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MarketScreener Homepage  >  Equities  >  Nyse  >  Anaplan, Inc.    PLAN

ANAPLAN, INC.

(PLAN)
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ANAPLAN : management's discussion and analysis of financial condition and results of operations (form 10-Q)

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06/04/2020 | 04:23pm EDT

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 ended January 31, 2020, filed with the SEC on March 30, 2020. 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 ends January 31.


                                    Overview

Anaplan is pioneering the category of Connected Planning. Our platform enables organizations to make better decisions and to plan and execute their ongoing digital transformation to compete in today's digital economy. We believe Connected Planning is an essential cloud category. It fundamentally transforms planning by connecting all of the people, data, and plans needed to accelerate business value and enable real-time planning and decision-making in rapidly changing business environments. Connected Planning accelerates business value by transforming the way organizations make decisions and placing the power of planning in the hands of every individual at every level within and between organizations. We continue to see the growth in the strategic value of the Connected Planning platform as a foundation for companies to drive digital transformation.

Connected Planning represents a fundamental shift from the legacy approach to planning, which is typically confined to the finance department and uses a patchwork of outdated and disconnected tools and manual processes that are often overly complex, slow, inefficient, and static. Connected Planning enables dynamic, collaborative, and intelligent planning across all areas of an organization, including finance, sales, and supply chain, and other corporate functions such as marketing, human resources, and operations. It enables organizations to manage their people, products and customers with agility.

We sell subscriptions to our cloud-based planning platform primarily through our direct sales team. We also have strategic partnerships that provide us with a significant source of lead generation and implementation leverage. Our global partners, including global strategic consulting and advisory firms, global systems integrators and technology firms, 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 partner with leading regional consulting firms and implementation partners. These highly skilled regional partners not only provide subject-matter expertise in the implementation of specific use cases, but they also act as an extension of our direct sales force by identifying and referring opportunities to us. We and our partners create templatized solution offerings to further accelerate the implementation, adoption and expansion of our platform.

We focus our selling efforts on executives of large enterprises, who are often making a strategic purchase of our platform with the potential for broad use throughout their organizations. We use a "land and expand" sales strategy to capitalize on this potential. Our platform is often initially adopted within a specific line of business, including in finance, sales, and supply chain, and other corporate functions such as marketing, human resources, and operations, for one or more planning use cases. Once customers see the benefits of our platform for their initial use cases, they often increase the number of users, add new use cases, and expand to additional lines of business, divisions, and geographies. We call this the Honeycomb™ effect. This expansion often generates a natural network effect in which the value of our platform 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 using Anaplan'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 ended April 30, 2020 and 2019, subscription revenue was $93.8 million and $65.1 million, respectively, representing a year-over-year subscription revenue growth rate of 44%. During the three months ended April 30, 2020 and 2019, services revenue was


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$10.0 million and $10.7 million, respectively. Our subscription revenue as a percentage of total revenue was 90% and 86% in the three months ended April 30, 2020 and 2019, respectively.

During the three months ended April 30, 2020 and 2019, our total revenue was $103.8 million and $75.8 million, respectively. Approximately 44% and 43% of our total revenue was generated from outside of the United States in the three months ended April 30, 2020 and 2019, respectively. Our net loss was $39.6 million and $37.2 million in the three months ended April 30, 2020 and 2019, respectively.

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 for Anaplan 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 117% and 122% as of April 30, 2020, and January 31, 2020, 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 367 and 353 as of April 30, 2020, and January 31, 2020, respectively. While achieving and maintaining incremental sales to existing customers requires increasingly sophisticated and costly sales efforts, we believe the introduction of new solutions, features and functionality to our platform, and customers realizing benefits through their initial adoption of our platform, means we have significant opportunities to further expand the use of our platform by our existing customers as well as to attract additional large customers.

