Samsara Inc. (IOT) FY 2025 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Please read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included under Part II, Item 8 of this Annual Report on Form 10-K. Some of the information contained in the following discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in “Part I, Item 1A. Risk Factors” or included elsewhere in this report. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition, or results of operations. See the section titled “Special Note Regarding Forward-Looking Statements” in this report. These statements, like all statements in this report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments. Our fiscal year ends on the Saturday closest to February 1, resulting in a 52-week or 53-week fiscal year. Our fiscal years 2025 and 2023 each consisted of 52 weeks, with the fourth quarter consisting of 13 weeks, and our fiscal year 2024 consisted of 53 weeks, with the fourth quarter consisting of 14 weeks.

This section of our Annual Report on Form 10-K generally discusses our financial condition and results of operations for fiscal years 2025 and 2024, and year-to-year comparisons between fiscal years 2025 and 2024 in accordance with GAAP. A discussion of our financial condition and results of operations and our liquidity and capital resources for fiscal year 2023, and year-to-year comparisons between fiscal years 2024 and 2023 can be found under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended February 3, 2024 included in Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on March 26, 2024.

Overview

Samsara is on a mission to increase the safety, efficiency, and sustainability of the operations that power the global economy.

To realize this vision, we pioneered the Connected Operations Platform, which is an open platform that connects the people, devices, and systems of some of the world’s most complex operations, allowing them to develop actionable insights and improve their operations.

Our Connected Operations Platform consolidates data from our IoT devices and a growing ecosystem of connected assets and third-party systems, and makes it easy for organizations to access, analyze, and act on data insights using our cloud dashboard, custom alerts and reports, mobile apps, and workflows. Our differentiated, purpose-built suite of Applications enables organizations to embrace and deploy a digital, cloud-connected strategy across their operations. With Samsara, customers have the ability to drive safer operations, increase business efficiency, and achieve their sustainability goals, all to improve the lives of their employees and the customers they serve.

We were founded in 2015 and have achieved significant growth since our inception. For the fiscal years ended February 1, 2025 and February 3, 2024, our revenue was $1,249.2 million and $937.4 million, respectively, representing year-over-year growth of 33%. Our net loss was $154.9 million and $286.7 million for the fiscal years ended February 1, 2025 and February 3, 2024, respectively. Our business model focuses on maximizing the lifetime value of our customer relationships, and we continue to make significant investments to grow our customer base.

Our Business Model

In each of the past two fiscal years, we generated approximately 98% of our revenue from subscriptions to our Connected Operations Platform, which today includes Applications for Video-Based Safety, Vehicle Telematics, Workforce Apps, Equipment Monitoring, and Site Visibility. A subscription to our Connected Operations Platform includes IoT data collection, which usually comes from a Samsara IoT device, such as an internet gateway, camera or sensor, or at times from a third-party solution; cellular connectivity for our IoT devices; access to our cloud Applications, application programming interfaces, and the Samsara App Marketplace; customer support; and warranty coverage. We generally price our subscriptions on a per asset, per application basis. For example, one vehicle using two Applications (Video-Based Safety and Vehicle Telematics) would count as two subscriptions.

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Our Connected Operations Platform is designed to be a digital hub for our customers and a mission-critical part of their operations. Our criticality and integration into existing infrastructure is demonstrated by long contract lengths, which typically span an initial term of three to five years and are generally non-cancelable and non-refundable, subject to limited exceptions under our standard terms of service and other exceptions for public sector customers, who are often subject to annual budget appropriations cycles. We recognize revenue from our subscriptions ratably over the term of the contract. We bill monthly, quarterly, semi-annually, annually, or in advance, depending on the specific terms of each contract.

Our go-to-market strategy is focused on landing new customers and expanding their adoption of our Connected Operations Platform. We primarily sell through a direct sales force, which focuses on landing and expanding large and mid-market customers with numerous physical assets. We also sell through resellers, which expands our reach and allows us to access certain customer channels more efficiently. Additionally, we offer self-service and low-touch inbound sales to attract a broad range of smaller customers onto our platform.

Our Customers

As our business has scaled, we have increasingly focused our sales efforts on larger customers. As of February 1, 2025, we had more than 20,000 customers, each representing $10,000 or more in ARR, or Core Customers, and approximately 93% of our ARR came from Core Customers. Our customer counts fluctuate from period to period, including due to customer mergers, acquisitions, consolidations, spin-offs, and other market activity. We have a very diverse customer base and no significant customer concentration, with no single customer accounting for more than 1% of our ARR as of February 1, 2025.

