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 endedJanuary 31, 2019 , filed with theSEC onMarch 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 endsJanuary 31 . OverviewAnaplan 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from the legacy approach to planning, which is typically confined to the finance department and uses a patchwork of outdated and disconnected tools and manual processes that are often overly complex, slow, inefficient, and static.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
53 -------------------------------------------------------------------------------- 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 ofthe 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 forAnaplan 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 ofJanuary 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 inForbes magazine's Forbes Global 2000 list. The companies included in the list are updated annually in the second quarter of the calendar year. As ofJanuary 31, 2020 , we served over 300 G2K customers, and over 250 and 190 as ofJanuary 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 ofJanuary 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. 54 -------------------------------------------------------------------------------- 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, onOctober 3, 2019 we completed the acquisition ofMintigo Limited , anIsrael -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. InDecember 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. 55 -------------------------------------------------------------------------------- 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 ofthe 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. 56 --------------------------------------------------------------------------------
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 ofJanuary 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. 57 --------------------------------------------------------------------------------
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 aU.S. securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of theSEC . 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, andU.K. deferred tax assets as we have concluded that it is not more likely than not that the deferred assets will be utilized. 58
-------------------------------------------------------------------------------- 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
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
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, 59 --------------------------------------------------------------------------------
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
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
48
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$84.0 million , or 48%. The increase in gross profit was the result of the increases in our subscription revenue primarily driven by the acquisition of new customers and existing customers expanding their use of our platform in fiscal 2020. Gross margin was 74% in fiscal 2020 compared to 72% in fiscal 2019. The increase in gross margin was primarily due to the increase in subscription revenue, which generates a significantly higher gross margin than our professional services revenue, as a percentage of total revenue, partially offset by a slight decrease in our professional services gross margins. Our gross margins can fluctuate from quarter to quarter as a result of the requirements, complexity, and timing of our customers' implementation projects that can vary significantly. 60 --------------------------------------------------------------------------------
Operating Expenses Year Ended January 31, 2020 2019 % Change (In thousands) Operating expense: Research and development$ 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
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$0.7 million , or 45%. The change was primarily due to currency fluctuations and the related remeasurements during the periods, primarily related to ourU.K. operations. 61 --------------------------------------------------------------------------------
Provision for Income Taxes Year Ended January 31, 2020 2019 % Change (In thousands) Provision for income taxes$ 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
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
InApril 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 throughApril 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 --------------------------------------------------------------------------------
the principal and any accrued and unpaid interest due on
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$1.00 . This syndicated loan agreement was subsequently amended inSeptember 2018 andOctober 2019 . As ofJanuary 31, 2020 , we were in compliance with all covenants associated with the credit facility.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Year Ended January 31, 2020 2019 2018 (In thousands) Net cash used in operating activities$ (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 ofMintigo , 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. 63 --------------------------------------------------------------------------------
Financing Activities
Net cash provided by financing activities for fiscal 2020 of
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$1.6 million principal payment on capital lease obligations. Commitments and Contractual Obligations The following table summarizes our non-cancelable contractual obligations as ofJanuary 31, 2020 : Payments Due by Period Less More Than 1 - 3 3 - 5 Than Total 1 Year Years Years 5 Years (In thousands)
Operating lease obligations, including
imputed interest$ 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 ThroughJanuary 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 withU.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 64
-------------------------------------------------------------------------------- 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,
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. 65 --------------------------------------------------------------------------------
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 theNew 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 theU.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
-------------------------------------------------------------------------------- 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 endedOctober 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 ofJanuary 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 inU.S. dollars. A hypothetical 10% increase or decrease in the relative value of theU.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 ofJanuary 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
--------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------- Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets ofAnaplan, Inc. and subsidiaries (the Company) as ofJanuary 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 endedJanuary 31, 2020 , and the related notes (collectively, the consolidated financial statements). We also have audited the Company's internal control over financial reporting as ofJanuary 31, 2020 , based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of theTreadway Commission . In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofJanuary 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period endedJanuary 31, 2020 , in conformity withU.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofJanuary 31, 2020 based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of theTreadway 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 ofFebruary 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 thePublic Company Accounting Oversight Board (United States ) (PCAOB) and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities 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 69 --------------------------------------------------------------------------------
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 endedJanuary 31, 2020 and had$83.9 million of sales commissions capitalized as ofJanuary 31, 2020 . We identified the evaluation of the amortization period for capitalized sales commissions related to the acquisition of customer contracts as a critical audit matter. Evaluating the Company's judgments to determine the estimated period of benefit based on key inputs involved a high degree of subjective auditor judgment. The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls related to the capitalized sales commission process. In particular, we tested controls over the development of the estimated period of benefit, including determination of the key inputs and periodic re-assessment of the period of benefit. We compared the Company's historical initial and renewal contractual terms and the estimated renewal rates to historical experience with customer contracts. We evaluated the technological life of the platform used in the analysis against the Company's amortization period for internally-developed software. We evaluated 70 -------------------------------------------------------------------------------- the Company's selection of key inputs used in the consideration of the estimated period of benefit based on the relevance of those inputs. We evaluated the Company's estimated period of benefit based on the Company's historical experience with customer contracts, future expectations of customer life, and the estimated technological life of the platform to which the services provided to customers relate. /s/KPMG LLP
We have served as the Company's auditor since 2013.
