Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. 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 About Forward-Looking Statements” in this Annual Report on Form 10-K. You should review the disclosure under the heading “Risk Factors” in this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
In addition to our results determined in accordance with GAAP, free cash flow, a non-GAAP financial measure, is included in the section titled “Key Business Metrics.” This non-GAAP financial measure is not meant to be considered in isolation or as a substitute for, or superior to, comparable GAAP financial measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our presentation of this non-GAAP financial measure may not be comparable to similar measures used by other companies. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP information and the GAAP-to-non-GAAP reconciliation included in the section titled “Key Business Metrics—Free Cash Flow,” to more fully understand our business.
Unless the context otherwise requires, all references in this report to “Snowflake,” the “Company,” “we,” “our,” “us,” or similar terms refer to Snowflake Inc. and its subsidiaries.
A discussion regarding our financial condition and results of operations for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021 is presented below. A discussion regarding our financial condition and results of operations for the fiscal year ended January 31, 2021 compared to the fiscal year ended January 31, 2020 can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021 filed with the SEC on March 31, 2021.
Overview
We believe in a data connected world where organizations have seamless access to explore, share, and unlock the value of data. To realize this vision, we deliver the Data Cloud, a network where Snowflake customers, partners, data providers, and data consumers can break down data silos and derive value from rapidly growing data sets in secure, governed, and compliant ways.
Our platform is the innovative technology that powers the Data Cloud, enabling customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data. We provide our platform through a customer-centric, consumption-based business model, only charging customers for the resources they use.
Our cloud-native architecture consists of three independently scalable but logically integrated layers across storage, compute, and cloud services. The storage layer ingests massive amounts and varieties of structured, semi-structured, and unstructured data to create a unified data record. The compute layer provides dedicated resources to enable users to simultaneously access common data sets for many use cases with minimal latency. The cloud services layer intelligently optimizes each use case’s performance requirements with no administration. This architecture is built on three major public clouds across 31 regional deployments around the world. These deployments are generally interconnected to deliver the Data Cloud, enabling a consistent, global user experience.
We generate the substantial majority of our revenue from fees charged to our customers based on the storage, compute, and data transfer resources consumed on our platform as a single, integrated offering. For storage resources, consumption fees are based on the average terabytes per month of all of the customer’s data stored in our platform. For compute resources, consumption fees are based on the type of compute resource used and the duration of use or, for some features, the volume of data processed. For data transfer resources, consumption fees are based on terabytes of data transferred, the public cloud provider used, and the region to and from which the transfer is executed.
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Our customers typically enter into capacity arrangements with a term of one to four years, or consume our platform under on-demand arrangements in which we charge for use of our platform monthly in arrears. Consumption for most customers accelerates from the beginning of their usage to the end of their contract terms and often exceeds their initial capacity commitment amounts. When this occurs, our customers have the option to amend their existing agreement with us to purchase additional capacity or request early renewals. When a customer’s consumption during the contract term does not exceed its capacity commitment amount, it may have the option to roll over any unused capacity to future periods, generally upon the purchase of additional capacity. For these reasons, we believe our deferred revenue is not a meaningful indicator of future revenue that will be recognized in any given time period.
Our go-to-market strategy is focused on acquiring new customers and driving continued use of our platform for existing customers. We primarily focus our selling efforts on large organizations and primarily sell our platform through a direct sales force, which targets technical and business leaders who are adopting a cloud strategy and leveraging data to improve their business performance. Our sales force is comprised of sales development, inside sales, and field sales personnel and is segmented by the industry, size, and region of prospective customers. Once our platform has been adopted, we focus on increasing the migration of additional customer workloads to our platform to drive increased consumption, as evidenced by our net revenue retention rate of 178% and 168% as of January 31, 2022 and 2021, respectively. See the section titled “Key Business Metrics” for a definition of net revenue retention rate.
Our platform is used globally by organizations of all sizes across a broad range of industries. As of January 31, 2022, we had 5,944 total customers, increasing from 4,139 customers as of January 31, 2021. Our platform has been adopted by many of the world’s largest organizations that view Snowflake as a key strategic partner in their cloud and data transformation initiatives. As of January 31, 2022, our customers included 241 of the Fortune 500, based on the 2021 Fortune 500 list, and 488 of the Global 2000, based on the 2021 Forbes Global 2000 list, and those customers contributed approximately 26% and 40% of our revenue, respectively, for the fiscal year ended January 31, 2022. Each of our Fortune 500 and Global 2000 customer counts is subject to adjustments for annual updates to the Fortune 500 list by Fortune and to the Global 2000 list by Forbes, respectively, as well as acquisitions, consolidations, spin-offs, and other market activity with respect to such customers.
Initial Public Offering, Private Placements, and Elimination of Dual-Class Common Stock Structure
In September 2020, we completed our IPO and certain concurrent private placements that closed immediately subsequent to the closing of the IPO. On March 1, 2021, all shares of our then-outstanding Class B common stock were automatically converted into the same number of shares of Class A common stock pursuant to the terms of our amended and restated certificate of incorporation. No additional shares of Class B common stock will be issued following such conversion. See Note 11, “Equity,” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
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Key Factors Affecting Our Performance
Adoption of our Platform and Expansion of the Data Cloud
Our future success depends in large part on the market adoption of our platform. While we see growing demand for our platform, particularly from large enterprises, many of these organizations have invested substantial technical, financial, and personnel resources in their legacy database products or big data offerings, despite their inherent limitations. While this makes it difficult to predict customer adoption rates and future demand, we believe that the benefits of our platform put us in a strong position to capture the significant market opportunity ahead.
