# Asana, Inc. (ASAN) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from Asana, Inc.'s 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/1477720/000147772023000012/asan-20230131.htm Accession: 0001477720-23-000012 Filing date: 2023-03-24 Report date: 2023-01-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/ASAN/ All MD&A years: /company/ASAN/mda/ Previous year: /company/ASAN/mda/fy2022/ (FY 2022) Next year: /company/ASAN/mda/fy2024/ (FY 2024) Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. As described in the section titled “Special Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward‑looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included above in this report. Our fiscal year ends on January 31. Overview Asana is a work management platform that helps organizations orchestrate work, from daily tasks to cross-functional strategic initiatives. Over 139,000 paying customers use Asana to manage everything from product launches to marketing campaigns to organization-wide goal setting. Our platform adds structure to unstructured work, creating clarity, transparency, and accountability to everyone within an organization—individuals, team leads, and executives—so they understand exactly who is doing what, by when. Asana is flexible and applicable to virtually any use case across departments and organizations of all sizes. We designed our platform to be easy to use and intuitive to all users, regardless of role or technical proficiency. Users can start a project within minutes and onboard team members seamlessly without outside support. We allow users to work the way they want with the interface that is right for them, using lists, calendars, boards, timelines, and workload. We have experienced rapid growth in recent periods. Our revenues were $547.2 million, $378.4 million, and $227.0 million for fiscal 2023, fiscal 2022, and fiscal 2021, respectively, representing growth of 45% and 67% for fiscal 2023 and fiscal 2022, respectively. As of January 31, 2023, we had 1,782 employees, representing growth of 7% since January 31, 2022. We had a net loss of $407.8 million, $288.3 million, and $211.7 million for fiscal 2023, fiscal 2022, and fiscal 2021, respectively. Since our inception, over 42 million users have registered on Asana and millions of teams in virtually every country around the world have used Asana. As of January 31, 2023, we had over 2.5 million paid users. Key Business Metrics We believe that our growth and financial performance are dependent upon many factors, including the key factors described below. Paying Customers We are focused on continuing to grow the number of customers that use our platform. Our operating results and growth opportunity depend, in part, on our ability to attract new customers. We believe we have significant greenfield opportunities among addressable customers worldwide and we will continue to invest in our research and development and our sales and marketing organizations to address this opportunity. As of January 31, 2023, we had over 139,000 paying customers, compared to over 119,000 as of January 31, 2022. We define a customer as a distinct account, which could include a team, company, educational or government institution, organization, or distinct business unit of a company, that is on a paid subscription plan, a free version, or a free trial of one of our paid subscription plans. A single organization may have multiple customers. We define a paying customer as a customer on a paid subscription plan. Customers Spending Over $5,000 and $100,000 We focus on growing the number of customers spending over $5,000 and $100,000 on an annualized basis as a measure of our ability to scale within organizations. We define customers spending over $5,000 and $100,000 as 58 Table of Contents those organizations on a paid subscription plan that had $5,000 or more or $100,000 or more in annualized GAAP revenues in a given quarter, respectively, inclusive of discounts. As customers realize the productivity benefits we provide, our platform often becomes critical to managing their work and achieving their objectives, which drives further adoption and expansion opportunities, and results in higher annualized contract values. We believe that our ability to increase the number of these customers is an important indicator of the components of our business, including: the continued acquisition of new customers, retaining and expanding our user base within existing customers, our continued investment in product development and functionality required by larger organizations, and the strategic expansion of our direct sales force. As of January 31, 2023, we had 19,432 customers spending over $5,000 on an annualized basis contributing approximately 70% of revenues for the fiscal year then ended. As of January 31, 2022, we had 15,437 customers spending over $5,000 who contributed approximately 66% of revenue for the fiscal year then ended. As of January 31, 2023 and 2022, we had 506 and 340 customers spending over $100,000 on an annualized basis, respectively. Dollar-based Net Retention Rate We expect to derive a significant portion of our revenue growth from expansion within our customer base, where we have an opportunity to expand adoption of Asana across teams, departments, and organizations. We believe that our dollar-based net retention rate demonstrates our opportunity to further expand within our customer base, particularly those that generate higher levels of annual revenues. Our reported dollar-based net retention rate equals the simple arithmetic average of our quarterly dollar-based net retention rate for the four quarters ending with the most recent fiscal quarter. We calculate our dollar-based net retention rate by comparing our revenues from the same set of customers in a given quarter, relative to the comparable prior-year period. To calculate our dollar-based net retention rate for a given quarter, we start with the revenues in that quarter from customers that generated revenues in the same quarter of the prior year. We then divide that amount by the revenues attributable to that same group of customers in the prior-year quarter. Current period revenues include any upsells and are net of contraction or attrition over the trailing 12 months, but exclude revenues from new customers in the current period. We expect our dollar-based net retention rate to fluctuate in future periods due to a number of factors, including the expected growth of our revenue base, the level of penetration within our customer base, and our ability to retain our customers. As of January 31, 2023 and 2022, our dollar-based net retention rate was over 115% and over 120%, respectively. As of January 31, 2023 and 2022, our dollar-based net retention rate for customers spending over $5,000 with us on an annualized basis was over 120% and over 130%, respectively. Our dollar-based net retention rate for customers spending over $100,000 with us on an annualized basis was over 