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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 January 31, 2022
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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.001 Par ValueZSThe 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 filerýAccelerated filer
Non-accelerated filerSmaller 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 February 28, 2022, the number of shares of registrant’s common stock outstanding was 141,085,336.

ZSCALER, INC.
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Page No.
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION



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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:
the potential impact on our business of the ongoing COVID-19 pandemic;
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, 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;
our expectations regarding settlement of our Notes (defined below);
our ability to comply with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;
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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, 2021 filed with the Securities and Exchange Commission, or the SEC, on September 16, 2021.
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PART I. FINANCIAL INFORMATION
Item. 1 Financial Statements
ZSCALER, INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
(unaudited)
January 31, 2022July 31, 2021
Assets
Current assets:
Cash and cash equivalents$409,819 $275,898 
Short-term investments1,211,390 1,226,654 
Accounts receivable, net269,449 257,109 
Deferred contract acquisition costs69,025 57,373 
Prepaid expenses and other current assets29,482 31,269 
Total current assets1,989,165 1,848,303 
Property and equipment, net121,195 108,576 
Operating lease right-of-use assets42,837 44,339 
Deferred contract acquisition costs, noncurrent165,480 149,657 
Acquired intangible assets, net29,272 32,129 
Goodwill59,823 58,977 
Other noncurrent assets14,249 15,650 
Total assets$2,422,021 $2,257,631 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$13,499 $12,547 
Accrued expenses and other current liabilities31,096 22,908 
Accrued compensation83,863 93,622 
Deferred revenue687,919 571,286 
Operating lease liabilities19,665 19,842 
Total current liabilities836,042 720,205 
Convertible senior notes, net940,692 913,538 
Deferred revenue, noncurrent72,012 59,315 
Operating lease liabilities, noncurrent29,280 31,225 
Other noncurrent liabilities4,628 4,453 
Total liabilities1,882,654 1,728,736 
Commitments and contingencies (Note 10)
Stockholders’ Equity
Common stock; $0.001 par value; 1,000,000 shares authorized as of January 31, 2022 and July 31, 2021; 141,063 and 138,662 shares issued and outstanding as of January 31, 2022 and July 31, 2021, respectively
141 139 
Additional paid-in capital1,341,346 1,131,006 
Accumulated other comprehensive loss(9,299)(650)
Accumulated deficit(792,821)(601,600)
Total stockholders’ equity539,367 528,895 
Total liabilities and stockholders’ equity$2,422,021 $2,257,631 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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ZSCALER, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended January 31,Six Months Ended January 31,
2022202120222021
Revenue$255,563 $157,044 $486,080 $299,622 
Cost of revenue57,783 34,135 109,952 65,862 
Gross profit197,780 122,909 376,128 233,760 
Operating expenses:
Sales and marketing175,073 110,403 328,859 207,292 
Research and development69,195 41,751 134,411 77,521 
General and administrative37,444 24,653 71,161 45,512 
Total operating expenses281,712 176,807 534,431 330,325 
Loss from operations(83,932)(53,898)(158,303)(96,565)
Interest income557 755 1,030 1,695 
Interest expense(14,040)(13,245)(27,875)(26,294)
Other income (expense), net(844)518 (1,433)786 
Loss before income taxes(98,259)(65,870)(186,581)(120,378)
Provision for income taxes2,161 1,671 4,640 2,169 
Net loss$(100,420)$(67,541)$(191,221)$(122,547)
Net loss per share, basic and diluted $(0.71)$(0.50)$(1.37)$(0.91)
Weighted-average shares used in computing net loss per share, basic and diluted
140,515 135,024 139,901 134,238 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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ZSCALER, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
Three Months Ended January 31,Six Months Ended January 31,
2022202120222021
Net loss$(100,420)$(67,541)$(191,221)$(122,547)
Available-for-sale securities:
Change in net unrealized gains (losses) on available-for-sale securities(4,247)388 (5,411)(342)
Cash flow hedging instruments:
Change in net unrealized gains and (losses)(3,164)423 (4,469)423 
Net realized losses (gains) reclassified into net loss876 (72)1,231 (72)
Net change on cash flow hedges(2,288)351 (3,238)351 
Other comprehensive loss(6,535)739 (8,649)9 
Comprehensive loss$(106,955)$(66,802)$(199,870)$(122,538)

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

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ZSCALER, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)

