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Item 7. Management’s Discussion and Analysis

2024-03-27 compared with 2023-03-29 · 144 added, 75 removed, 240 unchanged (48% of the section changed)

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A discussion regarding our financial condition and results of operations for fiscal 2024 compared to fiscal 2023 is presented below.

A discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K for the fiscal year ended January 31, 2022 filed with the SEC on April 7, 2022.

A discussion regarding our financial condition and results of operations for fiscal 2023 compared to fiscal 2022 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K for the fiscal year ended January 31, 2023 filed with the SEC on March 29, 2023.

We founded SentinelOne in 2013 with a dramatically new approach to cybersecurity.

We pioneered the world’s first purpose-built AI-powered Singularity Platform to make cybersecurity defense truly autonomous, from the endpoint and beyond.

We pioneered the world’s first purpose-built AI-powered extended detection and response (XDR) platform to make cybersecurity defense truly autonomous, from the endpoint and beyond.

Our Singularity Platform instantly defends against cyberattacks — performing at a faster speed, greater scale, and higher accuracy than otherwise possible from a human-powered approach.

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Our subscription tiers include Singularity Core, Singularity Control, and Singularity Complete.

We also offer product bundles that include Singularity Commercial and Singularity Enterprise.

Additionally, customers can extend the functionality of our platform through our subscription Singularity Modules.

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Our sales organization is comprised of our enterprise sales, inside sales and customer solutions engineering teams.

It leverages our global network of ISVs, alliance partners, and channel partners for prospect access.

Additionally, our sales teams work closely with our customers, channel partners, and alliance partners to drive adoption of our platform, and our software solutions are fulfilled through our channel partners.

Our channel partners include some of the world’s largest resellers and distributors, MSPs, MSSPs, MDRs, OEMs, and IR firms.

Once customers experience the benefits of our platform, they often upgrade their subscriptions to benefit from the full range of our XDR and IT and security operations capabilities.

It leverages our global network of independent software vendors (ISVs), alliance partners, and channel partners for prospect access.

Additionally, our sales teams work closely with our customers, channel partners, and alliance partners to drive adoption of our platform, and our software solutions are fulfilled

through our channel partners.

Our channel partners include some of the world’s largest resellers and distributors, managed service providers (MSPs), managed security service providers (MSSPs), managed detection and response providers (MDRs), original equipment manufacturers (OEMs), and incident response (IR) firms.

Once customers experience the benefits of our platform, they often upgrade their subscriptions to benefit from the full range of our extended detection and response (XDR), IT, and security operations capabilities.

Additionally, many of our customers adopt Singularity Modules over time to extend the functionality of our platform and increase their coverage footprint.

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Our Singularity Platform is used globally by organizations of all sizes across a broad range of industries.

As of January 31, 2023, we had over 10,000 customers, increasing from over 6,700 customers as of January 31, 2022.

We had 905 customers with ARR of $100,000 or more as of January 31, 2023, up from 520 customer with ARR of $100,000 or more as of January 31, 2022.

As of January 31, 2023 and 2022, no single end customer accounted for

more than 4% of our ARR.

We define ARR as the annualized revenue run rate of our subscription and capacity contracts at the end of a reporting period, assuming contracts are renewed on their existing terms for customers that are under contracts with us.

Our revenue outside of the United States represented 35% and 32% for fiscal 2023 and 2022, respectively, illustrating the global nature of our solutions.

We had 1,133 customers with annualized recurring revenue (ARR) of $100,000 or more as of January 31, 2024, up from 872 customers with ARR of $100,000 or more as of January 31, 2023.

We define ARR as the annualized revenue run rate of our subscription and consumption and usage-based agreements at the end of a reporting period, assuming contracts are renewed on their existing terms for customers that are under contracts with us.

As of January 31, 2024 and 2023, no single end customer accounted for more than 3% of our ARR.

Our revenue outside of the US represented 36% and 35% for fiscal 2024 and 2023, respectively, illustrating the global nature of our solutions.

We have grown rapidly since our inception.

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As a result, our net loss for fiscal 2024, 2023, and 2022 was $338.7 million, $378.7 million, and $271.1 million, respectively.

Key Business Metrics

We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.

Impact of Global Macroeconomic and Geopolitical Conditions

Our overall performance depends in part on worldwide economic and geopolitical conditions and their impact on customer behavior.

