Sprinklr, Inc. (CXM) FY 2022 MD&A

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 included elsewhere in this 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 Regarding Forward-Looking Statements” in this Form 10-K. You should review the disclosure under the heading “Risk Factors” in this 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.

Overview

Sprinklr empowers the world’s largest and most loved brands to make their customers happier.

We do this with a new category of enterprise software – Unified Customer Experience Management (“Unified-CXM”) – that enables every customer-facing function across the front office, from Customer Care to Marketing, to collaborate across internal silos, communicate across digital channels, and leverage a complete suite of modern capabilities to deliver better, more human customer experiences at scale – all on one unified, AI-powered platform.

Our Unified-CXM platform utilizes an architecture purpose-built for managing CXM data and is powered by proprietary AI, collaborative workflow, seamless automation, broad-based listening, and customer-led governance to help enterprises analyze massive amounts of unstructured and structured data.

We generate revenue from the sale of subscriptions to our Unified-CXM platform and related professional services. Our platform includes products that are licensed on a per-user basis as well as products that are licensed based on different tiers of volume.

We believe that our Unified-CXM platform is highly effective for organizations of all sizes, and we have a highly diverse group of customers across a broad array of industries and geographies. We focus primarily on selling our platform to large global enterprises, as we believe that we have significant competitive advantages attracting and serving such organizations given their complex needs and the broad capabilities our platform offers.

Our customers include global enterprises across a broad array of industries and geographies, as well as marketing agencies and government departments along with non-profit and educational institutions. Our customers are located in over 60 countries and use our AI powered CXM platform in over 50 languages. As of January 31, 2022, we had 1,166 customers spanning organizations of a broad range of sizes and industries, including more than 50% of the Fortune 100 companies, compared to 1,014 customers as of January 31, 2021. We define our large customers as customers with greater than or equal to $1.0 million in subscription revenue on a trailing 12-month basis, as of the period presented. As of January 31, 2022, we had 82 large customers compared to 65 as of January 31, 2021.

Key Business Metrics

We review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.

Remaining Performance Obligation

Remaining Performance Obligation ("RPO") represents contracted revenues that had not yet been recognized, and include deferred revenues and amounts that will be invoiced and recognized in future periods. The aggregate transaction price of RPO expected to be recognized as revenue were $586.4 million and $431.8 million as of January 31, 2022 and 2021, respectively.

Net Dollar Expansion Rate

We believe that net dollar expansion rate ("NDE") is an indicator of the value that our platform delivers to customers. We calculate NDE to measure our ability to retain and expand subscription revenue from our existing customers. NDE compares our subscription revenue from the same set of customers across comparable periods and reflects customer renewals, expansion, contraction and churn. We calculate NDE by dividing (i) subscription revenue in the trailing 12-month period from those customers who were on our

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platform during the prior 12-month period by (ii) subscription revenue from the same customers in the prior 12-month period. NDE, on a trailing 12-month basis, was 119.8% and 118.4% for the 12-month periods ending January 31, 2022 and 2021, respectively.

Impact of COVID-19

In response to the ongoing COVID-19 pandemic, we have taken broad actions to mitigate the impact of this public health crisis on our business, including, among other measures, implementing a temporary work from home policy across all offices globally, new operating guidelines for our offices based on local conditions, restrictions on work-related travel, and additional wellness benefits for employees. In addition, our customers and partners have similarly been impacted, all of which have the potential to result in a significant disruption to how we operate our business. Although we believe that our business is well-suited to navigate the current environment, the ultimate duration and extent of the COVID-19 pandemic, including with respect to variants of COVID-19, cannot be accurately predicted at this time, and the direct or indirect impact on our business, results of operations, and financial condition will depend on future developments that are highly uncertain. We have experienced, and may continue to experience, an adverse impact on certain parts of our business. The conditions caused by the pandemic have adversely affected or may in the future adversely affect, among other things, demand, spending by new customers, renewal and retention rates of existing customers, the length of our sales cycles, sales productivity, the value and duration of subscriptions, collections of accounts receivable, our IT and other expenses, our ability to recruit, and the ability of our employees to travel, all of which could adversely affect our business, results of operations, and financial condition. We also have experienced, and may continue to experience, a positive impact on other aspects of our business, including a reduction in certain operating expenses due to reduced business travel and the virtualization or cancellation of customer and employee events. See the section titled “Risk Factors” for further discussion of the challenges and risks we have encountered and could encounter related to the COVID-19 pandemic. Due to our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our revenue until future periods.

