Netskope Inc

The following table sets forth our results of operations for the periods presented:

(1) Includes stock-based compensation as follows:

The following table sets forth the components of our condensed consolidated statements of operations as a percentage of revenue for each of the periods presented:

Note: Certain figures may not sum due to rounding.

Comparison of the Three Months Ended October 31, 2025 and 2024

Revenue

Revenue increased by $45.6 million, or 33%, for the three months ended October 31, 2025 compared to the three months ended October 31, 2024. The increase in revenue was driven by an increase in customers and the growing demand for our products from existing customers. Approximately 48% of the increase was driven by the addition of new customers and approximately 52% of the increase was driven by expansion within our existing customers.

Cost of Revenue, Gross Profit, and Gross Margin

Cost of revenue increased by $30.8 million, or 66%, for the three months ended October 31, 2025 compared to the three months ended October 31, 2024. Employee-related compensation expense increased by $29.6 million due to $27.7 million of stock-based compensation expense and related payroll taxes we recognized as the liquidity-based vesting condition for certain stock-based awards was met upon our IPO. In addition, colocation and network transit expenses increased by $2.7 million which was partially offset by a $2.6 million decrease in amortization of intangible assets.

Gross profit increased by $14.9 million, or 16%, for the three months ended October 31, 2025 compared to the three months ended October 31, 2024, while gross margin decreased to 58% from 66%. The decrease in gross margin was primarily due to the significant increase in stock-based compensation expense recognized in connection with the IPO.

Sales and marketing expenses increased by $84.1 million, or 128%, for the three months ended October 31, 2025 compared to the three months ended October 31, 2024. Employee-related compensation expense increased by $74.9 million due to $68.4 million of stock-based compensation expense and related payroll taxes we recognized as the liquidity-based vesting condition for certain stock-based awards was met upon our IPO. In addition, marketing-related expenses and amortization of capitalized sales commissions increased by $3.4 million and $2.2 million, respectively.

Research and development expenses increased by $200.3 million, or 321%, for the three months ended October 31, 2025 compared to the three months ended October 31, 2024. Employee-related compensation expense increased by $195.6 million due to $186.0 million of stock-based compensation expense and related payroll taxes we recognized as the liquidity-based vesting condition for certain stock-based awards was met upon our IPO. In addition, outside services increased by $1.6 million.

General and administrative expenses increased by $123.6 million, or 709%, for the three months ended October 31, 2025 compared to the three months ended October 31, 2024. Employee-related compensation expense increased by $123.6 million due to $121.3 million of stock-based compensation expense and related payroll taxes we recognized as the liquidity-based vesting condition for certain stock-based awards was met upon our IPO. In addition, professional services increased by $1.4 million.

Loss on change in fair value of Convertible Notes decreased by $9.7 million, or 53%, for the three months ended October 31, 2025 compared to the three months ended October 31, 2024. The fair value of our convertible notes increased during the current quarter; however, the loss recognized in earnings was lower because a larger portion of the total fair value change was attributed to instrument-specific credit risk, which is recorded in other comprehensive income.

Other income, net increased by $4.7 million, or 660%, for the three months ended October 31, 2025 compared to the three months ended October 31, 2024. The increase was mainly due to a $4.9 million increase in interest income.

Provision for (Benefit from) Income Taxes

Provision for income taxes increased by $3.6 million, or 709%, for the three months ended October 31, 2025 compared to the three months ended October 31, 2024, primarily due to the tax benefit from the establishment of deferred tax liability as part of the acquisition of Dasera, Inc. in third quarter of fiscal 2025 and higher foreign tax liabilities in fiscal 2026 in our foreign jurisdictions due to increased expansion internationally.

Comparison of the Nine Months Ended October 31, 2025 and 2024

Revenue

Revenue increased by $122.9 million, or 32%, for the nine months ended October 31, 2025 compared to the nine months ended October 31, 2024. The increase in revenue was driven by an increase in customers and the growing demand for our products from existing customers. Approximately 36% of the increase was driven by the addition of new customers and approximately 64% of the increase was driven by expansion within our existing customers.

