DOMO, INC. This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements containing words such as "may," "believe," "could," "will," "seek," "depends," "anticipate," "expect," "intend," "plan," "project," "projections," "business outlook," "estimate," or similar expressions constitute forward-looking statements. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition or state other "forward-looking" information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. They include, but are not limited to, statements about:
•our ability to attract new customers and retain and expand our relationships with existing customers;
•our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses, key metrics, ability to generate cash flow and ability to achieve and maintain future profitability;
•the anticipated trends, market opportunity, growth rates and challenges in our business and in the business intelligence software market;
•the efficacy of our sales and marketing efforts;
•our ability to compete successfully in competitive markets;
•our ability to respond to and capitalize on rapid technological changes;
•our expectations and management of future growth;
•our ability to enter new markets and manage our expansion efforts, particularly internationally;
•our ability to develop new product features;
•our ability to attract and retain key employees and qualified technical and sales personnel;
•our ability to effectively and efficiently protect our brand;
•our ability to timely scale and adapt our infrastructure;
•the effect of general economic and market conditions on our business;
•the impact of the coronavirus pandemic, including on the global economy, our results of operations, enterprise software spending, and business continuity;
•our ability to protect our customers' data and proprietary information;
•our ability to maintain, protect, and enhance our intellectual property and not infringe upon others' intellectual property; and
•our ability to comply with all governmental laws, regulations and other legal obligations.
Our actual results may differ materially from those contained in or implied by
any forward-looking statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this report,
including those factors discussed in Part II, Item 1A (Risk Factors).
In light of the significant uncertainties and risks inherent in these
forward-looking statements, you should not regard these statements as a
representation or warranty by us or anyone else that we will achieve our
objectives or plans in any specified time frame, or at all, or as predictions of
future events. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of the forward-looking statements. We
undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise, except as
required by law.
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Overview
We founded Domo in 2010 with the vision of digitally connecting everyone within the enterprise with real-time, rich, relevant data and then enabling all employees to collaborate and act on that data. We realized that many organizations were unable to access the massive amounts of data that they were collecting in siloed cloud applications and on-premise databases. Furthermore, even for organizations that were capable of accessing their data, the process for doing so was time-consuming, costly, and often resulted in the data being out-of-date by the time it reached decision makers. The delivery format, including alert functionality, and devices were not adequate for the connected and real-time mobile workforce. Based on these observations, it was apparent that all organizations, regardless of size or industry, were failing to unlock the power of all of their people, data, and systems. To address these challenges, we provide a modern cloud-based business intelligence platform that digitally connects everyone at an organization - from the CEO to frontline employees - with all the people, data, and systems in an organization, giving them access to real-time data and insights and allowing them to manage their business from their smartphones. We typically offer our platform to our customers as a subscription-based service. Subscription fees are based upon the chosen Domo package which includes tier-based platform capabilities or usage. Business leaders, department heads and managers are the typical initial subscribers to our platform, deploying Domo to solve a business problem or to enable departmental access. Over time, as customers recognize the value of our platform, we engage with CIOs and other executives to facilitate broad enterprise adoption. A majority of our customers subscribe to our services through multi-year contracts. As ofOctober 31, 2022 , 65% of our customers were under multi-year contracts on a dollar-weighted basis, compared to 62% of customers as ofJanuary 31, 2022 . The high percentage revenue from multi-year contracts, among both new and existing customers, has enhanced the predictability of our subscription revenue. We typically invoice our customers annually in advance for subscriptions to our platform. A majority of our annual recurring revenue is up for renewal during the fiscal year endingJanuary 31, 2023 . Remaining performance obligations (RPO) represents the remaining amount of revenue we expect to recognize from existing non-cancelable contracts, whether billed or unbilled. As ofOctober 31, 2021 and 2022, total RPO was$296.9 million and$354.3 million , respectively, representing year-over-year growth of 19%. The amount of RPO expected to be recognized as revenue in the next twelve months was$190.6 million and$230.3 million as ofOctober 31, 2021 and 2022, respectively, representing year-over-year growth of 21%. We had total revenue of$65.1 million and$79.0 million for the three months endedOctober 31, 2021 and 2022, respectively, reflecting a year-over-year increase of 21%. For the nine months endedOctober 31, 2021 and 2022, we had total revenue of$188.0 million and$229.0 million , respectively, representing year-over-year growth of 22%. For the nine months endedOctober 31, 2021 and 2022, no single customer accounted for more than 10% of our total revenue, nor did any single organization when accounting for multiple subsidiaries or divisions which may have been invoiced separately. Revenue from customers with billing addresses inthe United States comprised 76% and 78% or our total revenue for the three months endedOctober 31, 2021 and 2022, respectively. We expect our revenue growth rate to decline in the near term, particularly within our enterprise market, due to a decreased sales capacity as a result of recent higher turnover with our sales representatives. In connection with the slowing growth rate, we've taken steps to realign our sales team more weighted toward our corporate market and execute on our cost reduction plan across all functions that we expect will result in improved margins, sustained positive cash flow and efficient long-term growth. Our revenue growth rate may decline in future periods due to a number of other reasons, which may include the maturation of our business, increase in overall revenue over time, slowing demand for our platform, increasing competition, a decrease in the growth of the markets in which we compete, or if we fail, for any reason, to continue to capitalize on growth opportunities, a decrease in our renewal rates, or a decline in upsells. We have incurred significant net losses since our inception, including net losses of$28.5 million and$23.7 million for the three months endedOctober 31, 2021 and 2022, respectively, and had an accumulated deficit of$1,310.2 million atOctober 31, 2022 . We expect to incur losses for the foreseeable future and may not be able to achieve or sustain profitability.
Impact of Macroeconomic Conditions and COVID-19
Prevailing macroeconomic conditions have impacted, and may continue to impact,
our business and those of our customers in a manner that we may not be able to
quantify or isolate from other drivers of our performance. Ongoing
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concerns about the health of the U.S. and global economies may cause certain
existing and potential customers to reduce or delay technology spending or, as
discussed below, seek payment or other concessions from us, which may materially
and negatively impact our operating results, financial condition and prospects.
Furthermore, the United States has been experiencing historically elevated rates
of inflation. This inflationary environment may cause us to incur higher
operating costs that we may not be able to recoup through the pricing of our
platform, and may further contribute to reduced or delayed technology spend by
our customers in an effort to mitigate their own rising costs.
In addition, the COVID-19 pandemic may impact on our ability to attract, serve,
retain or upsell customers. We serve customers in a wide variety of industries
including travel and hospitality, sports and leisure, and retail which have been
severely impacted by the COVID-19 pandemic. The COVID-19 pandemic, coupled with
macroeconomic uncertainty, has resulted and may continue to result in certain
customers pursuing concessions such as lengthened payment terms or reduced
contract length, and these concessions may materially and negatively impact our
operating results, financial condition and prospects. Because our platform is
offered as a subscription-based service, the effect of the pandemic may not be
fully reflected in our operating results until future periods, if at all.
See Item 1A "Risk Factors" in Part II of this Quarterly Report on Form 10-Q for further discussion of the possible impact of the COVID-19 pandemic on our business.
Factors Affecting Performance
Continue to Attract New Customers
We believe that our ability to expand our customer base is an important indicator of market penetration, the growth of our business, and future business opportunities. We define a customer at the end of any particular quarter as an entity that generated revenue greater than$2,500 during that quarter. In situations where an organization has multiple subsidiaries or divisions, each entity that is invoiced at a separate billing address is treated as a separate customer. In cases where customers purchase through a reseller, each end customer is counted separately. We define enterprise customers as companies with over$1 billion in revenue, and companies with less than$1 billion in revenue are corporate customers. In order to maintain comparability, companies who become customers with revenue below$1 billion and subsequently exceed that threshold are considered enterprise customers for all periods presented. As ofOctober 31, 2022 , we had over 2,500 customers. Enterprise customers accounted for 53% and 50% of our revenue for the three months endedOctober 31, 2021 and 2022, respectively, and 54% and 49% for the nine months endedOctober 31, 2021 and 2022, respectively. In order to accelerate customer growth, we intend to further develop our partner ecosystem by establishing agreements with more software resellers, systems integrators and other partners to provide broader customer and geographic coverage. We believe we are underpenetrated in the overall market and have significant opportunity to expand our customer base over time.
Customer Upsell and Retention
We employ a land, expand, and retain sales model, and our performance depends on
our ability to retain customers and expand the use of our platform at existing
customers over time. It currently takes multiple years for our customers to
fully embrace the power of our platform. We believe that as customers deploy
greater volumes and sources of data for multiple use cases, the unique features
of our platform can address the needs of everyone within their organization. We
are still in the early stages of expanding within many of our customers.
We have invested in platform capabilities and online support resources that
allow our customers to expand the use of our platform in a self-guided manner.
Our professional services, customer support and customer success functions also
support our sales force by helping customers to successfully deploy our platform
and implement additional use cases. In addition, we believe our partner
ecosystem will become increasingly important over time. We work closely with our
customers to drive increased engagement with our platform by identifying new use
cases through our customer success teams, as well as in-platform, self-guided
experiences. We actively engage with our customers to assess whether they are
satisfied and fully realizing the benefits of our platform. While these efforts
often require a substantial commitment and upfront costs, we believe our
investment in product, customer support, customer success and professional
services will create opportunities to expand our customer relationships over
time.
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-------------------------------------------------------------------------------- Our ability to drive growth and generate incremental revenue depends heavily on our ability to retain our customers and increase their usage of our platform. With that objective in mind, we allocate our customer success and customer support resources to align with maximizing the retention and expansion of our subscription revenue. An important metric that we use to evaluate our performance in retaining customers is gross retention rate. We calculate our gross retention rate by taking the dollar amount of annual contract value (ACV) that renews in a given period divided by the ACV that was up for renewal in that same period. The ACV of multi-year contracts is also considered in the calculation based on the period in which the annual anniversary of the contract falls. Our gross retention rate was 90% and 91% for the 12 months endedOctober 31, 2021 and 2022, respectively. As we continue to enhance our product and develop methods to encourage wider and more strategic adoptions, we expect that customer retention will increase over the long term. Our ability to successfully upsell and the impact of cancellations may vary from period to period. The extent of this variability depends on a number of factors including the size and timing of upsells and cancellations relative to the initial subscriptions.
Sales and Marketing Efficiency
We are focused on increasing the efficiency of our sales force and marketing activities by enhancing account targeting, messaging, field sales operations and sales training in order to accelerate the adoption of our platform. Our sales strategy depends on our ability to continue to attract and retain top talent, to increase our pipeline of business, and to enhance sales productivity. We focus on productivity per quota-carrying sales representative and the time it takes our sales representatives to reach full productivity. Although we have a record number of total sales representatives at this point of fiscal 2023, we have experienced recent higher turnover with our sales representatives, resulting in a decrease in sales capacity in the near term as it takes approximately six to nine months on average for newly hired sales representatives to be trained and ramp up to full selling capacity. We manage our pipeline by sales representative to ensure sufficient coverage of our sales targets. Our ability to manage our sales productivity and pipeline are important factors to the success of our business. Given the more efficient, higher growth we are experiencing with our corporate customers along with the uncertain macroeconomic environment, we are realigning our sales force in favor of our corporate market. This realignment may have an adverse impact on productivity in the near term. Sales and marketing expense as a percentage of total revenue was 58% for the three months endedOctober 31, 2021 compared to 52% for the three months endedOctober 31, 2022 .
We plan to continue to make investments in areas of our business to continue to expand our platform functionality. This may include investing in machine learning algorithms, predictive analytics, and other artificial intelligence technologies to create alerts, detect anomalies, optimize queries, and suggest areas of interest to help people focus on what matters most. These investments may also include extending the functionality and effectiveness of our platform through improvements to the Domo Appstore and developer toolkits, which enable customers and partners to quickly build and deploy custom data applications. The amount of new investments required to achieve our plans is expected to decrease as a percentage of revenue compared to historical years. Research and development expense as a percentage of total revenue was 34% for the three months endedOctober 31, 2021 compared to 31% for the three months endedOctober 31, 2022 . Key Business Metric Billings Billings represent our total revenue plus the change in deferred revenue in a period. Billings reflect sales to new customers plus subscription renewals and upsells to existing customers, and represent amounts invoiced for subscription, support and professional services. We typically invoice our customers annually in advance for subscriptions to our platform. Because we generate most of our revenue from customers who are invoiced on an annual basis and have a wide range of annual contract values, we may experience variability due to typical enterprise buying patterns and timing of large initial contracts, renewals and upsells. 29
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The following table sets forth our billings for the three and nine months ended
Three Months Ended October 31, Nine Months Ended October 31,
2021 2022 2021 2022
Billings (in thousands) $ 70,204 $ 74,027 $ 188,453 $ 219,281 Components of Results of Operations
Revenue
We typically offer subscriptions to our cloud-based platform. We derive our revenue primarily from subscriptions and professional services. Subscription revenue consists primarily of fees to provide our customers access to our cloud-based platform, which includes online customer support resources at no additional cost. Professional service fees include implementation services, optimization services, and training. Subscription revenue is a function of the number of customers, platform tier, number of users, price per user, and transaction and data volumes. Subscription revenue is recognized ratably over the related contractual term beginning on the date the platform is made available to the customer. Our new business subscriptions typically have a term of one to three years, and we generally invoice our customers in annual installments at the beginning of each year in the subscription period. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period. Professional services and other revenue primarily consists of implementation services sold with new subscriptions, as well as professional services sold separately, including training and education. Professional services are generally billed in advance and revenue from these arrangements is recognized as the services are performed. Our professional services engagements typically span from a few weeks to several months.
Cost of Revenue
Cost of subscription revenue consists primarily of third-party hosting services and data center capacity; salaries, benefits, bonuses and stock-based compensation, or employee-related costs, directly associated with cloud infrastructure and customer support personnel; amortization expense associated with capitalized software development costs; depreciation expense associated with computer equipment and software; certain fees paid to various third parties for the use of their technology and services; and allocated overhead. Allocated overhead includes items such as information technology infrastructure, rent, and certain employee benefit costs.
Cost of professional services and other revenue consists primarily of employee-related costs directly associated with these services, third-party consultant fees, and allocated overhead.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
employee-related costs directly associated with our sales and marketing staff
and commissions. Other sales and marketing costs include digital marketing
programs and promotional events to promote our brand, including Domopalooza, our
annual user conference, as well as tradeshows, advertising and allocated
overhead. Contract acquisition costs, including sales commissions, are deferred
and then amortized on a straight-line basis over the period of benefit, which we
have determined to be approximately four years for initial contracts. Contract
acquisition costs related to renewal contracts and professional services are
recorded as expense when incurred if the period of benefit is one year or less.
If the period of benefit is greater than one year, costs are deferred and then
amortized on a straight-line basis over the period of benefit, which we have
determined to be two years.
Research and Development. Research and development expenses consist primarily of
employee-related costs for the design and development of our platform,
contractor costs to supplement staff levels, third-party web services,
consulting services, and allocated overhead. Our cycle of frequent updates has
facilitated rapid innovation and the introduction of new product features
throughout our history. We capitalize certain software development costs that
are attributable to developing new features and adding incremental functionality
to our platform, and amortize such costs as costs of subscription revenue over
the estimated life of the new feature or incremental functionality, which is
generally three years.
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-------------------------------------------------------------------------------- General and Administrative. General and administrative expenses consist of employee-related costs for executive, finance, legal, human resources, recruiting and administrative personnel; professional fees for external legal, accounting, recruiting and other consulting services; and allocated overhead costs. Other Expense, Net Other expense, net consists primarily of interest expense related to long-term debt. It also includes the effect of exchange rates on foreign currency transaction gains and losses foreign currency gains and losses upon remeasurement of intercompany balances, and sublease income. The transactional impacts of foreign currency are recorded as foreign currency losses (gains) in the condensed consolidated statements of operations.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists primarily of income taxes
related to foreign and state jurisdictions in which we conduct business. Because
of the uncertainty of the realization of the deferred tax assets, we have a full
valuation allowance for domestic net deferred tax assets, including net
operating loss carryforwards and tax credits related primarily to research and
development.
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Results of Operations
The following tables set forth selected condensed consolidated statements of
operations data and such data as a percentage of total revenue for each of the
periods indicated:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2022 2021 2022
Revenue: (in thousands)
Subscription $ 56,621
8,460 9,985 24,569 27,999
Total revenue 65,081 79,026 187,968 229,021
Cost of revenue:
Subscription(1) 10,514 11,342 29,590 32,721
Professional services and other(1) 6,630 7,572 19,030 22,167
Total cost of revenue 17,144 18,914 48,620 54,888
Gross profit 47,937 60,112 139,348 174,133
Operating expenses:
Sales and marketing(1) 37,503 41,012 104,335 131,299
Research and development(1) 21,984 24,583 57,511 73,108
General and administrative(1)(2) 13,430 13,029 36,032 42,514
Total operating expenses 72,917 78,624 197,878 246,921
Loss from operations (24,980) (18,512) (58,530) (72,788)
Other expense, net(1) (3,471) (5,032) (10,238) (12,383)
Loss before income taxes (28,451) (23,544) (68,768) (85,171)
Provision for income taxes 62 167 89 567
Net loss $ (28,513) $ (23,711) $ (68,857) $ (85,738)
________________(1)Includes stock-based compensation expense as follows:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2022 2021 2022
Cost of revenue: (in thousands)
Subscription $ 800 $ 667 $ 1,768 $ 2,176
Professional services and other 563 308 1,168 1,339
Sales and marketing(a) 6,718 7,336 15,192 23,284
Research and development(a) 5,363 5,909 10,603 19,196
General and administrative(a)(b) 4,543 4,807 11,596 18,319
Other expense, net 176 180 524 550
Total $ 18,163 $ 19,207 $ 40,851 $ 64,864 (a) Includes
(b) Includes
(2)Includes amortization of certain intangible assets of$20,000 and$20,000 for the three months endedOctober 31, 2021 and 2022, respectively, and$60,000 and$60,000 for the nine months endedOctober 31, 2021 and 2022, respectively. 32 --------------------------------------------------------------------------------
Three Months Ended October 31, Nine Months Ended October 31,
2021 2022 2021 2022
Revenue:
Subscription 87 % 87 % 87 % 88 %
Professional services and other 13 13 13 12
Total revenue 100 100 100 100
Cost of revenue:
Subscription 16 14 16 14
Professional services and other 10 10 10 10
Total cost of revenue 26 24 26 24
Gross margin 74 76 74 76
Operating expenses:
Sales and marketing 58 52 56 57
Research and development 34 31 31 32
General and administrative 20 16 18 19
Total operating expenses 112 99 105 108
Loss from operations (38) (23) (31) (32)
Other expense, net (5) (6) (5) (5)
Loss before income taxes (43) (29) (36) (37)
Provision for income taxes - - - -
Net loss (43) % (29) % (36) % (37) %
Discussion of the Three Months Ended
Revenue
Three Months Ended October 31,
2021 2022 $ Change % Change
(in thousands)
Revenue:
Subscription $ 56,621 $ 69,041 $ 12,420 22 %
Professional services and other 8,460 9,985 1,525 18
Total revenue $ 65,081 $ 79,026 $ 13,945 21
Percentage of revenue:
Subscription 87 % 87 %
Professional services and other 13 13
Total 100 % 100 %
The increase in subscription revenue was primarily due to a $7.5 million
increase from new customers and a $4.9 million increase from existing customers.
Our customer count increased 14% from October 31, 2021 to October 31, 2022 . For
the purposes of this comparison, new customers are defined as those added since
the end of the prior year quarter. Revenue from existing customers is presented
net of churn. The increase in professional services and other revenue was
primarily due to a higher volume of billable hours and custom data apps
delivered. We expect that our total revenue growth rate will decrease for the
remainder of fiscal 2023 and likely into the first half of fiscal 2024.
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--------------------------------------------------------------------------------Cost of Revenue, Gross Profit and Gross Margin
Three Months Ended October 31,
2021 2022 $ Change % Change
(in thousands)
Cost of revenue:
Subscription $ 10,514 $ 11,342 $ 828 8 %
Professional services and other 6,630 7,572 942 14
Total cost of revenue $ 17,144 $ 18,914 $ 1,770 10
Gross profit $ 47,937 $ 60,112 $ 12,175 25
Gross margin:
Subscription 81 % 84 %
Professional services and other 22 24
Total gross margin 74 76
The increase in subscription cost of revenue was primarily due to a $1.4 million
increase in our third-party web hosting services. This was partially offset by a
$0.5 million decrease in employee-related costs.
The increase in professional services and other cost of revenue was primarily
due to a $1.3 million increase in outsourced services, attributable to a higher
volume of hours delivered by partners. This was partially offset by a $0.4
million decrease in employee-related costs.
Subscription gross margin improved due to cost improvements from continued proactive management and optimization of our third-party hosting services.
Services gross margin improved due to the timing of the delivery of custom data
apps and a decrease in stock-based compensation. We expect the gross margin for
professional services and other to fluctuate from period to period due to
changes in the proportion of services provided by third-party consultants,
seasonality, as well as timing of projects with higher margins.
Operating Expenses
Three Months Ended October 31,
2021 2022 $ Change % Change
(in thousands)
Operating expenses:
Sales and marketing $ 37,503 $ 41,012 $ 3,509 9 %
Research and development 21,984 24,583 2,599 12
General and administrative 13,430 13,029 (401) (3)
Total operating expenses $ 72,917 $ 78,624 $ 5,707 8
Percentage of revenue:
Sales and marketing 58 % 52 %
Research and development 34 31
General and administrative 20 16
Sales and marketing expenses increased primarily due to a $2.4 million increase
in employee-related costs, driven by higher headcount. Marketing expense
increased by $0.4 million primarily due to an increase in expenses related to
demand generation. Other minor increases included travel expense,
software-related costs, and commission expense. We expect sales and marketing
expense to fluctuate in the near term as we execute our recent cost reduction
plan and increase in the long term as we continue to invest in the growth of our
business. Over the long term, we expect sales and marketing expense to decrease
as a percentage of total revenue.
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Research and development expenses increased primarily due to a $2.4 million
increase in employee-related costs, driven by higher headcount. In the near
term, we expect research and development expense to increase, but expect that it
will decline as a percentage of total revenue in the long term as we leverage
our research and development organization.
General and administrative expenses decreased primarily due to a $0.4 million
decrease in contract labor. Our general and administrative expenses decreased as
a percentage of revenue from 20% to 16%. In the near term, we expect general and
administrative expense to fluctuate from period to period, but expect that it
will decline as a percentage of total revenue in the long term as we leverage
previous investments in our general and administrative organization.
Other Expense, Net
Three Months Ended October 31,
2021 2022 $ Change % Change
(in thousands)
Other expense, net $ (3,471) $ (5,032) $ (1,561) (45) %
Other expense, net increased primarily due to a $1.0 million increase in expense
related to changes in foreign exchange rates. Interest expense increased by $0.6
million . We expect foreign currency gains and losses could become more
pronounced due to currency market volatility and as we continue to expand our
foreign operations. We expect interest expense to increase modestly due to an
increasing principal balance and anticipated higher market interest rates.
Provision for (Benefit from) Income Taxes
Three Months Ended October 31,
2021 2022 $ Change % Change
(in thousands)
Provision for income taxes $ 62 $ 167 $ 105 169 %
Income taxes increased primarily due to fewer allowable deductions in foreign
jurisdictions during the three months ended October 31, 2022 . In the long term,
we expect income tax expense to increase in conjunction with growth in our
international subsidiaries.
Discussion of the Nine Months Ended
Revenue
Nine Months Ended October 31,
2021 2022 $ Change % Change
(in thousands)
Revenue:
Subscription $ 163,399 $ 201,022 $ 37,623 23 %
Professional services and other 24,569 27,999 3,430 14
Total revenue $ 187,968 $ 229,021 $ 41,053 22
Percentage of revenue:
Subscription 87 % 88 %
Professional services and other 13 12
Total 100 % 100 %
The increase in subscription revenue was primarily due to a $22.7 million
increase from new customers and a $14.9 million increase from existing
customers. Our customer count increased 14% from October 31, 2021 to October 31,
2022 . For the purposes of this comparison, new customers are defined as those
added since the end of the prior year quarter. Revenue from existing customers
is presented net of churn. The increase in professional services and other
revenue was due to a higher volume of billable hours and custom data apps
delivered.
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--------------------------------------------------------------------------------Cost of Revenue, Gross Profit and Gross Margin
Nine Months Ended October 31,
2021 2022 $ Change % Change
(in thousands)
Cost of revenue:
Subscription $ 29,590 $ 32,721 $ 3,131 11 %
Professional services and other 19,030 22,167 3,137 16
Total cost of revenue $ 48,620 $ 54,888 $ 6,268 13
Gross profit $ 139,348 $ 174,133 $ 34,785 25
Gross margin:
Subscription 82 % 84 %
Professional services and other 23 21
Total gross margin 74 76
The increase in cost of subscription revenue was primarily due to a
Cost of professional services and other revenue increased primarily due to a$2.1 million increase in outsourced services, attributable to a higher volume of hours delivered by partners. Employee-related costs increased by$1.0 million , driven by higher headcount. Subscription gross margin improved due to cost improvements from continued proactive management and optimization of our third-party hosting services. Professional services and other gross margin declined due to a lower average hourly rate, a lower billable utilization by our consulting team, and a higher number of hours delivered by partners at a higher average cost per hour.
Operating Expenses
Nine Months Ended October 31,
2021 2022 $ Change % Change
(in thousands)
Operating expenses:
Sales and marketing$ 104,335 $ 131,299 $ 26,964 26 % Research and development 57,511 73,108 15,597 27 General and administrative 36,032 42,514 6,482 18 Total operating expenses$ 197,878 $ 246,921 $ 49,043 25 Percentage of revenue: Sales and marketing 56 % 57 % Research and development 31 32 General and administrative 18 19 Sales and marketing expenses increased primarily due to a$16.6 million increase in employee-related costs, driven by stock-based compensation and higher headcount, of which$8.1 million was stock-based compensation. Marketing expense increased by$3.6 million primarily due to an increase in expenses related to demand generation and events. Commission expense increased by$2.5 million due to higher sales. Other increases included a$1.2 million increase in travel expense, a$1.1 million increase in contract labor, a$0.8 million increase in referral fees, and other minor increases. Research and development expenses increased primarily due to a$14.0 million increase in employee-related costs, driven by stock-based compensation and higher headcount, of which$8.9 million was stock-based compensation. Contract labor increased by$0.8 million and software-related costs increased by$0.7 million . 36
-------------------------------------------------------------------------------- General and administrative expenses increased primarily due to a$5.0 million increase in employee-related costs, driven by stock-based compensation and higher headcount, of which$6.7 million was stock-based compensation. This increase was partially offset by a$2.8 million decrease in bonus expense, primarily attributable to fiscal 2022 bonuses being paid in the form of vested restricted stock units during the nine months endedOctober 31, 2022 . Professional and legal fees increased by$1.3 million . Other Expense, Net Nine Months Ended October 31, 2021 2022 $ Change % Change (in thousands) Other expense, net$ (10,238) $ (12,383) $ (2,145) 21 % Other expense, net increased primarily due to a$1.4 million increase in expense related to changes in foreign exchange rates and a higher balance of cash denominated in currencies other than the functional currency, combined with a$1.0 million increase in interest expense. This was partially offset by a$0.5 increase in interest income.
Provision for (Benefit from) Income Taxes
Nine Months Ended October 31,
2021 2022 $ Change % Change
(in thousands)
Provision for income taxes $ 89 $ 567 $ 478 537 %
Income taxes increased due to fewer allowable deductions in foreign
jurisdictions during the nine months ended
Liquidity and Capital Resources
As ofOctober 31, 2022 , we had$71.1 million of cash, cash equivalents, and restricted cash which were held for working capital purposes, of which$3.7 million was restricted cash. Our cash and cash equivalents consist primarily of cash, money market funds, and certificates of deposit. We have a$100 million credit facility, all of which had been drawn as ofOctober 31, 2022 . Since inception, we have financed operations primarily from cash collected from customers for our subscriptions and services, periodic sales of convertible preferred stock, our initial public offering and to a lesser extent, debt financing. Our principal uses of cash have consisted of employee-related costs, marketing programs and events, payments related to hosting our cloud-based platform and purchases of short-term investments. We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months. Over the longer term, we plan to continue investing in, among other things, growth opportunities, product development, and sales and marketing. If available funds are insufficient to fund our future activities or execute on our strategy, we may raise additional capital through equity, equity-linked and debt financing, to the extent such funding sources are available. Alternatively, we may be required to reduce expenses to manage liquidity; however, any such reductions could adversely impact our business and competitive position. Our future capital requirements will depend on many factors, including our growth rate; the level of investments we make in product development, sales and marketing activities and other investments to support the growth of our business; the continuing market acceptance of our platform; and customer retention rates, and may increase materially from those currently planned. If we raise additional funds through the incurrence of indebtedness, such indebtedness likely would have rights that are senior to holders of our equity securities and could contain covenants that restrict operations in the same or similar manner as our credit facility. Any additional equity financing likely would be dilutive to existing stockholders. We cannot assure you that any additional financing will be available to us on acceptable terms, or at all.
Although we are not currently a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity financing, incur indebtedness, or use cash resources. We have no
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--------------------------------------------------------------------------------present understandings, commitments or agreements to enter into any such acquisitions. We do not have any special purpose entities and we do not engage in off-balance sheet financing arrangements.
Credit Facility
InAugust 2020 , we entered into an amendment to the credit facility which extended the maturity date for the outstanding loan fromOctober 1, 2022 toApril 1, 2025 . Per the amendment, we are required to comply with a financial covenant requiring us to maintain a minimum balance of unrestricted cash and cash equivalents equal to$10.0 million until our six-month adjusted cash flow is greater than zero. The amendment also revised the maximum debt ratio financial covenant and included an amendment fee of$5.0 million , which accrues interest at a rate of 9.5% per year. The amendment fee, along with its accrued interest, is to be paid at the earlier of the payment date, maturity date, or the date the loan becomes payable. The credit facility permits us to incur up to$100 million in term loan borrowings, all of which had been drawn as ofOctober 31, 2022 . The term loan maturity date isApril 1, 2025 with a closing fee of$7.0 million , which is in addition to the$5.0 million amendment fee described above. Each term loan requires that we pay only interest until the maturity date. A portion of the interest that accrues on the outstanding principal of each term loan is payable in cash on a monthly basis, which portion accrues at a floating rate equal to the greater of (1) 7% and (2) three-month LIBOR plus 5.5% per year. In the event that LIBOR is unavailable, interest will accrue at a floating rate equal to the greater of (1) 7% and (2) theU.S. prime rate plus 2.75% per year. As ofOctober 31, 2022 , the interest rate was approximately 9.3%. In addition, a portion of the interest that accrues on the outstanding principal of each term loan is capitalized and added to the principal amount of the outstanding term loan on a monthly basis, which portion accrues at a fixed rate equal to 2.5% per year. The credit facility contains customary conditions to borrowing, events of default and covenants, including covenants that restrict our ability to dispose of assets, make material changes to the nature, control or location of our business, merge with or acquire other entities, incur indebtedness or encumbrances, make distributions to holders of our capital stock, make investments or enter into transactions with affiliates. In addition, we are required to comply with a financial covenant based on the ratio of our outstanding indebtedness to our annualized recurring revenue. The maximum ratio is 0.550 onJanuary 31, 2022 andApril 30, 2022 ; 0.525 onJuly 31, 2022 andOctober 31, 2022 ; and 0.500 onJanuary 31, 2023 through the maturity date. The credit facility defines our annualized recurring revenue as four times our aggregate revenue for the immediately preceding quarter (net of recurring discounts and discounts for periods greater than one year) less the annual contract value of any customer contracts pursuant to which we were advised during such quarter would not be renewed at the end of the current term plus the annual contract value of existing customer contract increases during such quarter. This covenant is measured quarterly on a three-month trailing basis. Upon the occurrence of an event of default, such as non-compliance with covenants, any outstanding principal, interest and fees become due immediately. We were in compliance with the covenant terms of the credit facility atJanuary 31, 2022 andOctober 31, 2022 . The credit facility is secured by substantially all of our assets.
Structured Payables
InJune 2022 , the Company entered into a structured payables agreement pursuant to which the counterparty assumes responsibility for payables to designated suppliers. The agreement contains an annual limit of an aggregate of$60.0 million , with a maximum allowable outstanding principal balance at any time of$5.0 million . The Company is required to pay interest that accrues at a rate equal to 0.0417% per day after the date on which the Company is required to pay the counterparty with respect to each covered invoice, which interest rate increases to 0.0750% per day at the earlier of 61 days after the respective invoice due date or 121 days after the date of the approved invoice. The Company's obligations are secured by$6.0 million of the Company's accounts receivable. As ofOctober 31, 2022 there were no outstanding obligations related to these structured payables. During the three and nine months endedOctober 31, 2022 no interest expense was recognized related to this agreement. 38 --------------------------------------------------------------------------------
Historical Cash Flow Trends
Nine Months Ended October 31,
2021 2022
(in thousands)
Net cash used in operating activities $ (530) $ (8,059)
Net cash used in investing activities (4,965) (5,073)
Net cash (used in) provided by financing activities (817) 2,424
Operating Activities
Net cash used in operating activities consisted primarily of cash we invest in
our personnel, timing and amounts we use to fund marketing programs and events
to expand our customer base, the costs to provide our cloud-based platform and
related outsourced professional services to our customers. These outflows were
partially offset by the amount and timing of payments received from our
customers.
Net cash used in operating activities during the nine months ended October 31,
2021 consisted of cash outflows of $200.0 million exceeding the $199.5 million
of cash collected from customers. Significant components of cash outflows
included $127.4 million for personnel costs and $35.1 million for marketing
programs and events, third-party costs to provide our platform and outsourced
professional services.
Net cash used in operating activities during the nine months ended October 31,
2022 consisted of cash outflows of $240.3 million exceeding the $232.2 million
of cash collected from customers. Significant components of cash outflows
included $150.5 million for personnel costs and $45.0 million for marketing
programs and events, third-party costs to provide our platform and outsourced
professional services.
Investing Activities
Our investing activities consisted primarily of property and equipment purchases, which included capitalized development costs related to internal-use software.
Net cash used in investing activities during the nine months ended
Net cash used in investing activities during the nine months ended
Financing Activities
Our financing activities consisted primarily of proceeds received from stock option exercises and our employee stock purchase plan.
Net cash used in financing activities for the nine months endedOctober 31, 2021 consisted primarily of$8.9 million used to repurchase shares for tax withholdings on release of restricted stock, offset by$4.1 million of proceeds from shares issued in connection with our employee stock purchase plan and$3.9 million of proceeds received from stock option exercises. Net cash provided by financing activities for the nine months endedOctober 31, 2022 included$6.6 million of proceeds from structured payables, offset by$6.6 million of payments on structured payables. Cash provided by financing activities consisted primarily of$1.6 million of proceeds from shares issued in connection with our employee stock purchase plan and$0.9 million of proceeds received from stock option exercises.
Contractual Obligations and Commitments
Our principal commitments consist of long-term debt, obligations under operating
leases for office space, and non-cancelable contracts for cloud infrastructure
services. There have been no material changes in our contractual obligations and
commitments, as disclosed in our Annual Report on Form 10-K.
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--------------------------------------------------------------------------------Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with generally accepted accounting principles inthe United States , or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that are inherently uncertain and that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Critical accounting policies and estimates are those that we consider critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. There have been no material changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K. See "Note 2-Summary of Significant Accounting Policies" of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding our significant accounting policies.
Recent Accounting Pronouncements
See "Note 2-Summary of Significant Accounting Policies" of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding recent accounting pronouncements.
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