Accounting Standards and Significant Accounting Policies

9 Months Ended

Oct. 31, 2022

Accounting Standards and Significant Accounting Policies

Significant Accounting Policies

The Company’s significant accounting policies are discussed in “Note 2. Summary of Significant Accounting Policies” in Item 8. Financial Statements and Supplementary Data of its Form 10-K for the fiscal year ended January 31, 2022. The Company no longer considers the accounting policy for its convertible senior notes to be a significant accounting policy due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2020-06 effective February 1, 2022, which simplified the accounting for convertible instruments.

Recently Adopted Accounting Pronouncements

ASU No. 2020-06

The Company adopted the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), effective February 1, 2022, using the modified retrospective method. The prior period condensed consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.

ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, no longer requires separately presenting in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature is no longer amortized into income as interest expense over the life of the instrument. Instead, the convertible debt instrument is accounted for wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share, which is consistent with the Company’s accounting treatment prior to the adoption of ASU 2020-06.

The Company recognized a cumulative effect of initially applying the ASU as an adjustment to the February 1, 2022 opening balance of accumulated deficit. Due to the elimination of the equity conversion component of the Company’s convertible senior notes outstanding as of February 1, 2022, additional paid-in capital was reduced. The elimination of the equity conversion component had the effect of increasing the Company’s net debt balance. The reduction of other liabilities is related to changes to the Company’s deferred tax liabilities.

The adoption of ASU 2020-06 resulted in the following changes to the Company’s condensed consolidated balance sheet as of February 1, 2022:


	Balance at January 31, 2022		Adjustments from Adoption of ASU 2020-06		Balance at February 1, 2022
	(dollars in thousands)
Liabilities
Convertible senior notes, net	$	16,194	$	927	$	17,121
Convertible senior notes, net, noncurrent	1,815,714		371,527		2,187,241
Other liabilities, noncurrent	31,775		(866)		30,909
Stockholders’ equity
Additional paid-in capital	7,749,716		(527,444)		7,222,272
Accumulated deficit	(1,815,867)		155,856		(1,660,011)

In addition, the adoption of ASU 2020-06 resulted in a decrease in reported net interest expense of approximately $21.2 million and $63.0 million and a decrease in basic and diluted net loss per share of $0.13 and $0.40, for the three and nine months ended October 31, 2022, respectively.

ASU No. 2021-08

The Company adopted the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), effective February 1, 2022, on a prospective basis. The update requires contract assets and contract liabilities acquired in a business combination be recognized and measured in accordance with ASC Topic 606, Revenue from Contracts with Customers. The adoption of ASU 2021-08 did not have a material impact on the Company’s condensed consolidated financial statements.

ASU No. 2021-04

The Company adopted the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”), effective February 1, 2022, on a prospective basis. ASU 2021-04 addresses specific guidance related to modifications or exchanges of freestanding equity-classified written call options (such as warrants) by specifying the accounting for various modification scenarios. The adoption of ASU 2021-04 did not have a material impact on the Company’s condensed consolidated financial statements.