UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________________

FORM 10-Q 

_____________________________________

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2019 

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38413

_____________________________________

ZSCALER, INC.

(Exact Name of Registrant as Specified in Its Charter)

_____________________________________

Delaware (State or other jurisdiction of incorporation or organization)		26-1173892 (I.R.S. Employer Identification Number)
	110 Rose Orchard Way San Jose, California 95134 (Address of Principal executive offices)

Registrant’s telephone number, including area code: (408) 533-0288

___________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes ý No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	ý	Smaller reporting company	¨
(Do not check if a smaller reporting company)		Emerging growth company	ý

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨ No  ý

As of February 28, 2019, the number of shares of registrant’s common stock outstanding was 124,147,097. 

ZSCALER, INC.

Table of Contents

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of January 31, 2019 and July 31, 2018	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended January 31, 2019 and 2018	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended January 31, 2019 and 2018	5
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the Three and Six Months Ended January 31, 2019 and 2018	6
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended January 31, 2019 and 2018	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	51
Item 4.	Controls and Procedures	51
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 6.	Exhibits	85
	Signatures	86

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our products, plans, strategy for our business and related financing, financial outlook and market positioning. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. The words "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "intend," "could," "would," "project," "plan," "expect", "predict", "project", "seek", "should", "target" and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.

These forward-looking statements include, but are not limited to, statements concerning the following:

•our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses (including changes in sales and marketing, research and development and general and administrative expenses), and our ability to achieve, and maintain, profitability;

•market acceptance of our cloud platform;

•the effects of increased competition in our markets and our ability to compete effectively;

•our ability to maintain the security and availability of our cloud platform;

•our ability to maintain and expand our customer base, including by attracting new customers;

•our ability to develop new solutions, or enhancements to our existing solutions, and bring them to market in a timely manner;

•anticipated trends, growth rates and challenges in our business and in the markets in which we operate;

•our business plan and our ability to effectively manage our growth and associated investments;

•beliefs and objectives for future operations;

•our relationships with third parties, including channel partners;

•our ability to maintain, protect and enhance our intellectual property rights;

•our ability to successfully defend litigation brought against us;

•our ability to successfully expand in our existing markets and into new markets;

•sufficiency of cash to meet cash needs for at least the next 12 months;

•our ability to comply with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;

•the attraction and retention of qualified employees and key personnel; and

•the future trading prices of our common stock.

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These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in "Risk Factors" elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements and you should not place undue reliance on our forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

You should read this Quarterly Report on Form 10-Q in conjunction with the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended July 31, 2018 filed with the Securities and Exchange Commission, or the SEC, on September 13, 2018.

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PART I. FINANCIAL INFORMATION

Item. 1 Financial Statements

ZSCALER, INC.

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

(unaudited)

	January 31, 2019		July 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	67,467	$	135,579
Short-term investments	272,476		162,960
Accounts receivable, net	75,470		61,611
Deferred contract acquisition costs	18,058		16,136
Prepaid expenses and other current assets	12,540		10,878
Total current assets	446,011		387,164
Property and equipment, net	25,762		19,765
Deferred contract acquisition costs, noncurrent	42,543		39,774
Other noncurrent assets	3,797		1,078
Total assets	$	518,113	$	447,781
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,459	$	4,895
Accrued expenses and other current liabilities	13,934		12,313
Accrued compensation	15,541		23,393
Liability for early exercise of unvested stock options	972		1,561
Deferred revenue	176,326		140,670
Total current liabilities	210,232		182,832
Deferred revenue, noncurrent	29,694		23,353
Other noncurrent liabilities	1,114		1,360
Total liabilities	241,040		207,545
Commitments and contingencies (Note 6)
Stockholders’ Equity
Preferred stock; $0.001 par value; 200,000 shares authorized as of January 31, 2019 and July 31, 2018; no shares issued and outstanding as of January 31, 2019 and July 31, 2018	—		—
Common stock; $0.001 par value; 1,000,000 shares authorized as of January 31, 2019 and July 31, 2018; 123,897 and 119,764 shares issued and outstanding as of January 31, 2019 and July 31, 2018, respectively	124		119
Additional paid-in capital	483,951		438,392
Notes receivable from stockholders	—		(2,051)
Accumulated other comprehensive loss	(59)		(124)
Accumulated deficit	(206,943)		(196,100)
Total stockholders’ equity	277,073		240,236
Total liabilities and stockholders’ equity	$	518,113	$	447,781

