Company Quick10K Filing
Okta
Price97.06 EPS-1
Shares119 P/E-73
MCap11,548 P/FCF375
Net Debt-1,051 EBIT-144
TEV10,496 TEV/EBIT-73
TTM 2019-10-31, in MM, except price, ratios
10-Q 2020-04-30 Filed 2020-05-29
10-K 2020-01-31 Filed 2020-03-06
10-Q 2019-10-31 Filed 2019-12-06
10-Q 2019-07-31 Filed 2019-08-29
10-Q 2019-04-30 Filed 2019-05-31
10-K 2019-01-31 Filed 2019-03-14
10-Q 2018-10-31 Filed 2018-12-06
10-Q 2018-07-31 Filed 2018-09-07
10-Q 2018-04-30 Filed 2018-06-08
10-K 2018-01-31 Filed 2018-03-12
10-Q 2017-10-31 Filed 2017-12-07
10-Q 2017-07-31 Filed 2017-09-08
10-Q 2017-04-30 Filed 2017-06-08
8-K 2020-06-16
8-K 2020-06-09
8-K 2020-06-08
8-K 2020-05-26
8-K 2020-04-15
8-K 2020-04-01
8-K 2020-03-05
8-K 2019-12-05
8-K 2019-10-01
8-K 2019-09-04
8-K 2019-09-03
8-K 2019-08-28
8-K 2019-06-13
8-K 2019-05-30
8-K 2019-03-05
8-K 2019-01-22
8-K 2018-12-13
8-K 2018-12-05
8-K 2018-09-06
8-K 2018-06-28
8-K 2018-06-06
8-K 2018-03-07
8-K 2018-02-22
8-K 2018-02-21
8-K 2018-02-21

OKTA 10Q Quarterly Report

Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits.
EX-31.1 okta-4302020ex311.htm
EX-31.2 okta-4302020ex312.htm
EX-32.1 okta-4302020ex321.htm

Okta Earnings 2020-04-30

Balance SheetIncome StatementCash Flow
1.91.51.10.80.40.02017201820192020
Assets, Equity
0.20.10.10.0-0.0-0.12017201820192020
Rev, G Profit, Net Income
0.80.60.40.1-0.1-0.32017201820192020
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________ 
FORM 10-Q
_____________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-38044
_____________________________________ 
Okta, Inc.
(Exact Name of Registrant as Specified in Its Charter)
_____________________________________ 
Delaware
 
100 First Street, Suite 600
 
26-4175727
(State or Other Jurisdiction of
Incorporation or Organization)
 
San Francisco
 
(I.R.S. Employer
Identification Number)

 
California
 
 
 
 
94105
 
 
 
 
(Address of Principal executive offices)
 
 
Registrant’s telephone number, including area code: (888) 722-7871
___________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Class A common stock, par value $0.0001 per share
 
OKTA
 
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
 
 
 
Accelerated filer 
Non-accelerated filer 
 
 
 
 
Smaller reporting company 
 
 
 
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No  
As of April 30, 2020, the number of shares of registrant’s Class A common stock outstanding was 116,135,161 and the number of shares of the registrant’s Class B common stock outstanding was 8,474,062.



Okta, Inc.
Table of Contents

 
 
Page No.
 
 
 
 
 
 
 




FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our financial outlook, product development, business strategy, plans, market trends, opportunities, positioning, and the anticipated impact on our business of the COVID-19 pandemic, related public health measures and any associated economic downturn. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend,” “shall” and variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements, although not all forward-looking statements include these identifying words. The forward-looking statements are contained principally in “Management’s Discussion and Analysis of Financial Condition and Result of Operations” and “Risk Factors.”
Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about:
our future financial performance, including our revenue, costs of revenue, gross profits, margins and operating expenses;
trends in our key business metrics;
the sufficiency of our cash and cash equivalents, investments and cash provided by sales of our products and services to meet our liquidity needs;
market or other opportunities arising from business combinations; and
the impact of recent accounting pronouncements on our financial statements.
Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond our control. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in “Risk Factors” in this Quarterly Report on Form 10-Q as well as other documents that may be filed by us from time to time with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.




PART I
Item. 1 Financial Statements

4



OKTA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 
April 30, 2020
 
January 31, 2020
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
619,221

 
$
520,048

Short-term investments
827,556

 
882,976

Accounts receivable, net of allowances of $4,318 and $1,166
111,039

 
130,115

Deferred commissions
34,795

 
33,636

Prepaid expenses and other current assets
40,912

 
32,950

Total current assets
1,633,523

 
1,599,725

Property and equipment, net
61,914

 
53,535

Operating lease right-of-use assets
162,763

 
125,204

Deferred commissions, noncurrent
79,270

 
77,874

Intangible assets, net
31,032

 
32,529

Goodwill
48,023

 
48,023

Other assets
20,482

 
18,505

Total assets
$
2,037,007

 
$
1,955,395

Liabilities and stockholders' equity
 

 
 
Current liabilities:
 

 
 
Accounts payable
$
8,021

 
$
3,837

Accrued expenses and other current liabilities
36,601

 
36,887

Accrued compensation
31,447

 
40,300

2023 convertible senior notes, net
102,198

 
100,703

Deferred revenue
392,121

 
365,236

Total current liabilities
570,388

 
546,963

2025 convertible senior notes, net
845,862

 
837,002

Operating lease liabilities, noncurrent
194,889

 
154,511

Deferred revenue, noncurrent
6,070

 
6,214

Other liabilities, noncurrent
6,702

 
5,361

Total liabilities
1,623,911

 
1,550,051

Commitments and contingencies (Note 11)


 


Stockholders’ equity:
 

 
 
Preferred stock, par value $0.0001 per share; 100,000 shares authorized; no shares issued and outstanding as of April 30, 2020 and January 31, 2020



Class A common stock, par value $0.0001 per share; 1,000,000 shares authorized; 116,135 and 113,990 shares issued and outstanding as of April 30, 2020 and January 31, 2020, respectively
12

 
11

Class B common stock, par value $0.0001 per share; 120,000 shares authorized; 8,474 and 8,648 shares issued and outstanding as of April 30, 2020 and January 31, 2020, respectively
1

 
1

Additional paid-in capital
1,168,127

 
1,105,564

Accumulated other comprehensive income
3,742

 
892

Accumulated deficit
(758,786
)
 
(701,124
)
Total stockholders’ equity
413,096

 
405,344

Total liabilities and stockholders' equity
$
2,037,007

 
$
1,955,395

See Notes to Condensed Consolidated Financial Statements.

5



OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
 
Three Months Ended April 30,
 
2020
 
2019
Revenue:
 
 
 
Subscription
$
173,781

 
$
117,163

Professional services and other
9,078

 
8,060

Total revenue
182,859

 
125,223

Cost of revenue:
 

 
 

Subscription
37,157

 
24,540

Professional services and other
11,329

 
10,555

Total cost of revenue
48,486

 
35,095

Gross profit
134,373

 
90,128

Operating expenses:
 

 
 

Research and development
48,494

 
34,032

Sales and marketing
104,043

 
82,112

General and administrative
34,035

 
25,766

Total operating expenses
186,572

 
141,910

Operating loss
(52,199
)
 
(51,782
)
Interest expense
(10,764
)
 
(4,241
)
Interest income and other, net
4,899

 
2,900

Interest and other, net
(5,865
)
 
(1,341
)
Loss before benefit from income taxes
(58,064
)
 
(53,123
)
Benefit from income taxes
(402
)
 
(1,157
)
Net loss
$
(57,662
)
 
$
(51,966
)
 
 

 
 

Net loss per share, basic and diluted
$
(0.47
)
 
$
(0.46
)
 
 

 
 

Weighted-average shares used to compute net loss per share, basic and diluted
123,494

 
112,682


See Notes to Condensed Consolidated Financial Statements.


6



OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
 
Three Months Ended April 30,
 
2020
 
2019
Net loss
$
(57,662
)
 
$
(51,966
)
Other comprehensive income (loss):
 
 
 
Net change in unrealized gains or losses on available-for-sale securities
4,634

 
195

Foreign currency translation adjustments
(1,784
)
 
(333
)
Other comprehensive income (loss)
2,850

 
(138
)
Comprehensive loss
$
(54,812
)
 
$
(52,104
)
See Notes to Condensed Consolidated Financial Statements.


7



OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(unaudited)
 
Three Months Ended April 30,
 
2020
 
2019
Common stock and additional paid-in capital:
 
 
 
Balance, beginning of period
$
1,105,576

 
$
744,907

Issuance of common stock upon exercise of stock options and other activity, net
14,708

 
13,516

Issuance of common stock for bonus settlement
9,818

 
2,809

Stock-based compensation
38,038

 
22,846

Balance, end of period
1,168,140

 
784,078

 


 
 
Accumulated deficit:


 
 
Balance, beginning of period
(701,124
)
 
(492,211
)
Net loss
(57,662
)
 
(51,966
)
Balance, end of period
(758,786
)
 
(544,177
)
 


 
 
Accumulated other comprehensive income (loss):


 
 
Balance, beginning of period
892

 
(319
)
Other comprehensive income (loss)
2,850

 
(138
)
Balance, end of period
3,742

 
(457
)
Total stockholders’ equity
$
413,096

 
$
239,444

See Notes to Condensed Consolidated Financial Statements.


8



OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 
Three Months Ended April 30,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net loss
$
(57,662
)
 
$
(51,966
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Stock-based compensation
37,728

 
22,685

Depreciation, amortization and accretion
5,466

 
3,399

Amortization of debt discount and issuance costs
10,357

 
4,025

Amortization of deferred commissions
8,680

 
6,328

Deferred income taxes
(905
)
 
(1,369
)
Non-cash charitable contributions
536

 

Other, net
915

 
(100
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
18,250

 
9,297

Deferred commissions
(11,865
)
 
(9,795
)
Prepaid expenses and other assets
(3,493
)
 
5,975

Operating lease right-of-use assets
4,055

 
3,066

Accounts payable
3,943

 
1,640

Accrued compensation
2,995

 
4,143

Accrued expenses and other liabilities
(2,773
)
 
3,288

Operating lease liabilities
(4,270
)
 
(39
)
Deferred revenue
26,740

 
20,685

Net cash provided by operating activities
38,697

 
21,262

Cash flows from investing activities:
 

 
 

Capitalization of internal-use software costs
(1,000
)
 
(369
)
Purchases of property and equipment
(7,930
)
 
(7,710
)
Purchases of securities available for sale and other
(129,079
)
 
(146,545
)
Proceeds from maturities and redemption of securities available for sale
102,293

 
61,244

Proceeds from sales of securities available for sale
86,320

 
11,996

Payments for business acquisition, net of cash acquired

 
(44,223
)
Net cash provided by (used in) investing activities
50,604

 
(125,607
)
Cash flows from financing activities:
 
 
 

Proceeds from stock option exercises
14,172

 
13,388

Other, net
(5
)
 
(126
)
Net cash provided by financing activities
14,167

 
13,262

Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash
(1,128
)
 
(282
)
Net increase (decrease) in cash, cash equivalents and restricted cash
102,340

 
(91,365
)
Cash, cash equivalents and restricted cash at beginning of period
531,953

 
311,215

Cash, cash equivalents and restricted cash at end of period
$
634,293

 
$
219,850

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplementary cash flow disclosure:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
784

 
$
431

Income taxes
209

 
143

Non-cash investing and financing activities:
 
 
 
Vesting of early exercised common stock options

 
128

Common stock issued as charitable contribution
536

 

Operating lease right-of-use assets exchanged for lease obligations
41,444

 
1,665

Property and equipment acquired through tenant improvement allowance
2,598

 

Property and equipment and other accrued but not yet paid
533

 
924

Issuance of common stock for bonus settlement
9,818

 
2,809

Reconciliation of cash, cash equivalents and restricted cash within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows above:
 
 
 
Cash and cash equivalents
$
619,221

 
$
208,106

Restricted cash, current included in prepaid expenses and other current assets
2,254

 
307

Restricted cash, noncurrent included in other assets
12,818

 
11,437

Total cash, cash equivalents and restricted cash
$
634,293

 
$
219,850

See Notes to Condensed Consolidated Financial Statements.


9



OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Overview and Basis of Presentation
Description of Business
Okta, Inc. (the Company) is the leading independent identity management platform for the enterprise. The Okta Identity Cloud enables the Company’s customers to securely connect people to technology, anywhere, anytime and from any device. The Company was incorporated in January 2009 as Saasure Inc., a California corporation, and was later reincorporated in April 2010 under the name Okta, Inc. as a Delaware corporation. The Company is headquartered in San Francisco, California.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). All intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated balance sheet as of January 31, 2020, included herein, was derived from the audited financial statements as of that date. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the results of operations for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ending January 31, 2021 or any future period.
The Company’s fiscal year ends on January 31. References to fiscal 2021, for example, refer to the fiscal year ending January 31, 2021.
The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on March 6, 2020.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances. Actual results could vary from those estimates. The Company’s most significant estimates include the stand alone selling price (SSP) for each distinct performance obligation included in customer contracts with multiple performance obligations, the determination of the period of benefit for deferred commissions, the determination of the effective interest rate of the liability components of its convertible senior notes, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation of deferred income tax assets, and the valuation of acquired intangible assets.
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 period ended April 30, 2020. As events continue to evolve and additional information becomes available, our assumptions and estimates may change materially in future periods.
2. Accounting Standards and Significant Accounting Policies

Significant Accounting Policies
The Company’s significant accounting policies are discussed in “Note 2. 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

10


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 these policies for the three months ended April 30, 2020.
Short-Term Investments
The Company’s short-term investments comprise U.S. treasury securities and corporate debt securities. The Company determines the appropriate classification of its short-term investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its short-term investments as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. As a result, short-term investments, including securities with stated maturities beyond twelve months, are classified within current assets in the consolidated balance sheets.
Available-for-sale securities are recorded at fair value each reporting period and are periodically evaluated for unrealized losses. For unrealized losses in securities that the Company intends to hold and will not more likely than not be required to sell before recovery, the Company further evaluates whether declines in fair value below amortized cost are due to credit or non-credit related factors.
The Company considers credit related impairments to be changes in value that are driven by a change in the creditor’s ability to meet its payment obligations, and records an allowance and recognizes a corresponding loss in interest income and other, net when the impairment is incurred. Unrealized non-credit related losses and unrealized gains are reported as a separate component of accumulated other comprehensive loss in the condensed consolidated balance sheets until realized. Realized gains and losses are determined based on the specific identification method and are reported in interest income and other, net in the condensed consolidated statements of operations.
Accounts Receivable and Allowances
Accounts receivable are recorded at the invoiced amount, net of allowances. These allowances are based on the Company’s assessment of the collectibility of accounts by considering the age of each outstanding invoice, the collection history of each customer, and an evaluation of current expected risk of credit loss based on current conditions and reasonable and supportable forecasts of future economic conditions over the life of the receivable. We assess collectibility by reviewing accounts receivable on an aggregated basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectibility issues. 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 April 30, 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.
Concentrations of Significant Customers
As of April 30, 2020 and January 31, 2020, no single customer represented greater than 10% of accounts receivable. For the three months ended April 30, 2020 and 2019, no single customer represented greater than 10% of revenue.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, which changes the existing incurred loss impairment model for financial assets held at amortized cost. The new model uses a forward-looking expected loss method to calculate credit loss estimates. ASU 2016-13 also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. The Company adopted the requirements of ASU 2016-13 as of February 1, 2020 on a modified retrospective basis. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

11


In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15), which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The Company adopted the requirements of ASU 2018-15 as of February 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (ASU 2019-12), as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation and clarifies the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company early adopted ASU 2019-12 as of February 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
3. Business Combinations
On March 18, 2019, the Company acquired all issued and outstanding capital stock of Azuqua, Inc. (Azuqua), a company which provides a no-code, cloud-based integration platform that automates workflows between applications and services. The acquisition date cash consideration transferred for Azuqua was $44.2 million, net of $1.1 million in cash acquired. The Company recorded $15.7 million for developed technology intangible assets with an estimated useful life of five years and recorded $29.9 million of goodwill which is primarily attributed to the assembled workforce as well as the integration of Azuqua’s technology and the Company’s technology. 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 $1.2 million was recognized as compensation during the three months ended April 30, 2020. The remaining deferred compensation balance of $3.6 million is being recognized over a future weighted-average period of 1.6 years subject to continued service with the Company.
These acquisitions did not have a material impact on the Company’s condensed consolidated financial statements; therefore, historical and proforma disclosures have not been presented.

4. 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 April 30, 2020 and January 31, 2020 were as follows (in thousands):  
 
As of April 30, 2020
 
Amortized
Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Estimated
Fair Value 
 
(unaudited)
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
497,208

 
$

 
$

 
$
497,208

Corporate debt securities
6,001

 
5

 

 
6,006

Total cash equivalents
503,209

 
5

 

 
503,214

Short-term investments:
 

 
 

 
 

 
 

U.S. treasury securities
575,143

 
4,935

 
(1
)
 
580,077

Corporate debt securities
246,587

 
1,029

 
(137
)
 
247,479

Total short-term investments
821,730

 
5,964

 
(138
)
 
827,556

Total
$
1,324,939

 
$
5,969

 
$
(138
)
 
$
1,330,770


12



 
As of January 31, 2020
 
Amortized
Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Estimated
Fair Value 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
416,584

 
$

 
$

 
$
416,584

U.S. treasury securities
19,996

 

 

 
19,996

Total cash equivalents
436,580

 

 

 
436,580

Short-term investments:
 
 
 

 
 

 
 

U.S. treasury securities
575,920

 
686

 
(8
)
 
576,598

Corporate debt securities
305,859

 
519

 

 
306,378

Total short-term investments
881,779

 
1,205

 
(8
)
 
882,976

Total
$
1,318,359

 
$
1,205

 
$
(8
)
 
$
1,319,556


All short-term investments were designated as available-for-sale securities as of April 30, 2020 and January 31, 2020.
The following table presents the contractual maturities of the Company’s short-term investments as of April 30, 2020 (in thousands):
 
As of April 30, 2020
 
Amortized
Cost
 
Estimated
Fair Value
 
(unaudited)
Due within one year
$
634,510

 
$
638,854

Due between one to five years
187,220

 
188,702

 Total
$
821,730

 
$
827,556


The Company had 12 and 7 short-term investments in unrealized loss positions as of April 30, 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 months ended April 30, 2020 or 2019.
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 April 30, 2020 and January 31, 2020.
5. Fair Value Measurements
The Company measures its financial assets at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Three levels of inputs may be used to measure as follows:
Level 1—Valuations based on observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2—Valuations based on other inputs that are directly or indirectly observable in the marketplace.
Level 3—Valuations based on unobservable inputs that are supported by little or no market activity.

13



Assets and Liabilities Measured at Fair Value on a Recurring Basis
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 April 30, 2020
 
Level 1
 
Level 2 
 
Level 3
 
Total
 
(unaudited)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
497,208

 
$

 
$

 
$
497,208

Corporate debt securities

 
6,006

 

 
6,006

Total cash equivalents
497,208

 
6,006

 

 
503,214

Short-term investments:
 

 
 

 
 

 
 

U.S. treasury securities

 
580,077

 

 
580,077

Corporate debt securities

 
247,479

 

 
247,479

Total short-term investments

 
827,556

 

 
827,556

Total cash equivalents and short-term investments
$
497,208

 
$
833,562

 
$

 
$
1,330,770

 
As of January 31, 2020
 
Level 1
 
Level 2 
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
416,584

 
$

 
$

 
$
416,584

U.S. treasury securities

 
19,996

 

 
19,996

Total cash equivalents
416,584

 
19,996

 

 
436,580

Short-term investments:
 

 
 

 
 

 
 

U.S. treasury securities

 
576,598

 

 
576,598

Corporate debt securities

 
306,378

 

 
306,378

Total short-term investments

 
882,976

 

 
882,976

Total cash equivalents and short-term investments
$
416,584

 
$
902,972

 
$

 
$
1,319,556


The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable and accounts payable approximate fair value due to their short-term maturities and are excluded from the fair value table above.
Fair Value Measurements of Other Financial Instruments
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 April 30, 2020
 
Net Carrying Amount (1)
 
Estimated
Fair Value 
 
(unaudited)
2023 convertible senior notes
$
103,911

 
$
375,264

2025 convertible senior notes
$
859,889

 
$
1,126,769


(1)  
Before unamortized debt issuance costs.

14



The difference between the principal amount of the 2023 convertible senior notes (2023 Notes) and the 2025 convertible senior notes (2025 Notes, and together with the 2023 Notes, the Notes), $120.6 million and $1,060.0 million, respectively, and the net carrying amounts before unamortized debt issuance costs represents the unamortized debt discount (See Note 9 for additional details). 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 April 30, 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 $151.30 on April 30, 2020, the if-converted value of the 2023 Notes exceeded the principal amount of $120.6 million, while the if-converted value of the 2025 Notes was less than the principal amount of $1,060.0 million.
6. Deferred Commissions
Sales commissions capitalized as contract costs totaled $11.9 million and $9.8 million in the three months ended April 30, 2020 and 2019, respectively. Amortization of contract costs was $8.7 million and $6.3 million for the three months ended April 30, 2020 and 2019, respectively. There was no impairment loss in relation to the costs capitalized.
7. Goodwill and Intangible Assets, net
Goodwill
As of April 30, 2020 and January 31, 2020, goodwill was $48.0 million. No goodwill impairments were recorded during the three months ended April 30, 2020 and 2019.
Intangible Assets, net
Intangible assets consisted of the following (in thousands):  
 
As of April 30, 2020
 
(unaudited)
 
Gross
 
Accumulated Amortization
 
Write-offs
 
Net
Capitalized internal-use software costs
$
26,093

 
$
(16,007
)
 
$

 
$
10,086

Purchased developed technology
28,800

 
(7,914
)
 

 
20,886

Software licenses
1,112

 
(1,052
)
 

 
60

 
$
56,005

 
$
(24,973
)
 
$

 
$
31,032

 
As of January 31, 2020
 
Gross
 
Accumulated Amortization
 
Write-offs
 
Net
Capitalized internal-use software costs
$
24,890

 
$
(14,828
)
 
$
(119
)
 
$
9,943

Purchased developed technology
28,800

 
(6,321
)
 

 
22,479

Software licenses
1,112

 
(1,005
)
 

 
107

 
$
54,802

 
$
(22,154
)
 
$
(119
)
 
$
32,529


The Company capitalized $1.3 million and $0.5 million of internal-use software costs during the three months ended April 30, 2020 and 2019, respectively. Stock-based compensation expense included in the total amounts capitalized was immaterial.
The remaining weighted-average useful life of all purchased developed technology was 3.7 years as of April 30, 2020.
Amortization expense of intangible assets for the three months ended April 30, 2020 and 2019 was $2.8 million and $2.1 million, respectively.

15



8. Deferred Revenue and Performance Obligations
Deferred Revenue
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 April 30, 2020 and 2019 that was included in the deferred revenue balances at the beginning of the respective periods was $147.0 million and $98.0 million, respectively. Professional services and other revenue recognized in the three months ended April 30, 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 April 30, 2020, total remaining noncancelable performance obligations under the Company’s subscription contracts with customers was approximately $1,240.2 million. Of this amount, the Company expects to recognize revenue of approximately $619.1 million, or 50%, 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 April 30, 2020 was not material.
9. Convertible Senior Notes, Net
2023 Convertible Senior Notes
The 2023 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.25% per year. Interest is payable in cash semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2018. The 2023 Notes mature on February 15, 2023 unless earlier repurchased or converted. The Company may not redeem the 2023 Notes prior to maturity. The total net proceeds from the 2023 Notes, after deducting initial purchasers’ discounts and debt issuance costs, was $335.0 million.
In September 2019, the Company used part of the net proceeds from the issuance of the 2025 Notes to repurchase a portion of the 2023 Notes, which consisted of a repurchase of $224.4 million aggregate principal amount of the 2023 Notes in privately-negotiated transactions for aggregate consideration of $604.8 million, consisting of approximately $224.4 million in cash and approximately 3.0 million shares of Class A common stock (2023 Notes Partial Repurchase). Of the $604.8 million in aggregate consideration, $197.7 million and $407.1 million were allocated to the debt and equity components, respectively, using an effective interest rate of 4.00% to determine the fair value of the liability component. This interest rate was based on the income and market based approaches used to determine the effective interest rate of the 2025 Notes, adjusted for the remaining tenor of the 2023 Notes. As of the repurchase date, the carrying value of the notes subject to the 2023 Notes Partial Repurchase, net of unamortized debt discount and issuance costs, was $183.1 million. The 2023 Notes Partial Repurchase 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. As of April 30, 2020, $120.6 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). Upon conversion, the 2023 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election.
The 2023 Notes are convertible at an initial conversion rate of 20.6795 shares of Class A common stock per $1,000 principal amount of the 2023 Notes, which is equal to an initial conversion price of approximately $48.36 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the 2023 Indenture. 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

16



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; or
upon the occurrence of specified corporate events, as described in the 2023 Indenture.
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 April 30, 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 July 31, 2020 and were classified as current liabilities on the condensed consolidated balance sheet as of April 30, 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 Repurchase).
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. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the 2023 Indenture), holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes at a price equal to 100% of the principal amount of the 2023 Notes being repurchased, plus any accrued and unpaid interest.
In accounting for the issuance of the 2023 Notes, the Company separated the 2023 Notes into liability and equity components, using an effective interest rate of 5.68% to determine the fair value of the liability component. This interest rate was based on both an income and a market based approach. For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility and the risk-free rate. For the market approach, the Company observed the price of the Note Hedges (see below) it purchased for its 2023 Notes and also performed an evaluation of issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance. The following table sets forth total interest expense recognized related to the 2023 Notes (in thousands):
 
Three Months Ended April 30,
 
2020
 
2019
 
(unaudited)
Contractual interest expense
$
75

 
$
216

Amortization of debt issuance costs
127

 
319

Amortization of debt discount
1,370

 
3,706

Total
$
1,572

 
$
4,241


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. Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the 2023 Notes using the effective interest rate method. The issuance costs attributable to the equity component were netted against the respective equity component in Additional paid-in capital. The Company initially recorded liability issuance costs of $7.7 million and equity issuance costs of $2.3 million.

17



The 2023 Notes, net consisted of the following (in thousands):
 
As of April 30, 2020
 
(unaudited)
Liability component:
 
Principal
$
120,586

Less: unamortized debt issuance costs and debt discount
(18,388
)
Net carrying amount
$
102,198

 
 
 
As of April 30, 2020
Equity component:
 
2023 Notes
$
27,949

Less: issuance costs
(811
)
Carrying amount of the equity component(1)
$
27,138

(1) Included in the condensed consolidated balance sheets within Additional paid-in capital.
Note Hedges
In connection with the pricing of the 2023 Notes, the Company entered into convertible note hedges with respect to its Class A common stock (Note Hedges). The Note Hedges are purchased call options that give the Company the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2023 Notes, approximately 7.1 million shares of its Class A common stock for approximately $48.36 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2023 Notes, exercisable upon conversion of the 2023 Notes. The Note Hedges will expire in 2023, if not exercised earlier. The Note Hedges are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2023 Notes under certain circumstances. The Note Hedges are separate transactions and are not part of the terms of the 2023 Notes.
The Company paid an aggregate amount of $80.0 million for the Note Hedges. The amount paid for the Note Hedges was recorded as a reduction to Additional paid-in capital in the condensed consolidated balance sheets.
In September 2019, and in connection with the 2023 Notes Partial Repurchase, the Company terminated Note Hedges corresponding to approximately 4.6 million shares for cash proceeds of $405.9 million. The proceeds were recorded as an increase to Additional paid-in capital in the condensed consolidated balance sheets. As of April 30, 2020, Note Hedges giving the Company the option to purchase approximately 2.5 million shares (subject to adjustment) remained outstanding.
Warrants
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). If the Warrants are not exercised on their exercise dates, they will expire. If the market value per share of the Company’s Class A common stock exceeds the applicable exercise price of the Warrants, the Warrants could have a dilutive effect on the Company’s Class A common stock unless, subject to the terms of the Warrants, the Company elects to cash settle the Warrants. The Warrants are separate transactions and are not part of the terms of the 2023 Notes or the Note Hedges.
The Company received aggregate proceeds of $52.4 million from the sale of the Warrants in connection with the 2023 Notes. The proceeds from the sale of the Warrants were recorded as an increase to Additional paid-in capital in the condensed consolidated balance sheets.
In September 2019, and in connection with the 2023 Notes Partial Repurchase, the Company terminated Warrants corresponding to approximately 4.6 million shares for total cash payments of $358.6 million. The termination payment

18



was recorded as a decrease to Additional paid-in capital in the condensed consolidated balance sheets. As of April 30, 2020, Warrants to acquire up to approximately 2.5 million shares (subject to adjustment) remained outstanding.
2025 Convertible Senior Notes
The 2025 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.125% per year. Interest is payable in cash semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020. The 2025 Notes mature on September 1, 2025 unless earlier redeemed, repurchased or converted. The total net proceeds from the 2025 Notes, after deducting initial purchasers’ discounts and debt issuance costs, were $1,040.7 million.
The terms of the 2025 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the 2025 Indenture, and together with the 2023 Indenture, the Indentures). Upon conversion, the 2025 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election.
The 2025 Notes are convertible at an initial conversion rate of 5.2991 shares of class A common stock per $1,000 principal amount of the 2025 Notes, which is equal to an initial conversion price of approximately $188.71 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the 2025 Indenture. Prior to the close of business on the business day immediately preceding June 1, 2025, holders of the 2025 Notes may convert all or a portion of their 2025 Notes only in multiples of $1,000 principal amount, under the following circumstances:
during any fiscal quarter commencing after the fiscal quarter ending on January 31, 2020 (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 2025 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 2025 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;
if the Company calls the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
upon the occurrence of specified corporate events, as described in the 2025 Indenture.
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 April 30, 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 April 30, 2020, the Company had not redeemed 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.
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. This interest

19



rate was based on both an income and a market based approach. For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility and the risk-free rate. For the market approach, the Company performed an evaluation of issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance. The following table sets forth total interest expense recognized related to the 2025 Notes (in thousands):
 
Three Months Ended April 30,
 
2020
 
(unaudited)
Contractual interest expense
$
331

Amortization of debt issuance costs
506

Amortization of debt discount
8,354

Total
$
9,191


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. Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the 2025 Notes using the effective interest rate method. The issuance costs attributable to the equity component were netted against the respective equity component in Additional paid-in capital. The Company recorded liability issuance costs of $15.3 million and equity issuance costs of $4.0 million.
The 2025 Notes, net consisted of the following (in thousands):
 
As of April 30, 2020
 
(unaudited)
Liability component:
 
Principal
$
1,060,000

Less: unamortized debt issuance costs and debt discount
(214,138
)
Net carrying amount
$
845,862

 
 
 
At Issuance
Equity component:
 
2025 Notes
$
221,387

Less: issuance costs
(4,040
)
Carrying amount of the equity component(1)
$
217,347

(1) Included in the condensed consolidated balance sheets within Additional paid-in capital.
Capped Calls
In connection with the pricing of the 2025 Notes, the Company entered into capped call transactions with respect to its Class A common stock (Capped Calls). The Capped Calls are purchased call options that give the Company the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2025 Notes, approximately 5.6 million shares of its Class A common stock for approximately $188.71 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2025 Notes, exercisable upon conversion of the 2025 Notes. The Capped Calls have initial cap prices of $255.88 per share (subject to adjustment) and will expire in 2025, if not exercised earlier. The Capped Calls are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2025 Notes under certain circumstances. The Capped Calls are separate transactions and are not part of the terms of the 2025 Notes.
The Company paid an aggregate amount of $74.1 million for the Capped Calls. The amount paid for the Capped Calls was recorded as a reduction to Additional paid-in capital in the condensed consolidated balance sheets.

20



10. Leases

The Company has entered into various non-cancelable office space operating leases with original lease periods expiring between 2020 and 2028. These leases do not contain material variable rent payments, residual value guarantees, covenants or other restrictions.
Operating lease costs were as follows (in thousands):
 
 
Three Months Ended April 30,
 
 
2020
 
2019
 
 
(unaudited)
Operating lease cost(1)
 
$
7,370

 
$
5,463

(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 7.7 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 April 30, 2020 and January 31, 2020, respectively.
Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of April 30, 2020 were as follows (in thousands):
 
 
Operating Leases
 
 
(unaudited)
2021
 
$
20,796

2022
 
35,980

2023
 
36,482

2024
 
37,346

2025
 
35,305

Thereafter
 
99,540

Total lease payments
 
265,449

Less imputed interest
 
(52,428
)
Total operating lease liabilities
 
$
213,021


Cash payments included in the measurement of the Company’s operating lease liabilities were $7.1 million and $2.4 million for the three months ended April 30, 2020 and 2019, respectively.
As of April 30, 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.
11. 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 $13.1 million and $11.9 million were issued and outstanding as of April 30, 2020 and January 31, 2020, respectively. No draws have been made under such letters of credit.
Legal Matters
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 April 30, 2020.

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12. Employee Incentive Plans
The Company’s equity incentive plans provide for granting stock options, restricted stock units (RSUs) and restricted stock awards to employees, consultants, officers and directors. In addition, the Company offers an Employee Stock Purchase Plan (ESPP) to eligible employees.
Stock-based compensation expense was recorded in the following cost and expense categories in the Company’s condensed consolidated statements of operations (in thousands):  
 
Three Months Ended April 30,
 
2020
 
2019
 
(unaudited)
Cost of revenue
 
 
 
Subscription
$
3,975

 
$
2,422

Professional services and other
1,811

 
1,519

Research and development
11,935

 
6,346

Sales and marketing
11,160

 
6,786

General and administrative
8,847

 
5,612

Total
$
37,728

 
$
22,685


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 months ended April 30, 2020 and 2019. See Note 7 for further details.
Equity Incentive Plans
The Company has two equity incentive plans: the 2009 Stock Plan (2009 Plan) and the 2017 Equity Incentive Plan (2017 Plan). All shares that remain available for future grants are under the 2017 Plan. As of April 30, 2020, options to purchase 1,285,569 shares of Class A common stock and 9,881,424 shares of Class B common stock remained outstanding.
Shares of common stock reserved for future issuance were as follows:
 
As of
 
April 30, 2020
 
(unaudited)
Stock options and unvested RSUs outstanding
16,057,236

Available for future stock option and RSU grants
21,816,827

Available for ESPP
4,880,235

 
42,754,298



22



Stock Options
A summary of the Company’s stock option activity and related information was as follows:  
 
Number of
Options 
 
Weighted-
Average
Exercise
Price 
 
Weighted-
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic 
Value
(in thousands)
Outstanding as of January 31, 2020
12,359,302

 
$
11.82

 
6.2
 
$
1,436,487

Granted
372,829

 
142.47

 
 
 
 
Exercised
(1,449,052
)
 
9.78

 
 
 
 
Canceled
(116,086
)
 
21.22

 
 
 
 
Outstanding as of April 30, 2020 (unaudited)
11,166,993

 
$
16.35

 
6.1
 
$
1,506,963

As of April 30, 2020
 
 
 
 
 
 
 
Vested and exercisable (unaudited)
8,283,315

 
$
9.27

 
5.7
 
$
1,176,501


As of April 30, 2020, there was a total of $45.6 million of unrecognized stock-based compensation expense, which is expected to be recognized over a weighted-average period of 1.6 years.
Restricted Stock Units
A summary of the Company’s RSU activities and related information was as follows:  
 
Number of
RSUs
 
Weighted-
Average
Grant Date Fair Value Per Share
Outstanding as of January 31, 2020
4,893,241

 
$
77.99

Granted
688,649

 
125.94

Vested