Cost of Revenue, Gross Profit, and Gross Margin

Cost of revenue increased by $32.1 million, or 23%, for the nine months ended October 31, 2025 compared to the nine months ended October 31, 2024. Employee-related compensation expense increased by $30.3 million due to $27.3 million of stock-based compensation expense and related payroll taxes we recognized as the liquidity-based vesting condition for certain stock-based awards was met upon our IPO. In addition, the colocation and network transit expenses increased by $5.8 million which partially offset by a $2.0 million decrease in amortization of intangible assets, a $1.7 million decrease in cloud infrastructure and software expenses, and a $1.7 million decrease in data center depreciation.

Gross profit increased by $90.8 million, or 37%, for the nine months ended October 31, 2025 compared to the nine months ended October 31, 2024, and gross margin increased to 66% from 64%, primarily due to faster revenue growth from new customer acquisition and expansion within our existing customer base, compared to slower cost of revenue growth from improved efficiencies managing our global data centers and cloud infrastructure operations.

Sales and marketing expenses increased by $79.9 million, or 37%, for the nine months ended October 31, 2025 compared to the nine months ended October 31, 2024. Employee-related compensation expense increased by $68.9 million due to $64.6 million of stock-based compensation expense and related payroll taxes we recognized as the liquidity-based vesting condition for certain stock-based awards was met upon our IPO. In addition, the amortization of capitalized sales commissions and marketing-related expenses increased by $5.3 million and $2.3 million, respectively.

Research and development expenses increased by $210.7 million, or 109%, for the nine months ended October 31, 2025 compared to the nine months ended October 31, 2024. Employee-related compensation expense increased by $200.6 million due to $181.9 million of stock-based compensation expense and related payroll taxes we recognized as the liquidity-based vesting condition for certain stock-based awards was met upon our IPO. In addition, outside services increased by $6.2 million.

General and administrative expenses increased by $124.0 million, or 234%, for the nine months ended October 31, 2025 compared to the nine months ended October 31, 2024, Employee-related compensation expense increased by $122.6 million due to $120.2 million of stock-based compensation expense and related payroll taxes we recognized as the liquidity-based vesting condition for certain stock-based awards was met upon our IPO. In addition, professional services increased by $3.1 million.

Loss on change in fair value of Convertible Notes increased by $22.6 million, or 36%, for the nine months ended October 31, 2025 compared to the nine months ended October 31, 2024. The increase was primarily due to an increase in fair value of our common stock, growth in the principal balance due to the payment-in-kind feature of the Convertible Notes, and an increase in probability of an IPO assumption used in the valuation model prior to the IPO.

Other income, net increased by $6.1 million, or 175%, for the nine months ended October 31, 2025 compared to the nine months ended October 31, 2024. The increase was mainly due to a $5.2 million increase in interest income.

Provision for Income Taxes

Provision for income taxes increased by $4.9 million, or 156%, for the nine months ended October 31, 2025 compared to the nine months ended October 31, 2024, primarily due to the tax benefit from the establishment of deferred tax liability as part of the acquisition of Dasera, Inc. in third quarter of fiscal 2025 and higher foreign tax liabilities in fiscal 2026 in our foreign jurisdictions due to increased expansion internationally.

Non-GAAP Financial Measures

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 business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. 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. 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 tolls for comparison.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

Non-GAAP gross profit and non-GAAP gross margin are defined as GAAP gross profit and GAAP gross margin, respectively, excluding stock-based compensation and related tax expense and amortization of acquired intangible assets. We believe these non-GAAP measures offer additional consistency and comparability with our historical financial performance, providing management and investors with more meaningful period-to-period comparisons. These metrics are designed to remove the impact of certain variables that can fluctuate for reasons unrelated to our underlying operating performance.

