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Amounts include stock-based compensation expense, as follows:

Cost of revenues, $13,992 thousand and $10,459 thousand;

Research and development, $66,284 thousand and $40,451 thousand;

Sales and marketing, $50,741 thousand and $49,007 thousand;

General and administrative, $23,856 thousand and $23,096 thousand

for the three months ended July 31, 2020 and 2019, respectively.

Amounts include stock-based compensation expense, as follows:

Cost of revenues, $27,194 thousand and $21,284 thousand;

Research and development, $134,853 thousand and $81,719 thousand;

Sales and marketing, $107,215 thousand and $99,275 thousand;

General and administrative, $44,429 thousand and $43,798 thousand

for the six months ended July 31, 2020 and 2019, 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED JULY 31, 2020

 

OR

 

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

 

FOR THE TRANSITION PERIOD FROM              TO

 

COMMISSION FILE NUMBER 001-35498

 ____________________________________________________

Splunk Inc.

(Exact name of registrant as specified in its charter)

_____________________________________________________

Delaware						86-1106510
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

270 Brannan Street

San Francisco, California 94107

(Address of principal executive offices)

(Zip Code)

 

(415) 848-8400

(Registrant’s telephone number, including area code)

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

SPLK

The NASDAQ Global Select Market

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

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☒			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
Emerging growth company			☐

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 160,393,964 shares of the Registrant’s Common Stock issued and outstanding as of August 28, 2020.

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TABLE OF CONTENTS

 

Page No.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets as of July 31, 2020 and January 31, 2020

1

Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 31, 2020 and 2019

3

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended July 31, 2020 and 2019

4

Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2020 and 2019

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended July 31, 2020 and 2019

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

55

Item 4.

Controls and Procedures

55

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

57

Item 1A.

Risk Factors

57

Item 6.

Exhibits

85

Signatures

87

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Splunk Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)						July 31, 2020						January 31, 2020
Assets
Current assets
Cash and cash equivalents						$	1,467,895					$	778,653
Investments, current						588,773						976,508
Accounts receivable, net						793,081						838,743
Prepaid expenses and other current assets						118,047						129,839
Deferred commissions, current						112,598						99,072
Total current assets						3,080,394						2,822,815
Investments, non-current						17,653						35,370
Accounts receivable, non-current						330,335						468,934
Operating lease right-of-use assets						388,931						267,086
Property and equipment, net						183,829						156,928
Intangible assets, net						209,124						238,415
Goodwill						1,292,840						1,292,840
Deferred commissions, non-current						74,498						88,990
Other assets						68,888						68,093
Total assets						$	5,646,492					$	5,439,471
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable						$	40,804					$	18,938
Accrued compensation						224,721						286,159
Accrued expenses and other liabilities						207,548						177,822
Deferred revenue, current						760,594						829,377
Total current liabilities						1,233,667						1,312,296
Convertible senior notes, net						2,248,396						1,714,630
Operating lease liabilities						349,751						235,631
Deferred revenue, non-current						143,308						176,832
Other liabilities, non-current						1,889						653
Total non-current liabilities						2,743,344						2,127,746
Total liabilities						3,977,011						3,440,042
Commitments and contingencies (Note 3 and 4)
Stockholders’ equity
Common stock: $0.001 par value; 1,000,000,000 shares authorized; 160,387,959 shares issued and outstanding at July 31, 2020, and 157,787,548 shares issued and outstanding at January 31, 2020						160						157
Accumulated other comprehensive loss						(4,730)						(5,312)
Additional paid-in capital						3,802,423						3,566,055
Accumulated deficit						(2,128,372)						(1,561,471)
Total stockholders’ equity						1,669,481						1,999,429
Total liabilities and stockholders’ equity						$	5,646,492					$	5,439,471

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

1

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Splunk Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

						Three Months Ended July 31,																		Six Months Ended July 31,
(In thousands, except per share amounts)						2020						2019						2020						2019
Revenues
License						$	176,814					$	279,279					$	325,199					$	482,141
Cloud services						125,870						70,451						238,022						132,506
Maintenance and services						188,974						166,828						362,514						326,761
Total revenues						491,658						516,558						925,735						941,408
Cost of revenues (1)
License						5,474						5,936						11,540						11,618
Cloud services						59,728						35,155						113,218						67,481
Maintenance and services						66,850						57,217						135,911						115,032
Total cost of revenues						132,052						98,308						260,669						194,131
Gross profit						359,606						418,250						665,066						747,277
Operating expenses (1)
Research and development						197,297						134,110						389,421						263,400
Sales and marketing						323,687						298,773						642,911						577,734
General and administrative						78,081						72,264						160,805						138,026
Total operating expenses						599,065						505,147						1,193,137						979,160
Operating loss						(239,459)						(86,897)						(528,071)						(231,883)
Interest and other income (expense), net
Interest income						3,581						16,415						10,056						32,761
Interest expense						(30,148)						(24,104)						(54,585)						(47,121)
Other income (expense), net						5,917						(654)						5,243						(1,193)
Total interest and other income (expense), net						(20,650)						(8,343)						(39,286)						(15,553)
Loss before income taxes						(260,109)						(95,240)						(567,357)						(247,436)
Income tax provision (benefit)						1,213						5,632						(456)						8,865
Net loss						$	(261,322)					$	(100,872)					$	(566,901)					$	(256,301)
Basic and diluted net loss per share						$	(1.64)					$	(0.67)					$	(3.58)					$	(1.71)
Weighted-average shares used in computing basic and diluted net loss per share						158,952						150,306						158,241						149,723

 _________________________

⁽¹⁾ Amounts include stock-based compensation expense, as follows:  

Cost of revenues						$	13,992					$	10,459					$	27,194					$	21,284
Research and development						66,284						40,451						134,853						81,719
Sales and marketing						50,741						49,007						107,215						99,275
General and administrative						23,856						23,096						44,429						43,798

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

2

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Splunk Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

						Three Months Ended July 31,																		Six Months Ended July 31,
(In thousands)						2020						2019						2020						2019
Net loss						$	(261,322)					$	(100,872)					$	(566,901)					$	(256,301)
Other comprehensive income (loss)
Net unrealized gain (loss) on investments (net of tax)						(1,999)						710						686						1,042
Foreign currency translation adjustments						(783)						(1,029)						(104)						(2,020)
Total other comprehensive income (loss)						(2,782)						(319)						582						(978)
Comprehensive loss						$	(264,104)					$	(101,191)					$	(566,319)					$	(257,279)

 

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

3

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Splunk Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

						Six Months Ended July 31,
(In thousands)						2020						2019
Cash flows from operating activities
Net loss						$	(566,901)					$	(256,301)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization						42,685						27,141
Amortization of deferred commissions						61,120						53,882
Amortization of investment premiums (accretion of discounts), net						(944)						(5,645)
Amortization of debt discount and issuance costs						44,738						39,095
Gain on extinguishment of convertible senior notes						(6,952)						—
Repurchase of convertible senior notes attributable to the accreted interest related to debt discount						(22,149)						—
Non-cash operating lease costs						15,759						5,407
Stock-based compensation						313,691						246,076
Disposal of property and equipment						981						—
Deferred income taxes						(644)						(184)
Changes in operating assets and liabilities:
Accounts receivable, net						184,261						60,750
Prepaid expenses and other assets						12,493						(109,040)
Deferred commissions						(60,154)						(53,214)
Accounts payable						22,963						5,316
Accrued compensation						(61,378)						(46,215)
Accrued expenses and other liabilities						(1,294)						10,679
Deferred revenue						(102,307)						(71,689)
Net cash used in operating activities						(124,032)						(93,942)
Cash flows from investing activities
Purchases of investments						(87,135)						(539,723)
Maturities of investments						497,725						541,595
Purchases of property and equipment						(25,816)						(26,434)
Capitalized software development costs						(7,133)						—
Other investment activities						(2,886)						(1,250)
Net cash provided by (used in) investing activities						374,755						(25,812)
Cash flows from financing activities
Proceeds from the exercise of stock options						2,671						556
Proceeds from employee stock purchase plan						44,214						34,482
Proceeds from the issuance of convertible senior notes, net of issuance costs						1,246,544						—
Purchase of capped calls						(137,379)						—
Partial repurchase of convertible senior notes						(668,929)						—
Taxes paid related to net share settlement of equity awards						(49,228)						(117,693)
Net cash provided by (used in) financing activities						437,893						(82,655)
Effect of exchange rate changes on cash and cash equivalents						626						(1,751)
Net increase (decrease) in cash and cash equivalents						689,242						(204,160)
Cash and cash equivalents at beginning of period						778,653						1,876,165
Cash and cash equivalents at end of period						$	1,467,895					$	1,672,005
Supplemental disclosures
Cash paid for income taxes						$	6,267					$	15,249
Cash paid for interest						8,557						7,747
Non-cash investing activities
Increase (decrease) in accrued purchases of property and equipment						5,169						(274)
Vesting of early exercised options						117						—
Costs related to issuance of convertible senior notes included in accrued expenses and other liabilities						1,053						—

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

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Splunk Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

						Three Months Ended July 31,																		Six Months Ended July 31,
(In thousands)						2020						2019						2020						2019
Common stock
Balance, beginning of period						$	158					$	150					$	157					$	149
Vesting of restricted stock units						1						1						2						2
Issuance of common stock upon ESPP purchase						1						—						1						—
Balance, end of period						$	160					$	151					$	160					$	151
Additional paid-in capital
Balance, beginning of period						$	3,678,895					$	2,809,273					$	3,566,055					$	2,754,858
Stock-based compensation						154,873						123,013						313,691						246,076
Capitalized software development costs						2,074						—						3,850						—
Issuance of common stock upon exercise of options						1,252						195						2,670						554
Vesting of early exercised options						61						—						117						—
Taxes paid related to net share settlement of equity awards						—						(48,686)						(49,228)						(117,693)
Issuance of common stock upon ESPP purchase						44,214						34,482						44,214						34,482
Equity component of convertible senior notes, net						342,062						—						342,062						—
Purchase of capped calls						(137,379)						—						(137,379)						—
Partial repurchase of convertible senior notes						(283,629)						—						(283,629)						—
Balance, end of period						$	3,802,423					$	2,918,277					$	3,802,423					$	2,918,277
Accumulated other comprehensive loss
Balance, beginning of period						$	(1,948)					$	(3,165)					$	(5,312)					$	(2,506)
Unrealized gain (loss) from investments (net of tax)						(1,999)						710						686						1,042
Net change in cumulative translation adjustments						(783)						(1,029)						(104)						(2,020)
Balance, end of period						$	(4,730)					$	(3,484)					$	(4,730)					$	(3,484)
Accumulated deficit
Balance, beginning of period						$	(1,867,050)					$	(1,380,232)					$	(1,561,471)					$	(1,232,044)
Cumulative-effect adjustment from adoption of ASU 2016-02						—						—						—						7,241
Net loss						(261,322)						(100,872)						(566,901)						(256,301)
Balance, end of period						$	(2,128,372)					$	(1,481,104)					$	(2,128,372)					$	(1,481,104)
Total stockholders’ equity						$	1,669,481					$	1,433,840					$	1,669,481					$	1,433,840

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(1) Description of the Business and Significant Accounting Policies

Business

Splunk Inc. (“we,” “us,” “our”) provides innovative software solutions that ingest data from different sources including systems, devices and interactions, and turn that data into meaningful business insights across the organization. Our Data-to-Everything platform enables users to investigate, monitor, analyze and act on data regardless of format or source. Data is produced by nearly every software application and electronic device across an organization and contains a real-time record of various activities, such as business transactions, customer and user behavior, and security threats. Our Data-to-Everything platform helps organizations gain the value contained in data by delivering real-time information to enable operational decision making. We were incorporated in California in October 2003 and reincorporated in Delaware in May 2006.

Fiscal Year

Our fiscal year ends on January 31. References to fiscal 2021, for example, refer to the fiscal year ending January 31, 2021.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet data as of January 31, 2020 was derived from audited financial statements, but does not include all disclosures required by GAAP. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the fiscal year ended January 31, 2020, filed with the SEC on March 26, 2020.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to state fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal 2021.

Reclassifications

Certain reclassifications have been made to prior period balances in order to conform to the current period presentation. “Cloud services” revenues have been reclassified from “Maintenance and services” revenues on our condensed consolidated statements of operations and “Non-cash operating lease costs” have been reclassified from “Accrued expenses and other liabilities” in our condensed consolidated statement of cash flows. These reclassifications had no impact on our previously reported total revenues and net cash flows from operating, investing, or financing activities.

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods covered by the financial statements and accompanying notes. In particular, we make estimates with respect to the stand-alone selling price for each distinct performance obligation included in customer contracts with multiple performance obligations, uncollectible accounts receivable, the assessment of the useful life and recoverability of long-lived assets (property and equipment, goodwill and identified intangibles), the period of benefit for deferred commissions, stock-based compensation expense, the fair value of assets acquired and liabilities assumed for business combinations, income taxes, the discount rate used for operating leases, and contingencies. Actual results could differ from those estimates.

