UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)

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

For the quarterly period ended July 31, 2020

or

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

For the transition period from                 to                

Commission File Number: 001-38465

______________________________________

DOCUSIGN, INC.

(Exact name of registrant as specified in its charter)

______________________________________

Delaware			91-2183967
(State or Other Jurisdiction of Incorporation)			(I.R.S. Employer Identification Number)
221 Main St.	Suite 1550	San Francisco	California	94105
(Address of Principal Executive Offices)				(Zip Code)

(415) 489-4940

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	DOCU	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 (§232.405 of this chapter) 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 ☒

The registrant has 185,164,889 shares of common stock, par value $0.0001, outstanding at August 31, 2020.

DOCUSIGN, INC.

TABLE OF CONTENTS

	Note Regarding Forward-Looking Statements
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of July 31, 2020 and January 31, 2020	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended July 31, 2020 and 2019	6
	Condensed Consolidated Statement of Stockholders' Equity for the Three and Six Months Ended July 31, 2020 and 2019	7
	Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended July 31, 2020 and 2019	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 6.	Exhibits	67
	Exhibit Index	68
Signatures		69

2

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risk and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and our objectives for future operations, and the impact of the ongoing coronavirus pandemic (the “COVID-19 pandemic”) on our financial conditions and results of operations are forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

▪our ability to effectively sustain and manage our growth and future expenses, and our ability to achieve and maintain future profitability;

▪our expectations regarding the impact of the ongoing COVID-19 pandemic on our business, the businesses of our customers, partners and suppliers, and the economy;

▪our ability to attract new customers and to maintain and expand our existing customer base;

▪our ability to scale and update our software suite to respond to customers’ needs and rapid technological change;

▪the effects of increased competition on our market and our ability to compete effectively;

▪our ability to expand use cases within existing customers and vertical solutions;

▪our ability to expand our operations and increase adoption of our software suite internationally;

▪our ability to strengthen and foster our relationship with developers;

▪our ability to expand our direct sales force, customer success team and strategic partnerships around the world;

▪our ability to identify targets for and execute potential acquisitions;

▪our ability to successfully integrate the operations of businesses we may acquire, or to realize the anticipated benefits of such acquisitions;

▪our ability to maintain, protect and enhance our brand;

▪the sufficiency of our cash and cash equivalents to satisfy our liquidity needs;

▪our failure or the failure of our software suite of services to comply with applicable industry standards, laws and regulations;

▪our ability to maintain, protect and enhance our intellectual property;

▪our ability to successfully defend litigation against us;

▪our ability to attract large organizations as users;

▪our ability to maintain our corporate culture;

▪our ability to offer high-quality customer support;

▪our ability to hire, retain and motivate qualified personnel;

▪our ability to estimate the size and potential growth of our target market; and

▪our ability to maintain proper and effective internal controls.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, such as the COVID-19 pandemic. Many of the risks and uncertainties are currently elevated by, and may or will continue to be elevated by, the current COVID-19 pandemic. It is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

3

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law.

4

PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DOCUSIGN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except per share data)	July 31, 2020		January 31, 2020
Assets
Current assets
Cash and cash equivalents	$	404,262	$	241,203
Investments—current	269,777		414,939
Restricted cash	280		280
Accounts receivable	224,502		237,841
Contract assets—current	17,044		12,502
Prepaid expenses and other current assets	52,158		37,125
Total current assets	968,023		943,890
Investments—noncurrent	66,265		239,729
Property and equipment, net	150,646		128,293
Operating lease right-of-use assets	168,313		149,833
Goodwill	349,254		194,882
Intangible assets, net	135,825		56,500
Deferred contract acquisition costs—noncurrent	198,325		153,333
Other assets—noncurrent	16,659		24,678
Total assets	$	2,053,310	$	1,891,138
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	33,053	$	28,144
Accrued expenses and other current liabilities	54,916		54,344
Accrued compensation	111,623		83,189
Contract liabilities—current	624,031		507,560
Operating lease liabilities—current	30,415		20,728
Total current liabilities	854,038		693,965
Convertible senior notes, net	479,105		465,321
Contract liabilities—noncurrent	11,837		11,478
Operating lease liabilities—noncurrent	177,862		162,432
Deferred tax liability—noncurrent	8,740		4,920
Other liabilities—noncurrent	19,837		6,695
Total liabilities	1,551,419		1,344,811
Commitments and contingencies (Note 11)
Stockholders’ equity
Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding as of July 31, 2020 and January 31, 2020	—		—
Common stock, $0.0001 par value; 500,000 shares authorized, 185,137 shares outstanding as of July 31, 2020; 500,000 shares authorized, 181,254 shares outstanding as of January 31, 2020	19		18
Additional paid-in capital	1,749,323		1,685,167
Accumulated other comprehensive income (loss)	2,098		(1,673)
Accumulated deficit	(1,249,549)		(1,137,185)
Total stockholders’ equity	501,891		546,327
Total liabilities and stockholders’ equity	$	2,053,310	$	1,891,138