Our solution is used by businesses of varying sizes across a broad range of industries that depend on physical operations, including: transportation, construction, wholesale and retail trade, field services, logistics, manufacturing, utilities and energy, government, healthcare and education, food and beverage, and others. Our industry-agnostic approach and the horizontal applicability of our solution have enabled us to deploy our platform to a diverse set of industries.

We have extended our Applications over time to address the needs of our customers. We started with Applications for connected fleets, where we observed a large and underpenetrated market opportunity, and then expanded into connected equipment and connected sites, where we observed similar opportunities to improve operations around physical assets. As of February 1, 2025, over 80% of our Core Customers and 90% of our customers representing over $100,000 in ARR are using multiple Applications. We believe this demonstrates the flexibility of our solution and our ability to develop and grow new Applications.

Our key focus is multi-application adoption. Customers may land with large-scale, multi-application contracts, or land with one application within one division and expand their adoption over time. Regardless of how our customers land, we focus on expanding their usage of Connected Operations Platform and encourage full-scale rollouts across their geographies and divisions.

While our Connected Operations Platform is accessible to customers of all sizes and we have achieved rapid adoption over time, we are particularly focused on larger customers representing over $100,000 in ARR. As of February 1, 2025, approximately 55% of our ARR came from customers representing over $100,000 in ARR. These customers generally contribute higher revenue, land with multiple products, have higher retention rates, and demonstrate stronger unit economics. The number of our customers representing over $100,000 in ARR has increased over time from 1,848 as of February 3, 2024 to 2,506 customers as of February 1, 2025. Customers representing over $100,000 in ARR generally adopt more Applications than our overall customer base. For example, as of February 1, 2025, more than 90% of these large customers use two or more Applications and more than 60% use three or more Applications.

Key Business Metrics

The following table shows a summary of our key business metrics as of the periods presented (dollars in thousands):

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ARR

We believe that ARR is a key indicator of the trajectory of our business performance, enables measurement of the progress of our business initiatives, and serves as an indicator of future growth. We define ARR as the annualized value of subscription contracts that have commenced revenue recognition as of the measurement date. ARR highlights trends that may be less visible from our financial statements due to ratable revenue recognition. ARR does not have a standardized meaning and is not necessarily comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and is not intended to be combined with or replace it. ARR is not a forecast, and the active contracts at the date used in calculating ARR may or may not be renewed. Our ARR has grown in each of the past two fiscal years, reflecting growth in new customers as well as expanded sales to existing customers. For all international customer contracts denominated in currencies other than the U.S. dollar, ARR is translated from local currency to U.S. dollar based on the currency exchange rate as of the effective date of the contract.

Number of Customers Over $100,000 in ARR

We focus on customers representing over $100,000 in ARR, as this key business metric is indicative of our penetration with larger customers. The number of our customers over $100,000 in ARR has grown over time as we have focused our sales efforts on larger customers, invested in our partner ecosystem, and released more Applications to address the needs of our larger customers.

Factors Affecting Our Performance

Acquiring New Customers

We believe that we have a substantial opportunity to continue to grow our customer base. We intend to drive new customer acquisition by continuing to invest significantly in sales and marketing to engage our prospective customers, increase brand awareness, and drive adoption of our Connected Operations Platform. Our ability to attract new customers depends on a number of factors, including the effectiveness of our sales and marketing efforts, macroeconomic factors and their impact on our customers’ businesses, and the success of our efforts to expand internationally.

Expanding Within Our Existing Customer Base

We believe that there is a significant opportunity to expand sales to existing customers following their initial adoption of our Connected Operations Platform. We expand within our customer base by selling more Applications and expanding existing Applications across geographies and divisions. Our ability to expand within our customer base will depend on a number of factors, including our customers’ satisfaction, pricing, competition, macroeconomic factors, and changes in our customers’ spending levels.

Investments in Innovation and Future Growth

Our performance is driven by continuous innovation on our Connected Operations Platform and our ability to scale our headcount to grow our business. We continuously invest in adding new data types to our Connected Operations Platform and innovate with this growing data asset to introduce new Applications over time. Our performance is also impacted by our ability to scale our headcount across our business to support our growth. We have increased our headcount from 2,895 employees as of the last business day of the fiscal year ended February 3, 2024 to more than 3,500 full-time employees as of the last business day of the fiscal year ended February 1, 2025. We remain committed to investing in our sales and marketing capacity and our research and development organization, and to driving revenue growth globally.