San Francisco, California March 30, 2020 71
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ANAPLAN, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) As of January 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents$ 309,894 $
326,863
Accounts receivable, net of allowances for doubtful
accounts of
and$842 as ofJanuary 31, 2020 and 2019, respectively 109,217
92,597
Deferred commissions, current portion 25,990
15,827
Prepaid expenses and other current assets 17,814 13,377 Total current assets 462,915 448,664 Property and equipment, net 48,639 43,340 Deferred commissions, net of current portion 57,947
35,063
Goodwill 32,379
-
Operating lease right-of-use assets 37,875 - Other noncurrent assets 10,052 1,702 TOTAL ASSETS$ 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 ofJanuary 31, 2020 and 2019; no shares
issued and outstanding as of
-
-
Common stock, par value of$0.0001 per share; 1,750,000 shares
authorized as of
and 126,246 shares issued and outstanding as ofJanuary 31, 2020 and 2019, respectively 13
12
Accumulated other comprehensive loss (4,326 ) (3,036 ) Additional paid-in capital 788,447 653,738 Accumulated deficit (492,453 ) (343,236 ) TOTAL STOCKHOLDERS' EQUITY 291,681 307,478 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$ 649,807 $ 528,769 The accompanying notes are an integral part of these consolidated financial statements. 72
--------------------------------------------------------------------------------
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. 73
-------------------------------------------------------------------------------- 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
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 $ 788,447 $ (4,326 ) $ (492,453 ) $ 291,681 The accompanying notes are an integral part of these consolidated financial statements. 74
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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. 75
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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 orAnaplan ) was incorporated inDelaware onJuly 9, 2009 and is headquartered inSan Francisco, California , with offices in multipleU.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
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe 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 withU.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 toU.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.
76 --------------------------------------------------------------------------------
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.
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, effectiveFebruary 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 --------------------------------------------------------------------------------
The cumulative effect of the changes made to the Company's consolidated balance
sheet as of
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 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 ofFebruary 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 ofJanuary 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 withU.S. banks and are insured to the extent defined by theFederal Deposit Insurance Corporation . The Company markets its subscription and services inthe 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 ofJanuary 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. 78 --------------------------------------------------------------------------------
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 ofJanuary 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
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. 79 --------------------------------------------------------------------------------
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 theUnited 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% forthe 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 theUnited 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 ofJanuary 31, 2020 and 2019, respectively, which were included within prepaid expenses and other current assets on the consolidated balance sheets. 80 -------------------------------------------------------------------------------- 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 ofJanuary 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. 81 -------------------------------------------------------------------------------- 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 theNew 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 endedOctober 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 ofJanuary 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. 82 -------------------------------------------------------------------------------- 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 futureU.S. ,U.K. andIsrael 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. 83
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Recently Issued Accounting Pronouncements
InJune 2016 , theFinancial 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. InNovember 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. InApril 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. InMay 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 afterDecember 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. InNovember 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 ofNovember 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. InDecember 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 afterDecember 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
InFebruary 2016 andJuly 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 startingFebruary 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. InJanuary 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. InJanuary 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 afterDecember 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. 84 -------------------------------------------------------------------------------- InAugust 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 afterDecember 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company early adopted the guidance startingFebruary 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 ofJanuary 31, 2020 2019 (In thousands)
Computer and office equipment
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
Depreciation expense was
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 InApril 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 throughApril 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 onApril 30, 2020 . This syndicated loan agreement was subsequently amended inSeptember 2018 andOctober 2019 . As ofJanuary 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 ofJanuary 31, 2020 . 85 --------------------------------------------------------------------------------
