SEC Filing | CrowdStrike Holdings, Inc.

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crwd-20200430

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________________________________________________________________________

FORM 10-Q

___________________________________________________________________________________________________

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2020


☐			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: 001-38933

___________________________________________________________________________________________________

CROWDSTRIKE HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

___________________________________________________________________________________________________

Delaware

45-3788918

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

150 Mathilda Place, Suite 300, Sunnyvale, California 94086

(Address of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class of securities	Trading symbol(s)	Name of each national exchange and principal U.S. market for the securities
Class A common stock, par value $0.0005 per share	CRWD	The Nasdaq Stock Market LLC
			(Nasdaq Global Select Market)

___________________________________________________________________________________________________

Registrant’s telephone number, including area code: (888) 512-8906

___________________________________________________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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	☐
(Do not check if a 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, 2020, the number of shares of the registrant’s Class A common stock outstanding was 151,213,435, and the number of shares of the registrant’s Class B common stock outstanding was 64,780,310.

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CROWDSTRIKE HOLDINGS, INC.

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		Page No.
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of April 30 , 20 20 and January 31, 2020	5
	Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2020 and April 30, 2019	6
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30, 2020 and April 30, 2019	6
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three Months Ended April 30, 2020 and April 30, 2019	8
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2020 and April 30, 2019	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47
Item 4.	Controls and Procedures	47

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Shares of Equity Securities and Use of Proceeds	80
Item 3.	Defaults Upon Senior Securities	80
Item 4.	Mine Safety Disclosures	80
Item 5.	Other Information	80
Item 6.	Exhibits	81
	Signatures	82

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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 the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.

These forward-looking statements include, but are not limited to, statements concerning the following:

◦the impact of the COVID-19 pandemic on our operations, financial results, and liquidity and capital resources, including on customers, sales, expenses, and employees;

◦our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses (including changes in sales and marketing, research and development, and general and administrative expenses), and our ability to achieve, and maintain, future profitability;

◦market acceptance of our cloud platform;

◦the effects of increased competition in our markets and our ability to compete effectively;

◦our ability to maintain the security and availability of our cloud platform;

◦our ability to maintain and expand our customer base, including by attracting new customers;

◦our ability to develop new solutions, or enhancements to our existing solutions, and bring them to market in a timely manner;

◦anticipated trends, growth rates and challenges in our business and in the markets in which we operate;

◦our business plan and our ability to effectively manage our growth and associated investments;

◦beliefs and objectives for future operations;

◦our relationships with third parties, including channel partners and technology alliance partners;

◦our ability to maintain, protect and enhance our intellectual property rights;

◦our ability to successfully defend litigation brought against us;

◦our ability to successfully expand in our existing markets and into new markets;

◦sufficiency of cash to meet cash needs for at least the next 12 months;

◦our ability to expand internationally;

◦our ability to comply with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;

◦our ability to develop, maintain, and improve our internal control over financial reporting;

◦the attraction and retention of qualified employees and key personnel.

These statements are based on our current plans, estimates and projections in light of information currently available to us. These forward-looking statements may be affected by risks, uncertainties and other factors discussed elsewhere in this Quarterly Report on Form 10-Q, including under “Risk Factors.” Furthermore, new risks and uncertainties emerge from time to time, and it is impossible for us to predict all risks and uncertainties or how they may affect us. If any of these risks or uncertainties occurs, our business, revenue and financial results could be harmed, and the trading price of our Class A common stock could decline. Forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date on which such statements are made, and we undertake no obligation to update them in light of new information or future events, except as required by law.

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We intend to announce material information to the public through the CrowdStrike Investor Relations website ir.crowdstrike.com, SEC filings, press releases, public conference calls, and public webcasts. We use these channels, as well as social media and our blog, to communicate with our investors, customers, and the public about our company, our offerings, and other issues. It is possible that the information we post on social media and our blog could be deemed to be material information. As such, we encourage investors, the media, and others to follow the channels listed above, including the social media channels listed on our investor relations website, and to review the information disclosed through such channels. Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CrowdStrike Holdings, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)


