0001528396-20-000053 | 10-K | XBRL Viewer

Document and Entity Information - USD ($) $ in Billions	12 Months Ended
Document and Entity Information - USD ($) $ in Billions	Jul. 31, 2020	Aug. 31, 2020	Jan. 31, 2020
Cover [Abstract]
Entity Central Index Key	0001528396
Current Fiscal Year End Date	--07-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	FY
Amendment Flag	false
Document Type	10-K
Document Annual Report	true
Document Period End Date	Jul. 31, 2020
Document Transition Report	false
Entity File Number	001-35394
Entity Registrant Name	Guidewire Software, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	36-4468504
Entity Address, Address Line One	2850 S. Delaware St., Suite 400,
Entity Address, City or Town	San Mateo
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	94403
City Area Code	650
Local Phone Number	357-9100
Title of 12(b) Security	Common Stock, $0.0001 par value
Trading Symbol	GWRE
Security Exchange Name	NYSE
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
ICFR Auditor Attestation Flag	true
Entity Public Float			$ 5.5
Entity Common Stock, Shares Outstanding (in shares)		83,474,780
Documents Incorporated by Reference	Portions of the registrant’s definitive Proxy Statement relating to its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this report where indicated. Such Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.

Consolidated Balance Sheets - USD ($) $ in Thousands	Jul. 31, 2020	Jul. 31, 2019
CURRENT ASSETS:
Cash and cash equivalents	$ 366,969	$ 254,101
Short-term investments	766,527	870,136
Accounts receivable, net of allowances of $1,276 and $1,441, respectively	114,242	138,443
Unbilled accounts receivable, net	49,491	36,728
Prepaid expenses and other current assets	45,989	35,566
Total current assets	1,343,218	1,334,974
Long-term investments	300,771	213,524
Unbilled accounts receivable, net	34,737	9,375
Property and equipment, net	65,235	65,809
Operating lease assets	103,797
Intangible assets, net	39,708	66,542
Goodwill	340,877	340,877
Deferred tax assets, net	101,565	90,308
Other assets	34,944	45,554
TOTAL ASSETS	2,364,852	2,166,963
CURRENT LIABILITIES:
Accounts payable	22,634	34,255
Accrued employee compensation	58,547	73,365
Deferred revenue, net	118,311	108,304
Other current liabilities	25,706	16,348
Total current liabilities	225,198	232,272
Lease liabilities	119,408
Convertible senior notes, net	330,208	317,322
Deferred revenue, net	14,685	23,527
Other liabilities	18,585	19,641
Total liabilities	708,084	592,762
Commitments and contingencies (Note 8)
STOCKHOLDERS’ EQUITY:
Common stock, par value $0.0001 per share—500,000,000 shares authorized as of July 31, 2020 and 2019; 83,461,925 and 82,140,883 shares issued and outstanding as of July 31, 2020 and 2019, respectively	8	8
Additional paid-in capital	1,499,050	1,391,904
Accumulated other comprehensive loss	(5,246)	(7,758)
Retained earnings	162,956	190,047
Total stockholders’ equity	1,656,768	1,574,201
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 2,364,852	$ 2,166,963

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jul. 31, 2020	Jul. 31, 2019
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (in shares)	500,000,000	500,000,000
Common Stock, Shares, Issued (in shares)	83,461,925	82,140,883
Common stock, shares outstanding (in shares)	83,461,925	82,140,883
Accounts receivable, allowance for credit loss	$ 1,276	$ 1,441

Consolidated Statements of Income - USD ($) $ in Thousands	12 Months Ended
Consolidated Statements of Income - USD ($) $ in Thousands	Jul. 31, 2020	Jul. 31, 2019	Jul. 31, 2018
Revenue:
Total revenue	$ 742,307	$ 719,514	$ 652,849
Cost of revenue:
Total cost of revenue	338,015	324,350	296,783
Gross profit:
Subscription and support	86,315	76,877	65,604
License	319,988	312,572	270,505
Services	(2,011)	5,715	19,957
Total gross profit	404,292	395,164	356,066
Operating expenses:
Research and development	200,575	188,541	171,657
Sales and marketing	142,420	130,751	124,117
General and administrative	85,183	74,401	75,916
Total operating expenses	428,178	393,693	371,690
Income (loss) from operations	(23,886)	1,471	(15,624)
Interest income	24,705	30,182	13,281
Interest expense	(17,945)	(17,334)	(6,442)
Other income (expense), net	(7,205)	(1,867)	509
Income (loss) before provision for income taxes	(24,331)	12,452	(8,276)
Provision for (benefit from) income taxes	2,867	(8,280)	18,467
Net income (loss)	$ (27,198)	$ 20,732	$ (26,743)
Earnings per share:
Basic (in USD per share)	$ (0.33)	$ 0.25	$ (0.34)
Diluted (in USD per share)	$ (0.33)	$ 0.25	$ (0.34)
Shares used in computing earnings per share:
Basic (in shares)	82,855,392	81,447,998	77,709,592
Diluted (in shares)	82,855,392	82,681,214	77,709,592
Subscription and support
Revenue:
Total revenue	$ 203,473	$ 150,474	$ 110,738
Cost of revenue:
Total cost of revenue	117,158	73,597	45,134
License
Revenue:
Total revenue	331,554	320,272	275,606
Cost of revenue:
Total cost of revenue	11,566	7,700	5,101
Services
Revenue:
Total revenue	207,280	248,768	266,505
Cost of revenue:
Total cost of revenue	$ 209,291	$ 243,053	$ 246,548

Consolidated Statements of Comprehensive Income Statement - USD ($) $ in Thousands	12 Months Ended
	Jul. 31, 2020	Jul. 31, 2019	Jul. 31, 2018
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ (27,198)	$ 20,732	$ (26,743)
Other comprehensive income (loss):
Foreign currency translation adjustments	518	(1,841)	(1,567)
Unrealized gains (losses) on available-for-sale securities	2,138	2,956	(596)
Tax benefit (expense) on unrealized gains (losses) on available-for-sale securities	(669)	(573)	233
Reclassification adjustment for realized gains (losses) included in net income (loss)	632	(552)	(22)
Total other comprehensive income (loss)	2,619	(10)	(1,952)
Comprehensive income (loss)	$ (24,579)	$ 20,722	$ (28,695)

- Definition

Amount after tax of increase (decrease) in equity from transactions and other events and circumstances from net income and other comprehensive income. Excludes changes in equity resulting from investments by owners and distributions to owners.

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- Definition

Amount after tax and reclassification adjustments of other comprehensive income (loss).

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Consolidated Statements of Stockholders' Equity (Deficit) - USD ($) $ in Thousands	Total	Cumulative Effect, Period of Adoption, Adjustment	Additional paid-in capital	Additional paid-in capital Cumulative Effect, Period of Adoption, Adjustment	Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss) Cumulative Effect, Period of Adoption, Adjustment	Retained Earnings	Retained Earnings Cumulative Effect, Period of Adoption, Adjustment	Common stock Common stock
Balance (in shares) at Jul. 31, 2017									75,007,625,000
Balance, beginning at Jul. 31, 2017	$ 888,530		$ 828,415		$ (5,796)		$ 65,903		$ 8
Balance, beginning (Accounting Standards Update 2016-09) at Jul. 31, 2017		$ 86,825		$ 1,009				$ 85,816
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	$ (26,743)						(26,743)
Issuance of common stock upon exercise of stock options (in shares)	150,924								150,924,000
Issuance of common stock upon exercise of stock options	$ 2,013		2,013
Issuance of common stock upon RSU release (in shares)									1,255,605,000
Issuance of common stock for Cyence acquisition (in shares)									1,568,973,000
Issuance of common stock for Cyence acquisition	117,457		117,457
Public offering, net of issuance cost (in shares)									2,628,571,000
Public offering, net of issuance cost	220,948		220,948
Equity component of convertible senior notes, net of issuance cost	74,562		74,562
Purchase of capped calls	(37,200)		(37,200)
Stock-based compensation	89,176		89,176
Foreign currency translation adjustment	(1,567)				(1,567)
Unrealized gain (loss) on available-for-sale securities	(363)				(363)
Reclassification adjustment for realized gain on available-for-sale securities, included in net income	(22)				(22)
Balance (in shares) at Jul. 31, 2018									80,611,698,000
Balance, ending at Jul. 31, 2018	1,413,616		1,296,380		(7,748)		124,976		$ 8
Balance, ending (Accounting Standards Update 2014-09) at Jul. 31, 2018		44,339						44,339
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	$ 20,732						20,732
Issuance of common stock upon exercise of stock options (in shares)	301,901								301,901,000
Issuance of common stock upon exercise of stock options	$ 3,954		3,954
Issuance of common stock upon RSU release (in shares)									1,276,252,000
Issuance of common stock upon restricted stock units ("RSU") release	0
Stock-based compensation	91,570		91,570
Foreign currency translation adjustment	(1,841)				(1,841)
Unrealized gain (loss) on available-for-sale securities	2,383				2,383
Reclassification adjustment for realized gain on available-for-sale securities, included in net income	(552)				(552)
Cancellation of Common Stock for Cyence acquisition (in shares)									(48,968,000)
Balance (in shares) at Jul. 31, 2019									82,140,883,000
Balance, ending at Jul. 31, 2019	1,574,201		1,391,904		(7,758)		190,047		$ 8
Balance, ending (Accounting Standards Update 2018-02) at Jul. 31, 2019		$ 0				$ (107)		$ 107
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	$ (27,198)						(27,198)
Issuance of common stock upon exercise of stock options (in shares)	132,573								132,573,000
Issuance of common stock upon exercise of stock options	$ 4,955		4,955
Issuance of common stock upon RSU release (in shares)									1,188,469,000
Issuance of common stock upon restricted stock units ("RSU") release	0
Stock-based compensation	102,191		102,191
Foreign currency translation adjustment	518				518
Unrealized gain (loss) on available-for-sale securities	1,469				1,469
Reclassification adjustment for realized gain on available-for-sale securities, included in net income	632				632
Balance (in shares) at Jul. 31, 2020									83,461,925,000
Balance, ending at Jul. 31, 2020	$ 1,656,768		$ 1,499,050		$ (5,246)		$ 162,956		$ 8

