What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-09-04 compared with 2020-06-05 · 109 added, 91 removed, 359 unchanged (36% of the section changed)

4 unchanged sentences

Our fiscal year ends January 31.

Executive Overview of First Quarter Results

Executive Overview of Second Quarter Results

DocuSign accelerates the process of doing business for companies and simplifies life for their customers and employees.

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It provides comprehensive functionality across e-signature and addresses the broader agreement process.

As a result, over 660,000 customers and hundreds of millions of users worldwide utilize DocuSign to create, upload and send documents for multiple parties to sign electronically.

As a result, nearly 750,000 customers and hundreds of millions of users worldwide utilize DocuSign to create, upload and send documents for multiple parties to sign

electronically.

The DocuSign Agreement Cloud allows users to complete approvals, agreements and transactions faster by building end-to-end processes.

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To drive customer reach and adoption, we also offer for free certain limited-time or feature-constrained versions of our platform.

We generate substantially all our revenue from sales of subscriptions, which accounted for 95% and 94% of our revenue in the three months ended April 30, 2020 and 2019.

We generate substantially all our revenue from sales of subscriptions, which accounted for 95% and 94% of our revenue in the three months ended July 31, 2020 and 2019.

Sales of subscriptions accounted for 95% and 94% of our revenue in the six months ended July 31, 2020 and 2019.

Our subscription fees include the use of our software suite and access to customer support.

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We also generate revenue from professional and other non-subscription services, which consists primarily of fees associated with providing new customers deployment and integration services.

Other revenue includes amounts derived from sales of

on-premises solutions.

Professional services and other revenue accounted for 5% and 6% of our revenue in the three months ended April 30, 2020 and 2019.

Other revenue includes amounts derived from sales of on-premises solutions.

Professional services and other revenue accounted for 5% and 6% of our revenue in the three months ended July 31, 2020 and 2019.

It accounted for 5% and 6% of our revenue in the six months ended July 31, 2020 and 2019.

We anticipate continuing to invest in customer success through our professional services offerings as we believe it plays an important role in accelerating our customers’ deployment of our software suite, which helps to drive customer retention and expansion of the use of the DocuSign Agreement Cloud.

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We focused initially on selling our e-signature solutions to commercial businesses and VSBs, and later expanded our focus to target enterprise customers.

To demonstrate this growth over time, the number of our customers with greater than $300,000 in annual contract value (measured in billings) has increased from approximately 30 customers as of January 31, 2013 to 473 customers as of April 30, 2020.

Each of our customer types has a different purchasing pattern.

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COVID-19 Update

The COVID-19 pandemic has continued to spread rapidly across the world.

The COVID-19 pandemic has spread across the world and is particularly prevalent in the U.S., where we are headquartered and the majority of our workforce is located.

The pandemic and the public health measures taken in response to it have adversely affected workforces, organizations, customers, economies, and financial markets globally, leading to an economic downturn and increased market volatility.

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Because these effects are dependent on highly uncertain future developments — including the duration, spread and severity of the outbreak, the actions taken to contain the virus, and how quickly and to what extent normal economic and operating conditions can resume — they are extremely difficult to predict.

While our revenues, billings and earnings are relatively predictable as a result of our subscription-based business model, the effects of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods.

While our revenue, billings and earnings are relatively predictable as a result of our subscription-based business model, the effects of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods.

Since mid-March, we have taken a number of precautionary measures to ensure the health and safety of our employees, partners and customers.

DocuSign shifted to a remote workplace, requiring nearly all employees to work from home.

We suspended all business travel other than for essential functions.

suspended all business travel other than for essential functions.

We have cancelled or replaced planned events, such as our Momentum conferences, with virtual-only experiences.

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Financial Results:

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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Capital expenditures (18,362) (14,554) (44,751) (29,791)

Cash, cash equivalents and investments were $898.1 million as of April 30, 2020 .

Cash, cash equivalents and investments were $740.3 million as of July 31, 2020 .

Key Factors Affecting Our Performance

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We have invested, and expect to continue to invest, heavily in our sales and marketing efforts to drive customer acquisition.

