00017649251/312022Q1false120.03226300017649252021-02-012021-04-30xbrli:shares0001764925us-gaap:CommonClassAMember2021-05-140001764925us-gaap:CommonClassBMember2021-05-14iso4217:USD00017649252021-04-3000017649252021-01-3100017649252020-02-012020-04-30iso4217:USDxbrli:shares0001764925us-gaap:CommonStockMember2021-01-310001764925us-gaap:AdditionalPaidInCapitalMember2021-01-310001764925us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-310001764925us-gaap:RetainedEarningsMember2021-01-310001764925us-gaap:NoncontrollingInterestMember2021-01-310001764925us-gaap:CommonStockMember2021-02-012021-04-300001764925us-gaap:AdditionalPaidInCapitalMember2021-02-012021-04-300001764925us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-02-012021-04-300001764925us-gaap:NoncontrollingInterestMember2021-02-012021-04-300001764925us-gaap:RetainedEarningsMember2021-02-012021-04-300001764925us-gaap:CommonStockMember2021-04-300001764925us-gaap:AdditionalPaidInCapitalMember2021-04-300001764925us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-300001764925us-gaap:RetainedEarningsMember2021-04-300001764925us-gaap:NoncontrollingInterestMember2021-04-300001764925us-gaap:CommonStockMember2020-01-310001764925us-gaap:AdditionalPaidInCapitalMember2020-01-310001764925us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-310001764925us-gaap:RetainedEarningsMember2020-01-310001764925us-gaap:NoncontrollingInterestMember2020-01-3100017649252020-01-310001764925us-gaap:CommonStockMember2020-02-012020-04-300001764925us-gaap:AdditionalPaidInCapitalMember2020-02-012020-04-300001764925us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-02-012020-04-300001764925us-gaap:RetainedEarningsMember2020-02-012020-04-300001764925us-gaap:NoncontrollingInterestMember2020-02-012020-04-300001764925us-gaap:CommonStockMember2020-04-300001764925us-gaap:AdditionalPaidInCapitalMember2020-04-300001764925us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-300001764925us-gaap:RetainedEarningsMember2020-04-300001764925us-gaap:NoncontrollingInterestMember2020-04-3000017649252020-04-300001764925work:SlackTechnologiesIncMemberwork:SalesforcecomMember2020-12-012020-12-01work:extension0001764925work:SlackTechnologiesIncMember2021-02-012021-04-30xbrli:pure00017649252021-05-012021-04-300001764925country:US2021-02-012021-04-300001764925country:US2020-02-012020-04-300001764925us-gaap:NonUsMember2021-02-012021-04-300001764925us-gaap:NonUsMember2020-02-012020-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel3Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMember2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel1Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel2Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel3Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMember2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentDebtSecuritiesMember2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CorporateBondSecuritiesMember2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2021-04-300001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel3Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CertificatesOfDepositMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:CertificatesOfDepositMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:CertificatesOfDepositMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel1Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel2Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel3Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentDebtSecuritiesMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CorporateBondSecuritiesMember2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-01-310001764925us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2021-01-310001764925us-gaap:ConvertibleDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-04-300001764925us-gaap:ConvertibleDebtMember2021-04-302021-04-300001764925us-gaap:CashMember2021-04-300001764925us-gaap:MoneyMarketFundsMember2021-04-300001764925us-gaap:CashAndCashEquivalentsMember2021-04-300001764925us-gaap:CertificatesOfDepositMember2021-04-300001764925us-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-04-300001764925us-gaap:USGovernmentDebtSecuritiesMember2021-04-300001764925us-gaap:CorporateBondSecuritiesMember2021-04-300001764925us-gaap:CashMember2021-01-310001764925us-gaap:MoneyMarketFundsMember2021-01-310001764925us-gaap:CertificatesOfDepositMember2021-01-310001764925us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMember2021-01-310001764925us-gaap:CashAndCashEquivalentsMember2021-01-310001764925us-gaap:CertificatesOfDepositMember2021-01-310001764925us-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-01-310001764925us-gaap:USGovernmentDebtSecuritiesMember2021-01-310001764925us-gaap:CorporateBondSecuritiesMember2021-01-310001764925us-gaap:LeaseholdImprovementsMember2021-04-300001764925us-gaap:LeaseholdImprovementsMember2021-01-310001764925us-gaap:FurnitureAndFixturesMember2021-04-300001764925us-gaap:FurnitureAndFixturesMember2021-01-310001764925us-gaap:SoftwareDevelopmentMember2021-04-300001764925us-gaap:SoftwareDevelopmentMember2021-01-310001764925us-gaap:ComputerEquipmentMember2021-04-300001764925us-gaap:ComputerEquipmentMember2021-01-310001764925us-gaap:ConstructionInProgressMember2021-04-300001764925us-gaap:ConstructionInProgressMember2021-01-310001764925srt:WeightedAverageMemberus-gaap:CustomerRelationshipsMember2021-02-012021-04-300001764925us-gaap:CustomerRelationshipsMember2021-04-300001764925srt:WeightedAverageMemberus-gaap:DevelopedTechnologyRightsMember2021-02-012021-04-300001764925us-gaap:DevelopedTechnologyRightsMember2021-04-300001764925srt:WeightedAverageMemberus-gaap:PatentsMember2021-02-012021-04-300001764925us-gaap:PatentsMember2021-04-300001764925srt:WeightedAverageMemberus-gaap:CustomerRelationshipsMember2020-02-012021-01-310001764925us-gaap:CustomerRelationshipsMember2021-01-310001764925srt:WeightedAverageMemberus-gaap:DevelopedTechnologyRightsMember2020-02-012021-01-310001764925us-gaap:DevelopedTechnologyRightsMember2021-01-310001764925srt:WeightedAverageMemberus-gaap:PatentsMember2020-02-012021-01-310001764925us-gaap:PatentsMember2021-01-310001764925us-gaap:ConvertibleDebtMember2020-04-090001764925us-gaap:ConvertibleDebtMember2020-04-092020-04-09work:day0001764925us-gaap:MeasurementInputDiscountRateMemberus-gaap:ConvertibleDebtMember2020-04-090001764925us-gaap:ConvertibleDebtMember2021-04-300001764925us-gaap:ConvertibleDebtMember2021-01-310001764925us-gaap:ConvertibleDebtMember2021-02-012021-04-300001764925us-gaap:ConvertibleDebtMember2020-02-012020-04-300001764925us-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMember2019-05-300001764925us-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMember2019-05-302019-05-300001764925us-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:PrimeRateMember2019-05-302019-05-300001764925us-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2019-05-302019-05-300001764925us-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMember2021-04-300001764925work:HostingCommitmentsMember2020-04-302020-04-300001764925work:HostingCommitmentsMember2021-04-30work:lawsuit00017649252019-09-012019-09-3000017649252020-04-012020-04-300001764925us-gaap:CommonClassAMember2021-04-300001764925us-gaap:CommonClassBMember2021-04-30work:plan00017649252020-02-012021-01-310001764925us-gaap:EmployeeStockOptionMember2021-02-012021-04-300001764925us-gaap:RestrictedStockUnitsRSUMember2021-01-310001764925work:RestrictedStockAwardsMember2021-01-310001764925us-gaap:RestrictedStockUnitsRSUMember2021-02-012021-04-300001764925work:RestrictedStockAwardsMember2021-02-012021-04-300001764925us-gaap:RestrictedStockUnitsRSUMember2021-04-300001764925work:RestrictedStockAwardsMember2021-04-300001764925us-gaap:CommonClassAMemberwork:A2019EmployeeStockPurchasePlanMember2021-02-012021-04-300001764925us-gaap:CostOfSalesMember2021-02-012021-04-300001764925us-gaap:CostOfSalesMember2020-02-012020-04-300001764925us-gaap:ResearchAndDevelopmentExpenseMember2021-02-012021-04-300001764925us-gaap:ResearchAndDevelopmentExpenseMember2020-02-012020-04-300001764925us-gaap:SellingAndMarketingExpenseMember2021-02-012021-04-300001764925us-gaap:SellingAndMarketingExpenseMember2020-02-012020-04-300001764925us-gaap:GeneralAndAdministrativeExpenseMember2021-02-012021-04-300001764925us-gaap:GeneralAndAdministrativeExpenseMember2020-02-012020-04-3000017649252021-03-012021-03-310001764925us-gaap:ConvertibleDebtSecuritiesMember2021-02-012021-04-300001764925us-gaap:ConvertibleDebtSecuritiesMember2020-02-012020-04-300001764925us-gaap:EmployeeStockOptionMember2021-02-012021-04-300001764925us-gaap:EmployeeStockOptionMember2020-02-012020-04-300001764925work:SharebasedPaymentArrangementUnvestedEarlyExercisedOptionMember2021-02-012021-04-300001764925work:SharebasedPaymentArrangementUnvestedEarlyExercisedOptionMember2020-02-012020-04-300001764925us-gaap:RestrictedStockUnitsRSUMember2021-02-012021-04-300001764925us-gaap:RestrictedStockUnitsRSUMember2020-02-012020-04-300001764925work:RestrictedStockAwardsMember2021-02-012021-04-300001764925work:RestrictedStockAwardsMember2020-02-012020-04-300001764925us-gaap:RestrictedStockMember2021-02-012021-04-300001764925us-gaap:RestrictedStockMember2020-02-012020-04-300001764925us-gaap:EmployeeStockMember2021-02-012021-04-300001764925us-gaap:EmployeeStockMember2020-02-012020-04-300001764925us-gaap:ConvertiblePreferredStockMember2019-06-072019-06-07
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One) | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2021
OR | | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-38926
Slack Technologies, Inc.
(Exact name of registrant as specified in its charter)
| | | | | |
Delaware | 26-4400325 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
500 Howard Street
San Francisco, California 94105
(Address of principal executive offices including zip code)
(415) 630-7943
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, $0.0001 par value per share | WORK | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes or ☐ No.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes or ☐ No.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes or ☒ No
There were 511,691,054 shares of the registrant’s Class A common stock outstanding and 75,023,976 shares of the registrant’s Class B common stock outstanding as of May 14, 2021.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which are statements that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. The forward-looking statements in this report, other than the statements regarding the proposed transaction with salesforce.com, inc., or Salesforce, do not assume the consummation of the proposed transaction unless specifically stated otherwise. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
•the occurrence of any event, change, or other circumstances that could delay or prevent closing of the proposed transaction, or the Mergers, or give rise to the termination of that certain Agreement and Plan of Merger, or the Merger Agreement, dated December 1, 2020 by and among us, Salesforce, Skyline Strategies I Inc., a Delaware corporation and a wholly owned subsidiary of Salesforce, or Merger Sub I, and Skyline Strategies II LLC, a Delaware limited liability company and a wholly owned subsidiary of Salesforce, or Merger Sub II;
•the effect of uncertainties related to the global COVID-19 pandemic on U.S. and global economies, our business, results of operations, financial condition, demand for Slack, sales cycles, customer retention, and the health of our customers’ businesses;
•our future financial performance, including our revenue, cost of revenue, and operating expenses;
•our ability to maintain the security and availability of Slack;
•our ability to increase the number of organizations on Slack and paid customers;
•our ability to grow or maintain our Net Dollar Retention Rate;
•our ability to achieve widespread adoption;
•our ability to optimize the pricing for Slack;
•our ability to effectively manage our growth and future expenses;
•our ability to maintain our network of partners;
•our ability to enhance Slack to respond to new technologies and requirements of organizations on Slack;
•our estimated market opportunity;
•the future benefits to be derived from new third-party applications and integrations;
•our ability to maintain, protect, and enhance our intellectual property;
•our ability to comply with modified or new laws and regulations applying to our business;
•the attraction and retention of qualified employees and key personnel;
•our anticipated investments in sales and marketing and research and development;
•the sufficiency of our cash, cash equivalents, and investments to meet our liquidity needs;
•our ability to service the interest on our convertible notes and repay such notes, to the extent required;
•our ability to successfully defend litigation brought against us; and
•the increased expenses associated with being a public company.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur,
and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements do not assume the consummation of the proposed transaction with Salesforce unless specifically stated otherwise.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
_________________
Unless the context requires otherwise, we are referring to Slack Technologies, Inc. together with its subsidiaries when we use the terms the “Company,” “we,” “our,” or “us.”
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SLACK TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) | | | | | | | | | | | |
| As of |
| April 30, 2021 | | January 31, 2021 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,332,649 | | | $ | 1,081,357 | |
Marketable securities | 308,464 | | | 505,895 | |
Accounts receivable, net | 141,543 | | | 237,439 | |
Prepaid expenses and other current assets | 58,446 | | | 59,702 | |
Total current assets | 1,841,102 | | | 1,884,393 | |
Restricted cash | 38,490 | | | 38,490 | |
Strategic investments | 114,026 | | | 68,161 | |
Property and equipment, net | 82,136 | | | 87,908 | |
Operating lease right-of-use assets | 212,479 | | | 219,195 | |
Intangible assets, net | 16,173 | | | 17,885 | |
Goodwill | 76,204 | | | 76,204 | |
Other assets | 41,720 | | | 41,464 | |
Total assets | $ | 2,422,330 | | | $ | 2,433,700 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 15,149 | | | $ | 13,145 | |
Accrued compensation and benefits | 57,261 | | | 108,868 | |
Accrued expenses and other current liabilities | 25,401 | | | 29,864 | |
Operating lease liability | 36,023 | | | 34,930 | |
Deferred revenue | 515,573 | | | 510,311 | |
Total current liabilities | 649,407 | | | 697,118 | |
Convertible senior notes, net | 662,224 | | | 651,398 | |
Operating lease liability, noncurrent | 219,486 | | | 225,266 | |
Deferred revenue, noncurrent | 198 | | | 294 | |
Other liabilities | 2,145 | | | 2,183 | |
Total liabilities | 1,533,460 | | | 1,576,259 | |
Commitments and contingencies (Note 7) | | | |
Stockholders’ equity: | | | |
| | | |
| | | |
Common stock | 59 | | | 58 | |
Additional paid-in-capital | 2,453,908 | | | 2,371,676 | |
Accumulated other comprehensive income (loss) | (109) | | | 102 | |
Accumulated deficit | (1,564,988) | | | (1,537,043) | |
Total Slack Technologies, Inc. stockholders’ equity | 888,870 | | | 834,793 | |
Noncontrolling interest | — | | | 22,648 | |
Total stockholders’ equity | 888,870 | | | 857,441 | |
Total liabilities and stockholders’ equity | $ | 2,422,330 | | | $ | 2,433,700 | |
See accompanying notes to condensed consolidated financial statements.