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

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ZSCALER, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended January 31,				Six Months Ended January 31,
	2019		2018		2019		2018
Revenue	$	74,302	$	44,976	$	137,600	$	84,837
Cost of revenue	15,271		8,679		27,370		16,950
Gross profit	59,031		36,297		110,230		67,887
Operating expenses:
Sales and marketing	38,756		27,110		75,301		54,038
Research and development	15,071		9,183		28,257		17,992
General and administrative	10,386		6,403		20,517		13,533
Total operating expenses	64,213		42,696		124,075		85,563
Loss from operations	(5,182)		(6,399)		(13,845)		(17,676)
Interest income, net	1,924		213		3,514		408
Other income, net	250		28		62		1
Loss before income taxes	(3,008)		(6,158)		(10,269)		(17,267)
Provision for income taxes	547		357		874		646
Net loss	$	(3,555)	$	(6,515)	$	(11,143)	$	(17,913)
Accretion of Series C and D redeemable convertible preferred stock	—		(2,579)		—		(5,109)
Net loss attributable to common stockholders	$	(3,555)	$	(9,094)	$	(11,143)	$	(23,022)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.03)	$	(0.29)	$	(0.09)	$	(0.74)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	122,741		31,434		121,664		31,125

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

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ZSCALER, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

	Three Months Ended January 31,				Six Months Ended January 31,
	2019		2018		2019		2018
Net loss	$	(3,555)	$	(6,515)	$	(11,143)	$	(17,913)
Other comprehensive income, net of tax:
Unrealized net gains on available-for-sale securities	258		—		65		—
Other comprehensive income	258		—		65		—
Comprehensive loss	$	(3,297)	$	(6,515)	$	(11,078)	$	(17,913)

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

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ZSCALER, INC.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and

Stockholders’ Equity (Deficit)

(in thousands)

(unaudited)

Three Months Ended January 31, 2019:

	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Notes Receivable From Stockholders		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance as of October 31, 2018	—	$	—	122,106	$	122	$	455,761	$	—	$	(317)	$	(203,388)	$	252,178
Issuance of common stock upon exercise of stock options	—	—		1,161	1		5,696		—		—		—		5,697
Issuance of common stock under the employee stock purchase plan	—	—		627	1		8,690		—		—		—		8,691
Vesting of restricted stock units	—	—		3	—		—		—		—		—		—
Adjustment to initial public offering costs	—	—		—	—		300		—		—		—		300
Vesting of early exercised stock options	—	—		—	—		277		—		—		—		277
Stock-based compensation	—	—		—	—		13,227		—		—		—		13,227
Other comprehensive income	—	—		—	—		—		—		258		—		258
Net loss	—	—		—	—		—		—		—		(3,555)		(3,555)
Balance as of January 31, 2019	—	$	—	123,897	$	124	$	483,951	$	—	$	(59)	$	(206,943)	$	277,073

Three Months Ended January 31, 2018:

	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Notes Receivable From Stockholders		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance as of October 31, 2017	72,501	$	203,507	32,233	$	19	$	20,133	$	(7,710)	$	—	$	(173,852)	$	(161,410)
Accretion of Series C and D redeemable convertible preferred stock	—	2,579		—	—		(2,579)		—		—		—		(2,579)
Issuance of common stock upon exercise of stock options	—	—		418	—		960		—		—		—		960
Issuance of common stock related to early exercised stock options	—	—		180	—		—		—		—		—		—
Accrued interest on notes receivable from stockholders, net of repayments	—	—		—	—		—		(45)		—		—		(45)
Vesting of early exercised stock options	—	—		—	—		467		—		—		—		467
Stock-based compensation	—	—		—	—		2,064		—		—		—		2,064
Net loss	—	—		—	—		—		—		—		(6,515)		(6,515)
Balance as of January 31, 2018	72,501	$	206,086	32,831	$	19	$	21,045	$	(7,755)	$	—	$	(180,367)	$	(167,058)

