ANAPLAN, INC.

PLAN
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ANAPLAN : management's discussion and analysis of financial condition and results of operations (form 10-K)

03/30/2020 | 04:19pm


The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this Annual Report on Form
10-K. Discussion regarding our financial condition and results of operations for
fiscal 2018 and year-to-year comparisons between fiscal 2019 and fiscal 2018 is
included in Item 7 of our Annual Report on Form 10-K for the fiscal year ended
January 31, 2019, filed with the SEC on March 29, 2019. This discussion contains
forward-looking statements that involve risks and uncertainties as discussed in
"Cautionary Note Regarding Forward-Looking Statements" included in this Annual
Report on Form 10-K. Our actual results could differ materially from those
discussed below. Factors that could cause or contribute to such differences
include, but are not limited to, those identified below and those discussed in
"Risk Factors" under Part I, Item 1A in this Annual Report on Form 10-K. Our
fiscal year ends January 31.

Overview

Anaplan is pioneering the category of Connected Planning. Our platform enables
organizations to make better decisions and to plan and execute their ongoing
digital transformation to compete in today's digital economy. We believe
Connected Planning is an essential cloud category. It fundamentally transforms
planning by connecting all of the people, data, and plans needed to accelerate
business value and enable real-time planning and decision-making in rapidly
changing business environments. Connected Planning accelerates business value by
transforming the way organizations make decisions and placing the power of
planning in the hands of every individual at every level within and between
organizations. We continue to see the growth in the strategic value of the
Connected Planning platform as a foundation for companies to drive digital
transformation.

Connected Planning represents a fundamental shift from the legacy approach to
planning, which is typically confined to the finance department and uses a
patchwork of outdated and disconnected tools and manual processes that are often
overly complex, slow, inefficient, and static. Connected Planning enables
dynamic, collaborative, and intelligent planning across all areas of an
organization, including finance, sales, and supply chain, and other corporate
functions such as marketing, human resources, and operations. It enables
organizations to manage their people, products and customers with agility.

We sell subscriptions to our cloud-based planning platform primarily through our
direct sales team. We also have strategic partnerships that provide us with a
significant source of lead generation and implementation leverage. Our global
partners, including global strategic consulting and advisory firms, global
systems integrators and technology firms, often promote our platform as their
clients examine how to plan more effectively or seek digital transformation
through organizational change or improved business processes. We also partner
with leading regional consulting firms and implementation partners. These highly
skilled regional partners not only provide subject-matter expertise in the
implementation of specific use cases, but they also act as an extension of our
direct sales force by identifying and referring opportunities to us. We and our
partners create templatized solution offerings to further accelerate the
implementation, adoption and expansion of our platform.

We focus our selling efforts on executives of large enterprises, who are often
making a strategic purchase of our platform with the potential for broad use
throughout their organizations. We use a "land and expand" sales strategy to
capitalize on this potential. Our platform is often initially adopted within a
specific line of business, including in finance, sales, and supply chain, and
other corporate functions such as marketing, human resources, and operations,
for one or more planning use cases. Once customers see the benefits of our
platform for their initial use cases, they often increase the number of users,
add new use cases, and expand to additional lines of business, divisions, and
geographies. We call this the Honeycomb™ effect. This expansion often generates
a natural network effect in which the value of our platform increases as more
use cases are adopted, more users are connected, and greater amounts of data are
incorporated in our platform.


We see a greenfield opportunity to help over 70 million knowledge workers around
the world plan more efficiently using Anaplan's platform.



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We derive the substantial majority of our revenue from subscriptions for users
on our platform. Our initial subscription term is typically two to three years,
although some customers commit for shorter periods. We generally bill our
customers annually in advance. We also offer professional services, including
consulting, implementation, and training, but are increasingly leveraging our
partners to provide these services. During fiscal 2020, 2019, and 2018,
subscription revenue was $307.9 million, $208.6 million and $143.5 million,
respectively, representing a year-over-year subscription revenue growth rate of
48% and 45% in fiscal 2020 and 2019, respectively. During fiscal 2020, 2019, and
2018, services revenue was $40.1 million, $32.0 million and $24.8 million,
respectively. Our subscription revenue as a percentage of total revenue was 88%,
87%, and 85% in fiscal 2020, 2019, and 2018, respectively.

During fiscal 2020, 2019 and 2018, our total revenue was $348.0 million, $240.6
million
and $168.3 million, respectively. Approximately 43%, 43% and 41% of our
revenue was generated from outside of the United States in fiscal 2020, 2019 and
2018, respectively. Our net loss was $149.2 million, $131.0 million and $47.6
million
in fiscal 2020, 2019 and 2018, respectively.

We believe that our focus on customer success allows us to retain and expand the
subscription revenue generated from our existing customers, and is an indicator
of the long-term value of our customer relationships for Anaplan as a whole. We
track our performance in this area by measuring our dollar-based net expansion
rate, which compares our annual recurring revenue from the same set of customers
across comparable periods. The dollar-based net expansion rate was 122% and 123%
as of January 31, 2020 and 2019, respectively.

Our dollar-based net expansion rate equals the annual recurring revenue at the
end of a period for a base set of customers from which we generated annual
recurring revenue in the year prior to the date of calculation, divided by the
annual recurring revenue one year prior to the date of the calculation for that
same set of customers. Annual recurring revenue is calculated as subscription
revenue already booked and in backlog that will be recorded over the next 12
months, assuming any contract expiring in those 12 months is renewed and
continues on its existing terms and at its prevailing rate of utilization.

Our Forbes Global 2000, or G2K, customer cohort consists of our customers that
are included in Forbes magazine's Forbes Global 2000 list. The companies
included in the list are updated annually in the second quarter of the calendar
year. As of January 31, 2020, we served over 300 G2K customers, and over 250 and
190 as of January 31, 2019 and 2018, respectively. Revenue generated from
customers in our G2K cohort represented 52%, 55% and 55% of our total revenue in
fiscal 2020, 2019 and 2018, respectively. Over the course of the last fiscal
year, the growth rate of our G2K customer cohort was substantially similar to
the growth rate of our overall customer count. As we have had more fiscal
quarters of experience following our initial public offering, this number has
remained relatively constant as a percentage of total customer count. In
addition, we believe our ongoing disclosure of the number of customers in our
G2K customer cohort does not capture the growth of our business because this
metric does not reflect our expanding relationships with many of these large
customers following an initial purchase. Moreover, while our product has been
adopted at large, global and complex enterprise customers who are focused on
digital transformation, a number of these may no longer be part of the Forbes
Global 2000 list as a result of the annual updating of this list, whether as a
result of acquisitions, rapid growth of newer companies or otherwise. We believe
that the ongoing disclosure of the G2K customer cohort no longer provides
meaningful information to investors of our stock that is not already reflected
in our overall customer count. Therefore, we believe the G2K customer cohort is
no longer a differentiating indicator of our growth. We do not plan to disclose
the number of customers in the G2K customer cohort, or the percentage of total
revenue generated from customers in the G2K customer cohort, in future filings.

The number of customers with greater than $250,000 of annual recurring revenue
was 353, 248 and 181 as of January 31, 2020, 2019 and 2018, respectively. While
achieving and maintaining incremental sales to existing customers requires
increasingly sophisticated and costly sales efforts, we believe the introduction
of new solutions, features and functionality to our platform, and customers
realizing benefits through their initial adoption of our platform, means we have
significant opportunities to further expand the use of our platform by our
existing customers as well as to attract additional large customers.

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We regularly evaluate acquisitions or investment opportunities in complementary
businesses, services and technologies and intellectual property rights as a
means to expand our offerings through a disciplined and strategic acquisition
process. For example, on October 3, 2019 we completed the acquisition of Mintigo
Limited
, an Israel-based artificial intelligence/machine learning company, to
enhance the predictive capabilities of our solutions. We may continue to make
such acquisitions and investments in the future, and we plan to reinvest a
significant portion of our incremental revenue in future periods to grow our
business and continue our leadership role in the Connected Planning category.

In December 2019, a novel strain of the coronavirus emerged resulting in a
global pandemic with widespread and detrimental effect on the global economy. As
governments across the world adopt mitigation and containment measures, we
anticipate a cascading effect on the global economy that may in turn impact us.
The extent of the impact of the coronavirus on our operational and financial
performance will depend on certain developments, including the duration and
spread of the outbreak, impact on our customers and our sales cycles, impact on
our customer, employee or industry events, travel restrictions and effect on our
vendors, all of which are uncertain and cannot be predicted. For example, in
response to the coronavirus epidemic, we have shifted certain of our customer
events to virtual-only experiences and we may deem it advisable to similarly
alter, postpone or cancel entirely additional customer, employee or industry
events in the future. Due to our SaaS subscription model that allows us to
deliver our services remotely, we have not identified a material impact to our
ability to operate our business to date. However, because we generally recognize
revenue from our customer contracts ratably over the term of the contract,
changes in our contracting activity in the near term may not be apparent as a
change to our reported revenue until future periods. The extent to which the
coronavirus may impact our financial condition or results of operations is
uncertain. We are continuing to monitor the situation and are reviewing our
preparedness plans should we begin to experience material impacts.



Factors Affecting Our Performance

We believe that our future performance will depend on many factors, including
those described below. While these areas present significant opportunity, they
also present risks that we must manage to achieve successful results. See the
section titled "Risk Factors". If we are unable to address these challenges, our
business and operating results could be adversely affected.

Market adoption of our platform. Even though we believe Connected Planning is a
strategic imperative for enterprises and that enables them to plan and execute
digital transformations in today's rapidly changing business environment, it is
at an early stage of adoption. Our long-term success will depend on widespread
adoption of Connected Planning by enterprises for numerous planning applications
with broad use of those applications within their organizations. While we
believe that we are still in the early stages of penetrating our addressable
market, we have benefited from rapid customer growth.

Customer First strategy. We put the success of our customers at the center of
our culture, strategy, and investments. We view our Customer First strategy as
core to capturing our Connected Planning vision and driving the continued
adoption and expansion in the use of our platform. By aligning our thought
leadership, worldwide development and delivery capabilities, and local sales and
service resources, our Customer First strategy drives exceptional value
throughout our customers' Connected Planning and digital transformation
journeys. Our continued success depends in part on our ability to continue to
put customers at the center of our strategy.

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Expansion of existing customers. We employ a "land and expand" approach, with
many of our customers initially deploying our product for a specific use case
and group of users, and, once they realize the benefits and wide applicability
of our platform, subsequently renewing subscriptions and expanding the number of
users or use cases within and across lines of business and geographies as they
continue unlocking the agile enterprise planning and operating model across
functional boundaries. As a result, we are able to generate a significant
increase in revenue from the expanded use of our platform across the enterprise.
Going forward we are focused on our large customers where the opportunity for
expansion and need for our planning solutions are greatest. Our future revenue
growth and our ability to achieve and maintain profitability is dependent upon
our ability to maintain existing customer relationships and to continue to
expand our customers' use of our platform.

Scaling our sales team. Our ability to achieve significant growth in revenue in
the future will depend, in large part, upon the effectiveness of our sales
efforts, both domestically and internationally. We have invested and intend to
continue to invest aggressively in expanding and retaining our direct sales
force, particularly in attracting and retaining sales personnel with experience
selling to larger enterprises. We have hired, and expect to continue to hire
significant numbers of sales personnel, and our ability to increase our revenue
will depend on the new members of our sales force becoming fully productive and
executing expeditiously. In the enterprise market, a customer's decision to use
our platform may be an enterprise-wide decision. These types of sales require us
to provide greater levels of education regarding the use and benefits of our
platform, which involves substantial time, effort, and costs. We anticipate that
our headcount will continue to increase as a result of these investments.

International sales. Our revenue generated outside of the United States during
fiscal 2020, 2019 and 2018, was approximately 43%, 43% and 41%, respectively, of
our total revenue. We believe global demand for our platform will continue to
increase as organizations experience the benefits that our platform can provide
to international enterprises with complex planning needs spanning multiple
geographies. Accordingly, we believe there is significant opportunity to grow
our international business. We have invested, and plan to continue to invest,
ahead of this potential demand in personnel, marketing, and access to data
center capacity to support our international growth.

Partner ecosystem. Our partner ecosystem extends our geographic coverage,
accelerates the usage and adoption of our platform, and enables more efficient
delivery of service solutions. We intend to augment and deepen our partnerships
with global and regional partners, including strategic and advisory consulting,
systems integration, and technology firms. We believe our partners' scale and
route to market can significantly contribute to our ability to penetrate our
addressable market, extend our geographic coverage, and extend usage and
adoption of our platform.

Product velocity. We have invested and intend to continue to invest
significantly in research and development in an effort to enhance and expand the
functionality of our platform, to attract and retain development personnel, and
to protect our market-leading technology advantage. We have a well-defined
technology roadmap to introduce new features and functionality to our platform
that we believe will improve our ability to generate revenue by broadening the
appeal of our platform to potential new customers as well as increasing the
opportunities for further expanding the use of our platform by existing
customers. We are also investing to further enhance the user interface,
functionality, and usability of our platform, including in machine learning and
other artificial intelligence technologies, to further enhance the predictive
capabilities of our platform. We will need to continue to focus on bringing
cutting-edge technology to market in order to remain competitive.

Components of Results of Operations



Revenue




We offer subscriptions to our cloud-based planning platform. We derive our
revenue primarily from subscription fees and, to a lesser degree, from
professional services fees. Subscription revenue consists primarily of fees to
provide our customers access to our cloud-based platform. Professional services
revenue includes fees from assisting customers in implementing and optimizing
the use of our cloud-based platform. These services include implementation,
consulting, and training.

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Subscription Revenue




Subscription revenue accounted for 88%, 87% and 85% of our total revenue for
fiscal 2020, 2019 and 2018, respectively. Subscription revenue is driven
primarily by the number of customers, the number of users at each customer, the
price of user subscriptions, and renewal rates.

Subscription fees are recognized ratably as revenue over the contract term
beginning on the date the platform is made available to the customer. Our new
business subscriptions typically have a term of two to three years. We generally
invoice our customers in annual installments at the beginning of each year
within the subscription period. Amounts that have been invoiced are initially
recorded as deferred revenue and are recognized ratably over the subscription
period.

