GITLAB INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the fiscal year endedJanuary 31, 2021 included in the final prospectus for our initial public offering ("IPO") dated as ofOctober 13, 2021 and filed with theSecurities and Exchange Commission ("SEC"), pursuant to Rule 424(b)(4) onOctober 14, 2021 ("Final Prospectus"). This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see "Risk Factors" and "Forward-Looking Statements" appearing elsewhere in this Quarterly Report on Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with these statements. Overview We believe in an innovative world powered by software. To realize this vision, we pioneered The DevOps Platform, a fundamentally new approach to DevOps consisting of a single codebase and interface with a unified data model. The DevOps Platform allows everyone to contribute to build better software rapidly, efficiently, and securely. Today, every industry, business, and function within a company is dependent on software. To remain competitive and survive, nearly all companies must digitally transform and become experts at building and delivering software.GitLab is The DevOps Platform, a single application that brings together development, operations, IT, security, and business teams to deliver desired business outcomes. Having all teams on a single application with a single interface represents a step change in how organizations plan, build, secure, and deliver software. The DevOps Platform accelerates our customers' ability to create business value and innovate by reducing their software development cycle times from weeks to minutes. It removes the need for point tools and delivers enhanced operational efficiency by eliminating manual work, increasing productivity, and creating a culture of innovation and velocity. The DevOps Platform also embeds security earlier into the development process, improving our customers' software security, quality, and overall compliance. The DevOps Platform is available to any company, regardless of the size, scope, and complexity of their deployment. As a result, we have a large number of customers on paid trials or with single-digit users. For purposes of determining the number of our active customers, we look at our customers with more than$5,000 of Annual Recurring Revenue ("ARR") in a given period, who we refer to as our Base Customers. For purposes of determining our Base Customers, a single organization with separate subsidiaries, segments, or divisions that use The DevOps Platform is considered a single customer for determining each organization's ARR. Our company exists today in large part thanks to the vast and growing community of open source contributors around the world. We actively work to grow open source community engagement by operating with intentional transparency. We make our strategy, direction, and product roadmap available to the wider community, where we encourage and solicit their feedback. By making information public, we make it easier to solicit contributions and collaboration from our users and customers. See the section entitled "Key Business Metrics-Dollar-Based Net Retention Rate and ARR" below for additional information about how we define ARR. 25 -------------------------------------------------------------------------------- Table of Cont ents We make our plans available through our self-managed and SaaS offerings. For our self-managed offering, the customer installs The DevOps Platform in its own private, or hybrid cloud environment. For our SaaS offering, the platform is managed byGitLab and hosted in the public cloud. Initial Public Offering OnOctober 18, 2021 , we closed our IPO of 8,940,000 shares of our Class A common stock at an offering price of$77.00 per share, including 520,000 shares pursuant to the exercise of the underwriters' option to purchase additional shares of our Class A common stock, resulting in net proceeds to us of$654.6 million , after deducting underwriting discounts of$33.8 million . Factors Affecting Our Performance Sustaining innovation and technology leadership We believe we have built a highly differentiated platform that gives us an advantage over our competitors by empowering business, development, operations, IT, and security teams to collaborate in a single application across the entire DevOps lifecycle. Our technology leadership is an outcome of various factors, including our strong community, network of contributors, and continued enhancement of The DevOps Platform by developing new features and expanding the functionality of existing features with speed and consistency. We have had a history of releasing enhancements to The DevOps Platform on the 22nd of every month and, as ofOctober 31, 2021 , had done so for the last 121 months. We intend to continue releasing new software at this cadence. We also intend to continue investing in research and development to further enhance The DevOps Platform and sustain our innovation and technology leadership. We have a history of investing in our open source community and intend to continue to leverage our open source software to accelerate innovation. We also intend to continue to add headcount to our research and development team and support functions to extend the functionality and range of The DevOps Platform by bringing new and improved products and services to our customers. We expect our research and development expenses to increase on an absolute basis in future periods. We foresee that such investment in research and development will contribute to our long-term growth, but will also negatively impact our short-term profitability. As engaged members of theGitLab open-source community, our contributors often serve as subject matter experts at market-leading developer events and The DevOps Platform is presented on the cutting edge of innovation. We intend to continue to invest in building out this community to foster more contributions and collaboration in the space. Our open source community, in turn, accelerates our ability to innovate and provide a better platform to our customers. We intend to expend additional resources in the future to continue enhancing The DevOps Platform and introducing new products, features and functionality. Acquiring New Customers Our future growth depends in large part on our ability to acquire new customers. This, in turn, relies on our ability to reach teams and organizations through our marketing and sales efforts. To this end, we are making significant investments in our sales and marketing efforts to expand our reach and differentiate The DevOps Platform from competitive products and services. We believe that eventually the vast majority of organizations will switch to a DevOps platform and embrace a single application approach, creating a substantial opportunity to continue to grow our customer base. As a result, our Base Customers increased to 4,057 as ofOctober 31, 2021 from 2,438 as ofOctober 31, 2020 , an increase of 66%, our$100,000 ARR customers increased to 427 as ofOctober 31, 2021 from 247 as ofOctober 31, 2020 , an increase of 73%. See the section entitled "Key Business Metrics-Dollar-Based Net Retention Rate and ARR" below for additional information about how we define ARR. Our operating results and growth prospects will depend in part on our ability to attract new customers. While we believe we have a significant market opportunity that The DevOps Platform addresses, we will 26 -------------------------------------------------------------------------------- Table of Cont ents need to continue to invest in sales and marketing, research and development, and customer support to further grow our customer base, both domestically and internationally. We believe our estimated 30 million registered users, which includes users of our free platform, provides a base of potential new customers. We intend to continue to add headcount to our global sales and marketing team to acquire new customers and to increase sales to existing customers. While we cannot predict customer adoption rates and demand, the future growth rate and size of the market for DevOps platforms, or the introduction of competitive products and services, our business and operating results will be significantly affected by the degree and speed with which organizations adopt The DevOps Platform. Retaining and Expanding Our Existing Customers We employ a "land and expand" business strategy that focuses on efficiently acquiring new customers and growing our relationships with existing customers over time. We believe that as our customers realize the benefits of a single application approach, they will increase the use of The DevOps Platform, enhancing our ability to expand revenue generation within our existing customers over time. As a result of our approach, as ofOctober 31, 2021 and 2020, our Dollar-Based Net Retention Rate were above 130%. See the section entitled "Key Business Metrics-Dollar-Based Net Retention Rate and ARR" below for additional information about how we define Dollar-Based Net Retention Rate. We plan to continue investing in sales and marketing, with a focus on expansion of The DevOps Platform with Base Customers. We believe that this expansion will provide us with substantial operating leverage because the costs to expand sales within existing customers are significantly less than the costs to acquire new customers. Our future revenue growth and our ability to achieve and maintain profitability is dependent upon our ability to continue landing new customers, expanding the adoption of The DevOps Platform by additional users within their organizations, and upgrading customers to higher-cost tiers. Ultimately our ability to increase sales to existing customers will depend on several factors, including our customers' satisfaction with The DevOps Platform, our pricing, competition, and overall changes in our customers' spending levels. Partnerships, Alliances, Channels, and Integrations We believe that our further growth depends in part on our ability to build and maintain successful partnerships, alliances, channels and integrations. In fiscal 2021, we began investing in developing a strong ecosystem and partner network, comprised of cloud and technology partners, re-sellers, and system integrators, as a way to expand our go-to-market strategy. We plan to continue investing in and developing these relationships to broaden our distribution footprint and drive greater awareness of our brand and The DevOps Platform. We believe that these partnerships will extend our sales reach and provide product and technology integrations that will accelerate implementation of The DevOps Platform domestically and internationally, although investing in these relationships can be time consuming and costly. While expending resources in developing these partnerships and alliances may adversely impact our short-term profitability, we believe these investments will lead to longer term growth for the business as a whole. Continuing to Scale our Business We plan to continue investing in our business so that we can capitalize on our market opportunity. We believe that these investments will contribute to our long-term growth, although they may adversely affect our operating results in the near term. Furthermore, we expect our general and administrative expenses to increase in absolute amount for the foreseeable future given the additional expenses for accounting, compliance, and investor relations as a public company. While we expect these investments will contribute to our long-term growth, they may adversely affect our profitability in the near term, until such time as we are able to sufficiently grow our number of customers and increase the value of ARR with existing customers. We plan to balance these investments in future growth with a continued focus on managing our operating results. 27 -------------------------------------------------------------------------------- Table of Cont ents Key Business Metrics We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. Dollar-Based Net Retention Rate and ARR We believe that our ability to retain and expand our revenue generated from our existing customers is an indicator of the long-term value of our customer relationships and our potential future business opportunities. Dollar-Based Net Retention Rate measures the percentage change in our ARR derived from our customer base at a point in time. Our calculation of ARR and by extension Dollar-Based Net Retention Rate, includes both self-managed and SaaS license revenue. We report Dollar-Based Net Retention Rate on a threshold basis. We calculate ARR by taking the monthly recurring revenue, or MRR, and multiplying it by 12. MRR for each month is calculated by aggregating, for all customers during that month, monthly revenue from committed contractual amounts of subscriptions, including our self-managed and SaaS offerings but excluding professional services. We calculate Dollar-Based Net Retention Rate as of a period end by starting with our customers as of the 12 months prior to such period end, or the Prior Period ARR. We then calculate the ARR from these customers as of the current period end, or the Current Period ARR. The calculation of Current Period ARR includes any upsells, price adjustments, user growth within a customer, contraction, and attrition. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the Dollar-Based Net Retention Rate. As of October 31, 2021 2020 Dollar-Based Net Retention Rate > 130% > 130% Customers with ARR of$100,000 or More We believe that our ability to increase the number of$100,000 ARR customers is an indicator of our market penetration and strategic demand for The DevOps Platform. A single organization with separate subsidiaries, segments, or divisions that use The DevOps Platform is considered a single customer for determining each organization's ARR. We do not count our reseller or distributor channel partners as customers. In cases where customers subscribe to The DevOps Platform through our channel partners, each end customer is counted separately. As of October 31, 2021 2020$100,000 ARR customers 427 247 Components of Our Results of Operations Revenue Subscription - self-managed and SaaS Our self-managed and SaaS subscriptions consist of support, maintenance, upgrades and updates on a when-and-if-available basis. Revenue for support and maintenance is recognized ratably over the contract period based on the stand-ready nature of these subscription elements. Our SaaS subscriptions provide access to our latest managed version of our product hosted in a public cloud. Revenue from our SaaS offering is recognized ratably over the contract period when the performance obligation is satisfied. The typical term of a subscription contract for self-managed or SaaS offering is one to three years. 28 -------------------------------------------------------------------------------- Table of Cont ents License - self-managed and other The license component of our self-managed subscriptions reflects the revenue recognized by providing customers with access to proprietary software features. License revenue is recognized up front when the software license is made available to our customer. Other revenue consists of professional services revenue which is primarily derived from fixed fee offerings which are subject to customer acceptance. Given our limited history of providing professional services, uncertainty exists about customer acceptance and therefore, control is presumed to transfer upon confirmation from the customer, as defined in each professional services contract. Accordingly, revenue is recognized upon satisfaction of all requirements per the applicable contract. Revenue from professional services provided on a time and material basis is recognized over the periods services are delivered. Revenue from professional services accounted for 3%, 2%, 4% and 3% of our total revenue for the three and nine months endedOctober 31, 2021 and 2020, respectively. Cost of Revenue Subscription - self-managed and SaaS Cost of revenue for self-managed and SaaS subscriptions consists primarily of allocated cloud-hosting costs paid to third-party service providers, personnel-related costs, including stock-based compensation expenses, associated with our customer support personnel, including contractors, and allocated overhead. We expect our cost of revenue for self-managed and SaaS subscriptions to increase in absolute dollars as our self-managed and SaaS subscription revenue increases. As our SaaS offering makes up an increasing percentage of our total revenue, we expect to see increased associated cloud-related costs, such as hosting and managing costs, which may adversely impact our gross margins. License - self-managed and other Cost of self-managed license sales includes personnel-related expenses, including stock-based compensation expenses. Other costs of sales include professional services, personnel-related costs associated with our customer support personnel, including contractors, and allocated overhead. Operating Expenses Our operating expenses consist of sales and marketing, research and development and general and administrative expenses. Personnel-related expenses are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation, and sales commissions. Operating expenses also include IT overhead costs. Sales and Marketing Sales and marketing expenses consist primarily of personnel-related expenses associated with our sales and marketing personnel, advertising, travel and entertainment related expenses, including a portion of the costs for our gathering of staff and leaders at one site we call "Contribute" once a year, branding and marketing events, promotions, subscription services and our hosting expenses for our free tier. Sales and marketing expenses also include sales commissions paid to our sales force and referral fees paid to independent third parties that are incremental to obtain a subscription contract. Such costs are capitalized and amortized over an estimated period of benefit of three years, and any such expenses paid for the renewal of a subscription are capitalized and amortized over the contractual term of the renewal. We expect sales and marketing expenses to increase in absolute dollars as we continue to make significant investments in our sales and marketing organization to drive additional revenue, further penetrate the market, and expand our global customer base, but to decrease as a percentage of our total revenue over time, although our sales and marketing expenses may fluctuate as a percentage of our total revenue from period-to-period depending on the timing of these expenses. 29 -------------------------------------------------------------------------------- Table of Cont ents Research and Development Research and development expenses consist primarily of personnel-related expenses associated with our research and development personnel, including internal hosting, contractors and allocated overhead associated with developing new features or enhancing existing features as well as a portion of the costs for our gathering of staff and leaders at one site we call "Contribute" once a year. Costs related to research and development are expensed as incurred. We expect research and development expenses to increase in absolute dollars as we continue to increase investments in our existing products and services. However, we anticipate research and development expenses to decrease as a percentage of our total revenue over time, although our research and development expenses may fluctuate as a percentage of our total revenue from period-to-period depending on the timing of these expenses. General and Administrative General and administrative expenses consist primarily of personnel-related expenses for our executives, finance, legal, and human resources. General and administrative expenses also include external legal, accounting, director and officer insurance, a portion of the costs for our gathering of staff and leaders at one site we call "Contribute" once a year, other consulting, and professional services fees, software and subscription services, and other corporate expenses. We expect to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations, and professional services. We expect that our general and administrative expenses will increase in absolute dollars as our business grows but will decrease as a percentage of our total revenue over time, although our general and administrative expenses may fluctuate as a percentage of our total revenue from period-to-period depending on the timing of these expenses. Interest Income, and Other Income (Expense), Net Interest income consists primarily of interest earned on our cash equivalents and short-term investments. Other income (expense), net consists primarily of foreign currency transaction gains and losses. Provision for (Benefit from) Income Taxes Provision for (benefit from) income taxes consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance in some jurisdictions against our deferred tax assets because we have concluded that it is more likely than not that the deferred tax assets will not be realized. 30 -------------------------------------------------------------------------------- Table of Cont ents Results of Operations The following table sets forth our results of operations for the periods presented (in thousands): Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 Revenue: Subscription-self-managed and SaaS $ 59,774
7,026 5,487 18,315 13,775
Total revenue 66,800 42,152 174,857 106,029
Cost of revenue:(1)
Subscription-self-managed and SaaS 5,608 3,671 16,366 9,487
License-self-managed and other 1,587 966 4,446 2,751
Total cost of revenue 7,195 4,637 20,812 12,238
Gross profit 59,605 37,515 154,045 93,791
Operating expenses:
Sales and marketing(1) 50,543 34,837 133,562 99,164
Research and development(1) 24,664 19,042 68,607 57,942
General and administrative(1) 16,939 8,090 40,276 22,113
Total operating expenses 92,146 61,969 242,445 179,219
Loss from operations (32,541) (24,454) (88,400) (85,428)
Interest income 127 97 226 1,007
Other income (expense), net (10,209) (4,005) (21,252) 13,447
Loss before income taxes (42,623) (28,362) (109,426) (70,974)
Provision for (benefit from) income taxes (875) 246 1,370 1,182
Net loss $ (41,748)
(521) - (1,443) -
Net loss attributable to GitLab $ (41,227) (1)Includes stock-based compensation expense as follows:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(in thousands)
Cost of revenue $ 331 $ 74 $ 722 $ 206
Research and development 2,147 635 4,653 1,902
Sales and marketing 2,562 813 5,688 2,319
General and administrative 3,539 534 6,179 1,251
Total stock-based compensation expense $ 8,579
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(2)Our condensed consolidated financial statements include our variable interest
entity, Jihu and majority owned subsidiary, Meltano Inc. The ownership interest
of other investors is recorded as a noncontrolling interest. See "Note 13. Joint
Venture and Spin-off" to our condensed consolidated financial statements for
additional details.
The following table sets forth the components of our condensed consolidated
statements of operations as a percentage of total revenue for each of the
periods presented:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(as a percentage of total revenue)
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 11 11 12 12
Gross profit 89 89 88 88
Operating expenses:
Sales and marketing 76 83 76 94
Research and development 37 45 39 55
General and administrative 25 19 23 21
Total operating expenses 138 147 139 169
Loss from operations (49) (58) (51) (81)
Interest income - - - 1
Other income (expense), net (15) (10) (12) 13
Loss before income taxes (64) (67) (63) (67)
Provision for (benefit from) income
taxes (1) 1 1 1
Net loss (62) % (68) % (63) % (68) %
Net loss attributable to noncontrolling
interest (1) % - % (1) % - %
Net loss attributable to GitLab (62) % (68) % (63) % (68) %
Comparison of the Three and Nine Months Ended October 31, 2021 and 2020
Revenue
Three Months Ended October 31, Change Nine Months Ended October 31, Change
2021 2020 $ % 2021 2020 $ %
(in thousands) (in thousands)
Subscription-self-managed and SaaS $ 59,774 $ 36,665 $ 23,109 63 % $ 156,542 $ 92,254 $ 64,288 70 %
License-self-managed and other 7,026 5,487 1,539 28 18,315 13,775 4,540 33
Total revenue $ 66,800 $ 42,152 $ 24,648 58 % $ 174,857 $ 106,029 $ 68,828 65 %
Revenue increased $24.6 million or 58%, to $66.8 million for the three months
ended October 31, 2021 from $42.2 million for the three months ended October 31,
2020 , primarily due to the ongoing demand for The DevOps Platform. Revenue
increased $68.8 million or 65%, to $174.9 million for the nine months ended
October 31, 2021 from $106.0 million for the nine months ended October 31, 2020 ,
primarily due to the ongoing demand for The DevOps Platform. The increase in
both periods was due to adding new customers, the expansion within our existing
paid customers and an increase in our number of $100,000 ARR customers. Our
expansion is reflected by our Dollar-Based Net Retention Rate above 130% as of
October 31, 2021 . We had 427 $100,000 ARR customers as of October 31, 2021 ,
increasing from 247 as of October 31, 2020 .
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Cost of Revenue, Gross Profit, and Gross Margin
Three Months Ended October Nine Months Ended October
31, Change 31, Change
2021 2020 $ % 2021 2020 $ %
(in thousands) (in thousands)
Cost of revenue $ 7,195 $ 4,637 $ 2,558 55 % $ 20,812 $ 12,238 $ 8,574 70 %
Gross profit 59,605 37,515 22,090 59 154,045 93,791 60,254 64
Gross margin 89 % 89 % 88 % 88 %
Cost of revenue increased by $2.6 million , to $7.2 million for the three months
ended October 31, 2021 from $4.6 million for the three months ended October 31,
2020 , primarily due to a $1.4 million increase in personnel-related expenses,
which include stock-based compensation expense, driven by a 18% increase in our
average customer support and consulting delivery headcount. The remaining change
was primarily attributable to an increase in third-party hosting costs and an
increase in total Infrastructure and Customer Support expense allocated to paid
users of $0.9 million . Gross margin was consistent at 89% for the three months
ended October 31, 2021 and 2020.
Cost of revenue increased by $8.6 million , to $20.8 million for the nine months
ended October 31, 2021 from $12.2 million for the nine months ended October 31,
2020 , primarily due to a $4.1 million increase in personnel-related expenses,
which includes stock-based compensation expense, driven by a 22% increase in our
average customer support and consulting delivery headcount. The remaining change
was primarily attributable to an increase in third-party hosting costs of $2.1
million and an increase in total Infrastructure and Customer Support expense
allocated to paid users of $1.5 million . Gross margin was consistent at 88% for
the nine months ended October 31, 2021 and 2020.
Cost of revenue for the three and nine months ended October 31, 2021 includes
$0.2 million and $0.6 million attributable to our variable interest entity,
JiHu, respectively. See "Note 13. Joint Venture and Spin-off" to our condensed
consolidated financial statements for additional details.
Sales and Marketing
Three Months Ended October 31, Change Nine Months Ended October 31, Change
2021 2020 $ % 2021 2020 $ %
(in thousands) (in thousands)
Sales and marketing
expenses $ 50,543 $ 34,837 $ 15,706 45 % $ 133,562 $ 99,164 $ 34,398 35 %
Sales and marketing expenses increased by $15.7 million , to $50.5 million for
the three months ended October 31, 2021 from $34.8 million for the three months
ended October 31, 2020 , primarily due to an increase of $10.2 million in
personnel-related expenses, which includes stock-based compensation expense,
driven by an increase of 14% in our average sales and marketing headcount, an
increase of $1.6 million in marketing expenses, and an increase of $1.0 million
in hosting expenses.
Sales and marketing expenses increased by $34.4 million , to $133.6 million for
the nine months ended October 31, 2021 from $99.2 million for the nine months
ended October 31, 2020 , primarily due to an increase of $24.5 million in
personnel-related expenses, which includes stock-based compensation expense,
driven by an increase of 15% in our average sales and marketing headcount, an
increase of $4.0 million in marketing expenses, and an increase of $2.0 million
in hosting expenses.
Sales and marketing expenses for the three and nine months ended October 31,
2021 include $0.8 million and $1.6 million attributable to our variable interest
entity, JiHu, respectively. See "Note 13. Joint Venture and Spin-off" to our
condensed consolidated financial statements for additional details.
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Research and Development
Three Months Ended October 31, Change Nine Months Ended October 31, Change
2021 2020 $ % 2021 2020 $ %
(in thousands) (in thousands)
Research and
development expenses $ 24,664 $ 19,042 $ 5,622 30 % $ 68,607 $ 57,942 $ 10,665 18 %
Research and development expenses increased by $5.6 million , to $24.7 million
for the three months ended October 31, 2021 from $19.0 million for the three
months ended October 31, 2020 , primarily due to an increase of $5.5 million in
personnel-related expenses, including stock-based compensation expense.
Research and development expenses increased by $10.7 million , to $68.6 million
for the nine months ended October 31, 2021 from $57.9 million for the nine
months ended October 31, 2020 , primarily due to an increase of $11.4 million in
personnel-related expenses, including stock-based compensation expense,
primarily attributable to a 6% average increase in research and development
headcount, offset by a decrease in internal hosting expenses.
Research and development expenses for the three and nine months ended October
31, 2021 include $0.5 million and $1.4 million attributable to our variable
interest entity, JiHu, respectively. See "Note 13. Joint Venture and Spin-off"
to our condensed consolidated financial statements for additional details.
General and Administrative
Three Months Ended October 31, Change Nine Months Ended October 31, Change
2021 2020 $ % 2021 2020 $ %
(in thousands) (in thousands)
General and
administrative expenses $ 16,939 $ 8,090 $ 8,849 109 % $ 40,276 $ 22,113 $ 18,163 82 %
General and administrative expenses increased by $8.8 million , to $16.9 million
for the three months ended October 31, 2021 from $8.1 million for the three
months ended October 31, 2020 , primarily due to an increase of $6.6 million in
personnel-related expenses, including stock-based compensation expense, driven
by an increase of 26% in our average finance, accounting, legal, and people
success headcount, an increase of $0.5 million in legal expenses and an increase
of $0.5 million in insurance expenses due to becoming a publicly traded company.
General and administrative expenses increased by $18.2 million , to $40.3 million
for the nine months ended October 31, 2021 from $22.1 million for the nine
months ended October 31, 2020 , primarily due to an increase of $11.7 million in
personnel-related expenses, including stock-based compensation expense, driven
by an increase of 25% in our average finance, accounting, legal, and people
success headcount, an increase of $2.5 million in legal expenses, and an
increase of $1.7 million in audit, tax, and insurance to support our growth and
due to becoming a publicly traded company.
General and administrative expenses for the three and nine months ended October
31, 2021 include $0.6 million and $2.0 million attributable to our variable
interest entity, JiHu, respectively. See "Note 13. Joint Venture and Spin-off"
to our condensed consolidated financial statements for additional details.
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Table of Cont ents
Interest Income, and Other Income (Expense), Net
Three Months Ended October 31, Change Nine Months Ended October 31, Change
2021 2020 $ % 2021 2020 $ %
(in thousands) (in thousands)
Interest income $ 127 $ 97 $ 30 31 % $ 226 $ 1,007 $ (781) (78) %
Other income (expense),
net (10,209) (4,005) (6,204) 155 % (21,252) 13,447 (34,699) (258) %
For the three months ended October 31, 2021 and 2020, interest income increased
primarily due to higher balances held in cash equivalents and short-term
investments, particularly attributable to $654.6 million proceeds from the
initial public offering. For the nine months ended October 31, 2021 and 2020,
interest income decreased primarily due to a decrease in the overall market
interest rates. We expect our interest income to increase in future quarters as
a result of investing our IPO proceeds into money market funds and other
short-term investments.
The change in other income (expense), net is primarily due to net foreign
currency exchange gains (losses) caused by the intercompany loans of short-term
nature for entities where functional currency is not the U.S. dollar. For the
three months ended October 31, 2021 and 2020, we recognized foreign exchange
gains (losses), net of $(9.8) million and $(4.4) million , respectively. For the
nine months ended October 31, 2021 and 2020, we recognized foreign exchange
gains (losses), net of $(19.7) million and $13.2 million , respectively.
Provision for (Benefit from) Income Taxes
Three Months Ended October 31, Change Nine Months Ended October 31, Change
2021 2020 $ % 2021 2020 $ %
(in thousands) (in thousands)
Provision for (benefit
from) income taxes $ (875) $ 246 $ (1,121) (456) % $ 1,370 $ 1,182 $ 188 16 %
The changes in the three and nine month effective tax rates related primarily to
the company's ability to benefit from year-to-date losses for the U.S. parent
and certain subsidiaries.
We maintain a full valuation allowance in some jurisdictions on our deferred tax
assets, and the significant components of our recorded tax expense are current
cash taxes in various jurisdictions. Our effective tax rate might fluctuate
significantly on a quarterly basis and could be adversely affected to the extent
earnings are lower than forecasted in countries that have lower statutory rates
and higher than forecasted in countries that have higher statutory rates.
Liquidity and Capital Resources
Since inception, we have financed operations primarily through proceeds received
from sales of equity securities and payments received from our customers. On
October 18, 2021 , we closed our IPO of 8,940,000 shares of our Class A common
stock at an offering price of $77.00 per share, including 520,000 shares
pursuant to the exercise of the underwriters' option to purchase additional
shares of our Class A common stock, resulting in net proceeds to us of
$654.6 million , after deducting underwriting discounts of $33.8 million .
As of October 31, 2021 and January 31, 2021 , our principal source of liquidity
was cash, cash equivalents, and short-term investments of $924.7 million and
$282.9 million , respectively, which were held for working capital purposes. Cash
and cash equivalents consist of cash in banks and money market accounts, while
short-term investments consist of certificates of deposit.
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We believe that our existing cash, cash equivalents, and short-term investments
will be sufficient to support working capital and capital expenditure
requirements for at least the next 12 months. Our future capital requirements
will depend on many factors, including our revenue growth rate, the timing and
the amount of cash received from customers, the expansion of sales and marketing
activities, the timing and extent of spending to support research and
development efforts, the price at which we are able to procure third-party cloud
infrastructure, expenses associated with our international expansion, the
introduction of platform enhancements, and the continuing market adoption of The
DevOps Platform. In the future, we may enter into arrangements to acquire or
invest in complementary businesses, products, and technologies. We may be
required to seek additional equity or debt financing. In the event that we
require additional financing, we may not be able to raise such financing on
terms acceptable to us or at all. If we are unable to raise additional capital
or generate cash flows necessary to expand our operations and invest in
continued innovation, we may not be able to compete successfully, which would
harm our business, operating results, and financial condition.
The following table shows a summary of our cash flows for the periods presented:
Nine Months Ended October 31,
2021 2020
(in thousands)
Net cash used in operating activities $ (48,720) $ (66,220)
Net cash used in investing activities (100,031) (933)
Net cash provided by financing activities 691,588 6,619
Operating Activities Our largest source of operating cash is payments received from our customers. Our primary uses of cash from operating activities are for personnel-related expenses, sales and marketing expenses, third-party cloud infrastructure expenses, and overhead expenses. We have generated negative cash flows from operating activities and have supplemented working capital through net proceeds from the sale of equity securities. Cash used in operating activities during the nine months endedOctober 31, 2021 was$48.7 million , primarily consisting of our net loss of$110.8 million , adjusted for non-cash items of$60.7 million (including stock-based compensation of$17.2 million , amortization of deferred contract acquisition costs of$23.6 million , and unrealized foreign exchange loss of$19.8 million ) and net cash inflows of$1.4 million used in changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were the increase in costs deferred related to contract acquisition of$24.6 million and the increase in accounts receivable of$17.4 million , offset by the increase in deferred revenue of$41.5 million . Cash used in operating activities during the nine months endedOctober 31, 2020 was$66.2 million , primarily consisting of our net loss of$72.2 million , adjusted for non-cash items of$4.9 million (including stock-based compensation of$5.7 million , amortization of deferred contract acquisition costs of$12.4 million , offset by unrealized foreign exchange gain of$13.6 million ), and net cash inflows of$1.0 million used in changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were the increase in costs deferred related to contract acquisition of$21.6 million and the increase in accounts receivable of$18.5 million , offset by the increase in deferred revenue of$40.3 million . Investing Activities Cash used in investing activities during the nine months endedOctober 31, 2021 was$100.0 million , consisting of purchases of short-term investment. 36 -------------------------------------------------------------------------------- Table of Cont ents Cash used in investing activities during the nine months endedOctober 31, 2020 was$0.9 million , consisting of payments towards asset acquisitions. Financing Activities Cash provided by financing activities during the nine months endedOctober 31, 2021 was$691.6 million , primarily attributable to$654.6 million in proceeds from the initial public offering, net of underwriting discounts,$26.5 million of contributions received from noncontrolling interests and$14.6 million of proceeds from issuance of common stock upon stock options exercises. Cash provided by financing activities during the nine months endedOctober 31, 2020 was$6.6 million , consisting of proceeds from issuance of common stock upon stock options exercises. Contractual Obligations and Commitments The following table summarizes our purchase commitments as ofOctober 31, 2021 : Less Than 1 (in thousands) Total Year 1-3 Years 3-5 Years More Than 5 Years Purchase commitments$ 78,635 $ 27,345 $ 51,290 $ - $ - The purchase commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical Accounting Policies and Estimates Our condensed consolidated financial statements have been prepared in conformity withU.S. GAAP. The preparation of the condensed consolidated financial statements in conformity withU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. We base these estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events. Actual results could differ from those estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, operating results, and cash flows will be affected. There have been no material changes to our critical accounting policies and estimates (except for short-term investments described in "Note 2. Basis of Presentation and Summary of Significant Accounting Policies") as compared to those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Final Prospectus. Recently Issued Accounting Pronouncements See "Note 2. Basis of Presentation and Summary of Significant Accounting Policies" to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding recently issued accounting pronouncements. 37 -------------------------------------------------------------------------------- Table of Cont ents JOBS Act Accounting Election We are an emerging growth company, as defined in the Jumpstart Our Business Startups ("JOBS") Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. 38
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Table of Cont ents
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