ANAPLAN, INC. The 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 included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedJanuary 31, 2021 , filed with theSEC onMarch 12, 2021 . This discussion contains forward-looking statements that involve risks and uncertainties as discussed in "Cautionary Note Regarding Forward-Looking Statements" included in this Quarterly Report on Form 10-Q. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, impacts on our business and general economic conditions due to the current COVID-19 pandemic, those identified below and those discussed in "Risk Factors" under Part II, Item 1A in this Quarterly Report on Form 10-Q. Our fiscal year endsJanuary 31 . OverviewAnaplan is a cloud-native enterprise SaaS company and a market leader, empowering global enterprises to orchestrate transformative business performance. Our customers rely on theAnaplan platform-powered by our proprietary Hyperblock® technology-to connect teams, systems, and insights from across their organizations to continuously adapt to change, transform how they operate, and reinvent value creation. Our cloud platform empowers enterprises to orchestrate complex scenario planning and conduct continuous forecasting to systematically identify possibilities, seize opportunities, and reduce risk. Users of our platform can view and assess the impact of assumptions on plans and key performance indicators in real time and across multiple business dimensions. TheAnaplan platform enables businesses to be more agile, make better decisions and to plan and execute their ongoing digital transformation to compete in today's digital economy. Our customers often initially adopt our platform within a specific business function for one or more planning use cases, but also because our platform has the potential to be used as an enterprise-wide integrated planning and forecasting tool and as part of a broader digital transformation initiative. We sell subscriptions to our cloud-based planning platform primarily through our direct sales team targeting these customers. We also have a robust partnership ecosystem that serves as an integral part of our go-to-market strategy and an extension of our direct sales force. Our strategic consulting and systems integration partners provide us with a significant source of lead generation and implementation leverage. These partners act as strategic advisors to senior executives in corporate, functional, and process transformation initiatives of organizations. They often promote our platform as their clients examine how to plan more effectively or seek digital transformation through organizational change or improved business processes. We also rely on partners with deep subject-matter expertise in the implementation of specific use cases who can facilitate implementations for our customers. Our partners also help to drive thought leadership in promoting Connected Planning and digital transformation. Once our customers see the benefits and wide applicability of our platform, we use a "land and expand" sales strategy to encourage our existing customers to increase the number of users, add new use cases, and expand to additional lines of business, divisions, and geographies. This expansion often generates a natural network effect in which the value of our platform to customers increases as more use cases are adopted, more users are connected, and greater amounts of data are incorporated in our platform delivering exponential value to our customers. We see a greenfield opportunity to help over 70 million knowledge workers around the world plan more efficiently usingAnaplan's platform. We derive the substantial majority of our revenue from subscriptions for users on our platform. Our initial subscription term is typically two to three years, although some customers commit for shorter periods. We generally bill our customers annually in advance. We also offer professional services, including consulting, implementation, and training, but are increasingly leveraging our partners to provide these services. During the three months endedJuly 31, 2021 and 2020, subscription revenue was$130.8 million and$97.1 million , respectively, representing a year-over-year subscription revenue growth rate of 35%. During the three months endedJuly 31, 2021 and 2020, services revenue was$13.6 million and$9.4 million , respectively. Our subscription revenue as a percentage of total revenue was 91% in the three months endedJuly 31, 2021 and 2020. During the six months endedJuly 31, 2021 and 2020, subscription revenue was$249.1 million and$190.9 million , respectively, representing a year-over-year subscription revenue growth rate of 30%. During the six months endedJuly 31, 2021 and 2020, services revenue was$25.1 million and$19.4 million , respectively. Our subscription revenue as a percentage of total revenue was 91% in the six months endedJuly 31, 2021 and 2020. 18 -------------------------------------------------------------------------------- Table of Contents During the three months endedJuly 31, 2021 and 2020, our total revenue was$144.3 million and$106.5 million , respectively. Approximately 47% and 45% of our total revenue was generated from outside ofthe United States in the three months endedJuly 31, 2021 and 2020, respectively. During the six months endedJuly 31, 2021 and 2020, our total revenue was$274.1 million and$210.4 million , respectively. Approximately 47% and 45% of our revenue was generated from outside ofthe United States in the six months endedJuly 31, 2021 and 2020. Our net loss was$51.1 million and$35.5 million in the three months endedJuly 31, 2021 and 2020, respectively, and$102.6 million and$75.1 million in the six months endedJuly 31, 2021 and 2020. We believe that our focus on customer success allows us to retain and expand the subscription revenue generated from our existing customers, and is an indicator of the long-term value of our customer relationships forAnaplan as a whole. We track our performance in this area by measuring our dollar-based net expansion rate, which compares our annual recurring revenue from the same set of customers across comparable periods. The dollar-based net expansion rate was 119% and 114% as ofJuly 31, 2021 , andJanuary 