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Zscaler Reports Second Quarter Fiscal 2023 Financial Results

March 2, 2023 4:05 PM

Second Quarter Highlights

SAN JOSE, Calif., March 02, 2023 (GLOBE NEWSWIRE) -- Zscaler, Inc. (Nasdaq: ZS), the leader in cloud security, today announced financial results for its second quarter of fiscal year 2023, ended January 31, 2023.

"We exceeded both our revenue and profitability guidance in Q2, demonstrating the operating leverage inherent in our business model,” said Jay Chaudhry, Chairman and CEO of Zscaler. “Even in this difficult macroeconomic environment, we continue to see customers consolidate multiple point products onto our integrated Zero Trust security platform for better security and lower cost. We believe that strong customer interest in our platform, together with the growth in our annual recurring revenue base, supports the increase to our fiscal year guidance."

Second Quarter Fiscal 2023 Financial Highlights

Recent Business Highlights

Recently Issued Accounting Pronouncements

Effective August 1, 2022, the beginning of our fiscal year ending July 31, 2023, we adopted Accounting Standards Update No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (ASU 2020-06), using the modified retrospective transition method. The adoption of this standard resulted in the elimination of the debt discount and related amortization as interest expense and the classification of the portion of the debt issuance costs initially allocated to equity within the carrying amount of our senior convertible notes, which will be amortized as interest expense. Additionally, ASU 2020-06 amended the calculation of diluted earnings per share for certain convertible debt instruments, eliminating the treasury stock method and requiring the use of the if-converted method to compute the underlying potentially diluted shares. Accordingly, to account for the potentially diluted shares related to our senior convertible notes, we are required to add back the non-GAAP interest expense to our non-GAAP net income and include approximately 7.63 million shares related to our senior convertible notes beginning in our first quarter of fiscal year 2023.

Financial Outlook

For the third quarter of fiscal 2023, we expect:

For the full year fiscal 2023, we expect:

These statements are forward-looking and actual results may differ materially. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

Guidance for non-GAAP income from operations excludes stock-based compensation expense and related employer payroll taxes, amortization expense of acquired intangible assets, amortization of debt discount and issuance costs. As a result of the adoption of ASU 2020-06 on August 1, 2022, guidance for non-GAAP net income per share uses the if-converted method to calculate the potentially diluted shares related to the convertible senior notes. Accordingly, we are required to add back the non-GAAP interest expense to our non-GAAP net income and include approximately 7.63 million shares related to our senior convertible notes. Additionally, we include the anti-dilutive impact of the capped call transactions entered into in connection with the convertible senior notes. We have not reconciled our expectations to non-GAAP income from operations and non-GAAP net income per share to their most directly comparable GAAP measures because certain items are out of our control or cannot be reasonably predicted. For those reasons, we are also unable to address the probable significance of the unavailable information, the variability of which may have a significant impact on future results. Accordingly, a reconciliation for the guidance for non-GAAP income from operations and non-GAAP net income per share is not available without unreasonable effort.

Conference Call and Webcast Information

Zscaler will host a conference call for analysts and investors to discuss its second quarter of fiscal 2023 and outlook for its third quarter of fiscal 2023 and full year fiscal 2023 today at 1:30 p.m. Pacific time (4:30 p.m. Eastern time).

Date:Thursday, March 2, 2023
Time:1:30 p.m. PT
Webcast:https://ir.zscaler.com
Dial-in:To join by phone, register at the following link (https://register.vevent.com/register/BI3c2ea9d4237a411bb5d1a1a67a3dc80c). After registering, you will be provided with a dial-in number and personal PIN required to join the call.