Components of Results of Operations

Revenue

We generate revenue from the sale of subscriptions to our Unified-CXM cloud-based software platform and related professional services.

Subscription revenue consists primarily of fees from customers accessing our proprietary Unified-CXM platform, as well as related support services. Subscription revenue is generally recognized ratably over the related contract term beginning on the commencement date of each contract, which is generally the date our service is made available to customers. Our subscriptions typically have a term of one to three years with an average term of approximately 18 months. We generally invoice our customers in annual installments at the beginning of each year in the subscription period. Historically, we have experienced seasonality in our sales cycle, as a large percentage of our customers make their purchases in the fourth quarter of a given fiscal year and pay us in the first quarter of the subsequent year. This seasonality may be reflected to a much lesser extent, and sometimes may not be immediately apparent, in our revenue, due to the fact that we recognize subscription revenue over the term of the applicable subscription agreement.

Professional services revenue consists of fees associated with providing services that assist our customers with the configuration and optimization of our Unified-CXM software. These fees also include managed services fees where our consultants work as part of our customers’ teams to help leverage the subscription services to execute on their customer experience management goals and enablement services which consist of initial design, configuration and education services.

Costs of Revenue

Costs of Subscription Revenue

Costs of subscription revenue consists primarily of costs to host our software platform, data costs, including cost of third-party data utilized in our platform, personnel-related expenses for our subscription and support operations personnel, including salaries, benefits, bonuses, and stock-based compensation professional fees, software costs, travel expenses, the amortization of our capitalized internal-use software and allocated overhead expenses, including facilities costs for our subscription and support operations. We expect that costs of subscription revenue will increase in absolute dollars as we expand our customer base and make continued investments in our cloud infrastructure and support organization.

Costs of Professional Services Revenue

Costs of professional services revenue consists primarily of personnel-related expenses for our professional services personnel, professional fees, software costs, subcontractor costs, travel expenses and allocated overhead expenses, including facilities costs, for

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our professional services organization. We expect that our costs of professional services revenue will increase in absolute dollars as we expand our customer base.

Gross Profit and Gross Margin

Gross profit is total revenue less total costs of revenue. Gross margin is gross profit expressed as a percentage of total revenue. We expect that gross profit and gross margin will continue to be affected by various factors, including our pricing, our mix of revenues and the costs required to deliver those revenues.

Our gross margin on subscription revenue is significantly higher than our gross margin on professional services revenue, so our gross margin may vary from period to period if our mix of revenue or costs of revenue fluctuates. In addition, because personnel-related expenses represent the largest component in costs of professional services revenue, we may experience changes in our professional services gross margin due to the timing of delivery of those services. We expect that our gross margin may vary from period to period and increase modestly in the long term. The level and timing of investment in our professional services business could affect our costs of revenue in the future and cause our gross margin to fluctuate.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses.

Research and Development Expenses

Research and development expenses consist primarily of costs relating to the maintenance, continued development and enhancement of our cloud-based software platform and include personnel-related expenses for our research and development organization, professional fees, travel expenses and allocated overhead expenses, including facilities costs. Research and development expenses are expensed as incurred, except for internal-use software development costs that qualify for capitalization. We expect research and development expenses to increase in absolute dollars as we continue to invest in enhancing and expanding the capabilities of our Unified-CXM platform.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel-related expenses for our sales and marketing organization, professional fees, software costs, advertising, marketing, promotional and brand awareness activities, travel expenses and allocated overhead expense, including facilities costs. Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer and are deferred and amortized on a straight-line basis over the expected period of benefit. We intend to continue to invest in sales and marketing to help drive the growth of our business. During the short term, we expect travel expenses to remain lower than our historical norms as we focus our marketing and sales activities on virtual platforms. However, we expect that our sales and marketing expenses will increase in absolute dollars as we continue to invest in sales and marketing activities to acquire new customers and increase sales to existing customers. In the long term, we expect that sales and marketing expenses will decline as a percentage of revenue.

General and Administrative Expenses

General and administrative expenses include personnel costs associated with administrative services, such as legal, human resources, information technology, accounting, and finance functions, as well as professional fees, software costs, travel expenses and allocated overhead expense, including facilities costs and any corporate overhead expenses not allocated to other expense categories.

We expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business. We also anticipate that we will incur additional costs for employees and third-party consulting services as we operate as a public company, which may cause our general and administrative expenses to fluctuate as a percentage of revenue from period to period.

Other Expense, Net

Other expense, net, consists of interest expense, interest income on invested cash and cash equivalents and marketable securities, foreign currency transaction gains and losses and other expenses and gains.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes related to foreign and U.S. jurisdictions in which we conduct business. Our annual estimated effective tax rate differed from the U.S. federal statutory rate primarily due to a full valuation allowance related to our U.S. deferred tax assets, partially offset by U.S. current state taxes and foreign tax rate differential on non-U.S. income.

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Results of Operations

Our historical results have been retroactively revised to reflect immaterial corrections related to capitalized costs to obtain customer contracts. These revisions ensure comparability across all periods reflected herein. Refer to Note 2, Basis of Presentation and Summary of Significant Accounting Policies, included elsewhere in this Form 10-K for more information regarding immaterial corrections to prior periods.

The following table sets forth our consolidated statements of operations data for the periods indicated:

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The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue:

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Comparison of Fiscal Years Ended January 31, 2022, and 2021

Revenue

Total revenues increased $105.5 million, or 27%, in fiscal year 2022, compared to fiscal year 2021, and was comprised of an increase in subscription revenue of $88.1 million, or 26%, and an increase in professional services of $17.3 million, or 37%.

The increase in subscription revenue for the fiscal year 2022, compared to the fiscal year 2021, was due primarily to increased demand for our solutions from new customers and an increase in revenue from existing customers driven by the purchase of additional quantities of current subscription solutions and the purchase of additional solutions within our platform.

The increase in professional services revenues for the fiscal year 2022, compared to the fiscal year 2021, was primarily due to an increase in enablement and managed services performed during the fiscal year 2022, compared to the fiscal year 2021.

Costs of Revenue and Gross Margin

Total costs of revenues increased $25.5 million, or 21%, in fiscal year 2022, compared to fiscal year 2021, and was comprised of an increase in costs of subscription revenue of $12.9 million, or 17%, and an increase in costs of professional services of $12.6 million, or 28%.

Costs of subscription revenue was $89.9 million for the fiscal year 2022, compared to $77.0 million for the fiscal year 2021. The increase in cost of subscription revenue was due primarily to higher costs related to third-party cloud infrastructure necessary to meet our increased customer demand, which included a $6.5 million increase in the costs to host our software platform, and a $3.7 million increase in our data costs, as well as a $1.8 million increase in personnel costs.

Costs of professional services were $57.7 million for the fiscal year 2022, compared to $45.0 million for the fiscal year 2021. The increase in cost of professional services was due primarily to increases in personnel costs of $9.9 million due to increased headcount of professional services employees and a $1.5 million increase in subcontractor costs.

Gross margin for subscription and professional services increased by 2 percentage points and 6 percentage points, respectively, primarily driven by the year-over-year growth in revenue.

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Research and Development Expenses

Research and development expenses increased $20.3 million, or 50%, in fiscal year 2022, compared to fiscal year 2021. The increase was primarily due to a $21.0 million increase in research and development personnel costs primarily due to increased headcount of research and development employees as we continue to add to and enhance our product, which included as $2.3 million increase in stock-based compensation, as well as a $1.0 million increase in software-related expenses. These increases were partially offset by a $3.2 million increase in research and development costs that were capitalized.

Sales and Marketing Expenses

Sales and marketing expenses increased $101.2 million, or 54%, in fiscal year 2022, compared to fiscal year 2021. The increase was primarily due to a $60.5 million increase in personnel costs primarily due to increased headcount of sales and marketing employees to support growth, which included a $5.0 million increase in stock-based compensation, a $12.4 million increase in commissions expense associated with an increase in customer contracts and revenue growth, a $15.3 million increase in marketing expenses, a $3.6 million increase in software-related expenses, a $3.0 million increase in recruiting-related costs, $2.3 million increase in insurance costs and a $1.7 million increase in meetings and travel-related expenses.

General and Administrative Expenses

General and administrative expenses increased $20.4 million, or 32%, in in fiscal year 2022, compared to fiscal year 2021. The increase was primarily due to a $11.3 million increase in general and administrative employee personnel costs, a $5.6 million increase in legal costs, as a result of costs incurred in connection with an outstanding legal matter and increased professional service costs as a result of becoming a public company, a $1.2 million increase in software-related costs, and a $0.8 million increase in travel-related costs.