Our platform powers the Data Cloud, a network of data providers, data consumers, and data application developers that enables our customers to securely share, connect, collaborate, monetize, and acquire live data sets. Our future growth will be increasingly dependent on our ability to increase consumption of our platform by building and expanding the Data Cloud.
Expanding Within our Existing Customer Base
Our large base of customers represents a significant opportunity for further consumption of our platform. While we have seen a rapid increase in the number of customers that have contributed more than $1 million in product revenue in the trailing 12 months, we believe that there is a substantial opportunity to continue growing these customers further, as well as continuing to expand the usage of our platform within our other existing customers. We plan to continue investing to encourage increased consumption and adoption of new use cases among our existing customers.
Once deployed, our customers often expand their use of our platform more broadly within the enterprise and across their ecosystem of customers and partners as they migrate more data to the public cloud, identify new use cases, and realize the benefits of our platform and the Data Cloud. However, because we generally recognize product revenue on consumption and not ratably over the term of the contract, we do not have visibility into the timing of revenue recognition from any particular customer. In any given period, there is a risk that customer consumption of our platform will be slower than we expect, which may cause fluctuations in our revenue and results of operations. New software releases or hardware improvements, like better storage compression and cloud infrastructure processor improvements, may make our platform more efficient, enabling customers to consume fewer compute, storage, and data transfer resources to accomplish the same workloads. To the extent these improvements do not result in an offsetting increase in new workloads, we may experience lower revenue. Our ability to increase usage of our platform by, and sell additional contracted capacity to, existing customers, and, in particular, large enterprise customers, will depend on a number of factors, including our customers’ satisfaction with our platform, competition, pricing, overall changes in our customers’ spending levels, the effectiveness of our and our partners’ efforts to help our customers realize the benefits of our platform, and the extent to which customers migrate new workloads to our platform over time.
Acquiring New Customers
We believe there is a substantial opportunity to further grow our customer base by continuing to make significant investments in sales and marketing and brand awareness. Our ability to attract new customers will depend on a number of factors, including our success in recruiting and scaling our sales and marketing organization, competitive dynamics in our target markets, and our ability to build and maintain partner relationships, including with global system integrators, resellers, and technology partners. We intend to expand our direct sales force, with a focus on specific industries and increasing sales to large organizations. While our platform is built for organizations of all sizes, we focus our selling efforts on large enterprise customers and customers with vast amounts of data, and providing industry-specific solutions. We may not achieve anticipated revenue growth from expanding our sales force to focus on large enterprises and specific industries if we are unable to hire, develop, integrate, and retain talented and effective sales personnel; if our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time; or if our sales and marketing programs are not effective.
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Investing in Growth and Scaling our Business
We are focused on our long-term revenue potential. We believe that our market opportunity is large, and we will 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 features and capabilities on our platform, and we intend to continue to invest heavily to grow our business to take advantage of our expansive market opportunity rather than optimize for profitability or cash flow in the near future.
Key Business Metrics
We monitor the key business metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. The calculation of the key business metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors.
The following tables present a summary of key business metrics for the periods presented:
Fiscal Year Ended January 31,
2022 2021 2020
Product revenue (in millions) $ 1,140.5 $ 553.8 $ 252.2
Free cash flow (non-GAAP) (in millions) (1)
$ 81.2 $ (85.7) $ (199.4)
January 31, 2022 January 31, 2021 January 31, 2020
Remaining performance obligations (in millions) (2)
$ 2,646.5 $ 1,332.8 $ 426.3
Total customers 5,944 4,139 2,392
Net revenue retention rate 178 % 168 % 169 %
Customers with trailing 12-month product revenue greater than $1 million 184 77 41
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(1) Free cash flow for the fiscal years ended January 31, 2022, 2021, and 2020 included the effect of $68.6 million, $14.1 million, and $0.2 million, respectively, in the net cash paid on payroll tax-related items on employee stock transactions. See the section titled “Free Cash Flow” for a reconciliation of free cash flow to the most directly comparable financial measure calculated in accordance with GAAP.
(2) As of January 31, 2022, our remaining performance obligations were approximately $2.6 billion, of which we expect approximately 52% to be recognized as revenue in the twelve months ending January 31, 2023 based on historical customer consumption patterns. The weighted-average remaining life of our capacity contracts was 2.1 years as of January 31, 2022. However, the amount and timing of revenue recognition are generally driven by customers' consumption, which is inherently variable at our customers’ discretion and can extend beyond the original contract term in cases where customers are permitted to roll over unused capacity to future periods, generally upon the purchase of additional capacity at renewal. In addition, our historical customer consumption patterns are not necessarily indicative of future results.
Product Revenue
Product revenue is a key metric for us because we recognize revenue based on platform consumption, which is inherently variable at our customers’ discretion, and not based on the amount and duration of contract terms. Product revenue is primarily derived from the consumption of compute, storage, and data transfer resources, which are consumed by customers on our platform as a single, integrated offering. Customers have the flexibility to consume more than their contracted capacity during the contract term and may have the ability to roll over unused capacity to future periods, generally upon the purchase of additional capacity at renewal. Our consumption-based business model distinguishes us from subscription-based software companies that generally recognize revenue ratably over the contract term and may not permit rollover. Because customers have flexibility in the timing of their consumption, which can exceed their contracted capacity or extend beyond the original contract term in many cases, the amount of product revenue recognized in a given period is an important indicator of customer satisfaction and the value derived from our platform. While customer use of our platform in any period is not necessarily indicative of future use, we estimate future revenue using predictive models based on customers’ historical usage to plan and determine financial forecasts. Product revenue excludes our professional services and other revenue, which has been less than 10% of revenue for each of the periods presented.
