Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign currency exchange risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British Pound Sterling, Euro, Japanese Yen, and Chinese Yuan, and may be adversely affected in the future due to changes in foreign currency exchange rates. We continue to experience foreign currency fluctuations primarily due to the periodic re-measurement of our foreign currency monetary account balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. Changes in exchange rates may negatively affect our revenues and other operating results as expressed in U.S. dollars. For our fiscal years ended January 31, 2020, 2019 and 2018, we had a foreign currency loss of $0.7 million, $2.1 million, and gain of $1.2 million, respectively.

We have experienced and will continue to experience fluctuations in our net income as a result of gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. We engage in the hedging of our foreign currency transactions as described in note 8 of the consolidated financial statements and may, in the future, hedge selected significant transactions or net monetary exposure positions denominated in currencies other than the U.S. dollar.

Interest rate sensitivity

We had cash, cash equivalents and short-term investments totaling $1.1 billion as of January 31, 2020. This amount was held primarily in demand deposit accounts, money market funds, U.S. treasury securities and agency obligations, corporate notes and bonds, asset-backed securities, commercial paper, foreign government bonds, and agency mortgage-backed securities. The cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes.

Our cash equivalents and our portfolio of marketable securities are subject to market risk due to changes in interest rates, which could affect our results of operations. Fixed rate securities may have their market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fluctuate due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our marketable securities as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary. Our fixed-income portfolio is subject to interest rate risk.

An immediate increase of 200-basis points in interest rates would have resulted in a $9.4 million market value reduction in our investment portfolio as of January 31, 2020. An immediate decrease of 200-basis points in interest rates would have increased the market value by $7.6 million as of January 31, 2020. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive income and are realized only if we sell the underlying securities.

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ITEM 8.	CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

VEEVA SYSTEMS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm	56
Consolidated Balance Sheets	59
Consolidated Statements of Comprehensive Income	60
Consolidated Statements of Stockholders’ Equity	61
Consolidated Statements of Cash Flows	62
Notes to Consolidated Financial Statements	63

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Veeva Systems Inc.:

Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Veeva Systems Inc. and subsidiaries (the Company) as of January 31, 2020 and 2019, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended January 31, 2020, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of January 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended January 31, 2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2020 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired Crossix Solutions Inc. (Crossix) and Physicians World LLC (Physicians World) on November 1, 2019 and November 7, 2019 (respectively), and management excluded from its assessment of the effectiveness of the Company’s internal controls over financial reporting as of January 31, 2020. Crossix and Physicians World’s internal controls over financial reporting associated with total assets, in aggregate, of 4% and total revenues, in aggregate, of 2% included in the consolidated financial statements of the Company as of and for the year ended January 31, 2020. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Crossix and Physicians World.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of February 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

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Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the sufficiency of audit evidence over revenue

As discussed in Note 1 and Note 11 to the consolidated financial statements, and disclosed in the consolidated statements of comprehensive income, the Company recorded $1,104.1 million of total revenues for the year ended January 31, 2020, of which $896.3 million was subscription services related, and $207.8 million was professional services related. Each of these categories of revenue has multiple service offerings, and the Company’s process for revenue recognition differs between them.

We identified the evaluation of the sufficiency of audit evidence over revenue as a critical audit matter. Evaluating the nature and extent of audit evidence obtained over revenue for each service offering and related disclosures required subjective auditor judgment because of the multiple service offerings and the related disclosure requirements.

The primary procedures we performed to address this critical audit matter included the following. We applied auditor judgment to determine the nature and extent of procedures to be performed over revenue, including the determination of the revenue for service offerings. For each service offering where procedures were performed, we tested certain internal controls over the Company’s revenue recognition process and the related revenue disclosures. We assessed the recorded revenue by selecting transactions and comparing the amounts recognized for consistency with underlying documentation, including contracts with customers. We also evaluated the related revenue disclosures by selecting transactions comprising the reported balances and comparing the amounts reported for consistency with underlying documentation. In addition, we evaluated the overall sufficiency of audit evidence obtained over revenue.

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Evaluation of the acquisition date fair value of intangible assets acquired in the Crossix business combination

As discussed in Note 2 to the consolidated financial statements, on November 1, 2019, the Company acquired Crossix in a business combination. As a result of the transaction, the Company acquired customer relationships and existing technology intangible assets with acquisition-date fair values of $70.1 million and $19.2 million, respectively.

We identified the evaluation of the acquisition date fair value of the customer relationships and existing technology intangible assets acquired in the Crossix business combination as a critical audit matter. Testing the following key assumptions regarding future revenue growth rates and future operating margins, which were used in the measurement of the fair values, involved a high degree of subjectivity. The measurement of the fair value of these intangible assets was sensitive to changes in these key assumptions.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s acquisition date fair value process, including controls over the development of the key assumptions as listed above. We performed sensitivity analyses over the key assumptions to assess the impact of changes in those assumptions on the Company’s determination of the fair value of the intangible assets. We evaluated Crossix’s future revenue growth rates and future operating margins by comparing them to historical results and benchmark data. In addition, we assessed the key assumptions by comparing them to those of a market participant, including consideration of recent similar market transactions.

/s/ KPMG LLP

We have served as the Company’s auditor since 2010.

Santa Clara, California

March 30, 2020

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VEEVA SYSTEMS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except number of shares and par value)



	January 31,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	476,733	$	550,971
Short-term investments	610,015		539,190
Accounts receivable, net of allowance for doubtful accounts of $617 and $468, respectively	389,690		303,465
Unbilled accounts receivable	32,817		18,122
Prepaid expenses and other current assets	21,869		21,666
Total current assets	1,531,124		1,433,414
Property and equipment, net	54,752		54,966
Deferred costs, net	35,585		30,869
Lease right-of-use assets(1)	49,132		—
Goodwill	438,529		95,804
Intangible assets, net	134,601		24,521
Deferred income taxes, noncurrent	11,870		5,938
Other long-term assets	16,184		8,254
Total assets	$	2,271,777	$	1,653,766
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	19,420	$	9,110
Accrued compensation and benefits	25,619		15,324
Accrued expenses and other current liabilities	21,620		16,145
Income tax payable	5,613		4,086
Deferred revenue	468,887		356,357
Lease liabilities(1)	10,013		—
Total current liabilities	551,172		401,022
Deferred income taxes, noncurrent	2,417		6,095
Lease liabilities, noncurrent(1)	44,815		—
Other long-term liabilities	7,779		8,900
Total liabilities	606,183		416,017
Commitments and contingencies (Note 15)
Stockholders’ equity:
Class A common stock, $0.00001 par value; 800,000,000 shares authorized, 133,892,725 and 125,980,019 issued and outstanding at January 31, 2020 and 2019, respectively	1		1
Class B common stock, $0.00001 par value; 190,000,000 shares authorized, 15,202,858 and 20,210,060 issued and outstanding at January 31, 2020 and 2019, respectively	—		—
Additional paid-in capital	745,475		617,623
Accumulated other comprehensive income	460		928
Retained earnings	919,658		619,197
Total stockholders’ equity	1,665,594		1,237,749
Total liabilities and stockholders’ equity	$	2,271,777	$	1,653,766

See Notes to Consolidated Financial Statements.


(1)	We adopted Accounting Standards Update (ASU) 2016-02, “Leases” (Topic 842) using the modified retrospective method as of February 1, 2019 and elected the transition option that allows us not to restate the comparative periods in our financial statements in the year of adoption.

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VEEVA SYSTEMS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data)



	Fiscal year ended January 31,
2020				2019				2018
Revenues:
Subscription services	$	896,294			$	694,467			$	559,434
Professional services and other	207,787				167,743				131,125
Total revenues	1,104,081				862,210				690,559
Cost of revenues(1):
Cost of subscription services	136,328				117,009				110,465
Cost of professional services and other	167,041				128,272				100,957
Total cost of revenues	303,369				245,281				211,422
Gross profit	800,712				616,929				479,137
Operating expenses(1):
Research and development	209,895				158,783				132,017
Sales and marketing	190,331				148,867				128,781
General and administrative	114,267				86,413				60,410
Total operating expenses	514,493				394,063				321,208
Operating income	286,219				222,866				157,929
Other income, net	27,478				15,777				7,842
Income before income taxes	313,697				238,643				165,771
Provision for income taxes	12,579				8,811				14,594
Net income	$	301,118			$	229,832			$	151,177
Net income, basic and diluted	$	301,118			$	229,832			$	151,177
Net income per share:
Basic	$	2.04			$	1.59			$	1.08
Diluted	$	1.90			$	1.47			$	0.98
Weighted-average shares used to compute net income per share:
Basic	147,796				144,244				140,311
Diluted	158,296				156,117				153,681
Other comprehensive income:
Net change in unrealized gain (losses) on available-for-sale investments	$	2,388			$	1,409			$	(1,598	)
Net change in cumulative foreign currency translation gain (loss)	(2,857		)		(2,081		)		3,086
Comprehensive income	$	300,649			$	229,160			$	152,665


(1)	Includes stock-based compensation as follows:



Cost of revenues:
Cost of subscription services	$	2,638	$	1,553	$	1,448
Cost of professional services and other	17,518		10,575		8,476
Research and development	37,001		22,138		17,782
Sales and marketing	27,537		18,381		16,288
General and administrative	31,212		23,778		10,055
Total stock-based compensation	$	115,906	$	76,425	$	54,049

See Notes to Consolidated Financial Statements.

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VEEVA SYSTEMS INC.

CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY

(In thousands, except share data)



	Class A & B Common stock			Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income			Total Stockholders’ Equity
	Shares	Amount
Balance at January 31, 2017	137,886,619	1		439,658		238,384			111			678,154
Issuance of common stock upon exercise of stock options	2,935,962	—		21,194		—			—			21,194
Vesting of early exercised stock options	—	—		1		—			—			1
Issuance of common stock upon vesting of restricted stock units	1,246,815	—		—		—			—			—
Stock-based compensation expense	—	—		54,419		—			—			54,419
Other comprehensive loss	—	—		—		(196		)	1,489			1,293
Net income	—	—		—		151,177			—			151,177
Balance at January 31, 2018	142,069,396	$	1	$	515,272	$	389,365		$	1,600		$	906,238
Issuance of common stock upon exercise of stock options	2,807,092	—		25,554		—			—			25,554
Issuance of common stock upon vesting of restricted stock units	1,313,591	—		—		—			—			—
Stock-based compensation expense	—	—		76,797		—			—			76,797
Other comprehensive income	—	—		—		—			(672		)	(672		)
Net income	—	—		—		229,832			—			229,832
Balance at January 31, 2019	146,190,079	$	1	$	617,623	$	619,197		$	928		$	1,237,749
Cumulative effect adjustment for Topic 842(1)	—	—		—		(657		)	—			(657		)
Issuance of common stock upon exercise of stock options	1,665,778	—		10,899		—			—			10,899
Issuance of common stock upon vesting of restricted stock units	1,239,726	—		—		—			—			—
Replacement award value in connection with business combination	—	—		657		—			—			657
Stock-based compensation expense	—	—		116,296		—			—			116,296
Other comprehensive income	—	—		—		—			(468		)	(468		)
Net income	—	—		—		301,118			—			301,118
Balance at January 31, 2020	149,095,583	$	1	$	745,475	$	919,658		$	460		$	1,665,594

See Notes to Consolidated Financial Statements.


(1)	We adopted ASU 2016-02, “Leases” (Topic 842) using the modified retrospective method as of February 1, 2019 and elected the transition option that allows us not to restate the comparative periods in our financial statements in the year of adoption.

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VEEVA SYSTEMS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Fiscal year ended January 31,
	2020			2019			2018
Cash flows from operating activities
Net income	$	301,118		$	229,832		$	151,177
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	19,859			14,071			14,277
Reduction of operating lease right-of-use assets	7,966			—			—
Amortization of premiums (accretion of discount) on short-term investments	(3,274		)	(2,431		)	1,389
Stock-based compensation	115,906			76,425			54,049
Amortization of deferred costs	20,521			18,378			16,647
Deferred income taxes	(6,663		)	(8,091		)	1,209
(Gain) Loss on foreign currency from market-to-market derivative	(120		)	(177		)	265
Bad debt expense (recovery)	244			198			(242		)
Changes in operating assets and liabilities:
Accounts receivable	(55,531		)	(78,995		)	(47,799		)
Unbilled accounts receivable	(14,555		)	(4,774		)	(4,329		)
Deferred costs	(25,237		)	(18,941		)	(18,795		)
Income taxes payable	1,131			637			(2,520		)
Prepaid expenses and other current and long-term assets	(2,700		)	(10,562		)	(2,493		)
Accounts payable	2,813			1,822			1,396
Accrued expenses and other current liabilities	(15,230		)	963			7,149
Deferred revenue	97,753			89,416			58,240
Operating lease liabilities	(7,480		)	—			—
Other long-term liabilities	854			3,056			3,818
Net cash provided by operating activities	437,375			310,827			233,438
Cash flows from investing activities
Purchases of short-term investments	(752,518		)	(726,379		)	(437,858		)
Maturities and sales of short-term investments	688,091			632,329			294,705
Purchases of property and equipment	(3,113		)	(8,440		)	(9,633		)
Acquisitions, net of cash and restricted cash acquired	(448,162		)	—			—
Capitalized internal-use software development costs	(1,208		)	(1,379		)	(1,734		)
Net cash used in investing activities	(516,910		)	(103,869		)	(154,520		)
Cash flows from financing activities
Reduction of lease liabilities - finance leases	(984		)	—			—
Proceeds from exercise of common stock options	10,994			25,910			20,773
Net cash provided by financing activities	10,010			25,910			20,773
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(2,856		)	(2,077		)	3,089
Net change in cash, cash equivalents, and restricted cash	(72,381		)	230,791			102,780
Cash, cash equivalents, and restricted cash at beginning of period	552,178			321,387			218,607
Cash, cash equivalents, and restricted cash at end of period	$	479,797		$	552,178		$	321,387

Cash, cash equivalents, and restricted cash at end of period:
Cash and cash equivalents	$	476,733		$	550,971		$	320,183
Restricted cash included in other long-term assets	3,064			1,207			1,204
Total cash, cash equivalents, and restricted cash at end of period	$	479,797		$	552,178		$	321,387

Supplemental disclosures of other cash flow information:
Cash paid for income taxes, net of refunds	$	14,289		$	19,541		$	12,461
Excess tax benefits from employee stock plans	$	50,411		$	45,830		$	45,864
Non-cash investing and financing activities:
Changes in accounts payable and accrued expenses related to property and equipment purchases	$	567		$	644		$	(1,388	)

See Notes to Consolidated Financial Statements.

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Note 1. Summary of Business and Significant Accounting Policies

Description of Business

Veeva is the leading provider of industry cloud solutions for the global life sciences industry. We were founded in 2007 on the premise that industry-specific cloud solutions could best address the operating challenges and regulatory requirements of life sciences companies. Our solutions are designed to meet the unique needs of our customers and their most strategic business functions—from research and development (R&D) to commercialization. Our solutions are designed to help life sciences companies develop and bring products to market faster and more efficiently, market and sell more effectively, and maintain compliance with government regulations. Our commercial solutions help life sciences companies achieve better, more intelligent engagement with healthcare professionals and healthcare organizations across multiple communication channels, and plan and execute more effective media and marketing campaigns. Our R&D solutions for the clinical, regulatory, quality, and safety functions help life sciences companies streamline their end-to-end product development processes to increase operational efficiency and maintain regulatory compliance throughout the product life cycle. We also bring the benefits of our content and data management solutions to a set of customers outside of life sciences in three regulated industries: consumer goods, chemicals, and cosmetics. Our fiscal year end is January 31.

Principles of Consolidation and Basis of Presentation

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding annual financial reporting and include the accounts of our wholly-owned subsidiaries after elimination of intercompany accounts and transactions.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that affect the consolidated financial statements and the notes thereto. These estimates are based on information available as of the date of the consolidated financial statements. On a regular basis, management evaluates these estimates and assumptions. Items subject to such estimates and assumptions include, but are not limited to:


•	the standalone selling price for each distinct performance obligation included in customer contracts with multiple performance obligations;


•	the determination of the period of benefit for amortization of deferred costs; and


•	the fair value of assets acquired and liabilities assumed for business combinations.

As future events cannot be determined with precision, actual results could differ significantly from those estimates.

Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. We define the term “chief operating decision maker” to be our Chief Executive Officer. Our Chief Executive Officer reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating our financial performance. Accordingly, we have determined that we operate in a single reportable operating segment. Since we operate in one operating segment, all required financial segment information can be found in the consolidated financial statements.

Revenue Recognition

We derive our revenues primarily from subscription services and professional services. Subscription services revenues consist of fees from customers accessing our cloud-based software solutions and subscription or license fees for our data solutions. Professional services and other revenues consist primarily of fees from implementation services, configuration, data services, training, and managed services related to our solutions. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

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We determine revenue recognition through the following steps:


•	Identification of the contract, or contracts, with a customer;


•	Identification of the performance obligations in the contract;


•	Determination of the transaction price;


•	Allocation of the transaction price to the performance obligations in the contract; and


•	Recognition of revenue when, or as, we satisfy a performance obligation.

Our subscription services agreements are generally non-cancelable during the term, although customers typically have the right to terminate their agreements for cause in the event of material breach.

Subscription Services Revenues

Subscription services revenues are recognized ratably over the respective non-cancelable subscription term because of the continuous transfer of control to the customer. Our subscription arrangements are considered service contracts, and the customer does not have the right to take possession of the software.

Professional Services and Other Revenues

The majority of our professional services arrangements are billed on a time and materials basis and revenues are recognized over time based on time incurred and contractually agreed upon rates. Certain professional services revenues are billed on a fixed fee basis and revenues are typically recognized over time as the services are delivered based on time incurred. Data services and training revenues are generally recognized as the services are performed.

Contracts with Multiple Performance Obligations

Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately when they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and other factors, including other groupings such as customer type and geography.

Unbilled Accounts Receivable

Unbilled accounts receivable is a contract asset related to the delivery of our subscription services and professional services for which the related billings will occur in a future period. Unbilled accounts receivable consists of (i) revenue recognized for professional services performed but not yet billed and (ii) revenue recognized from non-cancelable, multi-year orders in which fees increase annually but for which we are not contractually able to invoice until a future period.

Deferred Costs

Deferred costs include sales commissions associated with obtaining a contract with a customer. These costs are deferred and then amortized over a period of benefit that we have determined to be three years. We determined the period of benefit by taking into consideration the expected renewal period of our customer contracts, our technology and other factors. Amortization expense is included in sales and marketing expenses in the accompanying consolidated statements of comprehensive income.