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Litigation Settlement

On February 25, 2022, we agreed to settle all outstanding claims with Opal Labs Inc. (“Opal”) with respect to Opal’s complaints alleging breach of contract and violation of Oregon’s Uniform Trade Secrets Act, among other claims, and the matter was dismissed with prejudice on March 1, 2022. The settlement was in the amount of $12.0 million, which we recorded as a one-time operating expense charge in fiscal year 2022.

Other Expense, net

Other expense, net decreased $3.5 million, or 41%, in fiscal year 2022, compared to fiscal year 2021. The decrease was primarily attributable to a $4.0 million decrease in foreign currency transaction losses.

Provision for Income Taxes

Provision for income taxes increased $3.1 million, or 83%, in fiscal year 2022, compared to fiscal year 2021. The increase was related to higher foreign income tax liability on our non-U.S. subsidiaries and a reserve associated with uncertain tax positions for tax years that remain open for examination.

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Comparison of Fiscal Years Ended January 31, 2021 and 2020

Revenue

Total revenues increased $62.7 million, or 19%, in the fiscal year 2021, compared to fiscal year 2020, and was comprised of an increase in subscription revenue of $61.1 million, or 22%, and an increase in professional services of $1.5 million, or 3%.

The increase in subscription revenue for the fiscal year 2021, compared to the fiscal year 2020, was due primarily to increased demand for our solutions from new and existing customers. Of the increase in subscription revenue for the fiscal year 2021, compared to the fiscal year 2020, approximately $40.9 million was attributable to existing customers and approximately $20.2 million was attributable to new customers. The increase in revenue from existing customers was driven by upgrades of current subscription solutions and the purchase of additional solutions within our platform.

We delivered a similar amount of professional services in the fiscal year 2021, compared to fiscal year 2020.

Costs of Revenue and Gross Margin

Total costs of revenues decreased $1.1 million in the fiscal year 2021, compared to fiscal year 2020, and was comprised of a decrease in costs of subscription revenue of $0.8 million and a decrease in costs of professional services of $0.3 million.

Costs of subscription revenue was $77.0 million for the fiscal year 2021, compared to $77.8 million for the fiscal year 2020, a decrease of $0.8 million. The decrease in cost of subscription revenue was due primarily due to a reduction in the cost to host our software platform driven by economies obtained from renegotiating vendor contracts due to the scale of our business.

Our subscription gross margin increased by 5 percentage points in the fiscal year 2021, compared to fiscal year 2020 primarily as a result of increased revenue and cost savings from our third-party cloud infrastructure providers.

Costs of professional services was $45.0 million for the fiscal year 2021, compared to $45.4 million for the fiscal year 2020, a decrease of $0.3 million. Within cost of professional services revenue, there was a $2.2 million decrease in travel-related expenses due to COVID-19 global restrictions and a $2.3 million decrease in subcontractor costs. These decreases were partially offset by increases in personnel costs of $2.7 million due to an increase in services employees headcount and a $1.3 million increase in stock-based compensation expense attributable to services employees.

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Research and Development Expenses

Research and development expenses increased $7.8 million, or 24%, in the fiscal year 2021, compared to fiscal year 2020. The increase was primarily due to an $8.0 million increase in research and development personnel costs primarily due to an increase in headcount of research and development employees and a $3.4 million increase in stock-based compensation associated with research and development employees, $1.2 million of which was attributable to a stock-based compensation charge in connection with the sale of common stock by any employee to our Series G investors and a $1.0 million stock-based compensation charge in connection with a tender offer transaction. These increases were partially offset by a $1.3 million decrease in travel-related expenses, a $1.3 million increase in research and development costs that were capitalized and a $0.7 million decrease in technology costs associated with our development and quality assurance environment.

Sales and Marketing Expenses

Sales and marketing expenses increased $21.8 million, or 13%, in the fiscal year 2021, compared to fiscal year 2020. The increase was primarily due to a $23.1 million increase in personnel costs due to increased headcount of sales and marketing employees to support growth, a $5.4 million increase in commissions expense associated with an increase in customer contracts and revenue growth and a $10.8 million increase in stock-based compensation associated with sales and marketing employees, $2.5 million of which is attributable to stock-based compensation charge in connection with the sale of common stock by certain employees to our Series G investors and a $1.2 million stock-based compensation charge in connection with a tender offer transaction. These increases were partially offset by a $9.4 million decrease in meeting and travel-related expenses due to COVID-19 global travel restrictions, a $3.9 million decrease in marketing expenses, a $1.2 million decrease in professional fees and a $1.2 million decrease in employee recruitment costs, all associated with a precautionary spending moratorium associated with the COVID-19 virus.

