Summary of Significant Accounting Policies and Recent Accounting Pronouncements | Summary of Significant Accounting Policies and Recent Accounting Pronouncements The Company’s significant accounting policies are discussed in Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2019, filed with the Securities and Exchange Commission (SEC) on April 18, 2019. There have been no significant changes to these policies during the six months ended July 31, 2019 , except for the accounting policies for revenue recognition and deferred commissions that were updated as a result of adopting Topic 606, as discussed below. Revenue Recognition Adoption of Topic 606 Effective February 1, 2019, the Company adopted the provisions and expanded disclosure requirements of Topic 606 using the full retrospective method. Accordingly, the results for the prior comparable period were adjusted to conform to the current period measurement and recognition of results. The impact of Topic 606 on reported revenue results was not material. Topic 606, however, modified the Company’s revenue recognition policy in the following ways: • Removal of the limitation on contingent revenue, which can result in revenue for certain multi-element customer contracts being recognized differently during the contract term; • Allocation of discounts over the entire committed contract period, which have affected transactions where customer commitments increased or where discounts fluctuated over the contract term; • The treatment of revenue recognition related to on-premise term licenses. The Company has a limited number of on-premise term licenses. Under Topic 606, the Company recognizes the revenue on these licenses when the software is delivered to the customer, which is typically at the beginning of the contract term. In the past the Company recognized revenue for on-premise term licenses ratably over the contract term; and • Allocation between periods and between subscription revenues and professional services revenues driven by changes mandated by Topic 606 for the treatment of material rights. Revenue Recognition Policy The Company generates revenue primarily from two sources: (1) subscription services, which is comprised of revenue from subscription fees from customers accessing the Company’s cloud-based software; and (2) professional services and other revenue. With the adoption of Topic 606, revenue is recognized upon satisfaction of performance obligations in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company determines the amount of revenue to be recognized through application of the following steps: ◦ Identification of the contract, or contracts with a customer; ◦ Identification of the performance obligations in the contract; ◦ Determination of the transaction price; ◦ Allocation of the transaction price to the performance obligations in the contract; and ◦ Recognition of revenue when or as the Company satisfies the performance obligations. The Company’s subscription service arrangements are typically non-cancelable for a pre-specified subscription term and do not typically contain refund-type provisions. Subscription Services Subscription services revenues are primarily comprised of fees that provide customers with access to the Company's cloud-based software during the term of the arrangement. Cloud-based services typically allow customers to use the Company's multi-tenant software without taking possession of the software. Revenue is generally recognized ratably over the contract term beginning on the commencement date of each contract, which is the date the Company’s cloud-based software is made available to customers. Leeyo Legacy On-Premise Arrangements The Company acquired Leeyo Software, Inc. (Leeyo) in May 2017 and inherited some legacy on-premise license arrangements. These licenses are primarily term based and bundled with related maintenance (PCS). Revenue for the software license is generally recognized at the beginning of the contract term and the PCS is recognized ratably over the contract term. Subscription and on-premise license agreements generally have terms ranging from one to three years and are invoiced to customers annually or quarterly in advance upon execution of the contract or subsequent renewals. Amounts that have been invoiced are recorded in accounts receivable and in either deferred revenue or revenue in the Company's consolidated financial statements, depending on whether the underlying performance obligation has been satisfied. Professional Services and Other Revenue Professional services and other revenues consists primarily of fees from consultation services to support configuration, data migration, and integration. The Company’s professional services contracts are either on a time and materials or fixed fee basis. The underlying revenues are recognized as the services are rendered for time and materials contracts or on a proportional performance basis for fixed price contracts. Training revenues are recognized as the services are performed. Contracts with Multiple Performance Obligations The Company enters into contracts with its customers that often include cloud-based software subscriptions and professional services performance obligations. A performance obligation is a commitment in a contract with a customer to transfer products or services that are distinct. Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting may require significant judgment. The Company's cloud-based software products are distinct as such services are often sold separately. In determining whether professional services are distinct, the Company considers the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract was signed in comparison to the cloud-based software, start date and the contractual dependence of the cloud-based software on the customer’s satisfaction with the professional services work. To date, the Company has concluded that all of the professional services included in contracts with multiple performance obligations are distinct. The Company allocates the transaction price to each performance obligation on a relative standalone selling price (SSP) basis. The SSP is the estimated price at which the Company would sell a promised product or service separately to a customer. Judgment is required to determine the SSP for each distinct performance obligation. The Company establishes SSP for both its subscription services and professional services elements primarily by considering the actual sales prices of the element when sold on a stand-alone basis or when sold together with other elements. When the Company is unable to rely on actual observable sales inputs, it determines SSP based on overarching pricing objectives and strategies, taking into consideration market conditions and other factors, including customer size, volume purchased, market and industry conditions, product-specific factors and historical sales of the deliverables. Deferred commissions The Company capitalizes sales commission expenses and associated payroll taxes paid to internal sales personnel that are incremental to obtaining customer contracts. These costs are deferred and then amortized over the expected period of benefit, which is estimated to be five years . The Company has determined the period of benefit taking into consideration several factors including the expected subscription term and expected renewals of its customer contracts, the duration of its relationships with its customers, and its technology. Amortization expense is included in Sales and marketing in the accompanying unaudited condensed consolidated statements of comprehensive loss. Contract Assets Subscription services revenue is generally recognized ratably over the contract term beginning on the commencement date of each contract. Under Topic 606, the timing and amount of revenue recognition may differ in certain situations from the revenue recognized under previous accounting guidance, which included a contingent revenue rule that limited subscription revenue to the customer invoice amount for the period of service (collectively billings). Under Topic 606, the Company records a contract asset when revenue recognized on a contract exceeds the billings for the period. Contract assets are included in Prepaid expenses and other current assets and Other assets in the Company's unaudited condensed consolidated balance sheets. The total value of the Company's contract assets as of July 31, 2019 and January 31, 2019 was $4.2 million . For further detail regarding the Company's remaining performance obligations please refer to Note 10. Deferred Revenue and Performance Obligations . Recent Accounting Pronouncements—Not Yet Adopted Under the Jumpstart Our Business Startups Act (JOBS Act), the Company qualifies as an “emerging growth company.” However, the Company will no longer qualify as an emerging growth company beginning as of January 31, 2020. While the Company maintains emerging growth company status, it has elected to use the extended transition period for complying with new or revised accounting standards under the JOBS Act. The adoption dates discussed below reflect this election. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) , which supersedes the guidance in topic ASC 840, Leases. Under the new standard, lessees will be required to record a right-of-use asset and a lease liability for all leases, with certain exceptions, on their balance sheets. The Company expects to adopt ASU 2016-02 for its fiscal year ending January 31, 2020 and interim periods thereafter. The Company is currently evaluating its lease portfolio and expects the adoption of this standard to have a material impact on its consolidated balance sheets. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments , which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method rather than the incurred loss model for recognizing credit losses. Additionally, any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. The Company expects to adopt ASU 2016-13 for its fiscal year ending January 31, 2021, including interim periods within that fiscal year. The Company is currently evaluating the impact of adopting this standard and does not expect its adoption to have a significant impact on its consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. The standard no longer requires disclosure of the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted-average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual periods beginning after December 15, 2019. The Company expects to adopt ASU 2018-13 for its fiscal year ending January 31, 2021, including interim periods within that fiscal year. The Company is currently evaluating the impact of adopting this standard and does not expect the adoption to have a significant impact on its consolidated financial statements. In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract . This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for annual periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. The Company expects to adopt ASU 2018-15 for its fiscal year ending January 31, 2022, and interim periods following that fiscal year. The Company is currently evaluating the impact of adopting this standard and does not expect the adoption to have a significant impact on its consolidated financial statements. Recent Accounting Pronouncements—Adopted In January 2016, the FASB issued ASU No. 2016-01 (Subtopic 825-10), Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities , which primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The Company adopted ASU 2016-01 effective February 1, 2019 and the adoption did not have a significant impact on its unaudited condensed consolidated financial statements. In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Under existing GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings (accumulated deficit) for stranded income tax effects resulting from the Tax Cuts and Jobs Act (the Tax Reform