31, 2021 , respectively. Our dollar-based net expansion rate equals the annual recurring revenue at the end of a period for a base set of customers from which we generated annual recurring revenue in the year prior to the date of calculation, divided by the annual recurring revenue one year prior to the date of the calculation for that same set of customers. Annual recurring revenue is calculated as subscription revenue already booked and in backlog that will be recorded over the next 12 months, assuming any contract expiring in those 12 months is renewed and continues on its existing terms and at its prevailing rate of utilization. The number of customers with greater than$250,000 of annual recurring revenue was 505 and 453 as ofJuly 31, 2021 , andJanuary 31, 2021 , respectively. We monitor this metric and believe it is a useful tool to investors, as an indicator of the scale of customer adoption and expansion of our platform. We define calculated billings as total revenue plus the change in deferred revenue in the period. Calculated billings in any particular period is comprised of subscription contracts with existing customers (including renewal contracts and add-on contracts), subscription contracts with new customers, and contracts for professional services. Calculated billings is intended to provide information about our subscription revenue growth over time and can typically be seen as an early indicator of trends in revenue growth. While calculated billings can increase as our revenues grow, it may significantly fluctuate from period to period for several reasons, including the timing of contracted billings, the timing of renewals, and other factors. See Part II, Item 1A, "Risk Factors-Operational Risks-The sum of our revenue and changes in deferred revenue may not be an accurate indicator of business activity within a period" for a description of some limitations in the use of calculated billings. Calculated billings is calculated as follows: Three Months Ended July 31, Six Months Ended July 31, 2021 2020 2021 2020 (In thousands) Total revenue$ 144,324 $
106,511
296,521 214,554 296,521 214,554
Less: Deferred revenue (beginning of period) (292,661) (212,238) (295,543) (220,208)
Calculated billings $ 148,184 $ 108,827 $ 275,127 $ 204,701
We regularly evaluate acquisitions or investment opportunities in complementary
businesses, services and technologies and intellectual property rights as a
means to expand our offerings through a disciplined and strategic acquisition
process. We may continue to make such acquisitions and investments in the
future, and we plan to reinvest a significant portion of our incremental revenue
in future periods to grow our business.
COVID-19 Update
The COVID-19 pandemic continues to persist. The broader implications of the
COVID-19 pandemic on our business, results of operations, and overall financial
performance remain uncertain. We have seen and may continue to see in certain
geographies some of our customers and prospective customers defer or delay
buying decisions and project implementations and prolonged sales cycles. These
and other changes in customer demand for our solutions could materially and
adversely impact our business, results of operations, and overall financial
performance in future periods.
19
--------------------------------------------------------------------------------
Table of Contents
As the impact of the COVID-19 pandemic continues to unfold around the world, we
remain focused on supporting our employees, customers, and partners. In response
to the COVID-19 pandemic, we modified the manner in which we operate and we
required our employees to work remotely, maintained business-related travel
restrictions, and virtualized, postponed or cancelled our sales and marketing,
employee or industry events. We are slowly moving toward normal operations on a
market-by-market basis in accordance with local guidelines, but continue to
employ a hybrid approach in most regions. Our approach may vary among
geographies depending on local guidelines, and may change at any time, including
in response to new or reimposed precautionary measures as the COVID-19 pandemic
evolves. We have developed health and safety procedures to enable our employees
to safely return to our offices. The impact, if any, of these and any additional
operational changes we may implement is uncertain, but we currently believe the
changes we have implemented have not materially affected, and are not expected
to have a material and adverse effect on, our ability to maintain financial
reporting systems, internal control over financial reporting and disclosure
controls and procedures.
The extent to which the ongoing COVID-19 pandemic, and associated global
economic uncertainty, may impact our business will depend on future
developments, including the duration and spread of the pandemic; the scope and
effectiveness of precautionary measures designed to contain and prevent the
spread of COVID-19; and the impact on our current and prospective customers,
employees, and partners; all of which are highly uncertain and cannot be
predicted at this time. While we have developed and continue to develop plans to
help mitigate the negative impact of the pandemic on our business, these efforts
may not be effective and any protracted economic downturn may limit the
effectiveness of our mitigation efforts. In addition, even after the immediate
impacts of the pandemic on the global economy and our business subside, the
residual effects of the pandemic may present additional challenges to our
business that are currently difficult to predict. We are continuing to monitor
the actual and potential effects of the COVID-19 pandemic on our business. See
Part II, Item 1A, "Risk Factors" for further discussion of the possible impact
of the COVID-19 pandemic on our business.
Factors Affecting Our Performance
We believe that our future performance will depend on many factors, including
those described below. While these areas present significant opportunity, they
also present risks that we must manage to achieve successful results. See Part
II, Item 1A, "Risk Factors". If we are unable to address these challenges, our
business and operating results could be adversely affected.
