ASANA, 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 appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with theSEC onMarch 30, 2021 . As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included under Part II, Item 1A below. Overview Asana is a work management platform that helps teams orchestrate work, from daily tasks to cross-functional strategic initiatives. Over 114,000 paying customers use Asana to manage everything from product launches to marketing campaigns to organization-wide goal setting. Our platform adds structure to unstructured work, creating clarity, transparency, and accountability to everyone within an organization-individuals, team leads, and executives-so they understand exactly who is doing what, by when. Asana is flexible and applicable to virtually any use case across departments and organizations of all sizes. We designed our platform to be easy to use and intuitive to all users, regardless of role or technical proficiency. Users can start a project within minutes and onboard team members seamlessly without outside support. We allow users to work the way they want with the interface that is right for them, using lists, calendars, boards, timelines, and workload. Since our inception, over 35 million users have registered on Asana and millions of teams in virtually every country around the world have used Asana. As ofOctober 31, 2021 , we had over 2.0 million paid users. Key Business Metrics We believe that our growth and financial performance are dependent upon many factors, including the key factors described below. Paying Customers We are focused on continuing to grow the number of customers that use our platform. Our operating results and growth opportunity depend, in part, on our ability to attract new customers. We believe we have significant greenfield opportunities among addressable customers worldwide and we will continue to invest in our research and development and our sales and marketing organizations to address this opportunity. As ofOctober 31, 2021 , we had over 114,000 paying customers, compared to over 89,000 as ofOctober 31, 2020 . We define a customer as a distinct account, which could include a team, company, educational or government institution, organization, or distinct business unit of a company, that is on a paid subscription plan, a free version, or a free trial of one of our paid subscription plans. A single organization may have multiple customers. We define a paying customer as a customer on a paid subscription plan. Customers Spending Over$5,000 and$50,000 We focus on growing the number of customers spending over$5,000 and$50,000 on an annualized basis as a measure of our ability to scale within organizations. We define customers spending over$5,000 and$50,000 as those organizations on a paid subscription plan that had$5,000 or more or$50,000 or more in annualized GAAP revenues in a given quarter, respectively, inclusive of discounts. As customers realize the productivity benefits we provide, our platform often becomes critical to managing their work and achieving their objectives, which drives further adoption and expansion opportunities, and results in higher annualized contract values. We believe that our ability to increase the number of these customers is an important indicator of the components of our business, including: the continued acquisition of new customers, retaining and expanding our user base within existing customers, our continued investment in product development and functionality required by larger organizations, and the growth of our direct sales force. 25 -------------------------------------------------------------------------------- As ofOctober 31, 2021 , we had 14,143 customers spending over$5,000 who contributed approximately 68% and 66% of revenues for the three and nine months then ended, respectively. As ofOctober 31, 2020 , we had 8,938 customers spending over$5,000 who contributed approximately 59% and 57% of revenue for the three and nine months then ended, respectively. As ofOctober 31, 2021 and 2020, we had 739 and 318 customers spending over$50,000 , respectively. Dollar-based Net Retention Rate We expect to derive a significant portion of our revenue growth from expansion within our customer base, where we have an opportunity to expand adoption of Asana across teams, departments, and organizations. We believe that our dollar-based net retention rate demonstrates our opportunity to further expand within our customer base, particularly those that generate higher levels of annual revenues. Our reported dollar-based net retention rate equals the simple arithmetic average of our quarterly dollar-based net retention rate for the four quarters ending with the most recent fiscal quarter. We calculate our dollar-based net retention rate by comparing our revenues from the same set of customers in a given quarter, relative to the comparable prior-year period. To calculate our dollar-based net retention rate for a given quarter, we start with the revenues in that quarter from customers that generated revenues in the same quarter of the prior year. We then divide that amount by the revenues attributable to that same group of customers in the prior-year quarter. Current period revenues include any upsells and are net of contraction or attrition over the trailing 12 months, but exclude revenues from new customers in the current period. We expect our dollar-based net retention rate to fluctuate in future periods due to a number of factors, including the expected growth of our revenue base, the level of penetration within our customer base, and our ability to retain our customers. As ofOctober 31, 2021 and 2020, our dollar-based net