Macroeconomic Trends

Unfavorable conditions in the economy, both in the United States and abroad, may negatively affect the growth of our business and our results of operations. For example, our business and results of operations could be affected by global macroeconomic trends and events such as inflationary pressure, fluctuations in foreign currency exchange rates, interest rate increases and declines in consumer confidence, widespread disruptions of supply chains and freight and shipping channels, increased prices for many goods and services (including fluctuating fuel costs), labor shortages, delayed or reduced spending on IT products, and significant volatility and disruption of financial markets, as well as other conditions arising from international conflicts, such as the ongoing conflict between Russia and Ukraine, geopolitical tensions involving China, and the conflict in the Middle East, the outcome of political elections, new monetary, fiscal, and trade policies (including tariff policies and import and export restrictions), and the emergence of public health crises. We are continuously monitoring these global events and other macroeconomic developments and how they may impact us directly or indirectly as a result of the effects on our customers and suppliers.

Refer to the section titled “Risk Factors” for further discussion of the impacts of macroeconomic trends on our business.

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Components of Results of Operations

Revenue

We provide access to our Connected Operations Platform through subscription arrangements, whereby the customer is charged a per-subscription fee for access for a specified term. Subscription agreements contain multiple service elements for one or more of our cloud-based Applications via mobile app(s) or a website that enable data collection and provide access to the cellular network, IoT devices (which we also refer to as connected devices), and support services delivered over the term of the arrangement. Our subscription contracts typically have an initial term of three to five years and are generally non-cancelable and non-refundable, subject to limited exceptions under our standard terms of service and other exceptions for public sector customers, who are often subject to annual budget appropriations cycles. Our Connected Operations Platform and IoT devices are highly interdependent and interrelated, and represent a combined performance obligation within the context of the contract.

In each of our past two fiscal years, we generated approximately 98% of our revenue from subscriptions to our Connected Operations Platform. The remaining portion of our revenue not generated from subscriptions to our Connected Operations Platform is derived from the sale of replacement IoT devices, including gateways, sensors and cameras, related shipping and handling fees, and professional services.

Cost of Revenue

Cost of revenue consists primarily of the amortization of IoT device costs associated with subscription agreements, third-party cloud and cellular infrastructure costs, customer support costs, warranty costs, and employee-related costs directly associated with our customer support and operations, including salaries, employee benefits and stock-based compensation, amortization of internal-use software development and certain cloud computing implementation costs, expenses related to shipping and handling, packaging, fulfillment, warehousing, write-downs of excess and obsolete inventory, and costs associated with software subscriptions, office facilities, IT-related expenses, and depreciation and amortization of property and equipment.

As our customers expand and increase the use of our Connected Operations Platform driven by additional IoT devices and Applications, our cost of revenue may vary from quarter to quarter as a percentage of our revenue due to the timing and extent of these expenses. We intend to continue to invest additional resources in our Connected Operations Platform and customer support and operations personnel as we grow our business. The level and timing of investment in these areas will affect our cost of revenue in the future.

Operating Expenses

Research and Development

Research and development expenses consist primarily of employee-related costs, including salaries, employee benefits and stock-based compensation, depreciation and other expenses related to prototyping IoT devices, product initiatives, software subscriptions, hosting and cellular-related costs used in research and development, and costs associated with office facilities, IT-related expenses, and depreciation and amortization of property and equipment. We continue to focus our research and development efforts on adding new features and products and enhancing the utility of our Connected Operations Platform. We capitalize the portion of our internal-use software development costs that meets the criteria for capitalization.

We expect our research and development expenses to generally increase in absolute dollars for the foreseeable future as we continue to invest in research and development efforts to enhance our Connected Operations Platform. Our research and development expenses have fluctuated in the past and may in the future fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

Sales and Marketing

Sales and marketing expenses consist primarily of employee-related costs directly associated with our sales and marketing activities, including salaries, employee benefits, stock-based compensation, and sales commissions. Sales and marketing expenses also include expenditures related to advertising, media, marketing, promotional costs, free trial expenses, brand awareness activities, business development, corporate partnerships, travel, conferences and events, professional services, and costs associated with software subscriptions, office facilities, IT-related expenses, and depreciation and amortization of property and equipment.

We plan to continue to invest in sales and marketing to grow our customer base and increase our brand awareness. As a result, we expect our sales and marketing expenses to increase in absolute dollars for the foreseeable future. Our sales and marketing expenses have fluctuated in the past and may in the future fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses, including seasonally higher spend on conferences and events in the first half of our fiscal year.

