FinanceLooker

Excrept from filing document 2025-07-31

The aggregate market value of the common stock held by non affiliates of the registrant based on the closing price of a share of the registrant s common stock on January 31 2025 the last business day of the registrant s most recently completed second fiscal quarter as reported by the Nasdaq Global Select Market on such date was approximately 17 9 billion
Portions of the registrant s definitive Proxy Statement relating to its fiscal year 2025 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10 K where indicated Such Proxy Statement will be filed with the United States Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Annual Report on Form 10 K relates
This Annual Report on Form 10 K contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including but not limited to statements regarding our financial outlook and market positioning These forward looking statements are made as of the date they were first issued and were based on current expectations estimates forecasts and projections as well as the beliefs and assumptions of management The words believe may will potentially estimate continue anticipate intend could would project plan expect and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward looking statements
our future financial performance including our expectations regarding our revenue cost of revenue gross profit or gross margin operating expenses including changes in sales and marketing research and development and general and administrative expenses and our ability to achieve and maintain future profitability
These forward looking statements are subject to a number of risks uncertainties and assumptions including those described in Risk Factors elsewhere in this Annual Report on Form 10 K Moreover we operate in a very competitive and rapidly changing environment and new risks emerge from time to time It is not possible for our management to predict all risks nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statements we may make In light of these risks uncertainties and assumptions the forward looking events and circumstances discussed in this Annual Report on Form 10 K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward looking statements and you should not place undue reliance on our forward looking statements
The forward looking statements made in this Annual Report on Form 10 K relate only to events as of the date on which the statements are made We undertake no obligation to update any forward looking statements made in this Annual Report on Form 10 K to reflect events or circumstances after the date of this Annual Report on Form 10 K or to reflect new information or the occurrence of unanticipated events except as required by law
We enable our customers to succeed in a digital world where technology decisions not only impact growth and competitiveness but also directly impact enterprise risk We were incorporated in 2007 during the early stages of cloud adoption and mobility based on a vision that the internet would become the new corporate network as the cloud became the new data center
We correctly predicted that with rapid cloud adoption and increasing workforce mobility traditional perimeter security approaches would fail to protect users and data become prohibitively expensive and deliver poor user experience Enterprises now rely on external software as a service or SaaS applications for critical business functions and have moved or are moving their internally managed applications to the public cloud infrastructure As a result users now expect to be able to seamlessly access applications and data wherever they are hosted from any device anywhere in the world The emergence and rapid adoption of artificial intelligence or AI is revolutionizing the transformational impact of cloud adoption and mobility AI is fundamentally changing how organizations operate creating new cybersecurity threats and IT challenges
Our cloud native multitenant architecture is distributed across more than 160 public exchanges globally and thousands of private exchanges at the edge which brings security and business policy close to users and devices in over 185 countries and provides fast secure and reliable access Each day we block over 225 million threats and perform over 250 000 unique security updates Our customers benefit from the cloud security effect of our ever expanding ecosystem enhanced by our advanced AI and ML capabilities because once a new threat is detected it can be blocked across our customer base within minutes
Many of the largest enterprises and government agencies in the world rely on our solutions to help them accelerate their move to the cloud We have over 9 400 customers across all major geographies with an emphasis on larger organizations and we currently count approximately 40 of the Forbes Global 2000 and over 45 of Fortune 500 companies as customers Our customers span every major industry including financial services healthcare insurance manufacturing automotive airlines and transportation conglomerates consumer goods and retail media and communications public sector and education energy technology and telecommunications services
We have experienced significant growth with revenue increasing from 1 617 0 million in fiscal 2023 to 2 167 8 million in fiscal 2024 to 2 673 1 million in fiscal 2025 representing year over year revenue growth of 34 and 23 respectively We experienced net losses of 41 5 million 57 7 million and 202 3 million in fiscal 2025 fiscal 2024 and fiscal 2023 respectively We expect we will continue to incur net losses for the foreseeable future
The Zscaler Zero Trust Exchange is a cloud native platform which implements Zero Trust principles to securely connect users devices applications and workloads including AI agents without relying on traditional hub and spoke network architecture and firewall centric security These technologies have become a roadblock to transformation for organizations that want to compete in today s digital world Firewalls and virtual private networks or VPNs create a perimeter around the corporate network and everything inside the perimeter is implicitly trusted This is one of the root causes of ransomware attacks Zscaler s Zero Trust model operates on the principle that users workloads devices and AI
Agents are untrusted by default irrespective of the network they are connected to This approach reduces the attack surface and prevents lateral threat movement while improving business resilience We believe that Zero Trust combined with AI is rapidly becoming the new foundation for enterprise security architectures Zscaler is pioneering this convergence of Zero Trust AI enabling enterprises to embrace technologies in a manner that is more secure more scalable more resilient and increasingly adaptable to the modern world
Our ever evolving platform provides our customers with a flexible and scalable approach to better secure their operations optimize user experience eliminate complexity reduce costs and respond to the challenges and opportunities of AI and future new technologies As the threat landscape evolves and companies look to further embrace AI and the cloud our platform has evolved to focus on four core solutions Zero Trust Everywhere Data Security Everywhere Security for AI and Agentic Operations
Our Zero Trust Exchange cloud security platform delivers our core Zero Trust Everywhere products through the deployment of our comprehensive and integrated solutions each built natively in the cloud to power digital transformation
Zero Trust Everywhere spans three core domains Zero Trust Users where users are never placed on the corporate network Zero Trust Cloud where workloads communicate only through the Exchange and Zero Trust Branch where branches factories warehouses IoT OT devices and autonomous AI agents are secured as independent entities and connected solely through policy based access Together these capabilities deliver a unified Zero Trust architecture that replaces legacy firewalls VPNs and SD WANs with a model purpose built for the modern enterprise
People remain the weakest link in enterprise security Compromised credentials unmanaged devices and phishing attacks continue to be the entry point for many breaches Zero Trust Users is designed to protect the workforce third parties business to business or B2B partners and suppliers by assuming no user is trusted by default Every user internal or external on any device from any location must prove their identity demonstrate a secure posture and meet policy requirements before being granted access to an application
This approach eliminates the risks of putting users on a corporate network Instead users connect only to the specific applications they are authorized to use whether SaaS internet AI applications or private applications hosted in data centers clouds or factories By removing the network path threats cannot move laterally if a user is compromised
By treating every user as untrusted continuously analyzing risk and enforcing adaptive per session policies Zero Trust Users reduces the likelihood of breaches protects sensitive data and ensures a secure reliable experience for everyone
ZIA provides secure access to externally managed applications including SaaS applications and internet destinations regardless of device location or network ZIA provides inline content inspection and firewall access controls across all ports and protocols to protect organizations and users from external threats secure data in motion and prevent data from leaking out to unauthorized sites Policies follow the user to provide identical protection on any device regardless of location any policy changes are enforced for users worldwide Our inline cloud security platform assesses and correlates the risk of the content to protect against sophisticated attacks including ransomware and phishing The cloud platform applies AI and machine learning or ML across over 500 billion daily transactions to quickly identify and block unknown threats and to identify and categorize unknown destinations
Our holistic future ready threat defense functionality enables protection against threats using a range of approaches and techniques Our threat prevention capabilities provide multiple layers of protection to prevent sophisticated ransomware phishing and zero day cyber attacks Built on the principle of least privilege our proxy architecture enables full Transport Layer Security or TLS Secure Sockets Layer inspection at scale with connections brokered between users and applications based on identity context and business policies We provide functionality that traditionally has been offered by disparate stand alone products Our core cloud platform threat prevention capabilities include
Our advanced threat protection functionality uses techniques including AI ML advanced heuristics signatures and reputation to deliver real time protection from malicious internet content like browser exploits scripts zero pixel iFrames malware and botnet callbacks Over 250 000 unique security updates are performed every day to the Zscaler cloud to keep organizations protected Once we detect a new threat to a user we block it for all users across all customers We call this the cloud security effect
Our cloud sandbox enables enterprises to block zero day exploits and advanced persistent threats by analyzing unknown files for malicious behavior and it can scale to every user regardless of location Our cloud sandbox was designed and built to be multi tenant and allows customers using AI among other analytics to determine which traffic should be sent for detonation As an integrated cloud security platform customers can set policies by users and destinations to prevent patient zero scenarios and to analyze hold and detonate suspicious files in the cloud sandbox before they are sent to a user
Our cloud browser isolation functionality creates an isolated browsing session that enables users to access any webpage on the internet without downloading any of the web content served by the webpage onto a local device or the corporate network With cloud browser isolation users are not directly accessing active web content instead only a safe rendering of pixels is delivered to the user Malicious code that may be hidden in the web content is kept at bay Customers can select and isolate traffic based on specific policies and or automatically based on our AI enabled risk determination The combination of cloud browser isolation and cloud sandbox enables administrators to perform content disarm and reconstruction to flatten sanitize and securely deliver files free of active content
ZPA provides Zero Trust Network Access to secure access to internally managed applications either hosted internally in data centers or hosted in private or public clouds ZPA is designed around four key tenets that fundamentally change the way users access internal applications
ZPA leverages a global policy engine that governs access to internally managed applications regardless of location If access is granted to a user our ZPA solution connects the user s device only to the authorized application without exposing the identity or location of the application As a result applications are not exposed to the internet further limiting the external attack surface This results in reduced cost and complexity while offering better security and an improved user experience
Similar to cloud access security broker or CASB application discovery reports for internet hosted SaaS applications our ZPA solution provides granular discovery of internally managed applications to aid in the creation and oversight of segmentation policies Because our ZPA solution sits on the application layer and is name based or domain based organizations can quickly and seamlessly identify their internally managed applications and then easily provision appropriate policies
Since our ZPA solution delivers seamless connectivity to internally managed applications and assets whether they are in the cloud enterprise data center or both administrators can set global policies from a single console enabling policy driven access that is agnostic to the network the users are on By creating seamless access to applications regardless of a user s network our ZPA solution eliminates the need for traditional remote access VPNs reverse proxies and other similar products
Our architecture provides capabilities that enable user and application level segmentation a vast improvement over traditional network segmentation As each user to application connection is segmented with microtunnels each of which is a temporary session between a specific user and a specific application lateral movement across the network is prevented significantly reducing security risk Since users are granted access only to applications for which they have permission and are not granted full access to the network microtunnels eliminate the need for an internal firewall
Our ZPA solution initiates outbound only connections between authenticated users and internally managed applications using microtunnels Access is provided to users without bringing them onto the corporate network and without exposing applications to the internet Internally managed applications are not discoverable or identifiable With no inbound connections and no public IP addresses there is no inbound attack surface and therefore no threat of distributed denial of service or DDoS attacks For allowed connections our ZPA solution also provides Web Application Firewall functionality including OWASP Top 10 protections for threats such as Structured Query Language injection and cross site scripting to block common attack vectors
Our architecture utilizes inside out connections that are outbound from users to the Zero Trust Exchange platform which allows customers to deny all inbound connections This reduces their attack surface by not exposing IP addresses of all devices applications appliances or workloads to the internet Reduced attack surface results in lower exposure to zero day application vulnerabilities and eliminates the need for DDoS mitigation
Our cloud browser isolation is used with our ZPA solution to provide isolated sessions to internal web applications without allowing data to transfer down to unmanaged devices or active content to be uploaded into sensitive internal applications Combining cloud browser isolation with browser based access provides a simplified more cost effective alternative to VDI for employees contractors and B2B partners by effectively keeping sensitive data off unmanaged devices
ZDX is designed to measure end to end user experience across key business applications providing an easy to understand digital experience score for each user application and location within an enterprise As users have become mobile and applications have moved to the cloud traditional network performance monitoring tools have become increasingly irrelevant Enterprises can no longer reliably collect performance metrics or indicators along the traditional network path as they could when they owned the network and applications ran in their own data centers ZDX leverages advanced AI enabled root cause analysis to proactively pinpoint issues in the network path providing detailed insights into whether disruptions stem from a user s device WiFi connection local internet service provider or the destination application itself With ZDX s expanded functionality enterprises can now utilize predictive analytics to identify potential performance degradations before they impact end users enabling faster remediation and minimizing downtime Additionally ZDX can easily differentiate localized issues such as problems affecting a single user application or location from broader systemic issues impacting multiple users or locations ensuring quicker and more focused responses Administrators benefit from enhanced real time monitoring and seamless integration into existing IT workflows all via a simple visual interface that eliminates the need for additional hardware or software
Our Zero Trust Cloud offers a comprehensive solution for securing customer workloads across hybrid environments encompassing both public clouds and private data centers This platform is built on a Zero Trust architecture utilizing our
Zero Trust Exchange for centralized security policy enforcement and robust data protection Zero Trust Cloud is designed to securely connect workloads and inspect all traffic enabling the detection and mitigation of cyber threats like ransomware preventing data loss and facilitating workload segmentation to halt the lateral movement of threats This strategy aims to provide customers with consistent threat and data protection eliminate the attack surface reduce operational complexity and lower overall costs
Our Zero Trust Cloud provides a solution for securing outbound communications from customer workloads to the internet This capability is designed to protect workloads hosted in public clouds private data centers or hybrid environments when they connect to external resources such as application programming interfaces or APIs SaaS platforms third party services or AI agents Rather than trusting the underlying network our Zero Trust model is founded on verifying the identity of the workload itself and enforcing granular access policies for any internet bound request To protect against cyber threats and data loss the solution performs cloud scale TLS inspection which is designed to identify and block malicious attacks and prevent the unauthorized exfiltration of sensitive data from our customers cloud workloads
Zero Trust Gateway is a new deployment model for Zero Trust Cloud that dramatically improves operational efficiency Customers can now rapidly deploy Zero Trust Cloud Zero Trust Gateway a fully managed Zscaler service available in the cloud service provider allows customers to route traffic to Zscaler via an endpoint service using the most optimized path This enables real time inspection and filtering of traffic preventing unauthorized access and mitigating threats Zero Trust Cloud deployed via Zero Trust Gateway secures workload to internet and workload to workload traffic across multi cloud environments eliminating the need for traditional cloud firewalls VPNs express routes or direct connects
Our Workload Microsegmentation solution secures mission critical applications inside public clouds and data centers to stop lateral threat movement preventing application compromise and reducing the risk of data breaches Our agent based offering solution utilizes an innovative AI enabled approach that is simpler to deploy and operate than traditional segmentation solutions and improves the security of east west communication by verifying the identity of the communicating application software services and processes to achieve a Zero Trust environment This reduces the attack surface resulting in lower risk of application compromise and data breaches
Our Zero Trust Branch solution brings Zero Trust principles to secure communications between and within branches factories data centers and campuses It reimagines branches as independent café like environments connecting directly to our Zero Trust Exchange over broadband 5G or satellite The network becomes pure transport while business policies determine who can access what when and where With this model branches become like islands and are invisible to the internet dramatically reducing the attack surface and eliminating lateral threat movement This eliminates the need for north south firewalls VPNs network access control or NAC systems and costly routing infrastructure sharply lowering complexity risk and cost
Legacy branch architectures built on MPLS or legacy SD WAN solutions inherently enable lateral movement allowing compromised devices in one location to infect applications and systems across the corporate network This model creates unnecessary cyber risk and adds costly complexity Zero Trust Branch neutralizes that risk by eliminating implicit trust and lateral movement stopping ransomware and malware spread
architecture that provides strong security and operational simplicity with the ability to deploy locally by virtual machine or by purchasing a plug and play appliance Our Zero Trust SD WAN solution eliminates lateral threat movement by connecting users and IoT OT devices to applications through our Zero Trust Exchange platform Branch traffic can be securely forwarded directly to the Zero Trust Exchange where ZIA or ZPA policies can be applied for full security inspection and access identity based control of branch and data center communications
Our Zero Trust Device Segmentation solution provides agentless segmentation for enterprise IT and OT environments creating a network of one where even devices on the same network can only communicate with each other if authorized The combination of Zero Trust SD WAN with Zero Trust Device Segmentation extends the Zero Trust Exchange platform to protect east west traffic in branch offices campuses factories and plants with critical OT infrastructure eliminating the need for east west firewalls NACs and traditional microsegmentation solutions while simultaneously delivering operational simplicity
Our data security functionality enables enterprises to prevent unauthorized sharing or exfiltration of confidential information by users devices servers workloads and AI agents thereby reducing business and compliance risks for our customers We provide inline monitoring of data flows between users and applications workload to workload API to API and applications to LLMs with AI powered auto data discovery reducing the risk of inadvertently transmitting sensitive data and intellectual property We also provide out of band discovery and remediation of data risks across a wide range of data stores including SaaS IaaS PaaS cloud data lakes and warehouses and on prem systems Core cloud platform data security services include
Our data classification engines leverage a variety of technologies and techniques to identify customer sensitive data Predefined custom dictionaries and automated AI discovery tools identify sensitive customer data by leveraging efficient pattern matching algorithms regular expressions AI based training models and keywords Additional advanced classification techniques including exact data match indexed document matching and ML based optical character recognition enable our customers to identify and secure sensitive data across billions of unique structured data fields
Our data loss prevention or DLP technology enables enterprises to alert and or block transmission or sharing of sensitive data across exfiltration channels This includes inline data in motion to external internet destinations and unmanaged endpoints data at rest in SaaS environments through out of band API integrations securing public cloud infrastructure data in Azure AWS and GCP and protecting endpoints by preventing printing or copying to local storage including USB devices Additionally our Email DLP solutions secure corporate email traffic including Microsoft Exchange and Gmail
Our CASB SaaS security posture management or SSPM and our SaaS supply chain security combine to discover and control known and unknown applications identify SaaS misconfigurations find and mitigate potentially risky third party connections into those SaaS applications and scan data residing in those applications for threats and data protection violations By doing TLS inspection at scale we provide malware protection DLP and CASB functions that can be performed both inline and out of band for specific sanctioned and unsanctioned applications Business policies can be defined with granular access control for specified cloud applications such as the ability to upload or download files or post comments on videos based on different user or group identity
Our email security solution leverages advanced cloud delivered protections to secure inbound and outbound email traffic against sophisticated threats such as phishing malware and ransomware Integrated with our Zero Trust Exchange platform it ensures comprehensive inspection and policy enforcement without relying on traditional email gateways The solution employs AI and ML to detect and block malicious payloads suspicious links and compromised accounts in real time Additionally this solution enhances DLP by identifying and mitigating risks associated with sensitive information being shared via email
Our Data Security Posture Management or DSPM technology enables enterprises to discover and mitigate risk across their vast range of data stores including public cloud SaaS data lakes and warehouses and on premise data systems Advanced classification and contextual analysis enables enterprises to understand where sensitive data resides and to uncover risks related to posture configuration access entitlements or compliance Automated workflows enable organizations to remediate these risks integrating with mainstream IT Service Management tools such as Service Now and Jira The solution empowers organizations to proactively remediate data risks and avoid sensitive data exposures or compliance violations
The emergence of generative AI models is fundamentally transforming businesses as enterprises and their stakeholders have rapidly embraced this new technology Enterprises are adopting public GenAI SaaS applications such as ChatGPT Microsoft Copilot Gemini and others and are also investing to develop their private AI applications such as customer facing employee facing or supplier facing chatbots and agents This growing adoption of AI is leading to an emergence of a new category of risks that go beyond traditional cyber and data risks including prompt injection toxicity training data leakage model poisoning tool poisoning and other risks To enable our customers to safely and securely adopt these public and private AI applications we are expanding our Security for AI Applications portfolio
Public GenAI SaaS applications can improve employee productivity however they also present new risks for organizations such as data loss and unauthorized access to classified or sensitive information Zscaler s Public AI security solutions give visibility provide access control protect sensitive information leakage and defend against emerging adversarial attacks Our solutions for public AI applications include
Our GenAI security offerings provide enterprises with comprehensive visibility and control over generative AI tool usage to prevent data loss while enabling productivity benefits Our solution allows organizations to create and enforce policies around which generative AI tools users can access and how they interact with them including through secure browser isolation to protect sensitive data The platform delivers granular controls including prompt level visibility AI ML based URL filtering DLP enforcement and the ability to restrict data upload methods while allowing productive AI interactions In addition to inline controls our solution offers proactive discovery and analysis of AI systems in cloud environments This solution helps organizations deal with model sprawl identify new AI attack vectors and govern data connected to AI systems Our solutions also help safeguard the use of AI embedded in SaaS applications such as Microsoft Copilot to help ensure that data being used by Copilot is properly protected This comprehensive approach enables organizations to harness the innovation and efficiency benefits of generative AI while maintaining robust data security and regulatory compliance
Our Zscaler AI Guard for Users secures the prompts and responses between employees of our customers and public GenAI applications AI Guard enforces policies on prompts and responses to protect against toxicity prompt injection code sharing sensitive data leakage and other adversarial attacks In addition AI Guard provides granular visibility into prompts responses and log events including the associated metadata for consumption and analysis by security operations center or SOC teams
Enterprises are developing private AI applications such as chatbots and AI agents using large language models or LLMs such as ChatGPT Anthropic Gemini Llama DeepSeek and more Our private AI security solutions provide visibility and policy enforcement Our solutions for private AI applications include
Zscaler AI SPM provides deep visibility into all AI services agents and models deployed in a customers environment Leveraging advanced LLM classification Zscaler AI SPM discovers classifies and assesses risks of sensitive data that maps to any AI services providing a 360 degree view of all of data and its correlated risks
Zscaler s AI Guard provides guardrails with purpose built detectors sitting inline between LLMs and private AI apps With continuous monitoring secure deployment and advanced protection AI Guard enables organizations to harness the power of AI while keeping their models and data safe from exploitation
AI Decoys for LLMs is designed to prevent sensitive data leakages and unauthorized access in environments leveraging LLMs extending our existing deception capabilities It uses AI generated decoy information to mislead and neutralize potential threats safeguarding critical organizational assets
Reducing cyber risk is a priority for all enterprises especially at the executive and board of directors level making holistic security operations a key area of focus for our customers Our security operations solutions include both proactive security initiatives focused on identifying security gaps before they can be exploited and reactive security programs centered on finding and containing incidents after they happen These solutions include broad and differentiated capabilities in both domains and are categorized into the following areas
Zscaler s exposure management platform ingests and analyzes a wide range of exposure intelligence sources to deliver a comprehensive view of organizational risk It integrates data from Zscaler systems such as our Zero Trust Exchange platform and third party data from more than 150 sources including vulnerability scans misconfigurations shadow IT discovery and unmanaged devices including IoT OT security information and event management or SIEMs security orchestration automation and response systems endpoint protection platforms and global threat intelligence feeds It also integrates contextual data such as asset criticality business impact and user behavior Our Data Fabric for Security ingests synthesizes and enriches this data to yield compelling insights for exposure management by security teams Our exposure management platform includes
Our unified vulnerability management solution provides dynamic and customizable prioritization streamlined reporting automated workflows for remediation and contextualized risk based assessments of a customer s risk landscape This solution leverages our Data Fabric for Security to deliver actionable insights prioritized risk analysis and operational efficiencies Our customers gain significantly enhanced and automated analytics and decision making in real time without the need for manual data aggregation and collection
Our asset exposure management capabilities provide organizations with deep visibility into their digital attack surface enabling them to identify assess and remediate asset vulnerabilities before they can be exploited By continuously monitoring all assets whether hosted on premises in the cloud or within hybrid environments our solution helps uncover shadow IT misconfigurations unpatched systems and other hidden risks This solution leverages our Data Fabric for Security to provide advanced analytics and automation
prioritize critical exposures based on business impact and threat likelihood and empower organizations to proactively reduce their attack surface and strengthen their overall security posture This approach aligns with our commitment to providing comprehensive scalable solutions that help customers minimize risk in a rapidly evolving threat landscape
Zscaler delivers advanced capabilities including deception technologies identity threat detection and managed detection and response Our acquisition of Red Canary Inc or Red Canary strengthens this portfolio with its agentic AI driven threat detection that autonomously reduces alert fatigue hunts threats and delivers faster more accurate incident containment We will integrate these advanced SOC capabilities with our Data Fabric for Security enabling more robust SOC capabilities over time and helping customers reduce or eliminate their dependence on costly legacy SIEM systems Our threat management offerings include
Our deception solution augments our customers ability to detect the presence of an adversary in their network by deploying decoys These decoys disrupt adversaries by detecting their presence in the network and initiating mitigation using automatic orchestration via the Zscaler platform and other third party solutions Customers can quickly deploy these capabilities by leveraging a diverse library of built in decoys including various types of applications network components and IoT services The high fidelity low volume alerts allow customers to implement meaningful automation workflows to prevent lateral spread
Our Managed Detection and Response MDR service offering added through our acquisition of Red Canary provides threat detection and on demand incident response services to augment our customers security operations capabilities and reduce reliance on extensive internal resources or specialized expertise This capability leverages advanced technologies including agentic workflows AI supported threat intelligence expert analysis and automated runbooks to identify and address complex cybersecurity threats
Attackers commonly target users and identities as the point of entry and use that access to escalate privileges and move laterally Our Identity Protection capability provides continuous visibility into identity misconfigurations and at risk permissions by scanning common identity providers Identity Protection augments this visibility with guidance in the form of scripts commands and tutorials to remediate identity risk and reduce customers internal attack surface In addition to preventive capabilities Identity Protection also provides high fidelity detection for identity based attacks like stolen credentials multi factor authentication bypasses and privilege escalation techniques that typically pass through existing defenses in cases of identity compromise
Zscaler is also extending Agentic Operations to IT through our ZDX product Traditional IT operations depend on siloed monitoring tools that provide limited visibility and require manual troubleshooting across networks devices and applications These limitations result in long ticket resolution times frustrated users and higher operating costs With ZDX s expanded functionality enterprises can now utilize predictive analytics to identify potential performance degradations before they impact end users enabling faster remediation and minimizing downtime ZDX leverages advanced AI enabled root cause analysis to proactively pinpoint issues in the network path providing detailed insights into whether disruptions stem from a user s device WiFi connection local internet service provider or the destination application itself It also leverages AI driven automation to deliver end to end visibility into user experience network performance and application health With agentic remediation capabilities ZDX can detect endpoint issues resolve tickets and proactively improve performance without human intervention For example ZDX can identify device misconfigurations degraded application paths or network bottlenecks and automatically correct them reducing resolution time avoiding downtime and creating a better user experience
By transforming IT operations from reactive to proactive ZDX enables enterprises to improve user productivity and satisfaction reduce IT operations cost and deliver consistent digital experiences at global scale
We are driven by technology and innovation We developed a highly scalable multi tenant globally distributed cloud capable of providing inline inspection of internet and SasS traffic securing access to private applications protecting cloud applications managing digital experience and scanning for exposures and misconfigurations We designed a purpose built three tier architecture starting with our core operating system and adding layers of security and networking innovations over time Our cloud platform is protected by more than 725 issued and pending patents in the United States and other countries Our cloud is distributed across more than 160 public exchanges globally and thousands of private exchanges at the edge and processes over 500 billion requests per day from users across over 185 countries
Our platform is designed to be resilient redundant and high performing It is built as software modules that run on standard x86 platforms without dependency on custom hardware The platform modules are split into the control plane Zscaler Central Authority the enforcement plane Zscaler Enforcement Nodes and the logging and statistics plane Zscaler Log Servers as described below
The Zscaler Central Authority monitors our entire security cloud and provides a central location for software and database updates policy and configuration settings and threat intelligence The collection of Zscaler Central Authority instances together act like the brain of the cloud and they are geographically distributed for redundancy and performance
Customer traffic is directed to the nearest Zscaler Enforcement Node where security management and compliance policies served by the Zscaler Central Authority are enforced The Zscaler Enforcement Node also incorporates our differentiated authentication and policy distribution mechanism that enables any user to connect to any Zscaler Enforcement Node at any time to ensure full policy enforcement The Zscaler Enforcement Node utilizes a full proxy architecture and is built to ensure data is not written to disk to maintain the highest level of data security Data is scanned in random access memory only and then erased Logs are continuously created in memory and forwarded to our logging module
Our technology is built into the Zscaler Enforcement Node to perform lossless compression of logs enabling our platform to collect over 130 terabytes of unique raw log data every day We do not collect customer data other than logs and those logs are encrypted and transmitted to our log server at a destination of choice selected by the customer without ever writing to disk at the enforcement nodes Logs are transmitted to our logging servers over secure connections and multicast to multiple servers for redundancy Our dashboards provide our customers visibility into their traffic to enable troubleshooting policy changes and other administrative actions Our analytics capabilities allow customers to interactively mine billions of transaction logs to generate reports that provide insight on network utilization and traffic We do not rely on batch reporting we continuously update our dashboards and reporting and can stream logs to a third party SIEM service as they arrive Regardless of where users are located customers can choose to have logs stored in the United States or the European Union Switzerland Customer data is isolated as part of our multi tenant architecture
Our Data Fabric for Security capabilities empower organizations to seamlessly integrate analyze and act on security data across distributed environments By unifying data from user activity applications devices and workloads across on premises cloud and hybrid networks our platform provides real time visibility into potential threats and vulnerabilities This interconnected fabric enables security teams to break down silos correlate insights from multiple sources and make proactive data driven decisions to mitigate risks With advanced automation and AI driven analytics our Data Fabric for Security transforms raw security data into actionable
Our platform is a critical integration point positioned in the data path providing secure access to the internet cloud and internal applications We complement and interoperate with key technology and cloud vendors across major market segments including identity and access management device and endpoint management as well as SIEM for reporting and analytics Many of these vendors like us were developed in the cloud and together provide a foundation for a modern access and security architecture
The growing use of the internet and the increasing adoption of the cloud and mobility are driving network and application transformation As a provider of a fully integrated multi tenant cloud security solution we enable our customers to accelerate this secure transformation to the cloud and believe we are uniquely positioned to maximize value as they undertake these transitions Key elements of our growth strategy include