As of April 30, 2020, we had a total of over 660,000 customers, including over 85,000 enterprise and commercial customers, comp ared to over 500,000 customers and over 60,000 enterprise and commercial customers as of April 30, 2019.

As of July 31, 2020, we had a total of nearly 750,000 customers, including over 95,000 enterprise and commercial customers, comp ared to over 535,000 customers and over 60,000 enterprise and commercial customers as of July 31, 2019.

We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract to access our software suite.

We define enterprise customers as companies generally included in the Global 2000.

We define commercial customers to include both mid-market companies, which includes companies outside the Global 2000 that have greater than 250 employees, and small-to-medium-sized businesses (“SMBs”), which are companies with between 10 and 249 employees, in each case excluding any enterprise customers.

We define commercial customers to include both mid-market companies, which includes companies outside the Global 2000 that have greater than 250 employees, and small-to-medium-sized businesses, which are companies with between 10 and 249 employees, in each case excluding any enterprise customers.

We refer to total customers as all enterprises, commercial businesses and VSBs.

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Increasing International Revenue

Our international revenue in three months ended April 30, 2020 increased by 46% from the three months ended April 30, 2019 and represented 18% of our total revenue in both periods.

Our international revenue in the three months ended July 31, 2020 increased by 59% from the three months ended July 31, 2019 and represented 19% and 18% of our total revenue in the three months ended July 31, 2020 and 2019.

Our international revenue in the six months ended July 31, 2020 increased by 53% from the six months ended July 31, 2019 and represented 19% and 18% of our total revenue in the six months ended July 31, 2020 and 2019.

We started our international selling efforts in English-speaking common law countries, such as Canada, the United Kingdom and Australia, where we were able to leverage our core technologies due to similar approaches to e-signature in these jurisdictions and the United States (“U.S.”).

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For example, in Europe, we have Standards-Based Signature technology tailored for electronic IDentification, Authentication and trust Services (“eIDAS”).

Standards-Based Signatures support signatures that involve digital certificates, including those specified in the EU’s eIDAS regulations for advanced and qualified electronic signatures.

Standards-Based Signatures support signatures that involve digital certificates, including those specified in the European Union’s (“EU”) eIDAS regulations for advanced and qualified electronic signatures.

In addition, to follow longstanding tradition in Japan, we enable signers to upload and apply their personal eHanko stamp to represent their signatures on an agreement.

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We also plan to continue to invest in expanding the functionality of our software suite and underlying infrastructure and technology to meet the needs of our customers across industries.

Our recent acquisitions of Seal Software and Liveoak Technologies, intended to bring additional functionality to our DocuSign Agreement Cloud and further expand our eNotary offerings, as well as the continuous development of new features internally, are examples of our commitment to investing for ongoing growth.

Components of Results of Operations

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Provision for Income Taxes

Our provision for income taxes consists primarily of income taxes in certain foreign jurisdictions where we conduct business, state minimum taxes in the U.S., and tax benefits arising from deductions for stock options.

Our provision for income taxes consists primarily of income taxes in certain foreign jurisdictions where we conduct business, and tax benefits arising from deductions for stock options.

We have a valuation allowance against our U.S.

deferred tax assets, including U.S.

net operating loss carryforwards.

We expect to maintain this valuation allowance for the foreseeable future or until it becomes more likely than not that the benefit of our U.S.

deferred tax assets will be realized by way of expected future taxable income in the U.S.

consolidated group and certain foreign deferred tax assets.

We expect to maintain this valuation allowance for the foreseeable future or until it becomes more likely than not that the benefit of these U.S.

and foreign deferred tax assets will be realized by way of expected future taxable income.

Discussion of Results of Operations

The following table summarizes our historical consolidated statements of operations data:

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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The following table sets forth the components of our consolidated statements of operations data as a percentage of revenue:

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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Net loss (19) % (29) % (18) % (25) %

The following discussion and analysis is for the three months ended April 30, 2020, compared to the same period in 2019.

Three Months Ended April 30,

(in thousands, except for percentages) 2020 2019 2020 versus 2019

The following discussion and analysis is for the three and six months ended July 31, 2020, compared to the same period in 2019.

