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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 October 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 November 30, 2022, the number of shares of registrant’s common stock outstanding was 144,212,227.

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



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);
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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)
October 31, 2022July 31, 2022
Assets
Current assets:
Cash and cash equivalents$1,084,945 $1,013,210 
Short-term investments739,845 718,129 
Accounts receivable, net268,718 399,745 
Deferred contract acquisition costs90,004 86,210 
Prepaid expenses and other current assets49,849 39,353 
Total current assets2,233,361 2,256,647 
Property and equipment, net183,425 160,633 
Operating lease right-of-use assets76,199 72,357 
Deferred contract acquisition costs, noncurrent211,468 210,792 
Acquired intangible assets, net29,267 31,819 
Goodwill78,547 78,547 
Other noncurrent assets23,465 21,870 
Total assets$2,835,732 $2,832,665 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$29,717 $26,154 
Accrued expenses and other current liabilities60,229 46,496 
Accrued compensation79,587 111,948 
Deferred revenue913,104 923,749 
Operating lease liabilities28,646 26,100 
Total current liabilities1,111,283 1,134,447 
Convertible senior notes, net1,139,542 968,674 
Deferred revenue, noncurrent92,609 97,374 
Operating lease liabilities, noncurrent51,065 50,948 
Other noncurrent liabilities9,958 7,922 
Total liabilities2,404,457 2,259,365 
Commitments and contingencies (Note 9)
Stockholders’ Equity
Common stock; $0.001 par value; 1,000,000 shares authorized as of October 31, 2022 and July 31, 2022; 144,210 and 143,038 shares issued and outstanding as of October 31, 2022 and July 31, 2022, respectively
144 143 
Additional paid-in capital1,425,156 1,590,885 
Accumulated other comprehensive loss(37,824)(25,850)
Accumulated deficit(956,201)(991,878)
Total stockholders’ equity431,275 573,300 
Total liabilities and stockholders’ equity$2,835,732 $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 October 31,
20222021
Revenue$355,548 $230,517 
Cost of revenue76,697 52,169 
Gross profit278,851 178,348 
Operating expenses:
Sales and marketing228,836 153,786 
Research and development74,946 65,216 
General and administrative44,156 33,717 
Total operating expenses347,938 252,719 
Loss from operations(69,087)(74,371)
Interest income7,865 473 
Interest expense(1,331)(13,835)
Other expense, net(863)(589)
Loss before income taxes(63,416)(88,322)
Provision for income taxes4,746 2,479 
Net loss$(68,162)$(90,801)
Net loss per share, basic and diluted $(0.48)$(0.65)
Weighted-average shares used in computing net loss per share, basic and diluted
143,476 139,296 

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 October 31,
20222021
Net loss$(68,162)$(90,801)
Available-for-sale securities:
Change in net unrealized losses on available-for-sale securities(2,648)(1,164)
Cash flow hedging instruments:
Change in net unrealized losses(14,039)(1,304)
Net realized losses reclassified into net loss4,713 354 
Net change on cash flow hedges(9,326)(950)
Other comprehensive loss(11,974)(2,114)
Comprehensive loss$(80,136)$(92,915)

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

5

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

Stockholders' equity activity for the three months ended October 31, 2022:
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 options109 — 982 — — 982 
Vesting of restricted stock units and other stock issuances1,063 1 (1)— —  
Stock-based compensation— — 107,028 — — 107,028 
Other comprehensive loss— — — (11,974)— (11,974)
Net loss— — — — (68,162)(68,162)
Balance as of October 31, 2022144,210 $144 $1,425,156 $(37,824)$(956,201)$431,275 
Stockholders' equity activity for the three months ended October 31, 2021:
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 options387 — 2,644 — — 2,644 
Vesting of restricted stock units and other stock issuances983 1 (1)— —  
Stock-based compensation— — 91,575 — — 91,575 
Other comprehensive loss— — — (2,114)— (2,114)
Net loss— — — — (90,801)(90,801)
Balance as of October 31, 2021140,032 $140 $1,225,224 $(2,764)$(692,401)$530,199 
The accompanying notes are an integral part of these condensed consolidated financial statements.




