10q_parser.ipynb

{
 "cells": [
  {
   "cell_type": "code",
   "execution_count": 1,
   "id": "b52d831c",
   "metadata": {},
   "outputs": [],
   "source": [
    "import re\n",
    "import requests\n",
    "from bs4 import BeautifulSoup as bs\n",
    "import unicodedata"
   ]
  },
  {
   "cell_type": "code",
   "execution_count": 32,
   "id": "7a4cac2c",
   "metadata": {},
   "outputs": [],
   "source": [
    "def parse_10q_filing(link, section):\n",
    "    \n",
    "    if section not in [0, 1, 2, 3]:\n",
    "        print(\"Not a valid section\")\n",
    "        sys.exit()\n",
    "    \n",
    "    def get_text(link):\n",
    "        page = requests.get(link, headers={'User-Agent': 'Mozilla'})\n",
    "        html = bs(page.content, \"lxml\")\n",
    "        text = html.get_text()\n",
    "        text = unicodedata.normalize(\"NFKD\", text).encode('ascii', 'ignore').decode('utf8')\n",
    "        text = text.split(\"\\n\")\n",
    "        text = \" \".join(text)\n",
    "        return(text)\n",
    "    \n",
    "    def extract_text(text, item_start, item_end):\n",
    "        item_start = item_start\n",
    "        item_end = item_end\n",
    "        starts = [i.start() for i in item_start.finditer(text)]\n",
    "        ends = [i.start() for i in item_end.finditer(text)]\n",
    "        positions = list()\n",
    "        for s in starts:\n",
    "            control = 0\n",
    "            for e in ends:\n",
    "                if control == 0:\n",
    "                    if s < e:\n",
    "                        control = 1\n",
    "                        positions.append([s,e])\n",
    "        item_length = 0\n",
    "        item_position = list()\n",
    "        for p in positions:\n",
    "            if (p[1]-p[0]) > item_length:\n",
    "                item_length = p[1]-p[0]\n",
    "                item_position = p\n",
    "\n",
    "        item_text = text[item_position[0]:item_position[1]]\n",
    "\n",
    "        return(item_text)\n",
    "\n",
    "    text = get_text(link)\n",
    "        \n",
    "    if section == 1 or section == 0:\n",
    "        try:\n",
    "            item1_start = re.compile(\"item\\s*[1][\\.\\;\\:\\-\\_]*\\s*\\\\bF\", re.IGNORECASE)\n",
    "            item1_end = re.compile(\"item\\s*2[\\.\\;\\:\\-\\_]\\s*Man|item\\s*3[\\.\\,\\;\\:\\-\\_]\\s*Quanti\", re.IGNORECASE)\n",
    "            finText = extract_text(text, item1_start, item1_end)\n",
    "        except:\n",
    "            finText = \"Something went wrong!\"\n",
    "        \n",
    "    if section == 2 or section == 0:\n",
    "        try:\n",
    "            item2_start = re.compile(\"item\\s*[2][\\.\\;\\:\\-\\_]*\\s*\\\\bM\", re.IGNORECASE)\n",
    "            item2_end = re.compile(\"item\\s*3[\\.\\;\\:\\-\\_]\\sQuanti|item\\s*4[\\.\\,\\;\\:\\-\\_]\\s*\", re.IGNORECASE)\n",
    "            mdaText = extract_text(text, item2_start, item2_end)\n",
    "        except:\n",
    "            mdaText = \"Something went wrong!\"\n",
    "            \n",
    "    if section == 3 or section == 0:\n",
    "        try:\n",
    "            item3_start = re.compile(\"item\\s*[3][\\.\\;\\:\\-\\_]*\\s*\\\\bQ\", re.IGNORECASE)\n",
    "            item3_end = re.compile(\"item\\s*4[\\.\\;\\:\\-\\_]\\sCon|item\\s*4[\\.\\,\\;\\:\\-\\_]\\s*\", re.IGNORECASE)\n",
    "            riskText = extract_text(text, item3_start, item3_end)\n",
    "        except:\n",
    "            riskText = \"Something went wrong!\"        \n",
    "    \n",
    "    if section == 0:\n",
    "        data = [finText, mdaText, riskText]\n",
    "    elif section == 1:\n",
    "        data = [finText]\n",
    "    elif section == 2:\n",
    "        data = [mdaText]\n",
    "    elif section == 3:\n",
    "        data = [riskText]\n",
    "    return(data)"
   ]
  },
  {
   "cell_type": "code",
   "execution_count": 34,
   "id": "1d72820c",
   "metadata": {},
   "outputs": [
    {
     "data": {
      "text/plain": [
       "['ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth under the section titled Risk Factors in Item 1A of Part II of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. Our fiscal year ends January 31.OverviewSlack is a new layer of the business technology stack where people can work together more effectively, connect all their other software tools and services, and find the information they need to do their best work. Slack has very general and broad applicability. It is not aimed at any one specific purpose, but at nearly anything that people do together at work. Slack is used to review job candidates, coordinate election coverage, diagnose network problems, negotiate budgets, plan marketing campaigns, approve menus, and organize disaster response teams, along with countless other tasks.Slack provides an easy way for users to share and aggregate information from other software, take action on notifications, and advance workflows in a multitude of third-party applications, over 2,200 of which are listed in the Slack App Directory. Developers have collectively created more than 650,000 third-party applications or custom integrations that were used in a typical week during the three months ended April 30, 2020. Further, Slacks platform capabilities extend beyond integrations with third-party applications and allow for easy integrations with an organizations internally-developed software. As of April 30, 2020, we had more than 750,000 organizations with three or more users on either a free or paid subscription plan.COVID-19 UpdateIn March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and the related public health measures, including orders to shelter-in-place, travel restrictions, and