10q10k10q10k.net

What changed in Zscaler, Inc.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of Zscaler, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+456 added−496 removedSource: 10-K (2024-09-12) vs 10-K (2023-09-14)

Top changes in Zscaler, Inc.'s 2024 10-K

456 paragraphs added · 496 removed · 385 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

84 edited+32 added−12 removed59 unchanged
Biggest changeAdditional advanced classification techniques including exact data match, or EDM, Index Document Match, or IDM, and ML-based Optical Character Recognition, or OCR, functionalities, further identity sensitive data and enable our customers to populate their own custom databases scaling to billions of unique fields, and including structured and unstructured documents. 5 Table of Contents • Data Loss Prevention: Our data loss prevention, or DLP, technology enables enterprises to alert and/or block transmission or sharing of sensitive data across channels, including inline data in motion to external internet destinations and unmanaged endpoints, out-of-band in both SaaS and public cloud applications, and also on the endpoint by preventing printing or copying to local storage, including USB devices. • Cloud Access Security Brokerage: Our Cloud Access Security Broker, or CASB, functionality and cloud application controls enable enterprises to discover and granularly control user access to known and unknown cloud applications.
Biggest changeAdditional advanced classification techniques including exact data match, index document match and ML-based Optical Character Recognition functionalities, further identity sensitive data and enable our customers to populate their own custom databases scaling to billions of unique fields, including structured and unstructured documents. • Data Loss Prevention: Our data loss prevention, or DLP, technology enables enterprises to alert and/or block transmission or sharing of sensitive data across exfiltration channels.
Our Zero Trust Exchange eliminates the need for traditional on-premises security appliances that are difficult to maintain and require compromises between security, cost and user experience. Our purpose-built, multi-tenant, distributed cloud platform 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.
Our Zero Trust Exchange platform eliminates the need for traditional on-premises security appliances that are difficult to maintain and require compromises between security, cost and user experience. Our purpose-built, multi-tenant, distributed cloud platform 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.
As an integrated cloud security platform, customers can set policies by users and destinations to prevent patient-zero scenarios to analyze, hold and detonate suspicious files in the cloud sandbox before they are sent to a user. • Browser Isolation: Our cloud browser isolation functionality creates an isolated browsing session that enables users to access any webpage on the internet without downloading any of the web content served by the webpage onto a local device or the corporate network.
As an integrated cloud security platform, customers can set policies by users and destinations to prevent patient-zero scenarios and to analyze, hold and detonate suspicious files in the cloud sandbox before they are sent to a user. • Browser Isolation: Our cloud browser isolation functionality creates an isolated browsing session that enables users to access any webpage on the internet without downloading any of the web content served by the webpage onto a local device or the corporate network.
Enterprises can no longer collect performance metrics or indicators along the traditional network path as they could when they owned the network and the applications ran in their own data centers.
Enterprises can no longer collect performance metrics or indicators along the traditional network path as they could when they owned the network and applications ran in their own data centers.
Our cloud-native platform, the Zscaler Zero Trust Exchange, enables customers to secure and connect users, workloads and IoT/OT devices across three core products: • Zscaler for Users — leverages our comprehensive cloud platform to provide users secure, fast and reliable access to the internet including SaaS applications, via Zscaler Internet Access, or ZIA, and provides Zero Trust Network Access to internally hosted or managed applications via Zscaler Private Access, or ZPA, in each case, regardless of device, location or network and also regardless of whether the users are internal or external.
Our cloud-native platform, the Zscaler Zero Trust Exchange, enables customers to secure and connect users, workloads and IoT/OT devices across three core products: • Zscaler for Users — leverages our comprehensive cloud platform to provide users secure, fast and reliable access to the internet, including SaaS applications, via Zscaler Internet Access TM , or ZIA TM , and provides Zero Trust Network Access to internally hosted or managed applications via Zscaler Private Access TM , or ZPA TM , in each case, regardless of device, location or network and also regardless of whether the users are internal or external.
In addition to enabling secure access to the internet and internal applications, Zscaler Data Protection™ secures customers’ proprietary data that is traversing the public internet (data-in-motion) and data that is stored in the public cloud applications (data-at-rest). • Zscaler for Workloads – leverages Zscaler’s Zero Trust Exchange to secure workloads, whether in a public cloud or in private data centers, using our cloud-native zero trust access service to provide fast and secure app-to-internet (via ZIA) and app-to-app (via ZPA) connectivity across multi- and hybrid cloud environments.
In addition to enabling secure access to the internet and internal applications, our Zscaler Data Protection™ solution secures customers’ proprietary data that is traversing the public internet (data-in-motion) and data that is stored in the public cloud applications (data-at-rest). • Zscaler for Workloads – leverages Zscaler’s Zero Trust Exchange to secure workloads, whether in a public cloud or in private data centers, using our cloud-native zero trust access service to provide fast and secure app-to-internet (via ZIA) and app-to-app (via ZPA) connectivity across multi- and hybrid cloud environments.
Our cloud native, multitenant architecture is distributed across more than 150 data centers globally which brings security and business policy close to users and devices in 185 countries and provides fast, secure, and reliable access. Each day, we block over 150 million threats and perform over 250,000 unique security updates.
Our cloud native, multitenant architecture is distributed across more than 160 data centers globally which brings security and business policy close to users and devices in over 185 countries and provides fast, secure and reliable access. Each day, we block over 150 million threats and perform over 250,000 unique security updates.
Our unique ZPA technology not only provides secure access to applications, but also secures the applications themselves. We do this all while optimizing end-to-end user experience with Zscaler Digital Experience, or ZDX, which allows an organization to identify and isolate issues negatively impacting its users.
Our unique ZPA technology not only provides secure access to applications, but also secures the applications themselves. We do this all while optimizing end-to-end user experience with Zscaler Digital Experience TM , or ZDX TM , which allows an organization to identify and isolate issues negatively impacting its users.
Experience Management - Zscaler Digital Experience Zscaler Digital Experience is designed to measure end-to-end user experience across key business applications, providing an easy to understand digital experience score for each user, application and location within an enterprise. As users have become mobile and applications have moved to the cloud, traditional network performance monitoring tools have become increasingly irrelevant.
Experience Management - Zscaler Digital Experience ZDX is designed to measure end-to-end user experience across key business applications, providing an easy to understand digital experience score for each user, application and location within an enterprise. As users have become mobile and applications have moved to the cloud, traditional network performance monitoring tools have become increasingly irrelevant.
Organizations are increasingly relying on internet destinations for a range of business activities, adopting new external SaaS applications for critical business functions and moving their internally managed applications to the public cloud, Infrastructure as a Service, or IaaS, or Platform as a Service, or PaaS.
Organizations are increasingly relying on internet destinations for a range of business activities, adopting new external software as a service, or SaaS, applications for critical business functions and moving their internally managed applications to the public cloud, infrastructure as a service, or IaaS, or platform as a service, or PaaS.
In addition to base pay, employees may be eligible for annual bonuses that are tied to our financial performance and long-term equity incentives that vest subject to continued service. Certain employees may also need to achieve defined performance metrics for certain of their long-term incentives to vest.
In addition to base pay, employees may be eligible for annual bonuses that are tied to our financial performance and long-term equity incentives that vest subject to continued service. Certain employees may also need to achieve defined performance metrics for parts of their long-term incentives to vest.
Data is scanned in RAM only and then erased. Logs are continuously created in memory and forwarded to our logging module. • Z scaler Log Servers : Our technology is built into the Zscaler Enforcement Node to perform lossless compression of logs, enabling our platform to collect over 130 terabytes of unique raw log data every day.
Data is scanned in RAM only and then erased. Logs are continuously created in memory and forwarded to our logging module. • Zscaler Log Servers: Our technology is built into the Zscaler Enforcement Node to perform lossless compression of logs, enabling our platform to collect over 130 terabytes of unique raw log data every day.
We complement and interoperate with key technology and cloud vendors across major market segments, including identity and access management, or IAM, device and endpoint management, as well as SIEM for reporting and analytics. Many of these vendors, like us, were developed in the cloud and together provide a foundation for a modern access and security architecture.
We complement and interoperate with key technology and cloud vendors across major market segments, including identity and access management device and endpoint management, as well as SIEM for reporting and analytics. Many of these vendors, like us, were developed in the cloud and together provide a foundation for a modern access and security architecture.
Item 1. Business Overview We anticipate, secure, and simplify the experience of doing business, transforming today and tomorrow. We were incorporated in 2007, during the early stages of cloud adoption and mobility, based on a vision that the internet would become the new corporate network, as the cloud becomes the new data center.
Item 1. Business Overview We anticipate, secure and simplify the experience of doing business, transforming today and tomorrow. We were incorporated in 2007, during the early stages of cloud adoption and mobility, based on a vision that the internet would become the new corporate network, as the cloud became the new data center.
The principal competitive factors in the markets in which we operate include: • delivering security from the cloud regardless of location of the user; • platform features, effectiveness and extensibility; • platform reliability, availability and scalability; • rapid development and delivery of new capabilities and services; • ability to integrate with other participants in the security and networking ecosystem; • price, total cost of ownership and network cost savings; • brand awareness, reputation and trust in the provider’s services; • strength of sales, marketing and channel partner relationships; and 12 Table of Contents • quality of customer support.
The principal competitive factors in the markets in which we operate include: • delivering security from the cloud regardless of location of the user; • platform features, effectiveness and extensibility; • platform reliability, availability and scalability; • rapid development and delivery of new capabilities and services; • ability to integrate with other participants in the security and networking ecosystem; • price, total cost of ownership and network cost savings; • brand awareness, reputation and trust in the provider’s services; • strength of sales, marketing and channel partner relationships; and • quality of customer support.
In addition to our internally developed technology, we also license software, including open source software, from third parties that we integrate into or bundle with our cloud platform. Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation based on allegations of patent infringement or other violations of intellectual property rights.
In addition to our internally developed technology, we also license software, including open source software, from third parties that we integrate into or bundle with our cloud platform. 14 Table of Contents Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation based on allegations of patent infringement or other violations of intellectual property rights.
It is built as software modules that run on standard x86 platforms without any dependency on custom hardware.
It is built as software modules that run on standard x86 platforms without dependency on custom hardware.
We do not rely on batch reporting; we continuously update our dashboards and reporting and can stream logs to a third-party Security Information and Event Management, or 9 Table of Contents SIEM, service as they arrive. Regardless of where users are located, customers can choose to have logs stored in the United States or the European Union/Switzerland.
We do not rely on batch reporting; we continuously update our dashboards and reporting and can stream logs to a third-party security information and event management, or SIEM, service as they arrive. Regardless of where users are located, customers can choose to have logs stored in the United States or the European Union/Switzerland.
ZIA enables the following primary use cases : Cyberthreat Protection – Our threat prevention functionality enables protection against threats using a range of approaches and techniques. Our threat prevention capabilities provide multiple layers of protection to prevent sophisticated ransomware, phishing, and zero-day cyberattacks. We provide functionality that traditionally has been offered by disparate, stand-alone products.
ZIA enables the following capabilities: Cyberthreat Protection – Our threat prevention functionality enables protection against threats using a range of approaches and techniques. Our threat prevention capabilities provide multiple layers of protection to prevent sophisticated ransomware, phishing and zero-day cyberattacks. We provide functionality that traditionally has been offered by disparate, stand-alone products.
By creating seamless access to applications regardless of a user’s network, our ZPA solution eliminates the need for traditional remote access VPNs, reverse proxies and other similar products. • Application Discovery : Similar to CASB application discovery reports for internet applications, our ZPA solution provides granular discovery of internally managed applications to aid in the creation of segmentation policies.
By creating seamless access to applications regardless of a user’s network, our ZPA solution eliminates the need for traditional remote access VPNs, reverse proxies and other similar products. • Application Discovery : Similar to CASB application discovery reports for internet hosted SaaS applications, our ZPA solution provides granular discovery of internally managed applications to aid in the creation and oversight of segmentation policies.
Our customers span every major industry, including financial services, healthcare, insurance, manufacturing, auto, airlines and transportation, conglomerates, consumer goods and retail, media and communications, public sector and education, energy, technology and telecommunications services.
Our customers span every major industry, including financial services, healthcare, insurance, manufacturing, automotive, airlines and transportation, conglomerates, consumer goods and retail, media and communications, public sector and education, energy, technology and telecommunications services.
Our customers operate in a variety of industries, including airlines and transportation, conglomerates, consumer goods and retail, financial services, healthcare, manufacturing, media and communications, public sector and education, technology and telecommunications services. Approximately 50% of our revenue was from customers outside the United States for all periods presented.
Our customers operate in a variety of industries, including automotive, airlines and transportation, conglomerates, consumer goods and retail, energy, financial services, healthcare, insurance, manufacturing, media and communications, public sector and education, technology and telecommunications services. Approximately 50% of our revenue was from customers outside the United States for all periods presented.
Our cloud security platform provides full inline content inspection to assess and correlate the risk of the content to protect against sophisticated attacks, including ransomware and phishing. The cloud platform applies AI, and ML, across our well over 320 billion daily transactions to quickly identify and block unknown threats and to identify and categorize unknown destinations.
Our cloud security platform provides full inline content inspection to assess and correlate the risk of the content to protect against sophisticated attacks, including ransomware and phishing. The cloud platform applies AI and ML across our over 500 billion daily transactions to quickly identify and block unknown threats and to identify and categorize unknown destinations.
Since users are granted access only to applications for which they have permission and are not granted full access to the network, microtunnels eliminate the need for an internal firewall. • Application Protection: Our ZPA solution initiates and connects outbound-only links between authenticated users and internally managed applications using microtunnels.
Since users are granted access only to applications for which they have permission and are not granted full access to the network, microtunnels eliminate the need for an internal firewall. • Application Protection: Our ZPA solution initiates outbound-only connections between authenticated users and internally managed applications using microtunnels.
By enforcing quality of service in the cloud, our platform enables the optimization of “last-mile” utilization of a customer’s network. • DNS: Our Domain Name System, or DNS, filtering solution provides a local DNS resolver and enforces acceptable use policies.
By enforcing quality of service in the cloud, our platform enables the optimization of “last-mile” utilization of a customer’s network. 6 Table of Contents • DNS: Our domain name system, or DNS, filtering solution provides a local DNS resolver and enforces acceptable use policies.
We have invested in establishing long-standing relationships with global telecommunications service providers and are expanding our network of global system integrators and regional telecommunications service providers and cloud-centric value-added resellers and public cloud marketplaces. • Expansion and innovation of services .
We have invested in establishing long-standing relationships with global telecommunications service providers and are expanding our network of global system integrators and regional telecommunications service providers and cloud-centric value-added resellers and public cloud marketplaces. 11 Table of Contents • Expansion and innovation of services.
Secure Private Application Access - Zscaler Private Access Zscaler Private Access provides Zero Trust Network Access, or ZTNA, to secure access to internally managed applications, either hosted internally in data centers or hosted in private or public clouds.
Secure Private Application Access - Zscaler Private Access ZPA provides Zero Trust Network Access to secure access to internally managed applications, either hosted internally in data centers or hosted in private or public clouds.
We are authorized at the FedRAMP High level for ZPA and Impact Level 5 with the DOD. In addition, we are authorized at both the FedRAMP Moderate and high levels for ZIA. We also hold ITAR, DFARS, FIPS, CJIS and VPAT 508 in our government portfolio.
We are authorized at the FedRAMP High level and Impact Level 5 with the DOD for ZPA. In addition, in the U.S. we are authorized at both the FedRAMP Moderate and high levels for ZIA and ZPA. We also hold ITAR, FIPS, CJIS and VPAT 508 in our U.S. Government portfolio.
The platform modules are split into the control plane (Zscaler Central Authority), the enforcement plane (Zscaler Enforcement Nodes) and the logging and statistics plane (Zscaler Log Servers) as described below: • Zscaler Central Authority : The Zscaler Central Authority monitors our entire security cloud and provides a central location for software and database updates, policy and configuration settings and threat intelligence.
The platform modules are split into the control plane (Zscaler Central Authority), the enforcement plane (Zscaler Enforcement Nodes) and the logging and statistics plane (Zscaler Log Servers) as described below: 10 Table of Contents • Zscaler Central Authority: The Zscaler Central Authority monitors our entire security cloud and provides a central location for software and database updates, policy and configuration settings and threat intelligence.
We are integrating our proprietary large language models, or LLMs, with our Zero Trust Exchange to leverage our data lake built on our more than 320 billion daily transactions. Analyzing this volume of high-quality data can continuously improve our LLMs and artificial intelligence, or AI, models to deliver ever-more powerful security outcomes for our customers.
We are integrating our proprietary large language models, or LLMs, with our Zero Trust Exchange to leverage our data lake built on our more than 500 billion daily transactions. Analyzing this volume of high-quality data can continuously improve our LLMs, artificial intelligence, or AI, and machine learning, or ML, models to deliver ever-more powerful security outcomes for our customers.
In addition, we have a deeply integrated ecosystem of channel partners, with whom we engage in joint marketing activities. Data Center Operations We operate our services across more than 150 data centers around the world, which are built to be highly resilient, have multiple levels of redundancy and provide failover to other data centers in our network.
In addition, we have a deeply integrated ecosystem of channel partners, with whom we engage in joint marketing activities. 12 Table of Contents Data Center Operations We operate our services across more than 160 data centers around the world, which are built to be highly resilient, have multiple levels of redundancy and provide failover to other data centers in our network.