Worsening economic conditions, including inflation, interest rate volatility, slower growth, potential recession, fluctuations in foreign exchange rates, actual or perceived instability in the global banking industry, potential uncertainty with respect to the federal debt ceiling and budget and potential government shutdowns related thereto, and other changes in economic conditions, and the impact of natural or man-made global events, including wars and other regional geopolitical armed conflict, such as the conflicts in the Middle East, Ukraine and tensions between China and Taiwan, may result in decreased sales productivity and growth and adversely affect our results of operations and financial performance.

As a result of the current macroeconomic environment, we have recently experienced certain impacts on our business, including a decline in usage and consumption patterns from certain customers, especially larger enterprise customers, longer sales cycles, and deal downsizing by new customers and of renewals by existing customers, especially larger enterprises.

We intend to continue to monitor global macroeconomic conditions closely and may determine to take certain financial or operational actions in response to such conditions to the extent our business begins to be adversely impacted.

For example, in June 2023, we announced a restructuring plan (the Plan) designed to improve operational efficiencies and operating costs and better align our workforce and operations with current business needs, priorities, and near-term growth expectations.

The actions associated with the Plan are expected to be fully complete by the end of fiscal 2025, subject to finalizing the disposition of certain office space.

We incurred approximately $7.4 million in charges in connection with the Plan in fiscal 2024, consisting of severance payments and employee benefits, impairment charges related to excess facilities and inventory write-offs, offset partially by savings related to the reversal on stock-based compensation expense.

We maintain an office in Tel Aviv, Israel and had approximately 13% of our personnel in Israel as of January 31, 2024.

We are closely monitoring the unfolding events of the armed conflict in the Middle East which began in October 2023.

While this conflict is still evolving, to date, the conflict has not had an adverse impact on our business and results of operations.

However, if the conflict continues to worsen or intensify, any business interruptions or spillover effects could adversely affect our business and operations.

We are unable to predict the full impact that macroeconomic or other geopolitical factors will have on our future results of operations, liquidity and financial condition due to numerous uncertainties, including the actions that may

be taken by government authorities across the US or other countries, changes in central bank policies and interest rates, rates of inflation, potential uncertainty with respect to the federal debt ceiling and budget and potential, government shutdowns related thereto, regional geopolitical conflicts, the impact to our customers, partners, and suppliers, and other factors described in the section titled “Risk Factors” in this Annual Report on Form 10-K.

Key Business Metrics and Non-GAAP Financial Measures

We monitor the following key metrics and non-GAAP financial measures to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.

We discuss revenue below under “Components of Our Results of Operations.”

Year Ended January 31,

2024 2023 2022

(in thousands)

$ 621,154 $ 422,179 $ 204,799

Non-GAAP operating loss

In addition to our results determined in accordance with GAAP, we use non-GAAP operating loss as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance.

We believe that non-GAAP operating loss provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this measure excludes, among other expenses, expenses that we do not consider to be indicative of our overall operating performance.

Non-GAAP operating loss is calculated as GAAP operating loss adjusted to exclude amortization of acquired intangible assets, acquisition-related compensation, restructuring charges, stock-based compensation expense, and payroll tax related to stock-based compensation.

Non-GAAP operating loss has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP, including GAAP operating loss.

Other companies, including companies in our industry, may calculate similarly titled non-GAAP measures, including non-GAAP operating loss, differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.

As a result, our non-GAAP operating loss is presented for supplemental informational purposes only.

Year Ended January 31,

2024 2023 2022

(in thousands)

Non-GAAP operating loss

$ (118,225) $ (208,861) $ (174,588)

A reconciliation of non-GAAP operating loss to GAAP operating loss, the most directly comparable financial measure calculated and presented in accordance with U.S.

GAAP, is provided below:

Year Ended January 31,

2024 2023 2022

(in thousands)

GAAP operating loss $ (378,416) $ (402,576) $ (267,232)

Stock-based compensation expense 216,870 164,466 87,889

Employer payroll tax on employee stock transactions 3,429 2,235 1,783

Amortization of acquired intangible assets 28,363 22,645 2,972

Acquisition-related compensation 3,043 4,369 —

Inventory write-offs due to restructuring 720 — —

Other restructuring charges 7,766 — —

Non-GAAP operating loss $ (118,225) $ (208,861) $ (174,588)

Annualized Recurring Revenue (ARR)

We believe that ARR is a key operating metric to measure our business because it is driven by our ability to acquire new subscription and capacity customers and to maintain and expand our relationship with existing customers.

