UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________________

FORM 10-Q

_____________________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _to_

Commission File Number: 001-38413

_____________________________________

ZSCALER, INC.

(Exact Name of Registrant as Specified in its Charter)

_____________________________________

Delaware (State or other jurisdiction of incorporation or organization)		26-1173892 (I.R.S. Employer Identification Number)
	120 Holger Way San Jose, California 95134
	(Address of principal executive offices)

Registrant’s telephone number, including area code: (408) 533-0288

___________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.001 Par Value	ZS	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ý No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	ý	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of May 31, 2024, the number of shares of registrant’s common stock outstanding was 151,149,087.

ZSCALER, INC.

Table of Contents

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of April 30, 2024 and July 31, 2023	3
	Condensed Consolidated Statement of Operations for the Three and Nine Months Ended April 30, 2024 and 2023	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended April 30, 2024 and 2023	5
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended April 30, 2024 and 2023	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended April 30, 2024 and 2023	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	55
Item 4.	Controls and Procedures	56
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	97
Item 5.	Other Information	97
Item 6.	Exhibits	98
	Signatures	99

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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.

These forward-looking statements include, but are not limited to, statements concerning the following:

•beliefs about the impact of macroeconomic influences and instability, including the ongoing effects of inflation, and geopolitical events on our business;

•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;

•market acceptance of our cloud platform;

•the effects of increased competition in our markets and our ability to compete effectively;

•our ability to maintain the security and availability of our cloud platform;

•our ability to maintain and expand our customer base, including by attracting new customers;

•our ability to develop new solutions, or enhancements to our existing solutions, including artificial intelligence and machine learning capabilities, and bring them to market in a timely manner;

•market acceptance of any new solutions or enhancements to our existing solutions;

•anticipated trends, growth rates and challenges in our business and in the markets in which we operate;

•our business plan and our ability to effectively manage our growth and associated investments;

•beliefs about and objectives for future operations;

•beliefs about and objectives for future acquisitions, strategic investments, partnerships and alliances and our ability to successfully integrate completed acquisitions;

•our relationships with third parties, including channel partners;

•our ability to maintain, protect and enhance our intellectual property rights;

•our ability to successfully defend litigation brought against us;

•our ability to successfully expand in our existing markets and into new markets;

•sufficiency of cash to meet cash needs for at least the next 12 months and service our outstanding debt;

•our need and ability to raise additional capital in future debt or equity financings;

1

•our expectations regarding settlement of the Notes (as defined in Note 10, Convertible Senior Notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q);

•our ability to comply with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;

•beliefs about the impacts of legal and geopolitical developments upon our business;

•the attraction and retention of qualified employees and key personnel; and

•the future trading prices of our common stock.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in "Risk Factors" elsewhere in this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

You should read this Quarterly Report on Form 10-Q in conjunction with the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended July 31, 2023 filed with the Securities and Exchange Commission, or the SEC, on September 14, 2023.

2

PART I. FINANCIAL INFORMATION

Item. 1 Financial Statements

ZSCALER, INC.

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

(unaudited)

	April 30, 2024		July 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	1,259,197	$	1,262,206
Short-term investments	980,802		838,026
Accounts receivable, net	506,284		582,636
Deferred contract acquisition costs	135,095		115,827
Prepaid expenses and other current assets	88,636		91,619
Total current assets	2,970,014		2,890,314
Property and equipment, net	330,646		242,355
Operating lease right-of-use assets	92,473		70,671
Deferred contract acquisition costs, noncurrent	268,079		259,407
Acquired intangible assets, net	68,959		25,859
Goodwill	417,029		89,192
Other noncurrent assets	51,551		30,519
Total assets	$	4,198,751	$	3,608,317
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	28,030	$	18,481
Accrued expenses and other current liabilities	82,639		64,975
Accrued compensation	163,119		136,800
Deferred revenue	1,376,676		1,281,143
Operating lease liabilities	50,857		34,469
Total current liabilities	1,701,321		1,535,868
Convertible senior notes, net	1,137,687		1,134,159
Deferred revenue, noncurrent	200,338		158,533
Operating lease liabilities, noncurrent	46,897		41,917
Other noncurrent liabilities	19,369		12,728
Total liabilities	3,105,612		2,883,205
Commitments and contingencies (Note 11)
Stockholders’ Equity
Common stock; $0.001 par value; 1,000,000 shares authorized as of April 30, 2024 and July 31, 2023; 151,304 and 147,169 shares issued and outstanding as of April 30, 2024 and July 31, 2023, respectively	151		147
Additional paid-in capital	2,241,865		1,816,915
Accumulated other comprehensive loss	(15,675)		(1,576)
Accumulated deficit	(1,133,202)		(1,090,374)
Total stockholders’ equity	1,093,139		725,112
Total liabilities and stockholders’ equity	$	4,198,751	$	3,608,317

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

ZSCALER, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended April 30,				Nine Months Ended April 30,
	2024		2023		2024		2023
Revenue	$	553,201	$	418,800	$	1,574,903	$	1,161,946
Cost of revenue	118,331		95,849		346,924		260,150
Gross profit	434,870		322,951		1,227,979		901,796
Operating expenses:
Sales and marketing	262,447		236,273		806,039		701,054
Research and development	124,958		92,637		360,678		253,348
General and administrative	50,478		43,486		155,789		131,164
Restructuring and other charges	—		6,301		—		6,301
Total operating expenses	437,883		378,697		1,322,506		1,091,867
Loss from operations	(3,013)		(55,746)		(94,527)		(190,071)
Interest income	27,570		18,577		81,897		39,111
Interest expense	(2,764)		(1,383)		(9,528)		(4,047)
Other expense, net	(927)		(809)		(1,967)		(1,531)
Income (loss) before income taxes	20,866		(39,361)		(24,125)		(156,538)
Provision for income taxes	1,742		6,685		18,703		15,123
Net income (loss)	$	19,124	$	(46,046)	$	(42,828)	$	(171,661)
Net income (loss) per share
Basic	$	0.13	$	(0.32)	$	(0.29)	$	(1.19)
Diluted	$	0.12	$	(0.32)	$	(0.29)	$	(1.19)
Weighted-average shares used in computing net income (loss) per share
Basic	150,290		145,354		148,945		144,442
Diluted	154,081		145,354		148,945		144,442

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

ZSCALER, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

	Three Months Ended April 30,				Nine Months Ended April 30,
	2024		2023		2024		2023
Net income (loss)	$	19,124	$	(46,046)	$	(42,828)	$	(171,661)
Available-for-sale securities:
Change in net unrealized gains (loss) on available-for-sale securities	(5,940)		2,817		2,675		4,670
Cash flow hedging instruments:
Change in net unrealized gains (loss)	(5,316)		817		(13,099)		10,797
Net realized (gains) losses reclassified into net income (loss)	(1,410)		1,301		(3,675)		10,281
Net change on cash flow hedges	(6,726)		2,118		(16,774)		21,078
Other comprehensive income (loss)	(12,666)		4,935		(14,099)		25,748
Comprehensive income (loss)	$	6,458	$	(41,111)	$	(56,927)	$	(145,913)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

ZSCALER, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

Stockholders' equity activity for the three months ended April 30, 2024:

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of January 31, 2024	149,758	$	150	$	2,114,041	$	(3,009)	$	(1,152,326)	$	958,856
Issuance of common stock upon exercise of stock options	305	—		7,439		—		—		7,439
Vesting of restricted stock units	897	1		(1)		—		—		—
Issuance of common stock in connection with business acquisitions subject to future vesting	344	—		—		—		—		—
Fair value of replacement awards attributable to pre-combination vesting in connection with business acquisitions	—	—		3,805		—		—		3,805
Stock-based compensation	—	—		116,581		—		—		116,581
Other comprehensive loss	—	—		—		(12,666)		—		(12,666)
Net income	—	—		—		—		19,124		19,124
Balance as of April 30, 2024	151,304	$	151	$	2,241,865	$	(15,675)	$	(1,133,202)	$	1,093,139

Stockholders' equity activity for the three months ended April 30, 2023:

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of January 31, 2023	145,087	$	145	$	1,547,203	$	(5,037)	$	(1,013,654)	$	528,657
Issuance of common stock upon exercise of stock options	128	—		1,090		—		—		1,090
Vesting of restricted stock units	627	1		(1)		—		—		—
Issuance of common stock in connection with business acquisitions subject to future vesting	32	—		—		—		—		—
Stock-based compensation	—	—		112,638		—		—		112,638
Other comprehensive income	—	—		—		4,935		—		4,935
Net loss	—	—		—		—		(46,046)		(46,046)
Balance as of April 30, 2023	145,874	$	146	$	1,660,930	$	(102)	$	(1,059,700)	$	601,274

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

ZSCALER, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

Stockholders' equity activity for the nine months ended April 30, 2024:

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of July 31, 2023	147,169	$	147	$	1,816,915	$	(1,576)	$	(1,090,374)	$	725,112
Issuance of common stock upon exercise of stock options	773	—		11,287		—		—		11,287
Issuance of common stock under the employee stock purchase plan	176	—		18,407		—		—		18,407
Vesting of restricted stock units	2,842	4		(4)		—		—		—
Issuance of common stock in connection with business acquisitions subject to future vesting	344	—		—		—		—		—
Fair value of replacement awards attributable to pre-combination vesting in connection with business acquisitions	—	—		3,805		—		—		3,805
Stock-based compensation	—	—		391,455		—		—		391,455
Other comprehensive loss	—	—		—		(14,099)		—		(14,099)
Net loss	—	—		—		—		(42,828)		(42,828)
Balance as of April 30, 2024	151,304	$	151	$	2,241,865	$	(15,675)	$	(1,133,202)	$	1,093,139

Stockholders' equity activity for the nine months ended April 30, 2023:

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of July 31, 2022	143,038	$	143	$	1,590,885	$	(25,850)	$	(991,878)	$	573,300
Cumulative effect adjustment from adoption of ASU 2020-06	—	—		(273,738)		—		103,839		(169,899)
Issuance of common stock upon exercise of stock options	352	—		3,194		—		—		3,194
Issuance of common stock under the employee stock purchase plan	115	—		11,410		—		—		11,410
Vesting of restricted stock units	2,337	3		(3)		—		—		—
Issuance of common stock in connection with business acquisitions subject to future vesting	32	—		—		—		—		—
Stock-based compensation	—	—		329,182		—		—		329,182
Other comprehensive income	—	—		—		25,748		—		25,748
Net loss	—	—		—		—		(171,661)		(171,661)
Balance as of April 30, 2023	145,874	$	146	$	1,660,930	$	(102)	$	(1,059,700)	$	601,274

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

ZSCALER, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended April 30,
	2024		2023
Cash Flows From Operating Activities
Net loss	$	(42,828)	$	(171,661)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense	47,033		39,769
Amortization expense of acquired intangible assets	9,500		8,078
Amortization of deferred contract acquisition costs	94,711		71,368
Amortization of debt issuance costs	2,934		2,919
Non-cash operating lease costs	34,913		23,320
Stock-based compensation expense	382,806		322,730
Accretion of investments purchased at a discount	(14,584)		(3,389)
Unrealized (gains) losses on hedging transactions	1,574		(1,140)
Deferred income taxes	(5,769)		158
Other	1,717		(947)
Changes in operating assets and liabilities, net of effects of business combinations
Accounts receivable	78,406		23,005
Deferred contract acquisition costs	(122,651)		(110,566)
Prepaid expenses, other current and noncurrent assets	(23,452)		(29,605)
Accounts payable	7,520		(4,079)
Accrued expenses, other current and noncurrent liabilities	14,647		14,861
Accrued compensation	12,816		10,933
Deferred revenue	132,354		154,256
Operating lease liabilities	(35,358)		(23,603)
Net cash provided by operating activities	576,289		326,407
Cash Flows From Investing Activities
Purchases of property, equipment and other assets	(95,204)		(70,127)
Capitalized internal-use software	(32,453)		(23,962)
Payments for business acquisitions, net of cash acquired	(361,781)		(15,643)
Purchase of strategic investments	(2,000)		(2,200)
Purchases of short-term investments	(1,003,972)		(740,239)
Proceeds from maturities of short-term investments	839,253		748,166
Proceeds from sale of short-term investments	47,165		25,083
Net cash used in investing activities	(608,992)		(78,922)
Cash Flows From Financing Activities
Proceeds from issuance of common stock upon exercise of stock options	11,287		3,194
Proceeds from issuance of common stock under the employee stock purchase plan	18,407		11,410
Other	—		(2)
Net cash provided by financing activities	29,694		14,602
Net increase (decrease) in cash and cash equivalents	(3,009)		262,087
Cash and cash equivalents at beginning of period	1,262,206		1,013,210
Cash and cash equivalents at end of period	$	1,259,197	$	1,275,297
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes, net of tax refunds	$	19,429	$	6,582
Cash paid for interest expense	$	718	$	719
Non-Cash Activities
Operating lease right-of-use assets obtained in exchange for operating lease obligations, net of terminations	$	54,007	$	18,737
Net change in purchased equipment included in accounts payable and accrued expenses	$	2,109	$	3,120

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

ZSCALER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Business and Summary of Significant Accounting Policies

Description of the Business

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 organization’s policies. Our solution is a purpose-built, multi-tenant, distributed cloud platform that incorporates the security functionality needed to enable users, applications, and devices to safely and efficiently utilize authorized applications and services based on an organization’s business policies. 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. We were incorporated in Delaware in September 2007 and conduct business worldwide, with presence in North America, Europe and Asia. Our headquarters are in San Jose, California.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("GAAP") and applicable regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting, and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the applicable required disclosures and regulations of the SEC. Therefore, these unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company's audited consolidated financial statements and related notes in its Annual Report on Form 10-K for the fiscal year ended July 31, 2023 (the "Fiscal 2023 Form 10-K"), as filed with the SEC on September 14, 2023.

Interim Unaudited Condensed Consolidated Financial Statements

The accompanying condensed consolidated balance sheet as of July 31, 2023 was derived from the audited consolidated financial statements as of that date. The accompanying interim unaudited condensed consolidated financial statements, including the condensed consolidated balance sheet as of April 30, 2024, the condensed consolidated statements of operations for the three and nine months ended April 30, 2024 and 2023, the condensed consolidated statements of comprehensive income (loss) for the three and nine months ended April 30, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three and nine months ended April 30, 2024 and 2023 and the condensed consolidated statements of cash flows for the nine months ended April 30, 2024 and 2023 are unaudited. The related financial data and the other financial information disclosed in the accompanying notes to these interim unaudited condensed consolidated financial statements are also unaudited. These interim unaudited condensed consolidated financial statements have been prepared on a basis consistent with our annual consolidated financial statements and, in our opinion, include all normal recurring adjustments necessary to state fairly our quarterly results. The results of operations for the three and nine months ended April 30, 2024 are not necessarily indicative of the results to be expected for our fiscal year ending July 31, 2024 or for any other future fiscal year or interim period.

9

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. 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 condensed consolidated financial statements.

Due to uncertainty in the macroeconomic environment, including but not limited to the effects of inflation, and geopolitical events, 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 these condensed consolidated financial statements. These estimates, judgments and assumptions may change in the future, as new events occur or additional information is obtained.

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 $3.4 million and $9.7 million for the three and nine months ended April 30, 2024, respectively.

Fiscal Year

Our fiscal year ends on July 31. References to fiscal 2024, for example, refer to our fiscal year ending July 31, 2024.

Significant Accounting Policies

Our significant accounting policies are described in the Fiscal 2023 Form 10-K. There have been no significant changes to these policies that have had a material impact on the condensed consolidated financial statements and related notes for the three and nine months ended April 30, 2024.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This standard is effective for us in the annual periods beginning in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026. We are currently evaluating the potential impact of this standard.

In December 2023, the FASB issued 2023-09, Income Taxes (Topic 740): Improvements to Income Tax 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

10

taxes paid (net of refunds received). This standard is effective for us in the annual periods beginning in fiscal 2026 and interim periods beginning in the first quarter of fiscal 2027. We are currently evaluating the potential impact of this standard.

Note 2. Revenue Recognition

Disaggregation of Revenue

Subscription and support revenue is recognized over time and accounted for approximately 98% and 97% of our revenue for the three and nine months ended April 30, 2024, respectively, and 97% for each of the three and nine months ended April 30, 2023, respectively.

The following table summarizes the revenue by region based on the shipping address of customers who have contracted to use our cloud platform:

	Three Months Ended April 30,								Nine Months Ended April 30,
	2024				2023				2024				2023
	Amount		% Revenue		Amount		% Revenue		Amount		% Revenue		Amount		% Revenue
	(in thousands, except for percentage data)
United States	$	278,974	50	%	$	212,454	51	%	$	790,476	50	%	$	581,477	50	%
Europe, Middle East and Africa	170,815		31	%	128,964		31	%	492,086		31	%	370,713		32	%
Asia Pacific	83,773		15	%	62,928		15	%	237,912		15	%	172,785		15	%
Other	19,639		4	%	14,454		3	%	54,429		4	%	36,971		3	%
Total	$	553,201	100	%	$	418,800	100	%	$	1,574,903	100	%	$	1,161,946	100	%

The following table summarizes the revenue from contracts by type of customer:

	Three Months Ended April 30,								Nine Months Ended April 30,
	2024				2023				2024				2023
	Amount		% Revenue		Amount		% Revenue		Amount		% Revenue		Amount		% Revenue
	(in thousands, except for percentage data)
Channel partners	$	502,362	91	%	$	383,222	92	%	$	1,437,410	91	%	$	1,070,744	92	%
Direct customers	50,839		9	%	35,578		8	%	137,493		9	%	91,202		8	%
Total	$	553,201	100	%	$	418,800	100	%	$	1,574,903	100	%	$	1,161,946	100	%

Significant Customers

No single customer accounted for 10% or more of the total revenue or the total balance of accounts receivable, net in the periods presented.

Contract Balances

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 April 30, 2024 and July 31, 2023 was $1,577.0 million and $1,439.7 million, respectively. In the nine months ended April 30, 2024 and 2023, we recognized revenue of $1,115.1 million and $802.1 million, respectively, that was included in the corresponding contract liability balance at the beginning of these periods.

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Remaining Performance Obligations

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 April 30, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,824.1 million. We expect to recognize 51% of the transaction price over the next 12 months and 95% of the transaction price over the next three years, with the remainder recognized thereafter.

Costs to Obtain and Fulfill a Contract

We capitalize sales commission and associated payroll taxes paid to sales personnel that are incremental to the acquisition of channel partner and direct customer contracts. These costs are recorded as deferred contract acquisition costs in the condensed consolidated balance sheets.

The activity of the deferred contract acquisition costs consisted of the following:

	Three Months Ended April 30,				Nine Months Ended April 30,
	2024		2023		2024		2023
	(in thousands)
Beginning balance	$	381,474	$	315,151	$	375,234	$	297,002
Capitalization of contract acquisition costs	54,907		46,364		122,651		110,566
Amortization of deferred contract acquisition costs	(33,207)		(25,315)		(94,711)		(71,368)
Ending balance	$	403,174	$	336,200	$	403,174	$	336,200

The outstanding balance of the deferred contract acquisition costs consisted of the following:

	April 30, 2024		July 31, 2023
	(in thousands)
Deferred contract acquisition costs, current	$	135,095	$	115,827
Deferred contract acquisition costs, noncurrent	268,079		259,407
Total deferred contract acquisition costs	$	403,174	$	375,234

Sales commissions accrued but not paid as of April 30, 2024 and July 31, 2023, totaled $33.4 million and $48.0 million, respectively, which are included within accrued compensation in the condensed consolidated balance sheets.

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Note 3. Cash Equivalents and Short-Term Investments

Cash equivalents and short-term investments consisted of the following as of April 30, 2024:

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Cash equivalents:	(in thousands)
Money market funds	$	756,115	$	—	$	—	$	756,115
U.S. treasury securities	242,890		—		(26)		242,864
U.S. government agency securities	17,453		—		(2)		17,451
Certificates of deposit	52,583		—		—		52,583
Total cash equivalents	$	1,069,041	$	—	$	(28)	$	1,069,013
Short-term investments:
U.S. treasury securities	$	286,264	$	—	$	(2,838)	$	283,426
U.S. government agency securities	151,656		—		(1,447)		150,209
Corporate debt securities	542,578		34		(3,445)		539,167
Certificates of deposit	8,000		—		—		8,000
Total short-term investments	$	988,498	$	34	$	(7,730)	$	980,802
Total cash equivalents and short-term investments	$	2,057,539	$	34	$	(7,758)	$	2,049,815

Cash equivalents and short-term investments consisted of the following as of July 31, 2023:

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Cash equivalents:	(in thousands)
Money market funds	$	768,003	$	—	$	—	$	768,003
U.S. treasury securities	157,250		—		(30)		157,220
U.S. government agency securities	166,671		—		(35)		166,636
Corporate debt securities	38,800		—		—		38,800
Total cash equivalents	$	1,130,724	$	—	$	(65)	$	1,130,659
Short-term investments:
U.S. treasury securities	$	175,451	$	—	$	(1,875)	$	173,576
U.S. government agency securities	266,392		2		(4,299)		262,095
Corporate debt securities	406,517		49		(4,211)		402,355
Total short-term investments	$	848,360	$	51	$	(10,385)	$	838,026
Total cash equivalents and short-term investments	$	1,979,084	$	51	$	(10,450)	$	1,968,685

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The amortized cost and fair value of our short-term investments based on their stated maturities consisted of the following as of April 30, 2024:

	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	494,507	$	492,508
Due between one to three years	493,991		488,294
Total	$	988,498	$	980,802

Short-term investments that were in an unrealized loss position as of April 30, 2024 consisted of the following:

	Less than 12 Months				Greater than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. treasury securities	$	274,376	$	(2,838)	$	—	$	—	$	274,376	$	(2,838)
U.S. government agency securities	87,456		(297)		62,752		(1,150)		150,208		(1,447)
Corporate debt securities	359,390		(2,762)		61,648		(683)		421,038		(3,445)
Total	$	721,222	$	(5,897)	$	124,400	$	(1,833)	$	845,622	$	(7,730)

Short-term investments that were in an unrealized loss position as of July 31, 2023 consisted of the following:

	Less than 12 Months				Greater than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. treasury securities	$	173,576	$	(1,875)	$	—	$	—	$	173,576	$	(1,875)
U.S. government agency securities	119,558		(292)		131,530		(4,007)		251,088		(4,299)
Corporate debt securities	232,504		(2,034)		82,599		(2,177)		315,103		(4,211)
Total	$	525,638	$	(4,201)	$	214,129	$	(6,184)	$	739,767	$	(10,385)

We review the individual securities that have unrealized losses in our short-term investment portfolio on a regular basis. We evaluate, among others, whether we have the intention to sell any of these investments and whether it is not 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 April 30, 2024 and July 31, 2023.

As of April 30, 2024 and July 31, 2023, we recorded $10.6 million and $7.2 million, respectively, of accrued interest receivable within prepaid expenses and other current assets in the condensed consolidated balance sheets.

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Strategic Investments

Our strategic investments consist primarily of non-marketable equity securities of privately held companies which do not have a readily determinable fair value. As of April 30, 2024 and July 31, 2023, the carrying amount of our strategic investments was $9.8 million and $7.8 million, respectively, and is included within other noncurrent assets in the condensed consolidated balance sheets. There were no material events or circumstances impacting their carrying amount during the periods presented.    

Note 4. Fair Value Measurements

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.

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 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.

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Assets and liabilities that are measured at fair value on a recurring basis consisted of the following as of April 30, 2024:

			Level I		Level II		Level III
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Cash equivalents:	(in thousands)
Money market funds	$	756,115	$	756,115	$	—	$	—
U.S. treasury securities	242,864		—		242,864		—
U.S. government agency securities	17,451		—		17,451		—
Certificates of deposit	52,583		—		52,583		—
Total cash equivalents	$	1,069,013	$	756,115	$	312,898	$	—
Short-term investments:
U.S. treasury securities	$	283,426	$	—	$	283,426	$	—
U.S. government agency securities	150,209		—		150,209		—
Corporate debt securities	539,167		—		539,167		—
Certificates of deposit	8,000		—		8,000		—
Total short-term investments	$	980,802	$	—	$	980,802	$	—
Total cash equivalents and short-term investments	$	2,049,815	$	756,115	$	1,293,700	$	—
Designated derivative instruments:
Foreign currency contracts assets-current (1)	$	1,647	$	—	$	1,647	$	—
Foreign currency contracts assets-noncurrent (2)	$	622	$	—	$	622	$	—
Foreign currency contracts liabilities-current (3)	$	6,151	$	—	$	6,151	$	—
Foreign currency contracts liabilities-noncurrent (4)	$	1,345	$	—	$	1,345	$	—
Interest rate contracts liabilities-current (3)	$	4,816	$	—	$	4,816	$	—
Interest rate contracts liabilities-noncurrent (4)	$	2,445	$	—	$	2,445	$	—
Non-designated derivative instruments:
Foreign currency contracts assets-current (1)	$	2,168	$	—	$	2,168	$	—
Foreign currency contracts liabilities-current (3)	$	1,976	$	—	$	1,976	$	—

(1) Included within prepaid expenses and other current assets in the condensed consolidated balance sheets.

(2) Included within other noncurrent assets in the condensed consolidated balance sheets.

(3) Included within accrued expenses and other current liabilities in the condensed consolidated balance sheets.

(4) Included within other noncurrent liabilities in the condensed consolidated balance sheets.

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Assets that are measured at fair value on a recurring basis consisted of the following as of July 31, 2023:

			Level I		Level II		Level III
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Cash equivalents:	(in thousands)
Money market funds	$	768,003	$	768,003	$	—	$	—
U.S. treasury securities	157,220		—		157,220		—
U.S. government agency securities	166,636		—		166,636		—
Corporate debt securities	38,800		—		38,800		—
Total cash equivalents	$	1,130,659	$	768,003	$	362,656	$	—
Short-term investments:
U.S. treasury securities	$	173,576	$	—	$	173,576	$	—
U.S. government agency securities	262,095		—		262,095		—
Corporate debt securities	402,355		—		402,355		—
Total short-term investments	$	838,026	$	—	$	838,026	$	—
Total cash equivalents and short-term investments	$	1,968,685	$	768,003	$	1,200,682	$	—
Designated derivative instruments:
Foreign currency contracts assets-current (1)	$	12,581	$	—	$	12,581	$	—
Foreign currency contract assets-noncurrent (2)	$	2,264	$	—	$	2,264	$	—
Foreign currency contracts liabilities-current (3)	$	1,452	$	—	$	1,452	$	—
Foreign currency contracts liabilities-noncurrent (4)	$	669	$	—	$	669	$	—
Interest rate contracts liabilities-current (3)	$	6,439	$	—	$	6,439	$	—
Interest rate contracts liabilities-noncurrent (4)	$	1,588	$	—	$	1,588	$	—
Non-designated derivative instruments:
Foreign currency contracts assets-current (1)	$	2,061	$	—	$	2,061	$	—
Foreign currency contracts liabilities-current (3)	$	465	$	—	$	465	$	—

(1) Included within prepaid expenses and other current assets in the consolidated balance sheets.

(2) Included within other noncurrent assets in the consolidated balance sheets.

(3) Included within accrued expenses and other current liabilities in the consolidated balance sheets.

(4) Included within other noncurrent liabilities in the consolidated balance sheets.

We did not have transfers between levels of the fair value hierarchy of assets measured at fair value during the periods presented.

Refer to Note 10, Convertible Senior Notes, for the carrying amount and estimated fair value of our convertible senior notes as of April 30, 2024 and July 31, 2023.

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Note 5. Property and Equipment and Purchased Intangible Assets

Property and equipment consisted of the following:

	April 30, 2024		July 31, 2023
	(in thousands)
Hosting equipment	$	370,734	$	280,851
Capitalized internal-use software	171,063		120,877
Computers and equipment	6,552		7,107
Purchased software	1,103		1,311
Furniture and fixtures	1,055		1,025
Leasehold improvements	8,423		7,608
Total property and equipment, gross	558,930		418,779
Less: Accumulated depreciation and amortization	(228,284)		(176,424)
Total property and equipment, net	$	330,646	$	242,355

Purchased intangible assets consist of internet protocol (IP) addresses and source codes, which are amortized on a straight-line basis over an estimated useful life ranging from five years to 10 years. As of April 30, 2024, their historical cost and accumulated amortization were $12.4 million and $2.5 million, respectively. As of July 31, 2023, their historical cost and accumulated amortization were $8.6 million and $1.6 million, respectively. Purchased intangible assets are included within other noncurrent assets in the condensed consolidated balance sheets.

We recognized depreciation and amortization expense on property and equipment and purchased intangible assets of $17.7 million and $14.5 million for the three months ended April 30, 2024 and 2023, respectively, and $47.0 million and $39.8 million for the nine months ended April 30, 2024 and 2023, respectively. Additionally, we recognized stock-based compensation expense on the amortization of capitalized stock-based compensation associated with capitalized internal-use software of $3.4 million and $2.2 million for the three months ended April 30, 2024 and 2023, respectively, and $9.3 million and $5.9 million for the nine months ended April 30, 2024 and 2023, respectively.

Note 6. Business Combinations

Airgap Networks Inc.

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 plan to integrate Airgap's technology into our cloud platform.

In addition to the cash 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 of $22.7 million payable in the form of restricted shares of our authorized 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 of $6.2 million, of which $1.4 million attributable to pre-combination vesting was allocated to the purchase price consideration. The remaining fair value 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 on a preliminary basis, subject to working capital adjustment, to identified intangible assets, which include $28.7 million of developed technology, $3.1 million of customer relationships, and

18

$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 condensed consolidated statement of operations for the three months ended April 30, 2024.

The acquisition qualified as a stock transaction for tax purposes. The goodwill is not expected to be deductible for income tax purposes.

During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of the acquired intangible assets, deferred tax and goodwill.