Most of our contracts are non-cancellable over the contract term. We had
remaining performance obligations, or backlog, in the amount of $656.2 million
and $440.0 million as of January 31, 2020 and 2019, respectively, consisting of
both billed and unbilled consideration.

Because we recognize revenue from subscription fees ratably over the term of the
contract, changes in our contracting activity in the near term may not impact
our reported revenue until future periods.


Professional Services Revenue




Professional services revenue is generally recognized as the services are
rendered for time and material contracts, or on a proportional performance basis
for fixed price contracts. The substantial majority of our professional service
contracts are on a time and materials basis. Implementations generally take one
to six months to complete depending upon the scope of engagement with the
customer. Our professional services revenue fluctuates from quarter to quarter
as a result of the requirements, complexity, and timing of our customers'
implementation projects.

Cost of Revenue

Cost of Subscription Revenue

Cost of subscription revenue primarily consists of costs related to providing
cloud applications, compensation and other employee-related expenses for data
center staff, payments to outside service providers, customer service, data
center and networking expenses, depreciation expenses, and amortization of
capitalized software development costs.


Cost of Professional Services Revenue




Cost of professional services revenue primarily consists of costs related to
providing implementation and configuration services, optimization services and
training services, personnel-related costs directly associated with our
professional services and training departments, including salaries and bonuses,
benefits, and stock-based compensation, the costs of
contracted third-party vendors, and travel.

Professional services associated with the implementation and configuration of
our subscription platform are performed directly by our services team, as well
as by contracted third-party vendors. When third-party vendors invoice us for
services performed for our customers, those fees are recognized as expense over
the requisite service period.

Operating Expenses

Research and Development

Research and development expenses consist primarily of personnel-related costs
for our development team, including salaries and bonuses, benefits,
stock-based compensation expense, and allocated overhead costs. We have
invested, and intend to continue to invest, in developing technology to support
our growth. We capitalize certain software development costs that are
attributable to developing new features and adding incremental functionality to
our platform, and amortize such costs as costs of subscription revenue over the
estimated life of the new incremental functionality, which is generally two to
three years. We plan to increase our investment in research and development for
the foreseeable future as we focus on further developing our platform and
enhancing its use cases. However, we expect our research and development
expenses to decrease as a percentage of our total revenue over time, although
they may fluctuate as a percentage of our total revenue from period to period.

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Sales and Marketing




Sales and marketing expenses consist primarily of personnel-related costs
directly associated with our sales and marketing staff, including salaries and
bonuses, benefits, commissions, and stock-based compensation. Other sales and
marketing costs include promotional events to promote our brand, including our
Anaplan Connected Planning Xperience (CPX) user conferences, advertising, and
allocated overhead. We plan to increase our investment in sales and marketing
over the foreseeable future, primarily stemming from increased headcount in
sales and marketing, and investment in brand- and product-marketing efforts.
However, we expect our sales and marketing expenses to decrease as a percentage
of our total revenue over time, although they may fluctuate as a percentage of
our total revenue from period to period.


General and Administrative




General and administrative expenses consist primarily of personnel-related costs
associated with our executive, finance, legal, and human resources personnel,
including salaries and bonuses, benefits, and stock-based compensation expense,
professional fees for external legal, accounting and other consulting services,
and allocated overhead costs. We expect to increase the size of our general and
administrative function to support the growth of our business and to take
advantage of the large opportunity we see in front of us. We continue to incur
additional expenses as a result of operating as a public company, including
costs to comply with the rules and regulations applicable to companies listed on
a U.S. securities exchange and costs related to compliance and reporting
obligations pursuant to the rules and regulations of the SEC. As a result, we
expect the dollar amount of our general and administrative expenses to increase
for the foreseeable future. However, we expect our general and administrative
expenses to decrease as a percentage of our total revenue over time, although
they may fluctuate as a percentage of our total revenue from period to period.


Interest Income, Net



Interest income, net consists primarily of interest income earned on our cash
and cash equivalents.



Other Income (Expense), Net



Other income (expense), net consists primarily of foreign exchange gains and
losses.




Provision for Income Taxes

Provision for income taxes consists primarily of income taxes related to foreign
and state jurisdictions in which we conduct business. We maintain a full
valuation allowance on our federal, state, and U.K. deferred tax assets as we
have concluded that it is not more likely than not that the deferred assets will
be utilized.

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Results of Operations



The following tables set forth selected consolidated statements of operations
data for each of the periods indicated:






Year Ended January 31,
2020 2019 2018
(In thousands)
Revenue:
Subscription revenue $ 307,890 $ 208,605 $ 143,542
Professional services revenue 40,132 32,037 24,805
Total revenue 348,022 240,642 168,347
Cost of revenue:
Cost of subscription revenue (1) 51,460 36,500


19,927



Cost of professional services revenue (1) 39,317 30,898



32,058
Total cost of revenue 90,777 67,398 51,985
Gross profit 257,245 173,244 116,362
Operating expenses:
Research and development (1) 68,396 48,998


30,908



Sales and marketing (1) 250,430 176,323


100,654



General and administrative (1) 86,852 76,186 30,719
Total operating expenses 405,678 301,507 162,281
Loss from operations (148,433 ) (128,263 ) (45,919 )
Interest income, net 4,478 1,921 108
Other income (expense), net (809 ) (1,465 ) (482 )
Loss before income taxes (144,764 ) (127,807 ) (46,293 )
Provision for income taxes (4,453 ) (3,209 ) (1,261 )
Net loss $ (149,217 ) $ (131,016 ) $ (47,554 )



(1) Includes stock-based compensation



expense as follows:
Cost of subscription revenue $ 2,547 $ 831 $


148



Cost of professional services revenue 2,199 851 507
Research and development 10,608 3,826 742
Sales and marketing 34,428 15,475 3,496
General and administrative 30,264 31,823 3,746



Total stock-based compensation expense $ 80,046 $ 52,806 $


8,639




Fiscal Year 2020 Compared to Fiscal Year 2019

Revenue



Year Ended January 31,
2020 2019 % Change
(In thousands)
Subscription revenue $ 307,890 $ 208,605 48 %
Professional services revenue 40,132 32,037 25
Total revenue $ 348,022 $ 240,642 45





Total revenue was $348.0 million in fiscal 2020 compared to $240.6 million in
fiscal 2019, an increase of $107.4 million, or 45%.




Subscription revenue was $307.9 million, or 88% of total revenue, in fiscal
2020, compared to $208.6 million, or 87% of total revenue, in fiscal 2019. The
increase of $99.3 million, or 48%, in subscription revenue was primarily driven
by the existing customers expanding their use of our platform,

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which accounted for 78% of the increase, and acquisition of new customers, which
accounted for approximately 22% of the increase.




Professional services revenue was $40.1 million in fiscal 2020 compared to
$32.0 million in fiscal 2019. The increase of $8.1 million, or 25%, in
professional services revenue was primarily driven by sales of our professional
services resulting from the growth of our customer base. This also represents a
continued decline in professional services revenue as a percentage of total
revenue from 13% to 12% primarily due to our strategy of shifting professional
services revenue to the members of our growing partner ecosystem.

Cost of Revenue



Year Ended January 31,
2020 2019 % Change
(In thousands)
Cost of subscription revenue $ 51,460 $ 36,500 41 %
Cost of professional services revenue 39,317 30,898 27
Total cost of revenue $ 90,777 $ 67,398 35





Total cost of revenue was $90.8 million in fiscal 2020 compared to $67.4 million
in fiscal 2019, an increase of $23.4 million, or 35%.




Cost of subscription revenue was $51.5 million in fiscal 2020 compared to
$36.5 million in fiscal 2019, an increase of $15.0 million, or 41%. The increase
in cost of subscription revenue was primarily due to an increase in salary and
bonuses, and benefits costs related to an increase in headcount of $6.1 million,
including stock-based compensation, an increase in amortization of
our equipment leases of $4.0 million, and an increase in amortization of
capitalized software development costs of $2.3 million.

Cost of professional services revenue was $39.3 million in fiscal 2020 compared
to $30.9 million in fiscal 2019, an increase of $8.4 million, or 27%. The
increase in cost of professional services revenue was primarily due to an
increase in the partner implementation costs related to an increase in use of
partners of $4.0 million, and an increase in salary and bonuses and benefits
costs of $3.9 million, including stock-based compensation.

Gross Profit and Gross Margin



Year Ended January 31,
2020 2019 % Change
(In thousands)
Subscription gross profit $ 256,430 $ 172,105 49 %
Professional services gross profit 815 1,139 (28 )
Total gross profit $ 257,245 $ 173,244


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Subscription gross margin 83 % 83 %
Professional services gross margin 2 % 4 %
Total gross margin 74 % 72 %




Gross profit was $257.2 million in fiscal 2020 compared to $173.2 million in
fiscal 2019, an increase of $84.0 million, or 48%. The increase in gross profit
was the result of the increases in our subscription revenue primarily driven by
the acquisition of new customers and existing customers expanding their use of
our platform in fiscal 2020.

Gross margin was 74% in fiscal 2020 compared to 72% in fiscal 2019. The increase
in gross margin was primarily due to the increase in subscription revenue, which
generates a significantly higher gross margin than our professional services
revenue, as a percentage of total revenue, partially offset by a slight decrease
in our professional services gross margins. Our gross margins can fluctuate from
quarter to quarter as a result of the requirements, complexity, and timing of
our customers' implementation projects that can vary significantly.

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Operating Expenses



Year Ended January 31,
2020 2019 % Change
(In thousands)
Operating expense:
Research and development $ 68,396 $ 48,998 40 %
Sales and marketing 250,430 176,323 42
General and administrative 86,852 76,186 14
Total operating expenses $ 405,678 $ 301,507 35




Research and Development

Research and development expenses were $68.4 million in fiscal 2020 compared to
$49.0 million in fiscal 2019, an increase of $19.4 million, or 40%. The increase
was primarily due to an increase in salary and bonuses, and benefits costs
related to an increase in headcount of $20.3 million, including an increase in
stock-based compensation of $6.8 million, and an increase in expenses relating
to hosting and software licenses of $2.3 million, partially offset by an
increase in capitalized software development costs of $5.5 million and a
decrease in consulting spend of $1.6 million.


Sales and Marketing



Sales and marketing expenses were $250.4 million in fiscal 2020 compared to
$176.3 million in fiscal 2019, an increase of $74.1 million, or 42%. The
increase was primarily due to an increase in salary and bonuses, and benefits
costs related to an increase in headcount of $64.4 million, including an
increase in stock-based compensation of $19.0 million, and an increase in
commission expenses of $8.5 million.



General and Administrative




General and administrative expenses were $86.9 million in fiscal 2020 compared
to $76.2 million in fiscal 2019, an increase of $10.7 million, or 14%. The
increase was primarily due to an increase in salary and bonuses, and benefits
costs related to an increase in headcount of $7.5 million, including a decrease
in stock-based compensation of $1.6 million primarily related to restricted
stock units (RSUs) being recognized upon completion of our IPO in fiscal 2019,
and an increase in insurance spend of $1.9 million.


Other Income (Expense), Net






Year Ended January 31,
2020 2019 % Change
(In thousands)
Interest income, net $ 4,478 $ 1,921 133 %



Other income (expense), net (809 ) (1,465 ) (45 )







Interest Income, net

Interest income, net increased by $2.6 million, or 133%, in fiscal 2020. The
increase in interest income, net was primarily due to higher average cash and
cash equivalents balances in fiscal 2020 compared to fiscal 2019.


Other Income (Expense), net




Other income (expense), net was a loss of $0.8 million in fiscal 2020 compared
to a loss of $1.5 million in fiscal 2019, a decrease of $0.7 million, or 45%.
The change was primarily due to currency fluctuations and the related
remeasurements during the periods, primarily related to our U.K. operations.

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Provision for Income Taxes



Year Ended January 31,
2020 2019 % Change
(In thousands)
Provision for income taxes $ 4,453 $ 3,209 39 %




The provision for income taxes was $4.5 million in fiscal 2020 compared to
$3.2 million in fiscal 2019, an increase of $1.3 million, or 39%. The increase
in provision for income taxes was primarily related to increased income
generated from intercompany cost-plus arrangements in certain European and Asian
countries.

Quarterly Financial Data

The following tables set forth selected unaudited quarterly consolidated
statements of operations data for each of the eight quarters in fiscal 2020 and
2019. The information for each of these eight quarters has been prepared on the
same basis as the audited annual consolidated financial statements included
elsewhere in this Annual Report on Form 10-K and, in the opinion of management,
includes all adjustments, which consist only of normal recurring adjustments,
necessary for the fair presentation of the results of operations for these
periods in accordance with generally accepted accounting principles, or GAAP.

This data should be read in conjunction with our audited consolidated financial
statements and related notes included elsewhere in this Annual Report on
Form 10-K. These quarterly operating results are not necessarily indicative of
our operating results for a full year or any future period.



Three Months Ended
April 30, July 31, October 31, January 31, April 30, July 31, October 31, January 31,
2018 2018 2018 2019 2019 2019 2019 2020
(in thousands, except per share data)
Total revenue $ 51,550 $ 57,828 $ 62,014 $ 69,250 $ 75,830 $ 84,540 $ 89,410 $ 98,242
Gross profit $ 37,518 $ 41,869 $ 44,769 $ 49,088 $ 54,253 $ 62,033 $ 66,926 $ 74,033
Loss from operations $ (25,306 ) $ (19,948 ) $ (50,326 ) $ (32,683 ) $ (37,109 ) $ (41,207 ) $ (32,524 ) $ (37,593 )
Net loss $ (26,181 ) $ (21,048 ) $ (51,231 ) $ (32,556 ) $ (37,191 ) $ (40,642 ) $ (34,701 ) $ (36,683 )
Net loss per share, basic
and diluted $ (1.21 ) $ (0.90 ) $ (1.11 ) $ (0.27 ) $ (0.30 ) $ (0.31 ) $ (0.26 ) $ (0.27 )




Liquidity and Capital Resources



As of January 31, 2020, our principal sources of liquidity were cash and cash
equivalents totaling $309.9 million, which were held for working capital
purposes. Our cash equivalents are comprised primarily of bank deposits.




We believe our existing cash and cash equivalents will be sufficient to meet our
projected operating requirements for at least the next 12 months. Our future
capital requirements will depend on many factors, including our pace of growth,
subscription renewal activity, the timing and extent of spend to support
research and development efforts, the expansion of sales and marketing
activities, the introduction of new and enhanced platform offerings, and the
continuing market acceptance of the platform. We may in the future enter into
arrangements to acquire or invest in complementary businesses, services and
technologies, and intellectual property rights. We may be required to seek
additional equity or debt financing. In the event that additional financing is
required from outside sources, we may not be able to raise it on terms
acceptable to us or at all. If we are unable to raise additional capital when
desired, our business, operating results, and financial condition would be
adversely affected.


Loan and Credit Facility Agreements




In April 2018, we entered into a syndicated loan agreement with Wells Fargo to
provide a secured revolving credit facility that allows us to borrow up to
$40.0 million, subject to an accounts receivable borrowing base, for general
corporate purposes through April 2020. Any advances drawn on the credit facility
will incur interest at a rate equal to (i) the highest of (A) the prime rate,
(B) the federal funds rate plus 0.5% and (C) one-month LIBOR plus 1% less (ii)
0.5%. Interest is payable monthly in arrears with

62

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the principal and any accrued and unpaid interest due on April 30, 2020. As of
January 31, 2020, the Company had not drawn down any amounts under this
agreement.




We granted Wells Fargo a first priority lien in our accounts receivable, all of
the issued shares of capital stock and equity interests of our subsidiaries, and
other corporate assets and agreed not to pledge our intellectual property to
other parties. The loan agreement includes affirmative and negative covenants,
including financial covenants requiring: (i) maintenance at all times of minimum
tangible net worth, defined as assets, excluding intangible assets, less
liabilities of not less than $1; and (ii) maintenance at all times of a ratio of
(A) the aggregate of our cash, cash equivalents and net accounts receivable to
(B) total current liabilities less current deferred revenue plus revolving
credit loans drawn under the loan agreement of not less than $1.50 to $1.00.
This syndicated loan agreement was subsequently amended in September 2018 and
October 2019. As of January 31, 2020, we were in compliance with all covenants
associated with the credit facility.


Cash Flows



The following table summarizes our cash flows for the periods presented:






Year Ended January 31,
2020 2019 2018
(In thousands)
Net cash used in operating activities $ (14,405 ) $ (45,853 ) $ (14,501 )
Net cash used in investing activities (48,506 ) (22,519 ) (15,366 )
Net cash provided by financing activities 46,506 279,923 64,724




Operating Activities

Net cash used in operating activities of $14.4 million for fiscal 2020 was
primarily due to a net loss of $149.2 million, partially offset by non-cash
charges for stock-based compensation of $80.0 million, depreciation and
amortization of $20.3 million, amortization of deferred commissions of
$20.5 million, reduction of operating lease right-of-use assets and accretion of
operating lease liabilities of $10.7 million and loss on disposal of property
and equipment of $0.6 million. Changes in working capital were favorable to cash
flows from operations by $2.6 million primarily due to an increase in deferred
revenue balance of $67.5 million due to increases in sales, and an increase in
accounts payable and accrued expenses of $19.6 million due to our growth and the
timing of payments, partially offset by an increase in deferred commissions of
$54.0 million related to increases in our sales, payments for operating lease
liabilities of $10.4 million, an increase in accounts receivable, net of $15.8
million
due to increased customer billings, and an increase in prepaid expenses
and other current assets of $4.3 million.

Net cash used in operating activities of $45.9 million for fiscal 2019 was
primarily due to a net loss of $131.0 million, partially offset
by non-cash charges for stock-based compensation of $52.8 million, depreciation
and amortization of $12.9 million, amortization of deferred commissions of
$11.7 million, and loss on disposal of property and equipment of $0.6 million.
Changes in working capital were favorable to cash flows from operations by
$7.1 million primarily due to an increase in the deferred revenue balance of
$52.6 million due to increases in sales, and an increase in accounts payable and
accrued expenses of $15.5 million due to our growth, partially offset by an
increase in deferred commissions of $32.8 million, and increases in accounts
receivable, net of $28.5 million.


Investing Activities




Net cash used in investing activities for fiscal 2020 of $48.5 million was
related to the net cash payment of $33.5 million for our acquisition of Mintigo,
the capitalization of internal-use software of $11.0 million as we expanded our
platform and increased our development efforts, and purchases of property and
equipment of $4.0 million related to our growth.

Net cash used in investing activities for fiscal 2019 of $22.5 million was
related to purchases of property and equipment of $15.1 million related to our
growth and the capitalization of internal-use software of $7.4 million as we
expanded our platform and increased our development efforts.

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Financing Activities



Net cash provided by financing activities for fiscal 2020 of $46.5 million
consisted primarily of $21.9 million in proceeds from the exercise of stock
options, $11.5 million from the repayment of promissory notes, and $18.6 million
in proceeds from sales of stock under our employee stock purchase plan,
partially offset by $5.4 million principal payment on finance lease obligations.




Net cash provided by financing activities for fiscal 2019 of $279.9 million
consisted primarily of proceeds of $301.8 million from our IPO and concurrent
private placement, $6.2 million in proceeds from the exercise of stock options,
and $1.9 million from the repayment of promissory notes, partially offset by
$28.4 million taxes paid related to net share settlement of equity awards, and
$1.6 million principal payment on capital lease obligations.

Commitments and Contractual Obligations

The following table summarizes our non-cancelable contractual obligations as of
January 31, 2020:



Payments Due by Period
Less More
Than 1 - 3 3 - 5 Than
Total 1 Year Years Years 5 Years
(In thousands)



Operating lease obligations, including



imputed interest $ 49,256 $ 9,077 $ 16,021 $ 14,605 $ 9,553
Finance lease obligations, including
imputed interest 15,102 7,639 7,463 - -


Non-cancellable purchase obligations 31,385 14,772 14,958



1,655 -
Total $ 95,743 $ 31,488 $ 38,442 $ 16,260 $ 9,553




The contractual commitment amounts in the table above are associated with
agreements that are enforceable and legally binding. Obligations under contracts
that we can cancel without a significant penalty are not included in the table
above. Purchase orders issued in the ordinary course of business are not
included in the table above, as these purchase orders represent authorizations
to purchase rather than binding agreements and are generally fulfilled within
short time periods.

Off-Balance Sheet Arrangements

Through January 31, 2020, we did not have any relationships with unconsolidated
organizations or financial partnerships, such as structured finance or special
purpose entities that would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with U.S.
GAAP. The preparation of these consolidated financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosures. We base our
estimates on historical experience and on various other assumptions that we
believe are reasonable under the circumstances. We evaluate our estimates and
assumptions on an ongoing basis. Actual results may differ from these estimates.
To the extent that there are material differences between these estimates and
our actual results, our future financial statements will be affected.


Revenue Recognition




We recognize revenue from contracts with customers using the five-step method
described in Note 1 of the notes to our consolidated financial statements
included elsewhere in this Form 10-K. At contract inception we evaluate whether
two or more contracts should be combined and accounted for as a single contract
and whether the combined or single contract includes more than one performance
obligation. We

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combine contracts entered into at or near the same time with the same customer
if we determine that the contracts are negotiated as a package with a single
commercial objective; the amount of consideration to be paid in one contract
depends on the price or performance of the other contract; or the services
promised in the contracts are a single performance obligation.

Our performance obligations consist of (i) subscription and support services and
(ii) professional and other services. Contracts that contain multiple
performance obligations require an allocation of the transaction price to each
performance obligation based on their relative standalone selling price. We
determine standalone selling price, or SSP, for all our performance obligations
using observable inputs, such as standalone sales and historical contract
pricing. SSP is consistent with our overall pricing objectives, taking into
consideration the type of subscription services and professional and other
services. SSP also reflects the amount we would charge for that performance
obligation if it were sold separately in a standalone sale, and the price we
would sell to similar customers in similar circumstances.

In general, we satisfy the majority of our performance obligations over time as
we transfer the promised services to our customers. We review the contract terms
and conditions to evaluate the timing and amount of revenue recognition; the
related contract balances; and our remaining performance obligations. We also
estimate the number of hours expected to be incurred based on an expected hours
approach that considers historical hours incurred for similar projects based on
the types and sizes of customers. These evaluations require significant judgment
that could affect the timing and amount of revenue recognized.


Deferred Commissions




We capitalize sales commissions that are considered to be incremental to the
acquisition of customer contracts, which are then amortized over an estimated
period of benefit. To determine the period of benefit of our deferred
commissions, we evaluate the type of costs incurred, the nature of the related
benefit, and the specific facts and circumstances of our arrangements. We
determine the period of benefit for commissions paid for the acquisition of the
initial subscription contract by taking into consideration our historical
initial and renewal contractual terms, estimated renewal rates, and the
technological life of the platform and related significant features. We
determine the period of benefit for commissions on renewal subscription
contracts by considering the average contractual term for renewal contracts. We
evaluate these assumptions at least annually and periodically review whether
events or changes in circumstances have occurred that could impact the period of
benefit.


Business Combinations, Goodwill, and Acquisition-Related Intangible Assets




Accounting for business combinations requires us to make significant estimates
and assumptions. We use our best estimates and assumptions to accurately
allocate the purchase consideration to the tangible and intangible assets
acquired and liabilities assumed based on their estimated fair values, with the
excess recorded to goodwill. Critical estimates in valuing certain intangible
assets include, but are not limited to, future expected cash flows, expected
asset lives, and discount rates. The amounts and useful lives assigned to
acquisition-related intangible assets impact the amount and timing of future
amortization expense.

We use estimates, assumptions, and judgments when assessing the recoverability
of goodwill and acquisition-related intangible assets. We test for impairment on
an annual basis, or more frequently if a significant event or circumstance
indicates impairment. We also evaluate the estimated remaining useful lives of
acquisition-related intangible assets for changes in circumstances that warrant
a revision to the remaining periods of amortization.

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Stock-Based Compensation




Stock-based compensation expense is measured based on the fair value of the
awards granted, and recognized in the consolidated financial statements over the
requisite service period, for stock options, RSUs, and stock purchase rights
(SPRs), and over the offering period for purchase rights issued under the 2018
Employee Stock Purchase Plan (ESPP).

We recognize compensation expense net of estimated forfeiture activity, which is
based on historical forfeiture rates. We evaluate the forfeiture rates at least
annually or when events or circumstances indicate a change may be needed.


Stock Options



The fair value of a stock option is estimated on the grant date using
the Black-Scholes option-pricing model. Stock-based compensation expense is
recognized, net of forfeitures, on a straight-line basis over the requisite
service periods of the awards, which is generally four years.




Our use of the Black-Scholes option-pricing model requires the input of highly
subjective assumptions, including the fair value of our underlying common stock,
expected term of the option, expected volatility of the price of our common
stock, risk-free interest rates, and the expected dividend yield of our common
stock. The assumptions used in our option-pricing model represent management's
best estimates. These estimates involve inherent uncertainties and the
application of management's judgment. If factors change and different
assumptions are used, our stock-based compensation expense could be materially
different in the future.


These assumptions and estimates are as follows:



• Fair Value of Common Stock. Prior to our IPO, our board of directors



determined the fair value of our common stock using various valuation



methodologies, including valuation analyses performed by third-party



valuation firms. After our IPO, we use the publicly quoted market closing
price as reported on the New York Stock Exchange as the fair value of our
common stock.


• Risk-Free Interest Rate. We base the risk-free interest rate for the
expected term of the options on the U.S. Treasury yield curve in effect
at the time of the grant.



• Expected Term. We determine the expected term using the simplified



approach, in which the expected term of an award is presumed to be the
mid-point between the vesting date and the expiration date of the award,



as we do not have sufficient historical data relating to stock-option



exercises.



• Expected Volatility. As there was no public market for our common stock



prior to our IPO, we have limited information on the volatility of our



common stock. Accordingly, the expected volatility for our common stock



was estimated by taking the average historic price volatility for



industry peers, consisting of several public companies in our industry



which are either similar in size, stage of life cycle or financial



leverage, over a period equivalent to the expected term of the awards.


• Expected Dividend Yield. We have never declared or paid any cash
dividends and do not presently plan to pay cash dividends in the
foreseeable future. As a result, we use an expected dividend yield of
zero.



The Black-Scholes assumptions used in evaluating our awards are as follows:






Year Ended January 31,
2020 2019 2018
Risk-free interest rate 1.51% - 2.54% 2.68% - 3.00% 1.88% - 2.54%
Expected term (years) 5.07 - 6.25 6.06 - 6.26 6.08
Expected volatility 37.5% - 38.8% 37.0% - 37.8% 38.0% - 41.6%
Dividend yield - - -


66



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We will continue to use judgment in evaluating the assumptions related to our
stock-based compensation on a prospective basis. As we continue to accumulate
additional data related to our common stock, we may have refinements to our
estimates, which could materially impact our future stock-based compensation
expense.

Restricted Stock Units

RSUs granted under the 2012 Stock Plan (2012 Plan) vest upon the satisfaction of
both a service condition and a liquidity condition. Both the service and
liquidity conditions must be met for the expense to be recognized. The liquidity
condition was satisfied upon the IPO, and we recognized an expense of
$29.9 million in the three months ended October 31, 2018 for the portion of the
RSUs that had met the service condition as of such date. Expense related to
these RSUs is recognized using the tranche-by-tranche method.


RSUs granted under the 2018 Equity Incentive Plan (2018 Plan) vest solely upon
the satisfaction of a service condition. Expense related to these RSUs is
recognized using the accelerated attribution method.




As of January 31, 2020, unrecognized stock-based compensation cost related to
outstanding unvested RSUs that are expected to vest was $153.4 million, which is
expected to be recognized over a weighted-average period of 3.15 years.