General and Administrative Expenses

General and administrative expenses increased $24.2 million, or 60%, in the fiscal year 2021, compared to fiscal year 2020. The increase was primarily due to a $17.6 million increase in stock-based compensation expense, $13.7 million of which is attributable to a stock-based compensation charge in connection with the sale of common stock by certain employees to the Company and certain of our investors. Additionally, general and administrative employee personnel costs increased $4.0 million due to increased headcount to support growth and a $2.2 million increase in legal and other professional service costs. These increases were partially offset by a decrease in meeting and travel-related expenses due to COVID-19 global travel restrictions.

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Other Expense, Net

Other expense, net increased $7.7 million, or 829%, in the fiscal year 2021, compared to fiscal year 2020. The increase was primarily attributable to a $5.7 million increase in interest expense primarily due to non-cash interest expense incurred on our senior subordinated convertible notes issued in May 2020 and a $0.9 million increase in foreign currency translation losses. Other expense, net in the fiscal year 2020 included a $0.5 million of income associated with indirect tax refunds received and a $0.4 million gain on early termination of an operating lease, with no comparable gains in the fiscal year 2021.

Provision for Income Taxes

Provision for income taxes increased $0.5 million, or 14%, in the fiscal year 2021, compared to fiscal year 2020. The increase was related to a higher foreign income tax liability on our non-U.S. subsidiaries.

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Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance:

•Non-GAAP gross profit and non-GAAP gross margin

•Non-GAAP operating (loss) income and non-GAAP operating margin

•Non-GAAP net (loss) income and non-GAAP net (loss) income per share

We define these non-GAAP financial measures as the respective GAAP measures, excluding, as applicable, stock-based compensation expense-related charges, charges on litigation settlements and amortization of acquired intangible assets. We believe that it is useful to exclude stock-based compensation expense-related charges and amortization of acquired intangible assets in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies over multiple periods. We also exclude charges on litigation settlements that are considered to be non-ordinary course as we do not consider such losses to be indicative of our core business.

In addition, we believe free cash flow is also a useful non-GAAP financial measure. Free cash flow is defined as net cash used in operating activities less cash used for purchases of property and equipment and capitalized internal-use software. We believe that free cash flow is a useful indicator of liquidity as it measures our ability to generate cash, or our need to access additional sources of cash, to fund operations and investments. We expect our free cash flow to fluctuate in future periods with changes in our operating expenses and as we continue to invest in our growth. We typically experience higher billings in the fourth quarter compared to other quarters and experience higher collections of accounts receivable in the first half of the year, which results in a decrease in accounts receivable in the first half of the year.

However, non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. As a result, our non-GAAP financial measures are presented for supplemental informational purposes only and should not be considered in isolation or as a substitute for our consolidated financial statements presented in accordance with GAAP.

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A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP:

(1) Includes $0.1 million of employer payroll tax related to stock-based compensation expense for the year ended January 31, 2022.

(2) Includes $1.4 million of employer payroll tax related to stock-based compensation expense for the year ended January 31, 2022.

(3) On February 25, 2022, we and Opal agreed to settle all outstanding claims with respect to Opal’s complaints alleging breach of contract and violation of Oregon’s Uniform Trade Secrets Act, among other claims. The settlement amount was recorded as a one-time operating expense charge in fiscal year 2022.

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Liquidity and Capital Resources

Overview

As of January 31, 2022, our principal sources of liquidity were $321.4 million of cash and cash equivalents, $211.0 million of highly liquid marketable securities and an available line of credit of $50.0 million under our revolving credit facility. We believe that our existing cash and cash equivalents, marketable securities and cash from operations will be sufficient to meet our working capital needs, capital expenditures and financing obligations for at least the next 12 months and over the long-term. The majority of our cash is held in the United States and we do not anticipate a need to repatriate cash held outside of the United States. Further, it is our intent to indefinitely reinvest these funds outside the United States, and, therefore, we have not provided for any United States income taxes.

