Convertible Senior Notes

3 Months Ended

Apr. 30, 2021

2026 Notes

In June 2020, the Company issued the 2026 Notes in aggregate principal amount of $1,380.0 million in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from the issuance of the 2026 Notes were $1,162.3 million, net of debt issuance costs, including the underwriting discount and the cash used to purchase the capped call discussed below. The 2026 Notes have an initial conversion rate of 3.3732 shares of common stock per $1,000 principal (equivalent to an initial conversion price of approximately $296.45 per share of common stock). The interest rate is fixed at 0.375% per annum for the 2026 Notes and is payable semi-annually in arrears on June 15 and December 15 of each year, which commenced on December 15, 2020. Refer to the Company’s consolidated financial statements for the year ended January 31, 2021 for details of the issuance and accounting of 2026 Notes.

The 2026 Notes were not convertible at April 30, 2021, as none of the 2026 Notes conversion conditions were met.

The Company may redeem for cash all or any portion of the 2026 Notes, at its option, on or after June 20, 2023 and prior to the 21st scheduled trading day immediately preceding the maturity date, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price 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 the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

2025 Notes

In June 2019, the Company issued the 2025 Notes in aggregate principal amount of $805.0 million in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from the issuance of the 2025 Notes were $667.4 million, net of debt issuance costs, including the underwriting discount and the cash used to purchase the capped call, discussed below. The 2025 Notes have an initial conversion rate of 6.2658 shares of common stock per $1,000 principal (equivalent to an initial conversion price of approximately $159.60 per share of common stock). The interest rate is fixed at 0.125% per annum for the 2025 Notes and is payable semi-annually in arrears on June 15 and December 15 of each year, which commenced on December 15, 2019. Refer to the Company’s consolidated financial statements for the year ended January 31, 2020 for details of the issuance and accounting of 2025 Notes.

The conversion condition for the 2025 Notes was initially met during the three months ended July 31, 2020 and it continued to be met during the three months ended April 30, 2021. As a result, the 2025 Notes continued to be convertible at the option of the holders and remained classified as current liabilities on the condensed consolidated balance sheet as of April 30, 2021.

As of April 30, 2021, approximately $805.0 million principal amount of 2025 Notes remained outstanding. In addition, from May 1, 2021 to the date of this filing, the Company has not received any additional conversion requests for the 2025 Notes.

The Company may redeem for cash all or any portion of the 2025 Notes, at its option, on or after June 20, 2022, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price 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 the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2025 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

2023 Notes

In January 2018, the Company issued the 2023 Notes in aggregate principal amount of $230.0 million in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from the issuance of the 2023 Notes were $200.4 million, net of debt issuance costs, including the underwriting discount and the cash used to purchase the capped call, discussed below. The 2023 Notes have an initial conversion rate of 22.4685 shares of common stock per $1,000 principal (equivalent to an initial conversion price of approximately $44.5068 per share of common stock). The interest rate is fixed at 0.375% per annum for the 2023 Notes and is payable semi-annually in arrears on July 15 and January 15 of each year, which commenced on July 15, 2018. Refer to the Company’s consolidated financial statements for the year ended January 31, 2019 for details of the issuance of 2023 Notes.

The conversion condition for the 2023 Notes was initially met during the three months ended April 30, 2019, and has been met for each subsequent fiscal quarter. As a result, the 2023 Notes were convertible at the option of the holders and remained classified as current liabilities on the condensed consolidated balance sheet as of April 30, 2021. For the year ended January 31, 2021, the Company settled conversion requests on the principal amount of the 2023 Notes totaling approximately $132.1 million by paying cash for the principal amount of $132.1 million and issuing approximately 2.2 million shares of the Company’s common stock, bearing a fair value of approximately $410.0 million. In addition, during the year ended January 31, 2021, using proceeds from the 2026 Notes issuance, the Company repurchased approximately $89.0 million principal amount of the 2023 Notes by paying cash of approximately $450.6 million. For the three months ended April 30, 2021, the Company settled conversion requests on the principal amount of the 2023 Notes totaling approximately $3.0 million by paying cash for the principal amount of $3.0 million and issuing approximately 56,923 shares of the Company’s common stock, bearing a fair value of approximately $13.8 million. Correspondingly, for the three months ended April 30, 2021, the Company recognized a loss of approximately $0.1 million on the conversion and repurchase of the 2023 Notes representing the net carrying amount in excess of the fair value of the liability component of the converted and repurchased notes on the respective settlement dates. The amount is included in interest income and other, net in the Company’s condensed consolidated statement of operations.