Stockholders' equity activity for the three months ended January 31, 2022:
Common Stock Additional
Paid-In
Capital
Accumulated Other Comprehensive
Loss
Accumulated DeficitTotal
Stockholders’ Equity
SharesAmount
Balance as of October 31, 2021140,032 $140 $1,225,224 $(2,764)$(692,401)$530,199 
Issuance of common stock upon exercise of stock options277 — 2,227 — — 2,227 
Issuance of common stock under the employee stock purchase plan109 — 11,509 — — 11,509 
Vesting of restricted stock units and other stock issuances645 1 1,702 — — 1,703 
Stock-based compensation— — 100,684 — — 100,684 
Other comprehensive loss— — — (6,535)— (6,535)
Net loss— — — — (100,420)(100,420)
Balance as of January 31, 2022141,063 $141 $1,341,346 $(9,299)$(792,821)$539,367 
Stockholders' equity activity for the three months ended January 31, 2021:
Common Stock Additional
Paid-In
Capital
Accumulated Other Comprehensive Income
(Loss)
Accumulated DeficitTotal
Stockholders’ Equity
Shares Amount
Balance as of October 31, 2020134,163 $134 $886,815 $(267)$(394,577)$492,105 
Issuance of common stock upon exercise of stock options809 1 6,725 — — 6,726 
Issuance of common stock under the employee stock purchase plan131 — 8,563 — — 8,563 
Vesting of restricted stock units and other stock issuances755 1 (1)— —  
Vesting of early exercised common stock options— — 23 — — 23 
Stock-based compensation— — 62,089 — — 62,089 
Other comprehensive income— — — 739 — 739 
Net loss— — — — (67,541)(67,541)
Balance as of January 31, 2021135,858 $136 $964,214 $472 $(462,118)$502,704 
The accompanying notes are an integral part of these condensed consolidated financial statements.


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ZSCALER, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)


Stockholders' equity activity for the six months ended January 31, 2022:
Common Stock Additional
Paid-In
Capital
Accumulated Other Comprehensive
Loss
Accumulated DeficitTotal
Stockholders’ Equity
SharesAmount
Balance as of July 31, 2021138,662 $139 $1,131,006 $(650)$(601,600)$528,895 
Issuance of common stock upon exercise of stock options664 — 4,871 — — 4,871 
Issuance of common stock under the employee stock purchase plan109 — 11,509 — — 11,509 
Vesting of restricted stock units and other stock issuances1,628 2 1,701 — — 1,703 
Stock-based compensation— — 192,259 — — 192,259 
Other comprehensive loss— — — (8,649)— (8,649)
Net loss— — — — (191,221)(191,221)
Balance as of January 31, 2022141,063 $141 $1,341,346 $(9,299)$(792,821)$539,367 
Stockholders' equity activity for the six months ended January 31, 2021:
Common Stock Additional
Paid-In
Capital
Accumulated Other Comprehensive
Income
Accumulated DeficitTotal
Stockholders’ Equity
SharesAmount
Balance as of July 31, 2020132,817 $133 $823,804 $463 $(339,571)$484,829 
Issuance of common stock upon exercise of stock options1,499 2 11,243 — — 11,245 
Issuance of common stock under the employee stock purchase plan131 — 8,563 — — 8,563 
Vesting of restricted stock units and other stock issuances1,411 1 (1)— —  
Vesting of early exercised common stock options— — 93 — — 93 
Stock-based compensation— — 120,512 — — 120,512 
Other comprehensive income— — — 9 — 9 
Net loss— — — — (122,547)(122,547)
Balance as of January 31, 2021135,858 $136 $964,214 $472 $(462,118)$502,704 