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Remaining Performance Obligations
Remaining performance obligations (RPO) represent the amount of contracted future revenue that has not yet been recognized, including (i) deferred revenue, and (ii) non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods. RPO excludes performance obligations from on-demand arrangements and certain time and materials contracts that are billed in arrears. Portions of RPO that are not yet invoiced and are denominated in foreign currencies are revalued into USD each period based on the applicable period-end exchange rates. RPO is not necessarily indicative of future product revenue growth because it does not account for the timing of customers’ consumption or their consumption of more than their contracted capacity. Moreover, RPO is influenced by a number of factors, including the timing of renewals, the timing of purchases of additional capacity, average contract terms, seasonality, and the extent to which customers are permitted to roll over unused capacity to future periods, generally upon the purchase of additional capacity at renewal. Due to these factors, it is important to review RPO in conjunction with product revenue and other financial metrics disclosed elsewhere herein.
Total Customers
We count the total number of customers at the end of each period. For purposes of determining our customer count, we treat each customer account, including accounts for end-customers under a reseller arrangement, that has at least one corresponding capacity contract as a unique customer, and a single organization with multiple divisions, segments, or subsidiaries may be counted as multiple customers. For purposes of determining our customer count, we do not include customers that consume our platform only under on-demand arrangements. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity. We believe that the number of customers is an important indicator of the growth of our business and future revenue trends.
Net Revenue Retention Rate
We believe the growth in use of our platform by our existing customers is an important measure of the health of our business and our future growth prospects. We monitor our dollar-based net revenue retention rate to measure this growth. To calculate this metric, we first specify a measurement period consisting of the trailing two years from our current period end. Next, we define as our measurement cohort the population of customers under capacity contracts that used our platform at any point in the first month of the first year of the measurement period. Starting with the fiscal quarter ended October 31, 2021, the cohorts used to calculate net revenue retention rate include end-customers under a reseller arrangement. Although the impact is not material, we have adjusted all prior periods presented to reflect this inclusion. We then calculate our net revenue retention rate as the quotient obtained by dividing our product revenue from this cohort in the second year of the measurement period by our product revenue from this cohort in the first year of the measurement period. Any customer in the cohort that did not use our platform in the second year remains in the calculation and contributes zero product revenue in the second year. Our net revenue retention rate is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity. Since we will continue to attribute the historical product revenue to the consolidated contract, consolidation of capacity contracts within a customer’s organization typically will not impact our net revenue retention rate unless one of those customers was not a customer at any point in the first month of the first year of the measurement period. Although our net revenue retention rate has increased over the periods presented above, we expect our net revenue retention rate to decrease over the long-term as customers that have consumed our platform for an extended period of time become a larger portion of both our overall customer base and our product revenue that we use to calculate net revenue retention rate, and as their consumption growth primarily relates to existing use cases rather than new use cases.
Customers with Trailing 12-Month Product Revenue Greater than $1 Million
Large customer relationships lead to scale and operating leverage in our business model. Compared with smaller customers, large customers present a greater opportunity for us to sell additional capacity because they have larger budgets, a wider range of potential use cases, and greater potential for migrating new workloads to our platform over time. As a measure of our ability to scale with our customers and attract large enterprises to our platform, we count the number of customers under capacity arrangements that contributed more than $1 million in product revenue in the trailing 12 months. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity.
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Free Cash Flow
We define free cash flow, a non-GAAP financial measure, as GAAP net cash provided by (used in) operating activities reduced by purchases of property and equipment and capitalized internal-use software development costs. We believe information regarding free cash flow provides useful supplemental information to investors because it is an indicator of the strength and performance of our core business operations.
The following table presents a reconciliation of free cash flow to net cash provided by (used in) operating activities, the most directly comparable financial measure calculated in accordance with GAAP, for the periods presented (in millions):
Fiscal Year Ended January 31,
2022 2021 2020
Net cash provided by (used in) operating activities $ 110.2 $ (45.4) $ (176.6)
Less: purchases of property and equipment (16.2) (35.0) (18.6)
Less: capitalized internal-use software development costs (12.8) (5.3) (4.3)
Free cash flow (non-GAAP) (1)
$ 81.2 $ (85.7) $ (199.4)
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(1) Free cash flow for the fiscal years ended January 31, 2022, 2021, and 2020 included the effect of $68.6 million, $14.1 million, and $0.2 million, respectively, in the net cash paid on payroll tax-related items on employee stock transactions.
Historically, we have received a higher volume of orders from new and existing customers in the fourth fiscal quarter of each year. As a result, we have historically seen higher collections and consequently higher free cash flow in the first and fourth fiscal quarters of each year.
Impact of COVID-19
The ongoing COVID-19 pandemic has caused general business disruption worldwide beginning in January 2020. The full extent to which the COVID-19 pandemic, including any new variants, may continue to directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. Although our results of operations, cash flows, and financial condition were not materially adversely impacted in the fiscal year ended January 31, 2022, we have experienced, and may continue to experience, an adverse impact on certain parts of our business as a result of governmental restrictions and other measures to mitigate the spread of COVID-19, including a lengthening of the sales cycle for some prospective customers and delays in the delivery of professional services and trainings to our customers. We have also experienced, and may continue to experience, a modest positive impact on other aspects of our business, including a continued decrease in certain operating expenses due to the virtualization or cancellation of customer, partner, and employee events. While these modest impacts had a short-term benefit to our results of operations for the fiscal year ended January 31, 2022, we do not yet have visibility into the full impact this will have on our business. We cannot predict how long we will continue to experience these impacts as regulations and other measures are expected to change over time, and the availability, efficacy, and acceptance of vaccines or other preventative measures remains unclear. However, if our customers or partners experience downturns or uncertainty in their own business operations or revenue resulting from the spread or resurgence of COVID-19, they may decrease or delay their spending, request pricing discounts, or seek renegotiations of their contracts, any of which may result in decreased revenue and cash receipts for us in future periods. In addition, we may experience customer losses, including due to bankruptcy or our customers ceasing operations, which may result in an inability to collect accounts receivable from these customers.