On June 25, 2021, we completed our IPO, in which we issued and sold 16,625,000 shares of our Class A common stock at a public offering price of $16.00 per share. On July 1, 2021, underwriters’ option to purchase 1,662,500 additional shares of Class A common stock was exercised in full. We received net proceeds of $276.0 million after deducting underwriting discounts and commissions and other offering expenses.

In May 2020, we issued senior subordinated convertible notes for an aggregate principal amount of $75.0 million, with an initial maturity date of May 20, 2025 (the “Initial Notes”). Under the terms of the agreement, we had the ability to issue additional senior subordinated convertible notes for an aggregate principal amount of $75 million until May 20, 2021 (the “Delayed Draw Notes”, and the Initial Notes, together with the Delayed Draw Notes, hereinafter the “Notes”). We did not draw any additional amounts under the Delayed Draw Notes. The Initial Notes were issued for face amount net of a closing fee of 1.05% on the entire $150.0 million commitment for all Notes (corresponding to an original issue discount of 2.1% on the Initial Notes) and carried a fixed rate of 9.875% per annum. The interest was to be paid in kind by increasing the principal amount of the Initial Notes. We utilized the proceeds of the Notes to pay all amounts outstanding under the credit facility. Upon the closing of the IPO, the Notes automatically converted into an aggregate of 9,694,004 shares of Class B common stock.

On October 7, 2020, we closed on an agreement for a private placement and issuance of 10,810,810 shares of our Series G-1 convertible preferred stock at a price per share of $9.25 and 9,090,909 shares of our Series G-2 convertible preferred stock at a price per share of $11.00 for total gross proceeds of $200.0 million, before deducting placement agent fees and offering expenses.

SVB Credit Facility

We maintain a credit agreement with Silicon Valley Bank (the “SVB Credit Facility”). Under the terms of the SVB Credit Facility, we can borrow up to $50.0 million on our revolving credit loan facility at the higher of prime interest rate plus 0.25% or federal funds effective rate plus 0.50% plus 0.25%. SVB Credit Facility, which expires on June 21, 2022, requires that we maintain certain monthly adjusted quick ratio and quarterly minimum consolidated adjusted earnings before income taxes, depreciation and amortization. As of January 31, 2022, we had no amounts outstanding under the SVB Credit Facility.

Material Cash Requirements

Our expected material cash requirements comprise of contractually obligated expenditures. We have agreements in place with data and service providers which require us to make certain minimum guaranteed purchase commitments through fiscal year 2026 which totaled $156.3 million as of January 31, 2022. In addition, we lease certain office facilities under operating lease arrangements that expire on various dates through fiscal year 2027. Under the terms of the leases, we are responsible for certain operating expenses, such as insurance, property taxes, and maintenance expenses. Future minimum lease payments under non-cancelable operating leases totaled $24.6 million as of January 31, 2022.

Future Funding Requirements

Our future capital requirements will depend on many factors, including our growth rate, the expansion of our direct sales force, strategic relationships and international operations, the timing and extent of spending to support research and development efforts and the continuing market acceptance of our solutions. We historically have expanded our business in part by investing in strategic growth initiatives, including acquisitions of products, technologies and businesses. We may finance such acquisitions using cash, debt, stock or a combination of the foregoing; however, we have used cash and stock as consideration for substantially all of our historical business acquisitions. We continually examine our options with respect to terms and sources of existing and future short-term and long-term capital resources to enhance our operating results and to ensure that we retain financial flexibility, and may from time to time elect to raise capital through the issuance of additional equity or the incurrence of additional debt. Sales of additional equity could

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result in dilution to our stockholders. If we raise funds by borrowing from third parties, the terms of those financing arrangements would require us to incur interest expense and may include negative covenants or other restrictions on our business that could impair our operating flexibility. We can provide no assurance that financing will be available at all or, if available, that we would be able to obtain financing on terms favorable to us. If we are unable to raise additional capital when needed, we would be required to curtail our operating activities and capital expenditures, and our business operating results and financial condition would be adversely affected.

Cash Flows

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

Our net loss and cash flows provided by operating activities are influenced significantly by our investments in headcount to support growth and in costs of revenue to deliver our services. In recent periods, our net loss generally has been greater than our use of cash for operating activities due to our subscription-based revenue model in which billings occur in advance of revenue recognition, as well as the amount of non-cash charges that we incur. Non-cash charges primarily include depreciation and amortization, stock-based compensation, non-cash interest associated with our convertible debt and deferred taxes. Our largest source of operating cash is cash collections from customers using our Unified-CXM Platform and related services. Our primary uses of cash from operating activities are for employee-related costs, costs to deliver our revenue and marketing expenses.