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



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ZSCALER, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended January 31,
20222021
Cash Flows From Operating Activities
Net loss$(191,221)$(122,547)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense19,005 13,327 
Amortization expense of acquired intangible assets4,457 3,153 
Amortization of deferred contract acquisition costs31,038 18,123 
Amortization of debt discount and issuance costs27,156 25,572 
Non-cash operating lease costs12,411 9,500 
Stock-based compensation expense188,891 118,565 
Amortization of investment premiums, net of accretion of purchase discounts4,662 5,446 
Deferred income taxes(659)(981)
Impairment of assets 416 
Other295 59 
Changes in operating assets and liabilities, net of effects of business acquisitions
Accounts receivable(12,622)(24,681)
Deferred contract acquisition costs(58,513)(43,154)
Prepaid expenses, other current and noncurrent assets4,903 6,722 
Accounts payable(103)4,627 
Accrued expenses, other current and noncurrent liabilities5,029 1,733 
Accrued compensation(9,759)(1,583)
Deferred revenue129,594 78,884 
Operating lease liabilities(13,031)(9,245)
Net cash provided by operating activities141,533 83,936 
Cash Flows From Investing Activities
Purchases of property, equipment and other assets(20,442)(19,403)
Capitalized internal-use software(8,275)(4,272)
Payments for business acquisitions, net of cash acquired(380) 
Purchases of short-term investments(624,254)(419,638)
Proceeds from maturities of short-term investments629,411 283,815 
Proceeds from sale of short-term investments 11,500 
Net cash used in investing activities(23,940)(147,998)
Cash Flows From Financing Activities
Proceeds from issuance of common stock upon exercise of stock options4,871 11,245 
Proceeds from issuance of common stock under the employee stock purchase plan11,509 8,563 
Payment of deferred consideration related to business acquisitions(50)(2,250)
Other(2) 
Net cash provided by financing activities16,328 17,558 
Net increase (decrease) in cash and cash equivalents(1)
133,921 (46,504)
Cash and cash equivalents at beginning of period(1)
275,898 141,851 
Cash and cash equivalents at end of period(1)
$409,819 $95,347 
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes, net of tax refunds$3,777 $2,479 
Cash paid for interest expense$719 $743 
Non-Cash Activities
Operating lease right-of-use assets obtained in exchange for operating lease obligations, net of terminations$10,087 $18,652 
Net change in purchased equipment included in accounts payable and accrued expenses$513 $3,037 

(1) We did not hold restricted cash for any periods presented.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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 secures user-to-app, app-to-app, and machine-to-machine communications over any network and any location. 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 ("U.S. 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 U.S. 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, 2021 (the "Fiscal 2021 Form 10-K"), as filed with the SEC on September 16, 2021.
Interim Unaudited Condensed Consolidated Financial Statements
The accompanying condensed consolidated balance sheet as of July 31, 2021 was derived from the audited consolidated financial statements as of that date. The accompanying interim condensed consolidated financial statements, including the condensed consolidated balance sheet as of January 31, 2022, the condensed consolidated statements of operations for the three and six months ended January 31, 2022 and 2021, the condensed consolidated statements of comprehensive loss for the three and six months ended January 31, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three and six months ended January 31, 2022 and 2021 and the condensed consolidated statements of cash flows for the six months ended January 31, 2022 and 2021 are unaudited. The related financial data and the other financial information disclosed in the accompanying notes to these 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 six months ended January 31, 2022 are not necessarily indicative of the results to be expected for our fiscal year ending July 31, 2022 or for any other future fiscal year or interim period.
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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, 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 and effective interest rate of convertible senior notes, valuation of strategic investments 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 the COVID-19 pandemic, there is ongoing uncertainty and significant 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.
Fiscal Year
Our fiscal year ends on July 31. References to fiscal 2022, for example, refer to our fiscal year ending July 31, 2022.
Significant Accounting Policies
Our significant accounting policies are described in the Fiscal 2021 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 six months ended January 31, 2022.
Recently Adopted Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board ("FASB") issued ASU No. 2021-08, Business Combinations (Topic 805) on Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This standard requires contract assets and contract liabilities from contracts with customers that are acquired in a business combination to be recognized and measured as if the acquirer had originated the original contract. Previously, acquired contract assets and liabilities were measured at fair value. This standard is effective for us in the first quarter of fiscal 2024, though early adoption is permitted. We early adopted this standard in the first quarter of fiscal 2022 and it did not have a material impact to the condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2020, the FASB issued 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). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings per share computation. This standard is effective for us in the first quarter of fiscal 2023, using the fully retrospective or modified retrospective method, though early adoption is permitted. We are currently evaluating the potential impact of this standard on the condensed consolidated financial statements.
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Note 2. Revenue Recognition
Disaggregation of Revenue
Subscription and support revenue is recognized over time and accounted for approximately 97% of our revenue for the three and six months ended January 31, 2022 and 2021, 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 January 31,Six Months Ended January 31,
2022202120222021
Amount% RevenueAmount% RevenueAmount% RevenueAmount% Revenue
(in thousands, except per percentage data)
United States$125,419 49 %$77,541 49 %$238,832 49 %$147,700 49 %
Europe, Middle East and Africa 88,174 35 %59,442 38 %168,723 35 %114,647 38 %
Asia Pacific36,029 14 %16,697 11 %67,080 14 %30,977 11 %
Other5,941 2 %3,364 2 %11,445 2 %6,298 2 %
Total $255,563 100 %$157,044 100 %$486,080 100 %$299,622 100 %
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The following table summarizes the revenue from contracts by type of customer:
Three Months Ended January 31,Six Months Ended January 31,
2022202120222021
Amount% RevenueAmount% RevenueAmount% RevenueAmount% Revenue
(in thousands, except per percentage data)
Channel partners$238,947 93 %$147,341 94 %$454,550 94 %$280,781 94 %
Direct customers16,616 7 %9,703 6 %31,530 6 %18,841 6 %
Total $255,563 100 %$157,044 100 %$486,080 100 %$299,622 100 %
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 January 31, 2022 and July 31, 2021 was $759.9 million and $630.6 million, respectively. In the six months ended January 31, 2022 and 2021, we recognized revenue of $378.6 million and $228.9 million, respectively, that was included in the corresponding contract liability balance at the beginning of these periods.
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 January 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $1,948.9 million. We expect to recognize 50% of the transaction price over the next 12 months and 97% 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 internal 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.
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The activity of the deferred contract acquisition costs consisted of the following:
Three Months Ended January 31,Six Months Ended January 31,
2022202120222021
(in thousands)
Beginning balance
$216,103 $119,279 $207,030 $109,915 
Capitalization of contract acquisition costs
34,528 25,112 58,513 43,154 
Amortization of deferred contract acquisition costs
(16,126)(9,445)(31,038)(18,123)
Ending balance
$234,505 $134,946 $234,505 $134,946 
The outstanding balance of the deferred contract acquisition costs consisted of the following:
January 31, 2022July 31, 2021
(in thousands)
Deferred contract acquisition costs, current
$69,025 $57,373 
Deferred contract acquisition costs, noncurrent
165,480 149,657 
Total$234,505 $207,030 
Sales commissions accrued but not paid as of January 31, 2022 and July 31, 2021, totaled $20.6 million and $46.7 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 January 31, 2022:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses

Fair Value
Cash equivalents:(in thousands)
Money market funds$279,698 $ $ $279,698 
U.S. treasury securities22,499  (4)22,495 
Corporate debt securities5,000   5,000 
Total$307,197 $ $(4)$307,193 
Short-term investments:
U.S. treasury securities$397,461 $5 $(215)$397,251 
U.S. government agency securities435,453  (2,825)432,628 
Corporate debt securities383,791 3 (2,283)381,511 
Total$1,216,705 $8 $(5,323)$1,211,390 
Total cash equivalents and short-term investments$1,523,902 $8 $(5,327)$1,518,583 
Cash equivalents and short-term investments consisted of the following as of July 31, 2021:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses

Fair Value
Cash equivalents:(in thousands)
Money market funds$167,337 $ $ $167,337 
U.S. government agency securities10,999   10,999 
Total$178,336 $ $ $178,336 
Short-term investments:
U.S. treasury securities$387,428 $9 $(17)$387,420 
U.S. government agency securities511,622 144 (34)511,732 
Corporate debt securities327,512 102 (112)327,502 
Total$1,226,562 $255 $(163)$1,226,654 
Total cash equivalents and short-term investments$1,404,898 $255 $(163)$1,404,990 
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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 January 31, 2022:
Amortized
Cost
Fair Value
(in thousands)
Due within one year$861,066 $860,067 
Due between one to three years355,639 351,323 
Total$1,216,705 $1,211,390 
Short-term investments that were in an unrealized loss position as of January 31, 2022, consisted of the following:
Less than 12 MonthsGreater than 12 MonthsTotal
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(in thousands)
U.S. treasury securities$305,120 $(215)$ $ $305,120 $(215)
U.S. government agency securities354,525 (2,218)66,101 (607)420,626 (2,825)
Corporate debt securities273,345 (2,034)26,910 (249)300,255 (2,283)
Total$932,990 $(4,467)$93,011 $(856)$1,026,001 $(5,323)
Short-term investments that were in an unrealized loss position consisted of the following as of July 31, 2021, consisted of the following:
Less than 12 MonthsGreater than 12 Months