We believe that we have a significant opportunity to expand our customer base both in the United States and internationally We have invested significantly in our sales and marketing organization to execute against this opportunity
We have invested in establishing long standing relationships with global telecommunications service providers and are expanding our network of global system integrators and regional telecommunications service providers and cloud centric value added resellers and public cloud marketplaces
We continue to invest in research and development and acquire new technologies and products to add new and differentiated solutions to our existing product portfolio and to improve the overall functionality reliability availability and scalability of our cloud security platform
We are targeting the expansion of our immediate addressable market into additional markets segments and verticals For example we are targeting our expansion into new geographies in the Asia Pacific Latin America and Middle East regions
We sell to enterprises of all sizes As of July 31 2025 we had over 9 400 customers including approximately 40 of the Forbes Global 2000 and over 45 of Fortune 500 companies Many of our customers include major global enterprises that send virtually all of their internet traffic through our cloud security platform Our customers operate in a variety of industries including automotive airlines and transportation conglomerates consumer goods and retail energy financial services healthcare insurance manufacturing media and communications public sector and education technology and telecommunications services Approximately 49 of our revenue was from customers outside the United States for all periods presented No end customer contributed more than 10 of our revenue in fiscal 2025 fiscal 2024 and fiscal 2023
Although we have a channel sales model we use a joint sales approach in which our sales force develops relationships directly with our customers and together with our channel account teams works with our channel partners on account penetration account coordination sales and overall market development Our customer care and success teams maintain high touch relationships with our customers to deploy and manage our cloud platform identify analyze and resolve performance issues and respond to security threats We believe customer service touchpoints are opportunities to further develop our relationship with our customers and potentially generate incremental revenue through the addition of new users and services
Our channel partners consist of global telecommunications service providers system integrators value added reseller partners and public cloud marketplaces and we leverage their relationships to expand our reach improve procurement and accelerate customer fulfillment
We enter into agreements with our channel partners in the ordinary course of business The contracts typically have a one year term and renew automatically subject to cancellation by either party upon 90 days notice These agreements contain standard commercial terms and conditions including payment terms billing frequency warranties and indemnification Our channel partners generally place purchase orders with us after receiving orders from customers We generally maintain privity of contract with customers through end user subscription agreements
We expect to continue investing in our channel partners as we provide them with education training and programs including supporting their independent sales of our solutions We believe that such investment and investments in our sales force will lead to significant expansion in our customer base which will materially impact our business and results of operations
Our marketing strategy is focused on platform and brand awareness which drives our opportunity pipeline and customer demand This strategy is account based enabling us to pursue targeted marketing activities across both digital and non digital channels We anticipate increasing our marketing team headcount and are investing in programs designed to elevate our brand in the market and engage new enterprise accounts We also participate in a number of cloud and security industry events In addition we have a deeply integrated ecosystem of channel partners with whom we engage in joint marketing activities
We have expanded the Zero Trust Exchange over 160 public exchanges and thousands of private exchanges at the edge which are built to be highly resilient have multiple levels of redundancy and provide failover to other data centers in our network Our data centers are co located within top tier internet interconnection hubs that have direct connectivity known as peering to major telecommunication service providers SaaS providers public cloud providers internet content providers and popular internet destinations A number of our data centers are also located with our service provider partners
Our platform has received numerous industry standard and internationally recognized certifications upon successful completion of further independent third party assessments including ISO 27001 ISO 27701 ISO 27018 ISO 27017 SOC2 SOC 3 CSA STAR and HIPAA
We also built a leading U S and international government compliance portfolio We are authorized at the FedRAMP Moderate and High levels and Impact Level 5 with the DOD for ZPA In addition in the U S we are authorized at both the FedRAMP Moderate and High levels for ZIA among others We also hold CMMC Level 2 certification ITAR FIPS CJIS
and VPAT 508 in our U S Government portfolio We also became the first cloud based SaaS security company to achieve StateRamp for state and local governments Internationally we are IRAP Protected and APRA in Australia Cyber Essentials and G Cloud in the UK C5 in Germany ITSG 33 Prob B in Canada ISMAP in Japan MTCS in Singapore and most recently Spain Gov CPSTIC catalog listing and ENS High
Our research and development organization is responsible for the design architecture operation and quality of our cloud platform In addition to improving on our features and functionality this organization works closely with our cloud operations team to ensure that our platform is reliable available and scalable ThreatLabZ our internal team of security experts researchers and network engineers analyzes the global threat landscape works to eliminate threats across our cloud platform and reports on emerging security issues
Research and development expense was 672 5 million 499 8 million and 350 8 million for fiscal 2025 fiscal 2024 and fiscal 2023 respectively Our research and development leadership team is predominantly located in San Jose California and we also maintain research and development centers internationally including in India Canada Israel and Spain
The market for security solutions is defined by changing technologies an evolving threat landscape and complex enterprise needs Our competitors and potential competitors include legacy on premises appliance vendors and other vendors across a number of categories
companies with point solutions that compete with some of the features of our cloud platform such as proxy firewall CASB sandboxing and advanced threat protection AI security data loss prevention encryption load balancing and VPN and
We believe we are positioned favorably against our competitors based on these factors Our cloud platform integrates many of the point products offered by our competitors and potential competitors which is a key differentiator However many of our competitors have substantially greater financial technical and other resources greater brand recognition larger sales forces and marketing budgets broader distribution networks more diverse product and services offerings and larger and more mature intellectual property portfolios They may be able to leverage these resources to gain business in a manner that discourages users from purchasing our services including through selling at zero or negative margins offering concessions product bundling or maintaining closed technology platforms Further many organizations have invested substantial personnel and financial resources to design and operate their appliance based network security architecture and may not be willing or ready to abandon those historical investments As our market grows and rapidly changes we expect it will continue to attract new companies including smaller emerging companies which could introduce new products and services In addition we may expand into new markets and encounter additional competitors in such markets
Our success depends in part upon our ability to protect and use our core technology and intellectual property rights We rely on a combination of patents copyrights trademarks trade secret laws contractual provisions and confidentiality procedures to protect our intellectual property rights As of July 31 2025 we had more than 725 issued patents and pending patent applications including more than 325 issued patents in the United States and other countries Our issued patents expire between 2028 and 2044 and cover various aspects of our cloud platform In addition we have registered Zscaler as a trademark in the United States and other jurisdictions and we have registered other trademarks and filed other trademark applications in the United States We are also the registered holder of a variety of domestic and international domain names that include Zscaler and similar variations In addition to the protection provided by our intellectual property rights we enter into confidentiality and invention assignment or similar agreements with our employees consultants and contractors We further control the use of our proprietary technology and intellectual property rights through provisions in our subscription and license agreements Despite our efforts to protect our trade secrets and proprietary rights through intellectual property rights licenses and confidentiality agreements unauthorized parties may still copy or otherwise obtain and use our software and technology In addition to our internally developed technology we also license software including open source software from third parties that we integrate into or bundle with our cloud platform
Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation based on allegations of patent infringement or other violations of intellectual property rights We believe that competitors will try to develop products and services that are similar to ours and that may infringe our intellectual property rights Our competitors or other third parties may also claim that our platform infringes their intellectual property rights In particular companies in our industry have extensive patent portfolios From time to time third parties including certain of these companies and non practicing entities have in the past and may in the future assert claims of infringement misappropriation and other violations of intellectual property rights against us or our customers or channel partners with whom our license or other agreements may obligate us to indemnify against these claims Successful claims of infringement by a third party could prevent us from offering certain services or features require us to develop alternate non infringing technology which could require significant time and during which we could be unable to continue to offer our affected subscriptions or services require us to obtain a license which may not be available on reasonable terms or at all or force us to pay substantial damages royalties or other fees As we face increasing competition and gain an increasingly higher profile the possibility of intellectual property rights claims against us grows We cannot assure you that we do not currently infringe or that we will not in the future infringe upon any third party patents or other proprietary rights See Risk Factors Risks Related to Our Business Claims by others that we infringe their proprietary technology or other rights or other lawsuits asserted against us could result in significant costs and substantially harm our business financial condition results of operations and prospects for additional information
Our business activities are subject to various federal state local and foreign laws rules and regulations Compliance with these laws rules and regulations has not had and is not expected to have a material effect on our capital expenditures results of operations and competitive position as compared to prior periods Nevertheless compliance with existing or future governmental regulations including but not limited to those pertaining to global trade business acquisitions consumer and data protection privacy employment labor and taxes could have a material impact on our business in subsequent periods For more information on the potential impacts of government regulations affecting our business see Item 1A Risk Factors
As of July 31 2025 we had a total of 7 923 employees in locations around the world We have not experienced any work stoppages and we consider our relations with our employees to be positive and collaborative
Zscaler s vision is to create a world in which the exchange of information is always secure and seamless Specifically ensuring that our people and culture are aligned with this vision is critical to our success In order to continue to innovate and to execute our business strategy we must attract develop and retain skilled employees particularly in the areas of product development engineering sales and customer success
We build this culture through the feedback we receive from our employees through company wide surveys as well as informal feedback channels throughout the year We ultimately view and measure the success of our culture by our ability to sustain great business results
We invest in our employees through a suite of programs from their first day of employment to develop their talent and skills as our business grows Our leadership approach establishes clear expectations enables measurement and actionable feedback and ensures that our people managers have access to learning and resources that help them to embody our leadership principles
In addition new employees in our customer care and success teams are enrolled in structured sales and product training to build their knowledge Our technical teams have access to live and online training resources and participate in frequent company tech talks where training on best practices and latest developments are shared We build the skills and capabilities of our senior leaders through intentional investment in their development and opportunities for them to network collaborate and problem solve together
To supplement our internal resources we work with external experts to offer focused development for our leaders as well as targeted offerings on topics that are critical to enhancing the capabilities of our talent We offer tuition reimbursement for eligible employees to further enhance their career growth through higher education
We provide competitive compensation and benefits packages to attract and retain our talent In addition to base pay employees may be eligible for performance based bonuses that are tied to our financial performance and long term equity incentives that vest subject to continued service Certain employees may also need to achieve defined performance metrics for parts of their long term incentives to vest Our employee performance management program aligns individual achievement and corporate goal attainment with compensation Employees are assessed on both what was achieved and how they achieved it to help build a high performance culture that delivers for our customers and is aligned to our cultural values
We offer an employee stock purchase plan which allows employees to contribute a percentage of their wages to purchase our stock at a discount In addition to cash and equity compensation we offer our employees a robust portfolio of benefits such as health well being parental leave and retirement programs to meet their individual and family needs
The health and safety of our employees is our top priority We recognize the need to create a flexible working environment that balances collaboration innovation and connectivity with personal preferences for employees to do their best work Our employee wellness programs support employees across four pillars physical emotional social and financial These programs are designed to meet the needs of our employees through connection and support with flexibility for local and targeted approaches We will continue to review and invest in programs to provide for the health safety and well being of our employees
We were incorporated in the state of Delaware in September 2007 as SafeChannel Inc and in August 2008 we changed our name to Zscaler Inc Our principal executive offices are located at 120 Holger Way San Jose CA 95134 and our telephone number is
Our Annual Report on Form 10 K Quarterly Reports on Form 10 Q Current Reports on Form 8 K proxy statement and all amendments to these filings are available free of charge from our investor relations website
Zscaler investors and others should note that we announce material information to the public about our company products and services and other issues through a variety of means including our website https www zscaler com our investor relations website https ir zscaler com our blogs https www zscaler com blogs press releases SEC filings public conference calls and social media in order to achieve broad non exclusionary distribution of information to the public We encourage our investors and others to review the information we make public in these locations as such information could be deemed to be material information Please note that this list may be updated from time to time
A description of the risks and uncertainties associated with our business is set forth below You should carefully consider the risks and uncertainties described below as well as the other information in this Annual Report on Form 10 K including the consolidated financial statements and the related notes and Management s Discussion and Analysis of Financial Condition and Results of Operations The occurrence of any of the events or developments described below or of additional risks and uncertainties not presently known to us or that we currently deem immaterial could materially and adversely affect our business results of operations financial condition and growth prospects In such an event the market price of our common stock could decline and you could lose all or part of your investment
Investing in our common stock involves a high degree of risk because our business is subject to numerous risks and uncertainties as more fully described in this section below this summary The principal factors and uncertainties that make investing in our common stock risky include among others
if we are unable to attract new customers or our customers do not renew their subscriptions for our services and add additional users and services to their subscriptions our future results of operations could be harmed
if our cloud platform or internal networks systems or data are or are perceived to have been breached our solution may be perceived as insecure our reputation may be damaged and our financial results may be negatively impacted
we rely on our key technical sales and management personnel to grow our business and the loss of one or more key employees or the inability to attract and retain qualified personnel could harm our business
We have incurred net losses in all annual periods since our inception and we expect we will continue to incur annual net losses for the foreseeable future We experienced net losses of 41 5 million 57 7 million and 202 3 million for fiscal 2025 fiscal 2024 and fiscal 2023 respectively As of July 31 2025 we had an accumulated deficit of 1 189 6 million Because the market for our cloud platform is rapidly evolving and cloud based security solutions have not yet reached widespread adoption it is difficult for us to predict our future results of operations We expect our operating expenses to increase significantly over the next several years as we continue to hire additional personnel particularly in research and development and sales and marketing expand our operations and infrastructure both domestically and internationally and continue to develop our platform If we fail to increase our revenue to offset the increases in our operating expenses we may not achieve or sustain profitability in the future
Additionally our business strategy continues to focus primarily on long term growth As we execute on this strategy we may ultimately be unable to achieve or sustain profitability at the level contemplated by industry or financial analysts and our stockholders or at all and as a result our stock price may decline
Cloud security technologies are still evolving and it remains difficult to predict customer demand and adoption rates for our solutions We believe that our cloud platform offers superior protection to our customers who are moving their applications and data to the cloud and embracing AI applications and agents We also believe that our cloud platform represents a major shift from on premises appliance based security solutions While cloud based security solutions have seen increased adoption traditional on premises security appliances continue to be entrenched in the infrastructure of many of our potential customers particularly large enterprises because of their prior investment in and the familiarity of their IT personnel with on premises appliance based solutions As a result our sales process often involves extensive efforts to educate our customers on the benefits and capabilities of our cloud platform particularly as we continue to pursue customer relationships with large organizations Even with these efforts we cannot predict long term market acceptance of our cloud platform or the adoption of competing products services or technologies If we fail to achieve broad market acceptance of our cloud platform or are unable to keep pace with industry changes our ability to grow our business and our operating results will be materially and adversely affected
To increase our revenue and achieve and maintain profitability we must add new customers To add new customers we must successfully convince IT decision makers that security delivered through our cloud platform provides significant advantages over legacy on premises appliance based security products and competing cloud based products Additionally many of our customers broadly deploy our products which requires a significant commitment of resources from our customers These factors significantly impact our ability to add new customers and increase the time resources and sophistication required to do so
As a result of challenging or uncertain macroeconomic conditions we have experienced and may experience in the future increased scrutiny and a longer approval process for initial purchases by new customers particularly for larger transactions We cannot predict how challenging or uncertain macroeconomic conditions will impact potential customers purchasing decisions and whether potential customers may decide to delay purchases decrease the size of purchases or entirely forego purchasing our services
If our efforts to attract new customers are not successful our revenue and rate of revenue growth may decline we may not achieve profitability and our future results of operations could be materially harmed
In order for us to maintain or improve our results of operations it is important that our customers renew their subscriptions for our services when existing contract terms expire and that we expand our commercial relationships with our existing customers Our customers have no obligation to renew their subscriptions for our services after the expiration of their contractual subscription period which is typically one to three years and in the normal course of business some customers have elected not to renew In addition in certain cases including under the new EU Data Act customers may cancel their subscriptions without cause either at any time or upon advance written notice commonly ranging from 30 days to 60 days typically subject to an early termination penalty for unused services In addition our customers may renew for fewer users renew for shorter contract lengths or switch to a lower cost product suite If our customers do not renew their subscription services we could incur impairment losses related to our deferred contract acquisition costs It is difficult to accurately predict long term customer retention because of our varied customer base and given the length of our subscription contracts Our customer retention and expansion may decline or fluctuate as a result of a number of factors including our customers satisfaction with our services our prices and pricing plans our customers spending levels decreases in the number of users to which our customers deploy our solutions new laws and regulations impacting service contract terms mergers and
Our future success also depends in part on the rate at which our current customers add additional users or services to their subscriptions which is driven by a number of factors including customer satisfaction with our services customer security and networking issues and requirements general economic conditions and customer reaction to the price per additional user or of additional services If our efforts to expand our relationships with our existing customers are not successful our business may materially suffer
We have experienced rapid growth in revenue operations and employee headcount in recent periods In addition the number of customers users and internet traffic on our cloud platform has increased rapidly in recent years Our growth may not be sustainable and may not be sufficient to achieve and sustain profitability as we also expect our costs to increase in future periods as we expand our operations and significantly increase our headcount In addition we expect our recent revenue growth rates will decline in the future as the size of our revenue base increases As a result we believe that historical comparisons of our revenue may not be meaningful and should not be relied upon as an indication of future performance Accordingly you should not rely on our revenue and other growth for any prior quarter or fiscal year as an indication of our future revenue or revenue growth
If we fail to effectively manage our growth we may be unable to execute our business plan maintain high levels of service adequately address competitive challenges or maintain our corporate culture and our business financial condition and results of operations would be harmed
Our growth has placed and future growth will continue to place a significant strain on our management and our administrative operational and financial infrastructure Our success will depend in part on our ability to manage this growth effectively which will require that we continue to improve our administrative operational financial and management systems and controls by among other things
enhancing our information and communication systems to ensure that our employees and offices around the world are well coordinated and can effectively communicate with each other and our growing base of channel partners customers and users and
These and other improvements in our systems and controls will require significant capital expenditures and the allocation of valuable management and employee resources If we fail to implement these improvements effectively our ability to manage our expected growth ensure uninterrupted operation of our cloud platform and key business systems and comply with the rules and regulations applicable to public companies could be impaired the quality of our platform and services could suffer and we may not be able to adequately address competitive challenges
In addition we believe that our corporate culture has been a contributor to our success which we believe fosters innovation teamwork and an emphasis on customer focused results We also believe that our culture creates an environment
that drives and perpetuates our strategy and cost effective distribution approach In the past we have and in the future we may restructure or reduce our workforce to align people roles and projects to our strategic priorities Any restructuring reduction or realignment in the workforce has the potential to negatively impact employee morale or make it more difficult to attract and retain talent As we continue to grow we may find it difficult to maintain our corporate culture Preservation of our corporate culture is also made more difficult following the implementation of our hybrid work environment and many of our employees continue to work from home on a full time or part time basis Any failure to preserve our culture could harm our future success including our ability to retain and recruit personnel innovate and operate effectively and execute on our business strategy If we experience any of these effects in connection with future growth it could materially impair our ability to attract new customers support and retain existing customers and expand their use of our platform all of which would materially and adversely affect our business financial condition and results of operations
Our operating results may fluctuate from quarter to quarter as a result of a number of factors many of which are outside of our control and may be difficult to predict Some of the factors that may cause our results of operations to fluctuate from quarter to quarter include
Any one or more of the factors above may result in significant fluctuations in our results of operations We also intend to continue to invest significantly to grow our business in the near future rather than optimizing for profitability or cash flows In addition we generally experience seasonality in terms of when we enter into agreements with customers We typically enter into a higher percentage of agreements with new customers as well as renewal agreements with existing customers in the second half of our fiscal year This seasonality is reflected to a much lesser extent and sometimes is not immediately apparent in revenue due to the fact that we recognize subscription revenue ratably over the term of the subscription which is generally one to three years We expect that seasonality will continue to affect our operating results in the future and may reduce our ability to predict cash flow and optimize the timing of our operating expenses
The variability and unpredictability of our quarterly results of operations or other operating metrics could result in our failure to meet our expectations or those of industry or financial analysts If we fail to meet or exceed such expectations for these or any other reasons the market price of our common stock could fall substantially and we could face costly lawsuits including securities class action suits
We currently derive most of our revenue from sales through our channel partner network and we expect for the foreseeable future most of our future revenue growth will also be driven through this network Not only does our joint sales approach require additional investment to grow and train our sales force but we believe that continued growth in our business is dependent upon identifying developing and maintaining strategic relationships with our existing and potential channel partners including global systems integrators and regional telecommunications service providers that will in turn drive substantial revenue and provide additional value added services to our customers Our agreements with our channel partners are generally non exclusive meaning our channel partners may offer customers the products of several different companies including products that compete with our cloud platform Our channel partners may also cease marketing or reselling our platform with limited or no notice and without penalty If our channel partners do not effectively market and sell subscriptions to our cloud platform choose to promote our competitors products or fail to meet the needs of our customers our ability to grow our business and sell subscriptions to our cloud platform may be adversely affected For example sales through our top five channel partners and their affiliates in aggregate represented 28 of our revenue for fiscal 2025 25 of our revenue for fiscal 2024 and 26 of our revenue for fiscal 2023 In addition our channel partner structure could subject us to lawsuits or reputational harm if for example a channel partner misrepresents the functionality of our cloud platform to customers or violates applicable laws or our corporate policies Moreover our channel partners operations may be negatively impacted by events including pandemics international conflicts trade regulations including tariffs inflation and other events affecting the global economy in general For example these events could increase credit risk of end customers and create uncertainty in credit markets Our ability to achieve revenue growth in the future will depend in large part on our success in maintaining successful relationships with our channel partners identifying additional channel partners and training our channel partners to independently sell and deploy our platform If we are unable to maintain our relationships with our existing channel partners or develop successful relationships with new channel partners or if our channel partners fail to perform our business financial position and results of operations could be materially and adversely affected
The market for network security solutions is intensely competitive and characterized by rapid changes in technology customer requirements industry standards and frequent introductions of new products and services and improvements of existing products and services We compete with many established network and security vendors who are aggressively competing against us with their legacy appliance based solutions and have also introduced cloud based services that purport to have functionality similar to our cloud platform We are also experiencing increased competition as other established and emerging companies enter the cloud based security solutions market and introduce new products services and technologies to address evolving customer requirements If we are unable to anticipate or effectively react to these competitive challenges our competitive position could weaken and we could experience a decline in revenue or our growth rate that could materially and adversely affect our business and results of operations
companies with point solutions that compete with some of the features of our cloud platform such as proxy firewall CASB sandboxing and advanced threat protection AI security data loss prevention encryption load balancing and VPN and
Our competitors may be successful in convincing IT decision makers that legacy appliance based security products or hybrid security cloud solutions based on legacy technology are sufficient to meet their security needs and provide security performance that competes with our cloud platform In addition our competitors have and may develop cloud based solutions with architectures similar to our products Further many organizations have invested substantial personnel and financial resources to design and operate their appliance based networks and have established deep relationships with appliance
Our larger competitors have substantially broader and more diverse product and services offerings which may allow them to leverage their relationships based on other products or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our services including through selling at zero or negative margins offering free services and other concessions bundling products or maintaining closed technology platforms Many competitors that specialize in providing protection from a single type of security threat may be able to deliver these targeted security products to the market more quickly than we can or to convince organizations that these limited products meet their needs
Conditions in our market change rapidly and significantly as a result of technological advancements partnering or acquisitions by our competitors or continuing market consolidation Start up companies that innovate and large competitors that are making significant investments in research and development may introduce similar or superior products services and technologies that compete with our cloud platform In addition large companies with substantial communications infrastructure such as global telecommunications services provider partners or public cloud providers have entered or could choose to enter the security solutions market Some of our current or potential competitors have made or could make acquisitions of businesses or establish cooperative relationships that may allow them to offer more directly competitive and comprehensive solutions than were previously offered and adapt more quickly to new technologies and customer needs
These competitive pressures in our market or our failure to compete effectively may result in price reductions fewer orders reduced revenue and gross margins increased net losses and loss of market share Any failure to meet and address these factors could materially harm our business and operating results
Any interruption or delay in the delivery of our services will negatively impact our customers Our solutions enable secure connections to cloud based applications and other destinations via the internet by directing our customers internet traffic through our cloud platform Our customers depend on the continuous availability of our cloud platform to access the internet and our services are designed to operate without interruption in accordance with our service level commitments However our platform is complex and may contain defects or errors that are not detected until after deployment If we fail to timely detect defects or errors before deployment or if our entire platform were to fail customers and users could lose access to critical services and applications until the disruption is resolved or customers deploy our disaster recovery solution that allows them to bypass our cloud platform to access the internet The adverse effects of any service interruptions on our reputation and financial condition may be disproportionately heightened due to the nature of our business and the fact that our customers expect continuous and uninterrupted internet access and have a low tolerance for interruptions of any duration While we do not consider them to have been material we have experienced and may in the future experience service disruptions and other performance problems due to a variety of factors
decisions by the owners and operators of the data centers where our cloud infrastructure is deployed or by global telecommunications service provider partners who provide us with network bandwidth to terminate our contracts
the occurrence of earthquakes floods fires pandemics power loss system failures physical or electronic break ins acts of war international conflicts such as the current conflicts between Russia and Ukraine and in the Middle East or terrorism human error or interference including by disgruntled or negligent current or former employees or contractors and other catastrophic events
errors defects or performance problems in our software including those potentially introduced by our software updates and third party software incorporated in our software which we use to operate our cloud platform
The occurrence of any of these factors or if we are unable to efficiently and cost effectively fix such errors or other problems that may be identified could damage our reputation negatively impact our relationship with our customers or otherwise materially harm our business results of operations and financial condition
In addition we provide our services through a cloud based inline proxy and some governments third party products websites or services may block proxy based traffic under certain circumstances For example vendors may attempt to block traffic from our cloud platform or blacklist our IP addresses because they cannot identify the source of the proxy based traffic Our competitors may use this as an excuse to block traffic from their solutions or blacklist our IP addresses which may result in our customers traffic being blocked from our platform If our customers experience significant instances of traffic blockages they will experience reduced functionality or other inefficiencies which would reduce customer satisfaction with our services and likelihood of renewal
The industry in which we compete is characterized by rapid technological change frequent introductions of new products and services evolving industry standards and changing regulations as well as changing customer needs requirements and preferences Our ability to attract new customers and increase revenue from existing customers will depend in significant part on our ability to anticipate and respond effectively to these changes on a timely basis and continue to introduce enhancements to our cloud platform For example advancements in technology such as AI and ML are changing the way our industry identifies and responds to cyber threats and businesses that are slow to adopt or fail to adopt these new
technologies may face a competitive disadvantage The success of our cloud platform depends on our continued investment in our research and development organization to increase the reliability availability and scalability of our existing solutions The success of any enhancement depends on several factors and any new service that we develop or acquire might not be introduced in a timely or cost effective manner and might not achieve the broad market acceptance necessary to generate significant revenue If new technologies including AI enabled technologies emerge that deliver competitive products and services at lower prices more efficiently more conveniently or more securely these technologies could adversely impact our ability to compete effectively Any delay or failure in the introduction of enhancements could materially harm our business results of operations and financial condition
If our global network of data centers which deliver our services was damaged or otherwise failed to meet the requirements of our business our ability to provide services to our customers and maintain the performance of our cloud platform could be negatively impacted which could cause our business to suffer