The following table provides a reconciliation of our non-GAAP gross profit to our gross profit and of our non-GAAP gross margin to our gross margin, for each of the periods presented:

We expect non-GAAP gross margin will increase over the long term through improved operational efficiencies, scale benefits, and technological advancements.

Non-GAAP Loss from Operations and Non-GAAP Operating Margin

Non-GAAP loss from operations and non-GAAP operating margin are defined as GAAP loss from operations and GAAP operating margin, respectively, excluding stock-based compensation expense and related taxes, transaction costs related to acquisitions, and amortization of acquired intangible assets. We believe these non-GAAP measures offer our management and investors additional consistency and comparability with our historical financial performance, enabling more meaningful period-to-period comparisons. These metrics are designed to remove the impact of certain variables that can fluctuate for reasons unrelated to our underlying operating performance.

The following table provides a reconciliation of our non-GAAP loss from operations to our loss from operations and of our non-GAAP operating margin to our operating margin, for each of the periods presented:

We expect non-GAAP operating margin to improve over the long term through continued operational efficiencies, scale benefits, and technological advancements.

Free Cash Flow and Free Cash Flow Margin

Free cash flow is defined as net cash used in operating activities less purchases of property and equipment and intangible assets and capitalized internal-use software. Free cash flow margin is determined by dividing free cash flow by revenue. We believe that free cash flow and free cash flow margin serve as valuable indicators of liquidity, providing management and investors with insights into the cash generated from our operations. After accounting for investments in property and equipment, intangible assets, and internal-use software, this cash is available for strategic initiatives, such as investing in our business and strengthening our financial position. Free cash flow does not represent the total change in our cash balance in any given period.

The following table summarizes our cash flows and provides a reconciliation of free cash flow to net cash provided by (used in) operating activities and of our free cash flow margin to our net cash provided by (used in) operating activities as a percentage of revenue for each of the periods presented:

We expect free cash flow and free cash flow margin to improve over the long term through continued operational efficiencies, scale benefits, and technological advancements.

Liquidity and Capital Resources

Prior to our IPO, we have financed operations primarily through private placements of our equity securities, issuance of convertible notes, and payments received from our customers.

In September 2025, we closed our IPO of our Class A common stock. We received aggregate proceeds of approximately $992.2 million after deducting underwriting discounts and commissions. As of October 31, 2025, our principal source of liquidity was available cash, cash equivalents, and marketable securities aggregating to $1.2 billion.

Since our inception, we have generated operating losses, as reflected in our accumulated deficit of $2.6 billion as of October 31, 2025. While we have historically incurred annual negative cash flows from operating activities since inception, we generated positive operating cash flow in the fourth quarter of fiscal 2025, first quarter of fiscal 2026, and third quarter of fiscal 2026. We anticipate continued improvement over the long term. Notwithstanding the foregoing, we may still incur operating losses and generate negative cash flows from operations in the future due to the investments we intend to continue to make in our business. As a result, we may require additional capital resources to execute strategic initiatives to grow our business.

We believe that our existing cash, cash equivalents, and marketable securities will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including but not limited to our obligation to repay any balance under our Convertible Notes, our revenue growth rate, timing of cash receipt and payments, and the timing and extent of spending to support strategic initiatives. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operating results, and financial condition.

Cash Flows

The following table shows a summary of our cash flows for the periods presented:

Operating Activities

Our primary source of cash provided by operations is revenue. Our primary use of cash in our operating activities include payments for employee-related compensation expenses, contract acquisition costs, outside services, and other corporate expenditures.

Net cash provided by operating activities was $20.0 million for the nine months ended October 31, 2025 as compared to the $116.8 million of net cash used in operating activities for the nine months ended October 31, 2024. The improvement in operating cash flows was primarily driven by a decrease in accounts receivable and increases in deferred revenue, accounts payable, and accrued compensation and benefits. These were partially offset by higher deferred contract acquisition cost and prepaid expenses and other current assets.

