v3.26.1
Business Combinations
 6 Months Ended
Jul. 31, 2026
Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract]  
Business Combinations Business Combinations
Natoma Labs, Inc.

On June 3, 2026, the Company acquired all of the outstanding capital stock of Natoma Labs, Inc. (Natoma), an enterprise Model Context Protocol platform for AI agents. The Company acquired Natoma primarily for its developed technology and talent. The Company has accounted for this transaction as a business combination.

The acquisition date fair value of the preliminary purchase consideration was $128.3 million, which was comprised of the following (in thousands):

Estimated Fair Value
Common stock(1)
$110,523 
Cash17,748 
Total$128,271 
________________
(1)Approximately 0.5 million shares of the Company’s common stock were included in the purchase consideration and the fair values of these shares were determined based on the closing market price of $241.28 per share on the acquisition date.

In connection with this business combination, the Company also issued to certain of Natoma’s employees a total of approximately 0.2 million shares of the Company’s common stock in exchange for a portion of their Natoma stock. These shares are subject to vesting agreements pursuant to which the shares will vest over three years, subject to each of these employees’ continued employment with the Company or its affiliates. The $54.4 million fair value of these shares is accounted for as post-combination stock-based compensation over the requisite service period of three years. See Note 12, “Equity”, for further discussion.

The following table summarizes the preliminary allocation of purchase consideration to assets acquired and liabilities assumed based on their respective estimated fair values as of the date of acquisition:

Estimated Fair Value
(in thousands)		Estimated Useful Life
(in years)
Cash$11,210 
Developed technology intangible asset
17,400 3
Deferred tax liabilities, net(1)
(1,927)
Other net tangible liabilities(230)
Total identifiable net assets26,453 
Goodwill
101,818 
Total purchase consideration
$128,271 
________________
(1)Deferred tax liabilities, net primarily relates to the intangible asset acquired and the amount presented is net of deferred tax assets.

The fair value of the developed technology intangible asset was estimated using the replacement cost method, which utilizes assumptions for the cost to replace it, such as time and resources required, as well as a theoretical profit margin and opportunity cost.

The excess of purchase consideration over the preliminary fair values of identifiable net assets acquired was recorded as goodwill, which is not deductible for income tax purposes. The Company believes the goodwill balance associated with this business combination represents the synergies expected from expanded market opportunities when integrating the acquired developed technologies with the Company’s offerings as well as the acquired assembled workforce.

Acquisition-related costs, recorded as general and administrative expenses, associated with this business combination were not material during the three months ended July 31, 2026.
From the date of acquisition through July 31, 2026, revenue attributable to Natoma, included in the Company’s condensed consolidated statements of operations for the three and six months ended July 31, 2026, was not material. It was impracticable to determine the effect on the Company’s net loss attributable to Natoma as its operations have been integrated into the Company’s ongoing operations since the date of acquisition. Pro forma financial information for Natoma has not been presented, as the effects were not material to the Company’s condensed consolidated financial statements.

Observe, Inc.

On February 2, 2026, the Company acquired all of the outstanding capital stock of Observe, Inc. (Observe), a privately-held company that built an AI-powered observability platform. The Company acquired Observe primarily for its developed technology and talent. The Company has accounted for this transaction as a business combination.

Prior to this business combination, the Company held a noncontrolling equity interest in Observe, which was accounted for using the Measurement Alternative with a carrying amount of $25.0 million (Previously Held Observe Equity Interest). Accordingly, the Company remeasured the Previously Held Observe Equity Interest at the date of the acquisition and recognized a loss of $2.2 million, which is recorded in other income (expense), net on the Company’s condensed consolidated statement of operations for the six months ended July 31, 2026.

The acquisition date fair value of the preliminary purchase consideration was $595.8 million, which was comprised of the following (in thousands):

Estimated Fair Value
Cash(1)
$285,729 
Common stock(2)
285,348 
Fair value of Previously Held Observe Equity Interest(3)
22,768 
Settlement of preexisting relationships(4)
1,952 
Total$595,797 
________________
(1)Net of $4.5 million in post-closing adjustments, which was settled during the fiscal quarter ended July 31, 2026.
(2)Approximately 1.5 million shares of the Company’s common stock were included in the purchase consideration and the fair values of these shares were determined based on the closing market price of $190.68 per share on the acquisition date.
(3)The amount was determined based on the closing market price of $190.68 per share on the acquisition date.
(4)The amount represents the effective settlement of outstanding receivables from Observe. No gain or loss was recognized upon settlement as amounts were determined to be reflective of fair market value.
The following table summarizes the preliminary allocation of purchase consideration to assets acquired and liabilities assumed based on their respective estimated fair values as of the date of acquisition:

Estimated Fair Value
(in thousands)
Estimated Weighted-Average Useful Life
(in years)
Cash, cash equivalents, and restricted cash
$37,818 
Accounts receivable27,690 
Developed technology intangible asset
190,000 5
Customer relationships intangible asset
35,000 5
Order backlog intangible asset
10,000 2
Brand intangible asset10,000 5
Operating lease right-of-use assets
12,392 
Deferred revenue
(44,373)
Operating lease liabilities
(12,124)
Other net tangible liabilities
(6,862)
Deferred tax liabilities, net(1)
(6,562)
Total identifiable net assets252,979 
Goodwill
342,818 
Total purchase consideration
$595,797 
________________
(1)Deferred tax liabilities, net primarily relate to the intangible assets acquired and the amount presented is net of deferred tax assets.

The fair value of the developed technology intangible asset was estimated using the relief-from-royalty method under the income approach, which utilizes assumptions including projected future revenue generated from the acquired asset, royalty rate, discount rate, and technology migration curve. The fair value of the customer relationships intangible asset was estimated using the multi-period excess earnings method under the income approach, which utilizes assumptions including projected future revenue generated from the acquired asset, projected expenses, and discount rate. The acquired intangible assets had a total weighted-average amortization period of 4.9 years.

The excess of purchase consideration over the preliminary fair values of identifiable net assets acquired was recorded as goodwill, which is not deductible for income tax purposes. The Company believes the goodwill balance associated with this business combination represents the synergies expected from expanded market opportunities when integrating the acquired developed technologies with the Company’s offerings.

Additionally, $212.0 million in RSUs were granted under the 2020 Plan for continuing employees attributable to post-combination services, and are recognized as stock-based compensation over the requisite service period of two or four years.

Acquisition-related costs, recorded as general and administrative expenses, associated with this business combination were not material during the six months ended July 31, 2026.

The results of operations of Observe from the date of acquisition, which were not material, have been included in the Company’s condensed consolidated statements of operations for the three and six months ended July 31, 2026.
Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information summarizes the combined results of operations of the Company and Observe, as if Observe had been acquired as of February 1, 2025 (in thousands):

Pro Forma
Three Months Ended July 31,Six Months Ended July 31,
202520262025
(unaudited)
Revenue$1,151,154 $2,937,744 $2,199,542 
Net loss$(334,210)$(491,705)$(816,851)

The pro forma financial information for all periods presented above has been calculated after adjusting the results of operations of Observe to reflect certain business combination effects, including the amortization of the acquired intangible assets, stock-based compensation, income tax impact, acquisition-related costs and other non-recurring costs incurred by the Company and Observe as though this business combination occurred as of February 1, 2025, the beginning of the Company’s fiscal 2026. The historical consolidated financial information in the unaudited pro forma table above has been adjusted in the pro forma combined financial results to give effect to pro forma events that are directly attributable to this business combination, reasonably estimable, and factually supportable. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if this business combination had taken place as of February 1, 2025.