SLACK TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited) | | | | | | | | | | | | | | | |
| Three Months Ended April 30, | | |
| 2021 | | 2020 | | | | |
Revenue | $ | 273,357 | | | $ | 201,650 | | | | | |
Cost of revenue | 39,237 | | | 25,602 | | | | | |
Gross profit | 234,120 | | | 176,048 | | | | | |
Operating expenses: | | | | | | | |
Research and development | 103,602 | | | 91,225 | | | | | |
Sales and marketing | 123,947 | | | 110,320 | | | | | |
General and administrative | 61,848 | | | 50,654 | | | | | |
Total operating expenses | 289,397 | | | 252,199 | | | | | |
Loss from operations | (55,277) | | | (76,151) | | | | | |
Interest expense | (12,029) | | | (2,842) | | | | | |
Interest income and other income, net | 40,426 | | | 4,708 | | | | | |
Loss before income taxes | (26,880) | | | (74,285) | | | | | |
Provision for income taxes | 1,065 | | | 142 | | | | | |
Net loss | (27,945) | | | (74,427) | | | | | |
Net income attributable to noncontrolling interest | — | | | 784 | | | | | |
Net loss attributable to Slack | (27,945) | | | (75,211) | | | | | |
| | | | | | | |
| | | | | | | |
Basic and diluted net loss per share: | | | | | | | |
Net loss per share attributable to Slack common stockholders, basic and diluted | $ | (0.05) | | | $ | (0.13) | | | | | |
Weighted-average shares used in computing net loss per share attributable to Slack common stockholders, basic and diluted | 581,550 | | | 557,414 | | | | | |
See accompanying notes to condensed consolidated financial statements.
SLACK TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited) | | | | | | | | | | | | | | | |
| Three Months Ended April 30, | | |
| 2021 | | 2020 | | | | |
Net loss | $ | (27,945) | | | $ | (74,427) | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Change in unrealized gain or loss on marketable securities | (211) | | | 925 | | | | | |
Other comprehensive income (loss), net of tax | (211) | | | 925 | | | | | |
Comprehensive loss | (28,156) | | | (73,502) | | | | | |
Comprehensive income attributable to noncontrolling interest | — | | | 784 | | | | | |
Comprehensive loss attributable to Slack | $ | (28,156) | | | $ | (74,286) | | | | | |
See accompanying notes to condensed consolidated financial statements.
SLACK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In-Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Noncontrolling Interest | | Total Stockholders' Equity |
| | Shares | | Amount | | | | | |
Balance at January 31, 2021 | | 580,585 | | | $ | 58 | | | $ | 2,371,676 | | | $ | 102 | | | $ | (1,537,043) | | | $ | 22,648 | | | $ | 857,441 | |
Exercise of stock options | | 257 | | | — | | | 1,333 | | | — | | | — | | | — | | | 1,333 | |
Vesting of early exercised stock options | | — | | | — | | | 1,424 | | | — | | | — | | | — | | | 1,424 | |
Issuance of common stock upon settlement of restricted stock units (RSUs) | | 4,155 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | |
Cancellation of restricted stock awards (RSAs) | | (23) | | | — | | | — | | | — | | | — | | | — | | | — | |
Other comprehensive loss | | — | | | — | | | — | | | (211) | | | — | | | — | | | (211) | |
Issuance of common stock for employee share purchase plan | | 757 | | | — | | | 20,459 | | | — | | | — | | | — | | | 20,459 | |
Stock-based compensation | | — | | | — | | | 59,017 | | | — | | | — | | | — | | | 59,017 | |
Purchase of noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | (22,648) | | | (22,648) | |
Net loss | | — | | | — | | | — | | | — | | | (27,945) | | | | | (27,945) | |
Balance at April 30, 2021 | | 585,731 | | | $ | 59 | | | $ | 2,453,908 | | | $ | (109) | | | $ | (1,564,988) | | | $ | — | | | $ | 888,870 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In-Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Noncontrolling Interest | | Total Stockholders' Equity |
| Shares | | Amount | | | | | |
Balance at January 31, 2020 | 555,360 | | | $ | 56 | | | $ | 1,945,446 | | | $ | (71) | | | $ | (1,236,621) | | | $ | 15,089 | | | $ | 723,899 | |
Exercise of stock options | 1,062 | | | — | | | 1,932 | | | — | | | — | | | — | | | 1,932 | |
Vesting of early exercised stock options | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | |
Issuance of common stock upon settlement of restricted stock units (RSUs) | 4,724 | | | — | | | — | | | — | | | — | | | — | | | — | |
Equity component of convertible senior notes, net of issuance costs | — | | | — | | | 223,622 | | | — | | | — | | | — | | | 223,622 | |
Purchases of capped calls related to convertible senior notes | — | | | — | | | (105,570) | | | — | | | — | | | — | | | (105,570) | |
Other comprehensive income | — | | | — | | | — | | | 925 | | | — | | | — | | | 925 | |
Issuance of common stock for employee share purchase plan | 820 | | | — | | | 16,610 | | | — | | | — | | | — | | | 16,610 | |
Stock-based compensation | — | | | — | | | 53,711 | | | — | | | — | | | — | | | 53,711 | |
Net income (loss) | — | | | — | | | — | | | — | | | (75,211) | | | 784 | | | (74,427) | |
Balance at April 30, 2020 | 561,966 | | | $ | 56 | | | $ | 2,135,753 | | | $ | 854 | | | $ | (1,311,832) | | | $ | 15,873 | | | $ | 840,704 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements.