mandated business closures, have adversely affected workforces, organizations, customers, economies, and financial markets globally, leading to an economic downturn and increased market volatility. It has also disrupted the normal operations of many businesses, including ours. The broader implications of COVID-19 on our results of operations and overall financial performance remain uncertain. In the three months ended April 30, 2020, we experienced a significant increase in demand and usage of Slack, including an increase in our number of paid customers. However, we have already seen the rate of new customer acquisition revert to a level more in-line with historical trends. We do not expect the significant increase in the number of paid customers associated with the initial shelter-in-place orders associated with the COVID-19 pandemic to recur. In addition, we experienced an increase in paid customer churn during the three months ended April 30, 2020 and we expect elevated paid customer churn to continue due to the effects of the COVID-19 pandemic. In an effort to assist both new and existing paid customers facing challenges due to the economic impact of the COVID-19 pandemic, we have entered into, and expect to continue to enter into, more custom contracts and billing arrangements with new and existing paid customers, which may be less advantageous to us than our standard term contracts. These arrangements have included provisions such as the ability to defer payments, to pay in installments or over longer time periods, and other collection flexibility. We have also granted, and may in the future grant, billing concessions to existing paid customers. We do not expect these billing arrangements to have a significant impact on our future revenue, but they will negatively impact our future Calculated Billings and Free Cash Flow.We expect that there will be volatility in customer demand and buying habits as the COVID-19 pandemic continues, and we may experience curtailed customer demand that could materially adversely impact our business, results of operations, and financial performance in future periods. The COVID-19 pandemic and its adverse effects have been more prevalent in the locations where we, our customers, suppliers, and third-party business partners conduct business. This outbreak, as well as intensified measures undertaken to contain the spread of COVID-19, will likely decrease IT spending, adversely affect and cause volatility in demand for Slack, attrition rates, the ability of our salespeople to travel to potential customers and of our customer success team to conduct in-person trainings and consulting work, negatively impact expected spending from new customers, increase sales cycle times, negatively impact collections of accounts receivable, and harm our business, results of operations, and financial condition. In addition, to prepare for potential surges in demand, we may incur additional costs and make additional investments in order to meet the demands of increased customer usage of Slack and additional product development efforts during this time may put additional pressure on our technical infrastructure. 22The COVID-19 pandemic also presents challenges as our entire workforce is currently working remotely and shifting to assisting new and existing customers who are also generally working remotely. All of our currently planned customer, employee, and industry events have been shifted to virtual-only experiences, and we may deem it advisable to similarly alter, postpone, or cancel entirely, additional customer, partner, employee, or industry events in the future. We have a limited history of having a remote workforce and the long-term impact on, and the resulting types of continuing investments for, our employee base is uncertain. In addition, we may incur increased workforce costs, including costs associated with implementing additional personnel and workplace safety protocols, the accrual of unused paid time off, and workplace or labor claims and disputes related to COVID-19.While we have developed and continue to develop plans to help mitigate the potential negative impact of the outbreak on our business, these efforts may not be effective and a protracted economic downturn will likely limit the effectiveness of our mitigation efforts. Due to our subscription-based business model, the effect of the COVID-19 may not be fully reflected in our results of operations until future periods, if at all. We are continuing to understand the long-term net effect and anticipated future magnitude of the above factors on our results for future periods and such forecasts are inherently uncertain. See Part II, Item 1A, Risk Factors for further discussion of the possible impact of the COVID-19 pandemic on our business, financial condition, and results of operations.Key Business MetricsWe review the following key business metrics to measure our performance, identify trends, formulate financial projections, and make strategic decisions. We are not aware of any uniform standards for calculating these key metrics, which may hinder comparability with other companies who may calculate similarly-titled metrics in a different way.We define an organization as a separate entity, such as a company, educational or government institution, or distinct business unit of a company, that is on a subscription plan, whether free or paid. Once an organization has three or more users on a paid subscription plan, we count them as a Paid Customer, and when disclosing the number of Paid Customers, we round down to the nearest thousand.Paid CustomersWe believe that the growth in our Paid Customer base reflects our value proposition and positions us for future