In addition, in response to the spread of COVID-19, we required virtually all of our employees to work remotely to minimize the risk of the virus to our employees and the communities in which we operate, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and business partners. Although we have recently opened most of our offices for voluntary use and we expect many of our employees to return to physical offices in the future, the nature and extent of that return is uncertain. As our offices reopen, we expect to incur incremental expenses as we resume onsite services and related in-office costs. Given the uncertainty regarding the length, severity, and ability to combat the COVID-19 pandemic, we cannot reasonably estimate the long-term impact on our future results of operations, cash flows, or financial condition. For additional details, see the section titled “Risk Factors.”
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Components of Results of Operations
Revenue
We deliver our platform over the internet as a service. Customers choose to consume our platform under either capacity arrangements, in which they commit to a certain amount of consumption at specified prices, or under on-demand arrangements, in which we charge for use of our platform monthly in arrears. Under capacity arrangements, from which a majority of our revenue is derived, we typically bill our customers annually in advance of their consumption. However, in future periods, we expect to see an increase in capacity contracts providing for quarterly upfront billings and monthly in arrears billings as our customers increasingly want to align consumption and timing of payments. Revenue from on-demand arrangements typically relates to initial consumption as part of customer onboarding and, to a lesser extent, overage consumption beyond a customer’s contracted usage amount or following the expiration of a customer’s contract. Revenue from on-demand arrangements represented 3%, 4%, and 4% of the Company’s revenue for the fiscal years ended January 31, 2022, 2021, and 2020, respectively.
We recognize revenue as customers consume compute, storage, and data transfer resources under either of these arrangements. In limited instances, customers pay an annual deployment fee to gain access to a dedicated instance of a virtual private deployment. We recognize the deployment fee ratably over the contract term. Such deployment revenue represented approximately 1% of our revenue for all periods presented.
Our customer contracts for capacity typically have a term of one to four years. The weighted-average term of capacity contracts entered into during the fiscal year ended January 31, 2022 is 2.4 years. To the extent our customers enter into such contracts and either consume our platform in excess of their capacity commitments or continue to use our platform after expiration of the contract term, they are charged for their incremental consumption. In many cases, our customer contracts permit customers to roll over any unused capacity to a subsequent order, generally upon the purchase of additional capacity. For those customers who do not have a capacity arrangement, our on-demand arrangements generally have a monthly stated contract term and can be terminated at any time by either the customer or us.
We generate the substantial majority of our revenue from fees charged to our customers based on the storage, compute, and data transfer resources consumed on our platform as a single, integrated offering. We do not make any one of these resources available for consumption without the others. Instead, each of compute, storage, and data transfer work together to drive consumption on our platform. For storage resources, consumption for a given customer is based on the average terabytes per month of all of such customer’s data stored in our platform. For compute resources, consumption is based on the type of compute resource used and the duration of use or, for some features, the volume of data processed. For data transfer resources, consumption is based on terabytes of data transferred, the public cloud provider used, and the region to and from which the transfer is executed.
Because customers have flexibility in their consumption, and we generally recognize revenue on consumption and not ratably over the term of the contract, we do not have the visibility into the timing of revenue recognition from any particular customer contract that typical subscription-based software companies may have. As our customer base grows, we expect our ability to forecast customer consumption in the aggregate to improve. However, in any given period, there is a risk that customers will consume our platform more slowly than we expect, which may cause fluctuations in our revenue and results of operations. In addition, new software releases or hardware improvements, like better storage compression and cloud infrastructure processor improvements, may make our platform more efficient, enabling customers to consume fewer compute, storage, and data transfer resources to accomplish the same workloads. To the extent these improvements do not result in an offsetting increase in new workloads, we may experience lower revenue.
Our revenue also includes professional services and other revenue, which consists primarily of consulting, on-site technical solution services, and training related to our platform. Our professional services revenue is recognized over time based on input measures, including time and materials costs incurred relative to total costs, with consideration given to output measures, such as contract deliverables, when applicable. Other revenue consists primarily of fees from customer training delivered on-site or through publicly available classes.
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Allocation of Overhead Costs
Overhead costs that are not substantially dedicated for use by a specific functional group are allocated based on headcount. Such costs include costs associated with office facilities, depreciation of property and equipment, and information technology (IT) related personnel and other expenses, such as software and subscription services.
Cost of Revenue
Cost of revenue consists of cost of product revenue and cost of professional services and other revenue. Cost of revenue also includes allocated overhead costs.
Cost of product revenue . Cost of product revenue consists primarily of (i) third-party cloud infrastructure expenses incurred in connection with our customers’ use of our platform and the deployment and maintenance of our platform on public clouds, including different regional deployments, and (ii) personnel-related costs associated with customer support and maintaining service availability and security of our platform, including salaries, benefits, bonuses, and stock-based compensation. We periodically receive credits from third-party cloud providers that are recorded as a reduction to the third-party cloud infrastructure expenses. Cost of product revenue also includes amortization of internal-use software development costs, amortization of acquired developed technology intangible assets, and expenses associated with software and subscription services dedicated for use by our customer support team and our engineering team responsible for maintaining our platform.
Cost of professional services and other revenue . Cost of professional services and other revenue consists primarily of personnel-related costs associated with our professional services and training departments, including salaries, benefits, bonuses, and stock-based compensation, and costs of contracted third-party partners and software tools.
