Fair Value Measurements

6 Months Ended

Jan. 31, 2023

Fair Value Disclosures [Abstract]

Fair Value Measurements

NOTE 4. FAIR VALUE MEASUREMENTS

The fair value of our financial assets measured on a recurring basis is as follows:

	As of July 31, 2022
	Level I		Level II		Level III		Total
	(in thousands)
Financial Assets:
Cash equivalents:
Money market funds	$	227,796	$	—	$	—	$	227,796
Commercial paper		—		27,927		—		27,927
Short-term investments:
Corporate bonds		—		409,024		—		409,024
Commercial paper		—		317,738		—		317,738
U.S. Government securities		—		194,667		—		194,667
Total measured at fair value	$	227,796	$	949,356	$	—	$	1,177,152
Cash								147,127
Total cash, cash equivalents and short-term investments							$	1,324,279

	As of January 31, 2023
	Level I		Level II		Level III		Total
	(in thousands)
Financial Assets:
Cash equivalents:
Money market funds	$	236,317	$	—	$	—	$	236,317
U.S. Government securities		—		2,979		—		2,979
Commercial paper		—		27,928		—		27,928
Short-term investments:
Corporate bonds		—		467,686		—		467,686
Commercial paper		—		235,575		—		235,575
U.S. Government securities		—		201,502		—		201,502
Total measured at fair value	$	236,317	$	935,670	$	—	$	1,171,987
Cash								139,377
Total cash, cash equivalents and short-term investments							$	1,311,364

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

We report our financial instruments at fair value, with the exception of the 0% convertible senior notes due 2023 (the "2023 Notes"), the 2026 Notes and the 0.25% convertible senior notes due 2027 (the "2027 Notes") (collectively, the "Notes"). Financial instruments that are not recorded at fair value on a recurring basis are measured at fair value on a quarterly basis for disclosure purposes. The carrying values and estimated fair values of financial instruments not recorded at fair value are as follows:

	As of July 31, 2022				As of January 31, 2023
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(in thousands)
2023 Notes	$	145,456	$	143,154	$	—	$	—
2026 Notes		589,200		759,086		618,995		973,154
2027 Notes		567,005		400,252		567,769		501,095
Total	$	1,301,661	$	1,302,492	$	1,186,764	$	1,474,249

The carrying value of the 2023 Notes as of July 31, 2022 was net of unamortized debt issuance costs of $0.2 million. In January 2023, we settled the 2023 Notes in full at maturity with a cash payment of $145.7 million.

The carrying value of the 2026 Notes as of July 31, 2022 and January 31, 2023 included $28.0 million and $37.7 million, respectively, of non-cash interest expense that was converted to the principal balance, net of unamortized debt discounts of $169.4 million and $151.4 million, respectively, and unamortized debt issuance costs of $19.4 million and $17.3 million, respectively.

The carrying value of the 2027 Notes as of July 31, 2022 and January 31, 2023 was net of unamortized debt issuance costs of $8.0 million and $7.2 million, respectively.

The total estimated fair value of the 2023 Notes was determined based on the closing trading price per $100 of the 2023 Notes as of the last day of trading for the period. We consider the fair value of the 2023 Notes to be a Level 2 valuation due to the limited trading activity.

The total estimated fair value of the 2026 Notes is based on a binomial model. We consider the fair value of the 2026 Notes to be a Level 3 valuation, as the 2026 Notes are not publicly traded. The Level 3 inputs used are the same as those used to determine the estimated fair value of the associated derivative liability, as detailed below.

The total estimated fair value of the 2027 Notes was determined based on the closing trading price per $100 of the 2027 Notes as of the last day of trading for the period. We consider the fair value of the 2027 Notes to be a Level 2 valuation due to the limited trading activity.

Derivative Liability

The conversion feature of the 2026 Notes represented an embedded derivative at inception. The 2026 Notes are not considered to be conventional debt and we determined that the embedded conversion feature was required to be bifurcated from the host debt and accounted for as a derivative liability, as the 2026 Notes were convertible into a variable number of shares until the conversion price became fixed in September 2021, based on the level of achievement of the associated financial performance metric. As such, the initial fair value of the derivative instrument was recorded as a liability in the condensed consolidated balance sheet with the corresponding amount recorded as a discount to the 2026 Notes upon issuance. The derivative liability is considered a Level 3 valuation and was recorded at its estimated fair value at the end of each reporting period and as of September 15, 2021, when the conversion price became fixed, with the change in fair value recognized within other expense, net in the condensed consolidated statements of operations.

On September 15, 2021, the conversion price of the 2026 Notes became fixed and the bifurcated liability was no longer accounted for as a separate derivative because the conversion features are now considered indexed to our own equity and meet the equity classification conditions. We estimated the fair value of the derivative liability as of September 15, 2021 to be $698.2 million, which was reclassified to equity on that date.