	April 30,		January 31,
	2020		2020
Assets
Current assets:
Cash and cash equivalents	$	1,004,991	$	264,798
Marketable securities	—		647,266
Accounts receivable, net of allowance for doubtful accounts of $2.1 million and $1.1 million as of April 30, 2020 and January 31, 2020, respectively	144,187		164,987
Deferred contract acquisition costs, current	53,410		42,971
Prepaid expenses and other current assets	45,874		51,614
Total current assets	1,248,462		1,171,636
Strategic investments	1,000		1,000
Property and equipment, net	139,096		136,078
Operating lease right-of-use assets	35,738		—
Deferred contract acquisition costs, noncurrent	69,908		71,235
Goodwill	7,652		7,722
Intangible assets, net	419		527
Other assets	17,121		16,708
Total assets	$	1,519,396	$	1,404,906
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	6,528		$	1,345
Accrued expenses	26,396		30,355
Accrued payroll and benefits	37,458		36,810
Operating lease liabilities, current	6,673		—
Deferred revenue	465,569		412,985
Other current liabilities	13,020		11,601
Total current liabilities	555,644		493,096
Deferred revenue, noncurrent	170,404		158,183
Operating lease liabilities, noncurrent	32,907		—
Other liabilities, noncurrent	7,288		11,020
Total liabilities	766,243		662,299
Commitments and contingencies (Note 11)
Stockholders’ Equity
Preferred stock, $0.0005 par value; 100,000 shares authorized as of April 30, 2020 and January 31, 2020; no shares issued and outstanding as of April 30, 2020 and January 31, 2020	—		—
Class A common stock, $0.0005 par value; 2,000,000 shares authorized as of April 30, 2020 and January 31, 2020, respectively; 149,899 shares and 107,666 shares issued and outstanding as of April 30, 2020 and January 31, 2020, respectively; Class B common stock, $0.0005 par value; 300,000 shares authorized as of April 30, 2020 and January 31, 2020, respectively; 65,606 shares and 105,282 shares issued and outstanding as of April 30, 2020 and January 31, 2020, respectively	108		106
Additional paid-in capital	1,409,758		1,378,479
Accumulated deficit	(656,709)		(637,487)
Accumulated other comprehensive income (loss)	(1,004)		1,009
Total CrowdStrike Holdings, Inc. stockholders’ equity	752,153		742,107
Non-controlling interest	1,000		500
Total stockholders’ equity	753,153		742,607
Total liabilities and stockholders’ equity	$	1,519,396	$	1,404,906

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

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CrowdStrike Holdings, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	Three Months Ended April 30,
	2020		2019
Revenue
Subscription	$	162,222	$	85,990
Professional services	15,856		10,087
Total revenue	178,078		96,077

Cost of revenue
Subscription	37,244		23,691
Professional services	9,651		5,582
Total cost of revenue	46,895		29,273

Gross profit	131,183		66,804

Operating expenses
Sales and marketing	88,138		56,843
Research and development	40,578		23,875
General and administrative	25,043		11,861
Total operating expenses	153,759		92,579

Loss from operations	(22,576)		(25,775)
Interest expense	(143)		(1)
Other income, net	4,533		394

Loss before provision for income taxes	(18,186)		(25,382)

Provision for income taxes	(1,036)		(595)

Net loss	$	(19,222)	$	(25,977)

Net loss per share attributable to Class A and Class B common stockholders, basic and diluted	$	(0.09)	$	(0.55)

Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted	213,129		47,205

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

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CrowdStrike Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended April 30,
	2020		2019

Net loss	$	(19,222)	$	(25,977)
Other comprehensive loss:
Foreign currency translation adjustments	(693)		(280)
Reversal of unrealized gain upon sale of debt securities	(1,320)		—
Unrealized loss on available-for-sale securities, net of tax	—		(4)
Other comprehensive loss	(2,013)		(284)
Total comprehensive loss	(21,235)		(26,261)

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

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CrowdStrike Holdings, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Three Months Ended April 30, 2020 and 2019

(in thousands)

(unaudited)


	Redeemable Convertible Preferred Stock				Common Stock						Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest	Total Stockholders’ Equity
	Shares	Amount		Shares	Amount

Balances at January 31, 2020	—	$	—	212,948	$	106	$	1,378,479	$	(637,487)	$	1,009	$	500	$	742,607
Issuance of common stock upon exercise of options	—	—		2,056	2		6,391		—		—		—		6,393
Issuance of common stock under RSU release	—	—		501	—		—		—		—		—		—


Vesting of early exercised options	—	—		—	—		873		—		—		—		873
Stock-based compensation expense	—	—		—	—		23,638		—		—		—		23,638
Capitalized stock-based compensation	—	—		—	—		377		—		—		—		377
Net loss	—	—		—	—		—		(19,222)		—		—		(19,222)
Non-controlling interest	—	—		—	—		—		—		—		500		500
Other comprehensive loss	—	—		—	—		—		—		(2,013)		—		(2,013)
Balances at April 30, 2020	—	$	—	215,505	$	108	$	1,409,758	$	(656,709)	$	(1,004)	$	1,000	$	753,153


	Redeemable Convertible Preferred Stock				Common Stock						Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)	Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount

Balance at January 31, 2019	131,268	$	557,912	47,421	$	24	$	31,211	$	(519,126)	$	98	$	(487,793)
Cumulative effect of accounting change	—	—		—	—		—		23,418		—		23,418
Issuance of common stock upon exercise of options	—	—		706	—		1,510		—		—		1,510
Vesting of early exercised options	—	—		—	—		144		—		—		144
Stock-based compensation expense	—	—		—	—		3,752		—		—		3,752
Capitalized stock-based compensation	—	—		—	—		53		—		—		53
Net loss	—	—		—	—		—		(25,977)		—		(25,977)
Other comprehensive loss	—	—		—	—		—		—		(284)		(284)
Balance at April 30, 2019	131,268	$	557,912	48,127	$	24	$	36,670	$	(521,685)	$	(186)	$	(485,177)

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

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CrowdStrike Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Three Months Ended April 30,
	2020		2019
Operating activities
Net loss	$	(19,222)	$	(25,977)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	8,202		4,873

Amortization of intangible assets	103		146
Amortization of deferred contract acquisition costs	13,451		7,345
Non-cash operating lease cost	2,283		—
Change in fair value of redeemable convertible preferred stock warrant liability	—		1,167
Provision for bad debts	149		(254)
Stock-based compensation expense	23,638		3,752
Gain on sale of debt securities, net	(1,347)		—
Amortization (accretion) of marketable securities purchased at a discount	578		(513)
Non-cash interest expense	151		(424)

Changes in operating assets and liabilities
Accounts receivable	20,651		5,375
Deferred contract acquisition costs	(22,563)		(8,471)
Prepaid expenses and other assets	5,332		(4,049)

Accounts payable	4,736		2,818
Accrued expenses and other current liabilities	(1,095)		(2,407)
Accrued payroll and benefits	648		(6,601)
Operating lease liabilities	(2,975)		—
Deferred revenue	64,805		24,812
Other liabilities	1,052		(177)
Net cash provided by operating activities	98,577		1,415
Investing activities
Purchases of property and equipment	(9,694)		(15,541)
Capitalized internal-use software	(1,882)		(1,984)

Purchases of marketable securities	(84,904)		(51,805)
Proceeds from sales of marketable securities	639,586		4,473
Maturities of marketable securities	91,605		68,995
Net cash provided by investing activities	634,711		4,138
Financing activities









Payments of deferred offering costs	—		(2,392)
Proceeds from issuance of common stock upon exercise of stock options	6,393		1,510


Capital contributions from non-controlling interest holders	500		—
Net cash provided by (used in) financing activities	6,893		(882)

Effect of foreign exchange rates on cash and cash equivalents	12		(86)
Net increase in cash and cash equivalents	740,193		4,585
Cash and cash equivalents, beginning of period	264,798		88,408
Cash and cash equivalents, end of period	$	1,004,991	$	92,993
Supplemental disclosure of cash flow information:
Interest paid	$	—	$	1
Income taxes paid	353		114
Supplemental disclosure of non-cash investing and financing activities:
Net (decrease) increase in deferred offering costs, accrued but not paid	—		(1,210)
Net (decrease) increase in property and equipment included in accounts payable and accrued expenses	(723)		(54)
Vesting of early exercised stock options	873		144

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

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CrowdStrike Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of Business and Basis of Presentation

Business

CrowdStrike Holdings, Inc. (the “Company”) was formed on November 7, 2011. The Company provides a leading cloud-delivered solution for next-generation endpoint protection that offers 11 cloud modules on its Falcon platform via a software as a service (“SaaS”) subscription-based model that spans multiple large security markets, including endpoint security, security and IT operations (including vulnerability management), and threat intelligence. The Company is headquartered in Sunnyvale, California. The Company conducts its business in the United States, as well as locations internationally, including in Australia, Germany, India, Romania, and the United Kingdom.

