What changed in this filing

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Item 1. Financial Statements

2020-09-04 compared with 2020-06-05 · 199 added, 98 removed, 489 unchanged (38% of the section changed)

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of April 30, 2020 and January 31, 2020

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended April 30, 2020 and 2019

Condensed Consolidated Statement of Stockholders' Equity for the Three Months Ended April 30, 2020 and 2019

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2020 and 2019

Condensed Consolidated Balance Sheets as of July 31, 2020 and January 31, 2020

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended July 31 , 2020 and 2019

Condensed Consolidated Statement of Stockholders' Equity for the Three and Six Months Ended July 31, 2020 and 2019

Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended July 31, 2020 and 2019

Notes to Condensed Consolidated Financial Statements

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▪ our ability to effectively sustain and manage our growth and future expenses, and our ability to achieve and maintain future profitability;

▪ our expectations regarding the impact of the COVID-19 pandemic on our business;

▪ our expectations regarding the impact of the ongoing COVID-19 pandemic on our business, the businesses of our customers, partners and suppliers, and the economy;

▪ our ability to attract new customers and to maintain and expand our existing customer base;

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except per share data) April 30, 2020 January 31, 2020

(in thousands, except per share data) July 31, 2020 January 31, 2020

Current assets

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Preferred stock, $ 0.0001 par value;

10,000 shares authorized, 0 shares issued and outstanding as of April 30, 2020 and January 31, 2020

10,000 shares authorized, 0 shares issued and outstanding as of July 31, 2020 and January 31, 2020

Common stock, $ 0.0001 par value;

500,000 shares authorized, 183,428 shares outstanding as of April 30, 2020;

500,000 shares authorized, 185,137 shares outstanding as of July 31, 2020;

500,000 shares authorized, 181,254 shares outstanding as of January 31, 2020

Additional paid-in capital 1,749,323 1,685,167

Accumulated other comprehensive loss ( 6,703 ) ( 1,673 )

Accumulated other comprehensive income (loss) 2,098 ( 1,673 )

Accumulated deficit ( 1,249,549 ) ( 1,137,185 )

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

Three Months Ended April 30,

Three Months Ended July 31, Six Months Ended July 31,

(in thousands, except per share data) 2020 2019 2020 2019

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Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted 184,862 175,389 183,930 173,773

Other comprehensive loss:

Foreign currency translation loss, net of tax $ ( 5,189 ) $ ( 1,631 )

Other comprehensive income (loss):

Foreign currency translation gain (loss), net of tax $ 8,714 $ ( 45 ) $ 3,525 $ ( 1,676 )

Unrealized gains on investments, net of tax 87 358 246 696

Other comprehensive loss ( 5,030 ) ( 1,293 )

Other comprehensive income (loss) 8,801 313 3,771 ( 980 )

Comprehensive loss $ ( 55,759 ) $ ( 68,319 ) $ ( 108,593 ) $ ( 115,334 )

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity

(in thousands) Shares Amount

Balances at April 30, 2020 183,428 $ 18 $ 1,714,462 $ ( 6,703 ) $ ( 1,184,989 ) $ 522,788

Exercise of stock options 460 — 5,403 — — 5,403

Settlement of RSUs 1,002 1 ( 1 ) — — —

Tax withholding on RSU settlement — — ( 89,449 ) — — ( 89,449 )

Issuance of shares as consideration for acquisition 247 — 48,361 — — 48,361

Employee stock-based compensation — — 70,547 — — 70,547

Net loss — — — — ( 64,560 ) ( 64,560 )

Other comprehensive income, net — — — 8,801 — 8,801

Balances at July 31, 2020 185,137 $ 19 $ 1,749,323 $ 2,098 $ ( 1,249,549 ) $ 501,891

Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity

(in thousands) Shares Amount

Balances at April 30, 2019 173,628 $ 17 $ 1,575,471 $ ( 3,258 ) $ ( 974,548 ) $ 597,682

Exercise of stock options 1,235 — 10,194 — — 10,194

Settlement of RSUs 1,090 1 ( 1 ) — — —

Tax withholding on RSU settlement — — ( 29,841 ) — — ( 29,841 )

Employee stock-based compensation — — 56,963 — — 56,963

Net loss — — — — ( 68,632 ) ( 68,632 )

Other comprehensive income, net — — — 313 — 313

Balances at July 31, 2019 175,953 $ 18 $ 1,612,786 $ ( 2,945 ) $ ( 1,043,180 ) $ 566,679

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

DOCUSIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity

(in thousands) Shares Amount

Balances at January 31, 2020 181,254 $ 18 $ 1,685,167 $ ( 1,673 ) $ ( 1,137,185 ) $ 546,327

