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    DOMO   US2575541055

DOMO, INC.

(DOMO)
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DOMO : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

06/09/2021 | 12:17pm EDT
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 encouraging 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 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 as well as users. 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 increasingly
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 of April 30, 2021, 61% of our customers were under multi-year
contracts on a dollar-weighted basis, compared to 60% of customers as of
January 31, 2021. The high percentage of 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, but in the first half of fiscal 2021 we saw an
increase in requests for semi-annual and quarterly billing terms as a result of
the COVID-19 pandemic. However, since that time we have seen an overall
improvement in the portion of total billings that are annual in advance. A
majority of our annual recurring revenue is up for renewal during the fiscal
year ending January 31, 2022.
Remaining performance obligations (RPO) represents the remaining amount of
revenue we expect to recognize from existing non-cancelable contracts, whether
billed or unbilled. As of April 30, 2020 and 2021, total RPO was $229.3 million
and $284.3 million, respectively, representing year-over-year growth of 24%. The
amount of RPO expected to be recognized as revenue in the next twelve months was
$148.8 million and $180.8 million as of April 30, 2020 and 2021, respectively,
representing year-over-year growth of 22%.
We had total revenue of $48.6 million and $60.1 million for the three months
ended April 30, 2020 and 2021, respectively, reflecting a year-over-year
increase of 24%. Our enterprise customers were a key driver of revenue growth,
with revenue of $26.2 million and $32.5 million for the three months ended April
30, 2020 and 2021, respectively, or 24% year-over-year growth. For the three
months ended April 30, 2020 and 2021, 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 in the United States comprised 76%
and 77% or our total revenue for the three months ended April 30, 2020 and 2021,
respectively.
Our revenue growth rate may decline in future periods due to a number of
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 $24.9 million and $18.1 million for the three months ended April 30,
2020 and 2021, respectively, and had an accumulated deficit of $1,140.5 million
at April 30, 2021. We have experienced improvements in net losses over the
periods presented; however, we expect to incur losses for the foreseeable future
and may not be able to achieve or sustain profitability.
COVID-19 Impact
A novel strain of coronavirus, COVID-19, emerged in China in December 2019 and
began to spread globally, including to the United States. In March 2020,
COVID-19 was characterized by the World Health Organization as a global
pandemic. The full impact of the COVID-19 pandemic is inherently uncertain at
the time of this report. The COVID-19 pandemic has
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resulted in travel restrictions and in some cases, prohibitions of non-essential
activities, disruption and shutdown of businesses and greater uncertainty in
global financial markets.
We cannot reasonably predict the extent to which the COVID-19 pandemic will
impact our business or operating results, which is highly dependent on
inherently uncertain future developments, including the duration and scope of
the pandemic (including any potential future waves of the pandemic) as well as
governmental, business and individual actions that have been and continue to be
taken in response to the pandemic (including the availability, adoption and
effectiveness of COVID-19 vaccines). 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.
We have adopted several measures in response to the COVID-19 pandemic, including
instructing employees to work from home, making adjustments to our expenses and
cash flow to correlate with possible declines in billings and cash collections
from customers, re-evaluating our office space needs, shifting certain of our
customer events, such as Domopalooza, to online-only webcasts and restricting
non-critical business travel by our employees. Historically, a significant
portion of field sales and professional services were conducted in person.
Currently, as a result of the work and travel restrictions related to the
ongoing COVID-19 pandemic, substantially all of our sales and professional
services activities are being conducted remotely. These changes are expected to
remain in effect in the first quarter of fiscal 2022 and will likely extend into
future quarters. The impact, if any, of these and any additional operational
changes we may implement is uncertain, but changes we have implemented have not
affected and are not expected to affect our ability to maintain operations,
including financial reporting systems, internal control over financial reporting
and disclosure controls and procedures.
During the three months ended April 30, 2020, we entered into contracts totaling
$4.5 million of annual recurring revenue with government entities to facilitate
their response to the COVID-19 pandemic. During the three months ended April 30,
2021, all of these entities have renewed their contracts in full or in part, and
Domo has and will continue to pursue additional use cases beyond COVID-19. Once
the pandemic has subsided, these contracts may be at a higher risk of not
renewing if Domo has not continued to expand the usage of the product beyond the
pandemic use case.
As of the date of this report, we do not yet know the full extent of the
negative 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. Furthermore, existing and potential customers may choose
to reduce or delay technology spending in response to the COVID-19 pandemic. In
addition, certain customers have pursued concessions such as lengthened payment
terms or reduced contract length, which may materially and negatively impact our
operating results, financial condition and prospects. 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. 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 of April 30, 2021, we had over 2,000 customers. We focus our sales and
marketing resources on obtaining customers with over $100 million in revenue.
For the three months ended April 30, 2020 and 2021, our enterprise customers
accounted for 54% and 54% of our revenue, 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 and expand 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
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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.
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 for the twelve months ended April 30, 2021 was 89%.
As we continue to enhance our product and develop methods to encourage wider and
more strategic adoptions, including focusing our sales and marketing activities
towards enterprise customers, we expect that customer retention will increase
over the long term; however, in fiscal 2022 we anticipate our retention rate for
customers in industries that have been particularly impacted by the current
COVID-19 pandemic may be lower than other customers. 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 reduce our sales and marketing expense as a
percentage of revenue and accelerate the adoption of our platform. Our sales
strategy depends on our ability to continue to attract 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. During fiscal 2022 we plan on
hiring more sales representatives, which may have an adverse impact on
productivity in the near term.
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. We have shifted marketing
spending from broad-based initiatives to targeted account-based marketing
campaigns and user events that we believe will result in contracts with larger
companies which we expect will result in more upsell ACV potential.
Sales and marketing expense as a percentage of total revenue has improved from
60% for the three months ended April 30, 2020 to 56% for the three months ended
April 30, 2021.
Leverage Research and Development Investments for Future Growth
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 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 has improved
from 36% for the three months ended April 30, 2020 to 27% for the three months
ended April 30, 2021.
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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, but in the first half of fiscal
2021 we saw an increase in requests for semi-annual and quarterly billing terms
as a result of the COVID-19 pandemic. However, since that time we have seen an
overall improvement in the portion of total billings that are annual in advance.
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.
The following table sets forth our billings for the three months ended April 30,
2020 and 2021:
                                 Three Months Ended April 30,
                                      2020                    2021
Billings (in thousands)   $        46,537                  $ 58,243


