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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 October 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 November 22, 2019, the number of shares of the registrant’s Class A common stock outstanding was 111,794,527 and the number of shares of the registrant’s Class B common stock outstanding was 164,607,288.

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Zoom Video Communications, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended October 31, 2019

TABLE OF CONTENTS


		Page
	PART I – Financial Information	4

Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets as of October 31, 2019 and January 31, 2019	4
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 31, 2019 and 2018	5
	Condensed Consolidated Statements of Comprehensive Income (Loss ) for the Three and Nine Months Ended October 31, 2019 and 2018	6
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three and Nine Months Ended October 31, 2019 and 2018	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 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	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

	PART II – Other Information	36

Item 1.	Legal Proceedings	36
Item 1A	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62
	Signatures	63

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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
	October 31, 2019		January 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	230,874	$	63,624
Marketable securities	580,526		112,777
Accounts receivable, net of allowances of $5,193 and $2,071 as of October 31, 2019 and January 31, 2019, respectively	95,770		63,613
Deferred contract acquisition costs, current	39,609		26,453
Prepaid expenses and other current assets	72,620		10,252
Total current assets	1,019,399		276,719
Deferred contract acquisition costs, noncurrent	40,792		29,063
Property and equipment, net	53,848		37,275
Operating lease right-of-use assets	53,308		—
Other assets, noncurrent	20,710		11,508
Total assets	$	1,188,057	$	354,565
Liabilities, convertible preferred stock, and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	3,202	$	4,963
Accrued expenses and other current liabilities	128,064		32,256
Deferred revenue, current	186,537		115,122
Total current liabilities	317,803		152,341
Deferred revenue, noncurrent	15,062		10,651
Operating lease liabilities, noncurrent	50,132		—
Other liabilities, noncurrent	32,543		39,460
Total liabilities	415,540		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 October 31, 2019 and January 31, 2019, respectively; zero and 152,665,804 shares issued and outstanding as of October 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 October 31, 2019 and January 31, 2019, respectively; zero shares issued and outstanding as of October 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 October 31, 2019 and January 31, 2019, respectively; 109,311,196 and zero shares issued and outstanding as of October 31, 2019 and January 31, 2019, respectively; 300,000,000 Class B shares authorized as of October 31, 2019 and January 31, 2019; 166,915,262 and 90,327,435 shares issued and outstanding as of October 31, 2019 and January 31, 2019, respectively	275		89
Additional paid-in capital	786,778		17,760
Accumulated other comprehensive income (loss)	651		(135)
Accumulated deficit	(15,187)		(25,153)
Total stockholders’ equity (deficit)	772,517		(7,439)
Total liabilities, convertible preferred stock, and stockholders’ equity (deficit)	$	1,188,057	$	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 October 31,						Nine Months Ended October 31,
	2019		2018		2019		2018
Revenue	$	166,593	$	90,121	$	434,407	$	224,717
Cost of revenue	30,845		16,843		82,849		41,476
Gross profit	135,748		73,278		351,558		183,241
Operating expenses:
Research and development	17,573		8,893		46,410		22,206
Sales and marketing	96,048		53,454		239,741		130,769
General and administrative	23,806		11,994		63,264		29,591
Total operating expenses	137,427		74,341		349,415		182,566
(Loss) income from operations	(1,679)		(1,063)		2,143		675
Interest income, net	3,231		477		6,753		1,376
Other income, net	978		128		2,921		214
Net income (loss) before provision for income taxes	2,530		(458)		11,817		2,265
Provision for income taxes	319		140		1,851		378
Net income (loss)	2,211		(598)		9,966		1,887
Undistributed earnings attributable to participating securities	(4)		—		(2,493)		(1,887)
Net income (loss) attributable to common stockholders	$	2,207	$	(598)	$	7,473	$	—
Net income (loss) per share attributable to common stockholders:
Basic	$	0.01	$	(0.01)	$	0.03	$	0.00
Diluted	$	0.01	$	(0.01)	$	0.03	$	0.00
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:
Basic	273,316,850		85,645,323		219,295,445		83,198,339
Diluted	292,771,122		111,000,300		241,512,569		109,303,996

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 (LOSS)

(in thousands)

(unaudited)


	Three Months Ended October 31,						Nine Months Ended October 31,
	2019		2018		2019		2018
Net income (loss)	$	2,211	$	(598)	$	9,966	$	1,887
Other comprehensive income:
Unrealized gain on available-for-sale marketable securities, net of tax	719		85		786		142
Comprehensive income (loss)	$	2,930	$	(513)	$	10,752	$	2,029