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

5

DOCUSIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

	Three Months Ended July 31,				Six Months Ended July 31,
(in thousands, except per share data)	2020		2019		2020		2019
Revenue:
Subscription	$	323,643	$	220,811	$	604,565	$	422,269
Professional services and other	18,566		14,801		34,661		27,305
Total revenue	342,209		235,612		639,226		449,574
Cost of revenue:
Subscription	64,730		39,472		116,740		72,591
Professional services and other	25,885		21,704		47,907		40,604
Total cost of revenue	90,615		61,176		164,647		113,195
Gross profit	251,594		174,436		474,579		336,379
Operating expenses:
Sales and marketing	194,992		150,886		366,785		280,822
Research and development	63,791		47,517		118,025		84,700
General and administrative	51,446		40,755		90,257		78,016
Total operating expenses	310,229		239,158		575,067		443,538
Loss from operations	(58,635)		(64,722)		(100,488)		(107,159)
Interest expense	(7,684)		(7,273)		(15,244)		(14,429)
Interest income and other income, net	2,601		4,531		6,343		9,748
Loss before provision for income taxes	(63,718)		(67,464)		(109,389)		(111,840)
Provision for income taxes	842		1,168		2,975		2,514
Net loss	$	(64,560)	$	(68,632)	$	(112,364)	$	(114,354)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.35)	$	(0.39)	$	(0.61)	$	(0.66)
Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted	184,862		175,389		183,930		173,773
Other comprehensive income (loss):
Foreign currency translation gain (loss), net of tax	$	8,714	$	(45)	$	3,525	$	(1,676)
Unrealized gains on investments, net of tax	87		358		246		696
Other comprehensive income (loss)	8,801		313		3,771		(980)
Comprehensive loss	$	(55,759)	$	(68,319)	$	(108,593)	$	(115,334)
Stock-based compensation expense included in costs and expenses:
Cost of revenue—subscription	$	5,014	$	3,115	$	8,878	$	5,397
Cost of revenue—professional services and other	5,225		4,821		9,350		8,261
Sales and marketing	32,305		25,942		56,970		44,044
Research and development	14,781		11,963		26,666		19,280
General and administrative	11,442		9,951		20,454		21,081

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

6

DOCUSIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
(in thousands)	Shares	Amount
Balances at April 30, 2020	183,428	$	18	$	1,714,462	$	(6,703)	$	(1,184,989)	$	522,788
Exercise of stock options	460	—		5,403		—		—		5,403
Settlement of RSUs	1,002	1		(1)		—		—		—
Tax withholding on RSU settlement	—	—		(89,449)		—		—		(89,449)
Issuance of shares as consideration for acquisition	247	—		48,361		—		—		48,361
Employee stock-based compensation	—	—		70,547		—		—		70,547
Net loss	—	—		—		—		(64,560)		(64,560)
Other comprehensive income, net	—	—		—		8,801		—		8,801
Balances at July 31, 2020	185,137	$	19	$	1,749,323	$	2,098	$	(1,249,549)	$	501,891

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
(in thousands)	Shares	Amount
Balances at April 30, 2019	173,628	$	17	$	1,575,471	$	(3,258)	$	(974,548)	$	597,682
Exercise of stock options	1,235	—		10,194		—		—		10,194
Settlement of RSUs	1,090	1		(1)		—		—		—
Tax withholding on RSU settlement	—	—		(29,841)		—		—		(29,841)
Employee stock-based compensation	—	—		56,963		—		—		56,963
Net loss	—	—		—		—		(68,632)		(68,632)
Other comprehensive income, net	—	—		—		313		—		313
Balances at July 31, 2019	175,953	$	18	$	1,612,786	$	(2,945)	$	(1,043,180)	$	566,679

