SPRINT CORPORATION 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the fiscal year endedJanuary 31, 2021 included in the final prospectus for our initial public offering, or IPO dated as ofJune 29, 2021 and filed with theU.S. Securities and Exchange Commission , or theSEC , pursuant to Rule 424(b)(4) onJune 30, 2021 , or the Final Prospectus. 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 Quarterly Report on Form 10-Q. You should review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. Our fiscal year ends onJanuary 31 , and our fiscal quarters end onApril 30 ,July 31 ,October 31 , andJanuary 31 . Our fiscal years endedJanuary 31, 2021 andJanuary 31, 2022 are referred to herein as fiscal 2021 and fiscal 2022, respectively. Unless the context otherwise requires, all references in this report to "SentinelOne ," the "Company," "we," "our," "us," or similar terms refer toSentinelOne, Inc. and its subsidiaries. Overview We foundedSentinelOne in 2013 with a dramatically new approach to cybersecurity. We pioneered the world's first purpose-built artificial intelligence, or AI,-powered extended detection and response, or XDR, platform to make cybersecurity defense truly autonomous, from the endpoint and beyond. Our Singularity Platform instantly defends against cyberattacks - performing at a faster speed, greater scale, and higher accuracy than otherwise possible from a human-powered approach. Our Singularity Platform ingests, correlates, and queries petabytes of structured and unstructured data from a myriad of disparate external and internal sources in real-time. We build rich context by constructing a dynamic representation of data across an organization. As a result, our AI models are highly accurate, actionable, and autonomous. Our distributed AI models run both locally on every endpoint and every cloud workload, as well as on our cloud platform. Our Static and vector-agnostic Behavioral AI models, which run on the endpoints themselves, provide our customers with protection even when their devices are not connected to the cloud. In the cloud, our Streaming AI detects anomalies that surface when multiple data feeds are correlated. By providing visibility across an organization's digital assets through one console, our platform makes it very fast for analysts to easily search through petabytes of data to investigate incidents and proactively hunt threats. We have extended our control and visibility planes beyond the traditional endpoint to unmanaged IoT devices. Our Singularity Platform can be flexibly deployed on the environments that our customers choose, including public, private, or hybrid clouds. Our feature parity across Windows, macOS, Linux, and Kubernetes offers best-of-breed protection, visibility, and control across today's heterogeneous IT environments. Together, these capabilities make our platform the logical choice for organizations of all sizes, industry verticals, and compliance requirements. Our platform offers true multi-tenancy, which enables the world's largest organizations and our managed security providers and incident response partners a great management experience. Our customers realize improved cybersecurity outcomes with fewer people, producing an attractive return on investment. We generate substantially all of our revenue by selling subscriptions to our Singularity Platform. Our subscription tiers include Singularity Core, Singularity Control, and Singularity Complete. Additionally, customers can extend the functionality of our platform through our eight subscription Singularity Modules. We generally price our subscriptions and modules on a per agent basis, and each agent generally corresponds with an endpoint, server, virtual machine, or container. 30 -------------------------------------------------------------------------------- Table of Contents Our subscription contracts typically range from one to three years. We recognize subscription revenue ratably over the term of a contract. Most of our contracts are for terms representing annual increments, therefore contracts generally come up for renewal in the same period in subsequent years. The timing of large multi-year enterprise contracts can create some variability in subscription order levels between periods, though the impact to our revenue in any particular period is limited as a result of ratable revenue recognition. Our go-to-market strategy is focused on acquiring new customers and driving expanded usage of our platform by existing customers. Our sales organization is comprised of our enterprise sales, inside sales and customer solutions engineering teams. It leverages our global network of independent software vendors, or ISVs, alliance partners, and channel partners for prospect access. Additionally, our sales teams work closely with our customers, channel partners, and alliance partners to drive adoption of our platform, and our software solutions are fulfilled through our channel partners. Our channel partners include some of the world's largest resellers and distributors, managed service providers, or MSPs, managed security service providers, or MSSPs, managed detection and response providers, or MDRs, original equipment manufacturers, or OEMs, and incident response firms, or IR firms. Once customers experience the benefits of our platform, they often upgrade their subscriptions to benefit from the full range of our XDR and IT and security operations capabilities. Additionally, many of our customers adopt Singularity Modules over time to extend the functionality of our platform and increase their coverage footprint. The combination of platform upgrades and extended modules drives our powerful land-and-expand motion. Our Singularity Platform is used globally by organizations of all sizes across a broad range of industries. As ofOctober 31, 2021 , we had over 6,000 customers, increasing from over 3,350 customers as ofOctober 31, 2020 . We had 416 customers with ARR of$100,000 or more as ofOctober 31, 2021 , up from 173 as ofOctober 31, 2020 . As ofOctober 31, 2021 , no single end customer accounted for more than 3% of our ARR. We define ARR as the annualized revenue run rate of our subscription contracts at the end of a reporting period, assuming contracts are renewed on their existing terms for customers that are under subscription contracts with us. Our ARR outside ofthe United States represented 35% and 28% for the three months endedOctober 31, 2021 and 2020, respectively, illustrating the global nature of our solutions. We have grown rapidly since our inception. Our revenue was$56.0 million and$24.6 million for the three months endedOctober 31, 2021 and 2020, respectively, representing year-over-year growth of 128%. Our revenue was$139.2 million and$63.2 million for the nine months endedOctober 31, 2021 and 2020, respectively, representing year-over-year growth of 120%. During this period, we continued to invest in growing our business to capitalize on our market opportunity. As a result, our net loss for the three months endedOctober 31, 2021 and 2020 was$68.6 million and$30.2 million , respectively, and our net loss for the nine months endedOctober 31, 2021 and 2020 was$199.4 million and$79.7 million , respectively. Initial Public Offering and Private Placement InJuly 2021 , we completed our IPO and a concurrent private placement, in which we issued and sold an aggregate of 41,678,568 shares of our Class A common stock at$35 per share, including 5,250,000 shares issued upon the exercise of the underwriters' option to purchase additional shares and 1,428,568 shares issued pursuant to the concurrent private placement. We received net proceeds of approximately$1.4 billion after deducting underwriting discounts and commissions. Key Factors Affecting Our Performance We believe that the growth and future success of our business depends on many factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our operating results. New Customer Acquisition Our business model relies on rapidly and efficiently engaging with new customers and expanding our relationship with our customers over time. To drive customer acquisition, we have invested, and expect to continue to invest, heavily in our sales and marketing efforts. While we cannot predict customer adoption rates and demand, the future growth rate and size of the market for endpoint security solutions, or the introduction of competitive 31 -------------------------------------------------------------------------------- Table of Contents products and services, our business and operating results will be significantly affected by the degree and speed with which organizations adopt endpoint security solutions and our platform. Expansion Within Our Existing Customers Our growing base of customers represents a significant opportunity for further adoption of our platform. As ofOctober 31, 2021 , we had over 6,000 customers and 416 customers with ARR of$100,000 . Our customers may start with just the Singularity Core version of our platform and upgrade to our Singularity Control and Singularity Complete versions, add Singularity Modules such as Cloud Workload Security and Ranger IoT, or increase the number of protected endpoints and cloud workloads as well as mapped IoT devices. Several of our largest enterprise and government customers have deployed our platform across tens of thousands of endpoints and cloud workloads, running tens of thousands of applications. Our ability to expand within our customer base, particularly large enterprise and government customers, will depend on a number of factors, including platform performance, our customers' satisfaction with our platform, competitive offerings, pricing, overall changes in our customers' spending levels, and the effectiveness of our efforts to help our customers realize the benefits of our platform. As ofOctober 31, 2021 , our dollar-based gross retention rate, or GRR, was 97% and our dollar-based net retention rate, or NRR, was 130%. As ofOctober 31, 2020 , our GRR was 97% and our NRR was 115%. To calculate these metrics, we first determine Prior Period ARR, which is ARR from the population of our customers as of 12 months prior to the end of a particular reporting period. We calculate Gross Retention ARR by subtracting from the total Prior Period ARR the portion of Prior Period ARR accounted for by the subset of those customers that are no longer active at the end of that reporting period. GRR is the quotient obtained by dividing Gross Retention ARR by Prior Period ARR. GRR takes into account customer attrition but does not reflect customer contraction. We calculate Net Retention ARR as the total ARR at the end of a particular reporting period from the set of customers that is used to determine Prior Period ARR. Net Retention ARR includes any expansion, and is net of contraction and attrition associated with that set of customers. NRR is the quotient obtained by dividing Net Retention ARR by Prior Period ARR. We expect both our GRR and NRR to fluctuate over time. Investing for Growth We plan to continue investing in our business so that we can capitalize on our market opportunity. We intend to continue to add headcount to our global sales and marketing team to acquire new customers and to increase sales to existing customers. We intend to continue to invest in building additional functionality for our Singularity Platform that will extend our capabilities as our success is dependent on our ability to sustain innovation and technology leadership in order to maintain our competitive advantage. We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to further accelerate our product capabilities. For example, we acquiredScalyr, Inc. , or Scalyr, inFebruary 2021 to advance our data ingestion, search, and retention capabilities. We believe that the global opportunity for our Singularity Platform is significant. Our revenue outside ofthe United States represented 33% and 29% of our revenue for the three months endedOctober 31, 2021 and 2020, respectively, and represented 32% and 30% of our revenue for the nine months endedOctober 31, 2021 and 2020, respectively. We have made, and plan to continue to make, significant investments to expand geographically, particularly inEurope , theMiddle East ,Africa ,Latin America , andAsia Pacific . Although our investments in growth may adversely affect our operating results in the near term, we believe that they will contribute to our long-term growth. If our near-term investments do not lead to the expected revenue growth over time, we may not achieve or maintain profitability or our growth rates may slow. Impact of COVID-19 SinceJanuary 2020 , the COVID-19 pandemic has resulted in travel restrictions, prohibitions of non-essential activities, disruption and shutdown of certain businesses worldwide, and greater uncertainty in global financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, operating results, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. We have experienced, and may continue to experience, a modest adverse impact on certain 32 -------------------------------------------------------------------------------- Table of Contents parts of our business, 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 positive impact as a result of the COVID-19 pandemic. For example, in connection with the travel restrictions and shelter-in-place and work-from-home policies resulting from the COVID-19 pandemic, we have seen an increase in usage and subscriptions from smaller customers, many of whom are small or medium sized businesses. We have also seen slower growth in certain operating expenses due to reduced business travel and the virtualization or cancellation of the majority of our customer and employee events. While a reduction in operating expenses may have an immediate positive impact on our operating results, we do not yet have visibility into the full impact this will have on our business. Moreover, as vaccines become widely available and people begin to return to offices and other workplaces, any positive impacts of the COVID-19 pandemic on our business may slow or decline once the impact of the pandemic tapers. We cannot predict how long we will continue to experience these impacts as shelter-in-place orders, vaccine availability, and other related measures are expected to change over time. Our operating results, cash flows, and financial condition have not been adversely impacted to date. However, as certain of our customers or partners experience downturns or uncertainty in their own business operations or revenue resulting from the spread of COVID-19 our operating results, cash flows, and financial condition could be adversely impacted. In addition, in response to the spread of COVID-19, we previously required substantially all of our employees to work remotely to minimize the risk of the virus to our employees and the communities in which we operate. Most of our employees continue to work remotely and we have slowly begun to open up some of our offices at minimal capacity, subject to local COVID-19 restrictions. 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. The global impact of the COVID-19 pandemic continues to rapidly evolve, and we will continue to monitor the situation and the effects on our business and operations closely. We do not yet know the full extent of potential impacts on our business or operations or on the global economy as a whole, particularly if the COVID-19 pandemic continues and persists for an extended period of time. Given the uncertainty, we cannot reasonably estimate the impact on our future operating results, cash flows, or financial condition. For additional information, see the section titled "Risk Factors." Key Business Metrics We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. Annualized Recurring Revenue We believe that ARR is a key operating metric to measure our business because it is driven by our ability to acquire new subscription customers and to maintain and expand our relationship with existing subscription customers. ARR represents the annualized revenue run rate of our subscription contracts at the end of a reporting period, assuming contracts are renewed on their existing terms for customers that are under subscription contracts with us. ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates. As ofOctober 31, 2021 2020 (in thousands)
Annualized recurring revenue (ARR)
ARR grew 131% year-over-year to
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Customers with ARR of $100,000 or More
We believe that our ability to increase the number of customers with ARR of
$100,000 or more is an indicator of our market penetration and strategic demand
for our platform. We define a customer as an entity that has an active
subscription for access to our platform. We count MSPs, MSSPs, MDRs, and OEMs,
who may purchase our products on behalf of multiple companies, as a single
customer. We do not count our reseller or distributor channel partners as
customers.
As of October 31,
2021 2020
(in thousands)
Customers with ARR of $100,000 or more 416 173
Customers with ARR of $100,000 or more grew 140% year-over-year to 416 as of
October 31, 2021 , primarily due to new customers making purchases of greater
than $100,000 , and partly due to existing customers who made additional
purchases.
Dollar-Based Net Retention Rate
We believe that our ability to retain and expand our revenue generated from our
existing customers is an indicator of the long-term value of our customer
relationships and our potential future business opportunities. Dollar-based net
retention rate measures the percentage change in our ARR derived from our
customer base at a point in time.
As of October 31,
2021 2020
(in thousands)
Dollar-based net retention rate 130 % 115 %
Our dollar-based net retention rate was 130% for the three months ended
October 31, 2021 , driven by existing customers primarily from expansion of the
number of endpoints, upgrades of subscription tiers, and purchases of additional
modules.
Components of Our Results of Operations
Revenue
We generate substantially all of our revenue from subscriptions to our
Singularity Platform. Customers can extend the functionality of their
subscription to our platform by subscribing to additional Singularity Modules.
Subscriptions provide access to hosted software. The nature of our promise to
the customer under the subscription is to provide protection for the duration of
the contractual term and as such we are providing a series of distinct services.
Our arrangements may include fixed consideration, variable consideration, or a
combination of the two. Fixed consideration is recognized over the term of the
arrangement or longer if the fixed consideration relates to a material right.
Variable consideration in these arrangements is typically a function of
transaction volume or another usage-based measure. Depending upon the structure
of a particular arrangement, we (1) allocate the variable amount to each
distinct service period within the series and recognize revenue as the
performance obligations of each distinct service period are performed (i.e.
direct allocation), (2) estimate total variable consideration at contract
inception (giving consideration to any constraints that may apply and updating
the estimates as new information becomes available) and recognize the total
transaction price over the service period to which it relates, or (3) apply the
'right to invoice' practical expedient and recognize revenue based on the amount
invoiced to the customer during the service period. Premium support and
maintenance and other Singularity Modules are distinct from subscriptions and
are recognized ratably over the term as the performance obligations are
satisfied.
We invoice our customers upfront upon signing for the entire term of the
contract, periodically, or in arrears. Most of our subscription contracts have a
term of one to three years.
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Cost of Revenue
Cost of revenue consists primarily of third-party cloud infrastructure expenses
incurred in connection with the hosting and maintenance of our platform. Cost of
revenue also consists of personnel-related costs associated with our customer
support and services organization, including salaries, benefits, bonuses, and
stock-based compensation, amortization of acquired intangible assets,
amortization of capitalized internal-use software, software and subscription
services used by our customer support and services team, and allocated overhead
costs.
Our third-party cloud infrastructure costs are driven primarily by the number of
customers, the number of endpoints per customer, the number of modules, and the
incremental costs for storing additional data collected for such cloud modules.
We plan to continue to invest in our platform infrastructure and additional
resources in our customer support and services organization as we grow our
business. The level and timing of investment in these areas could affect our
cost of revenue from period to period.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing,
and general and administrative expenses. Personnel-related expenses are the most
significant component of operating expenses and consist of salaries, benefits,
bonuses, stock-based compensation, and sales commissions. Operating expenses
also include allocated facilities and IT overhead costs.
Research and Development
Research and development expenses consist primarily of employee salaries,
benefits, bonuses, and stock-based compensation. Research and development
expenses also include consulting fees, software and subscription services, and
third-party cloud infrastructure expenses incurred in developing our platform
and modules.
We expect research and development expenses to increase in absolute dollars as
we continue to increase investments in our existing products and services.
However, we anticipate research and development expenses to decrease as a
percentage of our total revenue over time, although our research and development
expenses may fluctuate as a percentage of our total revenue from period to
period depending on the timing of these expenses. In addition, research and
development expenses that qualify as internal-use software are capitalized, the
amount of which may fluctuate significantly from period to period.
Sales and Marketing
Sales and marketing expenses consist primarily of employee salaries,
commissions, benefits, bonuses, stock-based compensation, travel and
entertainment related expenses, advertising, branding and marketing events,
promotions, and software and subscription services. Sales and marketing expenses
also include sales commissions paid to our sales force and referral fees paid to
independent third parties that are incremental to obtain a subscription
contract. Such costs are capitalized and amortized over an estimated period of
benefit of four years, and any such expenses paid for the renewal of a
subscription are capitalized and amortized over the contractual term of the
renewal.
We expect sales and marketing expenses to increase in absolute dollars as we
continue to make significant investments in our sales and marketing organization
to drive additional revenue, further penetrate the market, and expand our global
customer base, but to decrease as a percentage of our revenue over time.
General and Administrative
General and administrative expenses consist primarily of salaries, benefits,
bonuses, stock-based compensation, and other expenses for our executive,
finance, legal, human resources, and facilities organizations. General and
administrative expenses also include external legal, accounting, other
consulting, and professional services fees, software and subscription services,
and other corporate expenses.
We expect to incur additional expenses as a result of operating as a public
company, including costs to comply with the rules and regulations applicable to
companies listed on a national securities exchange, costs related to
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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 Expense, and Other Income (Expense), Net
Interest income consists primarily of interest earned on our cash equivalents
and short-term investments.
Interest expense consists primarily of interest on borrowings associated with
our loan and security agreement.
Other income (expense), net consists primarily of foreign currency transaction
gains and losses.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists primarily of income taxes in
certain foreign and state jurisdictions in which we conduct business. We
maintain a full valuation allowance against our deferred tax assets because we
have concluded that it is more likely than not that the deferred tax assets will
not be realized. Based upon a change in operations of our Israel subsidiary,
there is a reasonable possibility that within the next several quarters,
sufficient positive evidence becomes available to reach a conclusion that all or
a significant portion of the valuation allowances against our Israel net
deferred tax assets would no longer be required. This could result in a material
income tax benefit in our consolidated statement of operations and a
corresponding increase in deferred tax assets on our consolidated balance sheet
in the period in which such valuation allowance is released.
Results of Operations
The following table sets forth our results of operations for the periods
presented:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(in thousands)
Revenue $ 56,018 $ 24,557 $ 139,163 $ 63,188
Cost of revenue(1) 20,357 10,341 57,428 25,497
Gross profit 35,661 14,216 81,735 37,691
Operating expenses:
Research and development(1) 34,773 14,925 93,630 42,266
Sales and marketing(1) 41,311 19,974 118,461 54,027
General and administrative(1) 26,951 9,003 65,785 19,874
Total operating expenses 103,035 43,902 277,876 116,167
Loss from operations (67,374) (29,686) (196,141) (78,476)
Interest income 99 10 143 206
Interest expense (3) (312) (785) (1,089)
Other income (expense), net (1,055) (111) (2,021) (122)
Loss before provision for income taxes (68,333) (30,099) (198,804) (79,481)
Provision for income taxes 262 57 588 251
Net loss $ (68,595) $ (30,156) $ (199,392) $ (79,732)
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(1)Includes stock-based compensation expense as follows:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(in thousands)
Cost of revenue $ 1,202 $ 66 $ 2,425 $ 201
Research and development 9,035 443 24,997 3,467
Sales and marketing 4,848 985 10,800 2,052
General and administrative 12,277 3,101 23,970 4,114
Total stock-based compensation expense $ 27,362
The following table sets forth the components of our consolidated statements of operations as a percentage of revenue for each of the periods presented:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(as a percentage of total revenue)
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 36 42 41 40
Gross profit 64 58 59 60
Operating expenses:
Research and development 62 61 67 67
Sales and marketing 74 81 85 86
General and administrative 48 37 47 31
Total operating expenses 184 179 200 184
Loss from operations (120) (121) (141) (124)
Interest income - - - -
Interest expense - (1) (1) (2)
Other income (expense), net (2) - (1) -
Loss before provision for income taxes (122) (123) (143) (126)
Provision for income taxes - - - -
Net loss (122) % (123) % (143) % (126) %
Note: Certain figures may not sum due to rounding.
Comparison of the Three Months Ended October 31, 2021 and 2020
Revenue
Three Months Ended October 31, Change
2021 2020 $ %
(dollars in thousands)
Revenue $ 56,018 $ 24,557 $ 31,461 128 %
Revenue increased by $31.5 million , or 128%, from $24.6 million for the three
months ended October 31, 2020 to $56.0 million for the three months ended
October 31, 2021 . The increase was primarily due to the ongoing demand for our
platform and the acquisition of Scalyr in the first quarter of 2022. The
increase was due to new customers, which accounted for 43% of the increase, to
existing customers, which accounted for 39% of the increase, and to MSP, MSSP,
and OEM channel partners, which accounted for 18% of the increase.
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Cost of Revenue, Gross Profit, and Gross Margin
Three Months Ended October 31, Change
2021 2020 $ %
(dollars in thousands)
Cost of revenue $ 20,357 $ 10,341 $ 10,016 97 %
Gross profit $ 35,661 $ 14,216 $ 21,445 151 %
Gross margin 64 % 58 %
Cost of revenue increased by $10.0 million , from $10.3 million for the three
months ended October 31, 2020 to $20.4 million for the three months ended
October 31, 2021 , primarily due to higher third-party cloud infrastructure
expenses of $3.8 million from increased data usage and an increase of $5.3
million in allocated overhead costs. Gross margin increased from 58% to 64%,
primarily due to revenue growth from existing and new customers outpacing growth
in cost of revenue.
Research and Development
Three Months Ended October 31, Change
2021 2020 $ %
(dollars in thousands)
Research and development expenses $ 34,773
$ 19,848 133 % Research and development expenses increased from$14.9 million for the three months endedOctober 31, 2020 to$34.8 million for the three months endedOctober 31, 2021 , primarily due to an increase in personnel-related expenses of$14.5 million , including an increase of$8.6 million related to stock-based compensation expense as a result of increased headcount, and an increase of$3.7 million in third-party cloud infrastructure expenses incurred in developing our platform and modules. Sales and Marketing Three Months Ended October 31, Change 2021 2020 $ % (dollars in thousands) Sales and marketing expenses $ 41,311$ 19,974 $ 21,337 107 % Sales and marketing expenses increased from$20.0 million for the three months endedOctober 31, 2020 to$41.3 million for the three months endedOctober 31, 2021 , primarily due to an increase in personnel-related expenses of$15.6 million , including an increase of$3.9 million in stock-based compensation expense as a result of increased headcount. In addition, there was an increase of$2.2 million in marketing related expenses. Three Months Ended October 31, Change 2021 2020 $ % (dollars in thousands)
General and administrative expenses $ 26,951
199 %
General and administrative expenses increased from $9.0 million for the three
months ended October 31, 2020 to $27.0 million for the three months ended
October 31, 2021 , primarily due to an increase in personnel-related expenses of
$15.2 million , including an increase of $9.2 million in stock-based compensation
expense as a result of increased headcount. In addition, there was an increase
of $2.1 million in insurance expense associated with the cost of becoming a
public company, $1.3 million in software subscription services and $1.2 million
in office lease expense to support the growth of the business.
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Interest Income, Interest Expense, and Other Income (Expense), Net
Three Months Ended October 31, Change
2021 2020 $ %
(dollars in thousands)
Interest income $ 99 $ 10 $ 89 890 %
Interest expense $ (3) $ (312) $ 309 (99) %
Other income (expense), net $ (1,055) $ (111) $ (944) 850 %
Interest expense decreased due to the repayment and termination of the revolving
line of credit in
Three Months Ended October 31, Change
2021 2020 $ %
(dollars in thousands)
Provision for income taxes $ 262 $ 57 $ 205 360 %
The provision for income taxes increased primarily as a result of the increase
in foreign taxes related to operations in international subsidiaries.
Comparison of the Nine Months Ended October 31, 2021 and 2020
Revenue
Nine Months Ended October 31, Change
2021 2020 $ %
(dollars in thousands)
Revenue $ 139,163 $ 63,188 $ 75,975 120 %
Revenue increased by $76.0 million , or 120%, from $63.2 million for the nine
months ended October 31, 2020 to $139.2 million for nine months ended
October 31, 2021 , primarily due to the ongoing demand for our platform and the
acquisition of Scalyr in the first quarter of fiscal 2022. The increase was
primarily due to the ongoing demand for our platform.The increase was due to new
customers, which accounted for 46% of the increase, to existing customers, which
accounted for 37% of the increase, and to MSP, MSSP, and OEM channel partners,
which accounted for 17% of the increase.
Cost of Revenue, Gross Profit, and Gross Margin
Nine Months Ended October 31, Change
2021 2020 $ %
(dollars in thousands)
Cost of revenue $ 57,428 $ 25,497 $ 31,931 125 %
Gross profit $ 81,735 $ 37,691 $ 44,044 117 %
Gross margin 59 % 60 %
Cost of revenue increased by $31.9 million from $25.5 million for the nine
months ended October 31, 2020 to $57.4 million for nine months ended October 31,
2021 , primarily due to higher third-party cloud infrastructure expenses from
increased data usage of $16.7 million and an increase of $12.4 million in
allocated overhead costs. Gross margin decreased from 60% for the nine months
ended October 31, 2020 to 59% for the nine months ended October 31, 2021 due to
cloud infrastructure expansion driven by fast customer adoption of our XDR
platform, growth in support personnel, and higher stock-based compensation.
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Research and Development
Nine Months Ended October 31, Change
2021 2020 $ %
(dollars in thousands)
Research and development expenses
$ 51,364 122 % Research and development expenses increased from$42.3 million for the nine months endedOctober 31, 2020 to$93.6 million for nine months endedOctober 31, 2021 , primarily due to an increase in personnel-related expenses of$38.1 million , including an increase of$21.5 million related to stock-based compensation expense as a result of increased headcount, an increase of$7.5 million in third-party cloud infrastructure expenses incurred in developing our platform and modules, and an increase of$1.7 million in consulting expenses. Sales and Marketing Nine Months Ended October 31, Change 2021 2020 $ % (dollars in thousands) Sales and marketing expenses$ 118,461 $ 54,027 $ 64,434 119 % Sales and marketing expenses increased from$54.0 million for the nine months endedOctober 31, 2020 to$118.5 million for nine months endedOctober 31, 2021 , primarily due to an increase in personnel-related expenses of$43.7 million , including an increase of$8.7 million in stock-based compensation expense as a result of increased headcount. In addition, there was an increase of$11.3 million in marketing-related expenses. General and Administrative Nine Months Ended October 31, Change 2021 2020 $ % (dollars in thousands)
General and administrative expenses
231 %
General and administrative expenses increased from $19.9 million for the nine
months ended October 31, 2020 to $65.8 million for nine months ended October 31,
2021 , primarily due to an increase in personnel-related expenses of $35.6
million , including an increase of $19.9 million in stock-based compensation
expense as a result of increased headcount. In addition, there was an increase
of $10.2 million in outside consulting services to support our growth, and a
$2.7 million increase in software and subscription services.
Interest Income, Interest Expense, and Other Income (Expense), Net
Nine Months Ended October 31, Change
2021 2020 $ %
(dollars in thousands)
Interest income $ 143 $ 206 $ (63) (31) %
Interest expense $ (785) $ (1,089) $ 304 (28) %
Other income (expense), net $ (2,021) $ (122) $ (1,899) 1557 %
Interest expense decreased due to the repayment and termination of the revolving
line of credit in
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Provision for Income Taxes
Nine Months Ended October 31, Change
2021 2020 $ %
(dollars in thousands)
Provision for income taxes $ 588 $ 251 $ 337 134 %
The provision for income taxes increased primarily as a result of the increase
in foreign taxes related to operations in international subsidiaries.
Liquidity and Capital Resources
In July 2021 , upon completion of our IPO and the concurrent private placement,
we received net proceeds of $1.4 billion , after deducting underwriters'
discounts and commissions and estimated offering expenses of $81.6 million . We
did not pay any underwriting discounts or commissions with respect to shares
that were sold in the private placement.
Prior to the IPO, we financed operations primarily through proceeds received
from sales of equity securities, payments received from our customers, and
borrowings under our loan and security agreement, and we have generated
operating losses, as reflected in our accumulated deficit of $550.0 million and
$350.6 million as of October 31, 2021 and January 31, 2021 , respectively. As of
October 31, 2021 and January 31, 2021 , our principal source of liquidity was
cash, cash equivalents, and short-term investments of $1.7 billion and $395.8
million , respectively.
We believe that our existing cash, cash equivalents, and short-term investments
will be sufficient to support working capital and capital expenditure
requirements for at least the next 12 months. Our future capital requirements
will depend on many factors, including our revenue growth rate, the timing and
the amount of cash received from customers, the expansion of sales and marketing
activities, the timing and extent of spending to support research and
development efforts, the price at which we are able to purchase third-party
cloud infrastructure, 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, operating
results, and financial condition.
The following table shows a summary of our cash flows for the period presented:
Nine Months Ended October 31,
2021 2020
(in thousands)Net cash used in operating activities $ (90,003)
$ (43,276) Net cash used in investing activities $ (11,970)$ (3,946) Net cash provided by financing activities$ 1,369,776
Operating Activities
Our largest source of operating cash is payments received from our customers.
Our primary uses of cash from operating activities are for personnel-related
expenses, sales and marketing expenses, third-party cloud infrastructure
expenses, and overhead expenses. We have generated negative cash flows from
operating activities and have supplemented working capital through net proceeds
from the sale of equity securities.
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Cash used in operating activities primarily consists of our net loss adjusted
for certain non-cash items, including stock-based compensation expense,
depreciation and amortization, amortization of deferred contract acquisition
costs, and changes in operating assets and liabilities during each period.
Cash used in operating activities during the nine months ended October 31, 2021
was $90.0 million , primarily consisting of our net loss of $199.4 million ,
adjusted for non-cash items of $85.6 million and net cash inflows of $23.8
million provided by changes in our operating assets and liabilities. The main
drivers of the changes in operating assets and liabilities were a $60.0 million
increase in deferred revenue resulting primarily from increased subscription
contracts, a $19.8 million increase in accrued payroll and benefits due to
increased headcount, a $9.9 million increase in accrued liabilities due to
timing of invoices received from vendors, and a $3.7 million increase in other
liabilities due to deferred credit received from a vendor. These amounts were
partially offset by a $28.4 million increase in deferred contract acquisition
costs, a $6.9 million increase in prepaid expenses and other assets, primarily
due to annual insurance renewal and prepaid sponsorship costs, a $26.3 million
increase in accounts receivable due to an increase in sales, and a $5.7 million
decrease in accounts payable due to timing of payments.
Cash used in operating activities during the nine months ended October 31, 2020
was $43.3 million , primarily consisting of our net loss of $79.7 million ,
adjusted for non-cash items of $22.2 million and net cash inflows of $14.3
million provided by changes in our operating assets and liabilities. The main
drivers of the changes in operating assets and liabilities were a $21.9 million
increase in deferred revenue resulting primarily from increased subscription
contracts, and a $4.3 million decrease in accounts receivable due to payment
from customers. These amounts were partially offset by a $13.7 million increase
in deferred contract acquisition costs.
Investing Activities
Cash used in investing activities during the nine months ended October 31, 2021
was $12.0 million , consisting of $3.5 million of net cash paid for the
acquisition of Scalyr, $4.7 million of capitalized internal-use software costs,
and $3.3 million of purchases of property and equipment to support additional
office facilities.
Cash used in investing activities during the nine months ended October 31, 2020
was $3.9 million , consisting of $2.1 million of capitalized internal-use
software costs and $1.6 million of purchases of property and equipment to
support additional office facilities.
Financing Activities
Cash provided by financing activities during the nine months ended October 31,
2021 was $1.4 billion , consisting of $1.4 billion of aggregate net proceeds from
our IPO and the concurrent private placement completed in July 2021 , net of
underwriting discounts and commissions, and $8.6 million of proceeds from the
exercise of stock options, partially offset by a $20.0 million repayment of our
revolving line of credit and $7.4 million of payments of deferred offering
costs.
Cash provided by financing activities during the nine months ended October 31,
2020 was $422.2 million , consisting of $266.8 million of net proceeds from the
issuance of our Series F redeemable convertible preferred stock, $152.5 million
of net proceeds from the issuance of our Series E redeemable convertible
preferred stock, $19.9 million of net proceeds from our revolving line of
credit, and $3.0 million of proceeds from the exercise of stock options,
partially offset by a $20.0 million repayment of our term loan.
Debt Obligations
In May 2018 , we entered into a loan and security agreement with a certain
lender, which was restated in May 2020 , or the Amended Loan and Security
Agreement. The Amended Loan and Security Agreement provided a revolving line of
credit of up to $45.0 million , maturing in May 2023 . In June 2021 , we repaid all
outstanding indebtedness owed pursuant to the Amended Loan and Security
Agreement, terminated the agreement, and closed our revolving line of credit.
Pursuant to our termination of the Amended Loan and Security Agreement, the
related security interests have been removed and the covenants shall be of no
further force and effect.
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Table of Contents Contractual Obligations and Commitments There were no material changes outside of the ordinary course of business in our contractual obligations and commitments for the three and nine months endedOctober 31, 2021 from the contractual obligations and commitments disclosed in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations," set forth in our Final Prospectus. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical Accounting Policies and Estimates Our condensed consolidated financial statements are prepared in accordance withUnited States generally accepted accounting policies, or GAAP. The preparation of condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, 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, and we evaluate our estimates and assumptions on an ongoing basis. 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, operating results, and cash flows will be affected. There have been no material changes to our critical accounting policies and estimates as compared to those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Final Prospectus. Recently Issued Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies, in the notes to our condensed consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q for more information regarding recently issued accounting pronouncements.
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