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Accounting Standards and Significant Accounting Policies | 6 Months Ended
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Jul. 31, 2018
Accounting Policies [Abstract] |
Accounting Standards and Significant Accounting Policies | Accounting Standards and Significant Accounting Policies Recently Adopted Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605), and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Topic 606 also includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer. Collectively, the Company refers to Topic 606 and Subtopic 340-40 as "ASC 606." The Company adopted the requirements of ASC 606 as of February 1, 2018, utilizing the full retrospective method of transition. Adoption of ASC 606 resulted in changes to the Company’s accounting policies for revenue recognition and deferred commissions as detailed below. The Company applied ASC 606 using a practical expedient where the consideration allocated to the remaining performance obligations or an explanation of when the Company expects to recognize that amount as revenue for all reporting periods presented before the date of the initial application is not disclosed. The impact of adopting ASC 606 on fiscal 2018 and 2017 revenue is not material. The primary impact of adopting ASC 606 relates to the deferral of incremental commission costs of obtaining contracts. Under Topic 605, the Company deferred only direct and incremental commission costs to obtain a contract and amortized those costs on a straight-line basis over the term of the related contract, which was generally one to three years. Under ASC 606, the Company defers all incremental commission costs to obtain the contract. The Company amortizes these costs on a straight-line basis over a period of benefit, determined to be generally five years or the related contractual renewal term. The Company adjusted its condensed consolidated financial statements from amounts previously reported due to the adoption of ASC 606. Select condensed consolidated statement of operations line items, which reflect the adoption of ASC 606, are as follows (in thousands except per share data):
| Three Months Ended July 31, 2017 |  | Six Months Ended July 31, 2017
| As Reported |  | Adjustments |  | As Adjusted |  | As Reported |  | Adjustments |  | As Adjusted
| (unaudited) |  | (unaudited)
Revenue: |  |  |  |  |  |  |  |  |  |  |
Subscription | $ | 56,080 |  |  | $ | (763 | ) |  | $ | 55,317 |  |  | $ | 104,437 |  |  | $ | (841 | ) |  | $ | 103,596 |
Professional services and other | 4,915 |  |  | 27 |  |  | 4,942 |  |  | 9,565 |  |  | (577 | ) |  | 8,988 |
Total revenue | 60,995 |  |  | (736 | ) |  | 60,259 |  |  | 114,002 |  |  | (1,418 | ) |  | 112,584 |
Gross profit | 41,313 |  |  | (736 | ) |  | 40,577 |  |  | 76,857 |  |  | (1,418 | ) |  | 75,439 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |
Sales and marketing | 39,597 |  |  | (1,706 | ) |  | 37,891 |  |  | 76,777 |  |  | (3,583 | ) |  | 73,194 |
Total operating expenses | 68,468 |  |  | (1,706 | ) |  | 66,762 |  |  | 132,646 |  |  | (3,583 | ) |  | 129,063 |
Loss before income taxes | (26,773 | ) |  | 970 |  |  | (25,803 | ) |  | (55,426 | ) |  | 2,165 |  |  | (53,261 | )
Net loss | (27,002 | ) |  | 970 |  |  | (26,032 | ) |  | (55,903 | ) |  | 2,165 |  |  | (53,738 | )
Net loss per share, basic and diluted | (0.29 | ) |  | 0.01 |  |  | (0.28 | ) |  | (0.83 | ) |  | 0.03 |  |  | (0.80 | )
Select condensed consolidated balance sheet line items, which reflect the adoption of ASC 606, are as follows (in thousands):
| As of January 31, 2018
| As Reported |  | Adjustments |  | As Adjusted
| (unaudited)
Assets |  |  |  |  |
Current assets: |  |  |  |  |
Deferred commissions | $ | 16,481 |  |  | $ | 1,274 |  |  | $ | 17,755 |
Prepaid expenses and other current assets | 16,973 |  |  | 808 |  |  | 17,781 |
Total current assets | 315,416 |  |  | 2,082 |  |  | 317,498 |
Deferred commissions, noncurrent | 10,971 |  |  | 29,784 |  |  | 40,755 |
Total assets | 367,397 |  |  | 31,866 |  |  | 399,263 |
Liabilities and stockholders’ equity |  |  |  |  |
Current liabilities: |  |  |  |  |
Deferred revenue | $ | 162,633 |  |  | $ | (2,817 | ) |  | $ | 159,816 |
Total current liabilities | 190,760 |  |  | (2,817 | ) |  | 187,943 |
Deferred revenue, noncurrent | 6,034 |  |  | (1,071 | ) |  | 4,963 |
Total liabilities | 203,811 |  |  | (3,888 | ) |  | 199,923 |
Accumulated deficit | (402,468 | ) |  | 35,754 |  |  | (366,714 | )
Total stockholders’ equity | 163,586 |  |  | 35,754 |  |  | 199,340 |
Total liabilities and stockholders’ equity | 367,397 |  |  | 31,866 |  |  | 399,263 |
The adoption of ASC 606 had no impact on cash provided by or used in operating, financing, or investing activities in the Company’s condensed consolidated statement of cash flows. Additionally, the adoption of ASC 606 did not have a material impact on the provision for (benefit from) income taxes. The adoption adjustments impacted the deferred income taxes pertaining to the U.S. entity which are subject to a full valuation allowance. Significant Accounting Policies The Company’s significant accounting policies are discussed in “Note 2. Summary of Significant Accounting Policies” in Item 8. Financial Statements and Supplementary Data of its Form 10-K for the fiscal year ended January 31, 2018. Except for the accounting policies for revenue recognition and deferred commissions that were updated below as a result of adopting ASC 606, and the accounting policies for convertible senior notes, there have been no significant changes to these policies for the six months ended July 31, 2018. Revenue Recognition The Company derives revenue from subscription fees (which include support fees) and professional services fees. The Company sells subscriptions to its platform through arrangements that are generally one to five years in length. The Company’s arrangements are generally noncancelable and nonrefundable. Furthermore, if a customer reduces the contracted usage or service level, the customer has no right of refund. The Company’s subscription arrangements do not provide customers with the right to take possession of the software supporting the platform and, as a result, are accounted for as service arrangements. This revenue recognition policy is consistent for sales generated directly with customers and sales generated indirectly through channel partners. The Company determines revenue recognition through the following steps:
• | Identification of the contract, or contracts, with a customer
• | Identification of the performance obligations in the contract
• | Determination of the transaction price
• | Allocation of the transaction price to the performance obligations in the contract