growth as our Paid Customers often expand their adoption over time and Paid Customers increase awareness of Slack, which leads to organic adoption by new organizations. Our Paid Customers base has expanded through increasing awareness of Slack, further developing our go-to-market strategy and continuing to build features tuned to different industry needs. Our Paid Customer base includes organizations of all sizes across a wide range of industries.As of April 30, 2020 and 2019, we had approximately 122,000 and 95,000 Paid Customers, respectively.Paid Customers >$100,000We focus on growing the number of Paid Customers >$100,000 as a measure of our ability to scale with organizations on Slack and attract larger organizations to Slack. We believe that our ability to increase the number of Paid Customers >$100,000 is a key indicator for important components of the growth of our business, including our success in expanding the number of users within a Paid Customer, providing the functionality required by large organizations and developing our direct sales force.We define Paid Customers >$100,000 as those organizations on a paid subscription plan that had more than $100,000 in annual recurring revenue, or ARR, as of a period end. ARR is based on monthly recurring revenue, or MRR, for the most recent month at period end, multiplied by twelve. For Paid Customers that have a type of subscription agreement where billing is reconciled on a monthly or quarterly basis based on usage, MRR is calculated by multiplying the monthly subscription price, inclusive of discounts, by the number of active subscriptions as of the month end. For Paid Customers that have a type of subscription agreement where billing is fixed and independent of usage, MRR is calculated by multiplying the monthly subscription price, inclusive of discounts, by the number of purchased subscriptions.As of April 30, 2020, we had 963 Paid Customers >$100,000, who contributed approximately 49% of revenue for the three months then ended. As of April 30, 2019, we had 645 Paid Customers >$100,000, who contributed approximately 43% of revenue for the three months then ended.23Net Dollar Retention RateWe disclose Net Dollar Retention Rate as a supplemental measure of our organic revenue growth. We believe Net Dollar Retention Rate is an important metric that provides insight into the long-term value of our subscription agreements and our ability to retain, and grow revenue from, our Paid Customers.We calculate Net Dollar Retention Rate as of a period end by starting with the MRR from all Paid Customers as of twelve months prior to such period end, or Prior Period MRR. We then calculate the MRR from these same Paid Customers as of the current period end, or Current Period MRR. Current Period MRR includes expansion within Paid Customers and is net of contraction or attrition over the trailing twelve months, but excludes revenue from new Paid Customers in the current period, including those organizations that were only on Free subscription plans in the prior period and converted to paid subscription plans during the current period. We then divide the total Current Period MRR by the total Prior Period MRR to arrive at our Net Dollar Retention Rate. As of April 30, 2020 and 2019, our Net Dollar Retention Rate was 132% and 138%, respectively. Our Net Dollar Retention Rate has declined year over year as our base of revenue has grown and our penetration within existing, long-term Paid Customers has increased. Our Net Dollar Retention Rate will fluctuate in future periods due to a number of factors, including the growing level of our revenue base, the level of penetration within our Paid Customer base, expansion of products and features, and our ability to retain our Paid Customers.Non-GAAP Financial MeasuresIn addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe the below non-GAAP measures are useful in evaluating our operating performance. We use the below non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance, and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.Three Months Ended April 30,20202019(In thousands)Calculated Billings$206,009  $149,637  Free Cash Flow$3,683  $(34,203) Calculated BillingsCalculated Billings consists of our revenue plus the change in our deferred revenue in a given period. The Calculated Billings metric is intended to reflect sales to new paid customers plus renewals and additional sales to existing paid customers. Our management uses Calculated Billings to measure and monitor our sales growth because we generally bill our paid customers at the time of sale, but may recognize a portion of the related revenue ratably over time. For subscriptions, we typically invoice our paid customers at the beginning of the term, in annual or monthly installments and, from time to time, in multi-year installments. Only amounts invoiced to a paid customer in a given period are included in Calculated Billings. While we believe that Calculated Billings provides valuable insight into the cash that will be generated from sales of our subscriptions, this metric may vary from period-to-period for a number of reasons, and therefore has a number of limitations as a quarter-over-quarter or year-over-year comparative measure. These reasons include, but are not limited to, the following: (i) a variety of contractual terms could result in some periods having a higher proportion of annual subscriptions than other periods, (ii) as we focus on sales to large organizations, the lengthening of our sales cycle, and the variability in the timing of the execution of these larger transactions, (iii) fluctuations in payment terms affecting the billings recognized in a particular period, and (iv) seasonality in our billings, with a greater proportion of our billings occurring in our fourth quarter, following typical enterprise software buying patterns. Because of these and other limitations, you should consider Calculated Billings along with revenue and our other GAAP financial results.24The following table presents a reconciliation of revenue, the most directly comparable financial measure calculated in accordance with GAAP, to Calculated Billings, for each of the periods presented:Three Months Ended April 30,20202019(In thousands)Revenue$201,650  $134,821  Add: Total deferred revenue, end of period381,073  256,689  Less: Total deferred revenue, beginning of period(376,714) (241,873) Calculated Billings$206,009  $149,637  Free Cash FlowFree Cash Flow is a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities less purchases of property and equipment. We believe that Free Cash Flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment, can be used for strategic initiatives, including investing in our business, making strategic acquisitions, and strengthening our balance sheet. Free Cash Flow has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by operating activities. Some of the limitations of Free Cash Flow are that this metric does not reflect our future contractual commitments and may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure. We expect our Free Cash Flow to fluctuate in future periods as we invest in our business to support our plans for growth. These activities, along with certain increased operating expenses as described below, may result in a decrease in Free Cash Flow as a percentage of revenue in future periods. The following table summarizes our cash flows for the periods presented and provides a reconciliation of net cash from operating activities, the most directly comparable financial measure calculated in accordance with GAAP, to Free Cash Flow, for each of the periods presented:Three Months Ended April 30,20202019(In thousands)Net cash provided by (used in) operating activities$8,729  $(14,126) Purchases of property and equipment(5,046) (20,077) Free Cash Flow$3,683  $(34,203) Net cash provided by (used in) investing activities$(35,464) $105,460  Net cash provided by financing activities$755,961  $2,385  Key Components of Results of OperationsRevenueWe generate substantially all of our revenue through sales of subscriptions of Slack to organizations. We recognize subscription revenue on a straight-line basis over the term of the contract subscription period beginning on the date access to Slack is granted, provided all other revenue recognition criteria have been met. Our subscriptions are generally non-cancellable and typically do not contain general rights of return. We maintain a fair billing policy, under which certain organizations on a paid subscription plan are entitled to credit if they have not used the entirety of the contracted number of users for which they have paid during the contractual term of the arrangement. These credits, accounted for as a part of deferred revenue, may be carried over to offset future billings and are not refundable for cash. On occasion, we also provide professional services to organizations on Slack. Professional services revenue has not been material to date.Overhead Allocation and Employee Compensation CostsWe allocate shared costs, such as facilities (including lease, utilities, and depreciation on equipment shared by all departments) and information technology, or IT, costs to all departments based on headcount. As such, allocated shared costs are reflected in cost of revenue and each operating expense category. Employee compensation costs, or personnel costs, include salaries, bonuses, benefits, and stock-based compensation for cost of revenue and each operating expense category and also 25includes sales commissions for sales and marketing.Cost of RevenueCost of revenue consists primarily of expenses related to hosting Slack and providing ongoing customer support for paid customers. These expenses include employee compensation (including stock-based compensation) and other employee-related expenses for customer experience, professional services, and technical operations staff, payments to outside service providers, third-party hosting costs, payment processing fees, and amortization expense associated with internally-developed and purchased technology. We expect our cost of revenue to continue to increase in absolute dollar amounts as we grow our business and revenue.Operating ExpensesResearch and Development. Research and development expenses consist primarily of personnel costs and allocated overhead. Our research and development efforts focus on maintaining and enhancing existing functionality of, and adding new functionality to, Slack. We plan to increase the dollar amount of our investment in research and development for the foreseeable future as we focus on developing new features and enhancements. We expect, however, that our research and development expenses will decrease as a percentage of our revenue over time as our revenue grows, although the percentage may fluctuate from period to period depending on fluctuations in the timing and extent of our research and development expenses.Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs, expenses associated with our marketing and business development programs, including Frontiers, our annual user conference, Spec, our annual developer conference, and other events, sponsorships, and Slack conferences. Sales and marketing expenses also include allocated third-party hosting costs as well as customer experience and technical operations employee overhead costs for users of our free version of Slack. Sales commissions that are directly related to acquiring sales contracts, as well as associated payroll taxes, are deferred upon execution of a non-cancellable contract with an organization, and subsequently amortized to sales and marketing expense over the estimated period of benefit, typically four years. We plan to increase the dollar amount of our investment in sales and marketing for the foreseeable future, primarily for increased headcount for our direct sales organization and investment in brand and product marketing efforts. We expect to continue to incur sales and marketing expenses to the extent that we continue to see a high-growth market opportunity to support the growth of our business. If the growth in our business lessens over time, we plan to decrease the rate of growth in our sales and marketing expenses. We expect, however, that our sales and marketing expenses will decrease as a percentage of our revenue over time as our revenue grows, although the percentage may fluctuate from period to period depending on fluctuations in the timing and extent of our sales and marketing expenses.General and Administrative. General and administrative expenses consist primarily of personnel costs for our finance and accounting, legal, human resources, and other administrative teams as well as for certain executives and professional fees, including audit, legal, and recruiting services. We expect to increase the size of our general and administrative function to support the growth of our business. We expect to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a U.S. securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, and increased expenses in the areas of insurance, investor relations, and professional services. As a result, we expect the dollar amount of our general and administrative expenses to increase for the foreseeable future. We expect, however, that our general and administrative expenses will decrease as a percentage of our revenues over time, although the percentage may fluctuate from period to period depending on fluctuations in our revenue and the timing and extent of our general and administrative expenses.Interest ExpenseAfter our issuance of 0.50% convertible senior notes due 2025, or the Notes, in an aggregate principal amount of $862.5 million in April 2020, interest expense consists primarily of contractual interest expense and amortization of the discount and debt issuance costs on our Notes.Interest Income and Other Income, NetInterest income and other income, net consists primarily of interest income earned on our cash, cash equivalents, and marketable securities, gains or losses on foreign currency exchange, and the change in fair value of our strategic investments.Provision for Income TaxesProvision for income taxes consists primarily of U.S. federal, state income taxes, and income taxes in certain foreign jurisdictions in which we conduct business. Since inception, we have incurred operating losses and, accordingly, have not 26recorded a provision for income taxes for any of the periods presented other than provisions for foreign income tax.Results of OperationsThe following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue:Three Months Ended April 30,20202019(In thousands)Revenue$201,650  $134,821  Cost of revenue(1)25,602  18,574  Gross profit176,048  116,247  Operating expenses:Research and development(1)91,225  51,103  Sales and marketing(1)110,320  66,838  General and administrative(1)50,654  36,744  Total operating expenses252,199  154,685  Loss from operations(76,151) (38,438) Interest expense(2,842) (113) Interest income and other income, net4,708  7,190  Loss before income taxes(74,285) (31,361) Provision for income taxes142  520  Net loss(74,427) (31,881) Net income attributable to noncontrolling interest(2)784  1,451  Net loss attributable to Slack$(75,211) $(33,332) _______________(1)Includes stock-based compensation as follows:Three Months Ended April 30,20202019(In thousands)Cost of revenue$2,354  $46  Research and development27,419  1,635  Sales and marketing14,075  382  General and administrative9,863  1,576  Total stock-based compensation$53,711  $3,639  (2)Our condensed consolidated financial statements include our majority-owned subsidiary, Slack Fund. The ownership interest of minority investors in Slack Fund is recorded as a noncontrolling interest.27Three Months Ended April 30,20202019Revenue100 %100 %Cost of revenue13  14  Gross profit87  86  Operating expenses:Research and development45  38  Sales and marketing55  50  General and administrative25  27  Total operating expenses125  115  Loss from operations(38) (29) Interest expense (1)   Interest income and other income, net2  6  Loss before income taxes(37) (23) Provision for income taxes  1  Net loss(37) (24) Net income attributable to noncontrolling interest  1  Net loss attributable to Slack(37)%(25)%Comparison of the Three Months Ended April 30, 2020 and 2019 Revenue and Cost of RevenueThree Months Ended April 30,20202019$ Change% Change(In thousands)Revenue$201,650  $134,821  $66,829  50 %Cost of revenue25,602  18,574  7,028  38  Gross profit$176,048  $116,247  $59,801  51  Revenue increased $66.8 million, or 50%, for the three months ended April 30, 2020 compared to the three months ended April 30, 2019. The increase in revenue was primarily due to expansion within our existing Paid Customers, as reflected by our Net Dollar Retention Rate of 132% as of April 30, 2020, and the addition of new Paid Customers, as our number of Paid Customers grew from 95,000 as of April 30, 2019 to 122,000 as of April 30, 2020.Cost of revenue increased $7.0 million, or 38%, for the three months ended April 30, 2020 compared to the three months ended April 30, 2019. The increase was primarily due to a $2.5 million increase in stock-based compensation and related employer payroll taxes, primarily driven by the satisfaction of the performance vesting condition on outstanding RSUs in connection with our direct listing of our Class A common stock on the New York Stock Exchange, or the Direct Listing, in June 2019, a $2.4 million increase in third-party hosting costs as the number of organizations on, and usage of, Slack in general increased, a $1.4 million increase in personnel and related costs, and a $0.5 million increase in facility- and IT-related overhead costs due to additional headcount to support the growth in organizations on Slack.28Operating ExpensesThree Months Ended April 30,20202019$ Change% Change(In thousands)Operating expenses:Research and development$91,225  $51,103  $40,122  79 %Sales and marketing110,320  66,838  43,482  65  General and administrative50,654  36,744  13,910  38  Total operating expenses$252,199  $154,685  $97,514  63  Research and DevelopmentResearch and development expenses increased $40.1 million, or 79%, for the three months ended April 30, 2020 compared to the three months ended April 30, 2019. The increase was primarily due to a $28.1 million increase in stock-based compensation and related employer payroll taxes, primarily driven by the satisfaction of the performance vesting condition on outstanding RSUs in connection with our Direct Listing in June 2019, an $11.2 million increase in personnel costs related to increased headcount, and a $1.3 million increase in facility- and IT-related overhead costs to support our headcount growth and the continued development and scalability of Slack.Sales and MarketingSales and marketing expenses increased $43.5 million, or 65%, for the three months ended April 30, 2020 compared to the three months ended April 30, 2019. The increase was primarily due to a $14.9 million increase in stock-based compensation and related employer payroll taxes, primarily driven by the satisfaction of the performance vesting condition on outstanding RSUs in connection with our Direct Listing in June 2019. Personnel costs, which include customer experience and infrastructure employee costs for users of our free version, increased by $12.9 million related to increased sales and marketing headcount to support our growth. The increase was also driven by an increase in marketing expenses of $10.5 million due to more spending on advertising, a $3.2 million increase in facility- and IT-related overhead costs to support our headcount growth, and a $1.8 million increase in third-party hosting costs for users on a Free subscription plan of Slack primarily due to continuing growth in our user base.General and AdministrativeGeneral and administrative expenses increased $13.9 million, or 38%, for the three months ended April 30, 2020 compared to the three months ended April 30, 2019. The increase was primarily due to a $9.2 million increase in stock-based compensation and related employer payroll taxes, primarily driven by the satisfaction of the performance vesting condition on outstanding RSUs in connection with our Direct Listing in June 2019, and a $4.6 million increase in personnel costs related to increases in our administrative, finance and accounting, legal, IT, and human resources headcount.Interest ExpenseInterest expense increased by $2.7 million for the three months ended April 30, 2020 compared to the three months ended April 30, 2019, due to contractual interest expense and amortization of the discount and costs on the Notes.Interest Income and Other Income, NetInterest income and other income, net was $4.7 million for the three months ended April 30, 2020, a decrease of $2.5 million from the three months ended April 30, 2019. The decrease in interest income and other income, net was primarily driven by a decrease of interest income of $1.6 million due primarily to a decrease in interest rates, a net decrease in realized and unrealized gains from our strategic investments of $1.4 million, partially offset by an increase of net foreign exchange gains of $0.5 million.Provision for Income TaxesThe provision for income taxes was $0.1 million for the three months ended April 30, 2020, a decrease of $0.4 million from the three months ended April 30, 2019, primarily related to tax benefit from foreign research and development credits and excess tax benefit associated with stock-based compensation in certain foreign jurisdiction.29Liquidity and Capital ResourcesAs of April 30, 2020, our principal sources of liquidity were cash, cash equivalents, and restricted cash of $1,266.7 million and marketable securities of $296.7 million. Cash and cash equivalents are comprised of bank deposits, money market funds, certificates of deposit, and commercial paper. Restricted cash consists of cash deposited with financial institutions as collateral for our obligations under the facility leases in San Francisco, California and Denver, Colorado. As of April 30, 2020, our restricted cash totaled $38.5 million. Marketable securities are comprised of certificates of deposit, commercial paper, U.S. agency securities, U.S. government securities, international government securities, and corporate bonds. Substantially all cash and cash equivalents are held in the United States. Since our inception, we have financed our operations primarily through proceeds from the issuance of our convertible preferred stock, convertible senior notes, common stock and cash generated from the sale of our subscriptions.We have generated significant losses from operations and negative cash flows from operating activities in the past as reflected in our accumulated deficit of $1.3 billion as of April 30, 2020. We expect to continue to incur operating losses for the foreseeable future due to the investments that we intend to make in our business and, as a result, we may require additional capital resources to grow our business.In April 2020, we completed our private offering of the Notes and received aggregate proceeds of $862.5 million, before deducting issuance costs of $21.2 million. In connection with the Notes, we entered into privately negotiated capped call transactions with certain counterparties, or the Capped Calls, with respect to our Class A common stock. We used an aggregate amount of $105.6 million of the net proceeds from the sale of the Notes to purchase the Capped Calls.In May 2019, we entered into a $215.0 million revolving credit and guaranty agreement with a syndicate of financial institutions. The revolving credit facility has an accordion option, which, if exercised, would allow us to increase the aggregate commitments by up to the greater of $200.0 million and 100% of the consolidated adjusted EBITDA of us and our subsidiaries, plus an unlimited amount subject to satisfaction of certain leverage ratio based compliance tests after giving effect to the exercise, in each case subject to obtaining additional lender commitments and satisfying certain conditions. Pursuant to the terms of the revolving credit facility, we may issue letters of credit under the revolving credit facility, which reduce the total amount available for borrowing under such facility. As of April 30, 2020, we had no amounts or letters of credit issued and outstanding under the revolving credit facility. Our total available borrowing capacity under the revolving credit facility was $215.0 million as of April 30, 2020.We believe that current cash, cash equivalents, marketable securities, and available borrowing capacity under the revolving credit facility will be sufficient to fund our operations for at least the next 12 months. Our future capital requirements, however, will depend on many factors, including our subscription growth rate, our Net Dollar Retention Rate, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and features, particularly for large organizations and for networks between organizations and the continuing market adoption of Slack. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. In the event that additional financing is required from outside sources, we may seek to raise additional funds at any time through equity, equity-linked arrangements, and debt. If we are unable to raise additional capital when desired and at reasonable rates, our business, results of operations, and financial condition would be adversely affected. See the section titled Risk FactorsRisks Related to Our BusinessOur failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies and customer acquisition efforts in the future could reduce our ability to compete successfully and harm our results of operations.Cash FlowsThe following table summarizes our cash flows for the periods indicated:Three Months Ended April 30,20202019(In thousands)Net cash provided by (used in) operating activities$8,729  $(14,126) Net cash provided by (used in) investing activities(35,464) 105,460  Net cash provided by financing activities755,961  2,385  Net increase in cash, cash equivalents and restricted cash$729,226  $93,719  Cash Provided by (Used in) Operating ActivitiesOur largest source of operating cash is cash collections from organizations on a paid subscription plan. Our primary uses of 30cash from operating activities are for employee-related expenditures, sales and marketing expenses, and third-party hosting costs. Historically, we have generated negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from the private sale of equity securities.During the three months ended April 30, 2020, operating activities provided $8.7 million in cash. The primary factors affecting our operating cash flows during this period were our net loss of $74.4 million, impacted by $73.8 million non-cash charges and $9.4 million of cash provided from changes in our operating assets and liabilities. The non-cash charges primarily consisted $53.7 million in stock-based compensation, $8.7 million of non-cash operating lease expenses, $6.7 million of depreciation and amortization, $3.1 million of amortization of deferred contract acquisition costs, and $2.4 million of amortization of debt discount and issuance cost, partially offset by a $1.6 million net gain as a result of the change in fair value of our strategic investments. The cash provided from changes in our operating assets and liabilities was primarily due to a $39.5 million decrease in accounts receivable, reflecting an increase in collections and seasonal decrease in billings and a $4.4 million increase in deferred revenue due to additional billings with new and existing paid customers. These amounts were partially offset by a $13.3 million decrease in accrued compensation and benefits mainly due to the payment of our corporate bonus to employees, $8.7 million of operating lease payments, $6.6 million increase in prepaid expenses and other assets, a $3.7 million decrease in accounts payable due to the timing of payments, and a $2.1 million decrease in accrued expenses and other liabilities.During the three months ended April 30, 2019, operating activities used $14.1 million in cash. The primary factors affecting our operating cash flows during this period were our net loss of $31.9 million, impacted by $6.9 million non-cash charges and $10.8 million of cash provided from changes in our operating assets and liabilities. The non-cash charges primarily consisted of $5.9 million of depreciation and amortization, $3.6 million in stock-based compensation, and $1.5 million of amortization of deferred contract acquisition costs, partially offset by a $3.0 million net gain as a result of the change in fair value of our strategic investments and $1.1 million of net amortization of bond discount on debt securities available for sale. The cash provided from changes in our operating assets and liabilities was primarily due to a $15.6 million decrease in accounts receivable, reflecting an increase in collections and seasonal decrease in billings, a $14.8 million increase in deferred revenue due to additional billings with new and existing paid customers, and a $3.2 million increase in accrued expenses and other liabilities as a result of our increased spending and headcount associated with the growth of our business. These amounts were partially offset by a $15.3 million decrease in accrued compensation and benefits mainly due to the payment of our corporate bonus to employees and a $6.5 million increase in prepaid expenses and other assets, including a $3.2 million increase in deferred commissions, a $2.7 million increase in prepaid hosting services, and a $1.0 million decrease in accounts payable due to the timing of payments.Cash Provided by (Used in) Investing ActivitiesNet cash used in investing activities during the three months ended April 30, 2020 was $35.5 million, which was primarily driven by cash used to purchase marketable securities of $100.3 million, property and equipment of $5.0 million, and strategic investments of $4.0 million, partially offset by sales and maturities of marketable securities of $73.9 million.Net cash provided by investing activities during three months ended April 30, 2019 was $105.5 million, which was primarily driven by maturities of marketable securities of $150.7 million, partially offset by cash used to purchase marketable securities of $24.9 million, property and equipment of $20.1 million, and strategic investments of $3.1 million.Cash Provided by Financing ActivitiesNet cash provided by financing activities for the three months ended April 30, 2020 was $756.0 million, primarily driven by proceeds from issuance of the Notes of $842.0 million, net of issuance costs, proceeds from employee purchases of common stock under the employee stock purchase plan of $16.6 million, and the exercise of stock options to purchase common stock of $2.9 million, offset by a payment for Capped Calls related to the Notes of $105.6 million.Net cash provided by financing activities for the three months ended April 30, 2019 was $2.4 million, driven by the exercise of stock options to purchase common stock of $2.4 million.Contractual Obligations and CommitmentsOur principal contractual commitments primarily consist of obligations under the Notes (including principal and coupon interest), operating leases for office space, and datacenter operations. For additional information of the Notes, operating lease obligations, and hosting commitments, refer to Note 5, Note 6, and Note 7 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Except for the Notes and datacenter operations, there has been no material change in our other contractual obligations 31primarily related to IT operations, sales and marketing activities, and acquisition related obligations in the ordinary course of business since our fiscal year ended January 31, 2020. See our Annual Report on Form 10-K filed with the SEC on March 12, 2020 for additional information regarding our contractual obligations and commitments.Off-Balance Sheet ArrangementsAs of April 30, 2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other purposes.Critical Accounting Policies and EstimatesCritical accounting policies and estimates are those accounting policies and estimates that are both the most important to the portrayal of our net assets and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Critical accounting estimates are accounting estimates where the nature of the estimates are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and the impact of the estimates on financial condition or operating performance is material.Our significant accounting policies are discussed in Notes to Consolidated Financial Statements - Note 1. Description of Business and Summary of Significant Accounting Policies in our Annual Report on Form 10-K filed with the SEC on March 12, 2020. There have been no material changes to our critical accounting policies and estimates during the three months ended April 30, 2020, except for the new accounting policy for the Notes issued in April 2020.Convertible Senior NotesThe Notes are accounted for in accordance with the Financial Accounting Standards Board, or FASB, issued Accounting Standards Codification, or ASC, Subtopic 470-20, Debt with Conversion and Other Options. Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as the Notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of the instrument is computed by estimating the fair value of a similar liability without the conversion option using a market-based approach. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the instrument. The difference between the principal amount and the liability component represents a debt discount that is amortized to interest expense over the respective terms of the Notes using an effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the Notes, the allocation of issuance costs incurred between the liability and equity components was based on their relative values.Recent Accounting PronouncementsSee Note 1 of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.32']"
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