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General and Administrative

General and administrative expenses consist of employee-related costs for executive, finance, legal, human resources, facilities, and certain IT personnel, including salaries, employee benefits and stock-based compensation, professional services fees for external legal, accounting, recruiting and other consulting services, bad debt, costs associated with software subscriptions, office facilities, IT-related expenses, and depreciation and amortization of property and equipment.

We expect our general and administrative expenses to continue to increase in absolute dollars for the foreseeable future to support our growth. Our general and administrative expenses have fluctuated in the past and may in the future fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

Lease Modification, Impairment, and Related Charges

Lease modification, impairment, and related charges consist of impairment charges related to the sublease and abandonment of facilities.

We may incur additional lease modification, impairment, and related charges in subsequent periods.

Legal Settlement

Legal settlement expenses consist of charges incurred to resolve legal proceedings.

We may incur additional legal settlement expenses in subsequent periods.

Interest Income and Other Income, Net

Interest income and other income, net, consists primarily of income earned on our money market funds included in cash and cash equivalents, restricted cash, and our short-term and long-term investments, including amortization of premiums and accretion of discounts related to our marketable debt securities, net of associated fees. We also have foreign currency remeasurement gains and losses and foreign currency transaction gains and losses. As we have expanded our global operations, our exposure to fluctuations in foreign currencies has increased, and we expect this to continue.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance against our U.S. deferred tax assets because we have concluded that it is more likely than not that the deferred tax assets will not be realized.

In December 2021, the Organization for Economic Co-operation and Development introduced a new global minimum corporate tax of 15%, commonly referred to as Pillar Two. While the United States has not yet adopted the Pillar Two rules, various other international governments are enacting legislation which will apply to us beginning in fiscal year 2026. We do not currently expect to have a material impact from the Pillar Two legislation, but we expect to incur additional costs related to compliance with this legislation. We will continue to monitor United States and global legislative action related to Pillar Two for potential impacts.

Results of Operations

Comparison of the Fiscal Years Ended February 1, 2025 and February 3, 2024

Revenue

Our total revenue is summarized as follows (in thousands, except percentages):

Revenue increased by $311.8 million, or 33%, for the fiscal year ended February 1, 2025 compared to the fiscal year ended February 3, 2024, primarily due to an increase in customer count and increased purchases by existing customers of our subscription offerings, including subscriptions to additional Applications, partially offset by an extra week in our fiscal year 2024.

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Cost of Revenue, Gross Profit, and Gross Margin

Our cost of revenue, gross profit, and gross margin are summarized as follows (in thousands, except percentages):

Cost of revenue increased by $51.3 million, or 21%, for the fiscal year ended February 1, 2025 compared to the fiscal year ended February 3, 2024, primarily due to $22.0 million of increased amortization of IoT device costs, $19.1 million of increased infrastructure costs associated with our product offerings, $7.9 million of increased employee-related costs, which included a $6.5 million increase in salaries and benefits and related employer taxes and a $1.4 million increase in stock-based compensation expense, $3.1 million of increased excess and obsolete inventory charges, and $2.2 million of increased amortization of internally-developed software, partially offset by $4.6 million of decreased warranty costs. The increases in amortization of IoT device costs and infrastructure costs were primarily due to increased sales volume year-over-year. The increase in cost of revenue was partially offset by an extra week in our fiscal year 2024.

Our gross margin increased to 76% for the fiscal year ended February 1, 2025 compared to 74% for the fiscal year ended February 3, 2024, mainly due to operational efficiencies in IoT device costs, direct labor costs, and warranty charges.

Research and Development

Research and development expense is summarized as follows (in thousands, except percentages):

Research and development expense increased by $41.1 million, or 16%, for the fiscal year ended February 1, 2025 compared to the fiscal year ended February 3, 2024, primarily due to a $31.0 million increase in employee-related costs, which included a $20.5 million increase in salaries and benefits and related employer taxes and a $10.5 million increase in stock-based compensation expense, primarily due to increased headcount to support our research and development organization. The increase in research and development expense was also due to a $5.2 million increase in software subscriptions, IT, hosting and cellular-related costs, a $2.8 million increase in expenses relating to contractor and other professional services, and a $1.5 million increase in prototyping expenses. The increase in research and development expense was partially offset by an extra week in our fiscal year 2024.