Three Months Ended July 31, 2020 versus 2019 Six Months Ended July 31, 2020 versus 2019

(in thousands, except for percentages) 2020 2019 2020 2019

Subscription $ 323,643 $ 220,811 47 % $ 604,565 $ 422,269 43 %

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Subscription Revenue

Subscription revenue increased $79.5 million, or 39%, in the three months ended April 30, 2020, primarily driven by customer growth.

Subscription revenue increased by $102.8 million, or 47%, in the three months ended July 31, 2020, and increased $182.3 million, or 43%, in the six months ended July 31, 2020, primarily driven by strong customer growth.

We continue to invest in a variety of customer programs and initiatives, which, along with expanded customer use cases, have helped increase our subscription revenue over time.

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Professional Services and Other Revenue

Professional services and other revenue increased by $3.6 million, or 29%, in the three months ended April 30, 2020, primarily due to increased engagement of professional services to support our growing customer base.

Professional services and other revenue increased by $3.8 million, or 25%, in the three months ended July 31, 2020, and increased by $7.4 million, or 27%, in the six months ended July 31, 2020, primarily due to the addition of Seal and increased engagement of professional services to support our growing customer base.

Cost of Revenue and Gross Margin

Three Months Ended April 30,

(in thousands, except for percentages) 2020 2019 2020 versus 2019

Three Months Ended July 31, 2020 versus 2019 Six Months Ended July 31, 2020 versus 2019

(in thousands, except for percentages) 2020 2019 2020 2019

Cost of revenue:

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Gross margin:

Subscription 81 % 84 % (3) pts

Professional services and other (37) % (51) % 14 pts

Total gross margin 75 % 76 % (1) pts

Subscription 80 % 82 % (2) pts 81 % 83 % (2) pts

Professional services and other (39) % (47) % 8 pts (38) % (49) % 11 pts

Total gross margin 74 % 74 % — pts 74 % 75 % (1) pts

Cost of Subscription Revenue

Cost of subscription revenue increased $18.9 million, or 57%, in the three months ended April 30, 2020, primarily due to:

▪ An increase of $10.4 million in operating costs, primarily related to an increase in reseller partnership fees and higher data center costs;

▪ An increase of $5.4 million in personnel costs primarily due to higher headcount.

Cost of subscription revenue increased $25.3 million, or 64%, in the three months ended July 31, 2020, primarily due to:

▪ An increase of $11.2 million in operating costs to support our platform, that consisted primarily of an increase of $3.1 million in data center costs, an increase of $3.1 million in depreciation and amortization, and an increase of $1.9 million in partner reseller fees.

The increase in depreciation and amortization reflects the higher existing technology intangible assets from the acquisition of Seal, as well as higher data center equipment and capitalized software assets;

▪ Increases of $8.2 million in personnel costs and $1.9 million in stock-based compensation expense, primarily due to annual merit increases, annual grants and higher headcount, including the addition of Seal employees.

Cost of subscription revenue increased $44.1 million, or 61%, in the six months ended July 31, 2020, primarily due to:

▪ An increase of $21.6 million in operating costs, that consisted primarily of an increase of $7.9 million in partner reseller fees, an increase of $5.0 million in data center costs and an increase of $3.9 million in depreciation and amortization reflecting the higher existing technology intangible assets from the acquisition of Seal, as well as higher data center equipment and capitalized software assets;

▪ An increase of $13.7 million in personnel costs and $3.5 million in stock-based compensation expense primarily due to annual merit increases, annual grants and higher headcount, including the addition of Seal employees.

Cost of Professional Services and Other Revenue

Cost of professional services and other revenue increased $3.1 million, or 17%, in the three months ended April 30, 2020, primarily due to an increase of $2.9 million in personnel costs as a result of higher headcount.

Cost of professional services and other revenue increased $4.2 million, or 19%, in the three months ended July 31, 2020, and $7.3 million, or 18%, in the six months ended July 31, 2020, primarily due to an increase in personnel costs driven by higher headcount, annual merit increases and the addition of Seal employees to our workforce.

