SNOWFLAKE INC. 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, and (2) our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the fiscal year endedJanuary 31, 2022 included in the Annual Report on Form 10-K filed with theU.S. Securities and Exchange Commission (SEC) onMarch 30, 2022 . 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 Quarterly Report on Form 10-Q. You should review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. In addition to our results determined in accordance withU.S. generally accepted accounting principles (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 unaudited condensed 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
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 36 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 171% and 176% as ofJuly 31, 2022 andJanuary 31, 2022 , 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 ofJuly 31, 2022 , we had 6,808 total customers, increasing from 5,965 customers as ofJanuary 31, 2022 . Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity, and we present our total customer count for historical periods reflecting these adjustments. 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 ofJuly 31, 2022 , our customers included 510 of the Forbes Global 2000, based on the 2022 Forbes Global 2000 list, and those customers contributed approximately 41% of our revenue for the six months endedJuly 31, 2022 . Our Forbes Global 2000 customer count is subject to adjustments for annual updates to the Global 2000 list by Forbes, as well as acquisitions, consolidations, spin-offs, and other market activity with respect to such customers, and we present our Forbes Global 2000 customer count for historical periods reflecting these adjustments.
OnMarch 31, 2022 , we acquired all outstanding stock ofStreamlit, Inc. (Streamlit), a privately-held company which provides an open-source framework for creating and deploying data applications. The acquisition date fair value of the purchase consideration was$650.8 million , which was comprised of$211.8 million in cash and 1.9 million shares of our Class A common stock valued at$438.9 million as of the acquisition date. In addition, we issued to Streamlit's three founders a total of 0.4 million shares of our Class A common stock in exchange for a portion of their Streamlit stock. These shares are subject to vesting agreements pursuant to which the shares will vest over three years, subject to each founder's continued employment with us. The$93.7 million fair value of these shares are accounted for as post-combination stock-based compensation over the requisite service period of three years. The results of operations attributable to Streamlit fromMarch 31, 2022 , the date of acquisition, have been included in our condensed consolidated statements of operations for the three and six months endedJuly 31, 2022 . See Note 7, "Business Combination, Intangible Assets, andGoodwill ," and Note 10, "Equity," to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for details regarding this transaction and the post-combination stock-based compensation.
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.
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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 with, monetize, and acquire live data sets. The Data Cloud includes access toSnowflake Marketplace , through which customers can access or acquire third-party data sets and other data products. 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 an 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, general economic conditions, 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 continue expanding 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.
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 while also focusing on profitability and cash flow.
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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:
Three Months Ended
July 31, 2022 April 30, 2022 January 31, 2022 October 31, 2021 July 31, 2021
Product revenue (in millions) $466.3 $394.4 $359.6 $312.5 Free cash flow (non-GAAP) (in millions)(1)(2)$53.8 $172.4 $70.7 $9.5 ($12.0 ) July 31, 2022 April 30, 2022 January 31, 2022 October 31, 2021 July 31, 2021 Remaining performance obligations (in millions)(3)$2,715.7 $2,610.0 $2,646.5 $1,804.0 $1,528.7 Total customers(4) 6,808 6,332 5,965 5,430 4,996 Net revenue retention rate(4) 171 % 174 % 176 % 171 % 169 % Customers with trailing 12-month product revenue greater than$1 million (4) 246 206 184 148 116 ________________
(1)Includes net cash paid on payroll tax-related items on employee stock transactions as follows (in millions):
Three Months Ended
July 31, 2022 April 30, 2022 January 31, 2022 October 31, 2021 July 31, 2021
Net cash paid on payroll
tax-related items on
employee stock transactions $4.8 $9.0 $31.4 $12.1 $14.8 (2)Cash outflows for employee payroll tax items related to the net share settlement of equity awards, which were$30.9 million and$84.1 million for the three and six months endedJuly 31, 2022 , respectively, are included in cash flow for financing activities and, as a result, do not have an effect on the calculation of free cash flow. No equity awards were net settled prior to the six months endedJuly 31, 2022 . 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. (3)As ofJuly 31, 2022 , our remaining performance obligations were approximately$2.7 billion , of which we expect approximately 57% to be recognized as revenue in the twelve months endingJuly 31, 2023 based on historical customer consumption patterns. The weighted-average remaining life of our capacity contracts was 1.9 years as ofJuly 31, 2022 . However, the amount and timing of revenue recognition are generally dependent upon customers' future 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. (4)Historical total customer count, net revenue retention rate, and number of customers with trailing 12-month product revenue greater than$1 million reflect any adjustments for acquisitions, consolidations, spin-offs, and other market activity. 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. 37
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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, changes in foreign currency exchange rates, 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, and we present our total customer count for historical periods reflecting these adjustments. 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 endedOctober 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, and we present our net revenue retention rate for historical periods reflecting these adjustments. 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. 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. 38
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Customers with Trailing 12-Month Product Revenue Greater than
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, and we present our customer count for historical periods reflecting these adjustments.