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

7

DOCUSIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
(in thousands)	Shares	Amount
Balances at January 31, 2020	181,254	$	18	$	1,685,167	$	(1,673)	$	(1,137,185)	$	546,327
Exercise of stock options	1,300	—		13,038		—		—		13,038
Settlement of RSUs	2,080	1		(1)		—		—		—
Tax withholding on RSU settlement	—	—		(136,172)		—		—		(136,172)
Employee stock purchase plan	256	—		13,590		—		—		13,590
Issuance of shares as consideration for acquisition	247	—		48,361		—		—		48,361
Employee stock-based compensation	—	—		125,340		—		—		125,340
Net loss	—	—		—		—		(112,364)		(112,364)
Other comprehensive income, net	—	—		—		3,771		—		3,771
Balances at July 31, 2020	185,137	$	19	$	1,749,323	$	2,098	$	(1,249,549)	$	501,891

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
(in thousands)	Shares	Amount
Balances at January 31, 2019	169,303	$	17	$	1,545,088	$	(1,965)	$	(928,778)	$	614,362
Exercise of stock options	3,869	—		42,448		—		—		42,448
Settlement of RSUs	2,550	1		(1)		—		—		—
Tax withholding on RSU settlement	—	—		(85,978)		—		—		(85,978)
Employee stock purchase plan	231	—		10,563		—		—		10,563
Employee stock-based compensation	—	—		100,666		—		—		100,666
Net loss	—	—		—		—		(114,354)		(114,354)
Cumulative impact of Topic 842 adoption	—	—		—		—		(48)		(48)
Other comprehensive loss, net	—	—		—		(980)		—		(980)
Balances at July 31, 2019	175,953	$	18	$	1,612,786	$	(2,945)	$	(1,043,180)	$	566,679

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

8

DOCUSIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six Months Ended July 31,
(in thousands)	2020		2019
Cash flows from operating activities:
Net loss	$	(112,364)	$	(114,354)
Adjustments to reconcile net to net cash used in operating activities
Depreciation and amortization	31,976		24,261
Amortization of deferred contract acquisition and fulfillment costs	45,194		31,149
Amortization of debt discount and transaction costs	13,784		13,002
Non-cash operating lease costs	13,119		8,863
Stock-based compensation expense	122,318		98,063
Deferred income taxes	(284)		28
Other	(493)		(2,371)
Changes in operating assets and liabilities
Accounts receivable	25,154		35,896
Contract assets	1,570		(4,905)
Prepaid expenses and other current assets	(5,388)		(3,157)
Deferred contract acquisition and fulfillment costs	(92,414)		(48,439)
Other assets	(6,132)		959
Accounts payable	6,275		1,588
Accrued expenses and other liabilities	11,710		14,502
Accrued compensation	22,865		2,427
Contract liabilities	107,486		21,746
Operating lease liabilities	(7,098)		(7,198)
Net cash provided by operating activities	177,278		72,060
Cash flows from investing activities:
Cash paid for acquisition, net of acquired cash	(180,370)		—
Purchases of marketable securities	(11,667)		(530,886)
Sales of marketable securities	28,986		—
Maturities of marketable securities	301,416		244,449
Purchases of strategic investments	—		(15,500)
Purchases of other investments	(3,241)		—
Purchases of property and equipment	(44,751)		(29,791)
Net cash provided by (used in) investing activities	90,373		(331,728)
Cash flows from financing activities:
Payment of tax withholding obligation on RSU settlement	(133,860)		(85,978)
Proceeds from exercise of stock options	13,038		42,448
Proceeds from employee stock purchase plan	13,590		10,563
Net cash used in financing activities	(107,232)		(32,967)
Effect of foreign exchange on cash, cash equivalents and restricted cash	2,640		(1,120)
Net increase (decrease) in cash, cash equivalents and restricted cash	163,059		(293,755)
Cash, cash equivalents and restricted cash at beginning of period	241,483		518,178
Cash, cash equivalents and restricted cash at end of period	$	404,542	$	224,423

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

9

DOCUSIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)

	Six Months Ended July 31,
(in thousands)	2020		2019
Supplemental disclosure:
Cash paid for interest	$	1,438	$	1,414
Cash paid for operating lease liabilities	14,387		10,984
Cash paid for income taxes	1,827		1,109
Non-cash investing and financing activities:
Property and equipment in accounts payable and accrued expenses and other current liabilities	$	6,478	$	4,046
Operating lease right-of-use assets exchanged for lease obligations	27,569		53,754
Derecognition of build-to-suit lease	—		2,479
Fair value of shares issued as consideration for acquisition	48,361		—

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

10

DOCUSIGN, INC.