ARR represents the annualized revenue run rate of our subscription and capacity contracts at the end of a reporting period, assuming contracts are renewed on their existing terms for customers that are under contracts with us.

ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates.

We believe that ARR is a key operating metric to measure our business because it is driven by our ability to acquire new subscription and consumption and usage-based customers and to maintain and expand our relationship with existing customers.

ARR represents the annualized revenue run rate of our subscription and consumption and usage-based agreements at the end of a reporting period, assuming contracts are renewed on their existing terms for customers that are under contracts with us.

ARR is an operational metric and is not a non-GAAP metric.

ARR is not a forecast of future revenue, which can be impacted by contract start and end dates, usage, renewal rates, and other contractual terms.

As of January 31,

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Annualized recurring revenue $ 724,404 $ 521,652 $ 277,954

*ARR as of January 31, 2023 and 2022 reflect the one-time ARR adjustment of approximately 5% made in the first quarter of fiscal 2024.

ARR grew 39% year-over-year to $724.4 million for fiscal 2024, primarily due to high growth in the number of new customers purchasing our subscriptions and to additional purchases by existing customers.

ARR is an operational metric, and there is no comparable GAAP financial measure to which we can reconcile this particular key metric.

As a result of the decline in usage and consumption in the first quarter of fiscal 2024, we changed our methodology of calculating ARR for consumption and usage-based agreements to reflect committed contract values as opposed to based on consumption and usage.

By making this change, we expect future ARR and revenue growth to be more closely aligned.

It should also reduce volatility in ARR compared to the prior methodology where usage and consumption changes could have a magnified impact on ARR.

In addition, as part of our quarter-end review of ARR in connection with the preparation of our condensed consolidated financial statements for the quarter ended April 30, 2023, we discovered some historical upsell and renewal recording inaccuracies relating to ARR on certain contracts, which we have corrected.

As a result of the change in methodology and correction of historical inaccuracies, we made a one-time adjustment to ARR of $27 million or approximately 5% of total ARR, which we reflected in our total ARR as of January 31, 2023.

ARR for the prior periods in fiscal 2023 and 2022 presented above have been adjusted based on the same percentage adjustment rate identified in the first quarter of fiscal 2024.

This adjustment to ARR did not impact historical total bookings or revenue.

Customers with ARR of $100,000 or More

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Customers with ARR of $100,000 or more

1,133 872 500

*Customers with ARR of $100,000 or more as of January 31, 2023 and 2022 reflect the one-time ARR adjustment of approximately 5% made in the first quarter of fiscal 2024.

Customers with ARR of $100,000 or more grew 30% year-over-year to 1,133 for fiscal 2024, primarily due to growth in the ARR of existing customers from additional purchases and to growth in the average size of purchases by new customers.

Based on the adjustments to ARR described above, customers with ARR of $100,000 or more for the prior periods presented above have been adjusted accordingly.

Dollar-Based Net Retention Rate (NRR)

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NRR measures the percentage change in our ARR derived from our customer base at a point in time.

To calculate NRR, we first determine Prior Period ARR, which is ARR from the population of our customers as of 12 months prior to the end of a particular reporting period.

We then calculate Net Retention ARR, which represents the total ARR at the end of a particular reporting period from the same set of customers that is used to determine Prior Period ARR.

Net Retention ARR includes any expansion, and is net of contraction and attrition associated with that set of customers.

NRR represents the quotient obtained by dividing Net Retention ARR by Prior Period ARR.

As of January 31,

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Dollar-based net retention rate 114 % 132 % 129 %

Our dollar-based net retention rate was 132% as of January 31, 2023, driven by existing customers primarily from expansion of the number of endpoints and purchases of additional modules.

NRR is an operational metric, and there is no comparable GAAP financial measure to which we can reconcile this particular key metric.

Our NRR of 114% was driven by existing customers adoption of additional endpoint licenses and adjacent platform solutions.

A larger portion of our business mix was driven by new customers in 2024, which will open doors for platform adoption over time.