Recent Accounting Pronouncements

See "Summary of Business and Significant Accounting Policies" in Note 1 of the
notes to our consolidated financial statements included in Part II, Item 8 of
this Form 10-K.


item 7a. Quantitative and Qualitative Disclosures about Market Risk



Foreign Currency Exchange Risk




Our results of operations and cash flows are subject to fluctuations due to
changes in foreign currency exchange rates, particularly changes in the British
Pound Sterling, Euro, and Singapore Dollar. Impacts to our operations from
changes in foreign currency have been fairly limited to date and thus we have
not instituted a hedging program. We expect our international operations to
continue to grow in the near term and we will monitor our foreign currency
exposure to determine when we should begin a hedging program. A majority of our
agreements have been and we expect will continue to be denominated in U.S.
dollars. A hypothetical 10% increase or decrease in the relative value of the
U.S. dollar to other currencies would not have had a material effect on
operating results for fiscal 2020, 2019 and 2018.


Interest Rate Sensitivity




We are exposed to market risks in the ordinary course of our business. These
risks primarily include interest rate sensitivities. As of January 31, 2020, we
had cash and cash equivalents of $309.9 million, which consisted primarily of
bank deposits. Such interest-earning instruments carry a degree of interest rate
risk; however, historical fluctuations of interest income have not been
significant. We have not been exposed nor do we anticipate being exposed to
material risks due to changes in interest rates. A hypothetical 10% change in
interest rates would not have had a material impact on our operating results for
fiscal 2020, 2019 and 2018.


67



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item 8. financial statements and supplementary data



The supplementary financial information required by this Item 8 is included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Quarterly Financial Data" in Item 7 of this Annual Report on
Form 10-K and is incorporated herein by reference.






index to consolidated financial statements




Page
Reports of Independent Registered Public Accounting Firm 69

Consolidated Balance Sheets 72

Consolidated Statements of Comprehensive Loss 73

Consolidated Statements of Stockholders' Equity 74

Consolidated Statements of Cash Flows 75

Notes to Consolidated Financial Statements 76




68



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Report of Independent Registered Public Accounting Firm



To the Stockholders and Board of Directors



Anaplan, Inc.:



Opinions on the Consolidated Financial Statements and Internal Control Over
Financial Reporting




We have audited the accompanying consolidated balance sheets of Anaplan, Inc.
and subsidiaries (the Company) as of January 31, 2020 and 2019, the related
consolidated statements of comprehensive loss, stockholders' equity, and cash
flows for each of the years in the three-year period ended January 31, 2020, and
the related notes (collectively, the consolidated financial statements). We also
have audited the Company's internal control over financial reporting as of
January 31, 2020, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
January 31, 2020 and 2019, and the results of its operations and its cash flows
for each of the years in the three-year period ended January 31, 2020, in
conformity with U.S. generally accepted accounting principles. Also in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of January 31, 2020 based on criteria
established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.


Change in Accounting Principle




As discussed in Note 1 to the consolidated financial statements, the Company has
changed its method of accounting for leases as of February 1, 2019 due to the
adoption of Accounting Standards Codification Topic 842, Leases.


Basis for Opinions




The Company's management is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management's Annual Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company's consolidated financial statements and an opinion on the Company's
internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material
respects.




Our audits of the consolidated financial statements included performing
procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included

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performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.



Definition and Limitations of Internal Control Over Financial Reporting




A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.


Critical Audit Matter




The critical audit matter communicated below is a matter arising from the
current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter
in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.


Evaluation of the amortization period for capitalized sales commissions




As discussed in Note 1 to the consolidated financial statements, the Company
capitalizes sales commissions related to the acquisition of customer contracts
and amortizes them over the estimated period of benefit. In determining the
period of benefit, the Company considers inputs including the historical initial
and renewal contractual terms, estimated renewal rates, and the technological
life of the platform. The Company estimated the period of benefit for the
initial acquisition of a contract to be five years. The Company amortized $20.5
million
of capitalized sales commissions during the year ended January 31, 2020
and had $83.9 million of sales commissions capitalized as of January 31, 2020.

We identified the evaluation of the amortization period for capitalized sales
commissions related to the acquisition of customer contracts as a critical audit
matter. Evaluating the Company's judgments to determine the estimated period of
benefit based on key inputs involved a high degree of subjective auditor
judgment.

The primary procedures we performed to address this critical audit matter
included the following. We tested certain internal controls related to the
capitalized sales commission process. In particular, we tested controls over the
development of the estimated period of benefit, including determination of the
key inputs and periodic re-assessment of the period of benefit. We compared the
Company's historical initial and renewal contractual terms and the estimated
renewal rates to historical experience with customer contracts. We evaluated the
technological life of the platform used in the analysis against the Company's
amortization period for internally-developed software. We evaluated

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the Company's selection of key inputs used in the consideration of the estimated
period of benefit based on the relevance of those inputs. We evaluated the
Company's estimated period of benefit based on the Company's historical
experience with customer contracts, future expectations of customer life, and
the estimated technological life of the platform to which the services provided
to customers relate.



/s/ KPMG LLP



We have served as the Company's auditor since 2013.




San Francisco, California

March 30, 2020



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ANAPLAN, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)



As of January 31,
2020 2019
ASSETS
Current assets:
Cash and cash equivalents $ 309,894 $


326,863



Accounts receivable, net of allowances for doubtful
accounts of $996



and $842 as of January 31, 2020 and 2019,
respectively 109,217


92,597



Deferred commissions, current portion 25,990


15,827



Prepaid expenses and other current assets 17,814 13,377
Total current assets 462,915 448,664
Property and equipment, net 48,639 43,340
Deferred commissions, net of current portion 57,947


35,063



Goodwill 32,379


-



Operating lease right-of-use assets 37,875 -
Other noncurrent assets 10,052 1,702
TOTAL ASSETS $ 649,807 $ 528,769
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,331 $ 6,182
Accrued expenses 79,024 52,570
Deferred revenue, current portion 216,059


149,611



Operating lease liabilities, current portion 7,278


-



Total current liabilities 307,692


208,363



Deferred revenue, net of current portion 4,149


1,232



Operating lease liabilities, net of current portion 34,017


-



Other noncurrent liabilities 12,268


11,696



TOTAL LIABILITIES 358,126


221,291



Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, par value of $0.0001 per share;
25,000 shares
authorized as of January 31, 2020 and 2019; no
shares


issued and outstanding as of January 31, 2020 and
2019


-


-



Common stock, par value of $0.0001 per share;
1,750,000 shares


authorized as of January 31, 2020 and 2019; 135,495



and 126,246 shares issued and outstanding as of
January 31,
2020
and 2019, respectively 13


12



Accumulated other comprehensive loss (4,326 ) (3,036 )
Additional paid-in capital 788, 653,738
Accumulated deficit (492,453 ) (343,236 )
TOTAL STOCKHOLDERS' EQUITY 291,681 307,478
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 649,807 $ 528,769




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

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ANAPLAN, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except per share data)



Year Ended January 31,
2020 2019 2018
Revenue:
Subscription revenue $ 307,890 $ 208,605 $ 143,542
Professional services revenue 40,132 32,037


24,805



Total revenue 348,022 240,642


168,347



Cost of revenue:
Cost of subscription revenue 51,460 36,500


19,927



Cost of professional services revenue 39,317 30,898 32,058
Total cost of revenue 90,777 67,398 51,985
Gross profit 257,245 173,244 116,362
Operating expenses:
Research and development 68,396 48,998 30,908
Sales and marketing 250,430 176,323 100,654
General and administrative 86,852 76,186 30,719
Total operating expenses 405,678 301,507 162,281
Loss from operations (148,433 ) (128,263 ) (45,919 )
Interest income, net 4,478 1,921 108
Other income (expense), net (809 ) (1,465 ) (482 )
Loss before income taxes (144,764 ) (127,807 ) (46,293 )
Provision for income taxes (4,453 ) (3,209 ) (1,261 )
Net loss (149,217 ) (131,016 ) (47,554 )
Comprehensive income (loss):
Foreign currency translation adjustments (1,290 ) (1,054 )


846



Comprehensive loss $ (150,507 ) $ (132,070 ) $ (46,708 )
Net loss per share attributable to common
stockholders,
basic and diluted $ (1.15 ) $ (2.46 ) $ (2.51 )
Weighted-average shares used in computing net
loss per
share attributable to common stockholders,
basic and
diluted 129,799 53,328 18,956




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

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ANAPLAN, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)



Convertible Accumulated
Preferred Additional Other Total
Stock Common Stock Paid-in Comprehensive Accumulated Stockholders'
Shares Amount Shares Amount Capital Loss Deficit Equity
Balance at January 31, 2017 68,155 $ 7


28,627 $ 2 $ 252,229 $ (2,828 ) $ (164,666 ) $ 84,744
Issuance of Series F convertible



preferred stock, net of issuance



costs of $119 5,455 - - - 59,881 - -


59,881



Stock-based compensation - - - - 8,802 - -


8,802



Repayment of promissory notes,



net of early exercises - - - - 1,534 - -


1,534



Repurchase of restricted common stock - - (950 ) - - - - -


Exercise of stock options, net of



repurchases and early exercises - - 2,270 1 3,309 - - 3,310
Net loss - - - - - - (47,554 ) (47,554 )
Foreign currency translation
adjustments - - - - - 846 - 846
Other - - - - 76 - - 76
Balance at January 31, 2018 73,610 7 29,947 3 325,831 (1,982 ) (212,220 ) 111,639



Conversion of Series B convertible



preferred stock (4 ) - 4 - - - - -


Issuance of common stock upon



initial public offering,



net of issuance costs - - 19,001 2 295,284 - - 295,286
Conversion of preferred stock (73,606 ) (7 ) 73,606 7 - - - -
Stock-based compensation - - - - 53,385 - - 53,385



Repayment of promissory notes, net



of early exercises - - - - 1,603 - -


1,603



Exercise of stock options, net of



repurchases and early exercises - - 2,482 - 6,020 - - 6,020
Exercise of warrants - - 24 - 37 - - 37



Vesting and settlement of restricted



stock units - - 1,182 - - - - -


Taxes paid related to net share



settlement of equity awards - - - - (28,422 ) - - (28,422 )
Net loss - - - - - - (131,016 ) (131,016 )
Foreign currency translation
adjustments - - - - - (1,054 ) - (1,054 )
Balance at January 31, 2019 - - 126,246 12 653,738 (3,036 ) (343,236 ) 307,478
Stock-based compensation - - - - 82,355 - -


82,355



Repayment of promissory notes, net



of early exercises - - - - 11,813 - -


11,813



Exercise of stock options, net of



repurchases and early exercises - - 4,619 1 21,976 - - 21,977
Vesting of restricted stock units - - 3,454 - - - - -


Issuance of common stock under



employee stock purchase plan - - 1,176 - 18,565 - - 18,565
Net loss - - - - - - (149,217 ) (149,217 )
Foreign currency translation
adjustments - - - - - (1,290 ) - (1,290 )
Balance at January 31, 2020 - $ - 135,495 $ 13 $ 788, $ (4,326 ) $ (492,453 ) $ 291,681




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

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ANAPLAN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



Year Ended January 31,
2020 2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (149,217 ) $ (131,016 ) $ (47,554 )
Adjustments to reconcile net loss to net cash
used in
operating activities:
Depreciation and amortization 20,341 12,937


7,399



Amortization of deferred commissions 20,508 11,709


7,409



Stock-based compensation 80,046 52,806


8,639



Reduction of operating lease right-of-use
assets and accretion of
operating lease liabilities 10,748 - -
Loss on disposal of property and equipment 597 582 71
Changes in operating assets and liabilities:
Accounts receivable, net (15,833 ) (28,542 ) (9,982 )
Prepaid expenses and other current assets (4,266 ) (1,439 ) (5,853 )
Other noncurrent assets (1,419 ) 702 (1,176 )
Deferred commissions (53,978 ) (32,813 ) (14,765 )
Accounts payable and accrued expenses 19,550 15,544


8,948



Deferred revenue 67,478 52,604


32,413



Payments for operating lease liabilities (10,435 ) - -
Other noncurrent liabilities 1,475 1,073 (50 )
Net cash used in operating activities (14,405 ) (45,853 ) (14,501 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,991 ) (15,122 ) (9,565 )
Capitalized internal-use software (11,023 ) (7,397 ) (5,801 )
Business combinations, net of acquired cash (33,492 ) - -
Net cash used in investing activities (48,506 ) (22,519 ) (15,366 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net of
underwriting
discounts and commissions - 281,813 -
Proceeds from issuance of common stock in
private placement - 20,000 -
Proceeds from issuance of preferred stock, net
of issuance costs - -


59,881



Proceeds from exercise of stock options 21,859 6,209


3,309



Proceeds from repayment of promissory notes 11,526 1,914



1,534



Proceeds from employee stock purchase plan 18,565 - -
Payment of exercise of warrants - 37 -
Taxes paid related to net share settlement of
equity awards - (28,422 ) -
Principal payments on finance lease
obligations (5,444 ) (1,628 ) -
Net cash provided by financing activities 46,506 279,923


64,724



Effect of exchange rate changes on cash, cash
equivalents,
and restricted cash (564 ) (1,714 ) 1,264
NET INCREASE (DECREASE) IN CASH, CASH
EQUIVALENTS,
AND RESTRICTED CASH (16,969 ) 209,837


36,121



CASH, CASH EQUIVALENTS, AND RESTRICTED CASH -



Beginning of period 326,863 117,026


80,905



CASH, CASH EQUIVALENTS, AND RESTRICTED CASH -



End of period $ 309,894 $ 326,863 $ 117,026
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 826 $ 279 $ 5
Cash paid for income taxes $ 945 $ 582 $ 445
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Purchases of property and equipment included
in liabilities $ 1,331 $ 1,435 $ (724 )
Finance leases for property and equipment $ 7,232 $ 12,600 $ -
Deferred offering costs not paid $ - $ 213 $ -




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

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ANAPLAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1) Summary of Business and Significant Accounting Policies



Description of Business




Anaplan, Inc. (the Company or Anaplan) was incorporated in Delaware on July 9,
2009
and is headquartered in San Francisco, California, with offices in multiple
U.S. and international locations.

The Company provides a cloud-based connected planning platform that helps
connect organizations and people to make better and faster decisions. The
Company delivers its application over the Internet as a subscription service
using a software-as-a-service (SaaS) model. The Company also offers professional
services related to implementing and supporting its application.


Fiscal Year



The Company's fiscal year ends on January 31. References to fiscal 2020, for
example, refer to the fiscal year ended January 31, 2020.



Principles of Consolidation




The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America
(U.S. GAAP) and include the accounts of the Company and its wholly owned
subsidiaries (collectively, the Company). All significant intercompany balances
and transactions have been eliminated in consolidation.


Use of Estimates




The preparation of consolidated financial statements in conformity with U.S.
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 consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Such
estimates include, but are not limited to, the determination of revenue
recognition, the period of benefit for deferred commissions, the fair value of
intangibles and stock awards issued, and the allowance for doubtful accounts.
Actual results could differ from those estimates.


Foreign Currency




The functional currency of the Company's foreign subsidiaries is primarily their
respective local currency. The Company translates all assets and liabilities of
foreign subsidiaries to U.S. dollars at the current exchange rate as of the
applicable consolidated balance sheet date. Revenue and expenses are translated
at the average exchange rate prevailing during the period. The related
unrealized gains and losses from foreign currency translation are recorded in
accumulated other comprehensive loss as a separate component of stockholders'
equity. Foreign currency transaction losses were $0.4 million, $1.4 million and
$0.4 million for fiscal 2020, 2019, and 2018, respectively, and are included in
other expense, net in the consolidated statements of comprehensive loss.


Cash and Cash Equivalents and Restricted Cash




The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash and cash equivalents
are stated at fair value. Restricted cash represents cash held to collateralize
lease obligations.

Fair Value Measurement



The Company's financial instruments, other than cash and restricted cash,
consists principally of accounts receivable and accounts payable of which the
fair value approximates the carrying value of these financial instruments
because of their short-term nature.



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Property and Equipment, net




Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the related assets, which is two or three years for all property
and equipment, excluding leasehold improvements. Leasehold improvements are
amortized using the straight-line method over the shorter of 10 years or the
remaining lease term.

Business Combinations

The Company uses its best estimates and assumptions to assign fair value to the
tangible and intangible assets acquired and liabilities assumed as of the
acquisition date. During the measurement period, which may be up to one year
from the acquisition date, the Company may record adjustments to the fair value
of these tangible and intangible assets acquired and liabilities assumed, with
the corresponding offset to goodwill. Upon the conclusion of the measurement
period or final determination of the fair value of assets acquired or
liabilities assumed, whichever comes first, any subsequent adjustments are
recorded to the Company's consolidated statements of comprehensive loss.


Goodwill, Intangible Assets and Other Long-Lived Assets






The Company performs a qualitative assessment on goodwill at least annually,
during the fourth quarter, or more frequently if indicators of potential
impairment exist, to determine if any events or circumstances exist, such as an
adverse change in business climate or a decline in the overall industry that
would indicate that it would more likely than not reduce the fair value of a
reporting unit below its carrying amount. If it is determined in the qualitative
assessment that the fair value of a reporting unit is more likely than not below
its carrying amount, then the Company will perform a quantitative impairment
test. The quantitative goodwill impairment test is performed by comparing the
fair value of a reporting unit with its carrying amount. Any excess in the
carrying value of a reporting unit's goodwill over its fair value is recognized
as an impairment loss, limited to the total amount of goodwill allocated to that
reporting unit. For purposes of goodwill impairment testing, the Company has one
reporting unit.

Acquisition-related intangible assets with finite lives are amortized over their
estimated useful lives. The Company evaluates long-lived assets, including
property, equipment and leasehold improvements and other intangible assets
subject to amortization, for recoverability whenever events or changes in
circumstances indicate that the carrying value of an asset or asset group may
not be recoverable based on expected future cash flows attributable to that
asset or asset group. Recoverability of assets held and used is measured by
comparison of the carrying amount of an asset or an asset group to estimated
undiscounted future net cash flows expected to be generated by the asset or
asset group. If the carrying amount of an asset or asset group exceeds estimated
undiscounted future cash flows, then an impairment charge would be recognized
based on the excess of the carrying amount of the asset or asset group over its
fair value. Assets to be disposed of are reported at the lower of their carrying
amount or fair value less costs to sell.


There were no material impairment charges recognized related to goodwill,
intangible assets, or other long-lived assets during fiscal 2020, 2019, and
2018.



Leases




The Company adopted Accounting Standards Codification Topic 842 (ASC 842),
Leases, effective February 1, 2019, using the effective date transition method,
which applies the provisions of the new guidance at the effective date without
adjusting the comparative periods presented. The Company elected to use certain
practical expedients permitted under the transition guidance within the new
guidance, which allows it to carry forward the historical accounting relating to
lease identification and classification for existing leases upon adoption. The
Company also elected not to use the hindsight practical expedient in determining
the lease term and impairment of the right-of-use (ROU) assets and elected to
keep operating leases with an initial term of 12 months or less off of its
consolidated balance sheet. The Company elected not to separate lease and
non-lease components for all classes of underlying assets. Adoption of the new
standard had a material impact on the Company's consolidated balance sheets
related to the recognition of ROU assets and lease liabilities for operating
leases. The adoption had no impact on the Company's consolidated statements of
operations or total cash flows from operations.

77

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The cumulative effect of the changes made to the Company's consolidated balance
sheet as of February 1, 2019 were as follows:






Balance Balance
at January ASC 842 at February
Classification 31, 2019 Adjustments 1, 2019
(In thousands)
Assets



Finance lease assets Property and equipment - net $ 14,227 $



- $ 14,227
Operating Operating lease right-of-use
lease assets assets - 38,175 38,175
Liabilities
Current:
Finance lease
liabilities Accrued expenses $ 4,511 $ - $ 4,511
Operating lease Operating lease liabilities,
liabilities current portion - 8,103 8,103
Non-current:
Finance lease
liabilities Other noncurrent liabilities $ 8,088 $ - $ 8,088
Operating lease Operating lease liabilities,
liabilities net of current
portion - 33,164 33,164




The ROU assets were presented net of deferred rent liabilities of $3.1 million
as of February 1, 2019. The adoption had no impact on cash flows other than a
change within operating cash flows.

The Company determines if an arrangement is a lease at inception. The Company's
lease agreements do not contain any material options to extend or terminate
leases, any material residual value guarantees, any material restrictions or
covenants, or any material variable lease payments. Any variable lease payments
consist of common area maintenance, taxes and other costs and are expensed as
incurred.

ROU assets represent the Company's right to use an underlying asset for the
lease term and lease liabilities represent the obligation to make lease payments
arising from the lease. Operating lease ROU assets and liabilities are
recognized based on the present value of lease payments over the lease term at
the commencement date. In determining the present value of lease payments, the
Company uses its country specific incremental borrowing rate based on the
information available at the lease commencement date, including the lease term,
for operating leases. The incremental borrowing rate is a hypothetical rate
based on the Company's understanding of what its credit rating would be within
each country. Upon adoption, the operating lease ROU asset was valued at the
amount of the lease liabilities adjusted for the remaining balance of
unamortized lease incentives, prepaid rent, and deferred rent as of January 31,
2019
. Upon adoption, finance lease ROU assets and liabilities are recognized
based on the carrying amount of the lease assets and lease liabilities. The
finance lease ROU asset also includes any remaining unamortized initial direct
costs. Lease expense is recognized on a straight-line basis over the lease term.


Concentration of Risk and Significant Customers




Financial instruments that subject the Company to concentrations of credit risk
consist primarily of cash and cash equivalents, restricted cash, and accounts
receivable. The Company maintains its cash, cash equivalents, and restricted
cash with high-quality financial institutions with investment-grade ratings. A
majority of the cash balances are with U.S. banks and are insured to the extent
defined by the Federal Deposit Insurance Corporation.

The Company markets its subscription and services in the United States and in
foreign countries through its direct sales force and partners. No customer
accounted for more than 10% of total revenue for fiscal 2020, 2019, and 2018, or
more than 10% of total accounts receivable as of January 31, 2020 and 2019.


Segment Information




The Company operates in one operating segment. Operating segments are defined as
components of an enterprise about which separate financial information is
evaluated regularly by the chief operating decision maker, who is the chief
executive officer, in deciding how to allocate resources and assessing
performance. The Company's chief operating decision maker allocates resources
and assesses performance based upon discrete financial information at the
consolidated level.

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The following table summarizes the Company's long-lived assets by geographic
area, which consist of property and equipment, net and operating lease
right-of-use assets:






As of January 31,
2020 2019 2018
(In thousands)
Long-lived assets
United States $ 67,104 $ 36,171 $ 16,873
United Kingdom 15,235 5,458 431
Other 4,175 1,711 1,017
Total $ 86,514 $ 43,340 $ 18,321





Revenue by geographical region is discussed below in the Revenue Recognition
disclosures.




Accounts Receivable, net

Accounts receivable are recorded at the invoiced amount, net of allowance for
doubtful accounts. The allowance for doubtful accounts is based on the Company's
assessment of the collectability of accounts. The Company regularly reviews the
adequacy of the allowance for doubtful accounts based on a combination of
factors. In establishing any required allowance, management considers historical
losses adjusted to take into account current market conditions and the Company's
customers' financial condition, the amount of any receivables in dispute, and
the current receivables aging and current payment terms. Accounts receivable
deemed uncollectable are charged against the allowance for doubtful accounts
when identified. As of January 31, 2020 and 2019, the allowance for doubtful
accounts activity was not significant.


Revenue Recognition



The Company adopted Accounting Standards Codification Topic 606, Revenue from
Contracts with Customers, effective February 1, 2018, using the full
retrospective transition method.




The Company derives revenue primarily from sales of subscription services and,
to a lesser degree, from professional services. Revenue is recognized when a
customer obtains access to the platform and receives the related professional
services. The amount of revenue recognized reflects the consideration that the
Company expects to be entitled to receive in exchange for these services.


The Company determines revenue recognition through the following steps:



1. Identification of the contract, or contracts, with the customer



2. Identification of the performance obligations in the contract



3. Determination of the transaction price



4. Allocation of the transaction price to the performance obligations in the
contract



5. Recognition of the revenue when, or as, a performance obligation is satisfied



Subscription Revenue




The Company generates revenue primarily from sales of subscriptions to access
its cloud-based business and execution planning platform. Subscription
arrangements with customers do not provide the customer with the right to take
possession of the software operating the platform. Instead, customers are
granted continuous access to the platform over the contractual period. A
time-elapsed method is used to measure progress because the Company's obligation
is to provide continuous service over the contractual period. Accordingly, the
fixed consideration related to subscription revenue is recognized ratably over
the contract term beginning on the date access to the platform is provided.

The typical subscription term is two to three years and customers are generally
invoiced in annual installments at the beginning of each year within the
subscription period. Most contracts are non-cancelable over the contractual
term. Some customers have the option to purchase additional subscription
services at a stated price. These options are evaluated on a case-by-case basis
but generally do not provide a material right as they are priced within a range
of prices provided to other customers for the same products and, as such, would
not result in a separate performance obligation.

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Professional Services Revenue




Professional services revenue consists of fees associated with implementation or
consultation services, and training. Professional services do not result in
significant customization of the subscription service and are considered
distinct. A substantial majority of the professional service contracts are
recognized on a time and materials basis and the related revenue is recognized
as the service hours are performed. For time and materials projects, the Company
invoices for professional services as the work is incurred and in arrears.


Contracts with Multiple Performance Obligations




Most contracts with customers contain multiple performance obligations that are
distinct and accounted for separately. The transaction price is allocated to the
separate performance obligations on a relative SSP basis. The Company determines
SSP for all performance obligations using observable inputs, such as standalone
sales and historical contract pricing. SSP is consistent with the Company's
overall pricing objectives, taking into consideration the type of subscription
services and professional and other services. SSP also reflects the amount the
Company would charge for that performance obligation if it were sold separately
in a standalone sale, and the price the Company would sell to similar customers
in similar circumstances.

Variable Consideration



Revenue from sales is recorded based on the transaction price, which includes
estimates of variable consideration.




Variable consideration may exist where a customer has purchased professional
services that are sold on a time and materials basis. The Company estimates the
number of hours expected to be incurred based on an expected values approach
that considers historical hours incurred for similar projects based on the types
and sizes of customers.

Disaggregation of Revenue

The following table summarizes the revenue by region based on the shipping
address of customers who have contracted to use the Company's cloud-based
application:



Year Ended January 31,
2020 2019 2018
Percentage Percentage Percentage
Amount of Revenue Amount of Revenue Amount of Revenue
(In thousands, except percentage data)
Americas $ 205,345 59 % $ 141,595 59 % $ 101,867 61 %
EMEA 110,057 32 78,868 33 53,123 32
APAC 32,620 9 20,179 8 13,357 7
Total $ 348,022 100 % $ 240,642 100 % $ 168,347 100 %




The United States and the United Kingdom were the only two countries that
represented more than 10% of the Company's revenues in any period, comprised of
$197.6 million and 57%, $136.8 million and 57%, and $98.5 million and 59% for
the United States in fiscal 2020, 2019, and 2018, respectively, and
$41.5 million and 12%, $32.3 million and 13%, and $23.1 million and 14% for the
United Kingdom in fiscal 2020, 2019, and 2018, respectively.


Contract Balances




Contract assets represent revenue recognized for contracts that have not yet
been invoiced to customers, typically for multi-year arrangements. Total
contract assets were $0.2 million and $0.4 million as of January 31, 2020 and
2019, respectively, which were included within prepaid expenses and other
current assets on the consolidated balance sheets.

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Contract liabilities consist of deferred revenue. Revenue is deferred when the
Company has the right to invoice in advance of performance under a contract. The
current portion of deferred revenue balances are recognized over the following
12-month period. The amount of revenue recognized in fiscal 2020, 2019, and 2018
that was included in deferred revenue at the beginning of each period was
$149.6 million, $101.0 million, and $65.6 million, respectively.


Deferred Commissions



The Company capitalizes sales commissions that are incremental due to the
acquisition of customer contracts. These costs are recorded as deferred
commissions on the consolidated balance sheets. The Company determines whether
costs should be deferred based on its sales compensation plans, if the
commissions are in fact incremental and would not have occurred absent the
customer contract.