Upcoming Conferences

Third quarter of fiscal 2023 investor conference participation schedule:

Sessions which offer a webcast will be available on the Investor Relations section of the Zscaler website at https://ir.zscaler.com.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including, but not limited to, statements regarding our future financial and operating performance, including our financial outlook for the third quarter of fiscal 2023 and full year fiscal 2023. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including but not limited to: macroeconomic influences and instability, including the ongoing effects of inflation, geopolitical events and the COVID-19 pandemic on our business, operations and financial results and the economy in general; our limited operating history; our ability to identify and effectively implement the necessary changes to address execution challenges; risks associated with managing our rapid growth, including fluctuations from period to period; our limited experience with new product and subscription and support introductions and the risks associated with new products and subscription and support offerings, including the discovery of software bugs; our ability to attract and retain new customers; the failure to timely develop and achieve market acceptance of new products and subscriptions as well as existing products and subscription and support; rapidly evolving technological developments in the market for network security products and subscription and support offerings and our ability to remain competitive; length of sales cycles; and general market, political, economic and business conditions.

Additional risks and uncertainties that could affect our financial results are included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth from time to time in our filings and reports with the Securities and Exchange Commission (SEC), including our Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2022 filed on December 7, 2022 and our Annual Report on Form 10-K for the fiscal year ended July 31, 2022 filed on September 15, 2022, as well as future filings and reports by us, copies of which are available on our website at ir.zscaler.com and on the SEC’s website at www.sec.gov. You should not rely on these forward-looking statements, as actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of such risks and uncertainties. Additional information will also be set forth in other filings that we make with the SEC from time to time. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

Use of Non-GAAP Financial Information

We believe that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to our financial condition and results of operations. For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the “Explanation of Non-GAAP Financial Measures” section of this press release.

About Zscaler

Zscaler (Nasdaq: ZS) accelerates digital transformation so customers can be more agile, efficient, resilient, and secure. The Zscaler Zero Trust Exchange™ platform protects thousands of customers from cyberattacks and data loss by securely connecting users, devices, and applications in any location. Distributed across more than 150 data centers globally, the SSE-based Zero Trust Exchange is the world’s largest in-line cloud security platform.

Zscaler™ and the other trademarks listed at https://www.zscaler.com/legal/trademarks are either (i) registered trademarks or service marks or (ii) trademarks or service marks of Zscaler, Inc. in the United States and/or other countries. Any other trademarks are the properties of their respective owners.

Investor Relations Contacts

Bill Choi, CFASVP, Investor Relations and Strategic Finance(408) 816-1478[email protected]

Natalia WodeckiMedia Relations Contact[email protected]

ZSCALER, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
January 31, January 31,
2023 2022 2023 2022
Revenue$ 387,598 $ 255,563 $ 743,146 $ 486,080
Cost of revenue (1) (2) 87,604 57,783 164,301 109,952
Gross profit 299,994 197,780 578,845 376,128
Operating expenses:
Sales and marketing (1) (2) 235,945 175,073 464,781 328,859
Research and development (1) (2) 85,765 69,195 160,711 134,411
General and administrative (1) 43,522 37,444 87,678 71,161
Total operating expenses 365,232 281,712 713,170 534,431
Loss from operations (65,238) (83,932) (134,325) (158,303)
Interest income 12,669 557 20,534 1,030
Interest expense (3) (4) (1,333) (14,040) (2,664) (27,875)
Other income (expense), net 141 (844) (722) (1,433)
Loss before income taxes (53,761) (98,259) (117,177) (186,581)
Provision for income taxes 3,692 2,161 8,438 4,640
Net loss$ (57,453) $ (100,420) $ (125,615) $ (191,221)
Net loss per share, basic and diluted$ (0.40) $ (0.71) $ (0.87) $ (1.37)
Weighted-average shares used in computing net loss per share, basic and diluted 144,511 140,515 144,001 139,901

(1) Includes stock-based compensation expense and related payroll taxes as follows:

Cost of revenue$ 9,595 $ 5,766 $ 18,256 $ 11,085
Sales and marketing 55,213 47,666 110,682 91,130
Research and development 29,380 30,000 54,613 58,570
General and administrative 17,330 20,613 36,603 39,354
Total$ 111,518 $ 104,045 $ 220,154 $ 200,139

(2) Includes amortization expense of acquired intangible assets as follows:

Cost of revenue$ 2,175 $ 2,000 $ 4,114 $ 4,056
Sales and marketing 178 178 356 348
Research and development 198 53 633 53
Total$ 2,551 $ 2,231 $ 5,103 $ 4,457
(3) Includes amortization of debt discount and issuance costs as follows (4):$973 $13,680 $1,945 $27,156

(4) Effective August 1, 2022, we adopted ASU 2020-06 using the modified retrospective method under which prior period amounts have not been adjusted. The adoption of this standard resulted in the elimination of the debt discount and related amortization as interest expense and the classification of the portion of the debt issuance costs initially allocated to equity within the carrying amount of the senior convertible notes, which will be recognized as interest expense.

ZSCALER, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
January 31, July 31,
2023 2022
Assets
Current assets:
Cash and cash equivalents$ 1,257,012 $ 1,013,210
Short-term investments 648,332 718,129
Accounts receivable, net 358,614 399,745
Deferred contract acquisition costs 96,105 86,210
Prepaid expenses and other current assets 56,046 39,353
Total current assets 2,416,109 2,256,647
Property and equipment, net 200,468 160,633
Operating lease right-of-use assets 69,848 72,357
Deferred contract acquisition costs, noncurrent 219,046 210,792
Acquired intangible assets, net 26,716 31,819
Goodwill 78,547 78,547
Other noncurrent assets 29,222 21,870
Total assets$ 3,039,956 $ 2,832,665
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$ 33,632 $ 26,154
Accrued expenses and other current liabilities 43,547 46,496
Accrued compensation 97,293 111,948
Deferred revenue 1,000,359 923,749
Operating lease liabilities 29,173 26,100
Total current liabilities 1,204,004 1,134,447
Convertible senior notes, net (1) 1,140,516 968,674
Deferred revenue, noncurrent 111,521 97,374
Operating lease liabilities, noncurrent 46,233 50,948
Other noncurrent liabilities 9,025 7,922
Total liabilities 2,511,299 2,259,365
Stockholders’ Equity
Common stock 145 143
Additional paid-in capital 1,547,203 1,590,885
Accumulated other comprehensive loss (5,037) (25,850)
Accumulated deficit (1,013,654) (991,878)
Total stockholders’ equity 528,657 573,300
Total liabilities and stockholders’ equity$ 3,039,956 $ 2,832,665

___________________

(1) Effective August 1, 2022, we adopted ASU 2020-06 using the modified retrospective method under which prior period amounts have not been adjusted. The adoption of this standard resulted in the elimination of the debt discount and related amortization as interest expense and the classification of the portion of the debt issuance costs initially allocated to equity within the carrying amount of our senior convertible notes, which will be recognized as interest expense.