We see significant long-term expansion potential based on high customer retention rates, expanding product categories, and early-stage adoption from our installed base.

Components of Our Results of Operations

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Variable consideration in these arrangements is typically a function of transaction volume or another usage-based measure.

Depending upon the structure of a particular arrangement, we (1) allocate the variable amount to each distinct service period within the series and recognize revenue as each distinct service period is performed (i.e.

direct allocation), (2) estimate total variable consideration at contract inception (giving consideration to any constraints that may apply and updating the estimates as new information becomes available) and recognizes the total transaction price over the period to which it relates, or (3) apply the ‘right to invoice’ practical expedient and recognize revenue based on the amount invoiced to the customer during the period.

Depending upon the structure of a particular arrangement, we i) allocate the variable amount to each distinct service period within the series and recognize revenue as each distinct service period is performed (i.e.

direct allocation), ii) estimate total variable consideration at contract inception (giving consideration to any constraints that may apply and updating the estimates as new information becomes available) and recognizes the total transaction price over the period to which it relates, or iii) apply the ‘right to invoice’ practical expedient and recognize revenue based on the amount invoiced to the customer during the period.

Premium support and maintenance and other Singularity Modules are distinct from subscriptions and are recognized ratably over the term as the performance obligations are satisfied.

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Cost of revenue consists primarily of third-party cloud infrastructure expenses incurred in connection with the hosting and maintenance of our platform.

Cost of revenue also consists of personnel-related costs associated with our customer support and services organization, including salaries, benefits, bonuses, and stock-based compensation, amortization of acquired intangible assets, amortization of capitalized internal-use software, software and subscription services used by our customer support and services team, and allocated overhead costs.

Our third-party cloud infrastructure costs are driven primarily by the number of customers, the number of endpoints per customer, the number of modules, and the incremental costs for storing additional data collected for such cloud modules.

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Sales and Marketing

Sales and marketing expenses consist primarily of employee salaries, commissions, benefits, bonuses, stock-based compensation, travel and entertainment related expenses, advertising, branding and marketing events, promotions, and software and subscription services.

Sales and marketing expenses also include sales commissions paid to our sales force and referral fees paid to independent third parties that are incremental to obtain a subscription contract.

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General and administrative expenses consist primarily of salaries, benefits, bonuses, stock-based compensation, and other expenses for our executive, finance, legal, people team, and facilities organizations.

General and administrative expenses also include external legal, accounting, other consulting, and professional services fees, software and subscription services, and other corporate expenses.

administrative expenses also include external legal, accounting, other consulting, and professional services fees, software and subscription services, and other corporate expenses.

We expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations, and professional services.

We expect that our general and administrative expenses will increase in absolute dollars as our business grows but will decrease as a percentage of our revenue over time.

Restructuring

Restructuring charges, related to the Plan, consist primarily of charges related to severance payments, employee benefits, stock-based compensation, and impairment charges related to excess facilities.

The actions associated with the Plan are expected to be fully complete by the end of fiscal 2025, subject to finalizing the disposition of certain office space.

Interest Income, Interest Expense, and Other Income (Expense), Net

Interest income consists primarily of interest earned on our cash equivalents and investments.

Interest expense consists primarily of the amortization of the discount related to Attivo indemnity escrow liability.

Other income (expense), net consists primarily of foreign currency transaction gains and losses.

Provision for Income Taxes

Provision for (benefit from) income taxes consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business and a one-time benefit from the release of valuation allowance as a result of the Attivo business combination.

In connection with our global consolidated losses, we maintain a full valuation allowance against our U.S.

and Israel deferred tax assets because we have concluded that it is more likely than not that the deferred tax assets will not be realized.

Interest expense consists primarily of the amortization of the discount related to the Attivo indemnity escrow liability.

Other income (expense), net consists primarily of foreign currency transaction gains and losses and gains and losses on strategic investments.

Provision for (Benefit From) Income Taxes

Provision for (benefit from) income taxes consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business, and a one-time benefit from the release of valuation allowance as a result of the Attivo acquisition during fiscal 2023.

In connection with our global consolidated losses, we maintain a full valuation allowance against our US and Israel deferred tax assets because we have concluded that it is more likely than not that the deferred tax assets will not be realized.

