Press Release Details

First Quarter Highlights

• Revenue grows 40% year-over-year to $496.7 million
• Calculated billings grows 34% year-over-year to $456.6 million
• Deferred revenue grows 39% year-over-year to $1,399.5 million
• GAAP net loss of $33.5 million compared to GAAP net loss of $68.2 million on a year-over-year basis
• Non-GAAP net income of $106.5 million compared to non-GAAP net income of $44.0 million on a year-over-year basis
  

SAN JOSE, Calif., Nov. 27, 2023 (GLOBE NEWSWIRE) -- Zscaler, Inc. (Nasdaq: ZS), the leader in cloud security, today announced financial results for its first quarter of fiscal year 2024, ended October 31, 2023.

“We had a strong start to our fiscal year with all key metrics coming above our guidance. We are enabling enterprises to move forward with their key transformative initiatives - Zero Trust and AI - which is driving demand for our Zero Trust Exchange,” said Jay Chaudhry, Chairman and CEO of Zscaler. “In order to meet this growing need, we are scaling our go-to-market and R&D organizations, strengthening our foundation for the long-term growth of our business.”

First Quarter Fiscal 2024 Financial Highlights

• Revenue: $496.7 million, an increase of 40% year-over-year.
• Income (loss) from operations: GAAP loss from operations was $46.1 million, or 9% of revenue, compared to $69.1 million, or 19% of revenue, in the first quarter of fiscal 2023. Non-GAAP income from operations was $89.7 million, or 18% of revenue, compared to $42.1 million, or 12% of revenue, in the first quarter of fiscal 2023.
• Net income (loss): GAAP net loss was $33.5 million, compared to $68.2 million in the first quarter of fiscal 2023. Non-GAAP net income was $106.5 million, compared to $44.0 million in the first quarter of fiscal 2023.
• Net income (loss) per share: GAAP net loss per share was $0.23, compared to $0.48 in the first quarter of fiscal 2023. Non-GAAP net income per share was $0.67, compared to $0.29 in the first quarter of fiscal 2023.
• Cash flows: Cash provided by operations was $260.8 million, or 53% of revenue, compared to $128.5 million, or 36% of revenue, in the first quarter of fiscal 2023. Free cash flow was $224.7 million, or 45% of revenue, compared to $95.6 million, or 27% of revenue, in the first quarter of fiscal 2023.
• Deferred revenue: $1,399.5 million as of October 31, 2023, an increase of 39% year-over-year.
• Cash, cash equivalents and short-term investments: $2,324.4 million as of October 31, 2023, an increase of $224.2 million from July 31, 2023.
  

Recent Business Highlights

• Appointed two go-to-market leaders to scale Zscaler’s cloud security business to $5 billion in ARR and beyond. Mike Rich was appointed as Zscaler’s Chief Revenue Officer (CRO) and President of Global Sales, with worldwide responsibility for all aspects related to revenue growth and sales strategy. Joyce Kim has joined as the Chief Marketing Officer (CMO) and is responsible for scaling global marketing execution to accelerate Zscaler’s next phase of growth.
  
  
• Announced a joint solution with technology partners CrowdStrike and Imprivata to deliver a purpose-built zero trust security solution for healthcare organizations. The integration will provide visibility, threat protection and traceability for end-to-end, multi-user, shared device access control that are required for healthcare organizations to meet regulatory compliance requirements, such as HIPAA and HITECH.
  
  
• Named as one of Fortune’s Best Workplaces in Technology for 2023, a ranking that is based on over 162,000 responses from employees at companies across the technology industry.
  
  
• Released the findings of the ThreatLabZ 2023 Enterprise IoT and OT Threat Report, which provides an in-depth analysis of malware activity over a six-month period. This report found a 400% increase in IoT malware attacks year-over-year with the manufacturing industry being the top targeted sector for IoT and OT malware attacks.
  
  
• Announced the appointments of Claudionor Coelho Jr. as Chief AI Officer and Mohamed Shabar as EVP, Data & AI Platforms, reinforcing Zscaler’s continued investment and focus on driving rapid innovation in the areas of advanced Artificial Intelligence (AI) and Machine Learning (ML) to define the future of cloud-based security technologies.
  
  
• Introduced a series of industry-first, zero trust innovations to the Zscaler Workloads Communications solution designed to radically simplify and improve cloud workload security through native integration with AWS user-defined tags. The advancements are designed to deliver granular zero trust VPC segmentation for cloud-based VDI and enable customers to connect and protect workloads across the full spectrum of cloud environments - including Government Cloud.
  
  
• Published the 2023 Impact and ESG Report, which provides a progress report and update on Zscaler’s ESG initiatives, reaffirming Zscaler’s commitment to operating its business in a responsible and sustainable manner.
  

Financial Outlook

For the second quarter of fiscal 2024, we expect:

• Revenue of $505 million to $507 million
• Non-GAAP income from operations of $84 million to $86 million
• Non-GAAP net income per share of approximately $0.57 to $0.58, assuming approximately 160 million fully diluted shares outstanding
  

For the full year fiscal 2024, we expect:

• Revenue of approximately $2.09 billion to $2.10 billion
• Calculated billings of $2.52 billion to $2.56 billion
• Non-GAAP income from operations of $360 million to $365 million
• Non-GAAP net income per share of $2.45 to $2.48, assuming approximately 161 million fully diluted shares outstanding

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

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 was effective beginning in fiscal year 2024. Based on the carrying amount of these assets as of July 31, 2023, the impact for the three months ended October 31, 2023 was approximately a 60 basis point benefit to our gross margin.

Guidance for non-GAAP income from operations excludes stock-based compensation expense and related employer payroll taxes, amortization of debt issuance costs, and amortization expense of acquired intangible assets. We have not reconciled our expectations of non-GAAP income from operations and non-GAAP net income per share to their most directly comparable GAAP measures because certain items are out of our control or cannot be reasonably predicted. For those reasons, we are also unable to address the probable significance of the unavailable information, the variability of which may have a significant impact on future results. Accordingly, a reconciliation for the guidance for non-GAAP income from operations and non-GAAP net income per share is not available without unreasonable effort.

For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the "Explanation of Non-GAAP Financial Measures" section of this press release.

Conference Call and Webcast Information

Zscaler will host a conference call for analysts and investors to discuss its first quarter of fiscal 2024 and outlook for its second quarter of fiscal 2024 and full year fiscal 2024 today at 1:30 p.m. Pacific time (4:30 p.m. Eastern time).

Date:	Monday, November 27, 2023
Time:	1:30 p.m. PT
Webcast:	https://ir.zscaler.com
Dial-in:	To join by phone, register at the following link: (https://register.vevent.com/register/BI3a027a348d7c4302bd3280cc21737d33). After registering, you will be provided with a dial-in number and a personal PIN that you will need to join the call.

Upcoming Conferences

Second quarter of fiscal 2024 investor conference participation schedule:

• UBS Global Technology Conference
  Tuesday, November 28, 2023

• Scotiabank Global Technology Conference
  Tuesday, December 5, 2023

• Barclays Global Technology Conference
  Wednesday, December 6, 2023

• Citadel Investor Conference
  Tuesday, December 12, 2023

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

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including, but not limited to, statements regarding our future financial and operating performance, including our financial outlook for the second quarter of fiscal 2024 and full year fiscal 2024. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including but not limited to: macroeconomic influences and instability, including the ongoing effects of inflation, geopolitical events, operations and financial results and the economy in general; risks related to the use of AI in our platform; the impact of a government default or shut-down; our limited operating history; our ability to identify and effectively implement the necessary changes to address execution challenges; risks associated with managing our rapid growth, including fluctuations from period to period; our limited experience with new products and subscriptions and support introductions and the risks associated with new products and subscription and support offerings, including the discovery of software bugs; our ability to attract and retain new customers; the failure to timely develop and achieve market acceptance of new products and subscriptions as well as existing products and subscription and support; rapidly evolving technological developments in the market for network security products and subscription and support offerings and our ability to remain competitive; length of sales cycles; useful lives of our assets and other estimates; and general market, political, economic and business conditions.

Additional risks and uncertainties that could affect our financial results are included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth from time to time in our filings and reports with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the fiscal year ended July 31, 2023 filed on September 14, 2023, as well as future filings and reports by us, copies of which are available on our website at ir.zscaler.com and on the SEC’s website at www.sec.gov. You should not rely on these forward-looking statements, as actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of such risks and uncertainties. Additional information will also be set forth in other filings that we make with the SEC from time to time. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

Use of Non-GAAP Financial Information

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

About Zscaler

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

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

Investor Relations Contacts

Bill Choi, CFA
SVP, Investor Relations and Strategic Finance
(408) 816-1478
ir@zscaler.com

Natalia Wodecki
Media Relations Contact
press@zscaler.com

ZSCALER, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
	Three Months Ended
	October 31,
		2023				2022
Revenue	$	496,703			$	355,548
Cost of revenue (1) (2)		111,394				76,697
Gross profit		385,309				278,851
Operating expenses:
Sales and marketing (1) (2)		267,111				228,836
Research and development (1) (2)		113,539				74,946
General and administrative (1)		50,716				44,156
Total operating expenses		431,366				347,938
Loss from operations		(46,057	)			(69,087	)
Interest income		25,942				7,865
Interest expense (3)		(3,159	)			(1,331	)
Other expense, net		(1,212	)			(863	)
Loss before income taxes		(24,486	)			(63,416	)
Provision for income taxes (4)		8,997				4,746
Net loss	$	(33,483	)		$	(68,162	)
Net loss per share, basic and diluted	$	(0.23	)		$	(0.48	)
Weighted-average shares used in computing net loss per share, basic and diluted		147,625				143,476

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

Cost of revenue	$	12,955			$	8,661
Sales and marketing		58,668				55,469
Research and development		41,043				25,233
General and administrative		20,063				19,273
Total	$	132,729			$	108,636

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

Cost of revenue	$	2,717			$	1,939
Sales and marketing		226				178
Research and development		93				435
Total	$	3,036			$	2,552

(3) Includes amortization of debt issuance costs as follows:

$

977

$

972

(4) Includes tax expense associated with the integration of a business acquisition as follows:

$

3,259

$

—

ZSCALER, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
	October 31,				July 31,
		2023				2023
Assets
Current assets:
Cash and cash equivalents	$	1,361,723			$	1,262,206
Short-term investments		962,681				838,026
Accounts receivable, net		366,843				582,636
Deferred contract acquisition costs		119,417				115,827
Prepaid expenses and other current assets		80,926				91,619
Total current assets		2,891,590				2,890,314
Property and equipment, net		265,592				242,355
Operating lease right-of-use assets		77,137				70,671
Deferred contract acquisition costs, noncurrent		253,386				259,407
Acquired intangible assets, net		25,623				25,859
Goodwill		92,415				89,192
Other noncurrent assets		29,841				30,519
Total assets	$	3,635,584			$	3,608,317
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	23,234			$	18,481
Accrued expenses and other current liabilities		70,950				64,975
Accrued compensation		97,568				136,800
Deferred revenue		1,244,528				1,281,143
Operating lease liabilities		38,138				34,469
Total current liabilities		1,474,418				1,535,868
Convertible senior notes, net		1,134,026				1,134,159
Deferred revenue, noncurrent		155,016				158,533
Operating lease liabilities, noncurrent		43,606				41,917
Other noncurrent liabilities		20,993				12,728
Total liabilities		2,828,059				2,883,205
Stockholders’ Equity
Common stock		148				147
Additional paid-in capital		1,949,189				1,816,915
Accumulated other comprehensive loss		(17,955	)			(1,576	)
Accumulated deficit		(1,123,857	)			(1,090,374	)
Total stockholders’ equity		807,525				725,112
Total liabilities and stockholders’ equity	$	3,635,584			$	3,608,317

ZSCALER, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
	Three Months Ended
	October 31,
		2023				2022
Cash Flows from Operating Activities
Net loss	$	(33,483	)		$	(68,162	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense		13,962				11,876
Amortization expense of acquired intangible assets		3,036				2,552
Amortization of deferred contract acquisition costs		30,111				22,325
Amortization of debt issuance costs		977				972
Non-cash operating lease costs		9,903				7,108
Stock-based compensation expense		129,138				105,173
Accretion of investments purchased at a discount		(3,199	)			(165	)
Unrealized losses on hedging transactions		1,564				1,185
Deferred income taxes		(43	)			65
Other		1,031				(937	)
Changes in operating assets and liabilities, net of effects of business combinations
Accounts receivable		215,082				130,636
Deferred contract acquisition costs		(27,680	)			(26,795	)
Prepaid expenses, other current and noncurrent assets		1,349				(7,579	)
Accounts payable		4,596				3,000
Accrued expenses, other current and noncurrent liabilities		4,859				3,627
Accrued compensation		(39,232	)			(32,797	)
Deferred revenue		(40,154	)			(15,340	)
Operating lease liabilities		(11,011	)			(8,287	)
Net cash provided by operating activities		260,806				128,457
Cash Flows from Investing Activities
Purchases of property, equipment and other assets		(28,659	)			(25,202	)
Capitalized internal-use software		(7,429	)			(7,641	)
Payments for business acquisitions, net of cash acquired		(4,377	)			—
Purchase of strategic investments		—				(700	)
Purchases of short-term investments		(375,929	)			(210,255	)
Proceeds from maturities of short-term investments		253,849				186,096
Net cash used in investing activities		(162,545	)			(57,702	)
Cash Flows from Financing Activities
Proceeds from issuance of common stock upon exercise of stock options		1,256				982
Other		—				(2	)
Net cash provided by financing activities		1,256				980
Net increase in cash and cash equivalents		99,517				71,735
Cash and cash equivalents at beginning of period		1,262,206				1,013,210
Cash and cash equivalents at end of period	$	1,361,723			$	1,084,945