135% for both periods. Current Economic Conditions We continue to monitor and respond to evolving developments regarding the COVID-19 pandemic, which has significantly impacted the global economy. While we have re-opened our offices globally to employees and shifted to an office-centric hybrid work model, in-office collaboration is voluntary in times of increased community spread, and could therefore be further disrupted should the severity of the pandemic worsen. Should the pandemic worsen, operations of Asana, our partners or our customers may be further affected by the pandemic. Additionally, other recent macroeconomic events including elevated inflation, the U.S. Federal Reserve raising interest rates, bank failures, supply chain disruptions, fluctuations in currency exchange rates, and the Russian invasion of Ukraine, have led to further economic uncertainty in the global economy. For example, on March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. On March 12, 2023, the U.S. Department of the Treasury, Federal Reserve and FDIC jointly announced that all SVB depositors will have access to all of their funds on deposit with SVB. On March 14, 2023, the FDIC announced that substantially all third party contracts previously entered into by SVB have been transferred 59 Table of Contents to SVBBNA, inclusive of our credit agreement with SVB, and that SVBBNA has assumed all obligations of SVB under those contracts. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, or additional changes occur in the ownership structure or operations of SVBBNA, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition. These macroeconomic conditions have and are likely to continue to have adverse effects on the rate of global IT spending, including the buying patterns of our customers and prospective customers. While the current macroenvironment is challenging and may continue for the near term, we are encouraged by the future of work that we’re building at Asana, where every organization can work from a shared system driving clarity and accountability powered by the Asana Work Graph. Reduction in Force On November 15, 2022, we announced a reduction of our global workforce by approximately 9% to improve operational efficiencies and operating costs and better align the Company’s workforce with current business needs, top strategic priorities, and key growth opportunities. As a result, during the fiscal year ended January 31, 2023, we incurred $9.3 million of expenses related to severance, benefits and other related items. We do not expect to incur additional expenses of any significance related to the reduction in force in future periods. Components of Results of Operations Revenues We generate subscription revenues from paying customers accessing our cloud-based platform. Subscription revenues are driven primarily by the number of paying customers, the number of paying users within the customer base, and the level of subscription plan. We recognize revenues ratably over the related contractual term beginning on the date that the platform is made available to a customer. Due to the ease of implementation of our platform, revenues from professional services have been immaterial to date. Cost of Revenues Cost of revenues consists primarily of the cost of providing our platform to free users and paying customers and is comprised of third-party hosting fees, personnel-related expenses for our operations and support personnel including allocated overhead costs for facilities and shared IT-related expenses, third-party implementation services partner fees, credit card processing fees, and amortization of our capitalized internal-use software costs. As we acquire new customers and existing customers increase their use of our cloud-based platform, we expect that our cost of revenues will continue to increase. Gross Profit and Gross Margin Gross profit, or revenues less cost of revenues, and gross margin, or gross profit as a percentage of revenues, has been and will continue to be affected by various factors, including the timing of our acquisition of new customers, renewals of and follow-on sales to existing customers, costs associated with operating our cloud-based platform, and the extent to which we expand our operations and customer support organizations. We expect our gross profit to increase in dollar amount and our subscription gross margin to remain relatively consistent over the long term. 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, employer payroll taxes, benefits, stock-based compensation expense, and, in the case of sales and marketing expenses, sales commissions. Operating expenses also include an allocation of overhead costs for facilities and shared IT-related expenses, including depreciation expense. 60 Table of Contents Research and Development Research and development expenses consist primarily of personnel-related expenses. These expenses also include product design costs, third-party services and consulting expenses, software subscriptions and computer equipment used in research and development activities, and allocated overhead costs. A substantial portion of our research and development efforts are focused on enhancing our software architecture and adding new features and functionality to our platform. We anticipate continuing to invest in innovation and technology development, and as a result, we expect research and development expenses to continue to increase in dollar amount but to decrease as a percentage of revenues over time. Sales and Marketing Sales and marketing expenses consist primarily of personnel-related expenses and expenses for performance marketing, brand marketing, pipeline generation, and sponsorship activities. These expenses also include allocated overhead costs and travel-related expenses. Sales commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a subscription with a customer are deferred and amortized on a straight-line basis over the expected period of benefit of three years. We continue to make strategic investments in our sales and marketing organization, and we expect sales and marketing expenses to remain our largest operating expense in dollar amount. We expect our sales and marketing expenses to continue to increase in dollar amount but to decrease as a percentage of revenues over time, although the percentage may fluctuate from quarter to quarter and year to year depending on the extent and timing of our initiatives. General and Administrative General and administrative expenses consist primarily of personnel-related expenses for our finance, human resources, information technology, and legal organizations. These expenses also include non-personnel costs, such as outside legal, accounting, and other professional fees, software subscriptions and expensed computer equipment, certain tax, license, and insurance-related expenses, and allocated overhead costs. We have recognized and will continue to recognize certain expenses as part of being a publicly