Netskope Inc Fair Value Disclosure
Note 3 - Fair Value Measurements
Certain financial assets and liabilities are measured at fair value at each reporting period using a fair value hierarchy which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
The Company classifies its cash equivalents and marketable securities within Level 1 or Level 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded.
The Company classifies its convertible preferred stock warrants and Convertible Notes within Level 3 and they are measured at fair value using valuation techniques and require significant management judgment or estimation. For the fiscal year ended January 31, 2024 and 2025, the convertible preferred stock warrant fair value and subsequent fair value adjustments were not material to the Company's consolidated financial statements. In connection with the Company's IPO, the convertible preferred stock warrants expired as the performance condition was not met. For further detail, refer to Note 10, Stockholders' Equity (Deficit).
The Company did not have transfers between levels of the fair value hierarchy of assets measured at fair value during the periods presented.
Cash Equivalents and Marketable Securities
The following tables summarize cash equivalents and marketable securities within significant investment categories by level of input within the fair value hierarchy as of January 31, 2026 and 2025 (in thousands):
|
|
January 31, 2026 |
|
|||||||||||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair Value |
|
|
Cash |
|
|
Marketable |
|
||||||
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Money market funds |
|
$ |
81,237 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
81,237 |
|
|
$ |
79,103 |
|
|
$ |
2,134 |
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial paper |
|
|
437,817 |
|
|
|
307 |
|
|
|
(2 |
) |
|
|
438,122 |
|
|
|
93,817 |
|
|
|
344,305 |
|
Corporate debt securities |
|
|
228,455 |
|
|
|
165 |
|
|
|
(31 |
) |
|
|
228,589 |
|
|
|
- |
|
|
|
228,588 |
|
Asset-backed securities |
|
|
23,306 |
|
|
|
336 |
|
|
|
- |
|
|
|
23,642 |
|
|
|
- |
|
|
|
23,642 |
|
Government agency securities |
|
|
248,751 |
|
|
|
96 |
|
|
|
(94 |
) |
|
|
248,753 |
|
|
|
121,820 |
|
|
|
126,934 |
|
Total |
|
$ |
1,019,566 |
|
|
$ |
904 |
|
|
$ |
(127 |
) |
|
$ |
1,020,343 |
|
|
$ |
294,740 |
|
|
$ |
725,603 |
|
|
|
January 31, 2025 |
|
|||||||||||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair Value |
|
|
Cash |
|
|
Marketable |
|
||||||
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Money market funds |
|
$ |
26,262 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
26,262 |
|
|
$ |
24,369 |
|
|
$ |
1,903 |
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial paper |
|
|
56,611 |
|
|
|
10 |
|
|
|
(3 |
) |
|
|
56,618 |
|
|
|
24,996 |
|
|
|
31,622 |
|
Corporate debt securities |
|
|
26,940 |
|
|
|
27 |
|
|
|
(56 |
) |
|
|
26,911 |
|
|
|
- |
|
|
|
26,911 |
|
Asset-backed securities |
|
|
20,344 |
|
|
|
30 |
|
|
|
(131 |
) |
|
|
20,243 |
|
|
|
- |
|
|
|
20,243 |
|
Total |
|
$ |
130,157 |
|
|
$ |
67 |
|
|
$ |
(190 |
) |
|
$ |
130,034 |
|
|
$ |
49,365 |
|
|
$ |
80,679 |
|
Gross unrealized losses within accumulated other comprehensive income (loss) were immaterial as of January 31, 2026 and 2025. There were no impairment charges due to credit losses during the fiscal years ended January 31, 2026, 2025, and 2024.
The following table summarizes the fair value of the Company's investments by remaining contractual maturity dates as of January 31, 2026 (in thousands):
|
|
Fair Value |
|
|
Due within one year |
|
$ |
461,898 |
|
Due between one through five years |
|
|
263,705 |
|
Total |
|
$ |
725,603 |
|
The Convertible Notes are measured at fair value and are categorized within Level 3 of the fair value hierarchy. Prior to the IPO, the fair value of the Convertible Notes was estimated using scenario-based binomial lattice model. The scenarios consist of (a) Scenario 1 - likelihood of achieving a liquidity event, such as an IPO, and (b) Scenario 2 - the Company remains private. Following the IPO, the fair value of the Convertible Notes is estimated using a single-scenario lattice approach that incorporates the trading price of the Company's Class A common stock, risk-free interest rate, and estimated credit spread.
The fair value of the Convertible Notes on their respective issuance dates was the same as the carrying amounts of $401.0 million for the 2028 Notes and $75.0 million for the 2029 Notes.
The following tables summarize the significant quantitative inputs considered in the valuation of Convertible Notes as of January 31, 2026 and 2025:
|
|
January 31, 2026 |
|
|
January 31, 2025 |
|
||||||||||
Inputs |
|
2028 Notes |
|
|
2029 Notes |
|
|
2028 Notes |
|
|
2029 Notes |
|
||||
Price per share of common stock |
|
$ |
14.85 |
|
|
$ |
14.85 |
|
|
$ |
12.41 |
|
|
$ |
12.41 |
|
Conversion premium |
|
|
30.0 |
% |
|
|
30.0 |
% |
|
|
30.0 |
% |
|
|
30.0 |
% |
Risk-free rate |
|
|
3.6 |
% |
|
|
3.7 |
% |
|
|
4.3 |
% |
|
|
4.3 |
% |
Selected credit spread |
|
|
10.0 |
% |
|
|
10.0 |
% |
|
|
13.8 |
% |
|
|
13.8 |
% |
Coupon rate |
|
|
3.8 |
% |
|
|
3.0 |
% |
|
|
3.8 |
% |
|
|
3.0 |
% |
Expected volatility |
|
|
40.0 |
% |
|
|
40.0 |
% |
|
|
65.0 |
% |
|
|
65.0 |
% |
Time until exit (in years) |
|
|
- |
|
|
|
- |
|
|
|
0.7 |
|
|
|
0.7 |
|
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.