ZSCALER, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
January 31,
2023 2022
Cash Flows from Operating Activities
Net loss$ (125,615) $ (191,221)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense 25,241 19,005
Amortization expense of acquired intangible assets 5,103 4,457
Amortization of deferred contract acquisition costs 46,053 31,038
Amortization of debt discount and issuance costs (1) 1,945 27,156
Non-cash operating lease costs 14,988 12,411
Stock-based compensation expense 214,911 188,891
Amortization (accretion) of investments purchased at a premium (discount) (1,433) 4,662
Deferred income taxes 9 (659)
Other (1,480) 295
Changes in operating assets and liabilities, net of effects of business acquisitions
Accounts receivable 40,800 (12,622)
Deferred contract acquisition costs (64,202) (58,513)
Prepaid expenses, other current and noncurrent assets (7,800) 4,903
Accounts payable 5,228 (103)
Accrued expenses, other current and noncurrent liabilities 5,899 5,029
Accrued compensation (17,651) (9,759)
Deferred revenue 90,862 129,594
Operating lease liabilities (14,920) (13,031)
Net cash provided by operating activities 217,938 141,533
Cash Flows from Investing Activities
Purchases of property, equipment and other assets (43,883) (20,442)
Capitalized internal-use software (15,623) (8,275)
Payments for business acquisitions, net of cash acquired — (380)
Purchase of strategic investments (1,200) —
Purchases of short-term investments (513,743) (624,254)
Proceeds from maturities of short-term investments 586,801 629,411
Net cash provided by (used in) investing activities 12,352 (23,940)
Cash Flows from Financing Activities
Proceeds from issuance of common stock upon exercise of stock options 2,104 4,871
Proceeds from issuance of common stock under the employee stock purchase plan 11,410 11,509
Payment of deferred consideration related to business acquisitions — (50)
Other (2) (2)
Net cash provided by financing activities 13,512 16,328
Net increase in cash and cash equivalents (2) 243,802 133,921
Cash and cash equivalents at beginning of period (2) 1,013,210 275,898
Cash and cash equivalents at end of period (2)$ 1,257,012 $ 409,819

___________________

(1) Effective August 1, 2022, we adopted ASU 2020-06 using the modified retrospective method under which prior period amounts have not been adjusted. The adoption of this standard resulted in the elimination of the debt discount and related amortization as interest expense and the classification of the portion of the debt issuance costs initially allocated to equity within the carrying amount of the senior convertible notes, which will be recognized as interest expense.

(2) We did not hold restricted cash for any periods presented.

ZSCALER, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except percentages)
(unaudited)
Three Months Ended Six Months Ended
January 31, January 31,
2023 2022 2023 2022
Revenue$ 387,598 $ 255,563 $ 743,146 $ 486,080
Non-GAAP Gross Profit and Non-GAAP Gross Margin
GAAP gross profit$ 299,994 $ 197,780 $ 578,845 $ 376,128
Add: Stock-based compensation expense and related payroll taxes 9,595 5,766 18,256 11,085
Add: Amortization expense of acquired intangible assets 2,175 2,000 4,114 4,056
Non-GAAP gross profit$ 311,764 $ 205,546 $ 601,215 $ 391,269
GAAP gross margin 77 % 77 % 78 % 77 %
Non-GAAP gross margin 80 % 80 % 81 % 80 %
Non-GAAP Income from Operations and Non-GAAP Operating Margin
GAAP loss from operations$ (65,238) $ (83,932) $ (134,325) $ (158,303)
Add: Stock-based compensation expense and related payroll taxes 111,518 104,045 220,154 200,139
Add: Amortization expense of acquired intangible assets 2,551 2,231 5,103 4,457
Non-GAAP income from operations$ 48,831 $ 22,344 $ 90,932 $ 46,293
GAAP operating margin (17)% (33)% (18)% (33)%
Non-GAAP operating margin 13 % 9 % 12 % 10 %