Certain Risks and Concentrations of Credit Risk

Our revenues are derived from subscription services, professional services and other services delivered primarily to the life sciences industry. We operate in markets that are highly competitive and rapidly changing. Significant technological changes, shifting customer needs, the emergence of competitive products or services with new capabilities, and other factors could negatively impact our future operating results.

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Our financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents, short-term investments and trade accounts receivable. Our cash equivalents and short-term investments are held by established financial institutions. We have established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity. Deposits in these financial institutions may significantly exceed federally insured limits.

We do not require collateral from our customers and generally require payment within 30 days to 60 days of billing.

The following customers individually exceeded 10% of total accounts receivable as of the dates shown:



	January 31, 2020	January 31, 2019
Customer 1	14%	17%
Customer 2	*	10%


*	Does not exceed 10%.

No single customer represented over 10% of our total revenues for any of the years presented.

Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Short-term Investments

Our short-term investments are classified as available-for-sale and recorded at estimated fair value. Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive income, a component of stockholders’ equity. We evaluate our investments to assess whether those with unrealized loss positions are other than temporarily impaired. We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in other income, net, in the consolidated statements of comprehensive income. Interest, amortization of premiums, and accretion of discount on all short-term investments are also included as a component of other income, net, in the consolidated statements of comprehensive income.

We may sell our short-term investments at any time, without significant penalty, for use in current operations or for other purposes, even if they have not yet reached maturity. As a result, we classify our investments, including securities with maturities beyond 12 months as current assets in the accompanying consolidated balance sheets.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount, net of allowance for doubtful accounts, which is not material.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets and commences once the asset is placed in service or ready for its intended use. Land is not depreciated. The estimated useful lives by asset classification are as follows:



Asset Classification		Estimated Useful Life
Building		30 years
Land and building improvements		10 years (land improvements) and estimated useful life of building (building improvements)
Equipment and computers		3 years
Furniture and fixtures		5 years
Leasehold improvements		Shorter of remaining life of the lease term or estimated useful life

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Leases

We have operating and finance leases for corporate offices, data centers, and certain equipment. Additionally, we are the sublessor for certain office space.

Lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. We use an estimate of our discount rate based on the information available at the lease commencement date in determining the present value of lease payments, unless the implicit rate is readily determinable. The lease right-of-use assets also include any lease payments made and exclude lease incentives such as tenant improvement allowances. Options to extend or terminate the lease are included in the lease term when it is reasonably certain that we will exercise the extension or termination option.

Our operating leases typically include non-lease components such as common-area maintenance costs. We have elected to exclude non-lease components from lease payments for the purpose of calculating lease right-of-use assets and liabilities and these are expensed as incurred as variable lease payments.

Leases with a term of one year or less are not recognized on our consolidated balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

Internal-Use Software

We capitalize certain costs incurred for the development of computer software for internal use. We capitalize these costs during the development of the project, when it is determined that it is probable that the project will be completed, and the software will be used as intended. Costs related to preliminary project activities, post-implementation activities, training and maintenance are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life of three years, and the amortization expense is recorded as a component of cost of subscription services. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Goodwill and Intangible Assets

Goodwill is tested for impairment annually in the fourth quarter of each year or if circumstances indicate the carrying value of goodwill is impaired.

We have one reporting unit and evaluate goodwill for impairment at the entity level. We completed our annual impairment test in our fourth quarter of the fiscal year ended January 31, 2020, which did not result in any impairment of the goodwill balance.

All other intangible assets associated with purchased intangibles, consisting of existing technology, databases, customer relationships, software, trade names and trademarks, data supplier and partner relationships, non-competition agreements, brand, and backlog are stated at cost less accumulated amortization and are amortized on a straight-line basis over their estimated remaining economic lives. Amortization expense related to existing technology, databases, data supplier and partner relationships, software, and backlog is included in cost of subscription services. Amortization expense related to customer relationships, trade names and trademarks, and brand are included in sales and marketing expense. Amortization expense related to non-competition agreements are included in both general and administrative and research and development expense.

Long-Lived Assets

Long-lived assets, such as property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. There were no impairment charges recognized during any of the periods presented.

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Business Combinations

The purchase price in a business combination is assigned to the estimated acquisition date fair values of the tangible and intangible assets acquired and the liabilities assumed with the residual recorded as goodwill. Critical estimates in valuing certain of the intangible assets include, but are not limited to, the net present value of future expected cash flows, future revenue growth, margins, customer retention rates, technology life, royalty rates, expected use of acquired assets, and discount rates.

Stock-based Compensation

We recognize compensation expense for all stock-based awards, including stock options and restricted stock units (RSUs), based on the estimate of fair value of the award at the grant date. The fair value of each option award is estimated on the grant date using either a Monte Carlo simulation for market condition awards or Black-Scholes option-pricing model and a single option award approach. These models require that at the date of grant we determine the fair value of the underlying common stock, the expected term of the award, the expected volatility of the price of our common stock, risk-free interest rates, and expected dividend yield of our common stock. The fair value of each RSU award is measured based on the closing stock price of our common stock on the date of grant. We account for forfeitures as they occur. The compensation expense is recognized using a straight-line basis over the requisite service periods of the awards, which is generally four to nine years.

Cost of Revenues

Cost of subscription services revenues consists of expenses related to our computing infrastructure provided by third parties, including salesforce.com and Amazon Web Services, personnel related costs associated with hosting our subscription services and providing support, including our data stewards, data acquisition costs, and allocated overhead, amortization expense associated with capitalized internal-use software related to our subscription services, and amortization expense associated with purchased intangibles related to our subscription services. Cost of subscription services revenues for Veeva CRM and certain of our multichannel customer relationship management applications includes fees paid to salesforce.com for our use of the Salesforce1 Platform and the associated hosting infrastructure and data center operations that are provided by salesforce.com.

Cost of professional services and other revenues consists primarily of employee-related expenses associated with providing these services, including salaries, benefits and stock-based compensation expense, the cost of third-party subcontractors, travel costs and allocated overhead.

Advertising Expenses

Advertising expenditures are expensed as incurred and were immaterial for each of the years presented.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 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.

We regularly assess the realizability of our deferred tax assets and establish a valuation allowance if it is more-likely-than-not that some or all of our deferred tax assets will not be realized. We evaluate and weigh all available positive and negative evidence such as historic results, future reversals of existing deferred tax liabilities, projected future taxable income, as well as prudent and feasible tax-planning strategies. Generally, more weight is given to objectively verifiable evidence, such as the cumulative income in recent years.

We establish liabilities or reduce assets for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that the position will be sustained upon an audit, including resolution of related appeals or litigation processes, if any. The second step requires us to measure the tax benefit as the largest amount that is more likely than not to be realized upon ultimate settlement. We recognize interest accrued and penalties related to unrecognized tax benefits as a component of provision for income taxes.

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Foreign Currency Exchange

Adjustments resulting from translating financial statements for those entities that do not have U.S. dollars as their functional currency are recorded as part of a separate component of the consolidated statements of comprehensive income. All assets and liabilities denominated in non-functional currency are translated into the functional currency at the exchange rate on the balance sheet date. Revenues and expenses are translated at the average exchange rate during the period. Equity transactions are translated using historical exchange rates. Foreign currency transaction gains and losses are included in the consolidated statements of comprehensive income for the period.

Indemnification

Our contracts generally include provisions for indemnifying customers against liabilities if our solutions infringe a third party’s intellectual property rights, and we may also incur liabilities if we breach the security and/or confidentiality obligations in our contracts. To date, we have not incurred any material costs, and we have not accrued any liabilities in the accompanying consolidated financial statements, as a result of these obligations.

Loss Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

New Accounting Pronouncements Adopted in Fiscal 2020

Leases

In February 2016, the FASB issued Topic 842 and related subsequent amendments, which requires lessees to record most leases on their balance sheets but recognize the expenses on their statements of comprehensive income in a manner similar to current accounting rules. Topic 842 states that a lessee should recognize a lease liability for the obligation to make lease payments and a right-of-use (ROU) asset for the right to use the underlying asset for the lease term. We have adopted this new standard in the first quarter of fiscal 2020 on February 1, 2019 using the effective date as our date of initial application. We adopted Topic 842 using the modified retrospective method as of February 1, 2019 with an immaterial amount of cumulative effect adjustment recorded to our retained earnings. Consequently, financial information for dates and periods before February 1, 2019 remain unchanged.

We elected the ‘package of practical expedients,’ which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costs. We have also elected the short-term lease recognition exemption for all of our leases. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We did not apply the practical expedient for our office leases, which would have allowed us to combine lease and non-lease components for all of our office leases. However, we have applied the practical expedient for equipment leases, which has allowed us to combine lease and non-lease components for all of our equipment leases.

The most significant impact was the recognition of ROU assets and lease liabilities on our balance sheet. Adoption of Topic 842 had no material impact to our condensed consolidated statement of comprehensive income and no material impact to cash provided by or used in operating, financing or investing activities on our condensed consolidated statement of cash flows.

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Intangibles and Goodwill

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment” (Topic 350), which eliminates Step 2 from the goodwill impairment test. Under Topic 350, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. We early adopted this new standard during the fiscal quarter ended October 31, 2019, and it did not have an impact on our consolidated financial statements.

Fair Value Measurement

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (Topic 820), which modifies the disclosure requirements on fair value measurements. The ASU removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. We early adopted this new standard during the fiscal quarter ended July 31, 2019. Because we do not have such transfers or Level 3 financial assets, this standard does not apply to our current disclosures, and it did not impact our previously reported financial statements for periods ended on or prior to July 31, 2019.