We intend to continue to invest additional resources in our platform infrastructure and our customer support and professional services organizations to support the growth of our business. Some of these investments, including certain support costs and costs of expanding our business internationally, are incurred in advance of generating revenue, and either the failure to generate anticipated revenue or fluctuations in the timing of revenue could affect our gross margin from period to period.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation, and sales commissions. Operating expenses also include allocated overhead costs.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related expenses associated with our sales and marketing staff, including salaries, benefits, bonuses, and stock-based compensation. Sales and marketing expenses also include sales commissions and draws paid to our sales force and certain referral fees paid to third parties, including amortization of deferred commissions. A portion of the sales commissions paid to the sales force is earned based on the rate of the customers’ consumption of our platform, and a portion of the commissions paid to the sales force is earned upon the origination of the customer contracts. Sales commissions tied to customers’ consumption are expensed in the same period as they are earned. Sales commissions and referral fees earned upon the origination of the new customer or customer expansion contracts are deferred and then amortized over a period of benefit that we determined to be five years. Prior to the fiscal year ended January 31, 2021, we primarily amortized sales commissions over a period of benefit that we determined to be five years as they were earned on new customer or expansion of existing customer contracts. Sales and marketing expenses also include advertising costs and other expenses associated with our marketing and business development programs, including Summit, our user conference, offset by proceeds from such conferences and programs. In addition, sales and marketing expenses are comprised of travel-related expenses, software and subscription services dedicated for use by our sales and marketing organizations, and outside services contracted for sales and marketing purposes. We expect that our sales and marketing expenses will increase in absolute dollars and continue to be our largest operating expense for the foreseeable future as we grow our business. However, we expect that our sales and marketing expenses will decrease as a percentage of our revenue over time.
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Research and Development
Research and development expenses consist primarily of personnel-related expenses associated with our research and development staff, including salaries, benefits, bonuses, and stock-based compensation. Research and development expenses also include contractor or professional services fees, third-party cloud infrastructure expenses incurred in developing our platform, and expenses associated with computer equipment, software and subscription services dedicated for use by our research and development organization. We expect that our research and development expenses will increase in absolute dollars as our business grows, particularly as we incur additional costs related to continued investments in our platform. However, we expect that our research and development expenses will decrease as a percentage of our revenue over time. In addition, research and development expenses that qualify as internal-use software development costs are capitalized, the amount of which may fluctuate significantly from period to period.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses for our finance, legal, human resources, facilities, and administrative personnel, including salaries, benefits, bonuses, and stock-based compensation. General and administrative expenses also include external legal, accounting, and other professional services fees, software and subscription services dedicated for use by our general and administrative functions, insurance and other corporate expenses.
As a result of our IPO, we have incurred and expect to continue to incur additional expenses to operate as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations, and professional services. We expect that our general and administrative expenses will increase in absolute dollars as our business grows but will decrease as a percentage of our revenue over time.
Interest Income
Interest income consists primarily of interest income earned on our cash equivalents and short-term and long-term investments, including amortization of premiums and accretion of discounts related to our available-for-sale marketable securities, net of associated fees.
Other Income (Expense), Net
Other income (expense), net consists primarily of (i) unrealized gains (losses) on our strategic investments in equity securities, and (ii) the effect of exchange rates on our foreign currency-denominated asset and liability balances.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists primarily of income taxes in certain foreign and U.S. state jurisdictions in which we conduct business. We maintain a full valuation allowance against our U.S. and U.K. deferred tax assets because we have concluded that it is more likely than not that the deferred tax assets will not be realized.
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Results of Operations
The following table sets forth our consolidated statements of operations data for the periods indicated (in thousands):
Fiscal Year Ended January 31,
2022 2021 2020
Revenue $ 1,219,327 $ 592,049 $ 264,748
Cost of revenue (1)
458,433 242,588 116,557
Gross profit 760,894 349,461 148,191
Operating expenses (1) :
Sales and marketing 743,965 479,317 293,577
Research and development 466,932 237,946 105,160
General and administrative 265,033 176,135 107,542
Total operating expenses 1,475,930 893,398 506,279
Operating loss (715,036) (543,937) (358,088)
Interest income 9,129 7,507 11,551
Other income (expense), net 28,947 (610) (1,005)
Loss before income taxes (676,960) (537,040) (347,542)
Provision for income taxes 2,988 2,062 993
Net loss $ (679,948) $ (539,102) $ (348,535)
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(1) Includes stock-based compensation as follows (in thousands):
Fiscal Year Ended January 31,
2022 2021 2020
Cost of revenue $ 87,336 $ 33,642 $ 3,650
Sales and marketing 185,970 97,879 20,757
Research and development 232,867 99,223 15,743
General and administrative 98,922 70,697 38,249
Total stock-based compensation $ 605,095 $ 301,441 $ 78,399
The increase in stock-based compensation for the fiscal year ended January 31, 2022, compared to the fiscal year ended January 31, 2021, was primarily due to additional RSUs granted to current and new employees and an increased weighted-average grant-date fair value of RSUs granted after our IPO. As of January 31, 2022, total compensation cost related to unvested stock-based awards not yet recognized was $1.4 billion, which will be recognized over a weighted-average period of 3.0 years. See Note 11, “Equity,” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
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The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated:
Fiscal Year Ended January 31,
2022 2021 2020
Revenue 100 % 100 % 100 %
Cost of revenue (1)
38 41 44
Gross profit 62 59 56
Operating expenses (1) :
Sales and marketing 61 81 111
Research and development 38 40 40
General and administrative 22 30 41
Total operating expenses 121 151 192
Operating loss (59) (92) (136)
Interest income 1 1 4
Other income (expense), net 2 — —
Loss before income taxes (56) (91) (132)
Provision for income taxes — — —
Net loss (56%) (91%) (132%)
________________
(1) Stock-based compensation included in the table above as a percentage of revenue as follows:
Fiscal Year Ended January 31,
2022 2021 2020
Cost of revenue 7 % 6 % 1 %
Sales and marketing 15 17 8
Research and development 19 17 6
General and administrative 9 11 15
Total stock-based compensation 50 % 51 % 30 %
Comparison of the Fiscal Years Ended January 31, 2022 and 2021
Revenue
Fiscal Year Ended January 31,
2022 2021 % Change
(dollars in thousands)
Revenue:
Product $ 1,140,469 $ 553,794 106%
Professional services and other 78,858 38,255 106%
Total $ 1,219,327 $ 592,049 106%
Percentage of revenue:
Product 94% 94%
Professional services and other 6% 6%
Total 100% 100%
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Product revenue increased $586.7 million for the fiscal year ended January 31, 2022, compared to the prior fiscal year, primarily due to increased consumption of our platform by existing customers, as evidenced by our net revenue retention rate of 178% as of January 31, 2022. The increase in product revenue was also driven by an increase in capacity sales prices of approximately 4% for the fiscal year ended January 31, 2022, compared to the prior fiscal year, primarily due to increased sales of higher-priced editions of our platform. We had 184 customers with product revenue of greater than $1 million for the trailing 12 months ended January 31, 2022, an increase from 77 customers as of January 31, 2021. Such customers represented approximately 56% and 47% of our product revenue for the trailing 12 months ended January 31, 2022 and 2021, respectively. Within these customers, we had 30 and 9 customers with product revenue of greater than $5 million and $10 million, respectively, for the trailing 12 months ended January 31, 2022.
