DOCUSIGN, INC. 10-Q

Item 1. Financial Statements (unaudited) Condensed Consolidated Balance Sheets as of April 30, 2021 and January 31, 2021 5 Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended April 30, 2021 and 2020 6 Condensed Consolidated Statement of Stockholders' Equity for the Three Months Ended April 30, 2021 and 2020 7 Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2021 and 2020 8 Notes to Condensed Consolidated Financial Statements 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 3. Quantitative and Qualitative Disclosures About Market Risk 38 Item 4. Controls and Procedures 38 PART II - OTHER INFORMATION Item 1. Legal Proceedings 39 Item 1A. Risk Factors 39 Item 6. Exhibits 63 Exhibit Index 64 Signatures 65 DocuSign, Inc. | 2022 Form 10Q | 2 NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risk and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and objectives for future operations, and the impact of the ongoing coronavirus pandemic (the “COVID-19 pandemic”) on our financial conditions and results of operations are forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: ▪ 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 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; ▪ our ability to scale and update our software suite to respond to customers’ needs and rapid technological change; ▪ the effects of increased competition on our market and our ability to compete effectively; ▪ our ability to expand use cases within existing customers and vertical solutions; ▪ our ability to expand our operations and increase adoption of our software suite internationally; ▪ our ability to strengthen and foster our relationship with developers; ▪ our ability to expand our direct sales force, customer success team and strategic partnerships around the world; ▪ our ability to identify targets for and execute potential acquisitions; ▪ our ability to successfully integrate the operations of businesses we may acquire, or to realize the anticipated benefits of such acquisitions; ▪ our ability to maintain, protect and enhance our brand; ▪ the sufficiency of our cash and cash equivalents to satisfy our liquidity needs; ▪ our failure or the failure of our software suite of services to comply with applicable industry standards, laws and regulations; ▪ our ability to maintain, protect and enhance our intellectual property; ▪ our ability to successfully defend litigation against us; ▪ our ability to attract large organizations as users; ▪ our ability to maintain our corporate culture; ▪ our ability to offer high-quality customer support; ▪ our ability to hire, retain and motivate qualified personnel; ▪ our ability to estimate the size and potential growth of our target market; and ▪ our ability to maintain proper and effective internal controls. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, including risks and uncertainties related to the COVID-19 pandemic. Many risks and uncertainties are currently elevated by, and may or will continue to be elevated by, the COVID-19 pandemic. It is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. DocuSign, Inc. | 2022 Form 10Q | 3 The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law. DocuSign, Inc. | 2022 Form 10Q | 4 PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DOCUSIGN, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except per share data) April 30, 2021 January 31, 2021 Assets Current assets Cash and cash equivalents $ 518,972 $ 566,055 Investments—current 261,660 207,450 Accounts receivable, net of allowance for doubtful accounts of $ 5,393 and $ 5,362 as of April 30, 2021 and January 31, 2021 250,365 323,570 Contract assets—current 15,267 16,883 Prepaid expenses and other current assets 65,172 48,390 Total current assets 1,111,436 1,162,348 Investments—noncurrent 94,930 92,717 Property and equipment, net 164,128 165,039 Operating lease right-of-use assets 152,185 159,352 Goodwill 351,511 350,151 Intangible assets, net 115,009 121,828 Deferred contract acquisition costs—noncurrent 274,039 260,130 Other assets—noncurrent 33,882 24,942 Total assets $ 2,297,120 $ 2,336,507 Liabilities and Equity Current liabilities Accounts payable $ 14,870 $ 37,367 Accrued expenses and other current liabilities 75,438 66,566 Accrued compensation 129,640 156,158 Convertible senior notes—current 13,343 20,469 Contract liabilities—current 829,844 779,642 Operating lease liabilities—current 34,777 32,971 Total current liabilities 1,097,912 1,093,173 Convertible senior notes, net—noncurrent 742,577 693,219 Contract liabilities—noncurrent 17,938 16,492 Operating lease liabilities—noncurrent 155,998 165,704 Deferred tax liability—noncurrent 6,484 6,464 Other liabilities—noncurrent 32,974 32,328 Total liabilities 2,053,883 2,007,380 Commitments and contingencies ( Note 8 ) Convertible senior notes ( Note 7 ) — 3,390 Stockholders’ equity Preferred stock, $ 0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding as of April 30, 2021 and January 31, 2021 — — Common