splk-202204300001353283false1/312023Q10.006250.00391640.00674330.0067433P3Y00013532832022-02-012022-04-3000013532832022-05-19xbrli:shares00013532832022-04-30iso4217:USD00013532832022-01-31iso4217:USDxbrli:shares0001353283splk:CloudServicesMember2022-02-012022-04-300001353283splk:CloudServicesMember2021-02-012021-04-300001353283us-gaap:LicenseMember2022-02-012022-04-300001353283us-gaap:LicenseMember2021-02-012021-04-300001353283splk:MaintenanceAndServicesMember2022-02-012022-04-300001353283splk:MaintenanceAndServicesMember2021-02-012021-04-3000013532832021-02-012021-04-300001353283us-gaap:CostOfSalesMember2022-02-012022-04-300001353283us-gaap:CostOfSalesMember2021-02-012021-04-300001353283us-gaap:ResearchAndDevelopmentExpenseMember2022-02-012022-04-300001353283us-gaap:ResearchAndDevelopmentExpenseMember2021-02-012021-04-300001353283us-gaap:SellingAndMarketingExpenseMember2022-02-012022-04-300001353283us-gaap:SellingAndMarketingExpenseMember2021-02-012021-04-300001353283us-gaap:GeneralAndAdministrativeExpenseMember2022-02-012022-04-300001353283us-gaap:GeneralAndAdministrativeExpenseMember2021-02-012021-04-3000013532832021-01-3100013532832021-04-300001353283us-gaap:CommonStockMember2022-01-310001353283us-gaap:CommonStockMember2021-01-310001353283us-gaap:CommonStockMember2022-02-012022-04-300001353283us-gaap:CommonStockMember2021-02-012021-04-300001353283us-gaap:CommonStockMember2022-04-300001353283us-gaap:CommonStockMember2021-04-300001353283us-gaap:AdditionalPaidInCapitalMember2022-01-310001353283us-gaap:AdditionalPaidInCapitalMember2021-01-310001353283us-gaap:AdditionalPaidInCapitalMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2022-01-310001353283us-gaap:AdditionalPaidInCapitalMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2021-01-310001353283us-gaap:AdditionalPaidInCapitalMember2022-02-012022-04-300001353283us-gaap:AdditionalPaidInCapitalMember2021-02-012021-04-300001353283us-gaap:AdditionalPaidInCapitalMember2022-04-300001353283us-gaap:AdditionalPaidInCapitalMember2021-04-300001353283us-gaap:TreasuryStockMember2022-01-310001353283us-gaap:TreasuryStockMember2021-01-310001353283us-gaap:TreasuryStockMember2022-04-300001353283us-gaap:TreasuryStockMember2021-04-300001353283us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2022-01-310001353283us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2021-01-310001353283us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2022-02-012022-04-300001353283us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2021-02-012021-04-300001353283us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2022-04-300001353283us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2021-04-300001353283us-gaap:RetainedEarningsMember2022-01-310001353283us-gaap:RetainedEarningsMember2021-01-310001353283srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2022-01-310001353283srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2021-01-310001353283us-gaap:RetainedEarningsMember2022-02-012022-04-300001353283us-gaap:RetainedEarningsMember2021-02-012021-04-300001353283us-gaap:RetainedEarningsMember2022-04-300001353283us-gaap:RetainedEarningsMember2021-04-30splk:segment0001353283srt:MinimumMember2022-02-012022-04-300001353283srt:MaximumMember2022-02-012022-04-300001353283us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-04-300001353283us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-04-300001353283us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-04-300001353283us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-04-300001353283us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001353283us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001353283us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-01-310001353283us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001353283us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-04-300001353283us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-04-300001353283us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:USTreasurySecuritiesMember2022-04-300001353283us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-04-300001353283us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-01-310001353283us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-01-310001353283us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:USTreasurySecuritiesMember2022-01-310001353283us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-01-310001353283us-gaap:FairValueInputsLevel1Memberus-gaap:CorporateBondSecuritiesMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-04-300001353283us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateBondSecuritiesMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-04-300001353283us-gaap:CorporateBondSecuritiesMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-04-300001353283us-gaap:CorporateBondSecuritiesMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-04-300001353283us-gaap:FairValueInputsLevel1Memberus-gaap:CorporateBondSecuritiesMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001353283us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateBondSecuritiesMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001353283us-gaap:CorporateBondSecuritiesMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-01-310001353283us-gaap:CorporateBondSecuritiesMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001353283us-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-04-300001353283us-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-04-300001353283us-gaap:CommercialPaperMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-04-300001353283us-gaap:CommercialPaperMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-04-300001353283us-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001353283us-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001353283us-gaap:CommercialPaperMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-01-310001353283us-gaap:CommercialPaperMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001353283us-gaap:USTreasurySecuritiesMember2022-04-300001353283us-gaap:CommercialPaperMember2022-04-300001353283splk:InvestmentsCurrentMemberus-gaap:USTreasurySecuritiesMember2022-04-300001353283splk:InvestmentsCurrentMemberus-gaap:CorporateBondSecuritiesMember2022-04-300001353283us-gaap:CommercialPaperMembersplk:InvestmentsCurrentMember2022-04-300001353283splk:InvestmentsNoncurrentMemberus-gaap:USTreasurySecuritiesMember2022-04-300001353283splk:InvestmentsNoncurrentMemberus-gaap:CorporateBondSecuritiesMember2022-04-300001353283us-gaap:CommercialPaperMember2022-01-310001353283splk:InvestmentsCurrentMemberus-gaap:CorporateBondSecuritiesMember2022-01-310001353283us-gaap:CommercialPaperMembersplk:InvestmentsCurrentMember2022-01-310001353283splk:InvestmentsNoncurrentMemberus-gaap:USTreasurySecuritiesMember2022-01-310001353283us-gaap:CommercialPaperMembersplk:InvestmentsNoncurrentMember2022-01-310001353283us-gaap:USTreasurySecuritiesMember2022-04-300001353283us-gaap:CorporateBondSecuritiesMember2022-04-300001353283us-gaap:CommercialPaperMember2022-04-300001353283us-gaap:USTreasurySecuritiesMember2022-01-310001353283us-gaap:CorporateBondSecuritiesMember2022-01-310001353283us-gaap:CommercialPaperMember2022-01-310001353283splk:SanJoseLeaseMember2021-02-012021-04-300001353283us-gaap:ComputerEquipmentMember2022-04-300001353283us-gaap:ComputerEquipmentMember2022-01-310001353283us-gaap:FurnitureAndFixturesMember2022-04-300001353283us-gaap:FurnitureAndFixturesMember2022-01-310001353283us-gaap:LeaseholdImprovementsMember2022-04-300001353283us-gaap:LeaseholdImprovementsMember2022-01-310001353283us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2022-04-300001353283us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2022-01-310001353283splk:LeaseholdImprovementsNotInServiceMember2022-04-300001353283splk:LeaseholdImprovementsNotInServiceMember2022-01-310001353283splk:SoftwareDevelopmentCostsUnderDevelopmentMember2022-04-300001353283splk:SoftwareDevelopmentCostsUnderDevelopmentMember2022-01-310001353283country:US2022-04-300001353283country:US2022-01-310001353283country:GB2022-04-300001353283country:GB2022-01-310001353283splk:InternationalMember2022-04-300001353283splk:InternationalMember2022-01-310001353283us-gaap:DevelopedTechnologyRightsMember2022-04-300001353283us-gaap:DevelopedTechnologyRightsMember2022-02-012022-04-300001353283us-gaap:CustomerRelationshipsMember2022-04-300001353283us-gaap:CustomerRelationshipsMember2022-02-012022-04-300001353283us-gaap:OtherIntangibleAssetsMember2022-04-300001353283us-gaap:OtherIntangibleAssetsMember2022-02-012022-04-300001353283us-gaap:DevelopedTechnologyRightsMember2022-01-310001353283us-gaap:DevelopedTechnologyRightsMember2021-02-012022-01-310001353283us-gaap:CustomerRelationshipsMember2022-01-310001353283us-gaap:CustomerRelationshipsMember2021-02-012022-01-310001353283us-gaap:OtherIntangibleAssetsMember2022-01-310001353283us-gaap:OtherIntangibleAssetsMember2021-02-012022-01-310001353283splk:ConvertibleSeniorNotes075PercentDue2026Memberus-gaap:ConvertibleDebtMember2021-07-09xbrli:pure0001353283splk:ConvertibleSeniorNotes075PercentDue2026Memberus-gaap:ConvertibleDebtMember2021-07-092021-07-090001353283splk:ConvertibleSeniorNotes075PercentDue2026Memberus-gaap:ConvertibleDebtMember2021-06-210001353283splk:ConvertibleSeniorNotes075PercentDue2026Memberus-gaap:ConvertibleDebtMember2021-06-212021-06-210001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1125PercentDue2027Member2020-06-050001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1125PercentDue2027Member2020-06-052020-06-050001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1125PercentDue2027Member2020-06-020001353283splk:ConvertibleSeniorNotes0.50PercentDue2023Memberus-gaap:ConvertibleDebtMember2018-09-210001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1.125PercentDue2025Member2018-09-210001353283splk:ConvertibleSeniorNotes050PercentDue2023And1125PercentDue2025Memberus-gaap:ConvertibleDebtMember2018-09-212018-09-210001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1.125PercentDue2025Member2018-09-180001353283splk:ConvertibleSeniorNotes0.50PercentDue2023Memberus-gaap:ConvertibleDebtMember2018-09-180001353283splk:ConvertibleSeniorNotes075PercentDue2026SLNotesMemberus-gaap:ConvertibleDebtMember2022-02-012022-04-300001353283splk:ConvertibleSeniorNotes075PercentDue2026Memberus-gaap:ConvertibleDebtMember2022-02-012022-04-30splk:trading_day0001353283us-gaap:DebtInstrumentRedemptionPeriodOneMemberus-gaap:ConvertibleDebtMember2022-02-012022-04-300001353283us-gaap:ConvertibleDebtMember2022-02-012022-04-300001353283splk:ConvertibleSeniorNotes050PercentDue2023And1125PercentDue2025And1125PercentDue2027Memberus-gaap:ConvertibleDebtMember2022-02-012022-04-300001353283splk:ConvertibleSeniorNotes050PercentDue2023And1125PercentDue2025And1125PercentDue2027Memberus-gaap:DebtInstrumentRedemptionPeriodOneMemberus-gaap:ConvertibleDebtMember2022-02-012022-04-300001353283splk:ConvertibleSeniorNotes050PercentDue2023AmountRepurchasedMemberus-gaap:ConvertibleDebtMember2020-06-050001353283splk:ConvertibleSeniorNotes0.50PercentDue2023Memberus-gaap:ConvertibleDebtMember2020-06-050001353283splk:ConvertibleSeniorNotes050PercentDue2023AmountRepurchasedMemberus-gaap:ConvertibleDebtMember2020-06-052020-06-050001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes050PercentDue2023LiabilityComponentMember2020-06-052020-06-050001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes050PercentDue2023EquityComponentMember2020-06-052020-06-050001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes050PercentDue2023InterestAccruedMember2020-06-052020-06-050001353283us-gaap:AdditionalPaidInCapitalMembersplk:ConvertibleSeniorNotes0.50PercentDue2023Memberus-gaap:ConvertibleDebtMember2022-04-300001353283us-gaap:AdditionalPaidInCapitalMemberus-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1.125PercentDue2025Member2022-04-300001353283us-gaap:AdditionalPaidInCapitalMembersplk:ConvertibleSeniorNotes075PercentDue2026Memberus-gaap:ConvertibleDebtMember2022-04-300001353283us-gaap:AdditionalPaidInCapitalMemberus-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1125PercentDue2027Member2022-04-300001353283us-gaap:LiabilityMembersplk:ConvertibleSeniorNotes0.50PercentDue2023Memberus-gaap:ConvertibleDebtMember2018-09-210001353283us-gaap:LiabilityMemberus-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1.125PercentDue2025Member2018-09-210001353283splk:ConvertibleSeniorNotes075PercentDue2026Memberus-gaap:LiabilityMemberus-gaap:ConvertibleDebtMember2021-07-090001353283us-gaap:LiabilityMemberus-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1125PercentDue2027Member2020-06-050001353283splk:ConvertibleSeniorNotes0.50PercentDue2023Memberus-gaap:ConvertibleDebtMember2022-04-300001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1.125PercentDue2025Member2022-04-300001353283splk:ConvertibleSeniorNotes075PercentDue2026Memberus-gaap:ConvertibleDebtMember2022-04-300001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1125PercentDue2027Member2022-04-300001353283splk:ConvertibleSeniorNotes0.50PercentDue2023Memberus-gaap:ConvertibleDebtMember2022-02-012022-04-300001353283splk:ConvertibleSeniorNotes0.50PercentDue2023Memberus-gaap:ConvertibleDebtMember2021-02-012021-04-300001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1.125PercentDue2025Member2022-02-012022-04-300001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1.125PercentDue2025Member2021-02-012021-04-300001353283splk:ConvertibleSeniorNotes075PercentDue2026Memberus-gaap:ConvertibleDebtMember2021-02-012021-04-300001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1125PercentDue2027Member2022-02-012022-04-300001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1125PercentDue2027Member2021-02-012021-04-300001353283us-gaap:FairValueInputsLevel2Membersplk:ConvertibleSeniorNotes0.50PercentDue2023Memberus-gaap:ConvertibleDebtMember2022-04-300001353283us-gaap:FairValueInputsLevel2Memberus-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1.125PercentDue2025Member2022-04-300001353283us-gaap:FairValueInputsLevel2Memberus-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1125PercentDue2027Member2022-04-300001353283splk:ConvertibleSeniorNotes075PercentDue2026Memberus-gaap:FairValueInputsLevel3Memberus-gaap:ConvertibleDebtMember2022-04-300001353283us-gaap:CallOptionMembersplk:ConvertibleSeniorNotes050PercentDue2023And1125PercentDue2025Member2018-09-212018-09-210001353283us-gaap:CallOptionMembersplk:ConvertibleSeniorNotes1125PercentDue2027Member2020-06-052020-06-050001353283us-gaap:ConvertibleDebtMembersplk:ConvertibleSeniorNotes1.125PercentDue2025Member2018-09-212018-09-210001353283splk:ConvertibleSeniorNotes0.