Sales and Marketing

Sales and marketing expense is summarized as follows (in thousands, except percentages):

Sales and marketing expense increased by $115.0 million, or 24%, for the fiscal year ended February 1, 2025 compared to the fiscal year ended February 3, 2024, primarily due to a $88.2 million increase in employee-related costs, which included a $69.4 million increase in salaries and benefits and related employer taxes, a $13.7 million increase in stock-based compensation expense, and a $5.1 million increase in sales commissions, primarily due to increased headcount to support our sales organization. The increase in sales and marketing expense was also due to a $10.0 million increase in travel-related costs and expenses relating to our customer visits, conferences, and other events, a $7.1 million increase in IT-related costs and software subscriptions, a $3.1 million increase in expenses relating to campaign marketing and brand awareness, a $2.8 million increase in expenses relating to professional services, and a $1.7 million increase in free trial expense. The increase in sales and marketing expense was partially offset by an extra week in our fiscal year 2024.

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General and Administrative

General and administrative expense is summarized as follows (in thousands, except percentages):

General and administrative expense increased by $39.6 million, or 20%, for the fiscal year ended February 1, 2025 compared to the fiscal year ended February 3, 2024, primarily due to a $28.0 million increase in employee-related costs, which included a $16.5 million increase in stock-based compensation expense and a $11.6 million increase in salaries and benefits and related employer taxes, primarily due to increased headcount to support the growth of our finance, accounting, human resources, and legal functions. The increase in general and administrative expense was also due to a $14.7 million increase in expenses relating to professional services and a $2.2 million increase in software subscriptions, partially offset by a $4.1 million decrease in bad debt expense. The increase in general and administrative expense was partially offset by an extra week in our fiscal year 2024.

Lease Modification, Impairment, and Related Charges

Lease modification, impairment, and related charges are summarized as follows (in thousands, except percentages):

Lease modification, impairment, and related charges decreased by $0.7 million, or 15%, for the fiscal year ended February 1, 2025 compared to the fiscal year ended February 3, 2024.

In the third quarter of fiscal year 2025, we executed a sublease for certain office space that resulted in a $3.6 million impairment to the related right-of-use (“ROU”) asset and fixed assets, which we recognized in lease modification, impairment, and related charges for the fiscal year ended February 1, 2025. Additionally, in the fourth quarter of fiscal year 2025, we incurred early termination fees on another leased office space, and as a result, we recognized $0.4 million in lease modification, impairment, and related charges for the fiscal year ended February 1, 2025.

In the third quarter of fiscal year 2024, we executed a sublease for certain office space that resulted in a $4.8 million impairment to the related ROU asset and fixed assets, which we recognized in lease modification, impairment, and related charges for the fiscal year ended February 3, 2024.

Legal Settlement

Legal settlement expense is summarized as follows (in thousands, except percentages):

Legal settlement expense decreased by $67.8 million for the fiscal year ended February 1, 2025 compared to the fiscal year ended February 3, 2024, primarily due to a $68.7 million settlement agreement reached with a landlord in January 2024, wherein we made a cash payment of $60.0 million and forgave an $8.7 million drawdown against a letter of credit made by the landlord in November 2021.

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Interest Income and Other Income, Net

Interest income and other income, net, are summarized as follows (in thousands, except percentages):

Interest income and other income, net, decreased by $0.4 million, or 1%, for the fiscal year ended February 1, 2025 compared to the fiscal year ended February 3, 2024. $2.8 million of this decrease was due to an increase in foreign currency losses and $1.9 million of this decrease was due to lower interest income earned on our cash balances as a result of a smaller average balance in our money market funds. These decreases were partially offset by a $4.1 million increase due to interest income earned on a larger investment base of our managed portfolio of marketable debt securities and the net accretion of discounts on these securities.

Provision for Income Taxes

Provision for income taxes is summarized as follows (in thousands, except percentages):

The provision for income taxes increased by $1.2 million, or 34%, for the fiscal year ended February 1, 2025 compared to the fiscal year ended February 3, 2024, primarily due to higher taxes related to our foreign jurisdictions.

Non-GAAP Financial Measures

To supplement our consolidated financial statements prepared in accordance with GAAP, we review the following non-GAAP financial measures to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions (in thousands, except percentages):

Limitations and Reconciliations of Non-GAAP Financial Measures

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for financial information presented under GAAP. There are a number of limitations related to the use of non-GAAP financial measures versus comparable financial measures determined under GAAP. For example, other companies in our industry may calculate these non-GAAP financial measures differently or may use other measures to evaluate their performance. In addition, free cash flow does not reflect our future contractual commitments or the total increase or decrease of our cash balance for a given period. These and other limitations could reduce the usefulness of these non-GAAP financial measures as analytical tools. Investors are encouraged to review the related GAAP financial measures and the reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures and to not rely on any single financial measure to evaluate our business.

