Zscaler, Inc.ZS
Zscaler, Inc. Stock Compensation Disclosure
Stock-Based Compensation
Equity Incentive Plan
Equity incentive awards which may be granted to eligible participants under our Amended and Restated FY2018 Equity Incentive Plan (the "2018 Plan") include restricted stock units, restricted stock, stock options, nonstatutory stock options, stock appreciation rights, performance units and performance shares.
As of July 31, 2025, a total of 60.8 million shares of common stock have been reserved for the issuance of equity awards under the 2018 Plan, of which 35.8 million shares remained available for grant. The number of shares of common stock available for issuance under the 2018 Plan also includes an annual increase on the first day of each fiscal year through August 1, 2027, pursuant to its automatic annual increase provision.
Stock Options
The activity of stock options for fiscal 2025 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, 2024 | 453 | $46.72 | 2.5 | $ | 60,923 | |||||||||||||||||||||
| Granted | 100 | $250.32 | ||||||||||||||||||||||||
| Exercised | (352) | $10.17 | $ | 65,225 | ||||||||||||||||||||||
| Canceled, forfeited or expired | (24) | $152.99 | ||||||||||||||||||||||||
| Balance as of July 31, 2025 | 177 | $220.95 | 7.8 | $ | 11,854 | |||||||||||||||||||||
| Exercisable and expected to vest as of July 31, 2024 | 367 | $15.84 | 1.0 | $ | 59,989 | |||||||||||||||||||||
| Exercisable and expected to vest as of July 31, 2025 | 47 | $172.65 | 3.8 | $ | 5,304 | |||||||||||||||||||||
The weighted-average grant-date fair value per share of stock options granted was $144.58, $117.41 and $88.97 during fiscal 2025, fiscal 2024 and fiscal 2023 respectively.
The total grant-date fair value of stock options vested was $3.6 million, $1.4 million and $1.5 million during fiscal 2025, fiscal 2024 and fiscal 2023, respectively. The total intrinsic value of options exercised was $65.2 million, $157.8 million and $56.5 million, during fiscal 2025, fiscal 2024 and fiscal 2023, respectively.
We estimate the fair value of stock options using the Black-Scholes option pricing model with the following assumptions:
| Year Ended July 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Expected term (in years) | 6.0 - 6.1 | 6.0 | 6.1 | |||||||||||||||||
| Expected stock price volatility | 57.0% - 57.7% | 59.5% | 58.2% | |||||||||||||||||
| Risk-free interest rate | 4.1% | 4.2% | 3.9% | |||||||||||||||||
| Dividend yield | 0.0% | 0.0% | 0.0% | |||||||||||||||||
The expected term was estimated using the simplified method. The expected volatility was determined using a weighted-average of the historical volatility of our common stock and peer volatility. Peer volatility was calculated as the average of historical volatilities of selected industry peers corresponding to the expected term of the awards. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock-based award. Our expected dividend yield is zero, as we have not and do not currently intend to declare dividends in the foreseeable future.
Restricted Stock Units and Performance Stock Awards
The 2018 Plan allows for the grant of RSUs and PSAs. Generally, RSUs are subject to a four-year vesting period.
The right to earn PSAs is subject to the achievement of the defined and approved performance metrics and continuous employment service. The performance metrics are defined and approved by the compensation committee of our board of directors or by our senior management for certain types of awards. Generally, earned PSAs are subject to additional time-based vesting.
As of July 31, 2025, there were 0.1 million outstanding PSAs with performance metrics that have not been defined and/or approved. As of July 31, 2025, these awards are not considered granted for accounting purposes and accordingly, have been excluded from the table below.
The activity of RSUs and PSAs consisted of the following for fiscal 2025:
| Underlying Shares | Weighted-Average Grant Date Fair Value | Aggregate Intrinsic Value | |||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||
| Balance as of July 31, 2024 | 9,814 | $162.41 | $ | 1,760,079 | |||||||||||||
| Granted | 5,151 | $190.70 | |||||||||||||||
| Vested | (3,631) | $165.41 | $ | 807,998 | |||||||||||||
| Canceled or forfeited | (1,890) | $168.06 | |||||||||||||||
| Balance as of July 31, 2025 | 9,444 | $175.55 | $ | 2,697,026 | |||||||||||||
The aggregate fair value, as of the respective vesting dates, of RSUs and PSAs vested was $808.0 million, $684.4 million and $462.3 million, during fiscal 2025, fiscal 2024 and fiscal 2023, respectively.
Employee Stock Purchase Plan
In fiscal 2018, we adopted the Fiscal Year 2018 Employee Stock Purchase Plan (the "ESPP"). Through July 31, 2025, a total of 11.8 million shares of common stock have been reserved for issuance under the ESPP, out of which 7.3 million shares were available for future grant as of July 31, 2025. The number of shares reserved includes an annual increase on the first day of each fiscal year pursuant to the ESPP's automatic annual increase provision. The ESPP provides for consecutive offering periods that will typically have a duration of approximately 24 months in length and are comprised of four purchase periods of approximately six months in length. The offering periods are scheduled to start on the first trading day on or after June 15 and December 15 of each year. The ESPP contains a reset provision under which the offering period resets if the fair market value of our common stock on the purchase date is less than the fair market value on the first day of the offering period. During fiscal 2025, fiscal 2024 and fiscal 2023, employees purchased under the ESPP approximately 0.4 million, 0.5 million and 0.4 million shares of common stock, respectively, at an average purchase price of $146.31, $106.46 and $99.59, respectively, with cash proceeds of $63.6 million, $52.0 million and $42.3 million, respectively.