Approximately 93% and 89% of our revenue was derived from existing customers under capacity arrangements for the fiscal years ended January 31, 2022 and 2021, respectively. Revenue derived from new customers under capacity arrangements represented approximately 4% and 7% of our revenue for the fiscal years ended January 31, 2022 and 2021, respectively. The remainder was driven by on-demand arrangements. As described in the section titled “Impact of COVID-19,” we have experienced impacts from the ongoing COVID-19 pandemic, including the elongation of sales cycles, that may impact new customer acquisition, the timing of future revenue recognition, and our future growth rates. We continue to carefully monitor the impact of COVID-19 on product revenue, customer acquisitions, and net revenue retention rates.
Professional services and other revenue increased $40.6 million for the fiscal year ended January 31, 2022. compared to the prior fiscal year, as we expanded our professional services organization to help our customers further realize the benefits of our platform.
Cost of Revenue, Gross Profit (Loss), and Gross Margin
Fiscal Year Ended January 31,
2022 2021 % Change
(dollars in thousands)
Cost of revenue:
Product $ 347,817 $ 193,835 79%
Professional services and other 110,616 48,753 127%
Total cost of revenue $ 458,433 $ 242,588 89%
Gross profit (loss):
Product $ 792,652 $ 359,959 120%
Professional services and other (31,758) (10,498) 203%
Total gross profit $ 760,894 $ 349,461 118%
Gross margin:
Product 70 % 65%
Professional services and other (40 %) (27%)
Total gross margin 62 % 59%
Headcount (at period end)
Product 243 154
Professional services and other 348 185
Total headcount 591 339
Cost of product revenue increased $154.0 million for the fiscal year ended January 31, 2022, compared to the prior fiscal year, primarily due to an increase of $99.3 million in third-party cloud infrastructure expenses as a result of increased customer consumption. Personnel-related costs and allocated overhead costs also increased $49.7 million for the fiscal year ended January 31, 2022, compared to the prior fiscal year, as a result of increased headcount and overall costs to support the growth in our business, and increased stock-based compensation related to additional RSUs granted after our IPO.
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Our product gross margin was 70% for the fiscal year ended January 31, 2022, compared to 65% for the prior fiscal year, primarily due to (i) higher volume-based discounts for our purchases of third-party cloud infrastructure, (ii) an increased percentage of revenue from consumption of computing resources due to better storage compression, (iii) an increased percentage of revenue from consumption of higher-priced editions of our platform, and (iv) increased scale across our cloud infrastructure regions, partially offset by the increase in stock-based compensation. While we expect our product gross margin to remain relatively flat for the fiscal year ending January 31, 2023, a number of factors could hinder any improvement in our product gross margin, including (i) fluctuations in the mix and timing of customers' consumption, which is inherently variable at our customers' discretion, (ii) whether or not a customer contracts with us through our marketplace listings, (iii) our discounting practices, including as a result of changes to the competitive environment, and (iv) the extent of our investments in our operations, including performance improvements that may make our platform or the underlying cloud infrastructure more efficient.
Cost of professional services and other revenue increased $61.9 million for the fiscal year ended January 31, 2022, compared to the prior fiscal year, primarily due to an increase of $59.3 million in personnel-related costs and allocated overhead costs, as a result of increased headcount and overall costs to support the growth in our business, and increased stock-based compensation primarily related to additional RSUs granted after our IPO.
Professional services and other gross margins declined significantly for the fiscal year ended January 31, 2022, compared to the prior fiscal year, primarily due to the increase in stock-based compensation. We do not believe the year-over-year changes in professional services and other gross margins are meaningful given that we are continuing to scale our professional services organization and our professional services and other revenue represents a small percentage of our revenue.
Sales and Marketing
Fiscal Year Ended January 31,
2022 2021 % Change
(dollars in thousands)
Sales and marketing $ 743,965 $ 479,317 55%
Percentage of revenue 61 % 81 %
Headcount (at period end) 1,891 1,257
Sales and marketing expenses increased $264.6 million for the fiscal year ended January 31, 2022, compared to the prior fiscal year, primarily due to an increase of $208.7 million in personnel-related costs (excluding commission expenses) and allocated overhead costs, as a result of increased headcount and overall costs to support the growth in our business, and increased stock-based compensation primarily related to additional RSUs granted after our IPO. Expenses associated with sales commissions and draws paid to our sales force and certain referral fees paid to third parties, including amortization of deferred commissions, increased $34.3 million for the fiscal year ended January 31, 2022, compared to the prior fiscal year, primarily due to increases in customers’ consumption of our platform and in bookings.