Our customers benefit from the cloud security effect of our ever-expanding ecosystem, enhanced by our advanced AI and machine learning, or ML, capabilities, because once a new threat is detected, it can be blocked across our entire customer base within minutes.
Our customers benefit from the cloud security effect of our ever-expanding ecosystem, enhanced by our advanced AI and ML capabilities, because once a new threat is detected, it can be blocked across our customer base within minutes.
ThreatLabZ, our internal team of security experts, researchers and network engineers, analyzes the global threat landscape, works to eliminate threats across our cloud platform and reports on emerging security issues. Research and development expense was $349.7 million, $289.1 million and $174.7 million for fiscal 2023, fiscal 2022 and fiscal 2021, respectively.
ThreatLabZ, our internal team of security experts, researchers and network engineers, analyzes the global threat landscape, works to eliminate threats across our cloud platform and reports on emerging security issues. Research and development expense was $499.8 million, $349.7 million and $289.1 million for fiscal 2024, fiscal 2023 and fiscal 2022, respectively.
Traditionally, this network perimeter approach consists of appliances that have become fundamentally less effective as applications, data, users and devices rapidly move off the corporate network, making the notion of a corporate perimeter obsolete. In a world where more companies are shifting their most critical IT assets to the cloud, a zero trust architecture is required.
This traditional network perimeter approach relies on appliances that have become fundamentally less effective as applications, data, users and devices rapidly move off the corporate network, making the notion of a corporate perimeter obsolete. In a world where companies are shifting their most critical IT assets to the cloud, a zero trust architecture is required.
Our research and development leadership team is based in San Jose, California, and we also maintain research and development centers in India, Canada, Israel and Spain. Competition The market for security solutions is defined by changing technologies, an evolving threat landscape and complex enterprise needs.
Our research and development leadership team is predominantly located in San Jose, California, and we also maintain research and development centers internationally, including in India, Canada, Israel and Spain. Competition The market for security solutions is defined by changing technologies, an evolving threat landscape and complex enterprise needs.
In contrast, our Zero Trust Exchange acts as an intelligent switchboard that uses business policies to securely connect users, devices, and applications over any network and protect against cyberthreats and data loss. We provide all of these solutions at scale, processing well over 320 billion internet transactions per day.
In contrast, our Zero Trust Exchange acts as an intelligent switchboard that uses business policies to securely connect users, devices and applications over any network and protect against cyberthreats and data loss. We provide our solutions at scale, processing over 500 billion internet transactions per day.
Our cloud platform is protected by more than 430 issued and pending patents in the United States and other countries. Our cloud is distributed across more than 150 data centers on five continents and processes over 320 billion requests per day from users across 185 countries. Our platform is designed to be resilient, redundant and high-performing.
Our cloud platform is protected by more than 580 issued and pending patents in the United States and other countries. Our cloud is distributed across more than 160 data centers on five continents and processes over 500 billion requests per day from users across over 185 countries. Our platform is designed to be resilient, redundant and high-performing.
The core elements of Zscaler for Workloads address the key security and operations challenges that must be overcome in order to secure deployment of public cloud platforms such as Amazon Web Services, Microsoft Azure, and Google Cloud Platform. 3 Table of Contents • Zscaler for IoT/OT – leverages the complete suite of Zscaler solutions to reduce the risk of cyberattacks and data loss as well as to improve user and facility safety by providing zero trust security for connected IoT and OT devices.
The core elements of Zscaler for Workloads address the key security and operations challenges that must be overcome to secure deployment of public cloud platforms such as Microsoft Azure, or Azure, Amazon Web Services, or AWS, and Google Cloud Platform, or GCP. • Zscaler for IoT/OT – leverages the complete suite of Zscaler solutions to reduce the risk of cyberattacks and data loss as well as to improve user and facility safety by providing zero trust security for connected IoT and OT devices in branch offices.
We continue to invest in research and development and acquire new technologies and products in order to add new and differentiated solutions to our existing product portfolio and to improve the overall functionality, reliability, availability and scalability of our cloud security platform. • Expansion into additional market segments.
We continue to invest in research and development and acquire new technologies and products to add new and differentiated solutions to our existing product portfolio and to improve the overall functionality, reliability, availability and scalability of our cloud security platform. • Expansion into additional market segments. We are targeting the expansion of our immediate addressable market into additional market verticals.
Many of the largest enterprises and government agencies in the world rely on our solutions to help them accelerate their move to the cloud. We have over 7,700 customers across all major geographies, with an emphasis on larger organizations, and we currently count over 640 of the Forbes Global 2000 as customers.
Many of the largest enterprises and government agencies in the world rely on our solutions to help them accelerate their move to the cloud. We have over 8,650 customers across all major geographies, with an emphasis on larger organizations, and we currently count approximately 35% of the Forbes Global 2000 as customers.
In addition, new employees in our customer care and success teams are enrolled in structured sales training to complete internal certifications. Our technical teams have access to live and online training resources and participate in frequent company tech talks where training on best practices and latest developments are shared.
In addition, new employees in our customer care and success teams are enrolled in structured sales and product training to build their knowledge. Our technical teams have access to live and online training resources and participate in frequent company tech talks where training on best practices and latest developments are shared.
Our Posture Control solutions automatically identify and remediate cloud service, application, and identity misconfigurations for assets deployed in public cloud infrastructure.
Our Posture Control 3 Table of Contents solutions automatically identify and remediate cloud service, application and identity misconfigurations for assets deployed in public cloud infrastructure.
Our data centers are co-located within top-tier internet interconnection hubs that have direct connectivity, known as peering, to major telecommunication service providers, SaaS providers, public cloud providers, internet content providers and popular internet destinations. A number of our data centers are also located with our service provider partners. Our platform has received ISO 27001 certification since 2014.
Our data centers are co-located within top-tier internet interconnection hubs that have direct connectivity, known as peering, to major telecommunication service providers, SaaS providers, public cloud providers, internet content providers and popular internet destinations. A number of our data centers are also located with our service provider partners.
We recognize the need to create a flexible working environment that balances collaboration, innovation, and connectivity with personal preferences for employees to do their best work. We also offer a holistic wellness experience for our employees with “Wellbeing at Z,” our wellness program that supports employees across four pillars: physical, emotional, social, and financial.
We recognize the need to create a flexible working environment that balances collaboration, innovation and connectivity with personal preferences for employees to do their best work. Our employee wellness program, Wellbeing at Z, supports employees across four pillars: physical, emotional, social and financial.
As of July 31, 2023, we had more than 430 issued patents and pending patent applications, including more than 190 issued patents, in the United States and other countries. Our issued patents expire between 2028 and 2041 and cover various aspects of our cloud platform.
As of July 31, 2024, we had more than 580 issued patents and pending patent applications, including more than 260 issued patents in the United States and other countries. Our issued patents expire between 2028 and 2043 and cover various aspects of our cloud platform.
Wellbeing at Z has been designed to meet the health needs of our employees through connection and support with flexibility for local and targeted needs. We will continue to review and invest in programs to provide for the health, safety and well being of our employees.
The program is designed to meet the health needs of our employees through connection and support with flexibility for local and targeted needs. We will continue to review and invest in programs to provide for the health, safety and wellbeing of our employees.
ZPA is designed around four key tenets that fundamentally change the way users access internal applications: • connect users to applications without bringing users on the network; • never expose applications to the internet; • segment access to applications without relying on the traditional approach of network segmentation; and • provide remote access over the internet without virtual private networks, or VPNs. 6 Table of Contents ZPA enforces a global policy engine that manages access to internally managed applications regardless of location.
ZPA is designed around four key tenets that fundamentally change the way users access internal applications: • connect users to applications without bringing users on the network; • never expose applications to the internet; • segment access to applications without relying on the traditional approach of network segmentation; and • provide remote access over the internet without virtual private networks, or VPNs.
For more information on the potential impacts of government regulations affecting our business, see “Item 1A - Risk Factors.” Human Capital As of July 31, 2023, we had a total of 5,962 employees, including 3,656 employees located outside the United States, with the majority of non-US based employees located in India.
For more information on the potential impacts of government regulations affecting our business, see “Item 1A - Risk Factors.” Human Capital As of July 31, 2024, we had a total of 7,348 employees, including 4,595 employees located outside the United States, with the majority of non-U.S.-based employees located in India.
We have experienced significant growth, with revenue increasing from $673.1 million in fiscal 2021 to $1,090.9 million in fiscal 2022 to $1,617.0 million in fiscal 2023, representing year-over-year revenue growth of 62% and 48%, respectively. We experienced net losses of $202.3 million, $390.3 million and $262.0 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.
We have experienced significant growth, with revenue increasing from $1,090.9 million in fiscal 2022 to $1,617.0 million in fiscal 2023 to $2,167.8 million in fiscal 2024, representing year-over-year revenue growth of 48% and 34%, respectively. We experienced net losses of $57.7 million, $202.3 million and $390.3 million in fiscal 2024, fiscal 2023 and fiscal 2022, respectively.
Compliance with these laws, rules, and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations and competitive position as compared to prior periods.
Government Regulation Our business activities are subject to various federal, state, local and foreign laws, rules, and regulations. Compliance with these laws, rules and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations and competitive position as compared to prior periods.
The contents of any website referred to in this Form 10-K are not intended to be incorporated into this Annual Report on Form 10-K or in any other report or document we file. 16 Table of Contents
Please note that this list may be updated from time to time. 17 Table of Contents The contents of any website referred to in this Form 10-K are not intended to be incorporated into this Annual Report on Form 10-K or in any other report or document we file. 18 Table of Contents
As of July 31, 2023, we had over 7,700 customers, including over 640 of th e Forbes Global 2000. Many of our customers include major global enterprises that send virtually all of their internet traffic through our cloud security platform.
As of July 31, 2024, we had over 8,650 customers, including approximately 35% of the Forbes Global 2000. Many of our customers include major global enterprises that send virtually all of their internet traffic through our cloud security platform.
Diversity, Equity and Inclusion We are committed to an inclusive culture. We strive to foster a workplace that promotes mutual respect, open and effective communication, and a sense of belonging for all employees. We ensure that our employees’ voices are heard and are always working on ways to improve their experience.
Diversity, Equity, Inclusion and Belonging We are committed to an inclusive culture. We strive to foster a workplace that promotes mutual respect, open and effective communication, and a sense of belonging for all employees.
We also offer a cohort based leadership program that builds the capabilities of the next generation of women leaders at Zscaler. Our foundational leadership programs emphasize the role of diversity in building high performing teams.
We have invested in a cohort-based leadership program that builds the capabilities of the next generation of women leaders at Zscaler. Our foundational leadership programs emphasize the role of diversity in building high-performing teams. Health, Safety and Wellbeing The health and safety of our employees is our top priority.
We encourage our investors and others to review the information we make public in these locations as such information could be deemed to be material information. Please note that this list may be updated from time to time.
We encourage our investors and others to review the information we make public in these locations as such information could be deemed to be material information.
We are proud to be certified as a 2023 “Great Place to Work” in seven countries, including the U.S., with 92% of surveyed employees indicating that Zscaler is a great place to work. We ultimately view and measure the success of our culture by our ability to sustain great business results.
We are proud to again be certified as a 2024 “Great Place to Work” in 11 countries, including the U.S. We ultimately view and measure the success of our culture by our ability to sustain great business results.
See “Risk Factors-Claims by others that we infringe their proprietary technology or other rights, or other lawsuits asserted against us, could result in significant costs and substantially harm our business, financial condition, results of operations and prospects” for additional information. 13 Table of Contents Government Regulation Our business activities are subject to various federal, state, local, and foreign laws, rules, and regulations.
See “Risk Factors—Risks Related to Our Business—Claims by others that we infringe their proprietary technology or other rights, or other lawsuits asserted against us, could result in significant costs and substantially harm our business, financial condition, results of operations and prospects” for additional information.
No end customer contributed more than 10% of our revenue in fiscal 2023, fiscal 2022 and fiscal 2021. 10 Table of Contents Sales and Marketing Although we have a channel sales model, we use a joint sales approach in which our sales force develops relationships directly with our customers, and together with our channel account teams, works with our channel partners on account penetration, account coordination, sales and overall market development.
Sales and Marketing Although we have a channel sales model, we use a joint sales approach in which our sales force develops relationships directly with our customers, and together with our channel account teams, works with our channel partners on account penetration, account coordination, sales and overall market development.
Goals, Performance, and Success, or GPS, our revamped performance management program, was launched in 2023 and aligns individual achievement with compensation. In GPS, employees are assessed on both what was achieved and how they achieved it to help build a high performance culture that is aligned to our cultural values.
Our employee performance management program aligns individual achievement and corporate goal attainment with compensation. Employees are assessed on both what was achieved and how they achieved it to help build a high-performance culture that delivers for our customers and is aligned to our cultural values.
We also became the first cloud-based SaaS security company to achieve StateRamp for state and local governments, and have received 11 Table of Contents TXRamp in Texas. Internationally, we are IRAP Protected and APRA in Australia, Cyber Essentials and G-Cloud in the UK, C5 in Germany and “in process” for ITSG-33 Prob B in Canada and ISMAP in Japan.
We also became the first cloud-based SaaS security company to achieve StateRamp for state and local governments. Internationally, we are IRAP Protected and APRA in Australia, Cyber Essentials and G-Cloud in the UK, C5 in Germany, “in process” for ITSG-33 Prob B in Canada, ISMAP in Japan, MTCS in Singapore and, most recently, Spain Gov CPSTIC catalog listing and ENS-High.
The high-fidelity low-volume alerts allow customers to implement meaningful automation workflows to prevent lateral spread. 7 Table of Contents The primary use cases for our ZPA solution include: • remote workforce access to private applications without legacy VPN, providing zero trust from office to data center; • providing non-employees with secure access to internal applications; • securely connecting business-to-business, or B2B, customers, service providers and supplier access to applications typically deployed as business to business portals in an extranet; • direct-to-cloud access to internally managed applications hosted in public cloud environments, such as Microsoft Azure, Amazon Web Services, or AWS, and Google Cloud Platform, or GCP; and • access to applications following a merger or acquisition by providing named users with access to named applications, without the need to merge networks.
The primary use cases for our ZPA solution include: • remote workforce access to private applications without legacy VPN, providing zero trust from office to data center; • deliver user-to-application segmentation, thus eliminating the risk of lateral threat propagation enabled by legacy Firewall and VPN based security architecture; • providing non-employees with secure access to internal applications; • securely connecting business-to-business, or B2B, customers, service providers and supplier access to applications typically deployed as business to business portals in an extranet; • direct-to-cloud access to internally managed applications hosted in public cloud environments, such as Azure, AWS and GCP; and • access to applications following a merger or acquisition by providing named users with access to named applications, without the need to merge networks.
In addition to running company-wide events and programs to share perspectives, these groups provide a safe community where employees can celebrate what makes them unique while also connecting with colleagues who share their identity. 15 Table of Contents To further support our efforts, we offer courses for diversity awareness and training on topics such as managing bias.
The company supports six employee resource groups that provide a safe community where employees can celebrate what makes them unique while also connecting with colleagues who share and embrace their identity. To further support our efforts, we offer training on topics such as managing bias.
This approach prevents sensitive data from being downloaded to unauthorized devices in bring-your-own-device environments or on shared public computers. Secure Local Internet Breakouts – Our local internet breakout capability means traffic destined for the cloud no longer needs to be routed over a private Multiprotocol Label Switching, or MPLS, network to the data center.
Secure Local Internet Breakouts – Our local internet breakout capability means traffic destined for the cloud no longer needs to be routed over a private multiprotocol label switching, or MPLS, network to the data center.
We offer tuition reimbursement for eligible employees to further enhance their career growth through higher education. Compensation and Benefits We provide competitive compensation and benefits packages to attract and retain our talent.
We partner with leading executive coaching organizations to offer focused development for key leaders, as well as targeted offerings on important topics. We offer tuition reimbursement for eligible employees to further enhance their career growth through higher education. Compensation and Benefits We provide competitive compensation and benefits packages to attract and retain our talent.
If access is granted to a user, our ZPA solution connects the user’s device only to the authorized application without exposing the identity or location of the application. As a result, applications are not exposed to the internet, further limiting the external attack surface. This results in reduced cost and complexity, while offering better security and an improved user experience.
ZPA enforces a global policy engine that manages access to internally managed applications regardless of location. If access is granted to a user, our ZPA solution connects the user’s device only to the authorized application without exposing the identity or location of the application. As a result, applications are not exposed to the internet, further limiting the external attack surface.
Our ZPA solution delivers the same cyberthreat protection and data protection functionality that is applied to internet traffic via our ZIA solution. • Secure Application Access: Our ZPA solution delivers seamless connectivity to internally managed applications and assets whether they are in the cloud, enterprise data center, or both.
Our ZPA solution includes broad functionality, which we categorize by the following areas: • Cyberthreat Protection and Data Protection: Our ZPA solution delivers the same cyberthreat protection and data protection functionality that is applied to internet traffic via our ZIA solution. • Secure Application Access: Since our ZPA solution delivers seamless connectivity to internally managed applications and assets whether they are in the cloud, enterprise data center or both, administrators can set global policies from a single console, enabling policy-driven access that is agnostic to the network the users are on.
We are primarily targeting the expansion of our immediate addressable market, emphasizing U.S. federal government agencies in the near- to medium-term as well as additional international markets in the Asia Pacific and Latin America regions. We sell to enterprises of all sizes.
For example, we are expanding into U.S. federal government agencies as well as into government agencies outside the U.S. We are also targeting our expansion into new geographies in the Asia Pacific and Latin America regions. We sell to enterprises of all sizes.
Our Zero Trust Exchange Platform Our Zero Trust Exchange cloud security platform delivers our core products; Zscaler for Users, Zscaler for Workloads and Zscaler for IoT/OT, through the deployment of our comprehensive and integrated solutions, each built natively in the cloud to power digital transformation. 4 Table of Contents Secure Internet and SaaS Access - Zscaler Internet Access Zscaler Internet Access, or ZIA, provides users, workloads, IoT, and OT devices secure access to externally managed applications, including SaaS applications and internet destinations regardless of device, location or network.
We expect we will continue to incur net losses for the foreseeable future. 4 Table of Contents Our Zero Trust Exchange Platform Our Zero Trust Exchange cloud security platform delivers our core products; Zscaler for Users, Zscaler for Workloads and Zscaler for IoT/OT, through the deployment of our comprehensive and integrated solutions, each built natively in the cloud to power digital transformation.
(previously, Websense, Inc.), Netskope, Inc. and Pulse Secure, LLC with point solutions that compete with some of the features of our cloud platform, such as proxy, firewall, CASB, sandboxing and advanced threat protection, data loss prevention, encryption, load balancing and VPN; and • other providers of IT security services that offer, or may leverage related technologies to introduce, products that compete with or are alternatives to our cloud platform.
Our competitors and potential competitors include legacy on-premises appliance vendors and other vendors across a number of categories: • independent IT security vendors, which offer a broad mix of network and endpoint security products; • large networking and other vendors, which offer security appliances and/or incorporate security capabilities in their networking products and other services; • companies with point solutions that compete with some of the features of our cloud platform, such as proxy, firewall, CASB, sandboxing and advanced threat protection, data loss prevention, encryption, load balancing and VPN; and 13 Table of Contents • other providers of IT security services that offer, or may leverage related technologies to introduce, products that compete with or are alternatives to our cloud platform.
These decoys can be leveraged to disrupt the adversary by detecting their presence in the network and initiating mitigation using automatic orchestration via the Zscaler platform and other third party solutions. Customers can quickly deploy these capabilities by leveraging a diverse library of built-in decoys including various types of applications, network components and IoT services.
Our deception solution augments our customers' ability to detect the presence of an adversary in their network by deploying decoys and lures. These decoys can be leveraged to disrupt the adversary by detecting their presence in the network and initiating mitigation using automatic orchestration via the Zscaler platform and other third party solutions.
Data Protection – Our data protection functionality enables enterprises to prevent unauthorized sharing or exfiltration of confidential information for users, devices, and servers, reducing our customers’ business and compliance risk. Core cloud platform data protection services include: • Advanced Data Classification : Our data classification engines leverage a variety of technologies and techniques to identify customer sensitive data.
Data Protection – Our data protection functionality enables enterprises to prevent unauthorized sharing or exfiltration of confidential information across users, devices, servers and workloads, thereby reducing business and compliance risks for our customers.
This reduce their attack surface by not exposing IP addresses of all devices, applications, appliances or workloads to the internet. • Browser Isolation: Our cloud browser isolation is used with ZPA to provide isolated sessions to internal web applications without allowing data to transfer down to unmanaged devices or active content to be uploaded into sensitive internal applications. • Deception : Our deception solution augments our customers' ability to detect the presence of an adversary in their network by deploying decoys and lures.
Reduced attack surface results in lower exposure to zero-day application vulnerabilities and eliminates the need for DDoS mitigation. • Browser Isolation: Our cloud browser isolation is used with our ZPA solution to provide isolated sessions to internal web applications without allowing data to transfer down to unmanaged devices or active content to be uploaded into sensitive internal applications.
In addition, since 2017 we received and currently maintain ISO 27701, 27018 and 27017 certifications. We are also SOC2, SOC 3 and CSA-STAR compliant. In 2022, we received our HIPAA compliance and NIST 800-63C. We also built a leading U.S. and international government compliance portfolio.
Compliance Since successful completion of an initial independent third-party assessment in 2014, our platform has received numerous industry standard and internationally recognized certifications upon successful completion of further independent third-party assessments, including ISO 27001, ISO 27701, ISO 27018, ISO 27017, SOC2, CSA-STAR, HIPAA and NIST 800-63C. We also built a leading U.S. and international government compliance portfolio.
We believe that a diversity of backgrounds, experiences and thinking contributes to creating a culture that enables innovation, execution and performance. At the end of fiscal 2023, women represented 22% of our global workforce in 28 countries and underrepresented racial and ethnic minorities represented 10% of our U.S. based employees.
At the end of fiscal 2024, women represented 23% of our global workforce in 29 countries and underrepresented racial and ethnic minorities represented 10% of our U.S.-based employees. We have taken steps to address the diversity challenges that we face in the cybersecurity industry because we believe diverse representation and development of our talent enriches our industry.
Business policies can be defined with granular access control for specified cloud applications, such as the ability to upload or download files or post comments on videos based on different user or group identity. • File Type Controls: Our AI-enabled data classification solution enables enterprise CIOs to gain visibility of file types across all their IT environments.
Business policies can be defined with granular access control for specified cloud applications, such as the ability to upload or download files or post comments on videos based on different user or group identity. • Browser Isolation: With cloud browser isolation, users do not directly access active web content; instead, only a safe rendering of pixels is delivered to the user.
Preventing Lateral Threat Movement in Public Clouds - Workload Segmentation Our Workload Segmentation solution secures application-to-application communications inside public clouds and data centers to stop lateral threat movement, preventing application compromise and reducing the risk of data breaches. Workload Segmentation utilizes an innovative, AI-enabled approach that makes it significantly simpler to deploy and operate than traditional segmentation solutions.
Our Zero Trust Networking solution includes broad functionality, which we categorize by the following ideas: • Workload Segmentation. Our Workload Segmentation solution secures application-to-application communications inside public clouds and data centers to stop lateral threat movement, preventing application compromise and reducing the risk of data breaches.
Our file type control functionality allows our customers to define policies to control which file types are allowed to be downloaded and uploaded based on application, user, location and destination. • Browser Isolation: With cloud browser isolation, users do not directly access active web content; instead, only a safe rendering of pixels is delivered to the user.
Our file type control functionality allows our customers to define policies to control which file types are allowed to be downloaded and uploaded based on application, user, location and destination. • Advanced Data Classification: Our data classification engines leverage a variety of technologies and techniques to identify customer sensitive data.
Workload Segmentation improves the security of east-west communication by verifying the identity of the communicating application software, services and processes to achieve a zero trust environment. This reduces the attack surface, resulting in lower risk of application compromise and data breaches. Our Technology and Architecture We are driven by technology and innovation.
Our Workload Segmentation solution utilizes an innovative, AI-enabled approach that is simpler to deploy and operate than traditional segmentation solutions and improves the security of east-west communication by verifying the identity of the communicating application software, services and processes to achieve a zero trust environment.
Talent Development We invest in our employees through a suite of programs from their first day of employment to develop their talent and skills as our business grows. Over the past year, this intentional approach to talent development led to us being able to promote 20% of our global workforce.
Employee Development We invest in our employees through a suite of programs from their first day of employment to develop their talent and skills as our business grows. Our leadership approach establishes clear expectations, enables measurement and actionable feedback, and ensures that our people managers have access to learning and resources that help them to embody our leadership principles.
We have taken steps to address the diversity challenges that we face in the cybersecurity industry because we believe diverse representation and development of our talent enriches our industry. We enhanced hiring practices where our recruiters strive to build a talent pipeline that is diverse at the top of the hiring funnel, with proactive outreach to candidates from underrepresented groups.
Our recruiters strive to build a diverse talent pipeline at the top of the hiring funnel, through proactive outreach to candidates from underrepresented groups. Our People and Culture team partners with senior leadership to develop and advance our global diversity, equity, inclusion and belonging strategy.

… 48 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

190 edited+33 added−55 removed236 unchanged
Biggest changeSales to government entities are subject to substantial risks, including the following: • selling to government agencies can be highly competitive, expensive and time-consuming, often requiring significant upfront time and expense without any assurance that such efforts will generate a sale; • U.S. or other government certification requirements applicable to our cloud platform, including the Federal Risk and Authorization Management Program, are often difficult and costly to obtain and maintain and failure to do so will restrict our ability to sell to government customers; • government demand and payment for our services may be impacted by public sector budgetary cycles and funding authorizations, including the impacts of possible government shutdowns; and • governments routinely investigate and audit government contractors’ administrative processes and any unfavorable audit could result in fines, civil or criminal liability, further investigations, damage to our reputation and debarment from further government business.
Biggest changeSales to government entities are subject to substantial risks, including the following: • selling to government agencies can be highly competitive, expensive and time-consuming, often involving significantly longer procurement cycles than commercial sales, and significant upfront time and expense without any assurance that such efforts will generate a sale; • U.S. or other government requirements relating to the formation, administration and performance of contracts with the public sector affect how we and our channel partners do business with governmental agencies; 33 Table of Contents • U.S. or other government certification requirements applicable to our cloud platform, including the Federal Risk and Authorization Management Program (FedRAMP), are often difficult and costly to obtain and maintain and failure to do so will restrict our ability to sell to government customers; • government demand and payment for our services may be impacted by public sector budgetary cycles and annual funding authorizations, including the impacts of possible government shutdowns, and government sales are inherently at risk of securing funding; • sales to the U.S. and other governments are subject to procurement regulations, which impose heightened compliance obligations on us and our channel partners; • governments routinely investigate and audit government contractors’ administrative processes and compliance with procurement regulations and any unfavorable investigation or audit could result in fines, civil or criminal liability, further investigations, damage to our reputation and debarment from further government business; and • government customers procuring commercial items get the benefit of more favorable terms and conditions by operation of law, regardless of agreed upon contractual terms.
Our customer retention and expansion may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our services, our prices and pricing plans, our customers’ spending levels, decreases in the number of users to which our customers deploy our solutions, mergers and acquisitions involving our customers, competition, deteriorating general economic conditions which may result in reductions in IT budgets and lower employee headcounts.
Our customer retention and expansion may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our services, our prices and pricing plans, our customers’ spending levels, decreases in the number of users to which our customers deploy our solutions, mergers and acquisitions involving our customers, competition and deteriorating general economic conditions, which may result in reductions in IT budgets and lower employee headcounts.
The number of emerging and existing data privacy laws and regulations creates the risk that obligations may be interpreted inconsistently between jurisdictions which may generate tension with our efforts to align our practices to comply with our privacy, data protection, and security obligations globally. Many of these laws and regulations impose substantial penalties for noncompliance.
The number of emerging and existing data protection, privacy and security laws and regulations creates the risk that obligations may be interpreted inconsistently between jurisdictions which may generate tension with our efforts to align our practices to comply with our privacy, data protection, and security obligations globally. Many of these laws and regulations impose substantial penalties for noncompliance.
These policy changes have provided a benefit to us as a result of increased interest income we earn on our cash and investments, but a reduction of interest rates in the future would reduce this income.
These policy changes have provided a benefit to us as a result of the increased interest income we earn on our cash and investments, but a reduction of interest rates in the future would reduce this income.
Any failure by these vendors to do so, or any disruption in our ability to access the internet, would materially and adversely affect our ability to manage our operations. We may become involved in litigation that may materially adversely affect us.
Any failure by these vendors to do so, or any disruption in our ability to access the internet, would materially and adversely affect our ability to manage our operations. We may become involved in litigation that may materially and adversely affect us.
The market for network security solutions is intensely competitive and characterized by rapid changes in technology, customer requirements, industry standards and frequent introductions of new products and services and improvements of existing products and services. Our business model of delivering security through the cloud rather than legacy on-premises appliances, while gaining support, has not yet achieved widespread market adoption.
The market for network security solutions is intensely competitive and characterized by rapid changes in technology, customer requirements, industry standards and frequent introductions of new products and services and improvements of existing products and services. Our business model of delivering security through the cloud rather than legacy on-premises appliances, while gaining increasing support, has not yet achieved widespread market adoption.
In addition, future litigation may involve non-practicing entities or other patent owners who have no relevant product offerings or revenue and against whom our own patents may therefore provide little or no deterrence or protection. As we face increasing competition and gain an increasingly higher profile the possibility of intellectual property rights claims against us grows.
In addition, intellectual property litigation may involve non-practicing entities or other patent owners who have no relevant product offerings or revenue and against whom our own patents may therefore provide little or no deterrence or protection. As we face increasing competition and gain an increasingly higher profile the possibility of intellectual property rights claims against us grows.
For example, in recent years, recruiting, hiring and retaining employees with expertise in the cybersecurity industry has become increasingly difficult as the demand for cybersecurity professionals has increased as a result of the recent cybersecurity attacks on global corporations and governments. Many of the companies with which we compete for experienced personnel have greater resources than we have.
For example, in recent years, recruiting, hiring and retaining employees with expertise in the cybersecurity industry has become increasingly difficult as the demand for cybersecurity professionals has increased as a result of the ongoing cybersecurity attacks on global corporations and governments. Many of the companies with which we compete for experienced personnel have greater resources than we have.
Our ability to monitor our vendors’ and service providers’ data security is limited, and, in any event, third parties may be able to circumvent their security measures, resulting in the unauthorized access to, misuse, acquisition, disclosure, loss, alteration, or destruction of our data, including confidential, sensitive, and other information about individuals.
Our ability to monitor our vendors’ and service providers’ data security is limited, and, in any event, third parties may be able to circumvent their security measures, resulting in the unauthorized access to, misuse, disclosure, loss, alteration, or destruction of our data, including confidential, sensitive, and other information about individuals.
Furthermore, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market or commercialize our solutions.
Furthermore, the terms of many open source licenses have not been interpreted by U.S. and other courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market or commercialize our solutions.
The principal factors and uncertainties that make investing in our common stock risky include, among others: • we have a history of losses and may not be able to achieve or sustain profitability in the future; • if organizations do not adopt our cloud platform, our ability to grow our business and operating results may be adversely affected; • if we are unable to attract new customers or our customers do not renew their subscriptions for our services and add additional users and services to their subscriptions, our future results of operations could be harmed; • we face intense and increasing competition and could lose market share to our competitors; • we have experienced rapid revenue and other growth in recent periods, which may not be indicative of our future performance; • our operating results may fluctuate significantly, which could make our future results difficult to predict and could cause our operating results to fall below expectations; • if the delivery of our services to our customers is interrupted or delayed for any reason, our business would suffer; • the actual or perceived failure of our cloud platform to block malware or prevent a security breach or incident could harm our reputation and adversely impact our business; • our business and growth depend in part on the success of our relationships with our channel partners; • if our cloud platform or internal networks, systems or data are or are perceived to have been breached, our solution may be perceived as insecure, our reputation may be damaged and our financial results may be negatively impacted; • we rely on our key technical, sales and management personnel to grow our business, and the loss of one or more key employees or the inability to attract and retain qualified personnel could harm our business; • claims by others that we infringe their proprietary technology or other rights, or other lawsuits asserted against us, could result in significant costs and substantially harm our business; • If we are unable to effectively manage certain risks and challenges related to our India operations, our business could be harmed; • servicing our debt may require a significant amount of cash, and we may not have sufficient cash flow from our business or the ability to raise funds to pay our substantial debt; and 17 Table of Contents • the impact of global economic disruptions, including as a result of geopolitical uncertainty and instability, inflation, global health crises like the COVID-19 pandemic, and governmental responses thereto, remains uncertain and may have a material adverse impact on our business.
The principal factors and uncertainties that make investing in our common stock risky include, among others: • we have a history of annual net losses and may not be able to achieve or sustain profitability in the future; • if organizations do not adopt our cloud platform, our ability to grow our business and operating results may be adversely affected; • if we are unable to attract new customers or our customers do not renew their subscriptions for our services and add additional users and services to their subscriptions, our future results of operations could be harmed; • we face intense and increasing competition and could lose market share to our competitors; • we have experienced rapid revenue and other growth in recent periods, which may not be indicative of our future performance; • our operating results may fluctuate significantly, which could make our future results difficult to predict and could cause our operating results to fall below expectations; • if the delivery of our services to our customers is interrupted or delayed for any reason, our business would suffer; • the actual or perceived failure of our cloud platform to block malware or prevent a security breach or incident could harm our reputation and adversely impact our business; • our business and growth depend in part on the success of our relationships with our channel partners; • if our cloud platform or internal networks, systems or data are or are perceived to have been breached, our solution may be perceived as insecure, our reputation may be damaged and our financial results may be negatively impacted; • we rely on our key technical, sales and management personnel to grow our business, and the loss of one or more key employees or the inability to attract and retain qualified personnel could harm our business; • claims by others that we infringe their proprietary technology or other rights, or other lawsuits asserted against us, could result in significant costs and substantially harm our business; • if we are unable to effectively manage certain risks and challenges related to our India operations, our business could be harmed; • servicing our debt may require a significant amount of cash, and we may not have sufficient cash flow from our business or the ability to raise funds to pay our substantial debt; and 19 Table of Contents • the impact of global economic disruptions, including as a result of geopolitical uncertainty and instability, inflation, global health crises such as the COVID-19 pandemic, and governmental responses thereto, remains uncertain and may have a material adverse impact on our business.