Note 2. Acquisitions

During the fiscal year ended January 31, 2020, we completed two acquisitions, Crossix and Physicians World, both of which were accounted for as business combinations. The goodwill recognized for these acquisitions was primarily attributable to expected synergies from the integration with our products and services and is not deductible for U.S. tax purposes.

Crossix

On November 1, 2019, we acquired 100% ownership of Crossix in exchange for total consideration of $427.9 million, which includes the impact of adjustments to purchase price associated with the cash and net working capital of the acquired entity at close. In addition, we granted certain Crossix employees equity retention awards valued at approximately $120 million in the aggregate, which will be expensed as share-based compensation over the remaining service period. Crossix brings Veeva additional depth in patient data and data analytics, and we are integrating Crossix with our Veeva CRM and OpenData products. We incurred $1.0 million in acquisition-related transaction costs which are reflected in general and administrative expenses on our consolidated statements of comprehensive income.

The fair value of assets acquired and liabilities assumed was based on a preliminary valuation, and our estimates and assumptions are subject to change within the measurement period. The area that is subject to change relates to certain tax-related items.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

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	Useful lives of intangible assets	Fair value
Net assets acquired		$	4,766

Identifiable intangible assets:
Customer relationships	10 years	$	70,100
Existing technology	6 years	19,200
Trade name/Trademarks	5 years	13,200
Other intangibles	1 to 7 years	6,000
Purchased intangible assets		$	108,500

Goodwill		$	314,642

Total purchase consideration		$	427,908

The following unaudited pro forma information presents the combined results of operations for the periods presented as if the acquisition had been completed on February 1, 2018, the beginning of the comparable prior annual reporting period. The unaudited pro forma results include the amortization associated with estimates for the purchased intangible assets and stock-based compensation expense associated with the retention awards granted.

The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited pro forma results are presented for information purpose only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations (in thousands):



	For the fiscal year ended January 31,
	2020		2019
	(Unaudited)
Pro forma revenues	$	1,153,497	$	913,081
Pro forma net income	$	278,215	$	201,382
Pro forma net income per share:
Basic	$	1.88	$	1.40
Diluted	$	1.76	$	1.29

Physicians World

On November 7, 2019, we completed our acquisition of Physicians World in exchange for total cash consideration of $41.0 million, which includes the impact of adjustments to purchase price associated with the cash and net working capital of the acquired entity at close. In addition, we granted certain Physicians World employees equity retention awards valued at approximately $15 million in the aggregate. Acquiring Physicians World makes it easier for our customers to get industry leading cloud software and services from a single vendor. We incurred $0.3 million in acquisition-related transaction costs which are reflected in general and administrative expenses on our consolidated statements of comprehensive income.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

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	Useful lives of intangible assets	Fair value
Net assets acquired		$	1,221

Identifiable intangible assets:
Customer relationships	10 years	$	7,700
Existing technology	6 years	3,300
Trade name/Trademarks	3 years	700
Purchased intangible assets		$	11,700

Goodwill		$	28,083

Total purchase price		$	41,004

Pro forma results of operations have not been presented because the effect of this acquisition was not material to the consolidated financial statements.

Note 3. Short-Term Investments

At January 31, 2020, short-term investments consisted of the following (in thousands):



	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Available-for-sale securities:
Certificates of deposits	$	3,500	$	3	$	—		$	3,503
Asset-backed securities	100,419		396		(1		)	100,814
Commercial paper	19,965		5		(1		)	19,969
Corporate notes and bonds	234,664		1,552		(2		)	236,214
Foreign government bonds	3,397		10		—			3,407
U.S. treasury securities	245,509		599		—			246,108
Total available-for-sale securities	$	607,454	$	2,565	$	(4	)	$	610,015

At January 31, 2019, short-term investments consisted of the following (in thousands):



	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Available-for-sale securities:
Certificates of deposits	$	6,001	$	10	$	(1	)	$	6,010
Asset-backed securities	78,682		13		(300		)	78,395
Commercial paper	9,118		1		(2		)	9,117
Corporate notes and bonds	185,409		178		(457		)	185,130
Foreign government bonds	1,502		—		(11		)	1,491
U.S. agency obligations	15,912		2		(2		)	15,912
U.S. treasury securities	243,119		78		(62		)	243,135
Total available-for-sale securities	$	539,743	$	282	$	(835	)	$	539,190

The following table summarizes the estimated fair value of our short-term investments, designated as available-for-sale and classified by the contractual maturity date of the securities as of the dates shown (in thousands):



	January 31,
2020			2019
Due in one year or less	$	247,592		$	377,858
Due in greater than one year	362,423			161,332
Total	$	610,015		$	539,190

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The following table shows the fair values of these available-for-sale securities, some of which have been in an unrealized loss position for more than 12 months, aggregated by investment category as of January 31, 2020 (in thousands):



	Fair value	Unrealized losses
Asset-backed securities	2,623	(1	)
Commercial paper	5,589	(1	)
Corporate notes and bonds	9,105	(2	)



	Fair value		Unrealized losses
Certificates of deposits	$	999	$	(1	)
Asset-backed securities	69,131		(300		)
Commercial paper	7,155		(2		)
Corporate notes and bonds	121,006		(457		)
Foreign government bonds	1,490		(11		)
U.S. agency obligations	14,928		(2		)
U.S. treasury securities	130,785		(62		)

There were no impairments considered other-than-temporary as of January 31, 2020 and 2019 as it is more likely than not we will hold the securities until recovery of the cost basis.

Note 4. Deferred Costs

Deferred costs, which consist of deferred sales commissions, were $35.6 million and $30.9 million as of January 31, 2020 and 2019, respectively. Amortization expense for the deferred costs included in sales and marketing expenses in the consolidated statements of comprehensive income was $20.5 million, $18.4 million, and $16.6 million for fiscal years ended January 31, 2020, 2019, and 2018, respectively. There have been no impairment losses recorded in relation to the costs capitalized for any period presented.

Note 5. Property and Equipment, Net

Property and equipment, net consists of the following as of the dates shown (in thousands):



	January 31,
2020				2019
Land	$	3,040			$	3,040
Building	20,984				20,984
Land improvements and building improvements	22,392				20,911
Equipment and computers	11,066				7,945
Furniture and fixtures	12,849				11,230
Leasehold improvements	9,385				6,790
Construction in progress	386				330
	80,102				71,230
Less accumulated depreciation	(25,350		)		(16,264		)
Total property and equipment, net	$	54,752			$	54,966

Total depreciation expense was $8.5 million, $6.4 million, and $5.9 million for the fiscal years ended January 31, 2020, 2019, and 2018, respectively. Land is not depreciated.

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Note 6. Intangible Assets and Goodwill

The following schedule presents the details of intangible assets as of January 31, 2020 (dollar amounts in thousands):



	January 31, 2020
	Gross carrying amount		Accumulated amortization			Net		Remaining useful life (in years)
Existing technology	$	26,380	$	(4,808	)	$	21,572	5.8
Customer relationships	111,443		(17,575		)	93,868		9.0
Trade name/Trademarks	13,900		(720		)	13,180		4.7
Other intangibles	22,947		(16,966		)	5,981		5.0
	$	174,670	$	(40,069	)	$	134,601

The following schedule presents the details of intangible assets as of January 31, 2019 (dollar amounts in thousands):



	January 31, 2019
	Gross carrying amount		Accumulated amortization			Net		Remaining useful life (in years)
Existing technology	$	3,880	$	(3,834	)	$	46	1.2
Customer relationships	33,643		(12,350		)	21,293		6.6
Other intangibles	16,947		(13,765		)	3,182		1.2
	$	54,470	$	(29,949	)	$	24,521

Amortization expense associated with intangible assets for the fiscal years ended January 31, 2020, 2019, and 2018 was $10.1 million, $7.0 million, and $7.8 million, respectively.

The estimated amortization expense for intangible assets for the next five years and thereafter is as follows as of January 31, 2020 (in thousands):



	Estimated amortization expense
Period
Fiscal 2021	$	19,595
Fiscal 2022	18,397
Fiscal 2023	18,342
Fiscal 2024	18,160
Fiscal 2025	17,417
Thereafter	42,690
Total	$	134,601

The following schedule presents the details of goodwill as of January 31, 2020 (in thousands):



	Goodwill
Balance as of January 31, 2019	$	95,804
Goodwill from Crossix acquisition	314,642
Goodwill from Physicians World acquisition	28,083
Balance as of January 31, 2020	$	438,529

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Note 7. Accrued Expenses

Accrued expenses consisted of the following as of the dates shown (in thousands):



	January 31,
	2020		2019
Accrued commissions	$	8,951	$	2,633
Accrued bonus	4,329		2,848
Accrued vacation	3,921		3,110
Payroll tax payable	7,353		1,971
Accrued other compensation and benefits	1,065		4,762
Total accrued compensation and benefits	$	25,619	$	15,324
Accrued fees payable to salesforce.com	5,787		5,242
Accrued third-party professional services subcontractors' fees	1,338		1,619
Taxes payable	4,914		2,805
Other accrued expenses	9,581		6,479
Total accrued expenses and other current liabilities	$	21,620	$	16,145

Note 8. Fair Value Measurements

The following table presents the fair value hierarchy for financial assets measured at fair value on a recurring basis as of January 31, 2020 (in thousands):