We expect our free cash flow to fluctuate in future periods with changes in our operating expenses and as we continue to invest in our growth. We typically experience higher billings in the fourth quarter compared to other quarters, primarily due to higher renewal activity, and experience higher collections of accounts receivable in the first half of the year, which results in a decrease in accounts receivable in the first half of the year.

Operating Activities

For the fiscal year 2022, cash used in operating activities was $32.9 million resulting from net loss of $111.5 million offset by net non-cash expenses of $72.2 million and $6.3 million net cash flow provided as a result of changes in operating assets and liabilities. The $6.3 million of net cash flows provided as a result of changes in operating assets and liabilities reflected a $43.4 million increase in deferred revenue resulting primarily from increased billings for subscriptions and a $25.5 million increase in accrued expenses and other current liabilities, partially offset by a $47.1 million increase in accounts receivable due to increased billings and a $6.8 million increase in other non-current assets.

For the fiscal year 2021, cash provided by operating activities was $7.3 million resulting from net non-cash expenses of $55.2 million largely offset by net loss of $38.0 million and $9.9 million net cash flow used as a result of changes in operating assets and liabilities. The $9.9 million of net cash flows used as a result of changes in our operating assets and liabilities reflected a $28.7 million increase in prepaid expenses primarily associated with higher prepayments for data center operations costs and data costs and a $9.8 million increase in accounts receivable due to increased billings, partially offset by a $17.5 million increase in deferred revenue resulting primarily from increased billings for subscriptions and a $12.3 million increase in accrued expenses and other current liabilities.

For the fiscal year 2020, cash provided by operating activities was $19.0 million resulting from $42.9 million net cash flow provided as a result of changes in operating assets and liabilities and net non-cash expenses of $15.8 million, partially offset by net loss of $39.8 million. The $42.9 million of net cash flows provided as a result of changes in our operating assets and liabilities reflected an $88.9 million increase in deferred revenue resulting primarily from increased billings for subscriptions and an increase of $7.0 million in accrued expenses and other current liabilities. These increases were partially offset by a $11.6 million increase in accounts receivable due to increased billings, a $22.3 million increase in prepaid expenses primarily associated with higher prepayments for data center operations costs and data costs, a $10.2 million decrease in accounts payable and a $9.9 million increase in other noncurrent assets.

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Investing Activities

For the fiscal year 2022, net cash used in investing activities of $15.7 million was related to $267.8 million of purchases of marketable securities, $6.3 million in capitalized internal-use software costs, $6.1 million in capital expenditures, and $(3.6) million of cash paid to acquire a privately held company. These cash outflows were largely offset by $211.6 million of cash from maturities of marketable securities and $56.7 million of sales of marketable securities.

For the fiscal year 2021, net cash used in investing activities of $219.5 million was related to $213.0 million of cash paid for marketable securities, purchase of property and equipment of $2.7 million and the capitalization of internal-use software of $3.8 million.

For the fiscal year 2020, net cash used in investing activities of $11.7 million was related to $6.5 million of cash paid to acquire a privately held company, purchases of property and equipment of $2.6 million and the capitalization of internal-use software costs of $2.5 million.

Financing Activities

Our financing activities consist primarily of proceeds from debt and equity financings and exercises of stock options, offset by repayments of debt and repurchase of capital stock.

For the fiscal year 2022, net cash provided by financing activities of $303.1 million was primarily due to our IPO in which we received total net proceeds of $276.0 million, after deducting underwriting discounts and commissions and other offering expenses. In addition, there were proceeds from the exercise of stock options of $20.1 million as well as $7.1 million from the purchase of common stock through our ESPP.

For the fiscal year 2021, net cash provided by financing activities of $269.8 million was due to $191.8 million of proceeds from issuance of convertible preferred stock, $73.4 million of proceeds from the convertible note, $16.3 million of proceeds from exercises of stock options and $7.6 million of proceeds from issuance of stock warrants, partially offset by preferred and common stock repurchases of $12.4 million and $5.9 million, respectively, each in connection with a tender offer transaction, and payment of debt and equity issuance costs of $0.5 million.