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Employee stock purchase plan 256 — 13,590 — — 13,590

Employee stock-based compensation expense — — 54,793 — — 54,793

Issuance of shares as consideration for acquisition 247 — 48,361 — — 48,361

Employee stock-based compensation — — 125,340 — — 125,340

Net loss — — — — ( 112,364 ) ( 112,364 )

Other comprehensive loss, net — — — ( 5,030 ) — ( 5,030 )

Balances at April 30, 2020 183,428 $ 18 $ 1,714,462 $ ( 6,703 ) $ ( 1,184,989 ) $ 522,788

Other comprehensive income, net — — — 3,771 — 3,771

Balances at July 31, 2020 185,137 $ 19 $ 1,749,323 $ 2,098 $ ( 1,249,549 ) $ 501,891

Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity

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Tax withholding on RSU settlement — — ( 85,978 ) — — ( 85,978 )

Employee stock purchase plans 231 — 10,563 — — 10,563

Employee stock-based compensation expense — — 43,703 — — 43,703

Employee stock purchase plan 231 — 10,563 — — 10,563

Employee stock-based compensation — — 100,666 — — 100,666

Net loss — — — — ( 114,354 ) ( 114,354 )

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Other comprehensive loss, net — — — ( 980 ) — ( 980 )

Balances at April 30, 2019 173,628 $ 17 $ 1,575,471 $ ( 3,258 ) $ ( 974,548 ) $ 597,682

Balances at July 31, 2019 175,953 $ 18 $ 1,612,786 $ ( 2,945 ) $ ( 1,043,180 ) $ 566,679

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Three Months Ended April 30,

Six Months Ended July 31,

(in thousands) 2020 2019

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Cash flows from investing activities:

Cash paid for acquisition, net of acquired cash ( 180,370 ) —

Purchases of marketable securities ( 11,667 ) ( 530,886 )

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)

Three Months Ended April 30,

Six Months Ended July 31,

(in thousands) 2020 2019

7 unchanged sentences

Derecognition of build-to-suit lease — 2,479

Fair value of shares issued as consideration for acquisition 48,361 —

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

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Geographic Information

Subsequent Events

DOCUSIGN, INC.

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We merged with and into DocuSign, Inc., a Delaware corporation, in March 2015.

We provide a platform that enables businesses of all sizes to digitally prepare, execute and act on agreements, thereby simplifying and accelerating the process of doing business.

We provide a platform that enables businesses of all sizes to digitally prepare, sign, act on and manage agreements, thereby simplifying and accelerating the process of doing business.

Basis of Presentation and Principles of Consolidation

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The accompanying condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information.

Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”).

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 rules and regulations of the Securities and Exchange Commission (“SEC”).

Therefore, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2020 Annual Report on Form 10-K.

Our condensed consolidated financial statements are unaudited and have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and, in our opinion, include all adjustments of a normal recurring nature necessary for the fair statement of our financial position, results of operations and cash flows.

Our condensed consolidated balance sheet as of January 31, 2020 was derived from audited financial statements but does not include all disclosures required by GAAP.

The results of operations for the three months ended April 30, 2020 are not necessarily indicative of the results to be expected for the year ending January 31, 2021 .

Our condensed consolidated balance sheet as of January 31, 2020 was derived from audited financial statements but does not include all disclosures required by U.S.

The results of operations for the six months ended July 31, 2020 are not necessarily indicative of the results to be expected for the year ending January 31, 2021 .

O ur fiscal year ends on January 3 1.

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Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in the condensed consolidated financial statements and notes thereto.

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions in the condensed consolidated financial statements and notes thereto.

Significant items subject to such estimates and assumptions made by management include, but are not limited to, the determination of:

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Estimated credit losses are determined using a discounted cash flow model and recorded as an allowance, with changes in expected credit losses on our investments recorded in “Interest income and other income, net” in the consolidated statements of operations and comprehensive loss.

Unrealized gains and losses related to noncredit factors are reflected in “Other comprehensive income (loss)” on the consolidated balance sheets.

Unrealized gains and losses related to noncredit factors are reflected in “Accumulated other comprehensive income (loss)” on the consolidated balance sheets.

Recently Adopted Accounting Pronouncements

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2016-13, Financial Instruments — Credit Losses (Topic 326).

The FASB subsequently issued ASU No.

The Financial Accounting Standards Board (“FASB”) subsequently issued ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.

These updates change the impairment model for most financial assets and will require the use of an expected loss model in place of the currently used incurred loss method.