retention rate was over 120% and over 115%, respectively. As ofOctober 31, 2021 and 2020, our dollar-based net retention rate for customers spending over$5,000 with us on an annualized basis was 130% and over 125%, respectively. Our dollar-based net retention rate for customers spending over$50,000 with us on an annualized basis for the same periods was over 145% and over 140%, respectively. Impact of COVID-19 As a result of the COVID-19 pandemic, we temporarily closed our headquarters and other physical offices, required our employees and contractors to work remotely, and implemented travel restrictions, all of which represent a significant disruption in how we operate our business. The operations of our partners and customers have likewise been disrupted, with a disproportionate impact on smaller businesses that were particularly affected by the pandemic. This impact was most evident in our overall dollar-based net retention rate, which declined early in the pandemic, but has since returned to pre-pandemic levels, whereas the dollar-based net retention rates for customers who spent over$5,000 and over$50,000 has remained relatively consistent throughout the pandemic. While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment and mitigation actions, the emergence of variant strains of the virus, and the availability and widespread use of effective vaccines, it continues to have adverse effects on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown. In particular, the conditions caused by this pandemic could affect the rate of global IT spending and could adversely affect demand for our platform, lengthen our sales cycles, reduce the value or duration of subscriptions, negatively impact collections of accounts receivable, reduce expected spending from new customers, cause some of our paying customers to go out of business, limit the ability of our direct sales force to travel to customers and potential customers, and affect contraction or attrition rates of our customers, all of which could adversely affect our business, results of operations, and financial condition during fiscal 2022 and potentially future periods. Non-GAAP Financial Measures The following tables present certain non-GAAP financial measures for each period presented below. In addition to our results determined in accordance with GAAP, we believe these non-GAAP financial measures are useful in 26 --------------------------------------------------------------------------------
evaluating our operating performance. See below for a description of the non-GAAP financial measures and their limitations as an analytical tool.
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(in thousands)
Non-GAAP loss from operations $ (41,278) $ (37,275) $ (113,163) $ (88,349)
Non-GAAP net loss $ (42,470) $ (38,314) $ (116,037) $ (88,282)
Free cash flow $ (29,498) $ (19,502) $ (46,429) $ (58,474)
Non-GAAP Loss From Operations and Non-GAAP Net Loss
We define non-GAAP loss from operations as loss from operations plus stock-based
compensation expense and the related employer payroll tax associated with RSUs
as well as non-recurring costs, such as direct listing expenses. The amount of
employer payroll tax-related items on employee stock transactions is dependent
on our stock price and other factors that are beyond our control and that do not
correlate to the operation of the business. When evaluating the performance of
our business and making operating plans, we do not consider these items (for
example, when considering the impact of equity award grants, we place a greater
emphasis on overall stockholder dilution rather than the accounting charges
associated with such grants). We believe it is useful to exclude these expenses
in order to better understand the long-term performance of our core business and
to facilitate comparison of our results to those of peer companies and over
multiple periods.
We define non-GAAP net loss as net loss plus stock-based compensation expense
and the related employer payroll tax associated with RSUs, amortization of
discount and non-cash contractual interest expense related to our senior
mandatory convertible promissory notes, and non-recurring costs such as direct
listing expenses.
We use non-GAAP loss from operations and non-GAAP net loss in conjunction with
traditional GAAP measures to evaluate our financial performance. We believe that
non-GAAP loss from operations and non-GAAP net loss provide our management and
investors consistency and comparability with our past financial performance and
facilitates period-to-period comparisons of operations.
Free Cash Flow
We define free cash flow as net cash used in operating activities less cash used
for purchases of property and equipment and capitalized internal-use software
costs, plus non-recurring expenditures such as capital expenditures from the
purchases of property and equipment associated with the build-out of our
corporate headquarters in San Francisco , and direct listing expenses. We believe
that free cash flow is a useful indicator of liquidity that provides information
to management and investors, even if negative, about the amount of cash used in
our operations other than that used for investments in property and equipment
and capitalized internal-use software costs, adjusted for non-recurring
expenditures.
Limitations and Reconciliations of Non-GAAP Financial Measures
Non-GAAP financial measures have limitations as analytical tools and should not
be considered in isolation or as substitutes for financial information presented
under GAAP. There are a number of limitations related to the use of non-GAAP
financial measures versus comparable financial measures determined under GAAP.
