The following discussion and analysis of our financial condition and results of
operations should be read together with our consolidated financial statements
and related notes included elsewhere in this Annual Report on Form 10-K. In
addition to historical financial information, the following discussion contains
forward-looking statements based upon current expectations that involve risks
and uncertainties. These statements are often identified by the use of words
such as "may," "will," "expect," "believe," "anticipate," "intend," "could,"
"estimate," or "continue," and similar expressions or variations. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of various factors, including but not limited to those
discussed in the section titled "Risk Factors" and in other parts of this Annual
Report on Form 10-K. Our fiscal year ends January 31. A discussion, analysis,
and comparison of our financial condition, results of operations, and cash flows
for the year ended January 31, 2019 to the year ended January 31, 2018 is
included in Item 7 of Part II, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on Form 10-K
for the year ended January 31, 2019 filed with the SEC on April 1, 2019.
Overview
We empower everyone to improve how they work. We are a leading cloud-based
platform for work execution, enabling teams and organizations to plan, capture,
manage, automate, and report on work at scale, resulting in more efficient
processes and better business outcomes. We were founded in 2005 with a vision to
build a universal application for work management that does not require coding
capabilities.
Unstructured or dynamic work is work that has historically been managed using a
combination of email, spreadsheets, whiteboards, phone calls, and in-person
meetings to communicate with team members and complete projects and processes.
It is frequently changing, often ad-hoc, and highly reactive to new information.
Our platform helps manage this kind of unstructured work and serves as a single
source of truth across work processes, fostering accountability and engagement
within teams, leading to more efficient decision-making and better business
outcomes.
We generate revenue primarily from the sale of subscriptions to our cloud-based
platform. For subscriptions, customers select the plan that meets their needs
and can begin using Smartsheet within minutes. We offer four subscription
levels: Individual, Business, Enterprise, and Premier, the pricing for which
varies by the capabilities provided. Customers can also purchase Connectors,
which provide data integration and automation to third-party applications. We
also offer Dynamic View, Data Uploader, Control Center and Accelerators, which
enable customers to implement solutions for a specific use case or for large
scale projects, initiatives, or processes. We acquired 10,000ft in May 2019
which augmented our product portfolio by providing resource allocation and
planning. Professional services are offered to help customers create and
administer solutions for specific use cases and for training purposes.
Customers can begin using our platform by purchasing a subscription directly
from our website or through our sales force, starting a free trial, or working
as a collaborator on a project.
COVID-19
In December 2019, the novel COVID-19 coronavirus ("COVID-19") was reported in
China and in March 2020 the World Health Organization declared it a pandemic.
The extent of the impact of COVID-19 on our operational and financial
performance will depend on certain developments, including the duration and
spread of the outbreak, impact on our customers and our sales cycles, and impact
on our employees, all of which are uncertain and cannot be predicted. At this
time, the extent to which COVID-19 may impact our financial condition or results
of operations is uncertain.

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Key Business Metrics
We review the following key business metrics to evaluate our business, measure
our performance, identify trends affecting our business, formulate business
plans, and make strategic decisions.
                                                                  January 31,
                                                       2020          2019          2018
Domain-based customers                                 83,901        78,959        74,116

Average annualized contract value per domain-based customer

$   3,643     $   2,454     $   1,640
Dollar-based net retention rate for all customers
(trailing 12 months)                                      135 %         134 

% 130 %




Number of domain-based customers
We define domain-based customers as organizations with a unique email domain
name such as @cisco. All other customers, which we designate as ISP customers,
are typically small teams or individuals who register for our services with an
email address hosted on a widely used domain such as @gmail, @outlook, or
@yahoo.
In previous fiscal years, including the fiscal year ended January 31, 2020, we
considered the number of domain-based customers using our platform to be an
indicator of our market penetration, the growth of our business, and our
potential future business opportunities.
Over time as our business has grown, an increasing percentage of our total
annualized contract values has come from customers with higher annualized
contract values. As of January 31, 2020, over 75% of our cumulative total
annualized contract value from all customers came from the customers who paid us
$5 thousand or more. Due to this concentration in contract value from certain
domain-based customers, beginning with February 1, 2020, the count of
domain-based customers will be replaced as a key business metric with the
following three metrics:
•      Count of customers with annualized contract value ("ACV") equal to or
       greater than $5 thousand

• Count of customers with ACV equal to or greater than $50 thousand

• Count of customers with ACV equal to or greater than $100 thousand




Effective February 1, 2020, we consider the customer growth in these segments to
provide better insight into the effectiveness of our growth strategies, our
market penetration, and our potential for future business opportunities. Going
forward, these metrics will not include domain-based customers with annualized
contract values of under $5,000, which we no longer consider to be a key factor
for evaluating our business. These revised metrics for the most recent fiscal
years were as follows:
                                                  January 31,
                                             2020     2019     2018

Customers with ACV of $5 thousand or more 9,079 6,192 3,790 Customers with ACV of $50 thousand or more 961 444 189 Customers with ACV of $100 thousand or more 350 147 65




Average ACV per domain-based customer
We use average annualized contract value ("ACV") per domain-based customer to
measure customer commitment to our platform and sales force productivity. We
define average ACV per domain-based customer as total outstanding ACV for
domain-based subscriptions as of the end of the reporting period divided by the
number of domain-based customers as of the same date.

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Dollar-based net retention rate
We calculate dollar-based net retention rate as of a period end by starting with
the ACV from the cohort of all customers as of the 12 months prior to such
period end ("Prior Period ACV"). We then calculate the ACV from these same
customers as of the current period end ("Current Period ACV"). Current Period
ACV includes any upsells and is net of contraction or attrition over the
trailing 12 months, but excludes subscription revenue from new customers in the
current period. We then divide the total Current Period ACV by the total Prior
Period ACV to arrive at the dollar-based net retention rate.
The dollar-based net retention rate is used by us to evaluate the long-term
value of our customer relationships and is driven by our ability to retain and
expand the subscription revenue generated from our existing customers.
Components of Results of Operations
Revenue
Subscription revenue
Subscription revenue primarily consists of fees from customers for access to our
cloud-based platform. We recognize subscription revenue ratably over the term of
the subscription period beginning on the date access to our platform is
provided, as no implementation work is required, assuming all other revenue
recognition criteria have been met.
Professional services revenue
Professional services revenue primarily includes fees for consulting and
training services. Our consulting services consist of platform configuration and
use case optimization, and are primarily invoiced on a time and materials basis,
with some smaller engagements being provided for a fixed fee. We recognize
revenue for our consulting services as those services are delivered. Our
training services are delivered either remotely or at the customer site.
Training services are charged for on a fixed-fee basis and we recognize revenue
as the training program is delivered. Our consulting and training services are
generally considered to be distinct, for accounting purposes, and we recognize
revenue as services are performed or upon completion of work.
Cost of revenue and gross margin
Cost of subscription revenue
Cost of subscription revenue primarily consists of expenses related to hosting
our services and providing support, including employee-related costs such as
salaries, wages, and related benefits, third-party hosting fees and payment
processing fees, software and maintenance costs, allocated overhead,
amortization of acquisition-related intangibles, costs of Connectors between
Smartsheet and third-party applications, costs of outside services to supplement
our internal teams, and travel-related expenses.
We intend to continue to invest in our platform infrastructure and our support
organization. We currently utilize a combination of third-party co-location data
centers and public cloud service providers. As our platform scales, we may
require additional investments in infrastructure to host our platform and
support our customers, which may negatively impact our subscription gross
margin.
Cost of professional services revenue
Cost of professional services revenue consists primarily of employee-related
costs for our consulting and training teams, allocated overhead, billable
expenses, software-related costs, travel-related costs, and costs of outside
services to supplement our internal teams.
Gross margin
Gross margin is calculated as gross profit expressed as a percentage of total
revenue. Our gross margin may fluctuate from period to period as our revenue mix
fluctuates, and as a result of the timing and amount of

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investments to expand our hosting capacity, our continued building of
application support and professional services teams, increased share-based
compensation expense, as well as the relative proportions of total revenue
provided by subscriptions or professional services in a given time period. As we
continue to migrate more of our infrastructure to cloud-based hosting providers,
we expect our gross margin to decline.
Operating expenses
Research and development
Research and development expenses consist primarily of employee-related costs,
hardware- and software-related costs, overhead allocations, costs of outside
services used to supplement our internal staff, travel-related costs, and
marketing related costs. We consider continued investment in our development
talent and our platform to be important for our growth. We expect our research
and development expenses to increase in absolute dollars as our business grows
and to gradually decrease over the long-term as a percentage of total revenue
due to economies of scale.
Sales and marketing
Sales and marketing expenses consist primarily of employee-related costs, costs
of general marketing and promotional activities, allocated overhead,
travel-related expenses, software-related expenses, costs of outside services
used to supplement our internal staff, and amortization of acquisition-related
intangibles. Commissions earned by our sales force that are incremental to each
customer contract, along with related fringe benefits and taxes, are capitalized
and amortized over an estimated useful life of three years. We expect that sales
and marketing expenses will increase in absolute dollars as we expect more of
our future revenue to come from our inside and direct sales models, rather than
through digital self-service sales. We expect sales and marketing costs to
gradually decrease over the long-term as a percentage of total revenue due to
economies of scale.
General and administrative
General and administrative expenses consist primarily of employee-related costs
for accounting, finance, legal, IT, and human resources personnel. In addition,
general and administrative expenses include non-personnel costs, such as legal,
accounting, and other professional fees, allocated overhead, hardware and
software costs, certain tax, license and insurance-related expenses, and
travel-related expenses.
We are incurring additional expenses as a result of operating as a public
company, including costs to comply with the rules and regulations applicable to
companies listed on a national securities exchange, costs related to compliance
and reporting obligations pursuant to the rules and regulations of the SEC, and
increased expenses for insurance, investor relations, and professional services.
We expect our general and administrative expenses to increase in absolute
dollars as our business grows, and to gradually decrease over the long term as a
percentage of total revenue due to economies of scale.
Interest income
Interest income consists of interest income from our investment holdings.
Other income (expense), net
Other income (expense), net primarily consists of interest expense associated
with our finance leases, and foreign exchange gains and losses.
Income tax provision (benefit)
Our income tax provision has not been historically significant to our business
as we have incurred operating losses to date. We maintain a valuation allowance
on our U.S. federal, state and certain foreign deferred tax assets as we have
concluded that it is not more likely than not that the deferred assets will be
realized.

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2017 Tender Offer
During the three months ended July 31, 2017, we facilitated a tender offer
("2017 Tender Offer"), in which our current and former employees and directors
were able to sell a portion of their vested shares of common stock to certain
existing investors. We recorded share-based compensation expense for the amount
paid by our existing investors to our current and former employees and directors
in excess of the estimated fair value of our common stock. That total amount
resulted in $15.5 million incremental expense for the three months ended July
31, 2017, of which $0.1 million was recorded to cost of revenue, $5.1 million
was recorded to research and development expense, $0.6 million was recorded to
sales and marketing expense, and $9.7 million was recorded to general and
administrative expense. In addition, the excess over the estimated fair value of
the sale price of the common and convertible preferred stock sold by
non-employees, totaling $4.6 million, was recorded as a deemed dividend within
additional paid-in capital. Our quarterly trends in total operating expenses,
operating loss, and net loss, were significantly impacted by this transaction,
which took place and was completed during the three months ended July 31, 2017.

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Results of Operations The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods:


                                                       Year Ended January 31,
                                                  2020          2019          2018

                                                           (in thousands)
Revenue
Subscription                                   $ 244,058     $ 157,529     $ 100,368
Professional services                             26,824        20,193        10,885
Total revenue                                    270,882       177,722       111,253
Cost of revenue
Subscription(1)                                   32,707        19,297        13,008
Professional services(1)                          20,193        14,552         8,674
Total cost of revenue                             52,900        33,849        21,682
Gross profit                                     217,982       143,873        89,571
Operating expenses
Research and development(1)                       95,469        58,841        37,590
Sales and marketing(1)                           176,060       106,067        72,925
General and administrative(1)                     50,227        34,049        28,034
Total operating expenses                         321,756       198,957       138,549
Loss from operations                            (103,774 )     (55,084 )     (48,978 )
Interest income                                    8,410         3,307           540
Other income (expense), net                         (462 )      (1,815 )        (975 )
Net loss before income tax provision (benefit)   (95,826 )     (53,592 )     (49,413 )
Income tax provision (benefit)                       114           293          (307 )
Net loss                                       $ (95,940 )   $ (53,885 )   $ (49,106 )

(1) Amounts include share-based compensation expense as follows:




                                            Year Ended January 31,
                                         2020        2019        2018

                                                (in thousands)
Cost of subscription revenue           $  1,392    $    346    $     96

Cost of professional services revenue 1,259 466 67 Research and development

                 14,260       5,873       6,029
Sales and marketing                      12,937       5,163       1,707
General and administrative                7,716       4,055      10,565

Total share-based compensation expense $ 37,564 $ 15,903 $ 18,464


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Share-based compensation expense related to the 2017 Tender Offer, which is included in the table above, was as follows:


                                              Year Ended January 31,
                                            2020          2019      2018

                                                  (in thousands)
Cost of subscription revenue           $   -             $   -    $     53
Cost of professional services revenue      -                 -           9
Research and development                   -                 -       5,124
Sales and marketing                        -                 -         583
General and administrative                 -                 -       9,701
Total share-based compensation expense $   -             $   -    $ 15,470

The following table sets forth the components of our statements of operations data, for each of the periods presented, as a percentage of total revenue.


                                                  Year Ended January 31,
                                                 2020        2019      2018
Revenue
Subscription                                     90  %       89  %     90  %
Professional services                            10          11        10
Total revenue                                   100         100       100
Cost of revenue
Subscription                                     12          11        12
Professional services                             7           8         8
Total cost of revenue                            20          19        19
Gross profit                                     80          81        81
Operating expenses
Research and development                         35          33        34
Sales and marketing                              65          60        66
General and administrative                       19          19        25
Total operating expenses                        119         112       125
Loss from operations                            (38 )       (31 )     (44 )
Interest income                                   3           2         -
Other income (expense), net                       -          (1 )       -

Net loss before income tax provision (benefit) (35 ) (30 ) (44 ) Income tax provision (benefit)

                    -           -         -
Net loss                                        (35 )%      (30 )%    (44 )%



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Comparison of the years ended January 31, 2020 and 2019
Revenue
                                 Year Ended January 31,           Change
                                   2020           2019        Amount      %

                                          (dollars in thousands)
Revenue
Subscription                  $    244,058     $ 157,529     $ 86,529    55 %
Professional services               26,824        20,193        6,631    33 %
Total revenue                 $    270,882     $ 177,722     $ 93,160    52 %
Percentage of total revenue
Subscription revenue                    90 %          89 %
Professional services revenue           10 %          11 %


The increase in subscription revenue between periods was driven by increased
contributions from existing customers, as evidenced by our dollar-based net
retention rate of 135% for the trailing 12-month period ended January 31, 2020,
followed by contributions from new customers, as evidenced by the 6% increase in
the number of domain-based customers.
The increase in professional services revenue was primarily driven by increasing
demand for our consulting and training services.
Cost of revenue, gross profit, and gross margin
                         Year Ended January 31,           Change
                           2020           2019        Amount      %

                                  (dollars in thousands)
Cost of revenue
Subscription          $     32,707     $  19,297     $ 13,410    69 %
Professional services       20,193        14,552        5,641    39 %
Total cost of revenue $     52,900     $  33,849     $ 19,051    56 %
Gross profit          $    217,982     $ 143,873     $ 74,109    52 %
Gross margin
Subscription                    87 %          88 %
Professional services           25 %          28 %
Total gross margin              80 %          81 %


Cost of subscription revenue increased $13.4 million, or 69%, for the year ended
January 31, 2020 compared to the year ended January 31, 2019. The increase was
primarily due to an increase of $5.8 million in employee-related expenses due to
increased headcount, of which $1.0 million was related to share-based
compensation expenses, an increase of $3.5 million in data center and hosting
costs, an increase of $1.4 million in amortization of acquisition-related
intangibles, an increase of $1.1 million in software-related costs, an increase
of $0.9 million in allocated overhead costs, an increase of $0.5 million in
credit card processing fees, and an increase of $0.1 million in professional
services and fees.

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Our gross margin for subscription revenue was 87% and 88% for the years ended
January 31, 2020 and 2019, respectively. Our gross margin for subscription
revenue decreased primarily due to increased share-based compensation expenses
and amortization of acquisition-related intangibles, partially offset by data
center and hosting costs which decreased as a percentage of revenue, year over
year, due to economies of scale. As we migrate more of our infrastructure to
cloud-based hosting providers, add new functionality, expand internationally,
and serve more regulated markets, our gross margin for subscription revenue will
likely decline.
Cost of professional services revenue increased $5.6 million, or 39%, for the
year ended January 31, 2020 compared to the year ended January 31, 2019. The
increase was primarily due to an increase of $4.7 million in employee-related
expenses, of which $0.8 million was related to share-based compensation
expenses, as we continued to grow our professional services offerings and
workforce, an increase of $0.6 million in allocated overhead costs, an increase
of $0.2 million in software-related costs, and an increase of $0.1 million in
travel-related costs.
Our gross margin for professional services revenue was 25% and 28% for the year
ended January 31, 2020 and 2019, respectively. We expect our gross margin for
professional services to decline in the future as we expand our team to support
increasing demand.
Operating expenses
Research and development expenses
                               Year Ended January 31,           Change
                                 2020            2019       Amount      %

                                        (dollars in thousands)
Research and development    $    95,469       $ 58,841     $ 36,628    62 %
Percentage of total revenue          35 %           33 %


Research and development expenses increased $36.6 million, or 62%, for the year
ended January 31, 2020 as compared to the year ended January 31, 2019. The
increase was primarily due to an increase of $29.8 million in employee-related
expenses due to increased headcount, of which $8.4 million related to increased
share-based compensation expenses, an increase of $2.4 million in costs of
outside services used to supplement our internal staff, an increase of $2.3
million in software-related costs, and an increase of $2.0 million in allocated
overhead expense.
Sales and marketing expenses
                               Year Ended January 31,           Change
                                 2020           2019        Amount      %

                                        (dollars in thousands)
Sales and marketing         $    176,060     $ 106,067     $ 69,993    66 %
Percentage of total revenue           65 %          60 %


Sales and marketing expenses increased $70.0 million, or 66%, for the year ended
January 31, 2020 as compared to the year ended January 31, 2019. The increase
was primarily due to an increase of $46.7 million in employee-related expenses
due to increased headcount, of which $8.0 million related to increased
share-based compensation expenses, an increase in marketing costs of $14.7
million, primarily due to a larger ENGAGE customer conference, investment in
brand marketing, and pay-per-click advertising, an increase of $3.7 million in
allocated overhead costs, an increase of $1.8 million in travel-related costs,
an increase of $1.6 million in software-related costs, an increase of $0.9
million in amortization of acquisition-related intangibles, an increase of $0.4
million in costs of outside services used to supplement our internal staff, and
an increase of $0.1 million in taxes, licenses and insurance.