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. Cash outflows
for employee payroll tax items related to the net share settlement of equity
awards are included in cash flow for financing activities and, as a result, do
not have an effect on the calculation of free cash flow. 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 thousands):
Three Months Ended
July 31, 2022 April 30, 2022 January 31, 2022 October 31, 2021 July 31, 2021
Net cash provided by (used in)
operating activities $ 64,433 $ 184,613 $ 78,898 $ 15,538
(3,848) (7,413) (4,012) (2,282) (3,497)
Less: capitalized internal-use
software development costs (6,736) (4,804) (4,160) (3,788) (2,344)
Free cash flow (non-GAAP)(1)(2)
$ 70,726 $ 9,468
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(1)Includes net cash paid on payroll tax-related items on employee stock transactions as follows (in thousands):
Three Months Ended
July 31, 2022 April 30, 2022 January 31, 2022 October 31, 2021 July 31, 2021
Net cash paid on payroll
tax-related items on
employee stock transactions $ 4,796 $ 9,045 $ 31,378 $ 12,058 $ 14,764
(2)Cash outflows for employee payroll tax items related to the net share
settlement of equity awards, which were $30.9 million and $84.1 million for the
three and six months ended July 31, 2022 , respectively, are included in cash
flow for financing activities and, as a result, do not have an effect on the
calculation of free cash flow. No equity awards were net settled prior to the
six months ended July 31, 2022 .
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 free cash flow in the first and fourth fiscal quarters
of each year.
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Impact of COVID-19
The ongoing COVID-19 pandemic has caused general business disruption worldwide beginning inJanuary 2020 . The full extent to which the COVID-19 pandemic, including any new variants, may continue to directly or indirectly impact general market conditions or our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. For example, 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 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 near future, the nature and extent of that return is uncertain. We also cancelled certain of our marketing events or adjusted those events to be virtual or include both an in-person and virtual experience. As our offices reopen and we resume in-person events, we expect to continue to incur incremental expenses in connection with onsite services, incur related in-office and event costs, and manage fluctuating in-person regulations and restrictions. Given the uncertainty regarding the length, severity, and ability to continue 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, but we will continue to monitor any actual and potential impacts on our business and the business of our customers. For additional details, see the section titled "Risk Factors."
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 approximately 2% of the Company's revenue for each of the three and six months endedJuly 31, 2022 and 2021. 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 less than 1% of our revenue for each of the three and six months endedJuly 31, 2022 and 2021. 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 three and six months endedJuly 31, 2022 is 2.1 years and 2.0 years, respectively. 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. 40
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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. 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.
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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. Sales and marketing expenses also include advertising costs and other expenses associated with our marketing and business development programs, including Summit, our annual 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, amortization of acquired developer community intangible asset, 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. 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, unallocated lease costs associated with unused office facilities to accommodate planned headcount growth, and other corporate expenses. 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 debt 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.
