ASANA, INC. 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. As described in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forwardlooking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove correct, 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 above in this report. Our fiscal year ends onJanuary 31 .
Overview
Asana is a work management platform that helps teams orchestrate work, from daily tasks to cross-functional strategic initiatives. Over 119,000 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. We have experienced rapid growth in recent periods. Our revenues were$378.4 million ,$227.0 million , and$142.6 million for fiscal 2022, fiscal 2021, and fiscal 2020, respectively, representing growth of 67% and 59% for fiscal 2022 and fiscal 2021, respectively. As ofJanuary 31, 2022 , we had 1,666 employees, representing growth of 54% sinceJanuary 31, 2021 . We had a net loss of$288.3 million ,$211.7 million , and$118.6 million for fiscal 2022, fiscal 2021, and fiscal 2020, respectively.
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 of
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 ofJanuary 31, 2022 , we had over 119,000 paying customers, compared to over 93,000 as ofJanuary 31, 2021 . 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
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 56
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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. As ofJanuary 31, 2022 , we had 15,437 customers spending over$5,000 on an annualized basis contributing approximately 66% of revenues for the fiscal year then ended. As ofJanuary 31, 2021 , we had 10,174 customers spending over$5,000 who contributed approximately 58% of revenue for the fiscal year then ended.
As of
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 of
As ofJanuary 31, 2022 and 2021, our dollar-based net retention rate for customers spending over$5,000 with us on an annualized basis was over 130% and 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 and increased 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 57
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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 future periods.
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, 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. In the fiscal year endedJanuary 31, 2020 , our personnel-related expenses was significantly impacted by stock-based compensation expense associated with a tender offer. InOctober 2019 , certain of our stockholders conducted a tender offer for shares of our outstanding Class A and Class B common stock and purchased an aggregate of 4,647,127 shares of our outstanding Class A and Class B common stock from certain other stockholders at a purchase price of$15.82 per share, for an aggregate purchase price of$73.5 million , resulting in stock-based compensation expense of$38.7 million for the excess of the selling price per share over the fair value of the tendered shares.
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
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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, pipeline generation, 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 expense 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 and year to year depending on the extent and timing of our initiatives.
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 aU.S securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of theSEC . 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 andJune 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 a
material provision for income taxes for any of the periods presented other than
for foreign income tax. 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.
Year Ended January 31,
2022 2021 2020
(in thousands)
Revenues $ 378,437 $ 227,004 $ 142,606
Cost of revenues (1) 38,897 28,741 19,881
Gross profit 339,540 198,263 122,725
Operating expenses:
Research and development (1) 203,124 121,139 89,675
Sales and marketing (1) 282,897 176,479 105,836
General and administrative (1) 118,703 76,212 46,845
Total operating expenses 604,724 373,830 242,356
Loss from operations (265,184) (175,567) (119,631) Interest income and other income (expense), net (1,536) 1,568
1,365
Interest expense (18,385) (36,178) (78)
Loss before provision for income taxes (285,105) (210,177) (118,344)
Provision for income taxes 3,237 1,533 245
Net loss $ (288,342) $ (211,710) $ (118,589)
__________________(1)Amounts include stock-based compensation expense as follows:
Year Ended January 31,
2022 2021 2020
(in thousands)
Cost of revenues 806 305 103
Research and development 57,480 18,606 24,869
Sales and marketing 29,631 9,387 10,177
General and administrative 16,644 5,927 13,237
Total stock-based compensation expense $ 104,561 $ 34,225 $ 48,386
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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.
Year Ended January 31,
2022 2021 2020
(percent of revenues)
Revenues 100 % 100 % 100 %
Cost of revenues 10 13 14
Gross margin 90 87 86
Operating expenses:
Research and development 54 53 63
Sales and marketing 75 78 74
General and administrative 31 34 33
Total operating expenses 160 165 170
Loss from operations (70) (77) (84)
Interest income and other income (expense), net * 1 1
Interest expense (5) (16) *
Loss before provision for income taxes (75) (93) (83)
Provision for income taxes * * *
Net loss (76) % (93) % (83) %
________________
* Less than 1%
Note: Certain figures may not sum due to rounding.