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Jul. 31, 2020	Jul. 31, 2019	Jul. 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ (27,198)	$ 20,732	$ (26,743)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	42,641	39,953	35,611
Amortization of debt discount and issuance costs	12,886	12,194	4,512
Stock-based compensation	101,817	91,516	89,614
Charges to bad debt and revenue reserves	367	670	1,062
Deferred income tax	(11,859)	(13,998)	14,150
Amortization of premium (accretion of discount) on available-for-sale securities, net	(1,882)	(7,757)	(1,418)
Changes in fair value of strategic investment	10,672	0	0
Other non-cash items affecting net income (loss)	739	189	0
Changes in operating assets and liabilities:
Accounts receivable	23,878	(15,057)	(40,832)
Unbilled accounts receivable	(38,125)	(17,341)	0
Prepaid expenses and other assets	(8,672)	(16,251)	(2,737)
Operating lease assets	(10,784)
Accounts payable	(1,209)	(5,521)	16,794
Accrued employee compensation	(15,624)	13,825	9,230
Deferred revenue	1,165	(9,628)	32,358
Lease liabilities	18,678
Other liabilities	15,576	22,600	8,858
Net cash provided by (used in) operating activities	113,066	116,126	140,459
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities	(1,280,755)	(1,209,312)	(859,657)
Sales of available-for-sale securities	134,050	77,204	74,118
Maturities of available-for-sale securities	1,168,720	879,532	390,025
Purchases of property and equipment	(21,377)	(44,921)	(9,398)
Capitalized software development costs	(4,283)	(3,936)	(2,613)
Acquisitions of business, net of acquired cash	0	0	(130,059)
Purchases of strategic investments	(2,156)	0	0
Net cash provided by (used in) investing activities	(5,801)	(301,433)	(537,584)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible senior notes, net of issuance costs	0	0	387,239
Proceeds from issuance of common stock, net of issuance costs	0	0	220,948
Purchase of capped calls	0	0	(37,200)
Proceeds from issuance of common stock upon exercise of stock options	4,955	3,954	2,013
Net cash provided by (used in) financing activities	4,955	3,954	573,000
Effect of foreign exchange rate changes on cash and cash equivalents	648	(1,686)	(1,911)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	112,868	(183,039)	173,964
CASH AND CASH EQUIVALENTS—Beginning of period	254,101	437,140	263,176
CASH AND CASH EQUIVALENTS—End of period	366,969	254,101	437,140
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	5,000	5,036	0
Cash paid for income taxes, net of tax refunds	4,888	4,557	4,744
Accruals for purchases of property and equipment	343	10,763	1,508
Accruals for capitalized software development costs	$ 406	$ 298	$ 189

The Company and Summary of Significant Accounting Policies

12 Months Ended

Jul. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The Company and Summary of Significant Accounting Policies

The Company and Summary of Significant Accounting Policies and Estimates

Company

Guidewire Software, Inc., a Delaware corporation, was incorporated on September 20, 2001. Guidewire Software, Inc., together with its subsidiaries (the “Company”), provides a technology platform which combines core operations, digital engagement, analytics, and artificial intelligence (AI) applications. The Company’s technology platform supports core insurance operations, including underwriting and policy administration, claim management and billing; insights into data that can improve business decision making; and digital sales, service and claims experiences for policyholders, agents, and other key stakeholders. The Company’s customers are primarily property and casualty insurance carriers.

Basis of Presentation and Consolidation

The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The consolidated financial statements and notes include the Company and its wholly-owned subsidiaries and reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for a fair presentation of the periods presented. All intercompany balances and transactions have been eliminated in consolidation.

Reclassification

For the fiscal year ended July 31, 2020, the Company changed the presentation for revenue and cost of revenue to include subtotals for “subscription and support,” “license,” and “services.” The Company’s presentation in prior fiscal years included subtotals for “license and subscription,” “maintenance” (now referred to as “support”), and “services.” Accordingly, prior period amounts have been reclassified to conform to the current period presentation in the Company's consolidated financial statements and the accompanying notes.

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. Significant items subject to such estimates include, but are not limited to, revenue recognition, the useful lives of property and equipment and intangible assets, allowance for doubtful accounts, valuation allowance for deferred tax assets, stock-based compensation, annual bonus attainment, income tax uncertainties, fair value of convertible senior notes and investments, valuation of goodwill and intangible assets, fair value of acquired assets and assumed liabilities, software development costs to be capitalized, and contingencies. These estimates and assumptions are based on management’s best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ from these estimates.

Foreign Currency

The functional currency of the Company’s foreign subsidiaries is their respective local currency. The Company translates all assets and liabilities of foreign subsidiaries to U.S. dollars at the current exchange rate as of the applicable balance sheet date. Revenue and expenses are translated at the average exchange rate prevailing during the period in which the transactions occur. The effects of foreign currency translations are recorded in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity in the accompanying consolidated balance sheets. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of the recording entity are included in other income (expense) in the consolidated statements of operations.

Cash and Cash Equivalents

Cash and cash equivalents are comprised of cash and highly liquid investments with remaining maturities of 90 days or less at the date of purchase. Cash equivalents primarily consist of commercial paper and money market funds.

Investments

Management determines the appropriate classification of investments at the time of purchase based upon management’s intent with regard to such investments. All investments in the periods presented have been classified as available-for-sale.

The Company classifies investments as short-term when they have remaining contractual maturities of one year or less from the balance sheet date, and as long-term when the investments have remaining contractual maturities of more than one year from the balance sheet date. All investments are recorded at fair value with unrealized holding gains and losses included in accumulated other comprehensive income (loss) in the consolidated balance sheets.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Maintenance and repairs that do not extend the life or improve an asset are expensed in the period incurred.

The estimated useful lives of property and equipment are as follows:


Computer hardware						3 years
Purchased software						3 years
Equipment and machinery						3 to 5 years
Furniture and fixtures						5 years
Leasehold improvements						Shorter of 10 years or remaining lease term

Software Development Costs

Certain development costs related to software delivered to customers (“self-managed software”) incurred subsequent to the establishment of technological feasibility are subject to capitalization and amortized over the estimated lives of the related products. Technological feasibility is established upon completion of a working model. Costs incurred subsequent to the establishment of technological feasibility have not been material and, therefore, all software development costs related to self-managed software have been charged to research and development expense in the accompanying consolidated statements of operations as incurred.

For qualifying costs incurred for computer software developed for internal use, which includes software used to deliver subscription services exclusively through the cloud, the Company begins to capitalize costs when preliminary development efforts are successfully completed, management has authorized and committed project funding, it is probable that the project will be completed, and the software will be used as intended. If any of these criteria cease being met before the software reaches its intended use, any capitalized costs related to the project will be impaired. When the software reaches its intended use, capitalized costs are amortized to cost of revenue over the estimated useful lives of the related assets, generally estimated to be three to five years. Costs incurred prior to meeting these capitalization criteria and costs incurred for training and maintenance are expensed as incurred and recorded in research and development expense on the Company’s consolidated statements of operations. Capitalized software development costs are recorded in property and equipment on the Company’s consolidated balance sheets.

Leases

On August 1, 2019, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 842: Leases (“ASC 842”) using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. Under ASC 842, the Company determines if an arrangement is a lease at inception of the agreement. If an arrangement is determined to be a lease, an operating lease asset, also known as a right-of-use asset, and lease liability are recorded based on the present value of lease payments over the lease term. In connection with determining the present value of the lease payments, the Company considers only payments that are fixed and determinable at the time of commencement, including non-lease components that are fixed throughout the lease term. Variable components of the lease payments such as utilities and maintenance costs, are expensed as incurred and not included in determining the present value of the lease liability. As the Company's leases generally do not provide an implicit rate, the Company's incremental borrowing rate, calculated based on available information at the lease commencement date, is used in determining the present value of the lease payments. The Company's incremental borrowing rate is a hypothetical rate based on the Company's understanding of its credit rating. The Company's lease term used to calculate the lease liability and operating lease asset includes options to extend or terminate the lease if it is reasonably certain the Company will exercise that option. Operating lease assets also include any lease payments made prior to commencement and are recorded net of any lease incentives

received. Lease expense is recognized on a straight-line basis over the lease term and is reflected in the consolidated statements of operations in each of the cost of revenue and operating expense categories.

The Company also enters into agreements to sublease unoccupied office space. Any sublease payments received in excess of the straight-line rent expense related to the subleased space are recorded as an offset to operating expenses over the sublease term.

Operating leases are included in operating lease assets, other current liabilities, and lease liabilities on the consolidated balance sheets.

Impairment of Long-Lived Assets, Intangible Assets, and Goodwill

The Company evaluates its long-lived assets, consisting of property and equipment, operating lease assets, and intangible assets, for indicators of possible impairment when events or changes in circumstances indicate that the carrying amount of certain assets may not be recoverable. Impairment exists if the carrying amount of such assets exceed the estimates of future net undiscounted cash flows expected to be generated by such assets. Should impairment exist, the impairment loss would be measured based on the excess carrying amount of the assets over the estimated fair value of the assets.

The Company tests goodwill for impairment annually, during the fourth quarter of each fiscal year, and in the interim whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company evaluates qualitative factors to determine whether it is more likely than not that the fair value of the Company’s single reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. In performing the qualitative assessment, the Company considers events and circumstances, including, but not limited to, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or carrying amount of a reporting unit’s net assets, and changes in the price of the Company’s common stock. If, after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then the two-step goodwill impairment test is not performed. There have been no goodwill impairments during the periods presented.

Public Offering and Convertible Senior Notes

In March 2018, the Company completed a public offering of 2,628,571 shares of its common stock, including the sale of shares in connection with the underwriters’ exercise in full of their option to purchase additional shares of common stock from the Company. The public offering price of the shares sold in the offering was $87.50 per share. No shares were sold by the Company’s stockholders in this public offering. Concurrently, the Company completed a sale of $400.0 million aggregate principal amount of 1.25% Convertible Senior Notes due 2025 (the “Convertible Senior Notes”), including amounts sold in connection with the underwriters’ exercise in full of their option to purchase additional Convertible Senior Notes. Net of offering expenses and underwriting discounts (“issuance costs”), the Company received net proceeds of approximately $220.9 million related to the common stock offering and $387.2 million related to the convertible note offering.

The Company accounts for the liability and equity components of the issued Convertible Senior Notes separately. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the Convertible Senior Notes as a whole. This difference represents a debt discount that is amortized to interest expense using the effective interest method over the term of the Convertible Senior Notes. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The liability and equity components will not be remeasured as long as the conversion option continues to meet the requirements for equity classification. The equity component is net of issuance costs and recorded in additional paid-in capital.

Business Combinations

The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and subject to refinement and, as a result, actual results may differ from estimates. During the measurement period, which may be up to one year from the acquisition date, if new information is obtained about facts and circumstances that existed as of the acquisition date, the Company may record adjustments to the fair value of these assets and liabilities, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired and liabilities assumed, whichever comes first, subsequent adjustments, if any, are recorded to the Company’s consolidated statements of operations.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, investments, accounts receivable, and unbilled accounts receivable. The Company maintains its cash, cash equivalents, and investments with high quality financial institutions. The Company is exposed to credit risk for cash held in financial institutions in the event of a default to the extent that such amounts recorded on the consolidated balance sheets are in excess of amounts that are insured by the Federal Deposit Insurance Corporation.

No customer individually accounted for 10% or more of the Company’s revenue for the years ended July 31, 2020, 2019 and 2018. As of July 31, 2020 and 2019, no customer accounted for 10% or more of the Company’s total accounts receivable.

Accounts Receivable and Allowance for Doubtful Accounts and Revenue Reserves

Accounts receivable are recorded at invoiced amounts and do not bear interest. While the Company does not require collateral, the Company performs ongoing credit evaluations of its customers. The Company maintains an allowance for doubtful accounts based upon the expected collectability of its accounts receivable. The expectation of collectability is based on historical loss patterns, the number of days that billings are past due, and an evaluation of the potential risk of loss associated with delinquent accounts.

Revenue Recognition

The Company’s revenue is derived from contracts with customers. The majority of the Company’s revenue is derived from licensing arrangements for its software, subscriptions to its cloud services, and implementation and other professional services arrangements. The Company accounts for revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), which the Company adopted on August 1, 2018.

The core principle of ASC 606 is to recognize revenue upon the transfer of services or products to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or products. The Company applies the following framework to recognize revenue:

Identification of the contract, or contracts, with the customer

The Company considers the terms and conditions of written contracts and its customary business practices in identifying its contracts under ASC 606. The Company determines it has a contract with a customer when the contract is approved, the Company can identify each party’s rights regarding the services and products to be transferred, the Company can identify the payment terms for the services and products, the Company has determined that the customer has the ability and intent to pay, and the contract has commercial substance. In general, contract terms will be reflected in a written document that is signed by both parties. At contract inception, the Company evaluates whether two or more contracts should be combined and accounted for as a single contract. The Company also evaluates the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer.

Contracts may be modified to account for changes in contract scope or price. The Company considers contract modifications to exist when the modification either creates new rights or obligations or changes the existing enforceable rights and obligations of either party. Contract modifications for products and services that are distinct from the existing contract and are priced commensurate with their standalone selling price are treated as separate contracts, and are accounted for prospectively. Contract modifications for products and services that are distinct but are not priced commensurate with their standalone selling price or are not distinct from the existing contract may affect the initial transaction price or the allocation of the transaction price to the performance obligations in the contract. In such cases, previously recognized revenue may be adjusted.

Identification of the performance obligation in the contract

Performance obligations promised in a contract are identified based on the services or products that will be transferred to the customer that are both:

i.capable of being distinct, whereby the customer can benefit from the service or product either on its own or together with other resources that are readily available from the Company or third parties, and

ii.distinct in the context of the contract, whereby the transfer of the services or products is separately identifiable from other promises in the contract.

To the extent a contract includes multiple promised services or products, the Company applies judgment to determine whether promised services or products are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised services or products are accounted for as a combined performance obligation.

The Company generates revenue from the following sources, which represent the performance obligations of the Company:

i.Subscription services related to the Company’s Software-as-a-Service (“SaaS”) offerings, including hosting;

ii.Support activities that consist of email and phone support, bug fixes, and unspecified software updates and upgrades released when, and if, available during the support term;

iii.Self-managed software licenses related to term or perpetual agreements; and

iv.Services related to the implementation and configuration of the Company’s software, reimbursable travel, and training.

Subscriptions are typically sold with a three- to five-year initial term with a customer option to renew on an annual basis after the initial term. Term licenses generally have a two-year initial term with a customer option to renew on an annual basis after the initial term. In certain circumstances, the Company will enter into term licenses with an initial term of more than two years or a renewal period longer than one year. Support for term licenses follows the same contract periods. Professional services typically are time and materials contracts that last for an average period of approximately one year.

Determination of the transaction price

The transaction price is determined based on the consideration to which the Company expects to be entitled in exchange for transferring services and products to the customer. Consideration may vary due to discounts, incentives, and potential service level credits or contractual penalties. Variable consideration is estimated and included in the transaction price if, in the Company’s judgment, it is probable that there will not be a significant future reversal of cumulative revenue under the contract.

Self-managed software licenses and subscription services may be subject to either fixed or variable installments. Variable installments are generally subject to changes in a customer’s Direct Written Premium (“DWP”) or a customer’s Gross Written Premium (“GWP”). When consideration is subject to variable installments, the Company estimates variable consideration using the expected value method based on historical DWP or GWP usage to the extent that a significant revenue reversal is not probable to occur. When consideration is subject to a customer termination right, the Company estimates the total transaction price using the most likely method, and defers consideration associated with the customer’s termination right until it expires.

The Company elected the practical expedient to evaluate whether a significant financing component exists when the contract term is greater than one year and the timing of revenue recognition occurs in advance of invoicing. This timing difference occurs when control of the software license is transferred at a point in time, usually at the contract onset, but the customer payments occur over time. A significant financing component generally does not exist under the Company’s standard contracting and billing practices. For example, the Company’s typical time-based licenses have a two-year initial term with the final payment due at the end of the first year.

Allocation of the transaction price to the performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on its standalone selling price (“SSP”) in relation to the total fair value of all performance obligations in the arrangement. The majority of the Company’s contracts contain multiple performance obligations, such as when licenses are sold with support, implementation services, or training services. Additionally, as customers transition to subscription services, customers may be under contract for both self-managed licenses and subscription services for a period of time, which may require an allocation of the transaction price to each performance obligation. Some of the Company’s performance obligations, such as support, implementation services, and training services, have observable inputs that are used to determine the SSP of those distinct performance obligations. Where SSP is not directly observable, the Company determines the SSP using information that may include market conditions and other observable inputs. In the circumstances when available information to determine SSP is highly variable or uncertain, such as for our term licenses, the Company will use the residual method.

Recognition of revenue when, or as, the Company satisfies a performance obligation

The Company recognizes revenue when control of the services or products are transferred to a customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or products. The Company is

principally responsible for the satisfaction of its distinct performance obligations, which are satisfied either at a point in time or over a period of time.

Performance obligations satisfied at a point in time

Self-managed software licenses

Self-managed term and perpetual software licenses comprise the majority of distinct performance obligations that are satisfied at a point in time. Revenue is recognized at the point in which the self-managed software licenses are made available to a customer. Consideration for self-managed software licenses is typically billed in advance on an annual basis over the license term.

Performance obligations satisfied over a period of time

Subscriptions, support activities, and professional service arrangements comprise the majority of distinct performance obligations that are satisfied over a period of time.

Subscription arrangements

Revenue from subscription arrangements is recognized ratably over the subscription period using a time-based measure of progress as customers receive the benefits from their subscriptions over the contractually agreed-upon term. The Company’s subscription arrangements are generally three to five years in duration. Consideration from subscription arrangements is typically billed in advance on an annual basis over the contract period.

Support activities

Revenue from support activities associated with self-managed licenses is a stand-ready obligation, which is recognized over the contractually agreed-upon term using a time-based measure of progress as customers receive benefits from the availability of support technicians over the support period. Consideration for support activities is typically billed in advance on an annual basis. The Company’s support activities are consistently priced as a percentage of the associated self-managed software license.

Services

Revenue from professional service arrangements is recognized over the service period as the underlying services are performed.

In substantially all of the Company’s professional service contracts, services are separately identifiable performance obligations for which related revenue and costs are recognized according to when each service obligation is delivered. Substantially all professional services engagements are billed and recognized on a time and materials basis. In select situations, the Company will contract professional services on a fixed fee basis, where the Company generally recognizes services revenue over time, using an input method. The measure of progress of the professional services being provided under these fixed fee arrangements is based on hours incurred compared to estimates of the total hours to complete the performance obligation.

When professional services are sold with a self-managed license or subscription arrangement, the Company evaluates whether the performance obligations are distinct or separately identifiable, or whether they constitute a single performance obligation. In the limited cases where professional services are not considered to be distinct from the self-managed license or subscription services, the Company will recognize revenue based on the nature and term of the combined performance obligation when control of the combined performance obligation is transferred to the customer.

Balance Sheet Presentation

Contracts with customers are reflected in the consolidated balance sheets as follows:

•Accounts receivable, net represents amounts billed to customers in accordance with contract terms for which payment has not yet been received. It is presented net of the allowance for doubtful accounts and revenue reserves as part of current assets in the consolidated balance sheets.

•Unbilled accounts receivable, net represents amounts that are unbilled due to agreed-upon contractual terms in which billing occurs subsequent to revenue recognition. This situation typically occurs when the Company transfers control of self-managed software licenses to customers up-front, but invoices customers annually over the term of the license. Unbilled accounts receivable is classified as either current or non-current based on the duration of remaining time between the date of the consolidated balance sheets and the anticipated due date of the underlying receivables. It is

presented net of the allowance for doubtful accounts, if applicable, in the consolidated balance sheets. Under ASC 606, this balance represents contract assets.

•Contract costs include customer acquisition costs, which consist primarily of sales commissions paid to sales personnel and their related payroll taxes and referral fees paid to third-parties, and costs to fulfill a contract, which consist primarily of royalties payable to third-party software providers that support both the Company’s software offerings and support services. The short-term portion is presented as prepaid and other current assets. The long-term portion is presented as other assets.

•Deferred costs represent costs related to our professional services that have been deferred to align with revenue recognition. The short-term portion is presented as prepaid and other current assets. The long-term portion is presented as other assets.

•Deferred revenue, net represents amounts that have been invoiced and for which the Company has the right to bill, but that have not been recognized as revenue because the related products or services have not been transferred to the customer. Deferred revenue that will be realized during the 12-month period following the date of the consolidated balance sheets is recorded as current. The remaining deferred revenue is recorded as non-current. Under ASC 606, this balance represents contract liabilities.