The remaining increase in sales and marketing expenses was driven by an increase of $16.6 million in advertising costs and other expenses associated with our marketing programs and an increase of $6.0 million in software and subscription services for the fiscal year ended January 31, 2022 compared to the prior fiscal year.
Research and Development
Fiscal Year Ended January 31,
2022 2021 % Change
(dollars in thousands)
Research and development $ 466,932 $ 237,946 96%
Percentage of revenue 38 % 40 %
Headcount (at period end) 788 478
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Research and development expenses increased $229.0 million for the fiscal year ended January 31, 2022, compared to the prior fiscal year, primarily due to an increase of $202.9 million in personnel-related costs and allocated overhead costs, as a result of increased headcount and overall costs to support the growth in our business, and increased stock-based compensation primarily related to additional RSUs granted after our IPO, partially offset by increased capitalized internal-use software development costs. The remaining increase in research and development expenses was primarily driven by an increase of $16.7 million in third-party cloud infrastructure expenses incurred in developing our platform.
General and Administrative
Fiscal Year Ended January 31,
2022 2021 % Change
(dollars in thousands)
General and administrative $ 265,033 $ 176,135 50%
Percentage of revenue 22 % 30 %
Headcount (at period end) 722 421
General and administrative expenses increased $88.9 million for the fiscal year ended January 31, 2022, compared to the prior fiscal year, primarily due to an increase of $75.0 million in personnel-related costs and allocated overhead costs as a result of increased headcount and overall costs to support the growth in our business, and increased stock-based compensation primarily related to additional RSUs granted after our IPO. The remaining increase in general and administrative expenses was attributable to increased insurance expenses and other corporate expenses to support the normal course of operating as a public company and our continued growth.
Other Income (Expense), Net
Fiscal Year Ended January 31,
2022 2021 % Change
(dollars in thousands)
Net unrealized gains on strategic investments in equity securities $ 27,621 $ — NM
Other 1,326 (610) (317%)
Other income (expense), net $ 28,947 $ (610) NM
NM - Not meaningful.
Other income (expense), net increased $29.6 million for the fiscal year ended January 31, 2022, compared to the prior fiscal year, primarily due to net unrealized gains on our strategic investments in equity securities recorded during the fiscal year ended January 31, 2022.
Provision for Income Taxes
Fiscal Year Ended January 31,
2022 2021 % Change
(dollars in thousands)
Loss before income taxes $ (676,960) $ (537,040) 26 %
Provision for income taxes 2,988 2,062 45 %
Effective tax rate (0.4%) (0.4%)
We maintain a full valuation allowance on our U.S. and U.K. deferred tax assets, and the significant components of our recorded tax expense are current cash taxes in various jurisdictions. The cash tax expenses are impacted by each jurisdiction’s individual tax rates, laws on the timing of recognition of income and deductions, and availability of net operating losses and tax credits. Our effective tax rate might fluctuate significantly and could be adversely affected to the extent earnings are lower than forecasted in countries that have lower statutory rates and higher than forecasted in countries that have higher statutory rates.
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Liquidity and Capital Resources
Since inception, we have financed operations primarily through proceeds received from sales of equity securities and payments received from our customers as further detailed below.
Our IPO resulted in aggregate net proceeds of $3.7 billion, after underwriting discounts of $121.7 million. We also received aggregate proceeds of $500.0 million related to certain concurrent private placements, and did not pay any underwriting discounts or commissions with respect to the shares that were sold in these private placements.
As of January 31, 2022, our principal sources of liquidity were cash, cash equivalents, and short-term and long-term investments totaling $5.1 billion. Our investments primarily consist of corporate notes and bonds, commercial paper, money market funds, U.S. government and agency securities, and certificates of deposit.
As of January 31, 2022, our RPO was $2.6 billion. Our RPO represents the amount of contracted future revenue that has not yet been recognized, including (i) deferred revenue, and (ii) non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods, which are not recorded on the balance sheet. Portions of RPO that are not yet invoiced and are denominated in foreign currencies are revalued into USD each period based on the applicable period-end exchange rates.
Our primary uses of cash include personnel-related expenses, sales and marketing expenses, third-party cloud infrastructure expenses, overhead costs and capital expenditures. As of January 31, 2022, our material cash requirements from known contractual obligations and commitments relate primarily to (i) third-party cloud infrastructure agreements, (ii) operating leases for office facilities, and (iii) subscription arrangements used to facilitate our operations at the enterprise level. These agreements are enforceable and legally binding and specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. For more information regarding our contractual obligations and commitments as of January 31, 2022, see Note 9, “Commitments and Contingencies,” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Our long-term purchase commitments may be satisfied earlier than the payment periods presented as we continue to grow and scale our business.
In the three months ending April 30, 2022, we began funding withholding taxes in certain jurisdictions due on the vesting of employee RSUs by net share settlement, rather than our previous approach of selling shares of our common stock to cover taxes upon vesting of such awards. In future periods, this change in withholding method is expected to reduce (i) net cash provided by financing activities and (ii) our shares outstanding used to calculate net income (loss) per share. The amount of withholding taxes related to net share settlement of employee RSUs is approximately $54 million for the three months ending April 30, 2022.