Sales commissions for renewal of a subscription contract are not considered
commensurate with the commissions paid for the acquisition of the initial
subscription contract given the substantive difference in commission rates
between new and renewal contracts. Commissions paid upon the initial acquisition
of a contract are amortized over an estimated period of benefit of five years,
while commissions paid related to renewal contracts are amortized over the
renewal term. Amortization is recognized on a straight-line basis commensurate
with the pattern of revenue recognition. Commissions paid on professional
services are typically expensed as incurred. The Company determines the period
of benefit for commissions paid for the acquisition of the initial subscription
contract by taking into consideration the historical initial and renewal
contractual terms, estimated renewal rates, and the technological life of the
platform and related significant features. The Company determines the period of
benefit for renewal subscription contracts by considering the average
contractual term for renewal contracts. Amortization of deferred commissions is
included in sales and marketing expense in the consolidated statements of
comprehensive loss.


The Company periodically reviews deferred commissions to determine whether
events or changes in circumstances have occurred that could impact the period of
benefit. There were no impairment losses recorded during the periods presented.




The following table represents a rollforward of the Company's deferred
commissions:



As of January 31,
2020 2019
(In thousands)
Beginning balance $ 50,890 $ 30,669
Additions to deferred commissions 53,978 33,060
Amortization of deferred commissions (20,508 ) (11,709 )


Foreign currency translation effect of deferred



commissions (423 ) (1,130 )
Ending balance $ 83,937 $ 50,890


Deferred commissions, current (to be



recognized in next 12 months) 25,990 15,827


Deferred commissions, net of current portion 57,947 35,063
Total deferred commissions


$ 83,937 $ 50,890





Remaining Performance Obligations




As of January 31, 2020, the aggregate amount of the transaction price allocated
to remaining performance obligations was $656.2 million, which consists of both
billed consideration in the amount of $220.2 million and unbilled consideration
in the amount of $436.0 million that the Company expects to recognize as
revenue. The Company expects to cumulatively recognize approximately 50% and 82%
of this amount as revenue in the next 12 months and 24 months, respectively,
with the remaining balance recognized thereafter.

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The Company applied a practical expedient allowing it not to disclose the amount
of the transaction price allocated to the remaining performance obligations for
contracts with an original expected duration of one year or less.


Cost of Revenue



Cost of Subscription Revenue




Cost of subscription revenue primarily consists of costs related to providing
cloud applications, compensation and other employee-related expenses for data
center staff, payments to outside service providers, customer service, data
center and networking expenses, depreciation expenses, and amortization of
capitalized software development costs.


Cost of Professional Services Revenue



Cost of professional services primarily consists of costs related to providing
implementation services, optimization services, and training, and includes
compensation and other employee-related expenses for professional services
staff, costs of subcontractors, and travel.



Advertising Costs




Advertising costs are expensed as incurred in sales and marketing expense and
amounted to $17.7 million, $15.1 million, and $11.0 million for fiscal 2020,
2019, and 2018, respectively.

Stock-Based Compensation

Prior to the IPO, the Company's board of directors determined the fair value of
its common stock using various valuation methodologies, including valuation
analyses performed by third-party valuation firms. After the IPO, the Company
uses the publicly quoted market closing price as reported on the New York Stock
Exchange
as the fair value of its common stock.

The Company measures the cost of employee services received in exchange for an
award of equity instruments, including stock options, stock purchase rights
(SPRs), restricted stock units (RSUs), and purchase rights issued under the 2018
Employee Stock Purchase Plan (ESPP), based on the estimated grant-date fair
value of the award. The Company calculates the fair value of options, SPRs, and
the purchase rights issued under ESPP using the Black-Scholes option-pricing
model and the related expense is recognized using the straight-line attribution
approach. The vesting period is the period the employee is required to provide
service in exchange for the award.

The Company's RSUs granted under the 2012 Stock Plan (2012 Plan) vest upon the
satisfaction of both a service condition and a liquidity condition. Both the
service and liquidity conditions must be met for the expense to be recognized.
The liquidity condition was satisfied upon the IPO, and the Company recognized
an expense of $29.9 million in the three months ended October 31, 2018 for the
portion of the RSUs that had met the service condition as of such date.

The Company's RSUs granted after the IPO under the 2018 Equity Incentive Plan
(2018 Plan) vest upon the satisfaction of a service condition and do not have a
corresponding liquidity condition.

As of January 31, 2020, unrecognized stock-based compensation cost related to
outstanding unvested RSUs that are expected to vest was $153.4 million, which is
expected to be recognized over a weighted-average period of 3.15 years.

Stock-based compensation expense includes the impact of estimated forfeitures,
and has been allocated between cost of revenue and operating expense lines based
on the cost category of the respective award holders.


Income Taxes




Income taxes are accounted for under the asset-and-liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

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The Company records a valuation allowance to reduce its deferred tax assets to
the net amount that the Company believes is more likely than not to be realized.
In assessing the need for a valuation allowance, the Company has considered its
historical levels of income, expectations of future taxable income and ongoing
tax planning strategies. Because of the uncertainty of the realization of the
deferred tax assets, the Company has recorded a valuation allowance against
substantially all deferred tax assets. Realization of its deferred tax assets is
dependent primarily upon future U.S., U.K. and Israel taxable income.


The Company recognizes the effect of income tax positions only if those
positions are more likely than not to be sustained. Recognized income tax
positions are measured at the largest amount that has a greater than 50%
likelihood of being realized. Changes in recognition or measurement are
reflected in the period in which the change in judgment occurs.



Capitalized Software Development Costs




The Company capitalizes software development costs in connection with its
cloud-based business modeling and planning software application, as well as
certain projects for internal use, as incurred. Qualifying computer software
costs that are incurred during the application development stage are
capitalized. The Company capitalized $13.6 million, $8.1 million, and
$5.8 million related to software costs incurred during fiscal 2020, 2019, and
2018, respectively. Capitalized software costs are amortized on a straight-line
basis over the estimated useful life of the related software, which is generally
two to three years, in cost of subscription revenue.


Net Loss Per Share Attributable to Common Stockholders




Basic and diluted net loss per share attributable to common stockholders is
presented in conformity with the two-class method required for participating
securities. The Company considers all series of convertible preferred stock to
be participating securities. Under the two-class method, the net loss
attributable to common stockholders is not allocated to the convertible
preferred stock as the holders of the convertible preferred stock do not have a
contractual obligation to share in the losses of the Company. Under
the two-class method, net loss would be attributed to common stockholders and
participating securities based on their participation rights.

Basic net loss per share attributable to common stockholders is computed by
dividing the net loss attributable to common stockholders by the
weighted-average number of shares of common stock outstanding during the
period. Diluted net loss per share attributable to common stockholders adjusts
basic net loss per share for the potentially dilutive impact of convertible
preferred stock, stock options, restricted stock units, stock repurchase rights,
convertible preferred stock warrants, and common stock warrants. As the Company
has reported losses for all periods presented, all potentially dilutive
securities are antidilutive and accordingly, basic net loss per share equals
diluted net loss per share.

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Recently Issued Accounting Pronouncements




In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 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. In November 2018, the FASB issued ASU 2018-19,
"Codification Improvements to Topic 326, Financial Instruments - Credit Losses",
which clarifies that receivables arising from operating leases are not within
the scope of Topic 326. Instead, impairment of receivables arising from
operating leases should be accounted for in accordance with Topic 842, Leases.
In April 2019, the FASB issued ASU 2019-04 "Codification Improvements to Topic
326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging,
and Topic 825, Financial Instruments", which clarifies treatment of certain
credit losses. In May 2019, the FASB issued ASU 2019-05, "Financial Instruments
- Credit Losses (Topic 326): Targeted Transition Relief", which permits an
entity, upon adoption of ASU 2016-13, to irrevocably elect the fair value option
(on an instrument-by-instrument basis) for eligible financial assets measured at
amortized cost basis. The guidance will be effective for fiscal years beginning
after December 15, 2019 and interim periods within those fiscal years. Early
adoption is permitted. In November 2019, the FASB issued ASU 2019-11,
Codification Improvements to Topic 326, Financial Instruments-Credit Losses. ASU
2019-11 requires entities that did not adopt the amendments in ASU 2016-13 as of
November 2019 to adopt ASU 2019-11. This ASU contains the same effective dates
and transition requirements as ASU 2016-13. The Company continues to assess the
impact of this ASU and does not expect it to be material on its consolidated
financial statements and disclosures upon adoption.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740),
Simplifying the Accounting for Income Taxes, which simplifies the accounting for
income taxes by removing certain exceptions to the general principles of income
taxes and reducing the cost and complexity in accounting for income taxes. The
guidance is effective for interim and annual periods beginning after December
15, 2020
, with early adoption permitted. The Company is in the process of
assessing the impact of this ASU on its consolidated financial statements.


Recently Adopted Accounting Pronouncements




In February 2016 and July 2018, the FASB issued ASU 2016-02 "Leases", ASU
2018-10 "Codification Improvements to Topic 842, Leases", and ASU 2018-11
"Leases (Topic 842): Targeted Improvements", which requires lessees to put most
leases on their balance sheets but recognize the expenses on their income
statements in a manner similar to current practice. The new guidance requires
that a lessee would recognize a lease liability for the obligation to make lease
payments and a right-to-use asset for the right to use the underlying asset for
the lease term. The Company adopted the guidance starting February 1, 2019 using
a prospective transition approach. The adoption of the new standard resulted in
changes to the Company's accounting policies for leases and resulted in
additional disclosures as noted in the leases section in Note 4.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805):
Clarifying the Definition of a Business. The amendments in this ASU change the
definition of a business to assist with evaluating when a set of transferred
assets and activities is a business. The Company adopted the guidance during
fiscal year 2020. The adoption of the new standard had no impact on the
Company's consolidated financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in
this ASU eliminate Step 2 from the goodwill impairment test, which requires
entities to calculate the implied fair value of goodwill to measure a goodwill
impairment charge. Instead, entities will record an impairment charge based on
the excess of a reporting unit's carrying amount over its fair value, determined
in step 1. This guidance is effective prospectively for interim and annual
reporting periods beginning after December 15, 2019. The Company early adopted
the guidance during fiscal year 2020. The adoption of the new standard had no
impact on the Company's consolidated financial statements and disclosures.

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In August 2018, the FASB issued ASU 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". The
new guidance amends the definition of a hosting arrangement and requires a
customer in a hosting arrangement that is a service contract to capitalize
certain costs as if the arrangement were an internal-use software project. The
guidance will be effective for fiscal years beginning after December 15, 2019
and interim periods within those fiscal years. Early adoption is permitted. The
Company early adopted the guidance starting February 1, 2019 using a prospective
transition approach. The adoption of the new standard had no material impact on
the Company's consolidated financial statements and disclosures.


(2) Consolidated Balance Sheet Components



Property and Equipment, net



Property and equipment consisted of the following:






As of January 31,
2020
2019
(In thousands)



Computer and office equipment $ 46,986 $ 37,990
Leasehold improvements


12,728 11,823
Internal-use software 29,445 17,810
Construction in progress 3,943 1,041


Property and equipment, gross 93,102 68,664
Less: accumulated depreciation (44,463 ) (25,324 )
Property and equipment, net $ 48,639 $ 43,340



Depreciation expense was $19.9 million, $12.7 million, and $7.2 million for
fiscal 2020, 2019, and 2018, respectively.






The Company capitalized $13.6 million and $8.1 million in internal-use software
for fiscal 2020 and 2019, of which $2.3 million and $0.6 million was stock-based
compensation expense. Amortization of the capitalized internal-use software,
included in total depreciation expense above was $6.1 million and $3.9 million
for fiscal 2020 and 2019, respectively.


Accrued Expenses



Accrued expenses consisted of the following:






As of January 31,
2020 2019
(In thousands)
Vendor accruals $ 11,098 $ 6,237
Accrued commission 10,033 10,000
Accrued bonuses 14,279 11,759
Accrued other payroll liabilities 21,077 10,112
Current portion of finance lease obligations 6,956 4,512
Accrued other 15,581 9,950
Accrued expenses $ 79,024 $ 52,570




(3) Bank Borrowing

In April 2018, the Company entered into a syndicated loan agreement with Wells
Fargo to provide a secured revolving credit facility that allows the Company to
borrow up to $40.0 million, subject to an accounts receivable borrowing base,
for general corporate purposes through April 2020. Any advances drawn on the
credit facility will incur interest at a rate equal to (i) the highest of
(A) the prime rate, (B) the federal funds rate plus 0.5%, and
(C) the one-month LIBOR plus 1% less (ii) 0.5%. Interest is payable monthly in
arrears with the principal and any accrued and unpaid interest due on April 30,
2020
. This syndicated loan agreement was subsequently amended in September 2018
and October 2019. As of January 31, 2020, the Company had not drawn down any
amounts under this agreement. The Company was in compliance with the financial
covenants contained in the agreement as of January 31, 2020.

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(4) Leases

The Company leases certain facilities under operating leases that expire from
fiscal 2020 to 2028. Starting in fiscal 2019, the Company entered into finance
leases to finance equipment.


The components of lease expense were as follows:






Year Ended January 31,
2020
(In thousands)
Operating lease costs $ 10,748
Finance lease costs
Amortization of assets $ 5,737
Interest on lease liabilities 826
Total finance lease costs $ 6,563





Supplemental balance sheet information related to leases is as follows:






As of January 31, 2020
(In thousands)
Operating leases:
Operating lease ROU assets $ 37,875
Operating lease liabilities, current portion $


7,278



Operating lease liabilities, net of current portion


34,017



Total operating lease liabilities $


41,295



Finance leases:
Property and equipment, gross $


21,321



Less: accumulated depreciation (7,347 )
Property and equipment, net $ 13,974
Accrued expenses $ 6,956
Other noncurrent liabilities 7,261
Total finance lease liabilities $ 14,217





Weighted-average lease terms and discount rates are as follows:






As of January 31, 2020
Operating Leases Finance Leases
Weighted-average remaining lease terms 5.6 years 2.1 years
Weighted-average discount rates 5.6% 5.3%




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Future minimum lease payments under operating leases and finance leases as
of January 31, 2020 are as follows:






As of January 31, 2020
Operating Leases Finance Leases
(In thousands)
Years ending January 31,
2021 $ 9,077 $ 7,639
2022 7,997 5,868
2023 8,024 1,595
2024 7,649 -
2025 6,956 -
Thereafter 9,553 -
Total lease payments 49,256 15,102
Less: amount representing interest (7,491 ) (885 )
Less: leases less than 12 months (470 ) -
Total lease liabilities $ 41,295 $ 14,217




The Company enters into commitments to lease computer and office equipment for
which the timing of the lease payments is not determined until the date of
acceptance. As of January 31, 2020, the amounts related to these leases were
approximately $0.6 million, which are to be paid over three years after the date
of acceptance.