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Expenses Excluded from Non-GAAP Performance Financial Measures

Stock-based compensation expense-related charges include the amortization of deferred stock-based compensation expense for capitalized software and employer taxes on employee equity transactions. Stock-based compensation expense is excluded because it is a non-cash expense and is dependent on our stock price, which is beyond our control. Further, because of varying available valuation methodologies and award types, we find it useful to exclude stock-based compensation expense in order to better understand our ongoing operational performance. Employer taxes on employee equity transactions, which are a cash expense, are excluded because such taxes are directly tied to the timing and size of employee equity transactions and the future fair market value of our common stock, which may vary from period to period independent of the operating performance of our business.

Lease modification, impairment, and related charges, and legal settlements are excluded because management believes that such charges are not reflective of our ongoing operational performance.

Non-GAAP Performance Financial Measures

Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit as gross profit excluding the effect of stock-based compensation expense-related charges included in cost of revenue. Non-GAAP gross margin is defined as non-GAAP gross profit as a percentage of total revenue. We use non-GAAP gross profit and non-GAAP gross margin in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations. The following table presents a reconciliation of our non-GAAP gross profit to our GAAP gross profit for the periods presented (in thousands, except percentages):

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(1)Stock-based compensation expense-related charges included approximately $1.0 million, $0.8 million, and $0.3 million of employer taxes on employee equity transactions for the fiscal years ended February 1, 2025, February 3, 2024, and January 28, 2023, respectively.

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Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin

We define non-GAAP income (loss) from operations, or non-GAAP operating income (loss), as income (loss) from operations excluding the effect of stock-based compensation expense-related charges, lease modification, impairment, and related charges, and legal settlements. Non-GAAP operating margin is defined as non-GAAP operating income (loss) as a percentage of total revenue. We use non-GAAP income (loss) from operations and non-GAAP operating margin in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that non-GAAP income (loss) from operations and non-GAAP operating margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations. The following table presents a reconciliation of our non-GAAP income (loss) from operations to our GAAP loss from operations for the periods presented (in thousands, except percentages):

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(1)Stock-based compensation expense-related charges included approximately $18.6 million, $14.1 million, and $4.0 million of employer taxes on employee equity transactions for the fiscal years ended February 1, 2025, February 3, 2024, and January 28, 2023, respectively.

(2)In January 2025, we settled in principle a non-recurring litigation and recognized a one-time operating expense charge of $0.9 million for the fiscal year ended February 1, 2025. In January 2024, we settled non-recurring lease-related litigation and recognized a charge of $68.7 million for the fiscal year ended February 3, 2024. The settlement consisted of a $60.0 million cash payment and $8.7 million associated with the forgiveness of a previously drawn letter of credit.

Non-GAAP Net Income (Loss)

We define non-GAAP net income (loss) as net income (loss) excluding the effect of stock-based compensation expense-related charges, lease modification, impairment, and related charges, and legal settlements. We use non-GAAP net income (loss) in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that non-GAAP net income (loss) provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. The following table presents a reconciliation of our non-GAAP net income (loss) to our GAAP net loss for the periods presented (in thousands, except percentages):

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(1)There were no material income tax effects on our non-GAAP adjustments for all periods presented.

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Non-GAAP Liquidity Financial Measures

Free Cash Flow and Free Cash Flow Margin

We define free cash flow as net cash provided by (used in) operating activities reduced by cash used for purchases of property and equipment. Free cash flow margin is calculated as free cash flow as a percentage of total revenue. We believe that free cash flow and free cash flow margin, even if negative, are useful in evaluating liquidity and provide information to management and investors about our ability to fund future operating needs and strategic initiatives. The following table presents a reconciliation of free cash flow to net cash provided by (used in) operating activities for the periods presented (in thousands, except percentages):

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(1)Free cash flow includes the cash impact of non-recurring capital expenditures associated with the build-out of our corporate office facilities in San Francisco, California, net of tenant allowances, and legal settlements (in thousands):

(2)In April 2023, we settled a lease dispute which was primarily related to lease incentives associated with leasehold improvements in the form of a tenant allowance and received $11.3 million.

(3)In January 2024, we settled non-recurring lease-related litigation and made a cash payment of $60.0 million.

Liquidity and Capital Resources

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations.

