SNOWFLAKE INC. 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Special Note About Forward-Looking Statements" in this Annual Report on Form 10-K. You should review the disclosure under the heading "Risk Factors" in this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Unless the context otherwise requires, all references in this report to
"Snowflake," the "Company", "we," "our," "us," or similar terms refer to
A discussion regarding our financial condition and results of operations for the fiscal year endedJanuary 31, 2021 compared to the fiscal year endedJanuary 31, 2020 is presented below. A discussion regarding our financial condition and results of operations for the fiscal year endedJanuary 31, 2020 compared to the fiscal year endedJanuary 31, 2019 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Final Prospectus datedSeptember 15, 2020 and filed with theSEC pursuant to Rule 424(b)(4) onSeptember 16, 2020 .
Overview
We believe in a data connected world where organizations have seamless access to
explore, share, and unlock the value of data. To realize this vision, we deliver
the Data Cloud, an ecosystem where Snowflake customers, partners, data
providers, and data consumers can break down data silos and derive value from
rapidly growing data sets in secure, governed, and compliant ways.
Our platform is the innovative technology that powers the Data Cloud, enabling
customers to consolidate data into a single source of truth to drive meaningful
business insights, build data-driven applications, and share data. We provide
our platform through a customer-centric, consumption-based business model, only
charging customers for the resources they use.
Our cloud-native architecture consists of three independently scalable layers
across storage, compute, and cloud services. The storage layer ingests massive
amounts and varieties of structured and semi-structured data to create a unified
data record. The compute layer provides dedicated resources to enable users to
simultaneously access common data sets for many use cases without latency. The
cloud services layer intelligently optimizes each use case's performance
requirements with no administration. This architecture is built on three major
public clouds across 23 regional deployments around the world. These deployments
are interconnected to deliver the Data Cloud, enabling a consistent, global user
experience.
We generate the substantial majority of our revenue from fees charged to our
customers based on the storage, compute, and data transfer resources consumed on
our platform as a single, integrated offering. For storage resources,
consumption fees are based on the average terabytes per month of all of the
customer's data stored in our platform. For compute resources, consumption fees
are based on the type of compute resource used and the duration of use or, for
some features, the volume of data processed. For data transfer resources,
consumption fees are based on terabytes of data transferred, the public cloud
provider used, and the region to and from which the transfer is executed.
Our customers typically enter into capacity arrangements with a term of one to
four years, or consume our platform under on-demand arrangements in which we
charge for use of our platform monthly in arrears. Consumption for most
customers accelerates from the beginning of their usage to the end of their
contract terms and often exceeds their initial capacity commitment amounts. When
this occurs, our customers have the option to amend their existing agreement
with us to purchase additional capacity or request early renewals. When a
customer's consumption during the contract term does not exceed its capacity
commitment amount, it may have the option to roll over any unused capacity to
future periods, generally on the purchase of additional capacity. For these
reasons, we believe our deferred revenue is not a meaningful indicator of future
revenue that will be recognized in any given time period.
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Our go-to-market strategy is focused on acquiring new customers and driving continued use of our platform for existing customers. We primarily focus our selling efforts on large organizations and primarily sell our platform through a direct sales force, which targets technical and business leaders who are adopting a cloud strategy and leveraging data to improve their business performance. Our sales organization is comprised of sales development, inside sales, and field sales personnel and is segmented by the size, region, and recently, industry of prospective customers. Once our platform has been adopted, we focus on increasing the migration of additional customer workloads to our platform to drive increased consumption, as evidenced by our net revenue retention rate, which exceeded 165% as ofJanuary 31, 2021 and 2020. Our platform is used globally by organizations of all sizes across a broad range of industries. As ofJanuary 31, 2021 , we had 4,139 total customers, increasing from 2,392 customers as ofJanuary 31, 2020 . Our platform has been adopted by many of the world's largest organizations that view Snowflake as a key strategic partner in their cloud and data transformation initiatives. As ofJanuary 31, 2021 , our customers included 186 of the Fortune 500, based on the 2020 Fortune 500 list, and those customers contributed approximately 27% of our revenue for the fiscal year endedJanuary 31, 2021 . Our Fortune 500 customer count is subject to adjustments for annual updates to the Fortune 500 list by Fortune, as well as acquisitions, consolidations, spin-offs, and other market activity with respect to such customers. Initial Public Offering and Private Placements InSeptember 2020 , we completed our initial public offering (IPO) in which we issued and sold 32,200,000 shares of our Class A common stock at$120.00 per share, including 4,200,000 shares issued upon the exercise of the underwriters' option to purchase additional shares. We received net proceeds of$3.7 billion after deducting underwriting discounts. In connection with the IPO: •all 182,271,099 shares of our outstanding redeemable convertible preferred stock automatically converted into an equivalent number of shares of Class B common stock on a one-to-one basis; and •Salesforce Ventures LLC and Berkshire Hathaway Inc. each purchased 2,083,333 shares of our Class A common stock at$120.00 per share in concurrent private placements that closed immediately subsequent to the closing of the IPO. We received aggregate proceeds of$500.0 million in these concurrent private placements and did not pay underwriting discounts with respect to the shares of Class A common stock that were sold in these private placements. OnMarch 1, 2021 , all shares of our then-outstanding Class B common stock were automatically converted into the same number of shares of Class A common stock pursuant to the terms of our amended and restated certificate of incorporation. See Note 16, Subsequent Events, in the notes to our consolidated financial statements included elsewhere in this Annual Form on Form 10-K for further details. 45 -------------------------------------------------------------------------------- Tabl e of Contents Key Factors Affecting Our Performance Adoption of our Platform and Expansion of the Data Cloud Our future success depends in large part on the market adoption of our platform. While we see growing demand for our platform, particularly from large enterprises, many of these organizations have invested substantial technical, financial, and personnel resources in their legacy database products or big data offerings, despite their inherent limitations. While this makes it difficult to predict customer adoption rates and future demand, we believe that the benefits of our platform put us in a strong position to capture the significant market opportunity ahead. Our platform powers the Data Cloud, an ecosystem of data providers, data consumers, and data application developers that enables our customers to securely share, connect, collaborate, monetize, and acquire live data sets. Our future growth will be increasingly dependent on our ability to increase consumption of our platform by building and expanding this ecosystem and the types and quality of data available on the Data Cloud. Expanding Within our Existing Customer Base Our large base of customers represents a significant opportunity for further consumption of our platform. While we have seen a rapid increase in the number of customers that have contributed more than$1 million in product revenue in the trailing 12 months, we believe that there is a substantial opportunity to continue growing these customers further, as well as continuing to expand the usage of our platform within our other existing customers. We plan to continue investing in our direct sales force to encourage increased consumption and adoption of new use cases among our existing customers. Once deployed, our customers often expand their use of our platform more broadly within the enterprise and across their ecosystem of customers and partners as they migrate more data to the public cloud, identify new use cases, and realize the benefits of our platform and the Data Cloud. However, because we generally recognize product revenue on consumption and not ratably over the term of the contract, we do not have visibility into the timing of revenue recognition from any particular customer. In any given period, there is a risk that customer consumption of our platform will be slower than we expect, which may cause fluctuations in our revenue and results of operations. New software releases or hardware improvements may make our platform more efficient, enabling customers to consume fewer compute, storage, and data transfer resources to accomplish the same workloads. Our ability to increase usage of our platform by, and sell additional contracted capacity to, existing customers, and, in particular, large enterprise customers, will depend on a number of factors, including our customers' satisfaction with our platform, competition, pricing, overall changes in our customers' spending levels, the effectiveness of our efforts to help our customers realize the benefits of our platform, and the extent to which customers migrate new workloads to our platform over time. Acquiring New Customers We believe there is a substantial opportunity to further grow our customer base by continuing to make significant investments in sales and marketing and brand awareness. Our ability to attract new customers will depend on a number of factors, including our success in recruiting and scaling our sales and marketing organization, competitive dynamics in our target markets, and our ability to build and maintain partner relationships, including with global system integrators, resellers, and technology partners. We intend to expand our direct sales force, with a focus on increasing sales to large organizations. While our platform is built for organizations of all sizes and industries, we have only recently focused our selling efforts on large enterprise customers. We may not achieve anticipated revenue growth from expanding our sales force to focus on large enterprises if we are unable to hire, develop, integrate, and retain talented and effective sales personnel; if our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time; or if our sales and marketing programs are not effective. Investing in Growth and Scaling our Business We are focused on our long-term revenue potential. We believe that our market opportunity is large, and we will continue to invest significantly in scaling across all organizational functions in order to grow our operations both domestically and internationally. We have a history of introducing successful new features and capabilities on our platform, and we intend to continue to invest heavily to grow our business to take advantage of our expansive market opportunity rather than optimize for profitability or cash flow in the near future. 