Cloud technologies are still evolving, and it remains difficult to predict customer demand and adoption rates for our solutions. We believe that our cloud platform offers superior protection to our customers, who are becoming increasingly dependent on the internet as they move their applications and data to the cloud.
Cloud security technologies are still evolving, and it remains difficult to predict customer demand and adoption rates for our solutions. We believe that our cloud platform offers superior protection to our customers, who are becoming increasingly dependent on the internet as they move their applications and data to the cloud.
If we experience any of these effects in connection with future growth, it could materially impair our ability to attract new customers, retain existing customers and expand their use of our platform, all of which would materially and adversely affect our business, financial condition and results of operations.
If we experience any of these effects in connection with future growth, it could materially impair our ability to attract new customers, support and retain existing customers and expand their use of our platform, all of which would materially and adversely affect our business, financial condition and results of operations.
Any of the above results could materially and adversely affect our business, financial condition and results of operations. Additionally, with data security being a critical competitive factor in our industry, we make public statements in our privacy policies, on our website, and elsewhere describing the security of our platform and the performance of our solutions.
Any of the above results could materially and adversely affect our business, financial condition and results of operations. Additionally, with data security being a critical competitive factor in our industry, we make public statements in our policies, on our website, and elsewhere describing the security of our platform and the performance of our solutions.
However, since our business is focused on providing reliable security services to our customers, we believe that an actual or perceived breach of, or security incident affecting, our internal networks, systems or data, could be especially detrimental to our reputation, customer confidence in our solution and our business.
However, since our business is focused on providing reliable security services to our customers, we believe that an actual, perceived or purported breach of, or security incident affecting, our internal networks, systems or data, could be especially detrimental to our reputation, customer confidence in our solution and our business.
Any of the above could materially and adversely affect our business, financial condition and results of operations. While we maintain insurance, our insurance may be insufficient to cover all liabilities incurred in relation to actual or perceived security breaches or other security incidents.
Any of the above could materially and adversely affect our business, financial condition and results of operations. While we maintain insurance, our insurance may be insufficient to cover all liabilities incurred in relation to actual, perceived or purported security breaches or other security incidents.
If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, our visibility in the financial markets could decrease, which in turn could cause our stock price or trading volume to decline. 49 Table of Contents Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States are the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, our visibility in the financial markets could decrease, which in turn could cause our stock price or trading volume to decline. 50 Table of Contents Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States are the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
In addition, changes in our platform, or changes in export, sanctions and import laws, could delay the introduction and sale of subscriptions to our platform in international markets, prevent users in certain countries from accessing our services or, in some cases, prevent the provision of our services to certain countries, governments, persons or entities altogether.
In addition, changes in our platform, or changes in export, sanctions and import laws and regulations, could delay the introduction and sale of subscriptions to our platform in international markets, prevent users in certain countries from accessing our services or, in some cases, prevent the provision of our services to certain countries, governments, persons or entities altogether.
Further, once identified, we may be unable to remediate or otherwise respond to a breach or other incident in a timely manner. Actual or perceived security breaches of our cloud platform could result in actual or perceived breaches of our customers’ networks and systems.
Further, once identified, we may be unable to remediate or otherwise respond to a breach or other incident in a timely manner. Actual, perceived or purported security breaches of our cloud platform could result in actual, perceived or purported breaches of our customers’ networks and systems.
In addition, various countries regulate the import of certain technology and have enacted or could enact laws that could limit our ability to provide our services and operate our cloud platform or could limit our customers’ ability to access or use our services in those countries.
In addition, various countries regulate the import of certain technology and have enacted or could enact laws that could limit our ability to provide our services and software and operate our cloud platform or could limit our customers’ ability to access or use our services or software in those countries.
We derive a portion of our revenue from contracts with government organizations, and we believe the success and growth of our business will in part depend on our successful procurement of additional public sector customers.
We derive a significant portion of our revenue from contracts with government organizations, and we believe the success and growth of our business will in part depend on our successful procurement of additional public sector customers.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
Any real or perceived flaws in our cloud platform or any real or perceived security breaches or other security incidents of our customers could result in: • a loss of existing or potential customers or channel partners; 25 Table of Contents • delayed or lost sales and harm to our financial condition and results of operations; • a delay in attaining, or the failure to attain, market acceptance; • the expenditure of significant financial resources in efforts to analyze, correct, eliminate, remediate or work around errors or defects, to address and eliminate vulnerabilities and to address any applicable legal or contractual obligations relating to any actual or perceived security breach or incident; • negative publicity and damage to our reputation and brand; and • legal claims and demands (including for stolen assets or information, repair of system damages, and compensation to customers and business partners), litigation, regulatory inquiries or investigations and other liability.
Any real or perceived flaws in our cloud platform or any real, perceived or purported security breaches or other security incidents of our customers could result in: 37 Table of Contents • a loss of existing or potential customers or channel partners; • delayed or lost sales and harm to our financial condition and results of operations; • a delay in attaining, or the failure to attain, market acceptance; • the expenditure of significant financial resources in efforts to analyze, correct, eliminate, remediate or work around errors or defects, to address and eliminate vulnerabilities and to address any applicable legal or contractual obligations relating to any actual, perceived or purported security breach or incident; • negative publicity and damage to our reputation and brand; and • legal claims and demands (including for stolen assets or information, repair of system damages, and compensation to customers and business partners), litigation, regulatory inquiries or investigations and other liability.
Because the market for our cloud platform is rapidly evolving and cloud security solutions have not yet reached widespread adoption, it is difficult for us to predict our future results of operations.
Because the market for our cloud platform is rapidly evolving and cloud-based security solutions have not yet reached widespread adoption, it is difficult for us to predict our future results of operations.
Although we take precautions to prevent our services from being provided in violation of such laws, our services may have been in the past, and could in the future be, provided inadvertently in violation of such laws, despite the precautions we take.
Although we take precautions to prevent our services and software from being provided in violation of such laws, our services and software may have been in the past, and could in the future be, provided inadvertently in violation of such laws, despite the precautions we take.
Our success will depend in part on our ability to manage this growth effectively, which will require that we continue to improve our administrative, operational, financial and management systems and controls by, among other things: 21 Table of Contents • effectively attracting, retaining, training and integrating, including collaborating with, a large number of new employees; • further improving our key business applications, processes and IT infrastructure, including our data centers, to support our business needs; • enhancing our information and communication systems to ensure that our employees and offices around the world are well coordinated and can effectively communicate with each other and our growing base of channel partners, customers and users; and • appropriately documenting and testing our IT systems and business processes.
Our success will depend in part on our ability to manage this growth effectively, which will require that we continue to improve our administrative, operational, financial and management systems and controls by, among other things: • effectively attracting, retaining, training and integrating, including collaborating with, a large number of new employees; • further improving our key business applications, processes and IT infrastructure, including our data centers, to support our business needs; • enhancing our information and communication systems to ensure that our employees and offices around the world are well coordinated and can effectively communicate with each other and our growing base of channel partners, customers and users; and • appropriately documenting and testing our IT systems and business processes.
In addition, in certain cases, customers may cancel their subscriptions without cause either at any time or upon advance written notice (typically ranging from 30 days to 60 days), typically subject to an early termination penalty for unused services. In addition, our customers may renew for fewer users, renew for shorter contract lengths or switch to a lower-cost suite.
In addition, in certain cases, customers may cancel their subscriptions without cause either at any time or upon advance written notice (commonly ranging from 30 days to 60 days), typically subject to an early termination penalty for unused services. In addition, our customers may renew for fewer users, renew for shorter contract lengths or switch to a lower-cost product suite.
Conditions in our market could change rapidly and significantly as a result of technological advancements, partnering or acquisitions by our competitors or continuing market consolidation. New start-up companies that innovate and large competitors that are making significant investments in research and development may introduce similar or superior products, services and technologies that compete with our cloud platform.
Conditions in our market change rapidly and significantly as a result of technological advancements, partnering or acquisitions by our competitors or continuing market consolidation. Start-up companies that innovate and large competitors that are making significant investments in research and development may introduce similar or superior products, services and technologies that compete with our cloud platform.
If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results and financial condition could be adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees.
If any government sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results and financial condition could be adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees.
These and other new and evolving requirements may increase compliance costs, lead to increased regulatory scrutiny or liability, may require additional contractual negotiations, and may adversely impact our business, financial condition and operating results. In view of the foregoing, we cannot assure our compliance with all such laws, regulations, standards and obligations.
New and evolving requirements may increase compliance costs, lead to increased regulatory scrutiny or liability, may require additional contractual negotiations, and may adversely impact our business, financial condition and operating results. In view of the foregoing, we cannot assure our compliance with all such laws, regulations, standards and obligations.
No security solution, including our cloud platform, can address all possible security threats or block all methods of penetrating a network or otherwise perpetrating a security breach or incident. Our customers must rely on complex network and security infrastructures, which include products and services from multiple vendors, to secure their networks.
No security solution, including our cloud platform, can address all possible security threats or block all methods of penetrating a network or otherwise perpetrating a security breach or incident. Our customers typically rely on complex network and security infrastructures, which include products and services from multiple vendors, to secure their networks.
Any change in export or import regulations, economic sanctions or related laws, shift in the enforcement or scope of existing regulations or change in the countries, governments, persons or technologies targeted by such regulations could decrease our ability to sell subscriptions to our platform to existing customers or potential new customers with international operations.
Any change in export or import regulations, economic sanctions or related laws, shift in the enforcement or scope of existing regulations or change in the countries, governments, persons or technologies targeted by such regulations could decrease our ability to sell subscriptions to our platform or provide software to existing customers or potential new customers with international operations.
We currently host our cloud platform and serve our customers from a global network of over 150 data centers. While we have electronic access to the components and infrastructure of our cloud platform that are hosted by third parties, we do not control the operation of these facilities.
We currently host our cloud platform and serve our customers from a global network of over 160 data centers. While we have electronic access to the components and infrastructure of our cloud platform that are hosted by third parties, we do not control the operation of these facilities.
As with many developing technologies, AI and ML present risks and challenges, many of which may be unknown, that could affect their further development, adoption, and use. These risks and challenges could undermine public confidence in AI and ML, in particular generative AI, which could slow or even halt its adoption and negatively affect our business.
As with many developing technologies, AI and ML present risks and challenges, many of which may be unknown, that could affect their further development, adoption, and use. These risks and challenges could undermine public confidence in AI and ML, which could slow or even halt its adoption and negatively affect our business.
We base our estimates on historical experience and on various other 54 Table of Contents assumptions that we believe to be reasonable under the circumstances, as provided in the section titled "Management’s Discussion and Analysis of Financial Condition and Results of Operations." The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled "Management’s Discussion and Analysis of Financial Condition and Results of Operations." The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources.
Risks Related to Our Business We have a history of losses and may not be able to achieve or sustain profitability in the future. We have incurred net losses in all periods since our inception, and we expect we will continue to incur net losses for the foreseeable future.
Risks Related to Our Business Risks Related to Our Growth We have a history of annual net losses and may not be able to achieve or sustain profitability in the future. We have incurred net losses in all annual periods since our inception, and we expect we will continue to incur annual net losses for the foreseeable future.
Our agreements with our channel partners are generally non-exclusive, meaning our channel partners may offer customers the products of several different companies, including products that compete with our cloud platform. In general, our channel partners may also cease marketing or reselling our platform with limited or no notice and without penalty.
Our agreements with our channel partners are generally non-exclusive, meaning our channel partners may offer customers the products of several different companies, including products that compete with our cloud platform. Our channel partners may also cease marketing or reselling our platform with limited or no notice and without penalty.
We may, however, need to raise additional funds in the future to fund our operating expenses, make capital purchases and acquire or invest in business or technology, and we may not be able to obtain those funds on favorable terms, or at all.
We may, however, need to raise additional funds to fund our operating expenses, make capital purchases, acquire or invest in business or technology, and we may not be able to obtain those funds on favorable terms, or at all.
We can provide no assurance as to the financial stability or viability of the Option Counterparties. General Risks Our business is subject to the risks of earthquakes, fire, floods and other natural catastrophic events, and to interruption by man-made problems such as power disruptions, computer viruses, acts of war, international conflicts, terrorism, and security breaches or incidents.
We can provide no assurance as to the financial stability or viability of the Option Counterparties. 52 Table of Contents General Risks Our business is subject to the risks of earthquakes, fire, floods and other natural catastrophic events, and to interruption by man-made problems such as power disruptions, computer viruses, acts of war, international conflicts, terrorism, and security breaches or incidents.
We expect our operating expenses to increase significantly over the next several years as we continue to hire additional personnel, particularly in sales and marketing, expand our operations and infrastructure, both domestically and internationally, and continue to develop our platform.
We expect our operating expenses to increase significantly over the next several years as we continue to hire additional personnel, particularly in research and development and sales and marketing, expand our operations and infrastructure, both domestically and internationally, and continue to develop our platform.
Our amended and restated certificate of incorporation further provides that the federal district courts of the United States are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
Our amended and restated certificate of incorporation further provides that the federal district courts of the United States are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.
These risks include: 28 Table of Contents • competition from companies that traditionally target larger enterprises and that may have pre-existing relationships or purchase commitments from such customers; • increased purchasing power and leverage held by larger customers in negotiating contractual arrangements with us; • more stringent requirements in our support obligations; and • longer sales cycles and the associated risk that substantial time and resources may be spent on a potential customer that elects not to purchase our solutions.
These risks include: • competition from companies that traditionally target larger enterprises and that may have pre-existing relationships or purchase commitments from such customers; • increased purchasing power and leverage held by larger customers in negotiating contractual arrangements with us; • more stringent requirements in our support obligations; and • longer sales cycles and the associated risk that substantial time and resources may be spent on a potential customer that elects not to purchase our solutions.
These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. The market price of our common stock may be volatile, and you could lose all or part of your investment.
These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. 48 Table of Contents The market price of our common stock may be volatile, and you could lose all or part of your investment.
We cannot predict how long these challenging economic conditions will persist, and customer cautiousness could continue or worsen or result in potential customers deciding to forego our services entirely.
We cannot predict how long these challenging macroeconomic conditions will persist, and customer cautiousness could continue or worsen or result in potential customers deciding to forego our services entirely.
Not only does our joint sales approach require additional investment to grow and train our sales force, but we believe that continued growth in our business 26 Table of Contents is dependent upon identifying, developing and maintaining strategic relationships with our existing and potential channel partners, including global systems integrators and regional telecommunications service providers that will in turn drive substantial revenue and provide additional value-added services to our customers.
Not only does our joint sales approach require additional investment to grow and train our sales force, but we believe that continued growth in our business is dependent upon identifying, developing and maintaining strategic relationships with our existing and potential channel partners, including global systems integrators and regional telecommunications service providers that will in turn drive substantial revenue and provide additional value-added services to our customers.
Obtaining the necessary authorizations, including any required license, for a particular transaction may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities.
Obtaining the necessary authorizations, including any required licenses, for a particular transaction may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities.
Similarly, if we are unable to license necessary technology from third parties now or in the future, we may be forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner or at all, and we may be required to use alternative technology of lower quality or performance standards.
Similarly, if we are unable to license necessary technology from third parties 38 Table of Contents now or in the future, we may be forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner or at all, and we may be required to use alternative technology of lower quality or performance standards.
However, we could be unsuccessful in advancing non-infringement and/or invalidity arguments in our defense. In the United States, issued patents enjoy a presumption of validity, and the party challenging the validity of a patent claim must present clear and convincing evidence of invalidity, which is a high burden of proof.
However, we could be unsuccessful in advancing non-infringement and/or invalidity arguments in our defense. In the United States, issued patents 40 Table of Contents enjoy a presumption of validity, and the party challenging the validity of a patent claim must present clear and convincing evidence of invalidity, which is a high burden of proof.
Therefore, we continue to be substantially dependent on our sales force to obtain new customers. Increasing our customer base and achieving broader market acceptance of our cloud platform will depend, to a significant extent, on our ability to expand and further invest in our 27 Table of Contents sales and marketing operations and activities.
Therefore, we continue to be substantially dependent on our sales force to obtain new customers. Increasing our customer base and achieving broader market acceptance of our cloud platform will depend, to a significant extent, on our ability to expand and further invest in our sales and marketing operations and activities.
Accordingly, the effect of downturns or upturns in new sales and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods. We may also be unable to reduce our cost structure in line with a significant deterioration in sales or renewals.
Accordingly, the effect of downturns or upturns in new sales and potential changes in our rate of renewals may not be fully reflected in our results of 31 Table of Contents operations until future periods. We may also be unable to reduce our cost structure in line with a significant deterioration in sales or renewals.
Any investigations, actions or sanctions could materially harm our reputation, business, results of operations and financial condition. If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
Any investigations, actions or sanctions could materially harm our reputation, business, results of operations and financial condition. 53 Table of Contents If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop and retain talented sales personnel, if our new sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective.
We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop and retain talented sales personnel, if our new sales personnel are 30 Table of Contents unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective.
As a result, these stockholders, acting together, will have significant control over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders oppose them.
As a result, these stockholders, acting together, will have significant control over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be 47 Table of Contents taken even if other stockholders oppose them.
Competition for these personnel in the San Francisco Bay Area, where our headquarters are located, and in other locations where we operate, is intense, especially for experienced sales professionals and for engineers experienced in designing and developing cloud applications and security software.
Competition for these personnel in the San Francisco Bay Area, where our headquarters are located, and in other locations where we operate, is intense, especially for experienced sales professionals and for engineers experienced in designing and developing cloud applications, security software and AI and ML solutions.
These international operations will require significant management attention and financial resources and are subject to substantial risks, including: • political, economic and social uncertainty or international conflict, such as the Russia-Ukraine crisis; • unexpected costs for the localization of our services, including translation into foreign languages and adaptation for local practices and regulatory requirements; • greater difficulty in enforcing contracts and accounts receivable collection, and longer collection periods; • reduced or uncertain protection for intellectual property rights in some countries; • greater risk of unexpected changes in regulatory practices, tariffs and tax laws and treaties; 40 Table of Contents • greater risk of a failure of foreign employees, partners, distributors and resellers to comply with both U.S. and foreign laws, including antitrust regulations, anti-bribery laws, export and import control laws, and any applicable trade regulations ensuring fair trade practices; • requirements to comply with foreign privacy, data protection, cybersecurity and information security laws and regulations and the risks and costs of noncompliance; • increased expenses incurred in establishing and maintaining office space and equipment for our international operations; • greater difficulty in identifying, attracting and retaining local qualified personnel, and the costs and expenses associated with such activities; • differing employment practices and labor relations issues; • difficulties in managing and staffing international offices and increased travel, infrastructure and legal compliance costs associated with multiple international locations; • fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business, including the British Pound, Indian Rupee and Euro, and related impact on sales cycles; and • the impact of natural disasters and public health pandemics and epidemics, such as the COVID-19 pandemic, on customers, partners, suppliers, employees, travel and the global economy.
These international operations will require significant management attention and financial resources and are subject to substantial risks, including: • political, economic and social uncertainty or international conflict, such as the current conflicts between Russia and Ukraine and in the Middle East; • unexpected costs for the localization of our services, including translation into foreign languages and adaptation for local practices and regulatory requirements; • greater difficulty in enforcing contracts and accounts receivable collection, and longer collection periods; • reduced or uncertain protection for intellectual property rights in some countries; • greater risk of unexpected changes in regulatory practices, tariffs and tax laws and treaties; • greater risk of a failure of foreign employees, partners, distributors and resellers to comply with both U.S. and foreign laws, including antitrust regulations, anti-bribery laws, export and import control laws, trade and economic sanctions and any applicable trade regulations ensuring fair trade practices; 34 Table of Contents • requirements to comply with foreign privacy, data protection, cybersecurity and information security laws and regulations and the risks and costs of noncompliance; • increased expenses incurred in establishing and maintaining office space and equipment for our international operations; • difficulties in complying with regulations relating to AI and ML; • greater difficulty in identifying, attracting and retaining local qualified personnel, and the costs and expenses associated with such activities; • differing employment practices and labor relations issues; • difficulties in managing and staffing international offices and increased travel, infrastructure and legal compliance costs associated with multiple international locations; • fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business, including the British Pound, Indian Rupee and Euro, and related impact on sales cycles; and • the impact of natural disasters and public health pandemics and epidemics on customers, partners, suppliers, employees, travel and the global economy.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of The 53 Table of Contents Nasdaq Global Select Market, or Nasdaq.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of The Nasdaq Global Select Market, or Nasdaq.
If we fail to achieve market acceptance of our cloud platform or are unable to keep pace with industry changes, our ability to grow our business and our operating results will be materially and adversely affected. 18 Table of Contents If we are unable to attract new customers, our future results of operations could be harmed.
If we fail to achieve broad market acceptance of our cloud platform or are unable to keep pace with industry changes, our ability to grow our business and our operating results will be materially and adversely affected. If we are unable to attract new customers, our future results of operations could be harmed.
We have filed for patents in the United States and in certain non-U.S. jurisdictions, but such protections may not be available in all countries in which we operate or in which we seek to enforce our intellectual property rights, or may be difficult to enforce in practice.
We have filed for patents in the United States and in certain non-U.S. jurisdictions, but such 41 Table of Contents protections may not be available in all countries in which we operate or in which we seek to enforce our intellectual property rights, or may be difficult to enforce in practice.
Our business depends, in part, on sales to government organizations, and significant changes in the contracting or fiscal policies of such government organizations could have an adverse effect on our business and operating results.
Our business depends, in part, on sales to the public sector and significant changes in the contracting or fiscal policies of such public sector organizations could have an adverse effect on our business and operating results.
We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications.
We have from time to time experienced, and we may continue to experience, difficulty in hiring and retaining employees with appropriate qualifications.
Some of the factors that may cause our results of operations to fluctuate from quarter to quarter include: • broad market acceptance and the level of demand for our cloud platform; • our ability to attract new customers, particularly large enterprises; • our ability to retain customers and expand their usage of our platform, particularly our largest customers; • our ability to successfully expand internationally and penetrate key markets; • the effectiveness of our sales and marketing programs; • the length of our sales cycle, including the timing of renewals; • technological changes and the timing and success of new service introductions by us or our competitors or any other change in the competitive landscape of our market; 22 Table of Contents • increases in and timing of operating expenses that we may incur to grow and expand our operations and to remain competitive; • pricing pressure as a result of competition or otherwise; • seasonal buying patterns for IT spending, including the possible slowdown in IT spending due to the recent global economic downturn; • the quality and level of our execution of our business strategy and operating plan; • adverse litigation judgments, settlements or other litigation-related costs; • changes in the legislative or regulatory environment; • the impact and costs related to the acquisition of businesses, talent, technologies or intellectual property rights; • fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies; • changes in U.S. generally accepted accounting principles; and • general economic conditions in either domestic or international markets, including as a result of geopolitical uncertainty and instability (such as the Russia-Ukraine crisis) and global health crisis and pandemics, and governmental responses thereto.
Some of the factors that may cause our results of operations to fluctuate from quarter to quarter include: 22 Table of Contents • broad market acceptance and the level of demand for our cloud platform; • our ability to attract new customers, particularly large enterprises; • our ability to retain customers and expand their usage of our platform, particularly our largest customers; • our ability to successfully expand internationally and penetrate key markets; • the effectiveness of our sales and marketing programs; • the length of our sales cycle; • the timing and availability of renewals; • technological changes and the timing and success of new service introductions by us or our competitors or any other change in the competitive landscape of our market; • increases in and timing of operating expenses that we may incur to grow and expand our operations and to remain competitive; • pricing pressure as a result of competition or otherwise; • seasonal buying patterns for IT spending, including the possible slowdown in IT spending due to the recent global economic downturn; • the quality and level of our execution of our business strategy and operating plan; • reputational harm as a result of actual, perceived or purported technological failure or disruption; • adverse litigation judgments, settlements or other litigation-related costs; • changes in the legislative or regulatory environment; • the impact and costs related to the acquisition of businesses, talent, technologies or intellectual property rights; • fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies; • changes in U.S. generally accepted accounting principles; and • general economic conditions in either domestic or international markets, including as a result of geopolitical uncertainty and instability (such as the current conflicts between Russia and Ukraine and in the Middle East), global health crises and pandemics such as the COVID-19 pandemic, and governmental responses thereto.
The impact of economic conditions, including the ongoing effects of COVID-19, inflation and regional or global recessions could materially and adversely affect our business, operating results and financial condition in a number of ways, including by reducing sales, lengthening sales cycles and requiring us to lower prices for our services.
The impact of economic conditions, including the ongoing effects of inflation, high interest rates and regional or global recessions could materially and adversely affect our business, operating results and financial condition in a number of ways, including by reducing sales, lengthening sales cycles and requiring us to lower prices for our services.
Our ability to achieve significant growth in revenue in the future will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of these talented sales personnel in both the U.S. and international markets. New hires require significant training and may take significant time before they achieve full productivity.
Our ability to achieve significant growth in revenue in the future will depend, in large part, on our success in recruiting, training and retaining enough talented sales personnel in both the U.S. and international markets. New hires require significant training and may take significant time before they achieve full productivity.
Any acquisition or investment could expose us to unknown liabilities. Moreover, we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we would not be exposed to unknown liabilities.
Moreover, we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we would not be exposed to unknown liabilities.
Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our operating results.
Furthermore, our state carryforwards may be subject to similar and additional limitations. Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our operating results.
Moreover, we may need to expend additional resources to defend our intellectual property 36 Table of Contents rights in these countries, and our inability to do so could impair our business or adversely affect our international expansion.
Moreover, we may need to expend additional resources to defend our intellectual property rights in these countries, and our inability to do so could impair our business or adversely affect our international expansion.
As a result, our sales process often involves extensive efforts to educate our customers on the benefits and capabilities of our cloud platform, particularly as we continue to pursue customer relationships with large organizations. Even with these efforts, we cannot predict market acceptance of our cloud platform, or the success of competing products; services or technologies based on other technologies.
As a result, our sales process often involves extensive efforts to educate our customers on the benefits and capabilities of our cloud platform, particularly as we continue to pursue customer relationships with large organizations. Even with these efforts, we cannot predict long-term market acceptance of our cloud platform, or the adoption of competing products, services or technologies.
Our business depends on the overall demand for these solutions and on the economic health and general willingness of our current and prospective customers to purchase our security services. A broad reduction in IT security spending would have a material impact to our business. The United States has recently experienced historically high levels of inflation. According to the U.S.
Our business depends on the overall demand for these solutions and on the economic health and general willingness of our current and prospective customers to purchase our security services. A broad reduction in IT security spending would have a material impact to our business. The United States and the global economy have recently experienced historically high levels of inflation.
In addition, the technology industry has experienced component shortages, delivery delays and price increases in the past, and we may experience shortages, delays or materially increased costs, including as a result of natural disasters, increased demand in the industry or if our suppliers do not have sufficient rights to supply the components in all jurisdictions in which we may host our services.
In addition, the technology industry has experienced component shortages, delivery delays and price increases in the past, and we may experience shortages, delays or materially increased costs, including as a result of natural disasters, acts of war or international conflicts, epidemics or global pandemics, increased demand in the industry or if our suppliers do not have sufficient rights to supply the components in all jurisdictions in which we may host our services.
As a result, our new hires and planned hires may not become as productive as we would like, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future.
As a result, our new hires and planned hires may not become as productive as we would like, and we may be unable to hire or retain enough qualified individuals in the future.
In connection with the pricing of the Notes, we entered into privately negotiated capped call transactions with certain of the initial purchasers and/or their respective affiliates and other financial institutions (the “Option Counterparties”).
In connection with the pricing of the Notes, we entered into privately negotiated capped call transactions with certain of the initial purchasers and/or their respective affiliates and other financial institutions, or the Option Counterparties.
As of July 31, 2023, approximately half of our global work force is based in India and is comprised mostly of R&D, finance and operations professionals. Wage costs in India for skilled professionals are currently lower than in the United States for comparably skilled professionals.
As of July 31, 2024, 37% of our global work force is based in India and is comprised mostly of R&D, finance and operations professionals. Wage costs in India for skilled professionals are currently lower than in the United States for comparably skilled professionals.
Our data centers are vulnerable to damage or interruption from a variety of sources, including earthquakes, floods, fires, power loss, system failures, computer viruses, physical or electronic break-ins, human error or interference (including by disgruntled employees, former employees or contractors), and other catastrophic events, including those exacerbated by the effects of climate change.
Our data centers are vulnerable to damage and connections to our data centers may be interrupted by a variety of sources, including earthquakes, floods, fires, power loss, system or infrastructure failures, computer viruses, physical or electronic break-ins, human error or interference (including by disgruntled employees, former employees or contractors) and other catastrophic events, including those exacerbated by the effects of climate change.
Our data centers may also be subject to national or local administrative actions, changes in government regulations, including, for example, the impact of global economic and other sanctions like those levied in response to the Russia-Ukraine crisis, changes to legal or permitting requirements and litigation to stop, limit or delay operations.
Our data centers may also be subject to national or local administrative actions, changes in government regulations, including, for example, the impact of global economic and other sanctions like those levied in response to the current conflict between Russia and Ukraine, changes to legal or permitting requirements and 27 Table of Contents litigation to stop, limit or delay operations.
If we do not provide superior support to our customers, our ability to renew subscriptions, increase the number of users and sell additional services to customers will be adversely affected. We believe that successfully delivering our cloud solution requires a particularly high level of customer support and engagement.
If we do not provide superior support to our customers, our ability to renew subscriptions, increase the number of users and sell additional services to customers may be adversely affected. We believe that successfully delivering our cloud solution requires a highly skilled level of customer support and engagement.
Noncompliance with applicable regulations or requirements could subject us to: • investigations, enforcement actions and sanctions; • mandatory changes to our cloud platform; • disgorgement of profits, fines and damages; • civil and criminal penalties or injunctions; • claims for damages by our customers or channel partners; • termination of contracts; • loss of intellectual property rights; and • temporary or permanent debarment from sales to government organizations.
Noncompliance with applicable regulations or requirements could subject us to: • investigations, enforcement actions and sanctions; • mandatory changes to our cloud platform; • disgorgement of profits, fines and damages; • civil and criminal penalties or injunctions; • claims for damages by our customers or channel partners; • termination of contracts; and • loss of intellectual property rights.
These fluctuations could cause you to lose all or part of your 47 Table of Contents investment in our common stock.
These fluctuations could cause you to lose all or part of your investment in our common stock.
While we do not consider them to have been material, we have experienced, and may in the future experience, service disruptions and other performance problems due to a variety of factors. 23 Table of Contents The following factors, many of which are beyond our control, can affect the delivery and availability of our services and the performance of our cloud: • the development and maintenance of the infrastructure of the internet; • the performance and availability of third-party telecommunications services with the necessary speed, data capacity and security for providing reliable internet access and services; • decisions by the owners and operators of the data centers where our cloud infrastructure is deployed or by global telecommunications service provider partners who provide us with network bandwidth to terminate our contracts, discontinue services to us, shut down operations or facilities, increase prices, change service levels, limit bandwidth, declare bankruptcy or prioritize the traffic of other parties; • the occurrence of earthquakes, floods, fires, pandemics, power loss, system failures, physical or electronic break-ins, acts of war, international conflicts (such as the Russia-Ukraine crisis) or terrorism, human error or interference (including by disgruntled employees, former employees or contractors) and other catastrophic events; • cyberattacks, including denial of service attacks, targeted at us, our data centers, our global telecommunications service provider partners or the infrastructure of the internet; • government action to limit access to the internet; • failure by us to maintain and update our cloud infrastructure to meet our traffic capacity requirements; • errors, defects or performance problems in our software, including third-party software incorporated in our software, which we use to operate our cloud platform; • improper classification of websites by our vendors who provide us with lists of malicious websites; • improper deployment or configuration of our services; • the failure of our redundancy systems, in the event of a service disruption at one of our data centers, to provide failover to other data centers in our data center network; and • the failure of our disaster recovery and business continuity arrangements.
The following factors, many of which are beyond our control, can affect the delivery and availability of our services and the performance of our cloud: • the development and maintenance of the infrastructure of the internet; • the performance and availability of third-party telecommunications services with the necessary speed, data capacity and security for providing reliable internet access and services; • decisions by the owners and operators of the data centers where our cloud infrastructure is deployed or by global telecommunications service provider partners who provide us with network bandwidth to terminate our contracts, discontinue services to us, shut down operations or facilities, increase prices, change service levels, limit bandwidth, declare bankruptcy or prioritize the traffic of other parties; • the occurrence of earthquakes, floods, fires, pandemics, power loss, system failures, physical or electronic break-ins, acts of war, international conflicts (such as the current conflicts between Russia and Ukraine and in the Middle East) or terrorism, human error or interference (including by disgruntled employees, former employees or contractors) and other catastrophic events; • cyberattacks, including denial of service attacks, targeted at us, our data centers, our global telecommunications service provider partners or the infrastructure of the internet; • government action to limit access to the internet; • failure by us to maintain and update our cloud infrastructure to meet our traffic capacity requirements; • errors, defects or performance problems in our software, including those potentially introduced by our software updates and third-party software incorporated in our software, which we use to operate our cloud platform; • improper classification of websites by our vendors who provide us with lists of malicious websites; • improper deployment or configuration of our services by our customers; 26 Table of Contents • the failure of our redundancy systems, in the event of a service disruption at one of our data centers, to provide failover to other data centers in our data center network; and • the failure of our disaster recovery and business continuity arrangements.
We typically enter into a higher percentage of agreements with new customers, as well as renewal agreements with existing customers, in the second and fourth quarters of our fiscal year.
We typically enter into a higher percentage of agreements with new customers, as well as renewal agreements with existing customers, in the second half of our fiscal year.
For example, sales through our top five channel partners and their affiliates, in aggregate, represented 26% of our revenue for fiscal 2023, 28% of our revenue for fiscal 2022 and 34% of our revenue for fiscal 2021.
For example, sales through our top five channel partners and their affiliates, in aggregate, represented 25% of our revenue for fiscal 2024, 26% of our revenue for fiscal 2023 and 28% of our revenue for fiscal 2022.

… 198 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−2 removed2 unchanged
Biggest changeItem 2. Properties Our corporate headquarters are located in San Jose, California, where we currently lease approximately 172,000 square feet of space (the "leased premises") under a sublease agreement that expires in 2026 .
Biggest changeItem 2. Properties Our corporate headquarters are located in San Jose, California, where we currently lease approximately 172,000 square feet of space under a sublease agreement that expires in 2026 . We also maintain offices elsewhere in the United States, as well as multiple locations internationally, including in Asia, Europe and the Middle East.
