What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-12-04 compared with 2020-09-04 · 99 added, 85 removed, 383 unchanged (32% of the section changed)

4 unchanged sentences

Our fiscal year ends January 31.

Executive Overview of Second Quarter Results

Executive Overview of Third 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, 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.

As a result, over 820,000 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.

DocuSign eSignature integrates with popular business apps, and our functionality can also be embedded using our API.

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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 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.

We generate substantially all our revenue from sales of subscriptions, which accounted for 96% and 95% of our revenue in the three months ended October 31, 2020 and 2019.

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

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

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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.

Professional services and other revenue accounted for 4% and 5% of our revenue in the three months ended October 31, 2020 and 2019.

It accounted for 5% and 6% of our revenue in the nine months ended October 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 520 customers as of July 31, 2020.

Each of our customer types has a different purchasing pattern.

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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.

suspended all business travel other than for essential functions.

DocuSign shifted to a largely remote work environment, providing nearly all employees the opportunity to work from home through at least May 31, 2021.

We suspended all business travel other than for essential

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

We have incurred expenses to support our employees working from home, including reimbursements for home office equipment and a stipend for other qualifying expenses, and may incur similar expenses in the future as remote operations continue.

We have incurred expenses to support our employees working from home, including reimbursements for home office equipment and a stipend for other qualifying expenses, as well as expenses associated with planning and risk mitigation for potential reopenings of our offices, and may incur similar expenses in the future.

The impact of these and any other operational changes we may implement is uncertain, but as of the date of this filing they have not materially affected our ability to maintain operations.

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Financial Results:

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

Three Months Ended October 31, Nine Months Ended October 31,

(in thousands) 2020 2019 2020 2019

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Net cash provided by operating activities 57,443 (1,869) 234,721 70,191

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

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

Purchases of property and equipment (19,393) (12,280) (64,144) (42,071)

Cash, cash equivalents, restricted cash and investments were $675.6 million as of October 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 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.

As of October 31, 2020, we had a total of over 820,000 customers, including over 110,000 enterprise and commercial customers, comp ared to over 560,000 customers and over 65,000 enterprise and commercial customers as of October 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.

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Increasing International Revenue

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.

Our international revenue in the three months ended October 31, 2020 increased by 77% from the three months ended October 31, 2019 and represented 20% and 17% of our total revenue in the three months ended October 31, 2020 and 2019.

Our international revenue in the nine months ended October 31, 2020 increased by 61% from the nine months ended October 31, 2019 and represented 19% and 18% of our total revenue in the nine months ended October 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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We plan to increase our international revenue by leveraging and continuing to expand the investments we have already made in our technology, direct sales force and strategic partnerships, as well as helping existing U.S.-based customers manage agreements across their international businesses.

Additionally, we expect our strategic partnerships in key international markets, including our current relationships with SAP in Europe, to further grow.

Additionally, we expect our strategic partnerships in key international markets to further grow.

Investing for Growth

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Interest Expense

Interest expense consists primarily of contractual interest expense, amortization of discount and amortization of debt issuance costs on our Notes.

Interest Income and Other Income, Net

Interest income and other income, net , consists primarily of interest earned on our cash, cash equivalents and investments, as well as foreign currency transaction gains and losses.

Interest expense consists primarily of contractual interest expense, amortization of discount and amortization of debt issuance costs on our Convertible Senior Notes (the “ Notes”).

Interest Income and Other Income (Expense), Net

Interest income and other income (expense), net , consists primarily of interest earned on our cash, cash equivalents and investments, as well as foreign currency transaction gains and losses.

Provision for Income Taxes

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

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

Three Months Ended October 31, Nine Months Ended October 31,

(in thousands) 2020 2019 2020 2019

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Interest expense (7,769) (7,364) (23,013) (21,793)

Interest income and other income, net 2,601 4,531 6,343 9,748

Interest income and other income (expense), net (311) 5,801 6,032 15,549

Loss before provision for income taxes (56,550) (45,560) (165,939) (157,400)

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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 July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

(in thousands) 2020 2019 2020 2019

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Interest expense (2) (3) (2) (3)

Interest income and other income, net — 1 1 2

Interest income and other income (expense), net — 3 1 2

Loss before provision for income taxes (15) (18) (16) (23)

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Net loss (15) % (19) % (17) % (23) %

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

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

Three Months Ended October 31, 2020 versus 2019 Nine Months Ended October 31, 2020 versus 2019

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

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Subscription Revenue

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.

Subscription revenue increased by $128.5 million, or 54%, in the three months ended October 31, 2020, and by $310.8 million, or 47%, in the nine months ended October 31, 2020, primarily driven by strong customer growth and the addition of Seal.

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 $3.8 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.

Professional services and other revenue increased by $4.9 million, or 43%, in the three months ended October 31, 2020, and by $12.2 million, or 32%, in the nine months ended October 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 July 31, 2020 versus 2019 Six Months Ended July 31, 2020 versus 2019

Three Months Ended October 31, 2020 versus 2019 Nine Months Ended October 31, 2020 versus 2019

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

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Cost of Subscription Revenue

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.

Cost of subscription revenue increased $26.7 million, or 62%, in the three months ended October 31, 2020, primarily due to:

▪ An increase of $10.8 million in operating costs to support our platform, including increases of $3.4 million in depreciation and amortization, $2.8 million in third-party partner costs, and $2.2 million in data center costs.

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.

▪ Increases of $9.1 million in personnel costs and $2.2 million in stock-based compensation expense, primarily due to higher headcount, including the addition of Seal employees to our workforce, annual merit increases, and annual grants issued in the second quarter.

Cost of subscription revenue increased $70.9 million, or 61%, in the nine months ended October 31, 2020, primarily due to:

▪ An increase of $32.4 million in operating costs to support our platform, including increases of $10.7 million in subscription reseller fees, $7.2 million in data center costs and $7.2 million in depreciation and amortization, and $2.3 million increase in processing 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 and capitalized software assets;

▪ An increase of $22.8 million in personnel costs and $5.7 million in stock-based compensation expense primarily due to higher headcount, including the addition of Seal employees, and annual merit increases;

▪ An increase of $4.7 million in professional fees mainly in third-party technical support and customer services;

▪ An increase of $2.4 million in software and technology costs to support higher headcount.

Cost of Professional Services and Other Revenue

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.

Cost of professional services and other revenue increased $9.1 million, or 49%, in the three months ended October 31, 2020, and $16.4 million, or 28%, in the nine months ended October 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 July 31, 2020 versus 2019 Six Months Ended July 31, 2020 versus 2019

Three Months Ended October 31, 2020 versus 2019 Nine Months Ended October 31, 2020 versus 2019

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

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Percentage of revenue 55 % 60 % 56 % 62 %

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

Sales and marketing expenses increased $60.7 million, or 41%, in the three months ended October 31, 2020, primarily due to:

▪ An increase of $32.4 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 $12.2 million in stock-based compensation expense due to higher headcount and annual merit grants issued in the second quarter;

▪ An increase of $11.4 million in marketing and advertising costs to support higher spend on online advertising platforms to capture the increase in demand;

▪ An increase of $4.6 million in allocated overhead due to higher technology and facility costs;

partially offset by

▪ A decrease of $4.9 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:

Sales and marketing expenses increased $146.7 million, or 34%, in the nine months ended October 31, 2020, primarily due to:

▪ An increase of $93.2 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 $25.2 million in stock-based compensation expense due to higher headcount;

▪ An increase of $20.7 million in marketing and advertising expense, primarily due to higher spend on online advertising platforms to capture the increase in demand;

▪ An increase of $13.1 million in allocated overhead due to higher technology and facility costs;

▪ An increase of $5.0 million in depreciation and amortization due to the depreciation of additional fixed assets and the amortization of certain intangible assets acquired in the Seal and Liveoak acquisitions;

partially offset by

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Research and Development

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

Three Months Ended October 31, 2020 versus 2019 Nine Months Ended October 31, 2020 versus 2019

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

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Percentage of revenue 19 % 20 % 19 % 19 %

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.

Research and development expenses increased $24.6 million, or 50%, in the three months ended October 31, 2020, primarily due to increases of $14.3 million in personnel costs and $7.2 million in stock-based compensation.

Research and development expenses increased $57.9 million, or 43%, in the nine months ended October 31, 2020, primarily due to increases of $38.9 million in personnel costs and $14.6 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 and Liveoak employees to our workforce.

General and Administrative

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

Three Months Ended October 31, 2020 versus 2019 Nine Months Ended October 31, 2020 versus 2019

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

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Percentage of revenue 13 % 13 % 14 % 16 %

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.

General and administrative expenses increased $16.7 million, or 50%, in the three months ended October 31, 2020, primarily due to:

▪ Increases of $6.6 million in personnel costs and $4.1 million in stock-based compensation due to higher headcount, annual merit increases and grants, and the addition of Seal employees to our workforce;

▪ An increase of $2.6 million in professional fees due to higher legal and consulting fees.

General and administrative expenses increased $29.0 million, or 26%, in the nine months ended October 31, 2020, primarily due to:

▪ Increases of $15.0 million in personnel costs and $3.5 million in stock-based compensation due to higher headcount, annual merit increases and grants, and the addition of Seal employees to our workforce;

▪ An increase of $3.5 million in bad debt reserve related to the impact of the COVID-19 pandemic.

Interest Expense

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

Three Months Ended October 31, 2020 versus 2019 Nine Months Ended October 31, 2020 versus 2019

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

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Percentage of revenue 2 % 3 % 2 % 3 %

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

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

Interest Income and Other Income (Expense), Net

Three Months Ended October 31, 2020 versus 2019 Nine Months Ended October 31, 2020 versus 2019

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

Interest income $ 1,385 $ 4,421 (69) % $ 6,591 $ 12,039 (45) %

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) %

Foreign currency gain (loss) (1,213) 711 NM (333) (550) (39) %

Other (483) 669 NM (226) 4,060 NM

Interest income and other income (expense), net $ (311) $ 5,801 NM $ 6,032 $ 15,549 (61) %

Percentage of revenue — % 3 % 1 % 2 %

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.

Interest income and other income (expense), net, decreased by $6.1 million and $9.5 million, in the three and nine months ended October 31, 2020, primarily due to lower interest income, losses on the revaluation of our foreign currency denominated monetary assets and liabilities, and amortization o n our marketable securities.

Provision for Income Taxes

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

Three Months Ended October 31, 2020 versus 2019 Nine Months Ended October 31, 2020 versus 2019

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

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Percentage of revenue — % 1 % 1 % — %

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.

Provision for income taxes increased by $0.9 million in the three months ended October 31, 2020 and increased by $1.4 million in the nine months ended October 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.

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

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

As of October 31, 2020, we had $598.6 million in cash and cash equivalents and short-term investments.

We also had $76.8 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 July 31, 2020, we generated positive cash flows from operations of $177.3 million in the six months ended July 31, 2020.

While we have generated losses from operations in the past as reflected in our accumulated deficit of $1.3 billion as of October 31, 2020, we generated positive cash flows from operations of $234.7 million in the nine months ended October 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.

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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 $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.

Our accounts receivable increased by $11.4 million, excluding the impact from acquisitions, in the nine months ended October 31, 2020, and decreased by $15.1 million in the nine months ended October 31, 2019, which resulted in a $26.5 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 .

Our contract liabilities increased by $172.5 million, excluding the impact from acquisitions, in the nine months ended October 31, 2020, compared to an increase of $44.3 million in the nine months ended October 31, 2019.

The year over year increase contributed an additional $128.2 million to cash provided by operating activities.

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

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

Six Months Ended July 31,

Nine Months Ended October 31,

(in thousands) 2020 2019 Change

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Cash Flows from Operating Activities

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

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.

Net cash provided by operating activities increased by $164.5 million, driven by an increase in the add-back of non-cash expenses of $98.1 million and an increase in the net cash provided by changes in operating assets and liabilities by $76.4 million.

The higher add-back was primarily due to increases of $52.4 million in stock-based compensation expense driven by higher headcount and $43.4 million non-cash amortization expense.

The increase in the net cash provided by changes in operating assets and liabilit ies was primarily due to:

▪ An increase of $128.2 million in cash provided by changes in contract liabilities;

▪ An increase of $30.2 million in cash provided by changes in accrued compensation;

▪ An increase of $17.3 million in cash provided by changes in accrued expenses and other liabilities;

partially offset by

▪ An increase of $66.8 million in cash used from changes in deferred contract acquisition and fulfillment costs;

▪ An increase of $26.5 million in cash used from changes in accounts receivable;

▪ An increase of $7.4 million in cash used from changes in other assets.

Cash Flows from Investing Activities

Net cash provided by investing activities was $100.1 million, as compared to $350.8 million net cash used in investing activity in prior year.

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.

This change was primarily due to cash inflows of $353.1 million from net maturities and sales of marketable securities compared to cash outflows of $293.2 million from net purchases of marketable securities in prior year.

Additionally, there was a $10.2 million decrease in purchases of strategic investments.

The cash inflows were partially offset by cash outflows of $180.4 million paid for acquisitions, net of cash acquired, and a $22.1 million increase in capital expenditures.

Cash Flows from Financing Activities

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.

Net cash used in financing activities increased by $163.3 million due to a $122.0 million increase in cash used to remit tax withholding obligations on settled RSUs, a $47.3 million decrease in proceeds from exercises of stock options, partially offset by a $6.0 million increase in proceeds from 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 July 31, 2020, we had unused letters of credit outstanding associated with our various operating leases totaling $9.4 million.

As of October 31, 2020, we had unused letters of credit outstanding associated with our various operating leases totaling $8.3 million.

Off-Balance Sheet Arrangements

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The current COVID-19 pandemic has caused uncertainty and disruption in the global economy and financial markets.

are not aware of any specific event or circumstance that would require us to update our estimates, judgments or revise the carrying value of our assets or liabilities.

We are not aware of any specific event or circumstance that would require us to update our estimates, judgments or revise the carrying value of our assets or liabilities.

These estimates may change, as new events occur and additional information is obtained.

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Reconciliation of gross profit and gross margin:

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

Three Months Ended October 31, Nine Months Ended October 31,

(in thousands) 2020 2019 2020 2019

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

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

Three Months Ended October 31, Nine Months Ended October 31,

(in thousands) 2020 2019 2020 2019

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Reconciliation of net income (loss):

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

Three Months Ended October 31, Nine Months Ended October 31,

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

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Computation of free cash flow:

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

Three Months Ended October 31, Nine Months Ended October 31,

(in thousands) 2020 2019 2020 2019

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Computation of billings:

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

Three Months Ended October 31, Nine Months Ended October 31,

(in thousands) 2020 2019 2020 2019

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Interest Rate Risk

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.

As of October 31, 2020, we had cash, cash equivalents and investments totaling $675.4 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 $1.1 million decrease of the fair value of our investment portfolio as of July 31, 2020 .

A hypothetical 100 basis point increase in interest rates would result in an approximately $1.3 million decrease of the fair value of our investment portfolio as of October 31, 2020 .

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

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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 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.

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.

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

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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