We currently host our cloud platform and serve our customers from a global network of over 160 public exchanges globally and thousands of private exchanges at the edge While we have electronic access to the components and infrastructure of our cloud platform that are hosted by third parties we do not control the operation of these facilities Consequently we may be subject to service disruptions as well as a lack of adequate support for our data center operations due to reasons that are outside of our control Our data centers are vulnerable to damage and connections to our data centers may be interrupted by a variety of sources including earthquakes floods fires power loss system or infrastructure failures computer viruses physical or electronic break ins human error or interference including by disgruntled or negligent current or former employees or contractors and other catastrophic events Our data centers may also be subject to national or local administrative actions changes in government regulations including for example the impact of global economic and other sanctions like those levied in response to the current conflict between Russia and Ukraine changes to legal or permitting requirements and litigation to stop limit or delay operations Despite precautions taken at these facilities a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in interruptions or delays in our services impede our ability to scale our operations or have other adverse impacts upon our business In addition if we do not accurately plan for our infrastructure capacity requirements or experience significant strains on our data center capacity we may experience delays and additional expenses in arranging new data centers and our customers could experience performance degradation or service outages that may subject us to financial liabilities result in customer losses and materially harm our business
If our cloud platform or internal networks systems or data are or are perceived to have been breached our solution may be perceived as insecure our reputation may be damaged and our financial results may be negatively impacted
It is virtually impossible for us to entirely mitigate the risk of breaches of our cloud platform or other security incidents affecting our cloud platform or our internal systems networks or data In addition the functionality of our platform may be disrupted either intentionally or due to negligence including by disgruntled or negligent current or former employees or contractors The security measures we use internally and have integrated into our cloud platform which are designed to detect unauthorized activity and prevent or minimize security breaches may not function as expected or may not be sufficient to identify or protect against certain attacks Enterprises are subject to a wide variety of attacks on their networks and systems and techniques used to sabotage or to obtain unauthorized access to networks in which data is stored or through which data is transmitted change frequently and generally are not recognized until launched against a target The growth in state sponsored cyber activity including those actions taken in connection with the current conflict between Russia and Ukraine showcase the increasing sophistication of cyber threats As a result we may be unable to anticipate these techniques or implement adequate measures to prevent an electronic intrusion into our customers through our cloud platform or to prevent breaches and other security incidents affecting our cloud platform internal networks systems or data Further once identified we may be unable to remediate or otherwise respond to a breach or other incident in a timely manner Actual
Our internal systems are exposed to the same cybersecurity risks and consequences of a breach as our customers and other enterprises However since our business is focused on providing reliable security services to our customers we believe that an actual perceived or purported breach of or security incident affecting our internal networks systems or data could be especially detrimental to our reputation customer confidence in our solution and our business Additionally many of our personnel work remotely on a hybrid or permanent basis which may pose additional data security risks
Further our vendors and service providers have been and may in the future be the targets of cyberattacks and their systems and networks have been and may in the future be breached or may contain exploitable defects or bugs that could result in a breach of or disruption to their or our systems and networks Our ability to monitor our vendors and service providers data security is limited and in any event third parties may be able to circumvent their security measures resulting in the unauthorized access to misuse disclosure loss alteration or destruction of our data including confidential sensitive and other information about individuals Geo political factors including international conflicts such as between Russia and Ukraine and in the Middle East may increase the risk of such cyberattacks
Any actual perceived or purported security breaches or other security incidents that we suffer with regard to our platform systems networks or data including any such actual perceived or purported security breaches or security incidents that result or are believed to result in actual perceived or purported breaches of our customers networks or systems could result in
the expenditure of significant financial resources in efforts to analyze correct eliminate remediate or work around errors or defects to address and eliminate vulnerabilities and to address any applicable legal or contractual obligations relating to any actual perceived or purported security breach or other security incident
legal claims and demands including for stolen assets or information repair of system damages and compensation to customers customers of customers and business partners litigation including stockholder claims regulatory inquiries or investigations and other liability
While we maintain insurance our insurance may be insufficient to cover all liabilities incurred in relation to actual perceived or purported security breaches or other security incidents We also cannot be certain that our insurance coverage will be adequate for liabilities actually incurred that insurance will continue to be available to us on economically reasonable terms or at all or that any insurer will not deny coverage as to any future claim The successful assertion of one or more large claims against us that exceed available insurance coverage or the occurrence of changes in our insurance policies including premium increases or the imposition of large deductible or co insurance requirements could have a material adverse effect on our business including our financial condition operating results and reputation
If our cloud platform does not interoperate with our customers network and security infrastructure or with third party products websites or services our cloud platform may become less competitive and our results of operations may be harmed
Our cloud platform must interoperate with our customers existing network and security infrastructure These complex systems are developed delivered and maintained by the customer and a myriad of vendors and service providers As a result the components of our customers infrastructure have different specifications rapidly evolve utilize multiple protocol standards include multiple versions and generations of products and may be highly customized We must be able to interoperate and provide our security services to customers with highly complex and customized networks which requires careful planning and execution between our customers our customer support teams and our channel partners Further when new or updated elements of our customers infrastructure or new industry standards or protocols are introduced we may have to update or enhance our cloud platform to allow us to continue to provide services to customers Our competitors or other vendors may refuse to work with us to allow their products to interoperate with our solutions which could make it difficult for our cloud platform to function properly in customer networks that include these third party products
We may not deliver or maintain interoperability quickly or cost effectively or at all These efforts require capital investment and engineering resources If we fail to maintain compatibility of our cloud platform with our customers network and security infrastructures our customers may not be able to fully utilize our solutions and we may among other consequences lose or fail to increase our market share and experience reduced demand for our services which would materially harm our business operating results and financial condition
We believe that maintaining and enhancing our reputation as a provider of high quality security solutions is critical to our relationship with our existing customers and channel partners and our ability to attract new customers and channel partners The successful promotion of our brand will depend on a number of factors including our marketing efforts our ability to continue to develop high quality features and solutions for our cloud platform uninterrupted delivery of our cloud services and our ability to successfully differentiate our platform from competitive products and services Our brand promotion activities may not be successful or yield increased revenue In addition independent industry or financial analysts often provide reviews of our platform as well as products and services of our competitors and perception of our platform in the marketplace may be significantly influenced by these reviews If these reviews are negative or less positive as compared to those of our competitors products and services our brand may be adversely affected Additionally the performance of our channel partners may affect our brand and reputation if customers do not have a positive experience with our channel partners services The promotion of our brand requires us to make substantial expenditures and we anticipate that the expenditures will increase as our market becomes more competitive we expand into new markets and more sales are generated through our channel partners To the extent that these activities yield increased revenue this revenue may not offset the increased expenses we incur If we do not successfully maintain and enhance our brand our business may not grow we may have reduced pricing power relative to competitors and we could lose customers or fail to attract potential customers all of which would materially and adversely affect our business results of operations and financial condition
If we do not effectively develop and expand our sales and marketing capabilities we may be unable to add new customers or increase sales to our existing customers and our business will be adversely affected
To increase the number of customers and increase the market acceptance of our platform we will need to expand our sales and marketing operations including our domestic and international sales force Although we have a channel sales model our sales representatives typically engage in direct interaction with our prospective customers Therefore we continue
to be substantially dependent on our sales force to obtain new customers Increasing our customer base and achieving broader market acceptance of our cloud platform will depend to a significant extent on our ability to expand and further invest in our sales and marketing operations and activities There is significant competition for sales personnel with the advanced sales skills and technical knowledge we need We believe that selling a cloud based security solution requires particularly talented sales personnel with the ability to communicate the transformative potential of our cloud platform Our ability to achieve significant growth in revenue in the future will depend in large part on our success in recruiting training and retaining enough talented sales personnel in both the U S and international markets
New hires require significant training and may take significant time before they achieve full productivity As a result our new hires and planned hires may not become as productive as we would like and we may be unable to hire or retain enough qualified individuals in the future As a result of our rapid growth a large percentage of our sales and marketing team is new to our company and selling our solutions and therefore this team may be less effective than our more seasoned employees Furthermore hiring sales personnel in new countries or expanding our existing presence requires upfront and ongoing expenditures that we may not recover if the sales personnel fail to achieve full productivity We cannot predict whether or to what extent our sales will increase as we expand our sales force or how long it will take for sales personnel to become productive The effectiveness of our sales and marketing has also varied over time and together with the effectiveness of any partners or resellers we may engage may vary in the future Our business and operating results may be harmed if our efforts do not generate a correspondingly significant increase in revenue We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire develop and retain talented sales personnel if our new sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if our sales and marketing programs are not effective
The timing of our sales and related revenue recognition is difficult to predict because of the length and unpredictability of the sales cycle for our cloud platform particularly with respect to large organizations Our sales efforts typically involve educating our prospective customers about the uses benefits and the value proposition of our cloud platform Customers often view the subscription to our cloud platform as a significant decision as part of a strategic transformation initiative and as a result frequently require considerable time to evaluate test and qualify our platform prior to entering into or expanding a relationship with us Large enterprises and government entities in particular often undertake a significant evaluation process that further lengthens the sales cycle In addition the impact of macroeconomic or geopolitical conditions could materially and adversely affect our business operating results and financial condition by reducing sales lengthening sales cycles and lowering prices for our services We have experienced and may experience in the future increased scrutiny and a longer approval process for initial purchases by new customers as a result of challenging macroeconomic conditions
Our sales force develops relationships directly with our customers and together with our channel account teams works with our channel partners on account penetration account coordination sales and overall market development We spend substantial time and resources on our sales efforts without any assurance that our efforts will produce a sale Platform purchases are frequently subject to budget constraints multiple approvals and unanticipated administrative processing and other delays As a result it is difficult to predict whether and when a sale will be completed and when revenue from a sale will be recognized
Sales to larger customers involve risks that may not be present or that are present to a lesser extent with sales to smaller customers which can act as a disincentive to our sales team to pursue these larger customers These risks include
Because we recognize revenue from subscriptions for our services over the term of the subscription downturns or upturns in new business may not be immediately reflected in our operating results and may be difficult to discern
We generally recognize revenue from customers ratably over the terms of their subscriptions which are typically one to three years As a result a substantial portion of the revenue we report in each period is attributable to the recognition of deferred revenue relating to agreements that we entered into during previous periods Consequently any increase or decline in new sales or renewals in any one period may not be immediately reflected in our revenue for that period Any change however may affect our revenue in future periods Additionally subscriptions that are invoiced annually in advance or multi year in advance contribute significantly to our short term and long term deferred revenue Accordingly the effect of downturns or upturns in new sales and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods We may also be unable to reduce our cost structure in line with a significant deterioration in sales or renewals Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period as revenue from new customers must be recognized over the applicable subscription term
We provide service level commitments under our customer contracts If we fail to meet these contractual commitments we could be obligated to provide credits for future service and our business could suffer
Our customer agreements contain service level commitments which contain specifications regarding the availability and performance of our cloud platform Any failure of or disruption to our infrastructure could impact the performance of our platform and the availability of services to customers If we are unable to meet our stated service level commitments or if we suffer extended periods of poor performance or unavailability of our platform we may be contractually obligated to provide affected customers with service credits for future subscriptions and in certain cases refunds In addition the limitation of liability provisions in our customer agreements may not fully or effectively protect us from claims as a result of federal state or local laws or ordinances or unfavorable judicial decisions in the United States or other countries To date there has not been a material failure to meet our service level commitments and we do not currently have any material liabilities accrued on our balance sheet for such commitments Our revenue other results of operations and financial condition could be harmed if we suffer performance issues or downtime that exceeds the service level commitments under our agreements with our customers
Our ability to maintain customer satisfaction depends in part on the quality of our customer support including the quality of the support provided on our behalf by certain channel partners Failure to maintain high quality customer support could have an adverse effect on our business financial condition and results of operations
If we do not provide superior support to our customers our ability to renew subscriptions increase the number of users and sell additional services to customers may be adversely affected We believe that successfully delivering our cloud solution requires a highly skilled level of customer support and engagement We or our channel partners must assist our customers to deploy our cloud platform resolve performance issues address interoperability challenges with a customer s existing network and security infrastructure and respond to security threats and cyberattacks Many enterprises particularly large organizations have very complex networks and require high levels of focused support including premium support offerings to fully realize the benefits of our cloud platform Any failure by us to maintain the expected level of support could reduce customer satisfaction and hurt our customer retention particularly with respect to our large enterprise customers
Additionally if our channel partners do not provide support to the satisfaction of our customers we may be required to provide this level of support to those customers which would require us to hire additional personnel and to invest in additional resources including the possible use of AI support agents We may not be able to hire or deploy such resources fast enough to keep up with demand particularly if the sales of our platform exceed our internal forecasts We may also not be successful in our efforts to fully onboard new hires and provide adequate training to our employees many of whom continue to work remotely To the extent that we or our channel partners are unsuccessful in hiring training retaining or deploying adequate support resources our ability and the ability of our channel partners to provide adequate and timely support to our customers will be negatively impacted and our customers satisfaction with our cloud platform could be adversely affected We currently rely in part on contractors provided by third party service providers internationally to provide support services to our customers and we expect to expand our international customer service support team to other countries Any failure to properly train or oversee such contractors could result in a poor customer experience and an adverse impact on our reputation and ability to renew subscriptions or engage new customers Furthermore as we sell our solutions internationally our support organization faces additional challenges including those associated with delivering support training and documentation in languages other than English Any failure to maintain high quality customer support or a market perception that we do not maintain high quality support could materially harm our reputation adversely affect our ability to sell our solutions to existing and prospective customers and could harm our business financial condition and results of operations
We rely on our key technical sales and management personnel to grow our business and the loss of one or more key employees or the inability to attract and retain qualified personnel could harm our business
Our future success is substantially dependent on our ability to attract retain and motivate the members of our management team and other key employees throughout our organization In particular we are highly dependent on the services of Jay Chaudhry our Chief Executive Officer and chairman of our board of directors who is critical to our future vision and strategic direction We rely on our leadership team in the areas of operations security marketing sales support and general and administrative functions and on individual contributors on our research and development team Although we have entered into employment agreements with our key personnel these agreements have no specific duration and constitute at will employment We do not maintain key person life insurance policies on any of our employees The loss of one or more of our executive officers or key employees could seriously harm our business We have added several new senior management employees in recent years including our Chief Financial Officer Any significant leadership change or senior management transition involves risk especially nearly simultaneous changes involving so many leaders and employees and any failure to transition effectively or to retain these new leaders could hinder our strategic planning business execution and future performance
To execute our growth plan we must attract and retain highly qualified personnel Competition for these personnel in the San Francisco Bay Area where our headquarters are located and in other locations where we operate is often intense especially for experienced sales professionals and for engineers experienced in designing and developing cloud applications security software and AI and ML solutions In addition the United States and other regions in which we operate have in the past and may again in the future experience acute workforce shortages for highly skilled workers which in turn can create hyper competitive wage environments that may impact our ability to attract and retain employees We have from time to time experienced and we may continue to experience difficulty in hiring and retaining employees with appropriate qualifications For example in recent years recruiting hiring and retaining employees with expertise in the cybersecurity industry has become increasingly difficult as the demand for cybersecurity professionals has increased as a result of the ongoing cybersecurity attacks on global corporations and governments Many of the companies with which we compete for experienced personnel have greater resources than we have In addition job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment Volatility or lack of performance in our stock price may also affect our ability to attract and retain our key employees
If we fail to successfully attract integrate or retain qualified personnel to fulfill our current or future needs or if we need to materially increase the value of the compensation packages necessary to attract and retain these employees our business operating results and financial condition could be materially and adversely affected
Our business depends in part on sales to the public sector and significant changes in the contracting or fiscal policies of public sector organizations could have an adverse effect on our business and operating results
We derive a significant portion of our revenue from contracts with government organizations and we believe the success and growth of our business will in part depend on adding public sector customers and expanding sales to existing government customers However demand from government organizations is often unpredictable and we may not be able to maintain or grow our revenue from the public sector Sales to government entities are subject to substantial risks including the following
selling to government agencies can be highly competitive expensive and time consuming often involving significantly longer procurement cycles than commercial sales and significant upfront time and expense without any assurance that such efforts will generate a sale
U S or other government requirements relating to the formation administration and performance of contracts with the public sector affect how we and our channel partners do business with governmental agencies
U S or other government certification requirements applicable to our cloud platform including the Federal Risk and Authorization Management Program FedRAMP are often difficult and costly to obtain and maintain and failure to do so will restrict our ability to sell to government customers
government demand and payment for our services may be impacted by public sector budgetary cycles and annual funding authorizations including the impacts of possible government shutdowns and changes in governmental administrations and government sales are inherently at risk of securing funding
governments routinely investigate and audit government contractors administrative processes and compliance with procurement regulations and any unfavorable investigation or audit could result in fines civil or criminal liability further investigations damage to our reputation and debarment from further government business
changes in government policy positions including tariffs and other trade regulations or the threat of such changes spending priorities or reductions in government employees or programs which result in a reduction of government spending in general or on technology and cybersecurity products in particular
The occurrence of any of the foregoing could cause governments and governmental agencies to delay or refrain from purchasing our solutions in the future and could result in temporary suspension or permanent debarment from sales to government organizations Any such penalties disruptions or limitations in our or our channel partners ability to do business with the public sector could have a material adverse effect on our business operating results financial condition and prospects
Historically we have derived a significant portion of our revenue from outside the United States We derived approximately 49 50 and 50 of our revenue from our international customers in fiscal 2025 fiscal 2024 and fiscal 2023 respectively As of July 31 2025 approximately 63 of our full time employees were located outside of the United States We are continuing to adapt to and develop strategies to address international markets and our growth strategy includes continued expansion into target geographies but there is no guarantee that such efforts will be successful We expect that our international activities will continue to grow in the future as we continue to pursue opportunities in international markets These international operations will require significant management attention and financial resources and are subject to substantial risks including
greater risk of a failure of foreign employees partners distributors and resellers to comply with both U S and foreign laws including antitrust regulations anti bribery laws export and import control laws trade and economic sanctions and applicable trade laws and regulations
As we continue to develop and grow our business globally our success will depend in large part on our ability to anticipate and effectively manage these risks The expansion of our existing international operations and entry into additional
international markets will require significant management attention and financial resources Our failure to successfully manage our international operations and the associated risks could limit the future growth of our business
Future acquisitions strategic investments partnerships or alliances could be difficult to identify and integrate divert the attention of key management personnel disrupt our business dilute stockholder value and adversely affect our operating results financial condition and prospects
Our business strategy includes acquiring other complementary solutions technologies or businesses We have in the past acquired and expect in the future to acquire businesses that we believe will complement or augment our existing business In order to expand our security offerings and features we also may enter into relationships with other businesses which could involve preferred or exclusive licenses additional channels of distribution or investments in other companies Negotiating these transactions can be time consuming difficult and costly and our ability to close these transactions may be subject to third party approvals such as government regulatory approvals which are beyond our control Consequently we cannot assure you that these transactions once undertaken and announced will close
These kinds of acquisitions or investments may result in unforeseen operating difficulties and expenditures In particular we may encounter difficulties assimilating or integrating the businesses technologies products and services personnel or operations of companies that we may acquire particularly if the key personnel of an acquired business choose not to work for us We may have difficulty retaining the customers of any acquired business or using or continuing the development of the acquired technologies Acquisitions may also disrupt our ongoing business divert our resources and require significant management attention that would otherwise be available for development of our business We may not successfully evaluate or utilize the acquired technology or personnel or accurately forecast the financial impact of an acquisition transaction including accounting charges Any acquisition or investment could expose us to unknown liabilities Moreover we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we would not be exposed to unknown liabilities In connection with these types of transactions we may
We believe that our significant presence in India provides important advantages for our business such as direct access to a large pool of skilled professionals However it also creates certain risks that we must effectively manage As of July 31 2025 37 of our global work force is based in India and is comprised mostly of R D finance and operations professionals
Wage costs in India for skilled professionals are currently lower than in the United States for comparably skilled professionals However wages and benefit costs in India are increasing at a faster rate than in the United States which could result in us incurring increased costs for technical professionals There is intense competition in India for skilled technical professionals and we expect such competition to increase As a result we may be unable to retain our current employee base in India or hire additional new talent or do so cost effectively In addition India has experienced natural disasters civil unrest and terrorism and in the past has been and may again be involved in conflicts with neighboring countries such as the recent conflict with Pakistan If we are unable to effectively manage any of the foregoing risks related to our India operations our development efforts and operations could be impaired which could materially and negatively impact our growth and operating results
We expect that our existing cash cash equivalents and short term investments will be sufficient to meet our anticipated cash needs for working capital capital expenditures and Notes repayment requirements for at least the next 12 months We may however need to raise additional funds to fund our operating expenses make capital purchases acquire or invest in business or technology and we may not be able to obtain those funds on favorable terms or at all If we raise additional equity financing our stockholders may experience significant dilution of their ownership interests and the per share value of our common stock could decline Furthermore if we engage in additional debt financing the holders of our debt would have priority over the holders of our common stock and we may be required to accept terms that restrict our ability to incur additional indebtedness or our ability to pay any dividends on our common stock though we do not intend to pay dividends in the foreseeable future We may also be required to take other actions any of which could harm our business and operating results If we need to access the capital markets there can be no assurance that financing may be available on attractive terms if at all If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it our ability to continue to support our business growth and to respond to business challenges could be significantly limited and our business operating results financial condition and prospects could be materially and adversely affected
The actual or perceived failure of our cloud platform to block malware or prevent a security breach or incident could harm our reputation and adversely impact our business financial condition and results of operations
Our cloud platform may fail to detect or prevent security breaches or incidents for any number of reasons Our cloud platform is complex and may contain performance issues that are not detected until after its deployment We also provide frequent solution updates and fundamental enhancements which increase the possibility of errors and our reporting tracking monitoring and quality assurance procedures may not be sufficient to ensure we detect any such defects in a timely manner The performance of our cloud platform can be negatively impacted by our failure to enhance expand or update our cloud platform bugs errors or defects in our software improper classification of websites by our vendors who provide us with lists of malicious websites improper deployment or configuration of our services and many other factors
In addition the techniques used by cyber threat actors including state sponsored actors to access or sabotage networks and other systems change frequently and generally are not recognized until launched against a target As a result there is a risk that a cyber threat could emerge that our services are unable to detect or prevent until after some of our customers are impacted The growth in state sponsored cyber activity showcases the increasing sophistication of cyber threats and dramatically expands the global threat landscape Moreover as our services are adopted by an increasing number of enterprises it is possible that the individuals and organizations behind cyber threats will focus on finding ways to defeat our services or to target our systems If this happens our cloud platform could be targeted by attacks specifically designed to disrupt our business and create the perception that our cloud platform is not capable of providing superior security which in
turn could have a serious impact on our reputation as a provider of security solutions Further high profile security breaches or incidents in particular those of cloud based service providers may cause our customers and potential customers to lose trust in cloud solutions generally and with respect to security in particular which could materially and adversely impact our ability to retain existing customers or attract new customers
Increasingly enterprises are subject to a wide variety of attacks on their networks and systems including traditional threat actors malicious code such as viruses and worms social engineering attacks such as deep fakes targeted phishing attacks distributed denial of service attacks advanced attacks conducted or sponsored by nation states advanced persistent threat intrusions ransomware and other malware attacks on their vendors and supply chains and theft or misuse of intellectual property or business or personal data including by disgruntled or negligent current or former employees or contractors No security solution including our cloud platform can address all possible security threats which are becoming increasingly frequent and sophisticated with the development of AI and ML or block all methods of penetrating a network or otherwise perpetrating a security breach or incident Our customers typically rely on complex network and security infrastructures which include products and services from multiple vendors to secure their networks If any of our customers becomes infected with malware or experiences a security breach or incident they could be disappointed with our services regardless of whether our services are intended to block the attack or would have blocked the attack if the customer had properly configured our cloud platform Additionally if any enterprises that are publicly known to use our services are the subject of a cyberattack that becomes publicized our current or potential customers may look to our competitors for alternatives to our services
From time to time industry or financial analysts and research firms test our solutions against other security products Our services may fail to detect or prevent threats in any particular test for a number of reasons including misconfiguration To the extent potential customers industry or financial analysts or testing firms believe that the occurrence of a failure to detect or prevent any particular threat is a flaw or indicates that our services do not provide significant value our reputation and business could be materially harmed
the expenditure of significant financial resources in efforts to analyze correct eliminate remediate or work around errors or defects to address and eliminate vulnerabilities and to address any applicable legal or contractual obligations relating to any actual perceived or purported security breach or incident
legal claims and demands including for stolen assets or information repair of system damages and compensation to customers and business partners litigation regulatory inquiries or investigations and other liability
Additionally with data security being a critical competitive factor in our industry we make public statements in our policies on our website and elsewhere describing the security of our platform and the performance of our solutions As a result we may face claims including claims of unfair or deceptive trade practices alleging these statements are not accurate brought by the U S Federal Trade Commission state local or foreign regulators and private litigants
We are increasingly utilizing AI and ML capabilities including for example those relating to generative AI and large language models into our product offerings The rapid evolution of AI and ML requires the application of resources to develop test and maintain our products and services to help ensure that AI and ML are implemented responsibly to benefit our business while also minimizing any unintended or harmful impact As with many developing technologies AI and ML present risks and challenges many of which may be unknown that could affect their further development adoption and use These risks and challenges could undermine public confidence in AI and ML which could slow or even halt its adoption and negatively affect our business Further a quickly evolving legal and regulatory environment may cause us to incur increased research and development costs or divert resources from other development efforts to address social and ethical issues related to AI and ML In addition as the regulatory landscape for AI and ML evolves we must develop and maintain robust internal policies and standards that clarify functional roles and responsibilities for the responsible and compliant development and deployment of AI technologies The use of AI technologies presents emerging ethical issues that could become controversial and failure or perceived failure to establish or enforce such policies and clear lines of accountability could increase our risk of noncompliance operational errors or reputational harm As a result of these and other challenges associated with our use implementation and training of AI and ML or misunderstandings or misrepresentations by third parties about the type of data that we use to train AI or ML we may in the future be subject to legal liability competitive harm negative media coverage or regulatory action including new proposed and in certain cases enacted rules and legislation regulating AI in jurisdictions such as the European Union new applications of existing data protection privacy cybersecurity information security intellectual property and other laws and brand or reputational harm
We license software and other technology from third parties that we incorporate into or integrate with our cloud platform We cannot be certain that our licensors are not infringing the intellectual property rights of third parties that our licensors have sufficient rights to the licensed intellectual property in all jurisdictions in which we may sell our services or that our licensors technology does not include flaws that could harm the performance of our cloud platform or malicious code that could expose our platform to cyberthreats In addition many licenses are non exclusive and therefore our competitors may have access to the same technology licensed to us Some of our agreements with our licensors may be terminated for convenience by them or otherwise provide for a limited term If we are unable to continue to license any of this technology for any reason our ability to develop and sell our services containing such technology could be harmed Similarly if we are unable to license necessary technology from third parties now or in the future we may be forced to acquire or develop alternative technology which we may be unable to do in a commercially feasible manner or at all and we may be required to use alternative technology of lower quality or performance standards This could limit and delay our ability to offer new or competitive products and services and increase our costs of production As a result our business and results of operations could be significantly harmed Additionally as part of our longer term strategy to grow our business we may consider opening our cloud platform to third party developers and applications to further extend its functionality but we cannot be certain that such efforts to grow our business will be successful