In March 2022, we entered into an agreement to acquire all outstanding capital stock of Streamlit, Inc., a privately-held company which provides a framework built to simplify and accelerate the creation of data applications, for approximately $800 million (Deal Consideration), net of acquired cash and cash equivalents and subject to customary purchase price adjustments. Upon completion of the acquisition, which is subject to customary closing conditions and expected to occur in the three months ending April 30, 2022, the Deal Consideration will be paid in a combination of cash and unregistered shares of our common stock.
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We believe that our existing cash, cash equivalents, and short-term and long-term investments will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. For the period beyond the next 12 months, we believe we will be able to meet our working capital and capital expenditure needs from our existing cash, cash equivalents, and short-term and long-term investments and cash flows from our operating activities. Our future capital requirements will depend on many factors, including our revenue growth rate, expenditures related to our headcount growth, 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 price at which we are able to purchase public cloud capacity, expenses associated with our international expansion, the introduction of platform enhancements, and the continuing market adoption of our platform. We may continue to enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may, as a result of those arrangements or the general expansion of our business, 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, results of operations, and financial condition.
The following table shows a summary of our cash flows for the periods presented (in thousands):
Fiscal Year Ended January 31,
2022 2021 2020
Net cash provided by (used in) operating activities $ 110,179 $ (45,417) $ (176,558)
Net cash provided by (used in) investing activities $ (20,800) $ (4,036,645) $ 138,495
Net cash provided by financing activities $ 178,198 $ 4,775,290 $ 57,469
Operating Activities
Net cash provided by operating activities mainly consists of our net loss adjusted for certain non-cash items, primarily consisting of (i) stock-based compensation, net of amounts capitalized, (ii) net amortization (accretion) of premiums (discounts) on investments, (iii) amortization of deferred commissions, (iv) amortization of operating lease right-of-use assets, (v) net unrealized gains on strategic investments in equity securities, and (vi) depreciation of property and equipment and amortization of acquired intangible assets, and changes in operating assets and liabilities during each period.
For the fiscal year ended January 31, 2022, net cash provided by operating activities was $110.2 million, primarily consisting of our net loss of $679.9 million, adjusted for non-cash charges of $721.7 million, and net cash inflows of $68.4 million provided by changes in our operating assets and liabilities. The main drivers of the changes in operating assets and liabilities during the fiscal year ended January 31, 2022 were (i) a $526.2 million increase in deferred revenue due to invoicing for prepaid capacity agreements outpacing revenue recognition, and (ii) a $79.8 million increase in accrued expenses and other liabilities primarily due to increased headcount and growth in our business, partially offset by (a) a $251.7 million increase in accounts receivable primarily due to growth in our business, (b) a $159.2 million increase in prepaid expenses and other assets primarily driven by increased prepaid third-party cloud infrastructure expenses, (c) a $95.9 million increase in deferred commissions earned on bookings, and (d) a $38.2 million decrease in operating lease liabilities due to payments related to our operating lease obligations.
For the fiscal year ended January 31, 2021, net cash used in operating activities was $45.4 million, primarily consisting of our net loss of $539.1 million, adjusted for non-cash charges of $386.8 million, and net cash inflows of $106.9 million provided by changes in our operating assets and liabilities, net of the effect of a business combination.
Net cash provided by operating activities was $110.2 million for the fiscal year ended January 31, 2022, compared to the net cash used in operating activities of $45.4 million for the fiscal year ended January 31, 2021, primarily due to an increase of $724.4 million in cash collected from customers resulting from increased sales. This was partially offset by increased expenditures due to an increase in headcount and growth in our business. We expect to continue to generate positive net cash flows from operating activities for the fiscal year ending January 31, 2023.
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Investing Activities
Net cash used in investing activities for the fiscal year ended January 31, 2022 was $20.8 million, primarily as a result of purchases of investments, purchases of intangible assets, purchases of property and equipment to support our office facilities, and capitalized internal-use software development costs, partially offset by proceeds from the sales, maturities and redemptions of investments.
Net cash used in investing activities for the fiscal year ended January 31, 2021 was $4.0 billion, primarily as a result of net purchases of investments, and to a lesser extent, purchases of property and equipment to support existing and additional office facilities, purchases of intangible assets, cash paid for a business combination, and capitalized internal-use software development costs.
Financing Activities
Net cash provided by financing activities for the fiscal year ended January 31, 2022 was $178.2 million, primarily as a result of proceeds from the issuance of equity securities under our equity incentive plans.
Net cash provided by financing activities for the fiscal year ended January 31, 2021 was $4.8 billion, primarily as a result of $4.2 billion of aggregate net proceeds from our IPO and the concurrent private placements completed in September 2020, net of underwriting discounts, as well as $532.1 million in proceeds from the issuance of equity securities.
Critical Accounting Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. By their nature, these estimates and assumptions are subject to an inherent degree of uncertainty and actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
The significant accounting policies and methods used in the preparation of our consolidated financial statements are discussed in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We believe that the accounting policy and estimate described below involves a substantial degree of judgment and complexity and therefore is the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Revenue Recognition
See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information regarding our significant accounting policies over revenue recognition.
Many of our contracts with customers include multiple performance obligations. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price (SSP) basis. We consider our evaluation of SSP to be a critical accounting estimate. An observable SSP is established based on the price at which a service is sold separately. If an SSP is not observable through past transactions, we estimate it by maximizing the use of observable inputs, including the overall pricing strategy, market data, internally approved pricing guidelines related to the performance obligations, and other observable inputs. As our business and offerings evolve over time, modifications to our pricing and discounting methodologies, changes in the scope and nature of our offerings, and/or changes in customer segmentation may result in a lack of consistency, making it difficult to establish and/or maintain SSP. Changes in SSP could result in different and unanticipated allocations of revenue in contracts with multiple performance obligations. These factors, among others, may adversely impact the amount of revenue and gross margin we report in a given period.
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Recently Issued Accounting Pronouncements
See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies," to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.
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