Removed
We initially occupied approximately 69,000 square feet with the remainder of the leased premises to be occupied in phases over the initial term of the lease, with full occupancy expected to occur by October 2025.
Removed
We also maintain offices elsewhere in the United States, including in Alpharetta, Georgia; Burlington, Massachusetts; Boston, Massachusetts; Plano, Texas; Raleigh, North Carolina; McLean, Virginia, and Bellevue, Washington, as well as multiple locations internationally, including in Australia, Austria, Canada, Costa Rica, France, Germany, India, Israel, Japan, Netherlands, Singapore, Spain, Sweden, Switzerland and the United Kingdom.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+0 added−0 removed4 unchanged
Biggest changeCompany/Index July 31, 2018 (*) July 31, 2019 July 31, 2020 July 31, 2021 July 31, 2022 July 31, 2023 Zscaler, Inc. $ 100.00 $ 238.66 $ 367.74 $ 668.11 $ 439.14 $ 454.21 S&P 500 Index $ 100.00 $ 107.99 $ 120.90 $ 164.96 $ 157.31 $ 177.78 S&P 500 Information Technology Index $ 100.00 $ 115.72 $ 160.75 $ 225.10 $ 212.69 $ 269.79 _____ (*) Base period. 58 Table of Contents
Biggest changeCompany/Index July 31, 2019 (*) July 31, 2020 July 31, 2021 July 31, 2022 July 31, 2023 July 31, 2024 Zscaler, Inc. $ 100.00 $ 154.09 $ 279.95 $ 184.00 $ 190.32 $ 212.83 S&P 500 Index $ 100.00 $ 111.96 $ 152.76 $ 145.67 $ 164.63 $ 201.10 S&P 500 Information Technology Index $ 100.00 $ 138.91 $ 194.51 $ 183.79 $ 233.14 $ 315.19 _____ (*) Base period. 60 Table of Contents Item 6.
Item 5. Markets Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock has been listed on The Nasdaq Global Select Market under the ticker symbol "ZS" since March 16, 2018. Prior to that time, there was no public market for our common stock.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock has been listed on The Nasdaq Global Select Market under the ticker symbol "ZS" since March 16, 2018. Prior to that time, there was no public market for our common stock.
Securities Authorized for Issuance under Equity Compensation Plans The information required by this item with respect to our equity compensation plans is incorporated by reference to our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended July 31, 2023.
Securities Authorized for Issuance under Equity Compensation Plans The information required by this item with respect to our equity compensation plans is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended July 31, 2024.
All values assume a $100 initial investment and data for the Standard & Poor's 500 Index and Standard & Poor Information Technology Index assume 57 Table of Contents reinvestment of dividends. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our common stock.
All values assume a $100 initial 59 Table of Contents investment and data for the Standard & Poor's 500 Index and Standard & Poor Information Technology Index assume reinvestment of dividends. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our common stock.
This performance graph compares the cumulative total return to our stockholders to the Standard & Poor's 500 Index and Standard & Poor Information Technology Index for the five years ended July 31, 2023.
This performance graph compares the cumulative total return to our stockholders to the Standard & Poor's 500 Index and Standard & Poor Information Technology Index for the five years ended July 31, 2024.
Holders of Record As of July 31, 2023, we had 58 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Holders of Record As of July 31, 2024, we had 51 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

97 edited+6 added−42 removed97 unchanged
Biggest changeResults of Operations The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue: Year Ended July 31, 2023 2022 2021 (in thousands) Revenue $ 1,616,952 $ 1,090,946 $ 673,100 Cost of revenue (1)(2) 362,832 242,282 150,317 Gross profit 1,254,120 848,664 522,783 Operating expenses: Sales and marketing (1)(2) 953,864 735,219 459,407 Research and development (1)(2) 349,735 289,139 174,653 General and administrative (1)(3) 177,544 151,735 96,535 Restructuring and other charges (1) 7,600 — — Total operating expenses 1,488,743 1,176,093 730,595 Loss from operations (234,623) (327,429) (207,812) Interest income 60,462 4,586 2,812 Interest expense (4)(5) (6,541) (56,579) (53,364) Other income (expense), net (1,862) (4,208) 1,186 Loss before income taxes (182,564) (383,630) (257,178) Provision for income taxes 19,771 6,648 4,851 Net loss $ (202,335) $ (390,278) $ (262,029) _____ (1) Includes stock-based compensation expense and related payroll taxes as follows: Cost of revenue $ 40,297 $ 25,292 $ 15,272 Sales and marketing 222,280 202,211 144,273 Research and development 121,151 123,422 73,238 General and administrative 73,051 79,095 45,779 Restructuring and other charges 1,036 — — Total $ 457,815 $ 430,020 $ 278,562 69 Table of Contents (2) Includes amortization expense of acquired intangible assets as follows: Cost of revenue $ 9,574 $ 7,975 $ 6,468 Sales and marketing 773 704 327 Research and development 713 331 — Total $ 11,060 $ 9,010 $ 6,795 (3) Includes asset impairment related to facility exit as follows: $ — $ — $ 416 (4) Includes amortization of debt discount and issuance costs as follows: $ 3,894 $ 55,141 $ 51,923 (5) Effective August 1, 2022, we adopted ASU 2020-06 using the modified retrospective method under which prior period amounts have not been adjusted.
Biggest changeWe expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized based on our history of losses. 70 Table of Contents Results of Operations The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue: Year Ended July 31, 2024 2023 2022 (in thousands) Revenue $ 2,167,771 $ 1,616,952 $ 1,090,946 Cost of revenue (1)(2) 477,129 362,832 242,282 Gross profit 1,690,642 1,254,120 848,664 Operating expenses: Sales and marketing (1)(2) 1,100,239 953,864 735,219 Research and development (1)(2) 499,828 349,735 289,139 General and administrative (1) 212,052 177,544 151,735 Restructuring and other charges (1) — 7,600 — Total operating expenses 1,812,119 1,488,743 1,176,093 Loss from operations (121,477) (234,623) (327,429) Interest income 109,130 60,462 4,586 Interest expense (3)(5) (13,132) (6,541) (56,579) Other expense, net (3,750) (1,862) (4,208) Loss before income taxes (29,229) (182,564) (383,630) Provision for income taxes (4) 28,477 19,771 6,648 Net loss $ (57,706) $ (202,335) $ (390,278) (1) Includes stock-based compensation expense and related payroll taxes as follows: Cost of revenue $ 52,766 $ 40,297 $ 25,292 Sales and marketing 230,597 222,280 202,211 Research and development 186,107 121,151 123,422 General and administrative 79,630 73,051 79,095 Restructuring and other charges — 1,036 — Total $ 549,100 $ 457,815 $ 430,020 (2) Includes amortization expense of acquired intangible assets as follows: Cost of revenue $ 12,879 $ 9,574 $ 7,975 Sales and marketing 1,232 773 704 Research and development 513 713 331 Total $ 14,624 $ 11,060 $ 9,010 (3) Includes amortization of debt discount and issuance costs $ 3,914 $ 3,894 $ 55,141 (4) Includes tax benefit associated with the business acquisitions $ (1,864) $ — $ — (5) Effective August 1, 2022, we adopted ASU 2020-06 using the modified retrospective method under which prior period amounts have not been adjusted.
Investing Activities Net cash used in investing activities during fiscal 2023 of $259.3 million was primarily attributable to the purchases of short-term investments of $1,064.1 million, capital expenditures of $128.7 million to support the growth and expansion of our cloud platform, $15.6 million, net of cash acquired for business acquisitions, and $3.2 million for purchases of strategic investments.
Net cash used in investing activities during fiscal 2023 of $259.3 million was primarily attributable to the purchases of short-term investments of $1,064.1 million, capital expenditures of $128.7 million to support the growth and expansion of our cloud platform, $15.6 million, net of cash acquired for business acquisitions, and $3.2 million for purchases of strategic investments.
Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price ("SSP"). 5) Recognize revenue when or as we satisfy a performance obligation Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised service to a customer.
Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price, or SSP. 5) Recognize revenue when or as we satisfy a performance obligation Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised service to a customer.
Revenue Recognition In accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue From Contracts With Customers ("ASC 606"), revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these services.
Revenue Recognition In accordance with Accounting Standards Codification, or ASC, Topic 606, Revenue From Contracts With Customers, or ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these services.
Interest Expense Interest expense consists primarily of amortization of debt discount and issuance costs, recognition of contractual interest expense related to the Notes, and gains and losses related to changes in the fair value of interest rate swaps .
Interest Expense Interest expense consists primarily of amortization of debt issuance costs, recognition of contractual interest expense related to the Notes, and gains and losses related to changes in the fair value of interest rate swaps .
We apply judgment in 81 Table of Contents determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer. 2) Identify the performance obligations in the contract Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract.
We apply judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer. 2) Identify the performance obligations in the contract Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract.
Gross Profit and Gross Margin Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have been and will continue to be affected by various factors, including the timing of our acquisition of new customers and our renewals of and follow-on sales to existing customers, the average sales price of our services, mix of services offered in our solutions, including new product introductions, the data center and bandwidth costs associated with operating our cloud platform, the extent to which we expand our customer support and cloud operations organizations and the extent to which we can increase 66 Table of Contents the efficiency of our technology, infrastructure and data centers through technological improvements.
Gross Profit and Gross Margin Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have been and will continue to be affected by various factors, including the timing of our acquisition of new customers and our renewals of and follow-on sales to existing customers, the average sales price of our services, mix of services offered in our solutions, including new product introductions, the data center and bandwidth costs associated with operating our cloud platform, the extent to which we expand our customer support and cloud operations organizations and the extent to which we can increase the efficiency of our technology, infrastructure and data centers through technological improvements.
Net cash inflows were partially offset by cash outflows resulting from an increase of $183.9 million in accounts receivable primarily due to timing of billings and collections, an increase of $177.0 million in deferred contract acquisition costs, as our sales commission payments increased due to the addition of new customers and expansion of our existing customer subscriptions, an increase of $39.9 million in prepaid expenses, other current and noncurrent assets, a decrease of $32.2 million in operating lease liabilities primarily due to lease payments and a decrease of $8.4 million in accounts payable.
Net cash inflows were partially offset by cash outflows resulting from an increase of $183.9 million in accounts receivable primarily due to timing of billings and collections, an increase of $177.0 million in deferred contract acquisition costs, as our sales commission payments increased due to the addition of new customers and expansion of our existing customer subscriptions, an increase of $39.9 million in prepaid expenses, other current and noncurrent assets, a 78 Table of Contents decrease of $32.2 million in operating lease liabilities primarily due to lease payments and a decrease of $8.4 million in accounts payable.
Our dollar-based net retention rate may fluctuate due to a number of factors, including the performance of our cloud platform, our success in selling bigger deals, including deals for all employees with our higher-end bundles, selling multiple-pillars from the start of our contract with new customers, faster upsells within a year, the timing and the rate of ARR expansion of our existing customers, potential changes in our rate of renewals and other risk factors described elsewhere in this Annual Report on Form 10-K.
Our dollar-based net retention rate may fluctuate due to a number of factors, including the performance of our cloud platform, our success in selling bigger deals, including deals for all employees with our higher-end bundles, selling multiple-pillars from the start of our contract with new customers, faster upsells within a year, the timing and the rate of ARR expansion of our existing 64 Table of Contents customers, potential changes in our rate of renewals and other risk factors described elsewhere in this Annual Report on Form 10-K.
Net cash inflows were partially offset by cash outflows resulting from an 79 Table of Contents increase of $158.5 million in deferred contract acquisition costs, as our sales commission payments increased due to the addition of new customers and expansion of our existing customer subscriptions, an increase of $143.3 million in accounts receivable primarily due to timing of billings and collections, a decrease of $27.7 million in operating lease liabilities primarily due to lease payments and an increase of $10.3 million in prepaid expenses, other current and noncurrent assets.
Net cash inflows were partially offset by cash outflows resulting from an increase of $158.5 million in deferred contract acquisition costs, as our sales commission payments increased due to the addition of new customers and expansion of our existing customer subscriptions, an increase of $143.3 million in accounts receivable primarily due to timing of billings and collections, a decrease of $27.7 million in operating lease liabilities primarily due to lease payments and an increase of $10.3 million in prepaid expenses, other current and noncurrent assets.
Our cash equivalents and investments consist of highly liquid investments in money market funds, U.S. treasury securities, U.S. government agency securities and corporate debt securities. In June 2020, we completed the private offering of the Notes with an aggregate principal amount of $1,150.0 million.
Our cash equivalents and investments consist of highly liquid investments in money market funds, U.S. treasury securities, U.S. government agency securities, certificates of deposit and corporate debt securities. In June 2020, we completed the private offering of the Notes with an aggregate principal amount of $1,150.0 million.
This effectively represents recurring dollars that we expect in the next 12-month period from the cohort of customers that existed on the last day of the same reporting period in the prior fiscal year. 62 Table of Contents • Numerator: We measure the ARR for that same cohort of customers representing all subscriptions based on confirmed customer orders booked by us as of the end of the reporting period.
This effectively represents recurring dollars that we expect in the next 12-month period from the cohort of customers that existed on the last day of the same reporting period in the prior fiscal year. • Numerator: We measure the ARR for that same cohort of customers representing all subscriptions based on confirmed customer orders booked by us as of the end of the reporting period.
We determine SSP based on our overall pricing objectives, taking into consideration the type of subscription and support services and professional and other services, the geographical region of the customer and the number of users. Variable Consideration Revenue from sales is recorded at the net sales price, which is the transaction price, and includes estimates of variable consideration.
We determine SSP based on our overall pricing objectives, taking into consideration the type of subscription and support services and professional and other services, the geographical region of the customer and the number of users. 81 Table of Contents Variable Consideration Revenue from sales is recorded at the net sales price, which is the transaction price, and includes estimates of variable consideration.
Our actual results could vary as a result of, and our future capital requirements, both near-term and long-term, will depend on, many factors, including our growth rate, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing and international operating activities, the timing of new introductions of solutions or features, and the continuing market acceptance of our services, the impact of macroeconomic conditions, such as high inflation and recessionary environments, and global health crises like the COVID-19 pandemic to our and our customers', vendors' and partners' businesses.
Our actual results could vary as a result of, and our future capital requirements, both near-term and long-term, will depend on, many factors, including our growth rate, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing and international operating activities, the timing of new introductions of solutions or features, and the continuing market acceptance of our services, the impact of macroeconomic conditions, such as high inflation and recessionary environments, and the impact of global crises to our and our customers', vendors' and partners' businesses.
Professional and Other Services Revenue Professional and other services revenue consists of fees associated with providing deployment advisory services that educate and assist our customers on the best use of our solutions, as well as advise customers on best practices as they deploy 82 Table of Contents our solution. These services are distinct from subscription and support services.
Professional and Other Services Revenue Professional and other services revenue consists of fees associated with providing deployment advisory services that educate and assist our customers on the best use of our solutions, as well as advise customers on best practices as they deploy our solution. These services are distinct from subscription and support services.
For example, a contract for $3.0 million with a contractual term of three years would have an ARR of $1.0 million as long as our customer uses our cloud platform. Investing in Business Growth Since our founding, we have invested significantly in growing our business.
For example, a contract for $3.0 million with a contractual term of three years would have an ARR of $1.0 million as long as our customer uses our cloud platform. 63 Table of Contents Investing in Business Growth Since our founding, we have invested significantly in growing our business.
Refer to Note 8, Derivative Instruments and Note 10 , Convertible Senior Notes, of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Effective August 1, 2022, we adopted ASU 2020-06.
For further information refer to Note 8, Derivative Instruments and Note 10 , Convertible Senior Notes, of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Effective August 1, 2022, we adopted ASU 2020-06.
Our performance obligations consist of (i) our subscription and support services and (ii) professional and other services. 3) Determine the transaction price The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer.
Our performance obligations consist of (i) our subscription and support services and (ii) professional and other services. 80 Table of Contents 3) Determine the transaction price The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer.
Sales commissions for renewal of a contract are not considered commensurate with the commissions paid for the acquisition of the initial contract given the substantive difference in commission rates in proportion to their respective 83 Table of Contents contract values.
Sales commissions for renewal of a contract are not considered commensurate with the commissions paid for the acquisition of the initial contract given the substantive difference in commission rates in proportion to their respective contract values.
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.
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 71 Table of Contents classified as debt and amortized as interest expense.
New Customer Acquisition We believe that our ability to increase the number of customers, and more significantly customers in the Forbes Global 2000, on our cloud platform is an indicator of our market penetration and our future business opportunities. As of July 31, 2023, 2022 and 2021, we had over 7,700, 6,700 and 5,600 customers, respectively, across all major geographies.
New Customer Acquisition We believe that our ability to increase the number of customers, and more significantly customers in the Forbes Global 2000, on our cloud platform is an indicator of our market penetration and our future business opportunities. As of July 31, 2024, 2023 and 2022, we had over 8,650, 7,700 and 6,700 customers, respectively, across all major geographies.
We believe that most organizations have yet to fully make these investments. Since we enable organizations to securely embrace digital transformation, we believe that the imperative for organizations to securely move to the cloud will increase demand for our cloud platform and broaden our customer base.
We believe that most organizations have yet to fully make these investments. As our cloud platform enables organizations to securely embrace digital transformation, we believe that the imperative for organizations to securely move to the cloud will increase demand for our cloud platform and broaden our customer base.
The overall increase was driven primarily by the expanded use of our cloud platform by existing and new customers, which led to an increase of $68.2 million for data center and equipment related costs for hosting and operating our cloud platform.
The change was driven primarily by the expanded use of our cloud platform by existing and new customers, which led to an increase of $70.2 million for data center and equipment-related costs for hosting and operating our cloud platform.
Additionally, some of the factors that may influence our operations are not within our control, such as general economic conditions, geopolitical developments and the impact of global health crises like the COVID-19 pandemic. We may be required to seek additional equity or debt financing.
Additionally, some of the factors that may influence our operations are not within our control, such as general economic conditions, geopolitical developments and the impact of global crises. We may be required to seek additional equity or debt financing.
Dollar-Based Net Retention Rate We believe that dollar-based net retention rate is a key metric to measure the long-term value of our customer relationships because it is driven by our ability to retain and expand the recurring revenue generated from our existing customers.
Dollar-Based Net Retention Rate We believe that dollar-based net retention rate is an indicator to measure the long-term value of our customer relationships because it is driven by our ability to retain and expand the recurring revenue generated from our existing customers.
We used an aggregate amount of $145.2 million of the net proceeds of the Notes to purchase the Capped Calls. We have generated significant losses from operations, as reflected in our accumulated deficit of $1,090.4 million as of July 31, 2023.
We used an aggregate amount of $145.2 million of the net proceeds of the Notes to purchase the Capped Calls. We have generated significant losses from operations, as reflected in our accumulated deficit of $1,148.1 million as of July 31, 2024.
Our foreseeable cash needs, in addition to our recurring operating costs, include our expected capital expenditures to support expansion of our infrastructure and workforce, lease obligations, purchase commitments, potential business acquisitions and other strategic transactions.
Our foreseeable cash needs, in addition to our recurring operating costs, include our expected capital expenditures to support expansion of our infrastructure and workforce, lease obligations, purchase commitments, potential business acquisitions, convertible senior notes repayment requirements and other strategic transactions.
We recognize subscription and support revenue ratably over the life of the contract, which is generally one to three years. As of July 31, 2023, we had expanded our operations to over 7,700 customers across major industries, with users in 185 countries.
We recognize subscription and support revenue ratably over the life of the contract, which is generally one to three years. As of July 31, 2024, we had expanded our operations to over 8,650 customers across major industries, with users in over 185 countries.
Government agencies and some of the largest enterprises in the world rely on us to support their digital transformation, including more than 640 of the Forbes Global 2000 as of July 31, 2023. We operate our business as one reportable segment. Our revenue has experienced significant growth in recent periods.
Government agencies and some of the largest enterprises in the world rely on us to support their digital transformation, including approximately 35% of the Forbes Global 2000 as of July 31, 2024. We operate our business as one reportable segment. Our revenue has experienced significant growth in recent periods.
Net cash inflows from changes in operating assets and liabilities were primarily the result of an increase of $262.4 million in deferred revenue from advance invoicing in accordance with our subscription contracts, an increase of $43.9 million in accrued compensation, an increase of $7.5 million in accounts payable and an increase of $6.5 million in accrued expenses, other current and noncurrent liabilities.
Net cash inflows from changes in operating assets and liabilities were primarily the result of an increase of $450.3 million in deferred revenue from advance invoicing in accordance with our subscription contracts, an increase of $43.6 million in accrued expenses, other current and noncurrent liabilities, an increase of $10.5 million in accrued compensation and an increase of $4.2 million in accounts payable.
In particular, litigation-related expenses related to significant litigation claims may result in significant fluctuations from period to period, as they are inherently subject to change and difficult to estimate.
In particular, litigation-related expenses related 69 Table of Contents to significant litigation claims may result in significant fluctuations from period to period, as they are inherently subject to change and difficult to estimate.
We expect we will continue to incur net losses for the foreseeable future, as we continue to invest in our sales and marketing organization to take advantage of our market opportunity, to invest in research and development efforts to enhance the functionality of our cloud platform, to incur additional compliance and other related costs as we operate as a public company, and to address any legal matters and related accruals, as further described in Note 12, Commitments and Contingencies, of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We expect we will continue to incur net losses for the foreseeable future, as we continue to invest in our sales and marketing organization to maximize our market opportunity, to invest in research and development efforts to enhance the functionality of our cloud platform, and to address any legal matters and related accruals, as further described in Note 12, Commitments and Contingencies, of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Because our customers have repeat buying patterns and the average term of our contracts is more than 12 months, we measure this metric over a set of customers who were with us as of the last day of the same reporting period in the prior fiscal year. Our dollar-based net retention rate includes customer attrition.
Because our customers have repeat buying patterns and the average term of our contracts is more than 12 months, we measure this metric over a set of customers who were with us as of the last day of the same reporting period in the prior fiscal year.
Sales and Marketing Sales and marketing expenses consist primarily of employee compensation and related expenses, including salaries, bonuses and benefits for our sales and marketing employees, sales commissions that are recognized as expenses over the period of benefit, stock-based compensation expense, marketing programs, travel and entertainment expenses, expenses for conferences and events, amortization of intangible assets acquired through our business acquisitions and allocated overhead expenses.
Operating expenses also include overhead expenses for facilities, IT, depreciation expense and amortization expense. 68 Table of Contents Sales and Marketing Sales and marketing expenses consist primarily of employee compensation and related expenses, including salaries, bonuses and benefits for our sales and marketing employees, sales commissions that are recognized as expenses over the period of benefit, stock-based compensation expense, marketing programs, travel and entertainment expenses, expenses for conferences and events, amortization of intangible assets acquired through our business acquisitions and allocated overhead expenses.
As of July 31, 2023, we had over 640 of the Forbes Global 2000 as customers. Our ability to continue to grow these numbers will increase our future opportunities for renewals and follow-on sales.
As of July 31, 2024, we had approximately 35% of the Forbes Global 2000 as customers. Our ability to continue to grow these numbers will increase our future opportunities for renewals and follow-on sales.
We generally experience seasonality in terms of when we enter into agreements with our customers. We typically enter into a higher percentage of agreements with new customers, as well as renewal agreements with existing customers, in our second and fourth fiscal quarters.
We generally experience seasonality in terms of when we enter into agreements with our customers. We typically enter into a higher percentage of agreements with new customers, as well as renewal agreements with existing customers, in the second half of our fiscal year.
Net cash inflows were partially offset by cash outflows resulting from an increase of $137.7 million in deferred contract acquisition costs, as our sales commission payments increased due to the addition of new customers and expansion of our existing customer subscriptions, an increase of $111.6 million in accounts receivable primarily due to timing of billings and collections, a decrease of $22.1 million in operating lease liabilities primarily due to lease payments and an increase of $3.4 million in prepaid expenses, other current and noncurrent assets.
Net cash inflows were partially offset by cash outflows resulting from an increase of $200.3 million in deferred contract acquisition costs, as our sales commission payments increased due to the addition of new customers and expansion of our existing customer subscriptions, an increase of $153.0 million in accounts receivable primarily due to timing of billings and collections, a decrease of $49.2 million in operating lease liabilities primarily due to lease payments and an increase of $40.0 million in prepaid expenses, other current and noncurrent assets.
Certain Factors Affecting Our Performance Increased Internet Traffic and Adoption of Cloud-Based Software and Security The adoption of cloud applications and infrastructure, explosion of internet traffic volumes and shift to mobile-first computing generally, and the pace at which enterprises adopt the internet as their corporate network in particular, impact our ability to drive market adoption of our cloud platform.
These macroeconomic conditions may impact the future demand for subscriptions of our cloud platform. 62 Table of Contents Certain Factors Affecting Our Performance Increased Internet Traffic and Adoption of Cloud-Based Software and Security The adoption of cloud applications and infrastructure, explosion of internet traffic volumes and shift to mobile-first computing generally, and the pace at which enterprises adopt the internet as their corporate network in particular, impact our ability to drive market adoption of our cloud platform.
However, as a result of the challenging economic environment, potential new customers are increasingly taking longer to make purchasing decisions and requiring additional approvals for large expenditures. We expect customer cautiousness to continue in the near term, elongating our sales cycles and the timing of large deals. Follow-On Sales We typically expand our relationship with our customers over time.
However, as a result of the challenging and uncertain economic environment, potential new customers are carefully considering purchasing decisions, particularly for large expenditures. We expect customer cautiousness to continue in the near term, elongating our sales cycles and the timing of large deals. Follow-On Sales We typically expand our relationship with our customers over time.
As of July 31, 2023, we had deferred revenue of $1,439.7 million, of which $1,281.1 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
As of July 31, 2024, we had deferred revenue of $1,895.0 million, of which $1,643.9 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
Personnel expenses are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation expense and, with respect to sales and marketing expenses, sales commissions that are recognized as expenses over the period of benefit. Operating expenses also include overhead expenses for facilities, IT, depreciation expense and amortization expense.
Personnel expenses are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation expense and, with respect to sales and marketing expenses, sales commissions that are recognized as expenses over the period of benefit.
We typically invoice our customers annually in advance, and to a lesser extent quarterly in advance, monthly in advance or multi-year in advance. Calculated billings increased $554.0 million, or 37%, in fiscal 2023 over fiscal 2022, and $547.5 million, or 59%, in fiscal 2022 over fiscal 2021.
We typically invoice our customers annually in advance, and to a lesser extent quarterly in advance, monthly in advance or multi-year in advance. Calculated billings increased $587.6 million, or 29%, in fiscal 2024 over fiscal 2023, and $554.0 million, or 37%, in fiscal 2023 over fiscal 2022.
Additionally, our employee-related expenses increased by $41.8 million, inclusive of an increase of $15.3 million in stock-based compensation expense, driven primarily by a 25% increase in headcount in our customer support and cloud operations organizations. The remainder of the increase was primarily attributable to increased expenses of $7.4 million in facility and IT services.
Additionally, our employee-related expenses increased by $44.4 million , inclusive of an increase of $11.7 million in stock-based compensation expense, driven primarily by an increase in headcount in our customer support and cloud operations organizations. The remainder of the increase was primarily attributable to increased expenses of $2.0 million in facility and IT services.
Net cash provided by financing activities of $41.3 million during fiscal 2022 was primarily attributable to $34.6 million in proceeds from issuance of common stock under the ESPP and $6.9 million in proceeds from the exercise of stock options.
Net cash provided by financing activities of $46.0 million during fiscal 2023 was primarily attributable to $42.3 million in proceeds from issuance of common stock under the ESPP and $3.9 million in proceeds from the exercise of stock options.
Our fiscal years ended July 31, 2023, July 31, 2022 and July 31, 2021 are referred to as fiscal 2023, fiscal 2022 and fiscal 2021, respectively.
Our fiscal year ended July 31, 2024, July 31, 2023 and July 31, 2022 are referred to as fiscal 2024, fiscal 2023 and fiscal 2022, respectively.
To establish ARR for a customer, we use the total amount of each order booked to compute the annual recurring value of revenue that we would recognize if the customer continues to renew all contractual subscriptions.
These purchases increase the annual recurring revenue, or ARR, attributable to our customers over time. To establish ARR for a customer, we use the total amount of each order booked to compute the annual recurring value of revenue that we would recognize if the customer continues to renew all contractual subscriptions.
We believe that our existing cash, cash equivalents and short-term investments will be sufficient to fund our operating and capital needs for at least the next 12 months from the issuance of our financial statements.
We believe that our existing cash, cash equivalents and short-term investments will be sufficient to fund our working capital, capital expenditure, and convertible senior notes repayment requirements for at least the next 12 months from the issuance of our financial statements.
Year Ended July 31, 2023 2022 2021 (in thousands) Revenue $ 1,616,952 $ 1,090,946 $ 673,100 Add: Total deferred revenue, end of period 1,439,676 1,021,123 630,601 Less: Total deferred revenue, beginning of period (1,021,123) (630,601) (369,767) Calculated billings $ 2,035,505 $ 1,481,468 $ 933,934 65 Table of Contents Components of Results of Operations Revenue We generate revenue primarily from sales of subscriptions to access our cloud platform, together with related support services.
Year Ended July 31, 2024 2023 2022 (in thousands) Revenue $ 2,167,771 $ 1,616,952 $ 1,090,946 Add: Total deferred revenue, end of period 1,894,974 1,439,676 1,021,123 Less: Total deferred revenue, beginning of period (1,439,676) (1,021,123) (630,601) Calculated billings $ 2,623,069 $ 2,035,505 $ 1,481,468 Components of Results of Operations Revenue We generate revenue primarily from sales of subscriptions to access our cloud platform, together with related support services.
We leverage our land-and-expand model with the goal of generating incremental revenue, often within the term of the initial subscription, by increasing sales to our existing customers in one of three ways: • expanding deployment of our cloud platform to cover additional users; • upgrading to a more advanced Business or Transformation edition; and • selling a subscription to a new solution or product, for example selling a ZPA subscription to a ZIA customer or a ZIA subscription to a ZPA customer. 61 Table of Contents These purchases increase the Annual Recurring Revenue ("ARR") attributable to our customers over time.
We leverage our land-and-expand model with the goal of generating incremental revenue, often within the term of the initial subscription, by increasing sales to our existing customers in one of three ways: • expanding deployment of our cloud platform to cover additional users; • upgrading to more advanced capabilities for their current purchases; and • selling a subscription to a new solution or product, for example selling a ZPA subscription to a ZIA customer or a ZIA subscription to a ZPA customer.
The following table sets forth our results of operations for the periods presented as a percentage of our revenue: Year Ended July 31, 2023 2022 2021 Revenue 100% 100% 100% Cost of revenue 22 22 22 Gross margin 78 78 78 Operating expenses Sales and marketing 59 67 68 Research and development 22 27 26 General and administrative 11 14 15 Restructuring and other charges 1 — — Total operating expenses 93 108 109 Operating margin (15) (30) (31) Interest income 4 — 1 Interest expense — (5) (8) Other income (expense), net — — — Loss before income taxes (11) (35) (38) Provision for income taxes 1 1 1 Net loss (12)% (36)% (39)% 70 Table of Contents Comparison of Fiscal 2023 and Fiscal 2022 Revenue Year Ended July 31, Change 2023 2022 $ % (in thousands) Revenue $ 1,616,952 $ 1,090,946 $ 526,006 48 % Revenue increased by $526.0 million, or 48%, in fiscal 2023, compared to fiscal 2022.
The following table sets forth our results of operations for the periods presented as a percentage of our revenue: Year Ended July 31, 2024 2023 2022 Revenue 100% 100% 100% Cost of revenue 22 22 22 Gross margin 78 78 78 Operating expenses Sales and marketing 51 59 67 Research and development 23 22 27 General and administrative 10 11 14 Restructuring and other charges — 1 — Total operating expenses 84 93 108 Operating margin (6) (15) (30) Interest income 6 4 — Interest expense (1) — (5) Other expense, net — — — Loss before income taxes (1) (11) (35) Provision for income taxes 2 1 1 Net loss (3)% (12)% (36)% 72 Table of Contents Comparison of Fiscal 2024 and Fiscal 2023 Revenue Year Ended July 31, Change 2024 2023 $ % (in thousands) Revenue $ 2,167,771 $ 1,616,952 $ 550,819 34 % Revenue increased by $550.8 million, or 34%, in fiscal 2024, compared to fiscal 2023.
For fiscal 2023, fiscal 2022 and fiscal 2021, our revenue was $1,617.0 million, $1,090.9 million and $673.1 million, respectively. We have incurred net losses in all periods since our inception. For fiscal 2023, fiscal 2022 and fiscal 2021, our net loss was $202.3 million, $390.3 million and $262.0 million, respectively.
For fiscal 2024, fiscal 2023 and fiscal 2022, our revenue was $2,167.8 million, $1,617.0 million and $1,090.9 million, respectively. We have incurred net losses in all annual periods since our inception. For fiscal 2024, fiscal 2023 and fiscal 2022, our net loss was $57.7 million, $202.3 million and $390.3 million, respectively.
As of July 31, 2023, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Accordingly, we cannot predict the mix of invoicing schedules in any given period. 77 Table of Contents As of July 31, 2024, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
We expect our general and administrative expenses to increase in absolute dollars for the foreseeable future, as we continue to incur compliance expenses and other related expenses necessary to operate as a public company, and due to any legal matters and related accruals, as further described in Note 12, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We expect our general and administrative expenses to increase in absolute dollars for the foreseeable future as we increase the size of our general and administrative organizations, incur additional costs to support our business growth and due to any legal matters and related accruals, as further described in Note 12, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
The following table summarizes our cash flows for the periods presented: Year Ended July 31, 2023 2022 2021 (in thousands) Net cash provided by operating activities $ 462,343 $ 321,912 $ 202,040 Net cash provided by (used in) investing activities $ (259,337) $ 374,063 $ (109,668) Net cash provided by financing activities $ 45,990 $ 41,337 $ 41,675 Operating Activities Net cash provided by operating activities during fiscal 2023 was $462.3 million, which resulted from a net loss of $202.3 million, adjusted for non-cash charges of $636.1 million and net cash inflows of $28.6 million from changes in operating assets and liabilities.
The following table summarizes our cash flows for the periods presented: Year Ended July 31, 2024 2023 2022 (in thousands) Net cash provided by operating activities $ 779,846 $ 462,343 $ 321,912 Net cash provided by (used in) investing activities $ (683,180) $ (259,337) $ 374,063 Net cash provided by financing activities $ 64,208 $ 45,990 $ 41,337 Operating Activities Net cash provided by operating activities during fiscal 2024 was $779.8 million, which resulted from a net loss of $57.7 million, adjusted for non-cash charges of $771.5 million and net cash inflows of $66.1 million from changes in operating assets and liabilities.
