SEC Filing | Zoom Video Communications, Inc.

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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 July 31, 2019


☐			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

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 August 23, 2019 the number of shares of the registrant’s Class A common stock outstanding was 56,887,819 and the number of shares of the registrant’s Class B common stock outstanding was 216,664,088.

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Zoom Video Communications, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended July 31, 2019

TABLE OF CONTENTS


		Page
	PART I – Financial Information	4

Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets as of July 31, 2019 and January 31, 2019	4
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 31, 2019 and 2018	5
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended July 31, 2019 and 2018	6
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three and Six Months Ended July 31, 2019 and 2018	7
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2019 and 2018	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

	PART II – Other Information	34

Item 1.	Legal Proceedings	34
Item 1A	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
	Signatures	61

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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 unaudited condensed consolidated 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 Securities and Exchange Commission 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.

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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
	July 31, 2019		January 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	213,886	$	63,624
Marketable securities	541,380		112,777
Accounts receivable, net of allowances of $4,401 and $2,071 as of July 31, 2019 and January 31, 2019, respectively	95,682		63,613
Deferred contract acquisition costs, current	35,502		26,453
Prepaid expenses and other current assets	29,609		10,252
Total current assets	916,059		276,719
Deferred contract acquisition costs, non-current	37,688		29,063
Property and equipment, net	51,987		37,275
Operating lease right-of-use assets	51,126		—
Other assets, non-current	13,063		11,508
Total assets	$	1,069,923	$	354,565
Liabilities, convertible preferred stock, and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	819	$	4,963
Accrued expenses and other current liabilities	64,586		32,256
Deferred revenue, current	163,591		115,122
Total current liabilities	228,996		152,341
Deferred revenue, non-current	17,816		10,651
Operating lease liabilities, non-current	48,104		—
Other liabilities, non-current	31,211		39,460
Total liabilities	326,127		202,452
Commitments and contingencies (Note 8)
Convertible preferred stock, $0.001 par value per share, zero and 158,104,540 shares authorized as of July 31, 2019 and January 31, 2019, respectively; zero and 152,665,804 shares issued and outstanding as of July 31, 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 July 31, 2019 and January 31, 2019, respectively; zero shares issued and outstanding as of July 31, 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 July 31, 2019 and January 31, 2019, respectively; 49,867,103 and zero shares issued and outstanding as of July 31, 2019 and January 31, 2019, respectively; 300,000,000 Class B shares authorized as of July 31, 2019 and January 31, 2019; 223,619,064 and 90,327,435 shares issued and outstanding as of July 31, 2019 and January 31, 2019, respectively	272		89
Additional paid-in capital	760,990		17,760
Accumulated other comprehensive loss	(68)		(135)
Accumulated deficit	(17,398)		(25,153)
Total stockholders’ equity (deficit)	743,796		(7,439)
Total liabilities, convertible preferred stock, and stockholders’ equity (deficit)	$	1,069,923	$	354,565

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

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ZOOM VIDEO COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended July 31,						Six Months Ended July 31,
	2019		2018		2019		2018
Revenue	$	145,826	$	74,526	$	267,814	$	134,596
Cost of revenue	27,900		12,973		52,004		24,633
Gross profit	117,926		61,553		215,810		109,963
Operating expenses:
Research and development	15,054		7,049		28,837		13,313
Sales and marketing	79,652		41,054		143,693		77,315
General and administrative	20,955		10,028		39,458		17,597
Total operating expenses	115,661		58,131		211,988		108,225
Income from operations	2,265		3,422		3,822		1,738
Interest income, net	2,864		463		3,522		899
Other income, net	1,628		81		1,943		86
Net income before provision for income taxes	6,757		3,966		9,287		2,723
Provision for income taxes	(1,216)		(141)		(1,532)		(238)
Net income	5,541		3,825		7,755		2,485
Undistributed earnings attributable to participating securities	(20)		(3,329)		(2,794)		(2,485)
Net income attributable to common stockholders	$	5,521	$	496	$	4,961	$	—
Net income per share attributable to common stockholders:
Basic	$	0.02	$	0.01	$	0.03	$	0.00
Diluted	$	0.02	$	0.00	$	0.02	$	0.00
Weighted-average shares used in computing net income per share attributable to common stockholders:
Basic	271,813,141		83,330,741		192,130,510		81,999,734
Diluted	292,185,665		108,454,323		215,774,619		107,584,379

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

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ZOOM VIDEO COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended July 31,						Six Months Ended July 31,
	2019		2018		2019		2018
Net income	$	5,541	$	3,825	$	7,755	$	2,485
Other comprehensive (loss) gain:
Unrealized (loss) gain on available for sale marketable securities, net of tax	(76)		139		67		57
Comprehensive income	$	5,465	$	3,964	$	7,822	$	2,542

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

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ZOOM VIDEO COMMUNICATIONS, INC.