50PercentDue2023Memberus-gaap:ConvertibleDebtMember2018-09-212018-09-210001353283us-gaap:EmployeeStockOptionMember2022-01-310001353283us-gaap:EmployeeStockOptionMember2021-02-012022-01-310001353283us-gaap:RestrictedStockUnitsRSUMember2022-01-310001353283us-gaap:EmployeeStockOptionMember2022-02-012022-04-300001353283us-gaap:RestrictedStockUnitsRSUMember2022-02-012022-04-300001353283us-gaap:EmployeeStockOptionMember2022-04-300001353283us-gaap:RestrictedStockUnitsRSUMember2022-04-300001353283us-gaap:PerformanceSharesMember2022-02-012022-04-300001353283srt:PresidentMemberus-gaap:PerformanceSharesMember2022-02-012022-04-300001353283srt:MinimumMemberus-gaap:PerformanceSharesMember2022-02-012022-04-300001353283srt:MaximumMemberus-gaap:PerformanceSharesMember2022-02-012022-04-300001353283us-gaap:PerformanceSharesMember2022-04-300001353283splk:UnregisteredRestrictedStockMember2022-04-300001353283splk:UnregisteredRestrictedStockMember2022-02-012022-04-300001353283splk:UnregisteredRestrictedStockMember2022-01-3100013532832021-06-3000013532832021-02-012022-01-310001353283us-gaap:MaintenanceMember2022-02-012022-04-300001353283us-gaap:MaintenanceMember2021-02-012021-04-300001353283country:US2022-02-012022-04-300001353283country:US2021-02-012021-04-300001353283splk:InternationalMember2022-02-012022-04-300001353283splk:InternationalMember2021-02-012021-04-300001353283us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMembersplk:CustomerOneMember2022-02-012022-04-300001353283us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMembersplk:CustomerOneMember2021-02-012021-04-300001353283splk:CustomerTwoMemberus-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2022-02-012022-04-300001353283splk:CustomerTwoMemberus-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2021-02-012021-04-300001353283us-gaap:CustomerConcentrationRiskMembersplk:CustomerOneMemberus-gaap:AccountsReceivableMember2022-02-012022-04-300001353283us-gaap:CustomerConcentrationRiskMembersplk:CustomerOneMemberus-gaap:AccountsReceivableMember2021-02-012022-01-310001353283splk:CustomerTwoMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:AccountsReceivableMember2022-02-012022-04-300001353283splk:CustomerTwoMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:AccountsReceivableMember2021-02-012022-01-3100013532832022-05-012022-04-300001353283us-gaap:EmployeeStockOptionMember2022-02-012022-04-300001353283us-gaap:EmployeeStockOptionMember2021-02-012021-04-300001353283us-gaap:RestrictedStockUnitsRSUMember2022-02-012022-04-300001353283us-gaap:RestrictedStockUnitsRSUMember2021-02-012021-04-300001353283us-gaap:EmployeeStockMember2022-02-012022-04-300001353283us-gaap:EmployeeStockMember2021-02-012021-04-300001353283us-gaap:ConvertibleDebtSecuritiesMember2022-02-012022-04-300001353283us-gaap:ConvertibleDebtSecuritiesMember2021-02-012021-04-30
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 APRIL 30, 2022
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 Stock Market LLC |
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 160.9 million shares of the Registrant’s Common Stock issued and outstanding as of May 19, 2022.
TABLE OF CONTENTS
| | | | | | | | | | | |
| | | Page No. |
|
| | | |
Item 1. | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
|
| | | |
Item 1. | | | |
Item 1A. | | | |
Item 6. | | | |
| | | |
PART I. FINANCIAL INFORMATION
| | |
Item 1. Financial Statements (Unaudited) |
Splunk Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | | | | | | | | | |
(In thousands, except share and per share amounts) | | April 30, 2022 | | January 31, 2022 |
Assets | | | | |
Current assets | | | | |
Cash and cash equivalents | | $ | 814,010 | | | $ | 1,428,691 | |
Investments, current | | 633,888 | | | 286,337 | |
Accounts receivable, net | | 725,652 | | | 1,306,666 | |
Prepaid expenses and other current assets | | 176,364 | | | 152,871 | |
Deferred commissions, current | | 103,528 | | | 102,322 | |
Total current assets | | 2,453,442 | | | 3,276,887 | |
Investments, non-current | | 382,933 | | | 46,431 | |
Accounts receivable, non-current | | 180,758 | | | 242,689 | |
Operating lease right-of-use assets | | 218,277 | | | 229,198 | |
Property and equipment, net | | 123,296 | | | 124,900 | |
Intangible assets, net | | 150,721 | | | 164,769 | |
Goodwill | | 1,401,628 | | | 1,401,628 | |
Deferred commissions, non-current | | 197,232 | | | 200,876 | |
Other assets | | 101,690 | | | 103,497 | |
Total assets | | $ | 5,209,977 | | | $ | 5,790,875 | |
Liabilities and Stockholders’ Equity | | | | |
Current liabilities | | | | |
Accounts payable | | $ | 19,719 | | | $ | 59,206 | |
Accrued compensation | | 218,796 | | | 396,952 | |
Accrued expenses and other liabilities | | 228,085 | | | 257,979 | |
Deferred revenue, current | | 1,223,053 | | | 1,384,605 | |
Total current liabilities | | 1,689,653 | | | 2,098,742 | |
Convertible senior notes, net | | 3,866,179 | | | 3,137,731 | |
Operating lease liabilities | | 214,245 | | | 225,556 | |
Deferred revenue, non-current | | 82,657 | | | 86,584 | |
Other liabilities, non-current | | 19,117 | | | 19,491 | |
Total non-current liabilities | | 4,182,198 | | | 3,469,362 | |
Total liabilities | | 5,871,851 | | | 5,568,104 | |
Commitments and contingencies (Note 3 and 4) | | | | |
Stockholders’ equity | | | | |
Common stock: $0.001 par value; 1,000,000,000 shares authorized; 160,936,666 shares outstanding at April 30, 2022, and 160,044,675 shares outstanding at January 31, 2022 | | 168 | | | 167 | |
Accumulated other comprehensive loss | | (3,913) | | | (1,199) | |
Additional paid-in capital | | 4,155,066 | | | 5,032,351 | |
Treasury stock, at cost: 6,885,414 shares at April 30, 2022 and January 31, 2022 | | (1,000,000) | | | (1,000,000) | |
Accumulated deficit | | (3,813,195) | | | (3,808,548) | |
Total stockholders’ equity | | (661,874) | | | 222,771 | |
Total liabilities and stockholders’ equity | | $ | 5,209,977 | | | $ | 5,790,875 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Splunk Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | |
| | Three Months Ended April 30, |
(In thousands, except per share amounts) | | 2022 | | 2021 |
Revenues | | | | |
Cloud services | | $ | 322,929 | | | $ | 193,958 | |
License | | 185,811 | | | 143,281 | |
Maintenance and services | | 165,341 | | | 164,812 | |
Total revenues | | 674,081 | | | 502,051 | |
Cost of revenues (1) | | | | |
Cloud services | | 119,521 | | | 88,085 | |
License | | 1,463 | | | 4,290 | |
Maintenance and services | | 81,172 | | | 79,531 | |
Total cost of revenues | | 202,156 | | | 171,906 | |
Gross profit | | 471,925 | | | 330,145 | |
Operating expenses (1) | | | | |
Research and development | | 255,691 | | | 247,198 | |
Sales and marketing | | 395,213 | | | 356,108 | |
General and administrative | | 112,708 | | | 162,186 | |
Total operating expenses | | 763,612 | | | 765,492 | |
Operating loss | | (291,687) | | | (435,347) | |
Interest and other income (expense), net | | | | |
Interest income | | 1,372 | | | 379 | |
Interest expense | | (10,663) | | | (33,590) | |
Other income (expense), net | | 10 | | | (1,223) | |
Total interest and other income (expense), net | | (9,281) | | | (34,434) | |
Loss before income taxes | | (300,968) | | | (469,781) | |
Income tax provision | | 3,354 | | | 1,220 | |
Net loss | | $ | (304,322) | | | $ | (471,001) | |
| | | | |