Some of our technology incorporates open source software and we license some of our software through open source projects which could negatively affect our ability to sell our platform and subject us to possible litigation
Our solutions incorporate software licensed by third parties under open source licenses including open source software included in software we receive from third party commercial software vendors Use of open source software may entail greater risks than use of third party commercial software as open source licensors generally do not provide support updates or warranties or other contractual protections regarding infringement claims or the quality of the code In addition the wide
availability of open source software used in our solutions could expose us to security vulnerabilities In particular some of the open source software we incorporate into our products may include LLMs Using open source LLMs can present uncertainty regarding license terms and restrictions potential exposure to intellectual property or privacy claims related to training data increased risk of embedded bias or security vulnerabilities and challenges in compliance with evolving AI specific regulations Furthermore the terms of many open source licenses have not been interpreted by U S and other courts and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market or commercialize our solutions As a result we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software Litigation could be costly for us to defend have a negative effect on our results of operations and financial condition or require us to devote additional research and development resources to change our solutions In addition by the terms of some open source licenses under certain conditions we could be required to release the source code of our proprietary software and to make our proprietary software available under open source licenses including authorizing further modification and redistribution In the event that portions of our proprietary software are determined to be subject to such requirements by an open source license we could be required to publicly release the affected portions of our source code re engineer all or a portion of our platform or otherwise be limited in the licensing of our services each of which provide an advantage to our competitors or other entrants to the market create security vulnerabilities in our solutions and could reduce or eliminate the value of our services Further if we are held to have breached or otherwise failed to comply with the terms of an open source software license we could be required to release certain of our proprietary source code under open source licenses pay monetary damages seek licenses from third parties to continue offering our services on terms that are not economically feasible or be subject to injunctions that could require us to discontinue the sale of our services if re engineering could not be accomplished on a timely basis Many of the risks associated with use of open source software cannot be eliminated and could negatively affect our business Moreover our processes for controlling our use of open source software in our platform may not be effective Responding to any infringement or noncompliance claim by an open source vendor regardless of its validity or discovering open source software code in our platform could harm our business operating results and financial condition by among other things
We rely on a limited number of suppliers for certain components of our cloud platform and the systems we use to operate our business and provide services to our customers and any disruption in the availability of these components could delay our ability to expand or increase the capacity of our global data center network replace defective equipment in our existing data centers or otherwise operate our business and provide services to our customers
We rely on a limited number of suppliers for several components of our cloud platform and the systems we use to operate our business and provide services to our customers including sole or limited sourced hardware software and SaaS services Some of our suppliers also temporarily hold a portion of our assets for us Our reliance on these suppliers exposes us
to risks including reduced control over production costs constraints based on the then current availability terms and pricing of these components and potential loss of assets For example we generally purchase equipment or the components of equipment on a purchase order basis and do not have long term contracts guaranteeing supply We also rely on sole or limited sourced SaaS vendors to provide critical services that we use to operate our business In addition the technology industry has experienced component shortages delivery delays price increases and service interruptions in the past and we may experience shortages delays materially increased costs or service interruptions in the future including as a result of natural disasters acts of war or international conflicts epidemics or global pandemics increased demand in the industry or if our suppliers do not have sufficient rights to supply the components in all jurisdictions in which we may host our services While global economic conditions have not yet had a material impact on our supply chain these conditions have increased our costs in the past and could result in disruptions and delays for components in the future Additionally changes to existing international trade agreements tariffs export controls or other trade measures and regulations that impact our sourcing partners or us could lead to increased costs to operate our business and to disruptions in our supply chain which could limit our ability to support our customers For instance there is a risk that current geopolitical diplomatic and other developments affecting the relationship between China and Taiwan may materially and negatively impact the availability of certain critical components that we use in our data centers which we source from overseas If our supply of certain components is disrupted or delayed there can be no assurance that available alternatives can serve as adequate replacements for the existing components or that alternatives will be available on terms that are favorable to us if at all as it may take several months or longer to identify qualify and engage a new supplier or integrator Any disruption or delay in access to components may delay opening new data centers delay increasing capacity or replacing defective equipment at existing data centers cause other constraints on our operations that could damage our channel partner or customer relationships or otherwise have a material adverse impact on our business
Claims by others that we infringe their proprietary technology or other rights or other lawsuits asserted against us could result in significant costs and substantially harm our business financial condition results of operations and prospects
A number of companies in our industry hold a large number of patents and also protect their copyright trade secret and other intellectual property rights and companies in the networking and security industry frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights In addition patent holding companies seek to monetize patents they previously developed have purchased or otherwise obtained Many companies including our competitors may now and in the future have significantly larger and more mature patent copyright trademark and trade secret portfolios than we have which they may use to assert claims of infringement misappropriation and other violations of intellectual property rights against us In addition intellectual property litigation may involve non practicing entities or other patent owners who have no relevant product offerings or revenue and against whom our own patents may therefore provide little or no deterrence or protection As we face increasing competition and gain an increasingly higher profile the possibility of intellectual property rights claims against us grows Third parties have asserted in the past and may in the future assert claims of infringement of intellectual property rights against us and these claims even without merit could harm our business including by increasing our costs reducing our revenue creating customer concerns that result in delayed or reduced sales distracting our management from the running of our business and requiring us to cease use of important intellectual property In addition because patent applications can take years to issue and are often afforded confidentiality for some period of time there may currently be pending applications unknown to us that later result in issued patents that could cover one or more of our services Moreover in a patent infringement claim against us we may assert as a defense that we do not infringe the relevant patent claims that the patent is invalid or both The strength of our defenses will depend on the patents asserted the interpretation of these patents and our ability to invalidate the asserted patents However we could be unsuccessful in advancing non infringement and or invalidity arguments in our defense In the United States issued patents enjoy a presumption of validity and the party challenging the validity of a patent claim must present clear and convincing evidence of invalidity which is a high burden of proof Conversely the patent owner need only prove infringement by a preponderance of the evidence which is a lower burden of proof Furthermore because of the substantial amount of
As the number of products and competitors in our market increases and overlaps occur claims of infringement misappropriation and other violations of intellectual property rights may increase Our insurance may not cover intellectual property rights infringement claims Third parties have in the past and may in the future also assert infringement claims against our customers or channel partners with whom our agreements may obligate us to indemnify against these claims In addition to the extent we hire personnel from competitors we may be subject to allegations that such employees have divulged proprietary or other confidential information to us
From time to time the U S Supreme Court other U S federal courts and the U S Patent and Trademark Appeals Board and their foreign counterparts have made and may continue to make changes to the interpretation of patent laws in their respective jurisdictions We cannot predict future changes to the interpretation of existing patent laws or whether U S or foreign legislative bodies will amend such laws in the future Any changes may lead to uncertainties or increased costs and risks surrounding the outcome of third party infringement claims brought against us and the actual or enhanced damages including treble damages that may be awarded in connection with any such current or future claims and could have a material adverse effect on our business and financial condition
We are unable to predict the likelihood of success in defending against future infringement claims In the event that we fail to successfully defend ourselves against an infringement claim a successful claimant could secure a judgment or otherwise require payment of legal fees settlement payments ongoing royalties or other costs or damages or we may agree to a settlement that prevents us from offering certain services or features or we may be required to obtain a license which may not be available on reasonable terms or at all to use the relevant technology If we are prevented from using certain technology or intellectual property we may be required to develop alternative non infringing technology which could require significant time during which we could be unable to continue to offer our affected services or features effort and expense and may ultimately not be successful Any of these outcomes could result in a material adverse effect on our business Even if we were to prevail third party infringement lawsuits could be costly and time consuming divert the attention of our management and key personnel from our business operations deter channel partners from selling or licensing our services and dissuade potential customers from purchasing our services which would also materially harm our business In addition any public announcements of the results of any proceedings in third party infringement lawsuits could be negatively perceived by industry or financial analysts and investors and could cause our stock price to experience volatility or decline Further the expense of litigation and the timing of this expense from period to period are difficult to estimate subject to change and could adversely affect our results of operations
We believe our intellectual property is an essential asset of our business and our success and ability to compete depend in part upon protection of our intellectual property rights We rely on a combination of patent copyright trademark and trade secret laws as well as confidentiality procedures and contractual provisions to establish and protect our intellectual property rights all of which provide only limited protection The efforts we have taken to protect our intellectual property rights may not be sufficient or effective and our patents trademarks and copyrights may be held invalid or unenforceable Moreover we cannot assure you that any patents will be issued with respect to our currently pending patent applications in a manner that gives us adequate defensive protection or competitive advantages or that any patents issued to us will not be challenged invalidated or circumvented We have filed for patents in the United States and in certain non U S jurisdictions but such protections may not be available in all countries in which we operate or in which we seek to enforce our intellectual property rights or may be difficult to enforce in practice For example many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties In addition many countries limit the enforceability of patents
against certain third parties including government agencies or government contractors In these countries patents may provide limited or no benefit Moreover we may need to expend additional resources to defend our intellectual property rights in these countries and our inability to do so could impair our business or adversely affect our international expansion Our currently issued patents and any patents that may be issued in the future with respect to pending or future patent applications may not provide sufficiently broad protection or they may not prove to be enforceable in actions against alleged infringers Additionally the U S Patent and Trademark Office and various foreign governmental patent agencies require compliance with a number of procedural documentary fee payment and other similar provisions during the patent application process and to maintain issued patents There are situations in which noncompliance can result in abandonment or lapse of the patent or patent application resulting in partial or complete loss of patent rights in the relevant jurisdiction If this occurs it could materially harm our business operating results financial condition and prospects
We may not be effective in policing unauthorized use of our intellectual property rights and even if we do detect violations litigation may be necessary to enforce our intellectual property rights In addition our intellectual property may be stolen including by cybercrimes and we may not be able to identify the perpetrators or prevent the exploitation of our intellectual property by our competitors or others Protecting against the unauthorized use of our intellectual property rights technology and other proprietary rights is expensive and difficult particularly outside of the United States Any enforcement efforts we undertake including litigation could be time consuming and expensive and could divert management s attention either of which could harm our business operating results and financial condition Further attempts to enforce our rights against third parties could also provoke these third parties to assert their own intellectual property or other rights against us or result in a holding that invalidates or narrows the scope of our rights in whole or in part The inability to adequately protect and enforce our intellectual property and other proprietary rights could seriously harm our business operating results financial condition and prospects Even if we are able to secure our intellectual property rights we cannot assure you that such rights will provide us with competitive advantages or distinguish our services from those of our competitors or that our competitors will not independently develop similar technology duplicate any of our technology or design around our patents
Our operations and performance depend in part on worldwide economic conditions and the impact these conditions have on levels of spending on IT networking and security solutions Our business depends on the overall demand for these solutions and on the economic health and general willingness of our current and prospective customers to purchase our security services A broad reduction in IT security spending would have a material impact to our business
The United States and the global economy have recently experienced historically high levels of inflation The existence of inflation in the U S and global economy the pricing pressure created by rising inflation in prior periods and changes to trade regulations including tariffs may result in high interest rates and capital costs high shipping costs supply shortages increased costs of labor weakening exchange rates and other similar effects Elevated inflation rates can affect our expenses especially employee compensation In addition rising interest rates could adversely affect the value of our investments and cash on hand and increase our borrowing costs Inflation and related increases in interest rates could also increase our customers operating costs which could result in reduced IT budgets less demand for our solutions or delays in new orders renewals or payments due to us
Governments have and are implementing fiscal policy interventions in response to high levels of inflation including raising interest rates or keeping them at elevated levels Even if these interventions lower inflation to desirable levels they may also reduce economic growth rates create recessions and increase unemployment rates This could have an adverse effect on our consolidated financial condition and results of operations For example if our customers were to reduce their IT budgets or workforces in response to deteriorating economic conditions they may not purchase or renew subscriptions for our services or may renew for fewer users or less expensive services These policy changes have provided a benefit to us as a
The impact of economic conditions including the ongoing effects of inflation high interest rates regional or global recessions and changing trade regulations including tariffs could materially and adversely affect our business operating results and financial condition in a number of ways including by reducing sales lengthening sales cycles and requiring us to lower prices for our services
Our business is subject to regulation by various federal state local and foreign governmental agencies including agencies responsible for monitoring and enforcing laws and regulations relating to privacy data protection information security and cybersecurity employment and labor laws workplace safety product safety environmental laws consumer protection laws anti bribery laws import and export controls federal securities laws and tax laws and regulations In addition emerging tools and technologies we utilize in providing our products like AI and ML are subject to regulation under new laws as well as new applications of existing laws In certain jurisdictions these regulatory requirements may be more stringent than in the United States These laws and regulations impose added costs on our business Noncompliance with applicable regulations or requirements could subject us to
If any government sanctions are imposed or if we do not prevail in any possible civil or criminal litigation our business operating results and financial condition could be adversely affected In addition responding to any action will likely result in a significant diversion of management s attention and resources and an increase in professional fees Enforcement actions and sanctions could materially harm our business operating results and financial condition
As a global employer we are subject to various labor laws including worker classification laws that impact compliance obligations regarding working time proper payment for time worked time off regulations as well as anti retaliation discrimination and harassment policies and compliance with employee representative rights We take reasonable efforts to comply with applicable labor laws and regulations impacting our workforce but failure to comply with such laws could result in government enforcement actions and penalties may negatively impact business operations and may be harmful to our reputation and our ability to attract and retain employees
These laws and regulations impose added costs on our business and failure to comply with these or other applicable regulations and requirements could lead to claims for damages from our channel partners or customers penalties termination of contracts and loss of exclusive rights in our intellectual property
If we were not able to satisfy data protection security privacy and other government and industry specific requirements or regulations our business results of operations and financial condition could be harmed
The regulatory framework for privacy data protection and security matters are rapidly evolving and are likely to remain volatile for the foreseeable future Our handling of personal data is subject to various data protection cybersecurity information security and other telecommunications regulations or requirements where we offer our solutions around the world We also may find it necessary or desirable to join industry or other self regulatory bodies or other cybersecurity or information security or data protection related organizations that require us to comply with rules pertaining to privacy data protection cybersecurity and information security Further we may be bound by additional more stringent contractual obligations and other actual and asserted obligations such as industry standards relating to our collection use and disclosure of personal financial and other data Changes in laws or regulations that adversely affect the use of the internet including laws impacting net neutrality could also impact our business
The U S federal government and various state and foreign governments have adopted or proposed laws and regulations on the collection distribution use storage transfer and other processing of information relating to individuals Such laws and regulations may among other things require companies to implement privacy and security policies permit customers to access correct and delete information stored or maintained by companies inform individuals of security breaches that affect their information and in some cases obtain individuals consent to use information for certain purposes Numerous U S states have enacted and others are expected to enact privacy laws and a federal privacy law is being considered In addition in certain jurisdictions regulatory requirements may be more stringent than those in the U S For example the European Union s General Data Protection Regulation provides for substantial obligations relating to the handling storage disclosure transfer and other processing of information relating to individuals and fines of up to 20 million or 4 of the annual global revenue of the noncompliant company whichever is greater Furthermore cross border data transfers face increasing restrictions and compliance requirements Following the invalidation of the EU US Privacy Shield and ongoing challenges to Standard Contractual Clauses data localization requirements and transfer restrictions continue to evolve Various countries have implemented or are considering data residency requirements that could limit our ability to provide global services efficiently or require significant infrastructure investments In addition the number of emerging and existing data protection privacy and security laws and regulations creates the risk that obligations may be interpreted inconsistently between jurisdictions which may make it difficult for us to comply with our privacy data protection and security obligations globally
We expect that there will continue to be new proposed laws regulations and industry standards concerning privacy data protection cybersecurity information security and telecommunications services in the jurisdictions in which we operate or may operate and we cannot yet determine the impact such future laws regulations and standards may have on our business Needing to address new obligations and changes in the interpretation of existing obligations could require us to modify our solutions restrict our business operations increase our costs and impair our ability to maintain and grow our customer base and increase our revenue New and evolving requirements may increase compliance costs lead to increased regulatory scrutiny or liability may require additional contractual negotiations and may adversely impact our business financial condition and operating results Any failure or perceived failure by us to comply with applicable laws regulations standards or actual or asserted obligations or any actual perceived or purported security breach or other security incident whether or not resulting in unauthorized access to or acquisition release or transfer of information relating to individuals or other data may result in governmental investigations enforcement actions and other proceedings private claims and litigation fines and penalties or adverse publicity and could cause our customers and prospective customers to lose trust in us which could have an adverse effect on our reputation and business
We are subject to governmental import and export controls and trade and economic sanctions and other trade controls including tariffs that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws
Our business activities are subject to various restrictions under U S export and similar laws and regulations including the U S Department of Commerce s Export Administration Regulations and various economic and trade sanctions regulations administered by the U S Department of the Treasury s Office of Foreign Assets Control U S export controls and trade and economic sanctions include restrictions or prohibitions on the sale or supply of certain products and services to U S embargoed or sanctioned countries and governments of these countries as well as other persons and entities For example the U S and other countries have implemented economic and other sanctions as well as increased export controls in response to the current conflict between Russia and Ukraine These measures have continued to increase These export controls and sanctions and any additional restrictions may impact our ability to operate in Russia and other affected regions In addition various countries regulate the import of certain technology and have enacted or could enact laws that could limit our ability to provide our services and software and operate our cloud platform or could limit our customers ability to access or use our services or software in those countries
Although we take precautions to prevent our services and software from being provided in violation of such laws our services and software may have been in the past and could in the future be provided inadvertently in violation of such laws despite the precautions we take If we fail to comply with these laws and regulations we and certain of our employees could be subject to civil or criminal penalties including the possible loss of export privileges and fines We may also be materially and adversely affected through penalties reputational harm loss of access to certain markets or otherwise Obtaining the necessary authorizations including any required licenses for a particular transaction may be time consuming is not guaranteed and may result in the delay or loss of sales opportunities
In addition changes in our platform export sanctions and import laws and regulations or tariffs and other trade regulations could delay the introduction of our products and reduce the sale of subscriptions to our platform in international markets prevent users in certain countries from accessing our services or in some cases prevent the provision of our services to certain countries governments persons or entities altogether Any change or threatened change in export or import regulations tariffs economic sanctions or related laws shift in the enforcement or scope of existing regulations or change in the countries governments persons or technologies targeted by such regulations could decrease our ability to sell subscriptions to our platform or provide software to existing customers or potential new customers with international operations Any decrease in our ability to sell subscriptions to our platform or provide software could materially and adversely affect our business results of operations and financial condition
The vast majority of our sales contracts are denominated in U S dollars and therefore substantially all of our revenue is not subject to foreign currency risk However a strengthening of the U S dollar could increase the real cost of our solutions to our customers outside of the United States which could adversely affect our financial condition and operating results In addition a portion of our operating expenses is incurred outside the United States and denominated in foreign currencies which are subject to fluctuations due to changes in foreign currency exchange rates A weakening U S dollar could increase the cost of these foreign currency denominated expenses in dollar terms We are also exposed to the impact of currency fluctuations on certain assets and liabilities denominated in nonfunctional currencies
We have a foreign currency risk management program in which we enter into foreign currency forward contracts which we designate as cash flow hedges We also use foreign currency forward contracts to mitigate variability in gains and losses generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies The use of
If we become more exposed to currency fluctuations and are not able to successfully hedge against the risks associated with currency fluctuations our operating results could be materially and adversely affected Further unanticipated changes in currency exchange rates may result in poorer overall financial performance than if we had not engaged in any such hedging transactions
We have numerous arrangements with financial institutions that include cash and investment deposits capped call contracts and non collateralized interest rate swap contracts and foreign currency forward contracts As a result we are subject to the risk that the counterparty to one or more of these arrangements may default on its performance under the terms of the arrangement In times of market distress a counterparty may default rapidly and without notice and we may be unable to take action to cover our exposure either because of lack of contractual ability to do so or because market conditions make it difficult to take effective action If one of our counterparties becomes insolvent or files for bankruptcy our ability eventually to recover any losses suffered as a result of that counterparty s default may be limited by the impaired liquidity of the counterparty or the applicable legal regime governing the bankruptcy proceedings In the event of such a default we could incur significant losses which could harm our business and adversely affect our results of operations and financial condition
We are expanding our international operations and staff to support our business in international markets Our corporate structure and associated transfer pricing policies contemplate the business flows and future growth into the international markets and consider the functions risks and assets of the various entities involved in the intercompany transactions The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of the various jurisdictions including the United States to our international business activities changes in tax rates new or revised tax laws or interpretations of existing tax laws and policies and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements For example certain jurisdictions have recently introduced a digital services tax which is generally a tax on gross revenue generated from users or customers located in those jurisdictions and other jurisdictions are considering enacting similar laws The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to the intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions If such a challenge or disagreement were to occur and our position was not sustained or if there are changes in tax laws or the way existing tax laws are interpreted or applied we could be required to pay additional taxes interest and penalties which could result in one time tax charges higher effective tax rates reduced cash flows and lower overall profitability of our operations Our financial statements could fail to reflect adequate reserves to cover such a contingency
Many countries are beginning to implement legislation and other guidance to align their international tax rules with the Organization for Economic Cooperation and Development s or OECD Base Erosion and Profit Shifting recommendations and action plan that aim to standardize and modernize global corporate tax policy including changes to cross border tax transfer pricing documentation rules and nexus based tax incentive practices The OECD is also continuing discussions surrounding fundamental changes in allocation of profits among tax jurisdictions in which companies do business as well as the implementation of a global minimum tax namely the Pillar One and Pillar Two proposals Many countries have enacted or begun the process of enacting laws based on Pillar Two proposals which may adversely impact our provision for income taxes net income and cash flows
As of July 31 2025 we had net operating loss carryforwards for U S federal income tax purposes and state income tax purposes of approximately 1 057 0 million and 504 7 million respectively available to offset future taxable income Beginning in 2025 426 8 million of state net operating losses began to expire at different periods The remaining 77 9 million of state net operating losses will carry forward indefinitely As of July 31 2025 we had foreign net operating loss carryforward of 87 7 million all of which will be carried forward indefinitely
As of July 31 2025 we also had U S federal California and foreign research and development and other tax credit carryforwards of 192 8 million 102 6 million and 2 1 million respectively If not utilized the federal research and development tax credit carryforwards will begin expiring at different periods beginning in 2037 Our California research and development tax credits may be carried forward indefinitely Foreign tax credits will begin to expire in the fiscal year ending 2033 Realization of these net operating loss and research and development tax credit carryforwards depends on future income and there is a risk that a portion of our existing carryforwards could expire unused and be unavailable to offset future income tax liabilities which could materially and adversely affect our results of operations
In addition under Section 382 of the Internal Revenue Code of 1986 as amended if a corporation undergoes an ownership change generally defined as a greater than 50 change by value in its equity ownership by 5 shareholders over a three year period the corporation s ability to use its pre change net operating loss carryforwards and other pre change tax attributes such as research and development tax credits to offset its post change income may be limited As a result in the event that it is determined that we have in the past experienced an ownership change or if we experience one or more ownership changes in the future as a result of subsequent shifts in our stock ownership our ability to use our pre change net operating loss carryforwards and other pre change tax attributes to offset U S federal taxable liability may be subject to limitations which could potentially result in increased future tax liability to us Furthermore our state carryforwards may be subject to similar and additional limitations
Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use value added or similar taxes and we could be subject to liability with respect to past or future sales which could adversely affect our operating results
We do not collect sales and use value added or similar taxes in all jurisdictions in which we have sales because we have been advised that such taxes are not applicable to our services in certain jurisdictions Sales and use value added and similar tax laws and rates vary greatly by jurisdiction Certain jurisdictions in which we do not collect such taxes may assert that such taxes are applicable which could result in tax assessments penalties and interest to us or our customers for the past amounts and we may be required to collect such taxes in the future If we are unsuccessful in collecting such taxes from our customers we could be held liable for such costs which may materially and adversely affect our operating results
The concentration of our stock ownership with insiders will likely limit your ability to influence corporate matters including the ability to influence the outcome of director elections and other matters requiring stockholder approval
r common stock As a result these stockholders acting together will have significant control over most matters that require approval by our stockholders including the election of directors and approval of significant corporate transactions Corporate action might be
taken even if other stockholders oppose them This concentration of ownership might also have the effect of delaying or preventing a change of control of us that other stockholders may view as beneficial
Certain provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult limit attempts by our stockholders to replace or remove members of our board of directors or current management and may adversely affect the market price of our common stock
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change in control of our company These provisions could also make it difficult for stockholders to elect directors that are not nominated by the current members of our board of directors or take other corporate actions including effecting changes in our management These provisions include
the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares including preferences and voting rights without stockholder approval which could be used to significantly dilute the ownership of a hostile acquirer
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation death or removal of a director which prevents stockholders from being able to fill vacancies on our board of directors
the requirement that a special meeting of stockholders may be called only by the chairperson of our board of directors chief executive officer or president in the absence of a chief executive officer or a majority vote of our board of directors which could delay the ability of our stockholders to force consideration of a proposal or to take action including the removal of directors
the requirement for the affirmative vote of holders of at least 66 2 3 of the voting power of all of the then outstanding shares of the voting stock voting together as a single class to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws which may inhibit the ability of an acquirer to affect such amendments to facilitate an unsolicited takeover attempt
the ability of our board of directors by majority vote to amend our amended and restated bylaws which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend our amended and restated bylaws to facilitate an unsolicited takeover attempt and
advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders meeting which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer s own slate of directors or otherwise attempting to obtain control of us
The market price of our common stock has fluctuated substantially and may fluctuate significantly in the future in response to a number of factors including those described in this Risk Factors section many of which are beyond our control and may not be related to our operating performance These fluctuations could cause you to lose all or part of your investment in our common stock Factors that could cause fluctuations in the market price of our common stock include the following
failure of industry or financial analysts to maintain coverage of us changes in financial estimates by any analysts who follow our company or our failure to meet these estimates or the expectations of investors
In addition the stock market in general and the market for technology companies in particular has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies Broad market and industry factors may seriously affect the market price of our common stock regardless of our actual operating performance In addition in the past following periods of volatility in the overall market and the market prices of a particular company s securities securities class action litigation has often been instituted against that company Securities litigation if instituted against us could result in substantial costs and divert our management s attention and resources from our business This could have an adverse effect on our business operating results and financial condition
Sales of substantial amounts of our common stock in the public markets or the perception that they might occur as well as any issuances of our common stock in connection with the conversion of the 2028 Notes or other securities convertible into shares of our common stock could reduce the price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us