ZSCALER, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except percentages)
(unaudited)
	Three Months Ended
	October 31,
		2023				2022
Revenue	$	496,703			$	355,548
Non-GAAP Gross Profit and Non-GAAP Gross Margin
GAAP gross profit	$	385,309			$	278,851
Add: Stock-based compensation expense and related payroll taxes		12,955				8,661
Add: Amortization expense of acquired intangible assets		2,717				1,939
Non-GAAP gross profit	$	400,981			$	289,451
GAAP gross margin		78	%			78	%
Non-GAAP gross margin		81	%			81	%
Non-GAAP Income from Operations and Non-GAAP Operating Margin
GAAP loss from operations	$	(46,057	)		$	(69,087	)
Add: Stock-based compensation expense and related payroll taxes		132,729				108,636
Add: Amortization expense of acquired intangible assets		3,036				2,552
Non-GAAP income from operations	$	89,708			$	42,101
GAAP operating margin		(9	)%			(19	)%
Non-GAAP operating margin		18	%			12	%

ZSCALER, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except per share amounts)
(unaudited)
	Three Months Ended
	October 31,
		2023				2022
Non-GAAP Net Income per Share, Diluted
GAAP net loss	$	(33,483	)		$	(68,162	)
Stock-based compensation expense and related payroll taxes		132,729				108,636
Amortization expense of acquired intangible assets		3,036				2,552
Amortization of debt issuance costs		977				972
Provision for income taxes (1)		3,259				—
Non-GAAP net income	$	106,518			$	43,998
Add: Non-GAAP interest expense related to the convertible senior notes		359				359
Numerator used in computing non-GAAP net income per share, diluted	$	106,877			$	44,357
GAAP net loss per share, diluted	$	(0.23	)		$	(0.48	)
Stock-based compensation expense and related payroll taxes		0.84				0.70
Amortization expense of acquired intangible assets		0.02				0.02
Amortization of debt issuance costs		0.01				0.01
Provision for income taxes (1)		0.02				—
Non-GAAP interest expense related to the convertible senior notes		—				—
Adjustment to total fully diluted earnings per share (2)		0.01				0.04
Non-GAAP net income per share, diluted	$	0.67			$	0.29
Weighted-average shares used in computing GAAP net loss per share, diluted		147,625				143,476
Add: Outstanding equity incentive awards		3,431				3,689
Add: Convertible senior notes		7,626				7,626
Less: Antidilutive impact of capped call transactions (3)		(177	)			(588	)
Weighted-average shares used in computing non-GAAP net income per share, diluted		158,505				154,203

___________

⁽¹⁾ We use our GAAP provision for income taxes for purposes of determining our non-GAAP income tax expense. The difference between our GAAP and non-GAAP provision for income taxes represents primarily the effects of stock-based compensation expense and income tax effects associated with business acquisitions. The income tax benefit related to stock-based compensation expense included in the GAAP provision for income taxes was not material for all periods presented. In the fiscal quarter ended October 31, 2023, we recognized a tax expense of $3.3 million associated with the integration of a business acquisition.

⁽²⁾ The sum of the fully diluted earnings per share impact of individual reconciling items may not total to fully diluted non-GAAP net income per share due to the weighted-average shares used in computing the GAAP net loss per share differs from the weighted-average shares used in computing the non-GAAP net income per share, and due to rounding of the individual reconciling items. The GAAP net loss per share calculation uses a lower share count as it excludes potentially dilutive shares, which are included in calculating the non-GAAP net income per share.

⁽³⁾ We exclude the in-the-money portion of the convertible senior notes for non-GAAP weighted-average diluted shares as they are covered by our capped call transactions. Our outstanding capped call transactions are antidilutive under GAAP but are expected to mitigate the dilutive effect of the convertible senior notes and therefore are included in the calculation of non-GAAP diluted shares outstanding.

ZSCALER, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except percentages)
(unaudited)
	Three Months Ended
	October 31,
		2023				2022
Calculated Billings
Revenue	$	496,703			$	355,548
Add: Total deferred revenue, end of period		1,399,544				1,005,713
Less: Total deferred revenue, beginning of period		(1,439,676	)			(1,021,123	)
Calculated billings	$	456,571			$	340,138
Free Cash Flow
Net cash provided by operating activities	$	260,806			$	128,457
Less: Purchases of property, equipment and other assets		(28,659	)			(25,202	)
Less: Capitalized internal-use software		(7,429	)			(7,641	)
Free cash flow	$	224,718			$	95,614
Free Cash Flow Margin
Net cash provided by operating activities, as a percentage of revenue		53	%			36	%
Less: Purchases of property, equipment and other assets, as a percentage of revenue		(6	)%			(7	)%
Less: Capitalized internal-use software, as a percentage of revenue		(2	)%			(2	)%
Free cash flow margin		45	%			27	%

ZSCALER, INC.
Explanation of Non-GAAP Financial Measures

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

Expenses Excluded from Non-GAAP Measures

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

Non-GAAP Financial Measures

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

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

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

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

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