Convertible Senior Notes

9 Months Ended

Oct. 31, 2024

Debt Disclosure [Abstract]

Convertible Senior Notes

Convertible Senior Notes

The net carrying amounts of the Company’s 2026 Notes (as defined herein) were as follows for the periods presented (in thousands):

	October 31, 2024			January 31, 2024
Principal	$	1,128,921	(1)	$	1,149,972
Unamortized debt issuance costs	(4,201)			(6,699)
Net carrying amount	$	1,124,720		$	1,143,273

(1) The aggregate principal amount outstanding of the 2026 Notes is presented within Convertible senior notes, net, current on the Company’s condensed consolidated balance sheet as of October 31, 2024.

As of October 31, 2024, the estimated fair value (Level 2) of the outstanding 2026 Notes, which is utilized solely for disclosure purposes, was approximately $1.5 billion. The fair value was determined based on the closing trading price per $100 of the 2026 Notes as of the last day of trading for the period. The fair value of the 2026 Notes is primarily affected by the trading price of the Company’s common stock and market interest rates.

In January 2020, the Company issued $1.0 billion aggregate principal amount of 0.25% convertible senior notes due 2026 in a private placement and, also in January 2020, the Company issued an additional $150.0 million aggregate principal amount of convertible senior notes pursuant to the exercise in full of the initial purchasers’ option to purchase additional convertible senior notes (collectively, the “2026 Notes”). The 2026 Notes are senior unsecured obligations of the Company and interest is payable semiannually in arrears on July 15 and January 15 of each year, beginning on July 15, 2020, at a rate of 0.25% per year. The 2026 Notes will mature on January 15, 2026, unless earlier converted, redeemed or repurchased. The total net proceeds from the offering, after deducting initial purchase discounts and estimated debt issuance costs, were approximately $1.1 billion.

Refer to Note 6, Convertible Senior Notes, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of the Company’s 2024 Form 10-K for further information on the 2026 Notes.

In October 2024, the optional redemption feature of the 2026 Notes was satisfied as the last reported sale price of the Company’s common stock was more than or equal to 130% of the conversion price for at least 20 trading days in the period of 30 consecutive trading days. On October 16, 2024, the Company issued a notice of redemption (the “Redemption Notice”) for all aggregate principal amount outstanding of its 2026 Notes. Pursuant to the Redemption Notice, on December 16, 2024 (the “Redemption Date”), the Company will redeem all 2026 Notes that have not been converted prior to such date at a redemption price in cash equal to 100% of the principal amount of such 2026 Notes, plus accrued and unpaid interest from July 15, 2024 to, but excluding, the Redemption Date (the “Redemption Price”). On the Redemption Date, the Redemption Price will become due and payable upon each 2026 Note to be redeemed and interest thereon will cease to accrue on and after the Redemption Date.

The 2026 Notes called for redemption may be converted by holders at any time before 5:00 p.m. (New York City time) on December 13, 2024 (the “Conversion Deadline”). The Conversion Rate for 2026 Notes converted after the date of the Redemption Notice and prior to the Conversion Deadline will be equal to 4.9260 shares of the Company’s common stock, par value $0.001 per share, per $1,000 principal amount of the 2026 Notes, which includes an increase of the conversion rate of 0.1911 additional shares of the Company’s common stock per $1,000 principal amount of the 2026 Notes as a result of the 2026 Notes being called for optional redemption. The Company has elected to settle any conversions occurring after the date

of the Redemption Notice and prior to the Conversion Deadline by delivering common stock, plus cash in lieu of any resulting fractional shares.

The Company classified the 2026 Notes as Convertible senior notes, net, current on the Company’s condensed consolidated balance sheet as of October 31, 2024 as the Company expects to redeem the 2026 Notes no later than the Redemption Date. During the three months ended October 31, 2024, certain holders elected to convert $21.1 million aggregate principal amount of the 2026 Notes for 103,696 shares of the Company’s common stock with the remaining balance settled in cash. The Company recorded the carrying amount of the converted debt into common stock and additional paid-in-capital with no gain or loss recognized. The Company reflected these conversions as non-cash financing activities in the Company’s condensed consolidated statement of cash flows for the nine months ended October 31, 2024.

Between November 1, 2024 and December 10, 2024, approximately $115.8 million aggregate principal amount were converted, or are required to be converted, to 570,257 shares of the Company’s common stock with the remaining balance settled in cash. As of December 10, 2024, the Company had aggregate principal amount outstanding of $1.0 billion which will be redeemed by the Redemption Date in either the Company’s common stock or cash.

Capped Calls

In connection with the pricing of the issuance of the Company’s convertible notes due June 15, 2024 (the “2024 Notes”) and the 2026 Notes, the Company entered into privately negotiated capped call transactions with certain counterparties (the “Capped Calls”). The Capped Calls associated with the 2024 Notes each have an initial strike price of approximately $68.15 per share, subject to certain adjustments, which corresponded to the initial conversion price of the 2024 Notes. These Capped Calls have initial cap prices of $106.90 per share, subject to certain adjustments.

In April 2024, the Company elected cash settlement for the Capped Calls associated with the 2024 Notes. The settlement period of the Capped Calls associated with the 2024 Notes ranges between April 2024 and June 2024 with cash receipt in June 2024. Upon the cash settlement election, the instrument, initially indexed to the Company’s own stock, no longer met the criteria for equity classification and was reclassified from stockholder’s equity to assets on the Company’s condensed consolidated balance sheet. The reclassification resulted in the recognition of a derivative asset, with an estimated fair value at cash settlement election date of $169.7 million, with a corresponding increase in additional paid in capital, which is reflected as a noncash financing activity for the three months ended April 30, 2024. The derivative asset was included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheet. The fair value of the derivative instrument as of April 30, 2024, was $170.2 million and as a result the Company recognized an unrealized gain of $0.5 million, which was recorded in other income (expense), net, on the Company’s interim condensed consolidated statement of operations. The fair values of the derivative asset related to the Capped Calls associated with the 2024 Notes were determined using the Black-Scholes option-pricing model with significant inputs being the Company’s share price and the risk free rate, based on the Secured Overnight Offering Rate, at each valuation date. The impact of volatility was not significant on the fair value measurements. In June 2024, the derivative asset was settled and the Company received $170.6 million in cash and recognized a realized gain of $0.9 million for the three and six months ended July 31, 2024, which was recorded in other income (expense), net, on the Company’s interim condensed consolidated statement of operations.

The Capped Calls associated with the 2026 Notes each have an initial strike price of approximately $211.20 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2026 Notes. These Capped Calls have initial cap prices of $296.42 per share, subject to certain adjustments. The Company did not unwind any of these Capped Calls through October 31, 2024.

Refer to Note 6, Convertible Senior Notes, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of the Company’s 2024 Form 10-K for further information on the Capped Calls and the 2024 Notes.