46 -------------------------------------------------------------------------------- Tabl e of Contents Key Business Metrics We monitor the key business metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. The calculation of the key business metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors. Product Revenue Product revenue is a key metric for us because we recognize revenue based on platform consumption, which is inherently variable at our customers' discretion, and not based on the amount and duration of contract terms. Product revenue includes compute, storage, and data transfer resources, which are consumed by customers on our platform as a single, integrated offering. Customers have the flexibility to consume more than their contracted capacity during the contract term and may have the ability to roll over unused capacity to future periods, generally on the purchase of additional capacity at renewal. Our consumption-based business model distinguishes us from subscription-based software companies that generally recognize revenue ratably over the contract term and may not permit rollover. Because customers have flexibility in the timing of their consumption, which can exceed their contracted capacity or extend beyond the original contract term in many cases, the amount of product revenue recognized in a given period is an important indicator of customer satisfaction and the value derived from our platform. While customer use of our platform in any period is not necessarily indicative of future use, we estimate future revenue using predictive models based on customers' historical usage to plan and determine financial forecasts. Product revenue excludes our professional services and other revenue, which has been less than 10% of revenue for each of the periods presented. Remaining Performance Obligations Remaining performance obligations (RPO) represent the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods. RPO excludes performance obligations from on-demand arrangements and certain time and materials contracts that are billed in arrears. RPO is not necessarily indicative of future product revenue growth because it does not account for the timing of customers' consumption or their consumption of more than their contracted capacity. Moreover, RPO is influenced by a number of factors, including the timing of renewals, the timing of purchases of additional capacity, average contract terms, seasonality, and the extent to which customers are permitted to roll over unused capacity to future periods, generally upon the purchase of additional capacity at renewal. Due to these factors, it is important to review RPO in conjunction with product revenue and other financial metrics disclosed elsewhere herein. Total Customers We count the total number of customers at the end of each period. For purposes of determining our customer count, we treat each customer account, including accounts for end-customers under a reseller arrangement, that has at least one corresponding capacity contract as a unique customer, and a single organization with multiple divisions, segments, or subsidiaries may be counted as multiple customers. For purposes of determining our customer count, we do not include customers that consume our platform only under on-demand arrangements. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity. We believe that the number of customers is an important indicator of the growth of our business and future revenue trends. 47 -------------------------------------------------------------------------------- Tabl e of Contents Net Revenue Retention Rate We believe the growth in use of our platform by our existing customers is an important measure of the health of our business and our future growth prospects. We monitor our dollar-based net revenue retention rate to measure this growth. To calculate this metric, we first specify a measurement period consisting of the trailing two years from our current period end. Next, we define as our measurement cohort the population of customers under capacity contracts that used our platform at any point in the first month of the first year of the measurement period. We then calculate our net revenue retention rate as the quotient obtained by dividing our product revenue from this cohort in the second year of the measurement period by our product revenue from this cohort in the first year of the measurement period. Any customer in the cohort that did not use our platform in the second year remains in the calculation and contributes zero product revenue in the second year. Our net revenue retention rate is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity. Since we will continue to attribute the historical product revenue to the consolidated contract, consolidation of capacity contracts within a customer's organization typically will not impact our net revenue retention rate unless one of those customers was not a customer at any point in the first month of the first year of the measurement period. We expect our net revenue retention rate to decrease over time as customers that have consumed our platform for an extended period of time become a larger portion of both our overall customer base and our product revenue that we use to calculate net revenue retention rate, and as their consumption growth primarily relates to existing use cases rather than new use cases. Customers with Trailing 12-Month Product Revenue Greater than $1Million Large customer relationships lead to scale and operating leverage in our business model. Compared with smaller customers, large customers present a greater opportunity for us to sell additional capacity because they have larger budgets, a wider range of potential use cases, and greater potential for migrating new workloads to our platform over time. As a measure of our ability to scale with our customers and attract large enterprises to our platform, we count the number of customers under capacity arrangements that contributed more than$1 million in product revenue in the trailing 12 months. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity. Fiscal Year Ended January 31, 2021 2020 2019 Product revenue (in millions) $ 553.8$ 252.2 $ 95.7 January 31, 2021 January 31, 2020 January 31, 2019 Remaining performance obligations (in millions)(1)$ 1,332.8 $ 426.3 $ 128.0 Total customers 4,139 2,392 948 Net revenue retention rate 168 % 169 % 180 % Customers with trailing 12-month product revenue greater than$1 million 77 41 14
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(1)As ofJanuary 31, 2021 , our RPO was approximately$1.3 billion , of which we expect approximately 55% to be recognized as revenue in the twelve months endingJanuary 31, 2022 based on historical customer consumption patterns and revenue results. The weighted-average remaining life of our contracts was 1.9 years as ofJanuary 31, 2021 . However, the amount and timing of revenue recognition are generally driven by customers' consumption, which is inherently variable at our customers' discretion and can extend beyond the original contract term in cases where customers are permitted to roll over unused capacity to future periods, generally upon the purchase of additional capacity at renewal. In addition, our historical customer consumption patterns and revenue results are not necessarily indicative of future results. 48 -------------------------------------------------------------------------------- Tabl e of Contents Impact of COVID-19 The COVID-19 pandemic has caused general business disruption worldwide beginning inJanuary 2020 . The full extent to which the COVID-19 pandemic, including any new strains or mutations, will directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. Although our results of operations, cash flows, and financial condition were not adversely impacted in the fiscal year endedJanuary 31, 2021 , we have experienced, and may continue to experience, an adverse impact on certain parts of our business as a result of governmental restrictions and other measures to mitigate the spread of COVID-19, including a lengthening of the sales cycle for some prospective customers and delays in the delivery of professional services and trainings to our customers. We have also experienced, and may continue to experience, a modest positive impact on other aspects of our business, including an increase in consumption of our platform by existing customers. Moreover, during the fiscal year endedJanuary 31, 2021 , we saw slower growth in certain operating expenses due to reduced business travel, deferred hiring for some positions, and the virtualization or cancellation of customer, partner, and employee events. While a reduction in operating expenses had a positive impact on our results of operations for the fiscal year endedJanuary 31, 2021 , we do not yet have visibility into the full impact this will have on our business. We cannot predict how long we will continue to experience these impacts as shelter-in-place orders and other related measures are expected to change over time, and the availability, efficacy, and acceptance of vaccines or other preventative measures is unclear. However, if our customers or partners experience downturns or uncertainty in their own business operations or revenue resulting from the spread or resurgence of COVID-19, they may decrease or delay their spending, request pricing discounts, or seek renegotiations of their contracts, any of which may result in decreased revenue and cash receipts for us in future periods. In addition, we may experience customer losses, including due to bankruptcy or our customers ceasing operations, which may result in an inability to collect accounts receivable from these customers. In addition, in response to the spread of COVID-19, we have required virtually all of our employees to work remotely to minimize the risk of the virus to our employees and the communities in which we operate, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and business partners. Although we expect most of our employees to return to physical offices in the future, the nature and extent of that return is uncertain. Given the uncertainty regarding the length, severity, and ability to combat the COVID-19 pandemic, we cannot reasonably estimate the impact on our future results of operations, cash flows, or financial condition. For additional details, see the section titled "Risk Factors." 49 -------------------------------------------------------------------------------- Tabl e of Contents Components of Results of Operations Revenue We deliver our platform over the internet as a service. Customers choose to consume our platform under either capacity arrangements, in which they commit to a certain amount of consumption at specified prices, or under on-demand arrangements, in which we charge for use of our platform monthly in arrears. Under capacity arrangements, from which a majority of our revenue is derived, we typically bill our customers annually in advance of their consumption. However, in future periods, we expect to see an increase in capacity contracts providing for quarterly upfront billings and monthly in arrears billings as our customers increasingly want to align consumption and timing of payments. Revenue from on-demand arrangements typically relates to initial consumption as part of customer onboarding and, to a lesser extent, overage consumption beyond a customer's contracted usage amount or following the expiration of a customer's contract. Revenue from on-demand arrangements represented 4%, 4%, and 5% of our revenue for the fiscal years endedJanuary 31, 2021 , 2020 and 2019, respectively. We recognize revenue as customers consume compute, storage, and data transfer resources under either of these arrangements. In limited instances, customers pay an annual deployment fee to gain access to a dedicated instance of a virtual private deployment. We recognize the deployment fee ratably over the contract term. Such deployment revenue represented approximately 1% of our revenue for all periods presented. Our customer contracts for capacity typically have a term of one to four years. The weighted-average term of capacity contracts entered into during the fiscal year endedJanuary 31, 2021 is 2.1 years. To the extent our customers enter into such contracts and either consume our platform in excess of their capacity commitments or continue to use our platform after expiration of the contract term, they are charged for their incremental consumption. In many cases, our customer contracts permit customers to roll over any unused capacity to a subsequent order, generally on the purchase of additional capacity. For those customers who do not have a capacity arrangement, our on-demand arrangements generally have a monthly stated contract term and can be terminated at any time by either the customer or us. We generate the substantial majority of our revenue from fees charged to our customers based on the storage, compute, and data transfer resources consumed on our platform as a single, integrated offering. We do not make any one of these resources available for consumption without the others. Instead, each of compute, storage, and data transfer work together to drive consumption on our platform. For storage resources, consumption for a given customer is based on the average terabytes per month of all of such customer's data stored in our platform. For compute resources, consumption is based on the type of compute resource used and the duration of use or, for some features, the volume of data processed. For data transfer resources, consumption is based on terabytes of data transferred, the public cloud provider used, and the region to and from which the transfer is executed. Because customers have flexibility in their consumption, and we generally recognize revenue on consumption and not ratably over the term of the contract, we do not have the visibility into the timing of revenue recognition from any particular customer contract that typical subscription-based software companies may have. As our customer base grows, we expect our ability to forecast customer consumption in the aggregate will improve. However, in any given period, there is a risk that customers will consume our platform more slowly than we expect, which may cause fluctuations in our revenue and results of operations. Our revenue also includes professional services and other revenue, which consists of consulting, on-site technical solution services, and training related to our platform. Our professional services revenue is recognized over time based on input measures, including time and materials costs incurred relative to total costs, with consideration given to output measures, such as contract deliverables, when applicable. Other revenue consists of fees from customer training delivered on-site or through publicly available classes. Allocation of Overhead Costs Overhead costs that are not substantially dedicated for use by a specific functional group are allocated based on headcount. Such costs include costs associated with office facilities, depreciation of property and equipment, and information technology (IT) related personnel and other expenses, such as software and subscription services. Cost of Revenue Cost of revenue consists of cost of product revenue and cost of professional services and other revenue. Cost of revenue also includes allocated overhead costs. 50
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Cost of product revenue. Cost of product revenue consists primarily of (i) third-party cloud infrastructure expenses incurred in connection with our customers' use of our platform and the deployment and maintenance of our platform on public clouds, including different regional deployments, and (ii) personnel-related costs associated with customer support and maintaining service availability and security of our platform, including salaries, benefits, bonuses, and stock-based compensation. We periodically receive credits from third-party cloud providers that are recorded as a reduction to the third-party cloud infrastructure expenses. Cost of product revenue also includes amortization of internal-use software development costs, amortization of acquired developed technology intangible assets, and expenses associated with software and subscription services dedicated for use by our customer support team and our engineering team responsible for maintaining our platform. Cost of professional services and other revenue. Cost of professional services and other revenue consists primarily of personnel-related costs associated with our professional services and training departments, including salaries, benefits, bonuses, and stock-based compensation, and costs of contracted third-party partners and software tools. We intend to continue to invest additional resources in our platform infrastructure and our customer support and professional services organizations to support the growth of our business. Some of these investments, including certain support costs and costs of expanding our business internationally, are incurred in advance of generating revenue, and either the failure to generate anticipated revenue or fluctuations in the timing of revenue could affect our gross margin from period to period. Operating Expenses Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation, and sales commissions. Operating expenses also include allocated overhead costs. Sales and Marketing Sales and marketing expenses consist primarily of personnel-related expenses associated with our sales and marketing staff, including salaries, benefits, bonuses, and stock-based compensation. Sales and marketing expenses also include draws and sales commissions paid to our sales force and referral fees paid to independent third parties, including amortization of deferred commissions. Prior to the fiscal year endedJanuary 31, 2021 , we primarily amortized sales commissions over a period of benefit that we determined to be five years as they were earned on new customer or expansion of existing customer contracts. As a result of modifications to our sales compensation plan during the fiscal year endedJanuary 31, 2021 , we now expense a portion of these sales commissions in the period earned, as they are earned based on the rate of our customers' consumption of our platform, which we expect will accelerate our sales and marketing expenses in the near term. The remaining portion of the sales commissions is earned upon origination of the new customer or customer expansion contract and is deferred and amortized over the period of benefit, which we determined to be five years. Sales and marketing expenses also include advertising costs and other expenses associated with our marketing and business development programs, including Summit, our annual user conference, offset by proceeds from such conferences and programs. In addition, sales and marketing expenses are comprised of travel-related expenses, software and subscription services dedicated for use by our sales and marketing organizations, and outside services contracted for sales and marketing purposes. We expect that our sales and marketing expenses will increase in absolute dollars and continue to be our largest operating expense for the foreseeable future as we grow our business. However, we expect that our sales and marketing expenses will decrease as a percentage of our revenue over time. Research and Development Research and development expenses consist primarily of personnel-related expenses associated with our research and development staff, including salaries, benefits, bonuses, and stock-based compensation. Research and development expenses also include contractor or professional services fees, third-party cloud infrastructure expenses incurred in developing our platform, and computer equipment, software, and subscription services dedicated for use by our research and development organization. We expect that our research and development expenses will increase in absolute dollars as our business grows, particularly as we incur additional costs related to continued investments in our platform. However, we expect that our research and development expenses will decrease as a percentage of our revenue over time. In addition, research and development expenses that qualify as internal-use software development costs are capitalized, the amount of which may fluctuate significantly from period to period. 51 -------------------------------------------------------------------------------- Tabl e of Contents General and Administrative General and administrative expenses consist primarily of personnel-related expenses for our finance, legal, human resources, facilities, and administrative personnel, including salaries, benefits, bonuses, and stock-based compensation. General and administrative expenses also include external legal, accounting, and other professional services fees, software and subscription services dedicated for use by our general and administrative functions, insurance and other corporate expenses. As a result of the closing of our IPO, we have incurred and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on 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 revenue over time. Interest Income Interest income consists primarily of interest income earned on our cash equivalents and short-term and long-term investments, net of associated fees. Other Income (Expense), Net Other income (expense), net consists primarily of the effect of exchange rates on our foreign currency-denominated asset and liability balances. Provision for (Benefit from) Income Taxes Provision for (benefit from) income taxes consists primarily of income taxes in certain foreign andU.S. state jurisdictions in which we conduct business. We maintain a full valuation allowance against ourU.S. andU.K. deferred tax assets because we have concluded that it is more likely than not that the deferred tax assets will not be realized. 52 -------------------------------------------------------------------------------- Tabl e of Contents Results of Operations The following table sets forth our consolidated statements of operations data for the periods indicated (in thousands): Fiscal Year Ended January 31, 2021 2020 2019 Revenue$ 592,049 $ 264,748 $ 96,666 Cost of revenue(1) 242,588 116,557 51,753 Gross profit 349,461 148,191 44,913 Operating expenses(1): Sales and marketing 479,317 293,577 125,642 Research and development 237,946 105,160 68,681 General and administrative 176,135 107,542 36,055 Total operating expenses 893,398 506,279 230,378 Operating loss (543,937) (358,088) (185,465) Interest income 7,507 11,551 8,759 Other expense, net (610) (1,005) (502) Loss before income taxes (537,040) (347,542) (177,208) Provision for income taxes 2,062 993 820 Net loss$ (539,102) $ (348,535) $ (178,028) ________________
(1)Includes stock-based compensation expense as follows (in thousands):
Fiscal Year Ended January 31,
2021 2020 2019
Cost of revenue $ 33,642 $ 3,650 $ 1,895
Sales and marketing 97,879 20,757 15,647
Research and development 99,223 15,743 28,284
General and administrative 70,697 38,249 6,912
Total stock-based compensation expense $
301,441
During the fiscal year endedJanuary 31, 2021 , we began recognizing, using an accelerated attribution method, stock-based compensation expense associated with our RSUs granted prior to our IPO as the performance-based vesting condition applicable to such RSUs was satisfied upon the effectiveness of our IPO inSeptember 2020 . We recognized stock-based compensation expense of$178.7 million associated with such RSUs for the fiscal year endedJanuary 31, 2021 . Stock-based compensation expense for the fiscal year endedJanuary 31, 2019 included$30.3 million of compensation expense related to the amount paid in excess of the estimated fair value of common stock at the date of transaction in connection with two issuer tender offers. See Note 11 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. 53 -------------------------------------------------------------------------------- Tabl e of Contents The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated: Fiscal Year Ended January 31, 2021 2020 2019 Revenue 100 % 100 % 100 % Cost of revenue 41 44 54 Gross profit 59 56 46 Operating expenses: Sales and marketing 81 111 130 Research and development 40 40 71 General and administrative 30 41 37 Total operating expenses 151 192 238 Operating loss (92) (136) (192) Interest income 1 4 9 Other expense, net - - - Loss before income taxes (91) (132) (183) Provision for income taxes - - 1 Net loss (91%) (132%) (184%) Comparison of the Fiscal Years EndedJanuary 31, 2021 and 2020 Revenue Fiscal Year Ended January 31, 2021 2020 % Change (dollars in thousands) Revenue: Product$ 553,794 $ 252,229 120% Professional services and other 38,255 12,519 206% Total$ 592,049 $ 264,748 124% Percentage of revenue: Product 94% 95% Professional services and other 6% 5% Total 100% 100% Product revenue increased$301.6 million for the fiscal year endedJanuary 31, 2021 compared to the fiscal year endedJanuary 31, 2020 , primarily due to increased consumption of our platform by existing customers, as evidenced by our net revenue retention rate of 168% as ofJanuary 31, 2021 . The increase in product revenue was also driven by an increase in capacity sales prices of approximately 8% for the fiscal year endedJanuary 31, 2021 , compared to the prior fiscal year, primarily as a result of better discipline over discounting. We had 77 customers with product revenue of greater than$1 million for the trailing 12 months endedJanuary 31, 2021 , an increase from 41 customers as ofJanuary 31, 2020 . Such customers represented approximately 47% of our product revenue for each of the trailing 12 months endedJanuary 31, 2021 andJanuary 31, 2020 . Approximately 89% of our revenue for the fiscal year endedJanuary 31, 2021 was derived from existing customers under capacity arrangements, and approximately 7% of our revenue for the fiscal year endedJanuary 31, 2021 was derived from new customers under capacity arrangements. The remainder was driven by on-demand arrangements. As described in the section titled "Impact of COVID-19," we have experienced impacts from the COVID-19 pandemic, including the elongation of sales cycles, that may impact new customer acquisition, the timing of future revenue recognition, and our future growth rates. We continue to carefully monitor the impact of COVID-19 on product revenue, customer acquisitions, and net revenue retention rates. 54 -------------------------------------------------------------------------------- Tabl e of Contents Professional services and other revenue increased$25.7 million for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year as we expanded our professional services organization to help our customers further realize the benefits of our platform. Cost of Revenue, Gross Profit (Loss), and Gross Margin Fiscal Year Ended January 31, 2021 2020 % Change (dollars in thousands) Cost of revenue: Product$ 193,835 $ 96,622 101% Professional services and other 48,753 19,935 145% Total cost of revenue$ 242,588 $ 116,557 108% Gross profit (loss): Product$ 359,959 $ 155,607 Professional services and other (10,498) (7,416) Total gross profit$ 349,461 $ 148,191 Gross margin: Product 65 % 62% Professional services and other (27 %) (59%) Total gross margin 59 % 56% Headcount (at period end) Product 154 81 Professional services and other 185 84 Total headcount 339 165 Cost of product revenue increased$97.2 million for the fiscal year endedJanuary 31, 2021 compared to the fiscal year endedJanuary 31, 2020 . The increase was primarily due to an increase of$63.0 million in third-party cloud infrastructure expenses and, to a lesser extent, increased headcount, which resulted in an increase of$28.6 million in personnel-related costs and allocated overhead costs for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year. The increase in personnel-related costs included an increase of$15.9 million in stock-based compensation for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year, primarily due to the recognition of$11.9 million in stock-based compensation expense using an accelerated attribution method for RSUs granted prior to our IPO, as the performance-based vesting condition applicable to such RSUs was satisfied upon the effectiveness of our IPO inSeptember 2020 . Additionally, amortization of internal-use software development costs increased$2.0 million for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year. Cost of professional services and other revenue increased$28.8 million for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year, primarily due to increased headcount, resulting in an increase of$28.1 million in personnel-related costs and allocated overhead costs for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year. The increase in personnel-related costs included an increase of$14.1 million in stock-based compensation for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year, primarily due to the recognition of$10.3 million in stock-based compensation expense using an accelerated attribution method for RSUs granted prior to our IPO, as the performance-based vesting condition applicable to such RSUs was satisfied upon the effectiveness of our IPO inSeptember 2020 . 55 -------------------------------------------------------------------------------- Tabl e of Contents Our product gross margin was 65% for the fiscal year endedJanuary 31, 2021 , compared to 62% for the fiscal year endedJanuary 31, 2020 , primarily due to better discipline over discounting, higher volume-based discounts for our purchases of third-party cloud infrastructure, and increased scale across our cloud infrastructure regions. While we expect our product gross margin to increase for the fiscal year endingJanuary 31, 2022 compared to the fiscal year endedJanuary 31, 2021 , fluctuations in the mix and timing of customers' consumption, which is inherently variable at our customers' discretion, whether or not a customer contracts with us through our marketplace listings, our discounting practices, including as a result of changes to the competitive environment, and the extent of our investments in our operations, could hinder any improvement in our product gross margin. Given that we have only recently started to scale our professional services organization and our professional services and other revenue represents a small percentage of our revenue, we do not believe year-over-year changes in professional services and other gross margins are currently meaningful. Sales and Marketing Fiscal Year Ended January 31, 2021 2020 % Change (dollars in thousands) Sales and marketing$ 479,317 $ 293,577 63% Percentage of revenue 81% 111% Headcount (at period end) 1,257 989 Sales and marketing expenses increased$185.7 million for the fiscal year endedJanuary 31, 2021 compared to the fiscal year endedJanuary 31, 2020 . The increase was primarily due to increased headcount, resulting in an increase of$160.4 million in personnel-related costs (excluding commission expenses) and allocated overhead costs for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year. The increase in personnel-related costs included an increase of$77.1 million in stock-based compensation for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year, primarily due to the recognition of$56.7 million in stock-based compensation expense using an accelerated attribution method for RSUs granted prior to our IPO, as the performance-based vesting condition applicable to such RSUs was satisfied upon the effectiveness of our IPO inSeptember 2020 , and, to a lesser extent, the recognition of$16.0 million in stock-based compensation expense related to our 2020 Employee Stock Purchase Plan (2020 ESPP), which became effective in connection with our IPO. Expenses associated with sales commissions and draws paid to our sales force and third-party referral fees, including amortization of deferred commissions, increased$33.8 million for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year, due to an increase in bookings and modifications to our sales compensation plan during the fiscal year endedJanuary 31, 2021 , as discussed in "Components of Results of Operations" above. Other sales and marketing program expenses, which include advertising costs and contractor fees, also increased$13.2 million for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year. The overall increase in sales and marketing expenses was partially offset by lower than anticipated travel and event expenses as we have implemented certain travel restrictions and replaced in-person events with digital events in response to the COVID-19 pandemic. These changes resulted in a$12.7 million reduction in travel-related expenses and a$2.1 million reduction in expenses from our user conferences and programs for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year. The increase in sales and marketing expenses was further offset by a decrease of$9.0 million in recruiting expenses for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year, primarily due to a reduction in third-party recruiting expenses as we continued to increase the utilization of our internal recruiting organization. 56 -------------------------------------------------------------------------------- Tabl e of Contents Research and Development Fiscal Year Ended January 31, 2021 2020 % Change (dollars in thousands) Research and development$ 237,946 $ 105,160 126% Percentage of revenue 40% 40% Headcount (at period end) 478 311 Research and development expenses increased$132.8 million for the fiscal year endedJanuary 31, 2021 compared to the fiscal year endedJanuary 31, 2020 . The increase was primarily due to increased headcount, resulting in an increase of$122.7 million in personnel-related costs and allocated overhead costs for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year. The increase in personnel-related costs included an increase of$83.5 million in stock-based compensation for the fiscal year endedJanuary 31, 2021 compared to the prior fiscal year, primarily due to the recognition of$62.9 million in stock-based compensation expense using an accelerated attribution method for RSUs granted prior to our IPO, as the performance-based vesting condition applicable to such RSUs was satisfied upon the effectiveness of our IPO inSeptember 2020 , and, to a lesser extent, the recognition of$5.7 million in stock-based compensation expense related to the 2020 ESPP. The remaining increase in stock-based compensation was attributable to additional RSUs granted to new employees after our IPO with an increased weighted-average grant date fair value.
The increase in research and development expenses for the fiscal year ended
Fiscal Year Ended January 31,
2021 2020 % Change
(dollars in thousands)
General and administrative $ 176,135 $ 107,542 64%
Percentage of revenue 30% 41%
Headcount (at period end) 421 211
General and administrative expenses increased $68.6 million for the fiscal year
ended January 31, 2021 compared to the fiscal year ended January 31, 2020 . The
increase was primarily due to increased headcount, resulting in an increase of
$53.3 million in personnel-related costs and allocated overhead costs for the
fiscal year ended January 31, 2021 compared to the prior fiscal year. The
increase in personnel-related costs included an increase of $32.4 million in
stock-based compensation for the fiscal year ended January 31, 2021 compared to
the prior fiscal year, primarily due to the recognition of $36.8 million in
stock-based compensation expense using an accelerated attribution method for
RSUs granted prior to our IPO, as the performance-based vesting condition
applicable to such RSUs was satisfied upon the effectiveness of our IPO in
September 2020 , and, to a lesser extent, the recognition of $2.8 million in
stock-based compensation expense related to the 2020 ESPP. The overall increase
in stock-based compensation was partially offset by a decrease of $11.3 million
in expense attributable to the modification of certain awards held by a former
executive officer.
The increase in general and administrative expenses, which includes insurance
and other corporate expenses, was also due to an increase of $6.8 million for
the fiscal year ended January 31, 2021 compared to the prior fiscal year for
additional expenses as a result of becoming a public company. Expenses relating
to outside services also increased $6.7 million for the fiscal year ended
January 31, 2021 compared to the prior fiscal year, primarily related to legal,
accounting, and other professional services fees. The remaining increase in
general and administrative expenses of $1.7 million was due to expenses
associated with software and subscription services used to support our
administrative functions.
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Interest Income
Fiscal Year Ended January 31,
2021 2020 % Change
(dollars in thousands)
Interest income $ 7,507 $ 11,551 (35 %)
Interest income decreased $4.0 million for the fiscal year ended January 31,
2021 compared to the fiscal year ended January 31, 2020 , primarily due to lower
yields on investments, partially offset by the effect of higher cash and
investment balances.
Provision for Income Taxes
Fiscal Year Ended January 31,
2021 2020 % Change
(dollars in thousands)
Loss before income taxes $ (537,040) $ (347,542) 55 %
Provision for income taxes 2,062 993 108 %
Effective tax rate (0.4%) (0.3%)
The provision for income taxes increased primarily as a result of the increase
in pre-tax income related to international operations and U.S. state taxes in
the fiscal year ended January 31, 2021 , and the partial release of a valuation
allowance as a result of an acquisition in the fiscal year ended January 31,
2020 .
We maintain a full valuation allowance on our U.S. and U.K. deferred tax assets,
and the significant components of our recorded tax expense are current cash
taxes in various jurisdictions. The cash tax expenses are impacted by each
jurisdiction's individual tax rates, laws on the timing of recognition of income
and deductions, and availability of net operating losses and tax credits. Our
effective tax rate might fluctuate significantly 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.
Quarterly Results of Operations Data and Other Data
The following tables summarize our selected unaudited quarterly consolidated
statements of operations data, the percentage of revenue that each line item
represents, and the key business metrics for each of the eight quarters in the
period ended January 31, 2021 . The information for each of these quarters has
been prepared on the same basis as our audited annual consolidated financial
statements and reflects, in the opinion of management, all adjustments of a
normal, recurring nature that are necessary for the fair statement of the
results of operations for these periods. This data should be read in conjunction
with our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K. Historical results are not necessarily indicative of the
results that may be expected for the full fiscal year or any other period.
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Consolidated Statements of Operations Data
Three Months Ended
January 31, October 31, July 31, April 30, January 31, October 31,
2021 2020 2020 2020 2020 2019 2019 2019
(in thousands)
Revenue $ 190,465 $ 159,624 $ 133,145
82,904 66,681 50,446 42,557 34,522 29,489 28,508 24,038
Gross profit 107,561 92,943 82,699 66,258 53,170 43,523 31,831 19,667
Operating expenses(1):
Sales and marketing 154,050 134,727 92,663 97,877 80,444 75,668 73,413 64,052
Research and
development 93,997 74,138 36,533 33,278 29,709 27,669 26,164 21,618
General and
administrative 59,911 53,532 31,186 31,506 28,129 30,318 27,823 21,272
Total operating
expenses 307,958 262,397 160,382 162,661 138,282 133,655 127,400 106,942
Operating loss (200,397) (169,454) (77,683) (96,403) (85,112) (90,132) (95,569) (87,275)
Interest income 1,853 1,517 1,689 2,448 2,299 2,491 3,167 3,594
Other income (expense),
net 951 (519) (1,109) 67 (186) (40) (492) (287)
Loss before income
taxes (197,593) (168,456) (77,103) (93,888) (82,999) (87,681) (92,894) (83,968)
Provision for (benefit
from) income taxes 1,342 433 531 (244) 255 376 521 (159)
Net loss $ (198,935) $ (168,889) $
(77,634)
$ (93,415) $ (83,809) Net loss per share attributable to Class A and Class B common stockholders - basic and diluted(2)$ (0.70) $ (1.01) $ (1.31) $ (1.72) $ (1.67) $ (1.92) $ (2.18) $ (2.07)
________________
(1)Includes stock-based compensation as follows:
Three Months Ended
January 31, October 31, July 31, April 30, January 31, October 31, July 31, April 30,
2021 2020 2020 2020 2020 2019 2019 2019
(in thousands)
Cost of revenue $ 18,135 $ 13,226 $ 1,164 $ 1,117 $ 968 $ 832 $ 1,070 $ 780
Sales and marketing 48,165 39,481 5,135 5,098 5,329 4,802 5,066 5,560
Research and development 50,037 39,368 5,154 4,664 4,921 4,411 3,457 2,954
General and administrative 27,314 27,066 6,751 9,566 9,756 12,913 8,858 6,722
Stock-based compensation
expense $ 143,651 $ 119,141 $ 18,204 $ 20,445 $ 20,974 $ 22,958 $ 18,451 $ 16,016
During the three months ended October 31, 2020 , we began recognizing stock-based
compensation expense related to our RSUs granted prior to our IPO, which had
both service-based and performance-based vesting conditions. During the three
months ended January 31, 2021 and October 31, 2020 , we recognized stock-based
compensation expense associated with these RSUs of $81.7 million and $97.0
million , respectively, of which $55.5 million of cumulative compensation expense
was recognized upon the effectiveness of our IPO in September 2020 due to the
satisfaction of the performance-based vesting condition. See Note 11 to our
consolidated financial statements included elsewhere in this Annual Form on Form
10-K for further details.
The increase in stock-based compensation expense for the three months ended
January 31, 2021 compared to the three months ended October 31, 2020 was
primarily attributable to additional RSU grants to new employees, increased
weighted-average grant date fair value of RSUs, and expense related to the 2020
ESPP. The overall increase was partially offset by the decrease in stock-based
compensation expense associated with RSUs granted prior to our IPO as discussed
above.
(2)See Note 2 to our consolidated financial statements included elsewhere in
this Annual Report on Form 10-K for an explanation of the calculations of our
net loss per share attributable to Class A and Class B common stockholders,
basic and diluted.
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Percentage of Revenue Data
Three Months Ended
January 31 , October 31 , July 31 , April 30 , January 31 , October 31 , July 31 , April 30,
2021 2020 2020 2020 2020 2019 2019 2019
Revenue 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
Cost of revenue 44 42 38 39 39 40 47 55
Gross margin 56 58 62 61 61 60 53 45
Operating expenses:
Sales and marketing 81 84 70 90 92 104 122 146
Research and development 49 46 27 30 34 38 43 49
General and
administrative 31 34 23 29 32 42 46 49
Total operating expenses 161 164 120 149 158 184 211 244
Operating margin (105) (106) (58) (88) (97) (124) (158) (199)
Interest income 1 - 1 2 2 4 5 8
Other income (expense),
net - - (1) - - - (1) (1)
Loss before income taxes (104) (106) (58) (86) (95) (120) (154) (192)
Provision for (benefit
from) income taxes - - - - - 1 1 -
Net loss (104 %) (106 %) (58 %) (86 %) (95 %) (121 %) (155 %) (192 %)
Quarterly Changes in Revenue
Revenue increased sequentially in each of the quarters presented primarily due
to increased consumption of our platform by existing customers and the addition
of new customers. Because our revenue is based on consumption and consumption is
at the discretion of our customers, our historical revenue results are not
necessarily indicative of future performance.
Quarterly Changes in Cost of Revenue and Gross Margin
Cost of revenue increased sequentially in each of the quarters presented. For
all quarters presented, cost of revenue increased primarily as a result of
increased third-party cloud infrastructure expenses, driven by the initial cost
of new deployments and increased consumption of our platform by customers, as
well as increased personnel-related expenses resulting from increased headcount.
In addition, during the three months ended October 31, 2020 , we began
recognizing, using an accelerated attribution method, stock-based compensation
expense associated with our RSUs granted prior to our IPO as the
performance-based vesting condition applicable to such RSUs was satisfied upon
the effectiveness of our IPO in September 2020 . Our cost of revenue for the
three months ended October 31, 2020 included $11.8 million of stock-based
compensation expense associated with such RSUs. As a result, our cost of revenue
increased, as a percentage of revenue, during the three months ended October 31,
2020 compared to the three months ended July 31, 2020 . See Note 11 to our
consolidated financial statements included elsewhere in this Annual Form on Form
10-K for further details.
Our cost of revenue increased, as a percentage of revenue, during the three
months ended January 31, 2021 compared to the three months ended October 31,
2020 , due primarily to the increase in stock-based compensation as a result of
additional RSU grants to new employees, increased weighted-average grant date
fair value of RSUs, and expense related to the 2020 ESPP.
Except for the three months ended October 31, 2020 and January 31, 2021 , our
improved quarterly gross margin since the three months ended October 31, 2019
was primarily attributable to higher volume-based discounts for purchases of
third-party cloud infrastructure, increased scale across our cloud
infrastructure regions, and improved platform pricing discipline. The decrease
in our quarterly gross margin during the three months ended October 31, 2020 and
January 31, 2021 was primarily a result of the increase in stock-based
compensation expense in those periods as discussed above.
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Quarterly Changes in Operating Expenses
Operating expenses have generally increased sequentially in each of the quarters
presented primarily due to increased headcount and other related costs to
support our growth. However, after the outbreak of COVID-19, we have seen slower
growth in certain operating expenses due to reduced business travel, deferred
hiring for some positions, and the virtualization or cancellation of customer
and employee events. In addition, during the three months ended October 31,
2020 , we began recognizing, using an accelerated attribution method, stock-based
compensation expense associated with our RSUs granted prior to our IPO as the
performance-based vesting condition applicable to such RSUs was satisfied upon
the effectiveness of our IPO in September 2020 . Our operating expenses for the
three months ended October 31, 2020 included $85.2 million of stock-based
compensation expense associated with such RSUs. See Note 11 to our consolidated
financial statements included elsewhere in this Annual Form on Form 10-K for
further details. The increase in the absolute value of our operating expenses
for the three months ended January 31, 2021 compared to the three months ended
October 31, 2020 was also partially due to the increase in stock-based
compensation expense as a result of additional RSU grants to new employees,
increased weighted-average grant date fair value of RSUs, and expense related to
the 2020 ESPP.
We intend to continue to make significant investments in research and
development as we enhance our platform. We also intend to invest in our sales
and marketing organization to drive future revenue growth. As a result of the
closing of our IPO, we have incurred and expect to continue to incur additional
expenses as a result of operating as a public company, including costs to comply
with the rules and regulations applicable to companies listed on a national
securities exchange, costs related to compliance and reporting obligations, and
increased expenses for insurance, investor relations, and professional services.
Key Business Metrics
Three Months Ended
January 31, October 31, July 31, April 30, January 31, October 31, July 31, April 30,
2021 2020 2020 2020 2020 2019 2019 2019
Product revenue (in
millions) $ 178.3 $ 148.5 $ 125.2 $ 101.8 $ 82.4 $ 69.2 $ 57.8 $ 42.8
January 31, October 31, July 31, April 30, January 31, October 31, July 31, April 30,
2021 2020 2020 2020 2020 2019 2019 2019
Remaining performance
obligations (in
millions) $ 1,332.8 $ 927.9 $ 688.2 $ 467.8 $ 426.3 $ 273.0 $ 221.1 $ 137.9
Total customers 4,139 3,554 3,117 2,720 2,392 1,934 1,547 1,194
Net revenue retention
rate 168 % 162 % 158 % 171 % 169 % 189 % 223 % 187 %
Customers with
trailing 12-month
product revenue
greater than $1
million 77 65 56 48 41 31 22 16
During the three months ended
Historically, we have received a higher volume of orders from new and existing customers in the fourth fiscal quarter of each year as a result of industry buying patterns. As a result, our sequential growth in RPO has historically been highest in the fourth fiscal quarter of each fiscal year. In addition, we have experienced a significant increase in RPO each quarter since the three months endedJuly 31, 2020 primarily due to large enterprise customers entering into multi-year capacity contracts. We expect our net revenue retention rate to decrease over time as existing customers that have consumed our platform for an extended period of time become a larger portion of both our overall customer base and our product revenue that we use to calculate net revenue retention rate, and as their consumption growth primarily relates to existing use cases rather than new use cases. 61 -------------------------------------------------------------------------------- Tabl e of Contents 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 as further detailed below. InSeptember 2020 , we completed our IPO which resulted in aggregate net proceeds of$3.7 billion , after underwriting discounts of$121.7 million . We also received aggregate proceeds of$500.0 million related to our concurrent private placements, and did not pay any underwriting discounts or commissions with respect to the shares that were sold in these private placements. As ofJanuary 31, 2021 , our principal sources of liquidity were cash, cash equivalents, and short-term and long-term investments totaling$5.1 billion . Our investments primarily consist of corporate notes and bonds,U.S. government and agency securities, commercial paper, certificates of deposit, and money market funds. We believe that our existing cash, cash equivalents, and short-term and long-term investments will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the price at which we are able to purchase public cloud capacity, expenses associated with our international expansion, the introduction of platform enhancements, and the continuing market adoption of our platform. In the future, we may enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, results of operations, and financial condition. The following table shows a summary of our cash flows for the periods presented (in thousands): Fiscal Year Ended January 31, 2021 2020 2019 Net cash used in operating activities$ (45,417) $ (176,558) $ (143,982) Net cash (used in) provided by investing activities (4,036,645) 138,495 (362,642) Net cash provided by financing activities 4,775,290 57,469 413,601 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 and have supplemented working capital through net proceeds from the sale of equity securities.
Cash used in operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation, net of amounts capitalized, depreciation and amortization of property and equipment, amortization of acquired intangible assets, amortization of operating lease right-of-use assets, amortization of deferred commissions, and changes in operating assets and liabilities during each period.
For the fiscal year endedJanuary 31, 2021 , net cash used in operating activities was$45.4 million , primarily consisting of our net loss of$539.1 million , adjusted for non-cash charges of$386.8 million , and net cash inflows of$106.9 million provided by changes in our operating assets and liabilities, net of the effect of an acquisition. The main drivers of the changes in operating assets and liabilities, net of the effect of an acquisition, were a$312.9 million increase in deferred revenue, resulting primarily from increased prepaid capacity arrangements; a$58.3 million increase in accrued expenses and other liabilities due to increased headcount, growth in our business, and employee contributions under the 2020 ESPP; and a$116.3 million increase in accounts receivable due to growth of our business and timing of collections, partially offset by (i) a$62.3 million increase in prepaid expenses and other assets, primarily driven by increased prepaid insurance as a result of becoming a public company, increased interest income receivables resulting from the increase in our investments, and increased prepaid third-party infrastructure expenses; (ii) a$51.4 million increase in deferred commissions earned on bookings; and (iii) a$31.3 million decrease in operating lease liabilities due to payments related to our operating lease obligations. 62
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For the fiscal year endedJanuary 31, 2020 , net cash used in operating activities was$176.6 million , primarily consisting of our net loss of$348.5 million , adjusted for non-cash charges of$122.6 million , and net cash inflows of$49.3 million provided by changes in our operating assets and liabilities, net of effect of acquisitions. The main drivers of the changes in operating assets and liabilities, net of effect of acquisitions, were a$223.0 million increase in deferred revenue, resulting primarily from increased prepaid capacity arrangements, a$35.0 million increase in accrued expenses and other liabilities due to increased headcount and growth in our business, and a$1.1 million increase in accounts payable. These amounts were partially offset by a$116.9 million increase in accounts receivable due to an increase in sales, a$68.6 million increase in deferred commissions earned on bookings, a$10.8 million increase in prepaid expenses and other assets, primarily driven by prepaid software and subscription services and deposits for our leased facilities, and a$13.5 million decrease in operating lease liabilities due to payments related to our operating lease obligations. Net cash used in operating activities decreased$131.1 million for the fiscal year endedJanuary 31, 2021 compared to the fiscal year endedJanuary 31, 2020 , primarily due to an increase of$435.6 million in cash collected from customers resulting from increased sales. This was partially offset by increased expenditures due to an increase in headcount and growth in our business. We expect net cash used in operating activities to decrease for the fiscal year endingJanuary 31, 2022 compared to the fiscal year endedJanuary 31, 2021 . Investing Activities Net cash used in investing activities for the fiscal year endedJanuary 31, 2021 was$4.0 billion , primarily as a result of net purchases of investments, and, to a lesser extent, purchases of property and equipment to support existing and additional office facilities, purchases of intangible assets, cash paid for an acquisition, and capitalized internal-use software development costs. Net cash provided by investing activities for the fiscal year endedJanuary 31, 2020 was$138.5 million , primarily as a result of net sales, maturities, and redemptions of investments, partially offset by purchases of property and equipment to support additional office facilities and cash paid for an acquisition, net of cash acquired. Financing Activities Net cash provided by financing activities for the fiscal year endedJanuary 31, 2021 was$4.8 billion , primarily as a result of the$4.2 billion of aggregate net proceeds from our IPO and the concurrent private placements completed inSeptember 2020 , net of underwriting discounts, as well as$532.1 million in proceeds from the issuance of equity securities. Net cash provided by financing activities for the fiscal year endedJanuary 31, 2020 was$57.5 million , primarily as a result of proceeds from the issuance of equity securities. Contractual Obligations and Commitments The following table summarizes our contractual obligations as ofJanuary 31, 2021 : Payments Due By Period Less than 1 More than 5 Total Year 1-3 Years 3-5 Years Years (in thousands) Operating lease commitments$ 202,082 $ 19,407 $ 39,730 $ 35,744 $ 107,201 Purchase commitments 1,758,120 57,286 477,625 1,223,209 (1) - Total$ 1,960,202 $ 76,693 $ 517,355 $ 1,258,953 $ 107,201 ________________ (1)Includes$540.9 million of remaining non-cancelable contractual commitments as ofJanuary 31, 2021 related to one of our third-party cloud infrastructure agreements, under which we committed to spend an aggregate of at least$550.0 million , betweenSeptember 2020 andDecember 2025 with no minimum purchase commitment during any year. If we fail to meet the minimum purchase commitment byDecember 2025 , we are required to pay the difference, and such payment can be applied to qualifying expenditures for cloud infrastructure services for up to twelve months afterDecember 2025 . 63 -------------------------------------------------------------------------------- Tabl e of Contents The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. Our operating lease commitments, net of sublease receipts, relate primarily to our facilities. Purchase commitments relate mainly to third-party cloud infrastructure agreements and subscription arrangements used to facilitate our operations at the enterprise level. Our long-term purchase commitments may be satisfied earlier than in the payment periods presented above as we continue to grow and scale our business. Off-Balance Sheet Arrangements We did not have during any of the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to 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 consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. We believe that the accounting policies described below involve a substantial degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, see Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Revenue Recognition We account for revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers (ASC 606) for all periods presented. We deliver our platform over the internet as a service. Customers choose to consume our platform under either capacity arrangements, in which they commit to a certain amount of consumption at specified prices, or under on-demand arrangements, in which we charge for use of our platform monthly in arrears. Under capacity arrangements, from which a majority of our revenue is derived, we typically bill our customers annually in advance of their consumption. Revenue from on-demand arrangements typically relates to initial consumption as part of customer onboarding and, to a lesser extent, overage consumption beyond a customer's contracted usage amount or following the expiration of a customer's contract. Revenue from on-demand arrangements represented 4%, 4%, and 5% of our revenue for the fiscal years endedJanuary 31, 2021 , 2020 and 2019, respectively. We recognize revenue as customers consume compute, storage, and data transfer resources under either of these arrangements. In limited instances, customers pay an annual deployment fee to gain access to a dedicated instance of a virtual private deployment. We recognize the deployment fee ratably over the contract term. Customers do not have the contractual right to take possession of our platform. Pricing for our platform includes embedded support services, data backup, and disaster recovery services, as well as future updates, when and if available, offered during the contract term. Our customer contracts for capacity typically have a term of one to four years. To the extent our customers enter into such contracts and either consume our platform in excess of their capacity commitments or continue to use our platform after expiration of the contract term, they are charged for their incremental consumption. In many cases, our customer contracts permit customers to roll over any unused capacity to a subsequent order, generally on the purchase of additional capacity. Customer contracts are generally non-cancelable during the contract term, although customers can terminate for breach if we materially fail to perform. For those customers who do not have a capacity arrangement, our on-demand arrangements generally have a monthly stated contract term and can be terminated at any time by either the customer or us. 64
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For storage resources, consumption for a given customer is based on the average terabytes per month of all of such customer's data stored in our platform. For compute resources, consumption is based on the type of compute resource used and the duration of use or, for some features, the volume of data processed. For data transfer resources, consumption is based on terabytes of data transferred, the public cloud provider used, and the region to and from which the transfer is executed. Our revenue also includes professional services and other revenue, which consists of consulting, on-site technical solution services, and training related to our platform. Our professional services revenue is recognized over time based on input measures, including time and materials costs incurred relative to total costs, with consideration given to output measures, such as contract deliverables, when applicable. Other revenue consists of fees from customer training delivered on-site or through publicly available classes.
We determine revenue recognition in accordance with ASC 606 through the following five steps:
1) Identify the contract with a customer. We consider the terms and conditions
of the contracts and our customary business practices in identifying our
contracts under ASC 606. We determine we have a contract with a customer when
the contract has been approved by both parties, we can identify each party's
rights regarding the services to be transferred, we can identify the payment
terms for the services, we have determined the customer to have the ability and
intent to pay, and the contract has commercial substance. At contract inception,
we evaluate whether two or more contracts should be combined and accounted for
as a single contract and whether the combined or single contract includes more
than one performance obligation. These combinations may be subjective and
differing combinations could result in differing allocation of revenue of
reporting periods. We apply judgment in determining the customer's ability and
intent to pay, which is based on a variety of factors, including the customer's
payment history or, in the case of a new customer, credit and financial
information pertaining to the customer.
2) Identify the performance obligations in the contract. Performance obligations
promised in a contract are identified based on the services that will be
transferred to the customer that are both capable of being distinct, whereby the
customer can benefit from the service either on its own or together with other
resources that are readily available from third parties or from us, and are
distinct in the context of the contract, whereby the transfer of the services is
separately identifiable from other promises in the contract. We treat
consumption of our platform for compute, storage, and data transfer resources as
one single performance obligation because they are consumed by customers as a
single, integrated offering. We do not make any one of these resources available
for consumption without the others. Instead, each of compute, storage, and data
transfer work together to drive consumption on our platform. We treat the
virtual private deployments for customers, professional services, on-site
technical solution services, and training each as a separate and distinct
performance obligation. Some of our customers have negotiated an option to
purchase additional capacity at a stated discount. These options generally do
not provide a material right as they are priced at our stand-alone selling price
(SSP), as described below, as the stated discounts are not incremental to the
range of discounts typically given.
3) Determine the transaction price. The transaction price is determined based on
the consideration we expect to receive in exchange for transferring services to
the customer. Variable consideration is included in the transaction price if, in
our judgment, it is probable that a significant future reversal of cumulative
revenue recognized under the contract will not occur. We estimate variable
consideration based on expected value, primarily relying on our history. In
certain situations, we may also use the most likely amount as the basis of our
estimate. We may have insufficient relevant historical data or other information
to arrive at an accurate estimate of variable consideration using either the
"expected value" or "most likely amount" method. Additionally, changes in
business practices, such as those related to service level guarantees or
marketing programs, may introduce new forms of variable consideration, as well
as more complexity and uncertainty in the estimation process. None of our
contracts contain a significant financing component. Revenue is recognized net
of any taxes collected from customers, which are subsequently remitted to
governmental entities (e.g., sales and other indirect taxes).
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4) Allocate the transaction price to performance obligations in the contract. If
the contract contains a single performance obligation, the entire transaction
price is allocated to the single performance obligation. Contracts that contain
multiple performance obligations require an allocation of the transaction price
to each performance obligation based on a relative SSP. The determination of a
relative SSP for each distinct performance obligation requires judgment. We
determine SSP for performance obligations based on an observable standalone
selling price when it is available, as well as other factors, including the
overall pricing objectives, which take into consideration market conditions and
customer-specific factors, including a review of internal discounting tables,
the services being sold, the volume of capacity commitments, and other factors.
The observable standalone selling price is established based on the price at
which products and services are sold separately. If an SSP is not observable
through past transactions, we estimate it using available information including,
but not limited to, market data and other observable inputs. As our business and
offerings evolve over time, modifications to our pricing and discounting
methodologies, changes in the scope and nature of product and service offerings
and/or changes in customer segmentation may result in a lack of consistency,
making it difficult to establish and/or maintain SSP. Changes in SSP could
result in different and unanticipated allocations of revenue in contracts with
multiple performance obligations. These factors, among others, may adversely
impact the amount of revenue and gross margin we report in a particular period.
5) Recognize revenue when or as we satisfy a performance obligation. Revenue is
recognized at the time the related performance obligation is satisfied by
transferring the promised service to a customer. Revenue is recognized when
control of the services is transferred to our customers, in an amount that
reflects the consideration that we expect to receive in exchange for those
services. We determined an output method to be the most appropriate measure of
progress because it most faithfully represents when the value of the services is
simultaneously received and consumed by the customer, and control is
transferred. Virtual private deployment fees are recognized ratably over the
term of the deployment as the deployment service represents a stand-ready
performance obligation provided throughout the deployment term.
Stock-Based Compensation
We measure and recognize compensation expense for all stock-based awards,
including stock options, restricted stock awards, and RSUs granted to employees,
directors, and non-employees, and stock purchase rights granted under the 2020
ESPP (ESPP Rights) to employees, based on the estimated fair value of the awards
on the date of grant. The fair value of each stock option and ESPP Right granted
is estimated using the Black-Scholes option-pricing model. The fair value of
each RSU is based on the estimated fair value of our common stock on the date of
grant.
Stock-based compensation is generally recognized on a straight-line basis over
the requisite service period. We also grant certain awards that have
performance-based vesting conditions. Stock-based compensation expense for such
awards is recognized using an accelerated attribution method from the time it is
deemed probable that the vesting condition will be met through the time the
service-based vesting condition has been achieved. If an award contains a
provision whereby vesting is accelerated upon a change in control, we recognize
stock-based compensation expense on a straight-line basis, as a change in
control is considered to be outside of our control and is not considered
probable until it occurs. Forfeitures are accounted for in the period in which
they occur.
The determination of the grant-date fair value using an option-pricing model is
affected by the estimated fair value of our common stock as well as assumptions
regarding a number of other complex and subjective variables. These variables
include expected stock price volatility over an expected term, actual and
projected employee stock option exercise behaviors, the risk-free interest rate
for an expected term, and expected dividends. The assumptions used in our
option-pricing model represent our best estimates. These estimates involve
inherent uncertainties and the application of judgment. If factors change and
different assumptions are used, our stock-based compensation expense could be
materially different in the future.
These assumptions are estimated as follows:
•Expected term-For stock options considered to be "plain vanilla" options, we
estimate the expected term based on the simplified method, which is essentially
the weighted average of the vesting period and contractual term, as our
historical option exercise experience does not provide a reasonable basis upon
which to estimate the expected term.
•Expected volatility-We perform an analysis of using the average volatility of a
peer group of representative public companies with sufficient trading history
over the expected term to develop an expected volatility assumption.
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•Risk-free interest rate-Risk-free rate is estimated based upon quoted market yields for the United States Treasury debt securities for a term consistent with the expected life of the awards in effect at the time of grant.
•Expected dividend yield-Because we have never paid and have no intention to pay cash dividends on common stock, the expected dividend yield is zero.
•Fair value of underlying common stock-Prior to our IPO, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at each meeting in which awards were approved. After our IPO, the fair value of our common stock is determined by the closing price, on the date of grant, of our common stock, which is traded on theNew York Stock Exchange .
The following table summarizes the weighted-average assumptions used in estimating the fair value of stock options granted to employees and non-employees during each of the periods presented:
Fiscal Year Ended January 31,
2021 2020 2019
Expected term (in years) 6.0 6.0 6.3
Expected volatility 37.2 % 36.9 % 42.9 %
Risk-free interest rate 1.0 % 2.0 % 2.9 %
Expected dividend yield - % - % - %
Our RSUs granted prior to our IPO had both service-based and performance-based
vesting conditions. The service-based vesting condition for these awards is
typically satisfied over four years with a cliff vesting period of one year and
continued vesting quarterly thereafter. The performance-based vesting condition
is satisfied on the earlier of (i) the effective date of a registration
statement of the company filed under the Securities Act for the sale of our
common stock or (ii) immediately prior to the closing of a change in control of
the company. Both events were not deemed probable until consummated, and
therefore, stock-based compensation related to these RSUs remained unrecognized
prior to the effectiveness of our IPO. Upon the effectiveness of our IPO, the
performance-based vesting condition was satisfied, and therefore, we recognized
cumulative stock-based compensation expense of $55.5 million using the
accelerated attribution method for the portion of the RSU awards for which the
service-based vesting condition had been fully or partially satisfied. For the
fiscal year ended January 31, 2021 , we recognized stock-based compensation
expense of $178.7 million associated with such RSUs. RSUs granted after our IPO
do not contain the performance-based vesting condition described above.
We will continue to use judgment in evaluating the assumptions related to our
stock-based compensation on a prospective basis. As we continue to accumulate
additional data related to our common stock, we may have refinements to our
estimates, which could materially impact our future stock-based compensation
expense.
Common Stock Valuations
Prior to our IPO, the fair value of the common stock underlying our stock-based
awards had historically been determined by our board of directors, with input
from management and corroboration from contemporaneous third-party valuations.
We believed that our board of directors had the relevant experience and
expertise to determine the fair value of our common stock. Given the absence of
a public trading market of our common stock, and in accordance with the American
Institute of Certified Public Accountants Practice Aid , Valuation of
Privately-Held Company Equity Securities Issued as Compensation, our board of
directors exercised reasonable judgment and considered numerous objective and
subjective factors to determine the best estimate of the fair value of our
common stock at each grant date. These factors included:
•contemporaneous valuations of our common stock performed by independent
third-party specialists;
•the prices, rights, preferences, and privileges of our convertible preferred
stock relative to those of our common stock;
•the prices paid for common or convertible preferred stock sold to third-party
investors by us and prices paid in secondary transactions for shares repurchased
by us in arm's-length transactions, including any tender offers;
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•the lack of marketability inherent in our common stock;
•our actual operating and financial performance;
•our current business conditions and projections;
•the hiring of key personnel and the experience of our management;
•the history of the company and the introduction of new products;
•our stage of development;
•the likelihood of achieving a liquidity event, such as an IPO, a merger, or
acquisition of our company given prevailing market conditions;
•the operational and financial performance of comparable publicly traded
companies; and
•the U.S. and global capital market conditions and overall economic conditions.
In valuing our common stock, the fair value of our business was determined using
various valuation methods, including combinations of income and market
approaches with input from management. The income approach estimated value based
on the expectation of future cash flows that a company would generate. These
future cash flows were discounted to their present values using a discount rate
that is derived from an analysis of the cost of capital of comparable publicly
traded companies in our industry or similar business operations as of each
valuation date and was adjusted to reflect the risks inherent in our cash flows.
The market approach estimated value based on a comparison of the subject company
to comparable public companies in a similar line of business. From the
comparable companies, a representative market value multiple was determined and
then applied to the subject company's financial forecasts to estimate the value
of the subject company.
For each valuation, the fair value of our business determined by the income and
market approaches was then allocated to the common stock using either the
option-pricing method (OPM), or a hybrid of the probability-weighted expected
return method (PWERM) and OPM methods. Our valuations prior to April 30, 2019
were allocated based on the OPM. Beginning April 30, 2019 , our valuations were
allocated based on a hybrid method of the PWERM and the OPM.
In addition, we also considered any secondary transactions involving our capital
stock. In our evaluation of those transactions, we considered the facts and
circumstances of each transaction to determine the extent to which they
represented a fair value exchange and assigned the transactions an appropriate
weighting in the valuation of our common stock. Factors considered included the
number of different buyers and sellers, transaction volume, timing relative to
the valuation date, whether the transactions occurred between willing and
unrelated parties, and whether the transactions involved investors with access
to our financial information.
Application of these approaches and methodologies involved the use of estimates,
judgments, and assumptions that are highly complex and subjective, such as those
regarding our expected future revenue, expenses, and future cash flows, discount
rates, market multiples, the selection of comparable public companies, and the
probability of and timing associated with possible future events.
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Recently Issued Accounting Pronouncements
See Note 2, Basis of Presentation and Summary of Significant Accounting
Policies, in the notes to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K for a discussion of recent
accounting pronouncements.
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 the extended
transition period under the JOBS Act for the adoption of certain accounting
standards 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. See Note 2, Basis of Presentation and Summary
of Significant Accounting Policies, in the notes to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K. 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.
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