Index for Notes to the Condensed Consolidated Financial Statements

Note 1	Summary of Significant Accounting Policies	12
Note 2	Revenue and Performance Obligations	14
Note 3	Fair Value Measurements	14
Note 4	Property and Equipment, Net	16
Note 5	Acquisitions	16
Note 6	Goodwill and Intangible Assets, Net	18
Note 7	Contract Balances	19
Note 8	Deferred Contract Acquisition and Fulfillment Costs	20
Note 9	Convertible Senior Notes	20
Note 10	Leases	21
Note 11	Commitments and Contingencies	21
Note 12	Stockholders' Equity	22
Note 13	Net Loss Per Share Attributable to Common Stockholders	24
Note 14	Income Taxes	24
Note 15	Geographic Information	25

11

DOCUSIGN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Organization and Description of Business

DocuSign, Inc. (“we,” “our” or “us”) was incorporated in the State of Washington in April 2003. We merged with and into DocuSign, Inc., a Delaware corporation, in March 2015.

We provide a platform that enables businesses of all sizes to digitally prepare, sign, act on and manage agreements, thereby simplifying and accelerating the process of doing business.

Basis of Presentation and Principles of Consolidation

Our condensed consolidated financial statements include those of DocuSign, Inc. and our subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2020 Annual Report on Form 10-K.

Our condensed consolidated financial statements are unaudited and have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and, in our opinion, include all adjustments of a normal recurring nature necessary for the fair statement of our financial position, results of operations and cash flows. Our condensed consolidated balance sheet as of January 31, 2020 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the six months ended July 31, 2020 are not necessarily indicative of the results to be expected for the year ending January 31, 2021.

Our fiscal year ends on January 31. References to fiscal 2021, for example, are to the fiscal year ending January 31, 2021. Certain prior year amounts have been reclassified to conform to current year presentation. These amounts were not material to any of the periods presented.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in the condensed consolidated financial statements and notes thereto.

Significant items subject to such estimates and assumptions made by management include, but are not limited to, the determination of:

•the fair value of assets acquired and liabilities assumed in business combinations;

•the average period of benefit associated with deferred contract acquisition costs and fulfillment costs;

•the valuation of strategic investments;

•the fair value of certain stock awards issued;

•the fair value of the liability and equity components of convertible notes;

•the useful life and recoverability of long-lived assets;

•the discount rate used for operating leases; and

•the recognition, measurement and valuation of deferred income taxes.

The World Health Organization declared in March 2020 that the outbreak of the coronavirus disease named COVID-19 constitutes a pandemic. We have undertaken measures to protect our employees, partners and customers. There can be no assurance that these measures will be effective, however, or that we can adopt them without adversely affecting our business operations. In addition, the COVID-19 pandemic has created and may continue to create significant uncertainty in global financial markets, which may decrease technology spending, depress demand for our solutions and harm our business and results of operations. As of the date of issuance of the financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, judgments or revise the carrying value of our assets or liabilities.

12

These estimates may change, as new events occur and additional information is obtained, and are 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 financial statements.

Significant Accounting Policies

There have been no changes to our significant accounting policies described in our 2020 Annual Report on Form 10-K that have had a material impact on our consolidated financial statements and related notes.

Concentration of Credit Risk

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable. Although we deposit our cash with multiple financial institutions, the deposits, at times, may exceed federally insured limits. We have not experienced any losses on our deposits of cash and cash equivalents. Cash equivalents consist of money market funds which are invested through financial institutions in the U.S. Management believes that the institutions are financially stable and, accordingly, minimal credit risk exists.

We perform ongoing credit evaluations of our customers, do not require collateral and maintain allowances for potential credit losses on customers’ accounts using the expected loss model.

Investments

Investments in marketable securities consist of commercial paper, corporate notes and bonds, as well as U.S. Treasury and government agency securities. Management determines the appropriate classification of investments at the time of purchase and reevaluates such determination at each balance sheet date. Marketable securities are classified as available-for-sale and are carried at fair value in the consolidated balance sheet and are classified as short-term or long-term based on their remaining contractual maturities.

We evaluate our investments with unrealized loss positions at the individual security level to determine whether the unrealized loss was related to credit or noncredit factors. We consider whether a credit loss exists based on the extent of the unrealized loss position, any adverse conditions specifically related to the security or the issuer's operating environment, pay structure of the security, the issuer's payment history and any changes in the issuer's credit rating. Estimated credit losses are determined using a discounted cash flow model and recorded as an allowance, with changes in expected credit losses on our investments recorded in “Interest income and other income, net” in the consolidated statements of operations and comprehensive loss. Unrealized gains and losses related to noncredit factors are reflected in “Accumulated other comprehensive income (loss)” on the consolidated balance sheets.