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General and administrative expenses


                               Year Ended January 31,           Change
                                 2020            2019       Amount      %

                                        (dollars in thousands)
General and administrative  $    50,227       $ 34,049     $ 16,178    48 %
Percentage of total revenue          19 %           19 %


General and administrative expenses increased $16.2 million, or 48%, for the
year ended January 31, 2020 as compared to the year ended January 31, 2019. The
increase was primarily due to an increase in employee-related expenses of $11.1
million, of which $3.7 million related to increased share-based compensation
expenses, an increase of $3.9 million in costs for audit, accounting, legal, and
other professional fees, an increase of $0.9 million in allocated overhead
costs, an increase of $0.5 million in software-related costs, and an increase of
$0.2 million in travel-related costs. This was offset by a decrease of $0.5
million in taxes, licenses, insurance, and other.
Interest income
                               Year Ended January 31,           Change
                                 2020            2019       Amount      %

                                        (dollars in thousands)
Interest income             $     8,410       $  3,307     $ 5,103    154 %
Percentage of total revenue           3 %            2 %


For the year ended January 31, 2020 compared to the year ended January 31, 2019,
the increase in interest income of $5.1 million was driven by higher monetary
value of cash, cash equivalents, and short-term investments held in
interest-bearing accounts and instruments. Our ability to earn interest in the
future is dependent upon the interest rate environment, and our interest income
may significantly decrease.
Other income (expense), net
                               Year Ended January 31,          Change
                                2020            2019        Amount     %

                                        (dollars in thousands)

Other income (expense), net $ (462 ) $ (1,815 ) $ 1,353 75 % Percentage of total revenue - %

           (1 )%



For the year ended January 31, 2020 compared to the year ended January 31, 2019,
the change in other income (expense), net was driven by a decrease of $1.3
million in warrant expense and a decrease of $0.1 million in interest expense.
Quarterly Results of Operations and Other Data
The following tables set forth selected unaudited quarterly statements of
operations data for each of the eight fiscal quarters ended January 31, 2020, as
well as the percentage of total revenue that each line item represents for each
quarter. The information for each of these quarters has been prepared on the
same basis as the audited annual consolidated financial statements included
elsewhere in this Annual Report and, in the opinion of management, includes all
adjustments, which consist only of normal recurring adjustments, necessary for
the fair presentation of the results of operations for these periods. This data
should be read in conjunction with our audited consolidated financial statements
and related notes included elsewhere in this Annual Report. These quarterly
results are not necessarily indicative of our results of operations to be
expected for any future period.

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                                                                                             Three Months Ended
                             Jan. 31, 2020      Oct. 31, 2019      Jul. 31, 2019      Apr. 30, 2019      Jan. 31, 2019      Oct. 31, 2018      Jul. 31, 2018      Apr. 30, 2018

Revenue
Subscription                $       71,067     $       64,355     $       58,315     $       50,321     $       46,482     $       41,520     $       37,470     $       32,057
Professional services                7,452              7,170              6,329              5,873              5,669              5,348              4,914              4,262
Total revenue                       78,519             71,525             64,644             56,194             52,151             46,868             42,384             36,319
Cost of revenue
Subscription(1)                      9,657              8,867              7,982              6,201              5,600              4,873              4,588              4,236
Professional services(1)             5,995              5,231              4,683              4,284              4,067              3,831              3,567              3,087
Total cost of revenue               15,652             14,098             12,665             10,485              9,667              8,704              8,155              7,323
Gross profit                        62,867             57,427             51,979             45,709             42,484             38,164             34,229             28,996
Operating expenses
Research and development(1)         27,973             25,049             22,210             20,238             15,986             15,599             14,412             12,844
Sales and marketing(1)              50,491             50,896             39,260             35,413             29,344             30,084             24,255             22,384
General and
administrative(1)                   14,499             13,330             11,457             10,939              9,839              8,888              8,524              6,798
Total operating expenses            92,963             89,275             72,927             66,590             55,169             54,571             47,191             42,026
Loss from operations               (30,096 )          (31,848 )          (20,948 )          (20,881 )          (12,685 )          (16,407 )          (12,962 )          (13,030 )
Interest income                      2,337              2,810              2,114              1,149              1,216              1,016                908                168
 Other income (expense),
net                                   (219 )              187               (319 )             (112 )              (33 )             (156 )             (159 )           (1,468 )
Net loss before income tax
provision (benefit)                (27,978 )          (28,851 )          (19,153 )          (19,844 )          (11,502 )          (15,547 )          (12,213 )          (14,330 )
Income tax provision
(benefit)                              182                  5                (39 )              (35 )              183                 22                 88                  -
Net loss                    $      (28,160 )   $      (28,856 )   $      (19,114 )   $      (19,809 )   $      (11,685 )   $      (15,569 )   $      (12,301 )   $      (14,330 )
Net loss per share, basic
and diluted                 $        (0.24 )   $        (0.25 )   $        (0.17 )   $        (0.19 )   $        (0.11 )   $        (0.15 )   $        (0.12 )   $        (0.68 )

(1) Amounts include share-based compensation expense as follows:




                                                                     Three Months Ended
                         Jan. 31,      Oct. 31,      Jul. 31,      Apr. 30,      Jan. 31,      Oct. 31,      Jul. 31,      Apr. 30,
                           2020          2019          2019          2019          2019          2018          2018          2018

Cost of subscription
revenue                 $     435     $     366     $     356     $     235     $     132     $      96     $      84     $      34
Cost of professional
services revenue              401           343           298           217           120           149           150            47
Research and
development                 4,737         3,934         3,317         2,272         1,278         2,552         1,378           665

Sales and marketing 4,036 3,516 3,276 2,108


        1,306         1,973         1,370           514
General and
administrative              2,243         2,170         1,839         1,464         1,083         1,274         1,116           582
Total share-based
compensation expense    $  11,852     $  10,329     $   9,086     $   6,296     $   3,919     $   6,044     $   4,098     $   1,842



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All values from the statement of operations, expressed as percentage of total revenue were as follows:


                                                                                             Three Months Ended
                         Jan. 31, 2020     Oct. 31, 2019     Jul. 31, 2019     Apr. 30, 2019     Jan. 31, 2019     Oct. 31, 2018     Jul. 31, 2018     Apr. 30, 2018

Revenue
Subscription                  91  %             90  %             90  %             90  %             89  %             89  %             88  %             88  %
Professional services          9                10                10                10                11                11                12                12
Total revenue                100               100               100               100               100               100               100               100
Cost of revenue
Subscription                  12                12                12                11                11                10                11                12
Professional services          8                 7                 7                 8                 8                 8                 8            

8


Total cost of revenue         20                20                20                19                19                19                19                20
Gross profit                  80                80                80                81                81                81                81                80
Operating expenses
Research and
development                   36                35                34                36                31                33                34            

35


Sales and marketing           64                71                61                63                56                64                57                62
General and
administrative                18                19                18                19                19                19                20                19
Total operating
expenses                     118               125               113               119               106               116               111               116
Loss from operations         (38 )             (45 )             (32 )             (37 )             (24 )             (35 )             (31 )             (36 )
Interest income                3                 4                 3                 2                 2                 2                 2                 -
 Other income
(expense), net                 -                 -                 -                 -                 -                 -                 -                (4 )
Net loss before income
tax provision (benefit)      (36 )             (40 )             (30 )     

       (35 )             (22 )             (33 )             (29 )             (39 )
Income tax provision
(benefit)                      -                 -                 -                 -                 -                 -                 -                 -
Net loss                     (36 )%            (40 )%            (30 )%            (35 )%            (22 )%            (33 )%            (29 )%            (39 )%


Quarterly revenue trends
Our quarterly revenue increased sequentially in each of the periods presented
due primarily to expansion within existing customers, increases in the number of
new customers, and sales of new offerings.
We believe that our professional services business is subject to negative
seasonal trends during the holiday period of our fourth fiscal quarter due to
the fewer number of business days during this period. The growth in our business
has offset this seasonal trend to date, but its impact may be more pronounced in
future periods.
Quarterly cost of revenue and gross margin trends
Our quarterly gross margin has remained relatively consistent, varying between
80% and 81%, as we have invested in our own co-location data centers, which have
generated economies of scale, partially offset by a proportional increase in
lower-margin professional services revenue. As we continue to migrate more of
our infrastructure to cloud-based hosting providers, we expect our gross margin
to decline.
Quarterly operating expense trends
Total operating expenses generally increased for the fiscal quarters presented
primarily due to the addition of personnel, related overhead, and investments in
hardware and software in connection with the expansion of our business.

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Our sales and marketing expenses as a percentage of total revenue generated in
the three months ended October 31 of each year increased due to our ENGAGE
customer conference. We intend to continue to host ENGAGE annually during our
third fiscal quarter.
Our general and administrative expenses as a percentage of total revenue have
increased since the quarter ended January 31, 2018 in preparation for, and as a
result of, operating as a public company. We expect these expenses to increase
in absolute dollars as our business grows, and to gradually decrease over the
long-term as a percentage of total revenue due to economies of scale.
Non-GAAP Financial Measures
In addition to our results determined in accordance with generally accepted
accounting principles in the United States ("GAAP"), we believe the
following non-GAAP financial measures are useful in evaluating our operating
performance. We use the below referenced non-GAAP financial measures,
collectively, to evaluate our ongoing operations and for internal planning and
forecasting purposes. We believe that non-GAAP financial measures, when taken
collectively, may be helpful to investors because they provide consistency and
comparability with past financial performance, and assist in comparisons with
other companies, some of which use similar non-GAAP financial measures to
supplement their GAAP results. The non-GAAP financial measures are presented for
supplemental informational purposes only, and should not be considered a
substitute for financial measures presented in accordance with GAAP, and may be
different from similarly-titled non-GAAP measures used by other companies. A
reconciliation is provided below for each non-GAAP financial measure to the most
directly comparable financial measure stated in accordance with GAAP. Investors
are encouraged to review the related GAAP financial measures and the
reconciliation of these non-GAAP financial measures to their most directly
comparable GAAP financial measures.
Limitations of non-GAAP financial measures
Our non-GAAP financial measures have limitations as analytical tools and you
should not consider them in isolation or as a substitute for an analysis of our
results under GAAP. There are a number of limitations related to the use of
these non-GAAP financial measures versus their nearest GAAP equivalents. First,
free cash flow and calculated billings are not substitutes for net cash used in
operating activities and total revenue, respectively. Similarly, non-GAAP gross
profit and non-GAAP operating loss are not substitutes for gross profit and
operating loss, respectively. Second, other companies may calculate similar
non-GAAP financial measures differently or may use other measures as tools for
comparison. Additionally, the utility of free cash flow as a measure of our
financial performance and liquidity is further limited as it does not represent
the total increase or decrease in our cash balance for a given period.
Furthermore, as calculated billings are affected by a combination of factors,
including the timing of sales, the mix of monthly and annual subscriptions sold
and the relative duration of subscriptions sold, and each of these elements has
unique characteristics in the relationship between calculated billings and total
revenue, our calculated billings activity is not closely correlated to revenue
except over longer periods of time.

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Non-GAAP gross profit and non-GAAP gross margin
We define non-GAAP gross profit as gross profit adjusted for share-based
compensation expense and amortization of acquisition-related intangible assets.
Non-GAAP gross margin represents non-GAAP gross profit as a percentage of total
revenue.
                                                          Year Ended January 31,
                                                    2020           2019           2018
                                                          (dollars in thousands)
Gross profit                                    $  217,982     $  143,873     $   89,571
Add:
Share-based compensation expense(1)(2)               2,651            812   

163


Amortization of acquisition-related intangible
assets                                               1,831            456             38
One-time costs of acquisition                           69              -              -
Non-GAAP gross profit                           $  222,533     $  145,141     $   89,772

Gross margin                                            80 %           81 %           81 %
Non-GAAP gross margin                                   82 %           82 %           81 %

(1) Share-based compensation expense for the year ended January 31, 2018 includes

share-based compensation expense related to the 2017 Tender Offer.

(2) Includes amortization related to share-based compensation expense that was

capitalized in internal-use software in previous periods.





Non-GAAP operating loss and non-GAAP operating margin
We define non-GAAP operating loss as loss from operations adjusted for
share-based compensation expense, amortization of acquisition-related intangible
assets, and one-time costs of acquisition. Non-GAAP operating margin represents
non-GAAP operating loss as a percentage of total revenue.
                                                           Year Ended January 31,
                                                    2020            2019            2018
                                                           (dollars in thousands)
Loss from operations                            $ (103,774 )    $  (55,084 )    $  (48,978 )
Add:
Share-based compensation expense(1)(2)              37,564          15,903  

18,464


Amortization of acquisition-related intangible
assets                                               2,734             480              40
One-time acquisition costs                             686             196             195
Non-GAAP operating loss                         $  (62,790 )    $  (38,505 )    $  (30,279 )

Operating margin                                       (38 )%          (31 )%          (44 )%
Non-GAAP operating margin                              (23 )%          (22 )%          (21 )%

(1) Share-based compensation expense for the year ended January 31, 2018 includes

share-based compensation expense related to the 2017 Tender Offer.

(2) Includes amortization related to share-based compensation expense that was


    capitalized in internal-use software in previous periods.





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Non-GAAP net loss
We define non-GAAP net loss as net loss adjusted for share-based compensation
expense, amortization of acquisition-related intangible assets, one-time costs
of acquisition, and remeasurement of convertible preferred stock warrant
liability.
                                                          Year Ended January 31,
                                                    2020           2019           2018
                                                              (in thousands)
Net loss                                        $  (95,940 )   $  (53,885 )   $  (49,106 )
Add:
Share-based compensation expense(1)(2)              37,564         15,903   

18,464


Amortization of acquisition-related intangible
assets                                               2,734            480   

40


One-time acquisition costs                             686            196   

195


Remeasurement of convertible preferred stock
warrant liability                                        -          1,326            795
Non-GAAP net loss                               $  (54,956 )   $  (35,980 )   $  (29,612 )

(1) Share-based compensation expense for the year ended January 31, 2018 includes

share-based compensation expense related to the 2017 Tender Offer.

(2) Includes amortization related to share-based compensation expense that was

capitalized in internal-use software in previous periods.





Free cash flow
We define free cash flow as net cash provided by (used in) operating activities
less cash used for purchases of property and equipment, capitalized internal-use
software, and payments on finance lease obligations. We believe free cash flow
facilitates period-to-period comparisons of liquidity. We consider free cash
flow to be a key performance metric because it measures the amount of cash we
generate from our operations after our capital expenditures, payments on finance
lease obligations and changes in working capital. We use free cash flow in
conjunction with traditional GAAP measures as part of our overall assessment of
our liquidity, including the preparation of our annual operating budget and
quarterly forecasts, to evaluate the effectiveness of our business strategies,
and to communicate with our board of directors concerning our liquidity.
                                                Year Ended January 31,
                                           2020          2019          2018
                                                    (in thousands)
Net cash used in operating activities   $ (10,870 )   $  (2,855 )   $ (13,581 )
Less:
Purchases of property and equipment        (5,153 )      (5,767 )      (6,006 )
Capitalized internal-use software          (6,699 )      (3,017 )      (3,350 )
Payments on principal of finance leases    (4,167 )      (3,253 )      (2,326 )
Free cash flow                          $ (26,889 )   $ (14,892 )   $ (25,263 )



Calculated billings
We define calculated billings as total revenue plus the change in deferred
revenue in the period. Because we recognize subscription revenue ratably over
the subscription term, calculated billings can be used to measure our

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subscription sales activity for a particular period, to compare subscription
sales activity across particular periods, and as an indicator of future
subscription revenue.
Because we generate most of our revenue from customers who are invoiced on an
annual basis, and because we have a wide range of customers, from those who pay
us less than $200 per year to those who pay us more than $3.0 million per year,
we experience seasonality and variability that is tied to typical enterprise
buying patterns and contract renewal dates of our largest customers. We expect
that our billings trends will continue to vary in future periods based on the
timing and size of new and renewal bookings.
                                              Year Ended January 31,
                                          2020         2019         2018
                                                  (in thousands)
Total revenue                          $ 270,882    $ 177,722    $ 111,253
Add:

Deferred revenue (end of period) 158,809 96,133 57,281 Less: Deferred revenue (beginning of period) 96,133 57,281 32,712 Calculated billings

$ 333,558    $ 216,574    $ 135,822



Non-GAAP weighted average shares outstanding
We use non-GAAP weighted average shares outstanding in calculating non-GAAP
earnings per share. Our number of non-GAAP weighted average shares outstanding
is calculated after assuming conversion of all outstanding preferred stock into
shares of common stock either at the beginning of the fiscal period presented or
when issued, if later.
                                                        Year Ended January 31,
                                                   2020          2019          2018
                                                            (in thousands)
GAAP weighted-average shares outstanding used
in computing net loss per share attributable to
common shareholders, basic and diluted            112,991        83,141     

18,273


Add: common shares that would have resulted
from conversion of convertible preferred stock
at the beginning of the period, or when granted
(if later), on a weighted average basis                 -        16,698     

66,595


Non-GAAP weighted-average shares outstanding
used in computing net loss per share
attributable to common shareholders, basic and
diluted                                           112,991        99,839        84,868



Liquidity and Capital Resources
As of January 31, 2020, our principal sources of liquidity were cash and cash
equivalents totaling $515.9 million, which were held for working capital
purposes. Our cash equivalents were comprised primarily of money market funds.
We have generated significant operating losses and negative cash flows from
operations as reflected in our accumulated deficit and consolidated statements
of cash flows. We expect to continue to incur operating losses and negative cash
flows from operations for the foreseeable future.
We have financed our operations primarily through payments received from
customers for subscriptions and professional services, net proceeds we received
through sales of equity securities, option exercises, and contributions from our
Employee Stock Purchase Plan ("ESPP"), finance leases, and interest income.