Market adoption of our platform. Our long-term success will depend on
widespread adoption of Connected Planning by enterprises for numerous planning
applications with broad use of those applications within their organizations.
While we believe that we are still in the early stages of penetrating our
addressable market, we have benefited from rapid customer growth.
Customer First strategy. We put the success of our customers at the center of
our culture, strategy, and investments. We view our Customer First strategy as
core to capturing our Connected Planning vision and driving the continued
adoption and expansion in the use of our platform. By aligning our thought
leadership, worldwide development and delivery capabilities, and local sales and
service resources, our Customer First strategy drives exceptional value
throughout our customers' Connected Planning and digital transformation
journeys. Our continued success depends in part on our ability to continue to
put customers at the center of our strategy.
Expansion of existing customers. We employ a "land and expand" approach, with
many of our customers initially deploying our product for a specific use case
and group of users. Once they realize the benefits and wide applicability of our
platform, many of our customers subsequently renew their subscriptions and
expand the number of users or use cases within and across lines of business and
geographies as they continue unlocking the agile enterprise planning and
operating model across functional boundaries. As a result, we are able to
generate a significant increase in revenue from the expanded use of our platform
across the enterprise. Going forward we are focused on targeting customers where
the opportunity for expansion and need for our planning solutions are greatest.
Our future revenue growth and our ability to achieve and maintain profitability
is dependent upon our ability to maintain existing customer relationships and to
continue to expand our customers' use of our platform.
20
--------------------------------------------------------------------------------
Table of Contents
Scaling our sales team. Our ability to achieve significant growth in revenue in
the future will depend, in large part, upon the effectiveness of our sales
leadership and sales efforts, both domestically and internationally. We have
invested and intend to continue to invest in expanding and retaining our sales
leadership and direct sales force, particularly in attracting and retaining
sales personnel with experience selling to larger enterprises. Our ability to
increase our revenue will depend on the new members of our sales force becoming
fully productive and executing expeditiously and effective sales leadership. A
customer's decision to use our platform may be an enterprise-wide decision.
These types of sales require us to provide greater levels of education regarding
the use and benefits of our platform, which involves substantial time, effort,
and costs.
International sales. Our total revenue generated outside of the United States
during the three and six months ended July 31, 2021 , was approximately 47% of
our total revenue. Our total revenue generated outside of the United States
during the three and six months ended July 31, 2020 , was approximately 45% of
our total revenue. We believe global demand for our platform will continue
to develop as organizations experience the benefits that our platform can
provide to international enterprises with complex planning needs spanning
multiple geographies. Accordingly, we believe there is significant opportunity
to grow our international business. We have invested, and plan to invest, ahead
of this potential demand in personnel, marketing, and access to data center
capacity to support our international growth.
Partner ecosystem. Our partner ecosystem extends our geographic coverage,
accelerates the usage and adoption of our platform, and enables more efficient
delivery of service solutions. We intend to augment and deepen our partnerships
with strategic and advisory consulting, systems integration, public cloud and
technology firms. We believe our partners' scale and route to market can
significantly contribute to our ability to penetrate our addressable market,
extend our geographic coverage, and extend usage and adoption of our platform.
Product velocity. We have invested and intend to continue to invest
significantly in research and development in an effort to enhance and expand the
functionality of our platform, to attract and retain development personnel, and
to protect our market-leading technology advantage. We have a well-defined
technology roadmap to introduce new features and functionality to our platform
that we believe will improve our ability to generate revenue by broadening the
appeal of our platform to potential new customers as well as increasing the
opportunities for further expanding the use of our platform by existing
customers. We are also investing to further enhance the functionality,
intelligence, user experience, scale, extensibility and security of our
platform. We will need to continue to focus on bringing cutting-edge technology
to market in order to remain competitive.
Components of Results of OperationsRevenue
We offer subscriptions to our cloud-based planning platform. We derive our revenue primarily from subscription fees and, to a lesser degree, from professional services fees. Subscription revenue consists primarily of fees to provide our customers access to our cloud-based platform. Professional services revenue includes fees from assisting customers in implementing and optimizing the use of our cloud-based platform. These services include implementation, consulting, and training. Subscription Revenue Subscription revenue accounted for 91% of our total revenue for the three and six months endedJuly 31, 2021 , and 91% of our total revenue for the three and six months endedJuly 31, 2020 . Subscription revenue is driven primarily by the number of customers, the number of users at each customer, the price of user subscriptions, and renewal rates. Subscription fees are recognized ratably as revenue over the contract term beginning on the date the platform is made available to the customer. Our new business subscriptions typically have a term of two to three years. We generally invoice our customers in annual installments at the beginning of each year within the subscription period. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period. Most of our contracts are non-cancelable over the contract term. We had remaining performance obligations, or backlog, in the amount of$905.6 million and$817.6 million as ofJuly 31, 2021 andJanuary 31, 2021 , respectively, consisting of both billed and unbilled consideration. Because we recognize revenue from subscription fees ratably over the term of the contract, changes in our contracting activity in the near term may not impact our reported revenue until future periods. 21 -------------------------------------------------------------------------------- Table of Contents Professional Services Revenue Professional services revenue is generally recognized as the services are rendered for time and material contracts, or on a proportional performance basis for fixed price contracts. The substantial majority of our professional service contracts are on a time and materials basis. Implementations generally take one to six months to complete depending upon the scope of engagement with the customer. Our professional services revenue fluctuates from quarter to quarter as a result of the requirements, complexity, and timing of our customers' implementation projects. Cost of Revenue Cost of Subscription Revenue Cost of subscription revenue primarily consists of costs related to providing cloud applications, compensation and other employee-related expenses for data center staff, including salaries and bonuses, benefits, and stock-based compensation, payments to outside service providers, customer service, data center and networking expenses, depreciation expenses, and amortization of capitalized software development costs. Cost of Professional Services Revenue Cost of professional services revenue primarily consists of costs related to providing implementation and configuration services, optimization services and training services, personnel-related costs directly associated with our professional services and training departments, including salaries and bonuses, benefits, and stock-based compensation, the costs of contracted third-party vendors, and travel. Professional services associated with the implementation and configuration of our subscription platform are performed directly by our services team, as well as by contracted third-party vendors. When third-party vendors invoice us for services performed for our customers, those fees are recognized as expense as incurred. Operating Expenses Research and Development Research and development expenses consist primarily of personnel-related costs for our development team, including salaries and bonuses, benefits, stock-based compensation expense, and allocated overhead costs. We have invested, and intend to continue to invest, in developing technology to support our growth. We capitalize certain software development costs that are attributable to developing new features and adding incremental functionality to our platform, and amortize such costs as costs of subscription revenue over the estimated life of the new incremental functionality, which is generally two to three years. We plan to increase our investment in research and development for the foreseeable future as we focus on further developing our platform and enhancing its use cases. However, we expect our research and development expenses to decrease as a percentage of our total revenue over time, although they may fluctuate as a percentage of our total revenue from period to period. Sales and Marketing Sales and marketing expenses consist primarily of personnel-related costs directly associated with our sales and marketing staff, including salaries and bonuses, benefits, commissions, and stock-based compensation. Other sales and marketing costs include promotional events to promote our brand, including our Anaplan Connected Planning Xperience (CPX) user conferences, advertising, and allocated overhead costs. We plan to increase our investment in sales and marketing over the foreseeable future, primarily stemming from increased headcount in sales and marketing, and investment in brand- and product-marketing efforts. However, we expect our sales and marketing expenses to decrease as a percentage of our total revenue over time, although they may fluctuate as a percentage of our total revenue from period to period. 22 -------------------------------------------------------------------------------- Table of Contents General and Administrative General and administrative expenses consist primarily of personnel-related costs associated with our executive, finance, legal, and human resources personnel, including salaries and bonuses, benefits, and stock-based compensation expense, professional fees for external legal, accounting and other consulting services, and allocated overhead costs. We expect to increase the size of our general and administrative function to support the growth of our business and continue to incur additional expenses as a result of operating as a public company. As a result, we expect the dollar amount of our general and administrative expenses to increase for the foreseeable future. However, we expect our general and administrative expenses to decrease as a percentage of our total revenue over time, although they may fluctuate as a percentage of our total revenue from period to period. Interest Income (Expense), Net Interest income (expense), net consists primarily of interest income earned on our cash and cash equivalents, net of interest expense from our finance leases. Other Income (Expense), Net Other income (expense), net consists primarily of foreign exchange gains and losses. Provision for Income Taxes Provision for income taxes consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal, state,U.K. andIsrael deferred tax assets as we have concluded that it is not more likely than not that the deferred assets will be utilized. 23
--------------------------------------------------------------------------------
Table of Contents
Results of OperationsThe following tables set forth selected condensed consolidated statements of operations data for each of the periods indicated:
Three Months Ended July 31, Six Months Ended July 31,
2021 2020 2021 2020
(In thousands)
Revenue:
Subscription revenue $ 130,751 $ 97,117 $ 249,094 $ 190,941
Professional services revenue 13,573 9,394 25,055 19,414
Total revenue 144,324 106,511 274,149 210,355
Cost of revenue:
Cost of subscription revenue (1) 22,645 16,148 43,974 31,333
Cost of professional services revenue (1) 13,582 9,294 25,074 18,849
Total cost of revenue 36,227 25,442 69,048 50,182
Gross profit 108,097 81,069 205,101 160,173
Operating expenses:
Research and development (1) 36,217 24,595 69,429 48,357
Sales and marketing (1) 96,281 72,914 184,751 144,588
General and administrative (1) 24,685 21,235 49,630 43,663
Total operating expenses 157,183 118,744 303,810 236,608
Loss from operations (49,086) (37,675) (98,709) (76,435)
Interest income (expense), net (131) (184) (282) 327
Other income (expense), net (2,375) 4,007 (2,834) 3,676
Loss before income taxes (51,592) (33,852) (101,825) (72,432)
Provision for income taxes 471 (1,672) (787) (2,694)
Net loss $ (51,121) $ (35,524) $ (102,612) $ (75,126) (1) Includes stock-based compensation expense as follows: Cost of subscription revenue
$ 1,830 $ 876 $ 3,352 $ 1,584 Cost of professional services revenue 991 692 1,822 1,200 Research and development 8,384 4,380 15,350 8,026 Sales and marketing 18,064 11,213 34,697 21,244 General and administrative 6,189 7,818 14,308 15,418 Total stock-based compensation expense$ 35,458 $ 24,979 $ 69,529 $ 47,472 Three and Six Months Ended July 31, 2021 and 2020 Revenue Three Months Ended July 31, Six Months Ended July 31, 2021 2020 % Change 2021 2020 % Change (In thousands, except percentage data) Subscription revenue$ 130,751 $ 97,117 35 %$ 249,094 $ 190,941 30 % Professional services revenue 13,573 9,394 44 25,055 19,414 29 Total revenue$ 144,324 $ 106,511 36$ 274,149 $ 210,355 30 24
-------------------------------------------------------------------------------- Table of Contents Total revenue was$144.3 million in the three months endedJuly 31, 2021 , compared to$106.5 million in the three months endedJuly 31, 2020 , an increase of$37.8 million , or 36%. Total revenue was$274.1 million in the six months endedJuly 31, 2021 , compared to$210.4 million in the six months endedJuly 31, 2020 , an increase of$63.7 million , or 30%. Subscription revenue was$130.8 million , or 91% of total revenue, in the three months endedJuly 31, 2021 , compared to$97.1 million , or 91% of total revenue, in the three months endedJuly 31, 2020 , an increase of$33.7 million , or 35%. The increase in subscription revenue was primarily driven by existing customers expanding their use of our platform, which accounted for 73% of the increase, and acquisition of new customers, which accounted for approximately 27% of the increase. Subscription revenue was$249.1 million , or 91% of total revenue, in the six months endedJuly 31, 2021 , compared to$190.9 million , or 91% of total revenue, in the six months endedJuly 31, 2020 , an increase of$58.2 million , or 30%. The increase in subscription revenue was primarily driven by existing customers expanding their use of our platform, which accounted for 74% of the increase, and acquisition of new customers, which accounted for approximately 26% of the increase. Professional services revenue was$13.6 million in the three months endedJuly 31, 2021 , compared to$9.4 million in the three months endedJuly 31, 2020 , an increase of$4.2 million , or 44%. Professional services revenue was$25.1 million in the six months endedJuly 31, 2021 , compared to$19.4 million in the six months endedJuly 31, 2020 , an increase of$5.7 million , or 29%. The increase in professional services revenue in each period was primarily driven by sales of our professional services resulting from the growth of our customer base. Cost of Revenue Three Months Ended July 31, Six Months Ended July 31, 2021 2020 % Change 2021 2020 % Change (In thousands, except percentage data) Cost of subscription revenue$ 22,645 $ 16,148 40 %$ 43,974 $ 31,333 40
%
Cost of professional services revenue 13,582 9,294 46 25,074 18,849 33 Total cost of revenue$ 36,227 $ 25,442 42$ 69,048 $ 50,182 38 Total cost of revenue was$36.2 million in the three months endedJuly 31, 2021 , compared to$25.4 million in the three months endedJuly 31, 2020 , an increase of$10.8 million , or 42%. Total cost of revenue was$69.0 million in the six months endedJuly 31, 2021 , compared to$50.2 million in the six months endedJuly 31, 2020 , an increase of$18.8 million , or 38%. Cost of subscription revenue was$22.6 million in the three months endedJuly 31, 2021 , compared to$16.1 million in the three months endedJuly 31, 2020 , an increase of$6.5 million , or 40%. The increase in cost of subscription revenue was primarily due to an increase in salaries and bonuses, and benefits costs of$2.8 million , including stock-based compensation, an increase in hosting costs of$1.3 million , and an increase in amortization of our equipment leases and capitalized software development costs of$1.3 million . Cost of subscription revenue was$44.0 million in the six months endedJuly 31, 2021 , compared to$31.3 million in the six months endedJuly 31, 2020 , an increase of$12.7 million , or 40%. The increase in cost of subscription revenue was primarily due to an increase in salary and bonuses, and benefits costs of$5.2 million , including stock-based compensation, an increase in hosting and consulting costs of$3.2 million , and an increase in amortization of our equipment leases and capitalized software development costs of$2.4 million . Cost of professional services revenue was$13.6 million in the three months endedJuly 31, 2021 , compared to$9.3 million in the three months endedJuly 31, 2020 , an increase of$4.3 million , or 46%. The increase in cost of professional services revenue was primarily due to an increase in the partner implementation costs related to an increase in partner activity of$2.6 million , and an increase in salaries and bonuses, and benefits costs of$1.6 million , including stock-based compensation. Cost of professional services revenue was$25.1 million in the six months endedJuly 31, 2021 , compared to$18.8 million in the six months endedJuly 31, 2020 , an increase of$6.3 million , or 33%. The increase in cost of professional services revenue was primarily due to an increase in salary and bonuses, and benefits costs of$3.1 million , including stock-based compensation, and an increase in the partner implementation costs related to an increase in partner activity of$3.0 million . 25 -------------------------------------------------------------------------------- Table of Contents Gross Profit and Gross Margin Three Months Ended July 31, Six Months Ended July 31, 2021 2020 % Change 2021 2020 % Change (In thousands, except percentage data) Subscription gross profit$ 108,106 $ 80,969 34 %$ 205,120 $ 159,608 29 % Professional services gross profit (9) 100 (109) (19) 565 (103) Total gross profit$ 108,097 $ 81,069 33$ 205,101 $ 160,173 28 Subscription gross margin 83 % 83 % 82 % 84 % Professional services gross margin - % 1 % - % 3 % Total gross margin 75 % 76 % 75 % 76 % Gross profit was$108.1 million in the three months endedJuly 31, 2021 , compared to$81.1 million in the three months endedJuly 31, 2020 , an increase of$27.0 million , or 33%. Gross profit was$205.1 million in the six months endedJuly 31, 2021 , compared to$160.2 million in the six months endedJuly 31, 2020 , an increase of$44.9 million , or 28%. The increase in gross profit was the result of the increases in our subscription revenue primarily driven by existing customers expanding their use of our platform and acquisition of new customers in the three and six months endedJuly 31, 2021 . Gross margin was 75% in the three months endedJuly 31, 2021 , compared to 76% in the three months endedJuly 31, 2020 . The decrease was primarily due to a slight increase in professional services revenue, which generates a significantly lower gross margin than our subscription revenue, as a percentage of total revenue. Gross margin was 75% in the six months endedJuly 31, 2021 , compared to 76% in the six months endedJuly 31, 2020 . The decrease was primarily due to higher hosting and partner implementation costs. Our gross margins can fluctuate from quarter to quarter as a result of the requirements, complexity, and timing of our customers' implementation projects that can vary significantly. Operating Expenses Three Months Ended July 31, Six Months Ended July 31, 2021 2020 % Change 2021 2020 % Change (In thousands, except percentage data)
Operating expense: Research and development$ 36,217 $ 24,595 47 %$ 69,429 $ 48,357 44 % Sales and marketing 96,281 72,914 32 184,751 144,588 28 General and administrative 24,685 21,235 16 49,630 43,663 14 Total operating expenses$ 157,183 $ 118,744 32$ 303,810 $ 236,608 28 Research and Development Research and development expenses were$36.2 million in the three months endedJuly 31, 2021 , compared to$24.6 million in the three months endedJuly 31, 2020 , an increase of$11.6 million , or 47%. The increase was primarily due to an increase in salaries and bonuses, and benefits costs related to an increase in headcount of$11.6 million (which included an increase in stock-based compensation of$4.0 million ), partially offset by an increase in capitalized software development costs of$1.8 million . Research and development expenses were$69.4 million in the six months endedJuly 31, 2021 , compared to$48.4 million in the six months endedJuly 31, 2020 , an increase of$21.0 million , or 44%. The increase was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of$21.5 million (which included an increase in stock-based compensation of$7.3 million ), partially offset by an increase in capitalized software development costs of$2.2 million . 