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 October 31, 2019
	Convertible Preferred Stock				Common Stock						Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit	Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance as of July 31, 2019	—	$	—	273,486,167	$	272	$	760,990	$	(68)	$	(17,398)	$	743,796
Issuance of common stock upon exercise of stock options	—	—		2,740,291	3		3,842		—		—		3,845

Stock-based compensation expense	—	—		—	—		21,946		—		—		21,946
Other comprehensive income	—	—		—	—		—		719		—		719
Net income	—	—		—	—		—		—		2,211		2,211
Balance as of October 31, 2019	—	$	—	276,226,458	$	275	$	786,778	$	651	$	(15,187)	$	772,517


	Three Months Ended October 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 July 31, 2018	152,665,804	$	159,552	86,396,013	$	84	$	9,164	$	(474)	$	(30,252)	$	(21,478)
Issuance of common stock upon exercise of stock options	—	—		2,358,809	3		727		—		—		730
Stock-based compensation expense	—	—		—	—		2,652		—		—		2,652
Other comprehensive income	—	—		—	—		—		85		—		85
Net loss	—	—		—	—		—		—		(598)		(598)
Balance as of October 31, 2018	152,665,804	$	159,552	88,754,822	$	87	$	12,543	$	(389)	$	(30,850)	$	(18,609)

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)


	Nine Months Ended October 31, 2019
	Convertible Preferred Stock				Common Stock						Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit	Total Stockholders’ (Deficit) Equity
	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	—	—		16,487,350	17		6,002		—		—		6,019
Issuance of common stock reserved for charitable donations	—	—		500,000	—		—		—		—		—
Stock-based compensation expense	—	—		—	—		46,790		—		—		46,790
Other comprehensive income	—	—		—	—		—		786		—		786
Net income	—	—		—	—		—		—		9,966		9,966
Balance as of October 31, 2019	—	$	—	276,226,458	$	275	$	786,778	$	651	$	(15,187)	$	772,517


	Nine Months Ended October 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	—	—		6,145,184	7		1,399		—		—		1,406
Stock-based compensation expense	—	—		—	—		4,627		—		—		4,627
Other comprehensive income	—	—		—	—		—		142		—		142
Net income	—	—		—	—		—		—		1,887		1,887
Balance as of October 31, 2018	152,665,804	$	159,552	88,754,822	$	87	$	12,543	$	(389)	$	(30,850)	$	(18,609)

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)


	Nine Months Ended October 31,
	2019		2018
Cash flows from operating activities:
Net income	$	9,966	$	1,887
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	46,532		4,627
Amortization of deferred contract acquisition costs	25,939		14,362
Depreciation and amortization	11,589		4,459
Amortization of operating lease right-of-use assets	4,840		—
Provision for accounts receivable allowances	3,976		1,493
Other	(1,577)		17
Changes in operating assets and liabilities:
Accounts receivable	(36,886)		(27,775)
Prepaid expenses and other assets	(22,439)		(6,450)
Deferred contract acquisition costs	(50,824)		(32,875)
Accounts payable	(1,118)		369
Accrued expenses and other liabilities	53,485		22,644
Deferred revenue	76,579		52,583
Operating lease liabilities, net	(4,724)		—

Net cash provided by operating activities	115,338		35,341
Cash flows from investing activities:
Purchases of marketable securities	(629,107)		(49,159)
Maturities of marketable securities	164,140		43,547
Purchases of property and equipment	(28,132)		(18,121)
Purchase of equity investment	(3,000)		—
Net cash used in investing activities	(496,099)		(23,733)
Cash flows from financing activities:
Proceeds from initial public offering and private placement, net of underwriting discounts and commissions and other offering costs	542,492		—
Proceeds from international employee stock sales to be remitted to employees and tax authorities	48,547		—
Proceeds from exercise of stock options, net of repurchases	5,584		2,714
Proceeds from issuance of convertible promissory notes and derivatives	—		15,000
Principal payments on capital lease obligations	—		(92)
Net cash provided by financing activities	596,623		17,622
Net increase in cash, cash equivalents, and restricted cash	215,862		29,230
Cash, cash equivalents, and restricted cash – beginning of period	65,968		36,821
Cash, cash equivalents, and restricted cash – end of period	$	281,830	$	66,051
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	$	230,874	$	63,707
Restricted cash, current included in prepaid expenses and other current assets	48,647		200
Restricted cash, noncurrent included in other assets, noncurrent	2,309		2,144
Total cash, cash equivalents, and restricted cash	$	281,830	$	66,051

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, noncurrent in the condensed consolidated balance sheets. After the IPO, $6.4 million of deferred offering costs were reclassified into stockholders’ equity (deficit) 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, noncurrent 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., its subsidiaries, and a variable interest entity (“VIE”) for which we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

The 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, and 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 nine months ended October 31, 2019, except as noted below:

Restricted Cash

Historically, restricted cash consisted of certificates of deposit collateralizing our operating leases and corporate credit cards, and was included in prepaid expenses and other current assets and other assets, noncurrent in the condensed consolidated balance sheets.