ZSCALER, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Six months ended
January 31, January 31,
2023 2022 2023 2022
Non-GAAP Net Income per Share, Diluted
GAAP net loss$ (57,453) $ (100,420) $ (125,615) $ (191,221)
Stock-based compensation expense and related payroll taxes 111,518 104,045 220,154 200,139
Amortization expense of acquired intangible assets 2,551 2,231 5,103 4,457
Amortization of debt discount and issuance costs (1) 973 13,680 1,945 27,156
Benefit for income taxes (2) — (361) — (361)
Non-GAAP net income$ 57,589 $ 19,175 $ 101,587 $ 40,170
Add: Non-GAAP interest expense (1) 360 — 719 —
Numerator used in computing non-GAAP net income per share, diluted$ 57,949 $ 19,175 $ 102,306 $ 40,170
GAAP net loss per share, diluted$ (0.40) $ (0.71) $ (0.87) $ (1.37)
Stock-based compensation expense and related payroll taxes 0.72 0.70 1.42 1.35
Amortization expense of acquired intangible assets 0.02 0.01 0.03 0.03
Amortization of debt discount and issuance costs 0.01 0.09 0.01 0.18
Benefit for income taxes (2) — — — —
Non-GAAP interest expense (1) — — — —
Adjustment to total fully diluted earnings per share (3) 0.02 0.04 0.07 0.08
Non-GAAP net income per share, diluted (1)$ 0.37 $ 0.13 $ 0.66 $ 0.27
Weighted-average shares used in computing GAAP net loss per share, diluted 144,511 140,515 144,001 139,901
Add: Outstanding equity incentive awards 2,605 6,834 3,229 7,267
Add: Senior convertible notes (1) 7,626 3,853 7,626 3,631
Less: Antidilutive impact of capped call transactions (4) — (2,401) — (2,542)
Weighted-average shares used in computing non-GAAP net income per share, diluted (1) 154,742 148,801 154,856 148,257

___________________

(1) Effective August 1, 2022, we adopted ASU 2020-06 using the modified retrospective method under which prior period amounts have not been adjusted. The adoption of this standard resulted in the elimination of the debt discount and related amortization as interest expense and the classification of the portion of the debt issuance costs initially allocated to equity within the carrying amount of the senior convertible notes, which will be recognized as interest expense. Additionally, this standard amended the calculation of diluted earnings per share for certain convertible debt instruments, eliminating the treasury stock method and requiring the use of the if-converted method to compute the underlying potentially diluted shares. Accordingly, to account for the potentially diluted shares related to the senior convertible notes, we are required to add back the non-GAAP interest expense to our non-GAAP net income and include approximately 7.63 million shares related to the senior convertible notes beginning in our first quarter of fiscal year 2023.

(2) We use our GAAP provision for income taxes for purposes of determining our non-GAAP income tax expense. The difference between our GAAP and non-GAAP income tax expense represents the effects of stock-based compensation expense recognized in foreign jurisdictions. The income tax benefit related to stock-based compensation expense included in the GAAP provision for income taxes was not material for all periods presented.

(3) The sum of the fully diluted earnings per share impact of individual reconciling items may not total to fully diluted non-GAAP net income per share due to the weighted-average shares used in computing the GAAP net loss per share differing from the weighted-average shares used in computing the non-GAAP net income per share and due to rounding of the individual reconciling items. The GAAP net loss per share calculation uses a lower share count as it excludes potentially dilutive shares, which are included in calculating the non-GAAP net income per share.

(4) We exclude the in-the-money portion of the convertible senior notes for non-GAAP weighted-average diluted shares as they are covered by our capped call transactions. Our outstanding capped call transactions are antidilutive under GAAP, but are expected to mitigate the dilutive effect of the convertible senior notes and therefore are included in the calculation of non-GAAP diluted shares outstanding. No antidilutive impact was reflected in the three and six months ended January 31, 2023, as the average stock price of our common stock in such periods was lower than the capped calls’ exercise price.

ZSCALER, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except percentages)
(unaudited)
Three Months Ended Six Months Ended
January 31, January 31,
2023 2022 2023 2022
Calculated billings
Revenue$ 387,598 $ 255,563 $ 743,146 $ 486,080
Add: Total deferred revenue, end of period 1,111,880 759,931 1,111,880 759,931
Less: Total deferred revenue, beginning of period (1,005,713) (647,816) (1,021,123) (630,601)
Calculated billings$ 493,765 $ 367,678 $ 833,903 $ 615,410
Free cash flow
Net cash provided by operating activities$ 89,481 $ 48,262 $ 217,938 $ 141,533
Less: Purchases of property, equipment and other assets (18,681) (13,988) (43,883) (20,442)
Less: Capitalized internal-use software (7,982) (4,825) (15,623) (8,275)
Free cash flow$ 62,818 $ 29,449 $ 158,432 $ 112,816
Free cash flow margin
Net cash provided by operating activities, as a percentage of revenue 23 % 19 % 29 % 29 %
Less: Purchases of property, equipment and other assets, as a percentage of revenue (5)% (5)% (6)% (4)%
Less: Capitalized internal-use software, as a percentage of revenue (2)% (2)% (2)% (2)%
Free cash flow margin 16 % 12 % 21 % 23 %