Basic and diluted net loss per share | | $ | (1.90) | | | $ | (2.89) | |
| | | | |
Weighted-average shares used in computing basic and diluted net loss per share | | 160,339 | | | 163,169 | |
_________________________
(1) Amounts include stock-based compensation expense, as follows:
| | | | | | | | | | | | | | |
Cost of revenues | | $ | 19,862 | | | $ | 17,514 | |
Research and development | | 84,863 | | | 77,046 | |
Sales and marketing | | 72,814 | | | 55,186 | |
General and administrative | | 36,126 | | | 32,671 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Splunk Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| | | | | | | | | | | | | | |
| | Three Months Ended April 30, |
(In thousands) | | 2022 | | 2021 |
Net loss | | $ | (304,322) | | | $ | (471,001) | |
Other comprehensive income (loss) | | | | |
Net unrealized loss on investments (net of tax) | | (2,714) | | | (156) | |
| | | | |
Total other comprehensive income (loss) | | (2,714) | | | (156) | |
Comprehensive loss | | $ | (307,036) | | | $ | (471,157) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Splunk Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | |
| | Three Months Ended April 30, |
(In thousands) | | 2022 | | 2021 |
Cash flows from operating activities | | | | |
Net loss | | $ | (304,322) | | | $ | (471,001) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 23,321 | | | 25,796 | |
Amortization of deferred commissions | | 26,989 | | | 42,314 | |
Amortization of investment premiums (accretion of discounts), net | | 282 | | | 50 | |
Gain on strategic investments, net | | (91) | | | — | |
Amortization of debt discount and issuance costs | | 1,513 | | | 26,558 | |
| | | | |
| | | | |
Loss on lease termination | | — | | | 52,524 | |
Non-cash operating lease costs | | (1,833) | | | 2,136 | |
Stock-based compensation | | 213,665 | | | 182,417 | |
| | | | |
Deferred income taxes | | (648) | | | (1,129) | |
Changes in operating assets and liabilities: | | | | |
Accounts receivable, net | | 642,945 | | | 494,346 | |
Prepaid expenses and other assets | | (21,019) | | | (98,169) | |
Deferred commissions | | (24,551) | | | (29,565) | |
Accounts payable | | (39,487) | | | 22,838 | |
Accrued compensation | | (178,156) | | | (54,077) | |
Accrued expenses and other liabilities | | (29,782) | | | 6,422 | |
Deferred revenue | | (165,479) | | | (130,800) | |
Net cash provided by operating activities | | 143,347 | | | 70,660 | |
Cash flows from investing activities | | | | |
Purchases of property and equipment | | (3,192) | | | (853) | |
Capitalized software development costs | | (2,428) | | | (3,066) | |
Purchases of marketable securities | | (780,755) | | | (20,221) | |
Maturities of marketable securities | | 99,090 | | | 87,766 | |
Purchases of strategic investments | | (5,799) | | | — | |
| | | | |
Other investment activities | | 500 | | | 125 | |
Net cash (used in) provided by investing activities | | (692,584) | | | 63,751 | |
Cash flows from financing activities | | | | |
Proceeds from the exercise of stock options | | 950 | | | 538 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Taxes paid related to net share settlement of equity awards | | (66,394) | | | (60,815) | |
Net cash used in financing activities | | (65,444) | | | (60,277) | |
| | | | |
Net (decrease) increase in cash and cash equivalents | | (614,681) | | | 74,134 | |
Cash and cash equivalents at beginning of period | | 1,428,691 | | | 1,771,064 | |
Cash and cash equivalents at end of period | | $ | 814,010 | | | $ | 1,845,198 | |
| | | | |
Supplemental disclosures | | | | |
Cash paid for income taxes | | $ | 2,758 | | | $ | 1,569 | |
Cash paid for interest | | 6,793 | | | — | |
Non-cash investing and financing activities | | | | |
Increase in accrued purchases of property and equipment | | 944 | | | 5,633 | |
| | | | |
Vesting of early exercised options | | 1 | | | 32 | |
| | | | |
| | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Splunk Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended April 30, | | |
(In thousands) | | 2022 | | 2021 | | | | |
Common stock | | | | | | | | |
Balance, beginning of period | | $ | 167 | | | $ | 163 | | | | | |
| | | | | | | | |
| | | | | | | | |
Vesting of restricted and performance stock units | | 1 | | | 1 | | | | | |
| | | | | | | | |
| | | | | | | | |
Balance, end of period | | $ | 168 | | | $ | 164 | | | | | |
Additional paid-in capital | | | | | | | | |
Balance, beginning of period | | $ | 5,032,351 | | | $ | 4,063,885 | | | | | |
Cumulative-effect adjustment from adoption of Accounting Standards Update (“ASU”) 2020-06 | | (1,026,611) | | | — | | | | | |
Stock-based compensation | | 213,665 | | | 182,417 | | | | | |
Capitalized software development costs | | 1,105 | | | 1,211 | | | | | |
Issuance of common stock upon exercise of options | | 950 | | | 538 | | | | | |
| | | | | | | | |
| | | | | | | | |
Vesting of early exercised options | | 1 | | | 32 | | | | | |
Taxes paid related to net share settlement of equity awards | | (66,395) | | | (60,816) | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Balance, end of period | | $ | 4,155,066 | | | $ | 4,187,267 | | | | | |
Treasury stock | | | | | | | | |
Balance, beginning of period | | $ | (1,000,000) | | | $ | — | | | | | |
| | | | | | | | |
Balance, end of period | | $ | (1,000,000) | | | $ | — | | | | | |
Accumulated other comprehensive loss | | | | | | | | |
Balance, beginning of period | | $ | (1,199) | | | $ | (592) | | | | | |
Unrealized loss from investments (net of tax) | | (2,714) | | | (156) | | | | | |
| | | | | | | | |
Balance, end of period | | $ | (3,913) | | | $ | (748) | | | | | |
Accumulated deficit | | | | | | | | |
Balance, beginning of period | | $ | (3,808,548) | | | $ | (2,469,451) | | | | | |
Cumulative-effect adjustment from adoption of ASU 2020-06 | | 299,675 | | | — | | | | | |
Net loss | | (304,322) | | | (471,001) | | | | | |
Balance, end of period | | $ | (3,813,195) | | | $ | (2,940,452) | | | | | |
| | | | | | | | |
Total stockholders’ equity | | $ | (661,874) | | | $ | 1,246,231 | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Description of the Business and Significant Accounting Policies
Business
Splunk Inc. (“we,” “us,” “our”) provides innovative cloud services and licensed software solutions that deliver and operationalize insights from the data generated by digital systems. 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. This data is growing significantly as a direct result of the prevalence and importance of digital systems used by today’s organizations. Our solutions help users remove barriers between insights derived from this data and actions organizations take to thrive in an era of unprecedented digital transformation. 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 2023, for example, refer to the fiscal year ended January 31, 2023.
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, 2022 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, 2022, filed with the SEC on March 24, 2022.
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 2023.
Use of Estimates
The preparation of financial statements in conformity with 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 in business combinations, income taxes, the discount rate used for operating leases, and contingencies. Actual results could differ from those estimates.