As of April 30, 2021, approximately $5.9 million principal amount of 2023 Notes remained outstanding. In addition, from May 1, 2021 to the date of this filing, the Company received conversion requests for an immaterial principal amount of the 2023 Notes.

The Company may redeem for cash all or any portion of the 2023 Notes, at its option, on or after January 20, 2021, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price 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 the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2023 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. During the three months ended April 30, 2021, the Company did not redeem any of the 2023 Notes.

The 2026 Notes, 2025 Notes and 2023 Notes consisted of the following (in thousands):


	As of						As of
	April 30, 2021						January 31, 2021
	2026 Notes		2025 Notes		2023 Notes		2026 Notes		2025 Notes		2023 Notes
Liability:
Principal	$	1,380,000	$	804,997	$	5,877	$	1,380,000	$	804,999	$	8,832
Unamortized debt discount and issuance costs (1)	(465,006)		(193,811)		(663)		(482,475)		(203,638)		(1,125)
Net carrying amount	$	914,994	$	611,186	$	5,214	$	897,525	$	601,361	$	7,707
Carrying amount of the equity component (2)	$	501,053	$	246,966	$	1,544	$	501,053	$	246,966	$	1,560

(1)Included in the condensed consolidated balance sheets within Convertible senior notes, net and amortized over the remaining lives of the convertible senior notes. The 2026 Notes are classified as long-term liabilities, and the 2025 Notes and 2023 Notes are classified as current liabilities.

(2)Included in the condensed consolidated balance sheets within additional paid-in capital and temporary equity.

The effective interest rates of the liability component of the 2026 Notes, 2025 Notes and 2023 Notes, excluding each tranche of notes’ conversions options, is 8.83%, 7.05% and 7.66%, respectively. As of April 30, 2021 the if-converted value of the 2026 Notes did not exceed the principal amount and as of January 31, 2021 the if-converted value of the 2026 Notes exceeded the principal amount by $62.5 million. As of April 30, 2021 and January 31, 2021, the if-converted value of the 2025 Notes exceeded the principal amount by $552.0 million and $757.9 million, respectively. As of April 30, 2021 and January 31, 2021, the if-converted value of the 2023 Notes exceeded the principal amount by $29.6 million and $52.7 million, respectively.

During the three months ended April 30, 2021 and 2020, the Company recognized $27.4 million and $11.9 million, respectively, of interest expense related to the amortization of debt discount and issuance costs, and $1.5 million and $400,000, respectively, of coupon interest expense.

As of April 30, 2021, the remaining life of the 2026 Notes, 2025 Notes and 2023 Notes is approximately 5.1 years, 4.1 years and 1.7 years, respectively.

Capped Calls

In conjunction with the issuance of the 2026 Notes, 2025 Notes and 2023 Notes, the Company entered into capped call transactions (the “Capped Calls”) on the Company’s stock with certain counterparties at a price of $192.8 million, $118.7 million and $23.3 million, respectively.

The Capped Calls exercise price is equal to the initial conversion price of each of the Convertible Notes, and the cap price is $503.42 per share for 2026 Notes, $295.55 per share for 2025 Notes and $63.821 per share for 2023 Notes, each subject to certain adjustments under the terms of the Capped Call transactions. If any tranche of convertible notes’ conversion option is exercised, the corresponding convertible note capped call will become exercisable on the same date. As of the date of filing, the Company has not exercised the Capped Calls in relation to the conversion of 2023 Notes or 2025 Notes.

By entering into the Capped Calls, the Company expects to reduce the potential dilution to its common stock (or, in the event the conversion is settled in cash, to reduce its cash payment obligation) in the event that at the time of conversion its stock price exceeds the conversion price.

The cost of the Capped Calls is not expected to be tax-deductible as the Company did not elect to integrate the Capped Calls into the respective convertible notes for tax purposes. The cost of the Capped Calls was recorded as a reduction of the Company’s additional paid-in capital in the accompanying condensed consolidated financial statements.