Future minimum lease payments under operating leases and finance leases as of
January 31, 2019, prior to the Company's adoption of the new lease standard,
were as follows:



As of January 31, 2019
Operating Leases Finance Leases
(In thousands)
Years ending January 31,
2020 $ 10,994 $ 5,438
2021 8,534 5,366
2022 7,065 3,369
2023 7,256 386
2024 7,342 -
Thereafter 16,427 -
Total future minimum payments $ 57,618 $ 14,559





Under ASC 840, the previous lease standard, total rent expense under operating
leases for fiscal 2019 was $11.4 million.



(5) Business Combination



On October 3, 2019, the Company acquired all outstanding shares of Mintigo
Limited
(Mintigo), an Israel-based company that provides a predictive analytics
platform for marketing and sales. The acquisition of Mintigo is intended to
enhance the predictive capabilities of the Company's solutions.



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The allocation of the purchase price for this acquisition has been prepared on a
preliminary basis and changes to the allocation to certain assets, liabilities,
and tax estimates may occur as additional information becomes available.


The following table summarizes the preliminary allocation of the purchase
consideration to the fair value of the assets acquired and liabilities assumed:






(In thousands)
Cash $ 2,735
Other current and noncurrent assets 1,793
Intangible assets 7,300
Goodwill 32,379
Deferred revenue (2,100 )
Other current and noncurrent liabilities (5,880 )
Total purchase consideration $ 36,227




The intangible assets acquired consist of developed technology of $5.2 million,
and customer relationships of $2.1 million and were assigned useful lives of 5
and 7 years, respectively. The fair value of the developed technology was
determined utilizing the multi-period excess earning method, and the
with-and-without method was utilized to determine the fair value of customer
relationships. The excess of the purchase consideration over the fair value of
net tangible and identifiable intangible assets acquired and liabilities assumed
was recorded as goodwill, and is attributable to Mintigo's workforce and the
synergies expected to arise from the acquisition. The Company does not expect
goodwill to be deductible for income tax purposes.

Acquisition-related costs of approximately $1.3 million were included in general
and administrative expenses during fiscal 2020 in the consolidated financial
statements. The total cash consideration was $33.5 million, net of cash acquired
of $2.7 million, and was fully paid in fiscal 2020.

The consolidated financial statements include the operating results of the
acquisition from the date of acquisition. Pro forma results of operations for
the acquisition have not been presented because the effects of the acquisition,
individually and in the aggregate, were not material to the financial results of
the Company.

Additionally, the Company entered into retention agreements with employees of
Mintigo who joined the Company after the acquisition, totaling up to
approximately $10.0 million. As payment of these retention agreements is
contingent upon the continuous service of these employees with the Company, they
are being accounted for as compensation over the required service period of
three years commencing from the acquisition date.

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(6) Acquisition-Related Intangible Assets




The components of identifiable intangible assets included in "Other noncurrent
assets" are as follows:



As of January 31, 2020
Remaining
Intangible Accumulated Intangible Amortization
Assets, Gross Amortization Assets, Net Periods
(In thousands)
Developed technology $ 5,200 $ (346 ) $ 4,854 4.8 years
Customer relationships 2,976 (977 ) 1,999 6.8 years
Total $ 8,176 $ (1,323 ) $ 6,853

As of January 31, 2019
Remaining
Intangible Accumulated Intangible Amortization
Assets, Gross Amortization Assets, Net Periods
(In thousands)
Customer relationships $ 876 $ (841 ) $ 35 <1 year
Total $ 876 $ (841 ) $ 35





Amortization expense of acquisition-related intangible assets
was $0.5 million, $0.2 million and $0.2 million for fiscal 2020, 2019 and 2018,
respectively.






The expected future intangible assets amortization as of January 31, 2020 is as
follows:



As of January 31, 2020
(In thousands)
Years ending January 31,
2021 $ 1,340
2022 1,340
2023 1,340
2024 1,340
2025 993
Thereafter 500
Total future intangible assets amortization $ 6,853





(7) Common Stock and Employee Stock Plans



As of January 31, 2020, the Company was authorized to issue 1,750,000,000 shares
of common stock. Shares were reserved for future issuance as follows:






As of January 31,
2020 2019
(In thousands)
Outstanding stock options 10,198 14,986
Outstanding restricted stock units 10,260


10,894



Outstanding stock purchase rights 5


4,776



Shares available for future issuances under the 2018



Stock Plan 17,071


13,411



Shares available for future issuances under the 2018



ESPP 2,786 2,700
Total 40,320 46,767




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2012 Stock Plan




In March 2012, the Company adopted the 2012 Plan, under which officers,
employees, and consultants may be granted various forms of equity incentive
compensation at the discretion of the Board of Directors, including stock
options, RSUs, and SPRs. The awards have varying terms, but generally vest over
four years, and are issued at the fair value of the shares of common stock on
the date of grant.

In connection with the IPO, the 2012 Plan was terminated and the number of
shares of common stock reserved under the 2012 Plan that were not issued or
subject to outstanding awards under the 2012 Plan on the IPO date were
transferred to the 2018 Plan. As of January 31, 2020, options to purchase and
RSUs to convert to a total of 14.6 million shares of common stock were
outstanding under the 2012 Plan pursuant to their original terms and no shares
were available for future grant.


2018 Stock Plan




In October 2018, the Company adopted the 2018 Plan, which became effective on
October 11, 2018 and serves as the successor to the Company's 2012 Plan, and
provides various forms of equity incentive awards to the Company's officers,
employees and consultants at the discretion of the Board of Directors. The
awards have varying terms, but generally vest over four years, and are issued at
the fair value of the shares of common stock on the date of grant.

As of January 31, 2020, options to purchase and RSUs to convert to a total of
5.9 million shares of common stock were outstanding under the 2018 Plan. On the
first day of each fiscal year of the Company during the term of the 2018 Plan,
commencing on February 1, 2019 and ending on (and including) February 1, 2028,
the aggregate number of common shares that may be issued under the 2018 Plan
shall automatically increase by a number equal to the least of (a) 5% of the
total number of common shares issued and outstanding on the last day of the
preceding fiscal year, (b) 7,500,000 of common shares subject to anti-dilution
adjustments or (c) a number of common shares determined by the Company's board
of directors.

Employee Stock Purchase Plan

In September 2018, the Company adopted the 2018 Employee Stock Purchase Plan
(the ESPP), which became effective on October 12, 2018. The ESPP initially
authorizes the issuance of 2,700,000 shares of the Company's common stock
pursuant to purchase rights granted to eligible employees. The number of shares
of common stock available for sale under the ESPP also includes an annual
increase on the first day of each fiscal year beginning on February 1, 2019,
equal to the least of: (i) 1% of the outstanding shares of common stock as of
the last day of the preceding fiscal year, (ii) 1,500,000 shares of stock
subject to anti-dilution adjustments or (iii) such other amount as the board of
directors may determine.

Except for the initial offering period, the ESPP provides for 12-month offering
periods beginning June 21 and December 21 of each year, and each offering period
will consist of two six-month purchase periods. The initial offering period
began October 12, 2018 and ended on December 20, 2019. On each purchase date,
eligible employees will purchase the shares at a price per share equal to 85% of
the lesser of (1) the fair market value of the Company's stock on the offering
date or (2) the fair market value of our stock on the purchase date.

For fiscal 2020, 1.2 million shares of common stock were purchased under the
ESPP at a weighted-average price of $15.78 per share, and $5.9 million of
stock-based compensation expense was recorded. During fiscal 2019, there was no
common stock purchased under the ESPP, and $1.6 million of stock-based
compensation expense was recorded.

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The Company accounted for the stock purchase rights under ESPP at the grant date
(first day of the offering period) by valuing each purchase period separately.
The Black-Scholes assumptions used to value the ESPP are as follows:



Year Ended January 31,
2020 2019
ESPP:
Risk-free interest rate 1.52% - 2.69% 2.51% - 2.69%
Expected term (years) 0.50 - 1.19 0.69 - 1.19
Expected volatility 32.5% - 42.9% 32.5% - 34.9%
Expected dividend yield - -





Stock Purchase Rights (SPRs) with Recourse Notes




SPRs have been issued in exchange for recourse promissory notes with the
aggregate price of the underlying shares as the principal amount. The promissory
notes are collateralized by the related common stock. Repayment is due between
four and 12 years from the date of the promissory notes or earlier in certain
circumstances. In addition, any proceeds from the sale of shares purchased with
the notes must be applied to repay the outstanding note receivable balance. The
Company has a right to repurchase the shares if the employee's service period is
not fulfilled or upon termination of employment at the original per share
issuance price. The right of repurchase lapses over an employee service period
which is typically four years with 25% vesting on the first anniversary of the
vesting commencement date and 1/48 each month thereafter. The Company deemed all
employee recourse promissory notes to be non-substantive in nature and therefore
the notes are not reflected in the consolidated balance sheets and consolidated
statements of stockholders' equity. Rather, the note issuances and the share
purchases are accounted for as share option grants, with the related share-based
compensation measured using the Black-Scholes option-pricing model and
recognized over the vesting periods.


There were no SPRs issued since fiscal 2017.






Shares underlying the SPRs are presented as outstanding on the consolidated
balance sheets and consolidated statements of stockholders' equity as the shares
have voting and dividend rights and are thus considered legally outstanding. The
number of these outstanding SPRs was immaterial as of January 31, 2020. During
fiscal 2019 and 2018, 4.8 million, and 8.8 million of these underlying shares,
respectively, have been excluded from the respective net loss per share
calculations because the shares are considered contingently issuable and subject
to repurchase.


A summary of the SPR activities for fiscal 2020 is as follows:






Weighted-
Average
Number of Exercise
SPRs Price
(In thousands)
Non-vested SPRs as of January 31, 2019 406
Vested (266 ) $ 4.59
Repurchased (135 ) $ 4.59
Non-vested SPRs as of January 31, 2020 5





During fiscal 2020, 2019, and 2018, the Company recorded stock-based
compensation expense of $0.4 million, $0.6 million, and $1.4 million,
respectively, related to the SPRs. During fiscal 2018, the Company recorded
stock-based compensation expense of $0.5 million related to the accelerated
vesting of certain SPRs for one former director.



As of January 31, 2020, unrecognized stock-based compensation costs related to
outstanding unvested SPRs that are expected to vest was immaterial.



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Share Repurchase




During fiscal 2020, 2019, and 2018, the Company repurchased approximately
0.1 million unvested shares from one employee, 0.2 million unvested shares from
one employee and 1.0 million unvested shares from two employees, respectively.
The share repurchases took place upon termination of employment by cancelling
the principal balance of the related note, plus any accrued interest from the
date of purchase related to the unvested portion.


Stock Options and Restricted Stock Units




Stock options can be granted with an exercise price equal to or greater than the
stock's fair value at the date of grant. Most awards have 10-year terms and vest
and become exercisable at a rate of 25% on the first anniversary of the vesting
commencement date and 1/48th each month thereafter. Options granted may include
provisions for early exercisability.

The Black-Scholes assumptions used to value the employee options at the grant
dates are as follows:



Year Ended January 31,
2020 2019 2018
Stock Options:
Fair value of common
stock $32.75 - $58.82 $7.12 - $25.10 $5.38 - $6.14
Risk-free interest rate 1.51% - 2.54% 2.68% - 3.00% 1.88% - 2.54%
Expected term (years) 5.07 - 6.25 6.06 - 6.26 6.08
Expected volatility 37.5% - 38.8% 37.0% - 37.8% 38.0% - 41.6%
Expected dividend yield - - -





These assumptions and estimates were determined as follows:



• Fair Value of Common Stock. Prior to the IPO, the Company's board of



directors determined the fair value of its common stock using various



valuation methodologies, including valuation analyses performed by



third-party valuation firms. After the IPO, the Company uses the publicly



quoted market closing price as reported on the New York Stock Exchange as



the fair value of its common stock.



• Risk-Free Interest Rate. The risk-free interest rate for the expected



term of the options was based on the U.S. Treasury yield curve in effect
at the time of the grant.



• Expected Term. The expected term was estimated using the simplified



approach, in which the expected term of an award is presumed to be



the mid-point between the vesting date and the expiration date of the



award, as the Company does not have sufficient historical data relating



to stock-option exercises.



• Expected Volatility. As there was no public market for the Company's



common stock prior to IPO, the Company has limited information on the



volatility of its common stock. Accordingly, the expected volatility for



the Company was estimated by taking the average historic price volatility



for industry peers, consisting of several public companies in the
Company's industry which are either similar in size, stage of life cycle,
or financial leverage, over a period equivalent to the expected term of
the awards.



• Expected Dividend Yield. The Company has never declared or paid any cash



dividends and does not presently plan to pay cash dividends in the



foreseeable future. As a result, an expected dividend yield of zero was



used.


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A summary of stock option and RSU activities for fiscal 2020 is as follows:






Options Outstanding RSUs Outstanding
Shares Weighted Average Weighted-
Shares Subject to Average Remaining Aggregate Average
Available Options Exercise Contractual Intrinsic Grant Date
for Grant Outstanding Price Life (Years) Value Shares Fair Value
(in thousands, except weighted



average exercise price, average remaining contractual life and weighted average grant date fair value)
Balance as of January 31, 2019


13,411 14,986 $ 5.99 7.92 $ 380,673 10,894 $ 12.01
Shares authorized 6,312 - - - - - -
Options granted (1,463 ) 1,463 42.60 - - - -
Options exercised - (4,755 ) 4.60 - - - -
Options forfeited 1,496 (1,496 ) 7.31 - - - -
Shares repurchased 135 - - - - - -
RSUs granted (4,121 ) - - - - 4,121 42.56
RSUs vested - - - - - (3,454 ) 11.69
Shares withheld related to
net share settlement of RSUs - - - - - - -
RSUs forfeited 1,301 - - - - (1,301 ) 17.41
Balance as of January 31, 2020 17,071 10,198 $ 11.69 7.55 $ 468,079 10,260 $ 23.70
Exercisable as of January 31, 2020 4,645 $ 5.46 6.60 $ 242,140 - -


Vested and expected to vest as



of January 31, 2020 9,561 $ 10.98 7.47 $ 445,646 8,877 -




The total intrinsic value of the options exercised during fiscal 2020, 2019, and
2018 was $194.1 million, $24.2 million, and $8.9 million, respectively. The
intrinsic value is calculated as the difference between the fair value of the
underlying common stock at the exercise date and the exercise price of the stock
option.




The weighted-average grant date fair value of options granted during fiscal
2020, 2019, and 2018 was $13.87, $5.48, and $2.41, respectively.




As of January 31, 2020, unrecognized stock-based compensation cost related to
outstanding unvested stock options that are expected to vest was $28.0 million,
which is expected to be recognized over a weighted-average period of 2.29 years.



RSUs granted under the 2012 Stock Plan (2012 Plan) vest upon the satisfaction of
both a service condition and a liquidity condition. Both the service and
liquidity conditions must be met for the expense to be recognized. The liquidity
condition was satisfied upon completion of our IPO, and we recognized an expense
of $29.9 million in the three months ended October 31, 2018 for the portion of
the RSUs that had met the service condition as of such date. In connection with
the IPO, the 2012 Plan was terminated and the number of shares of common stock
reserved under the 2012 Plan that were not issued or subject to outstanding
awards under the 2012 Plan on the IPO date were transferred to the 2018 Plan.


The RSUs granted after the IPO under the 2018 Plan solely vest upon the
satisfaction of a service condition.




As of January 31, 2020, unrecognized stock-based compensation cost related to
outstanding unvested RSUs that are expected to vest was $153.4 million, which is
expected to be recognized over a weighted-average period of 3.15 years.

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Stock-Based Compensation




The stock-based compensation expense, net of estimated forfeitures, by line item
in the accompanying consolidated statements of comprehensive loss is summarized
as follows:



Year Ended January 31,
2020 2019 2018
(In thousands)
Cost of subscription revenue $ 2,547 $ 831 $ 148


Cost of professional services revenue 2,199 851 507
Research and development


10,608 3,826 742
Sales and marketing 34,428 15,475 3,496
General and administrative 30,264 31,823 3,746


Total stock-based compensation expense $ 80,046 $ 52,806 $ 8,639



The Company's estimated forfeiture rate is based on accumulated historical
forfeiture data.



The capitalized stock-based compensation expense relating to research and
development expense was $2.3 million, $0.6 million, and $0.2 million during
fiscal 2020, 2019, and 2018, respectively.



(8) Fair Value Measurements




The Company utilizes valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs to the extent possible. The
Company determines fair value based on assumptions that market participants
would use in pricing an asset or a liability in the principal or most
advantageous market. When considering market participant assumptions in fair
value measurements, the following fair value hierarchy distinguishes between
observable and unobservable inputs, which are categorized in one of the
following levels:


- Level 1 inputs: Unadjusted quoted prices in active markets for identical



assets or liabilities accessible to the reporting entity at the
measurement date.



- Level 2 inputs: Other than quoted prices included in Level 1 inputs that



are observable for the asset or liability, either directly or indirectly,



for substantially the full term of the asset or liability.



- Level 3 inputs: Unobservable inputs for the asset or liability used to



measure fair value to the extent that observable inputs are not



available, thereby allowing for situations in which there is little, if



any, market activity for the asset or liability at measurement date.





The Company did not hold any assets or liabilities that are measured at fair
value on a recurring basis as of January 31, 2020 or 2019 and there were no
transfers into or out of Level 1, Level 2, or Level 3 during fiscal 2020, 2019,
and 2018.


(9) Commitments and Contingencies



Indemnifications




The Company delivers its application over the Internet as a subscription service
using a SaaS model. Each subscription is subject to the terms of the contractual
arrangement with the customer and generally includes certain provisions for
holding the customer harmless against and indemnifying the customer for costs,
damages, losses, liabilities, and expenses arising from claims that the
Company's software infringes upon a copyright, trademark, or other trade secret
rights, and third-party claims arising from the Company's breach of the
contract.

The Company has not incurred any expense in defense or reimbursement of any of
its customers for losses related to indemnification provisions, and no material
claims against the Company are outstanding as of January 31, 2020 and 2019. The
Company's exposure under these indemnification provisions is generally capped at
a fixed amount in many customer agreements and uncapped in others. Due primarily
to the lack of history of prior indemnification claims and the unique facts and
circumstances involved in each particular contractual arrangement, the Company
has determined that potential costs related to indemnification are not probable
or estimable and, as such, has not recorded a reserve for fiscal 2020, 2019, or
2018.

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Warranties




The Company provides a warranty for the implementation services it performs for
its subscription services to its customers for a period of 30 days after
completion of the services. The Company's services are generally warranted to
conform to the specifications set forth in the related customer contract and
published documentation. In the event there is a failure of such warranties, the
Company generally will correct the problem or provide a reasonable workaround or
replacement product. If the Company cannot correct the problem or provide a
workaround or replacement product, then the customer's remedy is generally
limited to termination of the contractual arrangement related to the
nonconforming product services with a refund of the related fees paid.
Accordingly, no amounts have been recorded.


Legal Matters




The Company is a party to various legal proceedings and claims, which arise in
the ordinary course of business. As of January 31, 2020 and 2019, the Company
determined that there was not at least a reasonable possibility that it had
incurred a material loss, or a material loss in excess of a recorded accrual,
with respect to such proceedings.


Other Contractual Commitments






Other contractual commitments primarily consist of data center and IT operations
related to our daily business operations. Future minimum payments under our
non-cancellable purchase commitments as of January 31, 2020 are presented in the
table below:



Purchase
Obligations
(In thousands)
Year ended January 31,
2021 $ 14,772
2022 10,178
2023 4,780
2024 1,655
Total future minimum payments $ 31,385






(10) Income Taxes



The components of the loss before income taxes were as follows:






Year Ended January 31,
2020 2019 2018
(In thousands)
Domestic $ (115,107 ) $ (89,375 ) $ (20,382 )
Foreign (29,657 ) (38,432 ) (25,911 )
Total $ (144,764 ) $ (127,807 ) $ (46,293 )




95



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The provision for income taxes was as follows:






Year Ended January 31,
2020 2019 2018
(In thousands)
Current:
Federal $ - $ - $ -
State 76 244 10
Foreign 1,741 2,078 1,069



Total current income tax expense 1,817 2,322 1,079
Deferred:
Federal


$ - $ - $ -
State - - -
Foreign 2,636 887 182


Total deferred income tax expense 2,636 887 182
Total provision for income tax $ 4,453 $ 3,209 $ 1,261



A reconciliation of the U.S. federal statutory tax rate to the Company's
provision for income taxes was as follows:






Year Ended January 31,
2020 2019 2018
(In thousands)



U.S. federal taxes at statutory tax rate $ (30,400 ) $ (26,841 ) $ (15,229 )
State taxes, net of federal benefit


(9,427 ) (3,413 ) (790 )
Stock-based compensation (40,628 ) (431 ) 1,653
Change in valuation allowance 98,343 32,828 (7,711 )
Foreign income taxed at various rates (5,986 ) 1,984 4,002
U.S. Tax Reform - - 19,736
Other (7,449 ) (918 ) (400 )
Total $ 4,453 $ 3,209 $ 1,261





Significant components of net deferred tax assets are as follows:






As of January 31,
2020 2019
(In thousands)
Deferred tax assets:
Net operating losses $ 184,752 $ 74,040
Stock-based compensation 18,234 12,529
Accruals and reserves 4,522 3,531
Depreciation and amortization 253 156
Lease liabilities 9,545 -
Deferred research and development costs 579 -
Gross deferred tax assets 217,885 90,256
Valuation allowance (189,737 ) (79,739 )
Deferred tax liabilities:
Depreciation and amortization (3,647 ) -
Accruals and reserves (2,097 ) (528 )
ROU assets (8,387 ) -
Deferred commissions (17,443 ) (11,022 )
Gross deferred tax liabilities (31,574 ) (11,550 )


Total net deferred tax liabilities $ (3,426 ) $ (1,033 )







96



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In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management believes it is
more likely than not that the deferred tax assets will not be realized;
accordingly, a valuation allowance has been established on U.S. and U.K. net
deferred tax assets. The valuation allowance increased $110.0 million for fiscal
2020 and increased $32.8 million for fiscal 2019.

As of January 31, 2020, the Company has net operating loss carryforwards for
federal income tax purposes of $572.2 million available to reduce future income
subject to income taxes. The federal net operating loss carryforwards will begin
to expire, if not utilized, in fiscal 2029. In addition, the Company has
$140.9 million and $207.3 million of net operating loss carryforwards available
to reduce future taxable income subject to California state income taxes and all
other applicable state jurisdictions, respectively. The California net operating
loss carryforwards will begin to expire, if not utilized, in fiscal 2031 through
fiscal 2039. The other states' net operating loss carryforwards will begin to
expire at various dates beginning in fiscal 2025 through fiscal 2039, if not
utilized. The U.K. net operating loss carryforwards of $182.0 million do not
expire.

The federal and state net operating loss carryforwards may be subject to
significant limitations under Section 382 and Section 383 of the Code and
similar provisions under state law. The Tax Reform Act of 1986 contains
provisions that limit the federal net operating loss carryforwards that may be
used in any given year in the event of special occurrences, including
significant ownership changes. The Company completed an analysis under Code
Sections 382 and 383 through January 31, 2019 and concluded that the limitation
on its ability to utilize its net operating loss carryforwards will not be
material. If there were material ownership changes subsequent to the study, such
changes could limit the Company's ability to utilize its net operating loss
carryforwards.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation
commonly referred to as the Tax Cuts and Jobs Act (the Tax Reform Act). The Tax
Reform Act reduced the U.S. federal corporate income tax rate from 35% to 21%
effective January 1, 2018. The Company had recorded the estimated effects of the
Tax Reform Act in its fiscal 2018 tax provision pursuant to Staff Accounting
Bulletin No. 118 (SAB 118) issued by SEC. In its fourth quarter of fiscal 2019,
the Company finalized the accounting for the Tax Reform Act and did not record
any measurement period adjustments. In addition, the Company computed its fiscal
2020, 2019, and 2018 provision with the tax rate of 21%, 21% and 33%,
respectively.

During the quarter ended October 31, 2019, the Company acquired $7.4 million of
gross unrecognized tax benefits through purchase accounting from the Mintigo
acquisition, of which $6.1 million were not recognized as they would be offset
by the reversal of related deferred tax assets which are subject to a full
valuation allowance. Prior to year end, $0.8 million of the $6.1 million expired
due to the statute of limitations, and accordingly, this amount was removed from
the balance of gross unrecognized tax benefits. The remaining $1.3 million of
unrecognized tax benefits were included within other noncurrent liabilities on
the consolidated balance sheet as of January 31, 2020, and if recognized, would
impact the Company's effective tax rate. The Company does not expect any
significant change in its unrecognized tax benefits during the next twelve
months that would be material to the consolidated financial statements because
nearly all of the unrecognized tax benefits have been offset by a deferred tax
asset, which has been reduced by a valuation allowance.

The Company files income tax returns for U.S. federal income tax, several
U.S. states, and other foreign jurisdictions. The Company's most significant tax
jurisdictions are the United States and the United Kingdom. The Company's tax
years for 2009 and forward are subject to examination by the federal tax
authorities. The Company's tax years for 2009 and forward are subject to
examination by the state tax authorities. The Company's tax years for 2011 and
forward are subject to examination by the foreign tax authorities. The Company
is not currently under examination for income tax in any jurisdiction.

97

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(11) Net Loss Per Share Attributable to Common Stockholders



The following table sets forth the computation of basic and diluted net loss per
share attributable to common stockholders:






Year Ended January 31,
2020 2019 2018
(In thousands, except per share data)
Numerator:
Net loss $ (149,217 ) $ (131,016 ) $ (47,554 )
Denominator:
Weighted-average shares used in computing


net loss per share attributable to common



stockholders, basic and diluted 129,799 53,328 18,956
Net loss per share attributable to common
stockholders, basic and diluted $ (1.15 ) $ (2.46 ) $ (2.51 )




The potential shares of common stock that were excluded from the computation of
diluted net loss per share attributable to common stockholders for the periods
presented because including them would have been antidilutive are as follows:



As of January 31,
2020 2019 2018
(In thousands)
Convertible preferred stock - - 73,610
Stock options 10,198 14,986 15,815
Stock repurchase rights 5 4,776 8,789
Restricted stock units 10,260 10,894 5,249
Unvested shares subject to repurchase 6 24 -
Convertible preferred stock warrants - - 10
Common stock warrants - - 14
Total 20,469 30,680 103,487




(12) Employee Benefit Plans

On January 1, 2013, the Company initiated a savings and retirement plan for
employees. The Company's employee savings and retirement plan is qualified under
Section 401 of the Internal Revenue Code. The plan is available to all regular
employees on the Company's U.S. payroll and provides employees with tax-deferred
salary deductions and alternative investment options. Employees may contribute
up to 90% of their salary up to the statutory prescribed annual limit. The
Company also has a defined-contribution retirement plan that covers
substantially all employees in the United Kingdom, Singapore, the Netherlands,
France, Sweden, Switzerland, India, Israel, Japan, Austria, and Australia. The
Company matches employees' contributions to the U.S. 401(k) plan, subject to
certain limitations. The Company also matches at varying percentages of income,
voluntarily or within a statutory scheme, for employees in the countries listed
above.

98



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item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure



None.

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