Revenue, Deferred Revenue and Remaining Performance Obligations

6 Months Ended

Jul. 31, 2019

Revenue, Deferred Revenue and Remaining Performance Obligations

Revenue, Deferred Revenue and Remaining Performance Obligations

10.  Revenue, Deferred Revenue and Remaining Performance Obligations

The following table summarizes the revenue from contracts by type of customer:

	Three Months Ended July 31,								Six Months Ended July 31,
	2019				2018				2019				2018
	Amount		% Revenue		Amount		% Revenue		Amount		% Revenue		Amount		% Revenue
	(in thousands, except percentages)								(in thousands, except percentages)
Channel Partners	$	70,438	65	%	$	36,936	66	%	$	134,897	66	%	$	70,094	68	%
Direct Customers		37,670	35	%		18,765	34	%		69,288	34	%		32,896	32	%
Total revenue	$	108,108	100	%	$	55,701	100	%	$	204,185	100	%	$	102,990	100	%

The Company uses channel partners to complement direct sales and marketing efforts. The partners place an order with the Company after negotiating the order directly with an end customer. The partners negotiate pricing with the end customer and in some rare instances are responsible for certain support levels directly with the end customer. The Company’s contract is with the partner and payment to the Company is not contingent on the receipt of payment from the end customer. The Company recognizes the contractual amount charged to the partners as revenue ratably over the term of the arrangement once access to the Company’s solution has been provided to the end customer.

The Company also uses referral partners who refer customers in exchange for a referral fee. The Company negotiates pricing and contracts directly with the end customer. The Company recognizes revenue from the sales to the end customers, ratably over the term of the contract, once access to the Company’s solution has been provided to the end customer.

The following table summarizes the revenue by region based on the shipping address of customers who have contracted to use the Company’s cloud platform:

	Three Months Ended July 31,								Six Months Ended July 31,
	2019					2018			2019					2018
	Amount		% Revenue		Amount		% Revenue		Amount		% Revenue		Amount		% Revenue
	(in thousands, except percentages)								(in thousands, except percentages)
United States	$	80,146	74	%	$	44,338	80	%	$	152,454	75	%	$	80,293	78	%
Europe, Middle East, and Africa		15,006	14	%		5,108	9	%		28,419	14	%		11,017	11	%
Asia Pacific		8,613	8	%		4,000	7	%		14,843	7	%		7,662	7	%
Other		4,343	4	%		2,255	4	%		8,469	4	%		4,018	4	%
Total revenue	$	108,108	100	%	$	55,701	100	%	$	204,185	100	%	$	102,990	100	%

No single country other than the United States represented 10% or more of the Company’s total revenue during the three or six months ended July 31, 2019 or July 31, 2018.

Contract Balances

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period. For the three months and six months ended July 31, 2019, the Company recognized revenue of $89.6 million and $169.5 million, respectively, that were included in the corresponding contract liability balance at the beginning of the period.

The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Payment terms on invoiced amounts are typically 30-60 days. Contract assets include amounts related to the contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced.

Changes in deferred revenue for the six months ended July 31, 2019 were as follows (in thousands):

	Carrying Amount
	Three Months Ended July 31, 2019		Six Months Ended July 31, 2019
Beginning Balance	$	315,212	$	290,067
Additions to deferred revenue		162,658		283,880
Recognition of deferred revenue		(108,108)		(204,185)
Ending Balance	$	369,762	$	369,762

Remaining Performance Obligations

The Company's subscription contracts with its customers have a typical term of one to three years and most subscription contracts are non-cancelable. Customers typically have the right to terminate their contracts for cause as a result of the Company’s failure to perform. As of July 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $455.0 million. The Company expects to recognize 72% of the remaining performance obligation in the 12 months following July 31, 2019, with the remainder to be recognized thereafter.

Costs to Obtain and Fulfill a Contract

The Company capitalizes sales commission and associated payroll taxes paid to internal sales personnel that are incremental to the acquisition of channel partner and direct customer contracts and would not have occurred absent the customer contract. These costs are recorded as deferred contract acquisition costs on the condensed consolidated balance sheet.

Sales commissions for renewal of a contract are not considered commensurate with the commissions paid for the acquisition of the initial contract or follow-on upsell given the substantive difference in commission rates in proportion to their respective contract values. Commissions, including referral fees paid to channel partners, paid upon

the initial acquisition of a contract or subsequent upsell are amortized over an estimated period of benefit of four years while commissions paid for renewal contracts are amortized over the contractual term of the renewals. Sales commissions associated with professional service contracts are amortized ratably over an estimated period of benefit of six months. Amortization of deferred contract acquisition costs is recognized on a straight-line basis commensurate with the pattern of revenue recognition and included in sales and marketing expense in the condensed consolidated statements of operations. In determining the period of benefit for commissions paid for the acquisition of the initial contract, the Company took into consideration the expected subscription term and expected renewals of customer contracts, the historical duration of relationships with customers, customer retention data, and the life of the developed technology. The Company periodically reviews the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred costs. The Company did not recognize any impairment losses of deferred contract acquisition costs during the three and six months ended July 31, 2019.

The following table summarizes the activity of deferred contract acquisition costs:

	Three Months Ended July 31,				Six Months Ended July 31,
	2019		2018		2019		2018
	(in thousands)
Beginning balance	$	64,197	$	21,764	$	63,071	$	22,334
Capitalization of contract acquisition costs		19,317		9,272		27,788		14,298
Amortization of deferred contract acquisition costs		(7,731)		(6,395)		(15,076)		(11,991)
Ending balance	$	75,783	$	24,641	$	75,783	$	24,641
Deferred contract acquisition costs, current	$	34,017	$	18,808	$	34,017	$	18,808
Deferred contract acquisition costs, noncurrent		41,766		5,833		41,766		5,833
Total deferred contract acquisition costs	$	75,783	$	24,641	$	75,783	$	24,641