ZSCALER, INC.Explanation of Non-GAAP Financial Measures

In addition to our results determined in accordance with generally accepted accounting principles in the United States of America (GAAP), we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In particular, free cash flow is not a substitute for cash provided by operating activities. Additionally, the utility of free cash flow as a measure of our liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation of our historical non-GAAP financial measures to their most directly comparable financial measures stated in accordance with GAAP has been included in this press release. Investors are cautioned that there are a number of limitations associated with the use of non-GAAP financial measures and key metrics as analytical tools. Investors are encouraged to review these reconciliations, and not to rely on any single financial measure to evaluate our business.

Expenses Excluded from Non-GAAP Measures

Stock-based compensation expense is excluded primarily because it is a non-cash expense that management believes is not reflective of our ongoing operational performance. Employer payroll taxes related to stock-based compensation, which is a cash expense, are excluded because these are tied to the timing and size of the exercise or vesting of the underlying equity awards and the price of our common stock at the time of vesting or exercise, which may vary from period to period independent of the operating performance of our business. Amortization expense of intangible assets acquired in business acquisitions and related income tax effects, if applicable, are excluded because these are considered by management to be outside of our core business operating performance. Amortization of debt discount and issuance costs from the convertible senior notes are excluded because these are non-cash expenses and are not reflective of our ongoing operational performance. We estimate the tax effect of these items on our non-GAAP results and may adjust our GAAP provision for income taxes, if such effects have a material impact to our non-GAAP results.

Non-GAAP Financial Measures

Non-GAAP Gross Profit and Non-GAAP Gross Margin. We define non-GAAP gross profit as GAAP gross profit excluding stock-based compensation expense and related employer payroll taxes and amortization expense of acquired intangible assets. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of revenue.

Non-GAAP Income from Operations and Non-GAAP Operating Margin. We define non-GAAP income from operations as GAAP loss from operations excluding stock-based compensation expense and related employer payroll taxes and amortization expense of acquired intangible assets. We define non-GAAP operating margin as non-GAAP income from operations as a percentage of revenue.

Non-GAAP Net Income per Share, Diluted. We define non-GAAP net income as GAAP net loss excluding stock-based compensation expense and related employer payroll taxes, amortization expense of acquired intangible assets, amortization of debt discount and issuance costs, and income tax effects generated by the effects of stock-based compensation expense recognized in foreign jurisdictions. We define non-GAAP net income per share, diluted, as non-GAAP net income plus the non-GAAP interest expense divided by the weighted-average diluted shares outstanding, which includes the effect of potentially diluted common stock equivalents outstanding during the period and the anti-dilutive impact of the capped call transactions entered into in connection with the convertible senior notes.

Calculated Billings. We define calculated billings as revenue plus the change in deferred revenue in a period. Calculated billings in any particular period aims to reflect amounts invoiced for subscriptions to access our cloud platform, together with related support services for our new and existing customers. We typically invoice our customers annually in advance, and to a lesser extent quarterly in advance, monthly in advance or multi-year in advance.

Free Cash Flow and Free Cash Flow Margin. We define free cash flow as net cash provided by operating activities less purchases of property, equipment and other assets and capitalized internal-use software. We define free cash flow margin as free cash flow divided by revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our operations that, after the investments in property, equipment and other assets and capitalized internal-use software, can be used for strategic initiatives.

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Source: Zscaler, Inc.

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