Sales and Marketing

Three Months Ended April 30,

(in thousands, except for percentages) 2020 2019 2020 versus 2019

Three Months Ended July 31, 2020 versus 2019 Six Months Ended July 31, 2020 versus 2019

(in thousands, except for percentages) 2020 2019 2020 2019

Sales and marketing $ 194,992 $ 150,886 29 % $ 366,785 $ 280,822 31 %

Percentage of revenue 57 % 64 % 57 % 62 %

Sales and marketing expenses increased $41.9 million, or 32%, in the three months ended April 30, 2020, primarily due to:

▪ An increase of $27.1 million in personnel costs due to higher headcount and higher commissions in line with higher sales;

▪ An increase of $6.6 million in stock-based compensation expense due to higher headcount;

▪ An increase of $4.8 million in marketing and advertising expense, primarily due to higher spend on online advertising platforms to capture the increase in demand in the current quarter.

Sales and marketing expenses increased $44.1 million, or 29%, in the three months ended July 31, 2020, primarily due to:

▪ An increase of $33.7 million in personnel costs due to higher headcount, annual merit increases, the addition of Seal employees to our workforce and higher commissions in line with higher sales;

▪ An increase of $6.4 million in stock-based compensation expense due to higher headcount and annual merit grants;

▪ An increase of $4.8 million in allocated overhead due to higher technology costs;

▪ An increase of $4.5 million in marketing and advertising costs to support higher spend on online advertising platforms to capture the increase in demand;

partially offset by

▪ A decrease of $5.8 million in travel expenses due to travel restrictions resulting from the COVID-19 pandemic.

Sales and marketing expenses increased $86.0 million, or 31%, in the six months ended July 31, 2020, primarily due to:

▪ An increase of $60.8 million in personnel costs due to higher headcount, annual merit increases, the addition of Seal employees to our workforce and higher commissions in line with higher sales;

▪ An increase of $12.9 million in stock-based compensation expense due to higher headcount and annual merit grants;

▪ An increase of $9.3 million in marketing and advertising expense, primarily due to higher spend on online advertising platforms to capture the increase in demand;

▪ An increase of $8.5 million in allocated overhead due to higher technology and facility costs;

partially offset by

▪ A decrease of $9.0 million in travel expenses due to travel restrictions resulting from the COVID-19 pandemic.

Research and Development

Three Months Ended April 30,

(in thousands, except for percentages) 2020 2019 2020 versus 2019

Three Months Ended July 31, 2020 versus 2019 Six Months Ended July 31, 2020 versus 2019

(in thousands, except for percentages) 2020 2019 2020 2019

Research and development $ 63,791 $ 47,517 34 % $ 118,025 $ 84,700 39 %

Percentage of revenue 19 % 20 % 18 % 19 %

Research and development expenses increased $17.1 million, or 46%, in the three months ended April 30, 2020, primarily due to increases of $11.6 million in personnel costs and $4.6 million in stock-based compensation expense driven by higher headcount.

Research and development expenses increased $16.3 million, or 34%, in the three months ended July 31, 2020, primarily due to increases of $13.0 million in personnel costs and $2.8 million in stock-based compensation.

Research and development expenses increased $33.3 million, or 39%, in the six months ended July 31, 2020, primarily due to increases of $24.6 million in personnel costs and $7.4 million in stock-based compensation expense.

The increases in both periods were primarily driven by higher headcount, annual merit increase and grants and the addition of Seal employees to our workforce.

General and Administrative

Three Months Ended April 30,

(in thousands, except for percentages) 2020 2019 2020 versus 2019

Three Months Ended July 31, 2020 versus 2019 Six Months Ended July 31, 2020 versus 2019

(in thousands, except for percentages) 2020 2019 2020 2019

General and administrative $ 51,446 $ 40,755 26 % $ 90,257 $ 78,016 16 %

Percentage of revenue 15 % 17 % 15 % 18 %

General and administrative expenses increased $1.6 million, or 4%, in the three months ended April 30, 2020, primarily due to an increase of $3.0 million in personnel costs driven by higher headcount.

General and administrative expenses increased $10.7 million, or 26%, in the three months ended July 31, 2020, primarily due to increases of $5.5 million in personnel costs and $1.5 million in stock-based compensation.

General and administrative expenses increased $12.2 million, or 16%, in the six months ended July 31, 2020, primarily due to an increase of $8.5 million in personnel costs.