COVID-19
The novel coronavirus (“COVID-19”) has created, and may continue to create, significant uncertainty in macroeconomic conditions. The lasting social effects and extent of the impact the COVID-19 pandemic will directly or indirectly have on the global economy, our business, results of our operations, and our financial condition will depend on future developments which are highly uncertain and cannot be accurately predicted. These include the duration, spread, severity and potential recurrence of the virus and its variants, and the global availability of COVID-19 vaccines and vaccination rates. 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 cloud services and licensed 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
During fiscal 2022, we reassessed the functional currency of our foreign subsidiaries and determined it was the U.S. Dollar for all our subsidiaries. The impact of this change was not material. Foreign currency transaction gains and losses are included in “Other income (expense), net” on our condensed consolidated statements of operations and were not material for the three months ended April 30, 2022 and 2021.
Revenue Recognition
We generate revenues in the form of cloud services fees, license and related maintenance fees, and other service fees. Cloud services are provided on a subscription basis and give our customers access to our cloud solutions, which include related customer support. Licenses for on-premises software (“licenses”) are typically term 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. Other services include training and professional services that are not integral to the functionality of the cloud services or licenses.
Our contracts with customers often contain multiple performance obligations, which may include a combination of cloud services, licenses, related maintenance and support 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 cloud services, licenses, maintenance and support, and other services as separate performance obligations as they are each distinct. Revenue is recognized when the performance obligations are satisfied. 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 obligation and recognize revenue for licenses upon transfer of control of the licenses, which occurs at delivery of the license key to customers, or when the license term commences, if later. 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 include customer acceptance provisions, we recognize revenue upon customer acceptance. Our policy is to record revenues net of any applicable sales, use, goods and services, value added, and excise taxes.
Customers can purchase our products under different pricing options. Regardless of the pricing option selected, the consideration for our cloud services and license 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.
Most of our multi-year cloud services and license contracts are invoiced annually. A receivable for multi-year cloud services is generally recorded upon invoicing. A receivable for multi-year license contracts 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 multi-year license contracts, 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 cloud services, maintenance, training and professional services invoiced at the beginning of each service period, as well as licenses that were delivered prior to the license term commencing.
Recently Adopted Accounting Standards
| | | | | | | | | | | | | | | | | | | | | | |
Standard | | Description | | Effective Date | | | | Effect on the Condensed Consolidated Financial Statements (or Other Significant Matters) |
Accounting Standards Update (“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. Convertible instruments will no longer have to be separated into debt and equity components. Convertible debt instruments will be reported as a single liability and convertible preferred stock will be reported as a single equity instrument. Similarly, the embedded conversion feature will no longer be amortized as interest expense over the life of the instrument. Instead, a convertible debt instrument will be accounted for wholly as debt unless 1) a convertible instrument contains features that require bifurcation as a derivative, or 2) a convertible debt instrument was issued at a substantive premium. Among other potential impacts, this ASU is expected to reduce reported interest expense, decrease reported net loss, and result in a reclassification of certain conversion feature balance sheet amounts from stockholder’s equity to liabilities as it relates to the convertible senior notes. This ASU also simplifies the diluted earnings per share calculations by requiring the use of the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. | | We adopted this standard as of February 1, 2022, using the modified retrospective method of transition, under which, financial results reported in periods prior to fiscal 2023 were not adjusted. | | | | Under this new standard, the previously recorded equity components of the convertible senior notes outstanding and amortization of the debt discount and issuance costs classified as equity were reclassified from equity to debt through an adjustment to the opening balance of accumulated deficit as of February 1, 2022 which will result in reduced interest expense in future periods. Adoption of the standard resulted in a decrease to accumulated deficit of $299.7 million, decrease to additional paid-in capital of $1 billion and an increase to convertible senior notes, net of $726.9 million. |
ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers | | This ASU amends the guidance on accounting related to contract assets and liabilities acquired in business combinations. Entities will be required to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. Prior to this ASU, an acquirer generally recognizes contract assets and contract liabilities at fair value on the acquisition date. The guidance should be applied prospectively to business combinations occurring on or after the effective date of the amendment in this update. | | We adopted this standard as of February 1, 2022. | | | | We will apply the standard to any contract assets and liabilities acquired in any future business combination. |
Recently Issued Accounting Pronouncements
There have been no accounting pronouncements or changes in accounting pronouncements that are significant or potentially significant to the Company.
(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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | April 30, 2022 | | January 31, 2022 |
(In thousands) | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | | | | | | | | | |
Money market funds | | $ | 252,317 | | | $ | — | | | $ | — | | | $ | 252,317 | | | $ | 1,056,296 | | | $ | — | | | $ | — | | | $ | 1,056,296 | |
U.S. government and agency securities | | — | | | 731,783 | | | — | | | 731,783 | | | — | | | 8,024 | | | — | | | 8,024 | |
Corporate bonds | | — | | | 141,091 | | | — | | | 141,091 | | | — | | | 131,015 | | | — | | | 131,015 | |
Commercial paper | | — | | | 138,994 | | | — | | | 138,994 | | | — | | | 160,230 | | | — | | | 160,230 | |
| | | | | | | | | | | | | | | | |
Reported as: | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | | | $ | 289,254 | | | | | | | | | $ | 1,059,296 | |
Investments, current | | | | | | | | 633,888 | | | | | | | | | 286,337 | |
Investments, non-current | | | | | | | | 341,043 | | | | | | | | | 9,932 | |
Total | | | | | | | | $ | 1,264,185 | | | | | | | | | $ | 1,355,565 | |
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.
The following table presents our investments in available-for-sale debt securities as of April 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
Cash and cash equivalents: | | | | | | | | |
U.S. government and agency securities | | $ | 30,938 | | | $ | — | | | $ | — | | | $ | 30,938 | |
| | | | | | | | |
Commercial paper | | 5,999 | | | — | | | — | | | 5,999 | |
Investments, current: | | | | | | | | |
U.S. government and agency securities | | 376,014 | | | — | | | (945) | | | 375,069 | |
Corporate bonds | | 126,273 | | | 3 | | | (452) | | | 125,824 | |
Commercial paper | | 133,539 | | | — | | | (544) | | | 132,995 | |
Investments, non-current: | | | | | | | | |
U.S. government and agency securities | | 326,896 | | | — | | | (1,120) | | | 325,776 | |
Corporate bonds | | 15,333 | | | — | | | (66) | | | 15,267 | |
| | | | | | | | |
Total available-for-sale investments | | $ | 1,014,992 | | | $ | 3 | | | $ | (3,127) | | | $ | 1,011,868 | |
The following table presents our investments in available-for-sale debt securities as of January 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
Cash and cash equivalents: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Commercial paper | | $ | 3,000 | | | $ | — | | | $ | — | | | $ | 3,000 | |
Investments, current: | | | | | | | | |
| | | | | | | | |
Corporate bonds | | 131,253 | | | 2 | | | (240) | | | 131,015 | |
Commercial paper | | 155,469 | | | — | | | (147) | | | 155,322 | |
Investments, non-current: | | | | | | | | |
U.S. government and agency securities | | 8,036 | | | — | | | (12) | | | 8,024 | |
| | | | | | | | |
Commercial paper | | 1,914 | | | — | | | (6) | | | 1,908 | |
Total available-for-sale investments | | $ | 299,672 | | | $ | 2 | | | $ | (405) | | | $ | 299,269 | |
The following table presents the fair values and unrealized losses related to our investments in available-for-sale debt securities classified by length of time that the securities have been in a continuous unrealized loss position as of April 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or Greater | | Total |
(In thousands) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | | | | | | | | | | | |
U.S. government and agency securities | | $ | 700,845 | | | $ | (2,065) | | | $ | — | | | $ | — | | | $ | 700,845 | | | $ | (2,065) | |
Corporate bonds | | 136,089 | | | (518) | | | — | | | — | | | 136,089 | | | (518) | |
Commercial paper | | 138,993 | | | (544) | | | — | | | — | | | 138,993 | | | (544) | |
Total | | $ | 975,927 | | | $ | (3,127) | | | $ | — | | | $ | — | | | $ | 975,927 | | | $ | (3,127) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The following table presents the fair values and unrealized losses related to our investments in available-for-sale debt securities classified by length of time that the securities have been in a continuous unrealized loss position as of January 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or Greater | | Total |
(In thousands) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | | | | | | | | | | | |
U.S. government and agency securities | | $ | 8,024 | | | $ | (12) | | | $ | — | | | $ | — | | | $ | 8,024 | | | $ | (12) | |
Corporate bonds | | 130,007 | | | (240) | | | — | | | — | | | 130,007 | | | (240) | |
Commercial paper | | 145,231 | | | (153) | | | — | | | — | | | 145,231 | | | (153) | |
Total | | $ | 283,262 | | | $ | (405) | | | $ | — | | | $ | — | | | $ | 283,262 | | | $ | (405) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The contractual maturities of our investments as of April 30, 2022 are as follows (in thousands):
| | | | | | | | |
Due within one year | | $ | 670,825 | |
Due within one to two years | | 341,043 | |
Total | | $ | 1,011,868 | |
Investments with maturities of less than 12 months from the balance sheet date are classified as current assets, which are available for use to fund current operations. Investments with maturities greater than 12 months from the balance sheet date are classified as non-current assets.