Initial Public Offering

On June 14, 2019, the Company closed its initial public offering (“IPO”), in which it sold 20,700,000 shares of Class A common stock. The shares were sold at a public offering price of $34.00 per share for net proceeds of $659.2 million, after deducting underwriters’ discounts and commissions and offering expenses of $44.8 million. Immediately prior to the closing of the IPO, all outstanding shares of redeemable convertible preferred stock automatically converted into 131,267,586 shares of Class B common stock on a one-to-one basis. Additionally, in connection with the IPO, all of the Company’s outstanding common stock was reclassified into shares of Class B common stock on a one-for-one basis. Redeemable convertible preferred stock warrants also converted into 336,386 warrants to purchase Class B common stock on a one-to-one basis.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance sheet as of January 31, 2020, and related disclosures, have been derived from the audited consolidated financial statements at that date but do not include all of the information required by U.S. GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair statement of the Company’s condensed consolidated financial information. The results of operations for the three months ended April 30, 2020 are not necessarily indicative of the results to be expected for the year ending January 31, 2021 or for any other interim period or for any other future year.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable required disclosures and regulations of the SEC. Therefore, the accompanying interim unaudited condensed consolidated financial statements and related financial information should be read in conjunction with Item 8, “Financial Statements and Supplementary Data” included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2020, filed with the SEC on March 23, 2020.

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JOBS Act Accounting Election

The Company is an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). An EGC may take advantage of specified reduced reporting requirements that are otherwise applicable generally to public companies, including, but not limited to, delayed adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in the Company’s periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

The Company may take advantage of these exemptions until it is no longer an EGC. The Company would cease to be an EGC upon the earliest to occur of: (i) the first fiscal year following the fifth anniversary of its initial public offering; (ii) the first fiscal year after annual gross revenue is $1.07 billion or more; (iii) the date on which the Company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the date on which the Company qualifies as a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act, which would occur at the end of any fiscal year in which the market value of the Company’s common stock held by non-affiliates exceeded $700.0 million as of the end of the second quarter of that fiscal year, and as of the end of such fiscal year the Company has been a reporting company for at least 12 months.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s condensed consolidated financial statements and accompanying notes. These estimates are based on information available as of the date of the condensed consolidated financial statements. On a regular basis, management evaluates these estimates and assumptions. Actual results may differ from these estimates and such difference could be material to the Company’s condensed consolidated financial statements.

Estimates and assumptions used by management include, but are not limited to, revenue recognition, the allowance for doubtful accounts, the carrying value and the useful lives of long-lived assets, the fair values of financial instruments and strategic investments, the period of benefit for deferred contract acquisition costs, the discount rate used for operating leases, the recognition and disclosure of contingent liabilities, income taxes, and stock-based compensation.

Due to the Coronavirus (“COVID-19”) pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require a material update to its estimates or judgments or an adjustment of the carrying value of its assets or liabilities as of April 30, 2020. While there was not a material impact to the Company’s consolidated financial statements as of and for the quarter ended April 30, 2020, these estimates may change, as new events occur and additional information is obtained, as well as other factors related to COVID-19 that could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Concentration of Credit Risk and Geographic Information

The Company generates revenue from the sale of subscriptions to access its cloud platform and professional services. The Company’s sales team, along with its channel partner network of system integrators and value-added resellers (collectively, “channel partners”), sells the Company’s services worldwide to organizations of all sizes. Due to the nature of the Company’s services and the terms and conditions of the Company’s contracts with its channel partners, the Company’s business could be affected unfavorably if it is not able to continue its relationships with them.

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, marketable securities, accounts receivable, and strategic investments. The Company’s cash is placed with high-credit-quality financial institutions and issuers, and at times exceed federally insured limits. The Company limits its concentration of risk in cash equivalents and marketable securities by diversifying its investments among a variety of industries and issuers. The Company has not experienced any credit loss relating to its cash equivalents, marketable securities, and strategic investments. The Company performs periodic credit evaluations of its customers and generally does not require collateral.

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Channel partners or direct customers who represented 10% or more of the Company’s accounts receivable were as follows:


	April 30,		January 31,
	2020		2020
Channel partner A	8	%	11	%
Channel partner B	4	%	10	%
Channel partner C	11	%	3	%
Customer B	7	%	20	%

Channel partners who represented 10% or more of the Company’s total revenue were as follows:


	Three Months Ended April 30,
	2020		2019
Channel partner A	9	%	12%

There were no direct customers who represented 10% or more of the Company’s total revenue during the three months ended April 30, 2020 and April 30, 2019.