These updates change the impairment model for most financial assets and require the use of an expected loss model in place of the previously used incurred loss method.

Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset.

The effect of adopting ASU 2016-13 and ASU 2019-04 on our consolidated financial statements and related disclosures was not material for the three months ended April 30, 2020.

The effect of adopting ASU 2016-13 and ASU 2019-04 on our consolidated financial statements and related disclosures was not material for the six months ended July 31, 2020.

On February 1, 2020, we adopted ASU No.

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The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update.

The impact of prospectively adopting ASU 2018-15 on our consolidated financial statements was not material for the three months ended April 30, 2020.

The impact of prospectively adopting ASU 2018-15 on our consolidated financial statements was not material for the six months ended July 31, 2020.

Other Recent Accounting Pronouncements

Other recently issued accounting pronouncements are not expected to have a material impact on our consolidated financial statements.

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).

The update removes separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature.

Such convertible debt will be accounted for as a single liability measured at its amortized cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives.

The update also requires the if-converted method to be used for convertible instruments and the effect of potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares.

The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

The amendment is to be adopted through either a fully retrospective or modified retrospective method of transition.

Early adoption is permitted.

We are in the process of evaluating the impact of the adoption of the update on our consolidated financial statements.

Revenue and Performance Obligations

Subscription revenue is recognized over time and accounted for approximately 95 % and 94 % of our revenue for the three months ended April 30, 2020 and 2019.

As of April 30, 2020, the amount of the transaction price allocated to remaining performance obligations for contracts greater than one year was $ 784.9 million.

We expect to recognize 54 % of the transaction price allocated to remaining performance obligations within the 12 months following April 30, 2020, in our consolidated statement of operations and comprehensive loss.

Subscription revenue is recognized over time and accounted for approximately 95 % and 94 % of our revenue for the three months ended July 31, 2020 and 2019.

It accounted for approximately 95 % and 94 % of our revenue for the six months ended July 31, 2020 and 2019.

As of July 31, 2020, the amount of the transaction price allocated to remaining performance obligations for contracts greater than one year was $ 849.0 million.

We expect to recognize 54 % of the transaction price allocated to remaining performance obligations within the 12 months following July 31, 2020, in our consolidated statement of operations and comprehensive loss.

Fair Value Measurements

The following table summarizes our financial assets that are measured at fair value on a recurring basis:

April 30, 2020

July 31, 2020

(in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

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Total $ 818,970 $ 1,204 $ ( 82 ) $ 820,092

(1) Included in “cash and cash equivalents” in our consolidated balance sheets as of April 30, 2020 and January 31, 2020, in addition to cash of $ 272.8 million and $ 75.8 million.

(1) Included in “cash and cash equivalents” in our consolidated balance sheets as of July 31, 2020 and January 31, 2020, in addition to cash of $ 107.0 million and $ 75.8 million.

We use quoted prices in active markets for identical assets to determine the fair value of our Level 1 investments.

The fair value of our Level 2 investments is determined using pricing based on quoted market prices or alternative market observable inputs .

The fair value of our available-for-sale securities as of April 30, 2020, by remaining contractual maturities, were as follows (in thousands):

The fair value of our available-for-sale securities as of July 31, 2020, by remaining contractual maturities, were as follows (in thousands):

Due in one year or less $ 269,777

Due in one to two years 66,265

As of April 30, 2020, we had a total of 133 available-for-sale securities, with 43 securities in an unrealized loss position.

As of July 31, 2020, we had a total of 97 available-for-sale securities, with 17 securities in an unrealized loss position.

An allowance for credit losses was deemed unnecessary for these securities, given the extent of the unrealized loss positions as well the issuers' high credit ratings and consistent payment history.

As of January 31, 2020, we had 178 available-for-sale securities, none of which were considered to be other-than-temporarily impaired.

We had no liabilities measured at fair value on a recurring basis as of April 30, 2020 and January 31, 2020.

We had no liabilities measured at fair value on a recurring basis as of July 31, 2020 and January 31, 2020.

Convertible Senior Notes

As of April 30, 2020 and January 31, 2020, the estimated fair value of our 0.5 % Convertible Senior Notes (the “Notes”) with aggregate principal amount of $ 575.0 million was $ 903.0 million and $ 743.5 million.

As of July 31, 2020 and January 31, 2020, the estimated fair value of our 0.5 % Convertible Senior Notes (the “Notes”) with aggregate principal amount of $ 575.0 million was $ 1.7 billion and $ 743.5 million.

We estimated the fair value based on the quoted market prices in an inactive market on the last trading day of the reporting period (Level 2).