The increase was driven primarily by higher interest rates and our increased balance of cash equivalents and short-term investments. Interest Expense Year Ended July 31, Change 2023 2022 $ % (in thousands) Interest expense $ (6,541) $ (56,579) $ 50,038 (88) % Interest expense decreased by $50.0 million for fiscal 2023, compared to fiscal 2022.
The change was driven primarily by higher interest rates and our increased balance of cash equivalents and short-term investments. Interest Expense Year Ended July 31, Change 2024 2023 $ % (in thousands) Interest expense $ (13,132) $ (6,541) $ (6,591) 101 % Interest expense increased by $6.6 million for fiscal 2024, compared to fiscal 2023.
Net cash provided by operating activities during fiscal 2021 was $202.0 million, which resulted from a net loss of $262.0 million, adjusted for non-cash charges of $418.5 million and net cash inflows of $45.6 million from changes in operating assets and liabilities.
Net cash provided by operating activities during fiscal 2023 was $462.3 million, which resulted from a net loss of $202.3 million, adjusted for non-cash charges of $636.1 million and net cash inflows of $28.6 million from changes in operating assets and liabilities.
Year Ended July 31, 2023 2022 2021 (in thousands) GAAP gross profit $ 1,254,120 $ 848,664 $ 522,783 Add: Stock-based compensation expense and related payroll taxes 40,297 25,292 15,272 Amortization expense of acquired intangible assets 9,574 7,975 6,468 Non-GAAP gross profit $ 1,303,991 $ 881,931 $ 544,523 GAAP gross margin 78 % 78 % 78 % Non-GAAP gross margin 81 % 81 % 81 % 63 Table of Contents Non-GAAP Income from Operations and Non-GAAP Operating Margin We define non-GAAP income from operations as GAAP loss from operations excluding stock-based compensation expense and related payroll taxes, amortization expense of acquired intangible assets, asset impairment related to facility exi t, and restructuring and other charges.
Year Ended July 31, 2024 2023 2022 (in thousands) GAAP gross profit $ 1,690,642 $ 1,254,120 $ 848,664 Add: Stock-based compensation expense and related payroll taxes 52,766 40,297 25,292 Amortization expense of acquired intangible assets 12,879 9,574 7,975 Non-GAAP gross profit $ 1,756,287 $ 1,303,991 $ 881,931 GAAP gross margin 78 % 78 % 78 % Non-GAAP gross margin 81 % 81 % 81 % Non-GAAP Income from Operations and Non-GAAP Operating Margin We define non-GAAP income from operations as GAAP loss from operations excluding stock-based compensation expense and related payroll taxes, amortization expense of acquired intangible assets, and restructuring and other charges.
Impact of macroeconomic conditions and global health crises like the COVID-19 pandemic Recent changes in macroeconomic conditions such as high inflation and potential recessionary environments can cause uncertainty in our business.
Impact of Macroeconomic Conditions Recent changes in macroeconomic conditions such as high inflation, high interest rates and potential recessionary environments, geopolitical factors, such as the current conflicts between Russia and Ukraine and in the Middle East, and global health crises, such as the recent resurgence of the COVID-19 pandemic, can cause uncertainty in our business.
As of July 31, 2023, the accrued employee payroll contributions to our ESPP was $7.4 million, which will be used to purchase shares at the end of the current purchase period ending on December 15, 2023.
Payroll contributions accrued as of July 31, 2024 will be used to purchase shares at the end of the current ESPP purchase period ending on December 16, 2024.
The increase was driven primarily by an increase in users and sales of additional subscriptions to existing customers, which contributed $440.6 million in additional revenue. The remainder of the increase was primarily attributable to the addition of new customers, as we increased our customer base by 14%.
The change in revenue was driven primarily by an increase in users and sales of additional subscriptions to existing customers, which contributed $471.8 million in additional revenue. The remainder of the increase was primarily attributable to the addition of new customers, as we increased our customer bas e by 12% f rom fiscal 2023 to fiscal 2024 .
Net cash used in investing activities during fiscal 2021 of $109.7 million was primarily attributable to the purchases of short-term investments of $815.5 million, capital expenditures of $58.3 million to support the growth of our cloud platform, $40.5 million, net of cash acquired for business acquisitions and expenditures on strategic investments of $3.1 million.
Investing Activities Net cash used in investing activities during fiscal 2024 of $683.2 million was primarily attributable to the purchases of short-term investments of $1,291.0 million, $374.7 million, net of cash acquired for business acquisitions, capital expenditures of $194.9 million to support the growth and expansion of our cloud platform, and $2.0 million for purchases of strategic investments.
Other Income (Expense), Net Other income (expense), net consists primarily of foreign currency transaction gains and losses and changes in fair value of our non-designated derivative instruments. 68 Table of Contents Provision for Income Taxes Our provision for income taxes consists primarily of income and withholding taxes in the foreign jurisdictions, and U.S. income taxes from a tax law change related to mandatory capitalization of research and development expenses for tax years starting January 1, 2022.
Provision for Income Taxes Our provision for income taxes consists primarily of income and withholding taxes in the foreign jurisdictions, and U.S. income taxes from a tax law change related to mandatory capitalization of research and development expenses for tax years starting January 1, 2022.
We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our operations that, after the investments in property, equipment and other assets and capitalized internal-use software, can be used for strategic initiatives, including investing in our business, and strengthening our financial position. 64 Table of Contents Free cash flow includes the cyclical impact of inflows and outflows resulting from contributions to our employee stock purchase plan for which the purchase period of approximately six months ends in each of our second and fourth fiscal quarters.
We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our operations that, after the investments in property, equipment and other assets and capitalized internal-use software, can be used for strategic initiatives, including investing in our business, and strengthening our financial position.
Year Ended July 31, 2023 2022 2021 (in thousands) Net cash provided by operating activities $ 462,343 $ 321,912 $ 202,040 Less: Purchases of property, equipment and other assets (97,197) (69,296) (48,165) Capitalized internal-use software (31,527) (21,284) (10,132) Free cash flow $ 333,619 $ 231,332 $ 143,743 As a percentage of revenue: Net cash provided by operating activities 29 % 30 % 30 % Less: Purchases of property, equipment and other assets (6) (7) (7) Capitalized internal-use software (2) (2) (2) Free cash flow margin 21 % 21 % 21 % Calculated Billings Calculated billings is a non-GAAP financial measure that we believe is a key metric to measure our periodic performance.
Payroll contributions ultimately used to purchase shares are reclassified to stockholders' equity on the purchase date. 66 Table of Contents Year Ended July 31, 2024 2023 2022 (in thousands) Net cash provided by operating activities $ 779,846 $ 462,343 $ 321,912 Less: Purchases of property, equipment and other assets (144,588) (97,197) (69,296) Capitalized internal-use software (50,308) (31,527) (21,284) Free cash flow $ 584,950 $ 333,619 $ 231,332 As a percentage of revenue: Net cash provided by operating activities 36 % 29 % 30 % Less: Purchases of property, equipment and other assets (7) (6) (7) Capitalized internal-use software (2) (2) (2) Free cash flow margin 27 % 21 % 21 % Calculated Billings Calculated billings is a non-GAAP financial measure that we believe is a key metric to measure our periodic performance.
We capitalize our sales commissions and associated payroll taxes and recognize them as expenses over the estimated period of benefit.
We capitalize our sales commissions and associated payroll taxes that are incremental to the acquisition of channel partner and direct customer contracts and recognize them as expenses over the estimated period of benefit.
Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosures. We evaluate our estimates and assumptions on an ongoing basis.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances.
The remainder of the increase was primarily attributable to increased expenses of $20.8 million in travel expenses, $17.8 million in marketing and advertising expense and $17.9 million in facility and IT services. 71 Table of Contents Research and Development Expenses Year Ended July 31, Change 2023 2022 $ % (in thousands) Research and development $ 349,735 $ 289,139 $ 60,596 21 % Research and development expenses increased by $60.6 million, or 21%, for fiscal 2023, compared to fiscal 2022, as we continued to develop and enhance the functionality of our cloud platform and integrate technologies acquired through our business combinations.
The remainder of the increase was primarily attributable to increased expenses of $30.2 million in marketing and advertising expenses, $16.4 million in travel expenses, $6.1 million in facility-related expenses and $3.0 million in professional services. 73 Table of Contents Research and Development Expenses Year Ended July 31, Change 2024 2023 $ % (in thousands) Research and development expenses $ 499,828 $ 349,735 $ 150,093 43 % Research and development expenses increased by $150.1 million, or 43%, for fiscal 2024, compared to fiscal 2023, as we continued to develop and enhance the functionality of our cloud platform and integrate technologies acquired through our business combinations.
Cost of Revenue and Gross Margin Year Ended July 31, Change 2023 2022 $ % (in thousands) Cost of revenue $ 362,832 $ 242,282 $ 120,550 50 % Gross margin 78 % 78 % Cost of revenue increased by $120.6 million, or 50%, in fiscal 2023, compared to fiscal 2022.
Cost of Revenue and Gross Margin Year Ended July 31, Change 2024 2023 $ % (in thousands) Cost of revenue $ 477,129 $ 362,832 $ 114,297 32 % Gross margin 78 % 78 % Cost of revenue increased by $114.3 million, or 32%, in fiscal 2024, compared to fiscal 2023.
Subscriptions that are invoiced annually in advance or multi-year in advance contribute significantly to our short-term and 78 Table of Contents long-term deferred revenue in comparison to our invoices issued quarterly in advance or monthly in advance. Accordingly, we cannot predict the mix of invoicing schedules in any given period.
Subscriptions that are invoiced annually in advance or multi-year in advance contribute significantly to our short-term and long-term deferred revenue in comparison to our invoices issued quarterly in advance or monthly in advance.
Subscription and related support services accounted for approximately 97% of our revenue for each of the fiscal 2023, fiscal 2022 and fiscal 2021, respectively. Our contracts with our customers do not at any time provide the customer with the right to take possession of the software that runs our cloud platform.
Subscription and related support services accounted for approximately 97% of our revenue for all periods presented. Our contracts with our customers do not at any time provide the customer with the right to take possession of the software that runs our cloud platform. Our customers may also purchase professional services, such as mapping, implementation, network design and training.
The increase was driven primarily by a 15% increase in headcount, resulting in an increase of $160.8 million in employee-related expenses, inclusive of an increase of $24.5 million in stock-based compensation expense, and an increase of $36.7 million in sales commissions expense.
The change was driven primarily by an increase of $98.3 million in employee-related expenses, inclusive of an increase of $31.1 million in sales commissions expense and an increase of $3.5 million in stock-based compensation expense.
General and Administrative Expenses Year Ended July 31, Change 2023 2022 $ % (in thousands) General and administrative $ 177,544 $ 151,735 $ 25,809 17 % General and administrative expenses increased by $25.8 million, or 17%, for fiscal 2023, compared to fiscal 2022.
General and Administrative Expenses Year Ended July 31, Change 2024 2023 $ % (in thousands) General and administrative expenses $ 212,052 $ 177,544 $ 34,508 19 % General and administrative expenses increased by $34.5 million, or 19%, for fiscal 2024, compared to fiscal 2023.
Non-cash charges primarily consisted of $258.5 million for stock-based compensation expense, $51.9 million for amortization of debt discount and issuance costs, $40.6 million for amortization of deferred contract acquisition costs, $29.7 million for depreciation and amortization expense, $21.0 million for non-cash operating lease costs, $11.7 million for amortization of investments premiums, net of accretion of purchase discounts, $6.8 million for amortization expense of acquired intangible assets, partially offset by deferred income taxes of $2.4 million.
Non-cash charges primarily consisted of $527.7 million for stock-based compensation expense, $130.1 million for amortization of deferred contract acquisition costs, $66.3 million for depreciation and amortization expense, $49.4 million for non-cash operating lease costs, $14.6 million for amortization expense of acquired intangible assets and $3.9 million for amortization of debt discount and issuance costs, partially offset by amortization (accretion) of investments purchased at a premium (discount) of $19.1 million and $5.6 million for deferred income taxes.
Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations.
Our actual results could differ from these estimates. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss below. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations.
The increase was driven primarily by an increase of $109.4 million in employee-related expenses, inclusive of an increase of $50.5 million in stock-based compensation expense, driven by a 54% increase in headcount.
The change was driven primarily by an increase of $145.9 million in employee-related expenses, inclusive of an increase of $62.6 million in stock-based compensation expense, primarily due to an increase in headcount.
Recently Issued Accounting Pronouncements Refer to Note 1, Business and Summary of Significant Accounting Policies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding recently issued accounting pronouncements.
We periodically review these deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred contract acquisition costs. 82 Recently Issued Accounting Pronouncements Refer to Note 1, Business and Summary of Significant Accounting Policies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding recently issued accounting pronouncements.
Contractual Obligations and Commitments Our principal commitments consist of obligations under our convertible senior notes, real estate arrangements, co-location and bandwidth arrangements and non-cancelable purchase obligations. For additional information, Refer to Note 10, Convertible Senior Notes, Note 11, Operating Leases and Note 12, Commitments and Contingencies, of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
For additional information, refer to Note 10, Convertible Senior Notes, Note 11, Operating Leases and Note 12, Commitments and Contingencies, of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with GAAP.
However, we expect our research and development expenses to decrease as a percentage of our revenue over the long term, although our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses. 67 Table of Contents General and Administrative General and administrative expenses consist primarily of employee-related expenses, including salaries and bonuses, stock-based compensation expense and employee benefit expenses for our finance, legal, human resources and administrative personnel, as well as professional fees for external legal services (including certain litigation-related expenses), accounting and other related consulting services.
General and Administrative General and administrative expenses consist primarily of employee-related expenses, including salaries and bonuses, stock-based compensation expense and employee benefit expenses for our finance, legal, human resources and administrative personnel, as well as professional fees for external legal services (including certain litigation-related expenses), accounting and other related consulting services.
We typically invoice our customers annually in advance, and to a lesser extent quarterly in advance, monthly in advance or multi-year in advance. We recognize revenue ratably over the life of the contract. Amounts that have been invoiced are recorded in deferred revenue, or they are recorded in revenue if the revenue recognition criteria have been met.
We 67 Table of Contents recognize revenue ratably over the life of the contract. Amounts that have been invoiced are recorded in deferred revenue, or they are recorded in revenue if the revenue recognition criteria have been met.
We also expect that calculated billings will be affected by seasonality in terms of when we enter into agreements with customers; and the mix of billings in each reporting period as we typically invoice customers annually in advance, and to a lesser extent quarterly in advance, monthly in advance or multi-year in advance.
As calculated billings continues to grow in absolute terms, we expect our calculated billings growth rate to trend down over time. We also expect that calculated billings will be affected by seasonality in terms of when we enter into agreements with customers; and the mix of billings in each reporting period .

… 65 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+0 added−0 removed11 unchanged
Biggest changeAdditionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of operations. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on the consolidated financial statements for fiscal 2023, fiscal 2022 and fiscal 2021.
Biggest changeAdditionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of operations. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on the consolidated financial statements for all periods presented.
Our cash equivalents and investments consist of highly liquid investments in money market funds, U.S. treasury securities, U.S. government agency securities and corporate debt securities. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments.
Our cash equivalents and investments consist of highly liquid investments in money market funds, U.S. treasury securities, U.S. government agency securities, certificates of deposit and corporate debt securities. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments.
Gains or losses related to our fair value hedges are included within interest expense in the consolidated statement of operations in the period of change together with the offsetting loss or gain on the hedged item attributed to risk being hedged. 84 Table of Contents Convertible Senior Notes In June 2020, we issued our Notes with an aggregate principal amount of $1,150.0 million.
Gains or losses related to our fair value hedges are included within interest expense in the consolidated statement of operations in the period of change together with the offsetting loss or gain on the hedged item attributed to risk being hedged. Convertible Senior Notes In June 2020, we issued our Notes with an aggregate principal amount of $1,150.0 million.
The fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading day of the reporting period. For further information refer to Note 10, Convertible Senior Notes, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
The fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading 83 Table of Contents day of the reporting period. For further information refer to Note 10, Convertible Senior Notes, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We also use foreign currency forward contracts to mitigate variability in gains and losses generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies. 85 Table of Contents
We also use foreign currency forward contracts to mitigate variability in gains and losses generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies. 84 Table of Contents
Item 7A. Quantitative and Qualitative Disclosures about Market Risk We have operations in the United States and internationally, and we are exposed to market risk in the ordinary course of our business. Interest Rate Risk As of July 31, 2023, we had cash, cash equivalents and short-term investments totaling $2,100.2 million, which were held for working capital purposes.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk We have operations in the United States and internationally, and we are exposed to market risk in the ordinary course of our business. Interest Rate Risk As of July 31, 2024, we had cash, cash equivalents and short-term investments totaling $2,409.7 million, which were held for working capital purposes.
As of July 31, 2023, the effect of a hypothetical 100 basis point change in interest rates would have changed the fair value of our investments in available-for-sale securities by $9.7 million.
As of July 31, 2024, the effect of a hypothetical 100 basis point change in interest rates would have changed the fair value of our investments in available-for-sale securities by $10.0 million.

Other ZS 10-K year-over-year comparisons