Investing Activities

Our primary use of cash for investing activities include purchases of property and equipment and marketable securities. Our primary source of cash provided by investing activities include sale and maturities of marketable securities.

Net cash used in investing activities was approximately $98.6 million for the nine months ended October 31, 2025 as compared to the $39.0 million of net cash provided by investing activities for the nine months ended October 31, 2024. The change was primarily due to purchase of marketable securities and property and equipment to support additional data center growth. These were partially offset by proceeds from the sale and maturity of marketable securities.

Financing Activities

Our primary source of cash provided by financing activities include proceeds from the issuance of common stock. Our primary use of cash for financing activities include payments for stock issuance costs, taxes related to the net share settlement of equity awards, and holdback payment related to business combination.

Net cash provided by financing activities was $897.3 million for the nine months ended October 31, 2025 as compared to the $97.1 million for the nine months ended October 31, 2024. The increase was primarily driven by the proceeds from our IPO and proceeds from the issuance of our common stock upon the exercise of stock options. These were partially offset by payments for deferred offering costs and taxes related to the net share settlement of equity awards.

Convertible Notes

In December 2022, we issued $401.0 million in aggregate principal amount of our 3.75% Convertible Senior PIK Toggle Notes due 2027 (as amended to extend the maturity date to 2028, the "2028 Notes") pursuant to an indenture, dated as of December 22, 2022, as supplemented by that certain First Supplemental Indenture, dated April 25, 2025 (as supplemented, the "2028 Notes Indenture"), between us and U.S. Bank Trust Company, National Association, as trustee (the "Trustee"). In September 2024, we issued $75.0 million in aggregate principal amount of our 3.00% Convertible Senior PIK Toggle Notes due 2029 (the "2029 Notes" and, together with the 2028 Notes, the "Convertible Notes"), pursuant to an indenture, dated as of September 30, 2024 (the "2029 Notes Indenture" and, together with the 2028 Notes Indenture, the "Indentures"), between us and the Trustee. The 2028 Notes accrue interest at a rate of 3.75% per annum and pursuant to the terms of the 2028 Notes Indenture, will mature on December 15, 2028 (the "2028 Note Maturity Date"), unless earlier repurchased, redeemed, or converted. The 2029 Notes accrue interest at a rate of 3.00% per annum and will mature on August 1, 2029 (the "2029 Note Maturity Date" and, together with the 2028 Note Maturity Date, each a "Maturity Date"), unless earlier repurchased, redeemed, or converted. Interest on the Convertible Notes is payable quarterly in arrears in cash or by increasing the principal amount thereof, at our election.

Our obligations under the Convertible Notes are guaranteed by each of our subsidiaries other than certain excluded subsidiaries. The Convertible Notes are senior, unsecured obligations and the guarantees are senior, unsecured obligations of our subsidiary guarantors.

The Convertible Notes are convertible at the option of the holders following the date that is nine calendar months after the IPO until the relevant Maturity Date, at a conversion price equal to 42.1046 shares of Class B common stock per $1,000 principal amount of the 2028 Notes (equal to a conversion price of approximately $23.75 per share), or 40.4858 shares of Class B common stock per $1,000 principal amount of 2029 Notes (equal to a conversion price of approximately $24.70 per share). The number of shares of Class B common stock that would be issuable upon conversion of the Convertible Notes are as follows (in thousands, except share amounts):

Holders of the Convertible Notes are also entitled to convert such Convertible Notes upon certain corporate transactions or if we call Convertible Notes for redemption following a change in tax law.

Pursuant to the terms of the Convertible Notes, we are required to offer to redeem the Convertible Notes upon the occurrence of certain change of control events, our liquidation or dissolution or, the delisting of our Class A common stock. We would be required to repurchase the Convertible Notes at a price equal to the greater of (i) a specified premium, which shall be in an amount equal to the excess of (x) 140% of the principal amount of such Convertible Notes on or before the second anniversary of the issue date of the Convertible Notes, (y) 155% of the principal amount of such Convertible Notes after the second anniversary but on or before the third anniversary of the issue date of the Convertible Notes, or (z) 170% of the principal amount of such Convertible Notes after the third anniversary of the issue date of the Convertible Notes and (ii) the principal amount thereof and all accrued and unpaid interest thereon.