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Property and equipment consisted of the following:

(in thousands) April 30, 2020 January 31, 2020

(in thousands) July 31, 2020 January 31, 2020

Computer and network equipment $ 80,716 $ 66,937

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$ 150,646 $ 128,293

As of April 30, 2020 and January 31, 2020 , work in progress consisted primarily of capitalized costs of internally-developed software projects under development and leasehold improvements related to office build-out projects.

We capitalized $ 5.1 million and $ 5.9 million of internally developed software and implementation costs incurred in hosting arrangements for the three months ended April 30, 2020 and 2019.

Such amounts included capitalized stock-based compensation of $ 1.2 million and $ 1.4 million in the three months ended April 30, 2020 and 2019 .

Depreciation expense associated with property and equipment $ 9.8 million and $ 7.2 million for the three months ended April 30, 2020 and 2019.

As of July 31, 2020 and January 31, 2020 , work in progress consisted of capitalized costs of internally-developed software projects under development and data center build-out projects.

As of January 31, 2020, work in progress also included office build out projects, most of which were completed as of July 31, 2020 .

For the three months ended July 31, 2020 and 2019, we capitalized $ 6.8 million and $ 4.5 million of internally developed software, including $ 1.9 million and $ 1.2 million of capitalized stock-based compensation.

For the six months ended July 31, 2020 and 2019, we capitalized $ 11.0 million and $ 10.4 million of internally developed software, including $ 2.9 million and $ 2.6 million of capitalized stock-based compensation.

Depreciation expense associated with property and equipment was $ 10.5 million and $ 7.9 million for the three months ended July 31, 2020 and 2019, and $ 20.3 million and $ 15.1 million for the six months ended July 31, 2020 and 2019.

Acquisition of Seal Software Group Limited

On May 1, 2020, we completed the acquisition of Seal Software Group Limited (“Seal”), a contract analytics and artificial intelligence (“AI”) technology provider headquartered in Walnut Creek, California.

We expect to integrate Seal's technology comprehensively across the DocuSign Agreement Cloud to deliver increased functionality to companies using the Agreement Cloud to prepare, sign, act on and manage agreements.

Under the terms of the purchase agreement, we paid $ 184.7 million in cash, net of cash acquired, transaction costs and working capital adjustments, for Seal’s outstanding stock.

Prior to the acquisition, we held a $ 15.0 million minority investment in Seal’s outstanding stock.

As of the acquisition, the fair value of our minority interest, calculated as the difference between the total acquisition consideration and the portion attributable to third party Seal shareholders, approximated the carrying value.

Additionally, we granted certain continuing employees of Seal restricted stock units (“RSUs”) with service and performance conditions covering up to 0.1 million shares of our common stock with an aggregate grant date fair value of $ 11.4 million that will be accounted for as a post-acquisition compensation expense over the vesting period.

The performance-based condition will be satisfied upon Seal meeting certain bookings targets for the year ended January 31, 2021.

As of July 31, 2020, it was not probable that these targets would be met .

We accounted for the transaction as a business combination using the acquisition method of accounting.

We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date.

Fair values were determined using the income and cost approaches.

Excess purchase price consideration was recorded as goodwill and is primarily attributable to the assembled workforce and expanded market opportunities when integrating Seal’s AI and analytics capabilities within our existing product offering.

The purchase price allocation was prepared on a preliminary basis and is subject to further adjustments as additional information becomes available concerning the fair value of the assets acquired and liabilities assumed.

Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the acquisition date.

The following table summarizes the preliminary acquisition date fair values of assets acquired and liabilities assumed at the date of acquisition:

(in thousands) May 1, 2020

Cash and cash equivalents $ 729

Accounts receivable 9,654

Contract assets 5,813

Prepaid expense and other assets 7,204

Property and equipment 915

Goodwill 114,356

Intangible assets 83,700

Right-of-use Assets 3,130

Accounts payable ( 854 )

Accrued compensation ( 2,697 )

Contract liabilities ( 7,745 )

Accrued expenses and other liabilities ( 6,523 )

Lease liabilities ( 3,126 )

Deferred tax liability—noncurrent ( 4,103 )

None of the goodwill recognized upon acquisition was deductible for U.K.

federal income tax purposes.

The estimated useful lives of intangible assets, primarily based on the expected period of benefit to us, and fair values of the identifiable intangible assets at acquisition date were as follows:

(in thousands, except years) Estimated Fair Value Expected Useful Life

Existing technology $ 37,400 5 years

Customer relationships—subscription 41,700 10 years

Backlog—subscription 4,600 2 years

Total intangible assets $ 83,700

The results of operations of Seal, which were not material to our consolidated results of operations, were included in our consolidated statements from the acquisition date.