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COVID-19

 

The worldwide spread of COVID-19 has created significant global economic uncertainty and resulted in a global slowdown of economic activity which has decreased demand for a broad variety of goods and services, while also disrupting sales channels, marketing activities and general business operations for an unknown period of time until the disease is contained. At this point, the extent to which COVID-19 may impact our future financial condition or results of operations is uncertain, and as of the date of issuance of these condensed consolidated financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, judgments or adjust the carrying value of our assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and will be recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to our condensed consolidated financial statements.

Segments

We operate our business as one operating segment: the development and marketing of software solutions that enable our customers to gain real-time business insights by harnessing the value of their data. Our chief operating decision maker is our Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources.

Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Splunk Inc. and its direct and indirect wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

Foreign Currency

The functional currency of our foreign subsidiaries is their respective local currency, with the exception of our United Kingdom and Singapore subsidiaries, for which the functional currency is the U.S. dollar. Translation adjustments arising from the use of differing exchange rates from period to period are included in “Accumulated other comprehensive income (loss)” within the condensed consolidated statements of stockholders’ equity. Foreign currency transaction gains and losses are included in “Other income (expense), net.” All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Expenses are translated at the average exchange rate during the period. Equity transactions are translated using historical exchange rates.

Revenue Recognition

We generate revenues primarily in the form of software license and related maintenance fees, cloud services and other service fees. Licenses for on-premises software are either term or perpetual licenses and provide the customer with a right to use the software. When a term license is purchased, maintenance is bundled with the license for the term of the license period. Typically, when purchasing a perpetual license, a customer also purchases one year of maintenance for which we charge a percentage of the license fee. Cloud services are provided on a subscription basis and give our customers access to our cloud solutions, which include related customer support. Other services include training and professional services that are not integral to the functionality of the licenses or cloud services.

Our contracts with customers often contain multiple performance obligations, which may include a combination of on-premise software licenses, related maintenance and support services, cloud services and professional services including training. We apply significant judgment in identifying and accounting for each performance obligation, as a result of evaluating the terms and conditions in contracts. For these contracts, we account for on-premise licenses, maintenance and support, cloud services and other services as separate performance obligations as they are each distinct. Revenue is recognized when the performance obligations are satisfied. We satisfy our obligation and recognize revenue for on-premise licenses upon transfer of control of the software, which occurs at delivery of the license key to customers, or when the license term commences, if later. We satisfy our cloud service performance obligation over the associated contract term and recognize the associated revenue ratably over the term of the contract once access is provided to the customer, consistent with the pattern of benefit to the customer of such services. We satisfy our maintenance and support performance obligations and recognize revenue ratably over the maintenance and support term, consistent with the pattern of benefit to the customer of such services. Professional services and training are either provided on a time and material basis or over a contract term. We satisfy our professional services and training performance obligations and recognize the associated revenue as services are delivered. With respect to contracts that

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include customer acceptance provisions, we recognize revenue upon customer acceptance. Our policy is to record revenues net of any applicable sales, use or excise taxes.

Customers can purchase our products under different pricing options. Regardless of the pricing option selected, the consideration for our license and cloud contracts is fixed and does not result in variable consideration. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (“SSP”) basis. We determine the SSP based on an observable standalone selling price when it is available, as well as other factors, including the price charged to customers, our discounting practices, and our overall pricing objectives, while maximizing observable inputs. In situations where pricing is highly variable, we estimate the SSP using the residual approach.

A receivable is recorded when we have an unconditional right to payment, either because we satisfied a performance obligation prior to receiving payment from the customer or we have a non-cancelable contract that has been invoiced in advance in accordance with our standard payment terms. Most of our multi-year on-premises term license and cloud services contracts are invoiced annually. A receivable for multi-year cloud services is generally recorded upon invoicing. A receivable for multi-year on-premises term licenses is recorded upon delivery, whether or not invoiced, to the extent we have an unconditional right to receive payment in the future related to those licenses. The non-current portion of these receivables, primarily consisting of unbilled receivables from on-premises term licenses, is included in “Accounts receivable, non-current” on our condensed consolidated balance sheets.

Payment terms and conditions vary by contract type, although our standard payment terms generally require payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of payment, we have determined our contracts do not generally include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing.

Deferred revenue is recorded when we invoice a contract or deliver a license prior to recognizing revenue. It is comprised of balances related to maintenance, cloud services, training and professional services invoiced at the beginning of each service period, as well as licenses that we delivered prior to the license term commencing.

