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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, 2023
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 filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
As of February 28, 2023, the number of shares of registrant’s common stock outstanding was 145,120,095.

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


Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding our financial outlook and market positioning. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. The words "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "intend," "could," "would," "project," "plan," "expect," and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.
These forward-looking statements include, but are not limited to, statements concerning the following:
•beliefs about the impact of macroeconomic influences and instability, including the ongoing effects of inflation, geopolitical events and the COVID-19 pandemic on our business;
•our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses (including changes in sales and marketing, research and development and general and administrative expenses), and our ability to achieve, and maintain, future profitability;
•market acceptance of our cloud platform;
•the effects of increased competition in our markets and our ability to compete effectively;
•our ability to maintain the security and availability of our cloud platform;
•our ability to maintain and expand our customer base, including by attracting new customers;
•our ability to develop new solutions, or enhancements to our existing solutions, 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 the Notes (defined in Note 8, Convertible Senior Notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q);
1
Table of Contents
•our ability to comply with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;
•beliefs about the impacts of legal and geopolitical developments upon our business;
•the attraction and retention of qualified employees and key personnel; and
•the future trading prices of our common stock.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in "Risk Factors" elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements and you should not place undue reliance on our forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
You should read this Quarterly Report on Form 10-Q in conjunction with the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended July 31, 2022 filed with the Securities and Exchange Commission, or the SEC, on September 15, 2022.
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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, 2023July 31, 2022
Assets
Current assets:
Cash and cash equivalents$1,257,012 $1,013,210 
Short-term investments648,332 718,129 
Accounts receivable, net358,614 399,745 
Deferred contract acquisition costs96,105 86,210 
Prepaid expenses and other current assets56,046 39,353 
Total current assets2,416,109 2,256,647 
Property and equipment, net200,468 160,633 
Operating lease right-of-use assets69,848 72,357 
Deferred contract acquisition costs, noncurrent219,046 210,792 
Acquired intangible assets, net26,716 31,819 
Goodwill78,547 78,547 
Other noncurrent assets29,222 21,870 
Total assets$3,039,956 $2,832,665 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$33,632 $26,154 
Accrued expenses and other current liabilities43,547 46,496 
Accrued compensation97,293 111,948 
Deferred revenue1,000,359 923,749 
Operating lease liabilities29,173 26,100 
Total current liabilities1,204,004 1,134,447 
Convertible senior notes, net1,140,516 968,674 
Deferred revenue, noncurrent111,521 97,374 
Operating lease liabilities, noncurrent46,233 50,948 
Other noncurrent liabilities9,025 7,922 
Total liabilities2,511,299 2,259,365 
Commitments and contingencies (Note 9)
Stockholders’ Equity
Common stock; $0.001 par value; 1,000,000 shares authorized as of January 31, 2023 and July 31, 2022; 145,087 and 143,038 shares issued and outstanding as of January 31, 2023 and July 31, 2022, respectively
145 143 
Additional paid-in capital1,547,203 1,590,885 
Accumulated other comprehensive loss(5,037)(25,850)
Accumulated deficit(1,013,654)(991,878)
Total stockholders’ equity528,657 573,300 
Total liabilities and stockholders’ equity$3,039,956 $2,832,665 
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,
2023202220232022
Revenue$387,598 $255,563 $743,146 $486,080 
Cost of revenue87,604 57,783 164,301 109,952 
Gross profit299,994 197,780 578,845 376,128 
Operating expenses:
Sales and marketing235,945 175,073 464,781 328,859 
Research and development85,765 69,195 160,711 134,411 
General and administrative43,522 37,444 87,678 71,161 
Total operating expenses365,232 281,712 713,170 534,431 
Loss from operations(65,238)(83,932)(134,325)(158,303)
Interest income12,669 557 20,534 1,030 
Interest expense(1,333)(14,040)(2,664)(27,875)
Other income (expense), net141 (844)(722)(1,433)
Loss before income taxes(53,761)(98,259)(117,177)(186,581)
Provision for income taxes3,692 2,161 8,438 4,640 
Net loss$(57,453)$(100,420)$(125,615)$(191,221)
Net loss per share, basic and diluted$(0.40)$(0.71)$(0.87)$(1.37)
Weighted-average shares used in computing net loss per share, basic and diluted144,511 140,515 144,001 139,901 

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,
2023202220232022
Net loss$(57,453)$(100,420)$(125,615)$(191,221)
Available-for-sale securities:
Change in net unrealized gains (losses) on available-for-sale securities4,501 (4,247)1,853 (5,411)
Cash flow hedging instruments:
Change in net unrealized gains (losses)24,019 (3,164)9,980 (4,469)
Net realized gains reclassified into net loss4,267 876 8,980 1,231 
Net change on cash flow hedges28,286 (2,288)18,960 (3,238)
Other comprehensive income (loss)32,787 (6,535)20,813 (8,649)
Comprehensive loss$(24,666)$(106,955)$(104,802)$(199,870)

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, 2023:
Common Stock Additional
Paid-In
Capital		Accumulated Other Comprehensive
Loss 		Accumulated DeficitTotal
Stockholders’ Equity
SharesAmount
Balance as of October 31, 2022144,210 $144 $1,425,156 $(37,824)$(956,201)$431,275 
Issuance of common stock upon exercise of stock options115 — 1,122 — — 1,122 
Issuance of common stock under the employee stock purchase plan115 — 11,410 — — 11,410 
Vesting of restricted stock units and other stock issuances647 1 (1)— — — 
Stock-based compensation— — 109,516 — — 109,516 
Other comprehensive income— — — 32,787 — 32,787 
Net loss— — — — (57,453)(57,453)
Balance as of January 31, 2023145,087 $145 $1,547,203 $(5,037)$(1,013,654)$528,657 
Stockholders' equity activity for the three months ended January 31, 2022:
Common Stock Additional
Paid-In
Capital		Accumulated Other Comprehensive LossAccumulated DeficitTotal
Stockholders’ Equity
Shares Amount
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 
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, 2023:
Common Stock Additional
Paid-In
Capital		Accumulated Other Comprehensive
Loss 		Accumulated DeficitTotal
Stockholders’ Equity
SharesAmount
Balance as of July 31, 2022143,038 $143 $1,590,885 $(25,850)$(991,878)$573,300 
Cumulative effect adjustment from adoption of ASU 2020-06 (Note 1)— — (273,738)— 103,839 (169,899)
Issuance of common stock upon exercise of stock options224 — 2,104 — — 2,104 
Issuance of common stock under the employee stock purchase plan115 — 11,410 — — 11,410 
Vesting of restricted stock units and other stock issuances1,710 2 (2)— — — 
Stock-based compensation— — 216,544 — — 216,544 
Other comprehensive income— — — 20,813 — 20,813 
Net loss— — — — (125,615)(125,615)
Balance as of January 31, 2023145,087 $145 $1,547,203 $(5,037)$(1,013,654)$528,657 
Stockholders' equity activity for the six months ended January 31, 2022:
Common Stock Additional
Paid-In
Capital		Accumulated Other Comprehensive LossAccumulated DeficitTotal
Stockholders’ Equity
Shares Amount
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 
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,
20232022
Cash Flows From Operating Activities
Net loss$(125,615)$(191,221)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense25,241 19,005 
Amortization expense of acquired intangible assets5,103 4,457 
Amortization of deferred contract acquisition costs46,053 31,038 
Amortization of debt discount and issuance costs1,945 27,156 
Non-cash operating lease costs14,988 12,411 
Stock-based compensation expense214,911 188,891 
Amortization (accretion) of investments purchased at a premium (discount)(1,433)4,662 
Deferred income taxes9 (659)
Other(1,480)295 
Changes in operating assets and liabilities, net of effects of business combinations
Accounts receivable40,800 (12,622)
Deferred contract acquisition costs(64,202)(58,513)
Prepaid expenses, other current and noncurrent assets(7,800)4,903 
Accounts payable5,228 (103)
Accrued expenses, other current and noncurrent liabilities5,899 5,029 
Accrued compensation(17,651)(9,759)
Deferred revenue90,862 129,594 
Operating lease liabilities(14,920)(13,031)
Net cash provided by operating activities217,938 141,533 
Cash Flows From Investing Activities
Purchases of property, equipment and other assets(43,883)(20,442)
Capitalized internal-use software(15,623)(8,275)
Payments for business acquisitions, net of cash acquired— (380)
Purchase of strategic investments(1,200)— 
Purchases of short-term investments(513,743)(624,254)
Proceeds from maturities of short-term investments586,801 629,411 
Net cash provided by (used in) investing activities12,352 (23,940)
Cash Flows From Financing Activities
Proceeds from issuance of common stock upon exercise of stock options2,104 4,871 
Proceeds from issuance of common stock under the employee stock purchase plan11,410 11,509 
Payment of deferred consideration related to business acquisitions— (50)
Other(2)(2)
Net cash provided by financing activities13,512 16,328 
Net increase in cash and cash equivalents (1)
243,802 133,921 
Cash and cash equivalents at beginning of period (1)
1,013,210 275,898 
Cash and cash equivalents at end of period (1)
$1,257,012 $409,819 
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes, net of tax refunds$3,008 $3,777 
Cash paid for interest expense$719 $719 
Non-Cash Activities
Operating lease right-of-use assets obtained in exchange for operating lease obligations, net of terminations$12,136 $10,087 
Net change in purchased equipment included in accounts payable and accrued expenses$2,839 $513 

(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 incorporates the security functionality needed to enable users, applications, and devices to safely and efficiently utilize authorized applications and services based on an organization’s business policies. We deliver our solutions using a software-as-a-service ("SaaS") business model and sell subscriptions to customers to access our cloud platform, together with related support services. We were incorporated in Delaware in September 2007 and conduct business worldwide, with presence in North America, Europe and Asia. Our headquarters are in San Jose, California.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("GAAP") and applicable regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting, and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the applicable required disclosures and regulations of the SEC. Therefore, these unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company's audited consolidated financial statements and related notes in its Annual Report on Form 10-K for the fiscal year ended July 31, 2022 (the "Fiscal 2022 Form 10-K"), as filed with the SEC on September 15, 2022.
Interim Unaudited Condensed Consolidated Financial Statements
The accompanying condensed consolidated balance sheet as of July 31, 2022 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, 2023, the condensed consolidated statements of operations for the three and six months ended January 31, 2023 and 2022, the condensed consolidated statements of comprehensive loss for the three and six months ended January 31, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three and six months ended January 31, 2023 and 2022 and the condensed consolidated statements of cash flows for the six months ended January 31, 2023 and 2022 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, 2023 are not necessarily indicative of the results to be expected for our fiscal year ending July 31, 2023 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, capitalized internal use software development 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 and the discount rate used for operating leases. Management determines these estimates and assumptions based on historical experience and on various other assumptions that are believed to be reasonable. Actual results could differ significantly from these estimates, and such differences may be material to the condensed consolidated financial statements.
Due to uncertainty in the macroeconomic environment, including effects of COVID-19 and inflation, there is ongoing disruption in the global economy and financial markets. We are not aware of any specific event or circumstances that would require an update to our estimates, judgments or assumptions or a revision to the carrying value of our assets or liabilities as of the date of issuance of these condensed consolidated financial statements. These estimates, judgments and assumptions may change in the future, as new events occur or additional information is obtained.
Fiscal Year
Our fiscal year ends on July 31. References to fiscal 2023, for example, refer to our fiscal year ending July 31, 2023.
Significant Accounting Policies
Our significant accounting policies are described in the Fiscal 2022 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, 2023 other than for the adoption of new accounting guidance related to convertible senior notes effective August 1, 2022, further described below.
Recently Adopted Accounting Pronouncements
In June 2020, the Financial Accounting Standard Board ("FASB") issued Accounting Standard Update ("ASU") No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) ("ASU 2020-06"). This standard removes the separation model for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. Such convertible debt will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The update also requires the if-converted method to be used for convertible instruments and the effect of potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares. We adopted this standard effective on August 1, 2022, the beginning of fiscal 2023, using the modified retrospective method. In accordance with the adoption of ASU 2020-06 and using the modified retrospective method, prior period amounts have not been adjusted. This standard resulted in our convertible senior notes being accounted for as a single unit of debt and we will no longer be required to record the conversion feature in equity. This further eliminated the need for amortization of the debt discount as interest expense and the portion of the issuance costs initially allocated to equity is now classified as debt and amortized as interest expense. As of August 1, 2022, the adoption of this new standard resulted in an increase of $169.9 million to the carrying amount of the convertible senior notes, a decrease of $273.7 million to additional paid-in capital and a cumulative-effect adjustment of $103.8 million to accumulated deficit. Prior to the adoption of this standard, we used the treasury stock method to calculate the potentially diluted effect of the convertible
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senior notes; however, upon adoption of this standard we are required to use the if-converted method. Accordingly, to account for the potentially diluted shares related to the senior convertible notes under a net income position, we are required to add back the interest expense to the net income and include approximately 7.63 million shares related to the senior convertible notes. Since we have reported net losses for all periods presented, the convertible senior notes were determined to be anti-dilutive and therefore had no impact to the diluted net loss per share for all periods presented.
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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 each of the three and six months ended January 31, 2023 and 2022, 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,
2023202220232022
Amount% RevenueAmount% RevenueAmount% RevenueAmount% Revenue
(in thousands, except per percentage data)
United States$193,508 50 %$125,419 49 %$369,023 50 %$238,832 49 %
Europe, Middle East and Africa 124,742 32 %88,174 35 %241,749 32 %168,723 35 %
Asia Pacific57,602 15 %36,029 14 %109,858 15 %67,080 14 %
Other11,746 3 %5,941 2 %22,516 3 %11,445 2 %
Total$387,598 100 %$255,563 100 %$743,146 100 %$486,080 100 %
The following table summarizes the revenue from contracts by type of customer:
Three Months Ended January 31,Six Months Ended January 31,
2023202220232022
Amount% RevenueAmount% RevenueAmount% RevenueAmount% Revenue
(in thousands, except per percentage data)
Channel partners$358,165 92 %$238,947 93 %$687,522 93 %$454,550 94 %
Direct customers29,433 8 %16,616 7 %55,624 7 %31,530 6 %
Total$387,598 100 %$255,563 100 %$743,146 100 %$486,080 100 %
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, 2023 and July 31, 2022 was $1,111.9 million and $1,021.1 million, respectively. In the six months ended January 31, 2023 and 2022, we recognized revenue of $603.8 million and $378.6 million, respectively, that was included in the corresponding contract liability balance at the beginning of these periods.



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Remaining Performance Obligations
The typical subscription and support term is one to three years. Most of our subscription and support contracts are non-cancelable over the contractual term. However, customers typically have the right to terminate their contracts for cause, if we fail to perform. As of January 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $2,809.2 million. We expect to recognize 51% of the transaction price over the next 12 months and 96% 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.
The activity of the deferred contract acquisition costs consisted of the following:
Three Months Ended January 31,Six Months Ended January 31,
2023202220232022
(in thousands)
Beginning balance
$301,472 $216,103 $297,002 $207,030 
Capitalization of contract acquisition costs37,407 34,528 64,202 58,513 
Amortization of deferred contract acquisition costs(23,728)(16,126)(46,053)(31,038)
Ending balance
$315,151 $234,505 $315,151 $234,505 
The outstanding balance of the deferred contract acquisition costs consisted of the following:
January 31, 2023July 31, 2022
(in thousands)
Deferred contract acquisition costs, current$96,105 $86,210 
Deferred contract acquisition costs, noncurrent219,046 210,792 
Total deferred contract acquisition costs$315,151 $297,002 
Sales commissions accrued but not paid as of January 31, 2023 and July 31, 2022, totaled $23.5 million and $47.2 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, 2023:
Amortized
Cost		Unrealized
Gains		Unrealized
Losses
Fair Value
Cash equivalents:(in thousands)
Money market funds$436,581 $— $— $436,581 
U.S. treasury securities26,933 — (2)26,931 
U.S. government agency securities369,324 — (79)369,245 
Corporate debt securities117,303 — — 117,303 
Total cash equivalents$950,141 $— $(81)$950,060 
Short-term investments:
U.S. treasury securities$31,533 $40 $— $31,573 
U.S. government agency securities276,278 — (6,471)269,807 
Corporate debt securities350,578 337 (3,963)346,952 
Total short-term investments$658,389 $377 $(10,434)$648,332 
Total cash equivalents and short-term investments$1,608,530 $377 $(10,515)$1,598,392 
Cash equivalents and short-term investments consisted of the following as of July 31, 2022:
Amortized
Cost		Unrealized
Gains		Unrealized
Losses
Fair Value
Cash equivalents:(in thousands)
Money market funds$247,613 $— $— $247,613 
U.S. treasury securities202,778 — (70)202,708 
U.S. government agency securities135,525 2 (38)135,489 
Corporate debt securities106,272 — — 106,272 
Total cash equivalents$692,188 $2 $(108)$692,082 
Short-term investments:
U.S. treasury securities$96,089 $10 $(251)$95,848 
U.S. government agency securities339,957 6 (6,628)333,335 
Corporate debt securities293,968 — (5,022)288,946 
Total short-term investments$730,014 $16 $(11,901)$718,129 
Total cash equivalents and short-term investments$1,422,202 $18 $(12,009)$1,410,211 
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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, 2023:
Amortized
Cost		Fair Value
(in thousands)
Due within one year$427,636 $423,153 
Due between one to three years230,753 225,179 
Total$