The increases in both periods were primarily driven by higher headcount, annual merit increases and grants and the addition of Seal employees to our workforce.

Interest Expense

Three Months Ended April 30,

(in thousands, except for percentages) 2020 2019 2020 versus 2019

Three Months Ended July 31, 2020 versus 2019 Six Months Ended July 31, 2020 versus 2019

(in thousands, except for percentages) 2020 2019 2020 2019

Interest expense $ 7,684 7,273 6 % $ 15,244 $ 14,429 6 %

Percentage of revenue 2 % 3 % 2 % 3 %

Interest expense remained relatively flat in the three months ended April 30, 2020 and primarily consisted of interest expense and amortization of discount and transaction costs on the Notes.

Interest expense remained relatively flat in the three and six months ended July 31, 2020 and primarily consisted of interest expense and amortization of discount and transaction costs on the Notes.

Interest Income and Other Income, Net

Three Months Ended April 30,

(in thousands, except for percentages) 2020 2019 2020 versus 2019

Three Months Ended July 31, 2020 versus 2019 Six Months Ended July 31, 2020 versus 2019

(in thousands, except for percentages) 2020 2019 2020 2019

Interest income $ 1,825 $ 3,940 (54) % $ 5,206 $ 7,618 (32) %

Foreign currency loss (545) (423) 29

Other 906 1,961 (54)

Foreign currency gain (loss) 1,425 (837) NM 880 (1,261) NM

Other (649) 1,428 NM 257 3,391 (92) %

Interest income and other income, net $ 2,601 $ 4,531 (43) % $ 6,343 $ 9,748 (35) %

Percentage of revenue — % 1 % 1 % 2 %

Interest income and other income, net, decreased by $1.5 million, in the three months ended April 30, 2020, primarily due to lower amortization o n our marketable securities.

Interest income and other income, net, decreased by $1.9 million and $3.4 million, in the three and six months ended July 31, 2020, primarily due to lower interest income and amortization o n our marketable securities, partially offset by gains on the revaluation of our foreign currency denominated monetary assets and liabilities.

Provision for Income Taxes

Three Months Ended April 30,

(in thousands, except for percentages) 2020 2019 2020 versus 2019

Three Months Ended July 31, 2020 versus 2019 Six Months Ended July 31, 2020 versus 2019

(in thousands, except for percentages) 2020 2019 2020 2019

Provision for income taxes $ 842 $ 1,168 (28) % $ 2,975 $ 2,514 18 %

Percentage of revenue — % — % 1 % — %

Provision for income taxes increased by $0.8 million, primarily due to higher foreign tax expenses, resulting from higher year-over-year earnings in certain foreign jurisdictions.

Provision for income taxes decreased by $0.3 million in the three months ended July 31, 2020 and increased by $0.5 million in the six months ended July 31, 2020.

The provision consisted primarily of foreign tax expenses resulting from foreign earnings in certain foreign jurisdictions, partially offset by excess benefits from stock option settlements.

Liquidity and Capital Resources

Our principal sources of liquidity were cash, cash equivalents and investments as well as cash generated from operations.

As of April 30, 2020, we had $757.9 million in cash and cash equivalents and short-term investments.

As of July 31, 2020, we had $674.0 million in cash and cash equivalents and short-term investments.

We also had $66.3 million in long-term investments that provide additional capital resources.

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We believe our existing cash, cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditures needs over at least the next 12 months.

While we have generated losses from operations in the past as reflected in our accumulated deficit of $1.2 billion as of April 30, 2020, we generated positive cash flows from operations of $59.1 million in the three months ended April 30, 2020.

We expect to continue to incur operating losses for the

foreseeable future due to the investments we intend to make and may require additional capital resources to execute strategic initiatives to grow our business.

While we have generated losses from operations in the past as reflected in our accumulated deficit of $1.2 billion as of July 31, 2020, we generated positive cash flows from operations of $177.3 million in the six months ended July 31, 2020.

We expect to continue to incur operating losses for the foreseeable future due to the investments we intend to make and may require additional capital resources to execute strategic initiatives to grow our business.

We typically invoice our customers annually in advance.