traded company, consisting of professional fees and other expenses. As a public company, we incur additional costs associated with accounting, compliance, insurance, and investor relations. We expect our general and administrative expenses to continue to increase in dollar amount for the foreseeable future but to generally decrease as a percentage of our revenues, although the percentage may fluctuate from period to period depending on the timing and amount of our general and administrative expenses. Interest Income and Other Income (Expense), Net and Interest Expense Interest income and other income (expense), net consists of income earned on our marketable securities and investments, in addition to foreign currency transaction gains and losses. Interest expense consists of contractual interest expense and amortization of the debt discount on the senior mandatory convertible promissory notes we issued in January and June 2020 to a trust affiliated with our CEO, and interest expense from our term loan and revolving credit facility. Provision for Income Taxes Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. To date, we have not recorded a material provision for income taxes for any of the periods presented other than for foreign income tax. We have recorded deferred tax assets for which we provide a full valuation allowance, which primarily include net operating loss carryforwards and research and development tax credit carryforwards. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not the deferred tax assets will not be realized based on our history of losses. 61 Table of Contents Results of Operations The following tables set forth our results of operations for the periods presented and as a percentage of our revenues for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. [[GREPCENT_TABLE]] [["","Year Ended January 31,"],["","2023","","2022","","2021"],["","(in thousands)"],["Revenues","$","547,212","","","$","378,437","","","$","227,004"],["Cost of revenues (1)","56,559","","","38,897","","","28,741"],["Gross profit","490,653","","","339,540","","","198,263"],["Operating expenses:"],["Research and development (1)","297,209","","","203,124","","","121,139"],["Sales and marketing (1)","434,961","","","282,897","","","176,479"],["General and administrative (1)","166,309","","","118,703","","","76,212"],["Total operating expenses","898,479","","","604,724","","","373,830"],["Loss from operations","(407,826)","","","(265,184)","","","(175,567)"],["Interest income and other income (expense), net","6,933","","","(1,536)","","","1,568"],["Interest expense","(2,000)","","","(18,385)","","","(36,178)"],["Loss before provision for income taxes","(402,893)","","","(285,105)","","","(210,177)"],["Provision for income taxes","4,875","","","3,237","","","1,533"],["Net loss","$","(407,768)","","","$","(288,342)","","","$","(211,710)"]] [[/GREPCENT_TABLE]] __________________ (1)Amounts include stock-based compensation expense as follows: [[GREPCENT_TABLE]] [["","Year Ended January 31,"],["","2023","","2022","","2021"],["","(in thousands)"],["Cost of revenues","$","1,658","","","$","806","","","$","305"],["Research and development","100,083","","","57,480","","","18,606"],["Sales and marketing","58,504","","","29,631","","","9,387"],["General and administrative","28,717","","","16,644","","","5,927"],["Total stock-based compensation expense (1)","$","188,962","","","$","104,561","","","$","34,225"]] [[/GREPCENT_TABLE]] __________________ (1)The table above includes $0.9 million of stock-based compensation expense for the fiscal year ended January 31, 2023 that was incurred as a result of the restructuring. See Note 17. Restructuring to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data in this Annual Report on Form 10-K for more information. 62 Table of Contents The following table sets forth the components of our statements of operations data, for each of the periods presented, as a percentage of revenues. [[GREPCENT_TABLE]] [["","Year Ended January 31,"],["","2023","","2022","","2021"],["","(percent of revenues)"],["Revenues","100","%","","100","%","","100","%"],["Cost of revenues","10","","","10","","","13"],["Gross margin","90","","","90","","","87"],["Operating expenses:"],["Research and development","54","","","54","","","53"],["Sales and marketing","79","","","75","","","78"],["General and administrative","30","","","31","","","34"],["Total operating expenses","164","","","160","","","165"],["Loss from operations","(75)","","","(70)","","","(77)"],["Interest income and other income (expense), net","1","","","*","","1"],["Interest expense","*","","(5)","","","(16)"],["Loss before provision for income taxes","(74)","","","(75)","","","(93)"],["Provision for income taxes","*","","*","","*"],["Net loss","(75)","%","","(76)","%","","(93)","%"]] [[/GREPCENT_TABLE]] ________________ * Less than 1% Note: Certain figures may not sum due to rounding. Comparison of the Fiscal Years Ended January 31, 2023 and 2022 Revenues [[GREPCENT_TABLE]] [["","Year Ended January 31,"],["","2023","","2022","","$ Change","","% Change"],["","(dollars in thousands)"],["Revenues","$","547,212","","","$","378,437","","","$","168,775","","","45","%"]] [[/GREPCENT_TABLE]] Revenues increased $168.8 million, or 45%, during fiscal 2023 compared to fiscal 2022. The increase in revenues was primarily due to the addition of new paying customers, a continued shift in our sales mix toward our higher priced subscription plans, such as Enterprise and Business plans, and revenues generated from our existing paying customers expanding their use of our solution as reflected by our dollar-based net retention rate of over 115% as of January 31, 2023. Cost of Revenues and Gross Margin [[GREPCENT_TABLE]] [["","Year Ended January 31,"],["","2023","","2022","","$ Change","","% Change"],["","(dollars in thousands)"],["Cost of revenues","$","56,559","","","$","38,897","","","$","17,662","","","45","%"],["Gross margin","90","%","","90","%"]] [[/GREPCENT_TABLE]] Cost of revenues increased $17.7 million, or 45%, during fiscal 2023 compared to fiscal 2022. The increase was primarily due to an increase of $7.3 million in third-party hosting costs as we increased capacity to support customer usage and growth of our customer base, an increase of $5.2 million in personnel-related costs due to increased headcount, $2.5 million in credit card processing fees, $1.1 million in allocated overhead costs as a result of 63 Table of Contents increased overall costs to support the growth of our business and related infrastructure, and $0.7 million in fees to third-party support vendors. Our gross margin stayed consistent during fiscal 2023 compared to fiscal 2022. Operating Expenses [[GREPCENT_TABLE]] [["","Year Ended January 31,"],["","2023","","2022","","$ Change","","% Change"],["","(dollars in thousands)"],["Research and development","$","297,209","","","$","203,124","","","$","94,085","","","46","%"],["Sales and marketing","434,961","","","282,897","","","152,064","","","54","%"],["General and administrative","166,309","","","118,703","","","47,606","","","40","%"],["Total operating expenses","$","898,479","","","$","604,724","","","$","293,755","","","49","%"]] [[/GREPCENT_TABLE]] Research and Development Research and development expenses increased $94.1 million, or 46%, during fiscal 2023 compared to fiscal 2022. The increase was primarily due to an increase of $79.8 million in personnel-related expenses driven by higher headcount, an increase of $8.9 million in allocated overhead costs as a result of increased overall costs to support the growth of our business and related infrastructure, an increase of $2.2 million in cloud computing and related costs, partially offset by an increase of $1.0 million in capitalized internal-use software. Sales and Marketing Sales and marketing expenses increased $152.1 million, or 54%, during fiscal 2023 compared to fiscal 2022. The increase was primarily due to an increase of $97.3 million in personnel-related expenses as a result of higher headcount, an increase of $30.6 million for advertising, an increase of $11.0 million in allocated overhead costs as a result of increased overall costs to support the growth of our business and related infrastructure, an increase of $4.3 million in fees to marketing vendors, an increase of $3.7 million in equipment and related costs, and an increase of $3.7 million in travel and entertainment costs. General and Administrative General and administrative expenses increased $47.6 million, or 40%, during fiscal 2023 compared to fiscal 2022. The increase was primarily due to an increase of $34.3 million in personnel-related expenses driven by higher headcount to support our continued growth, an increase of $3.4 million in allocated overhead costs as a result of increased overall costs to support the growth of our business and related infrastructure, an increase of $2.6 million in fees to third party support vendors, and an increase of $1.7 million in equipment and related costs, partially offset by a decrease of $1.8 million in capitalized cloud computing arrangement costs. Interest Income, Interest Expense, and Other Income (Expense), Net [[GREPCENT_TABLE]] [["","Year Ended January 31,"],["","2023","","2022","","$ Change","","% Change"],["","(dollars in thousands)"],["Interest income and other income (expense), net","$","6,933","","","$","(1,536)","","","$","8,469","","","(551)","%"],["Interest expense","(2,000)","","","(18,385)","","","16,385","","","(89)","%"]] [[/GREPCENT_TABLE]] Interest income and other income (expense), net increased $8.5 million during fiscal 2023 compared to fiscal 2022 due primarily to an increase of $7.4 million in interest income from our investments in marketable securities and a decrease of $1.1 million in losses on foreign currency transactions. Interest expense decreased $16.4 million during fiscal 2023 compared to fiscal 2022 primarily due to the conversion in July 2021 of the senior mandatory convertible promissory notes previously issued to a trust affiliated with our CEO in January 2020 and June 2020. 64 Table of Contents Comparison of the Fiscal Years Ended January 31, 2022 and 2021 For a comparison of our results of operations for the fiscal years ended January 31, 2022 and 2021, see Part II— Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SEC on March 24, 2022. Non-GAAP Financial Measures The following tables present certain non-GAAP financial measures for each period presented below. In addition to our results determined in accordance with GAAP, we believe these non-GAAP financial measures are useful in evaluating our operating performance. See below for a description of the non-GAAP financial measures and their limitations as an analytical tool. [[GREPCENT_TABLE]] [["","Year Ended January 31,"],["","2023","","2022","","2021"],["","(in thousands)"],["Non-GAAP loss from operations","$","(207,280)","","","$","(157,055)","","","$","(123,184)"],["Non-GAAP net loss","$","(207,222)","","","$","(162,915)","","","$","(123,289)"],["Free cash flow","$","(159,550)","","","$","(87,624)","","","$","(75,958)"]] [[/GREPCENT_TABLE]] Non-GAAP Loss From Operations and Non-GAAP Net Loss We define non-GAAP loss from operations as loss from operations plus stock-based compensation expense and the related employer payroll tax associated with RSUs as well as non-recurring costs, such as restructuring costs and direct listing expenses. The amount of employer payroll tax-related items on employee stock transactions is dependent on our stock price and other factors that are beyond our control and that do not correlate to the operation of the business. When evaluating the performance of our business and making operating plans, we do not consider these items (for example, when considering the impact of equity award grants, we place a greater emphasis on overall stockholder dilution rather than the accounting charges associated with such grants). We believe it is useful to exclude these expenses in order to better understand the long-term performance of our core business, to facilitate comparison of our results to those of peer companies, and to facilitate comparison over multiple periods. We define non-GAAP net loss as net loss plus stock-based compensation expense and the related employer payroll tax associated with RSUs, amortization of discount and non-cash contractual interest expense related to our senior mandatory convertible promissory notes, and non-recurring costs such as restructuring costs and direct listing expenses. We use non-GAAP loss from operations and non-GAAP net loss in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that non-GAAP loss from operations and non-GAAP net loss provide our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. Free Cash Flow We define free cash flow as net cash from operating activities less cash used for purchases of property and equipment and capitalized internal-use software costs, plus non-recurring expenditures such as capital expenditures from the purchases of property and equipment associated with the build-out of our corporate headquarters in San Francisco, restructuring costs, and direct listing expenses. We believe that free cash flow is a useful indicator of liquidity that provides information to management and investors, even if negative, about the amount of cash used in our operations other than that used for investments in property and equipment and capitalized internal-use software costs, adjusted for non-recurring expenditures. Limitations and Reconciliations of Non-GAAP Financial Measures Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for financial information presented under GAAP. There are a number of limitations related to the use 65 Table of Contents of non-GAAP financial measures versus comparable financial measures determined under GAAP. For example, other companies in our industry may calculate these non-GAAP financial measures differently or may use other measures to evaluate their performance. In addition, free cash flow does not reflect our future contractual commitments and the total increase or decrease of our cash balance for a given period. All of these limitations could reduce the usefulness of these non-GAAP financial measures as analytical tools. Investors are encouraged to review the related GAAP financial measures and the reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures and to not rely on any single financial measure to evaluate our business. The following tables reconcile the most directly comparable GAAP financial measure to each of these non-GAAP financial measures. Non-GAAP Loss From Operations [[GREPCENT_TABLE]] [["","Year Ended January 31,"],["","2023","","2022","","2021"],["","(in thousands)"],["Loss from operations","$","(407,826)","","","$","(265,184)","","","$","(175,567)"],["Add:"],["Stock-based compensation and related employer payroll tax associated with RSUs","191,286","","","108,129","","","34,431"],["Restructuring costs (1)","9,260","","","\u2014","","","\u2014"],["Direct listing expenses","\u2014","","","\u2014","","","17,952"],["Non-GAAP loss from operations","$","(207,280)","","","$","(157,055)","","","$","(123,184)"]] [[/GREPCENT_TABLE]] Non-GAAP Net Loss [[GREPCENT_TABLE]] [["","Year Ended January 31,"],["","2023","","2022","","2021"],["","(in thousands)"],["Net loss","$","(407,768)","","","$","(288,342)","","","$","(211,710)"],["Add:"],["Stock-based compensation and related employer payroll tax associated with RSUs","191,286","","","108,129","","","34,431"],["Restructuring costs (1)","9,260","","","\u2014","","","\u2014"],["Amortization of discount on convertible notes","\u2014","","","10,628","","","22,357"],["Non-cash interest expense","\u2014","","","6,670","","","13,681"],["Direct listing expenses","\u2014","","","\u2014","","","17,952"],["Non-GAAP net loss","$","(207,222)","","","$","(162,915)","","","$","(123,289)"]] [[/GREPCENT_TABLE]] __________________ (1)Restructuring costs for the fiscal year ended January 31, 2023 were composed of severance and related charges of $8.4 million and stock-based compensation expense of $0.9 million. These charges are non-recurring and not reflective of underlying trends in our business. See Note 17. Restructuring to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data in this Annual Report on Form 10-K for more information. 66 Table of Contents Free Cash Flow [[GREPCENT_TABLE]] [["","Year Ended January 31,"],["","2023","","2022","","2021"],["","(in thousands)"],["Net cash provided by (used in) investing activities","$","64,492","","","$","27,561","","","$","(158,937)"],["Net cash provided by financing activities","$","381,391","","","$","37,210","","","$","201,005"],["Net cash used in operating activities","$","(160,058)","","","$","(83,785)","","","$","(92,870)"],["Less:"],["Purchases of property and equipment","(5,351)","","","(41,587)","","","(57,344)"],["Capitalized internal-use software costs","(1,806)","","","(1,132)","","","(962)"],["Add:"],["Restructuring costs paid","7,663","","","\u2014","","","\u2014"],["Purchases of property and equipment for build-out of corporate headquarters","2","","","38,610","","","55,791"],["Direct listing expenses paid","\u2014","","","270","","","19,427"],["Free cash flow","$","(159,550)","","","$","(87,624)","","","$","(75,958)"]] [[/GREPCENT_TABLE]] Liquidity and Capital Resources Since inception, we have financed operations primarily through the net proceeds we have received from the sales of our preferred stock and common stock, the issuance of senior mandatory convertible promissory notes in January and June 2020 to a trust affiliated with our CEO, cash generated from the sale of subscriptions to our platform, and financing activities including the private placement transaction with our CEO. We have generated losses from our operations as reflected in our accumulated deficit of $1,237.6 million as of January 31, 2023 and negative cash flows from operating activities for fiscal 2023, fiscal 2022, and fiscal 2021. As of January 31, 2023, our principal sources of liquidity were cash, cash equivalents, and marketable securities of $529.3 million. In November 2022, we entered into a four-year credit agreement with SVB, which provided for senior secured credit facilities in the aggregate principal amount of up to $150 million, consisting of a term loan facility in the aggregate principal amount of $50 million and a revolving loan facility in an aggregate principal amount of up to $100 million, including a $30 million letter of credit sub-facility. The November 2022 Senior Secured Credit Facility refinanced the April 2020 Senior Secured Term Loan and terminates on November 7, 2026. Borrowings under the November 2022 Senior Secured Credit Facility may be designated as ABR Loans or SOFR Loans, subject to certain terms and conditions under the Credit Agreement. Interest will accrue on any outstanding balance at a floating rate tied to the adjusted term SOFR, the prime rate, or the federal funds effective rate. Interest is payable monthly in arrears. Pursuant to the terms of the revolving credit facility, we are required to pay an annual commitment fee that accrues at a rate of 0.15% per annum on the unused portion of the borrowing commitments under the revolving credit facility. Refer to Note 7. Debt for further details. As of January 31, 2023, under the November 2022 Senior Secured Credit Facility there was $50 million drawn and outstanding under the term loan, no amounts outstanding under the revolving credit facility and an aggregate $23.6 million in letters of credit issued under the credit sub-facility. Our total available borrowing capacity under the revolving credit facility was $76.4 million as of January 31, 2023. On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. On March 12, 2023, the U.S. Department of the Treasury, Federal Reserve and FDIC jointly announced that all SVB depositors will have access to all of their funds on deposit with SVB. On March 14, 2023, the FDIC announced that substantially all third party contracts previously entered into by SVB have been transferred to SVBBNA, inclusive of our credit agreement with SVB, and that SVBBNA has assumed all obligations of SVB under those contracts. The Company therefore does not believe that there is any impact to the 67 Table of Contents availability of the SVB line of credit and will continue to monitor the situation with SVBBNA as it evolves. As a result of the foregoing, all references to SVB are therefore under the control of SVBBNA as of the report date. In September 2022, we issued and sold 19,273,127 shares of our Class A common stock to our CEO in a private placement transaction at a purchase price of $18.16 per share, based on the closing trading price of the Company’s Class A common stock on September 2, 2022, for aggregate proceeds of $350 million. Refer to Note 11. Stockholders’ Equity (Deficit) for details. A substantial source of our cash provided by operating activities is our customer billings for subscription to our platform. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is included on our consolidated balance sheets as a liability and is recorded as revenues over the term of the subscription agreement. As of January 31, 2023 and January 31, 2022, we had $233.6 million and $174.2 million, respectively, of deferred revenue of which $226.4 million and $170.1 million, respectively, were recorded as a current liability. This deferred revenue will be recognized as revenues when all of the revenue recognition criteria are met. We assess our liquidity primarily through our cash on hand as well as the projected timing of billings under contract with our paying customers and related collection cycles. We believe our current cash, cash equivalents, marketable securities, and amounts available under our November 2022 Senior Secured Credit Facility will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our revenue growth rate, subscription renewal activity, billing frequency, our dollar-based net retention rate, the timing and extent of spending to support our research and development efforts, particularly for the introduction of new and enhanced products and features, the performance of sales and marketing activities, costs associated with international expansion, additional capital expenditures to invest in existing and new office spaces, as well as increased general and administrative expenses to support being a publicly traded company. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. We may seek to raise additional funds at any time through equity, equity-linked arrangements, and debt. If we are unable to raise additional capital when desired and at reasonable rates, our business, results of operations, and financial condition would be adversely affected. Additionally, cash from operations could also be affected by various risks and uncertainties in connection with the impact of an economic downturn or recession, the COVID-19 pandemic, significant market volatility in the global economy, timing and ability to collect payments from our customers and other risks detailed in Part I—Item 1A. Risk Factors. Cash Flows The following table shows a summary of our cash flows for the periods presented: [[GREPCENT_TABLE]] [["","Year Ended January 31,"],["","2023","","2022","","2021"],["","(in thousands)"],["Net cash used in operating activities","$","(160,058)","","","$","(83,785)","","","$","(92,870)"],["Net cash provided by (used in) investing activities","64,492","","","27,561","","","(158,937)"],["Net cash provided by financing activities","381,391","","","37,210","","","201,005"]] [[/GREPCENT_TABLE]] Operating Activities Our largest source of operating cash is cash collection from sales of subscriptions to our paying customers. Our primary uses of cash from operating activities are for personnel-related expenses, marketing expenses, and third-party hosting-related and software expenses. In the last several years, we have generated negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from the sale of equity and equity-linked securities and the issuance of convertible notes. Net cash used in operating activities of $160.1 million for fiscal 2023 reflects our net loss of $407.8 million, adjusted by non-cash items such as stock-based compensation expense of $189.0 million, non-cash lease expense of $15.6 million, amortization of deferred contract acquisition costs of $15.1 million, depreciation and amortization of 68 Table of Contents $12.7 million, provision for doubtful accounts of $1.9 million, and net cash inflows of $13.4 million from changes in our operating assets and liabilities. The net cash inflows from changes in operating assets and liabilities primarily consisted of a $59.4 million increase in deferred revenue resulting from increased billings for subscriptions and a $25.5 million increase in accrued expenses and other liabilities primarily from increases in accrued sales and value-added taxes and other liabilities. These amounts were partially offset by a $25.2 million increase in accounts receivable due to higher customer billings, a $24.0 million increase in prepaid expenses and other current assets related to an increase in deferred contract acquisition costs, $13.8 million decrease in operating lease liabilities, a $4.4 million decrease in accounts payable, and a $4.1 million increase in other assets. Net cash used in operating activities of $83.8 million for fiscal 2022 reflects our net loss of $288.3 million, adjusted by non-cash items such as stock-based compensation expense of $104.5 million, non-cash lease expense of $16.6 million, amortization of discount on convertible notes and term loan issuance costs of $10.6 million, amortization of deferred contract acquisition costs of $8.6 million, depreciation and amortization of $8.5 million, non-cash interest expense of $6.7 million, provision for doubtful accounts of $2.3 million, and net cash inflows of $46.0 million from changes in our operating assets and liabilities. The net cash inflows from changes in operating assets and liabilities primarily consisted of a $68.3 million increase in deferred revenue resulting from increased billings for subscriptions, a $23.7 million increase in accrued expenses and other liabilities primarily from increases in accrued payroll and other liabilities, $8.1 million increase in operating lease liabilities, and a $7.3 million increase in accounts payable not related to the purchases of property and equipment. These amounts were partially offset by a $27.0 million increase in accounts receivable due to higher customer billings, a $23.7 million increase in prepaid expenses and other current assets related to an increase in deferred contract acquisition costs, and a $10.7 million increase in other assets. Investing Activities Net cash provided by investing activities of $64.5 million for fiscal 2023 consisted of $143.9 million in maturities of marketable securities, partially offset by $72.2 million in purchases of marketable securities, $5.4 million in purchases of property and equipment from leasehold improvements, and $1.8 million in capitalized internal-use software costs. Net cash provided by investing activities of $27.6 million for fiscal 2022 consisted of $132.3 million in maturities of marketable securities and $0.4 million in sales of marketable securities, partially offset by $62.4 million in purchases of marketable securities, $41.6 million in purchases of property and equipment from an increase in construction in progress, and $1.1 million in capitalized internal-use software costs. Financing Activities Net cash provided by financing activities of $381.4 million for fiscal 2023 consisted of $347.3 million in proceeds from the private placement financing net of offering costs, $49.6 million in net proceeds from the November 2022 Senior Secured Credit Facility, $17.1 million in proceeds from our employee stock purchase plan, and $5.8 million in proceeds from the exercise of stock options, partially offset by $38.3 million for the repayment of our April 2020 Senior Secured Term Loan. Net cash provided by financing activities of $37.2 million for fiscal 2022 consisted of $16.6 million in proceeds from the exercise of stock options, $13.4 million in proceeds from our employee stock purchase plan, and $9.0 million in net proceeds from our term loan, partially offset by $1.7 million for the repayment of our prior term loan. Contractual Obligations and Commitments The contractual commitment amounts in the table below are associated with agreements that are enforceable and legally binding. Purchase orders issued in the ordinary course of business are not included in the table below, as our purchase orders represent authorizations to purchase rather than binding agreements. 69 Table of Contents The following table summarizes our contractual obligations as of January 31, 2023: [[GREPCENT_TABLE]] [["","Payments Due by Period"],["","Total","","Less than 1 Year","","1 - 3 years","","3 - 5 years","","More than 5 Years"],["","(in thousands)"],["Operating lease commitments(1)","$","391,049","","","$","39,676","","","74,795","","","$","77,202","","","$","199,376"],["Purchase commitments(2)","80,954","","","29,537","","","50,809","","","608","","","\u2014"],["Total contractual obligations","$","472,003","","","$","69,213","","","$","125,604","","","$","77,810","","","$","199,376"]] [[/GREPCENT_TABLE]] ________________ (1)Consists of future non-cancelable minimum rental payments under operating leases for our offices, including an office space in San Francisco that had not yet commenced as of January 31, 2023. For further information regarding operating lease commitments, refer to Note 9. Leases. (2)Consists of a 60-month contract with Amazon Web Services for hosting-related services and other non-cancellable purchase commitments with various parties primarily for software-based services. Refer to Note 8. Commitments and Contingencies for further details on related commitments. In February 2019, we entered into a new lease agreement for office space in San Francisco, which commenced in May 2020 and expires in October 2033. As part of the agreement, we were required to issue a $17.0 million letter of credit upon access to the office space, which occurred in the year ended January 31, 2021. Future minimum lease payments related to this lease as of January 31, 2023 were $339.3 million. Our CEO acts as a personal guarantor to the lease for the full rent payments over the entire term of the lease should we default on our obligations. For further information on our commitments and contingencies, refer to Note 8. Commitments and Contingencies in the consolidated financial statements contained within this Annual Report on Form 10-K. On July 1, 2021, pursuant to the terms thereof, we elected to convert the Convertible Notes (as defined in Note 6. Convertible Notes—Related Party) into shares of our Class B common stock. Refer to Note 6. Convertible Notes—Related Party for additional information. In November 2022, we entered into the Credit Agreement with SVB, as discussed in Liquidity and Capital Resources above. Indemnification Agreements In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. Additionally, in connection with the listing of our Class A common stock on the NYSE, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon us to provide indemnification under such agreements, and there are no claims that we are aware of that could have a material effect on our financial position, results of operations, or cash flows. Critical Accounting Estimates Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. While our significant accounting policies are more fully described in Note 2. Basis of Presentation and Summary of Significant Accounting Policies to our Consolidated Financial Statements in Item 8. Financial 70 Table of Contents Statements and Supplementary Data of this Annual Report on Form 10-K, we believe that the accounting estimates described below have the most significant impact. Deferred Contract Acquisition Costs Sales commissions earned by our sales force and bonuses earned by executives, as well as related payroll taxes, are considered to be incremental and recoverable costs of obtaining a contract with a customer. As a result, these amounts have been capitalized as deferred contract acquisition costs within prepaid and other current assets and other assets on the consolidated balance sheets. We amortize deferred contract acquisition costs over a period of benefit of three years. We estimated the period of benefit by considering factors such as historical customer attrition rates, the useful life of our technology, and the impact of competition in the software-as-a-service industry. Stock-Based Compensation Expense We record stock-based compensation expense for all stock-based awards made to employees, non-employees, and directors based on estimated fair values recognized over the requisite service period. We estimate the fair value of options granted to employees for purposes of calculating stock-based compensation expense on the grant date using the Black-Scholes pricing model. The Black-Scholes pricing model requires us to make assumptions and judgments about the inputs used in the calculation, including the expected term (weighted-average period of time that the options granted are expected to be outstanding), the volatility of our common stock, risk-free interest rate, and expected dividend yield. The expected term represents the period that we expect our stock-based awards to be outstanding. We determine the expected term assumptions based on the vesting terms, exercise terms, and contractual lives of the options. The volatility is based on an average of the historical volatilities of the common stock of comparable public companies with characteristics similar to ours. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. Our expected dividend yield input is zero as we have not historically paid, nor do we expect in the future to pay, cash dividends. We measure stock-based compensation expense related to our restricted stock units, or RSUs, based on the fair value of the underlying shares on the date of grant. RSUs are subject to time-based vesting, which generally occurs over a period of four years. We account for stock-based compensation expense related to our 2020 Employee Stock Purchase Plan (“ESPP”) purchase rights based on the estimated grant date fair value, which is calculated using the Black-Scholes option pricing model and the aggregate number of shares of our common stock expected to be purchased under each offering. The assumptions used to determine the fair value of the ESPP purchase rights, including the expected term of the awards, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock, represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. We account for modifications to employee contributions as they occur. We recognize stock-based compensation expense ratably over the requisite service period, which is generally the vesting period of the respective award. We account for forfeitures as they occur. We recognize stock-based compensation expense related to ESPP on a straight-line basis over the term of each ESPP offering period, which is generally two years. The assumptions are based on the following for each of the years presented: •Expected volatility—Expected volatility is a measure of the amount by which the stock price is expected to fluctuate. Since we do not have sufficient trading history of our common stock, we estimate the expected volatility of our stock options at the grant date by taking the average historical volatility of a group of comparable publicly traded companies over a period equal to the expected life of the options. 71 Table of Contents •Expected term—Expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumptions are determined based on the vesting terms, exercise terms, and contractual lives of the options. The expected term of the ESPP represents the period of time that purchase rights are expected to be outstanding. •Risk-free rate—We use the U.S. Treasury yield for our risk-free interest rate that corresponds with the expected term. •Dividend yield—We utilize a dividend yield of zero, as we do not currently issue dividends, nor do we expect to do so in the future. •Fair value of common stock—Prior to our direct listing, we estimated the fair value of common stock; see Common Stock Valuations below. The fair value of common stock for purposes of ESPP purchases is based on the stock price on the first date of the respective offering period. Common Stock Valuations Prior to our direct listing, the fair value of our common stock underlying our stock-based awards was historically determined by our board of directors, in accordance with the guidelines outlined in the American Institute of Certified Public Accountants, Valuation of Privately-Held-Company Equity Securities Issued as Compensation guide. Each fair value estimate was based on a variety of factors, which included the following: •contemporaneous valuations performed by an unrelated third-party valuation firm; •the prices, rights, preferences, and privileges of our preferred stock relative to those of our common stock; •the lack of marketability of our common stock; •our operating and financial performance; •current business conditions and outlook; •hiring of key personnel and the experience of our management; •our history and the timing of the introduction of new applications and capabilities; •our stage of development; •the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our business given prevailing market conditions; •the market performance of comparable publicly traded companies; and •U.S. and global capital market conditions. In valuing our common stock, our board of directors determined the equity value of our business using valuation methods they deemed appropriate under the circumstances applicable at the valuation date. One method, the market approach, estimates value based on a comparison of our company to comparable public companies in a similar line of business. To determine our peer group of companies, we considered public enterprise cloud-based application providers and selected those that are similar to us in size, economic drivers, and operating characteristics. From the comparable companies, a representative market value multiple was determined, which was applied to our operating results to estimate the enterprise value of our company. When applicable, we also used the option pricing model to backsolve the value of the security from our most recent round of financing, which implies a total equity value as well as a per share common stock value. 72 Table of Contents For valuations prior to January 31, 2020, once the enterprise value was determined under the market approach, we used the option pricing model to allocate that value among the various classes of securities to arrive at the fair value of the common stock. For valuations as of and subsequent to January 31, 2020 and before our direct listing, we used a hybrid method utilizing a combination of the option pricing model and the probability-weighted expected return method (“PWERM”) in estimating the fair value of our common stock. Using the PWERM, the value of our common stock is estimated based upon a probability-weighted analysis of varying values for our common stock assuming possible future events for our company, including a scenario assuming we become a publicly traded company and a scenario assuming we continue as a privately held company. In addition, we also considered any secondary transactions involving our capital stock. In our evaluation of those transactions, we considered the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange. Factors considered include transaction volume, timing, whether the transactions occurred among willing and unrelated parties, and whether the transactions involved investors with access to our financial information. For valuations after our direct listing, our board of directors determined the fair value of each share of underlying Class A common stock based on the closing price of our Class A common stock as reported on the date of grant. Lease Obligations We determine if an arrangement is a lease at inception by determining if the contract conveys the right to control the issue of an identified asset for a period of time in exchange for consideration and other facts and circumstances. Right-of-use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, we consider only payments that are fixed and determinable at the time of commencement. As our leases do not provide an implicit rate, we use the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is a hypothetical rate based on our understanding of what its credit rating would be. The ROU assets also include any lease payments made prior to commencement and are recorded net of any lease incentives received. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. The lease agreements may contain variable costs such as common area maintenance, insurance, real estate taxes or other costs. Variable lease costs are expensed as incurred on the consolidated statements of operations. Our lease agreements generally do not contain any residual value guarantees, restrictions, or covenants. We have lease agreements with lease and non-lease components. We have elected to combine lease and non-lease components as a single lease component for all classes of underlying assets. We have also elected to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term. Operating leases are included in operating lease ROU assets, operating lease liabilities, current, and operating lease liabilities, noncurrent on the consolidated balance sheets. Recent Accounting Pronouncements See Note 2. Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding recent accounting pronouncements.