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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.
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 $17.2 million attributable to the release of the valuation allowance on United Kingdom (U.K.) deferred tax assets. ZSCALER, INC.
Condensed Consolidated Statements of Cash Flows(in thousands)(unaudited) Six Months Ended January 31, 2025 2024Cash Flows from Operating Activities Net loss$(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.