Comparison of the Fiscal Years Ended
Revenues
Year Ended January 31,
2022 2021 $ Change % Change
(dollars in thousands)
Revenues $ 378,437 $ 227,004 $ 151,433 67 %
Revenues increased $151.4 million , or 67%, during fiscal 2022 compared to fiscal
2021. The increase in revenues was primarily due to the addition of new paying
customers, a continued shift in our sales mix toward our higher priced
subscription plans, such as Enterprise and Business plans, and revenues
generated from our existing paying customers expanding their use of our solution
as reflected by our dollar-based net retention rate of over 120% as of January
31, 2022 .
Cost of Revenues and Gross Margin
Year Ended January 31,
2022 2021 $ Change % Change
(dollars in thousands)
Cost of revenues $ 38,897 $ 28,741 $ 10,156 35 %
Gross margin 90 % 87 %
Cost of revenues increased $10.2 million , or 35%, during fiscal 2022 compared to
fiscal 2021. The increase was primarily due to an increase of $3.3 million in
personnel-related costs due to increased headcount, $2.3 million in third-party
hosting costs as we increased capacity to support customer usage and growth of
our customer base,
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$1.8 million in credit card processing fees,$1.0 million in allocated overhead costs as a result of increased overall costs to support the growth of our business and related infrastructure, and$0.8 million in fees to third-party support vendors. Our gross margin increased during fiscal 2022 compared to fiscal 2021 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 Year Ended January 31, 2022 2021 $ Change % Change (dollars in thousands) Research and development$ 203,124 $ 121,139 $ 81,985 68 % Sales and marketing 282,897 176,479 106,418 60 % General and administrative 118,703 76,212 42,491 56 % Total operating expenses$ 604,724 $ 373,830 $ 230,894 62 % Research and Development Research and development expenses increased$82.0 million , or 68%, during fiscal 2022 compared to fiscal 2021. The increase was primarily due to an increase of$69.2 million in personnel-related expenses driven by higher headcount and an increase of$9.9 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$106.4 million , or 60%, during fiscal 2022 compared to fiscal 2021. The increase was primarily due to an increase of$62.5 million in personnel-related expenses as a result of higher headcount, an increase of$13.9 million for performance marketing, branding spend, and lead generation, an increase of$12.2 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$7.6 million in fees to marketing vendors.
General and Administrative
General and administrative expenses increased$42.5 million , or 56%, during fiscal 2022 compared to fiscal 2021. The increase was primarily due to an increase of$31.4 million in personnel-related expenses driven by higher headcount to support our continued growth, an increase of$9.3 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$4.5 million in other operating expenses, an increase of$3.6 million related to increased insurance incurred as a result of becoming a public company, partially offset by a decrease of$7.4 million in professional fees including direct listing expenses.
Interest Income, Interest Expense, and Other Income (Expense), Net
Year Ended January 31,
2022 2021 $ Change % Change
(dollars in thousands)
Interest income and other income
(expense), net $ (1,536) $ 1,568 $ (3,104) (198) %
Interest expense (18,385) (36,178) 17,793 (49) %
Interest income and other income (expense), net decreased $3.1 million during
fiscal 2022 compared to fiscal 2021 due primarily to an increase in losses on
foreign currency transactions and decreased gains from our investments in
marketable securities. Interest expense decreased $17.8 million during fiscal
2022 compared to fiscal
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2021 primarily due to the conversion of the senior mandatory convertible
promissory notes previously issued to a trust affiliated with our CEO in
Comparison of the Fiscal Years Ended
For a comparison of our results of operations for the fiscal years endedJanuary 31, 2021 and 2020, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2021 , filed with theSEC onMarch 30, 2021 .
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 evaluating our
operating performance. See below for a description of the non-GAAP financial
measures and their limitations as an analytical tool.
Year Ended January 31,
2022 2021 2020
(in thousands)
Non-GAAP loss from operations
$ (162,915) $ (123,289) $ (68,213) Free cash flow$ (87,624) $ (75,958) $ (44,605)
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 inSan 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. 63
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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.
The following tables reconcile the most directly comparable GAAP financial measure to each of these non-GAAP financial measures.
Non-GAAP Loss From Operations
Year Ended January 31,
2022 2021 2020
(in thousands)
Loss from operations $ (265,184) $ (175,567) $ (119,631)
Add:
Stock-based compensation and related employer
payroll tax associated with RSUs 108,129 34,431 48,386
Direct listing expenses - 17,952 1,912
Non-GAAP loss from operations $ (157,055) $ (123,184) $ (69,333)
Non-GAAP Net Loss
Year Ended January 31,
2022 2021 2020
(in thousands)
Net loss $ (288,342) $ (211,710) $ (118,589)
Add:
Stock-based compensation and related employer
payroll tax associated with RSUs 108,129 34,431 48,386
Amortization of discount on convertible notes 10,628 22,357 49
Non-cash interest expense 6,670 13,681 29
Direct listing expenses - 17,952 1,912
Non-GAAP net loss $ (162,915) $ (123,289)$ (68,213) 64
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Free Cash Flow
Year Ended January 31,
2022 2021 2020
(in thousands)
Net cash provided by (used in) investing
activities $ 27,561 $
(158,937)
Net cash used in operating activities$ (83,785) $ (92,870) $ (40,136) Less: Purchases of property and equipment (41,587) (57,344) (6,878) Capitalized internal-use software costs (1,132) (962) (384)
Add:
Purchases of property and equipment for build-out of corporate headquarters 38,610 55,791 2,626 Direct listing expenses paid 270 19,427 167 Free cash flow$ (87,624) $ (75,958) $ (44,605)
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 andJune 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$829.8 million as ofJanuary 31, 2022 and negative cash flows from operating activities for fiscal 2022, fiscal 2021, and fiscal 2020.
As of
InApril 2020 , we entered into a five-year$40.0 million term loan agreement withSilicon 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 theWall 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 ofJanuary 31, 2022 ,$40.0 million was drawn and$38.3 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 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 ofJanuary 31, 2022 andJanuary 31, 2021 , we had$174.2 million and$105.9 million , respectively, of deferred revenue of which$170.1 million and$103.9 million , respectively, were 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. Our future capital requirements will depend on many factors, including our revenue growth rate, subscription renewal activity, billing frequency, our dollar-based net retention rate, the timing and extent of spending to support our research and development efforts, particularly for the introduction of new and enhanced products and features, the expansion of sales and marketing activities, costs associated with international expansion, additional capital expenditures to invest 65
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in existing and new office spaces, as well as increased general and administrative expenses to support being a publicly traded company. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. We may seek to raise additional funds at any time through equity, equity-linked arrangements, and debt. If we are unable to raise additional capital when desired and at reasonable rates, our business, results of operations, and financial condition would be adversely affected.
Cash Flows
The following table shows a summary of our cash flows for the periods presented:
Year Ended January 31,
2022 2021 2020
(in thousands)
Net cash used in operating activities $ (83,785) $ (92,870) $ (40,136)
Net cash provided by (used in) investing activities 27,561 (158,937) 12,655
Net cash provided by financing activities 37,210 201,005 311,597
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 $83.8 million for fiscal 2022 reflects
our net loss of $288.3 million , adjusted by non-cash items such as stock-based
compensation expense of $104.5 million , non-cash lease expense of $16.6 million ,
amortization of discount on convertible notes and term loan issuance costs of
$10.6 million , amortization of deferred contract acquisition costs of $8.6
million , depreciation and amortization of $8.5 million , non-cash interest
expense of $6.7 million , provision for doubtful accounts of $2.3 million , and
net cash inflows of $46.0 million from changes in our operating assets and
liabilities. The net cash inflows from changes in operating assets and
liabilities primarily consisted of a $68.3 million increase in deferred revenue
resulting from increased billings for subscriptions, a $23.7 million increase in
accrued liabilities and other liabilities primarily from increases in accrued
payroll and other liabilities, $8.1 million increase in operating lease
liabilities, and a $7.3 million increase in accounts payable not related to the
purchases of property and equipment. These amounts were partially offset by a
$27.0 million increase in accounts receivable due to higher customer billings, a
$23.7 million increase in prepaid expenses and other current assets related to
an increase in deferred contract acquisition costs, and a $10.7 million increase
in other assets.
Net cash used in operating activities of $92.9 million for fiscal 2021 reflects
our net loss of $211.7 million , adjusted by non-cash items such as stock-based
compensation expense of $34.2 million , amortization of discount on convertible
notes and term loan issuance costs of $22.4 million , non-cash lease expense of
$16.4 million , non-cash interest expense of $13.7 million , amortization of
deferred contract acquisition costs of $4.1 million , depreciation and
amortization of $3.5 million , provision for doubtful accounts of $0.9 million ,
and net cash inflows of $23.3 million from changes in our operating assets and
liabilities. The net cash inflows from changes in operating assets and
liabilities primarily consisted of a $41.8 million increase in deferred revenue
resulting from increased billings for subscriptions, a $18.1 million increase in
accrued liabilities and other liabilities primarily from an increase in accrued
advertising, and a $7.3 million increase in operating lease liabilities. These
amounts were partially offset by a $20.5 million increase in accounts receivable
due to higher customer billings, a $17.2 million increase in prepaid expenses
and other current assets related to an increase in deferred contract acquisition
costs, a $3.4 million increase in other assets, and a $2.9 million decrease in
accounts payable not related to the purchases of property and equipment.
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Investing Activities
Net cash provided by investing activities of$27.6 million for fiscal 2022 consisted of$132.3 million in maturities of marketable securities and$0.4 million in sales of marketable securities, partially offset by$62.4 million in purchases of marketable securities,$41.6 million in purchases of property and equipment from an increase in construction in progress, and$1.1 million in capitalized internal-use software costs. Net cash used in investing activities of$158.9 million for fiscal 2021 consisted of$191.6 million in purchases of marketable securities,$57.3 million in purchases of property and equipment from an increase in construction in progress and leasehold improvements, and$1.0 million in capitalized internal-use software costs, partially offset by$53.8 million in maturities of marketing securities and$37.1 million in sales of marketable securities.
Financing Activities
Net cash provided by financing activities of$37.2 million for fiscal 2022 consisted of$16.6 million in proceeds from the exercise of stock options,$13.4 million in proceeds from our employee stock purchase plan, and$9.0 million in net proceeds from our term loan, partially offset by$1.7 million for the repayment of our term loan. Net cash provided by financing activities of$201.0 million for fiscal 2021 consisted of$150.0 million of proceeds from the issuance of a senior mandatory convertible promissory note inJune 2020 to a trust affiliated with our CEO,$30.9 million in net proceeds from out term loan, and$20.5 million in proceeds from the exercise of stock options, partially offset by$0.4 million in taxes paid related to the net share settlement of equity awards.
Contractual Obligations and Commitments
The contractual commitment amounts in the table below are associated with agreements that are enforceable and legally binding. Purchase orders issued in the ordinary course of business are not included in the table below, as our purchase orders represent authorizations to purchase rather than binding agreements.
The following table summarizes our contractual obligations as ofJanuary 31, 2022 : Payments Due by Period Less than 1 More than 5 Total Year 1 - 3 years 3 - 5 years Years (in thousands) Operating lease commitments(1)$ 373,645 $ 32,777 56,827$ 58,612 $ 225,429 Purchase commitments(2) 98,967 28,302 46,665 24,000 - Total contractual obligations$ 472,612 $ 61,079
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(1)Consists of future non-cancelable minimum rental payments under operating leases for our offices. (2)InJanuary 2021 , we entered into a 60-month contract withAmazon Web Services for hosting-related services. Pursuant to the terms of the contract, we are required to spend a minimum of$103.5 million over the term of the agreement. As ofJanuary 31, 2022 we had$80.3 million remaining on the commitment. The remaining balance relates to other non-cancellable purchase commitments with various parties primarily for software-based services. InFebruary 2019 , we entered into a new lease agreement for office space inSan Francisco , which commenced inMay 2020 and expires inOctober 2033 . As part of the agreement, we were required to issue a$17.0 million letter of credit upon access to the office space, which occurred in the year endedJanuary 31, 2021 . We participated in the construction of the office space and have incurred construction costs to prepare the office space for our use, which will be partially reimbursed by the landlord. During the year endedJanuary 31, 2021 , all three phases of this lease commenced, and as a result, we recognized total ROU assets of$175.5 million , with corresponding operating lease liabilities of$173.4 million , on the consolidated balance sheet as of the respective commencement dates of the three phases. We expect to incur a total of approximately$379.5 million of future minimum payments and capital commitments, net of tenant improvement receivables as ofJanuary 31, 2022 , inclusive of$365.7 million of net lease payments and the remaining capital commitments related to the build-out of the Company's new corporate 67
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headquarters referenced above. Our CEO acts as a personal guarantor to the lease for the full rent payments over the entire term of the lease should we default on our obligations.
Additionally, in
For further information on our commitments and contingencies, refer to Note 8 in the consolidated financial statements contained within this Annual Report on Form 10-K.
On
In
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.
Critical Accounting Estimates
Our financial statements are prepared in accordance with GAAP. The preparation of these 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. While our significant accounting policies are more fully described in Note 2 "Basis of Presentation and Summary of Significant Accounting Policies" to our Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, we believe that the accounting estimates described below have the most significant impact.
Deferred Contract Acquisition Costs
Sales commissions earned by our sales force and bonuses earned by executives, as well as related payroll taxes, are considered to be incremental and recoverable costs of obtaining a contract with a customer. As a result, these amounts have been capitalized as deferred contract acquisition costs within prepaid and other current assets and other assets on the consolidated balance sheets. We amortize deferred contract acquisition costs over a period of benefit of three years. We estimated the period of benefit by considering factors such as historical customer attrition rates, the useful life of our technology, and the impact of competition in the software-as-a-service industry.
Stock-Based Compensation Expense
We record stock-based compensation expense for all stock-based awards made to
employees, non-employees, and directors based on estimated fair values
recognized over the requisite service period. We estimate the fair value of
options granted to employees for purposes of calculating stock-based
compensation expense on the grant date using the Black-Scholes pricing model.
The Black-Scholes pricing model requires us to make assumptions and
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judgments about the inputs used in the calculation, including the expected term (weighted-average period of time that the options granted are expected to be outstanding), the volatility of our common stock, risk-free interest rate, and expected dividend yield. The expected term represents the period that we expect our stock-based awards to be outstanding. We determine the expected term assumptions based on the vesting terms, exercise terms, and contractual lives of the options. The volatility is based on an average of the historical volatilities of the common stock of comparable public companies with characteristics similar to ours. The risk-free rate is based on theU.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. Our expected dividend yield input is zero as we have not historically paid, nor do we expect in the future to pay, cash dividends. We measure stock-based compensation expense related to our restricted stock units, or RSUs, based on the fair value of the underlying shares on the date of grant. RSUs are subject to time-based vesting, which generally occurs over a period of four years. We account for stock-based compensation expense related to our ESPP purchase rights based on the estimated grant date fair value, which is calculated using the Black-Scholes option pricing model and the aggregate number of shares of our common stock expected to be purchased under each offering. The assumptions used to determine the fair value of the ESPP purchase rights, including the expected term of the awards, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock, represent management's best estimates. These estimates involve inherent uncertainties and the application of management's judgment. We account for modifications to employee contributions as they occur. We recognize stock-based compensation expense ratably over the requisite service period, which is generally the vesting period of the respective award. We account for forfeitures as they occur. We recognize stock-based compensation expense related to ESPP on a straight-line basis over the term of each ESPP offering period, whis is generally two years.
The assumptions are based on the following for each of the years presented:
•Expected volatility-Expected volatility is a measure of the amount by which the stock price is expected to fluctuate. Since we do not have sufficient trading history of our common stock, we estimate the expected volatility of our stock options at the grant date by taking the average historical volatility of a group of comparable publicly traded companies over a period equal to the expected life of the options. •Expected term-Expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumptions are determined based on the vesting terms, exercise terms, and contractual lives of the options. The expected term of the ESPP represents the period of time that purchase rights are expected to be outstanding.
•Risk-free rate-We use the
•Dividend yield-We utilize a dividend yield of zero, as we do not currently issue dividends, nor do we expect to do so in the future.
•Fair value of common stock-Prior to our direct listing, we estimated the fair value of common stock; see "Common Stock Valuations" below. The fair value of common stock for purposes of ESPP purchases is based on the stock price on the first date of the respective offering period.
Common Stock Valuations
Prior to our direct listing, the fair value of our common stock underlying our stock-based awards was historically determined by our board of directors, in accordance with the guidelines outlined in theAmerican Institute of Certified Public Accountants , Valuation of Privately-Held-Company Equity Securities Issued as Compensation guide. Each fair value estimate was based on a variety of factors, which included the following:
•contemporaneous valuations performed by an unrelated third-party valuation firm;
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•the prices, rights, preferences, and privileges of our preferred stock relative to those of our common stock;
•the lack of marketability of our common stock;
•our operating and financial performance;
•current business conditions and outlook;
•hiring of key personnel and the experience of our management;
•our history and the timing of the introduction of new applications and capabilities;
•our stage of development;
•the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our business given prevailing market conditions;
•the market performance of comparable publicly traded companies; and
•U.S. and global capital market conditions.
In valuing our common stock, our board of directors determined the equity value of our business using valuation methods they deemed appropriate under the circumstances applicable at the valuation date.
One method, the market approach, estimates value based on a comparison of our company to comparable public companies in a similar line of business. To determine our peer group of companies, we considered public enterprise cloud-based application providers and selected those that are similar to us in size, economic drivers, and operating characteristics. From the comparable companies, a representative market value multiple was determined, which was applied to our operating results to estimate the enterprise value of our company. When applicable, we also used the option pricing model to backsolve the value of the security from our most recent round of financing, which implies a total equity value as well as a per share common stock value.
For valuations prior to
For valuations as of and subsequent toJanuary 31, 2020 and before our direct listing, we used a hybrid method utilizing a combination of the option pricing model and the probability-weighted expected return method, or the PWERM, in estimating the fair value of our common stock. Using the PWERM, the value of our common stock is estimated based upon a probability-weighted analysis of varying values for our common stock assuming possible future events for our company, including a scenario assuming we become a publicly traded company and a scenario assuming we continue as a privately held company. In addition, we also considered any secondary transactions involving our capital stock. In our evaluation of those transactions, we considered the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange. Factors considered include transaction volume, timing, whether the transactions occurred among willing and unrelated parties, and whether the transactions involved investors with access to our financial information. For valuations after our direct listing, our board of directors determined the fair value of each share of underlying Class A common stock based on the closing price of our Class A common stock as reported on the date of grant.
Lease Obligations
We determine if an arrangement is a lease at inception by determining if the
contract conveys the right to control the issue of an identified asset for a
period of time in exchange for consideration and other facts and circumstances.
Right-of-use ("ROU") assets and lease liabilities are recognized at commencement
date based on the
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present value of remaining lease payments over the lease term. For this purpose, we consider only payments that are fixed and determinable at the time of commencement. As our leases do not provide an implicit rate, we use the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is a hypothetical rate based on our understanding of what its credit rating would be. The ROU assets also include any lease payments made prior to commencement and are recorded net of any lease incentives received. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. The lease agreements may contain variable costs such as common area maintenance, insurance, real estate taxes or other costs. Variable lease costs are expensed as incurred on the consolidated statements of operations. Our lease agreements generally do not contain any residual value guarantees, restrictions, or covenants.
We have lease agreements with lease and non-lease components. We have elected to combine lease and non-lease components as a single lease component for all classes of underlying assets. We have also elected to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term.
Operating leases are included in operating lease ROU assets, operating lease liabilities, current, and operating lease liabilities, noncurrent on the consolidated balance sheets.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding recent accounting pronouncements.
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