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

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ZSCALER, INC.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and

Stockholders’ Equity (Deficit)

(in thousands)

(unaudited)

Six Months Ended January 31, 2019:

	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Notes Receivable From Stockholders		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance as of July 31, 2018	—	$	—	119,764	$	119	$	438,392	$	(2,051)	$	(124)	$	(196,100)	$	240,236
Cumulative effect of accounting change	—	—		—	—		(300)		—		—		300		—
Issuance of common stock upon exercise of stock options	—	—		3,511	4		15,489		—		—		—		15,493
Issuance of common stock under the employee stock purchase plan	—	—		627	1		8,690		—		—		—		8,691
Vesting of restricted stock units	—	—		3	—		—		—		—		—		—
Repurchases of unvested common stock	—	—		(8)	—		—		—		—		—		—
Repayments of principal amount on notes receivable from stockholders	—	—		—	—		—		1,905		—		—		1,905
Accrued interest on notes receivable from stockholders, net of repayments	—	—		—	—		—		146		—		—		146
Adjustment to initial public offering costs	—	—		—	—		300		—		—		—		300
Vesting of early exercised stock options	—	—		—	—		567		—		—		—		567
Stock-based compensation	—	—		—	—		20,813		—		—		—		20,813
Other comprehensive income	—	—		—	—		—		—		65		—		65
Net loss	—	—		—	—		—		—		—		(11,143)		(11,143)
Balance as of January 31, 2019	—	$	—	123,897	$	124	$	483,951	$	—	$	(59)	$	(206,943)	$	277,073

Six Months Ended January 31, 2018:

	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Notes Receivable From Stockholders		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance as of July 31, 2017	72,501	$	200,977	32,359	$	18	$	18,734	$	(7,878)	$	—	$	(162,016)	$	(151,142)
Cumulative effect of accounting change	—	—		—	—		438		—		—		(438)		—
Accretion of Series C and D redeemable convertible preferred stock	—	5,109		—	—		(5,109)		—		—		—		(5,109)
Issuance of common stock upon exercise of stock options	—	—		841	1		2,170		—		—		—		2,171
Issuance of common stock related to early exercised stock options	—	—		180	—		—		—		—		—		—
Repurchases of unvested common stock	—	—		(549)	—		—		214		—		—		214
Accrued interest on notes receivable from stockholders, net of repayments	—	—		—	—		—		(91)		—		—		(91)
Vesting of early exercised stock options	—	—		—	—		1,015		—		—		—		1,015
Stock-based compensation	—	—		—	—		3,797		—		—		—		3,797
Net loss	—	—		—	—		—		—		—		(17,913)		(17,913)
Balance as of January 31, 2018	72,501	$	206,086	32,831	$	19	$	21,045	$	(7,755)	$	—	$	(180,367)	$	(167,058)