Since our founding, we have financed our operations primarily through the sale of equity securities and payments received from our customers. In December 2021, we completed our IPO, which resulted in aggregate net proceeds of $846.7 million, including proceeds from the underwriters’ exercise of their option to purchase additional shares of our Class A common stock in January 2022 and net of underwriting discounts and commissions. We have generated significant operating losses from our operations, as reflected in our accumulated deficit of $1,610.0 million as of February 1, 2025. We intend to continue investing in our business, and as a result, we may require additional capital resources to execute on our strategic initiatives to grow our business, particularly if we generate negative cash flows in future quarters. We believe that our existing cash, cash equivalents, and short-term and long-term investments will be sufficient to support working capital, including our non-cancelable arrangements, and capital expenditure requirements for at least the next 12 months.

As of February 1, 2025, our principal sources of liquidity were cash, cash equivalents, and short-term and long-term investments of $977.5 million. Cash and cash equivalents consisted of cash on deposit with banks as well as highly liquid investments with an original maturity of 90 days or less, when purchased. Our investments primarily consisted of U.S. government and agency securities, corporate notes and bonds, and commercial paper. Our primary uses of cash include personnel-related costs, third-party cloud and cellular infrastructure costs, sales and marketing expenses, overhead costs, and funding other working capital requirements, such as inventory and related connected device costs to meet our performance obligations related to our Connected Operations Platform.

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Our future capital requirements will depend on many factors, including, but not limited to, our growth, our ability to attract and retain customers, the continued market acceptance of our solution, the timing and extent of spending necessary to support our efforts to develop our Connected Operations Platform and meet our performance obligations related to our Connected Operations Platform, the expansion of sales and marketing activities, and the impact of macroeconomic conditions on our and our customers’ and partners’ businesses. Further, we may in the future enter into arrangements to acquire or invest in businesses, products, services, and technologies. We may be required to seek additional equity or debt financing. In the event that additional financing is required, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition, and results of operations could be adversely affected.

Cash Flows

The following table shows a summary of our cash flows for the periods presented (in thousands):

Operating Activities

Our largest source of operating cash is payments received from our customers. Our primary uses of cash from operating activities are for employee-related expenses, sales and marketing expenses, inventory and related connected device costs, third-party cloud and cellular infrastructure costs, and overhead expenses. Although we generated positive cash flows from operations in fiscal year 2025, we generated negative cash flows from operations in the preceding two fiscal years. We have supplemented working capital through net proceeds from the sale of equity securities.

Cash provided by (used in) operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation, depreciation and amortization of property and equipment, net accretion of discounts on marketable debt securities, lease modification, impairment, and related charges, non-cash legal settlement, and non-cash operating lease costs, and changes in operating assets and liabilities during each period.

Cash provided by operating activities was $131.7 million for the fiscal year ended February 1, 2025. This consisted of a net loss of $154.9 million, adjusted for non-cash charges of $288.5 million, and changes in our operating assets and liabilities of $2.0 million. The non-cash charges were primarily comprised of stock-based compensation expense of $277.9 million, depreciation and amortization of $20.6 million, and lease modification, impairment, and related charges of $3.5 million, partially offset by net accretion of discounts on marketable debt securities of $15.3 million. Changes in our operating assets and liabilities during the fiscal year ended February 1, 2025 reflect increased accounts receivable from customers, higher deferred commissions and connected device costs due to the growth of our business, and higher levels of inventories to meet anticipated demand requirements, partially offset by increases in deferred revenue due to the growth of our business and lower vendor payments during the fiscal year ended February 1, 2025.

Cash used in operating activities was $11.8 million for the fiscal year ended February 3, 2024. This consisted of a net loss of $286.7 million, which included a charge of $60.0 million for a cash payment made to settle non-recurring lease-related litigation, and adjusted for non-cash charges of $253.7 million, and changes in our operating assets and liabilities of $21.2 million. The non-cash charges were primarily comprised of stock-based compensation expense of $237.1 million, depreciation and amortization of $15.5 million, non-cash legal settlement of $8.7 million, and lease modification, impairment, and related charges of $4.8 million, partially offset by net accretion of discounts on marketable debt securities of $16.9 million. Changes in our operating assets and liabilities during the fiscal year ended February 3, 2024 reflect increases in deferred revenue due to the growth of our business, increases in accounts payable and other liabilities due to timing of invoices received from vendors, lower inventories due to operating efficiencies in our order fulfillment processes, and lower operating lease ROU assets, partially offset by higher connected device costs, lower cash collections from customers, higher deferred commissions, and higher prepaid expenses and other current assets during the fiscal year ended February 3, 2024.

Investing Activities

Cash used in investing activities was $66.6 million for the fiscal year ended February 1, 2025, which primarily consisted of $649.5 million of purchases of investments and $20.2 million of capital expenditures for internal-use software development costs and our office facilities, partially offset by $602.0 million of proceeds from maturities and redemptions of investments and $1.2 million of proceeds from sales of investments.

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Cash used in investing activities was $78.7 million for the fiscal year ended February 3, 2024, which primarily consisted of $740.5 million of purchases of investments and $11.0 million of capital expenditures for internal-use software development costs and our office facilities, partially offset by $664.7 million of proceeds from maturities and redemptions of investments and $8.2 million of proceeds from sales of investments.

Financing Activities

Cash provided by financing activities was $27.1 million for the fiscal year ended February 1, 2025, which primarily consisted of $28.8 million of proceeds from employee stock purchases under the 2021 Employee Stock Purchase Plan (the “2021 ESPP”) and exercises of stock options, partially offset by $1.7 million in payments of principal on finance leases.

Cash provided by financing activities was $21.0 million for the fiscal year ended February 3, 2024, which primarily consisted of $23.2 million of proceeds from employee stock purchases under the 2021 ESPP and exercises of stock options, partially offset by $2.2 million in payments of principal on finance leases.

Contractual Obligations and Commitments

Our estimated future obligations consist of leases and non-cancelable purchase commitments as of February 1, 2025. For additional discussion on our leases and other commitments, refer to Notes 8, “Leases,” and 9, “Commitments and Contingencies,” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Critical Accounting Estimates

Our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP.

We believe that the following accounting policies involve a high degree of judgment and complexity. These are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations. See Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of our other significant accounting policies. The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates. The critical accounting estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

Revenue Recognition

Revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

We determine revenue recognition through the following steps:

1.identification of the contract, or contracts, with a customer;

2.identification of the performance obligations in the contract;

3.determination of the transaction price;

4.allocation of the transaction price to the performance obligations in the contract; and

5.recognition of revenue when, or as, we satisfy a performance obligation.

We offer subscriptions to access our Connected Operations Platform. Customers subscribe to one or more Applications on our Connected Operations Platform which includes data that is primarily provided by various proprietary connected device access points, including telematic sensors, gateways, and cameras. Our Connected Operations Platform and the related connected device access points are highly interdependent and interrelated, and represent a combined performance obligation, which is recognized over the related subscription period.

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Determining whether the subscriptions to our Connected Operations Platform and the connected device access points are considered distinct performance obligations that should be accounted for separately or as a combined performance obligation requires significant judgment. We determined that the subscription and connected device access points fulfill a single promise to the customer because the Connected Operations Platform and connected devices are interdependent and interrelated to maintaining the intended utility of the subscription over the contractual term. In reaching this conclusion, we considered the context of the contract and the nature of our promise to provide the customer with actionable insights to manage their operations. Specifically, our connected devices, including the embedded proprietary firmware, are updated continuously by our Connected Operations Platform using AI and machine learning models to improve the capture, aggregation, and enrichment of data by the connected devices. Additionally, our Connected Operations Platform then utilizes this data to deliver actionable insights that are promised to our customers throughout the term of their subscription to Applications on the Connected Operations Platform. As a result of the highly interdependent and interrelated nature of the integrated service provided, these arrangements are accounted for as a combined performance obligation to the customer.

The combined performance obligation is satisfied over time, as we continually provide access to and fulfill our obligation to the customer over the subscription term. Accordingly, the fixed consideration related to the combined performance obligation is recognized on a straight-line basis over the contract term, beginning on the date that access to the Connected Operations Platform or specified application and connected device is provided.

Our subscription contracts typically have an initial term of three to five years and are generally non-cancelable and non-refundable, subject to limited exceptions under our standard terms of service and other exceptions for public sector customers, who are often subject to annual budget appropriation cycles. Our subscription contracts typically transfer title to the connected device to the customer upon shipment and are invoiced monthly, quarterly, semi-annually, annually, or in advance.

Connected Device Costs

We capitalize connected device costs associated with subscription contracts as contract fulfillment costs where the connected device is not distinct from other undelivered obligations in the customer contract. These costs are directly related to customer contracts, are expected to be recoverable, and enhance the resources used to satisfy the undelivered performance obligations in those contracts. These contract fulfillment costs are amortized over a period of benefit of five years. Determining the period of benefit requires judgment for which we take into consideration the expected life of the connected device, the connected device’s warranty period, past experience with customers, the duration of our relationships with our customers, and other available information.

Recent Accounting Pronouncements

For information on recently issued accounting pronouncements, see Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.