SLACK TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) | | | | | | | | | | | |
| Three Months Ended April 30, |
| 2021 | | 2020 |
Cash flows from operating activities: | | | |
Net loss | $ | (27,945) | | | $ | (74,427) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and amortization | 7,480 | | | 6,700 | |
| | | |
Stock-based compensation | 59,017 | | | 53,711 | |
Amortization of debt discount and issuance costs | 10,825 | | | 2,366 | |
Non-cash operating lease expense | 10,339 | | | 8,732 | |
Amortization of deferred contract acquisition costs | 5,060 | | | 3,143 | |
Net amortization of bond premium on debt securities available for sale | 1,001 | | | 171 | |
Change in fair value of strategic investments | (39,893) | | | (1,638) | |
Other non-cash adjustments | 676 | | | 592 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 95,627 | | | 39,470 | |
Prepaid expenses and other assets | (4,069) | | | (6,561) | |
Accounts payable | 2,004 | | | (3,746) | |
Operating lease liabilities | (8,310) | | | (8,671) | |
Accrued compensation and benefits | (51,607) | | | (13,328) | |
Deferred revenue | 5,167 | | | 4,359 | |
Other current and long-term liabilities | (2,617) | | | (2,144) | |
Net cash provided by operating activities | 62,755 | | | 8,729 | |
Cash flows from investing activities: | | | |
Purchases of marketable securities | — | | | (100,302) | |
Maturities of marketable securities | 196,220 | | | 69,613 | |
Sales of marketable securities | — | | | 4,289 | |
| | | |
| | | |
Purchases of property and equipment | (50) | | | (5,046) | |
| | | |
| | | |
Purchase of strategic investments | (5,972) | | | (4,018) | |
| | | |
Net cash provided by (used in) investing activities | 190,198 | | | (35,464) | |
Cash flows from financing activities: | | | |
Proceeds from issuance of convertible senior notes, net of issuance costs | — | | | 842,016 | |
Purchases of capped calls related to convertible senior notes | — | | | (105,570) | |
Purchase of noncontrolling interest | (22,648) | | | — | |
Proceeds from exercise of stock options | 1,328 | | | 2,905 | |
| | | |
Payments of contingent consideration for acquisitions | (800) | | | — | |
Issuance of common stock for employee stock purchase plan | 20,459 | | | 16,610 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Net cash provided by (used in) financing activities | (1,661) | | | 755,961 | |
Net increase in cash, cash equivalents and restricted cash | 251,292 | | | 729,226 | |
Cash, cash equivalents and restricted cash at beginning of period | 1,119,847 | | | 537,489 | |
Cash, cash equivalents and restricted cash at end of period | $ | 1,371,139 | | | $ | 1,266,715 | |
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for income taxes | $ | 494 | | | $ | 990 | |
Cash paid for interest | $ | 2,156 | | | $ | — | |
Non-cash investing and financing activities: | | | |
Increase (decrease) in purchases of property and equipment included in liabilities | $ | 142 | | | $ | (177) | |
Debt issuance costs, accrued but not yet paid | $ | — | | | $ | 687 | |
| | | |
| | | |
| | | |
Vesting of early exercised stock options | $ | 1,424 | | | $ | 2 | |
Unrealized short-term gain (loss) on marketable securities | $ | (211) | | | $ | 910 | |
See accompanying notes to condensed consolidated financial statements.
SLACK TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
Note 1. Description of Business and Summary of Significant Accounting Policies
Business
Slack Technologies, Inc. (the “Company” or “Slack”) operates a business technology software platform that brings together people, applications, and data and sells its offering under a software-as-a-service model. The Company was incorporated in Delaware in 2009 as Tiny Speck, Inc. In 2014, the Company changed its name to Slack Technologies, Inc. and publicly launched its current offering. The Company is headquartered in San Francisco, California.
Fiscal Year
The Company’s fiscal year ends on January 31. References to fiscal year 2022, for example, refer to the fiscal year ended January 31, 2022.
Proposed Transaction with Salesforce
On December 1, 2020 the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with salesforce.com, inc. (“Salesforce”), Skyline Strategies I Inc., a Delaware corporation and a wholly owned subsidiary of Salesforce (“Merger Sub I”), and Skyline Strategies II LLC, a Delaware limited liability company and a wholly owned subsidiary of Salesforce (“Merger Sub II”). The Merger Agreement provides for the merger of Merger Sub I with and into the Company, with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Salesforce (the “First Merger”), immediately followed by a second merger of the surviving corporation into either Merger Sub II or Salesforce, with either Merger Sub II or Salesforce continuing as the surviving company (the “Second Merger” and together with the First Merger, the “Mergers”).
Under the terms of the Merger Agreement, all of the Company’s issued and outstanding shares of Class A common stock and Class B common stock will be converted into the right to receive (a) 0.0776 shares of Salesforce common stock and (b) $26.79 in cash, without interest. The Mergers are intended to be treated as a single integrated transaction that will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). As a result of the Mergers, the Company will cease to be a publicly traded company.
The Merger Agreement contains customary representations, warranties, and covenants. The consummation of the Mergers is conditioned on the receipt of the approval of the Company’s stockholders, as well as the satisfaction of other customary closing conditions, including domestic and foreign regulatory approvals and performance in all material respects by each party of its obligations under the Merger Agreement. Consummation of the Mergers is not subject to a financing condition. In March 2021, the Company’s stockholders approved the proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Mergers. The Mergers are anticipated to close in the second quarter of the Company’s fiscal year 2022 (the quarter ending July 31, 2021), subject to Company receipt of required regulatory approvals, and other customary closing conditions. The Company cannot predict with certainty, however, whether and when all of the required closing conditions will be satisfied or if the Mergers will close.
The Merger Agreement contains certain customary termination rights for the Company and Salesforce, including if the First Merger is not consummated by August 1, 2021, subject to two extensions of up to three months each in order to obtain required regulatory approvals. If the Merger Agreement is terminated under certain specified circumstances, including (i) a termination by the Company to enter into a superior proposal, (ii) a termination by Salesforce following a change or withdrawal of the Company’s board of directors’ recommendation of the Mergers to the Company’s stockholders, or (iii) a termination by Salesforce as a result of a material breach of the Company’s non-solicitation obligations under the Merger Agreement, then the Company will be obligated to pay to Salesforce a termination fee equal to $900.0 million in cash.
The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, which is filed as Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on December 1, 2020.
Other than transaction expenses associated with the proposed Mergers of $3.0 million recorded in general and administrative expense in the accompanying condensed consolidated statements of operations for the quarter ended April 30, 2021, the terms of the Merger Agreement did not impact the Company’s condensed consolidated financial statements.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”), regarding interim financial reporting. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements include 100% of the accounts of wholly owned and majority-owned subsidiaries and the ownership interest of minority investors is recorded as noncontrolling interest.
The condensed consolidated balance sheet as of January 31, 2021 included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including certain notes required by U.S. GAAP on an annual reporting basis. In management's opinion, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheets, statements of operations, statements of comprehensive loss, statements of stockholders’ equity, and statements of cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year or any future period.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K filed with the SEC on March 19, 2021.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates are based on information available as of the date of the condensed consolidated financial statements. On a regular basis, management evaluates these estimates and assumptions; however, actual results could materially differ from these estimates due to risks and uncertainties, including uncertainty in the current economic environment related to the outbreak of the novel coronavirus pandemic (“COVID-19”).
The Company’s most significant estimates and judgments involve revenue recognition, stock-based compensation including the estimation of fair value of common stock, valuation of strategic investments, valuation of acquired goodwill and intangibles from acquisitions, period of benefit for deferred contract acquisition costs, fair value of the liability and equity components of the Notes, and uncertain tax positions.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk primarily consist of cash and cash equivalents, restricted cash, marketable securities, and accounts receivable. For cash, cash equivalents, restricted cash, and marketable securities, the Company is exposed to credit risk in the event of default by the financial institutions to the extent of the amounts recorded on the accompanying condensed consolidated balance sheets that are in excess of federal insurance limits. For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers to the extent of the amounts recorded on the accompanying condensed consolidated balance sheets. The Company sells its services to a wide variety of customers. If the financial condition or results of operations of any significant customers deteriorates substantially, operating results could be adversely affected. To reduce credit risk, management performs credit evaluations of the financial condition of significant customers. The Company does not require collateral from its credit customers and maintains reserves for estimated credit losses on customer accounts when considered necessary. Actual credit losses may differ from the Company’s estimates.
No customer accounted for 10% or greater of total accounts receivable as of April 30, 2021 and January 31, 2021. There were no customers representing 10% or greater of revenue for the three months ended April 30, 2021 and 2020.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are discussed in “Index to Consolidated Financial Statements–Note 1. Description of Business and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K filed with the SEC on March 19, 2021. There have been no significant changes to these policies during the three months ended April 30, 2021.
Recently Issued Accounting Standards Not Yet Adopted
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. ASU No. 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU No. 2020-06 is effective for public companies for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and related disclosures.
Note 2. Revenue and Contract Costs
Contract Balances
Contract liabilities consist of deferred revenue. The changes in deferred revenue were as follows (in thousands): | | | | | |
| Three Months Ended April 30, 2021 |
Balance, beginning of period | $ | 510,605 | |
Billings | 278,523 | |
Revenue | (273,357) | |
Balance, end of period | $ | 515,771 | |
More than half of revenue recognized in the three months ended April 30, 2021 was from the deferred revenue balance as of January 31, 2021.
Remaining Performance Obligations
As of April 30, 2021, the remaining performance obligations that were unsatisfied or partially unsatisfied at the end of the reporting period were $910.8 million, of which 69% is expected to be recognized in the twelve months following April 30, 2021, with the balance to be recognized as revenue thereafter.
Disaggregation of Revenue
The following table shows the Company’s revenue by geographic areas, as determined based on the billing address of its customers (in thousands): | | | | | | | | | | | | | | | |
| Three Months Ended April 30, | | |
| 2021 | | 2020 | | | | |
United States | $ | 163,924 | | | $ | 125,387 | | | | | |
International | 109,433 | | | 76,263 | | | | | |
Total | $ | 273,357 | | | $ | 201,650 | | | | | |
No individual foreign country contributed in excess of 10% of revenue for the three months ended April 30, 2021 and 2020.
Deferred Contract Acquisition Costs, Net
The Company deferred incremental costs of obtaining a contract of $6.8 million and $12.6 million for the three months ended April 30, 2021 and 2020. Deferred contract acquisition costs, net included in prepaid expenses and other current assets were $20.7 million and $19.3 million as of April 30, 2021 and January 31, 2021, respectively. Deferred contract acquisition costs, net included in other assets were $31.6 million and $31.3 million as of April 30, 2021 and January 31, 2021, respectively.
Amortized deferred contract acquisition costs were $5.1 million and $3.1 million for the three months ended April 30, 2021 and 2020, respectively. There was no impairment loss in relation to the deferred contract acquisition costs for any period presented in the accompanying condensed consolidated statements of operations.
Note 3. Fair Value Measurements
The Company’s money market funds and sweep account are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices in active markets. The Company’s commercial paper, U.S. agency and government securities, international government securities, certificates of deposit, and corporate bonds are classified within Level 2 of the
fair value hierarchy because they have been valued using inputs other than quoted prices in active markets that are observable directly or indirectly. The Company’s strategic investments in privately held companies are classified within Level 3 of the fair value hierarchy because they have been valued using unobservable inputs for which the Company has been required to develop its own assumptions. Realized and unrealized gains and losses relating to the strategic investments are recorded in interest income and other income, net in the accompanying condensed consolidated statements of operations.
The following tables provide the financial instruments measured at fair value on a recurring basis, within the fair value hierarchy (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of April 30, 2021 | | Level 1 | | Level 2 | | Level 3 | | Total |
Cash equivalents: | | | | | | | | |
Money market funds | | $ | 1,205,771 | | | $ | — | | | $ | — | | | $ | 1,205,771 | |
| | | | | | | | |
| | | | | | | | |
Total cash equivalents | | $ | 1,205,771 | | | $ | — | | | $ | — | | | $ | 1,205,771 | |
Marketable securities: | | | | | | | | |
Certificates of deposit | | $ | — | | | $ | 2,773 | | | $ | — | | | $ | 2,773 | |
| | | | | | | | |
U.S. agency securities | | — | | | 132,518 | | | — | | | 132,518 | |
U.S. government securities | | — | | | 151,461 | | | — | | | 151,461 | |
| | | | | | | | |
Corporate bonds | | — | | | 21,712 | | | — | | | 21,712 | |
Total marketable securities | | $ | — | | | $ | 308,464 | | | $ | — | | | $ | 308,464 | |
Noncurrent assets: | | | | | | | | |
Strategic investments | | $ | — | | | $ | — | | | $ | 114,026 | | | $ | 114,026 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
As of January 31, 2021 | | Level 1 | | Level 2 | | Level 3 | | Total |
Cash equivalents: | | | | | | | | |
Money market funds | | $ | 407,670 | | | $ | — | | | $ | — | | | $ | 407,670 | |
Certificates of deposit | | — | | | 75,432 | | | — | | | 75,432 | |
U.S. government securities | | — | | | 499,975 | | | — | | | 499,975 | |
Total cash equivalents | | $ | 407,670 | | | $ | 575,407 | | | $ | — | | | $ | 983,077 | |
Marketable securities: | | | | | | | | |
Certificates of deposit | | $ | — | | | $ | 5,535 | | | $ | — | | | $ | 5,535 | |
U.S. agency securities | | — | | | 162,809 | | | — | | | 162,809 | |
U.S. government securities | | — | | | 292,143 | | | — | | | 292,143 | |
Corporate bonds | | — | | | 45,408 | | | — | | | 45,408 | |
Total marketable securities | | $ | — | | | $ | 505,895 | | | $ | — | | | $ | 505,895 | |
Noncurrent assets: | | | | | | | | |
Strategic investments | | $ | — | | | $ | — | | | $ | 68,161 | | | $ | 68,161 | |
The following table presents additional information about Level 3 assets measured at fair value on a recurring basis (in thousands): | | | | | | | | | | | | | | | |
| Three Months Ended April 30, | | |
| 2021 | | 2020 | | | | |
Balance at beginning of period | $ | 68,161 | | | $ | 28,814 | | | | | |
Purchases | 5,972 | | | 4,018 | | | | | |
| | | | | | | |
Realized net loss | (500) | | | (300) | | | | | |
Unrealized net gains relating to investments still held at reporting date | 40,393 | | | 1,938 | | | | | |
Balance at end of period | $ | 114,026 | | | $ | 34,470 | | | | | |
Convertible Senior Notes
As of April 30, 2021, the fair value of the Notes was approximately $1.26 billion. The fair value was determined based on the quoted price for the Notes in an inactive market on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy. Based on the closing price of the Company’s Class A common stock of $42.40 on the last trading
day of the quarter, the if-converted values of the Notes exceeded the remaining principal amounts by $317 million as of April 30, 2021.
Note 4. Balance Sheet Components
Cash, Cash Equivalents, and Marketable Securities
The following tables summarize the amortized cost, unrealized gains and losses, and estimated fair value of cash, cash equivalents, and marketable securities consisting of the following (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of April 30, 2021 | | Amortized cost | | Unrealized gains | | Unrealized losses | | Fair value |
Cash and cash equivalents: | | | | | | | | |
Cash | | $ | 126,878 | | | $ | — | | | $ | — | | | $ | 126,878 | |
Money market funds | | 1,205,771 | | | — | | | — | | | 1,205,771 | |
| | | | | | | | |
| | | | | | | | |
Total cash and cash equivalents | | 1,332,649 | | | — | | | — | | | 1,332,649 | |
Marketable securities: | | | | | | | | |
Certificates of deposit | | 2,750 | | | 23 | | | — | | | 2,773 | |
| | | | | | | | |
U.S. agency securities | | 132,422 | | | 102 | | | (6) | | | 132,518 | |
U.S. government securities | | 151,423 | | | 42 | | | (4) | | | 151,461 | |
| | | | | | | | |
Corporate bonds | | 21,633 | | | 79 | | | — | | | 21,712 | |
Total marketable securities | | 308,228 | | | 246 | | | (10) | | | 308,464 | |
Total cash, cash equivalents and marketable securities | | $ | 1,640,877 | | | $ | 246 | | | $ | (10) | | | $ | 1,641,113 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
As of January 31, 2021 | | Amortized cost | | Unrealized gains | | Unrealized losses | | Fair value |
Cash and cash equivalents: | | | | | | | | |
Cash | | $ | 98,280 | | | $ | — | | | $ | — | | | $ | 98,280 | |
Money market funds | | 407,670 | | | — | | | — | | | 407,670 | |
Certificates of deposit | | 75,432 | | | — | | | — | | | 75,432 | |
U.S. government securities | | 499,975 | | | 1 | | | (1) | | | 499,975 | |
Total cash and cash equivalents | | 1,081,357 | | | 1 | | | (1) | | | 1,081,357 | |
Marketable securities: | | | | | | | | |
Certificates of deposit | | 5,500 | | | 35 | | | — | | | 5,535 | |
U.S. agency securities | | 162,673 | | | 142 | | | (6) | | | 162,809 | |
U.S. government securities | | 292,091 | | | 57 | | | (5) | | | 292,143 | |
Corporate bonds | | 45,184 | | | 224 | | | — | | | 45,408 | |
Total marketable securities | | 505,448 | | | 458 | | | (11) | | | 505,895 | |
Total cash, cash equivalents and marketable securities | | $ | 1,586,805 | | | $ | 459 | | | $ | (12) | | | $ | 1,587,252 | |
The Company periodically evaluates its investments for other-than-temporary declines in fair value. The unrealized losses on the available-for-sale securities were primarily due to unfavorable changes in interest rates subsequent to the initial purchase of these securities. Gross unrealized losses of the Company’s available-for-sale securities that have been in a continuous unrealized loss position for twelve months or longer were none as of April 30, 2021 and January 31, 2021. The Company expects to recover the full carrying value of its available-for-sale securities in an unrealized loss position as it does not intend or anticipate a need to sell these securities prior to recovering the associated unrealized losses. The Company also expects any credit losses would be immaterial based on the high-grade credit rating for each of such available-for-sale securities. As a result, the Company does not consider any portion of the unrealized losses as of April 30, 2021 or January 31, 2021 to represent an other-than temporary impairment or credit losses.
The following table classifies marketable securities by contractual maturities (in thousands): | | | | | | | | | | | |
| As of |
| April 30, 2021 | | January 31, 2021 |
Due in one year | $ | 236,494 | | | $ | 372,978 | |
Due in one to two years | 71,970 | | | 132,917 | |
Total | $ | 308,464 | | | $ | 505,895 | |
Property and Equipment, Net
The following is a summary of the Company’s property and equipment by category (in thousands): | | | | | | | | | | | |
| As of |
| April 30, 2021 | | January 31, 2021 |
Leasehold improvements | $ | 106,280 | | | $ | 106,222 | |
Furniture and fixtures | 27,769 | | | 29,956 | |
Capitalized internal-use software costs | 4,241 | | | 4,241 | |
Computer equipment | 4,189 | | | 4,189 | |
Construction in progress | 3,107 | | | 2,963 | |
Property and equipment, gross | 145,586 | | | 147,571 | |
Less: accumulated depreciation and amortization | (63,450) | | | (59,663) | |
Property and equipment, net | $ | 82,136 | | | $ | 87,908 | |
Depreciation and amortization expense was $5.8 million and $5.5 million for the three months ended April 30, 2021 and 2020, respectively.
Intangible Assets, Net
Intangible assets consist of the following (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | |
April 30, 2021 | | Weighted-average remaining amortization period | | Gross carrying amount | | Accumulated amortization | | Net carrying amount |
Customer relationships | | 3.8 years | | $ | 11,200 | | | $ | 4,213 | | | $ | 6,987 | |
Developed technology | | 1.8 years | | 13,427 | | | 9,128 | | | 4,299 | |
Patents and licenses | | 5.3 years | | 5,875 | | | 988 | | | 4,887 | |
Total | | | | $ | 30,502 | | | $ | 14,329 | | | $ | 16,173 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
January 31, 2021 | | Weighted-average remaining amortization period | | Gross carrying amount | | Accumulated amortization | | Net carrying amount |
Customer relationships | | 4.0 years | | $ | 11,200 | | | $ | 3,712 | | | $ | 7,488 | |
Developed technology | | 2.0 years | | 13,427 | | | 8,162 | | | 5,265 | |
Patents and licenses | | 5.6 years | | 5,875 | | | 743 | | | 5,132 | |
Total | | | | $ | 30,502 | | | $ | 12,617 | | | $ | 17,885 | |
Amortization expense of intangible assets was $1.7 million and $1.2 million for the three months ended April 30, 2021 and 2020, respectively.
As of April 30, 2021, expected amortization expense relating to intangible assets for each of the next five fiscal years and thereafter is as follows (in thousands): | | | | | |
Year ending January 31, | |
2022 (9 months remaining) | $ | 4,221 | |
2023 | 4,615 | |
2024 | 3,254 | |
2026 | 2,240 | |
2026 | 1,078 | |
Thereafter | 765 | |
Total | $ | 16,173 | |
Note 5. Operating Leases
The Company leases real estate facilities under non-cancelable operating leases with various expiration dates through fiscal year 2031.
The Company recorded operating lease costs of $13.3 million and $10.9 million, including variable operating lease costs of $2.2 million and $1.4 million and short-term leases of $0.9 million and $0.8 million, for the three months ended April 30, 2021 and 2020, respectively.
The following table sets forth supplemental cash flow information pertaining to the Company’s operating leases (in thousands): | | | | | | | | | | | |
| Three Months Ended April 30, |
| 2021 | | 2020 |
Operating cash flows used for operating leases | $ | 8,310 | | $ | 8,671 |
| | | |
| | | |
| | | |
The weighted-average remaining term of the Company’s operating leases was 7.9 years and 8.0 years and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.2% and 5.2% as of April 30, 2021 and January 31, 2021, respectively.
Future minimum lease payments under non-cancelable operating leases with initial lease terms in excess of one year as of April 30, 2021 as follows (in thousands): | | | | | |
Year ending January 31, | |
2022 (9 months remaining) | $ | 25,423 |
2023 | 49,697 |
2024 | 50,865 |
2025 | 53,285 |
2026 | 54,027 |
Thereafter | 216,123 |
Gross lease payments | 449,420 |
Less: Imputed interest | (67,250) |
Less: Tenant improvement receivables | (23,425) |
Less: Leases executed but not yet commenced | (103,236) |
Present value of lease liabilities | $ | 255,509 |
As of April 30, 2021, the Company had a commitment of $103.2 million for a non-cancelable operating lease of a real estate facility that has not yet commenced, and therefore is not included in the right-of-use assets or operating lease liabilities. This operating lease is expected to commence in fiscal year 2022 with a lease term of 12.0 years.
Note 6. Debt and Financing Arrangements
Convertible Senior Notes
On April 9, 2020, the Company issued $862.5 million in aggregate principal amount of the Notes in a private offering pursuant to an Indenture dated April 9, 2020 (the “Indenture”), including the initial purchasers’ exercise in full of their option to purchase an additional $112.5 million principal amount of the Notes. The total net proceeds from the debt offering, after deducting initial purchaser discounts and debt issuance costs, paid or payable were $841.3 million.
The Notes are senior, unsecured obligations of the Company and will accrue interest payable semiannually in arrears on April 15 and October 15 of each year, beginning on October 15, 2020, at a rate of 0.50% per year. The Notes will mature on April 15, 2025, unless earlier converted, redeemed, or repurchased. The Notes are convertible into cash, shares of the Company’s Class A common stock or a combination of cash and shares of the Company’s Class A common stock, at the Company’s election.
Holders of the Notes may convert all or any portion of their Notes at their option at any time prior to the close of business on January 14, 2025 only under the following circumstances:
•During any fiscal quarter commencing after the fiscal quarter ending on July 31, 2020 (and only during such fiscal quarter), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
•During the five business day period after any ten consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the Indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on each such trading day; or
•Upon the occurrence of specified corporate events.
On or after January 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its Notes at any time, regardless of the foregoing.
The conditional conversion feature of the Notes was triggered as the last reported sale price of the Company’s Class A common stock was more than or equal to 130% of the conversion price for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ended on April 30, 2021 (the last trading day of the fiscal quarter), and therefore the Notes are currently convertible, in whole or in part, at the option of the holders between May 1, 2021 through July 31, 2021. Whether the Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition in the future. The Company continues to classify the Notes as a long-term liability in its condensed consolidated balance sheet as of April 30, 2021, based on contractual settlement provisions.
The conversion rate was initially 32.2630 shares of the Company’s Class A common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $31.00 per share of the Company’s Class A common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date (a “make-whole fundamental change”), the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event. If consummated, the Mergers are expected to constitute a make-whole fundamental change that will result in an increase to the conversion rate for a holder who elects to convert its Notes in connection therewith. Any such increase would be determined by reference to a “make-whole” table included in the indenture governing the Notes.
The Company may not redeem the Notes prior to April 20, 2023. The Company may redeem for cash all or any portion of the Notes, at its option, on a redemption date occurring on or after April 20, 2023 and on or before the 21st scheduled trading day immediately before the maturity date, if the last reported sale price of the Company’s Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day 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 notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.
If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to
repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. If consummated, the Mergers are expected to constitute a fundamental change.
The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding may declare the entire principal amount of all the Notes plus accrued special interest, if any, to be immediately due and payable.
The Notes are the Company’s general unsecured obligations and rank senior in right of payment to all of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment with all of the Company’s liabilities that are not so subordinated; effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.
In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated using a discount rate of 6.85%, which was determined by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $229.2 million and was determined by deducting the fair value of the liability component from the par value of the Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, is amortized to interest expense at an annual effective interest rate over the contractual terms of the Notes.
The net carrying amount of the liability component of the Notes was as follows (in thousands): | | | | | | | | | | | |
| As of |
| April 30, 2021 | | January 31, 2021 |
Principal | $ | 862,500 | | | $ | 862,500 | |
Less: unamortized discount | (187,113) | | | (197,339) | |
Less: unamortized issuance costs | (13,163) | | | (13,763) | |
Net carrying amount | $ | 662,224 | | | $ | 651,398 | |
The net carrying amount of the equity component of the Notes was as follows (in thousands): | | | | | | | | | | | |
| As of |
| April 30, 2021 | | January 31, 2021 |
Proceeds allocated to the conversion options (debt discount) | $ | 229,249 | | | $ | 229,249 | |
Less: issuance costs | (5,627) | | | (5,627) | |
Carrying amount of the equity component | $ | 223,622 | | | $ | 223,622 | |
The following table sets forth the interest expense recognized related to the Notes (in thousands): | | | | | | | | | | | |
| Three Months Ended April 30, |
| 2021 | | 2020 |
Contractual interest expense | $ | 1,078 | | | $ | 252 | |
Amortization of debt discount | 10,226 | | | 2,245 | |
Amortization of debt issuance costs | 600 | | | 121 | |
Total interest expense related to the Notes | $ | 11,904 | | | $ | 2,618 | |
Capped Call Transactions
In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions with certain financial institution counterparties (the “Capped Calls”). The Capped Calls each have an initial strike price of approximately $31.00 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have initial cap prices of $48.62 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, approximately 27.8 million shares of Class A common stock. The Capped Calls are generally intended to reduce or offset the potential dilution to the Class A common stock upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. The Capped Calls expire on the earlier of (i) the last day on which any convertible securities remain outstanding and (ii) April 15, 2025, subject to earlier exercise. The Capped Calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the
Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company. In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including changes in law, insolvency filings, and hedging disruptions. The Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost of $105.6 million incurred to purchase the capped call transactions was recorded as a reduction to additional paid-in capital in the accompanying condensed consolidated balance sheet.
Revolving Credit Facility
On May 30, 2019, the Company entered into a $215.0 million revolving credit and guaranty agreement with a syndicate of financial institutions. The revolving credit facility has an accordion option, which, if exercised, would allow the Company to increase the aggregate commitments by up to the greater of $200.0 million and 100% of the consolidated adjusted EBITDA of the Company and its subsidiaries, plus an unlimited amount subject to satisfaction of certain leverage ratio based compliance tests after giving effect to the exercise, in each case subject to obtaining additional lender commitments and satisfying certain conditions. Pursuant to the terms of the revolving credit facility, the Company may issue letters of credit under the revolving credit facility, which reduce the total amount available for borrowing under such facility. The revolving credit facility terminates on May 30, 2024.
Interest on borrowings under the revolving credit facility accrues at a variable rate tied to the prime rate or the LIBOR, plus the applicable margin, at the Company’s election. The margin is 0.25% in the case of prime rate loans and 1.25% in the case of LIBOR loans. Interest is payable quarterly in arrears. Pursuant to the terms of the revolving credit facility, the Company is required to pay an annual commitment fee that accrues at a rate of 0.10% per annum on the unused portion of the borrowing commitments under the revolving credit facility. In addition, the Company is required to pay a fee in connection with letters of credit issued and outstanding under the revolving credit facility that accrues at a rate of 1.25% per annum on the amount to be drawn under such letters of credit outstanding. There is an additional fronting fee of 0.125% per annum multiplied by the aggregate face amount of issued and outstanding letters of credit.
The revolving credit facility contains customary conditions to borrowing, events of default, and covenants, including covenants that restrict the Company’s and its subsidiaries’ ability to, among other things, incur additional indebtedness, create or incur liens, merge or consolidate with other companies, sell substantially all of the Company’s assets, liquidate or dissolve, make distributions to the Company’s equity holders or its subsidiaries’ equity interests, pay dividends, make redemptions and repurchases of stock, or engage in transactions with affiliates. In addition, the revolving credit facility contains financial covenants, including a minimum liquidity balance and a minimum revenue amount. The Company has been in compliance with all covenants under the revolving credit facility since it entered into the revolving credit and guaranty agreement on May 30, 2019.
As of April 30, 2021, the Company had no amounts or letters of credit issued and outstanding under the revolving credit facility. The Company’s total available borrowing capacity under the revolving credit facility was $215.0 million as of April 30, 2021.
Note 7. Commitments and Contingencies
Letters of Credit
As of April 30, 2021, the Company had $38.5 million in standby letters of credit outstanding related to facility lease obligations in San Francisco, California and Denver, Colorado, which is included in restricted cash in the accompanying condensed consolidated balance sheets.
Hosting Commitments
On April 30, 2020, the Company executed an amendment to its existing agreement with Amazon Web Services (“AWS”). The amended agreement was effective as of May 1, 2020 and continues through April 30, 2025. Pursuant to the amended agreement, the Company has minimum annual commitments of $75.0 million which will increase by $5.0 million annually, for a total minimum commitment of $425.0 million. As of April 30, 2021, the Company had a remaining minimum payment obligation of $321.5 million to AWS through April 30, 2025.
Legal Matters
The Company records a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company also discloses material contingencies when it believes a loss is not probable but reasonably possible. Accounting for contingencies requires the Company to use judgment related to both the likelihood of a loss
and the estimate of the amount or range of loss. The outcomes of the Company’s legal proceedings are inherently unpredictable and subject to significant uncertainties. For some matters for which a material loss is reasonably possible, an estimate of the amount of loss or range of losses is not possible, nor is the Company able to estimate the loss or range of losses that could potentially result from the application of non-monetary remedies. Many legal and tax contingencies can take years to be resolved. Until the final resolution of legal matters, all amounts of loss or range of losses are estimates only. The final losses the Company incurs may differ materially from these estimates.
Beginning in September 2019, seven purported class action lawsuits were filed against the Company, its directors, certain of its officers, and certain investment funds associated with certain of its directors, each alleging violations of securities laws in connection with the Company’s registration statement on Form S-1 (the “Registration Statement”) filed with the Securities and Exchange Commission (the “SEC”). All but one of these actions were filed in the Superior Court of California for the County of San Mateo, though one plaintiff originally filed in the County of San Francisco (the “San Francisco Action”) before refiling in the County of San Mateo. The remaining action was filed in the U.S. District Court for the Northern District of California (the “Federal Action”). In the Federal Action, captioned Dennee v. Slack Technologies, Inc., Case No. 3:19-CV-05857-SI, the Company and the other defendants filed a motion to dismiss the complaint in January 2020. In April 2020, the court granted in part and denied in part the motion to dismiss. In May 2020, the Company and the other defendants filed a motion to certify the court’s order for interlocutory appeal, which the court granted. The Company and the other defendants filed a petition for permission to appeal the district court’s order to the Ninth Circuit Court of Appeals, which was granted in July 2020. Oral argument was heard in May 2021, and a decision is pending. The state court actions were consolidated in November 2019, and the consolidated action is captioned In re Slack Technologies, Inc. Shareholder Litigation, Lead Case No. 19CIV05370 (the “State Court Action”). An additional state court action was filed in San Mateo County in June 2020 but was consolidated with the State Court Action in July 2020. The Company and the other defendants filed demurrers to the complaint in the State Court Action in February 2020. In August 2020, the court sustained in part and overruled in part the demurrers, and granted plaintiffs leave to file an amended complaint, which they did in October 2020. The Company and the other defendants answered the complaint in November 2020. The plaintiff in the San Francisco Action has sought dismissal of that action after joining the State Court Action. That dismissal remains pending. The Federal Action and the State Court Action seek unspecified monetary damages and other relief on behalf of investors who purchased the Company’s Class A common stock issued pursuant and/or traceable to the Registration Statement.
In April 2020, three purported stockholder derivative lawsuits were filed against certain of the Company’s officers and certain of the Company’s current and former directors in the U.S. District Courts for the District of Delaware and the Northern District of California. The case filed in the Northern District of California was dismissed and re-filed in the U.S. District Court for the District of Delaware. The derivative cases were consolidated in June 2020, and the operative complaint was designated in August 2020. The complaint alleges breaches of fiduciary duty in connection with the Company’s Registration Statement, and seeks the award of unspecified damages to the Company, and certain reforms to the Company’s governance policies. The Company moved to dismiss the case in September 2020. At approximately the same time, the plaintiff in the lawsuit brought pursuant to Delaware General Corporation Law Section 220 (discussed below) sought to intervene and stay the case. On that basis, the plaintiffs in the purported derivative lawsuit elected not to file an opposition to the motion to dismiss. In December 2020, the parties stipulated to stay the case in light of the proposed Mergers, which the court granted. The court also denied all pending motions in the case without prejudice, noting that the parties may renew the motions upon a lift of the stay.
In June 2020, a lawsuit was filed by a stockholder against the Company in the Delaware Court of Chancery pursuant to Delaware General Corporation Law Section 220 seeking an order permitting inspection and copying of certain of the Company’s books and records. The Company answered the complaint in October 2020.
The Company believes the above-described lawsuits are without merit and intends to vigorously defend them. Based on the preliminary nature of the proceedings in these cases, the outcomes of these matters remain uncertain.
In addition, the Company is involved from time to time in various claims and legal actions arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate outcomes of these matters, the Company believes that none of these ordinary course legal proceedings will have a material adverse effect on its condensed consolidated financial statements.
Indemnification Agreements
In the ordinary course of business, the Company provides indemnifications of varying scope and terms to customers, business partners, vendors, lessors, investors, directors, officers, employees, and other parties with respect to certain matters. Indemnification may include losses from the Company’s breach of such agreements, intellectual property infringement claims made by third parties, and other liabilities relating to or arising from Slack, or the Company’s acts or omissions. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future
indemnification payments may not be subject to a cap. It is not possible to determine the maximum potential loss under these indemnifications due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular indemnification. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnifications as of April 30, 2021.
Note 8. Stockholders' Equity
Common Stock
The Company’s amended and restated certificate of incorporation authorizes the issuance of Class A common stock and Class B common stock. As of April 30, 2021, the Company had authorized 5.0 billion shares of Class A common stoc