit from) for income taxes(4) (8,813) 7,964 (1,176) 16,961 Net loss$(7,724) $(28,469) $(19,775) $(61,952)Net loss per share, basic and diluted$(0.05) $(0.19) $(0.13) $(0.42)Weighted-average shares used in computing net loss per share, basic and diluted 153,672 148,951 153,114 148,287 (1) Includes stock-based compensation expense and related payroll taxes as follows:Cost of revenue$17,619 $13,434 $33,412 $26,389 Sales and marketing 69,979 65,855 134,845 124,523 Research and development 65,896 44,120 124,761 85,163 General and administrative 22,862 22,127 43,912 42,190 Total$176,356 $145,536 $336,930 $278,265 (2) Includes amortization expense of acquired intangible assets as follows:Cost of revenue$3,815 $2,717 $7,490 $5,434 Sales and marketing 425 226 850 452 Research and development 5 140 145 233 Total$4,245 $3,083 $8,485 $6,119 (3) Includes amortization of debt issuance costs$982 $978 $1,963 $1,955 (4) Benefit from a release of valuation allowance (*)$17,188 $— $17,188 $— (*) During the three months ended January 31, 2025, we recognized a tax benefit of $17.2 million attributable to the release of the valuation allowance on United Kingdom (U.K.) deferred tax assets. ZSCALER, INC.Condensed Consolidated Balance Sheets(in thousands)(unaudited) January 31, July 31, 2025 2024Assets Current assets: Cash and cash equivalents$1,758,506 $1,423,080 Short-term investments 1,121,734 986,574 Accounts receivable, net 514,314 736,529 Deferred contract acquisition costs 156,079 148,873 Prepaid expenses and other current assets 114,573 101,561 Total current assets 3,665,206 3,396,617 Property and equipment, net 422,315 383,121 Operating lease right-of-use assets 83,703 89,758 Deferred contract acquisition costs, noncurrent 284,286 296,525 Acquired intangible assets, net 55,658 63,835 Goodwill 417,730 417,029 Other noncurrent assets 77,070 58,083 Total assets$5,005,968 $4,704,968 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable$24,600 $23,309 Accrued expenses and other current liabilities 90,626 91,708 Accrued compensation 140,430 160,810 Deferred revenue 1,595,780 1,643,919 Convertible senior notes 1,147,513 1,142,275 Operating lease liabilities 49,917 50,866 Total current liabilities 3,048,866 3,112,887 Deferred revenue, noncurrent 282,725 251,055 Operating lease liabilities, noncurrent 40,912 44,824 Other noncurrent liabilities 26,119 22,100 Total liabilities 3,398,622 3,430,866 Stockholders’ Equity Common stock 155 152 Additional paid-in capital 2,797,350 2,426,819 Accumulated other comprehensive loss (22,304) (4,789)Accumulated deficit (1,167,855) (1,148,080)Total stockholders’ equity 1,607,346 1,274,102 Total liabilities and stockholders’ equity$5,005,968 $4,704,968 ZSCALER, INC.Condensed Consolidated Statements of Cash Flows(in thousands)(unaudited) Six Months Ended January 31, 2025 2024Cash Flows from Operating Activities Net loss$(19,775) $(61,952)Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization expense 45,911 29,361 Amortization expense of acquired intangible assets 8,485 6,119 Amortization of deferred contract acquisition costs 79,191 61,504 Amortization of debt issuance costs 1,963 1,955 Non-cash operating lease costs 31,565 21,633 Stock-based compensation expense 329,295 269,570 Accretion of investments purchased at a discount (10,110) (9,582)Unrealized losses on hedging transactions 3,036 2,841 Deferred income taxes (17,359) (1,437)Other 1,303 1,403 Changes in operating assets and liabilities, net of effects of business acquisitions: Accounts receivable 222,043 102,374 Deferred contract acquisition costs (74,158) (67,744)Prepaid expenses, other current and noncurrent assets (12,144) 2,660 Accounts payable 98 (2,412)Accrued expenses, other current and noncurrent liabilities (11,481) 6,020 Accrued compensation (20,380) 562 Deferred revenue (16,469) 62,477 Operating lease liabilities (30,246) (22,477)Net cash provided by operating activities 510,768 402,875 Cash Flows from Investing Activities Purchases of property, equipment and other assets (32,043) (59,553)Capitalized internal-use software (43,416) (17,816)Payments for business acquisitions, net of cash acquired (834) (4,377)Purchase of strategic investments (786) (2,000)Purchases of short-term investments (729,066) (761,796)Proceeds from maturities of short-term investments 605,003 594,687 Proceeds from sale of short-term investments — 2,105 Net cash used in investing activities (201,142) (248,750)Cash Flows from Financing Activities Proceeds from issuance of common stock upon exercise of stock options 3,456 3,848 Proceeds from issuance of common stock under the employee stock purchase plan 22,344 18,407 Net cash provided by financing activities 25,800 22,255 Net increase in cash and cash equivalents 335,426 176,380 Cash and cash equivalents at beginning of period 1,423,080 1,262,206 Cash and cash equivalents at end of period$1,758,506 $1,438,586 ZSCALER, INC.Reconciliation of GAAP to Non-GAAP Financial Measures(in thousands, except percentages)(unaudited) Three Months Ended Six Months Ended January 31, January 31, 2025 2024 2025 2024 Revenue$647,900 $524,999 $1,275,855 $1,021,702 Non-GAAP Gross Profit and Non-GAAP Gross Margin GAAP gross profit$499,402 $407,800 $985,895 $793,109 Add: Stock-based compensation expense and related payroll taxes 17,619 13,434 33,412 26,389 Add: Amortization expense of acquired intangible assets 3,815 2,717 7,490 5,434 Non-GAAP gross profit$520,836 $423,951 $1,026,797 $824,932 GAAP gross margin 77% 78% 77% 78%Non-GAAP gross margin 80% 81% 80% 81% Non-GAAP Income from Operations and Non-GAAP Operating Margin GAAP loss from operations$(40,140) $(45,457) $(70,807) $(91,514)Add: Stock-based compensation expense and related payroll taxes 176,356 145,536 336,930 278,265 Add: Amortization expense of acquired intangible assets 4,245 3,083 8,485 6,119 Non-GAAP income from operations$140,461 $103,162 $274,608 $192,870 GAAP operating margin(6)% (9)% (6)% (9)%Non-GAAP operating margin 22% 20% 22% 19% ZSCALER, INC.Reconciliation of GAAP to Non-GAAP Financial Measures(in thousands, except per share amounts)(unaudited) Three Months Ended Six Months Ended January 31, January 31, 2025 2024 2025 2024Non-GAAP Net Income per Share, Diluted GAAP net loss$(7,724) $(28,469) $(19,775) $(61,952)Add: GAAP provision for (benefit from) income taxes (8,813) 7,964 (1,176) 16,961 GAAP loss before income taxes (16,537) (20,505) (20,951) (44,991)Add: Stock-based compensation expense and related payroll taxes 176,356 145,536 336,930 278,265 Amortization expense of acquired intangible assets 4,245 3,083 8,485 6,119 Amortization of debt issuance costs 982 978 1,963 1,955 Non-GAAP net income before income taxes 165,046 129,092 326,427 241,348 Non-GAAP provision for income taxes(1) 37,965 29,691 75,083 55,510 Non-GAAP net income$127,081 $99,401 $251,344 $185,838 GAAP provision for (benefit from) income taxes$(8,813) $7,964 $(1,176) $16,961 Add: Income tax and other tax adjustments(2) 46,778 21,727 76,259 38,549 Non-GAAP provision for income taxes(1)$37,965 $29,691 $75,083 $55,510 Non-GAAP effective tax rate(1) 23% 23% 23% 23% Non-GAAP net income 127,081 99,401 251,344 185,838 Add: Non-GAAP interest expense, net of tax related to the convertible senior notes 276 276 552 552 Numerator used in computing non-GAAP net income per share, diluted$127,357 $99,677 $251,896 $186,390 GAAP net loss per share, diluted$(0.05) $(0.19) $(0.13) $(0.42)Stock-based compensation expense and related payroll taxes 1.09 0.91 2.08 1.75 Amortization expense of acquired intangible assets 0.03 0.02 0.05 0.04 Amortization of debt issuance costs 0.01 0.01 0.01 0.01 Income tax and other tax adjustments(2) (0.29) (0.14) (0.47) (0.24)Non-GAAP interest expense related to the convertible senior notes — — — — Adjustment to total fully diluted earnings per share(3) (0.01) 0.02 0.01 0.03 Non-GAAP net income per share, diluted$0.78 $0.63 $1.55 $1.17 Weighted-average shares used in computing GAAP net loss per share, diluted 153,672 148,951 153,114 148,287 Add: Outstanding potentially dilutive equity incentive awards 2,988 4,670 2,848 4,226 Add: Convertible senior notes 7,626 7,626 7,626 7,626 Less: Antidilutive impact of capped call transactions(4) (1,769) (2,093) (1,505) (1,254)Weighted-average shares used in computing non-GAAP net income per share, diluted 162,517 159,154 162,083 158,885 ___________ (1) Effective August 1, 2024, the beginning of our fiscal year ending July 31, 2025, we are using a long-term projected non-GAAP tax rate of 23% for the purpose of determining our non-GAAP net income and non-GAAP net income per share to provide better consistency across interim reporting periods in fiscal 2025 and beyond. Given the significant growth of our business and non-GAAP operating income, we believe this change is necessary to better reflect the performance of our business. We will continue to assess the appropriate non-GAAP tax rate on a regular basis, which could be subject to changes for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix, or other changes to our strategy or business operations. Prior period amounts have been recast to reflect this change. (2) Consists of income tax adjustments related to our long-term non-GAAP effective tax rate of 23%. In the three months ended January 31, 2025, the adjustments exclude the tax benefit of $17.2 million attributable to the release of the valuation allowance on U.K. deferred tax assets. (3) The sum of the fully diluted earnings per share impact of individual reconciling items may not total to fully diluted non-GAAP net income per share due to the weighted-average shares used in computing the GAAP net loss per share differs from the weighted-average shares used in computing the non-GAAP net income per share, and due to rounding of the individual reconciling items. The GAAP net loss per share calculation uses a lower share count as it excludes potentially dilutive shares, which are included in calculating the non-GAAP net income per share. (4) We exclude the in-the-money portion of the convertible senior notes for non-GAAP weighted-average diluted shares as they are covered by our capped call transactions. Our outstanding capped call transactions are antidilutive under GAAP but are expected to mitigate the dilutive effect of the convertible senior notes and therefore are included in the calculation of non-GAAP diluted shares outstanding. The capped calls have an antidilutive impact when the average stock price of our common stock in a given period is higher than their exercise price. ZSCALER, INC.Reconciliation of GAAP to Non-GAAP Financial Measures(in thousands, except percentages)(unaudited) Three Months Ended Six Months Ended January 31, January 31, 2025 2024 2025 2024Calculated Billings Revenue$647,900 $524,999 $1,275,855 $1,021,702 Add: Total deferred revenue, end of period 1,878,505 1,502,175 1,878,505 1,502,175 Less: Total deferred revenue, beginning of period (1,783,720) (1,399,544) (1,894,974) (1,439,676)Calculated billings$742,685 $627,630 $1,259,386 $1,084,201 Free Cash Flow Net cash provided by operating activities$179,433 $142,069 $510,768 $402,875 Less: Purchases of property, equipment and other assets (15,018) (30,894) (32,043) (59,553)Less: Capitalized internal-use software (20,987) (10,387) (43,416) (17,816)Free cash flow$143,428 $100,788 $435,309 $325,506 Free Cash Flow Margin Net cash provided by operating activities, as a percentage of revenue 27% 27% 40% 39%Less: Purchases of property, equipment and other assets, as a percentage of revenue(2)% (6)% (3)% (6)%Less: Capitalized internal-use software, as a percentage of revenue(3)% (2)% (3)% (2)%Free cash flow margin 22% 19% 34% 32% ZSCALER, INC.Explanation of Non-GAAP Financial Measures In addition to our results determined in accordance with generally accepted accounting principles in the United States of America ("GAAP"), we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, as it has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In particular, free cash flow is not a substitute for cash provided by operating activities. Additionally, the utility of free cash flow as a measure of our liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation of our historical non-GAAP financial measures to their most directly comparable financial measures stated in accordance with GAAP has been included in this press release. Investors are cautioned that there are a number of limitations associated with the use of non-GAAP financial measures and key metrics as analytical tools. Investors are encouraged to review these reconciliations, and not to rely on any single financial measure to evaluate our business. Expenses Excluded from Non-GAAP Measures Stock-based compensation expense is excluded primarily because it is a non-cash expense that management believes is not reflective of our ongoing operational performance. Employer payroll taxes related to stock-based compensation, which is a cash expense, are excluded because these are tied to the timing and size of the exercise or vesting of the underlying equity incentive awards and the price of our common stock at the time of vesting or exercise, which may vary from period to period independent of the operating performance of our business. Amortization expense of acquired intangible assets and amortization of debt issuance costs from the convertible senior notes are excluded because these are non-cash expenses and are not reflective of our ongoing operational performance. Effective August 1, 2024, the beginning of our fiscal year ending July 31, 2025, we are using a long-term projected non-GAAP tax rate of 23% for the purpose of determining our non-GAAP net income and non-GAAP net income per share to provide better consistency across interim reporting periods. Given the significant growth of our business and non-GAAP operating income, we believe this change is necessary to better reflect the performance of our business. We will continue to assess the appropriate non-GAAP tax rate on a regular basis, which could be subject to changes for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix, or other changes to our strategy or business operations. Prior period amounts have been recast to reflect this change. Non-GAAP Financial Measures Non-GAAP Gross Profit and Non-GAAP Gross Margin. We define non-GAAP gross profit as GAAP gross profit excluding stock-based compensation expense and related employer payroll taxes and amortization expense of acquired intangible assets. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of revenue. Non-GAAP Income from Operations and Non-GAAP Operating Margin. We define non-GAAP income from operations as GAAP loss from operations excluding stock-based compensation expense and related employer payroll taxes and amortization expense of acquired intangible assets. We define non-GAAP operating margin as non-GAAP income from operations as a percentage of revenue. Non-GAAP Net Income per Share, Diluted. We define non-GAAP net income as GAAP net loss excluding stock-based compensation expense and related employer payroll taxes, amortization expense of acquired intangible assets, amortization of debt issuance costs, and the non-GAAP provision for income taxes adjustment. We define non-GAAP net income per share, diluted, as non-GAAP net income plus the non-GAAP interest expense related to the convertible senior notes divided by the weighted-average diluted shares outstanding, which includes the effect of potentially diluted common stock equivalents outstanding during the period and the anti-dilutive impact of the capped call transactions entered into in connection with the convertible senior notes. Calculated Billings. We define calculated billings as revenue plus the change in deferred revenue in a period. Calculated billings in any particular period aims to reflect amounts invoiced for subscriptions to access our cloud platform, together with related support services for our new and existing customers. We typically invoice our customers annually in advance, and to a lesser extent quarterly in advance, monthly in advance or multi-year in advance. Free Cash Flow and Free Cash Flow Margin. We define free cash flow as net cash provided by operating activities less purchases of property, equipment and other assets and capitalized internal-use software. We define free cash flow margin as free cash flow divided by revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our operations that, after the investments in property, equipment and other assets and capitalized internal-use software, can be used for strategic initiatives.

Zscaler Reports Second Quarter Fiscal 2025 Financial Results

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