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. For example, on October 3, 2019 we completed the acquisition of Mintigo Limited, an Israel-based artificial intelligence/machine learning company, to enhance the predictive capabilities of our solutions. 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 and continue our leadership role in the Connected Planning category.


                                COVID-19 Update

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. As the impact of the COVID-19 outbreak continues to unfold around the world, many governments have implemented measures to address the outbreak, including travel restrictions, quarantines and shelter-in-place orders, and business limitations and shutdowns.

In response to the COVID-19 pandemic, we have taken several immediate steps including shifting our training courses to an online only format, and moving our global Connected Planning Xperience (CPX) to an online only format. To support the health of our employees, in March 2020, we took steps to enable our global workforce to work remotely, and we implemented our business continuity plan with the goal of providing uninterrupted service to our customers. Our plan is to slowly move toward normal operations on a market by market basis in accordance with local authority guidelines, and to ensure that our return to work is thoughtful, prudent, and handled with an abundance of caution with the health of our employees being the top priority. 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.

While the broader implications of the COVID-19 pandemic on our employees, our results of operations, and overall financial performance remain uncertain, at least for the immediate future, we expect our financial performance to be impacted by the economic crisis arising from the COVID-19. We are starting to see certain of our customers and prospective customers deferring or delaying buying decisions and project implementations, prolonged sales cycles, and an increase in requests for extended payment terms due to uncertain economic conditions including those caused by the COVID-19 pandemic. We expect these deferrals and delays to impact our new business pipeline and large deals, including delays in deals arising out of our strategic relationships with our global partners. We may also experience a contraction in our existing customer base. 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.


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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. Furthermore, we generally recognize subscription revenue from our customer contracts ratably over the term of the contract. Therefore, changes in our contracting activity in the near term may not be apparent as a change to our reported revenue until future periods. See the "Risk Factors" section 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 the section titled "Risk Factors". If we are unable to address these challenges, our business and operating results could be adversely affected.

Market adoption of our platform. Even though we believe Connected Planning is a strategic imperative for enterprises and that enables them to plan and execute digital transformations in today's rapidly changing business environment, it is at an early stage of adoption. 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, and, once they realize the benefits and wide applicability of our platform, subsequently renewing subscriptions and expanding 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 our large 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.

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 strategically invest in expanding and retaining our sales leadership, 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. In the enterprise market, 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 months ended April 30, 2020 and 2019, was approximately 44% and 43%, respectively, 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 strategically 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 global and regional partners, including strategic and advisory consulting, systems integration, 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


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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 user interface, functionality, and usability of our platform, including in machine learning and other artificial intelligence technologies, to further enhance the predictive capabilities 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 Operations

Revenue

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 90% and 86% of our total revenue for the three months ended April 30, 2020 and 2019, respectively. 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-cancellable over the contract term. We had remaining performance obligations, or backlog, in the amount of $646.8 million and $656.2 million as of April 30, 2020 and January 31, 2020, 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, including as a result of the COVID-19 pandemic, may not impact our reported revenue until future periods.

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, 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 over the requisite service period.


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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. 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.

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 strategically increase the size of our general and administrative function to support the growth of our business and to take advantage of the large opportunity we see in front of us. We continue 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 SEC. 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, Net

Interest income, net consists primarily of interest income earned on our cash and cash equivalents.

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. and Israel deferred tax assets as we have concluded that it is not more likely than not that the deferred assets will be utilized.


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                             Results of Operations

The following tables set forth selected condensed consolidated statements of operations data for each of the periods indicated:



                                               Three Months Ended April 30,
                                                 2020                 2019
                                                      (In thousands)
Revenue:
Subscription revenue                        $       93,824$       65,085
Professional services revenue                       10,020               10,745
Total revenue                                      103,844               75,830
Cost of revenue:
Cost of subscription revenue (1)                    15,185               11,091
Cost of professional services revenue (1)            9,555               10,486
Total cost of revenue                               24,740               21,577
Gross profit                                        79,104               54,253
Operating expenses:
Research and development (1)                        23,762               15,059
Sales and marketing (1)                             71,674               56,290
General and administrative (1)                      22,428               20,013
Total operating expenses                           117,864               91,362
Loss from operations                               (38,760 )            (37,109 )
Interest income, net                                   511                1,251
Other income (expense), net                           (331 )               (246 )
Loss before income taxes                           (38,580 )            (36,104 )
Provision for income taxes                          (1,022 )             (1,087 )
Net loss                                    $      (39,602 )$      (37,191 )

(1) Includes stock-based compensation expense as follows: Cost of subscription revenue

                $          708       $          491
Cost of professional services revenue                  508                  492
Research and development                             3,646                1,836
Sales and marketing                                 10,031                6,617
General and administrative                           7,600                6,866

Total stock-based compensation expense $ 22,493$ 16,302





                   Three Months Ended April 30, 2020 and 2019

Revenue



                                   Three Months Ended April 30,
                                     2020                 2019           % Change
                                        (In thousands, except percentage data)
Subscription revenue            $        93,824$      65,085             44   %
Professional services revenue            10,020              10,745             (7 )
Total revenue                   $       103,844$      75,830             37



Total revenue was $103.8 million in the three months ended April 30, 2020, compared to $75.8 million in the three months ended April 30, 2019, an increase of $28.0 million, or 37%.

Subscription revenue was $93.8 million, or 90% of total revenue, in the three months ended April 30, 2020, compared to $65.1 million, or 86% of total revenue, in the three months ended April 30, 2019. The increase of $28.7 million, or 44%, in subscription revenue was primarily driven by existing customers expanding their use of our


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platform, which accounted for 64% of the increase, and acquisition of new customers, which accounted for approximately 36% of the increase.

Professional services revenue was $10.0 million in the three months ended April 30, 2020, compared to $10.7 million in the three months ended April 30, 2019, a decrease of $0.7 million, or 7%. The decrease in professional services revenue was primarily driven by lower sales of our professional services due to timing of our customers' implementation projects. This also represents a continued decline in professional services revenue as a percentage of total revenue from 14% to 10% primarily due to our strategy of shifting professional services revenue to the members of our growing partner ecosystem.

Cost of Revenue



                                   Three Months Ended April 30,
                                     2020                 2019           % Change
                                        (In thousands, except percentage data)
Cost of subscription revenue    $       15,185$       11,091             37   %

Cost of professional services

  revenue                                9,555               10,486             (9 )
Total cost of revenue           $       24,740$       21,577             15



Total cost of revenue was $24.7 million in the three months ended April 30, 2020, compared to $21.6 million in the three months ended April 30, 2019, an increase of $3.1 million, or 15%.

Cost of subscription revenue was $15.2 million in the three months ended April 30, 2020, compared to $11.1 million in the three months ended April 30, 2019, an increase of $4.1 million, or 37%. The increase in cost of subscription revenue was primarily due to an increase in amortization of our equipment leases and capitalized software development costs of $1.3 million, an increase in salary and bonuses, and benefits costs related to an increase in headcount of $1.1 million, including stock-based compensation, and an increase in hosting and consulting costs of $1.0 million.

Cost of professional services revenue was $9.6 million in the three months ended April 30, 2020, compared to $10.5 million in the three months ended April 30, 2019, a decrease of $0.9 million, or 9%. The decrease in cost of professional services revenue was primarily due to a decrease in the partner implementation costs related to a decrease in partner activity of $1.2 million, partially offset by an increase in salary and bonuses, and benefits costs of $0.5 million, including stock-based compensation.