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

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ZSCALER, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Six Months Ended January 31,
	2019		2018
Cash Flows From Operating Activities
Net loss	$	(11,143)	$	(17,913)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense	4,662		3,910
Amortization of acquired intangible assets	239		—
Amortization of deferred contract acquisition costs	8,781		5,932
Stock-based compensation expense	20,813		3,797
Accretion of purchase discounts, net of amortization of investment premiums	(1,125)		—
Other	202		(92)
Changes in operating assets and liabilities:
Accounts receivable	(13,859)		(8,482)
Deferred contract acquisition costs	(13,472)		(11,213)
Prepaid expenses and other assets	(2,778)		(1,094)
Accounts payable	(786)		(2,211)
Accrued expenses and other liabilities	1,042		445
Accrued compensation	(7,852)		(1,185)
Deferred revenue	41,997		22,638
Net cash provided by (used in) operating activities	26,721		(5,468)
Cash Flows From Investing Activities
Purchases of property, equipment and other	(8,607)		(7,045)
Capitalized internal-use software	(903)		(950)
Acquired intangible assets	(1,480)		—
Purchases of short-term investments	(179,896)		—
Proceeds from maturities of short-term investments	71,603		—
Net cash used in investing activities	(119,283)		(7,995)
Cash Flows From Financing Activities
Payments of offering costs related to initial public offering	(1,797)		(2,896)
Proceeds from issuance of common stock upon exercise of stock options	15,493		2,171
Proceeds from issuance of common stock related to early exercised stock options	—		869
Proceeds from issuance of common stock under the employee stock purchase plan	8,691		—
Repurchases of unvested common stock	(22)		(3,090)
Repayments of notes receivable from stockholders	1,905		—
Net cash provided by (used in) financing activities	24,270		(2,946)
Net decrease in cash, cash equivalents and restricted cash	(68,292)		(16,409)
Cash, cash equivalents and restricted cash at beginning of period	136,147		88,546
Cash, cash equivalents and restricted cash at end of period	$	67,855	$	72,137
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes	$	1,121	$	267
Supplemental Disclosure of Noncash Investing and Financing Activities:
Net change in purchased equipment included in accounts payable and accrued expenses	$	1,544	$	(363)
Accretion of Series C and D redeemable convertible preferred stock	$	—	$	5,109
Repurchases of unvested common stock by cancellation of indebtedness	$	—	$	214
Vesting of early exercised common stock options	$	567	$	1,015
Net change in deferred offering costs accrued	$	(2,097)	$	203
Reconciliation of cash, cash equivalents and restricted cash within the condensed consolidated balance sheets to the amounts shown in the statements of cash flows above:
Cash and cash equivalents	$	67,467	$	71,569
Restricted cash, current	96		180
Restricted cash, non-current	292		388
Total cash, cash equivalents and restricted cash	$	67,855	$	72,137

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

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ZSCALER, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Business and Summary of Significant Accounting Policies

Description of the Business

Zscaler, Inc. ("Zscaler," the "Company," "we," "us," or "our") is a cloud security company that developed a platform incorporating core security functionalities needed to enable users to safely utilize authorized applications and services based on an organization’s policies. Our solution is a purpose-built, multi-tenant, distributed cloud security platform that secures access for users and devices to applications and services, regardless of location. We deliver our solutions using a software-as-a-service ("SaaS") business model and sell subscriptions to customers to access our cloud platform, together with related support services. We were incorporated in Delaware in September 2007 and conduct business worldwide, with presence in North America, Europe and Asia. Our headquarters are in San Jose, California.

Reverse Stock Split

In March 2018, our board of directors approved an amendment to the Company's amended and restated certificate of incorporation effecting a 2-for-3 reverse stock split of the Company's issued and outstanding shares of common stock and convertible preferred stock. The reverse stock split was effected on March 1, 2018. All issued and outstanding share and per share amounts included in the accompanying condensed consolidated financial statements have been adjusted to reflect this reverse stock split for all periods presented.

Initial Public Offering

In March 2018, we completed our initial public offering ("IPO") of common stock, in which we sold 13,800,000 shares. The shares were sold at an IPO price of $16.00 per share for net proceeds of $205.3 million, after deducting underwriters' discounts and commissions of $15.5 million. In connection with the IPO, we incurred offering costs of $6.2 million which were recorded in stockholders’ equity as a reduction of the net proceeds received from the IPO. Immediately prior to the closing of the IPO, all our outstanding shares of convertible preferred stock were automatically converted into 72,500,750 shares of common stock on a one-to-one basis.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") and applicable regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting, and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable required disclosures and regulations of the SEC. Therefore, these unaudited condensed consolidated financial statements and accompanying footnotes should be read in conjunction with the Company's audited consolidated financial statements and related notes in its Annual Report on Form 10-K for the fiscal year ended July 31, 2018 (the "Fiscal 2018 Form 10-K"), as filed with the SEC on September 13, 2018.

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Interim Unaudited Condensed Consolidated Financial Statements

The accompanying condensed balance sheet as of July 31, 2018 was derived from the audited financial statements as of that date. The accompanying interim condensed consolidated financial statements, including the consolidated balance sheets as of January 31, 2019, the consolidated statements of operations for the three and six months ended January 31, 2019 and 2018, the consolidated statements of comprehensive loss for the three and six months ended January 31, 2019 and 2018, the consolidated statements of cash flows for the six months ended January 31, 2019 and 2018, the consolidated statement of redeemable convertible preferred stock and stockholders’ equity (deficit) for the three and six months ended January 31, 2019 and 2018 are unaudited. The related financial data and the other financial information disclosed in the accompanying notes to these condensed consolidated financial statements are also unaudited. These interim unaudited condensed consolidated financial statements have been prepared on a basis consistent with our annual consolidated financial statements and, in our opinion, include all normal recurring adjustments necessary to state fairly our quarterly results. The results of operations for the three and six months ended January 31, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending July 31, 2019 or for any other future fiscal year or interim period.