The preliminary allocation of the purchase price consideration consisted of the following:

	Amount		Estimated Useful Life
	(in thousands)
Assets acquired:
Cash, cash equivalents and other assets	$	5,764
Acquired intangible assets:
Developed technology	28,700		5 years
Customer relationships	3,100		5 years
Goodwill	95,463
Total	$	133,027
Liabilities assumed:
Accounts payable, accrued expenses and other liabilities	$	3,467
Deferred tax liability	5,123
Total	$	8,590
Total purchase price consideration	$	124,437

Avalor Technologies Ltd.

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 plan to integrate this company's technology into our cloud platform.

In addition to the cash 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 of $54.8 million payable in the form of restricted shares of our authorized 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 $14.4 million, of which $2.4 million attributable to pre-combination vesting was allocated to the purchase price consideration. The remaining fair value 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 on a preliminary basis, subject to working capital adjustment, to

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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 condensed consolidated statement of operations for the three months ended April 30, 2024.

The acquisition qualified as a stock transaction for tax purposes. The goodwill is not expected to be deductible for income tax purposes.

During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of the acquired intangible assets, deferred tax and goodwill.

The preliminary allocation of the purchase price consideration consisted of the following:

	Amount		Estimated Useful Life
	(in thousands)
Assets acquired:
Cash, cash equivalents and other assets	$	13,405
Acquired intangible assets:
Developed technology	14,700		5 years
Customer relationships	3,300		5 years
Deferred tax asset	841
Goodwill	229,151
Total	$	261,397
Liabilities assumed:
Accounts payable, accrued expenses and other liabilities	$	4,017
Deferred tax liability	693
Total	$	4,710
Total purchase price consideration	$	256,687

Securelyshare Software Private Ltd.

On August 31, 2023, we completed the acquisition of Securelyshare Software Private Ltd. ("Securelyshare"), an early-stage technology company incorporated in India, for total purchase price consideration of $5.3 million. We plan to integrate this company's technology into our cloud platform. The transaction was accounted for as a business combination. We recognized intangible assets of $2.8 million for developed technology and goodwill of $3.2 million. The developed technology is amortized over its economic useful life of five years. 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 qualified as a stock transaction for tax purposes. The goodwill is not expected to be deductible for income tax purposes.

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Canonic Security Technologies Ltd.

On February 20, 2023, we completed the acquisition of Canonic Security Technologies Ltd. ("Canonic"), an early-stage technology company incorporated in Israel, for total purchase price consideration of $16.5 million. We plan to integrate this company's technology into our cloud platform.

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 of $3.8 million payable in the form of restricted shares of our authorized 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 $10.6 million of goodwill and $5.1 million 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 condensed consolidated statement of operations for the three months ended April 30, 2023.

The acquisition qualified as a stock transaction for tax purposes. The goodwill is not expected to be deductible for income tax purposes.

The allocation of the purchase price consideration consisted of the following:

	Amount		Estimated Useful Life
	(in thousands)
Assets acquired:
Cash, cash equivalents and other assets	$	673
Acquired intangible assets:
Developed technology	5,100		5 years
Deferred tax asset	781
Goodwill	10,645
Total	$	17,199
Liabilities assumed:
Accounts payable, accrued expenses and other liabilities	$	692
Total	$	692
Total purchase price consideration	$	16,507

    

Pro Forma Financial Information

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 current fiscal year, were not material for disclosure purposes.

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Note 7. Goodwill and Acquired Intangible Assets

Goodwill

Changes in the carrying amount of goodwill for the nine months ended April 30, 2024 consisted of the following:

	Amount
	(in thousands)
Balance as of July 31, 2023	$	89,192
Goodwill acquired	327,837
Balance as of April 30, 2024	$	417,029

Acquired Intangible Assets

Acquired intangible assets consist of developed technology and customer relationships acquired through our business acquisitions and asset acquisitions. Acquired intangible assets are amortized using the straight-line method over their estimated useful lives.

During the three and nine months ended April 30, 2024, in connection with the acquisition of Airgap, Avalor and Securelyshare, we acquired developed technology and customer relationships with a fair value of $46.2 million and $6.4 million, respectively, and each of them with an estimated useful life of five years. For further information refer to Note 6, Business Combinations.

Changes in acquired intangible assets for the nine months ended April 30, 2024 consisted of the following:

	Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount				Weighted Average Remaining Useful life
	July 31, 2023		Additions		April 30, 2024		July 31, 2023		Amortization Expense		April 30, 2024		July 31, 2023		April 30, 2024		April 30, 2024
	(in thousands)																(years)
Developed technology	$	53,456	$	46,200	$	99,656	$	(29,259)	$	(8,769)	$	(38,028)	$	24,197	$	61,628	4.3
Customer relationships	3,560		6,400		9,960		(1,898)		(731)		(2,629)		1,662		7,331		4.6
Total	$	57,016	$	52,600	$	109,616	$	(31,157)	$	(9,500)	$	(40,657)	$	25,859	$	68,959	4.4

Amortization expense of acquired intangible assets for the three and nine months ended April 30, 2024 was $3.4 million and $9.5 million, respectively, and for the three and nine months ended April 30, 2023 was $3.0 million and $8.1 million, respectively. Amortization expense of developed technology and customer relationships is included primarily within cost of revenue and sales and marketing expenses, respectively, in the condensed consolidated statements of operations.

Future amortization expense of acquired intangible assets as of April 30, 2024 consists of the following:

	Amount
Fiscal Year ending July 31,	(in thousands)
2024 (remaining three months)	$	5,123
2025	16,785
2026	15,772
2027	12,948
2028	11,115
2029	7,216
Total	$	68,959

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Note 8. Derivative Instruments

Foreign Currency Forward Contracts

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. All cash flow hedges were considered effective during the three and nine months ended April 30, 2024 and 2023.

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 condensed 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 the three and nine months ended April 30, 2024 and 2023.

As of April 30, 2024 and July 31, 2023, the total notional amount of our outstanding designated foreign currency forward contracts was $530.9 million and $457.6 million, respectively, and for our outstanding non-designated foreign currency forward contracts was $303.0 million and $182.9 million, respectively. The maximum length of time over which forecasted foreign currency denominated operating expenses are hedged is 21 months. As of April 30, 2024, an estimated $5.3 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 condensed consolidated balance sheet as of April 30, 2024 and July 31, 2023.

During the three and nine months ended April 30, 2024 and 2023, changes in the fair value of our non-designated derivative instruments recorded within other expense, net within the condensed consolidated statement of operations, were not material.

The changes in accumulated other comprehensive income (loss) ("AOCI") related to our cash flow hedges consisted of the following:

	Three Months Ended April 30,				Nine Months Ended April 30,
	2024		2023		2024		2023
	(in thousands)
Balance of AOCI as of the beginning of the period	$	(1,111)	$	5,216	$	8,937	$	(13,744)
Net unrealized gains (losses) recognized in accumulated other comprehensive income	(5,316)		817		(13,099)		10,797
(Gains) losses reclassified from AOCI into the condensed consolidated statement of operations (1)	(1,410)		1,301		(3,675)		10,281
Balance of AOCI as of the end of the period	$	(7,837)	$	7,334	$	(7,837)	$	7,334

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(1) (Gains) losses related to our cash flow hedges reclassified from AOCI into the condensed consolidated statement of operations consisted of the following:

	Three Months Ended April 30,				Nine Months Ended April 30,
	2024		2023		2024		2023
	(in thousands)
Cost of revenue	$	(352)	$	247	$	(849)	$	1,660
Sales and marketing	(682)		711		(2,006)		6,764
Research and development	(197)		272		(412)		1,319
General and administrative	(179)		71		(408)		538
Total	$	(1,410)	$	1,301	$	(3,675)	$	10,281

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 April 30, 2024 and July 31, 2023. 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.

Interest Rate Swap Contracts

During the three months ended April 30, 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 certain tranche of our convertible senior notes to a floating interest rate. As of April 30, 2024 and July 31, 2023 the carrying amount of the hedged convertible senior notes was $496.6 million and $496.4 million, respectively. The total notional amount of our outstanding interest rate swaps was $500.0 million as of April 30, 2024 and July 31, 2023. The gains and losses related to changes in the fair value of the interest rate swaps are included within interest expense in the condensed 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 April 30, 2024 and July 31, 2023, the cumulative amount of fair value hedge accounting adjustments included in the carrying amount of hedged liabilities was $7.7 million and $8.3 million, respectively.

The effect of derivative instruments designated as fair value hedges included within interest expense in the condensed statement of operations consisted of the following:

	Gains (Losses)
	Three Months Ended April 30,				Nine Months Ended April 30,
	2024		2023		2024		2023
	(in thousands)
Interest rate swaps:
Hedged items	$	(4,303)	$	650	$	594	$	650
Derivatives designated as hedging instruments	3,923		(596)		(766)		(596)
Total	$	(380)	$	54	$	(172)	$	54

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Note 9. Restructuring and Other Charges

On March 1, 2023, we announced a restructuring plan as a part of our planned efforts to streamline operations and to align people, roles, and projects to our strategic priorities. These actions included the reduction of our worldwide headcount by approximately 3%.

During the three months ended April 30, 2023, we incurred $7.6 million of restructuring charges, consisting of $6.6 million of employee severance and benefit charges and $1.0 million of stock-based compensation expense related to modified equity incentive awards. These charges were recorded within restructuring and other charges in the condensed consolidated statements of operations. The restructuring plan was completed during the three months ended October 31, 2023.

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Note 10. Convertible Senior Notes

On June 25, 2020, we issued $1,150.0 million in aggregate principal amount of 0.125% convertible senior notes due 2025 (the “Notes”), including the exercise in full by the initial purchasers of the Notes of their option to purchase an additional $150.0 million principal amount of the Notes. The Notes are unsecured obligations and bear 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 Notes mature on July 1, 2025, unless earlier converted, redeemed or repurchased. The total net proceeds from the offering, after deducting initial purchase discounts and other debt issuance costs, was $1,130.5 million. Refer to Note 10, Convertible Senior Notes, to the audited consolidated financial statements included in our Fiscal 2023 Form 10-K for further information on the Notes.

During the three months ended April 30, 2024, the conditions allowing holders of the Notes to convert were not met. Conversion notices received through April 30, 2024 have not been material.

During the three months ended April 30, 2023, we entered into interest rate swap contracts designated as fair value hedges of certain of our Notes. For further information refer to Note 8, Derivative Instruments.

The net carrying amount of the liability component of the Notes consisted of the following:

	April 30,		July 31,
	2024		2023
	(in thousands)
Principal amount	$	1,149,993	$	1,149,993
Less:
Unamortized debt issuance costs	4,594		7,528
Hedge accounting fair value adjustments	7,712		8,306
Total	$	1,137,687	$	1,134,159

The interest expense related to the Notes consisted of the following:

	Three Months Ended April 30,				Nine Months Ended April 30,
	2024		2023		2024		2023
	(in thousands)
Contractual interest expense	$	359	$	359	$	1,077	$	1,078
Amortization of debt issuance costs	979		974		2,934		2,919
Total	$	1,338	$	1,333	$	4,011	$	3,997

The total fair value of the Notes was $1,455.7 million and $1,411.4 million as of April 30, 2024 and July 31, 2023, respectively. The fair value was determined based on the closing trading price per $1,000 of the Notes as of the last day of trading for the period. We consider the fair value of the Notes as of April 30, 2024 to be a Level II measurement as they are not actively traded. The fair value of the Notes is primarily affected by the trading price of our common stock and market interest rates.

In connection with the pricing of the Notes, we entered into capped call transactions with the option counterparties (the "Capped Calls"). The Capped Calls each have an initial strike price of $150.80 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have an initial cap price of $246.76 per share, subject to certain adjustments. The Capped Calls are generally expected to reduce potential dilution to our common stock upon any conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of the converted Notes, as the case may be, with such reduction and/or offset subject to a cap. During the three and nine months ended April 30, 2024 and 2023, we have not exercised any Capped Call options. Refer to Note 10, Convertible

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Senior Notes, to the audited consolidated financial statements included in our Fiscal 2023 Form 10-K for further information on the Capped Calls.

Note 11. Commitments and Contingencies

Non-cancelable Purchase Obligations

In the normal course of business, we enter into non-cancelable purchase commitments with various third parties to purchase products and services such as technology equipment, subscription-based cloud service arrangements, corporate and marketing events and consulting services. As of April 30, 2024, there have been no material changes outside the ordinary course of our business to our non-cancelable purchase obligations from those disclosed in the Fiscal 2023 Form 10-K, except for a Cloud Platform Service agreement entered with a third-party service provider in December 2023 for a total minimum purchase commitment of $100.0 million over a five-year term.

Legal Matters

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.

Note 12. Stock-Based Compensation

Equity Incentive Plan

Equity incentive awards which may be granted to eligible participants under our Fiscal Year 2018 Equity Incentive Plan (the "Plan") include restricted stock units, restricted stock, stock options, nonstatutory stock options, stock appreciation rights, performance units and performance shares.

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Stock Options

The activity of stock options for the nine months ended April 30, 2024 consisted of the following:

	Outstanding Stock Options	Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
	(in thousands, except per share amounts)
Balance as of July 31, 2023	1,267	$18.54	2.1	$	179,678
Granted	50	$198.03
Exercised	(773)	$14.61		$	141,503
Canceled, forfeited or expired	—	—
Balance as of April 30, 2024	544	$40.63	2.4	$	73,218
Exercisable and expected to vest as of July 31, 2023	1,210	$12.82	1.8	$	178,616
Exercisable and expected to vest as of April 30, 2024	444	$10.24	0.9	$	72,220

The total intrinsic value of options exercised for the nine months ended April 30, 2024 and 2023 was $141.5 million and $42.7 million, respectively. The weighted-average grant-date fair value per share of stock options granted in the nine months ended April 30, 2024 was $198.03. There were no stock options granted during the nine months ended April 30, 2023.

We estimate the fair value of stock options using the Black-Scholes option pricing model with the following assumptions:

	Nine Months Ended April 30,
	2024
Expected term (in years)	6.0
Expected stock price volatility	59.5%
Risk-free interest rate	4.2%
Dividend yield	0.0%

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Restricted Stock Units and Performance Stock Awards

The activity of restricted stock units ("RSUs") and performance stock awards ("PSAs") consisted of the following for the nine months ended April 30, 2024:

	Underlying Shares	Weighted-Average Grant Date Fair Value	Aggregate Intrinsic Value
	(in thousands, except per share data)
Balance as of July 31, 2023	9,351	$139.95	$	1,499,714
Granted	4,596	$181.59
Vested	(2,842)	$134.14	$	540,188
Canceled or forfeited	(1,509)	$160.28
Balance as of April 30, 2024	9,596	$158.41	$	1,659,520

As of April 30, 2024, the number of outstanding PSAs for which the performance metrics have not been defined as of such date was not material. These awards are not considered granted for accounting purposes as of April 30, 2024 and accordingly, have been excluded from the above table.