Gross Profit and Gross Margin



                               Three Months Ended April 30,
                                 2020                 2019           % Change
                                    (In thousands, except percentage data)
Subscription gross profit   $       78,639$       53,994             46   %
Professional services
  gross profit                         465                  259             80
Total gross profit          $       79,104$       54,253             46
Subscription gross margin               84 %                 83 %
Professional services
  gross margin                           5 %                  2 %
Total gross margin                      76 %                 72 %



Gross profit was $79.1 million in the three months ended April 30, 2020, compared to $54.3 million in the three months ended April 30, 2019, an increase of $24.8 million, or 46%. 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 months ended April 30, 2020.


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Gross margin was 76% in the three months ended April 30, 2020 compared to 72% in the three months ended April 30, 2019 . The increase in gross margin year-over-year was primarily due to the increase in subscription revenue, which generates a significantly higher gross margin than our professional services revenue, as a percentage of total revenue. 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 April 30,
                                  2020                 2019           % Change
                                     (In thousands, except percentage data)
Operating expense:
Research and development     $        23,762$      15,059             58   %
Sales and marketing                   71,674              56,290             27
General and administrative            22,428              20,013             12
Total operating expenses     $       117,864$      91,362             29




Research and Development

Research and development expenses were $23.8 million in the three months ended April 30, 2020, compared to $15.1 million in the three months ended April 30, 2019, an increase of $8.7 million, or 58%. The increase was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of $6.4 million, including an increase in stock-based compensation and related taxes of $1.9 million, and an increase in consulting costs of $1.8 million, partially offset by an increase in capitalized software development costs of $1.4 million.

Sales and Marketing

Sales and marketing expenses were $71.7 million in the three months ended April 30, 2020, compared to $56.3 million in the three months ended April 30, 2019, an increase of $15.4 million, or 27%. The increase was primarily due to an increase in salary and bonuses and benefits costs related to an increase in headcount of $16.8 million, including an increase in stock-based compensation and related taxes of $4.1 million and an increase in commission expenses of $2.8 million, partially offset by a decrease of $1.8 million in expenses due to cancellation of conferences or events.

General and Administrative

General and administrative expenses were $22.4 million in the three months ended April 30, 2020, compared to $20.0 million in the three months ended April 30, 2019, an increase of $2.4 million, or 12%. The increase was primarily due to an increase in salary and bonuses, and benefits costs related to an increase in headcount of $2.5 million, including an increase in stock-based compensation and related taxes of $0.7 million, and an increase in allowance for credit losses of $0.6 million driven by customer collections concerns primarily stemming from the COVID-19 pandemic, partially offset by a decrease in other general expenses.

Other Income (Expense), Net



                                  Three Months Ended April 30,
                                  2020                   2019           % Change
                                      (In thousands, except percentage data)
Interest income, net          $         511         $         1,251           (59 ) %
Other income (expense), net            (331 )                  (246 )          35




Interest Income, net

Interest income, net decreased by $0.7 million in the three months ended April 30, 2020. The decrease in interest income, net was primarily due to lower interest rates in the three months ended April 30, 2020 compared to the three months ended April 30, 2019.


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Other Income (Expense), net

Other income (expense), net was a loss of $0.3 million in the three months ended April 30, 2020, compared to a loss of $0.2 million in the three months ended April 30, 2019, an increase in expense of $0.1 million, or 35%. The change was primarily due to currency fluctuations and the related remeasurements during the periods, primarily related to our U.K. operations and an intercompany loan denominated in a non-functional currency.

Provision for Income Taxes



                               Three Months Ended April 30,
                                 2020                2019           % Change
                                    (In thousands, except percentage data)
Provision for income taxes   $       1,022$       1,087             (6 ) %



The provision for income taxes was $1.0 million in the three months ended April 30, 2020, compared to $1.1 million in the three months ended April 30, 2019, a decrease of $0.1 million, or 6%. The decrease in provision for income taxes was primarily related to decreased income generated from intercompany cost-plus arrangements in certain European and Asian countries.