Components of Results of Operations
Revenue
We 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,
and number of users at each customer, and the price per user. 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
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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 the Company has 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.
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, sublease income, and interest
income earned on our cash, cash equivalents and short-term investments. 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 April 30,
                                                       2020                   2021
Revenue:                                                  (in thousands)
Subscription                                $        42,436                $  52,112
Professional services and other                       6,125                    7,950
Total revenue                                        48,561                   60,062
Cost of revenue:
Subscription(1)                                       9,105                    9,057
Professional services and other(1)                    5,004                    6,101
Total cost of revenue                                14,109                   15,158
Gross profit                                         34,452                   44,904
Operating expenses:
Sales and marketing(1)                               29,096                   33,454
Research and development(1)                          17,453                   16,186
General and administrative(1)(2)                      9,869                   10,218
Total operating expenses                             56,418                   59,858
Loss from operations                                (21,966)                 (14,954)
Other expense, net(1)                                (2,724)                  (3,262)
Loss before income taxes                            (24,690)                 (18,216)
Provision for (benefit from) income taxes               205                     (112)
Net loss                                    $       (24,895)               $ (18,104)


________________

(1)Includes stock-based compensation expense as follows:

                                         Three Months Ended April 30,
                                              2020                    2021
Cost of revenue:                                (in thousands)
Subscription                      $          226                   $    419
Professional services and other              103                        334
Sales and marketing                        1,826                      3,727
Research and development                   1,877                      2,489
General and administrative                 2,397                      2,916
Other expense, net                            47                        177
Total                             $        6,476                   $ 10,062


(2)Includes amortization of certain intangible assets of $20,000 and $20,000 for the three months ended April 30, 2020 and 2021, respectively.

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                                                  Three Months Ended April 30,
                                                        2020                  2021
Revenue:
Subscription                                                        87  %      87  %
Professional services and other                                     13         13
Total revenue                                                      100        100
Cost of revenue:
Subscription                                                        19         15
Professional services and other                                     10         10
Total cost of revenue                                               29         25
Gross margin                                                        71         75
Operating expenses:
Sales and marketing                                                 60         56
Research and development                                            36         27
General and administrative                                          20         17
Total operating expenses                                           116        100
Loss from operations                                               (45)       (25)
Other expense, net                                                  (6)        (5)
Loss before income taxes                                           (51)       (30)
Provision for (benefit from) income taxes                            -          -
Net loss                                                           (51) %     (30) %


Discussion of the Three Months Ended April 30, 2020 and 2021
Revenue
                                                       Three Months Ended April 30,
                                                       2020                    2021               $ Change              % Change
                                                                          (in thousands)
Revenue:
Subscription                                     $      42,436           $      52,112          $   9,676                       23  %
Professional services and other                          6,125                   7,950              1,825                       30
Total revenue                                    $      48,561           $      60,062          $  11,501                       24
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 $5.7 million
increase from new customers and a $4.0 million increase from existing customers.
Our customer count increased 11% from April 30, 2020 to April 30, 2021. The
increase in professional services and other revenue was due to a higher volume
of billable hours delivered and a higher average revenue rate per hour. We
anticipate that as we continue to close new business and retain our customers
that subscription revenue will continue to increase as a percent of total
revenue.
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Cost of Revenue, Gross Profit and Gross Margin

                                                       Three Months Ended April 30,
                                                       2020                    2021               $ Change              % Change
                                                                          (in thousands)
Cost of revenue:
Subscription                                     $       9,105           $       9,057          $     (48)                      (1) %
Professional services and other                          5,004                   6,101              1,097                       22
Total cost of revenue                            $      14,109           $      15,158          $   1,049                        7
Gross profit                                     $      34,452           $      44,904          $  10,452                       30
Gross margin:
Subscription                                                79   %                  83  %
Professional services and other                             18                      23
Total gross margin                                          71                      75


The increase in professional services and other cost of revenue is primarily due
to a higher volume of services provided by third-party consultants related to
implementation and training.
Subscription gross margin improved due to economies of scale driven by increased
subscription revenue and cost improvements from continued proactive management
and optimization of our third-party hosting services. We expect subscription
gross margin to improve as we continue to effectively manage our data center
operations and third-party hosting services.
Services gross margin improved due to higher utilization of internal client
services resources and a higher average revenue rate per hour. We expect the
gross margin for professional services 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 April 30,
                                                         2020                    2021               $ Change               % Change
                                                                            (in thousands)
Operating expenses:
Sales and marketing                                $      29,096           $      33,454          $    4,358                       15  %
Research and development                                  17,453                  16,186              (1,267)                      (7)
General and administrative                                 9,869                  10,218                 349                        4
Total operating expenses                           $      56,418           $      59,858          $    3,440                        6
Percentage of revenue:
Sales and marketing                                           60   %                  56  %
Research and development                                      36                      27
General and administrative                                    20                      17


Sales and marketing expenses increased primarily due to a $2.0 million increase
in employee-related costs, most of which related to stock-based compensation.
Expense related to marketing programs and content increased by $1.8 million.
Commissions expense increased by $1.1 million due to higher sales. These
increases were partially offset by a $0.3 million decrease in rent expense. We
expect sales and marketing expense to continue to decline as a percentage of
total revenue in the long term; however, in the near term the pace of the
decline may slow as we invest in our sales organization.
Research and development expenses declined primarily due to a decrease in
employee-related costs, specifically severance expense related to a reduction in
force that occurred during the three months ended April 30, 2020. We expect
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research and development expense to continue to decline as a percentage of total
revenue in the long term as we leverage our research and development
organization.
General and administrative expenses increased primarily due to a $0.4 million
increase in employee-related costs, most of which related to stock-based
compensation. In the long term, we expect general and administrative expense to
decline as a percentage of total revenue as we leverage previous investments in
our general and administrative organization.
Other Expense, Net
                                Three Months Ended April 30,
                                 2020                       2021            $ Change       % Change
                                                       (in thousands)
Other expense, net   $        (2,724)                 $        (3,262)     $    (538)          20  %


Other expense, net increased primarily due to a $0.2 million decrease in
interest income due to a lower investment balance and a $0.2 million increase in
interest expense. 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.
Provision for (Benefit from) Income Taxes
                                                     Three Months Ended April 30,
                                                    2020                     2021                $ Change               % Change
                                                                        (in thousands)

Provision for (benefit from) income taxes $ 205 $

      (112)         $     (317)                    (155) %


Income taxes decreased to an overall benefit due mainly to one-time return to
provision adjustments which occurred during the three months ended April 30,
2021. In the long term, we expect income tax expense to increase in conjunction
with growth in our international subsidiaries.
Liquidity and Capital Resources
As of April 30, 2021, we had $84.8 million of cash and cash equivalents, which
were held for working capital purposes. Our cash and cash equivalents consist
primarily of cash, money market funds, and certificates of deposit. We also have
a $100 million credit facility, all of which had been drawn as of April 30,
2021.
Since inception, we have financed operations primarily from cash collected from
customers for our subscriptions and services, periodic sales of convertible
preferred stock, our IPO 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.  We may need
to raise additional funds to invest in growth opportunities, product
development, sales and marketing, and other purposes. 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. We may seek to raise
additional funds through equity or debt financings. 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 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.
                                       33
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Credit Facility
In August 2020, we entered into an amendment to the credit facility which
extended the maturity date for the outstanding loan from October 1, 2022 to
April 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 of April 30, 2021. The term loan
maturity date is April 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) the U.S. prime rate plus 2.75% per year. As of
April 30, 2021, the interest rate was approximately 7%. 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 0.600 on January 31, 2021 and April 30, 2021; 0.575 on July 31, 2021 and
October 31, 2021; 0.550 on January 31, 2022 and April 30, 2022; 0.525 on July
31, 2022 and October 31, 2022; and 0.500 on January 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 at
January 31, 2021 and April 30, 2021. The credit facility is secured by
substantially all of our assets.
Historical Cash Flow Trends
                                                                     Three Months Ended April 30,
                                                                       2020                   2021

                                                                            (in thousands)
Net cash used in operating activities                           $        (12,913)         $   (2,728)
Net cash provided by (used in) investing activities                        3,984              (1,778)
Net cash provided by (used in) financing activities                        3,632              (1,457)


Operating Activities
Net cash used in operating activities is significantly influenced by the amount
of cash we invest in our personnel, timing and amounts we use to fund marketing
programs and events to expand our customer base, and the costs to provide our
cloud-based platform and related outsourced professional services to our
customers. These outflows are partially offset by the amount and timing of
payments received from our customers.
Net cash used in operating activities during the three months ended April 30,
2020 consisted of cash outflows of $78.4 million exceeding the $65.5 million of
cash collected from customers. Significant components of cash outflows included
$46.9 million for personnel costs and $14.6 million for marketing programs and
events, third-party costs to provide our platform and outsourced professional
services.
                                       34
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Net cash used in operating activities during the three months ended April 30,
2021 consisted of cash outflows of $76.7 million exceeding the $74.0 million of
cash collected from customers. Significant components of cash outflows included
$49.0 million for personnel costs and $12.6 million for marketing programs and
events, third-party costs to provide our platform and outsourced professional
services.
Investing Activities
Our investing activities have consisted primarily of purchases and proceeds from
maturities of short-term investments and property and equipment purchases.
Significant components of purchased property and equipment include capitalized
development costs related to internal-use software and computer equipment and
software for our data center.
Net cash provided by investing activities during the three months ended April
30, 2020 consisted primarily of $16.6 million of proceeds from maturities of
securities available for sale, offset by $11.1 million of purchases of
short-term investments and $1.3 million of capitalized development costs related
to internal-use software.
Net cash used in investing activities during the three months ended April 30,
2021 consisted primarily of $1.5 million of capitalized development costs
related to internal-use software and $0.3 million of purchased property and
equipment.
Financing Activities
Our financing activities have consisted primarily of proceeds from our IPO,
issuances of convertible preferred stock, proceeds from our credit facility and
to a lesser extent, proceeds received from stock option exercises.
Net cash provided by financing activities for the three months ended April 30,
2020 consisted primarily of $3.7 million of proceeds from shares issued in
connection with employee stock purchase plan.
Net cash used in financing activities for the three months ended April 30, 2021
consisted primarily of $6.2 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 employee stock purchase plan and $0.7
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.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with
generally accepted accounting principles in the United States or GAAP. The
preparation of these condensed consolidated financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, 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 the Company's 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.
                                       35

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