In the three and six months ended July 31, 2020 , we incurred acquisition costs of $ 5.3 million and $ 6.0 million.

These costs included legal, accounting fees and other costs directly related to the acquisition of Seal and are recognized within operating expenses in our condensed consolidated statements of operations.

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the acquisition occurred on February 1, 2019.

It includes pro forma adjustments related to the amortization of acquired intangible assets, share-based compensation expense, professional services revenue and contract acquisitions costs adjustments under the new revenue recognition standard, and contract liabilities fair value adjustment.

The unaudited pro forma results have been prepared based on estimates and assumptions, which we believe are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the acquisition occurred on February 1, 2019, or of future results of operations:

Three Months Ended July 31, Six Months Ended July 31,

(in thousands) 2020 2019 2020 2019

Revenue $ 344,596 $ 241,548 $ 648,581 $ 459,566

Net loss ( 58,422 ) ( 81,158 ) ( 118,425 ) ( 147,683 )

Net loss per share attributable to common stockholders, basic and diluted ( 0.32 ) ( 0.46 ) ( 0.64 ) ( 0.85 )

Acquisition of Liveoak Technologies, Inc.

On July 6, 2020, we completed the acquisition of Liveoak Technologies, Inc.

(“Liveoak”), a virtual customer engagement and business platform based in Austin, Texas.

The company’s platform includes several technologies specific to remote agreements, such as video conferencing, video identity verification, collaborative form-filling, an integration with DocuSign eSignature, and a detailed audit trail.

The acquisition enables us to leverage Liveoak's technology and expertise to accelerate the launch of DocuSign Notary, a new product for remote online notarization, where signers and the notary public are in different places.

The consideration to acquire Liveoak’s outstanding stock was $ 48.4 million, which consisted primarily of the fair value of our common stock issued and the fair value of stock options assumed.

We recorded approximately $ 39.9 million of goodwill which is primarily attributed to the assembled workforce and expanded market opportunities for integrating Liveoak’s technology with our existing product offering.

Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the acquisition date.

None of the goodwill recognized upon acquisition was deductible for U.S.

federal income tax purposes.

In the three and six months ended July 31, 2020 , we incurred costs of $ 1.6 million directly related to the acquisition of Liveoak.

These costs are recognized within operating expenses in our condensed consolidated statements of operations.

We included the results of operations of Liveoak in our condensed consolidated statements of operations from the acquisition date.

These results were not material to our condensed consolidated statements of operations for the three and six months ended July 31, 2020.

Goodwill and Intangible Assets, Net

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Balance at January 31, 2020 $ 194,882

Additions—Seal 114,356

Additions—Liveoak 39,921

Cumulative translation adjustment 95

Balance at April 30, 2020 $ 193,594

Balance at July 31, 2020 $ 349,254

Intangible assets consisted of the following:

As of April 30, 2020 As of January 31, 2020

As of July 31, 2020 As of January 31, 2020

(in thousands, except years) Weighted-average Remaining Useful Life (Years) Estimated Fair Value Accumulated Amortization Acquisition-related Intangibles, Net Estimated Fair Value Accumulated Amortization Acquisition-related Intangibles, Net

Existing technology 4.2 $ 72,994 $ ( 29,177 ) $ 43,817 $ 31,594 $ ( 25,164 ) $ 6,430

Tradenames / trademarks 0.0 2,419 ( 2,419 ) — 2,419 ( 2,369 ) 50

Customer contracts & related relationships 8.4 110,082 ( 23,877 ) 86,205 65,782 ( 19,071 ) 46,711

Certifications 0.5 6,917 ( 6,575 ) 342 6,917 ( 6,229 ) 688

Maintenance contracts & related relationships 0.5 1,498 ( 1,478 ) 20 1,498 ( 1,403 ) 95

Backlog—Subscription 0.4 6,400 ( 5,308 ) 1,092 6,400 ( 4,508 ) 1,892

Other 1.5 22,534 ( 17,382 ) 5,152 17,234 ( 14,509 ) 2,725

6.8 $ 205,610 $ ( 70,436 ) 135,174 $ 114,610 $ ( 58,744 ) 55,866

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Amortization of finite-lived intangible assets was as follows:

Three Months Ended April 30,

Three Months Ended July 31, Six Months Ended July 31,

(in thousands) 2020 2019 2020 2019

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Total $ 7,416 $ 4,420 $ 11,675 $ 9,153

As of April 30, 2020, future amortization of finite-lived intangibles that will be recorded in cost of revenue and operating expenses is estimated as follows:

As of July 31, 2020, future amortization of finite-lived intangibles that will be recorded in cost of revenue and operating expenses is estimated as follows:

Fiscal Period:

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Contract assets represent amounts for which we have recognized revenue, pursuant to our revenue recognition policy, for contracts that have not yet been invoiced to our customers where there is a remaining performance obligation, typically for multi-year arrangements.

Total contract assets were $ 14.2 million and $ 13.4 million as of April 30, 2020 and January 31, 2020, of which $ 0.9 million were noncurrent for both periods and included within “ Other assets—noncurrent ” on our condensed consolidated balance sheets.

Total contract assets were $ 17.8 million and $ 13.4 million as of July 31, 2020 and January 31, 2020, of which $ 0.8 million and $ 0.9 million were noncurrent and included within “ Other assets—noncurrent ” on our condensed consolidated balance sheets.

The change in contract assets reflects the difference in timing between our satisfaction of remaining performance obligations and our contractual right to bill our customers.

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Such amounts are generally recognized as revenue over the contractual period.

For the three months ended April 30, 2020 and 2019, we recognized revenue of $ 224.7 million and $ 157.0 million that was included in the corresponding contract liability balance at the beginning of the periods presented.

For the six months ended July 31, 2020 and 2019, we recognized revenue of $ 375.8 million and $ 265.7 million that was included in the corresponding contract liability balance at the beginning of the periods presented.

We receive payments from customers based upon contractual billing schedules.

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The following table represents a rollforward of our deferred contract acquisition and fulfillment costs:

Three Months Ended April 30,

Six Months Ended July 31,

(in thousands) 2020 2019

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The net proceeds from the issuance of the Notes were $ 560.8 million after deducting the initial purchasers’ discounts and transaction costs.

As of April 30, 2020, the conversion conditions described in our 2020 Annual Report on Form 10-K have not been met and therefore the Notes are not yet convertible.

As of July 31, 2020, the conversion conditions described in our 2020 Annual Report on Form 10-K were met.

The last reported sales price of our common stock was greater than or equal to 130 % of the conversion price for at least 20 trading days during a period of 30 consecutive trading days ending on, and including, the last trading day of the three months ended July 31, 2020.

The Notes therefore became convertible on August 1, 2020 and continue to be convertible through October 31, 2020.

The net carrying value of the liability component of the Notes was as follows:

(in thousands) April 30, 2020 January 31, 2020

(in thousands) July 31, 2020 January 31, 2020

Principal $ 575,000 $ 575,000

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Net carrying amount $ 479,105 $ 465,321

As of April 30, 2020 and January 31, 2020, the net carrying amount of the equity component of the Notes was $ 131.3 million, net of $ 3.3 million transaction costs.

As of July 31, 2020 and January 31, 2020, the net carrying amount of the equity component of the Notes was $ 131.3 million, net of $ 3.3 million transaction costs.

The interest expense recognized related to the Notes was as follows:

Three Months Ended April 30,

Three Months Ended July 31, Six Months Ended July 31,

(in thousands) 2020 2019 2020 2019

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Impact on Loss Per Share

In periods when we have net income, the Notes will not have an impact on our diluted earnings per share until the average market price of our common stock exceeds the initial conversion price of $ 71.50 per share, as we intend and have the ability to settle the principal amount of the Notes in cash upon conversion.

In periods when we have net income, the conversion premium on the Notes is included in our diluted earnings per share when the average market price of our common stock exceeds the initial conversion price of $ 71.50 per share, as we intend and have the ability to settle the principal amount of the Notes in cash upon conversion.

We are required under the treasury stock method to compute the potentially dilutive shares of common stock related to the Notes for periods we report net income.

However, upon conversion, there will be no economic dilution from the Notes until the average market price of our common stock exceeds the cap price of $ 110.00 per share, as exercise of the Capped Calls offsets any dilution from the Notes from the conversion price up to the cap price.

However, upon conversion, there will be no economic dilution from the Notes unless the market price of our common stock exceeds the cap price of $ 110.00 per share, as exercise of the Capped Calls offsets any dilution from the Notes from the conversion price up to the cap price.

Capped Calls are excluded from the calculation of diluted earnings per share, as they would be antidilutive.

We lease offices under noncancelable operating lease agreements that expire at various dates through February 2032.

As of April 30, 2020, we had no finance leases.

As of July 31, 2020, we had no finance leases.

Some operating leases contain escalation provisions for adjustments in the consumer price index.