• | Recognition of revenue when, or as, the Company satisfies a performance obligation
Subscription Revenue Subscription revenue, which includes support, is recognized on a straight-line basis over the noncancelable contractual term of the arrangement, generally beginning on the date that the Company’s service is made available to the customer. Professional Services Revenue The Company’s professional services principally consist of customer-specific requests for application integrations, user interface enhancements and other customer-specific requests. Revenue for the Company’s professional services are recognized as services are performed in proportion with their pattern of transfer. Contracts with Multiple Performance Obligations Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative SSP basis. The Company determines SSP based on, if available, observable prices for those related services when sold separately. When observable prices are not available, the Company determines SSP based on overarching pricing objectives and strategies, taking into consideration market conditions and other factors, including customer size, volume purchased, market and industry conditions, product-specific factors and historical sales of the deliverables. Geographic Information Revenue by location is determined by the billing address of the customer. The following table sets forth revenue in dollars by geographic area (in thousands):
| Three Months Ended July 31, |  | Six Months Ended July 31,
| 2018 |  | 2017 |  | 2018 |  | 2017
|  | As Adjusted (1) |  |  | As Adjusted (1)
United States | $ | 79,499 |  |  | $ | 50,972 |  |  | $ | 150,757 |  |  | $ | 95,943 |
International | 15,087 |  |  | 9,287 |  |  | 27,450 |  |  | 16,641 |
Total | $ | 94,586 |  |  | $ | 60,259 |  |  | $ | 178,207 |  |  | $ | 112,584 |
_______________________________
(1) | T he prior periods presented above have been adjusted to reflect the adoption of ASC 606.
Other than the United States, no individual country exceeded 10% of total revenue for the three and six months ended July 31, 2018 and 2017. Accounts Receivable and Allowances Accounts receivable are recorded at the invoiced amount, net of allowances. These allowances are based on the Company’s assessment of the collectability of accounts by considering the age of each outstanding invoice and the collection history of each customer and an evaluation of potential risk of loss associated with delinquent accounts. Amounts deemed uncollectible are recorded to these allowances in the condensed consolidated balance sheets with an offsetting decrease in related deferred revenue or a charge in the condensed consolidated statement of operations. For the three and six months ended July 31, 2018 and 2017, write-offs were not material. Deferred Commissions Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new revenue contracts, including incremental sales to existing customers, are deferred and then amortized on a straight-line basis over a period of benefit, which the Company has determined to be generally five years. The Company determined the period of benefit by taking into consideration its customer contracts, its technology and other factors. Sales commissions for renewal contracts (which are not considered commensurate with sales commissions for new revenue contracts and incremental sales to existing customers) are deferred and then amortized on a straight-line basis over the related period of benefit, which is generally the related contract renewal term. Amortization expense is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations. Sales commissions capitalized as contract costs totaled $8.5 million and $5.3 million in the three months ended July 31, 2018 and 2017, respectively, and $14.2 million and $9.5 million in the six months ended July 31, 2018 and 2017, respectively. Amortization of contract costs was $5.0 million and $3.7 million for the three months ended July 31, 2018 and 2017, respectively, and $9.6 million and $7.0 million for the six months ended July 31, 2018 and 2017, respectively. There was no impairment loss in relation to the costs capitalized. Convertible Senior Notes The 2023 Notes are accounted for in accordance with FASB ASC Subtopic 470‑20, Debt with Conversion and Other Options. Pursuant to ASC Subtopic 470‑20, issuers of certain convertible debt instruments, such as the 2023 Notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of the instrument is computed by estimating the fair value of a similar liability without the conversion option. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the instrument. The difference between the principal amount and the liability component represents a debt discount that is amortized to interest expense over the respective term of the 2023 Notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the 2023 Notes, the allocation amount of issuance costs incurred to liability and equity components was based on their relative values. Recently Issued Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02 (Topic 842). Topic 842 amends a number of aspects of lease accounting, including requiring lessees to recognize leases with a term greater than one year as a right-of-use asset and corresponding liability, measured at the present value of the lease payments. In July 2018, the FASB issued supplemental adoption guidance and clarification to Topic 842 within ASU 2018-10 “Codification Improvements to Topic 842, Leases” and ASU 2018-11 “Leases (Topic 842): Targeted Improvements.” The new guidance aims to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. A modified retrospective application is required with an option to not restate comparative periods in the period of adoption. This guidance is effective for the Company on February 1, 2019 with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements, which will consist primarily of a balance sheet gross up of its operating leases to show equal and offsetting right-of-use assets and lease liabilities. In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income (loss) are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income (loss) to retained earnings (accumulated deficit) for stranded income tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the Tax Act). The amendments in this ASU also require certain disclosures about stranded income tax effects. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption in any period is permitted. The Company’s provisional adjustments recorded in fiscal year 2018 to account for the impact of the Tax Act did not result in stranded tax effects. The Company does not anticipate that the adoption of this standard will have a material impact on its condensed consolidated financial statements.

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