Recently Adopted Accounting Pronouncements

On February 1, 2020, we adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The Financial Accounting Standards Board (“FASB”) subsequently issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. These updates change the impairment model for most financial assets and require the use of an expected loss model in place of the previously used incurred loss method. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. The effect of adopting ASU 2016-13 and ASU 2019-04 on our consolidated financial statements and related disclosures was not material for the six months ended July 31, 2020.

On February 1, 2020, we adopted ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The impact of prospectively adopting ASU 2018-15 on our consolidated financial statements was not material for the six months ended July 31, 2020.

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Other Recent Accounting Pronouncements

In August 2020, the FASB issued 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). The update removes separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. Such convertible debt will be accounted for as a single liability measured at its amortized cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The update also requires the if-converted method to be used for convertible instruments and the effect of potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The amendment is to be adopted through either a fully retrospective or modified retrospective method of transition. Early adoption is permitted. We are in the process of evaluating the impact of the adoption of the update on our consolidated financial statements.

Note 2. Revenue and Performance Obligations

Subscription revenue is recognized over time and accounted for approximately 95% and 94% of our revenue for the three months ended July 31, 2020 and 2019. It accounted for approximately 95% and 94% of our revenue for the six months ended July 31, 2020 and 2019.

As of July 31, 2020, the amount of the transaction price allocated to remaining performance obligations for contracts greater than one year was $849.0 million. We expect to recognize 54% of the transaction price allocated to remaining performance obligations within the 12 months following July 31, 2020, in our consolidated statement of operations and comprehensive loss.

Note 3. Fair Value Measurements

The following table summarizes our financial assets that are measured at fair value on a recurring basis:

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	July 31, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Level 1:
Cash equivalents(1)
Money market funds	$	297,234	$	—	$	—	$	297,234
Level 2:
Available-for-sale securities
Commercial paper	4,996		4		—		5,000
Corporate notes and bonds	205,082		1,136		(12)		206,206
U.S. Treasury securities	34,071		102		—		34,173
U.S. government agency securities	90,524		162		(23)		90,663
Level 2 total	334,673		1,404		(35)		336,042
Total	$	631,907	$	1,404	$	(35)	$	633,276
	January 31, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Level 1:
Cash equivalents(1)
Money market funds	$	165,424	$	—	$	—	$	165,424
Level 2:
Available-for-sale securities
Commercial paper	14,919		7		(1)		14,925
Corporate notes and bonds	372,844		891		(31)		373,704
U.S. Treasury securities	90,697		153		(1)		90,849
U.S. government agency securities	175,086		153		(49)		175,190
Level 2 total	653,546		1,204		(82)		654,668
Total	$	818,970	$	1,204	$	(82)	$	820,092

(1) Included in “cash and cash equivalents” in our consolidated balance sheets as of July 31, 2020 and January 31, 2020, in addition to cash of $107.0 million and $75.8 million.

We use quoted prices in active markets for identical assets to determine the fair value of our Level 1 investments. The fair value of our Level 2 investments is determined using pricing based on quoted market prices or alternative market observable inputs.

The fair value of our available-for-sale securities as of July 31, 2020, by remaining contractual maturities, were as follows (in thousands):

Due in one year or less	$	269,777
Due in one to two years	66,265
	$	336,042

As of July 31, 2020, we had a total of 97 available-for-sale securities, with 17 securities in an unrealized loss position. An allowance for credit losses was deemed unnecessary for these securities, given the extent of the unrealized loss positions as well the issuers' high credit ratings and consistent payment history. As of January 31, 2020, we had 178 available-for-sale securities, none of which were considered to be other-than-temporarily impaired.

We had no liabilities measured at fair value on a recurring basis as of July 31, 2020 and January 31, 2020.

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Convertible Senior Notes

As of July 31, 2020 and January 31, 2020, the estimated fair value of our 0.5% Convertible Senior Notes (the “Notes”) with aggregate principal amount of $575.0 million was $1.7 billion and $743.5 million. We estimated the fair value based on the quoted market prices in an inactive market on the last trading day of the reporting period (Level 2). The Notes are recorded at face value less unamortized debt discount and transaction costs as “Convertible senior notes, net” on our consolidated balance sheets. Refer to Note 9 for further information.

Note 4. Property and Equipment, Net

Property and equipment consisted of the following:

(in thousands)	July 31, 2020		January 31, 2020
Computer and network equipment	$	80,716	$	66,937
Software, including capitalized software development costs