Sales of a substantial number of shares of our common stock in the public market particularly sales by our directors executive officers and significant stockholders or the perception that these sales could occur could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate We may also issue our shares of common stock or securities convertible into shares of our common stock from time to time in connection with a financing acquisition investments or otherwise Any such issuance could result in substantial dilution to our existing stockholders cause the market price of our common stock to decline and dilute your voting power For instance prior to April 15 2028 our 0 0 Convertible Senior Notes due 2028 or the 2028 Notes are convertible at the option of the holders only under certain conditions or upon the occurrence of certain events After April 15 2028 holders may convert all or any portion of the 2028 Notes at their option at any time If one or more holders elect to convert their 2028 Notes and we elect to settle all or any portion of such conversions in shares of our common stock any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock In addition certain holders of the 2028 Notes may engage in short selling to hedge their position in the 2028 Notes Any anticipated future issuances of shares of our common stock upon conversion of the 2028 Notes could also depress the price of our common stock
We have never declared or paid any cash dividends on our common stock We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future Any determination to pay dividends in the future will be at the discretion of our board of directors Accordingly investors must rely on sales of their common stock after price appreciation which may never occur as the only way to realize any future gains on their investments
The trading market for our common stock is influenced by the research and reports that industry or financial analysts publish about us or our business We do not control these analysts or the content and opinions included in their reports If any of the analysts who cover us issues an inaccurate or unfavorable opinion regarding our stock price our stock price would likely decline In addition the stock prices of many companies in the technology industry have declined significantly after
those companies have failed to meet or significantly exceed the financial guidance publicly announced by the companies or the expectations of analysts If our financial results fail to meet or significantly exceed our announced guidance or the expectations of analysts or public investors analysts could downgrade our common stock or publish unfavorable research about us If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly our visibility in the financial markets could decrease which in turn could cause our stock price or trading volume to decline
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States are the exclusive forums for substantially all disputes between us and our stockholders which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors officers or employees
Our amended and restated certificate of incorporation further provides that the federal district courts of the United States are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933 as amended
Each of these exclusive forum provisions may limit a stockholder s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors officers or other employees which may discourage lawsuits against us and our directors officers and other employees
On July 3 2025 we issued 1 725 million in aggregate principal amount of our 0 0 Convertible Senior Notes due 2028 which mature on July 15 2028 Prior to April 15 2028 the 2028 Notes are convertible at the option of the holders only under certain conditions or upon the occurrence of certain events During the quarter ended July 31 2025 the conditions allowing holders of the 2028 Notes to convert were not met After April 15 2028 holders may convert all or any portion of their 2028 Notes at their option at any time If one or more holders elect to convert their 2028 Notes when eligible unless we elect to deliver solely shares of our common stock to settle such conversion other than paying cash in lieu of delivering any fractional share we will be required to make cash payments in respect of the 2028 Notes being converted
Additionally holders of the 2028 Notes have the right to require us to repurchase the 2028 Notes upon the occurrence of a fundamental change as defined in the indenture governing the 2028 Notes at a repurchase price equal to 100 of the principal amount of such 2028 Notes to be repurchased plus accrued and unpaid interest if any to but excluding the
Our ability to make such payments or to refinance our indebtedness including the 2028 Notes depends on our future performance which is subject to economic financial competitive and other factors beyond our control Such payments will reduce the funds available to us for working capital capital expenditures and other corporate purposes and may limit our ability to obtain additional financing for working capital capital expenditures expansion plans and other investments We plan to evaluate on an ongoing basis market conditions our liquidity profile and various financing alternatives including the issuance of equity equity linked or debt securities for opportunities to enhance our capital structure
In connection with the pricing of the 2028 Notes we entered into privately negotiated capped call transactions with certain of the initial purchasers and or their respective affiliates and other financial institutions or the Option Counterparties The capped call transactions are expected generally to reduce the potential dilution to our common stock upon conversion of the 2028 Notes and or offset any cash payments we are required to make in excess of the principal amount of converted 2028 Notes as the case may be with such reduction and or offset subject to a cap
The Option Counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2028 Notes and are likely to do so during the observation period related to a conversion of the 2028 Notes in connection with any fundamental change repurchase of the 2028 Notes and to the extent we unwind a corresponding portion of the capped call transactions following any other repurchase of the 2028 Notes This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the 2028 Notes
The Option Counterparties are financial institutions and we will be subject to the risk that any or all of them might default under the capped call transactions Our exposure to the credit risk of the Option Counterparties will not be secured by any collateral Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions If an Option Counterparty becomes subject to insolvency proceedings we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the capped call transactions with such Option Counterparty Our exposure will depend on many factors but generally an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock In addition upon a default by an Option Counterparty we may suffer more dilution than we currently anticipate with respect to our common stock We can provide no assurance as to the financial stability or viability of the Option Counterparties
Our business is subject to the risks of earthquakes fire floods and other natural catastrophic events and to interruption by man made problems such as power disruptions computer viruses acts of war international conflicts terrorism and security breaches or incidents
Our corporate headquarters are located in the San Francisco Bay Area a region known for seismic activity A significant natural disaster such as an earthquake fire flood or public health emergency occurring at our headquarters in India where we have significant facilities or where a key channel partner vendor or data center is located could adversely affect our business results of operations and financial condition Further if a natural disaster or man made problem were to affect our
component suppliers or other third party providers including our network bandwidth and SaaS solution providers this could materially and adversely affect our ability to provide services in a timely or cost effective manner
In addition natural disasters acts of war international conflicts such as the current conflicts between Russia and Ukraine and in the Middle East terrorism and other geopolitical unrest or health issues such as an outbreak of a pandemic or epidemic disease or fear of such events could cause disruptions in our or our customers businesses national economies or the world economy as a whole In addition computer malware viruses and computer hacking fraudulent use attempts and phishing attacks have become more prevalent in our industry and may become more frequent and effective through the use of AI As a result our internal systems may be victimized by such attacks Although we maintain incident management and disaster response plans in the event of a major disruption caused by a natural disaster or man made problem we may be unable to continue our operations and may endure system interruptions reputational harm delays in our development activities lengthy interruptions in service security breaches and incidents and loss of critical data Though it is difficult to determine what if any harm may directly result from any specific interruption or attack any failure to maintain performance reliability security and availability of our platform to the satisfaction of our users may materially harm our reputation and our ability to retain existing customers and attract new customers
We are subject to the U S Foreign Corrupt Practices Act of 1977 the U K Bribery Act 2010 and other anti corruption anti bribery anti money laundering and similar laws in the United States and other countries in which we conduct activities Anti corruption and anti bribery laws which have been enforced aggressively and interpreted broadly prohibit companies and their employees and agents from promising authorizing making or offering improper payments or other benefits to government officials and others in the private sector We leverage third parties including channel partners to sell subscriptions to our platform and conduct our business abroad We and these third party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these third party business partners and intermediaries our employees representatives contractors channel partners and agents even if we do not explicitly authorize such activities While we have policies and procedures to address compliance with anti bribery laws our employees or agents may violate our policies and applicable law and we could be ultimately held responsible for these violations As we increase our international sales and business our risks under these laws may increase Noncompliance with these laws could subject us to investigations severe criminal or civil sanctions settlements prosecution loss of export privileges suspension or debarment from U S government contracts other enforcement actions disgorgement of profits significant fines damages other civil and criminal penalties or injunctions whistleblower complaints adverse media coverage and other consequences Any investigations actions or sanctions could materially harm our reputation business results of operations and financial condition
As a public company we are subject to the reporting requirements of the Securities Exchange Act of 1934 as amended or the Exchange Act the Sarbanes Oxley Act of 2002 or the Sarbanes Oxley Act and the rules and regulations of The Nasdaq Global Select Market or Nasdaq The requirements of these rules and regulations will impose significant legal accounting and financial compliance costs make some activities more difficult time consuming and costly and place significant strain on our personnel systems and resources
The Sarbanes Oxley Act requires among other things that we maintain effective disclosure controls and procedures and internal control over financial reporting We have developed our disclosure controls internal control over financial reporting and other procedures to ensure information required to be disclosed by us in the reports that we will file with the SEC is
recorded processed summarized and reported within the time periods specified in SEC rules and forms and information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers
Our current controls and any new controls we develop may become inadequate because of changes in conditions in our business Further weaknesses in our internal controls may be discovered in the future Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports we will file with the SEC under Section 404 of the Sarbanes Oxley Act Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information which would likely have a negative effect on the market price of our common stock
In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting we have expended and anticipate we will continue to expend significant resources including accounting related costs and provide significant management oversight Any failure to maintain the adequacy of our internal controls or consequent inability to produce accurate financial statements on a timely basis could increase our operating costs and could materially impair our ability to operate our business If our internal controls are perceived as inadequate or we are unable to produce timely or accurate financial statements investors may lose confidence in our operating results and our stock price could decline In addition if we are unable to continue to meet these requirements we may not be able to remain listed on Nasdaq
Pursuant to Section 404 of the Sarbanes Oxley Act we are required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting We are also required to have our independent registered public accounting firm issue an opinion on the effectiveness of our internal control over financial reporting During the evaluation and testing process if we identify one or more material weaknesses in our internal control over financial reporting we will be unable to assert that our internal controls are effective
If we are unable to assert that our internal control over financial reporting is effective or if when required our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting we could lose investor confidence in the accuracy and completeness of our financial reports which would cause the price of our common stock to decline and we may be subject to investigation or sanctions by the SEC
If our estimates or judgments relating to our critical accounting policies prove to be incorrect or financial reporting standards or interpretations change our results of operations could be adversely affected
The preparation of financial statements in conformity with generally accepted accounting principles in the United States or GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances as provided in the section titled Management s Discussion and Analysis of Financial Condition and Results of Operations The results of these estimates form the basis for making judgments about the carrying values of assets liabilities and equity and the amount of revenue and expenses that are not readily apparent from other sources Significant assumptions and estimates used in preparing the consolidated financial statements include those related to determination of
revenue recognition deferred revenue deferred contract acquisition costs capitalized internal use software valuation of acquired intangible assets period of benefit generated from our deferred contract acquisition costs allowance for doubtful accounts valuation of common stock options and stock based awards
useful lives of property and equipment useful lives of acquired intangible assets recoverability of goodwill valuation of deferred tax assets and liabilities loss contingencies related to litigation fair value of the 2028 Notes and the discount rate used for operating leases
Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions which could cause our results of operations to fall below the expectations of industry or financial analysts and investors resulting in a decline in the trading price of our common stock
Additionally we regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us As a result of new standards changes to existing standards and changes in their interpretation we might be required to change our accounting policies alter our operational policies and implement new or enhance existing systems so that they reflect new or amended financial reporting standards or we may be required to restate our published financial statements Such changes to existing standards or changes in their interpretation may have an adverse effect on our reputation business financial position and profit or cause an adverse deviation from our revenue and operating profit target which may negatively impact our financial results
We rely on third parties for certain essential financial and operational services and a failure or disruption in these services could materially and adversely affect our ability to manage our business effectively
We rely on third parties to provide many essential financial and operational services to support our business Many of these vendors are less established and have shorter operating histories than traditional software vendors Moreover these vendors provide their services to us via a cloud based model instead of software that is installed on our premises As a result we depend upon these vendors to provide us with services that are always available and are free of errors or defects that could cause disruptions in our business processes Any failure by these vendors to do so or any disruption in our ability to access the internet would materially and adversely affect our ability to manage our operations
From time to time we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business including patent commercial product liability employment class action whistleblower and other litigation and claims and governmental and other regulatory investigations and proceedings Such matters can be time consuming divert management s attention and resources cause us to incur significant expenses or liability and or require us to change our business practices In addition the expense of litigation and the timing of this expense from period to period are difficult to estimate subject to change and could adversely affect our results of operations Because of the potential risks expenses and uncertainties of litigation we may from time to time settle disputes even where we have meritorious claims or defenses by agreeing to settlement agreements Because litigation is inherently unpredictable we cannot assure you that the results of any of these actions will not have a material adverse effect on our business financial condition results of operations and prospects
As a leading cybersecurity provider we understand the importance of robust cybersecurity practices and safeguarding and certifying our solutions to internationally recognized commercial and government standards Trust is the foundation of everything we do and we earn that trust through a comprehensive approach to identifying managing and mitigating cybersecurity risk to our business and operations
Our platform was built leveraging guidance from leading industry frameworks to effectively manage and mitigate cybersecurity risks Our rigorous risk management processes which include data privacy product security and information security are overseen by the audit committee of our board of directors and our internal security committee and are designed to ensure confidentiality integrity and availability of our platform These processes have been integrated into our overall enterprise risk management framework which is overseen by our board of directors
Our internal security committee identifies and prioritizes protective measures across our enterprise and products continuously driving improvements to our security approach as threats evolve The committee members are key functional leaders from across the Company who share critical information and use data driven strategies to manage cyber risks The committee is led by our chief security officer and includes representatives from our security team information technology information security incident response engineering enterprise risk product management cloud operations legal and compliance teams Our internal security committee has the primary responsibility for assessing monitoring and managing our cybersecurity risks including the prevention detection mitigation and remediation of cybersecurity incidents The technical personnel comprising our internal security committee are experienced cybersecurity professionals and information security managers with many years of experience across a variety of technology sub specialties
As a provider of cybersecurity products and services it is critical for us to identify and implement protective measures across our enterprise and products continuously driving improvements to our security approach Our in house global threat research team Zscaler ThreatLabZ a team of more than 150 security experts collectively works to identify and prevent emerging threats using malware reverse engineering behavior analytics data science and AI We use the threat intelligence generated by ThreatLabz and other sources to implement security checks and reviews throughout our product development lifecycle Our internal security teams and external cybersecurity auditors continuously evaluate our products including by performing regular penetration tests and risk assessments to identify potential vulnerabilities
We regularly review our cybersecurity policies standards and procedures to account for changes in the threat landscape as well as in response to legal and regulatory developments Our cybersecurity efforts also include mandatory training for all employees and contractors on our security and privacy policies
Our cybersecurity risk management approach provides a framework for identifying monitoring evaluating and responding to risks from cybersecurity threats and incidents This framework includes steps for identifying the sources of potential cybersecurity threats or incidents including potential threats and incidents associated with a third party vendor or service provider assessing the severity and risk of potential threats and incidents and implementing cybersecurity countermeasures and mitigation strategies We recognize that our relationships with third parties may pose significant risks and therefore we have implemented practices for building vendor diligence onboarding and monitoring capabilities to assess those risks These efforts can include internal briefings from our security and technical personnel as well as external reports and threat intelligence from governmental public and private sources including external consultants and reports produced by security tools deployed in our technical environment
Our incident response plan includes processes and procedures for assessing potential internal and external threats activation and notification crisis management and post incident analysis designed to safeguard the confidentiality availability and integrity of our platform and assets A cross functional incident response team comprised of representatives from our internal security committee including information technology information security engineering cloud operations compliance privacy legal and members of our executive leadership team is responsible for the monitoring and disposition of potential incidents such as data breaches intrusions and other security events and implementing our detailed incident response plan Our approach includes procedures to appropriately inform management the audit committee of the board of directors and the full board of directors as applicable about cybersecurity threats and incidents In fiscal 2025 we did not identify any cybersecurity incidents that materially affected or are reasonably likely to materially affect our business results of operations or financial condition
Our board of directors has oversight responsibility for our overall enterprise risk management The audit committee of the board of directors oversees cybersecurity risk with input from our internal security committee based on its oversight of our risk management processes In accordance with our incident response plan the internal security committee meets at least monthly provides cybersecurity updates to the audit committee quarterly and apprises the full board of directors as needed
Effective April 29 2025 we entered into a lease agreement or the lease for our new headquarters The property subject to the lease is located in Santa Clara California and consists of approximately 301 000 square feet of rentable space The lease term begins on September 1 2026 and ends on April 30 2032 with an option for early access in January 2026 to facilitate tenant improvements
We also maintain offices elsewhere in the United States as well as multiple locations internationally including in Asia Europe and the Middle East We lease all of our facilities and do not own any real property If necessary we expect to add facilities as we grow our employee base and expand geographically
The information called for by this Item is incorporated herein by reference to Item 8 Financial Statements and Supplementary Data Note 12 Commitments and Contingencies of the consolidated financial statements included elsewhere in this Annual Report on Form 10 K
As of July 31 2025 we had 47 holders of record of our common stock The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees
We have never declared or paid cash dividends on our common stock We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends in the foreseeable future Any future determination to declare dividends will be made at the discretion of our board of directors subject to applicable laws and will depend on our financial condition operating results capital requirements general business conditions and other factors that our board of directors may deem relevant
The information required by this item with respect to our equity compensation plans is incorporated by reference to our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended July 31 2025
This performance graph shall not be deemed soliciting material or to be filed with the SEC for purposes of the Exchange Act or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of Zscaler Inc under the Securities Act or the Exchange Act
This performance graph compares the cumulative total return to our stockholders to the Standard Poor s 500 Index and Standard Poor Information Technology Index for the five years ended July 31 2025 All values assume a 100 initial
investment and data for the Standard Poor s 500 Index and Standard Poor Information Technology Index assume reinvestment of dividends The comparisons are based on historical data and are not indicative of nor intended to forecast the future performance of our common stock
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10 K As discussed in the section titled Special Note Regarding Forward Looking Statements the following discussion contains forward looking statements that involve risks and uncertainties Our actual results could differ materially from those discussed below Factors that could cause or contribute to such difference include but are not limited to those identified below and those discussed in the section titled Risk Factors and elsewhere in this Annual Report on Form 10 K Our fiscal year end is July 31 and our fiscal quarters end on October 31 January 31 April 30 and July 31
Zscaler was incorporated in 2007 during the early stages of cloud adoption and mobility based on a vision that the internet would become the new corporate network as the cloud becomes the new data center We correctly predicted that with rapid cloud adoption and increasing workforce mobility traditional perimeter security approaches would prove to be inadequate in protecting users and data prohibitively expensive and result in poor user experience Enterprises now rely on external SaaS applications for critical business functions and have or are moving their internally managed applications to the public cloud infrastructure As a result users now expect to be able to seamlessly access applications and data wherever they are hosted from any device anywhere in the world The emergence and rapid adoption of AI is revolutionizing the transformational impact of cloud adoption and mobility AI is fundamentally changing how organizations operate creating new cybersecurity threats and IT challenges but also the opportunity to use AI to counter cybersecurity threats and improve IT operations
We generate revenue primarily from sales of subscriptions to access our cloud platform together with related support services We also generate an immaterial amount of revenue from professional and other services which consist primarily of fees associated with mapping implementation network design and training Our subscription pricing is primarily calculated on a per user basis We recognize subscription and support revenue ratably over the life of the contract which is generally one to three years As of July 31 2025 we had expanded our operations to over 9 400 customers across major industries with users in over 185 countries Government agencies and some of the largest enterprises in the world rely on us to support their secure digital transformation
We operate our business as one reportable segment Our revenue has experienced significant growth in recent periods For fiscal 2025 fiscal 2024 and fiscal 2023 our revenue was 2 673 1 million 2 167 8 million and 1 617 0 million respectively We have incurred net losses in all annual periods since our inception For fiscal 2025 fiscal 2024 and fiscal 2023 our net loss was 41 5 million 57 7 million and 202 3 million respectively We expect we will continue to incur net losses for the foreseeable future as we continue to invest in our sales and marketing organization to maximize our market opportunity to invest in research and development efforts to enhance the functionality of our cloud platform and to address any legal matters and related accruals as further described in Note 12 Commitments and Contingencies of the consolidated financial statements included elsewhere in this Annual Report on Form 10 K
Changes in macroeconomic and geopolitical conditions can cause uncertainty in our business We continue to see customer scrutiny of and elongated approval processes for transactions particularly larger deals as customers continue to carefully consider purchasing decisions and are requiring multiple approvals for large expenditures in response to the uncertain economic environment Macroeconomic conditions may impact the future demand for subscriptions of our cloud platform
In a cloud mobile first and AI enabled world where organizations depend on public and third party infrastructure and technologies to assess critical applications that power their businesses enterprises that continue to rely on legacy network and security architecture built on firewalls and VPNs face serious challenges The adoption of cloud applications and infrastructure explosion of internet traffic volumes and shift to mobile first computing generally and the pace at which enterprises adopt the internet as their corporate network in particular impact our ability to drive market adoption of our cloud platform However the dependence on the internet expanding digital transformation and growing AI usage have increased exposure to malicious or compromised websites and sophisticated hackers are exploiting the gaps left by legacy network security appliances To securely access the internet transform their networks and expand their AI adoption organizations must also make fundamental changes in their network and security architectures We believe that most organizations have yet to fully make these investments Because our cloud platform enables organizations to securely embrace digital transformation we believe that the imperative for organizations to securely move to the cloud will increase demand for our cloud platform and broaden our customer base
We believe that our ability to increase the number of customers and more significantly large enterprises on our cloud platform is an indicator of our market penetration and our future business opportunities As of July 31 2025 2024 and 2023 we had over 9 400 8 650 and 7 700 customers respectively across all major geographies As of July 31 2025 we had approximately 40 of the Forbes Global 2000 as customers Our ability to continue to grow these numbers will increase our future opportunities for renewals and follow on sales We believe that we have significant room to capture additional market share and intend to continue to invest significantly in sales and marketing to engage our prospective customers increase brand awareness further leverage our channel partnerships and drive adoption of our solution However as a result of the challenging and uncertain economic environment potential new customers are carefully considering purchasing decisions particularly for large expenditures We expect customer cautiousness to continue in the near term elongating our sales cycles and the timing of large deals
We typically expand our relationship with our customers over time While most of our new customers route all of their internet bound web traffic through our cloud platform some of our customers initially use our services for specific users or specific security functionality We leverage our land and expand model with the goal of generating incremental revenue often within the term of the initial subscription by increasing sales to our existing customers in one of three ways
These purchases increase the annual recurring revenue or ARR attributable to our customers over time ARR refers to the next 12 months of revenue from subscription contracts as of the measurement date To establish ARR for a customer we assume that any contract expiring during the next 12 months will be renewed under the existing terms
Since our founding we have invested significantly in growing our business We intend to continue i investing in our research and development organization and our development efforts to offer new solutions on our cloud platform and ii dedicating resources to update and upgrade our existing solutions including upgrades to our cloud platform In addition we expect our general and administrative expenses to increase in absolute dollars in the foreseeable future as we continue to operate as a public company and address any legal matters and related accruals as further described in Note 12 Commitments and Contingencies of the consolidated financial statements included elsewhere in this Annual Report on Form 10 K
We also intend to continue to invest significantly in sales and marketing to grow and train our sales force broaden our brand awareness and expand and deepen our channel partner relationships While these planned investments will increase our operating expenses in the short term we believe that over the long term these investments will help us to expand our customer base and grow our business We also are investing in programs to increase recognition of our brand and solutions including joint marketing activities with our channel partners and strategic partners
While we expect our operating expenses to increase in absolute dollars in the foreseeable future as a result of these activities we intend to balance these investments in future growth with a continued focus on managing our results of operations and investing judiciously In the long term we anticipate that these investments will positively impact our business and results of operations
We believe that dollar based net retention rate is an indicator to measure the long term value of our customer relationships because it is driven by our ability to retain and expand the recurring revenue generated from our existing customers Our dollar based net retention rate compares the recurring revenue from a set of customers against the same metric for the prior 12 month period on a trailing basis Because our customers have repeat buying patterns and the average term of our contracts is more than 12 months we measure this metric over a set of customers who were with us as of the last day of the same reporting period in the prior fiscal year For the trailing 12 months ended July 31 2025 and 2024 the dollar based net retention rate was 114 and 116 respectively
Denominator To calculate our dollar based net retention rate as of the end of a reporting period we first establish the ARR from all active subscriptions as of the last day of the same reporting period in the prior fiscal year This effectively represents recurring dollars that we expect in the next 12 month period from the cohort of customers that existed on the last day of the same reporting period in the prior fiscal year
Dollar based net retention rate is obtained by dividing the numerator by the denominator Our dollar based net retention rate may fluctuate due to a number of factors including the performance of our cloud platform our success in selling bigger deals including deals for all employees with our higher end bundles selling multiple pillars from the start of our contract with new customers faster upsells within a year the timing and the rate of ARR expansion of our existing
In addition to our results determined in accordance with 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 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 is provided below for each non GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non GAAP financial measures to their most directly comparable GAAP financial measures and not to rely on any single financial measure to evaluate our business
We define non GAAP gross profit as GAAP gross profit excluding stock based compensation expense and related payroll taxes amortization expense of acquired intangible assets and restructuring and other charges We define non GAAP gross margin as non GAAP gross profit as a percentage of revenue
We define non GAAP income from operations as GAAP loss from operations excluding stock based compensation expense and related payroll taxes amortization expense of acquired intangible assets restructuring and other charges and
Free cash flow is a non GAAP financial measure that we calculate as net cash provided by operating activities less purchases of property equipment and other assets and capitalized internal use software Free cash flow margin is calculated 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 including investing in our business and strengthening our financial position
Free cash flow includes the cyclical impact of inflows and outflows resulting from contributions to our employee stock purchase plan for which the purchase period of approximately six months ends in each of our second and fourth fiscal quarters Payroll contributions accrued as of July 31 2025 will be used to purchase shares at the end of the current ESPP purchase period ending on December 15 2025 Payroll contributions ultimately used to purchase shares are reclassified to stockholders equity on the purchase date
Calculated billings is a non GAAP financial measure that we reported as a key metric to measure our periodic performance through July 31 2025 However starting in the first quarter of fiscal 2026 we will transition to ARR as one of
our key business metrics Calculated billings can fluctuate significantly from period to period due to multiple factors such as deal structure contract terms payment schedules timing of large enterprise deals or renewals seasonality in customer purchasing patterns and external factors These fluctuations make calculated billings less predictable and harder to compare consistently As a result calculated billings will no longer be reported beginning in fiscal 2026
Calculated billings represents our total 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
Calculated billings increased 623 1 million or 24 in fiscal 2025 over fiscal 2024 and 587 6 million or 29 in fiscal 2024 over fiscal 2023 As calculated billings continues to grow in absolute terms we expect our calculated billings growth rate to trend down over time We also expect that calculated billings will be affected by seasonality in terms of when we enter into agreements with customers and the mix of billings in particular the mix of multi year in advance billings We strategically enter into agreements for multi year in advance billings with our customers to achieve our and or our customers business objectives Multi year in advance billings increase our calculated billings in the period where such billings are invoiced and reduce the amount that could be invoiced and thus count toward calculated billings in future periods
We generate revenue primarily from sales of subscriptions to access our cloud platform together with related support services Subscription and related support services accounted for approximately 98 97 and 97 of our revenue for each of fiscal 2025 fiscal 2024 and fiscal 2023 respectively Our contracts with our customers do not at any time provide the customer with the right to take possession of the software that runs our cloud platform Our customers may also purchase professional services such as mapping implementation network design and training Professional services account for an immaterial portion of our revenue
We generate revenue from contracts with typical durations ranging from one to three years We typically invoice our customers annually in advance and to a lesser extent quarterly in advance monthly in advance or multi year in advance We recognize revenue ratably over the life of the contract Amounts that have been invoiced are recorded in deferred revenue or they are recorded in revenue if the revenue recognition criteria have been met Subscriptions that are invoiced annually in advance or multi year in advance represent a significant portion of our short term and long term deferred revenue in comparison to invoices issued quarterly in advance or monthly in advance We cannot predict the mix of invoicing schedules in any given period
We generally experience seasonality in terms of when we enter into agreements with our customers We typically enter into a higher percentage of agreements with new customers as well as renewal agreements with existing customers in our second half of our fiscal year However because we recognize revenue ratably over the terms of our subscription contracts a substantial portion of the revenue that we report in each period is attributable to the recognition of deferred revenue relating to agreements that we entered into during previous periods Consequently increases or decreases in new sales or renewals in
any one period may not be immediately reflected as revenue for that period Accordingly the effect of downturns in sales and market acceptance of our platform and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods
Cost of revenue includes expenses related to operating our cloud platform in data centers including public cloud providers depreciation of our data center equipment amortization of our capitalized internal use software amortization of intangible assets acquired through our business acquisitions and allocated overhead expenses i e facilities IT depreciation expense and amortization expense Cost of revenue also includes employee related expenses including salaries bonuses stock based compensation expense and employee benefit expenses associated with our customer support and cloud operations organizations
As our customers expand and increase the use of our cloud platform driven by additional applications and connected devices our cost of revenue will increase due to higher bandwidth and data center expenses However we expect to continue to benefit from economies of scale as our customers increase the use of our cloud platform We intend to continue to invest additional resources in our cloud platform and our customer support organizations as we grow our business The level and timing of investment in these areas could affect our cost of revenue in the future
Gross profit or revenue less cost of revenue and gross margin or gross profit as a percentage of revenue have been and will continue to be affected by various factors including the timing of our acquisition of new customers and our renewals of and follow on sales to existing customers the average sales price of our services mix of services offered in our solutions including new product introductions the data center and bandwidth costs associated with operating our cloud platform the extent to which we expand our customer support and cloud operations organizations and the extent to which we can increase the efficiency of our technology infrastructure and data centers through technological improvements We expect our gross profit to increase in absolute dollars and our gross margin to increase slightly over the long term although our gross profit and gross margin could fluctuate from period to period depending on the interplay of all of the above factors
Our operating expenses consist of sales and marketing expenses research and development expenses and general and administrative expenses Personnel expenses are the most significant component of operating expenses and consist of salaries benefits bonuses stock based compensation expense and with respect to sales and marketing expenses sales commissions that are recognized as expenses over the period of benefit Operating expenses also include overhead expenses for facilities IT depreciation expense and amortization expense
Sales and marketing expenses consist primarily of employee compensation and related expenses including salaries bonuses and benefits for our sales and marketing employees sales commissions that are recognized as expenses over the period of benefit stock based compensation expense marketing programs travel and entertainment expenses expenses for conferences and events amortization of intangible assets acquired through our business acquisitions and allocated overhead expenses We capitalize our sales commissions and associated payroll taxes that are incremental to the acquisition of customer contracts and recognize them as expenses over the estimated period of benefit The amount recognized in our sales and marketing expenses reflects the amortization of expenses previously deferred as attributable to each period presented in this Annual Report on Form 10 K as described below under Critical Accounting Policies and Estimates
We intend to continue to make significant investments in our sales and marketing organization to drive additional revenue further penetrate the market and expand our global customer base As a result we expect our sales and marketing expenses to continue to increase in absolute dollars and to be our largest operating expense category for the foreseeable future In particular we will continue to invest in growing and training our sales force broadening our brand awareness and expanding and deepening our channel partner relationships However we expect our sales and marketing expenses to decrease as a percentage of our revenue over the long term although our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses
Our research and development expenses support our efforts to add new products new features to our existing offerings and to ensure the reliability availability and scalability of our solutions Our cloud platform is software driven and our research and development teams employ software engineers in the design and the related development testing certification and support of these solutions Accordingly a majority of our research and development expenses result from employee related expenses including salaries bonuses and benefits stock based compensation expense and expenses associated with technology tools used by our engineers We expect our research and development expenses to continue to increase in absolute dollars for the foreseeable future as we continue to invest in research and development efforts to enhance the functionality of our cloud platform improve the reliability availability and scalability of our platform and access new customer markets However we expect our research and development expenses to decrease as a percentage of our revenue over the long term although our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses
General and administrative expenses consist primarily of employee related expenses including salaries and bonuses stock based compensation expense and employee benefit expenses for our finance legal human resources and administrative personnel as well as professional fees for external legal services including certain litigation related expenses accounting and other related consulting services The litigation related expenses include professional fees and related expenses incurred by us in defending or settling significant claims that we deem not to be in the ordinary course of our business and if applicable accruals related to estimated losses in connection with these claims
We expect our general and administrative expenses to increase in absolute dollars for the foreseeable future as we increase the size of our general and administrative organizations incur additional costs to support our business growth and due to any legal matters and related accruals as further described in
However we expect our general and administrative expenses to decrease as a percentage of our revenue over the long term although our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses In particular litigation related expenses related to significant litigation claims may result in significant fluctuations from period to period as they are inherently subject to change and difficult to estimate
Interest expense consists primarily of amortization of debt issuance costs recognition of contractual interest expense related to the 2025 and 2028 Notes and gains and losses related to changes in the fair value of interest rate swaps For further information refer to Note 8 Derivative Instruments and Note 10 Convertible Senior Notes of our consolidated financial statements included elsewhere in this Annual Report on Form 10 K
provide a full valuation allowance which includes net operating loss and research and development tax credits carryforwards We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized based on our history of losses
Cost of revenue increased by 141 0 million or 30 in fiscal 2025 compared to fiscal 2024 The overall increase in cost of revenue was driven primarily by the expanded use of our cloud platform by existing and new customers which led to an increase of 76 1 million
for data center and equipment related costs for hosting and operating our cloud platform Additionally our employee related expenses increased by 49 4 million inclusive of an increase of 17 3 million in stock based compensation expense driven primarily by an increase in headcount in our customer support and cloud operations organizations The remainder of the increase was primarily attributable to 7 0 million in additional hardware costs related to a one time large private cloud deployment and 5 4 million for facility and IT services
Gross margin decreased from 78 to 77 for fiscal 2025 as compared to fiscal 2024 The decrease in gross margin is primarily due to an increase in data center operating costs as we expanded our capacity and footprint to support our expanding customer base and an increase in employee related expenses including stock based compensation expense as a result of an increase in headcount The remainder of the decrease was primarily attributable to additional hardware costs related to a one time large private cloud deployment incurred in fiscal 2025
Sales and marketing expenses increased by 158 9 million or 14 for fiscal 2025 compared to fiscal 2024 The change was primarily driven by an increase of 116 4 million in employee related expenses inclusive of an increase of 33 7 million in sales commissions expense and an increase of 29 5 million in stock based compensation expense The increase in employee related expenses was primarily due to an increase in headcount The remainder of the increase was primarily attributable to increased expenses of 18 6 million in marketing and advertising expenses 10 6 million in travel expenses 5 1 million for facility and IT services and 4 9 million for professional services
Research and development expenses increased by 172 7 million or 35 for fiscal 2025 compared to fiscal 2024 as we continued to develop and enhance the functionality of our cloud platform and integrate technologies acquired through our business acquisitions The
was primarily driven by an increase of 167 8 million in employee related expenses inclusive of an increase of 69 4 million in stock based compensation expense primarily due to an increase in headcount During fiscal 2025 we recognized 4 8 million of restructuring charges related to employee severance and benefit charges in research and development expenses The remainder of the increase in research and development expenses was primarily attributable to increased expenses of 24 9 million in facility software and equipment related expenses to support our growth and 2 4 million in travel expenses The increase was partially offset by higher capitalized internal use software development costs of 31 3 million to support the enhancement and growth of our cloud platform
General and administrative expenses increased by 39 7 million or 19 for fiscal 2025 compared to fiscal 2024 The overall increase was primarily due to an increase of 34 2 million in employee related expenses inclusive of an increase of 17 5 million
stock based compensation expense primarily due to an increase in headcount and accelerated vesting of awards related to executive transitions The remainder of the increase was primarily attributable to 4 8 million for facility related expenses
ur provision for income taxes decreased by 5 3 million or 19 for fiscal 2025 compared to fiscal 2024 The change was primarily driven by the release of the valuation allowance against our United Kingdom U K deferred tax assets For further information refer to Note 15 Income Taxes of the consolidated financial statements included elsewhere in this Annual Report on form 10 K
Our effective tax rate of 136 5 and 97 4 in fiscal 2025 and fiscal 2024 respectively differs from the applicable U S statutory federal income tax rate due to our valuation allowance against our U S federal and state deferred tax assets the release of the valuation allowance against our U K deferred tax assets and our foreign income being taxed at different rates than the U S statutory rate
While we believe our current valuation allowance is sufficient we assess the need for an adjustment to the valuation allowance on a quarterly basis The assessment is based on our estimates of future sources of taxable income for the jurisdictions in which we operate and the periods over which our deferred tax assets will be realizable In the event we determine that we will be able to realize all or part of our net deferred tax assets in the future the valuation allowance will be
reversed in the period in which we make such determination The release of a valuation allowance against deferred tax assets may cause greater volatility in the effective tax rate in the periods in which it is reversed
On July 4 2025 the United States enacted tax reform legislation through the One Big Beautiful Bill Act OBBBA Included in this legislation are provisions that allow for the immediate expensing of domestic research and development expenses immediate expensing of certain capital expenditures and other changes to the U S taxation of profits derived from foreign operations The provisions in the legislation are generally effective beginning in fiscal 2026 and as such the tax impacts are not included in our operating results for fiscal 2025 We will continue to evaluate the impact of OBBBA but currently we do not expect it to have a material impact on our consolidated financial statements in fiscal 2026 due to our valuation allowance
For a discussion of our results of operations for the year ended July 31 2024 as compared to the year ended July 31 2023 refer to Part II Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10 K filed with the SEC on September 12 2024
As of July 31 2025 our principal sources of liquidity were cash cash equivalents and short term investments totaling 3 572 4 million which were held for working capital and general corporate purposes Our cash equivalents and investments consist of highly liquid investments in money market funds U S treasury securities U S government agency securities certificates of deposit and corporate debt securities
In July 2025 we completed the private offering of the Convertible Senior Notes due 2028 the 2028 Notes with an aggregate principal amount of 1 725 0 million The total net proceeds from the offering after deducting initial purchase discount and issuance costs was 1 700 0 million The 2028 Notes mature on July 15 2028 In connection with the 2028 Notes we entered into the capped call transactions which are expected to reduce the potential dilution of our common stock upon any conversion of the 2028 Notes and or offset any cash payments we could be required to make in excess of the principal amount of the converted notes We used an aggregate amount of 196 8 million of the net proceeds of the 2028 Notes to purchase the capped call transactions For further information refer to Note 10 Convertible Senior Notes of our consolidated financial statements included elsewhere in this Annual Report on Form 10 K
In June 2020 we completed the private offering of the Convertible Senior Notes due 2025 the 2025 Notes with an aggregate principal amount of 1 150 0 million The 2025 Notes matured on July 1 2025 We fully repaid the 2025 Notes by paying the principal amount of 1 150 0 million in cash and settled the premium amount by issuing 3 8 million new shares of our common stock We also received 2 4 million shares of our common stock from the capped call transactions related to the 2025 Notes For further information refer to Note 10 Convertible Senior Notes of our consolidated financial statements included elsewhere in this Annual Report on Form 10 K
We have generated significant losses from operations as reflected in our accumulated deficit of 1 189 6 million as of July 31 2025 We expect to continue to incur operating losses and have in the past and may in the future generate negative cash flows due to expected investments to grow our business including potential business acquisitions and other strategic transactions
We believe that our existing cash cash equivalents and short term investments will be sufficient to fund our working capital capital expenditure and convertible senior notes repayment requirements for at least the next 12 months from the date of issuance of our financial statements Our foreseeable cash needs in addition to our recurring operating costs include our expected capital expenditures to support expansion of our infrastructure and workforce lease obligations purchase commitments potential business acquisitions convertible senior notes repayment requirements and other strategic transactions Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward looking statement and involves risks and uncertainties Our actual results could vary as a result of and our future capital requirements both near term and long term will depend on many factors including our growth rate the timing and extent of spending to support our research and development efforts the expansion of sales and marketing and international operating activities the timing of new introductions of solutions or features and the continuing market acceptance of our services the impact of macroeconomic and geopolitical conditions to our and our customers vendors and partners businesses We have and may in the future enter into arrangements to acquire or invest in complementary businesses services and technologies including intellectual property rights We have based this estimate on assumptions that may prove to be wrong and we could use our available capital resources sooner than we currently expect Additionally some of the factors that may influence our operations are not within our control such as general economic conditions geopolitical developments and the impact of global crises We may be required to seek additional equity or debt financing In the event that additional financing is required from outside sources we may not be able to raise it on terms acceptable to us or at all If we are unable to raise additional capital when desired or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital our business operating results and financial condition would be adversely affected
We typically invoice our customers annually in advance and to a lesser extent quarterly in advance monthly in advance or multi year in advance Therefore a substantial source of our cash is from such prepayments which are included on our consolidated balance sheets as a contract liability Deferred revenue consists of the unearned portion of billed fees for our subscriptions which is subsequently recognized as revenue in accordance with our revenue recognition policy As of July 31 2025 we had deferred revenue of 2 468 0 million of which 2 054 4 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months provided all other revenue recognition criteria have been met Subscriptions that are invoiced annually in advance or multi year in advance contribute significantly to our short term and long term deferred revenue in comparison to our invoices issued quarterly in advance or monthly in advance We strategically enter into agreements for multi year in advance billings with our customers to achieve our and or our customers business objectives Multi year in advance billings increase our calculated billings in the period where such billings are invoiced and reduce the amount that could be invoiced and thus count toward calculated billings in future periods We cannot predict the mix of invoicing schedules in any given period
As of July 31 2025 we did not have any relationships with unconsolidated organizations or financial partnerships such as structured finance or special purpose entities which would have been established for the purpose of facilitating off balance sheet arrangements or other contractually narrow or limited purposes
Net cash provided by operating activities during fiscal 2025 was 972 5 million which resulted from a net loss of 41 5 million adjusted for non cash charges of 987 2 million and net cash inflows of 26 7 million from changes in operating assets and liabilities Non cash charges primarily consisted of 661 4 million for stock based compensation expense 166 3 million for amortization of deferred contract acquisition costs 104 4 million for depreciation and amortization expense 63 0 million for non cash operating lease costs 16 8 million for amortization expense of acquired intangible assets and 4 3 million for amortization of debt issuance costs partially offset by 14 4 million for deferred income taxes and accretion of investments purchased at a discount of 15 9 million
Net cash inflows from changes in operating assets and liabilities were primarily the result of an increase of 573 1 million in deferred revenue from advance invoicing in accordance with our subscription contracts an increase of 21 0 million in accrued compensation and an increase of 17 5 million in accounts payable Net cash inflows were partially offset by cash outflows resulting from an increase of 230 5 million in deferred contract acquisition costs as our sales commission payments increased due to the addition of new customers and expansion of our existing customer subscriptions an increase of 256 0 million in accounts receivable primarily due to timing of billings and collections a decrease of 62 0 million in operating lease liabilities primarily due to lease payments an increase of 41 6 million in prepaid expenses other current and noncurrent assets and an increase of 5 2 million in accrued expenses other current and noncurrent liabilities
Net cash provided by operating activities during fiscal 2024 was 779 8 million which resulted from a net loss of 57 7 million adjusted for non cash charges of 771 5 million and net cash inflows of 66 1 million from changes in operating assets and liabilities Non cash charges primarily consisted of 527 7 million for stock based compensation expense 130 1 million for amortization of deferred contract acquisition costs 66 3 million for depreciation and
amortization expense 49 4 million for non cash operating lease costs 14 6 million for amortization expense of acquired intangible assets and 3 9 million for amortization of debt issuance costs partially offset by amortization accretion of investments purchased at a premium discount of 19 1 million and 5 6 million for deferred income taxes
Net cash inflows from changes in operating assets and liabilities were primarily the result of an increase of 450 3 million in deferred revenue from advance invoicing in accordance with our subscription contracts an increase of 43 6 million in accrued expenses other current and noncurrent liabilities an increase of 10 5 million in accrued compensation and an increase of 4 2 million in accounts payable Net cash inflows were partially offset by cash outflows resulting from an increase of 200 3 million in deferred contract acquisition costs as our sales commission payments increased due to the addition of new customers and expansion of our existing customer subscriptions an increase of 153 0 million in accounts receivable primarily due to timing of billings and collections a decrease of 49 2 million in operating lease liabilities primarily due to lease payments and an increase of 40 0 million in prepaid expenses other current and noncurrent assets
Net cash used in investing activities during fiscal 2025 of 427 0 million was primarily attributable to the purchases of short term investments of 1 280 6 million capital expenditures of 245 8 million to support the growth and expansion of our cloud platform These activities were partially offset by proceeds from the maturities and sales of short term investments of 1 101 0 million
Net cash used in investing activities during fiscal 2024 of 683 2 million was primarily attributable to the purchases of short term investments of 1 291 0 million business acquisitions net of cash acquired of 374 7 million capital expenditures of 194 9 million to support the growth and expansion of our cloud platform and 2 0 million for purchases of strategic investments These activities were partially offset by proceeds from the maturities and sales of short term investments of 1 179 4 million
Net cash provided by financing activities of 420 5 million during fiscal 2025 was primarily attributable to 1 725 0 million from proceeds from issuance of the 2028 convertible senior notes 63 6 million in proceeds from the issuance of common stock under the ESPP and 3 6 million in proceeds from the exercise of stock options These activities were partially offset by 1 150 0 million for settlement of the 2025 Notes 196 7 million for purchases of capped calls related to the 2028 Notes and 24 2 million for issuance costs related to the 2028 Notes
Net cash provided by financing activities of 64 2 million during fiscal 2024 was primarily attributable to 52 0 million in proceeds from the issuance of common stock under the ESPP and 12 2 million in proceeds from the exercise of stock options
Our principal commitments consist of obligations under our 2028 Notes real estate arrangements co location and bandwidth arrangements and non cancelable purchase obligations For additional information refer to Note 10 Convertible Senior Notes Note 11 Operating Leases and Note 12 Commitments and Contingencies of the consolidated financial statements included elsewhere in this Annual Report on Form 10 K
Our financial statements are prepared in accordance with GAAP The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets liabilities revenue and expenses as well as related disclosures We evaluate our estimates and assumptions on an ongoing basis Our estimates are based on historical
experience and various other assumptions that we believe to be reasonable under the circumstances Our actual results could differ from these estimates We refer to accounting estimates of this type as critical accounting policies and estimates which we discuss below
We have identified certain accounting policies that are significant to the preparation of our financial statements These accounting policies are important for an understanding of our financial condition and results of operations Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management s subjective or complex judgment often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods While our significant accounting policies are more fully described in the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10 K we believe the following accounting policies have the most significant impact on the consolidated financial statements
In accordance with Accounting Standards Codification or ASC Topic 606 Revenue From Contracts With Customers or ASC 606 revenue is recognized when a customer obtains control of promised services The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these services To achieve the core principle of this standard we apply the following five steps
We consider the terms and conditions of the contracts and our customary business practices in identifying our contracts under ASC 606 We determine we have a contract with a customer when the contract is approved we can identify each party s rights regarding the services to be transferred we can identify the payment terms for the services we have determined the customer to have the ability and intent to pay and the contract has commercial substance We apply judgment in determining the customer s ability and intent to pay which is based on a variety of factors including the customer s historical payment experience or in the case of a new customer credit and financial information pertaining to the customer
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us and are distinct in the context of the contract whereby the transfer of the services is separately identifiable from other promises in the contract Our performance obligations consist of i our subscription and support services and ii professional and other services
The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer Variable consideration is included in the transaction price if in our judgment it is probable that a significant future reversal of cumulative revenue under the contract will not occur None of our contracts contain a significant financing component
If the contract contains a single performance obligation the entire transaction price is allocated to the single performance obligation Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price SSP
Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised service to a customer Revenue is recognized when control of the services is transferred to our customers in an amount that reflects the consideration that we expect to receive in exchange for those services We generate all our revenue from contracts with customers and apply judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition
We generate revenue primarily from sales of subscriptions to access our cloud platform together with related support services to our customers Arrangements with customers do not provide the customer with the right to take possession of our software operating our cloud platform at any time Instead customers are granted continuous access to our cloud platform over the contractual period A time elapsed output method is used to measure progress because we transfer control evenly over the contractual period Accordingly the fixed consideration related to subscription and support revenue is generally recognized on a straight line basis over the contract term beginning on the date that our service is made available to the customer
The typical subscription and support term is one to three years Most of our contracts are non cancelable over the contractual term Customers typically have the right to terminate their contracts for cause if we fail to perform in accordance with the contractual terms Some of our customers have the option to purchase additional subscription and support services at a stated price These options generally do not provide a material right as they are priced at our SSP
Professional and other services revenue consists of fees associated with providing deployment advisory services that educate and assist our customers on the best use of our solutions as well as advise customers on best practices as they deploy our solution These services are distinct from subscription and support services Professional services do not result in significant customization of the subscription service Revenue from professional services provided on a time and materials basis is recognized as the services are performed Total professional and other services revenue has historically been insignificant
Most of our contracts with customers contain multiple promised services consisting of i our subscription and support services and ii professional and other services that are distinct and accounted for separately The transaction price is allocated to the separate performance obligations on a relative SSP basis We determine SSP based on our overall pricing objectives taking into consideration the type of subscription and support services and professional and other services the geographical region of the customer and the number of users
Revenue from sales is recorded at the net sales price which is the transaction price and includes estimates of variable consideration The amount of variable consideration that is included in the transaction price is constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue will not occur when the uncertainty is resolved
If our services do not meet certain service level commitments our customers are entitled to receive service credits and in certain cases refunds each representing a form of variable consideration We have not historically experienced any significant incidents affecting the defined levels of reliability and performance as required by our subscription contracts
We provide rebates and other credits within our contracts with certain customers which are estimated based on the most likely amounts expected to be earned or claimed on the related sales transaction Overall the transaction price is reduced to reflect our estimate of the amount of consideration to which we are entitled based on the terms of the contract Estimated rebates and other credits were not material during the periods presented
We receive payments from customers based upon contractual billing schedules accounts receivable are recorded when the right to consideration becomes unconditional Payment terms on invoiced amounts are typically 30 days Contract assets include amounts related to our contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced and such amounts have been insignificant to date
We capitalize sales commissions and associated payroll taxes paid to sales personnel that are incremental to the acquisition of customer contracts These costs are recorded as deferred contract acquisition costs on the consolidated balance sheets We determine whether costs should be deferred based on our sales compensation plans if the commissions are in fact incremental and would not have occurred absent the customer contract
Sales commissions for renewal of a contract are not considered commensurate with the commissions paid for the acquisition of the initial contract given the substantive difference in commission rates in proportion to their respective contract values Commissions paid upon the initial acquisition of a contract are amortized over an estimated period of benefit of five years while commissions paid for renewal contracts are amortized over the contractual term of the renewals Amortization is recognized on a straight line basis commensurate with the pattern of revenue recognition We determine the period of benefit for commissions paid for the acquisition of the initial contract by taking into consideration the expected subscription term and expected renewals of our customer contracts the duration of our relationships with customers customer retention data our technology development life cycle and other factors Management exercises judgment to determine the period of benefit to amortize contract acquisition costs by considering factors such as expected renewals of customer contracts duration of customer relationships and our technology development life cycle Although we believe that the historical assumptions and estimates we have made are reasonable and appropriate different assumptions and estimates could materially impact our reported financial results Amortization of deferred contract acquisition costs is included in sales and marketing expense in the consolidated statements of operations We periodically review these deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred contract acquisition costs
Refer to Note 1 Business and Summary of Significant Accounting Policies to the consolidated financial statements included elsewhere in this Annual Report on Form 10 K for more information regarding recently issued accounting pronouncements
As of July 31 2025 we had cash cash equivalents and short term investments totaling 3 572 4 million which were held for working capital purposes Our cash equivalents and investments consist of highly liquid investments in money market funds U S treasury securities U S government agency securities certificates of deposit and corporate debt securities The primary objectives of our investment activities are the preservation of capital the fulfillment of liquidity needs and the fiduciary control of cash and investments We do not enter into investments for trading or speculative purposes The carrying amount of our cash equivalents reasonably approximates fair value due to the short maturities of these instruments Our investments are exposed to market risk due to a fluctuation in interest rates which may affect our interest income and the fair market value of our investments As of July 31 2025 the effect of a hypothetical 100 basis point change in interest rates would have changed the fair value of our investments in available for sale securities by 13 9 million Fluctuations in the fair value of our investments in available for sale securities caused by a change in interest rates gains or losses on the carrying amount are recorded in other comprehensive income loss and are realized only if we sell the underlying securities prior to maturity
In July 2025 we issued our 2028 Notes with an aggregate principal amount of 1 725 0 million In connection with the issuance of the 2028 Notes we entered into privately negotiated capped call transactions with certain counterparties The capped calls transactions are expected generally to offset the potential dilution to our common stock as a result of any conversion of the 2028 Notes
The 2028 Notes have a 0 0 interest rate we do not have economic interest rate exposure on the 2028 Notes However the fair value of the 2028 Notes is exposed to interest rate risk Generally the fair value of the 2028 Notes will increase as interest rates fall and decrease as interest rates rise As of July 31 2025 we carried the 2028 Notes at face value less unamortized debt issuance costs on our consolidated balance sheet For further information refer to Note 10 Convertible Senior Notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10 K
The vast majority of our sales contracts are denominated in U S dollars with a small number of contracts denominated in foreign currencies A portion of our operating expenses are incurred outside the United States denominated in foreign currencies and subject to fluctuations due to changes in foreign currency exchange rates particularly changes in the British Pound Indian Rupee Euro Israeli Shekel Canadian Dollar Australian Dollar and Japanese Yen Additionally fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of operations The effect of a hypothetical 10 change in foreign currency exchange rates applicable to our business would not have a material impact on the consolidated financial statements for all periods presented
We have a foreign currency risk management program and we enter into foreign currency forward contracts to hedge a portion of our forecasted foreign currency denominated expenses These foreign currency derivative contracts have a maturity up to 24 months or less and are designated as cash flow hedges to protect our earnings subjected to foreign currency risk We also use foreign currency forward contracts to mitigate variability in gains and losses generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies
We have audited the accompanying consolidated balance sheets of Zscaler Inc and its subsidiaries the Company as of July 31 2025 and 2024 and the related consolidated statements of operations of comprehensive loss of stockholders equity and of cash flows for each of the three years in the period ended July 31 2025 including the related notes collectively referred to as the consolidated financial statements We also have audited the Company s internal control over financial reporting as of July 31 2025 based on criteria established in
In our opinion the consolidated financial statements referred to above present fairly in all material respects the financial position of the Company as of July 31 2025 and 2024 and the results of its operations and its cash flows for each of the three years in the period ended July 31 2025 in conformity with accounting principles generally accepted in the United States of America Also in our opinion the Company maintained in all material respects effective internal control over financial reporting as of July 31 2025 based on criteria established in
The Company s management is responsible for these consolidated financial statements for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management s Report on Internal Control over Financial Reporting appearing under Item 9A Our responsibility is to express opinions on the Company s consolidated financial statements and on the Company s internal control over financial reporting based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances We believe that our audits provide a reasonable basis for our opinions
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that i pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company ii provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and iii provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that i relates to accounts or disclosures that are material to the consolidated financial statements and ii involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As described in Notes 1 and 2 to the consolidated financial statements revenue is recognized when control of the services is transferred to the customers in an amount that reflects the consideration that the Company expects to receive in exchange for those services The Company generates all revenue from contracts with customers and management applies judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition For the year ended July 31 2025 the Company s revenue was 2 673 million of which approximately 98 relates to subscription and support revenue
The principal consideration for our determination that performing procedures relating to revenue recognition for subscription and support revenue is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company s revenue recognition
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements These procedures included testing the effectiveness of controls relating to the revenue recognition process for subscription and support revenue These procedures also included among others i testing revenue recognized for a sample of subscription and support revenue transactions by obtaining and inspecting source documents such as sales quotes purchase orders sales orders invoices and payment receipts and ii confirming a sample of outstanding customer invoice balances as of July 31 2025 and for confirmations not returned obtaining and inspecting source documents such as sales quotes purchase orders sales orders invoices and subsequent payment receipts
Zscaler Inc Zscaler the Company we us or our is a cloud security company that developed a platform incorporating core security functionalities needed to enable fast and secure access to cloud resources based on identity context and an organization s policies Our solution is a purpose built multi tenant distributed cloud platform that implements Zero Trust principles to securely connect users devices applications and workloads including AI agents without relying on traditional network based security We deliver our solutions using a software as a service SaaS business model and sell subscriptions to customers to access our cloud platform together with related support services Our ever evolving platform provides our customers with a flexible and scalable approach to better secure their operations optimize user experience eliminate complexity reduce costs and respond to the challenges and opportunities of AI and future new technologies We were incorporated in Delaware in September 2007 and conduct business worldwide with presence in North America South America Europe and Asia Our headquarters are in San Jose California
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and have been prepared in conformity with generally accepted accounting principles in the United States GAAP All intercompany balances and transactions have been eliminated in consolidation