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We believe our existing cash, cash equivalents, and cash provided by sales of
our products and services will be sufficient to meet our working capital and
capital expenditure needs for at least the next 12 months. Our future capital
requirements will depend on many factors, including our subscription growth
rate, subscription renewal activity, billing frequency, the timing and extent of
spending to support development efforts, the expansion of sales and marketing
activities, the introduction of new and enhanced product offerings, and the
continuing market adoption of our product. We may, in the future, enter into
arrangements to acquire or invest in complementary businesses, services, and
technologies, including intellectual property rights. We may be required to seek
additional equity or debt financing. In the event that additional financing is
required from outside sources, we may not be able to raise it on terms
acceptable to us, or at all. If we are unable to raise additional capital or
generate cash flows necessary to expand our operations and invest in new
technologies, our ability to compete successfully could be reduced, and this
could harm our results of operations.
A significant majority of our customers pay in advance for annual subscriptions.
Therefore, a substantial source of our cash is from our deferred revenue, which
is included on our balance sheet as a liability. Deferred revenue consists
primarily of the unearned portion of billed fees for our subscriptions, which is
recognized as revenue in accordance with our revenue recognition policy. As of
January 31, 2020, we had deferred revenue of $158.8 million, of which $158.0
million was recorded as a current liability and was expected to be recognized as
revenue in the subsequent 12 months, provided all recognition criteria are met.
Cash flows
The following table summarizes our cash flows for the periods indicated:
                                                          Year Ended January 31,
                                                    2020           2019           2018

Net cash used in operating activities           $  (10,870 )   $   (2,855 )   $  (13,581 )
Net cash used in investing activities              (90,043 )      (13,784 )         (809 )
Net cash provided by financing activities          402,022        171,321   

51,436


Effects of changes in foreign currency exchange
rates on cash, cash equivalents, and restricted
cash                                                   (25 )          (36 )            -
Net increase in cash, cash equivalents, and
restricted cash                                 $  301,084     $  154,646     $   37,046


Operating activities
Our largest sources of operating cash are cash collections from our customers
for subscription and professional services. Our primary uses of cash from
operating activities are for employee-related expenditures and sales and
marketing expenses. Historically, we have generated negative cash flows from
operating activities during most fiscal years, and have supplemented working
capital requirements through net proceeds from the sale of equity securities.
During the year ended January 31, 2020, net cash used in operating activities
was $10.9 million, driven by our net loss of $95.9 million, adjusted for
non-cash charges of $78.8 million, and net cash inflows of $6.3 million provided
by changes in our operating assets and liabilities. Non-cash charges primarily
consisted of share-based compensation, amortization of deferred commissions,
depreciation of property and equipment, amortization of lease right-of-use
assets, and amortization of intangible assets. Fluctuations in operating assets
and liabilities included an increase in deferred revenue of $61.6 million, an
increase in deferred commissions of $39.0 million, an increase in accounts
receivable of $26.0 million, an increase in accounts payable and accrued
expenses of $21.4 million, an increase in operating lease right-of-use assets of
$12.2 million, an increase in operating lease liabilities of $5.6 million, an
increase in prepaid expenses and other current assets of $3.9 million, a
decrease in other long-term liabilities of $1.0 million, and an increase in
other long-term assets of $0.3 million.
During the year ended January 31, 2019, net cash used in operating activities
was $2.9 million, driven by our net loss of $53.9 million, adjusted for non-cash
charges of $35.7 million, and net cash inflows of $15.3 million provided by
changes in our operating assets and liabilities. Non-cash charges primarily
consisted of share-based

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compensation, amortization of deferred commissions, depreciation of property and
equipment, remeasurement of the convertible preferred stock warrant liability,
and amortization of intangible assets. Notable fluctuations in operating assets
and liabilities included an increase in deferred revenue of $38.9 million, an
increase in deferred commissions of $24.5 million, an increase in accounts
receivable of $15.3 million, an increase in accounts payable and accrued
expenses of $14.2 million, an increase in other long-term liabilities of $1.3
million, a decrease in prepaid expenses and other current assets of $0.5
million, and a decrease in other long-term assets of $0.2 million.
Investing activities
Net cash used in investing activities during the year ended January 31, 2020 of
$90.0 million consisted of purchases of short-term investments of $100.5
million, payments for business acquisition, net of cash acquired, of $26.7
million, spend on capitalized internal-use software development of $6.7 million,
purchases of property and equipment of $5.2 million, and a purchase of a
long-term investment of $1.0 million. This was offset by proceeds from maturity
of an investment of $50.0 million.
Net cash used in investing activities during the year ended January 31, 2019 of
$13.8 million consisted of purchases of property and equipment of $5.8 million,
payments for business acquisitions, net of cash acquired, of $5.0 million, and
capitalized internal-use software development costs of $3.0 million.
Financing activities
Net cash provided by financing activities during the year ended January 31, 2020
of $402.0 million was primarily due to $379.8 million in proceeds from the
follow-on offering, net of underwriters' discounts and commissions, executed
during the second quarter of this fiscal year and discussed further in Note 2 to
our consolidated financial statements. Additionally, we had $15.9 million in
proceeds from the exercise of stock options, and $11.3 million in proceeds from
our ESPP, which were partially offset by principal payments on finance leases of
$4.2 million, and payments of deferred offering costs of $0.8 million.
Net cash provided by financing activities during the year ended January 31, 2019
of $171.3 million was primarily due to $163.8 million in proceeds from the IPO,
net of underwriters' discounts and commissions, $7.1 million in proceeds from
our ESPP, and $6.6 million in proceeds from the exercise of stock options. These
proceeds were partially offset by principal payments on finance leases of $3.3
million, payments of deferred offering costs of $2.6 million, and taxes paid
related to net share settlement of restricted stock units of $0.4 million.
Obligations and Other Commitments
Our contractual obligations consist primarily of obligations under our operating
leases for office space, finance leases for our co-location data center-related
equipment, our commitment with a cloud-based hosting service provider, and
non-cancelable purchase commitments. The following table summarizes our
contractual obligations as of January 31, 2020:
                                                             Payments Due by Period:
                                Less than 1                                            More than 5
                                    year          1 to 3 years       3 to 5 years         years           Total

                                                                  (in thousands)
Operating lease obligations(1) $     13,345     $       24,055     $       21,914     $     12,961     $   72,275
Finance lease obligations             2,599              1,712                  -                -          4,311
Other obligations(2)                 15,128              6,565                  -                -         21,693

Total contractual obligations $ 31,072 $ 32,332 $ 21,914 $ 12,961 $ 98,279




(1) As of January 31, 2020, we had signed leases for additional office space
that had not yet commenced. Future non-cancelable lease payments associated with
these agreements totaled $42.3 million, payable over lease terms ranging from 7
to 9 years.
(2) Amounts include our commitment with a cloud-based hosting service provider
for $5.0 million within one year and $3.5 million between one to three years.


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Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope
and terms pursuant to which we agree to indemnify customers, vendors, lessors,
business partners, and other parties with respect to certain matters, including,
but not limited to, losses arising out of the breach of such agreements,
services to be provided by us, or from intellectual property infringement claims
made by third parties. In addition, we have entered into indemnification
agreements with our directors and certain officers and employees that will
require us, among other things, to indemnify them against certain liabilities
that may arise by reason of their status or service as directors, officers, or
employees. An indemnification claim has been made to the Company in a litigation
in which a former director and shareholder are parties.  At this time, the
Company cannot reasonably estimate the magnitude of its indemnification
obligation, if any. There are no other claims that we are aware of at this time
that could have a material effect on our balance sheets, statements of
operations and comprehensive loss, or statements of cash flows.
Off-Balance Sheet Arrangements
As of January 31, 2020, we did not have any relationships with organizations or
financial partnerships, such as structured finance or special purpose entities
that would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements which have been prepared in
accordance with GAAP. The preparation of these consolidated financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets and liabilities and related disclosure of contingent assets and
liabilities, revenue and expenses. Generally, we base our estimates on
historical experience and on various other assumptions in accordance with GAAP
that we believe to be reasonable under the circumstances. Actual results may
differ from these estimates. We believe that the accounting policies discussed
below are critical to understanding our historical and future performance, as
these policies relate to the more significant areas involving management's
judgments and estimates.
Revenue recognition
We derive our revenue primarily from subscription services and professional
services. Revenue is recognized when control of these services is transferred to
our customers, in an amount that reflects the consideration we expect to be
entitled to in exchange for those services, net of any sales taxes.
We determine revenue recognition through 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, we satisfy a performance obligation.




Subscription revenue
Subscription revenue primarily consists of fees from customers for access to our
cloud-based platform. Our subscription revenue is recognized on a ratable basis
over the subscription contract term, beginning on the date the access to our
platform is provided, as no implementation work is required, if consideration we
are entitled to receive is considered probable of collection. Subscription
contracts generally have terms of one year or one month, are billed in advance,
and are non-cancelable. The subscription arrangements do not allow the customer
the contractual right to take possession of the platform; as such, the
arrangements are considered to be service contracts.

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Certain of our subscription contracts contain performance guarantees related to
service continuity. To date, refunds related to such guarantees have been
immaterial in all periods presented.
Professional services revenue
Professional services revenue primarily includes revenue recognized from fees
for consulting and training services. Our consulting services consist of
platform configuration and use case optimization, and are primarily invoiced on
a time and materials basis, monthly in arrears. Services revenue is recognized
over time, as service hours are delivered. Smaller consulting engagements are on
occasion provided for a fixed fee. These smaller consulting arrangements are
typically of short duration (less than three months). In these cases, revenue is
recognized over time, based on the proportion of hours of work performed,
compared to the total hours expected to complete the engagement. Configuration
and use case optimization services do not result in significant customization or
modification of the software platform or user interface.
Training services are billed in advance, on a fixed-fee basis, and revenue is
recognized after the training program is delivered, or after the customer's
right to receive training services expires.
Associated out-of-pocket travel expenses related to the delivery of professional
services are typically reimbursed by the customer. Out-of-pocket expense
reimbursements are recognized as revenue at the point in time, or as, the
distinct performance obligation to which they relate is delivered. Out-of-pocket
expenses are recognized as cost of professional services revenue as incurred.
On occasion, we sell our subscriptions to third-party resellers. The price at
which we sell to the reseller is typically discounted, as compared to the price
at which we would sell to an end customer, in order to enable the reseller to
realize a margin on the eventual sale to the end customer. As we retain a fixed
amount of the contract from the reseller, and do not have visibility into the
pricing provided by the reseller to the end customer, the revenue is recorded
net of any reseller margin.
Contracts with multiple performance obligations
Some of our contracts with customers contain multiple performance obligations.
We account for individual performance obligations separately, as they have been
determined to be distinct, i.e., the services are separately identifiable from
other items in the arrangement and the customer can benefit from them on their
own or with other resources that are readily available to the customer. The
transaction price is allocated to the distinct performance obligations on a
relative stand-alone selling price basis. Stand-alone selling prices are
determined based on the prices at which we separately sell subscription
services, consulting services and training, and based on our overall pricing
objectives, taking into consideration market conditions, value of our contracts,
the types of offerings sold, customer demographics, and other factors.
Deferred revenue
Deferred revenue is recorded for subscription services contracts upon
establishment of unconditional right to payment under a non-cancelable contract
before transferring the related services to the customer. Deferred revenue for
such services is amortized into revenue over time, as those subscription
services are delivered.
Similarly, we record deferred revenue for fixed-fee professional services upon
establishment of an unconditional right to payment under a non-cancelable
contract. Deferred revenue for training services is recognized as revenue upon
delivery of training services or upon expiration of customer's right to receive
such services. Deferred revenue for consulting services is recognized as hours
of service are delivered to the customer.
Deferred commissions
The majority of sales commissions earned by our sales force are considered
incremental and recoverable costs of obtaining a contract with a customer. Sales
commission are paid on initial contracts and on any upsell contracts with a
customer. No sales commissions are paid on customer renewals. Sales commissions
are deferred and then amortized on a straight-line basis over a period of
benefit that we have determined to be three years. We determined the period of
benefit by taking into consideration our customer contracts, expected customer
life, the expected life of

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our technology and other factors. Amortization expense is included in sales and
marketing expenses in the accompanying statements of operations.
Internal-use software development costs
The Company capitalizes certain qualifying costs incurred during the application
development stage in connection with the development of internal-use software.
Costs related to preliminary project activities and post-implementation
activities are expensed in research and development ("R&D") as incurred. R&D
expenses consist primarily of employee-related costs, hardware- and
software-related costs, costs of outside services used to supplement our
internal staff, and overhead allocations.
Internal-use software costs of $8.1 million were capitalized in the year ended
January 31, 2020, of which $5.8 million related to costs incurred during the
application development stage of software development for the Company's platform
to which subscriptions are sold. Internal-use software costs of $3.5 million
were capitalized in the year ended January 31, 2019, of which $1.5 million
related to costs incurred during the application development stage of software
development for the Company's platform to which subscriptions are sold.
Capitalized software development costs are included within property and
equipment, net on the balance sheets, and are amortized over the estimated
useful life of the software, which is typically three years. The related
amortization expense is recognized in the consolidated statements of
comprehensive loss within the function that receives the benefit of the
developed software. The Company evaluates the useful lives of these assets and
tests for impairment whenever events or changes in circumstances occur that
could impact the recoverability of these assets.
Leases
We determine if an arrangement is a lease at inception, and leases are
classified at commencement as either operating or finance leases.
Right-of-use ("ROU") assets and lease liabilities are recognized at commencement
date based on the present value of the future minimum lease payments over the
lease term. ROU assets also include any lease payments made. Operating lease ROU
assets are presented separately in long-term assets and finance lease ROU assets
are included in property and equipment, net on our consolidated balance sheets.
As our operating leases do not provide an implicit rate, we use our incremental
borrowing rate based on information available at the commencement date in
determining the present value of future payments. This rate is an estimate of
the collateralized borrowing rate we would incur on our future lease payments
over a similar term based on the information available at commencement date. Our
lease terms may include options to extend or terminate the lease when it is
reasonably certain that we will exercise that option. At January 31, 2020, we
did not include any options to extend leases in our lease terms as we were not
reasonably certain to exercise them. The Company's lease agreements do not
contain residual value guarantees or covenants.
We utilize certain practical expedients and policy elections available under the
lease accounting standard. Leases with a term of one year or less are not
recognized on our consolidated balance sheets; we recognize lease expense for
these leases on a straight-line basis over the lease term. Additionally, we have
elected to include non-lease components with lease components for contracts
containing real estate leases for the purpose of calculating lease right-of-use
assets and liabilities, to the extent that they are fixed. Non-lease components
that are not fixed are expensed as incurred as variable lease payments. Our real
estate operating leases typically include non-lease components such as
common-area maintenance costs.
ROU assets are subject to evaluation for impairment or disposal on a basis
consistent with other long-lived assets.
Business combinations
When we acquire a business, the purchase price is allocated to the net tangible
and identifiable intangible assets acquired based on their estimated fair
values. Any residual purchase price is recorded as goodwill. The allocation of
the purchase price requires management to make significant estimates in
determining the fair values of assets acquired and liabilities assumed,
especially with respect to intangible assets. These estimates can include, but
are not

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limited to, the cash flows that an asset is expected to generate in the future,
the appropriate weighted-average cost of capital and the cost savings expected
to be derived from acquiring an asset. These estimates are inherently uncertain
and unpredictable. During the measurement period, which may be up to one year
from the acquisition date, adjustments to the fair value of these tangible and
intangible assets acquired and liabilities assumed may be recorded, with the
corresponding offset to goodwill. Upon the conclusion of the measurement period
or final determination of the fair value of assets acquired or liabilities
assumed, whichever comes first, any subsequent adjustments are recorded to our
consolidated statements of operations.
Goodwill on our consolidated balance sheets totaled $16.5 million and $5.5
million at January 31, 2020 and 2019, respectively. Goodwill is tested for
impairment annually on September 1, or more frequently if events or changes in
circumstances indicate that impairment may exist. Based on the annual
assessment, no indicator of impairment was noted and therefore no goodwill
impairments were recorded during the years ended January 31, 2020, 2019, or
2018.
Share-based compensation
The Company measures and recognizes compensation expense for all share-based
awards granted to employees and directors, based on the estimated fair value of
the award on the date of grant. Expense is recognized on a straight-line basis
over the vesting period of the award based on the estimated portion of the award
that is expected to vest.
We use the Black-Scholes option pricing model to measure the fair value of stock
option awards when they are granted. We make several estimates in determining
share-based compensation and these estimates generally require significant
analysis and judgment to develop. These assumptions and estimates are as
follows:
Fair value of common stock. As our stock was not publicly traded prior to our
IPO, we were required to estimate the fair value of common stock, as discussed
in "Valuation of Common Stock" below.
Expected term. The expected term of options represents the period that
share-based awards are expected to be outstanding. We estimate the expected term
using the simplified method due to the lack of historical exercise activity for
our company.
Risk-free interest rate. The risk-free interest rate is based on the implied
yield available at the time of the option grant in the U.S. Treasury securities
at maturity with a term equivalent to the expected term of the option.
Expected volatility. Expected volatility is based on an average volatility of
stock prices for a group of publicly traded peer companies. In considering peer
companies, we assess characteristics such as industry, state of development,
size and financial leverage.
Dividend yield. We have never declared or paid any cash dividends and do not
plan to pay cash dividends in the foreseeable future, and, therefore, use an
expected dividend yield of zero.
If any assumptions used in the Black-Scholes option pricing model change
significantly, share-based compensation for future awards may differ materially
compared with the awards granted previously.
In addition to the assumptions used in the Black-Scholes option pricing model,
we must also estimate a forfeiture rate to calculate the share-based
compensation expense for awards. Our forfeiture rate is derived from historical
employee termination behavior. If the actual number of forfeitures differs from
these estimates, additional adjustments to compensation expense will be
required.
Valuation of common stock
Given the absence of an active market for our common stock prior to our IPO, our
board of directors was required to estimate the fair value of our common stock
at the time of each option grant based upon several factors, including its
consideration of input from management and contemporaneous third-party
valuations.