Act). The amendments in this ASU also require certain disclosures about stranded income tax effects. The Company’s provisional adjustments recorded in the fiscal year ended January 31, 2018 to account for the impact of the Tax Reform Act did not result in stranded tax effects. The Company adopted ASU 2018-02 effective February 1, 2019, and the adoption of the standard did not have a significant impact on its unaudited condensed consolidated financial statements. In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting. The guidance expands the scope of the topic to include share-based payments granted to non-employees in exchange for goods or services. Upon adoption, the fair value of awards granted to non-employees will be determined as of the grant date, which will be recognized over the service period. Previous guidance required the awards to be remeasured at fair value periodically when determining the related expense. The Company adopted ASU 2018-07 effective February 1, 2019 and the adoption of the standard did not have an impact on its unaudited condensed consolidated financial statements. In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that have become redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The Company adopted this release effective February 1, 2019. In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and has modified the standard thereafter. This standard replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. The Company adopted ASU 2014-09 ("Topic 606" or the "new standard"), effective February 1, 2019, using the full retrospective method of transition. The impacts of adopting Topic 606 on the Company's consolidated financial statements is shown in the tables below. The primary impacts on revenue are an increased number of allocations of arrangement consideration between subscription and professional services and the recognition of discounts evenly across the term for multiple year subscription arrangements. Both of these impacts are primarily due to the elimination of the contingent revenue rule. There was an impact due to a change in the recognition of legacy on-premise term deals inherited during the Company's acquisition of Leeyo which requires more revenue being recognized at the beginning of the license term as opposed to evenly over the term. In addition to impacting the way that the Company recognizes revenue, the new standard also impacts the accounting for incremental commission costs of obtaining contracts. Under the new standard, the Company defers all incremental commission costs to obtain the contract and amortize these costs on a straight-line basis over the period of economic benefit which has been determined to be five years . The adoption of Topic 606 did not have significant impact on U.S. taxes due to the full valuation allowance against the deferred tax asset. However, the deferral of incremental commissions for foreign employees increased foreign deferred tax liabilities which will be realized over the period of the deferred commission amortization. The adoption of Topic 606 required the Company to record a contract asset related to certain transactions acquired as part of the acquisition of Leeyo in the second quarter of fiscal 2018. The creation of this new contract asset affected the valuation of customer relationships intangibles recorded at the time of the acquisition. Consequently, the Company reduced the value of the customer intangible and decreased goodwill in the unaudited adjusted condensed consolidated balance sheet as a result of the adoption of Topic 606. The following table summarizes the adjustments on affected line items of the unaudited adjusted condensed consolidated balance sheet resulting from the adoption of Topic 606 (in thousands): January 31, 2019 As Reported Under ASC 605 Topic 606 Adjustment As Adjusted Under ASC 606 Assets Deferred commissions, current portion $ — $ 8,616 $ 8,616 Prepaid expenses and other current assets¹ 10,414 4,218 14,632 Deferred commissions, net of current portion — 18,664 18,664 Purchased intangibles, net 9,042 (1,646 ) 7,396 Goodwill 20,861 (3,229 ) 17,632 Liabilities Deferred revenue, current portion 90,565 (3,781 ) 86,784 Deferred revenue, net of current portion 406 (294 ) 112 Deferred tax liabilities — 1,877 1,877 Equity Accumulated deficit (336,275 ) 28,821 (307,454 ) (1) Prepaid expenses and other current assets includes the impact of contract assets. The following tables summarize the adjustments on affected line items of the unaudited adjusted condensed consolidated statements of comprehensive loss resulting from the adoption of Topic 606 (in thousands): Three Months Ended July 31, 2018 As Reported Under ASC 605 Topic 606 Adjustment As Adjusted Under ASC 606 Revenue Subscription $ 41,470 $ (593 ) $ 40,877 Professional services 16,284 686 16,970 Total revenues 57,754 93 57,847 Gross profit 29,107 93 29,200 Sales and marketing 25,429 (1,050 ) 24,379 Total operating expenses 47,315 (1,050 ) 46,265 Loss from operations (18,208 ) 1,143 (17,065 ) Loss before income taxes (19,386 ) 1,143 (18,243 ) Income tax provision (201 ) (101 ) (302 ) Net loss (19,587 ) 1,042 (18,545 ) Comprehensive loss $ (19,170 ) $ 1,042 $ (18,128 ) Net loss per share attributable to common stockholders, basic and diluted $ (0.19 ) $ 0.01 $ (0.18 ) Six Months Ended July 31, 2018 As Reported Under ASC 605 Topic 606 Adjustment As Adjusted Under ASC 606 Revenue Subscription $ 77,584 $ (818 ) $ 76,766 Professional services 31,914 1,615 33,529 Total revenues 109,498 797 110,295 Gross profit 54,833 797 55,630 Sales and marketing 48,266 (2,107 ) 46,159 Total operating expenses 91,625 (2,107 ) 89,518 Loss from operations (36,792 ) 2,904 (33,888 ) Loss before income taxes (38,643 ) 2,904 (35,739 ) Income tax provision (391 ) (204 ) (595 ) Net loss (39,034 ) 2,700 (36,334 ) Comprehensive loss $ (38,696 ) $ 2,700 $ (35,996 ) Net loss per share attributable to common stockholders, basic and diluted $ (0.52 ) $ 0.04 $ (0.48 ) |