For example, other companies in our industry may calculate these non-GAAP
financial measures differently or may use other measures to evaluate their
performance. In addition, free cash flow does not reflect our future contractual
commitments and the total increase or decrease of our cash balance for a given
period. All of these limitations could reduce the usefulness of these non-GAAP
financial measures as analytical tools. Investors are encouraged to review the
related GAAP financial measures and the reconciliations of these non-GAAP
financial measures to their most directly comparable GAAP financial measures and
to not rely on any single financial measure to evaluate our business.
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--------------------------------------------------------------------------------The following tables reconcile the most directly comparable GAAP financial measure to each of these non-GAAP financial measures. Non-GAAP Loss From Operations
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(in thousands)
Loss from operations $ (68,088) $ (61,934) $ (178,121) $ (124,603)
Add:
Stock-based compensation and related
employer payroll tax associated with RSUs 26,810 8,941 64,958 18,299
Direct listing expenses - 15,718 - 17,955
Non-GAAP loss from operations $ (41,278) $ (37,275) $ (113,163) $ (88,349)
Non-GAAP Net Loss
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(in thousands)
Net loss $ (69,280) $ (73,289) $ (198,293) $ (150,200)
Add:
Stock-based compensation and related
employer payroll tax associated with RSUs 26,810 8,941 64,958 18,299
Amortization of discount on convertible
notes - 6,346 10,628 15,955
Non-cash interest expense - 3,970 6,670 9,709
Direct listing expenses - 15,718 - 17,955
Non-GAAP net loss $ (42,470) $ (38,314) $ (116,037) $ (88,282)
Free Cash Flow
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(in thousands)
Net cash provided by (used in) investing
activities $ 19,161 $
(142,994)
Net cash used in operating activities
(10,746) (22,752) (40,303) (35,153)
Capitalized internal-use software (191) (40) (487) (858)
Add:
Purchases of property and equipment for build-out of corporate headquarters 9,939 21,822 38,551 33,130 Direct listing expenses paid - 15,903 270 19,112 Free cash flow$ (29,498) $ (19,502) $ (46,429) $ (58,474) 28
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Components of Results of Operations
Revenues
We generate subscription revenues from paying customers accessing our
cloud-based platform. Subscription revenues are driven primarily by the number
of paying customers, the number of paying users within the customer base, and
the level of subscription plan. We recognize revenues ratably over the related
contractual term beginning on the date that the platform is made available to a
customer.
Due to the ease of implementation of our platform, revenues from professional
services have been immaterial to date.
Cost of Revenues
Cost of revenues consists primarily of the cost of providing our platform to
free users and paying customers and is comprised of third-party hosting fees,
third-party and personnel-related expenses for our operations and support
personnel, credit card processing fees, and amortization of our capitalized
internal-use software costs.
As we acquire new customers and existing customers increase their use of our
cloud-based platform, we expect that our cost of revenues will continue to
increase in dollar amount.
Gross Profit and Gross Margin
Gross profit, or revenues less cost of revenues, and gross margin, or gross
profit as a percentage of revenues, has been and will continue to be affected by
various factors, including the timing of our acquisition of new customers,
renewals of and follow-on sales to existing customers, costs associated with
operating our cloud-based platform, and the extent to which we expand our
operations and customer support organizations. We expect our gross profit to
increase in dollar amount and our subscription gross margin to remain relatively
consistent over the long term.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing,
and general and administrative expenses. Personnel-related expenses are the most
significant component of operating expenses and consist of salaries, benefits,
stock-based compensation expense, and, in the case of sales and marketing
expenses, sales commissions. Operating expenses also include an allocation of
overhead costs for facilities and shared IT-related expenses, including
depreciation expense.
Research and Development
Research and development expenses consist primarily of personnel-related
expenses. These expenses also include product design costs, third-party services
and consulting expenses, software subscriptions and expensed computer equipment
used in research and development activities, and allocated overhead costs. A
substantial portion of our research and development efforts are focused on
enhancing our software architecture and adding new features and functionality to
our platform. We anticipate continuing to invest in innovation and technology
development, and as a result, we expect research and development expenses to
continue to increase in dollar amount, but to decrease as a percentage of
revenues over time.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related expenses and
expenses for performance marketing and lead generation, brand marketing, and
sponsorship activities. These expenses also include allocated overhead costs and
travel-related expenses. Sales commissions earned by our sales force that are
considered incremental and recoverable costs of obtaining a subscription with a
customer are deferred and amortized on a straight-line basis over the expected
period of benefit of three years.
We continue to make investments in our sales and marketing organization, and we
expect sales and marketing expenses to remain our largest operating expenses in
dollar amount. We expect our sales and marketing expenses to continue to
increase in dollar amount but to decrease as a percentage of revenues over time,
although the percentage may fluctuate from quarter to quarter depending on the
extent and timing of our marketing initiatives.
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General and Administrative
General and administrative expenses consist primarily of personnel-related
expenses for our finance, human resources, information technology, and legal
organizations. These expenses also include non-personnel costs, such as outside
legal, accounting, and other professional fees, software subscriptions and
expensed computer equipment, certain tax, license, and insurance-related
expenses, and allocated overhead costs.
We have recognized and will continue to recognize certain expenses as part of
our transition to a publicly traded company, consisting of professional fees and
other expenses. In the quarters leading up to the listing of our Class A common
stock on the NYSE, we incurred professional fees and expenses, and in the
quarter of our listing we incurred fees paid to our financial advisors in
addition to other professional fees and expenses related to such listing. We
expect to 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 . In addition, as a public company, we incur additional costs associated
with accounting, compliance, insurance, and investor relations. As a result, we
expect our general and administrative expenses to continue to increase in dollar
amount for the foreseeable future but to generally decrease as a percentage of
our revenues over the longer term, although the percentage may fluctuate from
period to period depending on the timing and amount of our general and
administrative expenses.
Interest Income and Other Income (Expense), Net and Interest Expense
Interest income and other income (expense), net consists of income earned on our
marketable securities and foreign currency transaction gains and losses.
Interest expense consists of contractual interest expense and amortization of
the debt discount on the senior mandatory convertible promissory notes we issued
in January and June 2020 to a trust affiliated with our CEO, and interest
expense from our term loan.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes in certain foreign
jurisdictions in which we conduct business. To date, we have not recorded any
U.S. federal income tax expense, and our state and foreign income tax expenses
have not been material. We have recorded deferred tax assets for which we
provide a full valuation allowance, which primarily include net operating loss
carryforwards and research and development tax credit carryforwards. We expect
to maintain this full valuation allowance for the foreseeable future as it is
more likely than not the deferred tax assets will not be realized based on our
history of losses.
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Results of Operations
The following tables set forth our results of operations for the periods
presented and as a percentage of our revenues for those periods. The
period-to-period comparison of financial results is not necessarily indicative
of financial results to be achieved in future periods.
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(in thousands)
Revenues $ 100,337 $ 58,905 $ 266,488 $ 158,635
Cost of revenues (1) 9,581 7,321 27,364 20,548
Gross profit 90,756 51,584 239,124 138,087
Operating expenses:
Research and development (1) 53,788 32,996 142,209 81,338
Sales and marketing (1) 73,295 48,039 194,009 122,952
General and administrative (1) 31,761 32,483 81,027 58,400
Total operating expenses 158,844 113,518 417,245 262,690
Loss from operations (68,088) (61,934) (178,121) (124,603)
Interest income and other income (expense),
net (446) (389) (766) 1,010
Interest expense (353) (10,351) (18,078) (25,706)
Loss before provision for income taxes (68,887) (72,674) (196,965) (149,299)
Provision for income taxes 393 615 1,328 901
Net loss $ (69,280) $ (73,289) $ (198,293) $ (150,200)
__________________(1)Amounts include stock-based compensation expense as follows:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(in thousands)
Cost of revenues $ 192 $ 75 $ 462 $ 175
Research and development 14,351 4,783 34,741 9,520
Sales and marketing 7,138 2,463 16,641 5,084
General and administrative 4,172 1,620 10,421 3,520
Total stock-based compensation expense
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--------------------------------------------------------------------------------The following table sets forth the components of our statements of operations data, for each of the periods presented, as a percentage of revenues.
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(percent of revenues)
Revenues 100 % 100 % 100 % 100 %
Cost of revenues 10 12 10 13
Gross margin 90 88 90 87
Operating expenses:
Research and development 54 56 53 51
Sales and marketing 73 82 73 78
General and administrative 32 55 30 37
Total operating expenses 158 193 157 166
Loss from operations (68) (105) (67) (79)
Interest income and other income (expense),
net * * * *
Interest expense * (18) (7) (16)
Loss before provision for income taxes (69) (123) (74) (94)
Provision for income taxes * 1 * *
Net loss (69) % (124) % (74) % (95) %
________________
* Less than 1%
Note: Certain figures may not sum due to rounding.