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Recently Adopted Accounting Standards

 

Standard

Description

Effective Date

Effect on the Condensed Consolidated Financial Statements (or Other Significant Matters)

Accounting Standards Update (“ASU”) No. 2016-13 (Topic 326), Financial Instruments - Credit Losses

The amendments in this update require a financial asset (or a group of financial assets) measured at an amortized cost basis to be presented at the net amount expected to be collected. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans and available-for-sale securities.

We adopted this new standard as of February 1, 2020, using the modified prospective method recognized as of the date of initial application. Under this method, we are not required to restate or disclose the effects of applying Topic 326 for comparative periods.

The adoption of this new standard did not have a material impact on our condensed consolidated financial statements. Under the new standard, we assess credit losses on accounts receivable by taking into consideration past collection experience, credit quality of the customer, age of the receivable balance, current economic conditions, and forecasts that affect the collectability of the reported amount. With respect to available-for-sale debt securities, when the fair value of a security is below its amortized cost, the amortized cost will be written down to its fair value if it is more likely than not that management is required to sell the impaired security before recovery of its amortized basis, or management has the intention to sell the security. If neither of these conditions are met, we determine whether the impairment is due to credit losses by comparing the present value of the expected cash flows of the security with its amortized cost basis. The amount of impairment recognized is limited to the excess of the amortized cost over the fair value of the security. An allowance for credit losses for the excess of amortized cost over the expected cash flows is recorded in Other income (expense), net on our condensed consolidated statements of operations. Non-credit related impairment losses are reported as a separate component on our consolidated statements of comprehensive income (loss).

Recently Issued Accounting Pronouncements

 

Standard

Description

Effective Date

Effect on the Condensed Consolidated Financial Statements (or Other Significant Matters)

ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815 - 40)

This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity, which reduces the number of accounting models for convertible debt instruments and convertible preferred stock. This ASU also amends the related EPS guidance for both Subtopics and is part of the FASB's simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP.

First quarter of fiscal 2023. Early adoption is permitted beginning in fiscal 2022.

We are currently evaluating the impact of this standard on our condensed consolidated financial statements.

ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes

The amendments in this ASU simplify the accounting for incomes taxes by removing certain exceptions to the general principles in Topic 740 and clarifying and amending existing guidance to improve consistent application. Most amendments within this standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

First quarter of fiscal 2022.

We are currently evaluating the impact of this standard on our condensed consolidated financial statements.

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(2) Investments and Fair Value Measurements

 

The carrying amounts of certain of our financial instruments including cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short-term maturities.

 

Assets and liabilities recorded at fair value in the condensed consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels that are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:

 

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

 

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The following table sets forth the fair value of our financial assets that were measured on a recurring basis:

 

						July 31, 2020																																										January 31, 2020
(In thousands)						Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
Assets:
Money market funds						$	562,134					$	—					$	—					$	562,134					$	138,999					$	—					$	—					$	138,999
U.S. treasury securities						—						532,920						—						532,920						—						875,180						—						875,180
Corporate bonds						—						55,853						—						55,853						—						124,972						—						124,972
Commercial paper						—						—						—						—						—						4,994						—						4,994
Other						—						—						2,000						2,000						—						—						2,000						2,000
Reported as:
Assets:
Cash and cash equivalents																								$	562,134																							$	147,034
Investments, current																								588,773																								976,508
Investments, non-current																								2,000																								22,603
Total																								$	1,152,907																							$	1,146,145

Our investments in money market funds are measured at fair value on a recurring basis. These money market funds are actively traded and reported daily through a variety of sources. The fair value of the money market fund investments is classified as Level 1.

We invest in U.S. treasury securities, corporate bonds and commercial paper, which we have classified as available-for-sale investments. The following table presents our available-for-sale investments as of July 31, 2020:

 

(In thousands)						Amortized Cost						Unrealized Gains						Unrealized Losses						Fair Value
Investments, current:
U.S. treasury securities						$	530,843					$	2,077					$	—					$	532,920
Corporate bonds						55,383						470						—						55,853
Total available-for-sale investments						$	586,226					$	2,547					$	—					$	588,773

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The following table presents our available-for-sale investments as of January 31, 2020:

 

(In thousands)						Amortized Cost						Unrealized Gains						Unrealized Losses						Fair Value
Cash and cash equivalents:
U.S. treasury securities						$	8,035					$	—					$	—					$	8,035
Investments, current:
U.S. treasury securities						866,578