zm-10q_20190430.htm

 

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, 2019

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 001-38865

 

Zoom Video Communications, Inc.

(Exact name of registrant as specified in its Charter)

 

 

Delaware

 

61-1648780

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

55 Almaden Boulevard, 6th Floor

San Jose, California 95113

(Address of principal executive offices and Zip Code)

(888) 799-9666

(Registrant’s telephone number, including area code)

 

 

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, $0.001 par value per share

 

ZM

 

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 May 31, 2019 the number of shares of the registrant’s Class A common stock outstanding was 32,144,001 and the number of shares of the registrant’s Class B common stock outstanding was 240,308,490.

 

 

 

 


Zoom Video Communications, Inc.

 

Quarterly Report on Form 10-Q

 

For the Quarterly Period Ended April 30, 2019

 

TABLE OF CONTENTS

 

 

 

 

Page

 

PART I – Financial Information

  

4

 

 

 

 

Item 1.

Financial Statements (Unaudited)

  

4

 

Condensed Consolidated Balance Sheets as of April 30, 2019 and January 31, 2019

  

4

 

Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2019 and 2018

  

5

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended April 30, 2019 and 2018

  

6

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three Months Ended April 30, 2019 and 2018

  

7

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2019 and 2018

  

8

 

Notes to Condensed Consolidated Financial Statements

  

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

  

29

Item 4.

Controls and Procedures

  

29

 

 

 

 

 

PART II – Other Information

 

30

 

 

 

 

Item 1.

Legal Proceedings

  

30

Item 1A.

Risk Factors

  

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

  

54

Item 3.

Defaults Upon Senior Securities

  

55

Item 4.

Mine Safety Disclosures

  

55

Item 5.

Other Information

  

55

Item 6.

Exhibits

  

56

 

Signatures

  

57

 

 

 

2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, including our statements regarding the benefits and timing of the roll-out of new technology, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: our future financial performance, including our revenue, cost of revenue, gross profit, 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; our ability to become the ubiquitous platform for communications; our ability to attract new customers and retain existing customers; our ability to successfully expand into our existing markets and into new markets; our ability to effectively manage our growth and future expenses; and the impact of recent accounting pronouncements on our financial statements.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

 

3


 

PART I—Financial Information

Item 1.

FINANCIAL STATEMENTS

 

ZOOM VIDEO COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

 

 

As of

 

 

 

April 30,

2019

 

 

January 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

629,793

 

 

$

63,624

 

Marketable securities

 

 

107,389

 

 

 

112,777

 

Accounts receivable, net of allowances of $2,502 and $2,071 as of April 30,

   2019 and January 31, 2019, respectively

 

 

78,888

 

 

 

63,613

 

Deferred contract acquisition costs, current

 

 

30,339

 

 

 

26,453

 

Prepaid expenses and other current assets

 

 

19,931

 

 

 

10,252

 

Total current assets

 

 

866,340

 

 

 

276,719

 

Deferred contract acquisition costs, non-current

 

 

32,192

 

 

 

29,063

 

Property and equipment, net

 

 

41,724

 

 

 

37,275

 

Operating lease right-of-use assets

 

 

48,957

 

 

 

 

Other assets, non-current

 

 

9,839

 

 

 

11,508

 

Total assets

 

$

999,052

 

 

$

354,565

 

Liabilities, convertible preferred stock, and stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,678

 

 

$

4,963

 

Accrued expenses and other current liabilities

 

 

47,410

 

 

 

32,256

 

Deferred revenue, current

 

 

137,337

 

 

 

115,122

 

Total current liabilities

 

 

194,425

 

 

 

152,341

 

Deferred revenue, non-current

 

 

11,993

 

 

 

10,651

 

Operating lease liabilities, non-current

 

 

46,056

 

 

 

 

Other liabilities, non-current

 

 

26,850

 

 

 

39,460

 

Total liabilities

 

 

279,324

 

 

 

202,452

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.001 par value per share, zero and 158,104,540 shares

   authorized as of April 30, 2019 and January 31, 2019, respectively; zero and

   152,665,804 shares issued and outstanding as of April 30, 2019 and January 31,

   2019, respectively

 

 

 

 

 

159,552

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value per share, 200,000,000 and zero shares authorized as

   of April 30, 2019 and January 31, 2019, respectively; zero shares issued and

   outstanding as of April 30, 2019 and January 31, 2019

 

 

 

 

 

 

Common stock, $0.001 par value per share, 2,000,000,000 and 320,000,000 Class A

   shares authorized as of April 30, 2019 and January 31, 2019, respectively; 32,144,001

   and zero shares issued and outstanding as of April 30, 2019 and January 31, 2019,

   respectively; 300,000,000 Class B shares authorized as of April 30, 2019 and

   January 31, 2019; 240,192,861 and 90,327,435 shares issued and outstanding as of

   April 30, 2019 and January 31, 2019, respectively

 

 

271

 

 

 

89

 

Additional paid-in capital

 

 

742,388

 

 

 

17,760

 

Accumulated other comprehensive income (loss)

 

 

8

 

 

 

(135

)

Accumulated deficit

 

 

(22,939

)

 

 

(25,153

)

Total stockholders’ equity (deficit)

 

 

719,728

 

 

 

(7,439

)

Total liabilities, convertible preferred stock, and stockholders’ equity (deficit)

 

$

999,052

 

 

$

354,565

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


 

ZOOM VIDEO COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended

April 30,

 

 

 

2019

 

 

2018

 

Revenue

 

$

121,988

 

 

$

60,070

 

Cost of revenue

 

 

24,104

 

 

 

11,660

 

Gross profit

 

 

97,884

 

 

 

48,410

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

13,783

 

 

 

6,264

 

Sales and marketing

 

 

64,041

 

 

 

36,261

 

General and administrative

 

 

18,503

 

 

 

7,569

 

Total operating expenses

 

 

96,327

 

 

 

50,094

 

Income (loss) from operations

 

 

1,557

 

 

 

(1,684

)

Interest income, net

 

 

658

 

 

 

436

 

Other income, net

 

 

315

 

 

 

5

 

Net income (loss) before provision for income taxes

 

 

2,530

 

 

 

(1,243

)

Provision for income taxes

 

 

(316

)

 

 

(97

)

Net income (loss)

 

 

2,214

 

 

 

(1,340

)

Undistributed earnings attributable to participating securities

 

 

(2,016

)

 

 

 

Net income (loss) attributable to common stockholders

 

$

198

 

 

$

(1,340

)

Net income (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

0.00

 

 

$

(0.02

)

Diluted

 

$

0.00

 

 

$

(0.02

)

Weighted-average shares used in computing net income (loss) per share attributable

   to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

 

109,708,898

 

 

 

80,623,861

 

Diluted

 

 

136,428,379

 

 

 

80,623,861

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

ZOOM VIDEO COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

 

 

 

Three Months Ended

April 30,

 

 

 

2019

 

 

2018

 

Net income (loss)

 

$

2,214

 

 

$

(1,340

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available for sale marketable securities, net of tax

 

 

143

 

 

 

(82

)

Comprehensive income (loss)

 

$

2,357

 

 

$

(1,422

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

ZOOM VIDEO COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(unaudited)

 

 

 

Three Months Ended April 30, 2019

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

Stockholders’

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

(Deficit)

 

Balance as of January 31, 2019

 

 

152,665,804

 

 

$

159,552

 

 

 

 

90,327,435

 

 

$

89

 

 

$

17,760

 

 

$

(135

)

 

$

(25,153

)

 

$

(7,439

)

Conversion of convertible

   preferred stock to

   common stock upon

   initial public offering

 

 

(152,665,804

)

 

 

(159,552

)

 

 

 

152,665,804

 

 

 

153

 

 

 

159,399

 

 

 

 

 

 

 

 

 

159,552

 

Conversion of convertible

   promissory notes and

   accrued interest to

   common stock upon

   initial public offering

 

 

 

 

 

 

 

 

 

426,223

 

 

 

 

 

 

15,344

 

 

 

 

 

 

 

 

 

15,344

 

Issuance of common stock

   upon initial public offering

   and private placement,

   net of underwriting

   discounts and commissions

   and other offering costs

 

 

 

 

 

 

 

 

 

15,819,646

 

 

 

16

 

 

 

541,483

 

 

 

 

 

 

 

 

 

541,499

 

Issuance of common stock

   upon exercise of stock

   options, net of repurchases

 

 

 

 

 

 

 

 

 

13,097,754

 

 

 

13

 

 

 

1,740

 

 

 

 

 

 

 

 

 

1,753

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,662

 

 

 

 

 

 

 

 

 

6,662

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

143

 

 

 

 

 

 

143

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,214

 

 

 

2,214

 

Balance as of April 30, 2019

 

 

 

 

$

 

 

 

 

272,336,862

 

 

$

271

 

 

$

742,388

 

 

$

8

 

 

$

(22,939

)

 

$

719,728

 

 

 

 

Three Months Ended April 30, 2018

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Deficit

 

Balance as of January 31, 2018

 

 

152,665,804

 

 

$

159,552

 

 

 

 

82,609,638

 

 

$

80

 

 

$

6,517

 

 

$

(531

)

 

$

(32,737

)

 

$

(26,671

)

Issuance of common stock

   upon exercise of stock

   options

 

 

 

 

 

 

 

 

 

513,140

 

 

 

1

 

 

 

237

 

 

 

 

 

 

 

 

 

238

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

849

 

 

 

 

 

 

 

 

 

849

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(82

)

 

 

 

 

 

(82

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,340

)

 

 

(1,340

)

Balance as of April 30, 2018

 

 

152,665,804

 

 

$

159,552

 

 

 

 

83,122,778

 

 

$

81

 

 

$

7,603

 

 

$

(613

)

 

$

(34,077

)

 

$

(27,006

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


 

ZOOM VIDEO COMMUNICATIONS, INC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Three Months Ended

April 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2,214

 

 

$

(1,340

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,324

 

 

 

1,167

 

Amortization of deferred contract acquisition costs

 

 

7,419

 

 

 

3,917

 

Amortization of operating lease right-of-use assets

 

 

1,533

 

 

 

 

Stock-based compensation expense

 

 

6,662

 

 

 

849

 

Provision for accounts receivable allowances

 

 

828

 

 

 

419

 

Other

 

 

257

 

 

 

11

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(16,103

)

 

 

(13,359

)

Prepaid expenses and other assets

 

 

(8,617

)

 

 

(1,880

)

Deferred contract acquisition costs

 

 

(14,434

)

 

 

(9,121

)

Accounts payable

 

 

4,373

 

 

 

786

 

Accrued expenses and other liabilities

 

 

12,223

 

 

 

3,682

 

Deferred revenue

 

 

23,557

 

 

 

17,628

 

Operating lease liabilities, net

 

 

(1,000

)

 

 

 

Net cash provided by operating activities

 

 

22,236

 

 

 

2,759

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(23,312

)

 

 

(15,500

)

Maturities of marketable securities

 

 

28,890

 

 

 

11,820

 

Purchases of property and equipment

 

 

(6,897

)

 

 

(3,850

)

Net cash used in investing activities

 

 

(1,319

)

 

 

(7,530

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from initial public offering and private placement, net of

   underwriting discounts and commissions and other offering costs

 

 

543,471

 

 

 

 

Proceeds from exercise of stock options, net of repurchases

 

 

1,781

 

 

 

188

 

Principal payments on capital lease obligations

 

 

 

 

 

(53

)

Net cash provided by financing activities

 

 

545,252

 

 

 

135

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

566,169

 

 

 

(4,636

)

Cash, cash equivalents, and restricted cash – beginning of period

 

 

65,968

 

 

 

36,821

 

Cash, cash equivalents, and restricted cash – end of period

 

$

632,137

 

 

$

32,185

 

Reconciliation of cash, cash equivalents, and restricted cash within the condensed

   consolidated balance sheets to the amounts shown in the statements of

   cash flows above:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

629,793

 

 

$

30,810

 

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

 

 

200

 

 

 

 

Restricted cash, non-current included in other assets, non-current

 

 

2,144

 

 

 

1,375

 

Total cash, cash equivalents, and restricted cash

 

$

632,137

 

 

$

32,185

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8


 

ZOOM VIDEO COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1.

Summary of Business and Significant Accounting Policies

Description of Business

Zoom Video Communications, Inc. and its subsidiaries (together, Zoom, the Company, we, us, or our) provide a video-first, unified communications platform. Our platform combines video, audio, phone, screen sharing, and chat functionalities. We were incorporated in the state of Delaware in April 2011 and are headquartered in San Jose, California.

Fiscal Year

Our fiscal year ends on January 31. References to fiscal 2020, for example, refer to the fiscal year ending January 31, 2020.

Initial Public Offering and Private Placement

On April 23, 2019, we completed our initial public offering (IPO), in which we issued and sold 9,911,434 shares of our Class A common stock at $36.00 per share, resulting in net proceeds of $340.8 million after deducting underwriting discounts and commissions. On April 18, 2019, the underwriters exercised their option to purchase an additional 3,130,435 shares of our Class A common stock at $36.00 per share. This transaction closed on April 23, 2019, resulting in additional proceeds of $107.1 million, net of underwriters' discounts and commissions. In connection with the IPO:

 

all of the shares of convertible preferred stock outstanding automatically converted into an aggregate of 152,665,804 shares of Class B common stock;

 

outstanding convertible promissory notes and accrued interest automatically converted into 426,223 shares of Class A common stock based on the IPO price of $36.00 per share; and

 

Salesforce Ventures LLC purchased 2,777,777 shares of Class A common stock from us at $36.00 per share in a concurrent private placement. We received aggregate proceeds of $100.0 million and did not pay any underwriting discounts or commissions with respect to the shares of Class A common stock that were sold in this private placement.

Deferred offering costs consist primarily of accounting, legal, and other fees related to our IPO. Prior to the IPO, all deferred offering costs were capitalized in other assets, non-current in the condensed consolidated balance sheets. After the IPO, $6.4 million of deferred offering costs were reclassified into stockholders’ equity as a reduction of the IPO proceeds in the condensed consolidated balance sheets. We capitalized $2.4 million of deferred offering costs within other assets, non-current in the condensed consolidated balance sheet as of January 31, 2019.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) and applicable regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting, and include the accounts of Zoom Video Communications, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated balance sheet as of January 31, 2019 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheets, statements of operations, statements of comprehensive income (loss), statements of convertible preferred stock and stockholders’ equity (deficit), and statements of cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year or any future period.  

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our final prospectus dated April 17, 2019 (Prospectus) filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended.

9


 

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include, but are not limited to, the estimated expected benefit period for deferred contract acquisition costs, the accounts receivable allowances, the useful lives of long-lived assets, the incremental borrowing rate for operating leases, the valuation of derivative liabilities, the value of common stock and other assumptions used to measure stock-based compensation expense, sales and other tax liabilities, the valuation of deferred income tax assets and uncertain tax positions. Actual results could differ from those estimates.

Summary of Significant Accounting Policies

Our significant accounting policies are discussed in Note 1. “Summary of Business and Significant Accounting Policies” in the Notes to Consolidated Financial Statements in our Prospectus. There have been no significant changes to these policies during the three months ended April 30, 2019, except as noted below.

Leases

All significant lease arrangements are generally recognized at lease commencement. Operating lease right-of-use (ROU) assets and operating lease liabilities are recognized at commencement. For short term leases (an initial term of 12 months or less), a ROU asset and corresponding lease liability are not recorded and we record rent expense in our condensed consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred. ROU assets represent our right to use an underlying asset during the reasonably certain lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of fixed payments not yet paid over the lease term. We use our incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as our leases generally do not provide an implicit rate. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. We currently do not have any finance leases.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02 (Topic 842), Leases (ASU 2016-02), which supersedes FASB ASC Topic 840, Leases (ASC 840), and makes other conforming amendments to GAAP. ASU 2016-02 requires, among other changes to the lease accounting guidance, lessees to recognize most leases on-balance sheet via a right-of-use asset and lease liability, and additional qualitative and quantitative disclosures. ASU 2016-02 is effective for the annual periods in fiscal years beginning after December 15, 2018, and interim periods therein. We adopted the standard as of February 1, 2019 using the modified retrospective method of applying the new standard at the adoption date. Under this approach, we will continue to report comparative periods presented in the period of adoption under ASC 840. We have elected the package of practical expedients permitted under the transition guidance within the new standard, which allows us to (1) carry forward the historical lease classification, (2) not reassess whether any expired or existing contracts contain leases, and (3) not reassess indirect costs for any existing leases. This election allows us to account for lease components (e.g., fixed payments or variable payments that depend on a rate that can be determined at commencement, including rent for the right to use the asset) together with nonlease components (e.g., other fixed payments that deliver a good or service including common-area maintenance costs) in the calculation of the right-of-use asset and corresponding liability. Adoption of this standard resulted in the recording of ROU assets and total liabilities of $40.5 million and $43.0 million, respectively, with no material impact on retained earnings as of February 1, 2019. See Note 7 for further details.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07). The standard simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective for the annual periods in fiscal years beginning after December 15, 2018, and interim periods therein, using a modified retrospective approach. We adopted ASU 2018-07 as of February 1, 2019, and our adoption did not have a material impact on the condensed consolidated financial statements.

10


 

In August 2018, the FASB issued ASU No. 2018-13 (Topic 820), Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The standard no longer requires disclosure of the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, however public companies will be required to disclose the range and weighted-average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for the annual periods in fiscal years beginning after December 15, 2019, and interim periods therein, with early adoption permitted. We adopted ASU 2018-13 as of February 1, 2019, and our adoption did not have a material impact on the condensed consolidated financial statements.

 

2.

Revenue Recognition

Disaggregation of Revenue

The following table summarizes revenue by region based on the billing address of customers:

 

 

 

Three Months Ended April 30,

 

 

 

2019

 

 

2018

 

 

 

Amount

 

 

Percentage of

Revenue

 

 

Amount

 

 

Percentage of

Revenue

 

 

 

(in thousands, except percentages)

 

Americas

 

$

98,160

 

 

 

80

%

 

$

49,559

 

 

 

82

%

APAC

 

 

10,441

 

 

 

9

 

 

 

4,742

 

 

 

8

 

EMEA

 

 

13,387

 

 

 

11

 

 

 

5,769

 

 

 

10

 

Total

 

$

121,988

 

 

 

100

%

 

$

60,070

 

 

 

100

%

 

Contract Balances

We receive payments from customers based on a billing schedule as established in our customer contracts. Accounts receivable are recorded when we contractually have the right to consideration. In some arrangements, a right to consideration for our performance under the customer contract may occur before invoicing to the customer, resulting in an unbilled accounts receivable. The amount of unbilled accounts receivable included within accounts receivable, net on the condensed consolidated balance sheets was $6.9 million and $7.2 million as of April 30, 2019 and January 31, 2019, respectively.

Contract liabilities consist of deferred revenue. Revenue is deferred when we have the right to invoice in advance of performance under a customer contract. The current portion of deferred revenue balances are recognized over the next 12 months. The amount of revenue recognized during the three months ended April 30, 2019 and 2018 that was included in deferred revenue at the beginning of each period was $53.6 million and $23.3 million, respectively.

Remaining Performance Obligation

The terms of our subscription agreements are monthly, annual, and multi-year, and we may bill for the full term in advance or on an annual or monthly basis, depending on the customer preference. As of April 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $376.5 million, which consists of both billed consideration in the amount of $149.3 million and unbilled consideration in the amount of $227.2 million that we expect to recognize as revenue. We expect to recognize 64% of our remaining performance obligations as revenue over the next 12 months, and the remainder thereafter.

 

11


 

 

3.

Marketable Securities

As of April 30, 2019 and January 31, 2019, our marketable securities consisted of the following:

 

 

 

April 30, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

 

 

(in thousands)

 

Corporate bonds

 

$

53,717

 

 

$

52

 

 

$

(30

)

 

$

53,739

 

Agency bonds

 

 

21,482

 

 

 

5

 

 

 

(29

)

 

 

21,458

 

U.S. government agency securities

 

 

32,182

 

 

 

15

 

 

 

(5

)

 

 

32,192

 

Total

 

$

107,381

 

 

$

72

 

 

$

(64

)

 

$

107,389

 

 

 

 

January 31, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

 

 

(in thousands)

 

Commercial paper

 

$

1,243

 

 

$

 

 

$

 

 

$

1,243

 

Corporate bonds

 

 

53,267

 

 

 

 

 

 

(53

)

 

 

53,214

 

Agency bonds

 

 

32,675

 

 

 

 

 

 

(71

)

 

 

32,604

 

U.S. government agency securities

 

 

24,028

 

 

 

 

 

 

(11

)

 

 

24,017

 

Treasury bills

 

 

1,699

 

 

 

 

 

 

 

 

 

1,699

 

Total

 

$

112,912

 

 

$

 

 

$

(135

)

 

$

112,777

 

 

We review the individual securities that have unrealized losses on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. We evaluate, among other factors, whether we have the intention to sell any of these marketable securities and whether it is more likely than not that we will be required to sell any of them before recovery of the amortized cost basis. Based on the available evidence, we concluded that the gross unrealized losses on the marketable securities as of April 30, 2019 and January 31, 2019, are temporary in nature. There were no material realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive loss for the three months ended April 30, 2019 and 2018.

The following table presents the contractual maturities of our marketable securities as of April 30, 2019 and January 31, 2019:

 

 

 

As of

 

 

 

April 30,

2019

 

 

January 31,

2019

 

 

 

(in thousands)

 

Less than one year

 

$

87,589

 

 

$

85,077

 

Due in one to five years

 

 

19,800

 

 

 

27,700

 

Total

 

$

107,389

 

 

$

112,777

 

 

12


 

 

4.

Fair Value Measurements

The following table presents information about our financial instruments that are measured at fair value on a recurring basis using the input categories further discussed in Note 1. “Summary of Business and Significant Accounting Policies” in the Notes to Consolidated Financial Statements in our Prospectus:

 

 

 

April 30, 2019

 

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

202,605

 

 

$

202,605

 

 

$

 

 

$

 

Treasury bills

 

 

253,796

 

 

 

 

 

 

253,796

 

 

 

 

Cash equivalents

 

 

456,401

 

 

 

202,605

 

 

 

253,796

 

 

 

 

Corporate bonds

 

 

53,739

 

 

 

 

 

 

53,739

 

 

 

 

Agency bonds

 

 

21,458

 

 

 

 

 

 

21,458

 

 

 

 

U.S. government agency securities

 

 

32,192

 

 

 

 

 

 

32,192

 

 

 

 

Marketable securities

 

 

107,389

 

 

 

 

 

 

107,389

 

 

 

 

Certificate of deposit

 

 

200

 

 

 

 

 

 

200

 

 

 

 

Prepaid expenses and other current assets

 

 

200

 

 

 

 

 

 

200

 

 

 

 

Certificates of deposit

 

 

2,144

 

 

 

 

 

 

2,144

 

 

 

 

Other assets, non-current

 

 

2,144

 

 

 

 

 

 

2,144

 

 

 

 

Total financial assets

 

$

566,134

 

 

$

202,605

 

 

$

363,529

 

 

$

 

 

 

 

January 31, 2019

 

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

78

 

 

$

78

 

 

$

 

 

$

 

Cash equivalents

 

 

78

 

 

 

78

 

 

 

 

 

 

 

Commercial paper

 

 

1,243

 

 

 

 

 

 

1,243

 

 

 

 

Corporate bonds

 

 

53,214

 

 

 

 

 

 

53,214

 

 

 

 

Agency bonds

 

 

32,604

 

 

 

 

 

 

32,604

 

 

 

 

U.S. government agency securities

 

 

24,017