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Accordingly, collections from our customers have a material impact on our cash flows from operating activities.

Our accounts receivable decreased by $17.2 million in the three months ended April 30, 2020 and $57.4 million in the three months ended April 30, 2019, which resulted in a $40.2 million decrease in cash provided by operating activities year over year.

Contract liabilities consists of the unearned portion of billed fees for our subscriptions, which is subsequently recognized as revenue in accordance with our revenue recognition policy.

As of April 30, 2020, we had contract liabilities of $563.6 million, compared to $519.0 million as of January 31, 2020.

The increase in contract liabilities resulted in net cash provided by operating activities of $44.6 million in the three months ended April 30, 2020 and a year over year increase of $40.3 million in net cash provided by operating activities when compared to the $4.3 million increase in contract liabilities in the three months ended April 30, 2019 .

Our accounts receivable decreased by $25.2 million, excluding the impact from acquisitions, in the six months ended July 31, 2020, and $35.9 million in the six months ended July 31, 2019, which resulted in a $10.7 million decrease in cash provided by operating activities year over year.

Contract liabilities consist of the unearned portion of billed fees for our subscriptions, which is subsequently recognized as revenue in accordance with our revenue recognition policy.

As of July 31, 2020, we had contract liabilities of $635.9 million, compared to $519.0 million as of January 31, 2020.

The increase in contract liabilities resulted in net cash provided by operating activities of $107.5 million, excluding the impact from acquisitions, in the six months ended July 31, 2020 and a year over year increase of $85.8 million in net cash provided by operating activities when compared to the $21.7 million increase in contract liabilities in the six months ended July 31, 2019 .

Therefore, our growth in billings to existing and new customers has a material net beneficial impact on our cash flows from operating activities.

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

The acquisition closed on May 1, 2020.

Our future capital requirements will depend on many factors including our growth rate, customer retention and expansion, tax withholding obligations related to settlement of our RSUs, the timing and extent of spending to support our efforts to develop our software suite, the expansion of sales and marketing activities and the continuing market acceptance of our software suite.

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The following table summarizes our cash flows for the periods indicated:

Three Months Ended April 30,

Six Months Ended July 31,

(in thousands) 2020 2019 Change

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Net cash provided by operating activities increased by $105.2 million .

This change was primarily due to an increase of $24.5 million in non-cash expense , offset by a decrease of $8.9 million in net cash provided by operating assets and liabilities and an increase of $2.1 million in net loss.

The increase in non-cash expenses was primarily due to an increase of $11.8 million non-cash amortization expenses and $11.3 million increase in stock-based compensation expense driven by higher headcount.

Net cash provided by changes in operating assets and liabilities decreased by $8.9 million primarily due to a decrease of $40.2 million in cash provided from changes in accounts receivable, an increase of $20.6 million in cash used in deferred contract acquisition and fulfillment costs.

These were partially offset by an increase of $40.3 million in cash provided from changes in contract liabilities and a decrease of $18.3 million in cash used in accrued compensation.

Additionally, net cash provided by changes in operating assets and liabilities also included the impact of $0.9 million cash used in accrued expenses and other liabilities, as compared to $4.7 million cash provided by accrued expenses and other liabilities in prior year.

This change was primarily due to increases of $50.6 million in net cash provided by operating assets and liabilities and $52.6 million in non-cash expenses .

The increase in non-cash expenses was primarily due to increase of $24.3 million in stock-based compensation expense driven by higher headcount as well as higher stock price and $26.8 million non-cash amortization expenses.

Net cash provided by changes in operating assets and liabilit ies increased by $50.6 million primarily due to increases of $85.7 million in cash provided from changes in contract liabilities and $20.4 million in cash provided from changes in accrued compensation.

These increases were offset by a $44.0 million increase in cash used in deferred contract acquisition and fulfillment costs and a $10.7 million decrease in cash provided from changes in accounts receivable.

Cash Flows from Investing Activities

Net cash provided by investing activities was $90.4 million, as compared to $331.7 million net cash used in investing activity in prior year.

This change was primarily due to cash inflows of $199.1 million from maturities and sales of marketable securities versus cash outflows of $282.8 million from net purchases of marketable securities in prior year.