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

(in thousands, except share data)

(unaudited)


	Three Months Ended July 31, 2019
	Convertible Preferred Stock				Common Stock						Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit	Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance as of April 30, 2019	—	$	—	272,336,862	$	271	$	742,388	$	8	$	(22,939)	$	719,728
Issuance of common stock upon exercise of stock options	—	—		649,305	1		420		—		—		421
Issuance of common stock reserved for charitable donation	—	—		500,000	—		—		—		—		—
Stock-based compensation expense	—	—		—	—		18,182		—		—		18,182
Other comprehensive loss	—	—		—	—		—		(76)		—		(76)
Net income	—	—		—	—		—		—		5,541		5,541
Balance as of July 31, 2019	—	$	—	273,486,167	$	272	$	760,990	$	(68)	$	(17,398)	$	743,796


	Three Months Ended July 31, 2018
	Convertible Preferred Stock				Common Stock						Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit	Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount
Balance as of April 30, 2018	152,665,804	$	159,552	83,122,778	$	81	$	7,603	$	(613)	$	(34,077)	$	(27,006)
Issuance of common stock upon exercise of stock options	—	—		3,273,235	3		435		—		—		438
Stock-based compensation expense	—	—		—	—		1,126		—		—		1,126
Other comprehensive income	—	—		—	—		—		139		—		139
Net income	—	—		—	—		—		—		3,825		3,825
Balance as of July 31, 2018	152,665,804	$	159,552	86,396,013	$	84	$	9,164	$	(474)	$	(30,252)	$	(21,478)

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

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ZOOM VIDEO COMMUNICATIONS, INC.

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

(in thousands, except share data)

(unaudited)


	Six Months Ended July 31, 2019
	Convertible Preferred Stock				Common Stock						Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit	Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
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	—	—		13,747,059	14		2,160		—		—		2,174
Issuance of common stock reserved for charitable donation	—	—		500,000	—		—		—		—		—
Stock-based compensation expense	—	—		—	—		24,844		—		—		24,844
Other comprehensive income	—	—		—	—		—		67		—		67
Net income	—	—		—	—		—		—		7,755		7,755
Balance as of July 31, 2019	—	$	—	273,486,167	$	272	$	760,990	$	(68)	$	(17,398)	$	743,796


	Six Months Ended July 31, 2018
	Convertible Preferred Stock				Common Stock						Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit	Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount
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	—	—		3,786,375	4		672		—		—		676
Stock-based compensation expense	—	—		—	—		1,975		—		—		1,975
Other comprehensive income	—	—		—	—		—		57		—		57
Net income	—	—		—	—		—		—		2,485		2,485
Balance as of July 31, 2018	152,665,804	$	159,552	86,396,013	$	84	$	9,164	$	(474)	$	(30,252)	$	(21,478)

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

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ZOOM VIDEO COMMUNICATIONS, INC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended July 31,
	2019		2018
Cash flows from operating activities:
Net income	$	7,755	$	2,485
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	24,737		1,975
Amortization of deferred contract acquisition costs	16,026		8,647
Depreciation and amortization	7,174		2,618
Amortization of operating lease right-of-use assets	3,116		—
Provision for accounts receivable allowances	2,693		1,056
Other	(514)		38
Changes in operating assets and liabilities:
Accounts receivable	(35,361)		(22,600)
Prepaid expenses and other assets	(23,597)		(4,132)
Deferred contract acquisition costs	(33,700)		(22,768)
Accounts payable	(2,783)		(206)
Accrued expenses and other liabilities	34,923		14,561
Deferred revenue	56,234		35,436
Operating lease liabilities, net	(3,295)		—
Net cash provided by operating activities	53,408		17,110
Cash flows from investing activities:
Purchases of marketable securities	(478,487)		(30,276)
Maturities of marketable securities	50,940		23,755
Purchases of property and equipment	(20,937)		(10,027)
Net cash used in investing activities	(448,484)		(16,548)
Cash flows from financing activities:
Proceeds from initial public offering and private placement, net of underwriting discounts and commissions and other offering costs	542,947		—
Proceeds from exercise of stock options, net of repurchases	2,191		576
Principal payments on capital lease obligations	—		(92)
Net cash provided by financing activities	545,138		484
Net increase in cash, cash equivalents, and restricted cash	150,062		1,046
Cash, cash equivalents, and restricted cash – beginning of period	65,968		36,821
Cash, cash equivalents, and restricted cash – end of period	$	216,030	$	37,867
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	$	213,886	$	36,492
Restricted cash, current included in prepaid expenses and other current assets	100		200
Restricted cash, non-current included in other assets, non-current	2,044		1,175
Total cash, cash equivalents, and restricted cash	$	216,030	$	37,867

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

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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, 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.

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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 six months ended July 31, 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.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13 (Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The guidance will be effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating whether the adoption of this standard will have a material impact on our condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-2 (Topic 842), Leases (ASU 2016-2), which supersedes FASB ASC Topic 840, Leases (ASC 840), and makes other conforming amendments to GAAP. ASU 2016-2 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 2016-2 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.

Table of Contents

In June 2018, the FASB issued ASU No. 2018-7, Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-7). 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 2018-7 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 2018-7 as of February 1, 2019, and our adoption did not have a material impact on the condensed consolidated financial statements.

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 July 31,														Six Months Ended July 31,
	2019						2018						2019				2018
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Amount		Percentage of Revenue		Amount		Percentage of Revenue

	(in thousands, except percentages)
Americas	$	117,098	80	%	$	61,155	82	%	$	215,258	80	%	$	110,715	82	%
Asia Pacific (APAC)	12,088		8		6,078		8		22,529		9		10,820		8
Europe, Middle East, and Africa (EMEA)	16,640		12		7,293		10		30,027		11		13,061		10
Total	$	145,826	100	%	$	74,526