	Level 1		Level 2		Total
Assets
Cash equivalents:
Money market funds	$	24,107	$	—	$	24,107
Commercial paper	—		1,616		1,616
Corporate notes and bonds	—		2,245		2,245
Short-term investments:
Certificates of deposits	—		3,503		3,503
Asset-backed securities	—		100,815		100,815
Commercial paper	—		19,969		19,969
Corporate notes and bonds	—		236,214		236,214
Foreign government bonds	—		3,407		3,407
U.S. treasury securities	—		246,107		246,107
Foreign currency derivative contracts	—		75		75
Total	$	24,107	$	613,951	$	638,058
Liabilities
Foreign currency derivative contracts	—		42		42
Total	$	—	$	42	$	42

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The following table presents the fair value hierarchy for financial assets measured at fair value on a recurring basis as of January 31, 2019 (in thousands):



	Level 1		Level 2		Total
Assets
Cash equivalents:
Money market funds	$	39,168	$	—	$	39,168
Corporate notes and bonds	—		1,034		1,034
U.S. treasury securities	—		41,505		41,505
Short-term investments:
Certificates of deposits	—		6,010		6,010
Asset-backed securities	—		78,395		78,395
Commercial paper	—		9,117		9,117
Corporate notes and bonds	—		185,130		185,130
Foreign government bonds	—		1,491		1,491
U.S. agency obligations	—		15,912		15,912
U.S. treasury securities	—		243,135		243,135
Total	$	39,168	$	581,729	$	620,897
Liabilities
Foreign currency derivative contracts	—		88		88
Total	$	—	$	88	$	88

We determine the fair value of our security holdings based on pricing from our service providers and market prices from industry-standard independent data providers. The valuation techniques used to measure the fair value of financial instruments having Level 2 inputs were derived from non-binding consensus prices that are corroborated by observable market data or quoted market prices for similar instruments. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs).

The carrying amounts of accounts receivable and other current assets, accounts payable and accrued liabilities approximate their fair value due to their short-term nature.

Balance Sheet Hedges

We enter into foreign currency forward contracts (the “Forward Contracts”) in order to hedge our foreign currency exposure. We account for derivative instruments at fair value with changes in the fair value recorded as a component of other income, net in our consolidated statements of comprehensive income. Cash flows from such forward contracts are classified as operating activities. During the fiscal years ended January 31, 2020 and 2019, we recognized realized foreign currency losses on hedging of $0.3 million and foreign currency gains of $0.3 million, respectively.

The fair value of our outstanding derivative instruments is summarized below (in thousands):



	January 31,
	2020		2019
Notional amount of foreign currency derivative contracts	$	7,304	$	(5,112	)
Fair value of foreign currency derivative contracts	7,271		(5,024		)

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Details on outstanding balance sheet hedges are presented below as of the date shown below (in thousands):



		January 31,
		2020		2019
Derivative Assets	Balance Sheet Location
Derivatives not designated as hedging instruments:
Foreign currency derivative contracts	Prepaid expenses and other current assets	$	75	$	—
Derivative Liabilities
Derivatives not designated as hedging instruments:
Foreign currency derivative contracts	Accrued expenses	$	42	$	88

Note 9. Other Income, Net

Other income, net consisted of the following (in thousands):



	Fiscal Year Ended January 31,
2020				2019				2018
Foreign currency gain (loss)	$	(708	)		$	(2,103	)		$	1,177
Accretion (amortization) on investments	3,001				2,492				(1,718		)
Interest income	25,185				15,388				8,383
Other income, net	$	27,478			$	15,777			$	7,842

Note 10. Income Taxes

The components of income before income taxes by U.S. and foreign jurisdictions were as follows for the periods shown (in thousands):



	Fiscal Year Ended January 31,
	2020		2019		2018
United States	$	305,339	$	222,743	$	140,172
Foreign	8,358		15,900		25,599
Total	$	313,697	$	238,643	$	165,771

The majority of our revenues from international sales are invoiced from and collected by our U.S. entity and recognized as a component of income before taxes in the United States as opposed to a foreign jurisdiction.

Provision for income taxes consisted of the following for the periods shown (in thousands):



	Fiscal Year Ended January 31,
	2020			2019			2018
Current provision:
Federal	$	11,143		$	5,466		$	5,315
State	4,695			4,089			209
Foreign	3,404			7,438			8,022
Total	$	19,242		$	16,993		13,546
Deferred provision:
Federal	(1,063		)	(1,910		)	1,681
State	(517		)	(619		)	330
Foreign	(5,083		)	(5,653		)	(963		)
Total	$	(6,663	)	$	(8,182	)	$	1,048
Provision for income taxes	$	12,579		$	8,811		$	14,594

Provision for income taxes differed from the amount computed by applying the federal statutory income tax rate of 21.0%, 21.0%, and 33.8% for the fiscal years ended January 31, 2020, 2019, and 2018, respectively, to income before income taxes as a result of the following for the periods shown (in thousands):

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	Fiscal Year Ended January 31,
	2020			2019			2018
Federal tax statutory tax rate	$	65,876		$	50,115		$	56,047
State taxes	3,035			3,139			3,936
Tax credits	(23,468		)	(21,415		)	(9,409		)
Domestic manufacturing deduction	—			—			(1,096		)
Stock-based compensation	(34,569		)	(33,332		)	(37,347		)
Foreign rate differential	411			610			(2,207		)
Valuation allowance	7,408			6,666			4,010
Impact of foreign operations	470			3,381			4,842
Foreign derived intangible income deduction (FDII)(1)	(4,836		)	(2,086		)	—
Others(1)	(1,748		)	1,733			(4,182		)
Provision for income taxes	$	12,579		$	8,811		$	14,594


(1)	Note that prior periods have been adjusted due to prior period reclassifications.

The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and liabilities related to the following (in thousands):



	January 31,
	2020			2019
Deferred Tax Assets:
Accruals and reserves	$	10,355		$	7,678
State income taxes	931			116
Stock-based compensation(1)	9,861			5,180
Net operating loss carryforward	32,916			2,885
Tax credit carryforward	21,458			15,411
Lease liabilities(2)	13,808			—
Other	217			435
Gross Deferred Tax Assets	$	89,546		$	31,705
Valuation Allowance	(22,694		)	(15,385		)
Total Deferred Tax Assets	$	66,852		$	16,320
Deferred Tax Liabilities:
Property and equipment	$	(650	)	$	(822	)
Intangible assets	(33,518		)	(7,159		)
Expensed internal-use software	(974		)	(608		)
Lease right-of-use assets(2)	(12,717		)	—
Deferred costs(1)	(8,922		)	(7,888		)
Other(1)	(619		)	—
Total Deferred Tax Liabilities	$	(57,400	)	$	(16,477	)
Net Deferred Tax Assets (Liabilities)	$	9,452		$	(157	)


(1)	Note that prior periods have been adjusted due to prior period reclassifications.


(2)	Note that current period classifications reflect the adoption of Topic 842.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As a result, a valuation allowance was assessed as it is not more likely than not that we will recognize the future benefits on certain tax credits and net California deferred tax asset balances.

The net impact of our purchase price accounting allocation on our deferred tax assets and liabilities was immaterial.

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As of January 31, 2020, the net operating loss carryforwards for federal and state income tax purposes were approximately $110.9 million and $106.3 million, respectively. The federal net operating losses do not expire and the state net operating losses begin to expire in 2033.

As of January 31, 2020, we had $34.8 million of California research and development tax credits available to offset future taxes, which do not expire.

We evaluate tax positions for recognition using a more-likely than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. We classify unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as “other non-current liabilities” in the consolidated balance sheets. As of January 31, 2020, the total amount of gross unrecognized tax benefits was $14.5 million, of which $6.8 million, if recognized, would favorably impact our effective tax rate. The aggregate changes in our total gross amount of unrecognized tax benefits are summarized as follows for the periods shown (in thousands):



	Fiscal Year Ended January 31,
	2020			2019			2018
Beginning balance	$	12,597		$	11,398		$	7,868
Increases related to tax positions taken during the prior period	796			968			256
Increases related to tax positions taken during the current period	3,420			2,697			4,032
Decreases related to tax positions taken during the prior period	(128		)	(1,754		)	(67		)
Audit settlements	—			(403		)	—
Lapse of statute of limitations	(2,170		)	(309		)	(691		)
Ending balance	$	14,515		$	12,597		$	11,398

Our policy is to classify interest and penalties associated with unrecognized tax benefits as a component of the provision for income taxes. Interest and penalties were not significant during fiscal year ended January 31, 2020.

We file tax returns in the United States for federal, California, and other states. Fiscal years ended January 31, 2017 and forward remain open to examination for federal income tax, and fiscal years ended January 31, 2015 and forward remain open to examination for California and other states. We file tax returns in multiple foreign jurisdictions. The fiscal years ended January 31, 2014 and forward remain open to examination in these foreign jurisdictions.

Note 11. Deferred Revenue and Performance Obligations

Of the beginning deferred revenue balance for the respective periods, we recognized $353.4 million and $264.8 million of subscription services revenue during fiscal years ended January 31, 2020 and 2019, respectively. Professional services revenue recognized in the same periods from deferred revenue balances at the beginning of the respective periods was immaterial.

Transaction Price Allocated to the Remaining Performance Obligations

Transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenues in future periods. We applied the practical expedient in accordance with Topic 606 to exclude the amounts related to professional services contracts as these contracts generally have a remaining duration of one year or less. Revenue from remaining performance obligations for professional services contracts as of January 31, 2020 was immaterial.

