What changed in this filing

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Item 1. Financial Statements

2020-12-03 compared with 2020-08-28 · 178 added, 126 removed, 559 unchanged (35% of the section changed)

Financial Statements (unaudited)

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

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

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

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

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

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

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 31, 2020 and 2019

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended October 31, 2020 and 2019

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended October 31, 2020 and 2019

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2020 and 2019

Notes to Condensed Consolidated Financial Statements

29 unchanged sentences

(In thousands, except per share data)

July 31, 2020

January 31, 2020

October 31, 2020 January 31, 2020

Current assets:

2 unchanged sentences

Accounts receivable, net of allowances of $ 2,547 and $ 1,166

139,473 130,115

Deferred commissions 40,908 33,636

5 unchanged sentences

Intangible assets, net 28,953 32,529

Goodwill 48,023 48,023

Other assets 24,355 18,505

Total assets $ 3,170,279 $ 1,955,395

Liabilities and stockholders' equity

15 unchanged sentences

100,000 shares authorized;

no shares issued and outstanding as of July 31, 2020 and January 31, 2020

no shares issued and outstanding as of October 31, 2020 and January 31, 2020

Class A common stock, par value $ 0.0001 per share;

1,000,000 shares authorized;

119,960 and 113,990 shares issued and outstanding as of July 31, 2020 and January 31, 2020, respectively

121,283 and 113,990 shares issued and outstanding as of October 31, 2020 and January 31, 2020, respectively

Class B common stock, par value $ 0.0001 per share;

120,000 shares authorized;

8,128 and 8,648 shares issued and outstanding as of July 31, 2020 and January 31, 2020, respectively

8,219 and 8,648 shares issued and outstanding as of October 31, 2020 and January 31, 2020, respectively

Additional paid-in capital 1,569,714 1,105,564

7 unchanged sentences

Three Months Ended

Six Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Subscription $ 206,743 $ 144,517 $ 571,213 $ 394,174

Professional services and other 10,636 8,520 29,471 24,566

1 unchanged sentence

Cost of revenue:

Subscription 44,762 30,124 121,420 82,581

Professional services and other 12,146 10,700 35,121 32,118

Total cost of revenue 56,908 40,824 156,541 114,699

Gross profit 160,471 112,213 444,143 304,041

Operating expenses:

6 unchanged sentences

Interest income and other, net 1,878 4,982 10,737 11,346

Loss on early extinguishment of debt

Loss on early extinguishment and conversion of debt ( 89 ) ( 14,572 ) ( 2,263 ) ( 14,572 )

Interest and other, net ( 20,579 ) ( 17,416 ) ( 41,589 ) ( 19,597 )

Loss before benefit from income taxes

Benefit from income taxes

Loss before provision for (benefit from) income taxes ( 72,555 ) ( 63,146 ) ( 191,152 ) ( 160,726 )

Provision for (benefit from) income taxes 209 349 ( 626 ) ( 2,285 )

Net loss $ ( 72,764 ) $ ( 63,495 ) $ ( 190,526 ) $ ( 158,441 )

Net loss per share, basic and diluted $ ( 0.56 ) $ ( 0.53 ) $ ( 1.51 ) $ ( 1.37 )

4 unchanged sentences

Three Months Ended

Six Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Net loss $ ( 72,764 ) $ ( 63,495 ) $ ( 190,526 ) $ ( 158,441 )

Other comprehensive income (loss):

7 unchanged sentences

Three Months Ended

Six Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Common stock and additional paid-in capital:

4 unchanged sentences

Equity component of convertible senior notes, net of issuance costs ( 12 ) 217,347 306,220 217,347

Equity component of early extinguishment of convertible senior notes

Equity component of early extinguishment and conversion of convertible senior notes 8,829 ( 26,713 ) 70,493 ( 26,713 )

Proceeds from hedges related to convertible senior notes — 405,851 195,046 405,851

1 unchanged sentence

Purchases of capped calls related to convertible senior notes — ( 74,094 ) ( 133,975 ) ( 74,094 )

Other, net — ( 3 ) ( 3 )

Balance, end of period 1,569,727 1,048,911 1,569,727 1,048,911

1 unchanged sentence

Balance, beginning of period ( 818,886 ) ( 587,157 ) ( 701,124 ) ( 492,211 )

Net loss ( 72,764 ) ( 63,495 ) ( 190,526 ) ( 158,441 )

Balance, end of period ( 891,650 ) ( 650,652 ) ( 891,650 ) ( 650,652 )

7 unchanged sentences

(In thousands)

Six Months Ended July 31,

Nine Months Ended

Cash flows from operating activities:

Net loss $ ( 190,526 ) $ ( 158,441 )

Adjustments to reconcile net loss to net cash provided by operating activities:

5 unchanged sentences

Non-cash charitable contributions 4,662 1,162

Loss on early extinguishment of debt

Loss on early extinguishment and conversion of debt 2,263 14,572

Other, net 4,515 84

Changes in operating assets and liabilities:

26 unchanged sentences

Proceeds from shares issued in connection with employee stock purchase plan 12,821 9,005

Other, net — ( 126 )

Net cash provided by financing activities 1,066,457 834,731

5 unchanged sentences

Cash paid during the period for:

Non-cash investing and financing activities:

Issuance of common stock for repurchases of convertible senior notes

Vesting of early exercised common stock options

Interest $ 1,566 $ 862

Income taxes 622 845

Non-cash activities:

Issuance of common stock for repurchases and conversions of convertible senior notes 307,910 380,406

Common stock issued as charitable contribution 4,662 1,162

1 unchanged sentence

Property and equipment acquired through tenant improvement allowance 4,811 1,682

Impairment of operating lease right-of-use asset 2,587 —

Issuance of common stock for bonus settlement 9,818 2,809

27 unchanged sentences

In March 2020, the World Health Organization (WHO) declared the outbreak of the novel coronavirus (COVID-19) a pandemic, which continues to spread across the globe.

The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the condensed consolidated financial statements for the three and six months ended July 31, 2020 .

As events continue to evolve and additional information becomes available, our assumptions and estimates may change materially in future periods.

3 unchanged sentences

Summary of Significant Accounting Policies” in Item 8.

Financial Statements and Supplementary Data of its Form 10-K for the fiscal year ended January 31, 2020 .

Except for the accounting policies for short-term investments and accounts receivable and allowances that were

updated below as a result of adopting the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No.

Financial Statements and Supplementary Data of its Form 10-K for the fiscal year ended

January 31, 2020.

Except for the accounting policies for short-term investments and accounts receivable and allowances that were updated below as a result of adopting the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No.

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

Measurement of Credit Losses on Financial Instruments (ASU 2016-13) on February 1, 2020, there have been no significant changes to our significant accounting policies for the six months ended July 31, 2020 .

Measurement of Credit Losses on Financial Instruments (ASU 2016-13) on February 1, 2020, there have been no significant changes to our significant accounting policies for the nine months ended October 31, 2020.

Short-Term Investments

14 unchanged sentences

Amounts deemed uncollectible are recorded as an allowance in the condensed consolidated balance sheets with an offsetting decrease in deferred revenue or a charge to general and administrative expense in the condensed consolidated statements of operations.

As of July 31, 2020 , allowances reflect increased collectibility and concession concerns stemming from business and market disruption caused by COVID-19 and may fluctuate materially in future periods as the duration and severity of the impact of the COVID-19 pandemic remains uncertain.

As of October 31, 2020, allowances reflect collectibility and concession concerns stemming from business and market disruption caused by COVID-19 and may fluctuate materially in future periods as the duration and severity of the impact of the COVID-19 pandemic remains uncertain.

Concentrations of Significant Customers

As of July 31, 2020 and January 31, 2020, no single customer represented greater than 10% of accounts receivable.

For the six months ended July 31, 2020 and 2019, no single customer represented greater than 10% of revenue.

As of October 31, 2020, one channel partner represented approximately 13 % of accounts receivable.

As of January 31, 2020, no single customer represented greater than 10% of accounts receivable.

For the nine months ended October 31, 2020 and 2019, no single customer represented greater than 10% of revenue.

Recently Adopted Accounting Pronouncements

18 unchanged sentences

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

Among other changes, ASU 2020-06 removes from U.S.

GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt.

Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt.

Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument.

10 unchanged sentences

The Company incurred $ 3.0 million of acquisition-related costs, which were recorded as general and administrative expense in the quarter ended April 30, 2019.

In connection with Azuqua and prior acquisitions, the Company entered into deferred compensation arrangements totaling $ 10.8 million , of which $ 2.2 million was recognized as compensation during the six months ended July 31, 2020 .

The remaining deferred compensation balance of $ 2.6 million is being recognized over a future weighted-average period of 1.6 years subject to continued service with the Company.

In connection with Azuqua and prior acquisitions, the Company entered into deferred compensation arrangements totaling $ 10.8 million, of which $ 2.6 million was recognized as compensation during the nine months ended October 31, 2020.

The remaining deferred compensation balance of $ 2.2 million is associated with the acquisition of Azuqua and is being recognized over a future period of 1.4 years subject to continued service with the Company.

These acquisitions did not have a material impact on the Company’s condensed consolidated financial statements;

1 unchanged sentence

Cash Equivalents and Short-term Investments

The amortized cost, unrealized gain (loss) and estimated fair value of the Company’s cash equivalents and short-term investments as of July 31, 2020 and January 31, 2020 were as follows (in thousands):

As of July 31, 2020

The amortized cost, unrealized gain (loss) and estimated fair value of the Company’s cash equivalents and short-term investments as of October 31, 2020 and January 31, 2020 were as follows (in thousands):

As of October 31, 2020

Cash equivalents:

5 unchanged sentences

Total short-term investments 2,082,832 2,700 ( 159 ) 2,085,373

Total $ 2,418,424 $ 2,700 $ ( 159 ) $ 2,420,965

As of January 31, 2020

7 unchanged sentences

Total short-term investments 881,779 1,205 ( 8 ) 882,976

All short-term investments were designated as available-for-sale securities as of July 31, 2020 and January 31, 2020 .

The following table presents the contractual maturities of the Company’s short-term investments as of July 31, 2020 (in thousands):

As of July 31, 2020

Total $ 1,318,359 $ 1,205 $ ( 8 ) $ 1,319,556

All short-term investments were designated as available-for-sale securities as of October 31, 2020 and January 31, 2020.

The following table presents the contractual maturities of the Company’s short-term investments as of October 31, 2020 (in thousands):

As of October 31, 2020

Due within one year $ 1,285,936 $ 1,288,279

Due between one to five years 796,896 797,094

As of July 31, 2020 and January 31, 2020 , the Company included $ 15.6 million and nil , respectively, of unsettled purchases of Short-term investments in Accrued expenses and other short-term liabilities.

The Company included $ 7.6 million and $ 5.7 million of interest receivable in Prepaid expenses and other current assets as of July 31, 2020 and January 31, 2020, respectively.

The Company did not recognize an allowance for credit losses against interest receivable as of July 31, 2020 and January 31, 2020 because such potential losses were not material.

The Company had 37 and 7 short-term investments in unrealized loss positions as of July 31, 2020 and January 31, 2020 , respectively.

There were no material gross unrealized gains or losses from available-for-sale securities and no material realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive income for the three and six months ended July 31, 2020 or 2019 .

Total $ 2,082,832 $ 2,085,373

As of October 31, 2020 and January 31, 2020, the Company included $ 41.0 million and nil , respectively, of unsettled maturities of Short-term investments in Prepaid expenses and other current assets.

The Company included $ 10.9 million and $ 5.7 million of interest receivable in Prepaid expenses and other current assets as of October 31, 2020 and January 31, 2020, respectively.

The Company did not recognize an allowance for credit losses against interest receivable as of October 31, 2020 and January 31, 2020 because such potential losses were not material.

The Company had 62 and 7 short-term investments in unrealized loss positions as of October 31, 2020 and January 31, 2020, respectively.

For available-for-sale debt securities that have unrealized losses, the Company evaluates whether (i) the Company has the intention to sell any of these investments, (ii) it is not more likely than not that the Company will be required to sell any of these available-for-sale debt securities before recovery of the entire amortized cost basis and (iii) the decline in the fair value of the investment is due to credit or non-credit related factors.

Based on this evaluation, the Company determined that for short-term investments, there were no material credit or non-credit related impairments as of July 31, 2020 and January 31, 2020 .

Based on this evaluation, the Company determined that for short-term investments, there were no material credit or non-credit related impairments as of October 31, 2020 and January 31, 2020.

Fair Value Measurements

7 unchanged sentences

The following table presents information about the Company’s financial assets that were measured at fair value on a recurring basis using the above input categories (in thousands):

As of July 31, 2020

As of October 31, 2020

Level 1 Level 2

Level 3 Total

Cash equivalents:

7 unchanged sentences

As of January 31, 2020

Level 1 Level 2

Level 3 Total

Cash equivalents:

10 unchanged sentences

The following table presents the carrying amounts and estimated fair values of our financial instruments that are not recorded at fair value on the condensed consolidated balance sheets (in thousands):

As of July 31, 2020

As of October 31, 2020

Net Carrying Amount (1)

6 unchanged sentences

The estimated fair values of the Notes, which are Level 2 financial instruments, were determined based on the quoted bid prices of the Notes in an over-the-counter market on the last trading day of the reporting period.

As of July 31, 2020 , the difference between the net carrying amount of the Notes and their estimated fair values represented the equity conversion value premium the market assigned to the Notes.

Based on the closing price of our common stock of $ 220.98 on July 31, 2020 , the if-converted values of the 2023 Notes and 2025 Notes exceeded the principal amounts of $ 50.7 million and $ 1,060.0 million , respectively, while the if-converted value of the 2026 Notes was less than the principal amount of $ 1,150.0 million .

As of October 31, 2020, the difference between the net carrying amount of the Notes and their estimated fair values represented the equity conversion value premium the market assigned to the Notes.

Based on the closing price of our common stock of $ 209.83 on October 31, 2020, the if-converted values of the 2023 Notes and 2025 Notes exceeded the principal amounts of $ 40.2 million and $ 1,060.0 million, respectively, while the if-converted value of the 2026 Notes was less than the principal amount of $ 1,150.0 million.

Deferred Commissions

Sales commissions capitalized as contract costs totaled $ 18.4 million and $ 11.6 million in the three months ended July 31, 2020 and 2019 , respectively, and $ 30.3 million and $ 21.4 million in the six months ended July 31, 2020 and 2019 , respectively .

Amortization of contract costs was $ 9.4 million and $ 6.9 million for the three months ended July 31, 2020 and 2019 , respectively, and $ 18.1 million and $ 13.2 million for the six months ended July 31, 2020 and 2019 , respectively .

Sales commissions capitalized as contract costs totaled $ 21.5 million and $ 15.3 million in the three months ended October 31, 2020 and 2019, respectively, and $ 51.8 million and $ 36.7 million in the nine months ended October 31, 2020 and 2019, respectively.

Amortization of contract costs was $ 10.3 million and $ 7.3 million for the three months ended October 31, 2020 and 2019, respectively, and $ 28.4 million and $ 20.5 million for the nine months ended October 31, 2020 and 2019, respectively.

There was no impairment loss in relation to the costs capitalized.

Goodwill and Intangible Assets, net

As of July 31, 2020 and January 31, 2020 , goodwill was $ 48.0 million .

No goodwill impairments were recorded during the three and six months ended July 31, 2020 and 2019 .

As of October 31, 2020 and January 31, 2020, goodwill was $ 48.0 million.

No goodwill impairments were recorded during the three and nine months ended October 31, 2020 and 2019.

Intangible Assets, net

Intangible assets consisted of the following (in thousands):

As of July 31, 2020

Accumulated Amortization

As of October 31, 2020

Gross Accumulated Amortization Write-offs Net

Capitalized internal-use software costs $ 29,435 $ ( 18,199 ) $ — $ 11,236

1 unchanged sentence

Software licenses 1,112 ( 1,094 ) — 18

$ 59,347 $ ( 30,394 ) $ — $ 28,953

As of January 31, 2020

Accumulated Amortization

Gross Accumulated Amortization Write-offs Net

Capitalized internal-use software costs $ 24,890 $ ( 14,828 ) $ ( 119 ) $ 9,943

1 unchanged sentence

Software licenses 1,112 ( 1,005 ) — 107

The Company capitalized $ 1.8 million and $ 1.2 million of internal-use software costs during the three months ended July 31, 2020 and 2019, respectively and $ 3.1 million and $ 1.7 million of internal use software costs in the six months ended July 31, 2020 and 2019, respectively.

$ 54,802 $ ( 22,154 ) $ ( 119 ) $ 32,529

The Company capitalized $ 1.6 million and $ 1.8 million of internal-use software costs in the three months ended October 31, 2020 and 2019, respectively and $ 4.7 million and $ 3.5 million in the nine months ended October 31, 2020 and 2019, respectively.

Stock-based compensation expense included in the total amounts capitalized were immaterial.

The remaining weighted-average useful life of all purchased developed technology was 3.5 years as of July 31, 2020 .

Amortization expense of intangible assets for the three months ended July 31, 2020 and 2019 was $ 2.8 million and $ 3.0 million , respectively and $ 5.6 million and $ 5.1 million of internal-use software costs in the six months ended July 31, 2020 and 2019 , respectively.

The remaining weighted-average useful life of all purchased developed technology was 3.3 years as of October 31, 2020.

Amortization expense of intangible assets for the three months ended October 31, 2020 and 2019 was $ 2.7 million and $ 2.6 million, respectively, and $ 8.2 million and $ 7.7 million for the nine months ended October 31, 2020 and 2019, respectively.

Deferred Revenue and Performance Obligations

1 unchanged sentence

Deferred revenue, which is a contract liability, consists primarily of payments received and accounts receivable recorded in advance of revenue recognition under the Company’s contracts with customers and is recognized as the revenue recognition criteria are met.

Subscription revenue recognized during the three months ended July 31, 2020 and 2019 that was included in the deferred revenue balances at the beginning of the respective periods was $ 165.0 million and $ 113.1 million , respectively, and $ 261.9 million and $ 174.9 million in the six months ended July 31, 2020 and 2019 , respectively.

Professional services and other revenue recognized in the three and six months ended July 31, 2020 and 2019 from deferred revenue balances at the beginning of the respective periods was not material.

Subscription revenue recognized during the three months ended October 31, 2020 and 2019 that was included in the deferred revenue balances at the beginning of the respective periods was $ 174.0 million and $ 123.5 million, respectively, and $ 334.2 million and $ 224.0 million in the nine months ended October 31, 2020 and 2019, respectively.

Professional services and other revenue recognized in the three and nine months ended October 31, 2020 and 2019 from deferred revenue balances at the beginning of the respective periods was not material.

Transaction Price Allocated to the Remaining Performance Obligations

Transaction price allocated to the remaining performance obligations represents all future, noncancelable contracted revenue that has not yet been recognized, inclusive of deferred revenue that has been invoiced and noncancelable amounts that will be invoiced and recognized as revenue in future periods.

As of July 31, 2020 , total remaining noncancelable performance obligations under the Company’s subscription contracts with customers was approximately $ 1,426.7 million .

As of October 31, 2020, total remaining noncancelable performance obligations under the Company’s subscription contracts with customers was approximately $ 1,581.8 million .

Of this amount, the Company expects to recognize revenue of approximately $ 753.2 million, or 48 %, over the next 12 months, with the balance to be recognized as revenue thereafter.

Revenue from remaining performance obligations for professional services and other contracts as of July 31, 2020 was not material.

Revenue from remaining performance obligations for professional services and other contracts as of October 31, 2020 was not material.

Convertible Senior Notes, Net

8 unchanged sentences

As of the repurchase date, the carrying value of the notes subject to the First Partial Repurchase of 2023 Notes, net of unamortized debt discount and issuance costs, was $ 183.1 million.

The First Partial Repurchase of 2023 Notes resulted in a $ 14.6 million loss on early debt extinguishment in fiscal 2020 , of which $ 3.8 million consisted of unamortized debt issuance costs.

The First Partial Repurchase of 2023 Notes resulted in a $ 14.6 million loss on early debt extinguishment during the three and nine months ended October 31, 2019, of which $ 3.8 million consisted of unamortized debt issuance costs.

In June 2020, the Company used part of the net proceeds from the issuance of the 2026 Notes to repurchase a portion of the 2023 Notes, which consisted of a repurchase of $ 69.9 million aggregate principal amount of the 2023 Notes in privately-negotiated transactions, for aggregate consideration of $ 260.5 million, consisting of approximately $ 0.2 million in cash and approximately 1.4 million shares of Class A common stock (Second Partial Repurchase of 2023 Notes, and together with the First Partial Repurchase of 2023 Notes, the 2023 Notes Partial Repurchases).

1 unchanged sentence

As of the repurchase date, the carrying value of the notes subject to the Second Partial Repurchase of 2023 Notes, net of unamortized debt discount and issuance costs, was $ 59.6 million.

The Second Partial Repurchase of 2023 Notes resulted in a $ 2.2 million loss on early debt extinguishment in fiscal 2021, of which $ 1.0 million consisted of unamortized debt issuance costs.

The Second Partial Repurchase of 2023 Notes resulted in a $ 2.2 million loss on early debt extinguishment during the nine months ended October 31, 2020, of which $ 1.0 million consisted of unamortized debt issuance costs.

The interest rates used in the 2023 Notes Partial Repurchases were based on the income and market based approaches used to determine the effective interest rate of the 2025 Notes and 2026 Notes, adjusted for the remaining tenor of the 2023 Notes.

As of July 31, 2020 , $ 50.7 million of principal remained outstanding on the 2023 Notes.

As of October 31, 2020, $ 40.2 million of principal remained outstanding on the 2023 Notes.

The terms of the 2023 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the 2023 Indenture).

2 unchanged sentences

Prior to the close of business on the business day immediately preceding October 15, 2022, holders of the 2023 Notes may convert all or a portion of their 2023 Notes only in multiples of $1,000 principal amount, under the following circumstances:

during any fiscal quarter commencing after the fiscal quarter ending on April 30, 2018 (and only during such fiscal quarter), if the last reported sale price of Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2023 Notes on each applicable trading day;

• during any fiscal quarter commencing after the fiscal quarter ending on April 30, 2018 (and only during such fiscal quarter), if the last reported sale price of Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and

including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2023 Notes on each applicable trading day;

• during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2023 Notes for each trading day of that five consecutive trading day period was less than 98 % of the product of the last reported sale price of Class A common stock and the conversion rate on such trading day;

1 unchanged sentence

On or after October 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2023 Notes regardless of the foregoing circumstances.

For at least twenty trading days during the period of thirty consecutive trading days ended July 31, 2020 , the last reported sale price of the Company’s common stock was equal to or exceeded 130 % of the conversion price of the 2023 Notes on each applicable trading day.

As a result, the 2023 Notes are convertible at the option of the holders during the fiscal quarter ending October 31, 2020 and were classified as current liabilities on the condensed consolidated balance sheet as of July 31, 2020 .

In addition, as of the date of this filing, the Company has received an immaterial amount of conversion requests and holders of the 2023 Notes have converted an immaterial amount of such notes (not in connection with the 2023 Notes Partial Repurchases).

For at least twenty trading days during the period of thirty consecutive trading days ended October 31, 2020, the last reported sale price of the Company’s common stock was equal to or exceeded 130 % of the conversion price of the 2023 Notes on each applicable trading day.

As a result, the 2023 Notes are convertible at the option of the holders during the fiscal quarter ending January 31, 2021 and were classified as current liabilities on the condensed consolidated balance sheet as of October 31, 2020.

During the three and nine months ended October 31, 2020, the Company paid approximately $ 0.3 million in cash and issued approximately 0.2 million shares of Class A common stock to settle approximately $ 10.4 million principal amount of 2023 Notes (not in connection with the 2023 Notes Partial Repurchases).

The loss on early note conversion was not material.

No requests to convert material amounts of notes are currently outstanding.

Holders of the 2023 Notes who convert their 2023 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the 2023 Indenture) are, under certain circumstances, entitled to an increase in the conversion rate.

5 unchanged sentences

The following table sets forth total interest expense recognized related to the 2023 Notes (in thousands):

Three Months Ended July 31,

Six Months Ended July 31,

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Contractual interest expense $ 27 $ 99 $ 154 $ 530

1 unchanged sentence

Amortization of debt discount 511 2,403 2,839 9,868

Total $ 587 $ 2,716 $ 3,259 $ 11,260

Total initial issuance costs of $ 10.0 million related to the 2023 Notes were allocated between liability and equity in the same proportion as the allocation of the total proceeds to the liability and equity components.

3 unchanged sentences

The 2023 Notes, net consisted of the following (in thousands):

As of July 31, 2020

As of October 31, 2020

Liability component:

Principal $ 40,246

unamortized debt issuance costs and debt discount ( 5,115 )

Net carrying amount $ 35,131

As of July 31, 2020

As of October 31, 2020

Equity component:

2023 Notes $ 9,328

issuance costs ( 271 )

10 unchanged sentences

The proceeds were recorded as an increase to Additional paid-in capital in the condensed consolidated balance sheets.

As of July 31, 2020 , Note Hedges giving the Company the option to purchase approximately 1.0 million shares (subject to adjustment) remained outstanding.

During the three months ended October 31, 2020, the Company exercised a portion of the Note Hedges, corresponding to approximately $ 10.4 million principal amount of 2023 Notes, which will be net share settled in our fiscal fourth quarter in accordance with their contractual terms.

As of October 31, 2020, Note Hedges giving the Company the option to purchase approximately 0.8 million shares (subject to adjustment), which excludes the exercised portion to be net share settled in our fiscal fourth quarter, remained outstanding.

In connection with the issuance of the 2023 Notes, the Company also entered into separate warrant transactions pursuant to which it sold net-share-settled (or, at the Company’s election subject to certain conditions, cash-settled) warrants (Warrants) to acquire, subject to anti-dilution adjustments, up to approximately 7.1 million shares over 80 scheduled trading days beginning in May 2023 of the Company’s Class A common stock at an initial exercise price of approximately $ 68.06 per share (subject to adjustment).

6 unchanged sentences

The termination payments were recorded as a decrease to Additional paid-in capital in the condensed consolidated balance sheets.

As of July 31, 2020 , Warrants to acquire up to approximately 1.0 million shares (subject to adjustment) remained outstanding.

As of October 31, 2020, Warrants to acquire up to approximately 1.0 million shares (subject to adjustment) remained outstanding.

2025 Convertible Senior Notes

12 unchanged sentences

On or after June 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2025 Notes regardless of the foregoing circumstances.

During the three months ended July 31, 2020 , the conditions allowing holders of the 2025 Notes to convert were not met.

During the three months ended October 31, 2020, the conditions allowing holders of the 2025 Notes to convert were not met.

The Company may redeem for cash all or any portion of the 2025 Notes, at its option, on or after September 6, 2022, if the last reported sale price of the Company’s Class A common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on and including the trading day preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the 2025 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

During the three months ended July 31, 2020 , the Company did no t redeem any of the 2025 Notes.

During the three months ended October 31, 2020, the Company did no t redeem any of the 2025 Notes.

Holders of the 2025 Notes who convert their 2025 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the 2025 Indenture) or in connection with the Company’s issuance of a redemption notice are, under certain circumstances, entitled to an increase in the conversion rate.

Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the 2025 Indenture), holders of

the 2025 Notes may require the Company to repurchase all or a portion of their 2025 Notes at a price equal to 100 % of the principal amount of the 2025 Notes being repurchased, plus any accrued and unpaid interest.

Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the 2025 Indenture), holders of the 2025 Notes may require the Company to repurchase all or a portion of their 2025 Notes at a price equal to 100 % of the principal amount of the 2025 Notes being repurchased, plus any accrued and unpaid interest.

In accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into liability and equity components using an effective interest rate of 4.10 % to determine the fair value of the liability component.

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Three Months Ended

Six Months Ended

July 31, 2020

October 31, Nine Months Ended

2020 2019 2020 2019

Contractual interest expense $ 332 $ 188 $ 994 $ 188

1 unchanged sentence

Amortization of debt discount 8,526 4,649 25,320 4,649

Total $ 9,388 $ 5,112 $ 27,868 $ 5,112

Total issuance costs of $ 19.3 million related to the 2025 Notes were allocated between liability and equity in the same proportion as the allocation of the total proceeds to the liability and equity components.

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The 2025 Notes, net consisted of the following (in thousands):

As of July 31, 2020

As of October 31, 2020

Liability component:

Principal $ 1,060,000

unamortized debt issuance costs and debt discount ( 196,126 )

1 unchanged sentence

Equity component:

2025 Notes $ 221,387

issuance costs ( 4,040 )

23 unchanged sentences

On or after March 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2026 Notes regardless of the foregoing circumstances.

During the three months ended July 31, 2020 , the conditions allowing holders of the 2026 Notes to convert were not met.

The Company may redeem for cash all or any portion of the 2026 Notes, at its option, on or after June 20, 2023, if the last reported sale price of the Company’s Class A common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding

the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on and including the trading day preceding the date on which we provide notice of redemption price equal to 100 % of the principal amount of the notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

During the three months ended July 31, 2020 , the Company did no t redeem any of the 2026 Notes.

During the three months ended October 31, 2020, the conditions allowing holders of the 2026 Notes to convert were not met.

immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on and including the trading day preceding the date on which we provide notice of redemption price equal to 100 % of the principal amount of the notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

During the three months ended October 31, 2020, the Company did no t redeem any of the 2026 Notes.

Holders of the 2026 Notes who convert their 2026 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the Indenture) or in connection with the Company’s issuance of a redemption notice are, under certain circumstances, entitled to an increase in the conversion rate.

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The following table sets forth total interest expense recognized related to the 2026 Notes (in thousands):

Three and Six Months Ended

July 31, 2020

Three Months Ended Nine Months Ended

October 31, 2020

Contractual interest expense $ 1,078 $ 1,653

1 unchanged sentence

Amortization of debt discount 10,997 16,799

Total $ 12,393 $ 18,935

Total issuance costs of $ 15.2 million related to the 2026 Notes were allocated between liability and equity in the same proportion as the allocation of the total proceeds to the liability and equity components.

3 unchanged sentences

The 2026 Notes, net consisted of the following (in thousands):

As of July 31, 2020

As of October 31, 2020

Liability component:

Principal $ 1,150,000

unamortized debt issuance costs and debt discount ( 304,097 )

1 unchanged sentence

Equity component:

2026 Notes $ 310,311

issuance costs ( 4,090 )

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Operating lease costs were as follows (in thousands):

Three Months Ended July 31,

Six Months Ended July 31,

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Operating lease cost (1)

$ 8,554 $ 5,882 $ 24,258 $ 16,965

(1) Amounts are presented exclusive of sublease income and include short-term leases, which are immaterial.

The weighted-average remaining term of the Company’s operating leases was 7.4 and 7.9 years and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.6 % and 5.7 % as of July 31, 2020 and January 31, 2020 , respectively.

Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of July 31, 2020 were as follows (in thousands):

The weighted-average remaining term of the Company’s operating leases was 7.1 and 7.9 years and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.6 % and 5.7 % as of October 31, 2020 and January 31, 2020, respectively.

Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of October 31, 2020 were as follows (in thousands):

Operating Leases

Thereafter 99,860

Total lease payments 254,953

1 unchanged sentence

Total operating lease liabilities $ 207,875

Cash payments included in the measurement of the Company’s operating lease liabilities were $ 7.8 million and $ 2.4 million for the three months ended July 31, 2020 and 2019 , respectively, and $ 15.0 million and $ 4.8 million in the six months ended July 31, 2020 and 2019 , respectively.

As of July 31, 2020 , the Company has $ 4.7 million of undiscounted future payments under an operating lease that has not yet commenced, which is excluded from the table above.

This operating lease will commence in fiscal 2021 and has a lease term of 4.0 years.

Cash payments included in the measurement of the Company’s operating lease liabilities were $ 7.7 million and $ 6.1 million for the three months ended October 31, 2020 and 2019, respectively, and $ 22.7 million and $ 10.9 million for the nine months ended October 31, 2020 and 2019, respectively.

Commitments and Contingencies

Letters of Credit

In conjunction with the execution of certain office space operating leases, letters of credit in the aggregate amount of $ 11.2 million and $ 11.9 million were issued and outstanding as of July 31, 2020 and January 31, 2020 , respectively.

No draws have been made under such letters of credit.

1 unchanged sentence

From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings.

There were no such material matters as of July 31, 2020 .

There were no such material matters as of October 31, 2020.

Employee Incentive Plans

3 unchanged sentences

Three Months Ended

Six Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Cost of revenue

Subscription $ 6,090 $ 3,604 $ 15,229 $ 9,137

Professional services and other 2,113 1,900 5,924 5,292

2 unchanged sentences

General and administrative 13,535 8,400 35,494 21,984

Stock-based compensation expense recorded to research and development in the condensed consolidated statements of operations excludes amounts that were capitalized related to internal-use software for the three and six months ended July 31, 2020 and 2019 .

See Note 7 for further details.

Total $ 53,652 $ 35,735 $ 139,774 $ 89,694

Equity Incentive Plans

2 unchanged sentences

All shares that remain available for future grants are under the 2017 Plan.

As of July 31, 2020 , options to purchase 1,210,791 shares of Class A common stock and 8,707,490 shares of Class B common stock remained outstanding.

As of October 31, 2020, options to purchase 1,176,642 shares of Class A common stock and 8,065,566 shares of Class B common stock remained outstanding.

Shares of common stock reserved for future issuance were as follows:

July 31, 2020

October 31, 2020

Stock options and unvested RSUs outstanding 14,069,326

5 unchanged sentences

Outstanding as of January 31, 2020 12,359,302 $ 11.82 6.2 $ 1,436,487

Outstanding as of July 31, 2020 (unaudited)

As of July 31, 2020

Granted 402,891 145.08

Exercised ( 3,383,144 ) 9.92

Canceled ( 136,841 ) 19.62

Outstanding as of October 31, 2020 (unaudited) 9,242,208 $ 18.21 5.8 $ 1,770,981

As of October 31, 2020

Vested and exercisable (unaudited) 7,429,026 $ 9.87 5.4 $ 1,485,523

As of July 31, 2020 , there was a total of $ 41.6 million of unrecognized stock-based compensation expense, which is expected to be recognized over a weighted-average period of 1.5 years.

As of October 31, 2020, there was a total of $ 36.2 million of unrecognized stock-based compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.5 years.

Restricted Stock Units

A summary of the Company’s RSU activities and related information was as follows:

RSUs Weighted-

Grant Date Fair Value Per Share

Outstanding as of January 31, 2020 4,893,241 $ 77.99

Outstanding as of July 31, 2020 (unaudited)

As of July 31, 2020 , there was $ 519.4 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of 2.7 years based on vesting under the award service conditions.

Granted 1,960,358 164.64

Vested ( 1,667,917 ) 79.28

Forfeited ( 358,564 ) 84.64

Outstanding as of October 31, 2020 (unaudited) 4,827,118 $ 112.24

As of October 31, 2020, there was $ 501.8 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of 2.6 years based on vesting under the award service conditions.

Employee Stock Purchase Plan

1 unchanged sentence

The Company estimated the fair value of ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions:

Three Months Ended July 31,

Six Months Ended July 31,

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Expected volatility — % — % 50 % - 54 %

2 unchanged sentences

1.95 % - 2.05 %

1.95% - 2.05%

0.17% - 0.18%

1.95% - 2.05%

Expected dividend yield — — — —

During the three and six months ended July 31, 2020 , the Company’s employees purchased 127,734 shares of its Class A common stock under the ESPP.

During the nine months ended October 31, 2020, the Company’s employees purchased 127,734 shares of its Class A common stock under the ESPP.

The shares were purchased at a weighted-average purchase price of $ 100.38 per share, with total proceeds of $ 12.8 million.

As of July 31, 2020 , there was $ 4.1 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over an average vesting period of 0.6 years.

For the three and six months ended July 31, 2020 , the Company recorded a tax benefit of $ 0.4 million and $ 0.8 million on pretax losses of $ 60.5 million and $ 118.6 million , respectively.

The effective tax rate for the three and six months ended July 31, 2020 was 0.7 % .

As of October 31, 2020, there was $ 2.0 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over an average vesting period of 0.5 years.

For the three and nine months ended October 31, 2020, the Company recorded a tax provision of $ 0.2 million and tax benefit of $ 0.6 million on a pretax loss of $ 72.6 million and $ 191.2 million, respectively.

The effective tax rate for the three and nine months ended October 31, 2020 was ( 0.3 )% and 0.3 %, respectively.

The effective tax rate differs from the statutory rate primarily as a result of not recognizing deferred tax assets for U.S.

1 unchanged sentence

deferred tax assets and excess tax benefits from stock-based compensation in the United Kingdom.

The tax benefit was partially offset by income tax expense in profitable foreign jurisdictions and U.S.

For the three and six months ended July 31, 2019 , the Company recorded a tax benefit of $ 1.5 million and $ 2.6 million on pretax losses of $ 44.5 million and $ 97.6 million , respectively.

The effective tax rate for the three and six months ended July 31, 2019 was 3.3 % and 2.7 % , respectively.

The tax benefit recognized for the nine months ended October 31, 2020 was partially offset by income tax expense in profitable foreign jurisdictions and U.S.

For the three and nine months ended October 31, 2019, the Company recorded a tax provision of $ 0.3 million and tax benefit of $ 2.3 million on pretax losses of $ 63.1 million and $ 160.7 million, respectively.

The effective tax rate for the three and nine months ended October 31, 2019 was ( 0.6 )% and 1.4 %, respectively.

The effective tax rate differs from the statutory rate primarily as a result of not recognizing deferred tax assets for U.S.

1 unchanged sentence

deferred tax assets, release of the valuation allowance in the United States in connection with the Azuqua acquisition and excess tax benefits from stock-based compensation in the United Kingdom.

The tax benefits were partially offset by income tax expense in profitable foreign jurisdictions and U.S.

The tax benefit recognized for the nine months ended October 31, 2019 was partially offset by income tax expense in profitable foreign jurisdictions and U.S.

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).

3 unchanged sentences

The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):

Three Months Ended July 31,

Six Months Ended July 31,

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Class A Class B Class A Class B Class A Class B Class A Class B

Net loss $ ( 68,146 ) $ ( 4,618 ) $ ( 58,761 ) $ ( 4,734 ) $ ( 177,887 ) $ ( 12,639 ) $ ( 145,139 ) $ ( 13,302 )

Weighted-average shares outstanding, basic and diluted 120,637 8,176 110,105 8,871 117,849 8,373 105,893 9,705

2 unchanged sentences

Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in thousands):

As of July 31,

As of October 31,

Issued and outstanding stock options 9,242 13,426

7 unchanged sentences

Shares related to the 2026 Notes 4,820 —

26,524 29,525

The Company uses the if-converted method for calculating any potential dilutive effect of the conversion options embedded in the Notes on diluted net income per share, if applicable.

1 unchanged sentence

The exercise rights of the Warrants will have a dilutive impact on net income per share of common stock under the treasury-stock method when the average market price per share of the Company’s Class A common stock for a given period exceeds the conversion price of $ 68.06 per share.

During the three and six months ended July 31, 2020 , the average price per share of the Company’s Class A common stock exceeded the exercise price of the Warrants;

During the three and nine months ended October 31, 2020, the average price per share of the Company’s Class A common stock exceeded the exercise price of the Warrants;

however, since the Company is in a net loss position, there was no dilutive effect during any period presented.

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

What changed 10-Q

Item 1. Financial Statements