In the third quarter of fiscal year 2020, we received $48.5 million of cash from proceeds on international employees’ sales of our common stock. The amount is held in our bank account until it is remitted to the employees and the tax authorities. Due to the restrictions on the use of the funds in the bank account, we have classified the amount as restricted cash included in prepaid expenses and other current assets, and a corresponding amount included in accrued expenses and other current liabilities in the condensed consolidated balance sheets.

Equity Investment

In the third quarter of fiscal year 2020, we made a $3.0 million strategic investment in a private limited liability company in the business of designing and developing video communications hardware. We do not have a controlling financial interest in the investee nor the ability to exercise significant influence over the operating and financial policies of the investee. The investment is included within other assets, noncurrent in the condensed consolidated balance sheets. Dividend income, unrealized and realized holding gains or losses, and impairment charges would be reported in other income, net in the condensed consolidated statements of operations. The maximum loss we could incur for this investment is its carrying value.

We have elected to measure this investment, which does not have a readily determinable fair value, at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (i.e., using the measurement alternative). At each reporting period, we perform a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. If this qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than its carrying amount, the investment would be written down to its fair value.

As of October 31, 2019, the carrying amount of this investment is $3.0 million. We have not recognized any impairments nor any downward or upward measurement alternative adjustments to its carrying amount.

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), an 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 the 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

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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, Financial Instruments – Credit Losses (Topic 326): 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. 2016-02, Leases (Topic 842), which supersedes FASB ASC Topic 840, Leases (ASC 840), and makes other conforming amendments to GAAP. ASU No. 2016-02 requires, among other changes to the lease accounting guidance, lessees to recognize most leases on-balance sheet via an ROU 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 ROU asset and corresponding liability. Adoption of this standard resulted in the recording of ROU assets and lease 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, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. 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 No. 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 No. 2018-07 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, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. 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 of significant unobservable inputs used to develop Level 3 fair value measurements. ASU No. 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 No. 2018-13 as of February 1, 2019, and our adoption did not have a material impact on the condensed consolidated financial statements.

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2. Revenue Recognition

Disaggregation of Revenue

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


	Three Months Ended October 31,														Nine Months Ended October 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	$	133,864	81	%	$	73,619	82	%	$	349,122	81	%	$	184,334	82	%
Asia Pacific (“APAC”)	13,661		8		7,646		8		36,189		8		18,466		8
Europe, Middle East, and Africa (“EMEA”)	19,068		11		8,856		10		49,096		11		21,917		10
Total	$	166,593	100	%	$	90,121	100	%	$	434,407	100	%	$	224,717	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 of allowances in the condensed consolidated balance sheets was $10.8 million and $7.2 million as of October 31, 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 October 31, 2019 and 2018 that was included in deferred revenue at the beginning of each period was $75.5 million and $38.4 million, respectively, and $109.2 million and $47.8 million during the nine months ended October 31, 2019 and 2018, respectively.

Remaining Performance Obligation

The terms of our subscription agreements are monthly, annual, and multiyear and we may bill for the full term in advance or on an annual or monthly basis, depending on the customer preference. As of October 31, 2019, the aggregate amount of the transaction price allocated to our remaining performance obligations was $517.0 million, which consists of both billed consideration in the amount of $201.6 million and unbilled consideration in the amount of $315.4 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.

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3. Cash Equivalents and Marketable Securities

As of October 31, 2019 and January 31, 2019, our cash equivalents and marketable securities consisted of the following:


	October 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

	(in thousands)
Money market funds	$	99,494	$	—	$	—	$	99,494



Cash equivalents	99,494		—		—		99,494
Commercial paper	48,841		—		—		48,841
Agency bonds	78,963		12		(84)		78,891
Corporate and other debt securities	296,419		597		(37)		296,979
U.S. government agency securities	106,224		143		(2)		106,365
Treasury bills	49,428		22		—		49,450
Marketable securities	$	579,875	$	774	$	(123)	$