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates judgments and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes Such estimates include but are not limited to the determination of revenue recognition deferred revenue deferred contract acquisition costs capitalized internal use software valuation of acquired intangible assets period of benefit generated from our deferred contract acquisition costs allowance for doubtful accounts valuation of common stock options and stock based awards useful lives of property and equipment useful lives of acquired intangible assets recoverability of goodwill valuation of deferred tax assets and liabilities loss contingencies related to litigation fair value of convertible senior notes and the discount rate used for operating leases Management determines these estimates and assumptions based on historical experience and on various other assumptions that are believed to be reasonable Actual results could differ significantly from these estimates and such differences may be material to the consolidated financial statements
Due to uncertainty in the macroeconomic and geopolitical environment there is ongoing disruption in the global economy and financial markets We are not aware of any specific event or circumstances that would require an update to our estimates judgments or assumptions or a revision to the carrying value of our assets or liabilities as of the date of issuance of
The functional currency of our foreign subsidiaries is the U S dollar Accordingly monetary assets and liabilities of our foreign subsidiaries are re measured into U S dollars at the exchange rates in effect at the reporting date non monetary assets and liabilities are re measured at historical rates revenue and expenses are re measured at average exchange rates in effect during each reporting period Foreign currency transaction gains and losses are recorded in other expense net in the consolidated statements of operations Foreign currency remeasurement gains and losses and foreign currency transaction gains and losses are not significant to the consolidated financial statements for all periods presented
We generate revenue primarily from sale of subscriptions to access our cloud platform together with related support services Our sales team along with our channel partner network of global telecommunications service providers system integrators and value added resellers collectively channel partners sells our services worldwide to organizations of all sizes Due to the nature of our services and the terms and conditions of our contracts with our channel partners our business could be affected unfavorably if we are not able to continue our relationships with them
Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash cash equivalents derivative contracts short term investments and accounts receivable Although we deposit our cash with multiple financial institutions the deposits at times may exceed federally insured limits Cash equivalents and short term investments consist of highly liquid investments in money market funds U S treasury U S agency securities certificates of deposit and corporate debt securities which are invested through financial institutions
We grant credit to our customers in the normal course of business We monitor the financial condition of our customers to reduce credit risk Refer to Note 2 Revenue Recognition for information regarding customers with concentration of 10 or more of the total balance of accounts receivable net
We operate as one reportable and operating segment Our chief operating decision maker is our chief executive officer who reviews financial information presented on a consolidated basis for purposes of making operating decisions assessing financial performance and allocating resources
In accordance with Accounting Standards Codification ASC Topic 606 Revenue From Contracts With Customers ASC 606 revenue is recognized when a customer obtains control of promised services The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these services To achieve the core principle of this standard we apply the following five steps
We consider the terms and conditions of the contracts and our customary business practices in identifying our contracts under ASC 606 We determine we have a contract with a customer when the contract is approved we can identify each party s rights regarding the services to be transferred we can identify the payment terms for the services we have determined the customer has the ability and intent to pay and the contract has commercial substance We apply judgment in determining the customer s ability and intent to pay which is based on a variety of factors including the customer s historical payment experience or in the case of a new customer credit and financial information pertaining to the customer
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us and are distinct in the context of the contract whereby the transfer of the services is separately identifiable from other promises in the contract Our performance obligations consist of i our subscription and support services and ii professional and other services
The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer Variable consideration is included in the transaction price if in our judgment it is probable that a significant future reversal of cumulative revenue under the contract will not occur None of our contracts contain a significant financing component
If the contract contains a single performance obligation the entire transaction price is allocated to the single performance obligation Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price SSP
Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised service to a customer Revenue is recognized when control of the services is transferred to our customers in an amount that reflects the consideration that we expect to receive in exchange for those services We generate all our revenue from contracts with customers and apply judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition
We generate revenue primarily from sales of subscriptions to access our cloud platform together with related support services to our customers Arrangements with customers do not provide the customer with the right to take possession of our software operating our cloud platform at any time Instead customers are granted continuous access to our cloud platform over the contractual period A time elapsed output method is used to measure progress because we transfer control evenly over the contractual period Accordingly the fixed consideration related to subscription and support revenue is generally recognized on a straight line basis over the contract term beginning on the date that our service is made available to the customer
The typical subscription and support term is one to three years Most of our contracts are non cancelable over the contractual term Customers typically have the right to terminate their contracts for cause if we fail to perform in accordance with the contractual terms Some of our customers have the option to purchase additional subscription and support services at a stated price These options generally do not provide a material right as they are priced at our SSP
Professional and other services revenue consists of fees associated with providing deployment advisory services that educate and assist our customers on the best use of our solutions as well as advise customers on best practices as they deploy our solution These services are distinct from subscription and support services Professional services do not result in significant customization of the subscription service Revenue from professional services provided on a time and materials
Most of our contracts with customers contain multiple promised services consisting of i our subscription and support services and ii professional and other services that are distinct and accounted for separately The transaction price is allocated to the separate performance obligations on a relative SSP basis We determine SSP based on our overall pricing objectives taking into consideration the type of subscription and support services and professional and other services the geographical region of the customer and the number of users
Revenue from sales is recorded at the net sales price which is the transaction price and includes estimates of variable consideration The amount of variable consideration that is included in the transaction price is constrained and included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue will not occur when the uncertainty is resolved
We have historically not experienced any significant incidents affecting the defined levels of reliability and performance as required by our subscription contracts Accordingly estimated refunds related to these agreements were not material to the periods presented
We provide rebates and other credits within our contracts with certain customers which are estimated based on the value expected to be earned or claimed on the related sales transaction Overall the transaction price is reduced to reflect our estimate of the amount of consideration to which we are entitled based on the terms of the contract Estimated rebates and other credits were not material during the periods presented
Accounts receivable are recorded at the invoiced amount and are non interest bearing Accounts receivable are stated at their net realizable value net of an allowance for doubtful accounts We have a well established collections history from our customers Credit is extended to customers based on an evaluation of their financial condition and other factors In determining the necessary allowance for doubtful accounts we estimate the lifetime expected credit losses against the existing accounts receivable balance Our estimate is based on certain factors including historical loss rates current economic conditions reasonable and supportable forecasts and customer specific circumstances The allowance for doubtful accounts has historically not been material There were no material write offs recognized in the periods presented Accordingly the movements in the allowance for doubtful accounts were not material for any of the periods presented We do not have any off balance sheet credit exposure related to our customers
We classify all highly liquid investments purchased with an original maturity of 90 days or less from the date of purchase as cash equivalents and all highly liquid investments with original maturities beyond 90 days at the time of purchase as short term investments Our cash equivalents and short term investments consist of highly liquid investments in money market funds U S treasury securities U S government agency securities certificates of deposit and corporate debt securities
We classify our investments as available for sale investments and present them within current assets since these investments represent funds available for current operations and we have the ability and intent if necessary to liquidate any of these investments in order to meet our liquidity needs or to grow our business including for potential business acquisitions or other strategic transactions Our investments are carried at fair value with unrealized gains and losses unrelated to credit loss factors reported in accumulated other comprehensive income loss AOCI L
Our investments are reviewed periodically when there is a decline in a security s fair value below the amortized cost basis We consider our intent to sell and whether it is more likely than not that we will be required to sell the securities before the recovery of its cost basis If either of these criteria are triggered the amortized cost basis of the debt security is written down to fair value through other expense net If neither criteria is met we evaluate whether the decline in fair value below the amortized cost basis is related to credit related factors or other factors such as interest rate fluctuations The factors considered in this analysis include the extent the fair value is less than the amortized cost basis whether there were changes to the rating of the security by a ratings agency whether the issuer has failed to make scheduled interest payments and other adverse conditions as applicable Credit related impairment losses limited by the amount that the fair value is less than the amortized cost basis are recorded through an allowance for credit losses in other expense net For purposes of identifying and measuring credit related impairments our policy is to exclude the applicable accrued interest from both the fair value and amortized cost basis of the related debt security Accrued interest receivable net of the allowance for credit losses if any is recorded to prepaid expenses and other current assets There were no credit related impairments recognized on our investments during the periods presented
Our strategic investments consist of non marketable equity investments of privately held companies Investments in non marketable equity investments of privately held companies without readily determinable fair values are measured using the measurement alternative as we have less than 20 ownership and do not have the ability to exercise significant influence over their operations The carrying amount of non marketable equity investments is adjusted based on observable price changes from orderly transactions for identical or similar investments of the same issuer and by impairments when events or circumstances indicate a decline in value has occurred Non marketable equity investments that have been remeasured during the period due to an observable event or impairment are classified within Level 3 in the fair value hierarchy because we estimate the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility rights and obligations of the investments we hold Our strategic investments are included within other noncurrent assets in the consolidated balance sheets and adjustments to their carrying amounts are recorded in other expense net in the consolidated statements of operations There were no material events or circumstances impacting the carrying amount of our strategic investments during the periods presented
quivalents and short term investments are recorded at fair value Accounts receivable accounts payable and accrued liabilities are stated at their carrying value which approximates fair value due to the short time to the expected receipt or payment date Assets recorded at fair value on a recurring basis in the consolidated balance sheets consisting of cash equivalents and short term investments are categorized in accordance with the fair value hierarchy based upon the level of judgment associated with the inputs used to measure their fair values
We carry the convertible senior notes at face value less debt issuance costs and hedge accounting fair value adjustments on our consolidated balance sheet The fair value of the convertible senior notes is presented at each reporting period for disclosure purposes only
Property and equipment net are stated at historical cost net of accumulated depreciation Property and equipment excluding leasehold improvements are depreciated using the straight line method over the estimated useful lives of the respective assets generally ranging from three to five years Leasehold improvements are amortized using the straight line method over the shorter of the estimated useful lives of the respective assets or the lease term Expenditures for maintenance and repairs are expensed as incurred and significant improvements and betterments that substantially enhance the life of an asset are capitalized
In August 2023 we completed an assessment of the useful lives of our servers and networking equipment which resulted in an extension of their useful lives from four to five years This change in accounting estimate was effective beginning fiscal 2024 Based on the carrying amount of these assets as of July 31 2023 this change decreased depreciation expense by 13 4 million for fiscal 2024
We capitalize certain costs incurred during the application development stage in connection with software development for our cloud security platform Costs related to preliminary project activities and post implementation activities are expensed as incurred Capitalized costs are recorded as part of property and equipment in the consolidated balance sheets Maintenance and training costs are expensed as incurred Capitalized internal use software is amortized on a straight line basis over its estimated useful life which is generally three to five years and is recorded as cost of revenue in the consolidated statements of operations Capitalization of development costs inclusive of stock based compensation of software for internal use in fiscal 2025 fiscal 2024 and fiscal 2023 was 124 5 million 76 9 million and 48 6 million respectively Amortization expense of capitalized software for internal use in fiscal 2025 fiscal 2024 and fiscal 2023 was 61 6 million 36 3 million and 24 2 million respectively
We account for our business combinations using the acquisition method of accounting which requires among other things allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill When determining the fair value of assets acquired and liabilities assumed we make estimates and assumptions especially with respect to intangible assets Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable and as a result actual results may differ from estimates
During the measurement period not to exceed one year from the date of acquisition we may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill if new information is obtained related to facts and circumstances that existed as of the acquisition date After the measurement period any subsequent adjustments are reflected in the consolidated statements of operations Acquisition costs such as legal and consulting fees are expensed as incurred
Goodwill represents the excess of the fair value of purchase consideration in a business combination over the fair value of net tangible and intangible assets acquired Goodwill amounts are not amortized but rather tested for impairment at least annually or more often if circumstances indicate that the carrying value may not be recoverable There was no impairment of goodwill during any of the periods presented
Acquired intangible assets consist of identifiable intangible assets including developed technology and customer relationships resulting from business combinations Acquired finite lived intangible assets are initially recorded at fair value and are amortized on a straight line basis over their estimated useful lives
Amortization expense of developed technology and customer relationships is recorded primarily within cost of revenues and sales and marketing expenses respectively in the consolidated statements of operations
Long lived assets such as property and equipment and acquired intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable We measure the recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that these assets are expected to generate If the total of the future undiscounted cash flows are less than the carrying amount of an asset we record an impairment charge for the amount by which the carrying amount of the asset exceeds the fair value There were no asset impairments for all periods presented
We enter into foreign currency forward contracts a portion of which we designate as cash flow hedges in order to manage the volatility of cash flows that relate to our cost of revenues and operating expenses denominated in foreign currencies
in order to match the floating rate nature of a portion of our cash cash equivalents and short term investments These interest rate swaps are designated as fair value hedges and changes in fair value of the interest rate swaps offset the changes in fair market value of the convertible senior notes due to benchmark interest rate movements
Gains or losses related to our fair value hedges are included within interest expense in the consolidated statement of operations in the period of change together with the offsetting loss or gain on the hedged item attributed to the risk being hedged We measure hedge effectiveness of the interest rate swaps using regression analysis at inception and periodically thereafter
Gains or losses related to our cash flow hedges are recorded as a component of AOCI L in the consolidated statements of stockholders equity until the forecasted transaction occurs in earnings When the forecasted transaction occurs the related gains and losses are reclassified into earnings within the financial statement line item associated with the underlying hedged transaction If the underlying hedged transaction does not occur or it becomes probable that the hedged transaction will not occur the cumulative unrealized gain or loss is reclassified immediately from AOCI L into earnings within the financial statement line item associated with the underlying hedged transaction We measure hedge effectiveness using regression analysis at hedge inception and periodically thereafter We include time value in our effectiveness assessment
We recognize changes in the fair value of non designated derivative instruments within other expense net in the consolidated statements of operations in the same period that the fair value measurement occurs
All of our derivative instruments are measured at fair value We have elected to present the derivative assets and derivative liabilities on a gross basis on the consolidated balance sheets Derivative instruments are classified in the consolidated statements of cash flows as cash from operating activities which reflect the classification of the underlying hedged transactions
We enter into operating lease arrangements for real estate assets related to office space and co location assets related to space and racks at data center facilities We determine if an arrangement contains a lease at its inception by assessing whether there is an identified asset and whether the arrangement conveys the right to control the use of the identified asset in exchange for consideration Operating leases related balances are included in operating lease right of use assets operating lease liabilities and operating lease liabilities noncurrent in the consolidated balance sheets Right of use assets represent
our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make payments arising from the lease Operating lease right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term Lease payments consist of the fixed payments under the arrangement The operating lease liabilities are adjusted for any unpaid lease incentives such as tenant improvement allowances Variable costs such as maintenance and utilities based on actual usage are not included in the measurement of right to use assets and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs As the implicit rate of our leases is not determinable we use an incremental borrowing rate IBR based on the information available at the lease commencement date in determining the present value of lease payments The lease expense is recognized on a straight line basis over the lease term
We generally use the base non cancelable lease term when recognizing the right of use assets and lease liabilities unless it is reasonably certain that a renewal or termination option will be exercised We account for lease components and non lease components as a single lease component
Compensation expense related to stock based awards granted to employees and non employees is calculated based on the fair value of stock based awards on the date of grant We recognize stock based compensation expense in the consolidated statement of operations over an award s requisite service period based on the award s fair value
Stock based compensation for common stock options is measured based on the fair value of the awards granted determined using the Black Scholes option pricing model Stock based compensation expense is recognized on a straight line basis over the requisite service period generally four years
Stock based compensation for purchase rights granted under the employee stock purchase plan ESPP is measured based on the fair value of the number of awards estimated at the beginning of the offering period as determined using the Black Scholes option pricing model Stock based compensation expense is recognized on a straight line basis over the two year offering period
Stock based compensation for restricted stock units RSUs with only service conditions is measured based on the market closing price of our common stock on the grant date Stock based compensation expense is recognized on a straight line basis over the requisite service period generally four years
Stock based compensation for performance stock awards PSAs which have the same grant date and service inception date and subject to both service and performance conditions is measured based on the probable number of shares to be attained and the market closing price of our common stock at the grant date The expense is recognized using the accelerated attribution method over the requisite service period For PSAs where the service inception date of the awards precedes the grant date stock based compensation expense is recognized based on the number of PSAs for which it is probable that the performance condition will be met using the accelerated attribution method and the market closing price of our common stock at each reporting date up to the grant date The number of these PSAs for which it is probable that the performance condition will be met is determined using management s best estimate at the end of each reporting period At the completion of the performance period for these PSAs any earned PSAs are granted upon approval of the compensation committee of our board of directors
issuance costs incurred in connection with the issuance of convertible senior notes are reflected in the consolidated balance sheets as a direct deduction from the carrying amount of the outstanding convertible senior notes These costs are amortized using the effective interest rate method over the terms of the convertible senior notes and are included within interest expense on the consolidated statements of operations
We use the if converted method to calculate the potentially diluted effect of the convertible senior notes Accordingly to account for the potentially diluted shares related to the convertible senior notes under a net income position we are required to add back the related interest expense to the net income Since we have reported net losses for all periods presented the convertible senior notes were determined to be anti dilutive and therefore had no impact to the diluted net loss per share for all periods presented
Our research and development expenses support our efforts to add new products new features to our existing offerings and to ensure the reliability availability and scalability of our solutions Our cloud platform is software driven and our research and development teams employ software engineers in the design and the related development testing certification and support of our solutions Accordingly the majority of our research and development expenses result from employee related costs including salaries bonuses benefits stock based compensation and costs associated with technology tools used by our engineers
Advertising expenses are charged to sales and marketing expenses in the consolidated statements of operations as incurred We recognized advertising expense of 29 9 million 25 0 million and 24 0 million in fiscal 2025 fiscal 2024 and fiscal 2023 respectively
Our cloud platform is generally warranted to be free of defects under normal use and to perform substantially in accordance with the subscription agreement Additionally our contracts generally include provisions for indemnifying customers and channel partners against liabilities if our services infringe or misappropriate a third party s intellectual property rights Costs and liabilities incurred as a result of warranties and indemnification obligations were not material during the periods presented
We may be subject to legal proceedings and litigation arising from time to time We record a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated We periodically evaluate developments in our legal matters that could affect the amount of liability that we accrue if any and adjust as appropriate Until the final resolution of any such matter for which we may be required to record a liability there may be a loss exposure in excess of the liability recorded and such amount could be significant We expense legal fees as incurred
We account for income taxes using the asset and liability method Deferred income taxes are recognized by applying the enacted statutory tax rates applicable to future years to differences between the carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date The measurement of deferred tax assets is reduced if necessary by a valuation allowance to amounts that are more likely than not to be realized
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 likelihood of being realized upon settlement We recognize interest and penalties associated with our unrecognized tax benefits as a component of our income tax expense
Comprehensive loss is comprised of the net loss and other comprehensive income loss Our other comprehensive income loss includes unrealized gains and losses on available for sale securities and unrealized gains and losses and realized gains and losses reclassified into net loss on cash flow hedges as reflected in the consolidated statements of comprehensive loss
iluted earnings per share adjusts basic earnings per share for all potentially dilutive common stock equivalents outstanding during the period Potentially dilutive securities consist primarily of stock options share purchase rights under the ESPP unvested RSUs unvested PSAs unvested common stock and shares related to convertible senior notes Since we have reported net losses for all periods presented we have excluded all potentially dilutive securities from the calculation of the diluted net loss per share as their effect is antidilutive Accordingly basic and diluted net loss per share is the same for all periods presented
which requires disclosure of incremental segment information on an annual and interim basis We adopted this standard during the fiscal year ended July 31 2025 refer to Note 17 Segment and Geographic Information for the additional required disclosures
In June 2020 the FASB issued ASU No 2020 06 This standard removes the separation model for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature Such convertible debt will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives The update also requires the if converted method to be used for convertible instruments and the effect of potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares We adopted this standard effective on August 1 2022 the beginning of fiscal 2023 using the modified retrospective method
This standard amends guidance on measuring expected credit losses for current accounts receivable and contract assets arising from revenue contracts This amended guidance requires to estimate credit losses for these short term assets based on the economic conditions that exist as of the balance sheet date without forecasting future economic conditions
This standard is effective for us in the annual periods beginning in fiscal 2027 and interim periods beginning in the first quarter of fiscal 2028 We are currently evaluating the potential impact of this standard on financial statement disclosures
The amended guidance enhances income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information This guidance requires disclosures of specific categories in the effective tax rate reconciliation and further information on reconciling items meeting a quantitative threshold In addition the amended guidance requires disaggregating income taxes paid net of refunds received by federal state and foreign taxes It also requires disaggregating individual jurisdictions in which income taxes paid net of refunds received is equal to or greater than 5 of total income taxes paid net of refunds received This standard is effective for us in the annual periods beginning in fiscal 2026 We are currently evaluating the potential impact of this standard on financial statement disclosures
This standard is effective for us in the annual periods beginning in fiscal 2028 and interim periods beginning in the first quarter of fiscal 2029 We are currently evaluating the potential impact of this standard on our consolidated financial statement disclosures
No single customer accounted for 10 or more of the total revenue during the periods presented The following table summarizes the concentration of 10 or more of the total balance of accounts receivable net
Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract Such amounts are recognized as revenue over the contractual period Deferred revenue including current and noncurrent balances as of July 31 2025 and July 31 2024 was 2 468 0 million and 1 895 0 million respectively In fiscal 2025 fiscal 2024 and fiscal 2023 we recognized revenue of 1 643 1 million 1 277 8 million and 919 9 million respectively that was included in the corresponding contract liability balance at the beginning of the related fiscal year
We receive payments from customers based upon contractual billing schedules and accounts receivable are recorded when the right to consideration becomes unconditional Payment terms on invoiced amounts are typically 30 days but may be up to 90 days for some of our channel partners Contract assets include amounts related to our contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced and such amounts have historically not been material
The typical subscription and support term is one to three years Most of our subscription and support contracts are non cancelable over the contractual term However customers typically have the right to terminate their contracts for cause if we fail to perform As of July 31 2025 the aggregate amount of the transaction price allocated to remaining performance obligations was 5 780 1 million We expect to recognize 46 of the transaction price over the next 12 months and 90 of the transaction price over the next three years with the remainder recognized thereafter
We capitalize sales commission and associated payroll taxes paid to sales personnel that are incremental to the acquisition of customer contracts These costs are recorded as deferred contract acquisition costs in the consolidated balance sheets We determine whether costs should be deferred based on our sales compensation plans if the commissions are in fact incremental and would not have occurred absent the customer contract
Sales commissions for renewal of a contract are not considered commensurate with the commissions paid for the acquisition of the initial contract given the substantive difference in commission rates in proportion to their respective contract values Commissions paid upon the initial acquisition of a contract are amortized over an estimated period of benefit of five years while commissions paid for renewal contracts are amortized over the contractual term of the renewals Amortization of deferred contract acquisition costs is recognized on a straight line basis commensurate with the pattern of revenue recognition and included in sales and marketing expense in the consolidated statements of operations
We determine the period of benefit for commissions paid for the acquisition of the initial contract by taking into consideration the expected subscription term and expected renewals of our customer contracts the duration of our relationships with our customers customer retention data our technology development lifecycle and other factors We periodically review the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred costs We did not recognize any impairment losses of deferred contract acquisition costs during the periods presented
We review the individual securities that have unrealized losses in our short term investment portfolio on a regular basis We evaluate among other criteria whether we have the intention to sell any of these investments and whether it is more likely than not that we will be required to sell any of them before recovery of the amortized cost basis Neither of these criteria were met in any period presented We additionally evaluate whether the decline in fair value of the corporate debt securities below their amortized cost basis is related to credit losses or other factors Based on this evaluation we determined that unrealized losses of the above securities were primarily attributable to changes in interest rates and non credit related factors Accordingly we determined that an allowance for credit losses was unnecessary for our short term investments as of July 31 2025 and 2024
million respectively and is included within other noncurrent assets in the consolidated balance sheets There were no material events or circumstances impacting their carrying amounts during the periods presented
Fair value is defined as the exchange price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value A financial instrument s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement Three levels of inputs may be used to measure fair value
Level II Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities either directly or indirectly through market corroboration for substantially the full term of the financial instruments and
Level III Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities These inputs are based on our own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation
Our money market funds are classified within Level I due to the highly liquid nature of these assets and have quoted prices in active markets Certain of our investments in available for sale securities i e U S treasury securities U S government agency securities certificates of deposit and corporate debt securities as well as our assets and liabilities arising from our foreign currency forward contracts and our interest rate swap contracts are classified within Level II The fair value of our Level II financial assets and liabilities is determined by using inputs based on non binding market consensus prices that are primarily corroborated by observable market data or quoted market prices for similar instruments for substantially the full term of the financial assets and liabilities
Purchased intangible assets consist of internet protocol addresses and source codes which are amortized on a straight line basis over an estimated useful life of 10 years As of July 31 2025 their historical cost and accumulated amortization were 20 3 million and 4 6 million respectively As of July 31 2024 their historical cost and accumulated amortization were 12 4 million and 2 8 million respectively Purchased intangible assets are included within other noncurrent assets in the consolidated balance sheets
We recognized depreciation and amortization expense on property and equipment and purchased intangible assets of 104 4 million 66 3 million and 55 8 million in fiscal 2025 fiscal 2024 and fiscal 2023 respectively Additionally we recognized stock based compensation expense on the amortization of capitalized stock based compensation associated with capitalized internal use software of 21 6 million 13 0 million and 8 4 million in fiscal 2025 fiscal 2024 and fiscal 2023 respectively
On April 12 2024 we completed the acquisition of Airgap Networks Inc Airgap an early stage technology company incorporated in United States for total purchase price consideration of 124 4 million We have integrated Airgap s technology into our cloud platform
In addition to the consideration noted above pursuant to the terms of the purchase agreement certain Airgap employees who became our employees are entitled to receive deferred merger consideration with a fair value as of the grant date of 20 3 million payable in the form of restricted shares of our common stock These awards are subject to time based vesting and will be recognized as stock based compensation expense during the post combination period Additionally in connection with this acquisition we committed to issue replacement awards with a fair value as of the closing date of the acquisition of 6 2 million of which 1 4 million attributable to pre combination vesting was allocated to the purchase price consideration The remaining balance is attributable to post combination vesting and will be recognized as compensation expense during the post combination period
In connection with this acquisition we completed a valuation of the acquired identifiable intangible assets as of April 12 2024 The purchase price consideration was allocated to identified intangible assets which include 28 7 million of developed technology 3 1 million of customer relationships and 95 5 million of goodwill The developed technology was valued using a replacement cost approach which is based on the cost of a market participant to reconstruct a substitute asset of comparable utility The customer relationships were also valued using the replacement cost approach which is based on the cost a market participant would incur to generate the acquired portfolio of customers Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired and is primarily attributable to the acquired workforce and expected operating synergies The acquisition related transaction expenses were not material and recorded as incurred within general and administrative expenses in the consolidated statement of operations for
On March 8 2024 we completed the acquisition of Avalor Technologies Ltd Avalor an early stage technology company incorporated in Israel for total purchase price consideration of 256 7 million We have integrated Avalor s technology into our cloud platform
In addition to the consideration noted above pursuant to the terms of the stock purchase agreement certain Avalor employees who became our employees are entitled to receive deferred merger consideration with a fair value as of the grant date of 46 5 million payable in the form of restricted shares of our common stock These awards are subject to time based vesting and will be recognized as stock based compensation expense during the post combination period Additionally in connection with this acquisition we committed to issue replacement awards with a fair value as of the closing date of the acquisition of 14 4 million of which 2 4 million attributable to pre combination vesting was allocated to the purchase price consideration The remaining balance is attributable to post combination vesting and will be recognized as compensation expense during the post combination period
