DOMO, INC. (DOMO) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements containing words such as “may,” “believe,” “could,” "will,” “seek,” “depends,” “anticipate,” “expect,” “intend,” “plan,” “project,” “projections,” “business outlook,” “estimate,” or similar expressions constitute forward-looking statements. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. They include, but are not limited to, statements about:

•our ability to attract new customers and retain and expand our relationships with existing customers;

•our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses, key metrics, ability to generate cash flow and ability to achieve and maintain future profitability;

•the potential impact on our business transitioning to a consumption-based pricing model;

•the anticipated trends, market opportunity, growth rates and challenges in our business and in the business intelligence software market;

•the efficacy of our sales and marketing efforts;

•our ability to compete successfully in competitive markets;

•our ability to respond to and capitalize on rapid technological changes;

•our expectations and management of future growth;

•our ability to enter new markets and manage our expansion efforts, particularly internationally;

•our ability to develop new product features;

•our ability to attract and retain key employees and qualified technical and sales personnel;

•our ability to effectively and efficiently protect our brand;

•our ability to timely scale and adapt our infrastructure;

•the effect of general economic and market conditions on our business;

•our ability to protect our customers' data and proprietary information;

•our ability to maintain, protect, and enhance our intellectual property and not infringe upon others’ intellectual property; and

•our ability to comply with all governmental laws, regulations and other legal obligations.

Our actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, including those factors discussed in Part I, Item 1A (Risk Factors).

In light of the significant uncertainties and risks inherent in these forward-looking statements, you should not regard these statements as a representation or warranty by us or anyone else that we will achieve our objectives or plans in any specified time frame, or at all, or as predictions of future events. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to publicly

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update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. Our fiscal year ends on January 31. References to fiscal 2024, for example, refer to the fiscal year ended January 31, 2024.

Overview

We founded Domo in 2010 with the vision of digitally connecting everyone within the enterprise with real-time, rich, relevant data and then enabling all employees to collaborate and act on that data. We realized that many organizations were unable to access the massive amounts of data that they were collecting in siloed cloud applications and on-premise databases. Furthermore, even for organizations that were capable of accessing their data, the process for doing so was time-consuming, costly, and often resulted in the data being out-of-date by the time it reached decision makers. The delivery format, including alert functionality, and devices were not adequate for the connected and real-time mobile workforce. Based on these observations, it was apparent that all organizations, regardless of size or industry, were failing to unlock the power of all of their people, data, and systems. To address these challenges, we provide a modern cloud-based data experience platform that digitally connects everyone at an organization – from the CEO to frontline employees – with all the people, data and systems in an organization, giving them access to real-time data and insights and allowing them to put data to work for everyone so they can multiply their impact on the business.

We typically offer our platform to our customers as a subscription-based service. Subscription fees are based upon the chosen Domo package which includes tier-based platform capabilities or usage. Business leaders, department heads and managers are the typical initial subscribers to our platform, deploying Domo to solve a business problem or to enable departmental access. Over time, as customers recognize the value of our platform, we engage with CIOs and other executives to facilitate broad enterprise adoption.

We recently began offering our platform as a consumption-based service. Customers of our consumption-based service have an annual purchase commitment based on an estimated volume of usage, utilizing a tiered pricing structure. We believe this model could increase customer adoption and allow us to better land, expand, and retain customers over the long term, and thereby have a positive impact on sales and marketing productivity. We believe this has potential to remove many of the barriers to adoption and better align our pricing to the value delivered to our customers. We expect an increase in the number of consumption-based agreements in future periods. However, we have limited experience with consumption-based agreements, and changes in our pricing and subscription models subject us to a number of uncertainties.

As of January 31, 2024, 66% of our customers were under multi-year contracts on a dollar-weighted basis compared to 65% and 62% of customers as of January 31, 2023 and 2022, respectively. The high percentage revenue from multi-year contracts, among both new and existing customers, has enhanced the predictability of our subscription revenue. We typically invoice our customers annually in advance for subscriptions to our platform.

Remaining performance obligations (RPO) represents the remaining amount of revenue we expect to recognize from existing non-cancelable contracts, whether billed or unbilled. As of January 31, 2024 total RPO was$373.3 million. The amount of RPO expected to be recognized as revenue in the next twelve months was $241.2 million as of January 31, 2024.

Our business model focuses on obtaining new customers and maximizing the lifetime value of those customer relationships. We recognize subscription revenue ratably over the term of the subscription period. In general, customer acquisition costs and other upfront costs associated with new customers are higher in the first year than the aggregate revenue we recognize from those new customers in the first year. Certain contract acquisitions costs are capitalized and then amortized over a period of four years for initial contracts. Over the lifetime of the customer relationship, we also incur sales and marketing costs to renew or increase usage per customer. However, these costs, as a percentage of revenue, are significantly less than those initially incurred to acquire the customer. As a result, the profitability of a customer to our business in any particular period depends in part upon how long a customer has been a subscriber and the degree to which it has expanded its usage of our platform.

From inception through January 31, 2024, we have invested $824.1 million in the development of our platform. As of January 31, 2024, we had 272 employees in our research and development organization. While we expect to continue to invest in research and development, we anticipate that these investments as a percentage of revenue will likely increase slightly in the short term then remain consistent over time.

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For the years ended January 31, 2022, 2023 and 2024, we had total revenue of $258.0 million, $308.6 million and $319.0 million, respectively, representing year-over-year growth of 20% and 3% for the years ended January 31, 2023 and 2024, respectively. Our enterprise customers generated revenue of $143.6 million, $160.6 million, and $155.7 million for the years ended January 31, 2022, 2023 and 2024, respectively, or year-over-year growth of 12% and decline of 3%, respectively. Our corporate customers generated revenue of $114.4 million, $148.0 million, and $163.3 million for the years ended January 31, 2022, 2023 and 2024, respectively, or year-over-year growth of 29% and 10%, respectively.

For the years ended January 31, 2022, 2023 and 2024, no single customer accounted for more than 10% of our total revenue, nor did any single organization when accounting for multiple subsidiaries or divisions which may have been invoiced separately. Revenue from customers with billing addresses in the United States comprised 77%, 78% and 79% of our total revenue for the years ended January 31, 2022, 2023 and 2024, respectively.

Notwithstanding our ongoing shift to a consumption-based pricing model, we expect our revenue to be negatively impacted in the near term, due in part to the effects of the macroeconomic environment which has elongated the software sales cycle, increased deal scrutiny, and made renewal discussions more challenging. These factors have had a greater impact on our enterprise customers as evidenced by our declining enterprise revenue, and we expect it to continue to decline in the near term. In response to these dynamics, we have taken and intend to continue to take steps to better align our sales team and focus on controlling costs, which we expect will result in improved margins, sustained positive cash flow and efficient growth in the long term.

We have incurred significant net losses since our inception, including net losses of $102.1 million, $105.6 million and $75.6 million for the years ended January 31, 2022, 2023 and 2024, respectively, and had an accumulated deficit of $1,405.6 million at January 31, 2024. We expect to incur losses for the foreseeable future and may not be able to achieve or sustain profitability.

Impact of Macroeconomic Conditions

Prevailing macroeconomic conditions have impacted, and may continue to impact, our business and those of our customers in a manner that we may not be able to quantify or isolate from other drivers of our performance. Ongoing concerns about the health of the U.S. and global economies may cause certain existing and potential customers to reduce or delay technology spending or, seek payment or other concessions from us, which may materially and negatively impact our operating results, financial condition and prospects. Furthermore, the United States has been experiencing historically elevated rates of inflation. This inflationary environment may cause us to incur higher operating costs that we may not be able to recoup through the pricing of our platform, and may further contribute to reduced or delayed technology spend by our customers in an effort to mitigate their own rising costs.

Factors Affecting Performance

Continue to Attract New Customers

We believe that our ability to expand our customer base is an important indicator of market penetration, the growth of our business, and future business opportunities. We define a customer at the end of any particular quarter as an entity that generated revenue greater than $2,500 during that quarter. In situations where an organization has multiple subsidiaries or divisions, each entity that is invoiced at a separate billing address is treated as a separate customer. In cases where customers purchase through a reseller, each end customer is counted separately. We define enterprise customers as companies with over $1 billion in revenue, and companies with less than $1 billion in revenue are corporate customers. In order to maintain comparability, companies who become customers with revenue below $1 billion and subsequently exceed that threshold are considered enterprise customers for all periods presented.

As of January 31, 2024, we had over 2,600 customers. Enterprise customers accounted for 56%, 52% and 49% of our revenue for the years ended January 31, 2022, 2023 and 2024, respectively. To drive growth among both our enterprise and corporate customers, we intend to further develop our partner ecosystem by establishing agreements with more software resellers, systems integrators and other partners to provide broader customer and geographic coverage. We believe we are underpenetrated in the overall market and have significant opportunity to expand our customer base over time.

Customer Upsell and Retention

We employ a land, expand, and retain sales model, and our performance depends on our ability to retain customers and expand the use of our platform at existing customers over time. It currently takes multiple years for our customers to fully

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embrace the power of our platform. We believe that as customers deploy greater volumes and sources of data for multiple use cases, the unique features of our platform can address the needs of everyone within their organization. We are still in the early stages of expanding within many of our customers.