So long as the holders of the 2028 Notes have made no prior repurchase demand, holders of the 2028 Notes can, during the period beginning 120 days prior to the 2028 Note Maturity Date (or earlier, if we so choose) and ending 91 days prior to the 2028 Note Maturity Date, submit a repurchase demand requiring us to offer to repurchase their 2028 Notes at a repurchase price equal to the principal amount of such 2028 Notes and an amount equal to a rate of return of 14.0% per annum, compounded quarterly. Holders of the 2029 Notes can require us to repurchase their 2029 Notes following the date that is the earlier of (i) September 30, 2028, and (ii) the third anniversary of the IPO, at a repurchase price equal to the principal amount of such 2029 Notes and an amount equal to a rate of return of 13.5% per annum, compounded quarterly.

The table below reflects the maximum amount potentially owed under the Convertible Notes, assuming that the Convertible Notes are held until the Maturity Date.

(1)Compounded quarterly.

On or after the one year anniversary of the completion of the IPO, we may redeem all or any portion of the Convertible Notes for cash at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if the price of our Class A common stock is at least 200% (or in the case of the 2028 Notes, beginning on December 15, 2027, at least 230%) of the then-applicable conversion price for each of at least twenty (20) trading days (whether or not consecutive) during the thirty (30) consecutive trading days prior to providing notice of such redemption. No sinking fund is provided for the Convertible Notes. So long as 10% of each series of Convertible Notes remain outstanding, we are restricted in the amount of indebtedness we may incur without the consent of holders of at least 55% of the then-outstanding aggregate principal amount of the relevant series of Convertible Notes. The Convertible Notes contain customary anti-dilution adjustments. Each indenture contains customary events of default, the occurrence of which would enable the Trustee or the holders of at least 25% in aggregate principal amount of such series of Convertible Notes to accelerate our obligations under such Convertible Notes.

Remaining Performance Obligations

Remaining performance obligations represents the amount of contracted future revenue that has not yet been recognized as of the end of each period, including both deferred revenue that has been invoiced and non-cancelable committed amounts that will be invoiced and recognized as revenue in future periods. As of October 31, 2025, the aggregate amount of the transaction price allocated to remaining performance obligations was $1.1 billion. We expect to recognize 56% of the remaining performance obligations over the next 12 months and the remainder thereafter.

Contractual Obligations and Commitments

As of October 31, 2025, our commitments consisted of (i) obligations under operating leases for offices and data centers on an undiscounted basis, of which $12.2 million is due within 12 months and $32.2 million is due thereafter, (ii) Convertible Note obligations, with an aggregate principal amount of $401 million, due in fiscal 2029 and an aggregate principal amount of $75 million due in fiscal 2030, and (iii) purchase obligations with various parties for products and services entered into in the normal course of business, of which $70.6 million is due within the next 12 months and $333.8 million is due thereafter.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements and the related notes thereto, which have been prepared in accordance with GAAP. In preparing the condensed consolidated financial statements, we apply accounting estimates that affect the reported amounts and related disclosures. Inherent in such policies are certain key assumptions and estimates made by management, which we believe best reflect our underlying business and economic conditions. Our estimates are based on historical experience and various other factors and assumptions that we believe are reasonable under the circumstances. We regularly re-evaluate our estimates used in the preparation of the condensed consolidated financial statements based on our latest assessment of the current and projected business and economic environment. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these estimates.

There have been no material changes to our critical accounting estimates as compared to those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Final Prospectus.

Recent Accounting Pronouncements

For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see Note 2 "Basis of Presentation and Summary of Significant Accounting Policies" in the notes to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for more information.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (the "JOBS Act"). The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.