In connection with this acquisition we completed a valuation of the acquired identifiable intangible assets as of March 8 2024 The purchase price consideration was allocated to identified intangible assets which include 14 7 million of developed technology 3 3 million of customer relationships and 229 2 million of goodwill The developed technology was valued using a replacement cost approach which is based on the cost of a market participant to reconstruct a substitute asset of comparable utility The customer relationships were also valued using the replacement cost approach which is based on the cost a market participant would incur to generate the acquired portfolio of customers Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired and is primarily attributable to the acquired workforce and expected operating synergies The acquisition related transaction expenses were not material and recorded as incurred within general and administrative expenses in the consolidated statement of operations for fiscal 2024
In addition to the cash consideration noted above pursuant to the terms of the purchase agreement certain of Canonic s employees who became our employees are entitled to receive deferred merger consideration with a fair value as of the grant date of
payable in the form of restricted shares of our common stock These awards are subject to time based vesting and will be recognized as stock based compensation expense during the post combination period
In connection with this acquisition we completed a valuation of the acquired identifiable assets as of February 20 2023 The allocation of the purchase price consideration resulted in the recognition of
of developed technology The developed technology was valued using a replacement cost approach which is based on the cost of a market participant to reconstruct a substitute asset of comparable utility Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired and is primarily attributable to the acquired workforce and expected operating synergies The acquisition related transaction expenses were not material and recorded as incurred within general and administrative expenses in the consolidated statement of operations for fiscal 2023
In December 2024 and August 2023 we completed acquisitions for total purchase price consideration of 1 1 million and 5 3 million respectively These transactions were accounted for as business combinations resulting in the recognition of goodwill of 0 7 million and 3 2 million respectively The goodwill from these transactions is not deductible for income tax purposes
The pro forma financial information from the above business acquisitions assuming the acquisition had occurred as of the beginning of the fiscal year prior to the fiscal year of the acquisition as well as revenue and earnings generated during the period after the acquisition date were not material for disclosure purposes
Acquired intangible assets consist of developed technology and customer relationships acquired through our business acquisitions Acquired intangible assets are amortized using the straight line method over their estimated useful lives
During fiscal 2025 in connection with the acquisition of Fidenty B V we acquired developed technology with a fair value of 0 3 million with an estimated useful life of five years For further information refer to Note 6 Business Combinations
expense of acquired intangible assets was 16 8 million 14 6 million and 11 1 million in fiscal 2025 fiscal 2024 and fiscal 2023 respectively Amortization expense of developed technology and customer relationships is included primarily within cost of revenue and sales and marketing expenses respectively in the consolidated statements of operations
As a global business we are exposed to foreign currency exchange rate risk Substantially all of our revenue is transacted in U S dollars however a portion of our cost of revenue and operating expenditures are incurred outside of the United States and are denominated in foreign currencies making them subject to fluctuations in foreign currency exchange rates In order to mitigate the impact of foreign currency fluctuations on our future cash flows and earnings we enter into foreign currency forward contracts which we designate as cash flow hedges The maximum length of time over which forecasted foreign currency denominated operating expenses are hedged is 21 months All cash flow hedges were considered effective for all periods presented
We also use foreign currency forward contracts to mitigate variability in gains and losses generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies The outstanding non designated derivative instruments are carried at fair value with the change in fair value recorded in other expense net in the consolidated statement of operations in the same period as the changes in fair value from the remeasurement of the underlying assets and liabilities Cash flows from such derivatives are classified as operating activities These foreign exchange contracts typically have maturities of approximately one to four months Changes in the fair value of these derivatives were not material for all periods presented
As of July 31 2025 and July 31 2024 the total notional amount of our outstanding designated foreign currency forward contracts was 693 1 million and 544 5 million respectively and for our outstanding non designated foreign currency forward contracts was 549 5 million and 352 8 million respectively As of July 31 2025 an estimated 6 1 million of the unrealized gain related to our cash flow hedges are expected to be released into earnings over the next 12 months Refer to Note 4 Fair Value Measurements for the fair value of our derivative instruments as reported on the consolidated balance sheet as of July 31 2025 and July 31 2024
Our derivative contracts expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the underlying contracts We mitigate this credit risk by transacting with major financial institutions with high credit ratings and standards We periodically assess the creditworthiness of our counterparties to ensure they continue to meet our credit quality requirements We also enter into master netting arrangements which permit net settlement of transactions with the same counterparty The potential impact of these rights of set off associated with our derivative instruments was not material as of July 31 2025 and July 31 2024 We are not required to pledge and are not entitled to receive cash collateral related to these derivative instruments We do not enter into derivative contracts for trading or speculative purposes
During fiscal 2023 we entered into interest rate swaps contracts maturing on July 1 2025 designated as fair value hedges intended to hedge a portion of our fair value risk exposure due to changing interest rates by economically converting the fixed interest rate of a portion of our 2025 convertible senior notes to a floating interest rate These interest rate swap contracts matured on July 1 2025
The gains and losses related to changes in the fair value of the interest rate swaps are included within interest expense in the consolidated statement of operations and substantially offset changes in the fair value of the hedged portion of the underlying convertible senior notes that are attributable to the changes in underlying benchmark interest rates As of July 31 2024 the cumulative amount of fair value hedge accounting adjustments included in the carrying amount of the convertible senior notes was 4 1 million
On July 3 2025 we issued 1 725 0 million in aggregate principal amount of 0 0 convertible senior notes due 2028 the 2028 Notes including the exercise in full by the initial purchasers of the 2028 Notes of their option to purchase an additional 225 0 million principal amount of the 2028 Notes The 2028 Notes are unsecured obligations and do not bear regular cash interest and the principal amount of the 2028 Notes will not accrete The 2028 Notes mature on July 15 2028 unless earlier converted redeemed or repurchased The total net proceeds from the offering after deducting initial purchase discounts and other debt issuance costs was 1 700 0 million
The 2028 Notes do not contain any financial covenants or restrictions on the payments of dividends the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries
During any fiscal quarter commencing after the fiscal quarter ending on October 31 2025 and only during such fiscal quarter if the last reported sale price of our common stock for at least 20 trading days whether or not consecutive during a period of 30 consecutive trading days ending on and including the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 of the conversion price of the 2028 Notes on each applicable trading day
During the five business day period after any five consecutive trading day period the measurement period in which the trading price per 1 000 principal amount of the 2028 Notes for each trading day of the measurement period was less than 98 of the product of the last reported sale price of our common stock and the conversion rate of the 2028 Notes on each such trading day
If we call any or all of the 2028 Notes for redemption the 2028 Notes called for redemption or at our election all Notes may be submitted for conversion at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date or
On or after April 15 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date holders may convert all or any portion of their 2028 Notes at any time in multiples of 1 000 principal amount at their option regardless of the foregoing circumstances Upon conversion we will satisfy the conversion obligation by paying or delivering as the case may be cash shares of our common stock or a combination of cash and shares of our common stock at our election It is our current intent to settle the principal amount of the 2028 Notes in cash
During the three months ended July 31 2025 the conditions allowing holders of the 2028 Notes to convert were not met Since we have the election of repaying the 2028 Notes in cash shares of our common stock or a combination of both we have classified the 2028 Notes as a noncurrent liability in the consolidated balance sheet as of July 31 2025
In the event of a corporate event that constitutes a fundamental change as defined in the indenture governing the Notes holders of the 2028 Notes will have the right at their option to require us to repurchase for cash all or any portion of the 2028 Notes upon the occurrence of a fundamental change at a purchase price equal to 100 of the principal amount of the 2028 Notes plus any accrued and unpaid special interest to but excluding the fundamental change repurchase date In addition following certain corporate events that occur prior to the maturity date or if we issue a notice of redemption we will in certain circumstances increase the conversion rate for a holder who elects to convert its 2028 Notes in connection with such corporate event or notice of redemption as the case may be
The total fair value of the 2028 Notes was 1 686 5 million as of July 31 2025 The fair value was determined based on the closing trading price per 1 000 of the 2028 Notes as of the last day of trading for the period We considered the fair value of the 2028 Notes as of July 31 2025 to be a Level II measurement as they are not actively traded The fair value of the 2028 Notes is primarily affected by the trading price of our common stock and market interest rates
In connection with the pricing of the 2028 Notes we entered into capped call transactions with the option counterparties the 2028 Capped Calls The 2028 Capped Calls each have an initial strike price of 439 52 per share subject to certain adjustments which corresponds to the initial conversion price of the 2028 Notes The 2028 Capped Calls have an initial cap price of 784 85 per share subject to certain adjustments The 2028 Capped Calls are generally expected to reduce potential dilution to our common stock upon any conversion of the 2028 Notes and or offset any cash payments we are required to make in excess of the principal amount of the converted 2028 Notes as the case may be with such reduction and or offset subject to a cap The 2028 Capped Calls are subject to adjustment upon the occurrence of specified extraordinary events affecting us including merger events tender offers and the announcement of such events In addition the 2028 Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the 2028 Capped Calls including nationalization insolvency or delisting changes in law failures to deliver insolvency filings and hedging disruptions For accounting purposes the 2028 Capped Calls are separate transactions and not part of the terms of the 2028 Notes As the 2028 Capped Calls qualify for a scope exception from derivative accounting for instruments that are both indexed to the issuer s own stock and classified in stockholder s equity in the consolidated balance sheet the premium of 196 8 million paid for the purchase of the 2028 Capped Calls was recorded as a reduction to additional paid in capital and will not be remeasured As of July 31 2025 we have not exercised any 2028 Capped Calls
On June 25 2020 we issued 1 150 0 million in aggregate principal amount of 0 125 convertible senior notes due 2025 the 2025 Notes including the exercise in full by the initial purchasers of the 2025 Notes of their option to purchase an additional 150 0 million principal amount of the 2025 Notes The 2025 Notes were unsecured obligations and bore interest at a rate of 0 125 per year and interest is payable semiannually in arrears on January 1 and July 1 of each year beginning on January 1 2021 The total net proceeds from the offering after deducting initial purchase discounts and other debt issuance costs was 1 130 5 million
The 2025 Notes matured on July 1 2025 We fully repaid the 2025 Notes by paying the principal amount of 1 150 0 million in cash and settled the premium amount by issuing 3 8 million new shares of our common stock
The total fair value of the 2025 Notes was 1 465 5 million as of July 31 2024 The fair value was determined based on the closing trading price per 1 000 of the 2025 Notes as of the last day of trading for the period We considered the fair value of the 2025 Notes as of July 31 2024 to be a Level II measurement as they are not actively traded
As of July 31 2025 we have entered into non cancelable operating leases including the lease for our new headquarters as described below with terms greater than 12 months that have not yet commenced These leases totaling
undiscounted future minimum payments are excluded from the above table and are expected to commence between August 2025 and September 2026 with lease terms ranging from approximately 1 75 to 6 33 years
square feet of rentable space The lease term begins on September 1 2026 and ends on April 30 2032 with an option for early access in January 2026 to facilitate tenant improvements The total base rent including committed fixed expenses for the duration of the lease term is approximately 69 5 million In addition to the base rent we will be responsible for operating costs and other related expenses In accordance with Accounting Standard Codification 842
In the normal course of business we enter into non cancelable purchase commitments with various third parties to purchase products and services such as cloud infrastructure capacity subscription based cloud service arrangements technology equipment corporate and marketing events and consulting services
As of July 31 2025 and 2024 we had outstanding irrevocable standby unsecured letters of credit and a guarantee which serve as security for certain real estate leases described in Note 11 Operating Leases The aggregate value of these commitments was not material to our consolidated financial statements
We are a party to various litigation matters from time to time and subject to claims that arise in the ordinary course of business including patent commercial product liability employment class action whistleblower and other litigation and claims as well as governmental and other regulatory investigations and proceedings In addition third parties may from time to time assert claims against us in the form of letters and other communications There is no pending or threatened legal proceeding to which we are a party that in our opinion is likely to have a material adverse effect on our future financial results or operations however the results of litigation and claims are inherently unpredictable Regardless of the outcome litigation can have an adverse impact on us because of defense and settlement costs diversion of management resources and other factors The expense of litigation and the timing of this expense from period to period are difficult to estimate subject to change and could adversely affect our results of operations
Equity incentive awards which may be granted to eligible participants under our Amended and Restated FY2018 Equity Incentive Plan the 2018 Plan include restricted stock units restricted stock stock options nonstatutory stock options stock appreciation rights performance units and performance shares
As of July 31 2025 a total of 60 8 million shares of common stock have been reserved for the issuance of equity awards under the 2018 Plan of which 35 8 million shares remained available for grant The number of shares of common stock available for issuance under the 2018 Plan also includes an annual increase on the first day of each fiscal year through August 1 2027 pursuant to its automatic annual increase provision
The total grant date fair value of stock options vested was 3 6 million 1 4 million and 1 5 million during fiscal 2025 fiscal 2024 and fiscal 2023 respectively The total intrinsic value of options exercised was 65 2 million 157 8 million and 56 5 million during fiscal 2025
The expected term was estimated using the simplified method The expected volatility was determined using a weighted average of the historical volatility of our common stock and peer volatility Peer volatility was calculated as the average of historical volatilities of selected industry peers corresponding to the expected term of the awards The risk free interest rate is based on the U S Treasury yield curve in effect at the time of grant for the expected term of the stock based award Our expected dividend yield is zero as we have not and do not currently intend to declare dividends in the foreseeable future
The right to earn PSAs is subject to the achievement of the defined and approved performance metrics and continuous employment service The performance metrics are defined and approved by the compensation committee of our board of directors or by our senior management for certain types of awards Generally earned PSAs are subject to additional time based vesting
As of July 31 2025 there were 0 1 million outstanding PSAs with performance metrics that have not been defined and or approved As of July 31 2025 these awards are not considered granted for accounting purposes and accordingly have been excluded from the table below
In fiscal 2018 we adopted the Fiscal Year 2018 Employee Stock Purchase Plan the ESPP Through July 31 2025 a total of 11 8 million shares of common stock have been reserved for issuance under the ESPP out of which 7 3 million shares were available for future grant as of July 31 2025 The number of shares reserved includes an annual increase on the first day of each fiscal year pursuant to the ESPP s automatic annual increase provision The ESPP provides for consecutive offering periods that will typically have a duration of approximately 24 months in length and are comprised of four purchase periods of approximately six months in length The offering periods are scheduled to start on the first trading day on or after June 15 and December 15 of each year The ESPP contains a reset provision under which the offering period resets if the fair market value of our common stock on the purchase date is less than the fair market value on the first day of the offering period During fiscal 2025 fiscal 2024 and fiscal 2023 employees purchased under the ESPP approximately 0 4 million 0 5 million and 0 4 million shares of common stock respectively at an average purchase price of 146 31 106 46 and 99 59 respectively with cash proceeds of 63 6 million 52 0 million and 42 3 million respectively
ESPP employee payroll contributions accrued as of July 31 2025 and 2024 were 9 4 million and 8 8 million respectively and are included within accrued compensation in the consolidated balance sheets Payroll contributions accrued
as of July 31 2025 will be used to purchase shares at the end of the current ESPP purchase period ending on December 15 2025 Payroll contributions ultimately used to purchase shares are reclassified to stockholders equity on the purchase date
In June 2024 one outstanding ESPP offering period was reset and automatically rolled over into a new ESPP offering period that started on June 17 2024 The reset was accounted for as a modification which resulted in an incremental stock based compensation of 2 7 million which will be recognized over the remaining term of the modified ESPP offering period of 18 months In December 2022 certain outstanding ESPP offering periods were reset and automatically rolled over into a new ESPP offering period that started on December 15 2022 The reset was accounted for as a modification which resulted in an incremental stock based compensation of 8 3 million which was recognized over the remaining term of the modified ESPP offering periods ranging from approximately 6 months to 18 months
The expected term represents the term from the first day of the offering period to the purchase dates within each offering period The expected volatility was based on the historical volatility of our common stock The risk free interest rate is based on the U S Treasury yield curve in effect at the time of grant for the expected term of the stock based award Our expected dividend yield is zero as we have not and do not currently intend to declare dividends in the foreseeable future
certain executives of the Company departed from their positions including our former Chief Financial Officer In connection with some of the departures we modified certain equity incentive awards resulting in an incremental stock based compensation expense of 11 7 million of which 2 2 million and 9 5 million was recognized in research and development expenses and general and administrative expenses respectively in the consolidated statement of operations in fiscal
Additionally in connection with these departures we recognized a reversal of stock based compensation expense related to forfeited unvested equity incentive awards of 12 2 million of which 4 2 million 6 0 million and 2 0 million was recognized in sales and marketing expenses research and development expenses and general and administrative expenses respectively in the consolidated statement of operations in fiscal
In February 2024 our Chief Operating Officer who led sales activities resigned from his position at the Company In connection with his resignation we recognized a reversal of stock based compensation expense of 11 7 million associated with the cancellation of unvested incentive equity awards which was recognized in sales and marketing expenses in the consolidated statement of operations in fiscal 2024
In October 2022 our President who led research and development activities resigned from his position as President of the Company but continued to serve as a member of our Board of Directors through January 2024 In connection with his resignation as President of the Company we recognized a reversal of stock based compensation expense of 9 9 million associated with the cancellation of unvested incentive equity awards which was recognized in research and development expenses in the consolidated statement of operations in fiscal 2023
As of July 31 2025 the unrecognized stock based compensation cost related to outstanding equity based awards including awards for which the service inception date has been met but the grant date has not been met was 1 557 2 million which we expect to be amortized over a weighted average period of 2 5 years
During fiscal 2025 fiscal 2024 and fiscal 2023 we capitalized stock based compensation primarily associated with the development of software for internal use of 44 0 million 27 2 million and 17 2 million respectively
During fiscal 2025 fiscal 2024 and fiscal 2023 we recognized tax benefits on total stock based compensation expense of 31 5 million 23 0 million and 13 4 million respectively which are reflected within the provision for income taxes in the consolidated statements of operations
Our effective tax rate for fiscal 2025 differs from the U S statutory rate primarily due to a portion of our earnings that are taxed at different rates from the U S statutory rate the benefit of stock based compensation deductions withholding taxes related to customer payments in certain foreign jurisdictions in which we conduct business and the impact in the valuation allowance against deferred tax assets including the release of the UK valuation allowance
Our effective tax rate for fiscal 2024 differs from the U S statutory rate primarily due to a portion of our earnings that are taxed at different rates from the U S statutory rate the benefit of stock based compensation deductions withholding taxes related to customer payments in certain foreign jurisdictions in which we conduct business and the impact of the valuation allowance we maintain against our U S federal and state deferred tax assets During fiscal 2024 we also effectuated certain tax planning actions which reduced the amount of waived deductions under Section 59A related to our fiscal 2023
Our effective tax rate for fiscal 2023 differs from the U S statutory rate primarily due to a portion of our earnings that are taxed at different rates from the U S statutory rate the effect of waived deductions under Section 59A the benefit of stock based compensation deductions withholding taxes related to customer payments in certain foreign jurisdictions in which we conduct business and the impact of the valuation allowance we maintain against our U S federal and state deferred tax assets
During fiscal 2024 we recognized an income tax benefit of 5 2 million as a result of a release in our valuation allowance on deferred tax assets due to deferred taxes recorded as part of the acquisition accounting of business combinations
A deferred tax liability has not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are indefinitely reinvested outside the U S
The excess of the amount for financial reporting over the tax basis in the investments in foreign subsidiaries as well as the unrecognized deferred tax liability are not material for the periods presented
The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods We regularly assess our ability to realize the deferred tax assets on a quarterly basis and we establish a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized We weigh all available positive and negative evidence including our earnings history and results of recent operations scheduled reversals of deferred tax liabilities projected future taxable income and tax planning strategies Due to the weight of objectively verifiable negative evidence including our history of losses we believe that it is more likely than not that our U S federal and state deferred tax assets will not be realized as of July 31 2025 and 2024 Accordingly we have maintained
The amount of the deferred tax asset considered realizable however could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth In the event we determine that we will be able to realize all or part of our net deferred tax assets in the future the valuation allowance against our deferred tax assets will be reversed in the period in which we make such determination The release of a valuation allowance may cause greater volatility in the effective tax rate in the periods in which the valuation allowance is released
During fiscal 2025 based on an analysis of all positive and negative evidence we concluded it is more likely than not that our U K deferred tax assets will be realizable This conclusion is based on a demonstrated return to sustained profitability when considering pre tax income adjusted for permanent differences as well as anticipated future earnings The change in judgment as to the realizability of U K deferred tax assets in future years resulted in the release of the U K valuation allowance of 18 4 million
As of July 31 2025 we have net operating loss carryforwards for U S federal income tax purposes of 1 057 0 million which are available to offset future federal taxable income These net operating losses will carry forward indefinitely As of July 31 2025 we have net operating loss carryforwards for state income tax purposes of 504 7 million Beginning in 2025 426 8 million of state net operating losses will begin to expire at different periods The remaining 77 9 million of state net operating losses will carry forward indefinitely As of July 31 2025 we had foreign net operating loss carryforward of 87 7 million all of which will be carried forward indefinitely
As of July 31 2025 we also had U S federal California and foreign research and development and other tax credit carryforwards of 192 8 million 102 6 million and 2 1 million respectively If not utilized the federal research and development tax credit carryforwards will begin expiring at different periods beginning in 2037 Our California research and development tax credits may be carried forward indefinitely Foreign tax credits will begin to expire in the fiscal year ending 2033
Federal and state tax laws impose restrictions on the utilization of net operating loss carryforwards in the event of a change in our ownership as defined by the Internal Revenue Code Sections 382 Under Section 382 of the Code substantial changes in our ownership and the ownership of acquired companies may limit the amount of net operating loss carryforwards that are available to offset taxable income The annual limitation would not automatically result in the loss of net operating loss carryforwards but may limit the amount available in any given future period
We are subject to income taxes in the U S and various foreign jurisdictions As of July 31 2025 all years are open for examination and may become subject to examination in the future Significant judgment is required in evaluating our tax positions and determining our income tax expense for the fiscal year During the ordinary course of business there are transactions and calculations for which the ultimate tax determination is uncertain Our estimate of the potential outcome of any tax position is subject to management s assessment of relevant risks facts and circumstances existing at that time These unrecognized tax benefits are established when we believe that certain positions might be challenged despite the belief that our tax return positions are fully supportable We recognize interest and penalties associated with our unrecognized tax benefits as a component of our income tax expense For the periods presented we did not have material interest or penalties associated with the unrecognized tax benefits in the consolidated financial statements
We had 87 2 million of gross unrecognized tax benefits as of July 31 2025 of which 5 3 million would affect our effective tax rate if recognized The remaining gross unrecognized tax benefits relate to income tax positions which if recognized would be in the form of additional deferred tax assets that would be offset by a valuation allowance As of July 31 2025 we do not believe that our estimates as otherwise provided for on such tax positions will significantly increase or
decrease within the next twelve months We recognize interest and penalties related to our unrecognized tax benefits within our provision for income taxes The amount of interest and penalties accrued as of July 31 2025 was insignificant
Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period less shares subject to repurchase The diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period For purposes of this calculation our stock options share purchase rights under the employee stock purchase plan unvested RSUs unvested PSAs unvested common stock and shares related to the 2028 and 2025 Notes are considered to be potential common stock equivalents
Since we have reported net losses for all periods presented we have excluded all potentially dilutive securities from the calculation of the diluted net loss per share as their effect is antidilutive and accordingly the basic and diluted net loss per share is the same for all periods presented
We calculate the potential dilutive effect of the convertible senior notes under the if converted method Under this method diluted earnings per share are determined by assuming that outstanding convertible senior notes were converted into shares of our common stock at the beginning of the reporting period
In connection with the issuance of the convertible senior notes we entered into capped call transactions which were not included for purposes of calculating the number of diluted shares outstanding as their effect would have been anti dilutive The capped call transactions are expected to partially offset the potential dilution to our common stock upon any conversion of the convertible senior notes
The number of unvested PSAs is estimated at 100 of the target number of shares granted and excludes unvested PSAs for which performance conditions have not been established as of July 31 2025 as they are not considered outstanding for accounting purposes For further information refer to Note 13 Stock Based Compensation
Based on the initial conversion price the entire outstanding principal amount of the Notes as of July 31 2025 July 31 2024 and July 31 2023 would have been convertible into approximately 3 9 million shares 7 6 million shares and 7 6 million shares respectively of our common stock which are reflected in the table above
We operate globally as a single operating and reportable segment with one primary business activity Using a SaaS business model we primarily generate revenue from sales of subscriptions to grant customers access to our cloud platform along with related support services Our chief operating decision maker CODM is our chief executive officer Consolidated financial information including revenue and significant adjusted segment expenses is regularly provided to the CODM for purposes of allocating resources and evaluating financial performance This information is also used in our annual budgeting and forecasting processes to establish goals and compare actual results against both budgeted targets and historical performance Our CODM uses consolidated net loss as the measure of our segment profit or loss The measure of our segment assets is reported as total assets on the consolidated balance sheets
Cost of revenue sales and marketing expense and research and development expense adjusted to exclude stock based compensation and related payroll taxes amortization of acquired intangible assets and restructuring and other charges
We have a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code We contract with a third party provider to act as a custodian and trustee and to process and maintain the records of participant data For fiscal 2025 fiscal 2024 and fiscal 2023 we incurred expenses of 13 5 million 9 5 million and 4 5 million related to the matching contributions respectively
On August 1 2025 we completed our acquisition of Red Canary Inc a privately held cybersecurity company that provides managed detection and response solutions for a total consideration of 675 0 million in cash subject to customary adjustments plus equity awards to employees We anticipate that this acquisition will expand upon our security operations offerings and enhance our ability to leverage our Data Fabric for Security The purchase consideration for the acquired business will be allocated to the assets acquired and liabilities assumed based on their respective estimated fair values on the closing date Due to the timing of the acquisition the initial accounting for the acquisition is incomplete As such we are not able to disclose certain information relating to the acquisition including the preliminary fair value of assets acquired and liabilities assumed We expect to complete the initial accounting for this acquisition during the first quarter of fiscal 2026
We maintain disclosure controls and procedures as defined in Rule 13a 15 e and Rule 15d 15 e under the Securities Exchange Act of 1934 as amended Exchange Act that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded processed summarized and reported within the time periods specified in the SEC s rules and forms Disclosure controls and procedures include without limitation controls and procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure
Our management with the participation of our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of July 31 2025 Based on such evaluation our Chief Executive Officer and Chief Financial Officer have concluded that as of such date our disclosure controls and procedures were effective at the reasonable assurance level
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a 15 f and Rule 15d 15 f under the Exchange Act Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of July 31 2025 based on the criteria established in
Based on the results of its evaluation management concluded that our internal control over financial reporting was effective as of July 31 2025 The effectiveness of our internal control over financial reporting as of July 31 2025 has been audited by PricewaterhouseCoopers LLP an independent registered public accounting firm as stated in its report which is included in Item 8 of this Form 10 K
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a 15 d and 15d 15 d of the Exchange Act that occurred during the fiscal quarter ended July 31 2025 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting
Our management including our Chief Executive Officer and Chief Financial Officer believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level However our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud A control system no matter how well conceived and operated can provide only reasonable not absolute assurance that the objectives of the control system are met Further the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs Because of the inherent limitations in all control systems no evaluation of controls can provide absolute assurance that all control issues and instances of fraud if any have been detected These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake Additionally controls can be circumvented by the
individual acts of some persons by collusion of two or more people or by management override of the controls The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions over time controls may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate Because of the inherent limitations in a cost effective control system misstatements due to error or fraud may occur and not be detected
During the three months ended July 31 2025 the following officer as defined in Rule 16a 1 f under the Securities Act of 1934 as amended or the Securities Act adopted a Rule 10b5 1 trading arrangement as defined in Regulation S K Item 408
On July 3 2025 Robert Schlossman the Company s chief legal officer and secretary adopted a Rule 10b5 1 trading arrangement providing for the sale from time to time of an aggregate of up to 43 343 shares of our common stock The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5 1 c The duration of the trading arrangement is until September 30 2026 or earlier if all transactions under the trading arrangement are completed
No other officers or directors as defined in Rule 16a 1 f under the Securities Act adopted or terminated a Rule 10b5 1 trading arrangement as defined in Regulation S K Item 408 during the three months ended July 31 2025
The information required by this Item other than the information set forth in the following paragraphs will be included in our definitive proxy statement for our 2025 annual meeting of stockholders or the 2025 Proxy Statement which will be filed with the SEC within 120 days after the end of our fiscal year ended July 31 2025 and is incorporated herein by reference
We have adopted a code of business conduct and ethics or Code of Conduct that applies to all of our employees executive officers and directors The full text of the Code of Conduct is available on our website at ir zscaler com The nominating and corporate governance committee of our board of directors is responsible for overseeing the Code of Conduct and must approve any waivers of the Code of Conduct for employees executive officers and directors We expect that any amendments to the Code of Conduct or any waivers of its requirements will be disclosed on our website as required by applicable law or the listing standards of The Nasdaq Global Market
We have adopted an Insider Trading Policy that governs the purchase sale and or other dispositions of our securities by directors executive officers and employees Our Insider Trading Policy also provides that we will not transact in any of our own securities unless in compliance with U S securities laws We believe that our Insider Trading Policy is reasonably designed to promote compliance with insider trading laws rules and regulations and the listing standards of The Nasdaq Global Market A copy of our Insider Trading Policy is filed as Exhibit 19 1 to this Annual Report on Form 10 K
All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable or because the information required is already included in the financial statements or the notes to those financial statements
Certain portions of this exhibit indicated by have been omitted as Registrant determined the omitted information i is not material and ii would be competitively harmful to Registrant if publicly disclosed
The certifications furnished in Exhibit 32 1 hereto are deemed to accompany this Annual Report on Form 10 K and will not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 as amended except to the extent that the registrant specifically incorporates it by reference
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below hereby constitutes and appoints Jagtar Chaudhry and Kevin Rubin and each of them as his or her true and lawful attorney in fact and agent with full power of substitution for him or her in any and all capacities to sign any and all amendments to this report and to file the same with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission granting unto said attorney in fact proxy and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully for all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorney in fact proxy and agent or his substitute may lawfully do or cause to be done by virtue hereof

Company Name	Zscaler, Inc. Vist SEC web-site
Category	SERVICES-COMPUTER PROGRAMMING SERVICES
Trading Symbol	ZS