Employee Stock Purchase Plan

In fiscal 2018, we adopted the Fiscal Year 2018 Employee Stock Purchase Plan (the "ESPP"). During the nine months ended April 30, 2024, employees purchased 0.2 million shares of our common stock under the ESPP at an average purchase price of $104.69 per share, resulting in total cash proceeds of $18.4 million. ESPP employee payroll contributions accrued as of April 30, 2024 and July 31, 2023, were $27.9 million and $7.4 million, respectively, and are included within accrued compensation in the condensed consolidated balance sheets. Payroll contributions accrued as of April 30, 2024 will be used to purchase shares at the end of the current ESPP purchase period ending on June 17, 2024. Payroll contributions ultimately used to purchase shares are reclassified to stockholders’ equity on the purchase date.

The fair value of the purchase right for the ESPP was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Nine Months Ended April 30,
	2024	2023
Expected term (in years)	0.5 - 2.0	0.5 - 2.0
Expected stock price volatility	42.5% - 64.8%	62.4% - 75.9%
Risk-free interest rate	4.4% - 5.3%	4.2% - 4.7%
Dividend yield	0.0%	0.0%

Deferred Merger Consideration

In connection with certain business acquisitions completed in the nine months ended April 30, 2024 and 2023, as further described in Note 6, Business Combinations, certain onboarding employees are entitled to receive deferred merger consideration payable in shares of our common stock with an aggregate fair value of $77.5 million and $3.8 million, respectively. The number of unvested shares of common stock issued in connection with these business acquisitions was not material. These awards are subject to future employment services and are recognized as stock-based compensation expense over the requisite service period within research and development expenses in the consolidated statements of operations. The related stock-based compensation expense was not material for any of the periods presented.

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Departure of the Chief Operating Officer of the Company

Effective 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 condensed consolidated statement of operations for the three months ended April 30, 2024.

Departure of the President of the Company

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 condensed consolidated statement of operations for the nine months ended April 30, 2023.

Stock-based Compensation Expense

The components of stock-based compensation expense recognized in the condensed consolidated statements of operations consisted of the following:

	Three Months Ended April 30,				Nine Months Ended April 30,
	2024		2023		2024		2023
	(in thousands)
Cost of revenue	$	11,803	$	9,749	$	37,416	$	27,591
Sales and marketing	41,201		49,771		160,875		157,619
Research and development	44,043		30,702		127,108		84,238
General and administrative	16,189		16,561		57,407		52,246
Restructuring and other charges	—		1,036		—		1,036
Total	$	113,236	$	107,819	$	382,806	$	322,730

During the three months ended April 30, 2024 and 2023, we capitalized stock-based compensation primarily associated with the development of software for internal-use of $6.7 million and $4.1 million, respectively. During the nine months ended April 30, 2024 and 2023, the amount capitalized was $17.9 million and $12.4 million, respectively.

Note 13. Income Taxes

Our tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, we update our estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, we make a cumulative adjustment in such period.

Our quarterly tax provision, and estimate of our annual effective tax rate, is subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how we do business, and tax law developments. Our estimated annual effective tax rate for the year differs from the U.S. statutory rate of 21% as a result of our U.S. losses for which no benefit will be realized, as well as our foreign operations which are subject to tax rates that differ from those in the United States.

We recorded provision for income taxes of $1.7 million and $6.7 million for the three months ended April 30, 2024 and 2023, respectively, and $18.7 million and $15.1 million for the nine months ended April 30, 2024 and 2023. The decrease for the three months ended April 30, 2024 was primarily driven by the reduction of the valuation allowance of $5.1 million due to the establishment of deferred tax liabilities from the business acquisition. The increase for the nine months ended April 30, 2024 was primarily driven by the increase in our pre-tax income in both foreign and US jurisdictions in which we conduct

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business, offset by the reduction of the valuation allowance due to the establishment of deferred tax liabilities from the business acquisition. We are subject to income tax in the United States as well as other tax jurisdictions in which we conduct business. Earnings from our non-U.S. operations are subject to income taxes in the countries in which we operate.

The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. We 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 in certain jurisdictions, we believe that it is more likely than not that our U.S. federal, state, and the United Kingdom ("U.K.") deferred tax assets will not be realized. Accordingly, we have maintained a valuation allowance on our U.S. federal, state and U.K. deferred tax assets.

Note 14. Net Income (Loss) Per Share

The computation of basic and diluted net income (loss) per share consisted of the following:

	Three Months Ended April 30,				Nine Months Ended April 30,
	2024		2023		2024		2023
	(in thousands)
Net income (loss)	$	19,124	$	(46,046)	$	(42,828)	$	(171,661)
Weighted-average shares used in computing net income (loss) per share, basic	150,290		145,354		148,945		144,442
Dilutive effect of common stock equivalents (1)	3,791		—		—		—
Weighted-average shares used in computing net income (loss) per share, diluted	154,081		145,354		148,945		144,442
Net income (loss) per share
Basic	$	0.13	$	(0.32)	$	(0.29)	$	(1.19)
Diluted	$	0.12	$	(0.32)	$	(0.29)	$	(1.19)

(1) For the three months ended April 30, 2024, the dilutive effect of common stock equivalents excludes the potentially dilutive effect of the Notes, as their effect would have been antidilutive.

Net income (loss) per share, basic is computed by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is calculated by dividing net income by the combination of the weighted-average number of common shares outstanding and the weighted-average number of dilutive common stock equivalents during the period.

We calculated the potential dilutive effect of the Notes under the if-converted method. Under this method, diluted earnings per share are determined by assuming that all of the Notes were converted into shares of our common stock at the beginning of the reporting period.

In connection with the issuance of the Notes, we entered into Capped Calls, which were not included for purposes of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive. The Capped Calls are expected to partially offset the potential dilution to our common stock upon any conversion of the Notes. We have not exercised any of the Capped Calls as of April 30, 2024.

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The outstanding potentially dilutive securities that were excluded from the computation of diluted net loss per share for the periods in a net loss position, as their effect would have been antidilutive consisted of the following:

	April 30,
	2024	2023
	(in thousands)
Unvested RSUs and shares of common stock	9,151	8,888
Stock options	544	1,316
Unvested PSAs (1)	957	1,012
Share purchase rights under the ESPP	779	1,674
Notes (2)	7,626	7,626
Total	19,057	20,516

(1) 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 April 30, 2024 and 2023, as they are not considered outstanding for accounting purposes. For further information refer to Note 12, Stock-Based Compensation.

(2) The shares underlying the conversion option in the Notes were not considered in the calculation of diluted net income (loss) per share for all the periods presented, as their effect would have been antidilutive. Based on the initial conversion price, the entire outstanding principal amount of the Notes as of April 30, 2024 would have been convertible into approximately 7.6 million shares of our common stock, which is reflected in the above table. Conversion notices received through April 30, 2024, have not been material.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended July 31, 2023 (the "Fiscal 2023 Form 10-K"), filed with the SEC on September 14, 2023. 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 Quarterly Report on Form 10-Q. Our fiscal year end is July 31, and our fiscal quarters end on October 31, January 31, April 30 and July 31. Our fiscal year ended July 31, 2023 is referred to as fiscal 2023 and our fiscal year ending July 31, 2024 is referred to as fiscal 2024.

Overview

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 predicted that with rapid cloud adoption and increasing workforce mobility, traditional perimeter security approaches would provide inadequate protection for users and data and an increasingly poor user experience. We pioneered a cloud platform, the Zscaler Zero Trust Exchange, that represents a fundamental shift in the architectural design and approach to networking and security.

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, 2023, we had expanded our operations to over 7,700 customers across major industries, with users in 185 countries. Government agencies and some of the largest enterprises in the world rely on us to support their digital transformation, including more than 640 of the Forbes Global 2000 as of July 31, 2023.

We operate our business as one reportable segment. Our revenue has experienced significant growth in recent periods. For the nine months ended April 30, 2024 and 2023, our revenue was $1,574.9 million and $1,161.9 million, respectively. We have incurred net losses in all annual periods since our inception. For the nine months ended April 30, 2024 and 2023, our net loss was $42.8 million and $171.7 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 take advantage of our market opportunity, to invest in research and development efforts to enhance the functionality of our cloud platform, to incur additional compliance and other related costs as we operate as a public company, and to address any legal matters and related accruals, as further described in Note 11, Commitments and Contingencies, of the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Impact of Macroeconomic Conditions

Recent changes in macroeconomic conditions such as high inflation, high interest rates and potential recessionary environments, and geopolitical factors, such as the Russia-Ukraine and Israel-Hamas crises, 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 scrutinize purchasing decisions and are requiring multiple approvals for large expenditures in response to the challenging economic environment. These macroeconomic conditions may impact the future demand for subscriptions of our cloud platform.

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Certain Factors Affecting Our Performance

Increased Internet Traffic and Adoption of Cloud-Based Software and Security

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. We believe that most enterprises are in the early stages of a broad transformation to the cloud. Organizations are increasingly relying on the internet to operate their businesses, deploying new SaaS applications and migrating internally managed line-of-business applications to the cloud. However, the growing dependence on the internet has 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 and transform their networks, organizations must also make fundamental changes in their network and security architectures. We believe that most organizations have yet to fully make these investments. Since we enable 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.

New Customer Acquisition

We believe that our ability to increase the number of customers, and more significantly, customers in the Forbes Global 2000, on our cloud platform is an indicator of our market penetration and our future business opportunities. As of July 31, 2023 and 2022, we had over 7,700 and over 6,700 customers, respectively, across all major geographies. As of July 31, 2023, we had over 640 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.

Follow-On Sales

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:

•expanding deployment of our cloud platform to cover additional users;

•upgrading to a more advanced Business or Transformation edition; and

•selling a subscription to a new solution or product, for example selling a ZPA subscription to a ZIA customer or a ZIA subscription to a ZPA customer.

These purchases increase the annual recurring revenue ("ARR") attributable to our customers over time. To establish ARR for a customer, we use the total amount of each order booked to compute the annual recurring value of revenue that we would recognize if the customer continues to renew all contractual subscriptions. For example, a contract for $3.0 million with a contractual term of three years would have an ARR of $1.0 million as long as our customer uses our cloud platform.

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Investing in Business Growth

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. 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 11, Commitments and Contingencies, of the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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.

Key Business Metrics and Other Financial Measures

We review a number of operating and financial metrics, including the following key metrics, to measure our performance, identify trends, formulate business plans and make strategic decisions.

Dollar-Based Net Retention Rate

We believe that dollar-based net retention rate is a key metric 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. Our dollar-based net retention rate includes customer attrition. We have not experienced a material increase in customer attrition rates in recent periods. For the trailing 12 months ended April 30, 2024 and 2023, the dollar-based net retention rate was 116% and above 125%, respectively.

We calculate our dollar-based net retention rate as follows:

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.

Numerator: We measure the ARR for that same cohort of customers representing all subscriptions based on confirmed customer orders booked by us as of the end of the reporting period.

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

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customers, potential changes in our rate of renewals and other risk factors described elsewhere in this Quarterly Report on Form 10-Q.

Non-GAAP Financial Measures

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.

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 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.

	Three Months Ended April 30,						Nine Months Ended April 30,
	2024			2023			2024			2023
	(in thousands)
GAAP gross profit	$	434,870		$	322,951		$	1,227,979		$	901,796
Add:
Stock-based compensation expense and related payroll taxes	12,487			10,025			38,876			28,281
Amortization expense of acquired intangible assets	2,962			2,695			8,396			6,809
Non-GAAP gross profit	$	450,319		$	335,671		$	1,275,251		$	936,886
GAAP gross margin	79		%	77		%	78		%	78		%
Non-GAAP gross margin	81		%	80		%	81		%	81		%

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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 payroll taxes, amortization expense of acquired intangible assets, and restructuring and other charges. We define non-GAAP operating margin as non-GAAP income from operations as a percentage of revenue.

	Three Months Ended April 30,						Nine Months Ended April 30,
	2024			2023			2024			2023
	(in thousands)
GAAP loss from operations	$	(3,013)		$	(55,746)		$	(94,527)		$	(190,071)
Add:
Stock-based compensation expense and related payroll taxes	121,465			111,386			399,730			331,540
Amortization expense of acquired intangible assets	3,381			2,975			9,500			8,078
Restructuring and other charges (1)	—			5,265			—			5,265
Non-GAAP income from operations	$	121,833		$	63,880		$	314,703		$	154,812
GAAP operating margin	(1)		%	(13)		%	(6)		%	(16)		%
Non-GAAP operating margin	22		%	15		%	20		%	13		%

(1) In connection with a restructuring plan announced in March 2023, we incurred stock-based compensation expense of approximately $1.0 million, which is included in stock-based compensation expense and related payroll taxes.

Free Cash Flow and Free Cash Flow Margin

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 April 30, 2024 will be used to purchase shares at the end of the current ESPP purchase period ending on June 17, 2024. Payroll contributions ultimately used to purchase shares are reclassified to stockholders' equity on the purchase date.

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	Three Months Ended April 30,						Nine Months Ended April 30,
	2024			2023			2024			2023
	(in thousands)
Net cash provided by operating activities	$	173,414		$	108,469		$	576,289		$	326,407
Less:
Purchases of property, equipment and other assets	(35,651)			(26,244)			(95,204)			(70,127)
Capitalized internal-use software	(14,637)			(8,339)			(32,453)			(23,962)
Free cash flow	$	123,126		$	73,886		$	448,632		$	232,318
As a percentage of revenue:
Net cash provided by operating activities	31		%	26		%	37		%	28		%
Less:
Purchases of property, equipment and other assets	(6)		%	(6)		%	(6)		%	(6)		%
Capitalized internal-use software	(3)		%	(2)		%	(3)		%	(2)		%
Free cash flow margin	22		%	18		%	28		%	20		%

Calculated Billings

Calculated billings is a non-GAAP financial measure that we believe is a key metric to measure our periodic performance. 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. We typically invoice our customers annually in advance, and to a lesser extent quarterly in advance, monthly in advance or multi-year in advance. Calculated billings increased $145.7 million, or 30%, for the three months ended April 30, 2024 over the three months ended April 30, 2023 and $396.0 million, or 30%, for the nine months ended April 30, 2024 over the nine months ended April 30, 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 each reporting period as we typically invoice customers annually in advance, and to a lesser extent quarterly in advance, monthly in advance or multi-year in advance.

	Three Months Ended April 30,				Nine Months Ended April 30,
	2024		2023		2024		2023
	(in thousands)
Revenue	$	553,201	$	418,800	$	1,574,903	$	1,161,946
Add: Total deferred revenue, end of period	1,577,014		1,175,373		1,577,014		1,175,373
Less: Total deferred revenue, beginning of period	(1,502,175)		(1,111,880)		(1,439,676)		(1,021,123)
Calculated billings	$	628,040	$	482,293	$	1,712,241	$	1,316,196

Components of Results of Operations

Revenue

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% and 97% of our revenue for the three and nine months ended April 30, 2024, respectively, and 97% of our revenue for each of the three and nine months ended April 30, 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

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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. Accordingly, 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 and fourth fiscal quarters. 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

Cost of revenue includes expenses related to operating our cloud platform in data centers, 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 and Gross Margin

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.

Operating Expenses

Our operating expenses consist of sales and marketing expenses, research and development expenses, general and administrative expenses and restructuring and other charges. 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

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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

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 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 Quarterly Report on Form 10-Q, 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.

Research and Development

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

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 Note 11, Commitments and Contingencies, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 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

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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.

Restructuring and Other Charges

Restructuring and other charges occur when we commit to a restructuring plan, the restructuring plan identifies all significant actions, the period of time to complete the restructuring plan indicates that significant changes to the restructuring plan are not likely and employees who are impacted have been notified of the pending involuntary termination. A restructuring plan generally includes significant actions involving employee-related severance charges, employee-related benefits, stock-based compensation expense related to the modification of equity incentive awards and other charges associated with the restructuring (the "restructuring charges"). Restructuring charges are accrued in the period in which it is probable that the employees are entitled to the restructuring benefits and the amounts can be reasonably estimated.

Interest Expense

Interest expense consists primarily of amortization of debt issuance costs, recognition of contractual interest expense related to the 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 unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Interest Income

Interest income consists primarily of income earned on our cash equivalents and short-term investments.

Other Expense, Net

Other expense, net consists primarily of foreign currency transaction gains and losses and changes in fair value of our non-designated derivative instruments.

Provision for Income Taxes

Our provision for income taxes consists primarily of income and withholding taxes in the foreign jurisdictions, and U.S. income taxes from a tax law change related to mandatory capitalization of research and development expenses for tax years starting January 1, 2022. In the United States, we have recorded deferred tax assets for which we provide a full valuation allowance, which includes net operating loss carryforwards and research and development tax credits. 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. Additionally, in the U.K., we have recorded deferred tax assets for which we provide a full valuation allowance, which includes net operating loss 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.

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Results of Operations

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue:

	Three Months Ended April 30,				Nine Months Ended April 30,
	2024		2023		2024		2023
	(in thousands)
Revenue	$	553,201	$	418,800	$	1,574,903	$	1,161,946
Cost of revenue (1)(2)	118,331		95,849		346,924		260,150
Gross profit	434,870		322,951		1,227,979		901,796
Operating expenses:
Sales and marketing (1)(2)	262,447		236,273		806,039		701,054
Research and development (1)(2)	124,958		92,637		360,678		253,348
General and administrative (1)	50,478		43,486		155,789		131,164
Restructuring and other charges (1)	—		6,301		—		6,301
Total operating expenses	437,883		378,697		1,322,506		1,091,867
Loss from operations	(3,013)		(55,746)		(94,527)		(190,071)
Interest income	27,570		18,577		81,897		39,111
Interest expense (3)	(2,764)		(1,383)		(9,528)		(4,047)
Other expense, net	(927)		(809)		(1,967)		(1,531)
Income (loss) before income taxes	20,866		(39,361)		(24,125)		(156,538)
Provision for income taxes (4)	1,742		6,685		18,703		15,123
Net income (loss)	$	19,124	$	(46,046)	$	(42,828)	$	(171,661)

(1) Includes stock-based compensation expense and related payroll taxes as follows:
Cost of revenue	$	12,487	$	10,025	$	38,876	$	28,281
Sales and marketing	45,490		51,417		170,013		162,099
Research and development	46,346		31,796		131,509		86,409
General and administrative	17,142		17,112		59,332		53,715
Restructuring and other charges	—		1,036		—		1,036
Total	$	121,465	$	111,386	$	399,730	$	331,540

(2) Includes amortization expense of acquired intangible assets as follows:
Cost of revenue	$	2,962	$	2,695	$	8,396	$	6,809
Sales and marketing	279		200		731		556
Research and development	140		80		373		713
Total	$	3,381	$	2,975	$	9,500	$	8,078

(3) Includes amortization of debt issuance costs as: $ 979  $ 974  $ 2,934  $ 2,919 

(4) Includes tax benefit associated with the business acquisition as: $ (5,123) $ —  $ (1,864) $ — 

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	Three Months Ended April 30,		Nine Months Ended April 30,
	2024	2023	2024	2023
Revenue	100%	100%	100%	100%
Cost of revenue	21	23	22	22
Gross margin	79	77	78	78
Operating expenses
Sales and marketing	48	56	51	60
Research and development	23	22	23	22
General and administrative	9	10	10	11
Restructuring and other charges	—	2	—	1
Total operating expenses	80	90	84	94
Operating margin	(1)	(13)	(6)	(16)
Interest income	5	4	5	3
Interest expense	—	—	(1)	—
Other expense, net	—	—	—	—
Income (loss) before income taxes	4	(9)	(2)	(13)
Provision for income taxes	1	2	1	2
Net income (loss)	3%	(11)%	(3)%	(15)%

    

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Comparison of the Three Months Ended April 30, 2024 and 2023

Revenue

	Three Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Revenue	$	553,201	$	418,800	$	134,401	32	%

Revenue increased by $134.4 million, or 32%, for the three months ended April 30, 2024, compared to the three months ended April 30, 2023. The change in revenue was driven primarily by an increase in users and sales of additional subscriptions to existing customers, which contributed $91.4 million in additional revenue. The remainder of the increase was primarily attributable to the addition of new customers, as we increased our customer base by 14% from April 30, 2023 to April 30, 2024.

Cost of Revenue and Gross Margin

	Three Months Ended April 30,						Change
	2024			2023			$		%
	(in thousands)
Cost of revenue	$	118,331		$	95,849		$	22,482	23	%
Gross margin	79		%	77		%

Cost of revenue increased by $22.5 million, or 23%, for the three months ended April 30, 2024, compared to the three months ended April 30, 2023. The change was driven primarily by the expanded use of our cloud platform by existing and new customers, which led to an increase of $13.9 million for data center and equipment related costs for hosting and operating our cloud platform. Additionally, our employee-related expenses increased by $7.6 million, inclusive of an increase of $2.1 million in stock-based compensation expense, driven primarily by an increase in headcount in our customer support and cloud operations organizations.

Gross margin increased from 77% for the three months ended April 30, 2023 to 79% for the three months ended April 30, 2024. The increase in gross margin was driven primarily by a change in the estimated useful life from four to five years for our servers and network equipment, which was effective beginning fiscal 2024. For further information refer to Note 1, Business and Summary of Significant Accounting Policies, of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Operating Expenses

Sales and Marketing Expenses

	Three Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Sales and marketing expenses	$	262,447	$	236,273	$	26,174	11	%

Sales and marketing expenses increased by $26.2 million, or 11%, for the three months ended April 30, 2024, compared to the three months ended April 30, 2023. The change was primarily driven by an increase of $9.1 million in employee-related expenses, inclusive of an increase of $8.3 million in sales commissions expense and a decrease of $8.6 million in stock-based compensation expense. The decrease in stock-based compensation expense was primarily driven by

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the reversal in February 2024 of $11.7 million of stock-based compensation expense associated with the cancellation of unvested equity awards as a result of the departure of our Chief Operating Officer, who led sales activities. 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 $8.5 million in marketing and advertising expenses, $5.2 million in travel expenses and $3.1 million in facility related expenses.

Research and Development Expenses

	Three Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Research and development expenses	$	124,958	$	92,637	$	32,321	35	%

Research and development expenses increased by $32.3 million, or 35%, for the three months ended April 30, 2024, compared to the three months ended April 30, 2023, as we continued to develop and enhance the functionality of our cloud platform and integrate technologies acquired through our business combinations. The change was driven primarily by an increase of $31.9 million in employee-related expenses, inclusive of an increase of $13.3 million in stock-based compensation expense, primarily due to an increase in headcount. The remainder of the increase was primarily attributable to increased expenses of $6.1 million in facility, software and equipment related expenses to support our growth. The net increase was offset by higher capitalized internal-use software development costs of $6.6 million to support the enhancement and growth of our cloud platform.

General and Administrative Expenses

	Three Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
General and administrative expenses	$	50,478	$	43,486	$	6,992	16	%

General and administrative expenses increased by $7.0 million, or 16%, for the three months ended April 30, 2024, compared to the three months ended April 30, 2023. The change was driven by the increase of miscellaneous expenses to support the growth of our business.

Restructuring and Other Charges

	Three Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Restructuring and other charges	$	—	$	6,301	$	(6,301)	—	%

Restructuring and other charges in the three months ended April 30, 2023 are associated with a restructuring plan announced in March 2023, under which we incurred $6.3 million of restructuring charges, consisting of $5.3 million of employee severance and benefit charges, and $1.0 million of stock-based compensation expense related to modified equity incentive awards. The restructuring plan was completed during the three months ended October 31, 2023.

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Interest Income

	Three Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Interest income	$	27,570	$	18,577	$	8,993	48	%

Interest income increased by $9.0 million for the three months ended April 30, 2024, compared to the three months ended April 30, 2023. The change was driven primarily by higher interest rates and our increased balance of cash equivalents and short-term investments.

Interest Expense

	Three Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Interest expense	$	(2,764)	$	(1,383)	$	(1,381)	100	%

Interest expense increased by $1.4 million for the three months ended April 30, 2024, compared to the three months ended April 30, 2023. The change was driven primarily by fair value hedge adjustments related to our Notes.

Other Expense, Net

	Three Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Other expense, net	$	(927)	$	(809)	$	(118)	15	%

Other expense, net increased for the three months ended April 30, 2024 compared to the three months ended April 30, 2023. The change was driven primarily by fluctuations in foreign currency transactions gains and losses.

Provision For Income Taxes

	Three Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Provision for income taxes	$	1,742	$	6,685	$	(4,943)	(74)	%

Our provision for income taxes decreased by $4.9 million for the three months ended April 30, 2024, compared to the three months ended April 30, 2023. The change was primarily driven by the reduction of the valuation allowance due to the establishment of deferred tax liabilities from the business acquisition.

Our provision for income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each fiscal quarter, we update our estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, we make a cumulative adjustment in such period.

Our quarterly tax provision, and estimate of our annual effective tax rate, is subject to variation due to several factors, including variability in pre-tax income or loss, the mix of jurisdictions to which such income relates, changes in how we do business and tax law developments. Our estimated annual effective tax rate for the year differs from the U.S. statutory rate of 21% primarily due to the benefit of a portion of our earnings being taxed at rates lower than the U.S. statutory rate.

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The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. We assess our ability to realize our 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 in certain jurisdictions, we believe that it is more likely than not that our U.S. federal, state, and U.K. deferred tax assets will not be realized. Accordingly, we have maintained a valuation allowance on our U.S. federal, state, and U.K. deferred tax assets.

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Comparison of the Nine Months Ended April 30, 2024 and 2023

Revenue

	Nine Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Revenue	$	1,574,903	$	1,161,946	$	412,957	36	%

Revenue increased by $413.0 million, or 36%, for the nine months ended April 30, 2024, compared to the nine months ended April 30, 2023. The change in revenue was driven primarily by an increase in users and sales of additional subscriptions to existing customers, which contributed $318.5 million in additional revenue. The remainder of the increase was primarily attributable to the addition of new customers, as we increased our customer base by 14% from April 30, 2023 to April 30, 2024.

Cost of Revenue and Gross Margin

	Nine Months Ended April 30,						Change
	2024			2023			$		%
	(in thousands)
Cost of revenue	$	346,924		$	260,150		$	86,774	33	%
Gross margin	78		%	78		%

Cost of revenue increased by $86.8 million, or 33%, for the nine months ended April 30, 2024, compared to the nine months ended April 30, 2023. The change was driven primarily by the expanded use of our cloud platform by existing and new customers, which led to an increase of $51.7 million for data center and equipment related costs for hosting and operating our cloud platform. Additionally, our employee-related expenses increased by $35.6 million, inclusive of an increase of $9.8 million in stock-based compensation expense, driven primarily by an increase in headcount in our customer support and cloud operations organizations.

Gross margin remained flat at 78% for the nine months ended April 30, 2024, compared to the nine months ended April 30, 2023.

Operating Expenses

Sales and Marketing Expenses

	Nine Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Sales and marketing expenses	$	806,039	$	701,054	$	104,985	15	%

Sales and marketing expenses increased by $105.0 million, or 15%, for the nine months ended April 30, 2024, compared to the nine months ended April 30, 2023. The change was driven primarily by an increase of $74.0 million in employee-related expenses, inclusive of an increase of $21.2 million in sales commissions expense and an increase of $3.3 million in stock-based compensation expense. The increase in stock-based compensation expense includes a reversal in February 2024 of $11.7 million of stock-based compensation expense associated with the cancellation of unvested equity awards as a result of the departure of our Chief Operating Officer, who led sales incentives. The remainder of the increase

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was primarily attributable to increased expenses of $20.8 million in travel expenses, $13.9 million in marketing and advertising expenses and $3.9 million in facility related expenses.

Research and Development Expenses

	Nine Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Research and development expenses	$	360,678	$	253,348	$	107,330	42	%

Research and development expenses increased by $107.3 million, or 42%, for the nine months ended April 30, 2024, compared to the nine months ended April 30, 2023, as we continued to develop and enhance the functionality of our cloud platform and integrate technologies acquired through our business combinations. The change was driven primarily by an increase of $104.3 million in employee-related expenses, inclusive of an increase of $42.9 million in stock-based compensation expense, primarily due to an increase in headcount. The increase in stock-based compensation expense for the nine months ended April 30, 2024 was partially driven by a reversal of $9.9 million of stock-based compensation expense recognized in the nine months ended April 30, 2023, which reduced the stock-based compensation expense in that period. The reversal of stock-based compensation expense resulted from the cancellation of unvested equity awards in connection with the departure of our President, who led research and development activities, in October 2022. The remainder of the increase was primarily attributable to increased expenses of $12.1 million in facility, software and equipment related expenses to support our growth. The net increase was offset by higher capitalized internal-use software development costs of $8.7 million to support the enhancement and growth of our cloud platform.

General and Administrative Expenses

	Nine Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
General and administrative expenses	$	155,789	$	131,164	$	24,625	19	%

General and administrative expenses increased by $24.6 million, or 19%, for the nine months ended April 30, 2024, compared to the nine months ended April 30, 2023. The change was driven primarily by an increase of $18.8 million in employee-related expenses, inclusive of an increase of $5.2 million in stock-based compensation expense, primarily due to an increase in headcount. The remainder of the increase is due to $2.9 million in the facility related expenses and the increase of miscellaneous expenses to support the growth of our business.

Restructuring and Other Charges

	Nine Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Restructuring and other charges	$	—	$	6,301	$	(6,301)	—	%

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Restructuring and other charges in the nine months ended April 30, 2023 are associated with a restructuring plan announced in March 2023, under which we incurred $6.3 million of restructuring charges, consisting of $5.3 million of employee severance and benefit charges, and $1.0 million of stock-based compensation expense related to modified equity incentive awards. The restructuring plan was completed during the three months ended October 31, 2023.

Interest Income

	Nine Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Interest income	$	81,897	$	39,111	$	42,786	109	%

Interest income increased by $42.8 million for the nine months ended April 30, 2024, compared to the nine months ended April 30, 2023. The change was driven primarily by higher interest rates and our increased balance of cash equivalents and short-term investments.

Interest Expense

	Nine Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Interest expense	$	(9,528)	$	(4,047)	$	(5,481)	135	%

Interest expense increased by $5.5 million for the nine months ended April 30, 2024, compared to the nine months ended April 30, 2023. The change was driven primarily by fair value hedge adjustments related to our Notes.

Other Expense, Net

	Nine Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Other expense, net	$	(1,967)	$	(1,531)	$	(436)	28	%

Other expense, net increased by $0.4 million for the nine months ended April 30, 2024, compared to the nine months ended April 30, 2023. The change was driven primarily by fluctuations in foreign currency transactions gains and losses.

Provision for Income Taxes

	Nine Months Ended April 30,				Change
	2024		2023		$		%
	(in thousands)
Provision for income taxes	$	18,703	$	15,123	$	3,580	24	%

Our provision for income taxes increased by $3.6 million for the nine months ended April 30, 2024, compared to the nine months ended April 30, 2023. The change was primarily driven by the increase in our pre-tax income in both foreign and US jurisdictions in which we conduct business, offset by the reduction of the valuation allowance due to the establishment of deferred tax liabilities from the business acquisition.

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Our provision for income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each fiscal quarter, we update our estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, we make a cumulative adjustment in such period.

Our quarterly tax provision, and estimate of our annual effective tax rate, is subject to variation due to several factors, including variability in pre-tax income or loss, the mix of jurisdictions to which such income relates, changes in how we do business and tax law developments. Our estimated annual effective tax rate for the year differs from the U.S. statutory rate of 21% primarily due to the benefit of a portion of our earnings being taxed at rates lower than the U.S. statutory rate.

The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. We assess our ability to realize our 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 in certain jurisdictions, we believe that it is more likely than not that our U.S. federal, state, and U.K. deferred tax assets will not be realized. Accordingly, we have maintained a valuation allowance on our U.S. federal, state, and U.K. deferred tax assets.

Liquidity and Capital Resources

As of April 30, 2024, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $2,240.0 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 and corporate debt securities.

In June 2020, we completed the private offering of the Notes with an aggregate principal amount of $1,150.0 million. The total net proceeds from the offering, after deducting initial purchase discount and issuance costs, was $1,130.5 million. In connection with the 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 Notes and/or offset any cash payments we could be required to make in excess of the principal amount of converted Notes. We used an aggregate amount of $145.2 million of the net proceeds of the Notes to purchase the Capped Calls.

We have generated significant losses from operations, as reflected in our accumulated deficit of $1,133.2 million as of April 30, 2024. 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 operating and capital needs for at least the next 12 months from the 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 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 conditions, such as high inflation and recessionary environments, and the impact of global crises 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

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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 April 30, 2024, we had deferred revenue of $1,577.0 million, of which $1,376.7 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. Accordingly, we cannot predict the mix of invoicing schedules in any given period.

As of April 30, 2024, 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.

The following table summarizes our cash flows for the periods presented:

	Nine Months Ended April 30,
	2024		2023
	(in thousands)
Net cash provided by operating activities	$	576,289	$	326,407
Net cash used in investing activities	$	(608,992)	$	(78,922)
Net cash provided by financing activities	$	29,694	$	14,602

Operating Activities

Net cash provided by operating activities during the nine months ended April 30, 2024 was $576.3 million, which resulted from a net loss of $42.8 million, adjusted for non-cash charges of $554.8 million and net cash inflows of $64.3 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $382.8 million for stock-based compensation expense, $94.7 million for amortization of deferred contract acquisition costs, $47.0 million for depreciation and amortization expense, $34.9 million for non-cash operating lease costs and $9.5 million for amortization expense of acquired intangible assets. Non-cash charges were partially offset by accretion of investments purchased at a discount of $14.6 million and deferred income taxes of $5.8 million. Net cash inflows from changes in operating assets and liabilities were primarily the result of an increase of $132.4 million in deferred revenue, a decrease of $78.4 million in accounts receivable, primarily due to timing of billings and collections, an increase of $14.6 million in accrued expenses, other current and noncurrent liabilities and an increase of $7.5 million in accounts payable. Net cash inflows were partially offset by cash outflows resulting from an increase of $122.7 million in deferred contract acquisition costs, a decrease of $35.4 million in operating lease liabilities and an increase of $23.5 million in prepaid expenses, other current and noncurrent assets.

Net cash provided by operating activities during the nine months ended April 30, 2023 was $326.4 million, which resulted from a net loss of $171.7 million, adjusted for non-cash charges of $462.9 million and net cash inflows of $35.2

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million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $322.7 million for stock-based compensation expense, $71.4 million for amortization of deferred contract acquisition costs, $39.8 million for depreciation and amortization expense, $23.3 million for non-cash operating lease costs and $8.1 million for amortization expense of acquired intangible assets. Net cash inflows from changes in operating assets and liabilities were primarily the result of an increase of $154.3 million in deferred revenue, a decrease of $23.0 million in accounts receivable, primarily due to timing of billings and collections, an increase of $14.9 million in accrued expenses, other current and noncurrent liabilities, and an increase of $10.9 million in accrued compensation. Net cash inflows were partially offset by cash outflows resulting from an increase of $110.6 million in deferred contract acquisition costs, a decrease of $23.6 million in operating lease liabilities, an increase of $29.6 million in prepaid expenses, other current and noncurrent assets, and a decrease of $4.1 million in accounts payable.

Investing Activities

Net cash used in investing activities during the nine months ended April 30, 2024 of $609.0 million was primarily attributable to the purchases of short-term investments of $1,004.0 million, capital expenditures of $127.7 million to support the growth and expansion of our cloud platform, and $361.8 million, net of cash acquired for a business acquisitions, and expenditures on strategic investments of $2.0 million. These activities were partially offset by proceeds from the maturities and sales of short-term investments of $886.4 million.

Net cash used in investing activities during the nine months ended April 30, 2023 of $78.9 million was primarily attributable to the purchases of short-term investments of $740.2 million, capital expenditures of $94.1 million to support the growth and expansion of our cloud platform, $15.6 million, net of cash acquired for a business acquisitions, and expenditures on strategic investments of $2.2 million. These activities were partially offset by proceeds from the maturities and sales of short-term investments of $773.2 million.

Financing Activities

Net cash provided by financing activities of $29.7 million during the nine months ended April 30, 2024 was primarily attributable to $18.4 million in proceeds from the issuance of common stock under the ESPP and $11.3 million in proceeds from the exercise of stock options.

Net cash provided by financing activities of $14.6 million during the nine months ended April 30, 2023 was primarily attributable to $11.4 million in proceeds from the issuance of common stock under the ESPP and $3.2 million in proceeds from the exercise of stock options.

Contractual Obligations and Commitments

During the nine months ended April 30, 2024, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments from those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of our Fiscal 2023 Form 10-K, other than to non-cancelable purchase obligations. For further information refer to Note 11, Commitments and Contingencies, of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

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

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differ from these estimates. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss below.

Our significant accounting policies are discussed in Note 1, Business and Summary of Significant Accounting Policies, of our consolidated financial statements included in our Fiscal 2023 Form 10-K. There have been no significant changes to these policies for the nine months ended April 30, 2024, other than the change in useful lives of our servers and networking equipment as described in Note 1, Business and Summary of Significant Accounting Policies, of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We have operations in the United States and internationally, and we are exposed to market risk in the ordinary course of our business. Our assessment of our exposures to market risk has not changed materially since the presentation set forth in Part II, Item 7A of our Fiscal 2023 Form 10-K.

Interest Rate Risk

As of April 30, 2024, we had cash, cash equivalents and short-term investments totaling $2,240.0 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 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 April 30, 2024, 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 up to $10.5 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.

We also use interest rate swaps to economically convert certain of our fixed interest rate Notes to floating interest rates, 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 Notes due to benchmark interest rate movements. Gains or losses related to our fair value hedges are included within interest expense in the unaudited condensed consolidated statement of operations in the period of change together with the offsetting loss or gain on the hedged item attributed to risk being hedged.

Convertible Senior Notes

In June 2020, we issued our Notes with an aggregate principal amount of $1,150.0 million. In connection with the issuance of the Notes, we entered into privately negotiated capped call transactions with certain counterparties ("Capped Calls"). The Capped Calls are expected generally to offset the potential dilution to our common stock as a result of any conversion of the Notes.

The Notes have a fixed annual interest rate of 0.125%, accordingly, we do not have economic interest rate exposure on the Notes. However, the fair value of the Notes is exposed to interest rate risk. Generally, the fair value of the Notes will increase as interest rates fall and decrease as interest rates rise. We present the fair value for required disclosure purposes only. In addition, the fair value of the Notes also fluctuates when the market price of our common stock fluctuates. The fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading day of the reporting period. For further information refer to Note 10, Convertible Senior Notes, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Foreign Currency Risk

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, Japanese Yen, Canadian Dollar and Australian Dollar. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of operations.

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The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on the unaudited condensed consolidated financial statements for nine months ended April 30, 2024 and 2023.

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.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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 (the "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 April 30, 2024. Based on the evaluation of our disclosure controls and procedures as of April 30, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information called for by this Item is incorporated herein by reference to Note 11, Commitments and Contingencies, Legal Matters, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

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 Quarterly Report on Form 10-Q, including the unaudited condensed 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.

Summary of Risk Factors

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:

•we have a history of losses and may not be able to achieve or sustain profitability in the future;

•if organizations do not adopt our cloud platform, our ability to grow our business and operating results may be adversely affected;

•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;

•we face intense and increasing competition and could lose market share to our competitors;

•we have experienced rapid revenue and other growth in recent periods, which may not be indicative of our future performance;

•our operating results may fluctuate significantly, which could make our future results difficult to predict and could cause our operating results to fall below expectations;

•if the delivery of our services to our customers is interrupted or delayed for any reason, our business would suffer;

•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;

•our business and growth depend in part on the success of our relationships with our channel partners;

•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;

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•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;

•if we are unable to effectively manage certain risks and challenges related to our India operations, our business could be harmed;

•servicing our debt may require a significant amount of cash, and we may not have sufficient cash flow from our business or the ability to raise funds to pay our substantial debt; and

•the impact of global economic disruptions, including as a result of geopolitical uncertainty and instability, inflation, global health crises, and governmental responses thereto, remains uncertain and may have a material adverse impact on our business.

Risks Related to Our Business

We have a history of losses and may not be able to achieve or sustain profitability in the future.

We have incurred net losses in all annual periods since our inception, and we expect we will continue to incur net losses for the foreseeable future. We experienced net losses of $202.3 million, $390.3 million and $262.0 million for fiscal 2023, fiscal 2022 and fiscal 2021, respectively. As of April 30, 2024, we had an accumulated deficit of $1,133.2 million. Because the market for our cloud platform is rapidly evolving and cloud 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.

If organizations do not adopt our cloud platform, our ability to grow our business and operating results may be adversely affected.

Cloud 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 becoming increasingly dependent on the internet as they move their applications and data to the cloud. We also believe that our cloud platform represents a major shift from on-premises appliance-based security solutions. However, traditional on-premises security appliances are 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 market acceptance of our cloud platform, or the success of competing products, services or technologies based on other technologies. If we fail to achieve 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.

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If we are unable to attract new customers, our future results of operations could be harmed.

To increase our revenue and achieve and maintain profitability, we must add new customers. To do so, we must successfully convince IT decision makers that, as they adopt SaaS applications and the public cloud, security delivered through the cloud provides significant advantages over legacy on-premises appliance-based security 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. In addition, numerous other factors, many of which are out of our control, have now and may in the future impact our ability to add new customers, including potential customers’ commitments to legacy IT security vendors and products, real or perceived switching costs, competition from hybrid or cloud security products, our failure to expand, retain and motivate our sales and marketing personnel, our failure to develop or expand relationships with our channel partners or to attract new channel partners, failure by us to help our customers to successfully deploy our cloud platform, negative media or industry or financial analyst commentary regarding us or our solutions, or similar solutions offered by our competitors, litigation and deteriorating general economic conditions. As a result of challenging 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 long these challenging economic conditions will persist, and customer cautiousness could continue or worsen or result in potential customers deciding to forego our services entirely. 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.

If 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.

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, 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, mergers and acquisitions involving our customers, competition, deteriorating general economic conditions which may result in reductions in IT budgets and lower employee headcounts.

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 relationship with our existing customers are not successful, our business may materially suffer.

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We face intense and increasing competition and could lose market share to our competitors, which could adversely affect our business, financial condition and results of operations.

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. Our business model of delivering security through the cloud rather than legacy on-premises appliances, while gaining increasing support, has not yet achieved widespread market adoption. Moreover, 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 expect competition to increase as other established and emerging companies enter the security solutions market, in particular with respect to cloud-based security solutions, as customer requirements evolve and as new products, services and technologies are introduced. 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.

Our competitors and potential competitors include:

•independent IT security vendors, such as Check Point Software Technologies Ltd., Fortinet, Inc., Palo Alto Networks, Inc. and Broadcom Inc., which offer a broad mix of network and endpoint security products;

•large networking and other vendors, such as Cisco Systems, Inc., Microsoft Corporation and Juniper Networks, Inc., which offer security appliances and/or incorporate security capabilities in their networking products and other services;

•companies such as Skyhigh Security, Trellix, Forcepoint Inc., Netskope, Inc. and Ivanti, LLC with point solutions that compete with some of the features of our cloud platform, such as proxy, firewall, CASB, sandboxing and advanced threat protection, data loss prevention, encryption, load balancing and VPN; and

•other providers of IT security services that offer, or may leverage related technologies to introduce, products that compete with or are alternatives to our cloud platform.

Many of our existing competitors have, and some of our potential competitors could have, substantial competitive advantages such as:

•greater name recognition, longer operating histories and larger customer bases;

•larger sales and marketing budgets and resources;

•broader distribution and established relationships with channel partners and customers;

•greater customer support resources;

•greater resources to make acquisitions and enter into strategic partnerships;

•lower labor and research and development costs;

•larger and more mature intellectual property rights portfolios; and

•substantially greater financial, technical and other resources.

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

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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 vendors. As a result, these organizations may prefer to purchase from their existing suppliers rather than add or switch to a new supplier.

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.

 We have experienced rapid revenue and other growth in recent periods, which may not be indicative of our future performance.

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. You should not consider our recent growth in these areas as indicative of our future performance. While we expect to continue to expand our operations and to increase our headcount significantly in the future, both domestically and internationally, 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. 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:

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•effectively attracting, retaining, training and integrating, including collaborating with, a large number of new employees;

•further improving our key business applications, processes and IT infrastructure, including our data centers, to support our business needs;

•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

•appropriately documenting and testing our IT systems and business processes.

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 and in the future, we may restructure or reduce our workforce to align people, roles and projects to our strategic priorities. Any realignment 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 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, 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 significantly, which could make our future results difficult to predict and could cause our operating results to fall below expectations.

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:

•broad market acceptance and the level of demand for our cloud platform;

•our ability to attract new customers, particularly large enterprises;

•our ability to retain customers and expand their usage of our platform, particularly our largest customers;

•our ability to successfully expand internationally and penetrate key markets;

•the effectiveness of our sales and marketing programs;

•the length of our sales cycle, including the timing of renewals;

•technological changes and the timing and success of new service introductions by us or our competitors or any other change in the competitive landscape of our market;

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•increases in and timing of operating expenses that we may incur to grow and expand our operations and to remain competitive;

•pricing pressure as a result of competition or otherwise;

•seasonal buying patterns for IT spending, including the possible slowdown in IT spending due to the recent global economic downturn;

•the quality and level of our execution of our business strategy and operating plan;

•adverse litigation judgments, settlements or other litigation-related costs;

•changes in the legislative or regulatory environment;

•the impact and costs related to the acquisition of businesses, talent, technologies or intellectual property rights;

•fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies;

•changes in U.S. generally accepted accounting principles; and

•general economic conditions in either domestic or international markets, including as a result of geopolitical uncertainty and instability (such as the Russia-Ukraine and Israel-Hamas crises), global health crises and pandemics, and governmental responses thereto.

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 and fourth quarters 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.

If the delivery of our services to our customers is interrupted or delayed for any reason, our business would suffer.

Any interruption or delay in the delivery of our services will negatively impact our customers. Our solutions are deployed via the internet, and our customers’ internet traffic is routed 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. If our entire platform were to fail, customers and users could lose access to the internet until such disruption is resolved or customers deploy disaster recovery options that allow 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.

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The following factors, many of which are beyond our control, can affect the delivery and availability of our services and the performance of our cloud:

•the development and maintenance of the infrastructure of the internet;

•the performance and availability of third-party telecommunications services with the necessary speed, data capacity and security for providing reliable internet access and services;

•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, discontinue services to us, shut down operations or facilities, increase prices, change service levels, limit bandwidth, declare bankruptcy or prioritize the traffic of other parties;

•the occurrence of earthquakes, floods, fires, pandemics, power loss, system failures, physical or electronic break-ins, acts of war, international conflicts (such as the Russia-Ukraine and Israel-Hamas crises) or terrorism, human error or interference (including by disgruntled employees, former employees or contractors) and other catastrophic events;

•cyberattacks, including denial of service attacks, targeted at us, our data centers, our global telecommunications service provider partners or the infrastructure of the internet;

•government action to limit access to the internet;

•failure by us to maintain and update our cloud infrastructure to meet our traffic capacity requirements;

•errors, defects or performance problems in our software, including third-party software incorporated in our software, which we use to operate our cloud platform;

•improper classification of websites by our vendors who provide us with lists of malicious websites;

•improper deployment or configuration of our services;

•the failure of our redundancy systems, in the event of a service disruption at one of our data centers, to provide failover to other data centers in our data center network; and

•the failure of our disaster recovery and business continuity arrangements.

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.

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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, including the increased rate of cyberattacks arising from the Russia-Ukraine crisis and the risk that these cyberattacks could spread globally, showcases the increasing sophistication of cyber threats and could dramatically expand 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. 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, if a high profile security breach or incident occurs with respect to another cloud services provider, our customers and potential customers may 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 made more sophisticated with the development of artificial intelligence ("AI") and machine learning ("ML"), distributed denial-of-service attacks, advanced attacks conducted or sponsored by nation-states, advanced persistent threat intrusions, ransomware and other malware and theft or misuse of intellectual property or business or personal data, including by disgruntled employees, former employees or contractors. No security solution, including our cloud platform, can address all possible security threats or block all methods of penetrating a network or otherwise perpetrating a security breach or incident. Our customers must 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.

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Any real or perceived flaws in our cloud platform or any real or perceived security breaches or other security incidents of our customers could result in:

•a loss of existing or potential customers or channel partners;

•delayed or lost sales and harm to our financial condition and results of operations;

•a delay in attaining, or the failure to attain, market acceptance;

•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 or perceived security breach or incident;

•negative publicity and damage to our reputation and brand; and

•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.

Any of the above results could materially and adversely affect our business, financial condition and results of operations.

Additionally, with data security being a critical competitive factor in our industry, we make public statements in our privacy 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.

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 150 data centers. 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 failures to provide adequate support for reasons that are outside of our direct control. Our data centers are vulnerable to damage or interruption from a variety of sources, including earthquakes, floods, fires, power loss, system failures, computer viruses, physical or electronic break-ins, human error or interference (including by disgruntled employees, former employees or contractors), and other catastrophic events, including those exacerbated by the effects of climate change. 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 Russia-Ukraine crisis, changes to legal or permitting requirements and litigation to stop, limit or delay operations. Despite precautions taken at these facilities, such as disaster recovery and business continuity arrangements, the occurrence of a natural disaster or an act of terrorism, 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. For example, to manage a dramatic increase in ZPA traffic resulting from our customers' employees working from home at the outset of the COVID-19 pandemic, we temporarily increased our use of public cloud infrastructure which is substantially more expensive than our own data centers. If we must again materially increase our use of public cloud infrastructure in the future, our results of operations could be negatively impacted.

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Our business and growth depend in part on the success of our relationships with our channel partners.

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. In general, 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 26% of our revenue for fiscal 2023, 28% of our revenue for fiscal 2022 and 34% of our revenue for fiscal 2021, and 25% and 26% of our revenue for the nine months ended April 30, 2024 and 2023, respectively. 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, 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.

If we are not able to maintain and enhance our brand, our business and results of operations may be adversely affected.

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 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.

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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 sufficient numbers of these 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 sufficient numbers of 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.

Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense.

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 conditions, including the impact of widespread pandemics, international conflicts or the increasing effects of inflation, 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 lowering prices for our services. As a result of challenging 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 long these challenging economic conditions will persist, and customer cautiousness could continue or worsen or result in potential customers deciding to forego our services entirely.

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

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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:

•competition from companies that traditionally target larger enterprises and that may have pre-existing relationships or purchase commitments from such customers;

•increased purchasing power and leverage held by larger customers in negotiating contractual arrangements with us;

•more stringent requirements in our support obligations; and

•longer sales cycles and the associated risk that substantial time and resources may be spent on a potential customer that elects not to purchase our solutions.

The failure of our efforts to secure sales after investing resources in a lengthy sales process could materially and adversely affect our business and operating results.

If we fail to develop or introduce new enhancements to our cloud platform on a timely basis, our ability to attract and retain customers, remain competitive and grow our business could be impaired.

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, including the timely completion and market acceptance of the enhancement. Any new service that we develop 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 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.

Issues in the development, use and execution of AI and ML, combined with an uncertain regulatory environment, may harm our business.

We are increasingly utilizing and have recently begun building and executing 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 in order 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. The use of artificial intelligence technologies also presents emerging ethical issues that could become controversial. As a result of these and other challenges associated

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with our use and implementation of AI and ML, we may in the future be subject to legal liability, competitive harm, regulatory action, including new proposed 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.

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 such 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 in comparison to our invoices issued quarterly and monthly in advance, which will also affect our financial position in any given period. 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.

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, by third parties, including disgruntled employees or contractors and other 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 connections with the Russia-Ukraine crisis, 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 or perceived security breaches of our cloud platform could result in actual or perceived breaches of our customers’ networks and systems.

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 or perceived 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 may also be the targets of cyberattacks, and their systems and networks may be, or may have been, breached or contain exploitable defects or bugs that could result in a breach of or disruption to their or

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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, acquisition, disclosure, loss, alteration, or destruction of our data, including confidential, sensitive, and other information about individuals. Geo-political factors including international conflicts, like the Russia-Ukraine and Israel-Hamas crises, may increase the risk of such cyberattacks.

Any real or perceived security breaches or other security incidents that we suffer with regard to our platform, systems, networks or data, including any such actual or perceived security breaches or security incidents that result, or are believed to result, in actual or perceived 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 or perceived security breach or other security incident;

•negative publicity and damage to our reputation, brand, and market position;

•harm to our relationships with, and a loss of, existing or potential customers or channel partners;

•delayed or lost sales and harm to our financial condition and results of operations;

•a delay in attaining, or the failure to attain, market acceptance; and

•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.

Any of the above could materially and adversely affect our business, financial condition and results of operations.

While we maintain insurance, our insurance may be insufficient to cover all liabilities incurred in relation to actual or perceived 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.

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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 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. 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 will be adversely affected. We believe that successfully delivering our cloud solution requires a particularly high level of customer support and engagement. We or our channel partners must successfully assist our customers in deploying our cloud platform, resolving performance issues, addressing interoperability challenges with a customer’s existing network and security infrastructure and responding 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. We may not be able to hire 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 and retaining 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.

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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. In the last year, we have added several new senior management employees. 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 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. Recently, as a result of attrition and other factors, we have needed to hire and expect to hire key sales leaders and other sales personnel for various markets. 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. Also, certain of our key employees have become, or will soon become, vested in a substantial amount of equity awards, which may give them a substantial amount of personal wealth. This may make it more difficult for us to retain and motivate these employees, and this wealth could affect their decision about whether or not they continue to work for us. 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.

We incorporate technology from third parties into our cloud platform, and our inability to obtain or maintain rights to the technology could harm our business.

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 or that our licensors have sufficient rights to the licensed intellectual property in all jurisdictions in which we may sell our services. 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

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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, we may consider opening our cloud platform to third-party developers and applications to further extend its functionality. 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. Furthermore, the terms of many open source licenses have not been interpreted by U.S. 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, we cannot assure you that our processes for controlling our use of open source software in our platform will be effective. Responding to any infringement or

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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:

•resulting in time-consuming and costly litigation;

•diverting management’s time and attention from developing our business;

•requiring us to pay monetary damages or enter into royalty and licensing agreements that we would not normally find acceptable;

•causing delays in the deployment of our platform or service offerings to our customers;

•requiring us to stop offering certain services on or features of our platform;

•requiring us to redesign certain components of our platform using alternative non-infringing or non-open source technology, which could require significant effort and expense;

•requiring us to disclose our software source code and the detailed program commands for our software; and

•requiring us to satisfy indemnification obligations to our customers.

We rely on a limited number of suppliers for certain components of the equipment we use to operate our cloud platform, 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 or replace defective equipment in our existing data centers.

We rely on a limited number of suppliers for several components of the equipment we use to operate our cloud platform and provide services to our customers. Our reliance on these suppliers exposes us to risks, including reduced control over production costs and constraints based on the then-current availability, terms and pricing of these components. For example, we generally purchase these components on a purchase order basis, and do not have long-term contracts guaranteeing supply. In addition, the technology industry has experienced component shortages, delivery delays and price increases in the past, and we may experience shortages, delays or materially increased costs, including as a result of natural disasters, acts of war or international conflicts, 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. If our supply of certain components is disrupted or delayed, there can be no assurance that additional supplies or components can serve as adequate replacements for the existing components or that supplies will be available on terms that are favorable to us, if at all. Any disruption or delay in the supply of our components may delay opening new data centers, delay increasing capacity or replacing defective equipment at existing data centers or cause other constraints on our operations that could damage our channel partner or customer relationships.

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, future litigation may involve non-practicing entities or other patent owners

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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 discovery required in connection with patent and other intellectual property rights litigation, there is a risk that some of our confidential information could be compromised by the discovery process.

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.

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Any of these events could materially and adversely harm our business, financial condition and results of operations.

The success of our business depends in part on our ability to protect and enforce our intellectual property rights.

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 business depends, in part, on sales to government organizations, and significant changes in the contracting or fiscal policies of such government organizations could have an adverse effect on our business and operating results.

We derive a portion of our revenue from contracts with government organizations, and we believe the success and growth of our business will in part depend on our successful procurement of additional public sector customers. However, demand from government organizations is often unpredictable, and we cannot assure you that we will be able to maintain or grow our revenue from the public sector.

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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 requiring significant upfront time and expense without any assurance that such efforts will generate a sale;

•U.S. or other government certification requirements applicable to our cloud platform, including the Federal Risk and Authorization Management Program, 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 funding authorizations, including the impacts of possible government shutdowns; and

•governments routinely investigate and audit government contractors’ administrative processes and any unfavorable audit could result in fines, civil or criminal liability, further investigations, damage to our reputation and debarment from further government business.

The occurrence of any of the foregoing could cause governments and governmental agencies to delay or refrain from purchasing our solutions in the future or otherwise have an adverse effect on our business and operating results.

Failure to comply with laws and regulations applicable to our business could subject us to fines and penalties and could also cause us to lose customers in the public sector or negatively impact our ability to contract with the public sector.

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, may also become subject to regulation under new laws or 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:

•investigations, enforcement actions and sanctions;

•mandatory changes to our cloud platform;

•disgorgement of profits, fines and damages;

•civil and criminal penalties or injunctions;

•claims for damages by our customers or channel partners;

•termination of contracts;

•loss of intellectual property rights; and

•temporary or permanent debarment from sales to government organizations.

If any governmental 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.

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We endeavor to properly classify employees as exempt versus non-exempt under applicable law. Although there are no pending or threatened material claims or investigations against us asserting that some employees are improperly classified as exempt, the possibility exists that some of our current or former employees could have been incorrectly classified as exempt employees.

In addition, we must comply with laws and regulations relating to the formation, administration and performance of contracts with the public sector, including U.S. federal, state and local governmental organizations, which affect how we and our channel partners do business with governmental agencies. Selling our solutions to the U.S. government, whether directly or through channel partners, also subjects us to certain regulatory and contractual requirements. Failure to comply with these requirements by either us or our channel partners could subject us to investigations, fines and other penalties, which could have an adverse effect on our business, operating results, financial condition and prospects. As an example, the U.S. Department of Justice, or DOJ, and the General Services Administration, or GSA, have in the past pursued claims against and financial settlements with IT vendors under the False Claims Act and other statutes related to pricing and discount practices and compliance with certain provisions of GSA contracts for sales to the federal government. The DOJ and GSA continue to actively pursue such claims. Violations of certain regulatory and contractual requirements could also result in us being suspended or debarred from future government contracting. Any of these outcomes could have a material adverse effect on our revenue, operating results, financial condition and prospects.

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, loss of exclusive rights in our intellectual property and temporary suspension or permanent debarment from government contracting. Any such damages, penalties, disruptions or limitations in our ability to do business with the public sector could have a material adverse effect on our business and operating results.

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, 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 such companies, inform individuals of security breaches that affect their information, and, in some cases, obtain individuals’ consent to use information for certain purposes. For example, the California Consumer Privacy Act (“CCPA”) took effect in January 2020 and was subsequently modified by the California Privacy Rights Act ("CPRA") which took effect in January 2023. The CCPA imposes obligations on companies that process California residents’ personal information, including an obligation to provide certain new disclosures to such residents and creates new consumer rights. Numerous other states, including Colorado, Delaware, Connecticut, Florida, Indiana, Iowa, Montana, Oregon, Texas, Tennessee, Utah, and Virginia, have enacted privacy laws that have gone into effect, or will go into effect through 2026, and a federal privacy law is being considered. In addition, in certain jurisdictions, regulatory

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requirements may be more stringent than those in the U.S. For example, the European Union has implemented the General Data Protection Regulation (“GDPR”), which provides for substantial obligations relating to the handling, storage 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. Further, the UK has implemented legislation that substantially mirrors the GDPR, and which provides for similar fines for noncompliance as the GDPR. 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 generate tension with our efforts to align our practices to comply with our privacy, data protection, and security obligations globally. Many of these laws and regulations impose substantial penalties for noncompliance.

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 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 and evolving laws, regulations, standards and other obligations, and changes in the interpretation of existing laws, regulations, standards and other obligations, relating to privacy, data protection or security 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. For example, evolving obligations relating to data transfers outside of the European Economic Area, Switzerland, and the United Kingdom, such as the EU-U.S. Data Privacy Framework, the UK Extension to the EU-U.S. Data Privacy Framework and the Swiss-U.S. Data Privacy Framework, impose additional due diligence and other measures in the procurement process. These and other 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. In view of the foregoing, we cannot assure our compliance with all such laws, regulations, standards and obligations. Any failure or perceived failure by us to comply with applicable laws, regulations, standards or actual or asserted obligations, or any actual or suspected 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 export and import controls 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. Treasury Department’s Office of Foreign Assets Control. The U.S. export control laws and U.S. economic sanctions laws include restrictions or prohibitions on the sale or supply of certain products and services to U.S. embargoed or sanctioned countries, governments, persons and entities. For example, the U.S. and other countries have implemented economic and other sanctions in response to the Russia-Ukraine crisis. These sanctions and any additional sanctions may impact our ability to continue 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 operate our cloud platform or could limit our customers’ ability to access or use our services in those countries.

Although we take precautions to prevent our services from being provided in violation of such laws, our services 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 license, for a particular transaction may be time-consuming, is not guaranteed and may

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result in the delay or loss of sales opportunities. In addition, changes in our platform, or changes in export, sanctions and import laws, could delay the introduction and 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 in export or import regulations, 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 to existing customers or potential new customers with international operations. Any decrease in our ability to sell subscriptions to our platform could materially and adversely affect our business, results of operations and financial condition.

Our international operations expose us to significant risks, and failure to manage those risks could materially and adversely impact our business.

Historically, we have derived a significant portion of our revenue from outside the United States. We derived approximately 50% and 51% of our revenue from our international customers in each of fiscal 2023 and fiscal 2022. As of July 31, 2023, approximately 61% 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, such as Japan and the Asia-Pacific region, Latin America and the Middle East, 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:

•political, economic and social uncertainty or international conflict, such as the Russia-Ukraine and Israel-Hamas crises;

•unexpected costs for the localization of our services, including translation into foreign languages and adaptation for local practices and regulatory requirements;

•greater difficulty in enforcing contracts and accounts receivable collection, and longer collection periods;

•reduced or uncertain protection for intellectual property rights in some countries;

•greater risk of unexpected changes in regulatory practices, tariffs and tax laws and treaties;

•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, and any applicable trade regulations ensuring fair trade practices;

•requirements to comply with foreign privacy, data protection, cybersecurity and information security laws and regulations and the risks and costs of noncompliance;

•increased expenses incurred in establishing and maintaining office space and equipment for our international operations;

•difficulties in complying with regulations relating to AI and ML;

•greater difficulty in identifying, attracting and retaining local qualified personnel, and the costs and expenses associated with such activities;

•differing employment practices and labor relations issues;

•difficulties in managing and staffing international offices and increased travel, infrastructure and legal compliance costs associated with multiple international locations;

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•fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business, including the British Pound, Indian Rupee and Euro, and related impact on sales cycles; and

•the impact of natural disasters and public health pandemics and epidemics, such as the COVID-19 pandemic, on customers, partners, suppliers, employees, travel and the global economy.

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.

If we are unable to effectively manage certain risks and challenges related to our India operations, our business could be harmed.

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, 2023, 35% 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 recently experienced significant inflation and low growth. India also has experienced natural disasters, civil unrest and terrorism and, in the past, has been involved in conflicts with neighboring countries. 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.

Servicing our debt may require a significant amount of cash, and we may not have sufficient cash flow from our business or the ability to raise funds to pay our substantial debt.

On June 25, 2020, we issued $1,150 million in aggregate principal amount of our 0.125% Convertible Senior Notes due 2025, referred to herein as the Notes. We may be required to use a substantial portion of our cash flows from operations to pay interest and principal on our indebtedness. Our ability to make scheduled payments of the principal, to pay interest on or to refinance our indebtedness, including the 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. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. If we are unable to engage in any of these activities or engage in these activities on desirable terms, it could result in a default on our debt obligations, which would adversely affect our financial condition.

Our failure to raise additional capital necessary to expand our operations and invest in new solutions could reduce our ability to compete and could harm our business.

We expect that our existing cash, cash equivalents and short-term investments will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. We may, however, need to raise additional funds in the future to fund our operating expenses, make capital purchases and acquire or invest in business or

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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.

Adverse economic conditions or reduced IT security spending may adversely impact our revenue and profitability.

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. While inflation rates moderated in 2023 and continue to moderate into 2024, they remain high. The existence of inflation in the U.S. and global economy and the pricing pressure created by rising inflation in prior periods has and may continue to result in higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor, weakening exchange rates and other similar effects. If the inflation rate continues to remain elevated, it will likely 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 result of the increased interest income we earn on our cash and investments, but a reduction of interest rates in the future would reduce this income.

The impact of economic conditions, including the ongoing effects of inflation, high interest rates and regional or global recessions 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.

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We believe our long-term value as a company will be greater if we focus on growth, which may negatively impact our profitability in the near term.

Part of our business strategy is to primarily focus on our long-term growth. As a result, even as we prudently manage expenses as we invest in our business, our profitability may be lower in the near term than it would be if our strategy were to maximize short-term profitability. Significant expenditures on sales and marketing efforts, and expenditures on growing our cloud platform and expanding our research and development, each of which we intend to continue to invest in, may not ultimately grow our business or cause long-term profitability. If we are ultimately unable to achieve profitability at the level anticipated by industry or financial analysts and our stockholders, our stock price may decline.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our operating results.

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 is denominated in foreign currencies, such as the British Pound, Indian Rupee, Euro, Canadian Dollar, Australian Dollar and Japanese Yen, and is subject to fluctuations due to changes in foreign currency exchange rates. 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 these hedging activities may not be successful in effectively mitigating the potentially adverse impact on our financial statements due to unfavorable movements in foreign currency exchange rates.

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 are subject to counterparty default risks.

We have numerous arrangements with financial institutions that include cash and investment deposits, 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.

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

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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.

Our corporate structure and intercompany arrangements are subject to the tax laws of various jurisdictions, and we could be obligated to pay additional taxes, which would harm our results of operations.

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.

In 2021, Organization for Economic Cooperation and Development announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future years. Our effective tax rate and cash tax payments could increase in future years as a result of these changes.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of July 31, 2023, we had net operating loss carryforwards for U.S. federal income tax purposes and state income tax purposes of approximately $1,619.0 million and $621.6 million, respectively, available to offset future taxable income. Beginning in 2024, $481.5 million of state net operating losses will begin to expire at different periods. The remaining $140.1 million of state net operating losses will carry forward indefinitely. As of July 31, 2023 and 2022, we had foreign net operating loss carryforward of $71.6 million and $67.8 million, respectively, all of which may be carried forward indefinitely.

As of July 31, 2023, we also had U.S. federal and California research and development and other tax credit carryforwards of $81.0 million and $53.2 million, respectively. If not utilized, the federal research and development tax credit carryforwards will begin expiring at different periods beginning in 2038. Our California research and development tax credits may be carried forward indefinitely. 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.

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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 carry-forwards 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.

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:

•issue additional equity securities that would dilute our stockholders;

•use cash that we may need in the future to operate our business;

•incur debt on terms unfavorable to us or that we are unable to repay;

•incur large charges or substantial liabilities;

•encounter difficulties integrating diverse business cultures;

•experience delays in extending our internal control over financial reporting to new acquisitions or investments;

•experience delays in our quarterly close process and related filings with the SEC; and

•become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.

These challenges related to acquisitions or investments could adversely affect our business, operating results, financial condition and prospects.

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Risks Related to the Ownership of Our Common Stock

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.

As of April 30, 2024, our executive officers, directors, current 5% or greater stockholders and affiliated entities together beneficially owned approximately 43.5% of our common stock outstanding with Jay Chaudhry, our chief executive officer and chairman of our board of directors, and his affiliates beneficially owning approximately 17.8% of our 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:

•a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

•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;

•a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

•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

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•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.

These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time.

The market price of our common stock may be volatile, and you could lose all or part of your investment.

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:

•actual or anticipated changes or fluctuations in our operating results;

•the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

•announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships or capital commitments;

•industry or financial analyst or investor reaction to our press releases, other public announcements and filings with the SEC;

•rumors and market speculation involving us or other companies in our industry;

•price and volume fluctuations in the overall stock market from time to time;

•volume fluctuations in the trading of our common stock from time to time;

•changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

•the sales of shares of our common stock by us or our stockholders;

•issuances of shares of our common stock, whether in connection with an acquisition or upon conversion of some or all of our outstanding Notes;

•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;

•actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;

•litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

•developments or disputes concerning our intellectual property rights or our solutions, or third-party proprietary rights;

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•announced or completed acquisitions of businesses or technologies by us or our competitors;

•actual or perceived privacy, data protection, or security incidents or breaches;

•new laws or regulations or new interpretations of existing laws or regulations applicable to our business and our responses thereto;

•any major changes in our management or our board of directors, particularly with respect to Mr. Chaudhry;

•general economic conditions and slow or negative growth of our markets; and

•other events or factors, including those resulting from war, incidents of terrorism, global pandemics or responses to these events.

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, 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 and cause the market price of our common stock to decline.

We do not intend to pay dividends in the foreseeable future. As a result, your ability to achieve a return on your investment will depend on appreciation in 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.

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If industry or financial analysts issue inaccurate or unfavorable research regarding our common stock, our stock price and trading volume could decline.

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 provides that the Court of Chancery of the State of Delaware is the exclusive forum for:

•any derivative action or proceeding brought on our behalf;

•any action asserting a breach of fiduciary duty;

•any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws;

•any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws; and

•any action asserting a claim against us that is governed by the internal-affairs doctrine.

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.

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.

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Risks Related to the Notes

The conditional conversion feature of the Notes, when triggered, may adversely affect our financial condition and operating results.

During any period, the conditional conversion feature of the Notes is triggered, holders will be entitled to convert the Notes at any time during specified periods at their option. During the three months ended April 30, 2024, the conditions allowing holders of the Notes to convert were not met. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.

Under Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") Standards Codification 470-20, Debt with Conversion and Other Options, or ASC 470-20, an entity must separately account for the liability and equity components of convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion, in a manner that reflects the issuer’s non-convertible debt interest cost. ASC 470-20 requires the value of the conversion option of the Notes, representing the equity component, to be recorded as additional paid-in capital within stockholders’ equity in the unaudited condensed consolidated balance sheet and as a discount to the Notes, which reduces their initial carrying value. The carrying value, net of the discount recorded, of the Notes is accreted up to the principal amount of the Notes, as applicable, from the issuance date until maturity, which results in non-cash charges to interest expense in the unaudited condensed consolidated statement of operations. Accordingly, we report lower net income or higher net loss in our financial results because ASC 470-20 requires interest to include both the current period’s accretion of the debt discount and the instrument’s coupon interest.

In June 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 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"). 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. In accordance with the adoption of ASU 2020-06 and using the modified retrospective method, prior period amounts have not been adjusted. This standard resulted in our Notes being accounted for as a single unit of debt and we will no longer be required to record the conversion feature in equity, as required by the former standard (Standards Codification 470-20, Debt with Conversion and Other Options, or ASC 470-20). This further eliminated the need for amortization of the debt discount as interest expense required under ASC 470-20 and the portion of the issuance costs initially allocated to equity is now classified as debt and amortized as interest expense. As of August 1, 2022, the adoption of this new standard resulted in an increase of $169.9 million to the carrying amount of the Notes, a decrease of $273.7 million to additional paid-in capital and a cumulative-effect adjustment of $103.8 million to accumulated deficit. Formerly, in accordance with ASC 470-20, we used the treasury stock method to calculate the potential diluted effect of the Notes; however, upon adoption of ASU 2020-06 we are required to use the if-converted method. Accordingly, to account for the

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potentially diluted shares related to the Notes under a net income position, we are required to add back the interest expense to the net income and include approximately 7.63 million shares related to the Notes.

These accounting standards have impacted and may in the future impact our reported net income (loss), which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the Notes.

The capped call transactions may affect the value of our common stock.

In connection with the pricing of the Notes, we entered into privately negotiated capped call transactions with certain of the initial purchasers and/or their respective affiliates and other financial institutions (the “Option Counterparties”). The capped call transactions are expected generally to reduce the potential dilution upon conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap.

We have been advised that, in connection with establishing their initial hedges of the capped call transactions, the Option Counterparties purchased shares of our common stock and/or entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Notes.

In addition, 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 Notes (and are likely to do so following any conversion, repurchase, or redemption of the Notes, to the extent we exercise the relevant election under the capped call transactions). This activity could also cause or avoid an increase or a decrease in the market price of our common stock.

We are subject to counterparty risk with respect to the capped call transactions.

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.

General Risks

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 a significant facility, or where a key channel partner 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 providers, this could materially and adversely affect our ability to provide services in a timely or cost-effective manner.

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In addition, natural disasters, acts of war, international conflicts, such as the Russia-Ukraine and Israel-Hamas crises, 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, and 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 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.

We may become involved in litigation that may materially adversely affect us.

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.

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We are subject to anti-corruption, anti-bribery and similar laws, and noncompliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation.

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 are 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 such laws, we cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. 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.

If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

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 increase our 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.

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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 ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed 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 unaudited condensed 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 convertible senior 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.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Sale of Unregistered Equity Securities

On March 8, 2024, in connection with our acquisition of Avalor, we agreed to issue a total of 233,898 shares of our common stock as deferred consideration related to re-vesting of equity for certain key employees. On April 12, 2024, in connection with our acquisition of Airgap, we agreed to issue a total of 109,787 shares of our common stock as deferred consideration related to re-vesting of equity for certain key employees.

The foregoing transactions did not involve any underwriters, any underwriting discounts or commissions, or any public offering. We believe the offer, sale, and issuance of the above securities was exempt from registration under the Securities Act of 1933, as amended (the “Act”) by virtue of Section 4(a)(2) of the Act, because the issuance of securities to the recipients did not involve a public offering. The recipients of the securities in this transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the securities issued in this transaction. All recipients had adequate access, through their relationships with us or otherwise, to information about us. The issuance of these securities was made without any general solicitation or advertising.

(b) Issuer Purchases of Equity Securities

None.

Item 5. Other Information

Securities Trading Plans of Directors and Executive Officers

During the three months ended April 30, 2024, no director or officer, as defined in Rule 16a-1(f) under the Securities Act of 1934, as amended, adopted or terminated a “Rule 10b5-1 trading arrangement” as defined in Regulation S-K Item 408.

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Item 6. Exhibits

We have filed the exhibits listed on the accompanying Exhibit Index, which is incorporated herein by reference. 

 Index to Exhibits

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
31.1	Certification of the Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley act of 2002					X
31.2	Certification of the Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1*	Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X
104	Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101)					X

_______________________________________

* The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q 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.

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SIGNATURES

Pursuant to the requirements 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.

	Zscaler, Inc.
June 7, 2024	/s/	Remo Canessa
		Remo Canessa
		Chief Financial Officer

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