Results of Operations

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198,247 162,722 93,504

Restructuring (1)

Total operating expenses 820,289 680,578 390,354

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Interest expense (1,216) (1,830) (787)

Other expense, net (1,293) (2,280) (424)

Other income (expense), net

918 (1,293) (2,280)

Loss before income taxes (332,834) (384,291) (270,097)

Provision (benefit) for income taxes (5,613) 1,004 460

Provision for (benefit from) income taxes

5,859 (5,613) 1,004

Net loss $ (338,693) $ (378,678) $ (271,101)

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General and administrative 83,890 62,487 33,453

Restructuring

Total stock-based compensation expense $ 216,870 $ 164,466 $ 87,889

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General and administrative

Restructuring

Total operating expenses 132 161 191

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Interest expense — — —

Other expense, net — (1) —

Other income (expense), net

Loss before income taxes (54) (91) (132)

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Revenue $ 621,154 $ 422,179 $ 198,975 47 %

Revenue increased by $217.4 million, or 106%, from $204.8 million for fiscal 2022 to $422.2 million for fiscal 2023, which was primarily driven by a combination of the addition of new customers and the sale of additional endpoints and modules to existing customers.

In addition, there was an increase of $28.6 million derived from revenue resulting from the Attivo acquisition.

Revenue increased by $199.0 million, or 47%, from $422.2 million for fiscal 2023 to $621.2 million for fiscal 2024, primarily due to a combination of sales to new customers and sales of additional endpoints and modules to existing customers.

Cost of Revenue, Gross Profit, and Gross Margin

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Gross margin 71 % 66 %

Cost of revenue increased by $62.5 million from $81.7 million for fiscal 2022 to $144.2 million for fiscal 2023, primarily due to an increase of $26.4 million in overhead costs due to increase in our personnel to support overall growth, higher third-party cloud infrastructure expenses from increased data usage of $17.7 million, and an increase of $13.8 million from amortization of intangible assets.

Cost of revenue increased by $35.1 million from $144.2 million for fiscal 2023 to $179.3 million for fiscal 2024, primarily due to a $23.9 million increase in allocated customer support costs which were mostly personnel-related expenses, a $4.4 million increase in amortization of acquired intangible assets in connection with the Attivo acquisition, $3.0 million increase in amortization of capitalized internal use-software due to the continued investment in our platform, and $2.2 million increase in cloud hosting usage charges to support our expanding business.

Gross margin increased from 66% for fiscal 2023 to 71% for fiscal 2024, primarily due to revenue growth from existing and new customers outpacing growth in cost of revenue.

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Research and development expenses $ 218,176 $ 207,008 $ 11,168 5 %

Research and development expenses increased from $136.3 million in fiscal 2022 to $207.0 million in fiscal 2023, primarily due to an increase in personnel-related expenses of $45.7 million, including an increase of $15.7 million related to stock-based compensation expense as a result of increased headcount, an increase of $16.8 million in third-party cloud infrastructure expenses incurred in developing our platform and modules, and an increase of $6.1 million related to allocated overhead costs as a result of increased headcount.

Research and development expenses increased from $207.0 million in fiscal 2023 to $218.2 million in fiscal 2024, primarily due to an increase in personnel-related expenses of $29.1 million, including an increase of $9.3 million related to stock-based compensation expense as a result of increased headcount, partially offset by a decrease of $14.2 million incurred in the prior year as a result of the migration of Scalyr into our platform.

Sales and Marketing

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Sales and marketing expenses $ 397,160 $ 310,848 $ 86,312 28 %

Sales and marketing expenses increased from $160.6 million in fiscal 2022 to $310.8 million in fiscal 2023, primarily due to an increase in personnel-related expenses of $103.2 million, including an increase of $24.7 million in stock-based compensation expense as a result of increased headcount.

In addition, there was an increase of $17.4 million in marketing-related expenses, an increase of $9.6 million related to allocated overhead costs as a result of increased headcount, and the remaining increase is primarily a result of increased travel and entertainment expenses.

Sales and marketing expenses increased from $310.8 million in fiscal 2023 to $397.2 million in fiscal 2024, primarily due to an increase in personnel-related expenses of $56.9 million, including an increase of $15.7 million in stock-based compensation expense as a result of increased headcount and increase of $7.0 million in commission expense.

In addition, there were increases in marketing expenses of $14.5 million due to overall business growth and further investment in marketing activities, and increases in allocated overhead costs of $5.4 million.

General and Administrative

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General and administrative expenses $ 198,247 $ 162,722 $ 35,525 22 %

General and administrative expenses increased from $93.5 million in fiscal 2022 to $162.7 million in fiscal 2023, primarily due to an increase in personnel-related expenses of $57.0 million, including an increase of $29.0 million in stock-based compensation expense as a result of increased headcount.

In addition, there was an increase of $14.1 million in outside consulting services, legal, audit, tax and software subscription expenses.

General and administrative expenses increased from $162.7 million in fiscal 2023 to $198.2 million in fiscal 2024, primarily due to an increase in personnel-related expenses of $33.5 million, including an increase of $21.4 million in stock-based compensation expense as a result of increased headcount, and $9.7 million increase in litigation expenses due to settlements made during the period, partially offset by a $4.8 million decrease in office related expenditures.

Restructuring

Year Ended January 31, Change

2024 2023 $ %

(dollars in thousands)

Restructuring

$ 6,706 $ — $ 6,706 n/a

Restructuring charges increased by $6.7 million due to activities undertaken pursuant to the Plan.

This included severance and employee benefit charges of $5.4 million and impairment charges related to excess facilities of $2.4 million, partially offset by stock-based compensation savings of $1.1 million due to decreased headcount.

Interest Income, Interest Expense, and Other Income (Expense), Net

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Other income (expense), net $ 918 $ (1,293) $ 2,211 (171) %

Interest income increased $21.2 million as a result of interest earned on investments, which we did not have in fiscal year 2022.

Interest expense increased due to the amortization of the discount related to Attivo indemnity escrow liability.

The decrease in other expense, net is primarily due to net foreign currency exchange gains.

Provision for Income Taxes

Interest income increased $24.5 million as a result of higher interest rates on investments.

Interest expense decreased due to the amortization of the discount related to Attivo indemnity escrow liability through July 2023.

The change in other income (expense), net is primarily due to gains and losses on strategic investments, partially offset by net foreign currency exchange fluctuations.

Provision for (Benefit from) Income Taxes

Year Ended January 31, Change

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(dollars in thousands)

Provision (benefit) for income taxes $ (5,613) $ 1,004 $ (6,617) (659) %

The provision for income taxes decreased primarily as a result of the application of our deferred tax assets with a full valuation allowance to net deferred tax liability of Attivo acquired intangibles.

Provision for (benefit from) income taxes

$ 5,859 $ (5,613) $ 11,472 (204) %

The provision for income taxes increased in fiscal 2024, compared to fiscal 2023, primarily as a result of the increase in foreign taxes related to operations in international subsidiaries and a one-time tax benefit from the application of our deferred assets with a full valuation allowance to net deferred tax liability of Attivo acquired intangibles recorded in fiscal 2023.

In connection with the acquisition of Attivo, which closed in May 2022, we recorded a net deferred tax liability primarily attributable to identifiable acquired intangibles.

This net deferred tax liability is considered an additional source of income to support the realizability of our deferred tax asset, and as a result we released a portion of the valuation allowance and recorded a one-time discrete tax benefit of $9.7 million in fiscal 2023.

Liquidity and Capital Resources

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We did not pay any underwriting discounts or commissions with respect to shares that were sold in the private placement.

We have financed operations primarily through proceeds received from sales of equity securities, payments received from our customers, and borrowings under our loan and security agreement, and we have generated operating losses, as reflected in our accumulated deficit of $1,000.4 million and $621.7 million as of January 31, 2023 and 2022, respectively.

We expect these losses and operating losses to continue for the foreseeable future.

We have financed operations primarily through proceeds received from sales of equity securities, payments received from our customers, and borrowings under a now-terminated loan and security agreement, and we have generated operating losses, as reflected in our accumulated deficit of $1.3 billion and $1.0 billion as of January 31, 2024 and 2023, respectively.

We expect these and other operating losses to continue for the foreseeable future.

We also expect to incur significant research and development, sales and marketing, and general and administrative expenses over the next several years in connection with the continued development and expansion of our business.

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In the short term, we believe that our existing cash, cash equivalents, and investments will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months.

In the long term, our future capital requirements will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support research and development efforts, the price at which we are able to purchase third-party cloud infrastructure, expenses associated with our international expansion, the introduction of platform enhancements, and the continuing market adoption of our platform.

In the long term beyond the next 12 months, our future capital requirements will depend on many factors, including global

macroeconomic conditions, our revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support research and development efforts, the price at which we are able to purchase third-party cloud infrastructure, expenses associated with our international expansion, the introduction of platform enhancements, and the continuing market adoption of our platform.

We have, and in the future, we may enter into arrangements to acquire or invest in complementary businesses, products, and technologies.

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If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operating results, and financial condition.

On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which also appointed the FDIC as receiver.

While some of our cash, cash equivalents and short-term investments were held at SVB prior to its closure, in light of the FDIC’s announcement that depositors of the institution will be made whole, we currently have full access to these funds.

We hold our cash, cash equivalents, and investments with a diverse group of banking partners and, as a result, we have not experienced a material impact to our business as a result of SVB’s closure.

However, any instability in the global banking system may impact liquidity both in the short term and long term and may result in adverse impacts to our or our customers’ business, including in our customers’ ability to pay for our platform.

We hold our cash, cash equivalents, and investments with a diverse group of banking partners.

However, any instability in the US or global banking system or relating to the federal budget may impact liquidity both in the short term and long term and may result in adverse impacts to our or our customers’ business, including in our customers’ ability to pay for our platform.

The following table shows a summary of our cash flows for the periods presented:

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Net cash used in operating activities $ (68,374) $ (193,287) $ (95,588)

Net cash used in investing activities $ (1,312,666) $ (19,743) $ (6,265)

Net cash provided by (used in) investing activities

$ 140,590 $ (1,312,666) $ (19,743)

Net cash provided by financing activities $ 47,464 $ 36,308 $ 1,387,124

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Cash used in operating activities during fiscal 2024 was $68.4 million, primarily consisting of our net loss of $338.7 million, and $20.2 million used in net changes to our operating assets and liabilities, partially offset by non-cash items of $290.5 million.

The main drivers of the changes in operating assets and liabilities were a $81.0 million increase in deferred contract acquisition costs, a $61.9 million increase in accounts receivable due to timing of cash received from customers, and a $4.5 million decrease in accounts payable.

These amounts were partially offset by a $19.1 million increase in accrued payroll and benefits and a $108.2 million increase in deferred revenue resulting primarily from increased subscription contracts.

Cash used in operating activities during fiscal 2023 was $193.3 million, primarily consisting of our net loss of $378.7 million, and $35.4 million used in net changes to our operating assets and liabilities, partially offset by non-cash items of $220.8 million.

The main drivers of the changes in operating assets and liabilities were a $61.3 million increase in deferred contract acquisition costs, a $44.4 million increase in accounts receivable due to timing of cash received from customers, a $14.5 million increase in prepaid expenses and other assets primarily due to annual insurance renewal and prepaid sponsorship costs, and a $7.2 million decrease in accrued payroll and benefits.

These amounts were partially offset by a $92.5 million increase in deferred revenue resulting primarily from increased subscription contracts.

Cash used in operating activities during fiscal 2022 was $95.6 million, primarily consisting of our net loss of $271.1 million, adjusted for non-cash items of $119.9 million and net cash inflows of $55.6 million provided by changes in our operating assets and liabilities.

The main drivers of the changes in operating assets and liabilities were a $115.1 million increase in deferred revenue, resulting primarily from increased subscription contracts, a $41.5 million increase in accrued payroll and benefits due to increased headcount, a $24.2 million increase in accrued and other liabilities primarily due to net invoices received from vendors.

These amounts were partially offset by a $59.1 million increase in accounts receivable due to an increase in sales, a $53.6 million increase in deferred contract acquisition costs, a $7.3 million increase in prepaid expenses and other assets, primarily due to annual insurance renewal and prepaid sponsorship costs and a $2.1 million decrease in accounts payable due to timing of payments.

Investing Activities

Cash used in investing activities during fiscal 2023 was $1,312.7 million, consisting of $1,938.0 million of investment purchases, $281.0 million of net cash paid for the acquisition of Attivo, $13.5 million of capitalized

internal-use software costs, and $5.0 million of purchases of property and equipment to support additional office facilities, partially offset by $925.2 million of investment maturities.

Cash used in investing activities during fiscal 2022 was $19.7 million, consisting of $6.0 million of cash paid for purchases of strategic investments, $3.4 million of cash paid for the acquisition of Scalyr, $5.8 million of capitalized internal-use software costs, and $3.7 million of purchases of property and equipment to support additional office facilities.

Cash provided by investing activities during fiscal 2024 was $140.6 million, consisting of $639.2 million of investment sales and maturities, partially offset by $466.3 million of investment purchases, $14.0 million of capitalized internal-use software costs, $13.6 million of net cash paid for the KSG acquisition, $3.5 million for purchases of intangible assets, and $1.3 million of purchases of property and equipment to support additional office facilities.

Cash used in investing activities during fiscal 2023 was $1.3 billion, consisting of $1.9 billion of investment purchases, $281.0 million of net cash paid for the Attivo acquisition, $13.5 million of capitalized internal-use software costs, and $5.0 million of purchases of property and equipment to support additional office facilities, partially offset by $925.2 million of investment maturities.

Financing Activities

Cash provided by financing activities during fiscal 2023 was $36.3 million, consisting of $19.2 million of proceeds from the issuance of common stock under our 2021 Employee Stock Purchase Plan, $17.3 million of proceeds from the exercise of employee stock options, partially offset by $0.2 million of payments of deferred offering costs.

Cash provided by financing activities during fiscal 2022 was $1.4 billion, consisting of $1.4 billion of aggregate net proceeds from our IPO and the concurrent private placement completed in July 2021, net of underwriting discounts and commissions, $14.6 million of proceeds from the exercise of stock options, $11.4 million of proceeds from issuance of common stock under the ESPP, partially offset by a $20.0 million repayment of our revolving line of credit and $7.4 million of payments of deferred offering costs.

Cash provided by financing activities during fiscal 2024 was $47.5 million, consisting of $28.3 million of proceeds from the exercise of employee stock options and $19.1 million of proceeds from the issuance of common stock under our 2021 Employee Stock Purchase Plan.

Cash provided by financing activities during fiscal 2023 was $36.3 million, consisting of $19.2 million of proceeds from the issuance of common stock under our 2021 Employee Stock Purchase Plan, $17.3 million of proceeds from the exercise of stock options, partially offset by $0.2 million of payments of deferred offering costs.

Contractual Obligations and Commitments

Our operating lease obligations as of January 31, 2024 were approximately $25.2 million, with $5.6 million expected to be paid within 12 months and the remainder thereafter.

Our operating leases are related to leased facilities under operating lease agreements expiring through fiscal 2029.

We have office facility operating leases in the United States, the Czech Republic, France, Israel, United Arab Emirates, and other countries.

Our operating leases are related to leased office space with expirations through 2029.

See Note 8, Leases , to the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data.

Our purchase obligations as of January 31, 2024 were approximately $808.1 million, with $109.1 million expected to be paid within 12 months and the remainder thereafter.

Our purchase obligations primarily relate to a non-cancellable purchase commitment entered in February 2023 with our cloud infrastructure vendor for a total net value of $860.0 million over the next six years.

See Note 17 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding this subsequent event.

Off-Balance Sheet Arrangements

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Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP.

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles (GAAP) in the US.

The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures.

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Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers .

We recognize revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers .

We consider the terms and conditions of contracts with customers and our customary business practices in identifying contracts.

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Our contracts with customers may contain multiple performance obligations, which are accounted for separately if they are capable of being distinct and are distinct in the context of the contract.

Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on relative standalone selling price (SSP).

We apply judgment in determining SSP for our performance obligations.

To determine SSP, we maximize the use of observable standalone sales and observable data, where available.

In instances where performance obligations do not have observable standalone sales, we utilize available information that may include but is not limited to product groupings, or applying the expected cost-plus margin approach to estimate the price we would charge if the service was sold separately.

Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on relative standalone selling price.

Certain sales arrangements may include variable consideration, which is recorded as part of the transaction price if, in our judgment, it is probable that no significant future reversal of cumulative revenue under the contract will occur.

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Recently Issued Accounting Pronouncements

See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding recently issued accounting pronouncements.

See Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information regarding recently issued accounting pronouncements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis