SPRINT CORPORATION 
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. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, 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. Our fiscal year ends onJanuary 31 , and our fiscal quarters end onApril 30 ,July 31 ,October 31 , andJanuary 31 . Our fiscal years endedJanuary 31, 2022 , 2021, and 2020 are referred to herein as fiscal 2022, fiscal 2021, and fiscal 2020, respectively. 67
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Unless the context otherwise requires, all references in this report to
"
A discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 is presented below. A discussion regarding our financial condition and results of operations for fiscal 2021 compared to fiscal 2020 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the final prospectus for our IPO dated as ofJune 29, 2021 (Final Prospectus) and filed with theSEC pursuant to Rule 424(b)(4) onJune 30, 2021 . Overview
We founded
We pioneered the world's first purpose-built AI-powered 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 XDR Platform ingests, correlates, and queries petabytes of structured and
unstructured data from a myriad of ever-expanding disparate external and
internal sources in real-time. We build rich context and deliver greater
visibility 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 full visibility into the
Storyline of every secured device across the organization 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 some of the world's
largest organizations and our managed security providers and incident response
partners with an excellent management experience. Our customers realize improved
cybersecurity outcomes with fewer people.
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 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.
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 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, MSPs, MSSPs, MDRs, OEMs, and IR
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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 ofJanuary 31, 2022 , we had over 6,700 customers, increasing from over 3,900 customers as ofJanuary 31, 2021 . We had 520 customers with ARR of$100,000 or more as ofJanuary 31, 2022 , up from 219 customer with ARR of$100,000 or more as ofJanuary 31, 2021 . As ofJanuary 31, 2022 and 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 36% and 28% as ofJanuary 31, 2022 and 2021, respectively, illustrating the global nature of our solutions. We have grown rapidly since our inception. Our revenue was$204.8 million ,$93.1 million , and$46.5 million for fiscal 2022, 2021, and 2020, respectively, representing year-over-year growth of 120% and 100%, respectively. During this period, we continued to invest in growing our business to capitalize on our market opportunity. As a result, our net loss for fiscal 2022, 2021, and 2020 was$271.1 million ,$117.6 million , and$76.6 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.
Impact of COVID-19
Beginning inJanuary 2020 , the COVID-19 pandemic resulted in travel restrictions, prohibitions of non-essential activities, disruption and shutdown of certain businesses worldwide, as well as 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. As a result of the COVID-19 pandemic, we have experienced, and may continue to experience, a modest adverse impact on certain 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, 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 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. 69
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We cannot predict how long we will continue to experience the impact of the COVID-19 pandemic including any new variants, vaccine mandates, and further travel and office restrictions. Our operating results, cash flows, and financial condition have not been adversely affected 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 affected. 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 opened up 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 of January 31,
2022 2021 2020
(in thousands)
Annualized recurring revenue (ARR)
ARR grew 123% year-over-year to$292.3 million for fiscal 2022, primarily due to high growth in the number of new customers purchasing our subscriptions and to additional purchases by existing customers.
Customers with ARR of
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. 70
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As of As of January 31,
2022 2021 2020
(in thousands)
Customers with ARR of $100,000 or more 520 219 104
Customers with ARR of
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. NRR measures the
percentage change in our ARR derived from our customer base at a point in time.
As of As of January 31,
2022 2021 2020
(in thousands)
Dollar-based net retention rate 129 % 117 % 119 %
Our dollar-based net retention rate was 129% for fiscal 2022, 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 is considered as 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 each distinct service period is 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 recognizes the total transaction price over the 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 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.
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.
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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 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.
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Interest expense consisted 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. In connection with our global consolidated losses, we maintain a full valuation allowance against ourU.S. andIsrael deferred tax assets because we have concluded that it is more likely than not that the deferred tax assets will not be realized. Results of Operations The following table sets forth our results of operations for the periods presented: Year Ended January 31, 2022 2021 2020 (in thousands) Revenue$ 204,799 $ 93,056 $ 46,474 Cost of revenue(1) 81,677 39,332 18,331 Gross profit 123,122 53,724 28,143 Operating expenses: Research and development(1) 136,274 62,444 36,683 Sales and marketing(1) 160,576 77,740 51,322 General and administrative(1) 93,504 29,059 15,122 Total operating expenses 390,354 169,243 103,127 Loss from operations (267,232) (115,519) (74,984) Interest income 202 231 886 Interest expense (787) (1,401) (2,015) Other income (expense), net (2,280) (424) (217) Loss before provision for income taxes (270,097) (117,113) (76,330) Provision for income taxes 1,004 460 237 Net loss$ (271,101) $ (117,573) $ (76,567) __________________
(1)Includes stock-based compensation expense as follows:
Year Ended January 31,
2022 2021 2020
(in thousands)
Cost of revenue $ 3,618 $ 308 $ 138
Research and development 35,358 6,590 1,686
Sales and marketing 15,460 3,835 1,034
General and administrative 33,453 5,179 1,488
Total stock-based compensation expense $ 87,889 $ 15,912 $ 4,346
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The following table sets forth the components of our consolidated statements of operations as a percentage of revenue for each of the periods presented:
Year Ended January 31,
2022 2021 2020
(as a percentage of total revenue)
Revenue 100 % 100 % 100 %
Cost of revenue 40 42 39
Gross profit 60 58 61
Operating expenses:
Research and development 67 67 79
Sales and marketing 78 84 110
General and administrative 46 31 33
Total operating expenses 191 182 222
Loss from operations (130) (124) (161)
Interest income - - 2
Interest expense - (2) (5)
Other income (expense), net (1) - -
Loss before provision for income taxes (132) (126) (164)
Provision for income taxes - - 1
Net loss (132) % (126) % (165) %
Note: Certain figures may not sum due to rounding.
Comparison of the Years Ended
Revenue
Year Ended January 31, Change
2022 2021 $ %
(dollars in thousands)
Revenue $ 204,799 $ 93,056 $ 111,743 120 %
Revenue increased by $111.7 million , or 120%, from $93.1 million for fiscal 2021
to $204.8 million for fiscal 2022, primarily due to the ongoing demand for our
platform. Approximately 42% of the increase was derived from new customers,
approximately 40% of the increase was derived from existing customers and the
remainder was derived from MSP, MSSP, and OEM channel partners.
Cost of Revenue, Gross Profit, and Gross Margin
Year Ended January 31, Change
2022 2021 $ %
(dollars in thousands)
Cost of revenue $ 81,677 $ 39,332 $ 42,345 108 %
Gross profit $ 123,122 $ 53,724 $ 69,398 129 %
Gross margin 60 % 58 %
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Cost of revenue increased by$42.3 million from$39.3 million for fiscal 2021 to$81.7 million for fiscal 2022, primarily due to higher third-party cloud infrastructure expenses from increased data usage of$20.1 million , an increase of$18.5 million in overhead costs due to increase in our personnel to support overall growth and an increase of$2.2 million from amortization of intangible assets. Gross margin increased from 58% for fiscal 2021 to 60% for fiscal 2022, primarily due to revenue growth from existing and new customers outpacing growth in cost of revenue. Research and Development Year Ended January 31, Change 2022 2021 $ % (dollars in thousands) Research and development expenses$ 136,274 $ 62,444 $
73,830 118 %
Research and development expenses increased from$62.4 million in fiscal 2021 to$136.3 million in fiscal 2022, primarily due to an increase in personnel-related expenses of$53.7 million , including an increase of$28.8 million related to stock-based compensation expense as a result of increased headcount, an increase of$12.8 million in third-party cloud infrastructure expenses incurred in developing our platform and modules, an increase of$3.8 million related to allocated overhead costs, and an increase of$2.5 million in consulting and software subscription expenses. Sales and Marketing Year Ended January 31, Change 2022 2021 $ % (dollars in thousands) Sales and marketing expenses$ 160,576 $ 77,740 $ 82,836 107 % Sales and marketing expenses increased from$77.7 million in fiscal 2021 to$160.6 million in fiscal 2022, primarily due to an increase in personnel-related expenses of$57.0 million , including an increase of$11.6 million in stock-based compensation expense as a result of increased headcount. In addition, there was an increase of$10.8 million in marketing-related expenses, an increase of$6.1 million in travel and entertainment, software subscription and sales related expenses, and an increase of$5.3 million related to allocated overhead costs. General and Administrative Year Ended January 31, Change 2022 2021 $ % (dollars in thousands) General and administrative expenses$ 93,504 $ 29,059
General and administrative expenses increased from$29.1 million in fiscal 2021 to$93.5 million in fiscal 2022, primarily due to an increase in personnel-related expenses of$49.2 million , including an increase of$28.3 million in stock-based compensation expense as a result of increased headcount. In addition, there was an increase of$14.4 million in outside consulting services, legal, audit, tax and software subscription expenses. 75
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Interest Income, Interest Expense, and Other Income (Expense), Net
Year Ended January 31, Change
2022 2021 $ %
(dollars in thousands)
Interest income $ 202 $ 231 $ (29) (13) %
Interest expense $ (787) $ (1,401) $ 614 (44) %
Other income (expense), net $ (2,280) $ (424) $ (1,856) 438 %
Interest income remained relatively flat. Interest expense decreased due to the
repayment and termination of the revolving line of credit in June 2021 . The
decrease in other income (expense), net is primarily due to net foreign currency
exchange losses.
Provision for Income Taxes
Year Ended January 31, Change
2022 2021 $ %
(dollars in thousands)
Provision for income taxes $ 1,004 $ 460 $ 544 118 %
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
InJuly 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$621.7 million and$350.6 million as ofJanuary 31, 2022 and 2021, respectively. We expect these losses and operating losses to continue for the foreseeable future. We also expect to incur significant research and development, sales and marketing, and general and administrative expenses over the next several years in connection with the continued development and expansion of our business. As ofJanuary 31, 2022 and 2021, our principal source of liquidity was cash, cash equivalents, and short-term investments of$1.7 billion and$395.8 million , respectively. In the short term, 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. In the long term, 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. We have, and 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. 76
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The following table shows a summary of our cash flows for the periods presented:
Year Ended January 31,
2022 2021 2020
(in thousands)
Net cash used in operating activities
$ (44,424) Net cash used in investing activities$ (19,743) $ (6,265) $ (3,187) Net cash provided by financing activities$ 1,387,124 $ 423,978 $ 52,770 Operating Activities Our largest source of operating cash is payments received from our customers. Our primary uses of cash from operating activities are for personnel-related expenses, sales and marketing expenses, third-party cloud infrastructure expenses, and overhead expenses. We have generated negative cash flows from operating activities and have supplemented working capital through net proceeds from the sale of equity securities. Cash used in operating activities 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 fiscal 2022 was$95.6 million , primarily consisting of our net loss of$271.1 million , adjusted for non-cash items of$119.9 million and net cash inflows of$55.6 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a$115.1 million increase in deferred revenue resulting primarily from increased subscription contracts, a$41.5 million increase in accrued payroll and benefits due to increased headcount, a$24.2 million increase in accrued and other liabilities primarily due to net invoices received from vendors. These amounts were partially offset by a$59.1 million increase in accounts receivable due to an increase in sales, a$53.6 million increase in deferred contract acquisition costs, a$7.3 million increase in prepaid expenses and other assets, primarily due to annual insurance renewal and prepaid sponsorship costs and a$2.1 million decrease in accounts payable due to timing of payments. Cash used in operating activities during fiscal 2021 was$66.6 million , primarily consisting of our net loss of$117.6 million , adjusted for non-cash items of$33.3 million and net cash inflows of$17.7 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a$49.1 million increase in deferred revenue, resulting primarily from increased subscription contracts, a$7.8 million increase in accrued payroll and benefits due to increased headcount, a$7.4 million increase in accounts payable, and a$1.4 million increase in accrued liabilities due to our growth and timing of payments. These amounts were partially offset by a$26.9 million increase in deferred contract acquisition costs, a$9.4 million increase in prepaid expenses and other current assets, primarily due to an increase in prepaid hosting and sponsorship costs, and an$8.3 million increase in accounts receivable due to an increase in sales.
Investing Activities
Cash used in investing activities during fiscal 2022 was
Cash used in investing activities during fiscal 2021 was$6.3 million , consisting of$3.3 million of purchases of property and equipment to support additional office facilities,$2.8 million of capitalized internal-use software costs, and$0.2 million of purchases of intangible assets.
Financing Activities
Cash provided by financing activities during fiscal 2022 was
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discounts and commissions,$14.6 million of proceeds from the exercise of stock options,$11.4 million of proceeds from issuance of common stock under the ESPP, 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 fiscal 2021 was$424.0 million , consisting of$419.3 million of net proceeds from the issuances of our Series E redeemable convertible preferred stock and Series F redeemable convertible preferred stock,$19.9 million of net proceeds from our revolving line of credit, and$4.8 million of proceeds from the exercise of stock options and warrants, partially offset by a$20.0 million repayment of our term loan.
Debt Obligations
InMay 2018 , we entered into a loan and security agreement with a certain lender, which was restated inMay 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 inMay 2023 . InJune 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.
Contractual Obligations and Commitments
Our operating lease obligations as ofJanuary 31, 2022 were approximately$33.5 million , with$4.9 million expected to be paid within 12 months and the remainder thereafter. Our operating leases are related to leased facilities under operating lease agreements expiring through fiscal 2029. We have office facility operating leases inthe United States , theCzech Republic ,France ,Israel ,Japan ,the Netherlands , andUnited Arab Emirates . See Note 8, Leases, to the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data.
Our purchase obligations as of
In
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 consolidated financial statements are prepared in accordance with GAAP. The
preparation of 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.
The critical accounting policies requiring estimates, assumptions, and judgments
that we believe have the most significant impact on our consolidated financial
statements are described below.
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Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers.
We consider the terms and conditions of contracts with customers and our customary business practices in identifying contracts. We determine we have a contract with a customer when the contract is approved, the payment terms for the services can be identified, each party's rights regarding the services to be transferred can be identified, the contract has commercial substance, and we have determined that the customer has the ability and intent to pay. 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 historical payment experience or, in the case of a new customer, credit and financial information pertaining to such customer. Our contracts with customers may contain multiple performance obligations, which are accounted for separately if they are capable of being distinct and are distinct in the context of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on relative standalone selling price (SSP). We apply judgment in determining SSP for our performance obligations. To determine SSP, we maximize the use of observable standalone sales and observable data, where available. In instances where performance obligations do not have observable standalone sales, we utilize available information that may include but is not limited to product groupings, or applying the expected cost-plus margin approach to estimate the price we would charge if the service was sold separately. Certain sales arrangements may include variable consideration, which is recorded as part of the transaction price if, in our judgment, it is probable that no significant future reversal of cumulative revenue under the contract will occur. Stock-Based Compensation Stock-based compensation expense related to equity awards is recognized based on the fair value of the awards on the date of the grant. The fair value of stock option awards granted and rights to purchase shares under our ESPP are generally estimated using the Black-Scholes option pricing model. For awards with market-based vesting conditions, a Monte Carlo simulation model is used. Stock-based compensation expense for awards with only service-based vesting conditions is recognized on a straight-line basis over the requisite service period of the awards. We account for forfeitures related to these awards as they occur. The use of the Black-Scholes option pricing model requires the input of highly subjective assumptions. These assumptions involve inherent uncertainties and the application of management's judgment. These assumptions are estimated as follows: • Fair value of 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 Class A common stock is determined by the closing price of Class A common stock traded on the NYSE. • Expected term. We determine the expected term based on the average period the options are expected to remain outstanding using the simplified method, calculated as the midpoint of the options' vesting term and contractual expiration period, until sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior becomes available. • Expected volatility. We analyze the average volatility of our representative peer group public companies with sufficient trading history over the expected term to develop an expected volatility assumption.
• Risk-free interest rate. We use the
• Dividend yield. We utilize a dividend yield of zero, as we do not currently
issue dividends and do not expect to issue dividends on our common stock in the
foreseeable future.
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Common Stock Valuations
Prior to our IPO, the fair value of the common stock underlying our equity awards was determined by our board of directors, with input from management and contemporaneous third-party valuations. Given the absence of a public trading market for our common stock and in accordance with theAmerican 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 include:
• contemporaneous third-party valuations of our common stock;
• the prices, rights, preferences, and privileges of our redeemable convertible preferred stock relative to those of our common stock;
• the prices paid for common or redeemable convertible preferred stock sold to third-party investors by us and prices paid in secondary transactions for shares purchased by third-party investors in arms-length transactions; • 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 likelihood of achieving a liquidity event, such as an initial public
offering, a merger, or acquisition of
• the operational and financial performance of comparable publicly traded companies; and
• the
Prior to the IPO, in determining the fair value of our common stock, we first estimated the fair value of our business using either the income approach, the market approach, or a combination of the income and market approaches. The income approach estimates value based on expectations of future cash flows that we will generate. Future cash flows are then discounted to their present values using a risk-adjusted discount rate. The market approach estimates value based on a comparison of the company to a group of comparable public companies. From the comparable companies, a representative market value multiple is determined and then applied to our financial results to estimate the fair value of our business. The resulting estimated fair value of our business was then allocated to each class of stock using the Option Pricing Method (OPM), or a hybrid of the Probability Weighted Expected Return Method (PWERM), and OPM. Prior toFebruary 1, 2021 , the OPM was selected as the principal equity allocation method. BeginningFebruary 1, 2021 , we allocated the fair value of our business based on a hybrid of the OPM and the PWERM. A discount for lack of marketability was applied to the resulting per share value to arrive at the fair value of our common stock on a non-marketable basis. In addition, prior to the IPO, 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. Factors considered include transaction volume, the number of participants, timing, whether the transactions occurred between willing and unrelated parties, and whether the transactions involved parties with access to our financial information. 80
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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.
As a public trading market for our Class A common stock has now been established, the fair value of our Class A common stock is determined based on the quoted market price of our Class A common stock.
Business Combinations
We account for our acquisitions using the acquisition method of accounting. We allocate the fair value of purchase consideration to the tangible and intangible assets acquired, and liabilities assumed, based on their estimated fair values. The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain identifiable assets include, but are not limited to, the selection of valuation methodologies, future expected cash flows, discount rates, and useful lives. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the Jumpstart Our Business Startups (JOBS Act). Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards until such time as those standards become applicable to private companies. To date, we have not elected to take advantage of the benefits of this extended transition period. If we elect to delay adopting new or revised accounting standards, while we are still an "emerging growth company," we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard.
Recently Issued Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding recently issued accounting pronouncements.
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