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The exercise price for all stock options granted was at the estimated fair value
of the underlying common stock, as estimated on the date of grant by our board
of directors in accordance with the guidelines outlined in the American
Institute of Certified Public Accountants, Valuation of Privately-Held-Company
Equity Securities Issued as Compensation. Each fair value estimate was based on
a variety of factors, which included the following:
•contemporaneous valuations performed by an unrelated third-party valuation
firm;
•the prices, rights, preferences and privileges of our preferred stock relative
to those of our common stock;
•the lack of marketability of our common stock;
•our actual operating and financial performance;
•current business conditions and projections;
•hiring of key personnel and the experience of our management;
•our history and the timing of the introduction of new applications and
capabilities;
•our stage of development;
•the likelihood of achieving a liquidity event, such as an initial public
offering or a merger or acquisition of our business given prevailing market
conditions;
•the market performance of comparable publicly traded companies; and
•U.S. and global capital market conditions.
In valuing our common stock, our board of directors determined the equity value
of our business using valuation methods they deemed appropriate under the
circumstances applicable at the valuation date.
One method, the market approach, estimates value based on a comparison of our
company to comparable public companies in a similar line of business. To
determine our peer group of companies, we considered public enterprise
cloud-based application providers and selected those that are similar to us in
size, stage of life cycle, and financial leverage. From the comparable
companies, a representative market value multiple is determined which is applied
to our operating results to estimate the value of our company. The market value
multiple was determined based on consideration of the last 12-month revenue and
the implied multiples for each of the comparable companies.
Another method, the prior sale of our stock approach, estimates value by
considering any prior arm's length sales of our equity. When considering prior
sales of our equity, the valuation considers the size of the equity sale, the
relationship of the parties involved in the transaction, the timing of the
equity sale, and our financial condition at the time of the sale.
Once an equity value was determined, our board of directors used one of the
following methods to allocate the equity value to each of our classes of stock:
(1) the option pricing method, or OPM; or (2) a probability weighted expected
return method, or PWERM.
The OPM treats common stock and preferred stock as call options on a business,
with exercise prices based on the liquidation preference of the preferred stock.
Therefore, the common stock only has value if the funds available for
distribution to the holders of common stock exceed the value of the liquidation
preference of the preferred stock at the time of a liquidity event, such as a
merger, sale, or initial public offering, assuming the business has funds
available to make a liquidation preference meaningful and collectible by
shareholders. The common stock is modeled as a call option with a claim on the
business at an exercise price equal to the remaining value immediately after the
preferred stock is liquidated. The OPM uses the Black-Scholes option pricing
model to price the call option.

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The estimated value of the common stock derived from the OPM is then discounted
by a non-marketability factor due to the fact that shareholders of private
companies do not have access to trading markets similar to those enjoyed by
shareholders of public companies, which impacts liquidity.
The PWERM employs various market approach calculations depending upon the
likelihood of various liquidation scenarios. For each of the various scenarios,
an equity value is estimated and the rights and preferences for each shareholder
class are considered to allocate the equity value to common shares. The common
stock value is then multiplied by a discount factor reflecting the calculated
discount rate and the timing of the event. Lastly, the common stock value is
multiplied by an estimated probability for each scenario. The probability and
timing of each scenario were based on discussions between our board of directors
and our management team. Under the PWERM, the value of our common stock is based
upon possible future exit events for our company.
Subsequent to the closing of the IPO on May 1, 2018, the fair value of our
common stock is represented by the price quoted on the New York Stock Exchange.
Recent accounting pronouncements
See the sections titled "Summary of Significant Accounting Policies-Recently
adopted accounting pronouncements" and "Recent accounting pronouncements not yet
adopted" in Note 2 to our Consolidated Financial Statements for more
information.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest rate risk
We had cash and cash equivalents totaling $515.9 million as of January 31, 2020,
of which $303.9 million was invested in money market funds. We had cash and cash
equivalents totaling $213.1 million as of January 31, 2019, of which $211.1
million was invested in money market funds. Our cash and cash equivalents are
held for working capital purposes. We do not enter into investments for trading
or speculative purposes.
Our cash equivalents and our investment portfolio are subject to market risk due
to changes in interest rates. Fixed rate securities may have their market value
adversely affected due to a rise in interest rates. Due in part to these
factors, our future investment income may fall short of our expectations due to
changes in interest rates or we may suffer losses in principal if we are forced
to sell securities that decline in market value due to changes in interest
rates. However, because we classify our short-term investments as "available for
sale," no gains or losses are recognized due to changes in interest rates unless
such securities are sold prior to maturity or declines in fair value are
determined to be other-than-temporary.
A hypothetical 10% relative change in interest rates would not have had a
material impact on the value of our cash equivalents and short-term investments
as of January 31, 2020, and 2019, respectively.
Foreign currency exchange risk
Due to our international operations, although our sales contracts are primarily
denominated in U.S. dollars, we have foreign currency risks related to revenue
denominated in other currencies, such as the British Pound Sterling, Euro,
Canadian dollar, and Australian dollar, as well as expenses denominated in the
British Pound Sterling and Australian dollar. Changes in the relative value of
the U.S. dollar to other currencies may negatively affect revenue and other
operating results as expressed in U.S. dollars. We have not engaged in the
hedging of foreign currency transactions to date. We do not believe that an
immediate 10% increase or decrease in the relative value of the U.S. dollar to
other currencies would have a material effect on our operating results.

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Item 8. Financial Statements and Supplementary Data



                 Index to the Consolidated Financial Statements
  Report of Independent Registered Public Accounting Firm                      71
  Consolidated Statements of Operations                                        75
  Consolidated Statements of Comprehensive Loss                                76
  Consolidated Balance Sheets                                                  77

Consolidated Statements of Change in Convertible Preferred Stock and Shareholders' Equity (Deficit)


   78
  Consolidated Statements of Cash Flows                                        79
  Note 1. Overview and Basis of Presentation                                   81
  Note 2. Summary of Significant Accounting Policies                           82
  Note 3. Revenue from Contracts with Customers                                89
  Note 4. Deferred Commissions                                                 90
  Note 5. Net Loss Per Share                                                   90
  Note 6. Fair Value Measurements                                              90
  Note 7. Property and Equipment, Net                                          91
  Note 8. Business Combinations                                                92
  Note 9. Goodwill and Net Intangible Assets                                   93
  Note 10. Share-Based Compensation                                            94
  Note 11. Income Taxes                                                        98
  Note 12. Leases                                                             101
  Note 13. Commitments and Contingencies                                      103
  Note 14. 401(k) and Pension Plans                                           104
  Note 15. Related Party Transactions                                         104
  Note 16. Geographic Information                                             104
  Note 17. Subsequent Events                                                  105



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            Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Smartsheet Inc.
Opinions on the Financial Statements and Internal Control over Financial
Reporting
We have audited the accompanying consolidated balance sheets of Smartsheet Inc.
and its subsidiaries (the "Company") as of January 31, 2020 and 2019, and the
related consolidated statements of operations, of comprehensive loss, of change
in convertible preferred stock and shareholders' equity (deficit) and of cash
flows for each of the three years in the period ended January 31, 2020,
including the related notes (collectively referred to as the "consolidated
financial statements"). We also have audited the Company's internal control over
financial reporting as of January 31, 2020, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
January 31, 2020 and 2019, and the results of its operations and its cash flows
for each of the three years in the period ended January 31, 2020 in conformity
with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company did not maintain, in all material respects,
effective internal control over financial reporting as of January 31, 2020,
based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO because material weaknesses in internal control over
financial reporting existed as of that date related to (i) an ineffective
control environment as the Company had an insufficient complement of resources
with an appropriate level of controls knowledge and expertise commensurate with
the Company's financial reporting requirements which contributed to additional
material weaknesses in that the Company, (ii) did not design and maintain
effective information technology general controls for certain information
systems relevant to the preparation of the financial statements, and (iii) did
not design and maintain effective controls related to the completeness, accuracy
and occurrence of order entry and pricing during the billing and revenue
processes.
A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected on a timely basis. The material
weaknesses referred to above are described in Management's Annual Report on
Internal Control over Financial Reporting appearing under Item 9A. We considered
these material weaknesses in determining the nature, timing, and extent of audit
tests applied in our audit of the 2020 consolidated financial statements, and
our opinion regarding the effectiveness of the Company's internal control over
financial reporting does not affect our opinion on those consolidated financial
statements.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company
changed the manner in which it accounts for leases in fiscal year 2020.
Basis for Opinions
The Company's management is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in management's report referred to above. Our responsibility
is to express opinions on the Company's consolidated financial statements and on
the Company's internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material
respects.

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Our audits of the consolidated financial statements included performing
procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the
current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that (i)
relate to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Acquisition of Artefact Product Group LLC - Fair value of finite-lived software
technology and customer relationships intangible assets
As described in Note 8 to the consolidated financial statements, the Company
completed the acquisition of Artefact Product Group, LLC on May 1, 2019 for a
total purchase price of $27.8 million, of which $8.0 million in finite-lived
software technology intangible assets and $8.0 million in finite-lived customer
relationships intangible assets were recorded. Management valued the
finite-lived software technology using the relief-from-royalty method under the
income approach. This method reflects the present value of the projected cash
flows that are expected to be generated from the licensing of the asset to third
parties. Management applied judgment in estimating the fair value of the
finite-lived software technology which involved the use of significant
assumptions with respect to the base year revenue and the royalty rate.
Management valued the finite-lived customer relationships using the multi-period
excess-earnings method. This method involves forecasting the net earnings to be
generated by the asset, reducing them by appropriate returns on contributory
assets, and then discounting the resulting net returns to a present value using
an appropriate discount rate. Management applied judgment in estimating the fair
value of the finite-lived customer relationships which involved the use of the
significant assumption of the royalty rate impacting the returns on contributory
assets for software technology.

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The principal considerations for our determination that performing procedures
relating to the fair value of finite-lived software technology and customer
relationships intangible assets from the acquisition of Artefact Product Group,
LLC is a critical audit matter are (i) there was a high degree of auditor
judgment and subjectivity in applying procedures relating to the fair value
measurements of finite-lived software technology and customer relationships
acquired due to the significant amount of judgment by management when developing
the estimates, (ii) significant audit effort was required in evaluating the
significant assumptions relating to the estimates, such as base year revenue and
the royalty rate as it relates to the estimation of fair value of finite-lived
software technology and the royalty rate impacting the returns on contributory
assets for software technology as it relates to the estimation of fair value of
finite-lived customer relationships, and (iii) the audit effort involved the use
of professionals with specialized skill and knowledge to assist in performing
these procedures and evaluating the audit evidence obtained from these
procedures.
Addressing the matter involved performing procedures and evaluating audit
evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing the effectiveness of
controls relating to the acquisition accounting, including controls over
management's valuation of the finite-lived software technology and customer
relationships and controls over the development of the assumptions related to
base year revenue, the royalty rate, and the royalty rate impacting the returns
on contributory assets for software technology. These procedures also included,
among others, (i) reading the purchase agreement, and (ii) testing management's
process for estimating the fair value of finite-lived software technology and
customer relationships. Testing management's process included evaluating the
appropriateness of the valuation methods, testing completeness and accuracy of
the data used in the valuation methods, and evaluating the reasonableness of
significant assumptions, including base year revenue, the royalty rate, and the
royalty rate impacting the returns on contributory assets for software
technology. Evaluating the reasonableness of base year revenue involved
considering the past performance of the acquired business, as well as economic
and industry forecasts. The royalty rates were evaluated by obtaining evidence
to support the reasonableness of the assumption and evaluating whether it was
consistent with industry and peer data. Professionals with specialized skill and
knowledge were used to assist in the evaluation of the Company's valuation
methods and certain significant assumptions, including the royalty rates.
Consolidated Financial Statements - Impact of Control Environment and
Information Technology General Controls
The completeness and accuracy of the consolidated financial statements,
including the financial condition, results of operations and cash flows, is
dependent on, in part, the Company's ability to (i) design and maintain an
effective control environment, including maintaining a sufficient complement of
resources with an appropriate level of controls knowledge and expertise
commensurate with financial reporting requirements, and (ii) design and maintain
effective information technology general controls for certain information
systems relevant to the preparation of the financial statements, including user
access controls, program change management controls and computer operations
controls.
The principal considerations for our determination that performing procedures
relating to the consolidated financial statements - impact of control
environment and information technology general controls is a critical audit
matter are there was a high degree of auditor judgment, subjectivity and effort
in performing procedures and evaluating audit evidence related to the
consolidated financial statements and information systems. As described above in
the "Opinions on the Financial Statements and Internal Control over Financial
Reporting" section, material weaknesses related to (i) the control environment,
and (ii) information technology general controls existed as of January 31, 2020.
Addressing the matter involved performing procedures and evaluating audit
evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included, among others, evaluating the
nature and extent of audit procedures performed and evidence obtained. These
procedures also included manually testing the completeness and accuracy of
system reports or other information generated by the Company's information
technology systems.
Revenue Recognition - Subscription and Professional Services Revenues

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As described in Note 2 to the consolidated financial statements, the Company
recognizes revenue when control of services is transferred to the Company's
customers, in an amount that reflects the consideration the Company expects to
be entitled to in exchange for those services, net of any sales taxes. The
Company's subscription and professional services revenues were $244.1 million
and $26.8 million, respectively, for the year ended January 31, 2020. As
disclosed by management, the completeness, accuracy and occurrence of
subscription and professional services revenues are dependent on customer orders
being completely and accurately entered and recognized in the Company's billing
and revenue processes.
The principal considerations for our determination that performing procedures
relating to revenue recognition - subscription and professional services
revenues is a critical audit matter are there was a high degree of auditor
judgment, subjectivity and effort in performing procedures and evaluating audit
evidence related to the accuracy and occurrence of revenue. As described above
in the "Opinions on the Financial Statements and Internal Control over Financial
Reporting" section, a material weakness related to the Company's billing and
revenue processes existed as of January 31, 2020.
Addressing the matter involved performing procedures and evaluating audit
evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included, among others, evaluating the
nature and extent of audit procedures performed and evidence obtained relating
to subscription and professional services revenues. These procedures also
included obtaining and inspecting source documents including, where applicable,
cash receipts from customers.

/s/ PricewaterhouseCoopers LLP
Seattle, Washington
March 31, 2020

We have served as the Company's auditor since 2012.


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                                SMARTSHEET INC.
                     Consolidated Statements of Operations
                     (in thousands, except per share data)
                                                           Year Ended January 31,
                                                     2020           2019           2018
Revenue
Subscription                                     $  244,058     $  157,529     $  100,368
Professional services                                26,824         20,193         10,885
Total revenue                                       270,882        177,722        111,253
Cost of revenue
Subscription                                         32,707         19,297         13,008
Professional services                                20,193         14,552          8,674
Total cost of revenue                                52,900         33,849         21,682
Gross profit                                        217,982        143,873         89,571
Operating expenses
Research and development                             95,469         58,841         37,590
Sales and marketing                                 176,060        106,067         72,925
General and administrative                           50,227         34,049         28,034
Total operating expenses                            321,756        198,957        138,549
Loss from operations                               (103,774 )      (55,084 )      (48,978 )
Interest income                                       8,410          3,307            540
Other income (expense), net                            (462 )       (1,815 )         (975 )
Net loss before income tax provision (benefit)      (95,826 )      (53,592 )      (49,413 )
Income tax provision (benefit)                          114            293           (307 )
Net loss                                         $  (95,940 )   $  (53,885 )   $  (49,106 )
Deemed dividend                                           -              -         (4,558 )
Net loss attributable to common shareholders     $  (95,940 )   $  (53,885 )   $  (53,664 )
Net loss per share attributable to common
shareholders, basic and diluted                  $    (0.85 )   $    (0.65 )   $    (2.94 )
Weighted-average shares outstanding used to
compute net loss per share attributable to
common shareholders, basic and diluted              112,991         83,141         18,273


                See notes to consolidated financial statements.

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                                SMARTSHEET INC.
                 Consolidated Statements of Comprehensive Loss
                                 (in thousands)
                                                               Year Ended January 31,
                                                         2020           2019           2018
Net loss                                             $  (95,940 )   $  (53,885 )   $  (49,106 )
Other comprehensive loss:
Net unrealized loss on available-for-sale securities          -              -             (1 )
Comprehensive loss                                   $  (95,940 )   $  (53,885 )   $  (49,107 )


                See notes to consolidated financial statements.

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                                SMARTSHEET INC.
                          Consolidated Balance Sheets
                       (in thousands, except share data)
                                                                    January 31,
                                                                2020           2019
Assets
Current assets
Cash and cash equivalents                                   $  515,924     $  213,085
Short-term investments                                          50,532      

-

Accounts receivable, net of allowances of $2,989 and $1,234, respectively

                                            56,863      

30,173


Prepaid expenses and other current assets                        7,643          3,922
Total current assets                                           630,962        247,180
Long-term assets
Restricted cash                                                    865          2,620
Deferred commissions                                            48,255         29,014
Property and equipment, net                                     26,981         22,540
Operating lease right-of-use assets                             57,590              -
Intangible assets, net                                          15,155          1,827
Goodwill                                                        16,497          5,496
Other long-term assets                                           1,409             67
Total assets                                                $  797,714     $  308,744
Liabilities and shareholders' equity
Current liabilities
Accounts payable                                            $    7,720     $    4,658
Accrued compensation and related benefits                       39,635      

25,557


Other accrued liabilities                                       12,428      

6,544


Operating lease liabilities, current                            13,020      

-


Finance lease liabilities, current                               2,465          3,768
Deferred revenue                                               157,972         95,766
Total current liabilities                                      233,240        136,293
Operating lease liabilities, non-current                        47,913      

-


Finance lease liabilities, non-current                           1,664      

2,164


Deferred revenue, non-current                                      837            367
Other long-term liabilities                                          -          2,928
Total liabilities                                              283,654        141,752
Commitments and contingencies (Note 13)
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized, no shares issued or outstanding as of January
31, 2020 and January 31, 2019                                        -      

-

Class A common stock, no par value; 500,000,000 shares authorized, 118,194,159 shares issued and outstanding as of January 31, 2020; 500,000,000 shares authorized, 48,003,701 shares issued and outstanding as of January 31, 2019

                 -      

-

Class B common stock, no par value; 500,000,000 shares authorized, no shares issued and outstanding as of January 31, 2020; 500,000,000 shares authorized, 56,967,742 shares issued and outstanding as of January 31, 2019

                        -              -
Additional paid-in capital                                     770,518        327,510
Accumulated deficit                                           (256,458 )     (160,518 )
Total shareholders' equity                                     514,060        166,992
Total liabilities and shareholders' equity                  $  797,714     $  308,744


                See notes to consolidated financial statements.