                        Liquidity and Capital Resources

As of April 30, 2020, our principal sources of liquidity were cash and cash equivalents totaling $303.1 million, which were held for working capital purposes and strategic initiatives. Our cash equivalents are comprised primarily of 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, such as timing of cash collections from our customers and other risks detailed in "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

In April 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 in April 2018, as amended in September 2018 and October 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 until April 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 on April 23, 2022. As of April 30, 2020 and January 31, 2020, we had not drawn down any amounts under this agreement.

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 to January 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 of April 30, 2020, we were in compliance with the financial covenants contained in the agreement.


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Cash Flows

The following table summarizes our cash flows for the periods presented:



                                               Three Months Ended April 30,
                                                 2020                 2019
                                                      (In thousands)

Net cash used in operating activities $ (1,504 )$ (1,900 ) Net cash used in investing activities

               (4,463 )             (3,083 )
Net cash provided by financing activities            2,064               11,196




Operating Activities

Net cash used in operating activities of $1.5 million for the three months ended April 30, 2020, was primarily due to a net loss of $39.6 million, partially offset by non-cash charges for stock-based compensation of $22.5 million, depreciation and amortization of $6.1 million, amortization of deferred commissions of $7.7 million, and amortization of operating lease right-of-use assets and accretion of operating lease liabilities of $2.9 million. Changes in working capital were unfavorable to cash flows from operations by $2.1 million primarily due to an increase in deferred commissions of $10.1 million related to commissions capitalized on our sales, a decrease in deferred revenue balance of $3.2 million due to lower billings, a decrease in accounts payable and accrued expenses of $2.5 million due to timing of payments, and payments for operating lease liabilities of $2.8 million, partially offset by a decrease in accounts receivable of $12.8 million due to lower billings, an increase in other noncurrent liabilities of $2.0 million and a decrease in prepaid expenses and other current assets of $1.5 million.

Net cash used in operating activities of $1.9 million for the three months ended April 30, 2019 was primarily due to a net loss of $37.2 million, partially offset by non-cash charges for stock-based compensation of $16.3 million, depreciation and amortization of $4.4 million, amortization of deferred commissions of $4.1 million, and amortization of operating lease right-of-use assets and accretion of operating lease liabilities of $2.4 million. Changes in working capital were favorable to cash flows from operations by $8.5 million primarily due to an increase in the deferred revenue balance of $12.1 million due to increases in sales, an increase in accounts payable and accrued expenses of $6.5 million due to our growth, partially offset by an increase in deferred commissions of $8.2 million, and payments for operating lease liabilities of $2.4 million.

Investing Activities

Net cash used in investing activities for the three months ended April 30, 2020 of $4.5 million was related to the capitalization of internal-use software of $2.9 million as we expanded our platform and increased our development efforts, and purchases of property and equipment of $1.6 million related to our growth.

Net cash used in investing activities for the three months ended April 30, 2019 of $3.1 million was related to the capitalization of internal-use software of $2.2 million as we expanded our platform and increased our development efforts, and purchases of property and equipment of $0.9 million related to our growth.

Financing Activities

Net cash provided by financing activities for the three months ended April 30, 2020 of $2.1 million consisted primarily of $3.8 million in proceeds from the exercise of stock options, partially offset by $1.7 million principal payment on finance lease obligations.

Net cash provided by financing activities for the three months ended April 30, 2019 of $11.2 million consisted primarily of proceeds of $9.3 million from the repayment of promissory notes, and $3.0 million in proceeds from the exercise of stock options, partially offset by $1.1 million principal payment on finance lease obligations.


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                    Commitments and Contractual Obligations

There were no material changes outside of the ordinary course of business in our contractual obligations and commitments during the three months ended April 30, 2020 from the contractual obligations and commitments disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020 filed with the SEC on March 30, 2020.


                         Off-Balance Sheet Arrangements

Through April 30, 2020, 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 with U.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 three months ended April 30, 2020, 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 ended January 31, 2020 filed with the SEC on March 30, 2020.


                        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.


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