26 -------------------------------------------------------------------------------- Table of Contents Sales and Marketing Sales and marketing expenses were$96.3 million in the three months endedJuly 31, 2021 , compared to$72.9 million in the three months endedJuly 31, 2020 , an increase of$23.4 million , or 32%. The increase was primarily due to an increase in salaries and bonuses, and benefits costs related to an increase in headcount of$18.7 million (which included an increase in stock-based compensation of$6.9 million and an increase in commission expenses of$3.5 million ) and an increase in consulting expenses of$1.2 million . Sales and marketing expenses were$184.8 million in the six months endedJuly 31, 2021 , compared to$144.6 million in the six months endedJuly 31, 2020 , an increase of$40.2 million , or 28%. The increase was primarily due to an increase in salary and bonuses and benefits costs related to an increase in headcount of$35.0 million (which included an increase in stock-based compensation of$13.5 million and an increase in commission expenses of$6.1 million ) and an increase in consulting expenses of$1.5 million . General and Administrative General and administrative expenses were$24.7 million in the three months endedJuly 31, 2021 , compared to$21.2 million in the three months endedJuly 31, 2020 , an increase of$3.5 million , or 16%. The increase was primarily due to an increase in salaries and bonuses, and benefits costs of$1.3 million , net of decrease in stock-based compensation, and an increase in consulting and professional services of$1.4 million . General and administrative expenses were$49.6 million in the six months endedJuly 31, 2021 , compared to$43.7 million in the six months endedJuly 31, 2020 , an increase of$5.9 million , or 14%. The increase was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of$4.1 million , net of decrease in stock-based compensation, and an increase in consulting and professional services of$2.0 million , partially offset by a decrease in allowance for credit losses of$0.6 million . Other Income (Expense), Net Three Months Ended July 31, Six Months Ended July 31, 2021 2020 % Change 2021 2020 % Change (In thousands, except percentage data) Interest income (expense), net$ (131) $ (184) (29) %$ (282) $ 327 (186) % Other income (expense), net (2,375) 4,007 (159) (2,834) 3,676 (177) Interest income (expense), net There was no material fluctuation in interest income (expense), net for the three months endedJuly 31, 2021 . Interest income (expense), net decreased by$0.6 million for the six months endedJuly 31, 2021 . The decrease in interest income (expense), net was primarily due to lower interest income from our cash and cash equivalents as a result of lower interest rates in the six months endedJuly 31, 2021 compared to the six months endedJuly 31, 2020 . Other income (expense), net Other income (expense), net was an expense of$2.4 million in the three months endedJuly 31, 2021 , compared to income of$4.0 million in the three months endedJuly 31, 2020 , an increase in expense of$6.4 million , or 159%. Other income (expense), net was an expense of$2.8 million in the six months endedJuly 31, 2021 , compared to income of$3.7 million in the six months endedJuly 31, 2020 , an increase in expense of$6.5 million , or 177%. The change was primarily due to currency fluctuations and the related remeasurements during the periods. 27 -------------------------------------------------------------------------------- Table of Contents Provision for Income Taxes Three Months Ended July 31, Six Months Ended July 31, 2021 2020 % Change 2021 2020 % Change (In thousands, except percentage data) Provision for income taxes$ 471 $ (1,672) (128) %$ (787) $ (2,694) (71) % The income tax benefit was$0.5 million in the three months endedJuly 31, 2021 , compared to income tax expense of$1.7 million in the three months endedJuly 31, 2020 , a decrease in income tax expense of$2.2 million or 128%. The provision for income taxes was$0.8 million in the six months endedJuly 31, 2021 , compared to$2.7 million in the six months endedJuly 31, 2020 , a decrease of$1.9 million , or 71%. The decrease in provision for income taxes in both periods was primarily due to discrete tax expenses relating to gains from intercompany transactions in the prior period and a decrease in taxable income generated from intercompany cost-plus arrangements in certain European and Asian countries. Liquidity and Capital Resources As ofJuly 31, 2021 , our principal sources of liquidity were cash and cash equivalents totaling$312.9 million , which were held for working capital purposes and strategic initiatives. Our cash equivalents are comprised primarily of money market funds and bank deposits. Cash from operations could be affected by various risks and uncertainties, including but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A, "Risk Factors". We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our pace of growth, subscription renewal activity, the timing and extent of spend to support research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced platform offerings, and the continuing market acceptance of the platform. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, and intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition would be adversely affected. Loan and Credit Facility Agreements InApril 2020 , we entered into the Third Amendment to Credit Agreement and First Amendment to Collateral Agreement with Wells Fargo as administrative agent and a lender (the "Third Amendment"). Among other things, the Third Amendment further amends the Credit Agreement entered into with Wells Fargo inApril 2018 , as amended inSeptember 2018 andOctober 2019 (the "Credit Agreement") in order to (1) increase the aggregate revolving credit commitment amount by$20.0 million , so that we may borrow up to$60.0 million under a secured revolving credit facility, subject to the terms of the Credit Agreement including the accounts receivable borrowing base, for general corporate purposes, and (2) extend the maturity date of the revolving credit facility untilApril 23, 2022 . Also, pursuant to the Third Amendment, any loans drawn on the credit facility will incur interest at a rate equal to the highest of (A) the prime rate, (B) the federal funds rate plus 0.5%, and (C) the one-month LIBOR plus 1%. Interest is payable monthly in arrears with the principal and any accrued and unpaid interest due onApril 23, 2022 . As ofJuly 31, 2021 andJanuary 31, 2021 , we had not drawn down any amounts under this agreement. 28 -------------------------------------------------------------------------------- Table of Contents As part of the Credit Agreement, we granted Wells Fargo a first priority lien in our accounts receivable, all of the issued shares of capital stock and equity interests in certain of our subsidiaries, and other corporate assets and agreed not to pledge our intellectual property to other parties. The Credit Agreement, as amended by the Third Amendment, includes affirmative and negative covenants, including financial covenants requiring the maintenance of: (1) minimum tangible net worth (defined as assets, excluding intangible assets, less liabilities) as of the last day of any fiscal quarter of not less than$150.0 million for any fiscal quarter ending on or prior toJanuary 31, 2021 and$125.0 million for any fiscal quarter ending thereafter, and (2) minimum billings for the most recent twelve months ending as of the last day of any fiscal quarter of not less than$350.0 million . As ofJuly 31, 2021 , we were in compliance with the financial covenants contained in the Credit Agreement. Cash Flows The following table summarizes our cash flows for the periods presented: Six Months Ended July 31, 2021
2020
(In thousands)
Net cash used in operating activities $ (3,473) $ (8,456)
Net cash used in investing activities (12,903)
(10,376)
Net cash provided by financing activities 9,865
14,434
Operating Activities Net cash used in operating activities of$3.5 million for the six months endedJuly 31, 2021 , reflecting a net loss of$102.6 million , adjusted by non-cash charges for stock-based compensation of$69.5 million , amortization of deferred commissions of$20.1 million , depreciation and amortization of$14.0 million , amortization of operating lease right-of-use assets and accretion of operating lease liabilities of$5.0 million . Changes in working capital were unfavorable to cash flows from operations by$10.9 million primarily due to an increase in deferred commissions of$32.5 million related to commissions capitalized on our sales, net payments for operating lease liabilities of$4.6 million and an increase in prepaid expenses and other current assets of$3.6 million , partially offset by a decrease in accounts receivable of$28.6 million due to timing of customer billings and collections. Net cash used in operating activities of$8.5 million for the six months endedJuly 31, 2020 , was primarily due to a net loss of$75.1 million and non-cash foreign currency remeasurement gains of$3.2 million , partially offset by non-cash charges for stock-based compensation of$47.5 million , depreciation and amortization of$12.3 million , amortization of deferred commissions of$16.2 million , and amortization of operating lease right-of-use assets and accretion of operating lease liabilities of$5.5 million . Changes in working capital were unfavorable to cash flows from operations by$12.5 million primarily due to an increase in deferred commissions of$29.9 million related to commissions capitalized on our sales, net payments for operating lease liabilities of$4.9 million , and a decrease in deferred revenue balance of$4.4 million due to lower billings, and, partially offset by a decrease in accounts receivable of$17.9 million primarily due to increased customer collections, an increase in other noncurrent liabilities of$6.5 million , and an increase in accounts payable and accrued expenses of$2.5 million due to timing of payments. Investing Activities Net cash used in investing activities for the six months endedJuly 31, 2021 of$12.9 million was related to the capitalization of internal-use software of$6.5 million as we expanded our platform and increased our development efforts, and purchases of property and equipment of$6.4 million related to our growth. Net cash used in investing activities for the six months endedJuly 31, 2020 of$10.4 million was related to the capitalization of internal-use software of$5.4 million as we expanded our platform and increased our development efforts, and purchases of property and equipment of$5.0 million related to our growth. 29 -------------------------------------------------------------------------------- Table of Contents Financing Activities Net cash provided by financing activities for the six months endedJuly 31, 2021 of$9.9 million consisted primarily of$11.5 million in proceeds from employee stock purchase plan and$3.5 million in proceeds from the exercise of stock options, partially offset by$5.1 million principal payment on finance lease obligations. Net cash provided by financing activities for the six months endedJuly 31, 2020 of$14.4 million consisted primarily of$9.5 million in proceeds from employee stock purchase plan and$8.6 million in proceeds from the exercise of stock options, partially offset by$3.7 million principal payment on finance lease obligations. Commitments and Contractual Obligations There were no material changes outside of the ordinary course of business in our contractual obligations and commitments during the six months endedJuly 31, 2021 from the contractual obligations and commitments disclosed in our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2021 filed with theSEC onMarch 12, 2021 . Off-Balance Sheet Arrangements ThroughJuly 31, 2021 , we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical Accounting Policies and Estimates Our condensed consolidated financial statements have been prepared in accordance withU.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected. During the six months endedJuly 31, 2021 , there were no significant changes to our critical accounting policies and estimates as described in the financial statements contained in the Annual Report on Form 10-K for the year endedJanuary 31, 2021 filed with theSEC onMarch 12, 2021 . Recent Accounting Pronouncements See "Summary of Business and Significant Accounting Policies" in Note 1 of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
© Edgar Online, source
