CLOUDERA, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue," and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed under the section "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K filed with theU.S. Securities and Exchange Commission (the "SEC") onMarch 25, 2021 and in this Quarterly Report on Form 10-Q. You should carefully review the risks described in our Annual Report filed with theSEC onMarch 25, 2021 , in this Quarterly Report on Form 10-Q, and in other documents we file from time to time with theSEC . You should review the risk factors for a more complete understanding of the risks associated with an investment in our securities. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Our fiscal year end isJanuary 31 , and references throughout this report to a given fiscal year are to the twelve months ended on that date. Overview AtCloudera , we believe that data can make what is impossible today, possible tomorrow. We empower people to transform complex data into clear and actionable insights. Powered by the relentless innovation of the open source community, we advance digital transformation for the world's largest enterprises. We deliver an enterprise data cloud for any data, anywhere, from the Edge to AI. We are an enterprise data cloud company. We pioneered the creation of the enterprise data cloud category. An enterprise data cloud is multi-function, hybrid and multi-cloud, secure and governed, and open and extensible. An enterprise data cloud offers cloud-native agility, elasticity and ease-of-use. We generate revenue from subscriptions and services. Please see "Components of Results of Operations - Revenue" for further details. We market and sell our platform to a broad range of organizations, although we focus our selling efforts on the largest enterprises globally. We target these organizations because they capture and manage the vast majority of the world's data and operate in highly complex information technology environments. We market our platform primarily through a direct sales force while benefiting from business driven by our ecosystem of technology partners, resellers, original equipment manufacturers (OEMs), managed service providers, independent software vendors and systems integrators. We have a broad customer base that spans industries and geographies. For the three and six months endedJuly 31, 2021 and 2020, no customer accounted for more than 10% of our total revenue. We have significant revenue in the industries of banking and financial services, manufacturing, technology, business services, telecommunications, public sector, consumer and retail, and healthcare and life sciences verticals, and continue to expand our penetration across many other data-intensive industries. Sales outside ofthe United States represented approximately 45% and 40% of our total revenue for the three months endedJuly 31, 2021 and 2020, respectively, and 44% and 40% for the six months endedJuly 31, 2021 and 2020, respectively. Our business model is based on a "land and expand" strategy designed to use the initial sale as a foothold to increase revenue per customer by increasing the amount of data and number of use cases each customer runs through our platform. After an initial purchase of our platform, we work with our customers to identify new use cases that can be developed on or moved to our platform, ultimately increasing the amount of data managed on our platform as well as the number and size of our platform deployments. 27 -------------------------------------------------------------------------------- Table of Contents Agreement and Plan of Merger OnJune 1, 2021 , we entered into an Agreement and Plan of Merger (the "Merger Agreement") withSky Parent Inc. , aDelaware corporation ("Parent"), andProject Sky Merger Sub Inc. , aDelaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which, subject to the satisfaction or waiver of the conditions set forth therein, Merger Sub will be merged with and intoCloudera, Inc. , withCloudera, Inc. surviving the merger as a wholly-owned subsidiary of Parent (the "Merger"). Parent and Merger Sub are subsidiaries of investment funds advised byClayton, Dubilier & Rice, LLC ("CD&R") andKohlberg Kravis Roberts & Co. L.P. ("KKR"), US-based private equity firms. For a summary of the transaction, please refer to Note 1 in the "Notes to Condensed Consolidated Financial Statements" included in this report and to our Current Report on Form 8-K filed onJune 1, 2021 . Non-GAAP Financial Measures In addition to our results determined in accordance withU.S. generally accepted accounting principles (GAAP), we believe the following non-GAAP financial measures are useful in evaluating our operating performance. Annualized Recurring Revenue (ARR) is the primary metric that management uses to monitor customer retention and growth and to make operational decisions related to our business. ARR equals the annualized value of all recurring subscription contracts with active entitlements as of the end of the applicable period. ARR provides a normalized and composite view of customer retention, renewal and expansion as well as growth from new customers, that is a supplement to reported revenue. As of Change July 31, 2021 July 31, 2020 Amount % (in thousands, except percentages)
Annualized Recurring Revenue
Approximately eight percentage points of the 13% increase in ARR was due to existing customers expanding their use ofCloudera products with the remainder of the increase due to new customers. Non-GAAP operating income is our income from operations before stock-based compensation expense, amortization of acquired intangible assets and non-cash real estate impairment charges. We believe that this non-GAAP financial measure, when taken together with the corresponding GAAP financial measure, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, operating results or future outlook. Our management uses, and believes that investors benefit from referring to, this non-GAAP financial measure in evaluating our operating results, as well as when planning, forecasting, budgeting and analyzing future periods. We also use non-GAAP operating income in conjunction with traditional GAAP measures to communicate with our board of directors regarding our financial performance. Three Months Ended July 31, Change Six Months Ended July 31, Change 2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Non-GAAP operating income$ 44,479 $ 29,759 $ 14,720 49 %$ 87,002 $ 47,066 $ 39,936 85 % We believe non-GAAP operating income provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period to period comparisons of operations. We believe non-GAAP operating income is useful in evaluating our operating performance compared to that of other companies in our industry as this metric generally eliminates the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance. Our definition may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish this or similar metrics. Thus, our non-GAAP operating income should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP. We compensate for these limitations by providing investors and other users of our financial information a reconciliation of loss from operations, the related GAAP financial measure, to non-GAAP operating income. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view non-GAAP 28 -------------------------------------------------------------------------------- Table of Contents operating income in conjunction with loss from operations. The following table provides a reconciliation of loss from operations to non-GAAP operating income: Three Months Ended July 31, Change Six Months Ended July 31, Change 2021 2020 Amount % 2021 2020 Amount % Loss from operations$ (32,853) $ (36,534) $ 3,681 (10) %$ (66,605) $ (92,341) $ 25,736 (28) % Stock-based compensation expense 58,549 46,617 11,932 26 117,173 100,055 17,118 17 Amortization of acquired intangible assets 18,783 19,676 (893) (5) 36,434 39,352 (2,918) (7) Non-GAAP operating income$ 44,479 $ 29,759 $ 14,720 49 %$ 87,002 $ 47,066 $ 39,936 85 % For the reasons set forth below, we believe that excluding the components described provides useful information to investors and others in understanding and evaluating our operating results and future prospects in the same manner as we do and in comparing our financial results across accounting periods and to financial results of peer companies. •Stock-based compensation expense. We exclude stock-based compensation expense from our non-GAAP financial measures consistent with how we evaluate our operating results and prepare our operating plans, forecasts and budgets. Further, when considering the impact of equity award grants, we focus on overall stockholder dilution rather than the accounting charges associated with such equity grants. The exclusion of the expense facilitates the comparison of results and business outlook for future periods with results for prior periods in order to better understand the long-term performance of our business. •Amortization of acquired intangible assets. We exclude the amortization of acquired intangible assets from our non-GAAP financial measures. Although the purchase accounting for an acquisition necessarily reflects the accounting value assigned to intangible assets, our management team excludes the GAAP impact of acquired intangible assets when evaluating our operating results. Likewise, our management team excludes amortization of acquired intangible assets from our operating plans, forecasts and budgets. The exclusion of the expense facilitates the comparison of results and business outlook for future periods with results for prior periods in order to better understand the long-term performance of our business. COVID-19 UpdateThe United States and the global communities in which we operate continue to face severe challenges posed by the COVID-19 Coronavirus pandemic (COVID-19 or COVID-19 pandemic). In response to these challenges, we have accelerated our transformation efforts and reduced costs, including, but not limited to, reduced travel for employees, decreases in employee-related expenses, minimizing use of outside contractors and consultants, temporary closure of our offices and, sincemid-March 2020 , a requirement that our employees work remotely. We have been operating effectively under our remote work model, which we anticipate continuing for some time to ensure the safety and well-being of our employees. We do not believe there has been a material impact from the effects of the COVID-19 pandemic on our business and operations, results of operations, financial condition, cash flows, liquidity and capital resources as of and during the three and six months endedJuly 31, 2021 . The full extent of the future impact of the COVID-19 pandemic on our business and operating results is currently uncertain and will depend on certain developments, including the duration and spread of the outbreak; government responses to the pandemic; the speed of vaccination delivery and effectiveness; the impact on our customers and our sales cycles; the impact on our customer, the industry or employee events; the extent of delays in hiring and onboarding new employees; and the effect on our partners and vendors, all of which are uncertain and difficult to predict. We anticipate continued near-term impact on our services business since interacting directly with customers in either a sales setting or an on-site professional services setting is difficult in this environment. However, the majority of our revenues are subscription-based which we believe offers significant protection from the COVID-19 pandemic's economic disruptions in the short term. Accordingly, we believe that our existing financial position will allow us to manage the impact of the COVID-19 pandemic for the foreseeable future. 29
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Components of Results of Operations
Revenue
We generate revenue from subscriptions and services. Subscription revenue
relates to term (or time-based) subscription agreements for both open source and
propriety software, including support. Subscription arrangements are typically
one to three years in length but may be up to seven years in limited cases.