The following table is a summary of our lease costs:

Three Months Ended April 30,

Three Months Ended July 31, Six Months Ended July 31,

(in thousands) 2020 2019 2020 2019

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Total lease cost $ 8,919 $ 6,797 $ 17,079 $ 12,772

Future lease payments under noncancelable operating leases as of April 30, 2020, were as follows:

Future lease payments under noncancelable operating leases as of July 31, 2020, were as follows:

Fiscal Period:

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Present value of lease liabilities $ 208,277

The weighted average remaining lease term and discount rate for operating leases as of April 30, 2020 were 7.2 years and 4.3 %.

As of April 30, 2020, we had commitments of $ 6.0 million for an operating lease with commencement date subsequent to quarter end.

This lease has a term of six years.

The weighted average remaining lease term and discount rate for operating leases as of July 31, 2020 were 7.0 years and 4.3 %.

Commitments and Contingencies

As of April 30, 2020, we had unused letters of credit outstanding associated with our various operating leases totaling $ 9.0 million.

As of July 31, 2020, we had unused letters of credit outstanding associated with our various operating leases totaling $ 9.4 million.

We have entered into certain noncancelable contractual arrangements that require future purchases of goods and services.

These arrangements primarily relate to cloud infrastructure support and sales and marketing activities.

As of April 30, 2020, our future noncancelable minimum payments due under these contractual obligations with a remaining term of more than one year were as follows:

As of July 31, 2020, our future noncancelable minimum payments due under these contractual obligations with a remaining term of more than one year were as follows:

Fiscal Period:

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Historically, we have not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements.

As a result, we believe the fair value of these indemnification agreements is not material as of April 30, 2020, and January 31, 2020.

As a result, we believe the fair value of these indemnification agreements is not material as of July 31, 2020, and January 31, 2020.

We maintain commercial general liability insurance and product liability insurance to offset certain of our potential liabilities under these indemnification agreements.

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Outstanding awards under these two plans continue to be subject to the terms and conditions of the respective plans.

As of April 30, 2020, 33.9 million shares of our common stock were available for issuance under the 2018 Plan.

As of July 31, 2020, 32.1 million shares of our common stock were available for issuance under the 2018 Plan.

The 2018 Plan provides that the number of shares reserved will automatically increase on the first day of each fiscal year, beginning on February 1, 2019, and ending on February 1, 2028, by 5 % of the total number of shares of our capital stock outstanding on the immediately preceding January 31st (or such lesser number of shares as our board of directors or a committee of our board of directors may approve).

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Stock Options

Option activity for the three months ended April 30, 2020 was as follows:

Option activity for the three months ended July 31, 2020 was as follows:

(in thousands, except years and per share data) Number of Options Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Term (Years) Aggregate Intrinsic Value

Outstanding at January 31, 2020 6,882 $ 14.39 5.38 $ 441,247

Assumed 9 22.22

Exercised ( 1,300 ) 9.97

Canceled/expired ( 14 ) 18.25

Outstanding at April 30, 2020 6,030 $ 15.13 5.61 $ 540,435

Vested and expected to vest at April 30, 2020 6,007 $ 15.12 5.61 $ 538,408

Exercisable at April 30, 2020 5,451 $ 14.87 5.49 $ 489,893

As of April 30, 2020, our total unrecognized compensation cost related to stock option grants was $ 4.2 million.

Outstanding at July 31, 2020 5,577 $ 15.42 5.46 $ 1,123,149

Vested and expected to vest at July 31, 2020 5,566 $ 15.42 5.46 $ 1,120,956

Exercisable at July 31, 2020 5,188 $ 15.27 5.38 $ 1,045,726

As of July 31, 2020, our total unrecognized compensation cost related to stock option grants was $ 2.7 million.

We expect to recognize this expense over the remaining weighted-average period of approximately 0.5 years.

RSUs granted under the 2018 Plan generally vest over a four -year period, either quarterly or with 25 % vesting at the end of one year and the remainder quarterly thereafter.

Restricted stock units (“RSUs”) granted under the 2018 Plan generally vest over a four-year period, either quarterly or with 25 % vesting at the end of one year and the remainder quarterly thereafter.

The majority of RSUs vest upon the satisfaction of a service-based vesting condition.

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The market-based conditions will be satisfied if certain milestones based on our common stock price or relative total shareholder return are met.

RSU activity for the three months ended April 30, 2020 was as follows:

RSU activity for the three months ended July 31, 2020 was as follows:

(in thousands, except per share data) Number of Units Weighted-Average Grant Date Fair Value

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Canceled ( 671 ) $ 47.82

Unvested at April 30, 2020 12,631 $ 49.93

As of April 30, 2020, our total unrecognized compensation cost related to RSUs was $ 474.1 million.