We have invested in platform capabilities and online support resources that allow our customers to expand the use of our platform in a self-guided manner. Our professional services, customer support and customer success functions also support our sales force by helping customers to successfully deploy our platform and implement additional use cases. In addition, we believe our partner ecosystem will become increasingly important over time. We work closely with our customers to drive increased engagement with our platform by identifying new use cases through our customer success teams, as well as in-platform, self-guided experiences. We actively engage with our customers to assess whether they are satisfied and fully realizing the benefits of our platform. While these efforts often require a substantial commitment and upfront costs, we believe our investment in product, customer support, customer success and professional services will create opportunities to expand our customer relationships over time.

Our ability to drive growth and generate incremental revenue depends heavily on our ability to retain our customers and increase their usage of our platform. With that objective in mind, we allocate our customer success and customer support resources to align with maximizing the retention and expansion of our subscription revenue.

An important metric that we use to evaluate our performance in retaining customers is gross retention rate. We calculate our gross retention rate by taking the dollar amount of annual contract value (ACV) that renews in a given period divided by the ACV that was up for renewal in that same period. The ACV of multi-year contracts is also considered in the calculation based on the period in which the annual anniversary of the contract falls. Our gross retention rate was 90%, 89% and 86% for the 12 months ended January 31, 2022, 2023 and 2024, respectively.

The primary metric that we use to monitor customer retention and growth is annual recurring revenue (ARR) net retention rate. ARR represents the total annualized contract value of active customer subscription contracts as of the measurement date. Our ARR net retention rate compares the ARR from a cohort of customers as of the measurement date to ARR from that same cohort as of the same period in the prior fiscal year. The cohort is established based on customers who had greater than $10,000 of ARR as of the end of the prior year period. ARR net retention rate is the quotient obtained by dividing the ARR of that cohort as of the measurement date by the ARR of that same cohort as of the corresponding prior year period.

The following table sets forth our ARR net retention rate for each of the eight quarters in the period ended January 31, 2024:

ARR net retention rate enables measurement of the progress of our business initiatives and is used by management to make operational decisions. ARR net retention rate is a performance metric and should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items.

In fiscal 2024 our net retention trended lower as a result of slowing growth in upsells. Gross retention declined in part due to macroeconomic conditions and challenging renewals from customers with COVID-19 use cases of our platform. As we continue to enhance our product and develop methods to encourage wider and more strategic adoptions, we expect that customer retention will increase over the long term. Our ability to successfully upsell and the impact of cancellations may vary from period to period. The extent of this variability depends on a number of factors including the size and timing of upsells and cancellations relative to the initial subscriptions.

Sales and Marketing Efficiency

We are focused on increasing the efficiency of our sales force and marketing activities by enhancing account targeting, messaging, field sales operations and sales training in order to accelerate the adoption of our platform. Our sales strategy depends on our ability to continue to attract and retain top talent, to increase our pipeline of business, and to enhance sales productivity. We focus on productivity per quota-carrying sales representative and the time it takes our sales representatives to reach full productivity.

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We manage our pipeline by sales representative to ensure sufficient coverage of our sales targets. Our ability to manage our sales productivity and pipeline are important factors to the success of our business. We have taken steps to better align our sales and marketing spending and headcount to efficiently grow and attract new customers.

Sales and marketing expense as a percentage of total revenue was 56% and 56% for the years ended January 31, 2022 and 2023, respectively, compared to 51% for the year ended January 31, 2024.

Leverage Research and Development Investments for Future Growth

We plan to continue to make investments in areas of our business to continue to expand our platform functionality. This may include investing in machine learning algorithms, predictive analytics, and other artificial intelligence technologies to create alerts, detect anomalies, optimize queries, and suggest areas of interest to help people focus on what matters most. These investments may also include extending the functionality and effectiveness of our platform through improvements to the Domo Appstore and developer toolkits, which enable customers and partners to quickly build and deploy custom data applications. The amount of new investments as a percentage of revenue required to achieve our plans is expected to increase slightly in the near term then remain consistent in the long term.

Research and development expense as a percentage of total revenue was 31% and 31% for the years ended January 31, 2022 and 2023, respectively, compared to 27% for the year ended January 31, 2024.

Key Business Metric

Billings

Billings represent our total revenue plus the change in deferred revenue in a period. Billings reflect sales to new customers plus subscription renewals and upsells to existing customers, and represent amounts invoiced for subscription, support and professional services. We typically invoice our customers annually in advance for subscriptions to our platform. Because we generate most of our revenue from customers who are invoiced on an annual basis and have a wide range of annual contract values, we may experience variability due to typical enterprise buying patterns and timing of large initial contracts, renewals and upsells.

The following table sets forth our billings for the years ended January 31, 2022, 2023 and 2024:

There is a disproportionate weighting toward annual billings in the fourth quarter, primarily as a result of large enterprise account buying patterns. Our fourth quarter has historically been our strongest quarter for new business and renewals. The year-on-year compounding effect of this seasonality in both billing patterns and overall new and renewal business causes the value of invoices that we generate in the fourth quarter for both new business and renewals to increase as a proportion of our total annual billings. The timing of renewal billings may vary due to our customers' requests to align end dates on multiple subscription contracts. The sequential quarterly changes in billings, accounts receivable, and deferred revenue during the fourth quarter of our fiscal year are not necessarily indicative of the billing activity that occurs for the following quarters.

Components of Results of Operations

Revenue

We derive our revenue primarily from subscription revenue, which consists of subscription-based agreements and, to a lesser extent, consumption-based agreements for our cloud-based platform. We also sell professional services.

Revenue from subscription-based agreements is a function of customers, platform tier, number of users, price per user, and transaction and data volumes. Revenue is recognized ratably over the related contractual term beginning on the date that the platform is made available to a customer. We recognize revenue ratably because the customer receives and consumes the benefits of the platform throughout the contract period. Consumption-based agreements utilize a tiered pricing structure for an annual purchase commitment based upon an estimated volume of usage. Revenue from the annual purchase commitment in consumption-based contracts is also recognized ratably over the related contractual term of the contract. Amounts for the annual purchase commitments do not carry over beyond each annual commitment period.

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Professional services and other revenue primarily consists of implementation services sold with new subscriptions, as well as professional services sold separately, including training and education. Professional services are generally billed in advance and revenue from these arrangements is recognized as the services are performed. Our professional services engagements typically span from a few weeks to several months.

Cost of Revenue

Cost of subscription revenue consists primarily of third-party hosting services and data center capacity; salaries, benefits, bonuses and stock-based compensation, or employee-related costs, directly associated with cloud infrastructure and customer support personnel; amortization expense associated with capitalized software development costs; depreciation expense associated with computer equipment and software; certain fees paid to various third parties for the use of their technology and services; and allocated overhead. Allocated overhead includes items such as information technology infrastructure, rent, and certain employee benefit costs.

Cost of professional services and other revenue consists primarily of employee-related costs directly associated with these services, third-party consultant fees, and allocated overhead.

Operating Expenses

Sales and Marketing. Sales and marketing expenses consist primarily of employee-related costs directly associated with our sales and marketing staff and commissions. Other sales and marketing costs include digital marketing programs and promotional events to promote our brand, including Domopalooza, our annual user conference, as well as tradeshows, advertising and allocated overhead. Contract acquisition costs, including sales commissions, are deferred and then amortized on a straight-line basis over the period of benefit, which we have determined to be approximately four years for initial contracts. Contract acquisition costs related to renewal contracts and professional services are recorded as expense when incurred if the period of benefit is one year or less. If the period of benefit is greater than one year, costs are deferred and then amortized on a straight-line basis over the period of benefit, which we have determined to be two years.

Research and Development. Research and development expenses consist primarily of employee-related costs for the design and development of our platform, contractor costs to supplement staff levels, third-party web services, consulting services, and allocated overhead. Our cycle of frequent updates has facilitated rapid innovation and the introduction of new product features throughout our history. We capitalize certain software development costs that are attributable to developing new features and adding incremental functionality to our platform, and amortize such costs as costs of subscription revenue over the estimated life of the new feature or incremental functionality, which is generally three years.

General and Administrative. General and administrative expenses consist of employee-related costs for executive, finance, legal, human resources, recruiting and administrative personnel; professional fees for external legal, accounting, recruiting and other consulting services; and allocated overhead costs.

Other Expense, Net

Other expense, net consists primarily of interest expense related to long-term debt, It also includes the effect of exchange rates on foreign currency transaction gains and losses, foreign currency gains and losses upon remeasurement of intercompany balances, and interest income. The transactional impacts of foreign currency are recorded as foreign currency losses (gains) in the consolidated statements of operations.

Income Taxes

Income taxes consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business. Because of the uncertainty of the realization of the deferred tax assets, we have a full valuation allowance for domestic net deferred tax assets, including net operating loss carryforwards and tax credits related primarily to research and development.

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Results of Operations

The following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenue for each of the periods indicated:

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(1)Includes stock-based compensation expense as follows:

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(2)Includes executive officer severance as follows:

Discussion of the Years Ended January 31, 2023 and 2024

Revenue

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The increase in subscription revenue was primarily due to a $25.8 million increase from new customers and a $11.6 million net decrease from existing customers. Our customer count increased 3% from January 31, 2023 to January 31, 2024. For the purpose of this comparison, new customers are defined as those added since the end of the prior year quarter. Revenue from existing customers is presented net of churn. The decrease in professional services and other revenue was primarily due to a higher amount of revenue recognized from the delivery of custom apps and a higher volume of billable hours delivered during the year ended January 31, 2023. For fiscal 2025 we expect that total revenue will be flat compared to fiscal 2024.

Cost of Revenue, Gross Profit and Gross Margin

The increase in cost of subscription revenue was primarily due to a $3.5 million increase in our third-party web hosting services, partially offset by a $1.9 million decrease in data center costs. Costs related to fees paid to third parties for use of their technology and services increased by $1.4 million.

The decrease in cost of professional services and other revenue is primarily due to a $1.8 million decrease in employee-related costs, partially offset by a $1.5 million increase in outsourced services.

We expect subscription gross margin to remain relatively flat in the near term.

Services gross margin declined primarily due to the timing of the delivery of custom apps and a higher volume of hours delivered by partners during the year ended January 31, 2024. We expect the gross margin for professional services and other to fluctuate from period to period due to changes in the proportion of services provided by third-party consultants, seasonality, and timing of projects with higher margins.

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Operating Expenses

The decrease in sales and marketing expenses was primarily due to a $5.0 million decrease in employee-related costs. Marketing expenses decreased by $2.5 million primarily due to a decrease in demand generation. Sales and marketing expense as a percentage of total revenue decreased from 56% in the year ended January 31, 2023 to 51% in the year ended January 31, 2024. We expect sales and marketing expense as a percentage of revenue to remain consistent in the near term and decrease in the long term.

Research and development expenses decreased primarily due to a $6.6 million decrease in employee-related costs. Capitalized software increased by $2.0 million, which decreases expense. Research and development expense as a percentage of revenue decreased from 31% in the year ended January 31, 2023 to 27% in the year ended January 31, 2024. We expect research and development expense as a percentage of revenue to increase slightly in the near term and remain consistent in the long term.

General and administrative expenses decreased primarily due to a $5.5 million decrease in employee-related costs. Professional and legal expenses decreased by $1.5 million. General and administrative expenses as a percent of revenue decreased from 18% in the year ended January 31, 2023 to 15% in the year ended January 31, 2024. In the near term, we expect general and administrative expense as a percentage of revenue to fluctuate from period to period.

Other Expense, Net

Other expense, net increased due to a $3.8 million increase in interest expense. We expect interest expense to increase modestly due to an increasing principal balance and anticipated higher market interest rates. We expect foreign currency gains and losses could become more pronounced due to current market volatility.

Income Taxes

Income taxes increased primarily due to higher taxable income from our international subsidiaries during the year ended January 31, 2024. In the long term, we expect income tax expense to increase in conjunction with higher taxable income from our international subsidiaries.

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Discussion of the Years Ended January 31, 2022 and 2023

For a discussion of the year ended January 31, 2023 compared to the year ended January 31, 2022, please refer to 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 year ended January 31, 2023.

Liquidity and Capital Resources

As of January 31, 2024, we had $60.9 million of cash, cash equivalents, and restricted cash which were held for working capital purposes, of which $3.7 million was restricted cash. Our cash and cash equivalents consist primarily of cash, money market funds and certificates of deposit. We have a $100 million credit facility, all of which had been drawn as of January 31, 2024.

Since inception, we have financed operations primarily from cash collected from customers for our subscriptions and services, periodic sales of convertible preferred stock, our initial public offering and to a lesser extent, debt financing. Our principal uses of cash have consisted of employee-related costs, marketing programs and events, payments related to hosting our cloud-based platform and purchases of short-term investments.

We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months. Over the longer term, we plan to continue investing in, among other things, growth opportunities, product development, and sales and marketing. If available funds are insufficient to fund our future activities or execute on our strategy, we may raise additional capital through equity, equity-linked and debt financing, to the extent such funding sources are available. Alternatively, we may be required to reduce expenses to manage liquidity; however, any such reductions could adversely impact our business and competitive position. Our future capital requirements will depend on many factors, including our growth rate; the level of investments we make in product development, sales and marketing activities and other investments to support the growth of our business; the continuing market acceptance of our platform; and customer retention rates, and may increase materially from those currently planned. If we raise additional funds through the incurrence of indebtedness, such indebtedness likely would have rights that are senior to holders of our equity securities and could contain covenants that restrict operations in the same or similar manner as our credit facility. Any additional equity financing likely would be dilutive to existing stockholders. We cannot assure you that any additional financing will be available to us on acceptable terms, or at all.

Moreover, we may not be able to access a portion of our existing cash and cash equivalents due to conditions adversely affecting the financial institutions with which we do business, including limited liquidity, insolvency or receivership. Any such conditions could imperil our ability to access our existing cash and cash equivalents and could have a material adverse effect on our business and financial condition. For additional information, see the section of this report captioned “Risk Factors—Risks Related to Our Financial Position and Capital Needs—Adverse events or perceptions affecting the financial services industry could adversely affect our operating results, financial condition and prospects.”

Although we are not currently a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity financing, incur indebtedness, or use cash resources. We have no present understandings, commitments or agreements to enter into any such acquisitions. We do not have any special purpose entities and we do not engage in off-balance sheet financing arrangements.

Credit Facility

In August 2020, we entered into an amendment to the credit facility which extended the maturity date for the outstanding loan from October 1, 2022 to April 1, 2025. Per the amendment, we were required to comply with a financial covenant requiring us to maintain a minimum balance of unrestricted cash and cash equivalents equal to $10.0 million until our six-month adjusted cash flow is greater than zero. The amendment also revised the maximum debt ratio financial covenant and included an amendment fee of $5.0 million, which accrues interest at a rate of 9.5% per year. The amendment fee, along with its accrued interest, is to be paid at the earlier of the payment date, maturity date, or the date the loan becomes payable.

In August 2023, we entered into an amendment to the credit facility to, among other things, replace the LIBOR reference rate with a term Secured Overnight Financing Rate (Term SOFR) reference rate and make conforming changes throughout the credit agreement. Additionally, we obtained a waiver for defaults on technical non-financial covenants related to collateral.

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The credit facility permits us to incur up to $100 million in term loan borrowings, all of which had been drawn as of January 31, 2024. During the fiscal year ended January 31, 2024, the term loan maturity date was April 1, 2025 with a closing fee of $7.0 million, which is in addition to the $5.0 million amendment fee described above. Each term loan requires that we pay only interest until the maturity date. A portion of the interest that accrues on the outstanding principal of each term loan is payable in cash on a monthly basis, which portion accrues at a floating rate equal to the greater of (1) 7.0% and (2) Adjusted Term SOFR plus 5.5% per year. Adjusted Term SOFR is defined as the greater of (a) 0.0% and (b) Term SOFR plus 0.26161%. In the event that SOFR is unavailable, interest will accrue at a floating rate equal to the greater of (1) 7% and (2) the Alternate Base Rate plus 2.75% per year. The Alternate Base Rate is defined as the greatest of (a) the Prime Rate (b) the Federal Funds Effective Rate plus 0.5% and (c) Adjusted Term SOFR. As of January 31, 2024, the interest rate was approximately 11.1%. In addition to the 11.1%, a fixed rate equal to 2.5% per year accrues on the outstanding principal of each term loan and is added to the principal amount of the outstanding term loan on a monthly basis.

The credit facility contains customary conditions to borrowing, events of default and covenants, including covenants that restrict our ability to dispose of assets, make material changes to the nature, control or location of our business, merge with or acquire other entities, incur indebtedness or encumbrances, make distributions to holders of our capital stock, make investments or enter into transactions with affiliates. The credit facility is secured by substantially all of our assets. In addition, we are required to comply with a financial covenant based on the ratio of our outstanding indebtedness to our annualized recurring revenue. The maximum ratio is 0.500 on January 31, 2023 through the maturity date.

The credit facility defines our annualized recurring revenue as four times our aggregate revenue for the immediately preceding quarter (net of recurring discounts and discounts for periods greater than one year) less the annual contract value of any customer contracts pursuant to which we were advised during such quarter would not be renewed at the end of the current term plus the annual contract value of existing customer contract increases during such quarter. This covenant is measured quarterly on a three-month trailing basis. Upon the occurrence of an event of default, such as non-compliance with covenants, any outstanding principal, interest and fees become due immediately. We were in compliance with the financial covenant terms of the credit facility on January 31, 2023 and January 31, 2024.

In February 2024, we entered into an amendment to our credit facility which extended the maturity date for the outstanding loan from April 1, 2025 to April 1, 2026 and made certain adjustments to the financial covenant terms of the credit facility. In conjunction of this amendment, we issued 189,036 fully-vested warrants to purchase Class B common stock with an exercise price of $0.01 per share, adjusted for stock splits and combinations. These warrants have an expiration date of February 17, 2028. For more information, see Note 18 "Subsequent Events."

Historical Cash Flow Trends

Operating Activities

Our operating activities consisted primarily of payments we received from our customers, cash we invest in our personnel, timing and amounts we use to fund marketing programs and events to expand our customer base, the costs to provide our cloud-based platform and related outsourced professional services to our customers.

Net cash provided by operating activities during the year ended January 31, 2022 consisted of cash collected from customers of $284.7 million exceeding the $284.3 million of cash outflows. Significant components of cash outflows included $171.0 million for personnel costs and $55.0 million for marketing programs and events, third-party costs to provide our platform and outsourced professional services.

Net cash used in operating activities during the year ended January 31, 2023 consisted of cash outflows of $325.3 million exceeding the $314.4 million of cash collected from customers. Significant components of cash outflows included $193.9 million for personnel costs and $67.5 million for marketing programs and events, third-party costs to provide our platform and outsourced professional services.

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Net cash provided by operating activities during the year ended January 31, 2024 consisted of cash collected from customers of $338.0 million exceeding the $335.4 million of cash outflows. Significant components of cash outflows included $182.6 million for personnel costs and $79.2 million for marketing programs and events, third-party costs to provide our platform and outsourced professional services.

Investing Activities

Our investing activities consisted primarily of property and equipment purchases, which included capitalized development costs related to internal-use software.

Net cash used in investing activities during the year ended January 31, 2022 consisted primarily of $6.0 million of capitalized development costs related to internal-use software and $0.5 million of purchased property and equipment.

Net cash used in investing activities during the year ended January 31, 2023 consisted primarily of $6.6 million of capitalized development costs related to internal-use software and $1.3 million of purchased property and equipment.

Net cash used in investing activities during the year ended January 31, 2024 consisted primarily of $8.6 million of capitalized development costs related to internal-use software and $3.2 million of purchased property and equipment.

Financing Activities

Our financing activities consisted primarily of proceeds received from stock option exercises and our employee stock purchase plan.

Net cash used in financing activities for the year ended January 31, 2022 consisted primarily of $10.3 million used to repurchase shares for tax withholdings on release of restricted stock, offset by $5.6 million of proceeds received from stock option exercises and $4.1 million of proceeds from our employee stock purchase plan.

Net cash provided by financing activities for the year ended January 31, 2023 consisted primarily of $1.6 million of proceeds from our employee stock purchase plan and $0.9 million of proceeds received from stock option exercises.

Net cash provided by financing activities for the year ended January 31, 2024 consisted primarily of $3.4 million of proceeds from our employee stock purchase plan.

Contractual Obligations and Commitments

Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered into during the normal course of business. Our primary commitment is related to obligations under our credit facility. For more information regarding our credit facility, see Note 11 "Credit Facility" to the consolidated financial statements in Item 8 of Part II. In addition, we have obligations under leases for office space. For more information regarding our lease obligations, see Note 8 "Leases" to the consolidated financial statements in Item 8 of Part II. We also have non-cancelable commitments related to our cloud infrastructure. As of January 31, 2024, we had contractual commitments of $75.0 million related to these services, $11.4 million of which is due in the next 12 months and the remaining balance due thereafter.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States (GAAP). The preparation of these consolidated financial statements requires us to make estimates and assumptions that are inherently uncertain and that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Critical accounting policies and estimates are those that we consider critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.

Revenue Recognition

We derive revenue primarily from subscription revenue, which consists of subscription-based agreements and, to a lesser extent, consumption-based agreements to our cloud-based platform. We also sell professional services. Revenue is

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recognized when control of these services is transferred to customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those services, net of sales taxes.

For sales through channel partners, we consider the channel partner to be the end customer for the purposes of revenue recognition as our contractual relationships with channel partners do not depend on the sale of our services to their customers and payment from the channel partner is not contingent on receiving payment from their customers. Our contractual relationships with channel partners do not allow returns, rebates, or price concessions.

Pricing is generally fixed at contract inception and therefore, our contracts do not contain a significant amount of variable consideration.

Revenue recognition is determined through the following steps:

•Identification of the contract, or contracts, with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

•Recognition of revenue when, or as, performance obligations are satisfied

Subscription Revenue

Revenue from subscription-based agreements primarily consists of fees paid by customers to access our cloud-based platform, including support services. The majority of our subscription-based agreements have multi-year contractual terms and a smaller percentage have annual contractual terms. Revenue is recognized ratably over the related contractual term beginning on the date that the platform is made available to a customer. Access to the platform represents a series of distinct services as we continually provide access to and fulfill our obligation to the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. We recognize revenue ratably because the customer receives and consumes the benefits of the platform throughout the contract period. Our contracts are generally non-cancelable. Consumption-based agreements utilize a tiered pricing structure for an annual purchase commitment based upon an estimated volume of usage. Revenue from the annual purchase commitment in consumption-based contracts is also recognized ratably over the contractual term of the contract. Amounts for the annual purchase commitments do not carry over beyond each annual commitment period.

Professional Services and Other Revenue

Professional services revenue consists of implementation services sold with new subscriptions as well as professional services sold separately. Other revenue includes training and education. Professional services arrangements are billed in advance, and revenue from these arrangements is recognized as the services are provided, generally based on hours incurred. Training and education revenue is also recognized as the services are provided.

Contracts with Multiple Performance Obligations

Most of our contracts with new customers contain multiple performance obligations, generally consisting of subscriptions and professional services. For these contracts, individual performance obligations are accounted for separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices are determined based on historical standalone selling prices, taking into consideration overall pricing objectives, market conditions and other factors, including contract value, customer demographics and the number and types of users within the contract.

Contract Acquisition Costs

Contract acquisition costs, net are stated at cost net of accumulated amortization and primarily consist of deferred sales commissions, which are considered incremental and recoverable costs of obtaining a contract with a customer. Contract acquisition costs for initial contracts are deferred and then amortized on a straight-line basis over the period of benefit, which we have determined to be approximately four years. The period of benefit is determined by taking into consideration contractual terms, expected customer life, changes in our technology and other factors. Contract acquisition costs for renewal contracts are not commensurate with contract acquisition costs for initial contracts and are recorded as expense when incurred

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if the period of benefit is one year or less. If the period of benefit is greater than one year, costs are deferred and then amortized on a straight-line basis over the period of benefit. Contract acquisition costs related to professional services and other performance obligations with a period of benefit of one year or less are recorded as expense when incurred. Amortization of contract acquisition costs is included in sales and marketing expenses in the accompanying consolidated statements of operations.

Capitalized Internal-Use Software Costs

We capitalize certain costs related to development of our platform incurred during the application development stage. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Maintenance and training costs are also expensed as incurred. Capitalized costs are included in property and equipment.

Capitalized internal-use software is amortized mostly as subscription cost of revenue, with a smaller portion related to operations amortized as research and development within operating expenses. All capitalized internal-use software is amortized on a straight-line basis over its estimated useful life, which is generally three years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill and indefinite-lived intangible assets are not amortized, but rather tested for impairment at least annually on November 1 or more often if and when circumstances indicate that the carrying value may not be recoverable. Finite-lived intangible assets are amortized over their useful lives.

Goodwill is tested for impairment based on reporting units. We periodically reevaluate our business and have determined that it continues to operate in one segment, which is also considered the sole reporting unit. Therefore, goodwill is tested for impairment at the consolidated level.

We review our long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever an event or change in facts and circumstances indicates that their carrying amounts may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated. If the carrying amount exceeds the undiscounted cash flows, the assets are determined to be impaired and an impairment charge is recognized as the amount by which the carrying amount exceeds fair value.

Stock-Based Compensation

We have granted stock-based awards, consisting of stock options and restricted stock units, to our employees, certain consultants and certain members of our board of directors. We record stock-based compensation based on the grant date fair value of the awards, which include stock options and restricted stock units, and recognize the fair value of those awards as expense using the straight-line method over the requisite service period of the award. For restricted stock units that contain performance conditions, we recognize expense using the accelerated attribution method if it is probable the performance conditions will be met. We estimate the grant date fair value of stock options using the Black-Scholes option-pricing model.

Stock-based compensation expense related to purchase rights issued under the 2018 Employee Stock Purchase Plan, or ESPP, is based on the Black-Scholes option-pricing model fair value of the estimated number of awards as of the beginning of the offering period. Stock-based compensation expense is recognized using the straight-line method over the offering period.

The determination of the grant date fair value of stock-based awards is affected by the estimated fair value of our common stock as well as other assumptions and judgments, which are estimated as follows:

•Fair Value Per Share of Common Stock. Because there was no public market for our common stock prior to the IPO, the board of directors determined the common stock fair value at the grant date by considering numerous objective and subjective factors, including contemporaneous valuations of our common stock, actual operating and financial performance, market conditions, and performance of comparable publicly traded companies, business developments, the likelihood of achieving a liquidity event, and transactions involving preferred and common stock, among other factors. Subsequent to the IPO, we determine the fair value of common stock as of each grant date using the market closing price of our Class B common stock on the date of grant.

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•Expected Term. The expected term is determined using the simplified method, which is calculated as the midpoint of the option’s contractual term and vesting period. We use this method due to limited stock option exercise history. For the ESPP, the expected term is the beginning of the offering period to the end of each purchase period.

•Expected Volatility. The expected volatility is estimated based on the volatility of the Company's common stock over a period equivalent to the expected term of the awards.

•Risk-free Interest Rate. The risk-free interest rate is determined using U.S. Treasury rates with a similar term as the expected term of the option.

•Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero.

Recent Accounting Pronouncements

See Note 2 "Summary of Significant Accounting Policies" of our consolidated financial statements in Item 8 of Part II of this Annual Report on Form 10-K for more information regarding recent accounting pronouncements.

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