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Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists primarily of income taxes in certain foreign andU.S. state jurisdictions in which we conduct business. We maintain a full valuation allowance against ourU.S. andU.K. 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
The following table sets forth our condensed consolidated statements of operations data for the periods indicated (in thousands):
Three Months Ended July 31, Six Months Ended July 31,
2022 2021 2022 2021
Revenue $ 497,248 $ 272,198 $ 919,619 $ 501,112
Cost of revenue(1) 173,232 106,121 321,162 203,467
Gross profit 324,016 166,077 598,457 297,645
Operating expenses(1):
Sales and marketing 274,645 182,903 518,557 349,707
Research and development 183,748 118,087 334,546 227,883
General and administrative 73,355 65,228 141,852 125,791
Total operating expenses 531,748 366,218 994,955 703,381
Operating loss (207,732) (200,141) (396,498) (405,736)
Interest income 11,692 2,190 16,451 4,802
Other income (expense), net (22,920) 8,746 (31,401) 8,258
Loss before income taxes (218,960) (189,205) (411,448) (392,676)
Provision for (benefit from) income
taxes 3,846 514 (22,848) 263
Net loss $ (222,806) $ (189,719) $ (388,600) $ (392,939)
________________(1)Includes stock-based compensation as follows (in thousands):
Three Months Ended July 31, Six Months Ended July 31,
2022 2021 2022 2021
Cost of revenue $ 26,070 $ 22,114 $ 48,705 $ 45,217
Sales and marketing 60,162 52,336 112,631 98,389
Research and development 96,897 62,827 170,490 118,646
General and administrative 26,052 26,714 49,848 52,753
Total stock-based compensation
The overall increase in stock-based compensation for the three and six months endedJuly 31, 2022 , compared to the three and six months endedJuly 31, 2021 , was primarily attributable to additional equity awards granted to current and new employees, partially offset by a decrease in stock-based compensation associated with restricted stock unit awards (RSUs) granted prior to our Initial Public Offering (IPO). RSUs granted prior to our IPO have both a service-based and a performance-based vesting condition and, as a result, we recognized stock-based compensation associated with such RSUs using an accelerated attribution method. As ofJuly 31, 2022 , total compensation cost related to unvested stock-based awards not yet recognized was$2.4 billion , which will be recognized over a weighted-average period of 3.2 years. See Note 10, "Equity," to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details. 43
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The following table sets forth our condensed consolidated statements of
operations data expressed as a percentage of revenue for the periods indicated:
Three Months Ended July 31, Six Months Ended July 31,
2022 2021 2022 2021
Revenue 100 % 100 % 100 % 100 %
Cost of revenue(1) 35 39 35 41
Gross profit 65 61 65 59
Operating expenses(1):
Sales and marketing 55 68 57 70
Research and development 37 43 36 45
General and administrative 15 24 15 25
Total operating expenses 107 135 108 140
Operating loss (42) (74) (43) (81)
Interest income 2 1 2 1
Other income (expense), net (4) 3 (3) 2
Loss before income taxes (44) (70) (44) (78)
Provision for (benefit from) income
taxes 1 - (2) -
Net loss (45%) (70%) (42%) (78%)
________________(1)Stock-based compensation included in the table above as a percentage of revenue as follows:
Three Months Ended July 31, Six Months Ended July 31,
2022 2021 2022 2021
Cost of revenue 5 % 8 % 5 % 9 %
Sales and marketing 12 19 12 20
Research and development 20 23 20 24
General and administrative 5 10 5 10
Total stock-based compensation 42 % 60 % 42 % 63 %
Comparison of the Three and Six Months Ended
Revenue
Three Months Ended July 31, Six Months Ended July 31,
2022 2021 % Change 2022 2021 % Change
(dollars in thousands) (dollars in thousands)
Revenue:
Product $ 466,268 $ 254,623 83% $ 860,702 $ 468,453 84%
Professional services and
other 30,980 17,575 76% 58,917 32,659 80%
Total $ 497,248 $ 272,198 83% $ 919,619 $ 501,112 84%
Percentage of revenue:
Product 94 % 94 % 94% 93%
Professional services and
other 6 % 6 % 6% 7%
Total 100 % 100% 100% 100%
Product revenue increased $211.6 million and $392.2 million for the three and
six months ended July 31, 2022 , compared to the three and six months ended
July 31, 2021 , respectively, primarily due to increased consumption of our
platform by existing customers, as evidenced by our net revenue retention rate
of 171% as of July 31, 2022 . The increase in product revenue was also driven by
an increase in capacity sales prices of approximately 1% and 2% for the three
and six months ended July 31, 2022 , respectively, compared to the same periods
in the prior year, primarily due to increased sales of higher-priced editions of
our platform.
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We had 246 customers with product revenue of greater than$1 million for the trailing 12 months endedJuly 31, 2022 , an increase from 116 customers as ofJuly 31, 2021 . Such customers represented approximately 59% and 51% of our product revenue for the trailing 12 months endedJuly 31, 2022 and 2021, respectively. Within these customers, we had 45 and 12 customers with product revenue of greater than$5 million and$10 million , respectively, for the trailing 12 months endedJuly 31, 2022 . Approximately 97% of our revenue for each of the three and six months endedJuly 31, 2022 was derived from existing customers under capacity arrangements, compared to 97% and 96% for the same periods in the prior year, respectively. Approximately 1% of our revenue for each of the three and six months endedJuly 31, 2022 was derived from new customers under capacity arrangements, compared to 1% and 2% for the same periods in the prior year, respectively. The remainder was driven by on-demand arrangements. The preceding historical metrics reflect any adjustments for acquisitions, consolidations, spin-offs, and other market activity. For purposes of determining revenue derived from (i) customers with trailing 12-month product revenue greater than$1 million , (ii) new customers, and (iii) existing customers, 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. Professional services and other revenue increased$13.4 million and$26.3 million for the three and six months endedJuly 31, 2022 , respectively, compared to the same periods in the prior year, as we continued to expand our professional services organization to help our customers further realize the benefits of our platform.
Cost of Revenue, Gross Profit (Loss), and Gross Margin
Three Months Ended July 31, Six Months Ended July 31,
2022 2021 % Change 2022 2021 % Change
(dollars in thousands) (dollars in thousands)
Cost of revenue:
Product $ 131,606 $ 81,048 62% $ 243,017 $ 153,128 59%
Professional services and
other 41,626 25,073 66% 78,145 50,339 55%
Total cost of revenue $ 173,232 $ 106,121 63% $ 321,162 $ 203,467 58%
Gross profit (loss):
Product $ 334,662 $ 173,575 93% $ 617,685 $ 315,325 96%
Professional services and
other (10,646) (7,498) 42% (19,228) (17,680) 9%
Total gross profit $ 324,016 $ 166,077 95% $ 598,457 $ 297,645 101%
Gross margin:
Product 72 % 68% 72% 67%
Professional services and
other (34 %) (43%) (33%) (54%)
Total gross margin 65 % 61% 65% 59%
Headcount (at period end)
Product 295 194 295 194
Professional services and
other 427 251 427 251
Total headcount 722 445 722 445
Cost of product revenue increased $50.6 million and $89.9 million for the three
and six months ended July 31, 2022 , compared to the three and six months ended
July 31, 2021 , respectively. The increase was primarily due to an increase of
$42.3 million and $75.1 million in third-party cloud infrastructure expenses as
a result of increased customer consumption for the three and six months ended
July 31, 2022 , respectively, compared to the same periods in the prior year.
Personnel-related costs and allocated overhead costs also increased $5.9 million
and $10.6 million for the three and six months ended July 31, 2022 ,
respectively, compared to the same periods in the prior year, as a result of
increased headcount and overall costs to support the growth in our business.
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Our product gross margin was 72% for each of the three and six months endedJuly 31, 2022 , compared to 68% and 67% for the three and six months endedJuly 31, 2021 , respectively, primarily due to (i) an increased percentage of revenue from consumption of higher-priced editions of our platform, (ii) increased scale across our cloud infrastructure regions, and (iii) higher volume-based discounts for our purchases of third-party cloud infrastructure. While we expect our product gross margin to remain relatively flat for the fiscal year endingJanuary 31, 2023 , a number of factors could negatively impact 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$16.6 million and$27.8 million for the three and six months endedJuly 31, 2022 , compared to the three and six months endedJuly 31, 2021 , respectively. The increase was primarily due to an increase of$13.5 million and$22.5 million in personnel-related costs and allocated overhead costs for the three and six months endedJuly 31, 2022 , respectively, compared to the same periods in the prior year, as a result of increased headcount and overall costs to support the growth in our business. Costs associated with contracted third-party partners also increased$2.6 million and$4.4 million for the three and six months endedJuly 31, 2022 , respectively, compared to the same periods in the prior year, as a result of growth in our business. Professional services and other gross margins improved for each of the three and six months endedJuly 31, 2022 , compared to the same periods in the prior year, primarily due to decreased stock-based compensation as a percentage of professional services and other revenue. We do not believe the year-over-year changes in professional services and other gross margins are meaningful given that we are continuing to scale our professional services organization and our professional services and other revenue represents a small percentage of our revenue. Sales and Marketing Three Months Ended July 31, Six Months Ended July 31, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) (dollars in thousands) Sales and marketing$ 274,645 $ 182,903 50%$ 518,557 $ 349,707 48% Percentage of revenue 55 % 68 % 57 % 70 % Headcount (at period end) 2,417 1,570 2,417 1,570 Sales and marketing expenses increased$91.7 million and$168.9 million for the three and six months endedJuly 31, 2022 , compared to the three and six months endedJuly 31, 2021 , respectively. The increase was primarily due to an increase of$52.4 million and$97.8 million in personnel-related costs (excluding commission expenses) and allocated overhead costs for the three and six months endedJuly 31, 2022 , respectively, compared to the same periods in the prior year, 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 equity awards granted to current and new employees, partially offset by a decrease in stock-based compensation related to RSUs granted prior to 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, also increased$9.6 million and$19.7 million for the three and six months endedJuly 31, 2022 , respectively, compared to the same periods in the prior year, primarily due to increases in customers' consumption of our platform and in the value of bookings. Advertising costs and other expenses associated with our marketing and business development programs, including Summit, our in-person annual user conference which was held virtually in the prior year due to the COVID-19 pandemic, also increased$13.2 million and$24.4 million for the three and six months endedJuly 31, 2022 , respectively, compared to the same periods in the prior year. Expenses associated with Summit, net of the associated proceeds, increased$8.4 million and$10.5 million for the three and six months endedJuly 31, 2022 , respectively, compared to the same periods in the prior year. In addition, sales and marketing expenses for the three and six months endedJuly 31, 2022 included$7.6 million and$10.1 million of amortization of acquired developer community intangible assets, respectively, as a result of the Streamlit business combination completed inMarch 2022 . 46
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The remaining increase in sales and marketing expenses was attributable to increased travel-related expenses, and software and subscription services dedicated for use by our sales and marketing organizations.
Research and Development
Three Months Ended July 31, Six Months Ended July 31,
2022 2021 % Change 2022 2021 % Change
(dollars in thousands) (dollars in thousands)
Research and development $ 183,748 $ 118,087 56% $ 334,546 $ 227,883 47%
Percentage of revenue 37 % 43 % 36 % 45 %
Headcount (at period end) 1,007 642 1,007 642
Research and development expenses increased $65.7 million and $106.7 million for
the three and six months ended July 31, 2022 , compared to the three and six
months ended July 31, 2021 , respectively. The increase was primarily due to an
increase of $55.2 million and $89.7 million in personnel-related costs and
allocated overhead costs for the three and six months ended July 31, 2022 ,
respectively, compared to the same periods in the prior year, as a result of
increased headcount and overall costs to support the growth in our business. The
increase in personnel-related costs included an increase of $34.1 million and
$51.8 million in stock-based compensation for the three and six months ended
July 31, 2022 , respectively, primarily related to additional equity awards
granted to current and new employees and the post-combination stock-based
compensation related to the Streamlit business combination, partially offset by
a decrease in stock-based compensation related to RSUs granted prior to our IPO.
See Note 10, "Equity," to our condensed consolidated financial statements
included elsewhere in this Quarterly Report on Form 10-Q for further details.
The remaining increase in research and development expenses was primarily driven
by an increase of $6.2 million and $10.0 million in third-party cloud
infrastructure expenses incurred in developing our platform for the three and
six months ended July 31, 2022 , respectively, compared to the same periods in
the prior year.
General and Administrative
Three Months Ended July 31, Six Months Ended July 31,
2022 2021 % Change 2022 2021 % Change
(dollars in thousands) (dollars in thousands)
General and administrative $ 73,355 $ 65,228 12% $ 141,852 $ 125,791 13%
Percentage of revenue 15 % 24 % 15 % 25 %
Headcount (at period end) 845 603 845 603
General and administrative expenses increased $8.1 million and $16.1 million for
the three and six months ended July 31, 2022 , compared to the three and six
months ended July 31, 2021 , respectively. The increase was partially due to an
increase of $2.5 million and $6.1 million in personnel-related costs (excluding
stock-based compensation) and allocated overhead costs for the three and six
months ended July 31, 2022 , respectively, compared to the same periods in the
prior year, as a result of increased headcount and overall costs to support the
growth in our business. Unallocated lease costs associated with unused office
facilities to accommodate planned headcount growth increased $2.0 million and
$3.3 million for the three and six months ended July 31, 2022 , respectively,
compared to the same periods in the prior year. The remaining increase in
general and administrative expenses for the three and six months ended July 31,
2022 , respectively, compared to the same periods in the prior year, was
attributable to increased insurance expenses and other corporate expenses to
support the normal course of operations and our continued growth, and increased
legal fees primarily related to the Streamlit business combination.
The overall increase in general and administrative expenses for the six months
ended
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Other Income (Expense), Net
Three Months Ended July 31, Six Months Ended July 31,
2022 2021 % Change 2022 2021 % Change
(dollars in thousands) (dollars in thousands)
Net unrealized gains (losses)
on strategic investments in
non-marketable equity:
Upward adjustments $ - $ 8,060 NM $ - $ 8,060 NM
Impairments (26,555) - NM (26,555) - NM
Net unrealized gains (losses)
on strategic investments in
marketable equity securities 3,382 - NM (5,477) - NM
Other 253 686 (63 %) 631 198 219 %
Other income (expense), net $ (22,920) $ 8,746 (362 %) $ (31,401) $ 8,258 (480 %)
NM - Not meaningful.
Other income (expense), net decreased $31.7 million and $39.7 million for the
three and six months ended July 31, 2022 , compared to the three and six months
ended July 31, 2021 , respectively, primarily as a result of the impairments of
$26.6 million recorded on our non-marketable equity securities during the three
and six months ended July 31, 2022 . See Note 5, "Fair Value Measurements," to
our condensed consolidated financial statements included elsewhere in this
Quarterly Report on Form 10-Q for further details.
Provision for (Benefit from) Income Taxes
Three Months Ended July 31, Six Months Ended July 31,
2022 2021 % Change 2022 2021 % Change
(dollars in thousands) (dollars in thousands)
Loss before income taxes $ (218,960) $ (189,205) 16 %$ (411,448) $ (392,676) 5 % Provision for (benefit from) income taxes 3,846 514 648 % (22,848) 263 NM Effective tax rate (1.8%) (0.3%) 5.6 % (0.1%) NM - Not meaningful. Our provision for income taxes was$3.8 million for the three months endedJuly 31, 2022 , compared to$0.5 million for the three months endedJuly 31, 2021 , primarily due to higher pre-tax income in foreign jurisdictions. Our benefit from income taxes was$22.8 million for the six months endedJuly 31, 2022 , compared to our provision for income taxes of$0.3 million for the six months endedJuly 31, 2021 , primarily due to the partial release of a valuation allowance of$26.7 million as a result of the Streamlit business combination. We maintain a full valuation allowance on ourU.S. andU.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.
Liquidity and Capital Resources
As ofJuly 31, 2022 , our principal sources of liquidity were cash, cash equivalents, and short-term and long-term investments totaling$5.0 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. 48
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As ofJuly 31, 2022 , our RPO was$2.7 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 source of cash is payments received from our customers. Our primary uses of cash include personnel-related expenses, sales and marketing expenses, third-party cloud infrastructure expenses, overhead costs, capital expenditures, and acquisitions and strategic investments we may make from time to time. As ofJuly 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. For the six months endedJuly 31, 2022 , there were no material changes outside of the ordinary course of business in our commitments and contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2022 , which was filed with theSEC onMarch 30, 2022 . See Note 9, "Commitments and Contingencies," to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional details. OnMarch 31, 2022 , we acquired all outstanding stock of Streamlit. A portion of the purchase consideration was paid in cash, which amounted to$177.9 million , net of$33.9 million cash and cash equivalents acquired. During the six months endedJuly 31, 2022 , we began funding withholding taxes due upon the vesting of employee RSUs in certain jurisdictions by net share settlement, rather than our previous approach of selling shares of our common stock to cover taxes upon vesting of such awards. The amount of withholding taxes paid related to net share settlement of employee RSUs was$30.9 million and$84.1 million for the three and six months endedJuly 31, 2022 , respectively. InMay 2022 , we entered into an agreement related to the expansion and lease term extension of an existing office facility located inthe United States , which is considered a lease modification not accounted for as a separate contract. The modified lease commenced during the three months endedJuly 31, 2022 , with an expiration date in fiscal 2035. Total commitment, net of tenant incentives expected to be received, under the modified lease is$68.0 million . InAugust 2022 , we entered into an agreement to acquire all outstanding stock of Applica Sp. z.o.o. (Applica), for approximately$175 million in cash, subject to customary purchase price adjustments. The acquisition is expected to close in the three months endingOctober 31, 2022 , subject to certain closing conditions. 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. 49
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The following table shows a summary of our cash flows for the periods presented
(in thousands):
Six Months Ended July 31,
2022 2021
Net cash provided by operating activities $ 249,046 $ 15,743
Net cash used in investing activities $ (386,239) $ (228,031)
Net cash provided by (used in) financing activities $ (34,219) $ 92,263
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 unrealized gains or losses on
strategic investments in equity securities, (iii) amortization of deferred
commissions, (iv) depreciation and amortization of property and equipment and
amortization of acquired intangible assets, (v) amortization of operating lease
right-of-use assets, (vi) net amortization of premiums or accretion of discounts
on investments, and (vii) deferred income tax benefit or expense, and changes in
operating assets and liabilities during each period.
For the six months ended July 31, 2022 , net cash provided by operating
activities was $249.0 million , primarily consisting of our net loss of $388.6
million , adjusted for non-cash charges of $476.3 million , and net cash inflows
of $161.3 million provided by changes in our operating assets and liabilities,
net of the effects of a business combination. The main drivers of the changes in
operating assets and liabilities during the six months ended July 31, 2022 were
(i) a $239.6 million decrease in accounts receivable due to timing of billings
and collections as we have historically received a higher volume of customer
orders in the fourth fiscal quarter of each year, and (ii) a $10.5 million
increase in accrued expenses and other liabilities primarily due to the timing
of accruals and payments, partially offset by (a) a $39.9 million increase in
deferred commissions earned on bookings, (b) a $28.2 million increase in prepaid
expenses and other assets primarily driven by increased prepaid third-party
cloud infrastructure expenses, and (c) a $18.2 million decrease in operating
lease liabilities due to payments related to our operating lease obligations.
For the six months ended July 31, 2021 , net cash provided by operating
activities was $15.7 million , primarily consisting of our net loss of $392.9
million , adjusted for non-cash charges of $379.3 million , and net cash inflows
of $29.3 million provided by changes in our operating assets and liabilities.
Net cash provided by operating activities increased $233.3 million for the six
months ended July 31, 2022 , compared to the six months ended July 31, 2021 ,
primarily due to an increase of $547.4 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 .
Investing Activities
Net cash used in investing activities for the six months endedJuly 31, 2022 was$386.2 million , primarily as a result of net purchases of investments, cash paid for a business combination, net of cash and cash equivalents acquired and, to a lesser extent, capitalized internal-use software development costs and purchases of property and equipment to support our office facilities. Net cash used in investing activities for the six months endedJuly 31, 2021 was$228.0 million , primarily as a result of net purchases of investments and, to a lesser extent, purchases of intangible assets, purchases of property and equipment to support our office facilities, and capitalized internal-use software development costs.
Financing Activities
Net cash used in financing activities for the six months endedJuly 31, 2022 was$34.2 million , primarily as a result of taxes paid related to net share settlement of equity awards, partially offset by proceeds from the issuance of equity securities under our equity incentive plans. Net cash provided by financing activities for the six months endedJuly 31, 2021 was$92.3 million , primarily as a result of proceeds from the issuance of equity securities under our equity incentive plans. 50
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Tab le of Contents Critical Accounting Estimates Our management's discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which are prepared in accordance with GAAP. The preparation of these condensed 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. There have been no material changes to our critical accounting estimates as compared to those described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2022 , which was filed with theSEC onMarch 30, 2022 .
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