UiPath, Inc. 10-Q

Item 2. 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 our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended January 31, 2021 included in our final prospectus, or the Final Prospectus, that forms a part of the Registration Statement on Form S-1 (File No. 333-254738) for our initial public offering, or our IPO, dated as of April 20, 2021, and filed with the Securities and Exchange Commission, or the SEC, pursuant to Rule 424(b)(4) under the Securities Act on April 21, 2021. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading “Risk Factors” in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. Overview We are at the forefront of technology innovation and thought leadership in automation, creating an end-to-end platform that provides automation with user emulation at its core. Our platform leverages computer vision and artificial intelligence, or AI, to empower software robots to emulate human behavior and execute specific business processes, eliminating the need for employees to execute certain manual and mundane tasks. Our platform allows employees to focus on more value-added work and enables organizations to seamlessly automate business processes ranging from those in legacy information technology, or IT, systems and on-premises applications to new cloud-native infrastructure and applications without requiring significant changes to the organization’s underlying technology infrastructure. Our platform is purpose-built to be used by employees throughout a company and to address a wide variety of use cases, from simple tasks to long-running, complex business processes. Our platform is designed to transform the way humans work. We provide our customers with a robust set of capabilities to discover automation opportunities and build, manage, run, engage, measure, and govern automations across departments within an organization. Our platform leverages the power of AI-based computer vision to enable our robots to perform a vast array of actions as a human would when executing business processes. These actions include, but are not limited to, logging into applications, extracting information from documents, moving folders, filling in forms, and updating information fields and databases. Our robots’ ability to learn from and replicate workers’ steps in executing business processes drives continuous improvements in operational efficiencies and enables companies to deliver on key digital initiatives with greater speed, agility, and accuracy. Our platform is designed to interact with and automate processes across a company’s existing enterprise stack. As a result, our customers can leverage the power of our platform without the need to replace or change existing business applications and with lower overall IT infrastructure cost. Our platform enables employees to quickly build automations for both existing and new processes. Employees can seamlessly maintain and scale automations across multiple deployment options, constantly improve and evolve automations, and continuously track and measure the performance of automations, all without substantial technical experience. At the core of our automation platform is a set of capabilities that emulates human behavior, which provides our customers with the ability to automate both simple and complex use cases. Automations on our platform can be built, consumed, managed, and governed by any employee who interacts with computers, resulting in the potential for broad applicability of our platform across departments within an organization. Society is at a turning point in how organizations execute work, and we believe the ability to leverage software to enrich the employee experience will unlock tremendous value and efficiency opportunities. While we are still in the early days of a multi-year journey to the fully automated enterprise, momentum is growing as organizations across the world are only now beginning to understand the power of automation. 26 We offer a comprehensive range of automation solutions via a suite of interrelated software offerings. We generate revenue from the sale of licenses for our proprietary software, maintenance and support for our licenses, right to access certain products that are hosted by us (i.e., software as a service, or SaaS), and other services, including professional services. Our license fees are based primarily on the number of users who access our software and the number of automations running on our platform. Our license agreements primarily have annual terms, and some of our license agreements have multi-year terms. We generally do not sell standalone licenses with a term of less than one year. However, during the term of an annual contract or the last year of a multi-year contract, our customers may enter into an additional license agreement with a termination date that is coterminous with the anniversary date of such annual contract. Additionally, we provide maintenance and support for our software as well as non-recurring professional services such as training and implementation services to facilitate the adoption of our platform. Our professional services complement the capabilities of our customers and partners as they improve customers’ time-to-market and optimize business outcomes using our platform. Our non-recurring professional services include use case development and deployment, solutions architecting, implementation consulting, and training. We have an efficient go-to-market model, which consists primarily of an enterprise field sales force supplemented by a high velocity inside sales team focused on small and mid-sized customers, as well as a global strategic sales team focused on the largest global customers. As of April 30, 2021, we had more than 8,500 customers . Many of our customers expand the scope and size of use cases of our platform across their organizations as they quickly realize the power of our platform. We believe that the success of our land-and-expand business model is centered on our ability to deliver significant value in a very short time. We grow with our customers as they identify and expand the number of business processes to automate, which increases the number of robots deployed and the number of users interacting with our robots. A crucial component of our go-to-market strategy is our partner and channel ecosystem, which extends our local and global reach and helps to ensure that customers are able to rapidly build, deploy, and scale automations on our platform. Our business partners include more than 4,000 global and regional system integrators, value-added resellers, and business consultants. We provide tiering recognition through Diamond, Gold, Silver, and Registered levels for partners that meet competency requirements and deliver and maintain a specified number of satisfied customers. These partnerships enhance our market presence and drive greater sales efficiencies. In addition, we have aggressively built strong technology partnerships and alliances to enable a large number of connectors and other technical capabilities necessary to meet the breadth of our customer needs. We have experienced rapid growth. Our annualized renewal run-rate, or ARR, was $652.6 million and $397.8 million for the three months ended April 30, 2021 and 2020, respectively, representing a growth rate of 64%. We generated revenue of $186.2 million and $113.1 million, representing a growth rate of 65%, and incurred a net loss of $239.7 million and $52.8 million in the three months ended April 30, 2021 and 2020, respectively. Our operating cash flows were $(17.5) million and $(24.1) million for the three months ended April 30, 2021 and 2020, respectively. Recent Developments In April 2021, we completed our IPO, in which we issued and sold 13.0 million shares of our Class A common stock, including 3.6 million shares pursuant to the exercise in full of the underwriters’ option to purchase additional shares, and the selling stockholders sold an additional 14.5 million shares, at a public offering price of $56.00 per share. We received net proceeds of $692.4 million after deducting underwriting discounts and commissions of $35.6 million. We did not receive any proceeds from the sale of shares by the selling stockholders. Impact from COVID-19 When the COVID-19 pandemic began to unfold, we took decisive action across our internal and customer operations to ensure the resilience of our company and the safety of our employees. We temporarily shut down all offices and offered our employees technology stipends to encourage remote working, postponed most of our physical conferences and other customer and promotional events, implemented global travel restrictions, reduced headcount and expenses related to event marketing, and engaged in other discretionary cost-saving measures. Our operational rigor, digital infrastructure, and global footprint enabled us to support our customers navigating new challenges presented by the pandemic and existing needs to automate. As the pandemic persisted, global demand for automation continued to accelerate as automation became essential for business execution and performance in a remote working environment, and we continued to invest in the development and marketing of our automation platform to meet that demand. For further information, see the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q. 27 Key Performance Metric We monitor the following key performance metric to help us measure and evaluate the effectiveness of our operations: As of April 30, 2021 2020 Change Change % (dollars in thousands) Annualized renewal run-rate (ARR) 652,580 397,848 254,732 64 % ARR is the key performance metric we use in managing our business because it illustrates our ability to acquire new subscription customers and to maintain and expand our relationship with existing subscription customers. We define ARR as annualized invoiced amounts per solution SKU from subscription licenses and maintenance obligations assuming no increases or reductions in their subscriptions. ARR does not include the costs we may incur to obtain such subscription licenses or provide such maintenance, and does not reflect any actual or anticipated reductions in invoiced value due to contract non-renewals or service cancellations other than for specific bad debt or disputed amounts. For the three months ended April 30, 2021 and 2020, our ARR was $652.6 million and $397.8 million, respectively, representing a growth rate of 64%. Approximately 30% of this growth rate was due to new customers and approximately 70% was due to existing customers. Our ARR may decline or fluctuate as a result of a number of factors, including customers’ satisfaction or dissatisfaction with our platform and professional services, pricing, competitive offerings, economic conditions, or overall changes in our customers’ spending levels. ARR should be viewed independently of revenue and deferred revenue as ARR is an operating metric and is not intended to be combined with or replace these items. For clarity, we use annualized invoiced amounts per solution SKU as compared to revenue calculated in accordance with accounting principles generally accepted in the United States, or GAAP, to calculate our ARR. Our invoiced amounts are not matched to the performance obligations associated with the underlying subscription licenses and maintenance obligations as they are with respect to our GAAP revenue. This can result in timing differences between our GAAP revenue and ARR calculations. Our ARR calculation simply takes our invoiced amounts per solution SKU under a subscription license or maintenance agreement and divides that amount by the invoice term and multiplies by 365 days to derive the annualized value. In contrast, for our revenue calculated in accordance with GAAP, subscription licenses revenue derived from the sale of term-based licenses hosted on-premises is recognized at the point-in-time when the customer is able to use and benefit from our software, which is generally upon delivery to the customer or upon the commencement of the renewal term, and maintenance revenue is recognized ratably over the term of the arrangement. ARR is not a forecast of future revenue, which can be impacted by contract start and end dates, duration, and renewal rates, and does not include invoiced amounts reported as perpetual licenses or professional services revenue in our condensed consolidated statements of operations. In addition, investors should not place undue reliance on ARR as an indicator of our future or expected results. Moreover, ARR may differ from similarly titled metrics presented by other companies and may not be comparable to such other metrics. See the section titled “Risk Factors—Risks Related to Our Business, Products, Operations, and Industry” included elsewhere in this Quarterly Report on Form 10-Q. Key Factors Affecting Our Performance Our results of operations and financial condition are impacted by the macro factors affecting our industry, including the proliferation of cloud-based applications, the cost of skilled human capital, and the global demand for automation solutions. While our business is influenced by these macro factors, our results of operations are more directly affected by certain company specific factors, including: Growing Our Global Customer Base We believe there is a substantial opportunity to continue to grow our customer base. Additionally, we believe that as more organizations adopt our automation platform and experience quantifiable competitive advantages, other organizations will also adopt automation as a necessary tool to compete. While we sell to organizations of all sizes and across a broad range of industries, our go-to-market team’s key focus is on the largest organizations, including large enterprises and governments. We also use an inside sales team focused on small and mid-sized businesses. We plan to continue to invest in our go-to-market team to grow our customer base both domestically and internationally. We intend to continue to grow our customer base by focusing on the top 25 countries as measured by gross domestic product. Although these investments may adversely affect our operating results in the near term, we believe that they will contribute to our long-term growth. Our ability to attract new customers will also depend on a number of other factors, including our ability to drive awareness of the benefits and power of automation in the industry and at our existing and prospective customers, the effectiveness and pricing of our products, the offerings of our competitors, and competition among resellers. 28 We define our number of customers as the number of accounts with a unique account identifier for which we have an active subscription in the period indicated and include in our customer count entities to which we have sold our products either directly or through a channel partner. Users of our free trials or tier are not included in our customer count. A single organization with multiple divisions, segments, or subsidiaries is counted as a single customer. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity, and specifically excludes non-paying partners and resellers. Expanding Within Our Existing Customer Base Our customer base represents a significant opportunity for further sales expansion. As of April 30, 2021 and 2020, we had over 8,500 customers and approximately 6,500 customers, respectively. We employ a land-and-expand business model centered around offering products that are easy to adopt and have a short time to value. We believe there is significant opportunity for us to become a strategic partner to our customers in their automation journeys and drive further sales expansion through the following vectors: • deploy more robots across different departments; • provide more employees with their own robot assistants; • increase adoption of platform products; and • expand use cases for automation in the enterprise to drive increased usage of robots and capacity consumption of our various products. Our customers often expand the deployment of our platform across large teams and more broadly within the enterprise as they find new use cases for our platform and their employees increasingly interact and gain confidence working with robots. Evidence of the power of our land-and-expand model is our customers that exceed significant ARR thresholds. For example, as of April 30, 2021, we had 1,105 customers with ARR of $100 thousand or more and 104 customers with ARR of $1.0 million or more, which accounted for 75% and 37% of our revenue, respectively, for the period then ended. As of April 30, 2020, we had 693 customers with ARR of $100 thousand or more and 48 customers with ARR of $1.0 million or more, which accounted for 68% and 27% of our revenue, respectively, for the period then ended. We intend to continue to invest in enhancing awareness of our brand and developing more products, features, and functionality, which we believe are important factors to achieve widespread adoption of our platform. Our ability to increase sales to existing customers will depend on a number of factors, including our customers’ satisfaction with our solution, competition, pricing, and overall changes in our customers’ spending levels. Driving Preference and Share of System Integrators, Value-Added Resellers, and Business Consultants Selling the Value Propositions and Capabilities of Digital Transformation We are focused on maintaining and growing our ecosystem of partners that build, train, and certify skills in our technology as well as deploy our technology on behalf of their customers. We have built a global partner ecosystem of more than 4,000 systems integrators, value-added resellers, business consultants, technology partners and public cloud vendors. Our partner network includes, among others, Accenture LLP, Capgemini SE, CGI Inc., Cognizant Technology Solutions Corporation, Deloitte & Touche LLP, Ernst and Young LLP, KPMG LLP, International Business Machines Corporation, and PricewaterhouseCoopers LLP. We provide a tiering recognition through Diamond, Gold, Silver, and Registered levels for partners that meet competency requirements and deliver and maintain a tiered number of satisfied customers. In 2020, we launched the UiPath Services Network, or USN, program to recognize an elite network of partners accredited with advanced delivery skills, and over 50 partners have earned USN certification. We also offer a professional services capability that augments our partners’ efforts where necessary. Our ability to grow our partnership base depends on the competitiveness of our platform and the profitability of our relationship for our partners and potential partners. Sustaining Innovation and Automation Leadership Our success is dependent on our ability to sustain innovation and automation leadership in order to maintain our competitive advantage. We believe that we have built a differentiated automation platform and intend to continually increase the value we provide to our customers by investing in extending the capabilities of our platform. We have made and will continue to make significant investments in research and development to bolster our existing technology and enhance usability to improve our customers’ productivity. In May 2021, we released version 21.4 of the UiPath Platform. Innovations include the all-new Automation Ops, designed to help customers manage and govern high scale deployments of the UiPath Studio family of products 29 and Attended Robots enterprise-wide. New AI-powered capabilities were also introduced to speed the discovery and prioritization of processes to automate, led by the general availability of Task Mining. We also collaborate with other leading technology companies to develop integrations that simplify the interoperability of our platform with their technology. Examples of integrations available to our customers include integrations with offerings from Amazon Web Services Inc., Adobe Inc., Alteryx Inc., Box, Inc., Microsoft Corporation, Oracle Corporation, Salesforce.com, inc., SAP SE, ServiceNow, Inc., and Workday, Inc. These pre-built integrations can accelerate the adoption of our platform within our customers’ environment and speed the creation of automations that span multiple technologies. We also maintain partnerships with leading cloud vendors, such as Amazon Web Services Inc., Google Inc., and Microsoft Corporation, to both simplify the deployment of our platform and extend our platform to offer customers the benefits of cloud-based AI capabilities. We are focused on maintaining and growing our ecosystem of partners to continue to expand our market presence and drive greater sales efficiencies. We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion. For example, in March 2021, we acquired Cloud Elements Inc., a provider of a leading application programming interface integration platform for SaaS application providers and the digital enterprise. This acquisition brings technology and an experienced team, which we believe will accelerate our technology roadmap in areas such as native integrations and system event automation triggers. Our future success is dependent on our ability to successfully develop, market, and sell existing and new products to both new and existing customers and maintain and expand our relationships with leading technology partners. Continuing to Invest to Grow and Scale Our Business We are focused on driving our long-term ARR potential. We believe that our market opportunity is substantial. We intend to continue to invest significantly in scaling across all organizational functions in order to grow our operations both domestically and internationally. We have a history of introducing successful new products and capabilities on our platform, and we intend to continue to invest heavily to grow our business to take advantage of our substantial market opportunity rather than optimize for profitability or cash flow in the near future. Although these investments may adversely affect our operating results in the near term, we believe that they will contribute to our long-term growth. Components of Results of Operations Revenue We derive revenue from the sale of software licenses for use of our proprietary software, maintenance and support for our licenses, right to access certain software products we host (i.e., SaaS), and other services, including professional services. We offer a comprehensive range of automation solutions via a suite of interrelated software offerings. Customers can license our software and deploy our platform on-premises, in a public or private cloud, or in a hybrid environment. In addition, we offer a managed, multi-tenant, SaaS version, which enables our customers to begin automating without the need to provision infrastructure, install applications or perform additional configurations. We also offer maintenance and support, training, and implementation services to our customers to facilitate their adoption of our platform. In fiscal 2021, we began offering both hybrid and cloud (i.e., SaaS) solutions. Hybrid solutions are comprised of three performance obligations, consisting of a term license, maintenance and support, and SaaS. Revenue from license and revenue from maintenance and support are accounted for pursuant to the paragraphs below. The performance obligation under the SaaS component of the hybrid solution and SaaS arrangements are stand-ready obligations to provide access to our products, and the associated revenue is recognized on a ratable basis over the contractual period of the arrangement beginning when or as control of the promised service is transferred to the customer. The revenue related to the SaaS component of the hybrid arrangement and the revenue related to the SaaS arrangements are presented as Revenue, maintenance and support in our results of operations, as such revenue was not material for the three months ended April 30, 2021. Licenses We primarily sell term licenses, including through our hybrid offerings, which provide customers the right to use software for a specified period of time. From time to time, we also sell perpetual licenses that provide customers the right to use software for an indefinite period of time. For both types of licenses, revenue is recognized at the point in time at which the customer is able to use and benefit from the software, which is generally upon delivery to the customer or upon commencement of the renewal term. 30 Maintenance and Support We generate maintenance and support revenue through technical support and the provision of unspecified updates and upgrades on a when-and-if-available basis for both term and perpetual license arrangements. Maintenance and support for perpetual licenses is renewable, generally on an annual basis, at the option of the customer. Maintenance and support represents a stand-ready obligation for which revenue is recognized ratably over the term of the arrangement. Services and Other Services and other revenue consists of fees associated with professional services for process automation, customer education, and training services. A substantial majority of our professional services contracts are recognized on a time and materials basis and the related revenue is recognized as the services are rendered. Cost of Revenue Licenses Cost of licenses revenue consists of all direct costs to deliver our licenses to customers, amortization of software development costs, direct costs related to third-party software resales, and amortization of acquired developed technology. Maintenance and Support Cost of maintenance and support revenue primarily consists of personnel-related expenses of our customer support and technical support teams , including salaries and bonuses, stock-based compensation expense, and employee benefit costs. Cost of maintenance and support revenue also includes third-party consulting services, hosting costs related to our hybrid and cloud-based arrangements, amortization of acquired developed technology and capitalized software development costs related to cloud products, and allocated overhead. Overhead is allocated to cost of maintenance and support revenue based on applicable headcount. We recognize these expenses as they are incurred. We expect cost of maintenance and support revenue to continue to increase in absolute dollars for the foreseeable future as our customer base grows. Services and Other Cost of services and other revenue primarily consists of personnel-related expenses of our professional services team, including salaries and bonuses, stock-based compensation expense, and employee benefit costs. Cost of services and other revenue also includes expenses related to third-party consulting services and allocated overhead. Overhead is allocated to cost of services and other revenue based on applicable headcount. We recognize these expenses as they are incurred. We expect cost of services and other revenue to continue to increase in absolute dollars for the foreseeable future as our customer base grows. Operating Expenses Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel-related expenses are the most significant component of operating expenses and consist of salaries and bonuses, stock-based compensation expense, and employee benefit costs. Operating expenses also include allocated overhead. During fiscal year 2021, certain operating expenses decreased, such as travel and entertainment, primarily as a result of the COVID-19 pandemic. We expect a resumption of travel and entertainment and related expenses in the second half of fiscal year 2022, although the timing and magnitude of these expenses will depend on a number of factors including the trend of the pandemic and potential lifting of stay-at-home orders. Sales and Marketing Sales and marketing expenses consist primarily of personnel-related expenses associated with our sales and marketing teams and related sales support teams, including salaries and bonuses, stock-based compensation expense, and employee benefit costs, sales and partner commissions, marketing events, advertising costs, travel, trade shows, other marketing materials, and allocated overhead. Together with travel and entertainment, trade show expenses also decreased in fiscal year 2021, as a result of the COVID-19 pandemic. We currently expect trade show expenses to resume in the second half of fiscal year 2022, although the timing is uncertain and related to the trend of the pandemic. We plan to increase our investment in sales and marketing over the foreseeable future as we continue to hire additional personnel and invest in sales and marketing programs. However, we expect that our sales and marketing expense will decrease as a percentage of our total revenue over the long term, although our sales and marketing expenses may fluctuate as a percentage of our total revenue from period to period due to the timing and extent of these expenses. 31 Research and Development Research and development expenses consist primarily of personnel-related expenses, including salaries and bonuses, stock-based compensation expense, and employee benefits costs for our research and development employees. Research and development costs are expensed as incurred, with the exception of certain software development costs which are eligible for capitalization. We expect that our research and development expense will increase in absolute dollars for the foreseeable future as we continue to invest in research and development efforts to develop new technology and enhance the functionality and capabilities of our existing products and platform infrastructure. Our research and development expenses may fluctuate as a percentage of our total revenue from period to period due to the timing and extent of these expenses. General and Administrative General and administrative expenses consist primarily of personnel-related expenses, including salaries and bonuses, stock-based compensation expense, and employee benefits costs associated with our finance, legal, human resources, compliance, and other administrative teams, as well as accounting and legal professional services fees, other corporate-related expenses, and allocated overhead. Following the completion of the IPO in April 2021, we expect to incur additional general and administrative expenses as a result of operating as a public company. As a result, we expect the dollar amount of our general and administrative expenses to increase for the foreseeable future. However, we expect that our general and administrative expense will decrease as a percentage of our total revenue as our revenue grows over the longer term, although our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses. Interest Income Interest income consists of interest income earned on our cash deposits, cash and cash equivalent balances, and marketable securities. Other Expense, Net Other expense, net primarily consists of foreign exchange gains and losses, and gains and losses associated with foreign currency forward contracts. Provision For Income Taxes Provision for income taxes consists of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state and Romanian deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized. Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as non-deductible expenses, such as stock-based compensation, and changes in our valuation allowance. 32 Results of Operations The following tables set forth selected condensed consolidated statement of operations data and such data as a percentage of total revenue for each of the periods indicated: Three Months Ended April 30, 2021 2020 (in thousands) Revenue Licenses $ 100,216 $ 63,759 Maintenance and support 77,642 43,196 Services and other 8,359 6,148 Total revenue 186,217 113,103 Cost of revenue Licenses (1) 2,454 1,417 Maintenance and support (1)(2) 14,179 5,543 Services and other (2) 32,377 6,678 Total cost of revenue 49,010 13,638 Gross profit 137,207 99,465 Operating expenses Sales and marketing (1)(2) 205,751 90,931 Research and development (2) 93,040 26,729 General and administrative (2) 74,415 26,676 Total operating expenses 373,206 144,336 Operating loss (235,999 ) (44,871 ) Interest income 941 530 Other expense, net (3,218 ) (7,837 ) Loss before provision for income taxes (238,276 ) (52,178 ) Provision for income taxes 1,387 662 Net loss $ (239,663 ) $ (52,840 ) (1) Includes amortization of acquired intangible assets as follows: Cost of revenue $ 756 $ 586 Sales and marketing 161 35 Total amortization of acquired intangible assets $ 917 $ 621 (2) Includes stock-based compensation expense as follows: Cost of revenue $ 25,145 $ 383 Sales and marketing 119,293 1,853 Research and development 65,616 1,816 General and administrative 40,781 4,149 Total stock-based compensation expense $ 250,835 $ 8,201 33 Three Months Ended April 30, 2021 2020 (as a percentage of revenue) Revenue Licenses 54 % 56 % Maintenance and support 42 % 38 % Services and other 4 % 6 % Total revenue 100 % 100 % Cost of revenue Licenses 1 % 1 % Maintenance and support 8 % 5 % Services and other 17 % 6 % Total cost of revenue 26 % 12 % Gross profit 74 % 88 % Operating expenses Sales and marketing 111 % 80 % Research and development 50 % 24 % General and administrative 40 % 24 % Total operating expenses 201 % 128 % Operating loss (127 )% (40 )% Interest income, net 1 % 1 % Other expense, net (2 )% (7 )% Loss before provision for income taxes (128 )% (46 )% Provision for income taxes 1 % 1 % Net loss (129 )% (47 )% Comparison of the Three Months Ended April 30, 2021 and 2020 Revenue Three Months Ended April 30, 2021 2020 Change Change % (dollars in thousands) Licenses $ 100,216 $ 63,759 $ 36,457 57 % Maintenance and support 77,642 43,196 34,446 80 % Services and other 8,359 6,148 2,211 36 % Total revenue $ 186,217 $ 113,103 $ 73,114 65 % Total revenue increased by $73.1 million, or 65%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020, primarily due to an increase in licenses revenue of $36.5 million and an increase in maintenance and support revenue of $34.4 million. As we continued to expand our sales efforts in the United States and internationally, total revenue grew across all regions. Of the growth in total revenue, approximately 35% was attributable to new customers and the remainder to existing customers. Cost of Revenue and Gross Margin Three Months Ended April 30, 2021 2020 Change Change % (dollars in thousands) Licenses $ 2,454 $ 1,417 $ 1,037 73 % Maintenance and support 14,179 5,543 8,636 156 % Services and other 32,377 6,678 25,699 385 % Total cost of revenue $ 49,010 $ 13,638 $ 35,372 259 % Gross Margin 74 % 88 % 34 Total cost of revenue increased by $35.4 million, or 259%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020. The increase in cost of licenses revenue was primarily due to an increase in third-party software resale costs of $1.0 million. The increase in cost of maintenance and support revenue was primarily driven by a $7.0 million increase in personnel-related expenses, which included an increase of $6.1 million in stock-based compensation expense, mostly in connection with the satisfaction of RSU performance-based vesting conditions at the time of our IPO, and the remainder of which was due to increased headcount. Cost of maintenance and support revenue was also impacted by a $1.5 million increase in hosting costs and professional services. The increase in cost of services and other revenue was primarily driven by an increase of $23.6 million in personnel-related expenses, which included an increase of $18.6 million in stock-based compensation expense, mostly recognized in connection with the satisfaction of RSU performance-based vesting conditions at the time of our IPO, and the rest of which was due to increased headcount. Cost of services and other revenue was also impacted by a $2.0 million increase in third-party consulting fees. Our gross margin decreased to 74% for the three months ended April 30, 2021 compared to 88% for the three months ended April 30, 2020, primarily as a result of the stock-based compensation expense recognized in connection with the satisfaction of RSU performance-based vesting conditions at the time of our IPO. Operating Expenses Sales and Marketing Three Months Ended April 30, 2021 2020 Change Change % (dollars in thousands) Sales and marketing $ 205,751 $ 90,931 $ 114,820 126 % Percentage of revenue 111 % 80 % Sales and marketing expense increased by $114.8 million, or 126%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020. This increase was primarily attributable to an increase of $114.7 million in personnel-related expenses, which included an increase of $117.4 million in stock-based compensation expense, mostly recognized in connection with the satisfaction of RSU performance-based vesting conditions at the time of our IPO, an increase of $8.0 million from increased headcount, and a decrease of $10.8 million in sales commissions expense due to the accounting impact of our new sales incentive plan. Research and Development Three Months Ended April 30, 2021 2020 Change Change % (dollars in thousands) Research and development $ 93,040 $ 26,729 $ 66,311 248 % Percentage of revenue 50 % 24 % Research and development expense increased by $66.3 million, or 248%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020. The increase was primarily attributable to an increase of $67.1 million in personnel-related expenses, which included an increase of $63.8 million in stock-based compensation expense, mostly recognized in connection with the satisfaction of RSU performance-based vesting conditions at the time of our IPO, and the rest of which was due to increased headcount. This increase was partially offset by a decrease of $0.8 million in travel-related and third-party consulting expenses. General and Administrative Three Months Ended April 30, 2021 2020 Change Change % (dollars in thousands) General and administrative $ 74,415 $ 26,676 $ 47,739 179 % Percentage of revenue 40 % 24 % 35 General and administrative expense increased by $47.7 million, or 179%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020. This increase was primarily attributable to an increase of $39.5 million in personnel-related expenses, which included an increase of $36.6 million in stock-based compensation expense, mostly recognized in connection with the satisfaction of RSU performance-based vesting conditions at the time of our IPO, and the rest of which resulted from increased headcount. General and administrative expenses were also impacted by an increase of $7.6 million in third-party, recruitment, and training-related expenses and an increase of $1.8 million in travel-related expenses, partially offset by a $1.7 million decrease in other tax expense. Interest Income Three Months Ended April 30, 2021 2020 Change Change % (dollars in thousands) Interest income $ 941 $ 530 $ 411 78 % Percentage of revenue 1 % 1 % Interest income, related to our cash deposits and investments in marketable securities, increased by $0.4 million, or 78%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020. Other Expense, Net Three Months Ended April 30, 2021 2020 Change Change % (dollars in thousands) Other expense, net $ (3,218 ) $ (7,837 ) $ 4,619 (59 )% Percentage of revenue (2 )% (7 )% Other expense, net decreased by $4.6 million, or 59%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020. The decrease was primarily attributable to a $4.4 million decrease in foreign exchange losses recognized period-over-period. A net gain on foreign currency forward contracts of $0.6 million also partially offset expenses for the three months ended April 30, 2021. Provision For Income Taxes Three Months Ended April 30, 2021 2020 Change Change % (dollars in thousands) Provision for income taxes $ 1,387 $ 662 $ 725 110 % Percentage of revenue 1 % 1 % Provision for income taxes increased by $0.7 million, or 110%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020. The increase in tax expense was primarily driven by higher foreign tax expenses resulting from higher year-over-year earnings of our cost-plus margin entities in certain foreign jurisdictions as we continue to scale internationally. Liquidity and Capital Resources We have financed operations since our inception primarily through customer payments and net proceeds from sales of equity securities. Our principal uses of cash in recent periods have been funding our operations, investing in capital expenditures, and engaging in various business acquisitions. As of April 30, 2021, our principal sources of liquidity were cash, cash equivalents, restricted cash, and marketable securities totaling $1,893.0 million, and we had an accumulated deficit of $1,210.0 million. During the three months ended April 30, 2021, we reported a net loss of $239.7 million, and net cash used in operations of $17.5 million. In April 2021, we completed our IPO, which resulted in issuance of 13.0 million shares of our Class A common stock at a public offering price of $56.00 per share, including 3.6 million shares pursuant to the exercise in full of the underwriters’ option to purchase additional shares. Net proceeds were $692.4 million after deducting underwriting discounts and commissions of $35.6 million. 36 In July 2020, we completed our Series E preferred stock financing with gross proceeds totaling $225.9 million. In February 2021, we completed our Series F preferred stock financing with gross proceeds totaling $750.0 million. We have also entered into the Credit Facility (as defined below) with an available borrowing capacity of $200.0 million. We believe our existing cash, cash equivalents, restricted cash, marketable securities, proceeds from our sales of equity securities, and borrowing capacity will be sufficient to fund anticipated cash requirements for the next twelve months. Our future capital requirements will depend on many factors, including our revenue growth rate, our product sales, license renewal activity, including the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, the continuing market adoption of our products, expenses associated with our international expansion, and the timing and extent of additional capital expenditures to invest in existing and new office spaces. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition. Credit Facilities In January 2020, we entered into an Amended and Restated Loan and Security Agreement, or the Credit Agreement, with HSBC Bank USA, N.A, HSBC Ventures USA Inc., and Silicon Valley Bank, which provided a $100.0 million senior secured revolving credit facility. We repaid the Credit Agreement in full in July 2020. In October 2020, we entered into a new Senior Secured Credit Facility, or the Credit Facility, with HSBC Ventures USA Inc., Silicon Valley Bank, Sumitomo Mitsui Banking Corporation, and Mizuho Bank, LTD, which provided a $200.0 million senior secured revolving credit facility with a maturity date of October 30, 2023. Our obligations under the Credit Facility are secured by substantially all of our assets, except for our intellectual property. The Credit Facility contains certain customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions. We may use the proceeds of future borrowings under the Credit Facility for refinancing other indebtedness, working capital, capital expenditures and other general corporate purposes, including permitted business acquisitions. Borrowings under the Credit Facility bear interest at a base rate, as defined in the Credit Facility, plus a margin of 2.0% or 3.0% depending on the base rate. The Credit Facility is subject to customary fees for loan facilities of this type, including ongoing commitment fees at a rate of 0.25% per annum on the daily amount available to be drawn. As of April 30, 2021, we had no outstanding debt under the Credit Facility and were in compliance with our covenants thereunder. Cash Flows The following table shows a summary of our cash flows for the period presented: Three Months Ended April 30, 2021 2020 (in thousands) Net cash used in operating activities $ (17,522 ) $ (24,132 ) Net cash provided by (used in) investing activities 10,873 (460 ) Net cash provided by financing activities 1,442,913 79,364 Operating Activities Our largest source of operating cash is cash generation from sales to our customers. Our primary uses of cash from operating activities are for personnel-related expenses, direct costs to deliver our licenses, and marketing expenses. We have historically generated negative cash flows and have supplemented working capital requirements primarily through net proceeds from the sale of equity securities. Net cash used in operating activities for the three months ended April 30, 2021 of $17.5 million was driven by cash payments for operating expenditures, primarily associated with the compensation of our teams, including increased year-end fiscal 2021 sales commissions and bonuses paid in the first quarter of fiscal 2022. Other cash operating expenditures included payments for professional services, software, and office rent. These outflows were partially offset by cash collections from our customers, which were approximately 59% higher than during the three months ended April 30, 2020. 37 Net cash used in operating activities for the three months ended April 30, 2020 of $24.1 million was driven by cash payments for operating expenditures, primarily associated with the compensation of our teams. Other cash operating expenditures included payments professional services, software, office rent, and travel. These outflows were partially offset by cash collections from our customers. Investing Activities Net cash provided by investing activities for the three months ended April 30, 2021 of $10.9 million was driven by $113.1 million in sales and maturities of marketable securities. This was partially offset by $94.2 million in purchases of marketable securities, $5.5 million in cash consideration associated with the acquisition of Cloud Elements, which is presented net of cash acquired, and $2.2 million in capital expenditures. Net cash used in investing activities for the three months ended April 30, 2020 of $0.5 million was driven by capital expenditures. Financing Activities Net cash provided by financing activities for the three months ended April 30, 2021 of $1,442.9 million was primarily driven by $749.8 million in net proceeds from issuance of Series F convertible preferred stock and $692.4 million in net proceeds from our IPO. Net cash provided by financing activities for the three months ended April 30, 2020 of $79.4 million was primarily driven by $78.8 million in proceeds from our Credit Agreement. We also received $0.5 million in proceeds from the exercise of stock options. Contractual Obligations and Commitments There were no material changes to our commitments and contractual obligations during the three months ended April 30, 2021 from the commitments and contractual obligations disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” set forth in the Final Prospectus. Off-Balance Sheet Arrangements As of and during the three months ended April 30, 2021, we did not have any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical Accounting Policies and Estimates Refer to Note 2, Summary of Significant Accounting Policies , included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of our critical accounting policies. There have been no material changes to our critical policies and accounting estimates as compared to those disclosed in the Final Prospectus. JOBS Act Accounting Election We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and, for so long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to take advantage of the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. 38 Recent Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies —Recently Issued Accounting Pronouncements and —Recently Adopted Accounting Pronouncements , included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. 39