Arrangements with our customers typically do not include general rights of
return. Services revenue relates to professional services for the implementation
and use of our subscriptions, machine learning expertise and consultation,
training and education services and related reimbursable travel costs. We price
our subscription offerings based on the number of servers in a cluster, or
nodes, core or edge devices, data under management and/or the scope of support
provided. Our consulting services are priced primarily on a time and materials
basis, and to a lesser extent, a fixed fee basis, and education services are
generally priced based on attendance.
Cost of Revenue
Cost of revenue for subscriptions primarily consists of personnel costs
including salaries, bonuses, travel costs, benefits and stock-based compensation
for employees providing technical support for our subscription customers,
allocated shared costs (including rent and information technology) and
amortization of certain acquired intangible assets from business combinations.
Cost of revenue for services primarily consists of personnel costs including
salaries, bonuses, benefits and stock-based compensation, fees to subcontractors
associated with service contracts, travel costs and allocated shared costs
(including rent and information technology).
Operating Expenses
Research and Development. Research and development expenses primarily consist of
personnel costs including salaries, bonuses, travel costs, benefits and
stock-based compensation for our research and development employees, contractor
fees, allocated shared costs (including rent and information technology),
supplies, and depreciation of equipment associated with the continued
development of our platform prior to establishment of technological feasibility
and the related maintenance of the existing technology
Sales and Marketing. Sales and marketing expenses primarily consist of personnel
costs including salaries, bonuses, travel costs, sales-based incentives,
benefits and stock-based compensation for our sales and marketing employees. In
addition, sales and marketing expenses also include costs for advertising,
promotional events, corporate communications, product marketing and other
brand-building activities, allocated shared costs (including rent and
information technology) and amortization of certain acquired intangible assets
from business combinations. Most sales-based incentives are capitalized and
expensed over the period of benefit from the underlying contracts.
General and Administrative. General and administrative expenses primarily
consist of personnel costs including salaries, bonuses, travel costs, benefits
and stock-based compensation for our executive, finance, legal, human resources,
information technology and other administrative employees. In addition, general
and administrative expenses include fees for third-party professional services,
including consulting, legal and accounting services, merger and acquisition
related costs, other corporate expenses, and allocated shared costs (including
rent and information technology).
Interest (Expense) Income, net
Interest income primarily relates to amounts earned on our cash and cash
equivalents and marketable securities. Interest expense primarily relates to
interest incurred on our debt and related amortization of debt discount and
issuance costs.
Other Expense, net
Other expense, net primarily relates to gains and losses from foreign currency
transactions and forward contracts, realized gains and losses on our marketable
securities and other non-operating gains or losses.
Benefit (Provision) for Income Taxes
Benefit (provision) for income taxes primarily consists of withholding taxes on
sales to international customers and income taxes in foreign jurisdictions
wherein we conduct business. A valuation allowance is established, when
necessary, for any portion of deferred income tax assets where it is considered
more likely than not that such deferred tax assets will not be realized. The
recognition of an intangible asset in certain acquisitions may result in a
deferred tax liability that may be partially offset by a reduction of the
valuation allowance, creating a taxable benefit.
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Results of Operations Revenue Our total revenues for the three and six months endedJuly 31, 2021 and 2020 were as follows: Three Months Ended July 31, Change Six Months Ended July 31, Change 2021 2020 Amount % 2021 2020 Amount % (in thousands, except percentages) Subscription$ 213,300 $ 191,522 $ 21,778 11 %$ 413,956 $ 378,607 $ 35,349 9 % Services 22,757 22,814 (57) - % 46,384 46,189 195 - % Total revenue$ 236,057 $ 214,336 $ 21,721 10 %$ 460,340 $ 424,796 $ 35,544 8 % As a percentage of total revenue: Subscription 90 % 89 % 90 % 89 % Services 10 % 11 % 10 % 11 % Total revenue 100 % 100 % 100 % 100 % The increase in subscription revenue for the three and six months endedJuly 31, 2021 , as compared to the same period in the prior fiscal year, was primarily attributable to an increase in subscription sales to existing customers and the remainder driven by new customers, with international customers expanding faster than ourU.S. customers. There were no significant changes in services revenue for the three and six months endedJuly 31, 2021 . Both periods were negatively impacted by COVID-19, due to lower services demand partially as a result of COVID-19 related customer budget restrictions as well as COVID-19 related limitations for on-site service delivery. Cost of Revenue, Gross Profit and Gross Margin Three Months Ended July 31, Change Six Months Ended July 31, Change 2021 2020 Amount % 2021 2020 Amount % (in thousands, except percentages) Cost of revenue: Subscription$ 25,457 $ 27,929 $ (2,472) (9) %$ 49,049 $ 56,565 $ (7,516) (13) % Services 19,516 21,710 (2,194) (10) % 39,042 47,315 (8,273) (17) % Total cost of revenue$ 44,973 $ 49,639 $ (4,666) (9) %$ 88,091 $ 103,880 $ (15,789) (15) % Gross profit$ 191,084 $ 164,697 $ 26,387 16 %$ 372,249 $ 320,916 $ 51,333 16 % Gross margin: Subscription 88 % 85 % 88 % 85 % Services 14 % 5 % 16 % (2) % Total gross margin 81 % 77 % 81 % 76 % Cost of revenue, as a percentage of total revenue: Subscription 11 % 13 % 11 % 13 % Services 8 % 10 % 8 % 11 % Total cost of revenue 19 % 23 % 19 % 24 % The decrease in subscription cost of revenue for the three and six months endedJuly 31, 2021 , as compared to the same periods in the prior fiscal year, was primarily due to reductions in acquired intangible asset amortization, payroll and facility allocations. Acquired intangible asset amortization expense declined by a$1.0 million and$3.1 million , respectively, as a result of acquired developed technologies that are now fully amortized. Payroll and facility allocations declined by$1.8 31 -------------------------------------------------------------------------------- Table of Contents million and$3.3 million for the three and six months, respectively, as an increased portion of our support resources are now employed outside ofthe United States . The decrease in services cost of revenue for the three and six months endedJuly 31, 2021 , as compared to the same periods in the prior fiscal year, was primarily due to a decrease of$3.5 million and$7.5 million , respectively, in payroll costs as a result of decreased headcount. Subscription gross margin increased for the three and six months endedJuly 31, 2021 , as compared to the same periods in the prior fiscal year, due to growth in the business and improved margin as a result of reduced costs. Services gross margin increased for the three and six months endedJuly 31, 2021 , as compared to the same periods in the prior fiscal year, primarily due to a 10% and 17% reduction in cost of services revenue, respectively. Operating Expenses Three Months Ended July 31, Change Six Months Ended July 31, Change 2021 2020 Amount % 2021 2020 Amount % (in thousands, except percentages) Research and development$ 70,785 $ 62,304 $ 8,481 14 %$ 136,610 $ 126,520 $ 10,090 8 % Sales and marketing 110,257 105,760 4,497 4 % 218,085 218,895 (810) - % General and administrative 42,895 33,167 9,728 29 % 84,159 67,842 16,317 24 % Total operating expenses$ 223,937 $ 201,231 $ 22,706 11 %$ 438,854 $ 413,257 $ 25,597 6 % Operating expenses, as a percentage of total revenue: Research and development 30 % 29 % 30 % 30 % Sales and marketing 47 % 49 % 47 % 51 % General and administrative 18 % 16 % 18 % 16 % Total operating expenses 95 % 94 % 95 % 97 % Research and Development The increase in research and development expenses for the three and six months endedJuly 31, 2021 , as compared to the same periods in the prior fiscal year, was primarily due to an increase of$9.8 million and$13.4 million , respectively, in payroll costs as a result of increased headcount, partially offset by a decrease of$2.6 million and$4.8 million , respectively, in facility allocations. Sales and Marketing The increase in sales and marketing expenses for the three months endedJuly 31, 2021 , as compared to the same period in the prior fiscal year, was primarily due to an increase of$4.0 million in payroll costs as a result of increased headcount. The decrease in sales and marketing expenses for the six months endedJuly 31, 2021 , as compared to the same period in the prior fiscal year, was primarily due to reductions of$4.8 million in travel costs and$2.1 million in facility allocations, partially offset by an increase of$5.2 million in marketing costs. General and Administrative The increase in general and administrative expenses for the three and six months endedJuly 31, 2021 , as compared to the same periods in the prior fiscal year, was primarily due to increases in payroll costs, merger and acquisition related costs, and facility costs. Payroll costs increased by$3.5 million and$6.9 million , respectively, mainly due to increased stock-based 32 -------------------------------------------------------------------------------- Table of Contents compensation expense on equity awards granted during the first quarter of fiscal year 2022. Merger and acquisition related costs increased by$4.7 million for both comparable periods as a result of our agreement and plan of merger with CD&R and KKR. Facilities expense increased by$2.5 million and$6.5 million , respectively, primarily due to the absorption of COVID-19 related vacated real estate in general and administrative expenses beginning mid-fiscal 2021. The increase for the six months endedJuly 31, 2021 , was partially offset by a decrease in bad debt expense of$2.8 million . Interest (Expense) Income, net Three Months Ended July 31, Change Six Months Ended July 31, Change 2021 2020 Amount % 2021 2020 Amount % (in thousands, except percentages) Interest (expense) income, net$ (3,621) $ 1,444 $ (5,065) (351) %$ (7,104) $ 3,685 $ (10,789) (293) % Interest expense, net for the three and six months endedJuly 31, 2021 as compared to interest income, net in the same periods in the prior fiscal year, is mainly due to interest expense of$4.1 million and$8.2 million , respectively, incurred on ourDecember 2020 term loan which were not incurred in the comparable period and due to a lower yield on our marketable securities from declining interest rates. Other Income (Expense), Net Three Months Ended July 31, Change Six Months Ended July 31, Change 2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Other income (expense), net $ 26
(97) % $ (674) $ (1,517) $ 843 (56) %
The change in other income, net for the three months endedJuly 31, 2021 , as compared to the same period in the prior fiscal year, was primarily due to lower foreign currency exchange related activity. The decrease in other expense, net for the six months endedJuly 31, 2021 , as compared the same period in the prior fiscal year, was primarily due to a$2.0 million impairment charge recorded in the first quarter of fiscal year 2021 to write off our investment in equity securities of a privately held company.
Benefit (Provision) for Income Taxes
Three Months Ended July 31, Change Six Months Ended July 31, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Benefit (provision)
for income taxes $ 3,243 $ (1,887) $ 5,130 (272) % $ 777 $ (3,838) $ 4,615 (120) %
Our tax benefit for the three and six months ended July 31, 2021 was primarily
due to a reduction in our valuation allowance from the increase in deferred tax
liabilities associated with the acquired intangible assets from our acquisitions
of Cazena, Inc. and Datacoral, Inc. , partially offset by withholding and foreign
income taxes. Our tax provision for the three and six months ended July 31, 2020
was primarily due to foreign withholding taxes on international sales.
Seasonality
We have seasonal and end-of-quarter concentration of our sales, which impacts
our ability to plan and manage cash flows and margins. Our sales vary by season
with the fourth quarter typically being our strongest sales quarter, and the
first quarter typically being our largest collections and operating cash flow
quarter. In addition, within each quarter, most sales occur in the last month of
that quarter.
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Liquidity and Capital Resources
As of July 31, 2021 , our principal sources of liquidity were cash, cash
equivalents and marketable securities totaling $792.7 million which were held
for working capital purposes. Our cash equivalents are comprised primarily of
money market funds and our marketable securities are comprised of corporate
notes and obligations, U.S. agency obligations, certificates of deposit,
commercial paper, municipal securities and U.S. treasury securities. To date,
our principal sources of liquidity has been payments received from customers in
addition to amounts raised as a result of our December 2020 term loan and our
equity offerings.
On December 22, 2020 , we entered into a senior secured credit facility, which
provides for a $500 million term loan facility with a syndicate of lenders (Term
Loan) and borrowed the full amount on December 22, 2020 to be used for general
corporate purposes, including to fund repurchases of our common stock and to pay
transaction costs and expenses in connection therewith. Repayments made under
the Term Loan are equal to 1.0% of the principal amount in equal quarterly
installments for the life of the Term Loan, with the remainder due at maturity
on December 22, 2027 . At our option, the Term Loan will bear interest at a per
annum rate equal to a Eurocurrency Rate plus 2.50% or a Base Rate plus 1.50%,
both subject to a 3.25% floor. For further discussion, see Note 9 in the
"Notes to Condensed Consolidated Financial Statements" included in this report.
Our board of directors have authorized share repurchases of up to $600 million
of our outstanding shares of common stock. For further discussion on repurchase
activity, see Note 12 in the "Notes to Condensed Consolidated Financial
Statements" included in this report. Pursuant to the Merger Agreement (see
Note 1 for details), our share purchase programs have been suspended.
We have non-cancelable contractual obligations related to our facilities leases
as further discussed in Note 10 in the "Notes to Condensed Consolidated
Financial Statements" included in this report. Additionally, pursuant to the
Merger Agreement (see Note 1 for details), we have contractual obligations
of approximately $55 million that were not accrued as of July 31, 2021 , as they
are contingently payable upon the completion of the proposed Merger with KKR and
CD&R.
We believe that our currently available resources will be sufficient to meet our
cash requirements for at least the next twelve months. Our future capital
requirements may vary materially from those currently planned and will depend on
many factors, including our expansion of annual recurring revenue, the timing
and extent of spending on research and development efforts, the expansion of
sales and marketing activities, the continuing market acceptance of our
subscriptions and services and ongoing investments to support the growth of our
business. We may in the future enter arrangements to acquire or invest in
complementary businesses, services and technologies and intellectual property
rights. From time to time, we may explore additional financing sources which
could include equity, equity-linked and debt financing arrangements. We cannot
assure you that any additional financing will be available on terms favorable to
us, or at all. If adequate funds are not available on acceptable terms, or at
all, we may not be able to adequately fund our business plans which could have a
negative effect on our operating cash flows and financial condition.
The following table summarizes our cash flows for the periods indicated:
Six Months Ended July 31,
2021 2020
(in thousands)
Net cash provided by operating activities $ 150,012 $ 100,805
Net cash used in investing activities (250,560) (50,117)
Net cash used in financing activities (63,067) (15,618)
Effect of exchange rate changes (982) 463
Net (decrease) increase in cash, cash equivalents and restricted cash
$ (164,597) $ 35,533 Cash Provided by Operating Activities Our largest source of operating cash flows is cash collections from our customers following the purchase and renewal of their subscription agreements. Payments from customers for these subscription agreements are generally received near the 34 -------------------------------------------------------------------------------- Table of Contents beginning of the annual contract period. We also generate cash from the sales of our services offerings. Our primary uses of cash from operating activities are for employee related expenditures and leased facilities. Operating cash flow increased during the six months endedJuly 31, 2021 mainly due to cash collections on increased sales of our subscription-based offerings. For the six months endedJuly 31, 2021 , net cash provided by operating activities mainly consisted of our net loss of$73.6 million , adjusted for stock-based compensation expense of$117.2 million , depreciation and amortization expense of$40.3 million , amortization of deferred contract costs of$32.9 million , non-cash lease expense of$21.4 million , and net cash inflow of$8.9 million from changes in assets and liabilities. The inflow from changes in assets and liabilities was primarily due to a decrease in accounts receivable of$138.7 million from strong collections, partially offset by a decrease in contract liabilities of$89.0 million , cash payments of$16.9 million for operating lease liabilities, an increase of$22.2 million in deferred contract costs related to sales commissions, and a net cash outflow of$1.6 million from changes in all other operating assets and liabilities. For the six months endedJuly 31, 2020 , net cash used in operating activities mainly consisted of our net loss of$94.0 million , adjusted for stock-based compensation expense of$100.1 million , depreciation and amortization expense of$44.9 million , amortization of deferred contract costs of$33.4 million , non-cash lease expense of$22.7 million , and net cash outflow of$11.4 million from changes in assets and liabilities. The outflow from changes in assets and liabilities was due to a decrease in contract liabilities of$71.1 million , an increase of$22.3 million in deferred contract costs related to sales commissions, cash payments of$21.2 million for operating lease liabilities, partially offset by decrease in accounts receivable of$100.3 million and a net cash inflow of$2.9 million from changes in all other operating assets and liabilities, Cash Used in Investing Activities The changes in cash flows from investing activities primarily relate to the timing of our purchases, maturities and sales of our investments in marketable securities, cash acquired or used for business combinations, and investments in capital and other assets to support our growth. For the six months endedJuly 31, 2021 , net cash used in investing activities consisted of purchases of marketable securities of$478.9 million , cash used in a business combination of$56.4 million , and capital expenditures for the purchases of property and equipment of$1.9 million , partially offset by sales and maturities of marketable securities of$286.7 million . For the six months endedJuly 31, 2020 , net cash used in investing activities consisted of purchases of marketable securities of$273.6 million and capital expenditures for the purchases of property and equipment of$4.4 million partially offset by sales and maturities of marketable securities of$227.9 million , Cash Used in Financing Activities The changes in cash flows from financing activities primarily relate to proceeds from employee stock plans, taxes paid related to net share settlement of equity awards, principal repayment of debt and proceeds used for common stock repurchased under our share repurchase programs as further discussed in Note 12 of our "Notes to Condensed Consolidated Financial Statements" included in this report. For the six months endedJuly 31, 2021 , net cash used in financing activities consisted of taxes paid related to the net share settlement of restricted stock units of$40.7 million , repurchases of common stock of$29.1 million , repayment of term loan of$2.5 million , partially offset by proceeds from the exercise of stock options and employee stock purchase plan$9.2 million . For the six months endedJuly 31, 2020 , net cash used in financing activities consisted of repurchases of common stock of$26.0 million , taxes paid related to the net share settlement of restricted stock units of$23.3 million , partially offset by proceeds from the exercise of stock options and employee stock purchase plan withholding of$33.6 million .
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States (GAAP). The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates 35
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Table of Contents under different assumptions or conditions and any such differences may be material. We refer to accounting estimates of this type as critical accounting policies and estimates. We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, business combinations, goodwill and intangible assets and impairment of long-lived assets to have the greatest potential impact on our condensed consolidated financial statements. These areas are key components of our results of operations and are based on complex rules requiring us to make judgments and estimates, and consequently, we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. There have been no significant changes in our critical accounting policies and estimates during the three and six months endedJuly 31, 2021 , as compared to the critical accounting policies and estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year endedJanuary 31, 2021 . Recent Accounting Pronouncements See Note 1 of our "Notes to Condensed Consolidated Financial Statements" included in this report for recently adopted accounting standards.
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