The Company may receive consideration from its customers in advance of performance on a portion of the contract and, on another portion of the contract, perform in advance of receiving consideration. Contract assets and liabilities related to rights and obligations in a contract are interdependent. Therefore, contract assets and liabilities are presented net at the contract level, as either a single contract asset or a single contract liability, in the consolidated balance sheets.

Remaining performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. The Company excludes amounts related to professional services contracts that are on a time and materials basis from remaining performance obligations.

Contract Costs

Contract costs consists of two components, customer acquisition costs and costs to fulfill a contract.

Customer acquisition costs are capitalized only if the costs are incrementally incurred to obtain a customer contract and the expected amortization period is greater than one year. Contract costs are classified as either current or non-current based on the duration of time remaining between the date of the consolidated balance sheets and the anticipated amortization date of the associated costs. Capitalized customer acquisition costs related to software licenses, subscriptions, and support services are amortized over the anticipated period of time that such goods and services are expected to be provided to a customer, which the Company estimates to be approximately five years. The amortization of customer acquisition costs is classified as a sales and marketing expense in the consolidated statement of operations.

Costs to fulfill a contract, or fulfillment costs, are only capitalized if they relate directly to a contract with a customer, the costs generate or enhance resources that will be used to satisfy performance obligations in the future, and the costs are expected to be recoverable. Fulfillment costs would be generally amortized over the same period of time as the customer acquisition costs. The amortization of fulfillment costs is classified as a cost of revenue in the consolidated statement of operations.

Warranties

The Company generally provides a warranty for its software products and services to its customers for periods ranging from three to twelve months. The Company’s software products are generally warranted to be free of defects in materials and workmanship under normal use and to substantially perform as described in published documentation. The Company’s services are generally warranted to be performed in a professional manner and to materially conform to the specifications set forth in the related customer contract. In the event there is a failure of such warranties, the Company generally will correct the problem or provide a reasonable workaround or replacement product. If the Company cannot correct the problem or provide a workaround or replacement product, then the customer’s remedy is generally limited to a refund of the fees paid for the nonconforming product or services. Warranty expense has been insignificant to date.

Advertising Costs

Advertising costs are expensed as incurred and amounts incurred were not material during the years ended July 31, 2020, 2019 and 2018.

Stock-Based Compensation

The Company accounts for stock-based compensation using the fair value method, which requires the Company to measure stock-based compensation based on the grant-date fair value of the awards and recognize the compensation expense over the requisite service period. The Company recognizes compensation expense net of actual forfeitures. To date, the Company has granted or assumed stock options, restricted stock awards (“RSAs”), time-based restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), and restricted stock units that may be earned subject to the Company’s total shareholder return ranking relative to the software companies in the S&P Software and Services Select Industry Index (“S&P Index”) for a specified performance period or specified performance periods, service periods, and in select cases, subject to certain performance conditions (“TSR PSUs”). RSAs, RSUs, PSUs, and TSR PSUs are collectively referred to as “Stock Awards.”

The fair value of the Company’s RSAs, RSUs, and PSUs is equal to the market value of the Company’s common stock on the date of grant. These awards are subject to time-based vesting, which generally occurs over a period of four years. The Company recognizes compensation expense for awards that contain only service conditions on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. The Company recognizes the compensation cost for awards that contain either performance conditions, market conditions, or both using the graded vesting method and a portion of the expense may fluctuate depending on changing estimates of the achievement of the performance conditions.

The fair value of the Company’s stock options and TSR PSUs are estimated at the grant date using the Black-Scholes model and Monte Carlo simulation method, respectively. The assumptions utilized under these methods require judgments and estimates. Changes in these inputs and assumptions could affect the measurement of the estimated fair value of the related compensation expense of these stock options and stock awards. Compensation expense associated with TSR PSUs will be recognized over the vesting period regardless of whether the market condition is ultimately satisfied; however, the expense will be reversed if a grantee terminates prior to satisfying the requisite service period. For TSR PSUs containing an additional performance condition, a portion of the expense may fluctuate depending on estimates of the achievement of the performance conditions. All TSR PSUs will vest at the end of a three-year period.

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. All deferred tax assets and liabilities are classified as non-current on the Company’s consolidated balance sheets. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded when it is more likely than not that some portion or all of such deferred tax assets will not be realized and is based on both positive and negative evidence about the future, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

The effective tax rate in any given financial statement period may differ materially from the statutory rate. These differences may be caused by changes in tax regulations and resulting changes in the deferred tax valuation allowance; changes in the mix and level of income or losses; changes in the expected outcome of tax audits; permanent differences for stock-based compensation, including excess tax benefits; research and development credits; the tax rate differences between the United States and foreign countries; foreign withholding taxes; certain non-deductible expenses, including executive compensation; acquisition-related expenses; and provisions under the Tax Cuts and Jobs Act (the “Tax Act”), including a provision to tax global intangible low-taxed income of foreign subsidiaries, a special deduction for foreign-derived intangible income, and a base erosion anti-abuse tax that may tax certain payments between a U.S. corporation and its foreign subsidiaries.

The Company records interest and penalties related to unrecognized tax benefits as income tax expense in its consolidated statement of operations.

Recently Adopted Accounting Pronouncements

Leases (Topic 842): Leases

On August 1, 2019, the Company adopted ASC 842 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after August 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under ASC 840, Leases ("ASC 840").

The Company elected the package of practical expedients permitted under the transition guidance, such that, for any leases that existed prior to August 1, 2019, the Company did not reassess the lease classification, whether contracts are or contain embedded leases, and the capitalization of initial direct costs. The Company also elected to combine lease and non-lease components for all leases and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statement of operations on a straight-line basis over the lease term.

Upon adoption, the Company recognized total operating lease assets of $93.0 million, with corresponding lease liabilities of $111.7 million in the consolidated balance sheets. The operating lease assets include adjustments for prepayments and lease incentives. The adoption did not impact opening retained earnings.

Income Statement, Reporting Comprehensive Income (Topic 220): Reclassification of Certain Effects from Accumulated Other Comprehensive Income

In February 2018, the Financial Accounting Standard Board ("FASB") issued ASU No. 2018-02, Income Statement, Reporting Comprehensive Income (Topic 220): Reclassification of Certain Effects from Accumulated Other Comprehensive Income, which allows a reclassification of stranded tax effects from accumulated other comprehensive income to retained earnings, as a result of the Tax Act. On August 1, 2019, the Company adopted this standard, which had an immaterial impact on retained earnings.

Revenue

12 Months Ended

Jul. 31, 2020

Revenue from Contract with Customer [Abstract]

Revenue

Disaggregation of Revenue

Revenue by revenue type and by geography is as follows (in thousands):


	Fiscal year ended July 31, 2020
	Subscription and support		License		Services		Total

United States	$	139,059	$	174,183	$	149,297	$	462,539
Canada	18,216		36,184		4,595		58,995
Other Americas	4,454		6,374		7,780		18,608
Total Americas	161,729		216,741		161,672		540,142
United Kingdom	6,942		36,185		5,397		48,524
Other EMEA	19,544		43,988		26,389		89,921
Total EMEA	26,486		80,173		31,786		138,445
Total APAC	15,258		34,640		13,822		63,720
Total revenue	203,473		331,554		207,280		742,307


	Fiscal year ended July 31, 2019
	Subscription and support		License		Services		Total

United States	$	100,136	$	179,726	$	166,724	$	446,586
Canada	11,171		26,329		9,469		46,969
Other Americas	4,450		6,576		7,092		18,118
Total Americas	115,757		212,631		183,285		511,673
United Kingdom	6,844		21,648		11,504		39,996
Other EMEA	12,118		47,119		37,153		96,390
Total EMEA	18,962		68,767		48,657		136,386
Total APAC	15,755		38,874		16,826		71,455
Total revenue	150,474		320,272		248,768		719,514


	Fiscal year ended July 31, 2018
	Subscription and support		License		Services		Total

United States	$	71,864	$	154,259	$	183,606	$	409,729
Canada	9,116		21,974		14,501		45,591
Other Americas	3,834		7,680		7,640		19,154
Total Americas	84,814		183,913		205,747		474,474
United Kingdom	6,279		22,033		8,341		36,653
Other EMEA	7,543		35,443		32,192		75,178
Total EMEA	13,822		57,476		40,533		111,831
Total APAC	12,102		34,217		20,225		66,544
Total revenue	110,738		275,606		266,505		652,849

No country other than those listed above accounted for more than 10% of revenue during the years ended July 31, 2020, 2019 and 2018.

Revenue by major product or service type is as follows (in thousands):


	Fiscal years ended July 31,
	2020		2019		2018
Subscription and Support
Subscription	119,658		65,050		33,401
Support	83,815		85,424		77,337
License
Term license	$	328,489	$	318,142	$	263,793
Perpetual license	3,065		2,130		11,813
Services	207,280		248,768		266,505
Total revenue	$	742,307	$	719,514	$	652,849

Customer Contract - Related Balance Sheet Amounts

Amounts related to customer contract-related arrangements are included on the consolidated balance sheets as follows (in thousands):


	July 31, 2020	July 31, 2019
Unbilled accounts receivable, net	84,228	46,103
Contract costs, net	34,809	30,390

Deferred revenue, net	132,996	131,831

Unbilled accounts receivable

During the fiscal year ended July 31, 2020, the Company entered into new term licenses and multi-year term license renewals with committed terms ranging from two to five years that resulted in approximately $30.3 million of unbilled accounts receivable as of July 31, 2020. During the fiscal year ended July 31, 2019, the Company entered into a ten-year term license that resulted in $8.5 million of unbilled accounts receivable as of July 31, 2020 and accounted for more than 10% of unbilled accounts receivable as of July 31, 2020 and July 31, 2019.

As of July 31, 2020 and 2019, there was no allowance for doubtful accounts associated with unbilled accounts receivable.

Contract costs

The current portion of contract costs of $9.6 million and $7.0 million is included in prepaid and other current assets on the Company’s consolidated balance sheets as of July 31, 2020 and 2019, respectively. The non-current portion of contract costs of $25.2 million and $23.4 million is included in other assets on the Company’s consolidated balance sheets as of July 31, 2020 and 2019. The Company amortized $9.9 million and $5.5 million of contract costs during the fiscal year ended July 31, 2020 and 2019, respectively.

Deferred revenue

During the fiscal year ended July 31, 2020, the Company recognized revenue of $102.7 million related to the Company’s deferred revenue balance reported as of July 31, 2019.

Performance Obligations

The aggregate amount of consideration allocated to performance obligations either not satisfied or partially satisfied, also known as remaining performance obligations, was $587.9 million as of July 31, 2020. Subscription services are typically satisfied over three to five years, support services are generally satisfied within one year, and professional services are typically satisfied within one year. Professional services under time and material contracts are not included in the performance obligations amount as these arrangements can be cancelled at any time.

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-URI http://asc.fasb.org/topic&trid=49130388

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130551-203045

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 13
-Subparagraph (b)(2)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130556-203045

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 9
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130550-203045

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (e)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (d)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 15
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130558-203045

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (c)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

+ Details

Fair Value of Financial Instruments

12 Months Ended

Jul. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Available-for-sale investments within cash equivalents and investments consist of the following (in thousands):


	July 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government agency securities	$	242,153	$	202	$	(81)	$	242,274
Commercial paper	222,578		—		—		222,578
Corporate bonds	474,646		3,448		(38)		478,056
U.S. Government bonds	68,332		476		—		68,808
Asset-backed securities	58,564		306		—		58,870

Certificates of deposit	56,296		—		—		56,296
Money market funds	231,063		—		—		231,063
Total	$	1,353,632	$	4,432	$	(119)	$	1,357,945


	July 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government agency securities	$	55,904	$	4	$	(29)	$	55,879
Commercial paper	239,333		—		—		239,333
Corporate bonds	666,087		1,612		(111)		667,588
U.S. Government bonds	130,530		94		(29)		130,595

Certificates of deposit	50,796		—		—		50,796
Money market funds	115,711		—		—		115,711
Total	$	1,258,361	$	1,710	$	(169)	$	1,259,902

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses, aggregated by investment category and the length of time that individual securities have been in an unrealized loss position (in thousands):


	July 31, 2020
	Less Than 12 Months						12 Months or Greater						Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. Government agency securities	$	34,195	$	(81)	$	—	$	—	$	34,195	$	(81)

Corporate bonds	21,238		(38)		—		—		21,238		(38)




Total	$	55,433	$	(119)	$	—	$	—	$	55,433	$	(119)

As of July 31, 2020, the Company had 21 investments in a gross unrealized loss position. The unrealized losses on its available-for-sale securities were primarily a result of unfavorable changes in interest rates subsequent to the initial purchase of these securities. The Company neither intends to sell, nor does it believe it will need to sell, these securities before recovering the associated unrealized losses. The Company does not consider any portion of the unrealized losses at July 31, 2020 to be other-than-temporarily impaired, nor are any unrealized losses considered to be credit losses. The Company has recorded the securities at fair value in its consolidated balance sheets, with unrealized gains and losses reported as a component of accumulated other comprehensive (income) loss. The amount of realized gains and losses reclassified into earnings are based on the specific identification of the securities sold. The realized gains and losses from sales of securities in the periods presented were not material.

The following table summarizes the contractual maturities of the Company’s available-for-sale investments measured at fair value (in thousands):


	July 31, 2020
	Less Than 12 Months		12 to 36 Months		Total
U.S. Government agency securities	$	110,089	$	132,185	$	242,274
Commercial paper	222,578		—		222,578
Corporate bonds	358,175		119,881		478,056
U.S. Government bonds	63,773		5,035		68,808
Asset-backed securities	25,448		33,422		58,870

Certificates of deposit	47,048		9,248		56,296
Money market funds	231,063		—		231,063
Total	$	1,058,174	$	299,771	$	1,357,945

Fair Value Measurement

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company applies the three-level valuation hierarchy when measuring certain assets and liabilities:

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2—Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and

Level 3—Unobservable inputs that are supported by little or no market activity, which require the Company to develop its own assumptions.

Available-for-sale investments

The following tables summarize the Company’s available-for-sale investments measured at fair value, by level within the fair value hierarchy (in thousands):


	July 31, 2020
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Commercial paper	$	—	$	60,584	$	—	$	60,584

Money market funds	231,063		—		—		231,063
Total cash equivalents	231,063		60,584		—		291,647
Short-term investments:
U.S. Government agency securities	—		110,089		—		110,089
Commercial paper	—		161,994		—		161,994
Corporate bonds	—		358,175		—		358,175
U.S. Government bonds	—		63,773		—		63,773
Asset-backed securities	—		25,448		—		25,448

Certificates of deposit	—		47,048		—		47,048
Total short-term investments	—		766,527		—		766,527
Long-term investments:
U.S. Government agency securities	—		132,185		—		132,185
Corporate bonds	—		119,881		—		119,881
U.S. Government bonds	—		5,035		—		5,035

Asset-backed securities	—		33,422		—		33,422
Certificates of deposit	—		9,248		—		9,248
Total long-term investments	—		299,771		—		299,771
Total	$	231,063	$	1,126,882	$	—	$	1,357,945


	July 31, 2019
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Commercial paper	$	—	$	56,132	$	—	$	56,132
Corporate bonds	—		4,398		—		4,398
Money market funds	115,712		—		—		115,712
Total cash equivalents	115,712		60,530		—		$	176,242
Short-term investments:
U.S. Government agency securities	—		39,166		—		39,166
Commercial paper	—		183,201		—		183,201
Corporate bonds	—		477,169		—		477,169
U. S. Government bonds	—		123,600		—		123,600

Certificates of deposit	—		47,000		—		47,000
Total short-term investments	—		870,136		—		870,136
Long-term investments:
U.S. Government agency securities	—		16,713		—		16,713

Corporate bonds	—		186,021		—		186,021
U.S. Government bonds	—		6,994		—		6,994
Certificates of deposit	—		3,796		—		3,796

Total long-term investments	—		213,524		—		213,524
Total	$	115,712	$	1,144,190	$	—	$	1,259,902

Convertible debt - strategic investment

In May 2020, the Company invested $1.0 million in a technology company by participating in its convertible debt financing round. The Company estimates the fair value of this strategic investment to be $1.0 million as of July 31, 2020 based on assumptions of the expected return on the investment (Level 3). The strategic investment is included in long-term investments on the consolidated balance sheet.

Convertible Senior Notes

The fair value of the Convertible Senior Notes was $480.0 million and $454.1 million at July 31, 2020 and 2019, respectively. The Company estimates the fair value of the Convertible Senior Notes using commonly accepted valuation methodologies and market-based risk measurements that are directly observable, such as unadjusted quoted prices (Level 2). The Company carries the Convertible Senior Notes at initial fair value less debt discount and issuance costs on its consolidated balance sheets. For further information on the Convertible Senior Notes, see Note 6.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Balance Sheet Components

12 Months Ended

Jul. 31, 2020

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Components

Accounts Receivables, Net

Accounts receivable, net consist of the following (in thousands):


	July 31, 2020		July 31, 2019
Accounts receivable	$	115,518	$	139,884
Allowance for doubtful accounts and revenue reserves	(1,276)		(1,441)
Accounts receivable, net	$	114,242	$	138,443

Allowance for Doubtful Accounts and Revenue Reserves

Changes to the allowance for doubtful accounts and revenue reserves consists of the following (in thousands):


Allowance, July 31, 2019	$	1,441
Charges to bad debt and revenue reserves	367
Write-offs, net	(532)
Allowance, July 31, 2020	$	1,276

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):


	July 31, 2020		July 31, 2019
Prepaid expenses	$	16,969	$	11,926
Contract costs	9,588		7,015
Deferred costs	8,399		7,030
Deposits and other receivables	11,033		9,595
Prepaid expenses and other current assets	$	45,989	$	35,566

Property and Equipment, net

Property and equipment consist of the following (in thousands):


	July 31, 2020		July 31, 2019
Computer hardware	$	16,791	$	17,799
Purchased software	5,445		6,741
Capitalized software development costs	11,620		7,374
Equipment and machinery	11,438		10,455
Furniture and fixtures	9,792		8,137
Leasehold improvements	46,165		48,191
Total property and equipment	101,251		98,697
Less accumulated depreciation	(36,016)		(32,888)
Property and equipment, net	$	65,235	$	65,809

As of July 31, 2020 and 2019, no property and equipment was pledged as collateral. Depreciation expense, excluding the amortization of software development costs, was $14.5 million, $9.7 million, and $7.7 million for the fiscal years ended July 31, 2020, 2019, and 2018, respectively.

The Company capitalizes software development costs for technology applications that the Company will offer solely as cloud-based subscription service, which is primarily comprised of compensation for employees who are directly associated with the software development projects. The Company begins amortizing the capitalized software development costs once the technology applications are available for general release and amortizes those costs over the estimated lives of the applications, which typically ranges from three to five years. The Company recognized approximately $1.4 million, $1.0 million, and $0.4 million in amortization expense in cost of revenue - subscription and support on the accompanying consolidated statements of operations during the fiscal years ended July 31, 2020, 2019, and 2018 respectively.

Goodwill and Intangible Assets

There was no change to the carrying amount of goodwill of $340.9 million for fiscal years ending July 31, 2020, 2019, and 2018 respectively.

The Company’s intangible assets are amortized over their estimated useful lives. Intangible assets consist of the following (in thousands):


		July 31, 2020										July 31, 2019
	Remaining Weighted-Average Useful Life (in years)	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
Acquired technology	1.7	$	93,600	$	73,191	20,409		$	93,600	$	53,970	$	39,630
Customer contracts and related relationships	3.8	35,700		18,500		17,200		35,700		12,566		23,134
Partner relationships	4.7	200		96		104		200		74		126
Trademarks	4.3	2,500		982		1,518		2,500		625		1,875
Order backlog	0.6	8,700		8,223		477		8,700		6,923		1,777
Total	2.7	$	140,700	$	100,992	$	39,708	$	140,700	$	74,158	$	66,542

Amortization expense was $26.8 million, $29.1 million, and $27.5 million during the years ended July 31, 2020, 2019, and 2018, respectively. The future amortization expense for existing intangible assets as of July 31, 2020, based on their current useful lives, is as follows (in thousands):


Fiscal year ending July 31,
2021	$	19,965
2022	11,143
2023	3,799
2024	2,379
2025	1,938
Thereafter	484
Total future amortization expense	$	39,708

Other Assets

Other assets consist of the following (in thousands):


	July 31, 2020		July 31, 2019
Prepaid expenses	$	2,830	$	2,640
Contract costs	25,221		23,375
Deferred costs	5,729		8,867
Strategic investments	1,164		10,672
Other assets	$	34,944	$	45,554

The Company’s other assets include strategic investments in privately-held companies in which the Company does not have a controlling interest or the ability to exert significant influence. The strategic investments consist of non-marketable equity securities that do not have readily determinable market values (Level 3). The Company records these strategic investments at cost less impairment and adjusts cost for subsequent observable changes in fair value. In the fourth fiscal quarter of 2020, the Company invested in two new strategic investments in the amount of $1.2 million. In the third fiscal quarter of

2020, the Company recognized an impairment charge related to one of its strategic investments of $10.7 million primarily due to liquidity constraints in the current economic environment.

Accrued Employee Compensation

Accrued employee compensation consists of the following (in thousands):


	July 31, 2020		July 31, 2019
Bonus	$	20,188	$	37,628
Commission	7,201		10,317
Vacation	20,637		14,511
Salaries, payroll taxes and benefits	10,521		10,909
Total	$	58,547	$	73,365

Other Current Liabilities

Other current liabilities consist of the following (in thousands):


	July 31, 2020		July 31, 2019
Lease liabilities	$	10,936	$	—
Accrued royalties	6,651		5,573
Accrued taxes	3,817		4,413
Other	4,302		6,362
Other current liabilities	$	25,706	$	16,348

Net Income (Loss) per Share

12 Months Ended

Jul. 31, 2020

Earnings Per Share [Abstract]

Net Income (Loss) per Share

The Company calculates basic earnings per share by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. The diluted earnings per share is computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period using the treasury stock method. For purposes of this calculation, options to purchase common stock, stock awards, and the Convertible Senior Notes are considered to be common stock equivalents.

Since the Company has the intent and ability to settle the principal amount of the Convertible Senior Notes in cash and any excess in shares of the Company’s common stock, the Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread will have a dilutive impact on net income (loss) per share of common stock when the average market price of the Company’s common stock for a given period exceeds the conversion price of $113.75 per share for the Convertible Senior Notes. During the fiscal years ended July 31, 2020, 2019, and 2018, the Company’s weighted average common stock price was below the conversion price of the Convertible Senior Notes.

The following table sets forth the computation of the Company’s basic and diluted net income (loss) per share for the years ended July 31, 2020, 2019 and 2018 (in thousands, except share and per share amounts):


	Fiscal years ended July 31,
	2020		2019		2018
Numerator:
Net income (loss)	$	(27,198)	$	20,732	$	(26,743)
Net income (loss) per share:
Basic	$	(0.33)	$	0.25	$	(0.34)
Diluted	$	(0.33)	$	0.25	$	(0.34)
Denominator:
Weighted average shares used in computing net income (loss) per share:
Basic	82,855,392		81,447,998		77,709,592
Weighted average effect of diluted stock options	—		229,035		—
Weighted average effect of diluted stock awards	—		1,004,181		—
Diluted	82,855,392		82,681,214		77,709,592

The following weighted shares outstanding of potential common stock were excluded from the computation of diluted income (loss) per share for the periods presented because including them would have been antidilutive:


	Fiscal years ended July 31,
	2020	2019	2018
Stock options	161,410	—	597,476
Stock awards	2,559,214	44,196	3,161,157

Convertible Senior Notes

12 Months Ended

Jul. 31, 2020

Debt Disclosure [Abstract]

Convertible Senior Notes

In March 2018, the Company offered and sold $400.0 million aggregate principal amount of its 1.25% Convertible Senior Notes due 2025. The Convertible Senior Notes were issued in accordance with the Indenture, dated as of March 13, 2018, between the Company and U.S. Bank National Association, as trustee (the “Trustee”) (the “Base Indenture”), as amended and supplemented by the First Supplemental Indenture, dated as of March 13, 2018, between the Company and the Trustee (together with the Base Indenture, the “Indenture”). The net proceeds from the issuance of the Convertible Senior Notes were $387.2 million, after deducting issuance costs.

The Convertible Senior Notes are unsecured obligations of the Company and interest is payable semi-annually in arrears at a rate of 1.25% per year, on March 15^th and September 15^th of each year, beginning on September 15, 2018. The Convertible Senior Notes will mature on March 15, 2025 unless repurchased, redeemed, or converted prior to such date. Prior to the close of business on the business day immediately preceding October 15, 2024, the Convertible Senior Notes are convertible at the option of holders during certain periods, upon satisfaction of certain conditions. On or after October 15, 2024, the Convertible Senior Notes are convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The Convertible Senior Notes will have an initial conversion rate of 8.7912 shares of common stock per $1,000 principal (equivalent to an initial conversion price of approximately $113.75 per share of the Company’s common stock). The conversion rate is subject to customary adjustments upon the occurrence of certain events but will not be adjusted for any accrued and unpaid interest. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election.

The Company may redeem the Convertible Senior Notes, at its option, on or after March 20, 2022, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the three trading days immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. No sinking fund is provided for the Convertible Senior Notes. Upon the occurrence of a fundamental change (as defined in the Indenture) prior to the maturity date, holders may require the Company to repurchase all or a portion of the Convertible Senior Notes for cash at a price equal to 100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Convertible Senior Notes rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Convertible Senior Notes, and equal in right of payment to any of its indebtedness that is not so subordinated. The Convertible Senior Notes are effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) and any preferred equity of its current or future subsidiaries.

The net carrying value of the liability component, unamortized debt discount and unamortized debt issuance costs of the Convertible Senior Notes was as follows (in thousands):


	July 31, 2020		July 31, 2019
Principal	$	400,000	$	400,000
Less unamortized:
Debt discount	62,508		74,213
Debt issuance costs	7,284		8,465
Net carrying amount	$	330,208	$	317,322

The effective interest rate of the liability is 5.53%. The following table sets forth the interest expense recognized related to the Convertible Senior Notes (in thousands):


	Fiscal years ended July 31,
	2020		2019		2018
Contractual interest expense	$	5,000	$	5,000	$	1,903
Amortization of debt discount	11,705		11,131		4,134
Amortization of debt issuance costs	1,181		1,063		378
Total	$	17,886	$	17,194	$	6,415

Capped Call

In March 2018, the Company paid $37.2 million to purchase capped calls with certain financial institutions pursuant to capped call confirmations (the “Capped Calls”). The Capped Calls have an initial strike price of $113.75 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Convertible Senior Notes. The Capped Calls have initial cap prices of $153.13 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, 3.5 million shares of common stock. By entering into the Capped Calls, the Company expects to reduce the potential dilution to its common stock (or, in the event the conversion is settled in cash, to reduce its cash payment obligation) in the event that at the time of conversion its stock price exceeds the conversion price under the Convertible Senior Notes. The Capped Calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, tender offer, and a nationalization, insolvency, or delisting involving the Company. Additionally, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including change in law, insolvency filing, and hedging disruptions. The Capped Calls were recorded as a reduction of the Company’s additional paid-in capital in the accompanying consolidated balance sheets.

Leases

12 Months Ended

Jul. 31, 2020

Leases [Abstract]

Leases

The Company's lease obligations consist of operating leases for office facilities and equipment, with lease periods expiring between fiscal years 2021 and 2032. Some leases include one or more options to renew. Lease renewals are not assumed in the determination of the lease term until the exercise of the renewal option is deemed to be reasonably certain.

Components of operating lease costs were as follows (in thousands):


	Fiscal year ended July 31, 2020
Operating lease cost ⁽¹⁾	$	15,275
Variable lease cost	5,821
Sublease income	(1,430)
Net operating lease cost	$	19,666

⁽¹⁾ Lease expense for leases with an initial term of 12 months or less is excluded from the table above and was $0.9 million for the fiscal year ended July 31, 2020.

Lease expense for all worldwide facilities and equipment based on the previous lease accounting standards, which was recognized on a straight-line basis over the terms of the various leases, was $15.5 million and $8.7 million for the fiscal years ended July 31, 2019 and 2018, respectively.

Future operating lease payments as of July 31, 2020 were as follows (in thousands):


Fiscal year ending July 31,
2021	$	15,660
2022	$	17,784
2023	$	16,211
2024	$	15,793
2025	$	16,152
Thereafter	$	78,886
Total future lease payments	$	160,486
Less imputed interest	$	(30,142)
Total lease liability balance	$	130,344

In early March 2020, the Company entered into an operating lease for office space in Mississauga, Canada with lease obligations of approximately $10.8 million payable over a period of 10 years. This operating lease will commence upon taking control of the facility, which is anticipated to be in the first quarter of fiscal year 2021.

Supplemental information related to operating leases was as follows (in thousands, except for lease term and discount rate):


	July 31, 2020
Operating lease assets	$	103,797

Current portion of lease liabilities	$	10,936
Non-current portion of lease liabilities	119,408
Total lease liabilities	$	130,344

Weighted average remaining lease term (years)	9.27
Weighted average discount rate	4.34		%

Supplemental cash and non-cash information related to operating leases was as follows (in thousands):


	Fiscal Year ended July 31, 2020
Cash payments for operating leases	$	9,584
Operating lease assets obtained in exchange for lease liabilities	$	23,032

Commitments and Contingencies

12 Months Ended

Jul. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

The Company’s contractual obligations and commitments as of July 31, 2020 are as follows (in thousands):


	Lease Obligations ⁽¹⁾		Royalty Obligations⁽²⁾		Purchase Commitments ⁽³⁾		Long-Term Debt⁽⁴⁾		Total
Fiscal Year Ending July 31,
2021	$	15,660	$	2,755	$	67,494	$	5,000	$	90,909
2022	17,784		1,999		27,122		5,000		51,905
2023	16,211		628		8,306		5,000		30,145
2024	15,793		—		652		5,000		21,445
2025	16,152		—		2,421		405,000		423,573
Thereafter	78,886		—		—		—		78,886
Total	$	160,486	$	5,382	$	105,995	$	425,000	$	696,863

⁽¹⁾Lease obligations primarily represent payments required under the Company’s non-cancellable lease agreements for the Company’s corporate headquarters and worldwide offices through 2032.

⁽²⁾Royalty obligations primarily represent the Company’s obligations under non-cancellable agreements related to software used in certain revenue-generating agreements.

⁽³⁾Purchase commitments consist of commitments to purchase goods and services, entered into in the ordinary course of business, for which a penalty could be imposed if the agreement was canceled for any reason other than an event of default as described by the agreement.

⁽⁴⁾Long-term debt consists of principal and interest payments on the Company’s Convertible Senior Notes. The $400 million in principal will be due in March 2025.

Legal Proceedings

From time to time, the Company is involved in various legal proceedings and receives claims, arising from the normal course of business activities. The Company has determined that no provision for liability nor disclosure is required related to any claim against the Company because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial. Accordingly, the Company has not recorded any accrual for claims as of July 31, 2020 and 2019. The Company expenses legal fees in the period in which they are incurred.

On July 24, 2020, one of the Company’s stockholders filed a putative securities class action complaint in the United States District Court for the Northern District of California, against the Company and certain of its current or former officers and directors. The complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 and seeks unspecified compensatory damages, interest, and attorneys’ fees and costs Defendants’ time to respond has been extended by agreement of the parties until the court has appointed lead counsel and lead plaintiff and an operative complaint has been identified. The deadline for filing a request to be appointed lead counsel is September 23, 2020. The Company disputes the claims and intends to defend the lawsuit vigorously.

Indemnification

The Company sells software licenses and services to its customers under Software License Agreements (“SLA”) and Software Subscription Agreements (“SSA”). Our contracts generally include provisions for indemnifying customers against liabilities if our license and services infringe a third-party’s intellectual property rights. We may also incur liabilities if we breach our security obligations in our contracts.

The Company has not had to reimburse any of its customers for losses related to indemnification provisions and no material claims against the Company were outstanding as of July 31, 2020 and 2019. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases under various SLAs and SSAs, the Company cannot estimate the amount of potential future payments, if any, related to indemnification provisions.

The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of these persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer insurance coverage that may enable the Company to recover a portion of any future amounts paid.

Stock-Based Compensation Expense and Shareholders' Equity

12 Months Ended

Jul. 31, 2020

Stockholders' Equity and Stock-based Compensation [Abstract]

Stock-Based Compensation Expense and Shareholders' Equity

Stock-Based Compensation Expense and Shareholders’ Equity

Equity Incentive Plans

On September 14, 2011, the Company’s Board of Directors adopted the 2011 Stock Plan (“2011 Plan”) for the purpose of granting equity-based incentive awards as compensation tools to motivate the Company’s workforce. The Company had initially reserved 7,500,000 shares of its common stock for the issuance of awards under the 2011 Plan. The 2011 Plan provides that the number of shares reserved and available for issuance under the plan may be increased each January 1, beginning on January 1, 2013, by up to 5% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31. The Company elected not to increase the number of shares of common stock available for grant under this plan for the calendar year ended December 31, 2019. The shares available for issuance is subject to adjustment in the event of a stock split, stock dividend or other defined changes in the Company’s capitalization.

Stock-Based Compensation Expense

Stock-based compensation expense related to options and Stock Awards is included in the Company’s consolidated statements of operations as follows (in thousands):


	Fiscal years ended July 31,
	2020		2019		2018
Stock-based compensation expense	$	102,191	$	91,570	$	89,176
Net impact of deferred stock-based compensation	(374)		(54)		438
Total stock-based compensation expense	$	101,817	$	91,516	$	89,614

Stock-based compensation expense was included in the following categories:
Cost of subscription and support revenue	$	7,575	$	4,659	$	2,842
Cost of license revenue	769		173		46
Cost of services revenue	20,816		22,781		21,856
Research and development	26,324		23,421		25,440
Sales and marketing	21,260		19,245		18,387
General and administrative	25,073		21,237		21,043
Total stock-based compensation expense	101,817		91,516		89,614
Tax benefit from stock-based compensation	28,360		29,159		24,481
Total stock-based compensation expense, net of tax effect	$	73,457	$	62,357	$	65,133

Total unrecognized stock-based compensation expense as of July 31, 2020 related to stock options and Stock Awards is as follows:


	Unrecognized Expense (in thousands)		Weighted Average Expected Recognition Period (in years)

Stock options	$	675	0.7
Stock Awards	205,236		2.4
Total unrecognized stock-based compensation expense	$	205,911

Stock Awards

A summary of the Company’s Stock Awards activity under the Company’s equity incentive plans is as follows:


	Stock Awards Outstanding
	Number of Stock Awards	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value⁽¹⁾ (in thousands)





Balance as of July 31, 2017	2,634,085	$	56.62	$	190,076
Granted	1,814,084	$	79.65
Released	(1,260,758)	$	56.92	$	103,957
Canceled	(255,256)	$	63.66
Balance as of July 31, 2018	2,932,155	$	69.43	$	252,752
Granted	1,238,700	$	100.01
Released	(1,398,676)	$	69.20	$	133,050
Canceled	(387,506)	$	75.16
Balance as of July 31, 2019	2,384,673	$	85.20	$	243,427
Granted	1,587,664	$	106.65
Released	(1,217,337)	$	82.73	$	121,915
Canceled	(309,302)	$	87.25
Balance as of July 31, 2020	2,445,698	$	99.34	$	287,761
Expected to vest as of July 31, 2020	2,445,698	$	99.34	$	287,761

⁽¹⁾ Aggregate intrinsic value at each fiscal year end represents the total market value of Stock Awards at the Company’s closing stock price of $117.66, $102.08, and $86.20 on July 31, 2020, 2019, and 2018, respectively. Aggregate intrinsic value for released Stock Awards represents the total market value of released Stock Awards at date of release.

Certain executives and employees of the Company received PSUs and TSR PSUs in addition to RSUs. The PSUs included performance-based conditions and generally vest over a four-year period. The TSR PSUs are subject to total shareholder return rankings of the Company’s common stock relative to the software companies in the S&P Index for a specified period or periods, and vest at the end of three years. In select cases, certain TSR PSUs are also subject to performance-based conditions.

The Company recognized stock-based compensation of $13.1 million, $19.1 million, and $9.4 million related to these performance-based and market-based stock awards in fiscal years 2020, 2019, and 2018, respectively.

Stock Options

Stock option activity under the Company’s equity incentive plans is as follows:


	Number of Stock Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value⁽¹⁾ (in thousands)
Balance as of July 31, 2017	555,636	$	22.17	4.0	$	27,777
Granted⁽²⁾	137,057	$	10.23
Exercised	(150,924)	$	13.32		$	10,710
Canceled	(4,705)	$	40.05
Balance as of July 31, 2018	537,064	$	21.45	4.3	$	34,774
Granted	—	$	—
Exercised	(301,901)	$	13.11		$	24,731
Canceled	(18,436)	$	9.43
Balance as of July 31, 2019	216,727	$	34.10	5.2	$	14,733
Granted	—	$	—
Exercised	(132,573)	$	37.37		$	8,917
Canceled	(3,822)	$	10.99
Balance as of July 31, 2020	80,332	$	29.80	5.2	$	7,058
Vested and expected to vest as of July 31, 2020	80,332	$	29.80	5.2	$	7,058
Exercisable as of July 31, 2020	69,849	$	32.60	5.0	$	5,941

⁽¹⁾Aggregate intrinsic value at each fiscal year end represents the difference between the Company’s closing stock price of $117.66, $102.08, and $86.20 on July 31, 2020, 2019, and 2018, respectively, and the exercise price of the option. Aggregate intrinsic value for exercised options represents the difference between the Company’s stock price at date of exercise and the exercise price.

⁽²⁾Represents options assumed through the Cyence acquisition on November 1, 2017.

Valuation of Awards

TSR PSUs

The fair values of the TSR PSUs were estimated at the grant date using a Monte Carlo simulation model which included the following assumptions:


	Fiscal years ended July 31,
	2020	2019	2018
Expected term (in years)	2.90	2.88	2.88
Risk-free interest rate	1.46%	2.79%	1.44%
Expected volatility of the Company	28.4%	27.2%	28.0%
Average expected volatility of the peer companies in the S&P Index	37.0%	33.0%	34.7%
Expected dividend yield	—%	—%	—%

The number of TSR PSUs that may ultimately vest will vary based on the relative performance of the Company’s total shareholder return rankings relative to the software companies in the S&P Index for a specified performance period or periods. The Monte Carlo methodology incorporates into the valuation all possible outcomes, including that the Company’s relative performance may result in no shares vesting. As a result, stock-based compensation expense is recognized regardless of the ultimate achievement of the plan’s performance metrics. The expense will be reversed only in the event that a grantee is terminated prior to satisfying the requisite service period.

Stock Options

The per share fair value of each stock option was determined using the Black-Scholes option-pricing model with the following assumptions:

Fiscal years ended July 31,

2020

2019

2018

Expected life (in years)

1.27

Risk-free interest rate

1.48%

Expected volatility

24.12%

Expected dividend yield

—%

Weighted average fair value of options granted

$67.90

* There were no options granted during the fiscal years ended July 31, 2020 and 2019.

Common Stock Reserved for Issuance

As of July 31, 2020 and 2019, the Company was authorized to issue 500,000,000 shares of common stock with a par value of $0.0001 per share and, of these, 83,461,925 and 82,140,883 shares of common stock were issued and outstanding, respectively. As of July 31, 2020 and 2019, the Company had reserved shares of common stock for future issuance as follows:


	July 31, 2020	July 31, 2019
Exercise of stock options to purchase common stock	80,332	216,727
Vesting of restricted stock awards	2,445,698	2,384,673
Shares available for grant under stock plans	23,460,234	24,776,361
Total common stock reserved for issuance	25,986,264	27,377,761

Income Taxes

12 Months Ended

Jul. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

On December 22, 2017, the Tax Act was enacted into law, which made changes to U.S. tax law, including, but not limited to, reducing the U.S. Federal corporate income tax rate from 35% to 21% and generally eliminating U.S. Federal corporate income taxes on dividends from foreign subsidiaries. The Tax Act also included a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a base erosion anti-abuse tax (“BEAT”) measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. These provisions of the Tax Act were effective for the Company beginning August 1, 2018.

The Company recognized an income tax provision of $2.9 million for fiscal year 2020 compared to an income tax benefit of $8.3 million for fiscal year 2019. The fiscal year 2020 income tax provision was primarily due to the BEAT liability, including interest and penalties, of $11.4 million recorded in fiscal year 2020, of which $7.7 million relates to fiscal year 2020 and $3.7 million relates to fiscal year 2019, as a result of final regulations issued by the Internal Revenue Service (“IRS”) on December 2, 2019 and subsequent amendments resulting from the CARES Act passed on March 27, 2020.

The effective tax rate of (12)% for fiscal year 2020, differs from the statutory U.S. Federal income tax rate of 21% mainly due to permanent differences for stock-based compensation, including excess tax benefits, research and development credits, change in valuation allowance, certain non-deductible expenses including executive compensation, and BEAT.

The Company’s income (loss) before provision for (benefit from) income taxes is as follows (in thousands):


	Fiscal years ended July 31,
	2020		2019		2018
Domestic	$	(34,121)	$	(1,778)	$	(13,501)
International	9,790		14,230		5,225
Income (loss) before provision for (benefit from) income taxes	$	(24,331)	$	12,452	$	(8,276)

The provision for income taxes consisted of the following (in thousands):


	Fiscal years ended July 31,
	2020		2019		2018
Current:
U.S. Federal	$	13,077	$	3,297	$	2,047
State	178		48		219
Foreign	1,539		1,859		2,203
Total current	14,794		5,204		4,469
Deferred:
U.S. Federal	(10,125)		(13,683)		15,766
State	(1,357)		(989)		(1,460)
Foreign	(445)		1,188		(308)
Total deferred	(11,927)		(13,484)		13,998
Total provision for (benefit from) income taxes	$	2,867	$	(8,280)	$	18,467

Differences between income taxes calculated using the statutory federal income tax rate of 21% in the fiscal years ended July 31, 2020 and 2019, and 27% in the fiscal year ended July 31, 2018 and the provision for income taxes are as follows (in thousands):


	Fiscal years ended July 31,
	2020		2019		2018
Statutory federal income tax	$	(5,109)	$	2,617	$	(2,224)
State taxes, net of federal benefit	(1,179)		(939)		(993)
Share-based compensation	(2,971)		(8,013)		(8,715)
Non-deductible officers' compensation	3,634		3,938		3,230
Foreign income taxed at different rates	(235)		203		1,022
Research tax credits	(4,905)		(6,943)		(5,822)
Base erosion and anti-abuse tax	11,381		—		—
Re-measurement of U.S. deferred taxes	—		—		36,125
Non-deductible acquisition costs	—		—		1,270

Permanent differences and others	829		918		666
Change in valuation allowance	1,422		(61)		(6,092)
Total provision for (benefit from) income taxes	$	2,867	$	(8,280)	$	18,467

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities are as follows (in thousands):


	As of July 31,
	2020		2019
Accruals and reserves	$	5,831	$	7,870
Stock-based compensation	6,606		6,353
Deferred revenue	5,553		2,316
Capitalized R&D	4,996		—
Lease liabilities	24,946		—
Net operating loss carryforwards	53,322		55,881
Tax credits	85,048		74,819
Total deferred tax assets	186,302		147,239
Less valuation allowance	37,188		31,421
Net deferred tax assets	149,114		115,818
Less deferred tax liabilities:
Intangible assets	4,381		7,413
Operating lease assets	18,774		—
Convertible debt	8,696		10,274
Property and equipment	8,274		1,435
Unremitted foreign earnings	354		302
Capitalized commissions	7,070		6,086
Total deferred tax liabilities	47,549		25,510
Deferred tax assets, net	101,565		90,308

Less foreign capitalized commissions	904		906
Total net deferred tax assets	100,661		89,402

The Company considered both positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, historic book profit/loss, prior taxable income/loss, and results of future operations, and determined that a valuation allowance was not required for a significant portion of its deferred tax assets. A valuation allowance of $37.2 million and $31.4 million remained as of July 31, 2020 and 2019, respectively, primarily related to California and Canada deferred tax assets. The increase of $5.8 million in the valuation allowance in the current fiscal year relates primarily to net operating losses, income tax credits, and future capital losses in certain tax jurisdictions for which no tax benefit was recognized.

As of July 31, 2020, the Company had U.S. Federal, California, and other states net operating loss (“NOL”) carryforwards of $205.5 million, $57.4 million, and $97.3 million, respectively. The U.S. Federal and California NOL carryforwards will start to expire in 2029 and 2020, respectively.

As of July 31, 2020, the Company had research and development tax credits (“R&D credit”) carryforwards of the following (in thousands):


U.S. Federal	$	46,271
California	38,169
Total R&D credit carryforwards	$	84,440

The U.S. Federal R&D credits will start to expire in 2023 and the California R&D tax credits do not expire.

Federal and California laws impose restrictions on the utilization of NOL carryforwards and R&D credit carryforwards in the event of a change in ownership of the Company, as defined by Internal Revenue Code 382 and 383. The Company experienced an ownership change in the past that does not materially impact the availability of its carryforwards. However, should there be an ownership change in the future, the Company’s ability to utilize existing carryforwards could be restricted.

As of July 31, 2020, the Company has recorded a provisional estimate for foreign withholding taxes on undistributed earnings from foreign subsidiaries of $0.4 million. The Company may repatriate foreign earnings in the future to the extent that the repatriation is not restricted by local laws or there are no substantial incremental costs associated with such repatriation.

Unrecognized Tax Benefits

Activity related to unrecognized tax benefits is as follows (in thousands):


	Fiscal years ended July 31,
	2020		2019		2018

Unrecognized tax benefit - beginning of period	$	11,633	$	10,321	$	9,346
Gross increases - prior period tax positions	3,401		98		729
Gross decreases - prior period tax positions	(147)		(88)		(878)
Gross increases - current period tax positions	8,803		1,302		1,124

Unrecognized tax benefit - end of period	$	23,690	$	11,633	$	10,321

During the year ended July 31, 2020, the Company’s unrecognized tax benefits increased by $12.1 million. As of July 31, 2020, the Company had unrecognized tax benefits of $18.0 million that, if recognized, would affect the Company’s effective tax rate. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense in its consolidated statements of operations. As of July 31, 2020, the accrued interest and penalties related to unrecognized tax benefits was immaterial. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease approximately $8.0 million within the next twelve months upon receiving approval of certain tax election applications.

The Company, or one of its subsidiaries, files income taxes in the U.S. Federal jurisdiction and various state and foreign jurisdictions. If the Company utilizes NOL carryforwards or tax credits in future years, the U.S. Federal, state and local, and non-U.S. tax authorities may examine the tax returns covering the period in which the net operating losses and tax credits arose. As a result, the Company’s tax returns in the U.S. and California remain open to examination from fiscal years 2002 through 2020.

The Company is currently under examination by the California Franchise Tax Board for the state income tax returns filed for fiscal years 2018 and 2017. If any issues addressed in the tax audit are resolved in a manner not consistent with the Company’s expectations, the Company may be required to adjust its provision for income tax in the period such resolution occurs. The Company does not believe the audit will have a material impact on the Company’s financial position, operating results, or cash flows.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details

Defined Contributions and Other Post-Retirement Plans	12 Months Ended
Defined Contributions and Other Post-Retirement Plans	Jul. 31, 2020
Retirement Benefits [Abstract]
Defined Contributions and Other Post-Retirement Plans	Defined Contribution and Other Post-Retirement PlansThe Company’s employee savings and retirement plan in the United States is qualified under Section 401(k) of the Internal Revenue Code. Employees on the Company’s U.S. payroll are automatically enrolled when they meet eligibility requirements, unless they decline participation. Upon enrollment employees are provided with tax-deferred salary deductions and various investment options. Employees may contribute up to 60% of their eligible salary up to the statutory prescribed annual limit. The Company matches employees’ contributions up to $5,000 per participant per calendar year. Certain of the Company’s foreign subsidiaries also have defined contribution plans in which a majority of its employees participate and the Company makes matching contributions. The Company’s contributions to its 401(k) and foreign subsidiaries’ plans were $10.7 million, $9.9 million, and $8.7 million for the fiscal years ended July 31, 2020, 2019, and 2018, respectively.

- Definition

The entire disclosure for retirement benefits.

+ References

Reference 1: http://www.xbrl.org/2003/role/exampleRef
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-Name Accounting Standards Codification
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Reference 3: http://www.xbrl.org/2003/role/disclosureRef
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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
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Reference 8: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
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+ Details

Segment Information

12 Months Ended

Jul. 31, 2020

Segment Reporting [Abstract]

Segment Information

Segment InformationThe Company operates in one segment. The Company’s chief operating decision maker (the “CODM”), its Chief Executive Officer, manages the Company’s operations on a consolidated basis for purposes of allocating resources. When evaluating the Company’s financial performance, the CODM reviews separate revenue information for the Company’s term license, perpetual license, subscription, support, and services offerings, while all other financial information is reviewed on a consolidated basis. The Company’s principal operations and decision-making functions are located in the United States.

The Company’s long-lived assets, including intangibles and goodwill, net by geographic region is as follows (in thousands):


	July 31, 2020		July 31, 2019
Americas	$	440,291	$	468,545
EMEA	4,021		4,633
APAC	1,508		50
Total	$	445,820	$	473,228

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
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+ Details

The Company and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Jul. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Company

Basis of Presentation and Consolidation

Reclassification

ReclassificationFor the fiscal year ended July 31, 2020, the Company changed the presentation for revenue and cost of revenue to include subtotals for “subscription and support,” “license,” and “services.” The Company’s presentation in prior fiscal years included subtotals for “license and subscription,” “maintenance” (now referred to as “support”), and “services.” Accordingly, prior period amounts have been reclassified to conform to the current period presentation in the Company's consolidated financial statements and the accompanying notes.

Use of Estimates

Foreign Currency

Cash and Cash Equivalents

Cash and Cash EquivalentsCash and cash equivalents are comprised of cash and highly liquid investments with remaining maturities of 90 days or less at the date of purchase. Cash equivalents primarily consist of commercial paper and money market funds.

Investments

Property and Equipment

The estimated useful lives of property and equipment are as follows:


Computer hardware						3 years
Purchased software						3 years
Equipment and machinery						3 to 5 years
Furniture and fixtures						5 years
Leasehold improvements						Shorter of 10 years or remaining lease term

Software Development Costs

Leases

Operating leases are included in operating lease assets, other current liabilities, and lease liabilities on the consolidated balance sheets.

Impairment of Long-Lived Assets, Intangible Assets and Goodwill