stock, $ 0.0001 par value; 500,000 shares authorized, 194,734 shares outstanding as of April 30, 2021; 500,000 shares authorized, 192,807 shares outstanding as of January 31, 2021 19 19 Treasury stock, at cost: 5 shares as of April 30, 2021 and 5 shares as of January 31, 2021 ( 1,219 ) ( 1,048 ) Additional paid-in capital 1,615,646 1,702,254 Accumulated other comprehensive income 5,358 4,964 Accumulated deficit ( 1,376,567 ) ( 1,380,452 ) Total stockholders’ equity 243,237 325,737 Total liabilities and equity $ 2,297,120 $ 2,336,507 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. DocuSign, Inc. | 2022 Form 10Q | 5 DOCUSIGN, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) Three Months Ended April 30, (in thousands, except per share data) 2021 2020 Revenue: Subscription $ 451,935 $ 280,922 Professional services and other 17,143 16,095 Total revenue 469,078 297,017 Cost of revenue: Subscription 78,071 52,010 Professional services and other 27,171 22,022 Total cost of revenue 105,242 74,032 Gross profit 363,836 222,985 Operating expenses: Sales and marketing 239,119 171,793 Research and development 85,416 54,234 General and administrative 50,038 38,811 Total operating expenses 374,573 264,838 Loss from operations ( 10,737 ) ( 41,853 ) Interest expense ( 1,672 ) ( 7,560 ) Interest income and other income, net 6,037 3,742 Loss before provision for income taxes ( 6,372 ) ( 45,671 ) Provision for income taxes 1,982 2,133 Net loss $ ( 8,354 ) $ ( 47,804 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.04 ) $ ( 0.26 ) Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted 194,342 182,978 Other comprehensive income (loss): Foreign currency translation gain (loss), net of tax $ 636 $ ( 5,189 ) Unrealized gains (losses) on investments, net of tax ( 242 ) 159 Other comprehensive income (loss) 394 ( 5,030 ) Comprehensive loss $ ( 7,960 ) $ ( 52,834 ) Stock-based compensation expense included in costs and expenses: Cost of revenue—subscription $ 6,018 $ 3,864 Cost of revenue—professional services and other 5,535 4,125 Sales and marketing 38,135 24,665 Research and development 20,462 11,885 General and administrative 10,986 9,012 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 DOCUSIGN, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Common Stock Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity (in thousands) Shares Amount Balances at January 31, 2021 192,807 $ 19 $ 1,702,254 $ ( 1,048 ) $ 4,964 $ ( 1,380,452 ) $ 325,737 Cumulative impact of Accounting Standards Update 2020-06 adoption — — ( 86,144 ) — — 12,239 ( 73,905 ) Settlement of convertible senior notes due in 2023 352 — ( 446 ) — — — ( 446 ) Exercise of stock options 488 — 6,616 — — — 6,616 Settlement of restricted stock units 955 — — — — — — Tax withholding on net share settlement of restricted stock units and employee stock purchase plan — — ( 113,412 ) ( 171 ) — — ( 113,583 ) Employee stock purchase plan 132 — 23,167 — — — 23,167 Employee stock-based compensation — — 83,611 — — — 83,611 Net loss — — — — — ( 8,354 ) ( 8,354 ) Other comprehensive income, net — — — — 394 — 394 Balances at April 30, 2021 194,734 $ 19 $ 1,615,646 $ ( 1,219 ) $ 5,358 $ ( 1,376,567 ) $ 243,237 Balances at January 31, 2020 181,254 $ 18 $ 1,685,167 $ — $ ( 1,673 ) $ ( 1,137,185 ) $ 546,327 Exercise of stock options 840 — 7,635 — — — 7,635 Settlement of restricted stock units 1,078 — — — — — — Tax withholding on net share settlement of restricted stock units — — ( 46,723 ) — — — ( 46,723 ) Employee stock purchase plan 256 — 13,590 — — — 13,590 Employee stock-based compensation — — 54,793 — — — 54,793 Net loss — — — — — ( 47,804 ) ( 47,804 ) 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 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 DOCUSIGN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended April 30, (in thousands) 2021 2020 Cash flows from operating activities: Net loss $ ( 8,354 ) $ ( 47,804 ) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 20,037 14,039 Amortization of deferred contract acquisition and fulfillment costs 30,933 21,360 Amortization of debt discount and transaction costs 1,319 6,842 Fair value adjustments to strategic investments ( 5,119 ) — Non-cash operating lease costs 6,943 6,324 Stock-based compensation expense 81,637 53,551 Deferred income taxes 264 ( 104 ) Other ( 1,240 ) 504 Changes in operating assets and liabilities Accounts receivable 73,205 17,239 Contract assets 1,607 ( 740 ) Prepaid expenses and other current assets ( 15,670 ) ( 9,660 ) Deferred contract acquisition and fulfillment costs ( 46,154 ) ( 41,037 ) Other assets ( 3,167 ) ( 1,364 ) Accounts payable ( 21,593 ) ( 2,554 ) Accrued expenses and other liabilities 11,080 ( 916 ) Accrued compensation ( 34,048 ) ( 1,536 ) Contract liabilities 51,648 44,594 Operating lease liabilities ( 7,731 ) 406 Net cash provided by operating activities 135,597 59,144 Cash flows from investing activities: Purchases of marketable securities ( 96,925 ) — Sales of marketable securities 2,002 28,986 Maturities of marketable securities 37,513 170,071 Purchases of strategic investments ( 500 ) — Purchases of other investments — ( 3,000 ) Purchases of property and equipment ( 12,596 ) ( 26,389 ) Net cash (used in) provided by investing activities ( 70,506 ) 169,668 Cash flows from financing activities: Repayments of convertible senior notes ( 36,684 ) — Payment of tax withholding obligation on net share settlement of restricted stock units ( 106,053 ) ( 46,723 ) Proceeds from exercise of stock options 6,616 7,635 Proceeds from employee stock purchase plan 23,167 13,590 Net cash used in financing activities ( 112,954 ) ( 25,498 ) Effect of foreign exchange on cash, cash equivalents and restricted cash 779 ( 2,280 ) Net increase (decrease) in cash, cash equivalents and restricted cash ( 47,084 ) 201,034 Cash, cash equivalents and restricted cash at beginning of period (1) 566,336 241,483 Cash, cash equivalents and restricted cash at end of period (1) $ 519,252 $ 442,517 (1) $ 0.3 million of restricted cash was included in Other assets—noncurrent at April 30, 2021, and January 31, 2021. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 DOCUSIGN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) Three Months Ended April 30, (in thousands) 2021 2020 Supplemental disclosure: Cash paid for interest $ 212 $ 1,438 Cash paid for operating lease liabilities 9,888 6,389 Cash paid for income taxes 2,507 416 Non-cash investing and financing activities: Property and equipment in accounts payable and accrued expenses and other current liabilities $ 1,275 $ 3,445 Operating lease right-of-use assets exchanged for lease obligations — 18,745 Fair value of shares issued as part of the repayments of convertible senior notes 74,657 — The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 9 DOCUSIGN, INC. Index for Notes to the Condensed Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies 11 Note 2 Revenue 12 Note 3 Fair Value Measurements 14 Note 4 Property and Equipment, Net 15 Note 5 Intangible Assets, Net 16 Note 6 Deferred Contract Acquisition and Fulfillment Costs 17 Note 7 Debt 17 Note 8 Commitments and Contingencies 19 Note 9 Stockholders' Equity 20 Note 10 Net Loss Per Share Attributable to Common Stockholders 22 Note 11 Income Taxes 22 Note 12 Geographic Information 22 10 DOCUSIGN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 . Summary of Significant Accounting Policies Organization and Description of Business DocuSign, Inc. (“we,” “our” or “us”) was incorporated in the State of Washington in April 2003. 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, sign, act on and manage agreements, thereby simplifying and accelerating the process of doing business. Basis of Presentation and Principles of Consolidation Our condensed consolidated financial statements include those of DocuSign, Inc. and our subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 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 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 fiscal 2021 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, 2021 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended April 30, 2021 are not necessarily indicative of the results to be expected for the year ending January 31, 2022 . O ur fiscal year ends on January 3 1. References to fiscal 2022, for example, are to the fiscal year ending January 31, 2022 . Use of Estimates 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: • the fair value of assets acquired and liabilities assumed in business combinations; • the average period of benefit associated with deferred contract acquisition costs and fulfillment costs; • the valuation of strategic investments; • the fair value of certain stock awards issued; • the f air value of the liability and equity components of convertible notes; • the useful life and recoverability of long-lived assets; • the discount rate used for operating leases; and • the recognition, measurement and valuation of deferred income taxes. Since the emergence of the COVID-19 pandemic, we have undertaken measures to protect our employees, partners and customers, including providing the majority of our employees the option to work remotely until at least October 4, 2021. However, there can be no assurance that these measures will be effective, that we will be able to adopt new measures as needed, or that we will be able to discontinue these measures without adversely affecting our business operations. In addition, the COVID-19 pandemic and related recent developments (including, for example, vaccine deployments, national and regional outbreaks, and the emergence of disease variants) have created and may continue to create significant uncertainty in global financial markets, which may decrease technology spending, depress demand for our products and harm our business and results of operations. As of the date of issuance of the financial statements, 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, and are recognized in the condensed consolidated financial statements as soon as they 11 become known. Actual results could differ from those estimates and any such differences may be material to our financial statements. Significant Accounting Policies Other than as described below, there have been no changes to our significant accounting policies described in our fiscal 2021 Annual Report on Form 10-K that have had a material impact on our consolidated financial statements and related notes. Convertible Debt On February 1, 2021, we early adopted Accounting Standards Update (“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) using the modified retrospective approach. Effective February 1, 2021, we account for our convertible debt instruments as a single liability measured at its amortized cost. At issuance, the carrying amount is calculated as the proceeds, net of initial purchasers’ discounts and transaction costs. The difference between the principal amount and carrying value is amortized to interest expense over the term of the convertible debt instruments using the effective interest rate method. At settlement, the carrying amount of the liability is derecognized and the excess of the cash consideration, if any, over the carrying amount is recorded as a reduction to additional paid-in capital. Refer to Note 1 of our 2021 Annual Report on Form 10-K for our convertible debt policy prior to the adoption of ASU 2020-06. Recently Adopted Accounting Pronouncements On February 1, 2021, we early adopted 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). This ASU removes separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. Such convertible debt is 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 ASU 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 adoption of the ASU using the modified retrospective method resulted in: • an increase of $ 77.3 million to the total carrying value of our convertible senior notes to reflect the full principal amount of the convertible notes outstanding net of issuance costs, • reductions of $ 86.1 million to additional paid-in capital and $ 3.4 million to mezzanine equity to remove the equity component separately recorded for the conversion features associated with the convertible notes, and • a cumulative-effect adjustment of $ 12.2 million to the beginning balance of accumulated deficit as of February 1, 2021. Other Recent Accounting Pronouncements Other recently issued accounting pronouncements are not expected to have a material impact on our consolidated financial statements. Note 2. Revenue Subscription revenue is recognized over time and accounted for approximately 96 % and 95 % of our revenue for the three months ended April 30, 2021 and 2020. Performance Obligations As of April 30, 2021, the amount of the transaction price allocated to remaining performance obligations for contracts greater than one year was $ 1.2 billion. We expect to recognize 53 % of the transaction price allocated to remaining performance obligations within the 12 months following April 30, 2021 in our consolidated statement of operations and comprehensive loss. 12 Contract Balances Contract assets represent amounts for which we have recognized revenue, pursuant to our revenue recognition policy, for contracts that have not yet been fully invoiced to our customers where there remains a performance obligation, typically for our multi-year arrangements. Total contract assets were $ 15.9 million and $ 17.5 million as of April 30, 2021 and January 31, 2021, of which $ 0.6 million and $ 0.6 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 the satisfaction of our remaining performance obligations and our contractual right to bill our customers. Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are generally recognized as revenue over the contractual period. For the three months ended April 30, 2021 and 2020, we recognized revenue of $ 357.8 million and $ 224.7 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. We record accounts receivable when the right to consideration becomes unconditional. Payment terms on invoiced amounts are typically 30 days. Note 3 . Fair Value Measurements The following table summarizes our financial assets that are measured at fair value on a recurring basis: April 30, 2021 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Level 1: Cash equivalents (1) Money market funds $ 147,875 $ — $ — $ 147,875 Level 2: Available-for-sale securities Commercial paper 100,804 2 ( 22 ) 100,784 Corporate notes and bonds 199,701 164 ( 95 ) 199,770 U.S. Treasury securities 4,999 1 — 5,000 U.S. government agency securities 50,535 8 ( 7 ) 50,536 Level 2 total 356,039 175 ( 124 ) 356,090 Level 3: Available-for-sale securities Corporate notes and bonds 500 — — 500 Total $ 504,414 $ 175 $ ( 124 ) $ 504,465 January 31, 2021 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Level 1: Cash equivalents (1) Money market funds $ 284,312 $ — $ — $ 284,312 Level 2: Available-for-sale securities Commercial paper 42,048 1 ( 23 ) 42,026 Corporate notes and bonds 199,277 375 ( 67 ) 199,585 U.S. Treasury securities 4,998 — — 4,998 U.S. government agency securities 53,052 12 ( 6 ) 53,058 Level 2 total 299,375 388 ( 96 ) 299,667 Level 3: Available-for-sale securities Corporate notes and bonds 500 — — 500 Total $ 584,187 $ 388 $ ( 96 ) $ 584,479 (1) Included in “cash and cash equivalents” in our consolidated balance sheets as of April 30, 2021, and January 31, 2021, in addition to cash of $ 371.1 million and $ 281.7 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 Level 3 investments is determined based on an income approach using unobservable inputs. 14 The fair value of our available-for-sale securities as of April 30, 2021, by remaining contractual maturities, were as follows (in thousands): Due in one year or less $ 261,660 Due in one to two years 94,930 $ 356,590 As of April 30, 2021 and January 31, 2021, securities in an unrealized loss position were individually and in aggregate not material. 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. We had no liabilities measured at fair value on a recurring basis as of April 30, 2021 and January 31, 2021. Strategic Investments During the three months ended April 30, 2021, investments in equity securities without readily determinable fair values increased by $ 5.1 million due to adjustments related to observable price changes. Such investments are recorded in “Other assets—noncurrent” on our condensed consolidated balance sheets. Convertible Senior Notes We estimated the fair value of the Notes based on the quoted market prices in an inactive market on the last trading day of the reporting period (Level 2). The Notes are recorded at face value less unamortized debt discount and transaction costs as “Convertible senior notes—current” and “Convertible senior notes, net—noncurrent” on our condensed consolidated balance sheets. Refer to Note 7 for further information. (in thousands) April 30, 2021 January 31, 2021 0.5 % Convertible Senior Notes due in 2023 Aggregate principal amount $ 78,318 $ 115,000 Fair value amount 245,245 373,928 0 % Convertible Senior Notes due in 2024 Aggregate principal amount $ 690,000 $ 690,000 Fair value amount 684,825 725,100 Note 4 . Property and Equipment, Net Property and equipment consisted of the following: (in thousands) April 30, 2021 January 31, 2021 Computer and network equipment $ 104,017 $ 102,163 Software, including capitalized software development costs 66,282 56,858 Furniture and office equipment 21,575 21,682 Leasehold improvements 79,749 79,892 271,623 260,595 Less: Accumulated depreciation ( 131,924 ) ( 121,029 ) 139,699 139,566 Work in progress 24,429 25,473 $ 164,128 $ 165,039 Depreciation and amortization expense associated with property and equipment was $ 13.5 million and $ 9.8 million for the three months ended April 30, 2021 and 2020. 15 For the three months ended April 30, 2021 and 2020, we capitalized $ 7.8 million and $ 5.1 million of internally developed software. Note 5 . Intangible Assets, Net Intangible assets consisted of the following: As of April 30, 2021 As of January 31, 2021 (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 3.7 $ 72,994 $ ( 38,808 ) $ 34,186 $ 72,994 $ ( 35,613 ) $ 37,381 Customer contracts & related relationships 7.7 110,082 ( 32,022 ) 78,060 110,082 ( 29,393 ) 80,689 Other 1.0 22,534 ( 20,107 ) 2,427 22,534 ( 19,356 ) 3,178 6.4 $ 205,610 $ ( 90,937 ) 114,673 $ 205,610 $ ( 84,362 ) 121,248 Cumulative translation adjustment 336 580 Total $ 115,009 $ 121,828 Amortization of finite-lived intangible assets was as follows: Three Months Ended April 30, (in thousands) 2021 2020 Cost of subscription revenue $ 3,171 $ 1,348 Sales and marketing 3,358 2,911 Total $ 6,529 $ 4,259 As of April 30, 2021, future amortization of finite-lived intangibles that will be recorded is estimated as follows, excluding cumulative translation adjustment: Fiscal Period: Amount (in thousands) 2022, remainder $ 17,707 2023 19,906 2024 18,575 2025 17,998 2026 12,388 Thereafter 28,099 Total $ 114,673 16 Note 6 . Deferred Contract Acquisition and Fulfillment Costs The following table represents a rollforward of our deferred contract acquisition and fulfillment costs: Three Months Ended April 30, (in thousands) 2021 2020 Deferred Contract Acquisition Costs Beginning balance $ 262,519 $ 155,697 Additions to deferred contract acquisition costs 39,700 34,158 Amortization of deferred contract acquisition costs ( 25,842 ) ( 16,941 ) Cumulative translation adjustment 240 ( 1,533 ) Ending balance $ 276,617 $ 171,381 Deferred Contract Fulfillment Costs Beginning balance $ 12,506 $ 8,218 Additions to deferred contract fulfillment costs 6,454 6,879 Amortization of deferred contract fulfillment costs ( 5,091 ) ( 4,419 ) Ending balance $ 13,869 $ 10,678 Note 7. Debt Convertible Senior Notes In September 2018, we issued $ 575.0 million in aggregate principal amount of the 0.5 % Convertible Senior Notes due in 2023 (“2023 Notes”). The net proceeds from the issuance of the 2023 Notes were $ 560.8 million after deducting the initial purchasers’ discounts and transaction costs. In each fiscal quarter since the quarter ended July 31, 2020, the last reported sales price of our common stock for at least 20 trading days during a period of 30 consecutive trading days ending on, and including, the last trading day was greater than or equal to 130 % of the conversion price of the 2023 Notes. The 2023 Notes therefore became convertible on August 1, 2020 and continue to be convertible through April 30, 2021. In January 2021, we issued $ 690.0 million in aggregate principal amount of the 0 % Convertible Senior Notes due in 2024 (“2024 Notes,” and together with the 2023 Notes, the “Notes”). The net proceeds from the issuance of the 2024 Notes were $ 677.3 million after deducting the initial purchasers’ discounts and transaction costs. As of April 30, 2021, the conversion conditions for the 2024 Notes described in our 2021 Annual Report on Form 10-K were not met. Conversions of the 2023 Notes Early conversions and settlements of the Notes during the three months ended April 30, 2021 were accounted for under ASU 2020-06. Refer to Note 1 for further discussion of early adoption. During the three months ended April 30, 2021, we settled $ 36.7 million aggregate amount of the principal of 2023 Notes, including $ 23.9 million elected for conversion as of January 31, 2021, for aggregate consideration of $ 111.3 million, consisting of $ 36.7 million in cash and 0.4 million shares of our common stock with a value of $ 74.7 million. The $ 0.4 million excess of the cash consideration over the corresponding carrying value was recorded as a reduction to additional paid-in capital. Additionally, as of April 30, 2021, we had received conversion notices on our 2023 Notes for $ 13.5 million in aggregate principal amount to be settled in the following quarter. The corresponding carrying value is reflected in Convertible senior notes—current on our condensed consolidated balance sheet. From May 1, 2021 through June 3, 2021, we received conversion notices on our 2023 Notes for $ 10.0 million in aggregate principal amount, for which we elected to settle the principal amount in cash during the three months ended July 31, 2021. 17 The net carrying amounts of the liability and equity components of the Notes were as follows: (in thousands) April 30, 2021 January 31, 2021 2023 Notes: Principal $ 78,318 $ 115,000 Less: unamortized debt discount (1) — ( 15,116 ) Less: unamortized transaction costs ( 928 ) ( 1,224 ) Net carrying value of current and noncurrent liability component $ 77,390 $ 98,660 Proceeds allocated to the conversion option (debt discount) (1) $ 134,667 Less: extinguishment or conversion ( 31,933 ) Less: transaction costs ( 3,336 ) Net carrying value of mezzanine and permanent equity component $ 99,398 2024 Notes: Principal $ 690,000 $ 690,000 Less: unamortized debt discount (1) — ( 63,619 ) Less: unamortized transaction costs ( 11,464 ) ( 11,353 ) Net carrying value of noncurrent liability component $ 678,536 $ 615,028 Proceeds allocated to the conversion option (debt discount) (1) $ 64,453 Less: transaction costs ( 1,185 ) Net carrying value of permanent equity component $ 63,268 (1) Not applicable under ASU 2020-06 The effective interest rate on the liability component of the 2023 Notes was 5.9 % prior to the adoption of ASU 2020-06 and 1.0 % after adoption. The effective interest rate on the liability component of the 2024 notes was 3.8 % prior to the adoption of ASU 2020-06 and 0.6 % after adoption. Interest expense recognized related to the Notes was as follows: Three Months Ended April 30, (in thousands) 2021 2020 Contractual interest expense $ 36 $ 718 Amortization of debt discount — 6,329 Amortization of transaction costs 1,181 513 Total $ 1,217 $ 7,560 Capped Calls To minimize the potential economic dilution to our common stock upon conversion of the Notes, we entered into privately-negotiated capped call transactions (“Capped Calls”) with certain counterparties. The material terms of the capped call transactions were as follows: (in thousands, except per share amounts) 2023 Notes 2024 Notes Aggregate cost of capped calls $ 67,563 $ 31,395 Initial strike price per share (1) $ 71.50 $ 420.24 Initial cap price per share (1) $ 110.00 $ 525.30 Shares of our common stock covered by the capped calls (1) 8,042 1,642 (1) Subject to adjustments for certain events, such as merger events and tender offers, and anti-dilution adjustments 18 Impact on Loss Per Share After February 1, 2021, the date of the adoption of ASU 2020-06, in periods when we have net income, the shares of our common stock subject to the Notes outstanding during the period are included in our diluted earnings per share under the if-converted method. As of the beginning of the fourth quarter of 2021, share settlement was presumed, and shares subject to the Notes would have been included under the if-converted method. In periods prior to that, cash settlement was presumed and shares subject to the Notes would have been included under the treasury stock method. Capped Calls are excluded from the calculation of diluted earnings per share, as they would be antidilutive. Upon conversion, there will be no economic dilution from the Notes unless the market price of our common stock exceeds the cap prices listed above in the Capped Calls section, as exercise of the Capped Calls offsets any dilution from the Notes from the conversion price up to the cap price. As of April 30, 2021, the market price of our common stock exceeded the $ 110.00 per share cap price associated with the 2023 Notes but not the $ 525.30 cap price associated with the 2024 Notes; therefore, the 2023 Notes would have caused economic dilution if converted. Revolving Credit Facility In January 2021, we entered into a credit agreement with a syndicate of banks. The credit agreement extended a senior secured revolving credit facility (the “Credit Facility”) to us in an aggregate principal amount of $ 500.0 million, which amount may be increased by an additional $ 250.0 million subject to the terms of the credit agreement. We may use the proceeds of future borrowings under the credit facility to finance working capital, capital expenditures and for other general corporate purposes, including permitted acquisitions. The Credit Facility matures in January 2026 and requires us to comply with customary affirmative and negative covenants. We were in compliance with all covenants as of April 30, 2021. As of April 30, 2021, there were no outstanding borrowings under the Credit Facility. The Credit Facility is subject to customary fees for loan facilities of this type, including ongoing commitment fees at a rate between 0.25 % and 0.30 % per annum on the daily undrawn balance. Note 8 . Commitments and Contingencies As of April 30, 2021, we had unused letters of credit outstanding associated with our various operating leases totaling $ 7.7 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, 2021, the future noncancelable minimum payments due under these contractual obligations with a remaining term of more than one year were as follows: Fiscal Period: Amount (in thousands) 2022, remainder $ 15,698 2023 33,368 2024 19,091 2025 9,783 2026 8,178 Thereafter 3,145 Total $ 89,263 19 Indemnification We enter into indemnification provisions under our agreements with customers and other companies in the ordinary course of business, including business partners, contractors and parties performing our research and development. Pursuant to these arrangements, we agree to indemnify and defend the indemnified party for certain claims and related losses suffered or incurred by the indemnified party from actual or threatened third-party claims because of our activities. The duration of these indemnification agreements is generally perpetual. The maximum potential amount of future payments we could be required to make under these indemnification clauses or agreements is not determinable. 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, 2021, and January 31, 2021. We maintain commercial general liability insurance and product liability insurance to offset certain of our potential liabilities under these indemnification agreements. We have entered into indemnification agreements with each of our directors, executive officers and certain other officers. These agreements require us to indemnify such individuals, to the fullest extent permitted by Delaware law, for certain liabilities to which they may become subject as a result of their affiliation with us. Claims and Litigation From time to time, we may be subject to legal proceedings, claims and litigation made against us in the ordinary course of business. We believe the final outcome of these matters will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows. Note 9. Stockholders' Equity Equity Incentive Plans We maintain three stock-based compensation plans: the 2018 Equity Incentive Plan (the “2018 Plan”), the Amended and Restated 2011 Equity Incentive Plan (the “2011 Plan”) and the Amended and Restated 2003 Stock Plan (the “2003 Plan”). The 2018 Plan serves as a successor to the 2011 Plan and 2003 Plan and provides for the grant of stock-based awards to our employees, directors and consultants. Shares available for grant under the 2011 Plan that were reserved but not issued as of the effective date of the 2018 Plan were added to the reserves of the 2018 Plan. No additional awards under the 2011 Plan or 2003 Plan have been made since the effective date of the 2018 Plan. Outstanding awards under these two plans continue to be subject to the terms and conditions of the respective plans. As of April 30, 2021, 43.1 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). The most recent automatic increase of 9.6 million shares occurred on February 1, 2021. Restricted Stock Units 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. From time to time, we also grant RSUs that are subject to either a performance-based or market-based vesting condition. The performance-based conditions will be satisfied upon satisfaction of certain financial performance targets. The market-based conditions will be satisfied if certain milestones based on our common stock price or relative total shareholder return are met. 20 RSU activity for the three months ended April 30, 2021 was as follows: (in thousands, except per share data) Number of Units Weighted-Average Grant Date Fair Value Unvested at January 31, 2021 10,586 $ 83.98 Granted 436 227.30 Vested ( 1,375 ) 60.04 Canceled ( 453 ) $ 85.88 Unvested at April 30, 2021 9,194 $ 94.26 As of April 30, 2021, our total unrecognized compensation cost related to RSUs was $ 671.2 million. We expect to recognize this expense over the remaining weighted-average period of approximately 2.2 years. Stock Options Option activity for the three months ended April 30, 2021 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, 2021 4,798 $ 15.55 5.0 $ 1,042,879 Exercised ( 488 ) 13.48 Outstanding at April 30, 2021, all vested and exercisable 4,310 $ 15.78 4.9 $ 892,949 As of April 30, 2021, there was no remaining unrecognized compensation cost related to stock option grants. 2018 Employee Stock Purchase Plan The Employee Stock Purchase Plan (“ESPP”) allows eligible employees to purchase shares of our common stock at a discounted price, normally through payroll deductions, of up to 15 % of their earnings, subject to the terms of the ESPP and applicable law. The purchase price for common stock under the ESPP is equal to 85 % of the fair market value of our common stock on the first or last day of the offering period, whichever is lower. 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, 2021, 0.1 million shares of our common stock were purchased under the ESPP. Compensation expense related to the ESPP was $ 4.3 million and $ 1.9 million for the three months ended April 30, 2021 and 2020. 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, 2021, 8.1 million shares of our common stock were reserved for issuance under the ESPP. 21 Note 10 . 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, (in thousands, except per share data) 2021 2020 Numerator: Net loss attributable to common stockholders $ ( 8,354 ) $ ( 47,804 ) Denominator: Weighted-average common shares outstanding 194,342 182,978 Net loss per share attributable to common stockholders: Basic and diluted $ ( 0.04 ) $ ( 0.26 ) Outstanding potentially dilutive securities that were excluded from the diluted per share calculations because they would have been antidilutive are as follows: April 30, (in thousands) 2021 2020 RSUs 9,194 12,550 Stock options 4,310 6,030 ESPP 158 227 Convertible senior notes 2,737 2,553 Total antidilutive securities 16,399 21,360 Note 11 . Income Taxes Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. There were no material discrete items in the quarter. Our income tax provision was $ 2.0 million and $ 2.1 million for the three months ended April 30, 2021 and 2020. 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. consolidated group deferred tax assets and certain foreign deferred tax assets as a result of our history of losses in the United States and certain foreign jurisdictions, and the variability and uncertainty of our 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, 2021, our gross unrecognized tax benefits totaled $ 35.7 million, excluding related accrued interest and penalties, of which $ 16.3 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. We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months. We are subject to taxation in the United States and various foreign jurisdictions. Our tax years from inception in 2003 through April 30, 2021 remain subject to examination by U.S. and California taxing authorities, as well as taxing authorities in various other state and foreign jurisdictions. We are under examination by the Israel Tax Authority for tax years 2016 through 2019. We are not under examination in any other material jurisdiction. We believe that adequate amounts have been reserved in all jurisdictions. Note 12 . Geographic Information We operate in one operating segment and one reportable segment as we only report financial information on an aggregate and consolidated basis to the Chief Executive Officer, who is our chief operating decision maker. 22 Revenue by geography is based on the address of the customer as specified in our master subscription agreement. Revenue by geographic area was as follows: Three Months Ended April 30, (in thousands) 2021 2020 U.S. $ 368,423 $ 242,168 International 100,655 54,849 Total revenue $ 469,078 $ 297,017 No single country other than the U.S. had revenue greater than 10% of total revenue in the three months ended April 30, 2021 and 2020 . 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, 2021 January 31, 2021 U.S. $ 216,952 $ 221,549 Ireland 64,842 66,670 International 34,519 36,172 Total long-lived assets $ 316,313 $ 324,391