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Convertible Senior Notes
 6 Months Ended
Jul. 31, 2021
Debt Disclosure [Abstract]  
Convertible Senior Notes Convertible Senior Notes
In June 2018, the Company issued $250.0 million aggregate principal amount of 0.75% convertible senior notes due 2024 in a private placement and, in July 2018, the Company issued an additional $50.0 million aggregate principal amount of convertible senior notes pursuant to the exercise in full of the initial purchasers’ option to purchase additional convertible senior notes (collectively, the “2024 Notes”). The 2024 Notes are senior unsecured obligations of the Company and interest is payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2018, at a rate of 0.75% per year. The 2024 Notes will mature on June 15, 2024, unless earlier converted, redeemed or repurchased. The total net proceeds from the offering, after deducting initial purchase discounts and debt issuance costs, were approximately $291.1 million.
In January 2020, the Company issued $1.0 billion aggregate principal amount of 0.25% convertible senior notes due 2026 in a private placement and, also in January 2020, the Company issued an additional $150.0 million aggregate principal amount of convertible senior notes pursuant to the exercise in full of the initial purchasers’ option to purchase additional convertible senior notes (collectively, the “2026 Notes”). The 2026 Notes are senior unsecured obligations of the Company and interest is payable semiannually in arrears on July 15 and January 15 of each year, beginning on July 15, 2020, at a rate of 0.25% per year. The 2026 Notes will mature on January 15, 2026, unless earlier converted, redeemed or repurchased. The total net proceeds from the offering, after deducting initial purchase discounts and estimated debt issuance costs, were approximately $1.13 billion.
On January 14, 2020, in connection with the issuance of the 2026 Notes, the Company used a portion of the net proceeds to repurchase $210.0 million aggregate principal amount of the 2024 Notes (the “2024 Notes Partial Repurchase”) leaving $90.0 million aggregate principal outstanding on the 2024 Notes immediately after the exchange. The 2024 Notes Partial Repurchase were not pursuant to a redemption notice and were individually privately negotiated transactions. The 2024 Notes Partial Repurchase and issuance of the 2026 Notes were deemed to have substantially different terms due to the significant difference between the value of the conversion option immediately prior to and after the exchange, and accordingly, the 2024 Notes Partial Repurchase was accounted for as a debt extinguishment.
Refer to Note 6, Convertible Senior Notes, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of the Company’s 2021 Form 10-K for further information on the 2024 Notes, the 2026 Notes and the 2024 Notes Partial Repurchase.
During the three months ended July 31, 2021, the conditional conversion feature of the 2024 Notes and the 2026 Notes was triggered as the last reported sale price of the Company's Class A common stock was more than or equal to 130% of the applicable conversion price for each of the series of convertible senior notes for at least 20 trading days in the period of 30 consecutive trading days ending on July 31, 2021 (the last trading day of the fiscal quarter) and therefore the 2024 Notes and the 2026 Notes are currently convertible, in whole or in part, at the option of the holders from August 1, 2021 through October 31, 2021. Whether the 2024 Notes or 2026 Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition in the future. During the six months ended July 31, 2021, certain holders elected to redeem $88.1 million of aggregate principal amount of the 2024 Notes. The Company elected to use $27.6 million of cash to settle a portion of the principal upon redemption, with the remainder settled through the issuance of 1,216,290 shares of Class A common stock. The difference between the settlement consideration and the liability component of the redeemed 2024 Notes was recorded to additional paid-in capital on the Company’s condensed consolidated balance sheet. Pursuant to the Company’s adoption of ASU 2020-06, there was no gain nor loss recognized upon these
conversions. The Company may continue to elect to repay the 2024 Notes and the 2026 Notes in cash, shares of the Company’s Class A common stock or a combination of both cash and shares with respect to future conversions of the 2024 Notes and the 2026 Notes.
The net carrying amounts of the liability component of the 2024 Notes and the 2026 Notes were as follows for the periods presented (in thousands):
July 31, 2021January 31, 2021
2024 Notes2026 Notes2024 Notes2026 Notes
Principal$1,875 $1,149,997 $90,000 $1,150,000 
Unamortized debt discount (1)
— — (15,459)(249,907)
Unamortized debt issuance costs(27)(15,148)(1,265)(13,174)
Net carrying amount (1)
$1,848 $1,134,849 $73,276 $886,919 
(1) The net carrying amount was increased on February 1, 2021 as a result of the adoption of ASU 2020-06. Refer to Note 2, Summary of Significant Accounting Policies, in this Quarterly Report on Form 10-Q for further information.
As of July 31, 2021, the total estimated fair values (Level 2) of the outstanding 2024 Notes and the 2026 Notes were approximately $9.5 million and $2.09 billion, respectively. The fair values were determined based on the closing trading price per $100 of the 2024 Notes and 2026 Notes as of the last day of trading for the period. The fair values of the 2024 Notes and 2026 Notes are primarily affected by the trading price of the Company’s Class A common stock and market interest rates.
The following table sets forth the interest expense related to the 2024 Notes and 2026 Notes (in thousands):
Three Months Ended July 31,Six Months Ended July 31,
2021202020212020
2024 Notes
2026 Notes
2024 Notes
2026 Notes
2024 Notes
2026 Notes
2024 Notes
2026 Notes
Contractual interest expense$67 $719 $169 $719 $199 $1,437 $338 $1,438 
Amortization of debt discount (1)
— — 986 10,685 — — 1,956 21,231 
Amortization of issuance costs (1)
44 838 68 455 644 1,675 133 897 
Total (1)
$111 $1,557 $1,223 $11,859 $843 $3,112 $2,427 $23,566 
(1) The decrease in total interest expense for the three and six months ended July 31, 2021 as compared to the respective prior-year periods was due to the derecognition of the unamortized debt discount, partially offset by the increase in the amortization of issuance costs previously recognized in equity. These changes were the result of the Company’s adoption of ASU 2020-06, as of February 1, 2021, as described in Note 2, Summary of Significant Accounting Policies.
Capped Calls
In connection with the pricing of the 2024 Notes and 2026 Notes, the Company entered into privately negotiated capped call transactions with certain counterparties (the “Capped Calls”). The Capped Calls associated with the 2024 Notes each have an initial strike price of approximately $68.15 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2024 Notes. These Capped Calls have initial cap prices of $106.90 per share, subject to certain adjustments.
The Capped Calls associated with the 2026 Notes each have an initial strike price of approximately $211.20 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2026 Notes. These Capped Calls have initial cap prices of $296.42 per share, subject to certain adjustments.
Refer to Note 6, Convertible Senior Notes, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of the Company’s 2021 Form 10-K for further information on the Capped Calls.