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                                SMARTSHEET INC.
      Consolidated Statements of Change in Convertible Preferred Stock and
                         Shareholders' Equity (Deficit)
                             (dollars in thousands)

                                      Convertible Preferred Stock        Common Stock (Class A and B)    Additional                              Accumulated
                                                                                                           Paid-in       Accumulated     Other Comprehensive Income      Total Shareholders'
                                         Shares            Amount           Shares          Amount         Capital         Deficit                 (Loss)                 Equity (Deficit)
Balances at January 31, 2017            61,284,703       $  60,260        16,278,895     $        -     $    4,783      $   (57,527 )   $                 1             $        (52,743 )
Issuance of convertible preferred
stock                                    6,334,674          52,427                 -              -              -                -                       -                            -
Stock option exercises                           -               -         4,001,846              -          2,645                -                       -                        2,645
Share-based compensation expense                 -               -                 -              -         18,464                -                       -                       18,464
Comprehensive loss                               -               -                 -              -              -          (49,106 )                    (1 )                    (49,107 )
Balances at January 31, 2018            67,619,377         112,687        20,280,741              -         25,892         (106,633 )                     -                      (80,741 )
Issuance of common stock under
employee stock plans                             -               -         4,331,279              -         10,221                -                       -                       10,221
Taxes paid related to net share
settlement of equity awards                      -               -                 -              -           (380 )              -                       -                         (380 )
Issuance of common stock upon net
exercise of warrant                              -               -           134,603              -          2,598                -                       -                        2,598
Issuance of common stock in
connection with initial public
offering, net of underwriting
discounts and issuance costs                     -               -        11,745,088              -        160,401                -                       -                      160,401
Conversion of convertible
preferred stock to common stock in
connection with initial public
offering                               (67,619,377 )      (112,687 )      68,479,732              -        112,687                -                       -                      112,687
Share-based compensation expense                 -               -                 -              -         16,091                -                       -                       16,091
Comprehensive loss                               -               -                 -              -              -          (53,885 )                     -                      (53,885 )
Balances at January 31, 2019                     -               -       104,971,443              -        327,510         (160,518 )                     -                      166,992
Issuance of common stock under
employee stock plans                             -               -         4,197,716              -         25,519                -                       -                       25,519
Issuance of common stock in
connection with follow-on public
offering, net of underwriting
discounts, commissions and
issuance costs                                   -               -         9,025,000              -        378,982                -                       -                      378,982
Share-based compensation expense                 -               -                 -              -         38,507                -                       -                       38,507
Comprehensive loss                               -               -                 -              -              -          (95,940 )                     -                      (95,940 )
Balances at January 31, 2020                     -       $       -       118,194,159     $        -     $  770,518      $  (256,458 )   $                 -             $        514,060


                See notes to consolidated financial statements.


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                                SMARTSHEET INC.
                     Consolidated Statements of Cash Flows
                                 (in thousands)
                                                                    Year Ended January 31,
                                                               2020          2019          2018
Cash flows from operating activities
Net loss                                                    $ (95,940 )   $ (53,885 )   $ (49,106 )
Adjustments to reconcile net loss to net cash used in
operating activities:
Share-based compensation expense                               37,493       

15,903 18,464 Remeasurement of convertible preferred stock warrant liability

                                                           -         1,326           795
Depreciation of property and equipment                         10,687         7,194         4,019
Amortization of deferred commission costs                      19,806        10,770         4,989
Unrealized foreign currency loss                                   82            37             -
Gain on disposal of assets                                          -             -             2
Amortization of intangible assets                               2,762           510            57
Non-cash operating lease costs                                  7,971             -             -

Amortization of premiums, accretion of discounts and gain on investments

                                                      -             -            26
Changes in operating assets and liabilities:
Accounts receivable                                           (25,965 )     (15,265 )      (9,455 )
Prepaid expenses and other current assets                      (3,909 )         481        (1,856 )
Operating lease right-of-use assets                           (12,173 )           -             -
Other long-term assets                                           (339 )         207        (1,022 )
Accounts payable                                                3,593         2,031           704
Other accrued liabilities                                       5,840         3,424         2,014
Accrued compensation and related benefits                      11,994         8,732         6,466
Deferred commissions                                          (39,046 )     (24,493 )     (14,704 )
Other long-term liabilities                                    (1,003 )       1,322           457
Deferred revenue                                               61,646        38,851        24,569
Operating lease liabilities                                     5,631             -             -
Net cash used in operating activities                         (10,870 )      (2,855 )     (13,581 )
Cash flows from investing activities
Purchases of short-term investments                          (100,532 )           -             -
Purchases of long-term investments                             (1,000 )           -             -
Proceeds from maturity of investments                          50,000             -         9,235
Proceeds from sales of investments                                  -             -           900
Purchases of property and equipment                            (5,153 )      (5,767 )      (6,006 )
Proceeds from sale of property and equipment                        -             -             1
Capitalized internal-use software development costs            (6,699 )      (3,017 )      (3,350 )
Purchases of intangible assets                                      -             -          (125 )
Payments for business acquisition, net of cash acquired       (26,659 )      (5,000 )      (1,464 )
Net cash used in investing activities                         (90,043 )     (13,784 )        (809 )
Cash flows from financing activities
Proceeds from initial public offering of common stock, net
of underwriters' discounts and commissions                          -       163,844             -

Proceeds from follow-on offering of common stock, net of underwriters' discounts and commissions

                       379,828             -             -
Payments on principal of finance leases                        (4,167 )      (3,253 )      (2,326 )
Payments of deferred offering costs                              (798 )      (2,603 )        (829 )
Proceeds from issuance of convertible preferred stock               -             -        52,427
Proceeds from exercise of stock options                        15,905       

6,649 2,164 Taxes paid related to net share settlement of restricted stock units

                                                         -          (380 )           -
Proceeds from Employee Stock Purchase Plan                     11,254         7,064             -
Net cash provided by financing activities                     402,022       

171,321 51,436 Effects of changes in foreign currency exchange rates on cash, cash equivalents, and restricted cash

                       (25 )         (36 )           -

Net increase in cash, cash equivalents, and restricted cash 301,084 154,646 37,046 Cash, cash equivalents, and restricted cash at beginning of period

                                                        215,705        61,059        24,013
Cash, cash equivalents, and restricted cash at end of
period                                                      $ 516,789     $ 215,705     $  61,059



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Supplemental disclosures
Cash paid for interest                                      $    243     $   324     $    312
Cash paid for income taxes                                       106           8            -
Purchases of fixed assets under finance leases                 2,364       

2,639 3,130 Right-of-use assets obtained in exchange for new operating lease liabilities

                                             12,173           -            -

Accrued purchases of property and equipment (including internal-use software)

                                         1,155         992          181
Deemed dividends on convertible preferred stock                    -           -       (4,558 )
Deferred offering costs, accrued but not yet paid                 60        

12 648 Share-based compensation capitalized in internal-use software development costs

                                     1,014         189            -


                See notes to consolidated financial statements.

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                                SMARTSHEET INC.
                   Notes to Consolidated Financial Statements

1. Overview and Basis of Presentation
Description of business
Smartsheet Inc. (the "Company," "we," "our") was incorporated in the State of
Washington in 2005, and is headquartered in Bellevue, Washington. The Company is
a leading cloud-based platform for work execution, enabling teams and
organizations to plan, capture, manage, automate, and report on work at scale.
Customers access their accounts online via a web-based interface or a mobile
application. Some customers also purchase the Company's professional services,
which primarily consist of consulting and training services.
Collapse of dual class common stock structure
On September 19, 2019, all outstanding shares of the Company's Class B common
stock automatically converted into the same number of shares of the Company's
Class A common stock, pursuant to the terms of the Company's amended and
restated articles of incorporation (the "Articles"). No additional shares of
Class B common stock will be issued following this conversion.
The conversion occurred pursuant to the Articles, which provides that each share
of Class B common stock would convert automatically, without further action by
the Company, into one share of Class A common stock at the close of business on
the date on which the outstanding shares of Class B common stock represented
less than 15% of the aggregate number of shares of Class A common stock and
Class B common stock then outstanding. In accordance with the Articles, the
shares of Class B common stock that converted as a result of the automatic
conversion were retired and will not be reissued by the Company.
Follow-on offering
On June 14, 2019, we completed a public equity offering in which we issued and
sold 9,025,000 shares of Class A common stock, inclusive of the exercised
over-allotment option, at a public offering price of $43.50 per share. In
addition, 5,810,000 shares of the Company's common stock were sold by selling
shareholders of the Company, inclusive of the over-allotment, as part of this
offering. We received net proceeds of $379.0 million after deducting
underwriting discounts and commissions of $12.8 million and other issuance costs
of $0.9 million. We did not receive any proceeds from the sale of common stock
by selling shareholders.
Initial public offering
On May 1, 2018, we completed our initial public offering ("IPO") in which we
issued and sold 11,745,088 shares of Class A common stock, inclusive of the
over-allotment, at a public offering price of $15.00 per share. We received net
proceeds of $160.4 million after deducting underwriting discounts and
commissions of $12.3 million and other issuance costs of $3.4 million.
Immediately prior to the closing of our IPO, all shares of our convertible
preferred stock automatically converted into an aggregate of 68.5 million shares
of Class B common stock. In addition, we authorized for future issuance a total
of 500 million shares of each Class A and Class B common stock, and 10 million
shares of preferred stock.
Basis of presentation
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America ("GAAP"), and applicable rules and regulations of the Securities and
Exchange Commission ("SEC") regarding financial reporting. The Company's fiscal
year ends on January 31.
The consolidated financial statements include the results of Smartsheet Inc. and
its wholly owned subsidiaries, which are located in the United States, the
United Kingdom, and Australia. All intercompany balances and transactions have
been eliminated upon consolidation.
In the opinion of management, the information contained herein reflects all
adjustments necessary for a fair presentation of our consolidated financial
statements. All such adjustments are of a normal, recurring nature.

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Use of estimates
The preparation of the consolidated financial statements in conformity with GAAP
requires management to make estimates, judgments, and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the consolidated financial statements, and the
reported amounts of revenue and expenses during the reporting periods. The
Company bases its estimates on historical experience and on other assumptions
that its management believes are reasonable under the circumstances. Actual
results could differ from those estimates. The Company's most significant
estimates and judgments involve revenue recognition with respect to the
allocation of transaction consideration for the Company's offerings;
determination of the amortization period for capitalized sales commission costs;
capitalization of internal-use software development costs; valuation of assets
and liabilities acquired as part of business combinations; and incremental
borrowing rate estimates for operating leases, among others.
In December 2019, the novel COVID-19 coronavirus ("COVID-19") was reported in
China and in March 2020 the World Health Organization declared it a pandemic.
The extent of the impact of COVID-19 on our operational and financial
performance will depend on certain developments, including the duration and
spread of the outbreak, impact on our customers and our sales cycles, and impact
on our employees, all of which are uncertain and cannot be predicted. As of the
date of issuance of the financial statements, we are not aware of any specific
event or circumstance that would require us to update our estimates, judgments
or revise the carrying value of our assets or liabilities. These estimates may
change, as new events occur and additional information is obtained, and are
recognized in the consolidated financial statements as soon as they become
known. Actual results could differ from those estimates and any such differences
may be material to our financial statements.
Liquidity
The Company continues to be subject to the risks and challenges associated with
companies at a similar stage of development, including the ability to raise
additional capital to support future growth. Since inception through January 31,
2020, the Company has incurred losses from operations and accumulated a deficit
of $256.5 million. Historically, the Company has financed its operations
primarily through the sale of equity securities and customer payments. The
Company believes its existing cash will be sufficient to meet its working
capital and capital expenditure needs for at least the next 12 months.
2. Summary of Significant Accounting Policies
Segment information
The Company operates as one operating segment. The Company's chief operating
decision maker is its Chief Executive Officer, who reviews consolidated
financial information for purposes of making operating decisions, assessing
financial performance, and allocating resources.
Revenue recognition
The Company derives its revenue primarily from subscription services and
professional services. Revenue is recognized when control of these services is
transferred to the Company's customers, in an amount that reflects the
consideration the Company expects to be entitled to in exchange for those
services, net of any sales taxes.
The Company determines revenue recognition through 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 a performance


       obligation.



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Subscription revenue
Subscription revenue primarily consists of fees from customers for access to the
Company's cloud-based platform. Subscription revenue is recognized on a ratable
basis over the subscription contract term, beginning on the date the access to
the Company's platform is provided, as no implementation work is required, if
consideration the Company is entitled to receive is probable of collection.
Subscription contracts generally have terms of one year or one month, are billed
in advance, and are non-cancelable. The subscription arrangements do not allow
the customer the contractual right to take possession of the platform; as such,
the arrangements are considered to be service contracts.
Certain of the Company's subscription contracts contain performance guarantees
related to service continuity. To date, refunds related to such guarantees have
been immaterial in all periods presented.
Professional services revenue
Professional services revenue primarily includes revenue recognized from fees
for consulting and training services. The Company's consulting services consist
of platform configuration and use case optimization, and are primarily invoiced
on a time and materials basis, monthly in arrears. Services revenue is
recognized over time, as service hours are delivered. Smaller consulting
engagements are, on occasion, provided for a fixed fee. These smaller consulting
arrangements are typically of short duration (less than three months). In these
cases, revenue is recognized over time, based on the proportion of hours of work
performed, compared to the total hours expected to complete the engagement.
Configuration and use case optimization services do not result in significant
customization or modification of the software platform or user interface.
Training services are billed in advance, on a fixed-fee basis, and revenue is
recognized after the training program is delivered, or after the customer's
right to receive training services expires.
Associated out-of-pocket travel expenses related to the delivery of professional
services are typically reimbursed by the customer. Out-of-pocket expense
reimbursements are recognized as revenue at the point in time, or as the
distinct performance obligation to which they relate is delivered. Out-of-pocket
expenses are recognized as cost of professional services as incurred.
On occasion, the Company sells its subscriptions to third-party resellers. The
price at which the Company sells to the reseller is typically discounted, as
compared to the price at which the Company would sell to an end customer, in
order to enable the reseller to realize a margin on the eventual sale to the end
customer. As the Company retains a fixed amount of the contract from the
reseller, and does not have visibility into the pricing provided by the reseller
to the end customer, the revenue is recorded net of any reseller margin.
Contracts with multiple performance obligations
Some of the Company's contracts with customers contain multiple performance
obligations. The Company accounts for individual performance obligations
separately, as they have been determined to be distinct, i.e., the services are
separately identifiable from other items in the arrangement and the customer can
benefit from them on its own or with other resources that are readily available
to the customer. The transaction price is allocated to the distinct performance
obligations on a relative stand-alone selling price basis. Stand-alone selling
prices are determined based on the prices at which the Company separately sells
subscription, consulting, and training services, and based on the Company's
overall pricing objectives, taking into consideration market conditions, value
of the Company's contracts, the types of offerings sold, customer demographics,
and other factors.
Accounts receivable
Accounts receivable are primarily comprised of trade receivables that are
recorded at the invoice amount, net of an allowance for doubtful accounts.
Subscription fees billed in advance of the related subscription term represent
contract liabilities and are presented as accounts receivable and deferred
revenues upon establishment of the unconditional right to invoice, typically
upon signing of the non-cancelable service agreement. Our typical payment terms
provide for customer payment within 30 days of the date of the contract.

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The allowance for doubtful accounts is based on the Company's assessment of the
collectability of accounts by considering the composition of the accounts
receivable aging and historical trends on collectability. Amounts deemed
uncollectible are recorded to the allowance for doubtful accounts in the
consolidated balance sheets with an offsetting decrease in related deferred
revenue and a reduction of revenue or charge to general and administrative
expense in the statements of operations. During the year ended January 31, 2020,
activity related to the Company's provision for doubtful accounts was as follows
(in thousands):
Balance at January 31, 2018 $   457
Write-offs                     (849 )
Additions, net                1,626
Balance at January 31, 2019   1,234
Write-offs                   (1,629 )
Additions, net                3,384

Balance at January 31, 2020 $ 2,989




Activity related to the Company's provision for doubtful accounts during the
year ended January 31, 2018 was as follows (in thousands):
Balance at January 31, 2017  $ 104
Additions, net of write-offs   353
Balance at January 31, 2018  $ 457



Deferred revenue
Deferred revenue is recorded for subscription services contracts upon
establishment of unconditional right to payment under a non-cancelable contract
before transferring the related services to the customer. Deferred revenue for
such services is amortized into revenue over time, as those subscription
services are delivered.
Similarly, the Company records deferred revenue for fixed-fee professional
services upon establishment of an unconditional right to payment under a
non-cancelable contract. Deferred revenue for training services is recognized as
revenue upon delivery of training services or upon expiration of customer's
right to receive such services. Deferred revenue for consulting services is
recognized as hours of service are delivered to the customer.
Deferred commissions
The majority of sales commissions earned by the Company's sales force are
considered incremental and recoverable costs of obtaining a contract with a
customer. Sales commissions are paid on initial contracts and on any upsell
contracts with a customer. No sales commissions are paid on customer renewals.
Sales commissions are deferred and then amortized on a straight-line basis over
a period of benefit that the Company has determined to be three years. The
Company determined the period of benefit by taking into consideration its
customer contracts, expected customer life, the expected life of its technology,
and other factors. Amortization expense is included in sales and marketing
expenses in the accompanying statements of operations.
Overhead allocations
The Company allocates shared costs, such as facilities (including rent,
utilities, and depreciation on equipment shared by all departments), and
information technology costs to all departments based on headcount. As such,
allocated shared costs are reflected in each cost of revenue and operating
expense category.
Cash, cash equivalents, and short-term investments
The Company considers all highly liquid investments with an original maturity of
three months or less from date of purchase to be cash equivalents. Investments
with terms greater than three months but less than or equal to

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twelve months are included in short-term investments. Interest income earned on
cash, cash equivalents, and short-term investments is recorded in interest
income in the accompanying statements of operations.
Restricted cash
Restricted cash as of January 31, 2020 primarily consisted of $0.9 million
related to security deposits for the Company's Bellevue, Boston, London, and
Edinburgh leases.
Restricted cash as of January 31, 2019 consisted of $1.8 million related to
collateral for irrevocable letters of credit (entered into during the year ended
January 31, 2019) for additional office space in Bellevue, and $0.8 million
primarily related to security deposits for the Company's Bellevue, Boston,
London, and Edinburgh leases.
Restricted cash as of January 31, 2018 consisted of $2.4 million related to
collateral for irrevocable letters of credit and $0.5 million related to
security deposits. The letters of credit that were outstanding as of January 31,
2018 were still in effect as of January 31, 2020; however, the requirement to
maintain $2.4 million in collateral for those letters of credit was removed
during the year ended January 31, 2019, and the restricted cash balance was
reduced by this amount.
Cash as reported on the consolidated statements of cash flows includes the
aggregate amounts of cash and cash equivalents and restricted cash as shown on
the consolidated balance sheets. Cash as reported on the consolidated statements
of cash flows consists of the following (in thousands):
                                                                      January 31,
                                                            2020          2019          2018
Cash and cash equivalents                                $ 515,924     $ 213,085     $ 58,158
Restricted cash                                                865        

2,620 2,901 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows

$ 516,789     $ 215,705     $ 61,059



Property and equipment
Property and equipment are recorded at cost, net of accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
following estimated useful lives:
Computer equipment       3 years
Computer software        3 years
Furniture and fixtures 5-7 years



Leasehold improvements are amortized over the shorter of the expected useful
lives of the assets or the related lease term. Maintenance and repairs that do
not improve or extend the lives of the respective assets are expensed as
incurred.
Internal-use software development costs
The Company capitalizes certain qualifying costs incurred during the application
development stage in connection with the development of internal-use software.
Costs related to preliminary project activities and post-implementation
activities are expensed in research and development ("R&D") as incurred. R&D
expenses consist primarily of employee-related costs, hardware- and
software-related costs, costs of outside services used to supplement our
internal staff, and overhead allocations.
Internal-use software costs of $8.1 million were capitalized in the year ended
January 31, 2020, of which $5.8 million related to costs incurred during the
application development stage of software development for the Company's platform
to which subscriptions are sold. Internal-use software costs of $3.5 million
were capitalized in

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the year ended January 31, 2019, of which $1.5 million related to costs incurred
during the application development stage of software development for the
Company's platform to which subscriptions are sold.
Capitalized software development costs are included within property and
equipment, net on the balance sheets, and are amortized over the estimated
useful life of the software, which is typically three years. The related
amortization expense is recognized in the consolidated statements of
comprehensive loss within the function that receives the benefit of the
developed software. Amortization expense of capitalized internal-use software
costs totaled $2.3 million, $1.0 million and $0.2 million for the years ended
January 31, 2020, 2019 and 2018, respectively. The Company evaluates the useful
lives of these assets and tests for impairment whenever events or changes in
circumstances occur that could impact the recoverability of these assets.
Business combinations
When we acquire a business, the purchase price is allocated to the net tangible
and identifiable intangible assets acquired based on their estimated fair
values. Any residual purchase price is recorded as goodwill. The allocation of
the purchase price requires management to make significant estimates in
determining the fair values of assets acquired and liabilities assumed,
especially with respect to intangible assets. These estimates can include, but
are not limited to, the cash flows that an asset is expected to generate in the
future, the appropriate weighted-average cost of capital, and the cost savings
expected to be derived from acquiring an asset. These estimates are inherently
uncertain and unpredictable. During the measurement period, which may be up to
one year from the acquisition date, adjustments to the fair value of these
tangible and intangible assets acquired and liabilities assumed may be recorded,
with the corresponding offset to goodwill. Upon the conclusion of the
measurement period or final determination of the fair value of assets acquired
or liabilities assumed, whichever comes first, any subsequent adjustments are
recorded to our consolidated statements of operations.
Goodwill & Acquired Intangible Assets
The Company evaluates goodwill for impairment at the reporting unit level on an
annual basis (September 1), or whenever events or changes in circumstances
indicate that impairment may exist. When evaluating goodwill for impairment, the
Company may first perform a qualitative assessment to determine whether it is
more likely than not that a reporting unit is impaired. If the Company does not
perform a qualitative assessment, or if the Company determines that it is not
more likely than not that the fair value of the reporting unit exceeds its
carrying amount, the Company calculates the estimated fair value of the
reporting unit. Fair value is the price a willing buyer would pay for the
reporting unit and is typically calculated using a discounted cash flow model.
If the carrying amount of the reporting unit exceeds the estimated fair value,
an impairment charge is recorded to reduce the carrying value to the estimated
fair value.
Acquired intangible assets consist of identifiable intangible assets, primarily
software technology and customer relationships, resulting from our acquisitions.
Intangible assets are recorded at fair value on the date of acquisition and
amortized over their estimated useful lives.
Impairment of long-lived assets
Long-lived assets, such as property and equipment and intangible assets, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset group may not be recoverable.
Recoverability of an asset group is measured by comparing the carrying amount to
the estimated undiscounted future cash flows expected to be generated. If the
carrying amount exceeds the undiscounted cash flows, the assets are determined
to be impaired and an impairment charge is recognized as the amount by which the
carrying amount exceeds its fair value. No impairments of long-lived assets were
recorded during any of the periods presented.
Leases
We determine if an arrangement is a lease at inception, and leases are
classified at commencement as either operating or finance leases.
Right-of-use ("ROU") assets and lease liabilities are recognized at commencement
date based on the present value of the future minimum lease payments over the
lease term. ROU assets also include any lease payments made.

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Operating lease ROU assets are presented separately in long-term assets and
finance lease ROU assets are included in property and equipment, net on our
consolidated balance sheets. As our operating leases do not provide an implicit
rate, we use our incremental borrowing rate based on information available at
the commencement date in determining the present value of future payments. This
rate is an estimate of the collateralized borrowing rate we would incur on our
future lease payments over a similar term based on the information available at
commencement date. Our lease terms may include options to extend or terminate
the lease when it is reasonably certain that we will exercise that option. At
January 31, 2020, we did not include any options to extend leases in our lease
terms as we were not reasonably certain to exercise them. The Company's lease
agreements do not contain residual value guarantees or covenants.
We utilize certain practical expedients and policy elections available under the
lease accounting standard. Leases with a term of one year or less are not
recognized on our consolidated balance sheets; we recognize lease expense for
these leases on a straight-line basis over the lease term. Additionally, we have
elected to include non-lease components with lease components for contracts
containing real estate leases for the purpose of calculating lease right-of-use
assets and liabilities, to the extent that they are fixed. Non-lease components
that are not fixed are expensed as incurred as variable lease payments. Our real
estate operating leases typically include non-lease components such as
common-area maintenance costs.
ROU assets are subject to evaluation for impairment or disposal on a basis
consistent with other long-lived assets.
Self-funded health insurance
In December 2017, the Company elected to partially self-fund its health
insurance plan. To reduce its risk related to high-dollar claims, the Company
maintains individual and aggregate stop-loss insurance. The Company estimates
its exposure for claims incurred but not paid at the end of each reporting
period and uses historical claims data to estimate its self-insurance liability.
As of January 31, 2020 and 2019, the Company's net self-insurance reserve
estimate was $0.9 million and $0.8 million, respectively, included in other
accrued liabilities in the accompanying consolidated balance sheets.
Advertising expenses
Advertising and marketing costs are expensed as incurred, and are included in
sales and marketing expense in the statements of operations. Advertising and
marketing expenses, inclusive of lead generation costs, were $35.5 million,
$20.6 million, and $14.8 million for the years ended January 31, 2020, 2019, and
2018, respectively.
Deferred offering costs
Deferred offering costs of $3.4 million, primarily consisting of legal,
accounting, and other fees related to the IPO, were offset against proceeds upon
the closing of the IPO on May 1, 2018. Deferred offering costs of $0.9 million
were offset against proceeds upon the closing of the follow-on offering on June
14, 2019.
Convertible preferred stock warrant liability
The Company classified its warrant to purchase convertible preferred stock as a
liability. The Company adjusted the carrying value of the warrant liability to
fair value at the end of each reporting period utilizing the Black-Scholes
option pricing model. The convertible preferred stock warrant liability was
included on the Company's consolidated balance sheets and its revaluation was
recorded as an expense in other income (expense), net for the fiscal years ended
2018 and 2019. Upon the closing of the IPO on May 1, 2018, the related warrant
liability was reclassified to additional paid-in capital.
Share-based compensation
The Company measures and recognizes compensation expense for all share-based
awards granted to employees and directors, based on the estimated fair value of
the award on the date of grant. Expense is recognized on a straight-line basis
over the vesting period of the award based on the estimated portion of the award
that is expected to vest.

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The Company uses the Black-Scholes option pricing model to measure the fair
value of stock option awards when they are granted. The Company makes several
estimates in determining share-based compensation and these estimates generally
require significant analysis and judgment to develop.
Income taxes
Income taxes are accounted for using the asset and liability method. Under this
method, the Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of assets and liabilities. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income in the years in which the temporary differences are expected to
be recovered or settled. The Company records a valuation allowance to reduce
deferred tax assets to an amount for which realization is more likely than not.
The Company evaluates and accounts for uncertain tax positions using a two-step
approach. The first step is to evaluate if the weight of available evidence
indicates that it is more likely than not that the tax position will be
sustained in an audit. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely to be realized upon ultimate
settlement. The Company reflects interest and penalties related to income tax
liabilities as a component of income tax expense.
Concentrations of risk and significant customers
Financial instruments that potentially subject the Company to concentrations of
credit risk are primarily cash, cash equivalents, short-term investments, and
accounts receivable. The Company maintains its cash accounts with financial
institutions where deposits, at times, exceed the Federal Deposit Insurance
Corporation ("FDIC") limits.
No individual customers represented more than 10% of accounts receivable as of
the years ended January 31, 2020 or 2019. No individual customers represented
more than 10% of revenue for the years ended January 31, 2020, 2019, or 2018.
Net loss per share
Prior to the IPO, holders of the Company's convertible preferred stock
participated in dividends with holders of the Company's common stock, but they
were not contractually required to share in net losses. Accordingly, during
those periods of income, the Company was required to use the two-class method of
calculating earnings per share. The two-class method requires that earnings per
share be calculated separately for each class of security. As the Company
incurred losses during the periods presented, the Company used the methods
described below to calculate net loss per share.
The Company calculates basic net loss per share by dividing net loss
attributable to common shareholders by the weighted-average number of the
Company's common stock shares outstanding during the respective period. Net loss
attributable to common shareholders is net loss minus convertible preferred
stock dividends declared, of which there were none during the periods presented.
The Company calculates diluted net loss per share using the treasury stock and
if-converted methods, which consider the potential impacts of outstanding stock
options, restricted stock units ("RSUs"), shares issuable pursuant to our
Employee Stock Purchase Plan ("ESPP"), warrants, and convertible preferred
stock. Under these methods, the numerator and denominator of the net loss per
share calculation are adjusted for these securities if the impact of doing so
increases net loss per share. During the periods presented, the impact is to
decrease net loss per share and therefore the Company is precluded from
adjusting its calculation for these securities. As a result, diluted net loss
per share is calculated using the same formula as basic net loss per share.

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Recently adopted accounting pronouncements
We adopted Accounting Standard Update ("ASU") 2016-02, Leases - Topic 842 ("ASC
842") on February 1, 2019 using the optional transition method described in ASU
2018-11, Leases - Targeted Improvements. Under the optional transition method,
we recognized the cumulative effect of initially applying the guidance as an
adjustment to the operating lease ROU assets and operating lease liabilities on
our consolidated balance sheet on February 1, 2019 without retrospective
application to comparative periods.
The new lease standard requires lessees to recognize ROU assets and lease
liabilities on the balance sheet for operating leases, and also requires
additional quantitative and qualitative disclosures to enable users of the
financial statements to assess the amount, timing, and uncertainty of cash flows
arising from leases. In adopting ASC 842, we utilized certain practical
expedients available under the standard. These practical expedients include
waiving reassessment of conclusions reached under the previous lease standard as
to whether contracts contain leases and not recording ROU assets or lease
liabilities for leases with terms of 12 months or less.
As a result of implementing this guidance, we recognized a $53.4 million net
operating ROU asset and a $55.3 million operating lease liability, inclusive of
$1.9 million previously classified as deferred rent, in our consolidated balance
sheet as of February 1, 2019. The adoption of ASC 842 did not have an impact on
our accumulated deficit on our consolidated balance sheet as of February 1, 2019
and is not expected to have a material impact on our consolidated statements of
operations and comprehensive loss.
See Note 12, Leases, for additional information regarding our leases.
Recent accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU 2016-13, including subsequent amendments,
Measurement of Credit Losses on Financial Instruments (Topic 326) ("ASU
2016-13") and has modified the standard thereafter, which modifies the
accounting methodology for most financial instruments. The guidance establishes
a new "expected loss model" that requires entities to estimate current expected
credit losses on financial instruments by using all practical and relevant
information. 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 interim and annual periods
beginning after December 15, 2019, and early adoption is permitted. The Company
does not expect the adoption of this standard to have a material effect on our
consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and
Other-Internal-Use Software ("ASU 2018-15"), which 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. This guidance is effective
for interim and annual reporting periods beginning after December 15, 2019, and
early adoption is permitted. The Company does not expect adoption of this ASU to
have a material effect on the Company's consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) ("ASU
2019-12"), which simplifies certain aspects of accounting for income taxes. The
guidance is effective for interim and annual reporting periods beginning after
December 15, 2020, and early adoption is permitted. The Company does not expect
adoption of this ASU to have a material effect on the Company's consolidated
financial statements.
3. Revenue from Contracts with Customers
During the years ended January 31, 2020, 2019, and 2018 the Company recognized
$93.0 million, $55.3 million, and $32.0 million of subscription revenue,
respectively, and $2.1 million, $1.5 million, and $0.6 million of professional
services revenue, respectively, which were included in the deferred revenue
balance as of January 31, 2019, 2018, and 2017, respectively.
As of January 31, 2020, including amounts already invoiced and amounts
contracted but not yet invoiced, approximately $166.9 million of revenue was
expected to be recognized from remaining performance obligations, of which
$163.0 million related to subscription services and $3.9 million related to
professional services.

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Approximately 96% of revenue related to remaining performance obligations is
expected to be recognized in the next 12 months.
4. Deferred Commissions
Deferred commissions were $48.3 million as of January 31, 2020 and $29.0 million
as of January 31, 2019.
Amortization expense for deferred commissions was $19.8 million, $10.8 million,
and $5.0 million for the years ended January 31, 2020, 2019, and 2018,
respectively. Deferred commissions are amortized over a period of three years
and the amortization expense is recorded in sales and marketing on the Company's
consolidated statements of operations.
5. Net Loss Per Share
The following tables present calculations for basic and diluted net loss per
share (in thousands, except per share data):
                                                     Year Ended January 31,
                                                2020          2019          

2018

Numerator:


Net loss attributable to common shareholders $ (95,940 )   $ (53,885 )   $ (53,664 )
Denominator:
Weighted-average common shares outstanding     112,991        83,141        18,273
Net loss per share, basic and diluted        $   (0.85 )   $   (0.65 )   $  

(2.94 )




The following outstanding shares of common stock equivalents (in thousands) as
of the periods presented were excluded from the computation of diluted net loss
per share attributable to common shareholders for the periods presented because
the impact of including them would have been anti-dilutive:
                                                            January 31,
                                                 2020           2019        

2018


Convertible preferred shares (as converted)           -              -      

68,480


Convertible preferred stock warrant                   -              -      

137


Shares subject to outstanding common stock
awards                                           12,215         13,297      

13,355


Shares issuable pursuant to the Employee
Stock Purchase Plan                                 165            134      

-


Total potentially dilutive shares                12,380         13,431         81,972



6. Fair Value Measurements
Assets and liabilities recorded at fair value in the consolidated financial
statements are categorized based upon the level of judgment associated with the
inputs used to measure their fair value. The lowest level of significant input
determines the placement of the fair value measurement within the following
hierarchical levels:
•      Level 1: Observable inputs that reflect quoted prices (unadjusted) for
       identical assets or liabilities in active markets.

• Level 2: Observable inputs, other than Level 1 prices, such as quoted

prices for similar assets or liabilities, quoted prices in markets that

are not active, or other inputs that are observable or can be corroborated

by observable market data for substantially the full term of the assets or

liabilities.

• Level 3: Unobservable inputs that are supported by little or no market


       activity.



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The following tables present information about the Company's financial assets
and liabilities that are measured at fair value and indicates the fair value
hierarchy of the valuation inputs used (in thousands) as of:
                                          January 31, 2020
                           Level 1      Level 2      Level 3       Total
Assets:
Cash equivalents:
  Money market funds      $ 279,160    $       -    $       -    $ 279,160
  Certificates of deposit         -       50,585            -       50,585

Short-term investments:


  Certificates of deposit         -       50,532            -       50,532
Total assets              $ 279,160    $ 101,117    $       -    $ 380,277


                                           January 31, 2019
                            Level 1      Level 2     Level 3       Total
Assets:
Cash equivalents:
  Money market funds       $ 203,746    $      -    $       -    $ 203,746
  Restricted cash:
   Certificates of deposit         -       1,775            -        1,775
Total assets               $ 203,746    $  1,775    $       -    $ 205,521



The carrying amounts of certain financial instruments, including cash held in
banks, accounts receivable, and accounts payable, approximate fair value due to
their short-term maturities and are excluded from the fair value tables above.
It is the Company's policy to recognize transfers of assets and liabilities
between levels of the fair value hierarchy at the end of a reporting period. The
Company does not transfer out of Level 3 and into Level 2 until observable
inputs become available and reliable.
7. Property and Equipment, Net
As of the dates specified below, property and equipment (in thousands) consisted
of the following:
                                                 January 31,
                                              2020         2019

Computer equipment                         $ 22,513     $ 17,536

Computer software, purchased and developed 14,673 6,958 Furniture and fixtures

                        6,712        5,410
Leasehold improvements                        4,501        4,158
Total property and equipment                 48,399       34,062
Less: accumulated depreciation              (21,418 )    (11,522 )

Total property and equipment, net $ 26,981 $ 22,540

Depreciation expense was $10.7 million, $7.2 million, and $4.0 million for the years ended January 31, 2020, 2019, and 2018, respectively.


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Property and equipment includes $14.2 million and $11.8 million of data center
equipment purchased under finance leases at January 31, 2020 and 2019,
respectively. Accumulated depreciation related to these leased assets was $10.2
million and $6.1 million at January 31, 2020 and 2019, respectively.
Depreciation expense on finance leases, which is included in total depreciation
expense described immediately above, was $4.3 million, $3.6 million, and $2.2
million for the years ended January 31, 2020, 2019, and 2018, respectively.
These leased assets are included in the computer equipment category in the table
above.
8. Business Combinations
On May 1, 2019, we acquired 100% of the outstanding equity of Artefact Product
Group, LLC ("Artefact Product Group" or "10,000ft"), a Washington limited
liability company, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"). The acquisition is complementary to our existing product
capabilities and accelerates our time to market for a resource planning software
solution. The aggregate consideration paid in exchange for all of the
outstanding equity interests of Artefact Product Group was approximately $27.8
million in cash, after a working capital adjustment of $0.2 million and
excluding cash acquired. Of the cash paid at closing, as of January 31, 2020, a
total of $2.8 million remains held in escrow for another three-month period to
secure our indemnification rights under the Merger Agreement.
We accounted for the transaction as a business combination using the acquisition
method of accounting. We allocated the purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed based on their
respective estimated fair values on the acquisition date. Excess purchase price
consideration was recorded as goodwill, and is primarily attributable to the
acquired assembled workforce and expected growth from the expansion of the
acquired product offerings and customer base. The goodwill recognized upon
acquisition is expected to be deductible for U.S. federal income tax purposes.
We engaged a third-party valuation specialist to aid our analysis of the fair
value of the acquired intangibles. All estimates, key assumptions, and forecasts
were either provided by or reviewed by us. While we chose to utilize a
third-party valuation specialist for assistance, the fair value analysis and
related valuations reflect the conclusions of management and not those of any
third party.
10,000ft's results of operations have been included in the Company's
consolidated results of operations since the acquisition date. The purchase
price allocation as of the acquisition date was based on a preliminary valuation
and is subject to revision as more detailed analyses are completed and
additional information about the fair value of assets acquired and liabilities
assumed becomes available.
The major classes of assets and liabilities to which the Company preliminarily
allocated the purchase price, net of the $0.2 million working capital
adjustment, were as follows (in thousands):
                     May 1, 2019
Cash                $      1,150
Current Assets               801
Intangible Assets         16,090
Goodwill                  11,001
Current Liabilities         (180 )
Deferred Revenue          (1,030 )
Total               $     27,832

The estimated useful lives and fair values of the identifiable intangible assets at acquisition date were as follows (dollars in thousands):


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                         Fair Value     Expected Useful Life
Software Technology     $      8,000                 5 years
Customer Relationships         7,990                 8 years
Trade Name                       100               32 months
Total intangible assets $     16,090



The significant identified intangible assets, software technology and customer
relationships, were valued as follows:
Software technology - we valued the finite-lived software technology using the
relief-from-royalty method under the income approach. This method reflects the
present value of the projected cash flows that are expected to be generated from
the licensing of the asset to third parties. We applied judgment which involved
the use of significant assumptions with respect to the base year revenue and the
royalty rate.
Customer relationships - we valued the finite-lived customer relationships using
the multi-period excess-earnings method. This method involves forecasting the
net earnings to be generated by the asset, reducing them by appropriate returns
on contributory assets, and then discounting the resulting net returns to a
present value using an appropriate discount rate. We applied judgment which
involved the use of the significant assumption of the royalty rate impacting the
returns on contributory assets for software technology.
Fiscal 2019 Acquisition
On January 11, 2019, Smartsheet Inc. purchased 100% of the issued and
outstanding capital stock of TernPro, Inc. in an all-cash transaction for a
total purchase price of $6.0 million. As a result of this acquisition, the
Company recorded goodwill of $5.2 million; identifiable intangible assets
of $0.8 million, of which $0.5 million related to acquired software technology,
and $0.3 million related to customer relationships; and other net assets of less
than $0.1 million. In addition, the Company recorded a long-term liability
of $1.0 million related to a holdback payable on the 18-month anniversary of the
closing date. As of January 31, 2020, the liability of $1.0 million is
classified as short-term, and is included within other accrued liabilities on
the consolidated balance sheet.
9. Goodwill and Net Intangible Assets
The changes in the carrying amount of goodwill during the twelve months ended
January 31, 2020 were as follows (in thousands):
Goodwill balance as of January 31, 2019              $  5,496
Addition - acquisition of 10,000ft                     11,181

Working capital adjustment - acquisition of 10,000ft (180 ) Goodwill balance as of January 31, 2020

$ 16,497

No goodwill impairments were recorded during the years ended January 31, 2020, 2019, or 2018.


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The following table presents the components of net intangible assets (in thousands):


                                As of January 31, 2020                                   As of January 31, 2019
                  Gross Carrying      Accumulated       Net Carrying     

Gross Carrying Accumulated Net Carrying


                      Amount         Amortization          Amount            Amount            Amortization          Amount
Acquired software
technology        $      9,866     $      (2,325 )     $      7,541     $         1,866     $        (494 )      $       1,372
Acquired customer
relationships            8,350              (900 )            7,450                 360               (25 )                335
Trade names                100               (28 )               72                   -                 -                    -
Patents                    170               (91 )               79                 170               (63 )                107
Domain name                 13                 -                 13                  13                 -                   13
Total             $     18,499     $      (3,344 )     $     15,155     $         2,409     $        (582 )      $       1,827


The components of intangible assets acquired as of the periods presented were as
follows (in thousands):
                                       As of January 31, 2020          As of January 31, 2019
                                                       Weighted                         Weighted
                                                       Average                           Average
                                      Net Carrying       Life        Net Carrying         Life
                                         Amount        (Years)          Amount           (Years)
Acquired software technology         $      7,541            4.0   $         1,372           2.3
Acquired customer relationships             7,450            7.1               335           2.9
Trade names                                    72            1.9                 -             -
Total                                $     15,063            5.5   $         1,707           2.4



Amortization expense was $2.8 million, $0.5 million, and $0.1 million for the
twelve months ended January 31, 2020, 2019, and 2018, respectively.
As of January 31, 2020, estimated remaining amortization expense for the
finite-lived intangible assets by fiscal year is as follows (in thousands):
2021         $  3,358
2022            2,897
2023            2,608
2024            2,607
2025            1,406
Thereafter      2,266
Total        $ 15,142



10. Share-Based Compensation
The Company has issued incentive and non-qualifying stock options to employees
and non-employee directors under the 2005 Stock Option/Restricted Stock Plan
("2005 Plan"), the 2015 Equity Incentive Plan ("2015 Plan"), and the 2018 Equity
Incentive Plan ("2018 Plan").
The Company has also issued RSUs to employees pursuant to the 2015 Plan and the
2018 Plan.
Employee stock options are granted with exercise prices at the fair value of the
underlying common stock on the grant date, in general vest based on continuous
employment over four years, and expire 10 years from the date of grant. Employee
RSUs are measured based on the grant date fair value of the awards and in
general vest based on continuous employment over four years. Shares offered
under our equity plans are authorized but unissued.
Stock options
The following table includes a summary of the option activity during the year
ended January 31, 2020:

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                                                                             Weighted-Average
                                                                                Remaining           Aggregate
                                      Options         Weighted-Average       Contractual Term    Intrinsic Value
                                    Outstanding        Exercise Price            (years)         (in thousands)
Outstanding at January 31, 2019     12,451,739     $                5.72                  8.0   $       319,519
Granted                                600,592                     38.37
Exercised                           (3,536,988 )                    4.54
Forfeited or canceled                 (438,672 )                    8.99
Outstanding at January 31, 2020      9,076,671                      8.18                  7.3           365,766
Exercisable at January 31, 2020      4,863,428                      4.82                  6.8           212,357
Vested and expected to vest at
January 31, 2020                     8,659,579                      7.87                  7.3           351,644



The weighted-average grant date fair value per share of stock options granted
during the years ended January 31, 2020, 2019, and 2018 was $17.11, $4.66, and
$2.36, respectively. The total grant date fair value of stock options vested was
$11.1 million, $5.8 million, and $2.4 million during the years ended January 31,
2020, 2019, and 2018, respectively.
The intrinsic value of options exercised was $136.6 million, $66.7 million, and
$17.8 million during the years ended January 31, 2020, 2019, and 2018,
respectively.
Restricted stock units
The following table includes a summary of the RSU activity during the year ended
January 31, 2020:
                                                           Number of Shares       Weighted-Average
                                                              Underlying      Grant-Date Fair Value per
                                                           Outstanding RSUs              RSU
Outstanding at January 31, 2019                               845,199         $                 24.17
Granted                                                     2,869,964                           41.62
Vested                                                       (330,302 )                         23.01
Forfeited or canceled                                        (246,531 )                         36.07
Outstanding at January 31, 2020                             3,138,330                           39.32



An RSU award entitles the holder to receive shares of the Company's common stock
as the award vests, which is based on continued service. Non-vested RSUs do not
have non-forfeitable rights to dividends or dividend equivalents.
The weighted-average grant date fair value of RSUs granted during the years
ended January 31, 2020 and 2019 was $41.62 and $26.12, respectively.
2018 Employee Stock Purchase Plan
In April 2018, we adopted our 2018 ESPP. The ESPP became effective on April 26,
2018, with the effective date of our IPO.
Under our ESPP, eligible employees are able to acquire shares of our common
stock by accumulating funds through payroll deductions of up to 15% of their
compensation, subject to plan limitations. Purchases are accomplished through
participation in discrete offering periods. Each offering period is six months
(commencing each March 25 and September 25) and consists of one six-month
purchase period, unless otherwise determined by our board of directors or our
compensation committee. The purchase price for shares of our common stock
purchased under our ESPP is 85% of the lesser of the fair market value of our
common stock on (i) the first trading

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day of the applicable offering period or (ii) the last trading day of the purchase period in the applicable offering period. The following table includes a summary of shares available for issuance under our 2018 Plan and our 2018 ESPP during the year ended January 31, 2020:


                               Shares Available for Issuance
                                2018 Plan          2018 ESPP
Balance at January 31, 2019      8,458,343          1,719,782
Authorized                       5,248,572          1,049,714
Granted                         (3,470,556 )         (330,779 )
Forfeited                          685,203                  -
Balance at January 31, 2020     10,921,562          2,438,717



The aggregate number of shares reserved for issuance under our ESPP will
increase automatically on February 1 of each of the first 10 calendar years
after the first offering date under the ESPP by the number of shares equal to 1%
of the total outstanding shares of our Class A common stock and Class B common
stock as of the immediately preceding January 31 (rounded to the nearest whole
share) or such lesser number of shares as may be determined by our board of
directors in any particular year. The aggregate number of shares issued over the
term of our ESPP, subject to stock-splits, recapitalizations or similar events,
may not exceed 20,400,000 shares of our Class A common stock.
As of January 31, 2020, $5.4 million has been withheld on behalf of employees
for a future purchase under the ESPP and is recorded in accrued compensation and
related benefits.
Valuation assumptions
The fair value of employee stock options and ESPP purchase rights was estimated
using a Black-Scholes option pricing model with the following assumptions:
                                        Year Ended January 31,
                                 2020            2019            2018
Employee Stock Options
Risk-free interest rate      2.28%-2.59%       2.7%-2.9%       1.8%-2.6%
Expected volatility          42.3%-42.5%     40.2%-40.8%     41.7%-46.0%
Expected term (in years)       6.19-6.25            6.25            6.25
Expected dividend yield                - %             - %             - %
Employee Stock Purchase Plan
Risk-free interest rate        1.9%-2.5%       2.0%-2.4%             N/A
Expected volatility          38.3%-51.1%     38.3%-42.2%             N/A
Expected term (in years)       0.49-0.50       0.33-0.49             N/A
Expected dividend yield                - %             - %           N/A



The risk-free interest rate used in the Black-Scholes option pricing model is
based on the U.S. Treasury yield that corresponds with the expected term at the
time of grant. The expected term of an option is determined using the simplified
method, which is calculated as the average of the contractual life and the
vesting period. The expected term for the ESPP purchase rights is estimated
using the offering period, which is typically six months. We estimate volatility
for options using volatilities of a group of public companies in a similar
industry, stage of life cycle, and size; and volatility of ESPP purchase rights
using our own volatility history. The Company does not currently issue dividends
and does not expect to for the foreseeable future. In addition to the
assumptions used in the Black-Scholes option pricing model, we must also
estimate a forfeiture rate to calculate the share-based compensation expense for

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awards. Our forfeiture rate is derived from historical employee termination
behavior. If the actual number of forfeitures differs from these estimates,
additional adjustments to compensation expense will be required.
Given the absence of an active market for the Company's common stock prior to
the IPO, the board of directors was required to estimate the fair value of the
Company's common stock at the time of each option grant based on several
factors, including consideration of input from management and contemporaneous
third-party valuations. These valuations included consideration of enterprise
value and assessment of other common stock and convertible preferred stock
transactions occurring during the period.
Share-based compensation expense
Share-based compensation expense included in the consolidated statements of
operations was as follows (in thousands):
                                           Year Ended January 31,
                                        2020        2019        2018

Cost of subscription revenue $ 1,392 $ 346 $ 96 Cost of professional services revenue 1,259 466 67 Research and development

                14,260       5,873       6,029
Sales and marketing                     12,937       5,163       1,707
General and administrative               7,716       4,055      10,565

Total share-based compensation $ 37,564 $ 15,903 $ 18,464





In the year ended January 31, 2018, subsequent to the sale of the Company's
Series F convertible preferred stock, the Company facilitated a tender offer
(the "2017 Tender Offer") in which certain of the Company's current and former
employees and directors sold shares of common and convertible preferred stock to
other existing shareholders. The sale of shares by the employees, directors, and
other shareholders was facilitated by the Company. A total of 6,477,843 shares
of common and convertible preferred stock were tendered for a total purchase
price of $55.0 million. Our quarterly trends in total operating expenses,
operating loss, and net loss, were significantly impacted by this transaction,
which took place and was completed during the three months ended July 31, 2017.
The premium over the fair value of the shares of common and convertible
preferred stock that was paid by existing investors to current employees and
directors, totaling $15.5 million, was recorded as share-based compensation
expense for the year ended January 31, 2018. The excess over the fair value of
the sale price of the shares of common and convertible preferred stock sold by
non-employees, totaling $4.6 million, was recorded as a deemed dividend within
additional paid-in capital in the year ended January 31, 2018.
Share-based compensation expense related to the 2017 Tender Offer, which is
included in the table above, was as follows (in thousands):
                                              Year Ended January 31,
                                            2020          2019      2018

Cost of subscription revenue           $   -             $   -    $     53
Cost of professional services revenue      -                 -           9
Research and development                   -                 -       5,124
Sales and marketing                        -                 -         583
General and administrative                 -                 -       9,701
Total share-based compensation expense $   -             $   -    $ 15,470

As of January 31, 2020, there was a total of $124.1 million of unrecognized share-based compensation expense, which is expected to be recognized over a weighted-average period of 3.1 years.


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11. Income Taxes
The Company is liable for income taxes in the United States, the United Kingdom,
and Australia.
U.S. and international components of loss before provision for income taxes were
as follows (in thousands):
                                               Year Ended January 31,
                                          2020          2019          2018
United States                          $ (96,810 )   $ (53,939 )   $ (49,303 )
Foreign                                      984           347         

(110 ) Loss before provision for income taxes $ (95,826 ) $ (53,592 ) $ (49,413 )

The expense (benefit) for income taxes consisted of (in thousands):


                                               Year Ended January 31,
                                             2020         2019       2018
Current:
Federal                                  $     -         $   -     $    -
State                                         85            34         40
Foreign                                       17            69          -
Total current provision for income taxes     102           103         40
Deferred and other:
Federal                                        -           203       (302 )
State                                          -             -        (45 )
Foreign                                       12           (13 )        -
Total deferred tax expense (benefit)          12           190       (347 )

Total tax expense (benefit)              $   114         $ 293     $ (307 )



Income tax expense for the year ended January 31, 2020 was recognized primarily
due to state and foreign income taxes.
Income tax expense for the year ended January 31, 2019 was recognized primarily
due to changes in purchase accounting related to the acquisition of Converse.AI
that reduced the overall acquired deferred tax liability. As a result, the
increase in the valuation allowance was recognized in income tax expense.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation
commonly referred to as the "Tax Cuts and Jobs Act" ("TCJA"). The TCJA made
broad and complex changes to the Internal Revenue Code, including but not
limited to, a reduction in the U.S. corporate income tax rate to 21%, requiring
a one-time transition tax on certain unrepatriated earnings of foreign
subsidiaries, a general elimination of U.S. federal income taxes on dividends
from foreign subsidiaries, and a new provision designed to tax global intangible
low-taxed income ("GILTI").
The reduction in the corporate tax rate reduced the Company's effective tax rate
in future periods. Since the Company has a January 31 fiscal year end, the U.S.
entity had a blended tax rate of 32.9% for the fiscal year ended January 31,
2018. As of January 31, 2018, the Company also remeasured its U.S. deferred tax
assets and liabilities based upon the rates at which they were expected to
reverse in the future. The result of the remeasurement was an $11.1 million
reduction to the Company's U.S. federal net deferred tax assets. A corresponding
change was recorded to the valuation allowance.

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The TCJA subjects a U.S. shareholder to tax on GILTI earned by certain foreign
subsidiaries. An entity can make an accounting policy election to either
recognize deferred taxes for temporary basis differences expected to reverse as
a GILTI in future years or to provide for the tax expense related to GILTI in
the year the tax is incurred as period expense. The Company has elected to
account for GILTI in the year the tax is incurred as a period cost.
The reconciliation of federal statutory income tax to the Company's provision
for income taxes is as follows (in thousands):
                                                     Year Ended January 31,
                                                2020          2019          

2018


Expected provision at statutory federal rate $ (20,124 )   $ (11,254 )   $ (16,267 )
Tax credits                                     (5,798 )      (2,408 )      (1,327 )
Change in valuation allowance                   47,412        17,487         1,528
Share-based compensation                       (22,009 )      (4,631 )       4,430
Impact of tax reform                                 -             -        11,125
Other                                              633         1,099           204

Total income tax provision (benefit) $ 114 $ 293 $

(307 )

U.S. federal tax net operating loss carryforwards were approximately $205.6
million and $82.3 million at January 31, 2020 and 2019, respectively, which will
expire on various dates, starting in 2025.
As of January 31, 2020 and 2019, the Company's tax credit carryforwards for
income tax purposes were approximately $12.1 and $6.3 million, respectively, net
of uncertain tax positions for research and development credits. If not used, a
portion of the tax credit carryforwards will begin to expire in 2031.
Deferred income taxes reflect the net tax effects of loss and credit
carryforwards and temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes.

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The tax effects of temporary differences and related deferred tax assets and liabilities as of January 31, 2020 and 2019 were as follows (in thousands):


                                       January 31,
                                    2020          2019
Deferred tax assets:
Net operating loss carryforwards $  49,433     $ 18,972
Deferred revenue                    39,542       23,146
Lease liabilities                   14,243            -
Tax credits                         12,094        6,340
Share-based compensation             6,661        1,776
Accrued compensation                 3,308        1,963
Other                                  625          949
Total deferred tax assets          125,906       53,146
Valuation allowance               (100,240 )    (45,761 )
Total deferred tax assets, net      25,666        7,385
Deferred tax liabilities:
Lease right-of-use assets          (13,475 )          -
Capitalized commissions            (11,724 )     (6,955 )
Property and equipment                (431 )          -
Intangibles                            (15 )       (398 )

Total deferred tax liabilities (25,645 ) (7,353 ) Net deferred tax assets $ 21 $ 32





Management assesses the available positive and negative evidence to estimate
whether sufficient future taxable income will be generated to permit use of the
existing deferred tax assets. A significant piece of objective negative evidence
evaluated was the cumulative loss incurred over the three-year period ended
January 31, 2020. Such objective evidence limits the ability to consider other
subjective evidence, such as the Company's projections for future growth. On the
basis of this evaluation, the Company has established a full valuation allowance
equal to its U.S. and U.K. net deferred tax assets due to the uncertainty of
future realization of the net deferred tax assets. The valuation allowance
increased by $54.5 million during the period ended January 31, 2020. The
increase in the valuation allowance was primarily related to U.S. federal and
state losses incurred during the period.
The calculation of the Company's tax obligations involves dealing with
uncertainties in the application of complex tax laws and regulations. ASC
740, Income Taxes, provides that a tax benefit from an uncertain tax position
may be recognized when it is more likely than not that the position will be
sustained upon examination, including resolutions of any related appeals or
litigation processes, on the basis of the technical merits. The Company has
assessed its income tax positions and recorded tax benefits for all years
subject to examination, based upon its evaluation of the facts, circumstances,
and information available at each period end. For those tax positions where the
Company has determined there is a greater than 50% likelihood that a tax benefit
will be sustained, the Company has recorded the largest amount of tax benefit
that may potentially be realized upon ultimate settlement with a taxing
authority that has full knowledge of all relevant information. For those income
tax positions where it is determined there is less than 50% likelihood that a
tax benefit will be sustained, no tax benefit has been recognized.
The following is a tabular reconciliation of the total amounts of unrecognized
tax benefits:

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                                                          Year Ended January 31,
                                                   2020             2019            2018
Balance, beginning of the year               $      1,416       $       683     $         -
Increases to tax positions taken during the
current year                                        1,850               808             360
Increases to tax positions taken in prior
years                                                  73                 -             323
Decreases to tax positions taken in prior
years                                                   -               (75 )             -
Balance, end of year                         $      3,339       $     1,416     $       683



Although the Company believes that it has adequately reserved for its uncertain
tax positions, it can provide no assurance that the final tax outcome of these
matters will not be materially different. The Company makes adjustments to its
reserves when facts and circumstances change, such as the closing of a tax audit
or the refinement of an estimate. To the extent that the final tax outcome of
these matters is different than the amounts recorded, such differences will
affect the provision for income taxes in the period in which such determination
is made.
No liability was recorded for uncertain tax positions, or related interest or
penalties, as of January 31, 2020 and 2019. As of January 31, 2020
and 2019, the Company had $3.3 million and $1.4 million of unrecognized tax
benefits,
respectively, of which the total amount that would impact the effective tax rate, if recognized, is $3.3
million and $1.4 million, respectively. Any impact on the effective tax rate for
unrecognized tax benefits would be offset by the impact of the Company's full
valuation allowance on its U.S. federal and state deferred tax assets.
In the U.S., the Company's tax years from 2005 to present remain effectively
open to examination by the Internal Revenue Service, as well as various state
and foreign jurisdictions.
Interest or penalties, if incurred, are recognized as a component of income tax
expense. Penalties and interest recognized were not material for the years ended
January 31, 2020, 2019, and 2018.
As a result of certain realization requirements of ASC 718, Compensation - Stock
Compensation, the table of deferred tax assets and liabilities does not include
certain deferred tax assets as of January 31, 2019 that arose directly from (or
the use of which was postponed by) tax deductions related to equity compensation
that are greater than the compensation recognized for financial reporting.
12. Leases
The Company has operating leases primarily related to corporate offices and
certain equipment, and finance leases primarily related to data center
equipment. Our leases have remaining lease terms of less than 1 year to 7 years,
some of which include options to extend the leases for up to 5 years.
The components of lease expense recorded in the consolidated statements of
operations and comprehensive loss were as follows (in thousands):
                               Twelve Months Ended
                                 January 31, 2020
Operating lease cost          $              11,494
Finance lease cost:
Amortization of assets                        4,195
Interest on lease liabilities                   250
Short-term lease cost                           845
Variable lease cost                           1,865
Total lease costs             $              18,649




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Supplemental balance sheet information related to leases was as follows (in
thousands):
                                 Financial Statement Line Item       January 31, 2020
Assets:
                                Operating lease right-of-use
Operating lease assets          assets                             $           57,590
Finance lease assets            Property and equipment, net                     3,939
Total leased assets                                                $           61,529

Liabilities:
Current
                                Operating lease liabilities,
Operating lease liabilities     current                            $           13,020
                                Finance lease liabilities,
Finance lease liabilities       current                                         2,465
Non-current
                                Operating lease liabilities,
Operating lease liabilities     non-current                                    47,913
                                Finance lease liabilities,
Finance lease liabilities       non-current                                     1,664
Total lease liabilities                                            $           65,062


Other information related to leases was as follows (dollars in thousands):


                                                                    Twelve 

Months Ended

January 31, 2020
Supplemental cash flow information:
Cash paid for amounts included in the measurement of lease
liabilities:
Operating cash flows related to operating leases*                 $         

9,990


Operating cash flows related to finance leases                              

243


Financing cash flows related to finance leases                              

4,167


Right-of-use assets obtained in exchange for lease
obligations:
Operating leases                                                               12,173
Finance leases                                                                  2,364

Weighted-average remaining lease term (in years):
Operating leases                                                                  5.8
Finance leases                                                                    1.8

Weighted-average discount rate:
Operating leases                                                                  5.9 %
Finance leases                                                                    4.7 %


*Includes cash paid for lease liability accretion of $4.4 million.


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As of January 31, 2020, remaining maturities of lease liabilities were as follows (in thousands):


                        Operating     Finance
                         Leases       Leases
Fiscal 2021            $  13,345     $ 2,599
Fiscal 2022               12,510       1,286
Fiscal 2023               11,545         426
Fiscal 2024               11,812           -
Fiscal 2025               10,102           -
Thereafter                12,961           -
Total lease payments   $  72,275     $ 4,311
Less: imputed interest   (11,342 )      (182 )
Total                  $  60,933     $ 4,129



As of January 31, 2020, we had signed leases for additional office space that
had not yet commenced. Future non-cancelable lease payments associated with
these agreements totaled $42.3 million, payable over lease terms ranging from 7
to 9 years.
Total rent and related operating expenses recorded under Topic 840, the previous
lease standard, totaled $8.9 million, and $5.0 million for the years ended
January 31, 2019, and 2018, respectively.
As of January 31, 2019, future minimum annual lease payments (in thousands)
related to the lease agreements mentioned above were as follows:
                                            Operating      Capital
                                              Leases       Leases       Total
Fiscal 2020                                $    10,255    $  3,970    $ 14,225
Fiscal 2021                                     11,121       1,776      12,897
Fiscal 2022                                     11,293         463      11,756
Fiscal 2023                                     11,536           -      11,536
Fiscal 2024                                     11,812           -      11,812
Thereafter                                      23,064           -      23,064
Total minimum lease payments               $    79,081    $  6,209    $ 85,290
Less: amount representing interest                             277
Present value of capital lease obligations                $  5,932



13. Commitments and Contingencies
Lease Commitments
We have entered into various non-cancelable lease agreements related to
corporate offices and certain equipment, and finance leases primarily related to
data center equipment. For additional information regarding our lease
agreements, see Note 12.

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Purchase Commitments
The Company entered into a three-year commitment with a cloud-based hosting
service provider for $15.0 million in the period ended January 31, 2019. As of
January 31, 2020, $8.5 million of the total commitment amount remained unpaid,
of which the greater of our on-demand usage or $5.0 million is to be paid in
fiscal 2021, and an amount equal to the total commitment less the upfront
payments and monthly charges incurred through fiscal 2021 is to be paid in
fiscal 2022.
Legal matters
From time to time in the normal course of business, the Company may be subject
to various legal matters such as threatened or pending claims or proceedings. We
are not currently a party to any material legal proceedings  or claims, nor are
we aware of any pending or threatened litigation or claims against the Company
that could have a material adverse effect on our business, operating results,
cash flows, or financial condition should such litigation or claim be resolved
unfavorably. An indemnification claim has been made to the Company in a
litigation in which a former director and shareholder are parties.  At this
time, the Company cannot reasonably estimate the magnitude of its
indemnification obligation, if any.
14. 401(k) and Pension Plans
In March 2008, the Company initiated a 401(k) plan for the benefit of its
employees. No employer contributions were made to the 401(k) plan by the Company
during the fiscal years ended January 31, 2020, 2019, or 2018.
In January 2018, the Company began contributing to a pension plan for the
benefit of its employees based in the United Kingdom. In January 2020, the
Company began contributing to a pension plan for the benefit of its employees
based in Australia. Contributions to the plans by the Company were not material
during the years ended January 31, 2020, 2019 and 2018.
15. Related Party Transactions
Certain members of the board of directors serve as directors of, or are
executive officers of, and in some cases are investors in, companies that are
customers or vendors of the Company. Certain of the Company's executive officers
also serve as directors of, or serve in an advisory capacity to, companies that
are customers or vendors of the Company. Related-party transactions were not
material as of and for the years ended January 31, 2020, 2019, and 2018.
16. Geographic Information
Revenue by geographic location is determined by the location of the Company's
customers. The following table sets forth revenue (in thousands) by geographic
area:
                                             Year Ended January 31,
                                         2020         2019         2018

United States                         $ 214,492    $ 135,761    $  81,480
EMEA                                     29,246       21,087       14,654
Asia Pacific                             12,969       11,863        9,181

Americas other than the United States 14,175 9,011 5,938 Total

$ 270,882    $ 177,722    $ 111,253

No individual country other than the United States contributed more than 10% of total revenue during any of the periods presented.


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Property and equipment by geographic location is based on the location of the
legal entity that owns the asset. As of January 31, 2020 and January 31, 2019,
there was no significant property and equipment owned by the Company outside of
the United States.
17. Subsequent Events
In March 2020, the Company withdrew early from two certificates of deposit and
subsequently invested the aggregate amount withdrawn into U.S. treasury
securities funds, which qualify as cash and cash equivalents. The certificates
of deposit totaled $101.1 million of which $50.6 million was included in cash
and cash equivalents and $50.5 million was included in short-term investments on
the consolidated balance sheet as of January 31, 2020.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including
our principal executive officer (Chief Executive Officer) and principal
financial officer (Chief Financial Officer), we conducted an evaluation
(pursuant to Rule 13a-15(b) of the Exchange Act) of the effectiveness of our
disclosure controls and procedures, as defined in Rule 13a-15(e) under the
Exchange Act, as of January 31, 2020.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized,
and reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include controls and procedures designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosure.
Based on the evaluation of our disclosure controls and procedures, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were ineffective as of January 31, 2020 due to the
material weaknesses identified in our internal control over financial reporting
described below.  Following identification of the material weaknesses and prior
to filing this Annual Report on Form 10-K, we completed substantive procedures
for the year ended January 31, 2020. Based on these procedures, management
concluded that our consolidated financial statements included in this Form 10-K
have been prepared in accordance with U.S. GAAP. Our Chief Executive Officer and
Chief Financial Officer have certified that, based on their knowledge, the
financial statements, and other financial information included in this Form
10-K, fairly present in all material respects the financial condition, results
of operations and cash flows of the Company as of, and for, the periods
presented in this Form 10-K.
Management's Report on Internal Control over Financial Reporting
 Our management, including our Chief Executive Officer and Chief Financial
Officer, is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act). Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. GAAP. Our internal control over financial reporting
includes those policies and procedures that: (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. GAAP, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and
directors; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of our assets that
could have a material effect on the financial statements.

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 Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
as of January 31, 2020, based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) (2013 framework).
A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the company's annual or interim
financial statements will not be prevented or detected on a timely basis.
We identified a material weakness related to an ineffective control environment
as we did not maintain a sufficient complement of resources with an appropriate
level of controls knowledge and expertise commensurate with our financial
reporting requirements. This contributed to additional material weaknesses as
follows:
•      We did not design and maintain effective information technology ("IT")

general controls for certain information systems that are relevant to the

preparation of our financial statements. Specifically, we did not design

and maintain: (i) program change management controls for certain financial

systems to ensure that information technology program and data changes

affecting financial IT applications and underlying accounting records are


       identified, tested, authorized and implemented appropriately; (ii) user
       access controls to ensure appropriate segregation of duties that
       adequately restrict user and privileged access to certain financial
       applications, programs, and data to appropriate Company personnel; and

(iii) computer operations controls to ensure that critical batch jobs are

monitored and data backups are authorized and monitored.

• We did not design and maintain effective controls relating to the

completeness, accuracy and occurrence of order entry and pricing during

our billing and revenue processes. This material weakness was impacted by

the material weakness related to the design and maintenance of the

Company's IT general controls.




Because of these material weaknesses, our management has concluded that as of
January 31, 2020, the Company did not maintain effective internal control over
financial reporting.
These material weaknesses did not result in a misstatement to the financial
statements and there are no changes to previously released financial results.
However, these material weaknesses could result in misstatements of account
balances or disclosures that would result in a material misstatement to the
annual or interim consolidated financial statements that would not be prevented
or detected.
The effectiveness of the Company's internal control over financial reporting as
of January 31, 2020 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report, which
is included in Item 8 of this Annual Report on Form 10-K.
Remediation Activities
 The Company is working to remediate the material weaknesses in its internal
control over financial reporting.
•     Control environment. The Company is hiring additional qualified staff with
appropriate controls knowledge and expertise. Specifically, we are increasing
our internal audit function and third-party resources, as necessary, to
supplement internal staff.
•     IT general controls. The Company is hiring additional qualified staff with
appropriate controls knowledge and expertise.  In addition, investments are
being made in systems and tools to automate controls in our systems to better
support control requirements relating to proper segregation of duties, access
management, and change management processes.
•       Revenue. In addition to remediating IT general control deficiencies
impacting our revenue and billing processes, we will enhance certain processes
and controls in our order entry and revenue recognition processes, and also
formalize internal control over financial reporting for certain existing
procedures in our billing and revenue recognition processes.

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We believe that these actions will remediate the material weaknesses.

The

material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.


 Changes in Internal Control Over Financial Reporting
We concluded that the following changes during the quarter ended January 31,
2020 have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
 During the quarter ended January 31, 2020, we identified the material
weaknesses relating to our IT general controls and subscription and professional
services billing and revenue processes, as described above.
Item 9B. Other Information
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference to our Proxy
Statement relating to our 2020 Annual Meeting of Shareholders. The Proxy
Statement will be filed with the Securities and Exchange Commission within 120
days of the fiscal year ended January 31, 2020.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to our Proxy
Statement relating to our 2020 Annual Meeting of Shareholders. The Proxy
Statement will be filed with the Securities and Exchange Commission within 120
days of the fiscal year ended January 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
The information required by this item is incorporated by reference to our Proxy
Statement relating to our 2020 Annual Meeting of Shareholders. The Proxy
Statement will be filed with the Securities and Exchange Commission within 120
days of the fiscal year ended January 31, 2020.
Item 13. Certain Relationships and Related Transactions, and Director
Independence
The information required by this item is incorporated by reference to our Proxy
Statement relating to our 2020 Annual Meeting of Shareholders. The Proxy
Statement will be filed with the Securities and Exchange Commission within 120
days of the fiscal year ended January 31, 2020.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to our Proxy
Statement relating to our 2020 Annual Meeting of Shareholders. The Proxy
Statement will be filed with the Securities and Exchange Commission within 120
days of the fiscal year ended January 31, 2020.
Part III

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