For the fiscal year 2020, net cash used in financing activities of $7.5 million was related to net short-term debt repayments of $9.5 million partially offset by $2.0 million of proceeds from exercises of stock options.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.

Critical accounting estimates are those estimates that, in accordance with GAAP, involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our consolidated financial statements. Management has determined that our most critical accounting estimates are those relating to revenue recognition, stock-based compensation expense, common stock valuations and income taxes. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors and adjust those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates and assumptions.

Our significant accounting policies are more fully described in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, in our consolidated financial statements included elsewhere in this Form 10-K.

Revenue Recognition

At times, revenue recognition requires significant judgment, especially for our arrangements that include multiple performance obligations, or deliverables, such as arrangements that include promises to transfer multiple subscription services, premium support, professional services and managed services. A performance obligation is a promise in a contract with a customer to transfer products or services that are distinct. Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting may require significant judgment.

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Subscription services are distinct as such offerings are often sold separately. In determining whether professional services are distinct, we consider the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract was signed in comparison to the subscription start date and the contractual dependence of the service on the customer’s satisfaction with the professional services work. To date, we have concluded that professional services included in contracts with multiple performance obligations are generally distinct.

The determination of standalone selling price (“SSP”) for each distinct performance obligation requires judgement. We rarely sell our enterprise cloud software products and services as readily observable standalone sales, so we are required to estimate the SSP for each performance obligation. In the determination of the SSP, we use information that includes contractually stated prices, size of the arrangement, market conditions, costs, renewal contracts, list prices, internal discounting tables and other observable inputs. In making these judgments, we analyze various factors, including our pricing methodology and consistency, size of the arrangement, length of term, customer demographics and overall market and economic conditions. Based on these results, the estimated SSP is set for each distinct product or service delivered to customers. As our go-to-market strategies evolve, we may modify our pricing strategies in the future, which could result in changes to SSP.

There were no material changes in the estimates or assumptions used to recognize revenue during the year ended January 31, 2022.

Stock-Based Compensation

Our stock-based compensation for stock-based awards, including stock options, performance share units and restricted stock units, is accounted for in accordance with the authoritative guidance and is estimated at the grant date based on the fair value of the award. Determining the appropriate fair value of the stock-based awards requires judgment. For awards with service only condition, expense is recognized on a straight-line basis over the vesting period of the award, net of estimated forfeitures. For awards with performance conditions, expense is recognized only if it is probable that the performance will be achieved, at which point we will record a cumulative one-time stock-based compensation expense determined using the grant date fair values and the accelerated attribution method. For further information on stock-based compensation, see Note 11 to our Consolidated Financial Statements included in “Part II, Item 8. Financial Statements” of this Form 10-K.

We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis.

Common Stock Valuations

For all periods prior to the IPO, the fair values of the shares of common stock underlying our share-based awards were determined on each grant date by our board of directors, which typically occurred at least once every three months during the fiscal years ended January 31, 2020 and 2021 and on a monthly basis commencing in March 2021. Given the absence of a public trading market for our common stock, our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including our stage of development; the rights, preferences and privileges of our convertible preferred stock relative to those of our common stock; our financial condition and operating results, including our levels of available capital resources; equity market conditions affecting comparable public companies; general U.S. market conditions; recent secondary stock sales and a tender offer and the lack of marketability of our common stock. Valuations of our common stock were prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

We determined the fair value of our common stock for financial reporting purposes, taking into account the factors described above, using a combination of valuation methodologies with varying weighting applied to each methodology.

Income Taxes

Accounting for income taxes requires significant judgments in the development of estimates used in income tax calculations. The most significant of those estimates for us include the likelihood that we would realize the benefits of net operating loss carryforwards and/or foreign tax credit carryforwards and the adequacy of valuation allowances. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.

To the extent recovery of deferred tax assets is not more likely than not, we record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Although we have considered future taxable income along with prudent and feasible tax planning strategies in assessing the need for a valuation allowance, if we should determine we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to deferred tax assets would be charged to income in the period any such determination was made. Likewise, in the event that we are able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to deferred tax assets would increase income in the period any such determination was made.

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Recent Accounting Pronouncements

Refer to Note 2, Basis of Presentation and Summary of Significant Accounting Policies, included elsewhere in this Form 10-K for more information regarding recently issued accounting pronouncements.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.