As of January 31, 2020, approximately $897.7 million of revenue is expected to be recognized from remaining performance obligations for subscription services contracts. We expect to recognize revenue on approximately 83% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

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Note 12. Leases

We have operating and finance leases for corporate offices, data centers, and certain equipment. Our leases have various expiration dates through 2030, some of which include options to extend the leases for up to nine years. Additionally, we are the sublessor for certain office space. Our sublease income for the fiscal year ended January 31, 2020 was immaterial.

For the fiscal year ended January 31, 2020, our operating lease expense was $7.9 million. Our finance lease expense was $1.3 million for the fiscal year ended January 31, 2020. For the fiscal year ended January 31, 2020, our short-term lease expense was $0.4 million.

Supplemental cash flow information related to leases was as follows (in thousands):



	Year ended January 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows towards operating leases	$	7,657
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	23,546
Operating leases obtained through business combinations	$	14,550

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



	January 31, 2020
Operating Leases
Lease right-of-use-assets	$	49,132
Lease liabilities	$	8,960
Lease liabilities, noncurrent	44,453
Total operating lease liabilities	$	53,413
Finance Leases
Property and equipment, at cost	$	1,761
Accumulated depreciation	(1,320		)
Property and equipment, net	$	441
Lease liabilities	$	1,054
Lease liabilities, noncurrent	362
Total finance lease liabilities	$	1,416
Weighted Average Remaining Lease Term
Operating leases	7.1 years
Finance leases	1.3 years
Weighted Average Discount Rate
Operating leases	4.3		%
Finance leases	4.3		%

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Maturities of lease liabilities as of January 31, 2020 were as follows (in thousands):



Period	Operating leases			Finance leases
Fiscal 2021	$	10,722		$	1,090
Fiscal 2022	10,215			364
Fiscal 2023	8,056			—
Fiscal 2024	7,311			—
Fiscal 2025	5,344			—
Thereafter	20,867			—
Total lease payments	62,515			1,454
Less imputed interest	(9,102		)	(38		)
Total	$	53,413		$	1,416

Future minimum lease payments under non-cancelable operating leases as of January 31, 2019 under ASC 840 were as follows (in thousands):



Period	Operating leases
Fiscal 2020	$	5,079
Fiscal 2021	4,843
Fiscal 2022	4,063
Fiscal 2023	2,534
Fiscal 2024	1,884
Thereafter	1,495
Total	$	19,898

As of January 31, 2020, we have additional operating leases, primarily for office leases, that have not yet commenced of $3.4 million. These operating leases will commence during the fiscal year ending January 31, 2021 with lease terms of less than one year to five years.

Note 13. Stockholders’ Equity

Beginning in the fiscal quarter ended April 30, 2019, we implemented a new equity compensation program applicable to the vast majority of our employees but not applicable to our Chief Executive Officer (CEO). Prior to the adoption of the new equity compensation program, at the time of hire, our employees received a grant of RSUs that vested quarterly over four years and received additional equity from time to time thereafter. Under the new equity compensation program, the vast majority of our employees are granted both RSUs, which typically vest over a one-year period, and stock options, which typically vest over a four-year period.

Common Stock

In connection with our initial public offering in October 2013 (IPO), we amended our certificate of incorporation to provide for Class A common stock, Class B common stock and preferred stock. Immediately prior to the consummation of the IPO, all outstanding shares of convertible preferred stock and common stock were converted into shares of Class B common stock. As a result, following the IPO, we have two classes of authorized common stock: Class A common stock and Class B common stock.

As of January 31, 2020, we had 133,892,725 shares of Class A common stock and 15,202,858 shares of Class B common stock outstanding.

As of January 31, 2019, we had 125,980,019 shares of Class A common stock and 20,210,060 shares of Class B common stock outstanding.

Employee Equity Plans

2007 Stock Plan

Our board of directors adopted our 2007 Stock Plan (2007 Plan) in February 2007, and our stockholders approved it in February 2007. No further awards have been made under our 2007 Plan since the adoption of the 2012 Equity Incentive Plan. However, awards outstanding under our 2007 Plan will continue to be governed by their existing terms.

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2012 Equity Incentive Plan

Our board of directors adopted our 2012 Equity Incentive Plan (2012 EIP) in November 2012, and our stockholders approved it in December 2012. An amendment and restatement of the 2012 EIP was approved by our board of directors in March 2013, and our stockholders approved it in March 2013. The 2012 EIP became effective on adoption and replaced our 2007 Plan. No further awards have been made under our 2012 EIP since the adoption of the 2013 Equity Incentive Plan. However, awards outstanding under the 2012 EIP will continue to be governed by their existing terms.

2013 Equity Incentive Plan

Our board of directors adopted our 2013 Equity Incentive Plan (2013 EIP) in August 2013, and our stockholders approved it in September 2013. The 2013 EIP became effective immediately on adoption although no awards were made under it until the date of our IPO on October 15, 2013, at which time our 2013 EIP replaced our 2012 EIP.

As of January 31, 2020, the number of shares of our Class A common stock available for issuance under the 2013 EIP was 28,471,030 plus any shares of our Class B common stock subject to awards under the 2012 EIP and the 2007 Plan that expire or lapse unexercised or, with respect to shares issued pursuant to such awards, are forfeited or repurchased by us after the date of our IPO on October 15, 2013. The number of shares available for issuance under the 2013 EIP automatically increases on the first business day of each of our fiscal years, commencing in 2014, by a number equal to the least of (a) 13.75 million shares, (b) 5% of the shares of all classes of our common stock outstanding on the last business day of the prior fiscal year, or (c) the number of shares determined by our board of directors. During our fiscal year ended January 31, 2020, our board of directors determined to add 6,578,553 shares of common stock to the 2013 EIP.

2013 Employee Stock Purchase Plan

Our ESPP was adopted by our board of directors in August 2013 and our stockholders approved it in September 2013. The ESPP became effective as of our IPO registration statement on Form S-1, on October 15, 2013. Our ESPP is intended to qualify under Section 423 of the Internal Revenue Code of 1986, as amended (Code). The ESPP was approved with a reserve of 4.0 million shares of Class A common stock for future issuance under various terms provided for in the ESPP. As of January 31, 2020, the number of shares available for issuance under our ESPP was 4,897,856. The number of shares available for issuance under the ESPP automatically increases on the first business day of each of our fiscal years, commencing in 2014, by a number equal to the least of (a) 2.2 million shares, (b) 1% of the shares of all classes of our common stock outstanding on the last business day of the prior fiscal year or (c) the number of shares determined by our board of directors. Prior to the beginning of our fiscal year ended January 31, 2020, our board of directors determined not to increase the number of shares available for issuance under the ESPP.

During active offering periods, our ESPP permits eligible employees to acquire shares of our common stock at 85% of the lower of the fair market value of our Class A common stock on the first day of the applicable offering period or the fair market value of our Class A common stock on the purchase date. Participants may purchase shares of common stock through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The initial offering period for our ESPP commenced on the date of our initial public offering and ended on June 15, 2014. We have not had any open offering periods subsequent to the initial offering period.

Voting Rights

The holders of our Class B common stock are entitled to ten votes per share, and holders of our Class A common stock are entitled to one vote per share. The holders of our Class A common stock and Class B common stock vote together as a single class, unless otherwise required by our restated certificate of incorporation or law. Delaware law could require either holders of our Class A common stock or our Class B common stock to vote separately as a single class in the following circumstances:


•	if we were to seek to amend our restated certificate of incorporation to increase the authorized number of shares of a class of stock, or to increase or decrease the par value of a class of stock, then that class would be required to vote separately to approve the proposed amendment; and


•	if we were to seek to amend our restated certificate of incorporation in a manner that alters or changes the powers, preferences or special rights of a class of stock in a manner that affected its holders adversely, then that class would be required to vote separately to approve the proposed amendment.

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Our restated certificate of incorporation requires the approval of a majority of our outstanding Class B common stock voting as a separate class for any transaction that would result in a change in control of our company.

Stockholders do not have the ability to cumulate votes for the election of directors. Our restated certificate of incorporation and amended and restated bylaws that became effective upon the closing of our IPO provide for a classified board of directors consisting of three classes of approximately equal size, each serving staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms.

Dividend Rights

Holders of outstanding shares of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and only then at the times and in the amounts that our board of directors may determine. To date, no dividends have been declared or paid by us.

No Preemptive or Similar Rights

Our common stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions.

Right to Receive Liquidation Distributions

Upon our dissolution, liquidation or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the holders of our common stock, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of preferred stock.

Conversion Rights

Each outstanding share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value, which occurs following the closing of our IPO, except for certain permitted transfers described in our restated certificate of incorporation, including transfers to any “permitted transferee” as defined in our restated certificate of incorporation, which includes, among others, transfers:


•	to trusts, corporations, limited liability companies, partnerships, foundations or similar entities established by a Class B stockholder, provided that:


•	such transfer is to entities established by a Class B stockholder where the Class B stockholder retains the exclusive right to vote and direct the disposition of the shares of Class B common stock; or


•	such transfer does not involve payment of cash, securities, property or other consideration to the Class B stockholder.

Once converted into Class A common stock, a share of Class B common stock may not be reissued.

All the outstanding shares of Class A and Class B common stock will convert automatically into shares of a single class of common stock upon the earliest to occur of the following: (i) upon the election of the holders of a majority of the then-outstanding shares of Class B common stock or (ii) October 15, 2023. Following such conversion, each share of common stock will have one vote per share and the rights of the holders of all outstanding common stock will be identical. Once converted into a single class of common stock, the Class A and Class B common stock may not be reissued.