JOBS Act Extended Transition Period

We are an emerging growth company ("EGC") as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). As an EGC, the JOBS Act allows us to take advantage of specified reduced reporting requirements that are otherwise generally applicable to public companies, including, but not limited to, delayed adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have irrevocably elected not to avail ourselves of the extended transition periods available under the JOBS Act for complying with new and revised accounting standards and, therefore, we are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

As a result of our transition to large accelerated filer status as of July 31, 2019, we will cease to qualify as an emerging growth company and will no longer have the option to take advantage of the extended transition period.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Such estimates include, but are not limited to, the determination of revenue recognition, deferred revenue, deferred contract acquisition costs, valuation of acquired intangible assets, the period of benefit generated from our deferred contract acquisition costs, allowance for doubtful accounts, valuation of common stock options and stock-based awards, useful lives of property and equipment, useful lives of acquired intangible assets, loss contingencies related to litigation and valuation of deferred tax assets. Management determines these estimates and assumptions based on historical experience and on various other assumptions that are believed to be reasonable. Actual results could differ significantly from these estimates, and such differences may be material to the condensed consolidated financial statements.

Fiscal Year

Our fiscal year ends on July 31. References to fiscal 2019, for example, refer to our fiscal year ending July 31, 2019.

Significant Accounting Policies

Our significant accounting policies are discussed in the "Index to Consolidated Financial Statements, Note 1. Business and Summary of Significant Accounting Policies" in the Fiscal 2018 Form 10-K. There have been no significant changes to these policies that have had a material impact on our condensed consolidated financial statements and related notes for the three and six months ended January 31, 2019. The following describes the impact of certain policies.

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Revenue Recognition

We adopted Accounting Standards Codification ("ASC") Topic 606, Revenue From Contracts With Customers ("ASC 606") on August 1, 2017, using the full retrospective transition method.

Disaggregation of Revenue

Subscription and support revenue is recognized over time and accounted for approximately 97% and 99% of our revenue for the three months ended January 31, 2019 and 2018, respectively, and approximately 98% of our revenue for the six months ended January 31, 2019 and 2018.

The following table summarizes the revenue by region based on the shipping address of customers who have contracted to use our cloud platform:

	Three Months Ended January 31,								Six Months Ended January 31,
	2019				2018				2019				2018
	Amount		% Revenue		Amount		% Revenue		Amount		% Revenue		Amount		% Revenue
	(in thousands, except per percentage data)
United States	$	37,626	51	%	$	20,224	45	%	$	67,433	49	%	$	39,985	47	%
Europe, Middle East and Africa (*)	29,552		40	%	20,168		45	%	56,946		41	%	37,154		44	%
Asia Pacific	5,674		7	%	3,465		8	%	10,463		8	%	6,554		8	%
Other	1,450		2	%	1,119		2	%	2,758		2	%	1,144		1	%
Total	$	74,302	100	%	$	44,976	100	%	$	137,600	100	%	$	84,837	100	%

^(*) Revenue from the United Kingdom ("U.K.") represented 10% and 12% of our revenue for the three months ended January 31, 2019 and 2018, respectively, and 10% and 11% for the six months ended January 31, 2019 and 2018, respectively.

The following table summarizes the revenue from contracts by type of customer:

	Three Months Ended January 31,								Six Months Ended January 31,
	2019				2018				2019				2018
	Amount		% Revenue		Amount		% Revenue		Amount		% Revenue		Amount		% Revenue
	(in thousands, except per percentage data)
Channel partners	$	71,074	96	%	$	41,258	92	%	$	131,093	95	%	$	77,429	91	%
Direct customers	3,228		4	%	3,718		8	%	6,507		5	%	7,408		9	%
Total	$