Comparison of Three Months Ended October 31, 2021 to Three Months Ended
October 31, 2020
Revenues
Three Months Ended October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Revenues $ 100,337 $ 58,905 $ 41,432 70 %
Revenues increased $41.4 million , or 70%, during the three months ended October
31, 2021 compared to the three months ended October 31, 2020 . The increase in
revenues was primarily due to the addition of new paying customers, a continued
shift in our sales mix toward larger customer contracts, and revenues generated
from our existing paying customers as reflected by our dollar-based net
retention rate of over 120% as of October 31, 2021 .
Cost of Revenues and Gross Margin
Three Months Ended October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Cost of revenues $ 9,581 $ 7,321 $ 2,260 31 %
Gross margin 90 % 88 %
Cost of revenues increased $2.3 million , or 31%, during the three months ended
October 31, 2021 compared to the three months ended October 31, 2020 . The
increase was primarily due to an increase of $0.6 million in personnel-related
costs due to increased headcount, an increase of $0.6 million in third-party
hosting costs as we increased capacity to support customer usage and growth of
our customer base, an increase of $0.4 million in allocated overhead costs as a
result of increased overall costs to support the growth of our business and
related infrastructure, an increase of $0.3 million in credit card processing
fees, and an increase of $0.2 million in fees to third-party support vendors.
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Our gross margin increased during the three months ended October 31, 2021
compared to the three months ended October 31, 2020 as we increased our
revenues, more efficiently managed third-party hosting costs, and realized
benefits due to economies of scale resulting from increased efficiency with our
technology and infrastructure.
Operating Expenses
Three Months Ended October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Research and development $ 53,788 $ 32,996 $ 20,792 63 %
Sales and marketing 73,295 48,039 25,256 53 %
General and administrative 31,761 32,483 (722) (2) %
Total operating expenses $ 158,844 $ 113,518 $ 45,326 40 %
Research and Development
Research and development expenses increased $20.8 million , or 63%, during the
three months ended October 31, 2021 compared to the three months ended October
31, 2020 . The increase was primarily due to $17.1 million in personnel-related
costs due to increased headcount and an increase of $2.6 million in allocated
overhead costs as a result of increased overall costs to support the growth of
our business and related infrastructure.
Sales and Marketing
Sales and marketing expenses increased $25.3 million , or 53%, during the three
months ended October 31, 2021 compared to the three months ended October 31,
2020 . The increase was primarily due to an increase of $16.4 million in
personnel-related expenses driven by higher headcount, an increase of
$3.6 million in allocated overhead costs as a result of increased overall costs
to support the growth of our business and related infrastructure, and an
increase of $2.3 million in fees to marketing vendors.
General and Administrative
General and administrative expenses decreased $0.7 million , or 2%, during the
three months ended October 31, 2021 compared to the three months ended October
31, 2020 . The decrease was primarily due to a decrease of $12.3 million related
to professional fees including direct listing expenses and audit and legal fees
incurred in connection with the Company's direct listing during the three months
ended October 31, 2020 and a decrease of $0.2 million in other operating
expenses. The decrease was partially offset by an increase of $8.2 million in
personnel-related expenses as a result of higher headcount, an increase of $3.1
million in allocated overhead costs as a result of increased overall costs to
support the growth of our business and related infrastructure expenses, and an
increase of $0.7 million related to increased insurance incurred as a result of
becoming a public company.
Interest Income, Interest Expense, and Other Income (Expense), Net
Three Months Ended October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Interest income and other income
(expense), net $ (446) $ (389) $ (57) 15 %
Interest expense (353) (10,351) 9,998 (97) %
Interest income and other income (expense), net decreased $0.1 million during
the three months ended October 31, 2021 compared to the three months ended
October 31, 2020 due primarily to an increase in losses on foreign currency
transactions partially offset by increased gains from our investments in
marketable securities. Interest expense decreased by $10.0 million during the
three months ended October 31, 2021 compared to the three months ended October
31, 2020 , primarily due to the conversion of the senior mandatory convertible
promissory notes during the three months ended July 31, 2021 previously issued
to a trust affiliated with our CEO.
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Comparison of Nine Months Ended October 31, 2021 to Nine Months Ended
October 31, 2020
Revenues
Nine Months Ended October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Revenues $ 266,488 $ 158,635 $ 107,853 68 %
Revenues increased $107.9 million , or 68%, during the nine months ended October
31, 2021 compared to the nine months ended October 31, 2020 . The increase in
revenues was primarily due to the addition of new paying customers, a continued
shift in our sales mix toward larger customer contracts, and revenues generated
from our existing paying customers as reflected by our dollar-based net
retention rate of over 120% as of October 31, 2021 .
Cost of Revenues and Gross Margin
Nine Months Ended October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Cost of revenues $ 27,364 $ 20,548 $ 6,816 33 %
Gross margin 90 % 87 %
Cost of revenues increased $6.8 million , or 33%, during the nine months ended
October 31, 2021 compared to the nine months ended October 31, 2020 . The
increase was primarily due to an increase of $2.2 million in personnel-related
costs due to increased headcount, an increase of $1.4 million in credit card
processing fees, an increase of $1.3 million in third-party hosting costs as we
increased capacity to support customer usage and growth of our customer base, an
increase of $0.7 million in allocated overhead costs as a result of increased
overall costs to support the growth of our business and related infrastructure,
and an increase of $0.6 million in fees to third-party support vendors.
Our gross margin increased during the nine months ended October 31, 2021
compared to the nine months ended October 31, 2020 as we increased our revenues,
more efficiently managed third-party hosting costs, and realized benefits due to
economies of scale resulting from increased efficiency with our technology and
infrastructure.
Operating Expenses
Nine Months Ended October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Research and development $ 142,209 $ 81,338 $ 60,871 75 %
Sales and marketing 194,009 122,952 71,057 58 %
General and administrative 81,027 58,400 22,627 39 %
Total operating expenses $ 417,245 $ 262,690 $ 154,555 59 %
Research and Development
Research and development expenses increased $60.9 million , or 75%, during the
nine months ended October 31, 2021 compared to the nine months ended October 31,
2020 . The increase was primarily due to $50.2 million in personnel-related costs
due to increased headcount and an increase of $8.3 million in allocated overhead
costs as a result of increased overall costs to support the growth of our
business and related infrastructure.
Sales and Marketing
Sales and marketing expenses increased $71.1 million , or 58%, during the nine
months ended October 31, 2021 compared to the nine months ended October 31,
2020 . The increase was primarily due to an increase of $39.5 million in
personnel-related expenses driven by higher headcount, an increase of $9.7
million in performance
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marketing, branding spend, and lead generation, an increase of $9.2 million in
allocated overhead costs as a result of increased overall costs to support the
growth of our business and related infrastructure, and an increase of $6.1
million in fees to marketing vendors.
General and Administrative
General and administrative expenses increased $22.6 million , or 39%, during the
nine months ended October 31, 2021 compared to the nine months ended October 31,
2020 . The increase was primarily due to an increase of $20.7 million in
personnel-related expenses as a result of higher headcount, an increase of $6.8
million in allocated overhead costs as a result of increased overall costs to
support the growth of our business and related infrastructure expenses, an
increase of $3.5 million related to increased insurance incurred as a result of
becoming a public company, an increase of $2.1 million in other operating
expenses, partially offset by a decrease of $11.0 million in professional fees
including direct listing expenses and audit and legal fees incurred in
connection with the Company's direct listing during the three months ended
October 31, 2020 .
Interest Income, Interest Expense, and Other Income (Expense), Net
Nine Months Ended October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Interest income and other income
(expense), net $ (766) $ 1,010 $ (1,776) (176) %
Interest expense (18,078) (25,706) 7,628 (30) %
Interest income and other income (expense), net decreased $1.8 million during
the nine months ended October 31, 2021 compared to the nine months ended October
31, 2020 due primarily to an increase in losses on foreign currency transactions
and decreased gains from our investments in marketable securities. Interest
expense decreased $7.6 million during the nine months ended October 31, 2021
compared to the nine months ended October 31, 2020 , primarily due to the
conversion of the senior mandatory convertible promissory notes during the three
months ended July 31, 2021 previously issued to a trust affiliated with our CEO
.
Liquidity and Capital Resources
Since inception, we have financed operations primarily through the net proceeds
we have received from the sales of our preferred stock and common stock, the
issuance of senior mandatory convertible promissory notes in January and June
2020 to a trust affiliated with our CEO, and cash generated from the sale of
subscriptions to our platform. We have generated losses from our operations as
reflected in our accumulated deficit of $739.7 million as of October 31, 2021
and negative cash flows from operating activities for the nine months ended
October 31, 2021 and 2020. Our future capital requirements will depend on many
factors, including revenue growth and costs incurred to support customer usage
and growth in our customer base, increased research and development expenses to
support the growth of our business and related infrastructure, and increased
general and administrative expenses to support being a publicly traded company.
As of October 31, 2021 , our principal sources of liquidity were cash, cash
equivalents, and marketable securities including non-current investments of
$353.6 million .
In April 2020 , we entered into a five-year $40.0 million term loan agreement
with Silicon Valley Bank . The agreement provides for a senior secured term loan
facility, in an aggregate principal amount of up to $40.0 million , to be used
for the construction of our new corporate headquarters. Interest will accrue on
any outstanding balance at a floating rate per annum equal to the prime rate (as
publicly announced from time to time by the Wall Street Journal ) plus an
applicable margin equal to either (a) 0% if our unrestricted cash at the lender
is equal to or less than $80.0 million , or (b) (0.5)% if our unrestricted cash
at the lender is between $80.0 million and $100.0 million , or (c) (1.0)% if our
unrestricted cash balance at the lender is equal to or greater than $100.0
million . Interest shall be payable monthly. As of October 31, 2021 ,
$40.0 million was drawn and $38.8 million was outstanding under this term loan.
A substantial source of our cash provided by operating activities is our
deferred revenue, which is included on our condensed consolidated balance sheets
as a liability. Deferred revenue consists of the unearned portion of billed fees
for our subscriptions, which is recorded as revenues over the term of the
subscription agreement. As of October
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31, 2021, we had $154.7 million of deferred revenue, of which $150.6 million was
recorded as a current liability. This deferred revenue will be recognized as
revenues when all of the revenue recognition criteria are met.
We assess our liquidity primarily through our cash on hand as well as the
projected timing of billings under contract with our paying customers and
related collection cycles. We believe our current cash, cash equivalents,
marketable securities, and amounts available under our senior secured term loan
facility will be sufficient to meet our working capital and capital expenditure
requirements for at least the next 12 months.
Cash Flows
The following table shows a summary of our cash flows for the periods presented:
Nine Months Ended October 31,
2021 2020
(in thousands)
Net cash used in operating activities $ (44,460) $ (74,705)
Net cash provided by (used in) investing activities 22,248 (117,271)
Net cash provided by financing activities 33,974 178,731
Operating Activities
Our largest source of operating cash is cash collection from sales of
subscriptions to our paying customers. Our primary uses of cash from operating
activities are for personnel-related expenses, marketing expenses, and
third-party hosting-related and software expenses. In the last several years, we
have generated negative cash flows from operating activities and have
supplemented working capital requirements through net proceeds from the sale of
equity and equity-linked securities.
Net cash used in operating activities of $44.5 million for the nine months ended
October 31, 2021 reflects our net loss of $198.3 million , adjusted by non-cash
items such as stock-based compensation expense of $62.3 million , non-cash lease
expense of $13.2 million , amortization of discount on convertible notes and term
loan issuance costs of $10.6 million , non-cash interest expense of $6.7 million ,
amortization of deferred contract acquisition costs of $5.9 million ,
depreciation and amortization of $5.5 million , provision for doubtful accounts
of $1.2 million , and net cash inflows of $47.6 million from changes in our
operating assets and liabilities. The net cash inflows from changes in operating
assets and liabilities primarily consisted of a $48.8 million increase in
deferred revenue, resulting from increased billings for subscriptions, a $10.6
million increase in accrued expenses and other liabilities primarily from an
increase in accrued consulting expenses, accrued sales and value-added taxes,
and accrued interest on the term loan, a $9.1 million increase in accounts
payable, and a $8.5 million increase in operating lease liabilities. These
amounts were partially offset by a $14.0 million increase in accounts receivable
due to higher customer billings, a $9.0 million increase in prepaid expenses and
other current assets related to an increase in deferred contract acquisition
costs, and a $6.4 million increase in other assets.
Net cash used in operating activities of $74.7 million for the nine months ended
October 31, 2020 reflects our net loss of $150.2 million , stock-based
compensation expense of $18.3 million , adjusted by non-cash items such as
amortization of discount on convertible notes of $16.0 million , non-cash lease
expense of $11.8 million , non-cash interest expense of $9.7 million ,
amortization of deferred contract acquisition costs of $2.7 million ,
depreciation and amortization of $2.5 million , provision for doubtful accounts
of $1.2 million , and net cash inflows of $13.2 million from changes in our
operating assets and liabilities. The net cash inflows from changes in operating
assets and liabilities primarily consisted of a $26.0 million increase in
deferred revenue resulting from increased billings for subscriptions, a $13.5
million increase in accrued liabilities and other liabilities primarily from an
increase in accrued advertising, and a $1.8 million increase in accounts
payable. These amounts were partially offset by a $13.3 million increase in
prepaid expenses and other current assets primarily related to an increase in
deferred contract acquisition costs, a $11.8 million increase in accounts
receivable due to higher customer billings, and a $2.5 million increase in other
assets.
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Investing Activities
Net cash provided by in investing activities of $22.2 million for the nine
months ended October 31, 2021 consisted of $124.6 million in maturities of
marketable securities and $0.4 million in sales of marketable securities. This
was partially offset by $61.9 million in purchases of marketable securities,
$40.3 million in purchases of property and equipment from an increase in
leasehold improvements and furniture and fixtures primarily related to the build
out of our new headquarters, and $0.5 million in capitalized internal-use
software costs.
Net cash used in investing activities of $117.3 million for the nine months
ended October 31, 2020 consisted of $126.6 million in purchases of marketable
securities, $35.2 million in purchases of property and equipment from an
increase in construction in progress, and $0.9 million in capitalized
internal-use software costs. This was partially offset by $45.3 million in
maturities of marketable securities.
Financing Activities
Net cash provided by financing activities of $34.0 million for the nine months
ended October 31, 2021 consisted of $13.4 million in proceeds from our employee
stock purchase plan, $12.8 million in proceeds from the exercise of stock
options, and $9.0 million in net proceeds from our term loan, partially offset
by $1.2 million for the repayment of our term loan.
Net cash provided by financing activities of $178.7 million for the nine months
ended October 31, 2020 primarily consisted of $150.0 million of proceeds from
the issuance of a senior mandatory convertible promissory note in June 2020 to a
trust affiliated with our CEO, $16.2 million in proceeds from the exercise of
stock options, and $12.9 million in net proceeds from our term loan, partially
offset by $0.4 million in taxes paid related to the net share settlement of
equity awards.
Contractual Obligations and Commitments
During the nine months ended October 31, 2021 , there were no material changes in
our contractual obligations and other commitments, as disclosed in our Annual
Report on Form 10-K filed with the SEC on March 30, 2021 , other than the
amendments to the operating lease for our corporate headquarters in San
Francisco , which commenced in May 2020 and expires in October 2033 . We expect to
incur a total of approximately $383.6 million of future minimum payments and
capital commitments related to this lease of as of October 31, 2021 .
For further information on our commitments and contingencies, refer to Note 8 in
the condensed consolidated financial statements contained within this Quarterly
Report on Form 10-Q.
On July 1, 2021 , pursuant to the terms thereof, we elected to convert the
Convertible Notes (as defined in Note 6) into shares of our Class B Common
Stock. Refer to Note 6. Convertible Notes-Related Party for additional
information.
In April 2020 , we entered into a $40.0 million term loan agreement with Silicon
Valley Bank , as discussed in Liquidity and Capital Resources above.
Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope
and terms pursuant to which we agree to indemnify customers, vendors, lessors,
business partners, and other parties with respect to certain matters, including,
but not limited to, losses arising out of the breach of such agreements,
services to be provided by us, or from intellectual property infringement claims
made by third parties. Additionally, in connection with the listing of our Class
A common stock on the NYSE, we have entered into indemnification agreements with
our directors and certain officers and employees that will require us, among
other things, to indemnify them against certain liabilities that may arise by
reason of their status or service as directors, officers, or employees. No
demands have been made upon us to provide indemnification under such agreements,
and there are no claims that we are aware of that could have a material effect
on our financial position, results of operations, or cash flows.
Off-Balance Sheet Arrangements
For all periods presented in this Quarterly Report on Form 10-Q, we did not have
any relationships with unconsolidated organizations or financial partnerships,
such as structured finance or special purpose entities, which
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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 unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. There have been no changes to our critical accounting policies and estimates during the nine months endedOctober 31, 2021 as compared to those disclosed in our Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in our Annual Report on Form 10-K filed with theSEC onMarch 30, 2021 . Recent Accounting Pronouncements See Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding recent accounting pronouncements.
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