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Stock Option Activity

The 2007 Stock Plan and the 2012 EIP provided, and the 2013 EIP provides, for the issuance of incentive and nonstatutory options to employees, consultants and non-employee directors. Options issued under and outside of the 2007 Plan generally are exercisable for periods not to exceed 10 years and generally vest over four to five years. Options issued under the 2012 EIP and 2013 EIP generally are exercisable for periods not to exceed 10 years and generally vest over five to nine years. A summary of stock option activity for the fiscal year ended January 31, 2020 is presented below:



	Number of shares		Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value
Options outstanding at January 31, 2019	12,961,397		$	19.43	5.4	$	1,161,695,032
Options granted	2,502,908		129.79
Options exercised	(1,665,778	)	6.54
Options forfeited/cancelled	(350,501	)	55.16
Options outstanding at January 31, 2020	13,448,026		$	40.64	5.4	$	1,426,502,005
Options vested and exercisable at January 31, 2020	6,697,955		$	6.19	3.2	$	940,544,986
Options vested and exercisable at January 31, 2020 and expected to vest thereafter	13,448,026		$	40.64	5.4	$	1,426,502,005

The weighted average grant-date fair value of options granted during the fiscal years ended January 31, 2020, 2019 and 2018 was $60.05, $35.43, and $30.87, respectively, per share.

As of January 31, 2020, there was $194.5 million in unrecognized compensation cost related to unvested stock options granted under the 2007 Plan, 2012 EIP and 2013 EIP. This cost is expected to be recognized over a weighted average period of 3.9 years.

As of January 31, 2020, we had authorized and unissued shares of common stock sufficient to satisfy exercises of stock options.

Our closing stock price as reported on the New York Stock Exchange as of January 31, 2020, the last trading day of fiscal year 2020 was $146.61. The total intrinsic value of options exercised was $229.0 million for the fiscal year ended January 31, 2020.

Restricted Stock Units

The 2013 EIP provides for the issuance of RSUs to employees. RSUs issued under the 2013 EIP generally vest over one to five years. A summary of RSU activity for the fiscal year ended January 31, 2020 is presented below:



	Unreleased restricted stock units		Weighted average grant date fair value
Balance at January 31, 2019	2,359,132		$	54.73
RSUs granted	892,667		142.92
RSUs vested	(1,239,933	)	57.73
RSUs forfeited/cancelled	(193,244	)	61.28
Balance at January 31, 2020	1,818,622		$	95.23

During the fiscal year ended January 31, 2020, we issued RSUs under the 2013 EIP with a weighted-average grant date fair value of $142.92.

As of January 31, 2020, there was a total of $157.4 million in unrecognized compensation cost related to unvested RSUs, which are expected to be recognized over a weighted-average period of approximately 2.8 years. The total intrinsic value of RSUs vested was $178.8 million for the fiscal year ended January 31, 2020.

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Stock-Based Compensation

The following table presents the weighted-average assumptions used to estimate the grant date fair value of options granted during the periods presented:



	Fiscal year ended January 31,
	2020	2019	2018
Volatility	39% – 41%	41%	42% – 44%
Expected term (in years)	5.64 – 6.61	6.25 – 6.35	6.35
Risk-free interest rate	1.39% – 2.52%	2.57% – 2.74%	1.86% – 2.21%
Dividend yield	0%	0%	0%

During the fiscal year ended January 31, 2018, we granted 2,838,635 stock options to our CEO. The stock option award is made up of five separate tranches. The first tranche vests over time, while the remaining four tranches vest based on certain stock price targets (market conditions). The grant date fair values of each tranche were calculated using a Monte Carlo simulation model. We have based our expected term on the historical stock activity behavior of our CEO. The following table provides the assumptions used in the Monte Carlo simulation for each tranche granted:



Volatility	41	%
Expected term (in years)	10.00
Risk-free interest rate	2.53	%
Dividend yield	0	%

Note 14. Net Income per Share

Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period.

Diluted net income per share is computed by dividing net income by the weighted-average shares outstanding, including potentially dilutive shares of common equivalents outstanding during the period. The dilutive effect of potential shares of common stock are determined using the treasury stock method.

The computation of fully diluted net income per share of Class A common stock assumes the conversion from Class B common stock, while the fully diluted net income per share of Class B common stock does not assume the conversion of those shares.

The numerators and denominators of the basic and diluted EPS computations for our common stock are calculated as follows (in thousands, except per share data):



	For the fiscal year ended January 31,
2020						2019						2018
(in thousands)
Class A			Class B			Class A			Class B			Class A			Class B
Basic
Numerator
Net income, basic	$	266,104		$	35,014		$	194,607		$	35,225		$	121,203		$	29,974
Denominator
Weighted average shares used in computing net income per share, basic	130,610			17,186			122,137			22,107			112,491			27,820
Net income per share, basic	$	2.04		$	2.04		$	1.59		$	1.59		$	1.08		$	1.08
Diluted
Numerator
Net income, basic	$	266,104		$	35,014		$	194,607		$	35,225		$	121,203		$	29,974
Reallocation as a result of conversion of Class B to Class A common stock:
Net income, basic	35,014			—			35,225			—			29,974			—
Reallocation of net income to Class B common stock	—			17,652			—			14,800			—			10,545
Net income, diluted	$	301,118		$	52,666		$	229,832		$	50,025		$	151,177		$	40,519
Denominator
Number of shares used for basic EPS computation	130,610			17,186			122,137			22,107			112,491			27,820
Conversion of Class B to Class A common stock	17,186			—			22,107			—			27,820			—
Effect of potentially dilutive common shares	10,500			10,500			11,873			11,873			13,370			13,370
Weighted average shares used in computing net income per share, diluted	158,296			27,686			156,117			33,980			153,681			41,190
Net income per share, diluted	$	1.90		$	1.90		$	1.47		$	1.47		$	0.98		$	0.98

Potential common share equivalents excluded where the inclusion would be anti-dilutive are as follows:



	Fiscal Year Ended January 31,
2020		2019		2018
Options and awards to purchase shares not included in the computation of diluted net income per share because their inclusion would be anti-dilutive	1,461,255		3,054,322		833,691

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Note 15. Commitments and Contingencies

Litigation

IQVIA Litigation Matters.

Veeva OpenData and Veeva Network Action.

On January 10, 2017, IQVIA Inc. (formerly Quintiles IMS Incorporated) and IMS Software Services, Ltd. (collectively, “IQVIA”) filed a complaint against us in the U.S. District Court for the District of New Jersey (IQVIA Inc. v. Veeva Systems Inc. (No. 2:17-cv-00177)) (“OpenData and Network Action”). In the complaint, IQVIA alleges that we have used unauthorized access to proprietary IQVIA data to improve our software and data products and that our software is designed to steal IQVIA trade secrets. IQVIA further alleges that we have intentionally gained unauthorized access to IQVIA proprietary information to gain an unfair advantage in marketing our products and that we have made false statements concerning IQVIA’s conduct and our data security capabilities. IQVIA asserts claims under both federal and state misappropriation of trade secret laws, federal false advertising law, and common law claims for unjust enrichment, tortious interference, and unfair trade practices. The complaint seeks declaratory and injunctive relief and unspecified monetary damages.

On March 13, 2017, we filed our answer and counterclaims in the OpenData and Network Action. Our counterclaims allege that IQVIA has abused monopoly power as the dominant provider of data products for life sciences companies to exclude Veeva OpenData and Veeva Network from their respective markets. The counterclaims allege that IQVIA has engaged in various tactics to prevent customers from using our applications and has deliberately raised costs and difficulty for customers attempting to switch from IQVIA to our data products. As amended, our counterclaims assert federal and state antitrust claims, as well as claims under California’s Unfair Practices Act and common law claims for intentional interference with contractual relations, intentional interference with prospective economic advantage, and negligent misrepresentation. The counterclaims seek injunctive relief, monetary damages exceeding $200 million, and attorneys’ fees.

On May 3, 2017, in lieu of filing an answer, IQVIA filed a motion to dismiss our counterclaims. On October 3, 2018, the court denied IQVIA’s motion to dismiss and allowed our antitrust claims to proceed. In addition, on December 3, 2018, we filed an amended answer and counterclaims. IQVIA filed its answer and affirmative defenses on December 21, 2018.

On February 18, 2020, IQVIA filed a motion for sanctions against Veeva, seeking default judgment and dismissal and, in the alternative, a negative inference at trial. The court has referred the motion to the Special Master appointed to assist the court with discovery and pretrial disputes.

Discovery is currently in process.

While it is not possible at this time to predict with any degree of certainty the ultimate outcome of this action, and we are unable to make a meaningful estimate of the amount or range of gain or loss, if any, that could result from the OpenData and Network Action, we believe that IQVIA’s claims lack merit and that our counterclaims warrant injunctive relief and monetary damages for Veeva.

Veeva Nitro Action.

On July 17, 2019, IQVIA filed a lawsuit in the U.S. District Court for the District of New Jersey (IQVIA Inc. v. Veeva Systems Inc. (No. 2:19-cv-15517)) (“IQVIA Declaratory Action”) seeking a declaratory judgment that IQVIA is not liable to Veeva for disallowing use of IQVIA’s data products in Veeva Nitro or any later-introduced Veeva SaaS products. The IQVIA Declaratory Action does not seek any monetary relief.