Convertible Senior Notes
Refer to Note 7 “Convertible Senior Notes” for details regarding the fair value of our convertible senior notes.
Equity Investments
Our equity investments are included in “Investments, non-current” on our condensed consolidated balance sheets. The following table provides a summary of our equity investments:
| | | | | | | | | | | | | | |
(In thousands) | | April 30, 2022 | | January 31, 2022 |
Equity investments without readily determinable fair values | | $ | 38,620 | | | $ | 33,744 | |
Equity investments under the equity method of accounting | | 3,270 | | | 2,755 | |
Total | | $ | 41,890 | | | $ | 36,499 | |
(3) Commitments and Contingencies
Legal Proceedings
A putative class action lawsuit alleging violations of the federal securities laws was filed on December 4, 2020 in the U.S. District Court for the Northern District of California (the “Court”) against us, our former Chief Executive Officer and our Chief Financial Officer. The initial complaint alleged violations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for allegedly making materially false and misleading statements regarding our financial guidance and asserted a putative class period of October 21, 2020 to December 2, 2020. On March 16, 2021, the Court appointed Louisiana Sheriffs’ Pension & Relief Fund as lead plaintiff and approved its selection of lead plaintiff counsel in the case. On June 7, 2021, the lead plaintiff filed an amended complaint which expands the putative class period to run from March 26, 2020 to December 2, 2020 and alleges that defendants made materially false and misleading statements regarding our marketing efforts, hiring practices, and retention of personnel. The lead plaintiff seeks unspecified monetary damages and other relief. On July 27, 2021, defendants filed a motion to dismiss the amended complaint. On March 21, 2022, the Court issued a decision granting in part and denying in part the defendants’ motion to dismiss.
Several derivative lawsuits related to the securities class action were filed in February, March, and April 2021 in the U.S. District Court for the Northern District of California and California Superior Court, San Francisco County. The lawsuits name our former Chief Executive Officer, our Chief Financial Officer, and many of our board members as defendants, and the company as a nominal defendant. The lawsuits allege claims for breach of fiduciary duties, unjust enrichment, waste of corporate assets, abuse of control, and gross mismanagement against the defendants, and claims for contribution under Sections 10(b) and 21D of the Exchange Act against only our former Chief Executive Officer and Chief Financial Officer. The plaintiffs seek unspecified monetary damages and other relief on behalf of the Company. The court has stayed the actions pursuant to stipulation of the parties until after a ruling on the motion for class certification in the federal securities case. On August 9, 2021, we received a demand letter alleging claims similar to those in the derivative lawsuits and requesting that our board of directors launch an investigation on such matters. On May 23, 2022, the board of directors formed a committee to evaluate the shareholder’s demand and make recommendations to the full board of directors. On April 20, 2022, the board of directors received a demand made on behalf of a shareholder to inspect the books and records of the Company pursuant to Section 220 of the Delaware General Corporation Law. The demand seeks records related to the board and to the allegations at issue in the underlying putative class action.
We are also subject to certain routine legal and regulatory proceedings, as well as demands and claims that arise in the normal course of our business. We make a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. In our opinion, resolution of any pending claims (either individually or in the aggregate) is not expected to have a material adverse impact on our condensed consolidated results of operations, cash flows or financial position, nor is it possible to provide an estimated amount of any such loss. However, depending on the nature and timing of any such dispute, an unfavorable resolution of a matter could materially affect our future financial position, results of operations or cash flows, or all, in a particular period.
Indemnification Arrangements
During the ordinary course of business, we may indemnify, hold harmless and agree to reimburse for losses suffered or incurred, our customers, vendors, and each of their affiliates for certain intellectual property infringement and other claims by third parties with respect to our offerings, in connection with our commercial license arrangements or related to general business dealings with those parties.
As permitted under Delaware law, we have entered into indemnification agreements with our officers, directors and certain employees, indemnifying them for certain events or occurrences in connection with their service as our officers or directors or those of our direct and indirect subsidiaries.
Claims and reimbursements under indemnification arrangements have not been material to our condensed consolidated financial statements; and there is no accrual of such amounts as of April 30, 2022 and January 31, 2022.
(4) Leases
In April 2021, we entered into an agreement to terminate our lease of certain office space located in San Jose, CA and ceased use of the space as of April 30, 2021. As a result, the related right-of-use asset and leasehold improvements balances were written off and we have no remaining liability. In total, a $55.2 million loss was recognized during the three months ended April 30, 2021, which included certain termination-related fees. The loss is included in “General and administrative” expenses on our condensed consolidated statement of operations.
(5) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. These assets are depreciated and amortized using the straight-line method over their estimated useful lives. Property and equipment consisted of the following:
| | | | | | | | | | | | | | |
(In thousands) | | April 30, 2022 | | January 31, 2022 |
Computer equipment and software | | $ | 73,275 | | | $ | 73,411 | |
Furniture and fixtures | | 26,949 | | | 26,840 | |
Leasehold and building improvements (1) | | 145,658 | | | 141,496 | |
Capitalized software development costs (2) | | 40,228 | | | 36,695 | |
Property and equipment, gross | | 286,110 | | | 278,442 | |
Less: accumulated depreciation and amortization | | (162,814) | | | (153,542) | |
Property and equipment, net | | $ | 123,296 | | | $ | 124,900 | |
_________________________
(1) Includes costs related to assets not yet placed into service of $10.3 million and $6.0 million, as of April 30, 2022 and January 31, 2022, respectively.
(2) Includes costs related to projects still under development of $10.9 million and $7.4 million, as of April 30, 2022 and January 31, 2022, respectively.
Depreciation and amortization expense related to Property and equipment, net was $9.3 million and $11.0 million for the three months ended April 30, 2022 and 2021, respectively.
Geographic Information
The following table presents our long-lived assets, which consist of property and equipment, net of depreciation and amortization, and operating lease right-of-use assets by geographic region:
| | | | | | | | | | | | | | |
(In thousands) | | April 30, 2022 | | January 31, 2022 |
United States | | $ | 292,191 | | | $ | 301,309 | |
United Kingdom | | 40,153 | | | 41,483 | |
Other International | | 9,229 | | | 11,306 | |
Total long-lived assets | | $ | 341,573 | | | $ | 354,098 | |
Other than each of the United States and the United Kingdom, no other individual country represented 10% or more of our total long-lived assets as of April 30, 2022 or January 31, 2022.
(6) Goodwill and Intangible Assets
Goodwill
There was no impairment of goodwill during the three months ended April 30, 2022 or 2021.
Intangible Assets
Intangible assets subject to amortization as of April 30, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except useful life) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted-Average Remaining Useful Life (in months) |
Developed technology | | $ | 197,400 | | | $ | (87,335) | | | $ | 110,065 | | | 44 |
Customer relationships | | 90,900 | | | (50,799) | | | 40,101 | | | 26 |
Other acquired intangible assets | | 4,000 | | | (3,445) | | | 555 | | | 5 |
Total intangible assets subject to amortization | | $ | 292,300 | | | $ | (141,579) | | | $ | 150,721 | | | |
Intangible assets subject to amortization as of January 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except useful life) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted-Average Remaining Useful Life (in months) |
Developed technology | | $ | 283,400 | | | $ | (164,529) | | | $ | 118,871 | | | 46 |
Customer relationships | | 92,710 | | | (47,701) | | | 45,009 | | | 29 |
Other acquired intangible assets | | 7,394 | | | (6,505) | | | 889 | | | 8 |
Total intangible assets subject to amortization | | $ | 383,504 | | | $ | (218,735) | | | $ | 164,769 | | | |
Amortization expense from acquired intangible assets was $14.0 million and $14.8 million for the three months ended April 30, 2022 and 2021, respectively.
The expected future amortization expense for acquired intangible assets as of April 30, 2022 is as follows:
| | | | | | | | |
Fiscal Period (In thousands) | | Expected Amortization Expense |
Remaining fiscal 2023 | | $ | 41,400 | |
Fiscal 2024 | | 48,892 | |
Fiscal 2025 | | 33,010 | |
Fiscal 2026 | | 17,058 | |
Fiscal 2027 | | 10,361 | |
| | |
Total amortization expense | | $ | 150,721 | |
(7) Convertible Senior Notes
Convertible Senior Notes Due 2026
On July 9, 2021, we issued $1.0 billion aggregate principal amount of 0.75% Convertible Senior Notes due 2026 (the “2026 Notes”). The 2026 Notes are general senior, unsecured obligations of Splunk. The total proceeds from the issuance of the 2026 Notes was $981.7 million, net of issuance costs.
The 2026 Notes will mature on July 15, 2026, unless earlier redeemed, repurchased or converted. The 2026 Notes will bear interest from July 9, 2021, at a rate of 0.75% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2022.
The initial conversion rate for the 2026 Notes is 6.25 shares of our common stock per $1,000 principal amount of the 2026 Notes, which is equivalent to an initial conversion price of approximately $160.00 per share of our common stock, subject to adjustment upon the occurrence of certain specified events. The initial conversion price of the 2026 Notes represents a premium of approximately 30.0% to the volume weighted average price of our common stock over a 10-day period of approximately $123.08 per share ending on June 21, 2021, which was the date the pricing of the 2026 Notes was determined.
Convertible Senior Notes Due 2027
On June 5, 2020, we issued $1.27 billion aggregate principal amount of 1.125% Convertible Senior Notes due 2027 (the “2027 Notes”), including the exercise in full by the initial purchasers of the 2027 Notes of their option to purchase an additional $165.0 million principal amount of 2027 Notes. The 2027 Notes are general senior, unsecured obligations of Splunk. The total proceeds from the issuance of the 2027 Notes was $1.25 billion, net of initial purchaser discounts and other issuance costs.
The 2027 Notes will mature on June 15, 2027, unless earlier redeemed, repurchased or converted. The 2027 Notes will bear interest from June 5, 2020 at a rate of 1.125% per year, payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020.
The initial conversion rate for the 2027 Notes is 3.9164 shares of our common stock per $1,000 principal amount of the 2027 Notes, which is equivalent to an initial conversion price of approximately $255.34 per share of our common stock, subject to adjustment upon the occurrence of certain specified events. The initial conversion price of the 2027 Notes represents a premium of approximately 35.0% to the volume weighted average price of our common stock of approximately $189.14 per share on June 2, 2020, which was the date the pricing of the 2027 Notes was determined.
Convertible Senior Notes Due 2023 and 2025
In September 2018, we issued $1.27 billion aggregate principal amount of 0.50% Convertible Senior Notes due 2023 (the “2023 Notes”), including the exercise in full by the initial purchasers of the 2023 Notes of their option to purchase an additional $165.0 million principal amount of 2023 Notes, and $862.5 million aggregate principal amount of 1.125% Convertible Senior Notes due 2025 (the “2025 Notes”), including the exercise in full by the initial purchasers of the 2025 Notes of their option to purchase an additional $112.5 million principal amount of 2025 Notes. The 2023 Notes and the 2025 Notes are general senior, unsecured obligations of Splunk. The total proceeds from the issuance of the 2023 Notes and the 2025 Notes was $2.11 billion, net of initial purchaser discounts and other issuance costs.
The 2023 Notes will mature on September 15, 2023, and the 2025 Notes will mature on September 15, 2025, in each case unless earlier redeemed, repurchased or converted. The 2023 Notes bear interest from September 21, 2018 at a rate of 0.50% per year and the 2025 Notes bear interest from September 21, 2018 at a rate of 1.125% per year, in each case payable semiannually in arrears on March 15 and September 15 of each year, beginning on March 15, 2019.
The initial conversion rate for each of the 2023 Notes and 2025 Notes is 6.7433 shares of our common stock per $1,000 principal amount of each of the 2023 Notes and 2025 Notes, which is equivalent to an initial conversion price of approximately $148.30 per share of our common stock, subject to adjustment upon the occurrence of certain specified events. The initial conversion price of each of the 2023 Notes and 2025 Notes represents a premium of approximately 27.5% to the
$116.31 per share closing price of our common stock on September 18, 2018, which was the date the pricing of the 2023 Notes and the 2025 Notes was determined.
Other Terms
The 2026 Notes are convertible into shares of our common stock at the option of the holder at any time prior to the close of business on the business day immediately preceding the maturity date. We may not redeem the 2026 Notes prior to July 20, 2024. We may redeem for cash all or any portion of the 2026 Notes, at our option, on or after July 20, 2024 if the last reported sale price of our common stock has been 140% of the conversion price for the 2026 Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the 2026 Notes, plus accrued and unpaid interest to, but excluding, the redemption date. Whether to exercise our redemption option is solely within our control.
The 2023 Notes, 2025 Notes, and 2027 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding June 15, 2023, June 15, 2025 and December 15, 2026 for the 2023 Notes, 2025 Notes and 2027 Notes, respectively, only under the following circumstances:
•during any fiscal quarter commencing after the fiscal quarter ending on January 31, 2019 (and only during such fiscal quarter) for the 2023 Notes, and the 2025 Notes, and October 31, 2020 (and only during such fiscal quarter) for the 2027 Notes, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the relevant series of notes on each applicable trading day;
•during the five business day period after any 10 consecutive trading day period (the “measurement period”) in which the trading price (as defined in the indenture governing the relevant series of notes) per $1,000 principal amount of the relevant series of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the relevant series of notes on each such trading day;
•if we call the relevant series of notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
•upon the occurrence of specified corporate events as set forth in the relevant indenture.
On or after June 15, 2023, June 15, 2025, and December 15, 2026 for the 2023 Notes, 2025 Notes, and 2027 Notes, respectively, until the close of business on the second scheduled trading day immediately preceding the relevant maturity date, holders of the relevant series of notes may convert all or any portion of their notes of such series, in multiples of $1,000 principal amount, regardless of the foregoing circumstances.
Upon conversion, we may satisfy our conversion obligation by paying and/or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in the manner and subject to the terms and conditions provided in the relevant indenture; provided, in the case of the 2026 Notes, the holder is to determine the settlement method related to any notes converted in connection with the exercise of our redemption option as mentioned above. Subject to the provisions described in the immediately preceding sentence, upon any conversion of the 2023 Notes, 2025 Notes, 2026 Notes, and 2027 Notes (together the “Notes”), it is our current intent to settle the first $1,000 of conversion value of each $1,000 principal amount of such notes in cash and the remaining conversion value, if any, in shares of common stock. If we undergo a fundamental change (as defined in the applicable indenture governing the relevant series of notes), holders may require us to repurchase for cash all or any portion of their notes of the relevant series at a fundamental change repurchase price equal to 100% of the principal amount of the relevant series of notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the relevant maturity date of a series of notes or if we deliver a notice of redemption in respect of a series of notes, we will, in certain circumstances, increase the conversion rate of the relevant series of notes for a holder of such series who elects to convert its notes of the applicable series in connection with such corporate event or notice of redemption, as the case may be. During the three months ended April 30, 2022, the conditions allowing holders of the Notes to convert or redeem were not met. The Notes are not required to be settled in cash within the next twelve months and as such are classified as long-term debt on our condensed consolidated balance sheet as of April 30, 2022.
We may not redeem the 2023 Notes, 2025 Notes, and 2027 Notes prior to September 20, 2021, September 20, 2022 and June 20, 2024, respectively. We may redeem for cash all or any portion of the 2023 Notes, 2025 Notes and 2027 Notes, at our option, on or after September 20, 2021, September 20, 2022, and June 20, 2024, respectively, in each case if the last reported sale price of our common stock has been at least 130% of the conversion price for the relevant series of notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the relevant series of notes to be redeemed, plus accrued and unpaid interest to, but excluding, the relevant redemption date. Whether to exercise our redemption options under each respective indenture is solely within our control.
Partial Repurchase of the 2023 Notes
On June 5, 2020, we used a portion of the net proceeds from the issuance of the 2027 Notes to repurchase $488.3 million aggregate principal amount of the 2023 Notes (the “2023 Notes Partial Repurchase”), leaving $776.7 million aggregate principal outstanding on the 2023 Notes immediately after the 2023 Notes Partial Repurchase. The 2023 Notes Partial Repurchase was not made pursuant to a redemption notice and constituted individually privately negotiated transactions. The holders of the repurchased 2023 Notes also invested in the 2027 Notes. For each holder, the 2023 Notes and the 2027 Notes exchanged were deemed to be substantially different as the present value of the cash flows under the terms of the 2027 Notes was at least 10% different from the present value of the remaining cash flows under the terms of the 2023 Notes and accordingly, the 2023 Notes Partial Repurchase was accounted for as a debt extinguishment. We used $691.6 million of the net proceeds from the issuance of the 2027 Notes to complete the 2023 Notes Partial Repurchase, of which $407.4 million and $283.6 million were allocated to the liability and equity components of the 2023 Notes, respectively, and $0.5 million was related to the payment of the interest accrued.
Accounting for the Notes
As described in Note 1 “Description of Business and Summary of Significant Accounting Policies,” we adopted new debt guidance effective February 1, 2022, using the modified retrospective transition method, under which financial results reported in prior periods were not adjusted. Upon adoption, our convertible senior notes are accounted for entirely as a liability and measured at their amortized cost. Transaction costs related to the issuance of the notes are netted with the liability and are amortized using the effective interest rate method to interest expense over the term of the notes.
Prior to the adoption of ASU 2020-06, we separated each of the Notes into their respective liability and equity components. The carrying amounts of the liability components of the respective notes were calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amounts of the equity components, representing the conversion option, were determined by deducting the fair value of the liability components from the par value of the respective notes. This difference represented the debt discount that was amortized to interest expense over the respective terms of the relevant series of notes using the effective interest rate method. At the time of issuance, the carrying amounts of the equity components representing the conversion options were $266.9 million, $237.2 million, $293.0 million and $347.4 million for the 2023 Notes, the 2025 Notes, the 2026 Notes and the 2027 Notes, respectively, which were recorded in additional paid-in capital and were not remeasured as long as they continued to meet the conditions for equity classification.
In accounting for the issuance costs related to the Notes, we allocated the total amount incurred for the relevant series of notes to the liability and equity components based on the proportion of the proceeds allocated to the debt and equity components for that series. Issuance costs attributable to the liability component of the 2023 Notes, the 2025 Notes, the 2026 Notes and the 2027 Notes were $10.4 million, $6.5 million, $12.9 million and $14.2 million, respectively. The issuance costs allocated to the liability component were amortized to interest expense over the contractual terms of the 2023 Notes, the 2025 Notes, the 2026 Notes and the 2027 Notes at an effective interest rate of 5.65%, 6.22%, 8.37% and 6.26%, respectively. Issuance costs attributable to the equity component of the 2023 Notes, the 2025 Notes, the 2026 Notes and the 2027 Notes were $2.8 million, $2.5 million, $5.4 million and $5.4 million, respectively, and were netted against the equity components representing the conversion option in additional paid-in capital.
The net carrying amounts of the liability component for each series of notes as of April 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2023 Notes (1) | | 2025 Notes | | 2026 Notes | | 2027 Notes |
Liability component: | | | | | | | | |
Principal amount | | $ | 776,661 | | | $ | 862,500 | | | $ | 1,000,000 | | | $ | 1,265,000 | |
| | | | | | | | |
Unamortized issuance costs | | (2,489) | | | (4,771) | | | (15,747) | | | (14,975) | |
Net carrying amount | | $ | 774,172 | | | $ | 857,729 | | | $ | 984,253 | | | $ | 1,250,025 | |
_________________________
(1) Reflects the impact of the 2023 Notes Partial Repurchase on June 5, 2020, as discussed above.
The following table sets forth the interest expense related to each series of notes:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended April 30, | | |
(In thousands) | | 2022 | | 2021 | | | | |
2023 Notes: | | | | | | | | |
Coupon interest expense | | $ | 971 | | | $ | 971 | | | | | |
Amortization of debt discount (conversion option) (1) | | — | | | 7,956 | | | | | |
Amortization of debt issuance costs | | 328 | | | 310 | | | | | |
Total interest expense related to the 2023 Notes | | $ | 1,299 | | | $ | 9,237 | | | | | |
| | | | | | | | |
2025 Notes: | | | | | | | | |
Coupon interest expense | | $ | 2,426 | | | $ | 2,426 | | | | | |
Amortization of debt discount (conversion option) (1) | | — | | | 7,657 | | | | | |
Amortization of debt issuance costs | | 224 | | | 211 | | | | | |
Total interest expense related to the 2025 Notes | | $ | 2,650 | | | $ | 10,294 | | | | | |
| | | | | | | | |
2026 Notes: | | | | | | | | |
Coupon interest expense | | $ | 1,875 | | | $ | — | | | | | |
Amortization of debt discount (conversion option) (1) | | — | | | — | |