(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% 86
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Future minimum lease payments under operating leases and finance leases as
of
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 ofJanuary 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 ofJanuary 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
(5) Business Combination
On
87 -------------------------------------------------------------------------------- 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 toMintigo'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 ofMintigo 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. 88 --------------------------------------------------------------------------------
(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
The expected future intangible assets amortization as ofJanuary 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
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 89
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2012 Stock Plan
InMarch 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 ofJanuary 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
InOctober 2018 , the Company adopted the 2018 Plan, which became effective onOctober 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 ofJanuary 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 onFebruary 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 InSeptember 2018 , the Company adopted the 2018 Employee Stock Purchase Plan (the ESPP), which became effective onOctober 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 onFebruary 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 beginningJune 21 andDecember 21 of each year, and each offering period will consist of two six-month purchase periods. The initial offering period beganOctober 12, 2018 and ended onDecember 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. 90 -------------------------------------------------------------------------------- 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 ofJanuary 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
As of
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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
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 theU.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. 92
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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
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
As ofJanuary 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 endedOctober 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 ofJanuary 31, 2020 , unrecognized stock-based compensation cost related to outstanding unvested RSUs that are expected to vest was$153.4 million , which is expected to be recognized over a weighted-average period of 3.15 years. 93 --------------------------------------------------------------------------------
Stock-Based Compensation
The stock-based compensation expense, net of estimated forfeitures, by line item in the accompanying consolidated statements of comprehensive loss is summarized as follows: Year Ended January 31, 2020 2019 2018 (In thousands) Cost of subscription revenue$ 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
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
(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 ofJanuary 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 ofJanuary 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. 94
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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 ofJanuary 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 ofJanuary 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
A reconciliation of the
Year Ended January 31, 2020 2019 2018 (In thousands)
(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
96
-------------------------------------------------------------------------------- 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 onU.S. andU.K. net deferred tax assets. The valuation allowance increased$110.0 million for fiscal 2020 and increased$32.8 million for fiscal 2019. As ofJanuary 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 toCalifornia state income taxes and all other applicable state jurisdictions, respectively. TheCalifornia 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. TheU.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 throughJanuary 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. OnDecember 22, 2017 , theU.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 theU.S. federal corporate income tax rate from 35% to 21% effectiveJanuary 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 bySEC . 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 endedOctober 31, 2019 , the Company acquired$7.4 million of gross unrecognized tax benefits through purchase accounting from theMintigo 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$1.3 million of unrecognized tax benefits were included within other noncurrent liabilities on the consolidated balance sheet as ofJanuary 31, 2020 , and if recognized, would impact the Company's effective tax rate. The Company does not expect any significant change in its unrecognized tax benefits during the next twelve months that would be material to the consolidated financial statements because nearly all of the unrecognized tax benefits have been offset by a deferred tax asset, which has been reduced by a valuation allowance. The Company files income tax returns forU.S. federal income tax, severalU.S. states, and other foreign jurisdictions. The Company's most significant tax jurisdictions arethe United States and theUnited Kingdom . The Company's tax years for 2009 and forward are subject to examination by the federal tax authorities. The Company's tax years for 2009 and forward are subject to examination by the state tax authorities. The Company's tax years for 2011 and forward are subject to examination by the foreign tax authorities. The Company is not currently under examination for income tax in any jurisdiction. 97 --------------------------------------------------------------------------------
(11) Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders:
Year Ended January 31, 2020 2019 2018 (In thousands, except per share data) Numerator: Net loss$ (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 OnJanuary 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'sU.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 theUnited Kingdom ,Singapore ,the Netherlands ,France ,Sweden ,Switzerland ,India ,Israel ,Japan ,Austria , andAustralia . The Company matches employees' contributions to theU.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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