6

ZSCALER, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended October 31,
20222021
Cash Flows From Operating Activities
Net loss$(68,162)$(90,801)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense11,876 9,017 
Amortization expense of acquired intangible assets2,552 2,226 
Amortization of deferred contract acquisition costs22,325 14,912 
Amortization of debt discount and issuance costs972 13,476 
Non-cash operating lease costs7,108 6,031 
Stock-based compensation expense105,173 89,903 
Amortization (accretion) of investments purchased at a premium (discount)(165)2,671 
Deferred income taxes65 (223)
Other248 (13)
Changes in operating assets and liabilities
Accounts receivable130,636 84,927 
Deferred contract acquisition costs(26,795)(23,985)
Prepaid expenses, other current and noncurrent assets(7,579)(4,126)
Accounts payable3,000 (1,088)
Accrued expenses, other current and noncurrent liabilities3,627 (192)
Accrued compensation(32,797)(20,955)
Deferred revenue(15,340)17,381 
Operating lease liabilities(8,287)(5,890)
Net cash provided by operating activities128,457 93,271 
Cash Flows From Investing Activities
Purchases of property, equipment and other assets(25,202)(6,454)
Capitalized internal-use software(7,641)(3,450)
Strategic investments(700) 
Purchases of short-term investments(210,255)(312,840)
Proceeds from maturities of short-term investments186,096 322,677 
Net cash used in investing activities(57,702)(67)
Cash Flows From Financing Activities
Proceeds from issuance of common stock upon exercise of stock options982 2,644 
Payment of deferred consideration related to business acquisitions (50)
Other(2) 
Net cash provided by financing activities980 2,594 
Net increase in cash and cash equivalents (1)
71,735 95,798 
Cash and cash equivalents at beginning of period (1)
1,013,210 275,898 
Cash and cash equivalents at end of period (1)
$1,084,945 $371,696 
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes, net of tax refunds$3,003 $2,479 
Non-Cash Activities
Operating lease right-of-use assets obtained in exchange for operating lease obligations, net of terminations$10,390 $5,426 
Net change in purchased equipment included in accounts payable and accrued expenses$1,592 $2,906 

(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 October 31, 2022, the condensed consolidated statements of operations for the three months ended October 31, 2022 and 2021, the condensed consolidated statements of comprehensive loss for the three months ended October 31, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three months ended October 31, 2022 and 2021 and the condensed consolidated statements of cash flows for the three months ended October 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 months ended October 31, 2022 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.
8

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 months ended October 31, 2022 other than for the adoption of new accounting guidance related to convertible debt 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 senior notes; however, upon adoption of this standard we are required to use the if-converted method. Accordingly, to
9

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 reported a net loss for the three months ended October 31, 2022, the convertible senior notes were determined to be anti-dilutive and therefore had no impact to the diluted net loss per share for the period.
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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 months ended October 31, 2022 and 2021.
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 October 31,
20222021
Amount% RevenueAmount% Revenue
(in thousands, except per percentage data)
United States$175,515 49 %$113,413 49 %
Europe, Middle East and Africa 116,993 33 %80,549 35 %
Asia Pacific52,270 15 %31,052 14 %
Other10,770 3 %5,503 2 %
Total $355,548 100 %$230,517 100 %
The following table summarizes the revenue from contracts by type of customer:
Three Months Ended October 31,
20222021
Amount% RevenueAmount% Revenue
(in thousands, except per percentage data)
Channel partners$329,357 93 %$215,073 93 %
Direct customers26,191 7 %15,444 7 %
Total $355,548 100 %$230,517 100 %
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 October 31, 2022 and July 31, 2022 was $1,005.7 million and $1,021.1 million, respectively. In the three months ended October 31, 2022 and 2021, we recognized revenue of $329.3 million and $206.4 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 October 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $2,682.0 million. We expect to recognize 50% 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 October 31,
20222021
(in thousands)
Beginning balance
$297,002 $207,030 
Capitalization of contract acquisition costs
26,795 23,985 
Amortization of deferred contract acquisition costs
(22,325)(14,912)
Ending balance
$301,472 $216,103 
The outstanding balance of the deferred contract acquisition costs consisted of the following:
October 31, 2022July 31, 2022
(in thousands)
Deferred contract acquisition costs, current
$90,004 $86,210 
Deferred contract acquisition costs, noncurrent
211,468 210,792 
Total deferred contract acquisition costs$301,472 $297,002 
Sales commissions accrued but not paid as of October 31, 2022 and July 31, 2022, totaled $21.0 million and $47.2 million, respectively, which are included within accrued compensation in the condensed consolidated balance sheets.




12

Note 3. Cash Equivalents and Short-Term Investments
Cash equivalents and short-term investments consisted of the following as of October 31, 2022:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses

Fair Value
Cash equivalents:(in thousands)
Money market funds$157,756 $ $ $157,756 
U.S. treasury securities133,029  (19)133,010 
U.S. government agency securities336,570  (126)336,444 
Corporate debt securities225,568  (1)225,567 
Total cash equivalents$852,923 $ $(146)$852,777 
Short-term investments:
U.S. treasury securities$174,577 $5 $(218)$174,364 
U.S. government agency securities320,065  (8,425)311,640 
Corporate debt securities259,696  (5,855)253,841 
Total short-term investments$754,338 $5 $(14,498)$739,845 
Total cash equivalents and short-term investments$1,607,261 $5 $(14,644)$1,592,622 
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 October 31, 2022:
Amortized
Cost
Fair Value
(in thousands)
Due within one year$560,556 $555,971 
Due between one to three years193,782 183,874 
Total$754,338 $739,845 
Short-term investments that were in an unrealized loss position as of October 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$149,458 $(116)$9,898 $(102)$159,356 $(218)
U.S. government agency securities120,505 (1,966)191,135 (6,459)311,640 (8,425)
Corporate debt securities60,270 (2,518)146,058 (3,337)206,328 (5,855)
Total$330,233 $(4,600)$347,091 $(9,898)$677,324 $(14,498)
Short-term investments that were in an unrealized loss position consisted of the following as of July 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$80,833 $(251)$ $ $80,833 $(251)
U.S. government agency securities230,670 (5,150)50,134 (1,478)280,804 (6,628)
Corporate debt securities155,968 (3,947)71,127 (1,075)227,095 (5,022)
Total $467,471 $(9,348)$121,261 $(2,553)$588,732 $(11,901)
We review the individual securities that have unrealized losses in our short-term investment portfolio on a regular basis. We evaluate, among others, whether we have the intention to sell any of these investments and whether it is not more likely than not that we will be required to sell any of them before recovery of the amortized cost basis. Neither of these criteria were met in any period presented. We additionally evaluate whether the decline in fair value of the corporate debt securities below its amortized cost basis is related to credit losses or other factors. Based on this evaluation, we determined that unrealized losses of the above securities were primarily attributable to changes in interest rates and non-credit related factors. Accordingly, we determined that an allowance for credit losses was unnecessary for our short-term investments as of October 31, 2022 and July 31, 2022.
We recorded $1.5 million and $1.3 million of accrued interest receivable within prepaid expenses and other current assets in the condensed consolidated balance sheets as of October 31, 2022 and July 31, 2022, respectively.
14

Strategic Investments
Our strategic investments consist primarily of non-marketable equity securities of privately held companies which do not have a readily determinable fair value. The carrying amount of our strategic investments was $5.8 million and $5.1 million as of October 31, 2022 and July 31, 2022 and is included within other noncurrent assets in the condensed consolidated balance sheets. There were no material events or circumstances impacting their carrying amount during the periods presented.    
Note 4. Fair Value Measurements
We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Our money market funds are classified within Level I due to the highly liquid nature of these assets and have quoted prices in active markets. Certain of our investments in available-for-sale securities (i.e., U.S. treasury securities, U.S. government agency securities and corporate debt securities), as well as our assets and liabilities arising from our foreign currency forward contracts, are classified within Level II. The fair value of our Level II financial assets and liabilities is determined by using inputs based on non-binding market consensus prices that are primarily corroborated by observable market data or quoted market prices for similar instruments, for substantially the full term of the financial assets and liabilities.
15

Assets and liabilities that are measured at fair value on a recurring basis consisted of the following as of October 31, 2022:    
Level ILevel IILevel III
Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Cash equivalents:(in thousands)
Money market funds$157,756 $157,756 $ $ 
U.S. treasury securities133,010  133,010  
U.S. government agency securities336,444  336,444  
Corporate debt securities225,567  225,567  
Total cash equivalents$852,777 $157,756 $695,021 $ 
Short-term investments:
U.S. treasury securities$174,364 $ $174,364 $ 
U.S. government agency securities311,640  311,640  
Corporate debt securities253,841  253,841  
Total short-term investments$739,845 $ $739,845 $ 
Total cash equivalents and short-term investments$1,592,622 $157,756 $1,434,866 $ 
Designated derivative instruments:
Foreign currency contracts assets-current (1)
$574 $ $574 $ 
Foreign currency contract assets-noncurrent (2)
$1,402 $ $1,402 $ 
Foreign currency contracts liabilities-current (3)
$20,207 $ $20,207 $ 
Foreign currency contracts liabilities-noncurrent (4)
$1,718 $ $1,718 $ 
Non-designated derivative instruments:
Foreign currency contracts assets-current (1)
$615 $ $615 $ 
Foreign currency contracts liabilities-current (3)
$4,232 $ $4,232 $ 
(1) Reported as prepaid expenses and other current assets in the condensed consolidated balance sheets.
(2) Reported as other noncurrent assets in the condensed consolidated balance sheets.
(3) Reported as accrued expenses and other current liabilities in the condensed consolidated balance sheets.
(4) Reported as other noncurrent liabilities in the condensed consolidated balance sheets.

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Assets that are measured at fair value on a recurring basis consisted of the following as of July 31, 2022:
Level ILevel IILevel III
Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Cash equivalents:(in thousands)
Money market funds$247,613 $247,613 $ $ 
U.S. treasury securities202,708  202,708  
U.S. government agency securities135,489  135,489  
Corporate debt securities106,272  106,272  
Total$692,082 $247,613 $444,469 $ 
Short-term investments:
U.S. treasury securities$95,848 $ $95,848 $ 
U.S. government agency securities333,335  333,335  
Corporate debt securities288,946  288,946  
Total$718,129 $ $718,129 $ 
Total cash equivalents and short-term investments$1,410,211 $247,613 $1,162,598 $ 
Designated derivative instruments:
Foreign currency contracts assets-current (1)
$178 $ $178 $ 
Foreign currency contract assets-noncurrent (2)
$17 $ $17 $ 
Foreign currency contracts liabilities-current (3)
$10,921 $ $10,921 $ 
Foreign currency contracts liabilities-noncurrent (4)
$588 $ $588 $ 
Non-designated derivative instruments:
Foreign currency contracts assets-current (1)
$452 $ $452 $ 
Foreign currency contracts liabilities-current (3)
$3,427 $ $3,427 $ 
(1) Reported as prepaid expenses and other current assets in the consolidated balance sheets.
(2) Reported as other noncurrent assets in the consolidated balance sheets.
(3) Reported as accrued expenses and other current liabilities in the consolidated balance sheets.
(4) Reported as other noncurrent liabilities in the consolidated balance sheets.
We did not have transfers between levels of the fair value hierarchy of assets measured at fair value during the periods presented.
Refer to Note 8, Convertible Senior Notes, for the carrying amount and estimated fair value of our convertible senior notes as of October 31, 2022 and July 31, 2022.
17

Note 5. Property and Equipment and Purchased Intangible Assets
Property and equipment consisted of the following:
October 31, 2022July 31, 2022
(in thousands)
Hosting equipment$214,698 $191,037