There was also a decrease of $12.5 million in purchases of strategic and other investments.

These changes were offset by an increase of $11.2 million in purchases of property and equipment.

This change was primarily due to cash inflows of $318.7 million from net maturities and sales of marketable securities versus $286.4 million from net purchases of marketable securities in prior year, offset by cash outflows of $180.4 million paid for acquisitions, net of cash acquired.

Cash Flows from Financing Activities

Net cash used in financing activities increased by $12.2 million due to a net decrease of $21.6 million in proceeds from exercises of stock options and purchases under the ESPP, offset by a decrease of $9.4 million in cash used to remit tax withholding obligations on RSUs settled .

Net cash used in financing activities increased by $74.3 million due to $47.9 million increase in cash used to remit tax withholding obligations on RSUs settled and $26.4 million net decrease in proceeds from exercises of stock options and purchases under the ESPP.

Contractual Obligations and Commitments

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Refer to Note 9 for more information on the Notes and Note 10 and Note 11 for our lease and other commitments.

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.

Off-Balance Sheet Arrangements

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Reconciliation of gross profit and gross margin:

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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Reconciliation of income (loss) from operations and operating margin:

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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Amortization of acquisition-related intangibles 7,416 4,420 11,675 9,153

Employer payroll tax on employee stock transactions 6,548 5,755

Acquisition-related expenses 6,932 — 7,626 —

Employer payroll tax on employee stock transactions $ 9,259 $ 3,864 15,807 9,619

Non-GAAP income from operations $ 33,739 $ (646) $ 56,938 $ 9,676

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Reconciliation of net income (loss):

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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Amortization of acquisition-related intangibles 7,416 4,420 11,675 9,153

Acquisition-related expenses 6,932 — 7,626 —

Employer payroll tax on employee stock transactions 9,259 3,864 15,807 9,619

Amortization of debt discount and issuance costs $ 6,942 $ 6,548 13,784 13,002

Acquisition-related expenses 694 —

Non-GAAP net income $ 34,756 $ 1,992 $ 58,846 $ 15,483

Computation of free cash flow:

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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Computation of billings:

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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Contract assets and unbilled accounts receivable, end of period (20,395) (17,757) (20,395) (17,757)

Contract assets and unbilled accounts receivable by acquisitions 6,589 — 6,589 —

Contract liabilities and refund liability contributed by acquisitions (9,344) — (9,344) —

Non-GAAP billings $ 405,695 $ 252,364 $ 747,747 $ 467,319

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Interest Rate Risk

As of April 30, 2020, we had cash, cash equivalents and investments totaling $898.1 million, which consisted primarily of bank deposits, money market funds, commercial paper, corporate notes and bonds and U.S.

As of July 31, 2020, we had cash, cash equivalents and investments totaling $740.3 million, which consisted primarily of bank deposits, money market funds, commercial paper, corporate notes and bonds and U.S.

Treasury and government agency securities.

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Our investment portfolio is comprised of highly rated securities and limits the amount of credit exposure to any one issuer.

A hypothetical 100 basis point increase in interest rates would result in an approximately $1.5 million decrease of the fair value of our investment portfolio as of April 30, 2020 .

A hypothetical 100 basis point increase in interest rates would result in an approximately $1.1 million decrease of the fair value of our investment portfolio as of July 31, 2020 .

Such losses would only be realized if we sold the investments prior to maturity.

13 unchanged sentences

dollar against the other currencies may negatively or positively affect our operating results as expressed in U.S.

Foreign currency translation adjustments are accounted for as a component of “Accumulated other comprehensive loss” within “Stockholders’ equity.” Gains or losses due to remeasurements of transactions denominated in foreign currencies are included in “Interest and other income, net” in our consolidated statements of operations and comprehensive loss.

Foreign currency translation adjustments are accounted for as a component of “Accumulated other comprehensive income (loss)” within “Stockholders’ equity.” Gains or losses due to remeasurements of transactions denominated in foreign currencies are included in “Interest and other income, net” in our consolidated statements of operations and comprehensive loss.

We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future.

2 unchanged sentences

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 2. Management’s Discussion and Analysis