Significant Accounting Policies

Other than the policies described below, there have been no changes to the Company’s significant accounting policies described in its Annual Report on Form 10-K that have had a material impact on its consolidated financial statements and related notes.

Leases

The Company enters into operating lease arrangements for real estate assets related to office space. The Company determines if an arrangement is or contains a lease at inception by evaluating various factors, including whether a vendor’s right to substitute an identified asset is substantive. Lease classification is determined at the lease commencement date, which is the date the leased assets are made available for use. Operating leases are included in “Operating lease right-of-use assets”, “Operating lease liabilities, current”, and “Operating lease liabilities, noncurrent” in the condensed consolidated balance sheets. The Company did not have any financing leases in any of the periods presented.

Operating lease right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease payments consist of the fixed payments under the arrangement, less any lease incentives, such as tenant improvement allowances. Variable costs, such as maintenance and utilities based on actual usage, are not included in the measurement of right-to-use assets and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs. As the implicit rate of the leases is not determinable, the Company uses an incremental borrowing rate (“IBR”) based on the information available at the lease commencement date in determining the present value of lease payments. Lease expenses are recognized on a straight-line basis over the lease term.

The Company generally uses the non-cancelable lease term when recognizing the right-of-use (“ROU”) assets and lease liabilities, unless it is reasonably certain that a renewal or termination option will be exercised. The Company accounts for lease components and non-lease components as a single lease component.

Leases with a term of twelve months or less are not recognized on the consolidated balance sheets but are recognized as expense on a straight-line basis over the term of the lease.

Available-for-sale debt securities

The Company evaluates investments with unrealized loss positions by assessing if they are related to deterioration in credit risk and whether we expect to recover the entire amortized cost basis of the security, our intent to sell and whether it is more likely than not that we will be required to sell the securities before the recovery of their cost basis. Credit-related impairment losses, not to exceed the amount that fair value is less than the amortized cost basis, are recognized through an allowance for credit losses with changes in the allowance for credit losses recorded in other income, net in the condensed consolidated statements of comprehensive income (loss). As of April 30, 2020, there were no marketable securities held by the Company and there were no securities that had been in continuous unrealized loss position.

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Accounts Receivable

Accounts receivable are recorded at the invoiced amount and are non-interest bearing. Accounts receivable are stated at their net realizable value, net of allowance for doubtful accounts. The Company has a well-established collections history from its customers. Credit is extended to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral from its customers; however, the Company may require payment prior to commencing service in certain instances to limit credit risk. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering various factors including the age of each outstanding invoice, each customer’s expected ability to pay, historical loss rates and expectations of forward-looking loss estimates to determine whether the allowance is appropriate. Amounts deemed uncollectible are written off against the allowance for doubtful accounts. As of April 30, 2020 and January 31, 2020, the allowance for doubtful accounts was $2.1 million and $1.1 million, respectively.

Software Implementation Costs

The Company contracts with third party information technology providers for various service arrangements including software, platform, and information technology infrastructure. The Company capitalizes the implementation cost incurred to develop or obtain internal-use software in such arrangements. All capitalized implementation costs are amortized over the term of the arrangement which includes reasonably certain renewals. Costs incurred during the preliminary project and post implement stage are expensed as the activities are performed. Capitalized implementation costs were not material for the three months ended April 30, 2020.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842),” which requires lessees to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets, and to recognize on the income statement the expenses in a manner similar to prior practice. The Company adopted Topic 842 using the modified retrospective method as of February 1, 2020.

The Company elected the following practical expedients:

•The package of practical expedients which allows for not reassessing 1) whether existing contracts contain leases, 2) the lease classification of existing leases, and 3) whether existing initial direct costs meet the new definition.

•The practical expedient in ASC Subtopic 842-10 to not separate non-lease components from lease components and instead account for each separate lease component and non-lease components associated with that lease component as a single lease component by class of the underlying assets.

•Not to recognize right of use assets and lease liabilities for short-term leases, which have a lease term of twelve months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

The Company did not elect the hindsight practical expedient.

Lease payments consist primarily of the fixed payments under the arrangement, less any lease incentives such as tenant improvement allowance. The Company uses an estimate of our incremental borrowing rate (IBR) based on the information available at the lease commencement date in determining the present value of lease payments, unless the implicit rate is readily determinable. In determining the appropriate IBR, management considers information including, but not limited to, the Company’s credit rating, the lease term, and the currency in which the arrangement is denominated. For leases which commenced prior to the adoption of Topic 842, the Company used the IBR on January 31, 2020.

The adoption of this new standard at February 1, 2020, and the application of the modified retrospective transition approach resulted in the following changes:

a.Assets increased by $37.4 million, primarily representing the recognition of ROU asset for operating leases; and

b.Liabilities increased by $37.4 million, primarily representing the recognition of lease liabilities for operating leases partially offset by derecognition of liabilities for deferred rent previously designated under ASC Topic 840

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In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected, with further clarifications made more recently regarding the treatment of accrued interest, transfers between classifications for loans and debt securities, recoveries and the option to irrevocably elect the fair value option (on an instrument-by-instrument basis) for eligible financial assets at amortized costs. For trade receivables, loans, and other financial assets, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. Credit losses relating to available-for-sale debt securities are required to be recorded through an allowance for credit losses in the condensed consolidated statements of operation rather than as a reduction in the amortized cost basis of the securities. On February 1, 2020, the Company adopted ASU No. 2016-13, which did not have a material effect on its condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the measurement of goodwill by eliminating step two of the two-step impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This ASU requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. On February 1, 2020, the Company adopted ASU No. 2017-04, which did not have material effect on its 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. This ASU modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. On February 1, 2020, the Company adopted ASU No. 2018-13 on a prospective basis. This standard did not have a material effect on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. On February 1, 2020, the Company adopted ASU No. 2018-15, which did not have material effect on its condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently assessing the impact of this pronouncement on its condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. This ASU may be applied prospectively through December 31, 2022. The Company is currently assessing the impact of this pronouncement on its condensed consolidated financial statements.

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3. Fair Value Measurements and Marketable Securities

The Company follows ASC 820, Fair Value Measurements, with respect to marketable securities that are measured at fair value on a recurring basis. Under the standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or a liability in an orderly transaction between market participants as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances.

The hierarchy is broken down into three levels as follows:

Level 1 Assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in active markets

Level 2 Assets and liabilities whose values are based on quoted prices in markets that are not active or inputs that are observable for substantially the full term of the asset or liability

Level 3 Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The Company’s fair value hierarchy for its financial assets and liabilities that are measured at fair value on a recurring basis are as follows:


	April 30, 2020														January 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)														(in thousands)
Assets
Cash equivalents⁽¹⁾
Money market funds	$	252,523	$	—	$	—	$	252,523	$	205,379	$	—	$	—	$	205,379
Corporate debt securities	—		—		—		—		—		39,940		—		39,940
Total cash equivalents	252,523		—		—		252,523		205,379		39,940		—		245,319
Marketable securities
Corporate debt securities	—		—		—		—		—		495,022		—		495,022
U.S. treasury securities	—		—		—		—		84,431		—		—		84,431
Asset backed securities	—		—		—		—		—		67,813				67,813
Total marketable securities	—		—		—		—		84,431		562,835		—		647,266
Total assets	$	252,523	$	—	$	—	$	252,523	$	289,810	$	602,775	$	—	$	892,585

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(1)Included in “Cash and cash equivalents” on the condensed consolidated balance sheets.

There were no transfers between the levels of the fair value hierarchy during the three months ended April 30, 2020 or April 30, 2019.

As of April 30, 2020, there were no marketable securities held by the Company and there were no securities that had been in continuous unrealized loss position. As of January 31, 2020, the amortized cost of the Company’s cash equivalents and marketable securities approximated their fair value and there were no material realized or unrealized gains or losses, either individually or in the aggregate. In addition, the securities that had been in continuous unrealized loss position per security type and in aggregate are not material as of January 31, 2020. There were no impairments considered “other-than-temporary” as it is more likely than not the Company will hold the securities until maturity or a recovery of the cost basis as of January 31, 2020.

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The following table presents the contractual maturities of marketable securities as of January 31, 2020:


	Amortized cost		Fair value
	(in thousands)
Due in one year or less	$	377,722	$	378,408
Due after one year through five years	266,670		267,728
Due after five years through nineteen years	1,127		1,130
	$	645,519	$	647,266

The following summarizes the changes in strategic investments:

April 30,

January 31,

2020

(in thousands)

Total initial cost