Company Quick10K Filing
Zscaler
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 124 $5,884
10-Q 2020-03-04 Quarter: 2020-01-31
10-Q 2019-12-06 Quarter: 2019-10-31
10-K 2019-09-18 Annual: 2019-07-31
10-Q 2019-06-05 Quarter: 2019-04-30
10-Q 2019-03-06 Quarter: 2019-01-31
10-Q 2018-12-06 Quarter: 2018-10-31
10-K 2018-09-13 Annual: 2018-07-31
10-Q 2018-06-07 Quarter: 2018-04-30
S-1 2018-02-16 Public Filing
8-K 2020-02-20 Earnings, Exhibits
8-K 2020-01-10 Shareholder Vote, Other Events, Exhibits
8-K 2019-12-03 Earnings, Exhibits
8-K 2019-09-12 Officers
8-K 2019-09-10 Earnings, Exhibits
8-K 2019-05-30 Earnings, Exhibits
8-K 2019-04-30 Enter Agreement, Off-BS Arrangement
8-K 2019-02-28 Earnings, Exhibits
8-K 2018-12-18 Shareholder Vote, Other Events
8-K 2018-12-04 Earnings, Exhibits
8-K 2018-10-05 Officers, Exhibits
8-K 2018-09-05 Earnings, Exhibits
8-K 2018-06-06 Earnings, Other Events, Exhibits
8-K 2018-04-30 Officers, Other Events, Exhibits
ZS 2020-01-31
Part I. Financial Information
Note 1. Business and Summary of Significant Accounting Policies
Note 2. Revenue Recognition
Note 3. Cash Equivalents and Short-Term Investments
Note 4. Fair Value Measurements
Note 5. Property and Equipment
Note 6. Goodwill and Acquired Intangible Assets
Note 7. Operating Leases
Note 8. Commitments and Contingencies
Note 9. Stock-Based Compensation
Note 10. Income Taxes
Note 11. Net Loss per Share Attributable To Common Stockholders
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 zsexhibit311q2fy2010q.htm
EX-31.2 zsexhibit312q2fy2010q.htm
EX-32.1 zsexhibit321q2fy2010q.htm

Zscaler Earnings 2020-01-31

ZS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
AZPN 8,385 1,022 628 618 558 271 342 8,326 90% 24.4 27%
PFPT 7,133 2,208 1,613 645 472 -102 -20 6,104 73% -303.7 -5%
ZS 5,993 636 322 333 266 -38 -37 5,924 80% -160.5 -6%
PEGA 5,353 917 388 891 581 -75 -67 5,240 65% -77.7 -8%
ZNGA 5,687 3,578 1,640 917 535 45 102 5,607 58% 55.1 1%
CACI 5,796 5,438 3,013 5,184 278 255 474 7,323 5% 15.4 5%
SAIC 4,960 4,700 3,320 6,031 539 160 380 6,741 9% 17.7 3%
CARG 3,758 369 132 557 524 41 46 3,726 94% 81.3 11%
PRSP 4,224 6,319 4,156 4,448 807 79 672 6,619 18% 9.8 1%
CLGX 3,715 4,138 3,206 1,740 0 32 234 5,340 0% 22.8 1%

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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, 2020
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)
110 Rose Orchard Way
San Jose, California 95134
(Former name, former address and former fiscal year, if changed since last report)
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, 2020, the number of shares of registrant’s common stock outstanding was 129,351,577.

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:
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;
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;
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.
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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, 2019 filed with the Securities and Exchange Commission, or the SEC, on September 18, 2019.

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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, 2020July 31, 2019
Assets
Current assets:
Cash and cash equivalents$76,534  $78,484  
Short-term investments308,380  286,162  
Accounts receivable, net94,784  93,341  
Deferred contract acquisition costs23,527  21,219  
Prepaid expenses and other current assets19,917  16,880  
Total current assets523,142  496,086  
Property and equipment, net52,355  41,046  
Operating lease right-of-use assets32,142  —  
Deferred contract acquisition costs, noncurrent50,523  48,566  
Acquired intangible assets, net7,287  8,708  
Goodwill7,479  7,479  
Other noncurrent assets3,497  2,277  
Total assets$676,425  $604,162  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$2,675  $6,208  
Accrued expenses and other current liabilities13,606  12,810  
Accrued compensation25,019  21,544  
Deferred revenue251,221  221,387  
Operating lease liabilities11,142  —  
Total current liabilities303,663  261,949  
Deferred revenue, noncurrent28,801  29,815  
Operating lease liabilities, noncurrent23,300  —  
Other noncurrent liabilities1,497  3,840  
Total liabilities357,261  295,604  
Commitments and contingencies (Note 8)
Stockholders’ Equity
Common stock; $0.001 par value; 1,000,000 shares authorized as of January 31, 2020 and July 31, 2019; 129,266 and 127,253 shares issued and outstanding as of January 31, 2020 and July 31, 2019, respectively
129  127  
Additional paid-in capital589,229  532,618  
Accumulated other comprehensive income491  268  
Accumulated deficit(270,685) (224,455) 
Total stockholders’ equity319,164  308,558  
Total liabilities and stockholders’ equity$676,425  $604,162  

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,
2020201920202019
Revenue$101,268  $74,302  $194,858  $137,600  
Cost of revenue20,238  15,271  39,796  27,370  
Gross profit81,030  59,031  155,062  110,230  
Operating expenses:
Sales and marketing61,621  38,756  121,032  75,301  
Research and development20,706  15,071  40,977  28,257  
General and administrative28,983  10,386  41,608  20,517  
Total operating expenses111,310  64,213  203,617  124,075  
Loss from operations(30,280) (5,182) (48,555) (13,845) 
Interest income1,855  1,924  3,877  3,514  
Other income (expense), net(13) 250  (42) 62  
Loss before income taxes(28,438) (3,008) (44,720) (10,269) 
Provision for income taxes716  547  1,510  874  
Net loss$(29,154) $(3,555) $(46,230) $(11,143) 
Net loss per share, basic and diluted
$(0.23) $(0.03) $(0.36) $(0.09) 
Weighted-average shares used in computing net loss per share, basic and diluted
128,408  122,741  127,978  121,664  

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,
2020201920202019
Net loss$(29,154) $(3,555) $(46,230) $(11,143) 
Other comprehensive income, net of tax:
Unrealized net gains on available-for-sale securities55  258  223  65  
Other comprehensive income 55  258  223  65  
Comprehensive loss$(29,099) $(3,297) $(46,007) $(11,078) 

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, 2020:
Common Stock Additional
Paid-In
Capital
Accumulated Other Comprehensive
Income (Loss)
Accumulated DeficitTotal
Stockholders’ Equity
Shares Amount  
Balance as of October 31, 2019127,926  $128  $555,019  $436  $(241,531) $314,052  
Issuance of common stock upon exercise of stock options675  1  3,698  —  —  3,699  
Issuance of common stock in connection with employee stock purchase plan284  —  5,334  —  —  5,334  
Vesting of restricted stock units381  —  —  —  —    
Vesting of early exercised common stock options—  —  131  —  —  131  
Stock-based compensation—  —  25,047  —  —  25,047  
Unrealized net gains on available-for-sale-securities—  —  —  55  —  55  
Net loss—  —  —  —  (29,154) (29,154) 
Balance as of January 31, 2020129,266  $129  $589,229  $491  $(270,685) $319,164  
Stockholders' equity activity for the three months ended January 31, 2019:
Common Stock Additional
Paid-In
Capital
Accumulated Other Comprehensive
Income (Loss)
Accumulated DeficitTotal
Stockholders’ Equity
Shares Amount  
Balance as of October 31, 2018122,106  $122  $455,761  $(317) $(203,388) $252,178  
Issuance of common stock upon exercise of stock options1,161  1  5,696  —  —  5,697  
Issuance of common stock under the employee stock purchase plan627  1  8,690  —  —  8,691  
Vesting of restricted stock units3  —  —  —  —    
Adjustment to initial public offering costs—  —  300  —  —  300  
Vesting of early exercised common stock options—  —  277  —  —  277  
Stock-based compensation—  —  13,227  —  —  13,227  
Unrealized net gains on available-for-sale-securities, net of tax—  —  —  258  —  258  
Net loss—  —  —  —  (3,555) (3,555) 
Balance as of January 31, 2019123,897  $124  $483,951  $(59) $(206,943) $277,073  

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, 2020:
Common StockAdditional
Paid-In
Capital
Notes
Receivable
From
Stockholders
Accumulated Other Comprehensive
Income (Loss)
Accumulated DeficitTotal
Stockholders’ Equity
SharesAmount
Balance as of July 31, 2019127,253  $127  $532,618  $  $268  $(224,455) $308,558  
Issuance of common stock upon exercise of stock options1,220  2  6,756  —  —  —  6,758  
Issuance of common stock under the employee stock purchase plan284  —  5,334  —  —  —  5,334  
Vesting of restricted stock units509  —  —  —  —  —    
Vesting of early exercised stock options—  —  262  —  —  —  262  
Stock-based compensation—  —  44,259  —  —  —  44,259  
Unrealized net gains on available-for-sale-securities—  —  —  —  223  —  223  
Net loss—  —  —  —  —  (46,230) (46,230) 
Balance as of January 31, 2020129,266  $129  $589,229  $  $491  $(270,685) $319,164  
Stockholders' equity activity for the six months ended January 31, 2019:
Common StockAdditional
Paid-In
Capital
Notes
Receivable
From
Stockholders
Accumulated Other Comprehensive
Income (Loss)
Accumulated DeficitTotal
Stockholders’ Equity
SharesAmount
Balance as of July 31, 2018119,764  $119  $438,392  $(2,051) $(124) $(196,100) $240,236  
Cumulative effect of accounting change—  —  (300) —  —  300    
Issuance of common stock upon exercise of stock options3,511  4  15,489  —  —  —  15,493  
Issuance of common stock under the employee stock purchase plan627  1  8,690  —  —  —  8,691  
Vesting of restricted stock units3  —  —  —  —  —    
Repurchases of unvested common stock(8) —  —  —  —  —    
Repayments of principal amount on notes receivable from stockholders—  —  —  1,905  —  —  1,905  
Accrued interest on notes receivable from stockholders, net of repayments—  —  —  146  —  —  146  
Adjustment to initial public offering costs—  —  300  —  —  —  300  
Vesting of early exercised stock options—  —  567  —  —  —  567  
Stock-based compensation—  —  20,813  —  —  —  20,813  
Unrealized net gains on available-for-sale-securities, net of tax—  —  —  —  65  —  65  
Net loss—  —  —  —  —  (11,143) (11,143) 
Balance as of January 31, 2019123,897  $124  $483,951  $  $(59) $(206,943) $277,073  

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,
20202019
Cash Flows From Operating Activities
Net loss$(46,230) $(11,143) 
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense7,508  4,662  
Amortization expense of acquired intangible assets1,421  239  
Amortization of deferred contract acquisition costs11,425  8,781  
Noncash operating lease costs6,215  —  
Stock-based compensation expense42,242  20,813  
Accretion of purchased discounts, net of amortization of investment premiums(442) (1,125) 
Impairment of assets316    
Other248  202  
Changes in operating assets and liabilities:
Accounts receivable(1,432) (13,859) 
Deferred contract acquisition costs(15,690) (13,472) 
Prepaid expenses, other current and noncurrent assets(3,981) (2,778) 
Accounts payable(603) (786) 
Accrued expenses, other current and noncurrent liabilities(1,243) 1,042  
Accrued compensation3,475  (7,852) 
Deferred revenue28,820  41,997  
Operating lease liabilities(5,189) —  
Net cash provided by operating activities26,860  26,721  
Cash Flows From Investing Activities
Purchases of property, equipment and other assets(15,099) (8,607) 
Capitalized internal-use software(4,273) (903) 
Acquired intangible assets  (1,480) 
Purchases of short-term investments(147,543) (179,896) 
Proceeds from maturities of short-term investments126,013  71,603  
Net cash used in investing activities(40,902) (119,283) 
Cash Flows From Financing Activities
Payments of offering costs related to initial public offering  (1,797) 
Proceeds from issuance of common stock upon exercise of stock options6,758  15,493  
Proceeds from issuance of common stock under the employee stock purchase plan5,334  8,691  
Repurchases of unvested common stock  (22) 
Repayments of notes receivable from stockholders  1,905  
Net cash provided by financing activities12,092  24,270  
Net decrease in cash, cash equivalents and restricted cash(1,950) (68,292) 
Cash, cash equivalents and restricted cash at beginning of period78,484  136,147  
Cash, cash equivalents and restricted cash at end of period$76,534  $67,855  
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes, net of tax refunds$1,473  $1,121  
Noncash activities
Net change in purchased equipment included in accounts payable and accrued expenses$(1,785) $1,544  
Operating lease right-of-use assets obtained in exchange for operating lease obligations, net of terminations$20,905  $—  
Vesting of early exercised common stock options$262  $567  
Net change in deferred offering costs accrued$  $(2,097) 
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets:
Cash and cash equivalents$76,534  $67,467  
Restricted cash, current  96  
Restricted cash, non-current  292  
Total cash, cash equivalents and restricted cash$76,534  $67,855  
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 users to safely utilize authorized applications and services based on an organization’s policies. Our solution is a purpose-built, multi-tenant, distributed cloud security platform that secures access for users and devices to applications and services, regardless of 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 footnotes 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, 2019 (the "Fiscal 2019 Form 10-K"), as filed with the SEC on September 18, 2019.
JOBS Act Extended Transition Period
As a result of the market value of our common stock held by our non-affiliates as of January 31, 2019, we ceased to be an "emerging growth company" ("EGC"), as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), with our transition to a large accelerated filer status as of July 31, 2019. As an EGC, we elected not to avail ourselves of the extended transition periods available for complying with new or revised accounting pronouncements applicable to public companies that are not emerging growth companies. Accordingly, the transition to a large accelerated filer did not have an impact to our consolidated financial statements.
Interim Unaudited Condensed Consolidated Financial Statements
The accompanying condensed consolidated balance sheet as of July 31, 2019 was derived from the audited financial statements as of that date. The accompanying interim condensed consolidated financial statements, including the consolidated balance sheets as of January 31, 2020, the consolidated statements of operations for the three and six months ended January 31, 2020 and 2019, the consolidated statements of comprehensive loss for the three and six months ended January 31, 2020 and 2019, the consolidated statements of stockholders’ equity for the three and six months ended January 31, 2020 and 2019 and the consolidated statements of cash flows for the six months ended January 31, 2020 and 2019 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
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ended January 31, 2020 are not necessarily indicative of the results to be expected for our fiscal year ending July 31, 2020 or for any other future fiscal year or interim period.
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, the 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, loss contingencies related to litigation, valuation of deferred tax assets 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.
Fiscal Year
Our fiscal year ends on July 31. References to fiscal 2020, for example, refer to our fiscal year ending July 31, 2020.
Significant Accounting Policies
Our significant accounting policies are described in the Fiscal 2019 Form 10-K. There have been no significant changes to these policies that have had a material impact on our condensed consolidated financial statements and related notes for the three and six months ended January 31, 2020 other than for the adoption of new accounting guidance related to leases effective August 1, 2019 further described below.
Operating Leases
We enter into operating lease arrangements for real estate assets related to office space and co-location assets related to space and racks at data center facilities. We determine if an arrangement contains a lease at its inception by assessing whether there is an identified asset and whether the arrangement conveys the right to control the use of the identified asset in exchange for consideration. Operating leases related balances are included in "operating lease right-of-use assets," "operating lease liabilities," and "operating lease liabilities, noncurrent" in our condensed consolidated balance sheets. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make payments arising from the lease. Operating lease right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease payments consist of the fixed payments under the arrangement, less any lease incentives, such as tenant improvement allowances. Variable costs, such as maintenance and utilities based on actual usage, are not included in the measurement of right-to-use assets and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs. As the implicit rate of our leases is not determinable, we use an incremental borrowing rate ("IBR") based on the information available at the lease commencement date in determining the present value of lease payments. The lease expense is recognized on a straight-line basis over the lease term.
We generally use the base, non-cancelable lease term when recognizing the right-of-use assets and lease liabilities, unless it is reasonably certain that a renewal or termination option will be exercised. We account for lease components and non-lease components as a single lease component.
Leases with a term of twelve months or less are not recognized on the consolidated balance sheets. We recognize lease expense for these leases on a straight-line basis over the term of the lease.
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Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), as amended, which requires recognition of lease assets and liabilities for leases with terms of more than 12 months. This standard is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted this standard effective August 1, 2019 using the transitional provision which allows for the adoption of Topic 842 to be applied prospectively at the beginning of the fiscal year of adoption. As such, the condensed consolidated balance sheets for prior periods are not comparable to our fiscal 2020 periods. The adoption of this new standard resulted in the recognition of operating lease right-of-use assets of $16.9 million and operating lease liabilities of $18.0 million. We have elected the package of practical expedients permitted under the transition guidance, which allows us to carryforward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that existed prior to adoption of the new standard. We have also elected to combine lease and non-lease components for real estate and co-location arrangements. In addition, we elected not to recognize lease liabilities and related right-of-use assets for leases that, at the lease commencement date, have a lease term of 12 months or less.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) ("ASU 2019-12"): Simplifying the Accounting for Income Taxes. The new standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. For public business entities, it is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. We early adopted this standard as of November 1, 2019, and it did not have a material impact to our consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities to require that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statements of operations. For public business entities, it is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the potential impact of this standard on our consolidated financial statements.
Note 2. Revenue Recognition
Disaggregation of Revenue
Subscription and support revenue is recognized over time and accounted for approximately 98% and 97% of our revenue for the three months ended January 31, 2020 and 2019, respectively, and approximately 98% of our revenue for the six months ended January 31, 2020 and 2019.
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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,
2020201920202019
Amount% Revenue