On July 18, 2019, we filed a lawsuit against IQVIA in the U.S. District Court for the Northern District of California (Veeva Systems Inc. v. IQVIA Inc. (No. 3:19-cv-04137)) (“Veeva Nitro Action”), alleging that IQVIA engaged in anticompetitive conduct as to Veeva Nitro. Our complaint asserts federal and state antitrust claims, as well as claims under California’s Unfair Competition Law and common law claims for intentional interference with contractual relations and intentional interference with prospective economic advantage. The complaint seeks injunctive relief and monetary damages. IQVIA filed its answer and affirmative defenses on September 5, 2019.

On September 26, 2019, the Northern District of California transferred the Veeva Nitro Action to the U.S. District Court for the District of New Jersey.

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On March 24, 2020, we amended our complaint in the Veeva Nitro Action to include allegations of IQVIA’s anticompetitive conduct as to additional Veeva software applications, such as Veeva Andi, Veeva Align, and Veeva Vault MedComms; additional examples of IQVIA’s monopolistic behavior against Veeva Nitro; IQVIA’s unlawful access of Veeva’s proprietary software products; and a request for declaratory relief.

There are no motions currently pending in the IQVIA Declaratory Action or the Veeva Nitro Action that have the potential to end the cases. The court has not yet held a scheduling conference to set the case management schedule.

While it is not possible at this time to predict with any degree of certainty the ultimate outcome of these two actions, we believe that our claims warrant injunctive and declaratory relief and monetary damages for Veeva and against IQVIA.

Medidata Litigation Matter.

On January 26, 2017, Medidata Solutions, Inc. filed a complaint in the U.S. District Court for the Southern District of New York (Medidata Solutions, Inc. v. Veeva Systems Inc. et al. (No. 1:17-cv-00589)) against us and five individual Veeva employees who previously worked for Medidata (“Individual Employees”). The complaint alleged that we induced and conspired with the Individual Employees to breach their employment agreements, including non-compete and confidentiality provisions, and to misappropriate Medidata’s confidential and trade secret information. The complaint sought declaratory and injunctive relief, unspecified monetary damages, and attorneys’ fees. Medidata has since amended its complaint twice, asserting the same claims with additional factual allegations, and has voluntarily dismissed the Individual Defendants without prejudice.

After Veeva's motion to dismiss was denied, Veeva filed its answer on December 10, 2018.

There are no motions currently pending in the Medidata case that have the potential to end the case prior to trial. Discovery in the Medidata litigation is currently in process and no trial date has been set.

While it is not possible at this time to predict with any degree of certainty the ultimate outcome of this action, and we are unable to make a meaningful estimate of the amount or range of loss, if any, that could result from any unfavorable outcome, we believe that Medidata’s claims lack merit.

Other Litigation Matters

From time to time, we may be involved in other legal proceedings and subject to claims incident to the ordinary course of business. Although the results of such legal proceedings and claims cannot be predicted with certainty, we believe we are not currently a party to any other legal proceedings, the outcome of which, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial position. Regardless of the outcome, such proceedings can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained.

Value-Added Reseller Agreement

We have a value-added reseller agreement with salesforce.com, inc. for our use of the Salesforce1 Platform in combination with our developed technology to deliver certain of our multichannel CRM applications, including hosting infrastructure and data center operations provided by salesforce.com. The agreement, as amended, requires that we meet minimum order commitments of $500 million over the term of the agreement, which ends on September 1, 2025, including “true-up” payments if the orders we place with salesforce.com have not equaled or exceeded the following aggregate amounts within the timeframes indicated: (i) $250 million for the period from March 1, 2014 to September 1, 2020 and (ii) the full amount of $500 million by September 1, 2025. We have met our first minimum order requirement commitment of $250 million, and as of January 31, 2020, we remained obligated to pay fees of at least $140.0 million prior to September 1, 2025 in connection with this agreement.

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Note 16. Related-Party Transactions

In September 2016, we entered into an agreement with Zoom Video Communications, Inc. (Zoom) to embed two of their products into our multichannel CRM applications. Pursuant to this agreement, we will pay Zoom a fixed annual fee that is not material to us. We have also entered into a contract with Zoom pursuant to which Zoom provides conference call, video conference and web conference capabilities for our internal use. Pursuant to this agreement, we pay Zoom a fee based on usage that has not been material in the past and that we do not expect to be material in the future. Our chief executive officer is on the board of directors of Zoom. Also, another member of our board of directors is the founder and a general partner of Emergence Capital Partners, one of Zoom's investors.

Note 17. Revenues by Product

Our industry cloud solutions are grouped into two key product areas—Veeva Commercial Cloud and Veeva Vault. Veeva Commercial Cloud is a suite of multichannel CRM applications, territory allocation and alignment applications, master data management applications, customer reference and key opinion leader data, and data services. Veeva Vault is a unified suite of cloud-based, enterprise content and data management applications.

Total revenues consist of the following (in thousands):



	Fiscal Year Ended January 31,
	2020		2019		2018
Subscription services
Veeva Commercial Cloud	$	468,615	$	395,039	$	356,415
Veeva Vault	427,679		299,428		203,019
Total subscription services	$	896,294	$	694,467	$	559,434
Professional services
Veeva Commercial Cloud	$	76,347	$	62,557	$	61,516
Veeva Vault	131,440		105,186		69,609
Total professional services	$	207,787	$	167,743	$	131,125
Total revenues	$	1,104,081	$	862,210	$	690,559

Note 18. Information about Geographic Areas

We track and allocate revenues by principal geographic area rather than by individual country, which makes it impractical to disclose revenues for the United States or other specific foreign countries. We measure subscription services revenue primarily by the estimated location of the end users in each geographic area for Veeva Commercial Cloud and primarily by the estimated location of usage in each geographic area for Veeva Vault. We measure professional services revenue primarily by the location of the resources performing the professional services. Beginning with the fiscal quarter ended October 31, 2019, certain revenues by geographic areas have been reclassified. Prior periods have been adjusted to reflect this change, and the effect of this change is not material for any period previously presented.

Total revenues by geographic area were as follows for the periods shown below (in thousands):



	Fiscal Year Ended January 31,
	2020		2019		2018
Revenues by geography
North America	$	607,704	$	480,713	$	377,797
Europe	310,215		228,784		181,940
Asia Pacific	151,052		124,431		107,397
Rest of world(1)	35,110		28,282		23,425
Total revenues	$	1,104,081	$	862,210	$	690,559


(1)	Middle East, Africa, and Latin America

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Long-lived assets by geographic area are as follows as of the periods shown below (in thousands):



	January 31,
	2020		2019		2018
Long-lived assets by geography
North America	$	51,334	$	51,748	$	49,214
Europe and rest of world	2,077		1,783		1,840
Asia Pacific	1,341		1,435		1,230
Total long-lived assets	$	54,752	$	54,966	$	52,284

Note 19. 401(k) Plan

We have a qualified defined contribution plan under Section 401(k) of the Code covering eligible employees as well as a Registered Retirement Savings Plan (RRSP) for eligible employees in Canada. Under the 401(k) plan, we match up to $2,000 per employee per year. Under the RRSP plan, we also match up to $2,000 per employee per year. For the fiscal years ended January 31, 2020, 2019, and 2018, total expense related to these plans was $3.9 million, $3.3 million, and $0.4 million respectively.

Note 20. Selected Quarterly Financial Data (Unaudited)

Selected summarized quarterly financial information for fiscal years ended January 31, 2020 and 2019 is as follows (in thousands):



	Three Months Ended
	Jan. 31, 2020		Oct. 31, 2019		Jul. 31, 2019		Apr. 30, 2019		Jan. 31, 2019		Oct. 31, 2018		Jul. 31, 2018		Apr. 30, 2018
	(in thousands)
Consolidated Statements of Income Data:
Total revenues	$	311,508	$	280,921	$	266,900	$	244,752	$	232,323	$	224,731	$	209,609	$	195,547
Gross profit	217,189		207,592		196,682		179,249		167,797		163,357		150,383		135,392
Operating income	60,394		80,800		73,856		71,169		62,998		63,094		52,818		43,956
Net income	$	66,182	$	82,245	$	79,242	$	73,449	$	71,151	$	64,085	$	50,286	$	44,310
Net income per share:
Basic	$	0.44	$	0.56	$	0.54	$	0.50	$	0.49	$	0.44	$	0.35	$	0.31
Diluted	$	0.42	$	0.52	$	0.50	$	0.47	$	0.45	$	0.41	$	0.32	$	0.29

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ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.


ITEM 9A.	CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of January 31, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (SEC) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of January 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Management’s Annual Report on Internal Controls Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of January 31, 2020 based on the criteria set forth in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. In accordance with guidance issued by the Securities and Exchange Commission, companies are permitted to exclude acquisitions from their final assessment of internal control over financial reporting for the first fiscal year in which the acquisition occurred. Our management's evaluation of internal control over financial reporting excluded the internal control activities of Crossix and Physicians World, which we acquired on November 1, 2019 and November 7, 2019, respectively. We have included the financial results of Crossix and Physicians World in the consolidated financial statements from the respective dates of acquisition. Crossix’ and Physicians World’s internal controls over financial reporting associated with total assets, in aggregate, of 4% and total revenues, in aggregate, of 2% included in our consolidated financial statements as of and for the year ended January 31, 2020.

Based on the assessment, our management has concluded that our internal control over financial reporting was effective as of January 31, 2020 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. Our independent registered public accounting firm, KPMG LLP, has issued an audit report with respect to our internal control over financial reporting, which appears in Part II, Item 8 of this Form 10-K.

(c) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended January 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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(d) Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or would be detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Previous: Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS · Next: Item 9B. OTHER INFORMATION