ESPP employee payroll contributions accrued as of July 31, 2025 and 2024, were $9.4 million and $8.8 million, respectively, and are included within accrued compensation in the consolidated balance sheets. Payroll contributions accrued
as of July 31, 2025 will be used to purchase shares at the end of the current ESPP purchase period ending on December 15, 2025. Payroll contributions ultimately used to purchase shares are reclassified to stockholders' equity on the purchase date.
In June 2024, one outstanding ESPP offering period was reset and automatically rolled over into a new ESPP offering period that started on June 17, 2024. The reset was accounted for as a modification, which resulted in an incremental stock-based compensation of $2.7 million, which will be recognized over the remaining term of the modified ESPP offering period of 18 months. In December 2022, certain outstanding ESPP offering periods were reset and automatically rolled over into a new ESPP offering period that started on December 15, 2022. The reset was accounted for as a modification, which resulted in an incremental stock-based compensation of $8.3 million, which was recognized over the remaining term of the modified ESPP offering periods, ranging from approximately 6 months to 18 months.
The fair value of the purchase rights offered under the ESPP was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:
| Year Ended July 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Expected term (in years) | 0.5 - 2.0 | 0.5 - 2.0 | 0.5 - 2.0 | ||||||||||||||
Expected stock price volatility | 43.6% - 47.6% | 42.5% - 64.8% | 58.1% - 75.9% | ||||||||||||||
Risk-free interest rate | 4.0% - 4.3% | 4.4% - 5.4% | 4.2% - 5.3% | ||||||||||||||
Dividend yield | 0.0% | 0.0% | 0.0% | ||||||||||||||
The expected term represents the term from the first day of the offering period to the purchase dates within each offering period. The expected volatility was based on the historical volatility of our common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock-based award. Our expected dividend yield is zero, as we have not and do not currently intend to declare dividends in the foreseeable future.
Departure of Certain Executives of the Company
In the fourth quarter of fiscal 2025, certain executives of the Company departed from their positions, including our former Chief Financial Officer. In connection with some of the departures, we modified certain equity incentive awards resulting in an incremental stock-based compensation expense of $11.7 million, of which $2.2 million and $9.5 million was recognized in research and development expenses and general and administrative expenses, respectively, in the consolidated statement of operations in fiscal 2025. Additionally, in connection with these departures, we recognized a reversal of stock-based compensation expense related to forfeited unvested equity incentive awards of $12.2 million, of which $4.2 million, $6.0 million and $2.0 million was recognized in sales and marketing expenses, research and development expenses and general and administrative expenses, respectively, in the consolidated statement of operations in fiscal 2025.
In February 2024, our Chief Operating Officer, who led sales activities, resigned from his position at the Company. In connection with his resignation, we recognized a reversal of stock-based compensation expense of $11.7 million associated with the cancellation of unvested incentive equity awards, which was recognized in sales and marketing expenses in the consolidated statement of operations in fiscal 2024.
In October 2022, our President, who led research and development activities, resigned from his position as President of the Company, but continued to serve as a member of our Board of Directors through January 2024. In connection with his resignation as President of the Company, we recognized a reversal of stock-based compensation expense of $9.9 million associated with the cancellation of unvested incentive equity awards, which was recognized in research and development expenses in the consolidated statement of operations in fiscal 2023.
Stock-based Compensation Expense
The components of stock-based compensation expense recognized in the consolidated statements of operations consisted of the following:
| Year Ended July 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
Cost of revenue | $ | 68,145 | $ | 50,820 | $ | 39,168 | |||||||||||
Sales and marketing | 248,570 | 219,096 | 216,413 | ||||||||||||||
Research and development | 249,919 | 180,554 | 118,123 | ||||||||||||||
General and administrative | 94,716 | 77,206 | 71,130 | ||||||||||||||
Total | $ | 661,350 | $ | 527,676 | $ | 444,834 | |||||||||||
As of July 31, 2025, the unrecognized stock-based compensation cost related to outstanding equity-based awards, including awards for which the service inception date has been met but the grant date has not been met, was $1,557.2 million, which we expect to be amortized over a weighted-average period of 2.5 years.
During fiscal 2025, fiscal 2024 and fiscal 2023, we capitalized stock-based compensation primarily associated with the development of software for internal-use of $44.0 million, $27.2 million and $17.2 million, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Sep 11, 2025 | Showing above |
| 2024 | Sep 12, 2024 | |
| 2023 | Sep 14, 2023 | |
| 2022 | Sep 15, 2022 | |
| 2021 | Sep 16, 2021 | |
| 2020 | Sep 17, 2020 | |
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.