Unvested at July 31, 2020 13,350 $ 70.00

As of July 31, 2020, our total unrecognized compensation cost related to RSUs was $ 717.8 million.

We expect to recognize this expense over the remaining weighted-average period of approximately 2.5 years.

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The ESPP provides for separate six-month offering periods that begin in the first and third quarter of each year.

In the three months ended April 30, 2020, 0.3 million shares of our common stock were purchased under the ESPP.

Compensation expense related to the ESPP was $ 1.9 million for the three months ended April 30, 2020.

In the six months ended July 31, 2020, 0.3 million shares of our common stock were purchased under the ESPP.

Compensation expense related to the ESPP was $ 2.9 million and $ 2.1 million for the three months ended July 31, 2020 and 2019, and $ 4.8 million and $ 4.0 million for the six months ended July 31, 2020 and 2019.

The number of shares reserved under the ESPP will automatically increase on the first day of each fiscal year, starting on February 1, 2019 and continuing through February 1, 2028, in an amount equal to the lesser of (i) 1 % of the total number of shares of our common stock outstanding on January 31 of the preceding fiscal year, (ii) 3.8 million shares, or (iii) a lesser number of shares determined by our board of directors.

As of April 30, 2020, 6.5 million shares of our common stock were reserved for issuance under the ESPP.

As of July 31, 2020, 6.5 million shares of our common stock were reserved for issuance under the ESPP.

Net Loss per Share Attributable to Common Stockholders

The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders for periods presented:

Three Months Ended April 30,

Three Months Ended July 31, Six Months Ended July 31,

(in thousands, except per share data) 2020 2019 2020 2019

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Each quarter, we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

Our income tax provision was $ 2.1 million and $ 1.3 million for the three months ended April 30, 2020 and 2019, respectively.

The increase in the tax provision was primarily driven by higher foreign tax expenses, resulting from higher year-over-year earnings in certain foreign jurisdictions as we continue to scale our foreign operations to support our ongoing international growth.

Our income tax provision was $ 0.8 million and $ 1.2 million for the three months ended July 31, 2020 and 2019.

Our income tax provision was $ 3.0 million and $ 2.5 million for the six months ended July 31, 2020 and 2019.

The overall increase in the tax provision was primarily driven by higher foreign tax expenses, resulting from higher year-over-year earnings in certain foreign jurisdictions as we continue to scale our foreign operations to support our ongoing international growth.

We review the likelihood that we will realize the benefit of our deferred tax assets and, therefore, the need for valuation allowances, on a quarterly basis.

We maintain a valuation allowance against certain deferred tax assets, including all U.S.

deferred tax assets and certain foreign deferred tax assets as a result of our history of losses in the U.S.

consolidated group deferred tax assets and certain foreign deferred tax assets as a result of our history of losses in the U.S.

and certain foreign jurisdictions, and the variability and uncertainty of operating results.

In the event we determine our deferred tax assets are realizable based on our assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made.

As of April 30, 2020, our gross unrecognized tax benefits totaled $ 13.7 million, excluding related accrued interest and penalties, of which $ 2.5 million would impact the effective tax rate if recognized.

As of July 31, 2020, our gross unrecognized tax benefits totaled $ 14.9 million, excluding related accrued interest and penalties, of which $ 2.9 million would impact the effective tax rate if recognized.

Our policy is to account for interest and penalties related to uncertain tax positions as a component of income tax provision.

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and various foreign jurisdictions.

Our tax years from inception in 2003 through April 30, 2020 remain subject to examination by U.S.

Our tax years from inception in 2003 through July 31, 2020 remain subject to examination by U.S.

and California taxing authorities, as well as taxing authorities in various other state and foreign jurisdictions.

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Revenue by geographic area was as follows:

Three Months Ended April 30,

Three Months Ended July 31, Six Months Ended July 31,

(in thousands) 2020 2019 2020 2019

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No single country other than the U.S.

had revenue greater than 10% of total revenue in the three months ended April 30, 2020 and 2019 .

had revenue greater than 10% of total revenue in the three and six months ended July 31, 2020 and 2019 .

Our long-lived assets by geographic area, which consist of property and equipment, net and operating lease right-of-use assets were as follows:

(in thousands) April 30, 2020 January 31, 2020

(in thousands) July 31, 2020 January 31, 2020

216,110 $ 182,288

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Total long-lived assets $ 318,959 $ 278,126

Subsequent Events

On February 26, 2020, we entered into a Share Purchase Agreement to acquire all outstanding equity in Seal Software Group Limited, a leading contract analytics and artificial intelligence technology provider, for approximately $ 185.1 million in cash, subject to adjustments.

The acquisition closed on May 1, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements