# UiPath, Inc. (PATH) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from UiPath, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1734722/000173472223000017/path-20230131.htm
Accession: 0001734722-23-000017
Filing date: 2023-03-24
Report date: 2023-01-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/PATH/
All MD&A years: /company/PATH/mda/
Previous year: /company/PATH/mda/fy2022/ (FY 2022)
Next year: /company/PATH/mda/fy2024/ (FY 2024)

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 audited consolidated financial statements and related notes for the fiscal year ended January 31, 2023 included elsewhere in this Annual Report on Form 10-K. This discussion, particularly 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 Annual Report on Form 10-K. You should review the disclosure under the heading “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. Our fiscal quarters end on April 30, July 31, and October 31, and our fiscal year ends January 31. References to fiscal years 2023, 2022, and 2021 in this Annual Report on Form 10-K refer to our fiscal years ended January 31, 2023, 2022, and 2021, respectively. A discussion regarding our financial condition and our results of operations for fiscal year 2023 compared to fiscal year 2022 is presented below. A discussion regarding our results of operations for fiscal year 2022 compared to fiscal year 2021 was presented in the 2022 Form 10-K, under the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations."

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Overview

UiPath is at the forefront of technology innovation and thought leadership in automation, as the provider of an end-to-end platform that can help customers realize the true potential of digital transformation. The UiPath Business Automation Platform leverages AI, ML, and NLP to empower software robots that emulate human behavior, driving operational efficiencies and meaningful business outcomes without requiring significant changes to the organization's underlying technology infrastructure.

Historically, we have grown our revenue and ARR significantly by helping customers adopt automation as a tool, process by process. Today, we continue to build on this foundation and drive the evolution of automation by inspiring customers to see automation more holistically, as not just a tool but as a whole new way of operating and innovating.

Our results of operations and financial condition are impacted by the macro factors affecting our industry, including the proliferation of cloud-based applications, the cost of skilled human capital, and the global demand for automation solutions. While our business is influenced by these macro factors, our results of operations are more directly affected by certain Company-specific factors, including:

•our ability to attract new customers, which depends on a number of other factors, including our ability to drive awareness of the benefits and power of automation among our existing and prospective customers, the effectiveness and pricing of our products, the offerings of our competitors, and competition among resellers;

•our ability to increase sales to existing customers, which depends on factors such as our customers’ satisfaction with our platform, competition, pricing, and overall changes in our customers’ propensity to invest in automation;

•our ability to grow our partner base, which depends on the competitiveness of our platform and the profitability of our relationship for our partners and potential partners;

•our ability to sustain innovation and automation leadership in order to maintain our competitive advantage, which depends on our capacity to invest in research and development to expand the capabilities of our platform, our ability to collaborate with other leading technology companies to develop integrations, and our ability to execute strategic acquisitions and investments in businesses and technologies to drive our product and market expansion; and

•our ability to continue to grow our business over the long term, which depends on our ability to invest in scaling across all organizational functions and domestic and international operations.

For further discussion of our business, our platform, and our growth strategies, refer to Item 1. Business.

Fiscal Year 2023 Highlights

•Revenue of $1,058.6 million increased 19% year-over-year.

•ARR of $1,203.8 million increased 30% year-over-year.

•Gross margin was 83% for fiscal year 2023, compared to 81% in fiscal year 2022.

•Cash, cash equivalents, and marketable securities were $1,759.8 million as of January 31, 2023, compared to $1,884.7 million as of January 31, 2022.

Macroeconomic Environment and Foreign Currency Fluctuations

Macroeconomic factors have affected our business and our customers’ businesses. Globally, we price our platform in local currency. Accordingly, the heightened volatility of global markets has exposed us and will continue to expose us to foreign currency fluctuations, which may impact demand for our platform, our near-term results, and our ability to predict future results. Further, cash, cash equivalents, and marketable securities represent a significant portion of our total assets; as such, liquidity concerns in the financial services industry may have an effect on our business, financial conditions, and results of operations.

Fiscal Year 2023 Restructuring Actions

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On June 24, 2022, our board of directors approved restructuring actions to manage our operating expenses. These actions included an overall reduction of approximately 5% of our global workforce, aimed at simplifying our go-to-market approach to improve market segmentation, increase sales productivity, and provide best-in-class customer experience and outcomes. On November 10, 2022, our board of directors approved further restructuring actions, including an additional 6% workforce reduction to further support our strategic positioning to drive increased execution velocity, operational efficiency, and customer centricity. Refer to Note 11, Commitments and Contingencies—Workforce Restructuring included in Item 8 of this Annual Report on Form 10-K for more information.

Impact of COVID-19

When the COVID-19 pandemic began to unfold, we took decisive action across our internal and customer operations to ensure the resilience of the Company and the safety of our employees. Our operational rigor, digital infrastructure, and global footprint have enabled us to support our customers navigating new challenges presented by the pandemic as well as existing needs to automate. Global demand for automation has continued to accelerate as automation becomes ever more critical for business execution and performance in remote working environments, and we have continued to invest in the development and marketing of our automation platform to meet that demand.

Key Performance Metric

We monitor ARR to help us measure and evaluate the effectiveness of our operations.

ARR is the key performance metric we use in managing our business because it illustrates our ability to acquire new subscription customers and to maintain and expand our relationships with existing subscription customers. We define ARR as annualized invoiced amounts per solution SKU from subscription licenses and maintenance and support obligations assuming no increases or reductions in customers' subscriptions. ARR does not include the costs we may incur to obtain such subscription licenses or provide such maintenance and support, and does not reflect any actual or anticipated reductions in invoiced value due to contract non-renewals or service cancellations other than for specific reserves, for example those for credit losses or disputed amounts. At January 31, 2023 and 2022, our ARR was $1,203.8 million and $925.3 million, respectively, representing a growth rate of 30%. Approximately 25% of this growth rate was due to new customers and 75% of this growth rate was due to existing customers. Our dollar-based net retention rate, which represents the net expansion of ARR from existing customers over the preceding 12 months, was 123% and 145% as of January 31, 2023 and 2022, respectively. We calculate dollar-based net retention rate as of a period end by starting with Prior Period ARR, the ARR from the cohort of all customers as of 12 months prior to such period end. We then calculate Current Period ARR, the ARR from these same customers as of the current period end. Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months, but does not include ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the point-in-time dollar-based net retention rate.

Our ARR may fluctuate as a result of a number of factors, including customers’ satisfaction or dissatisfaction with our platform, pricing, competitive offerings, economic conditions, overall changes in our customers’ spending levels, and our ability to successfully execute on our strategic goals. ARR should be viewed independently of revenue and deferred revenue as ARR is an operating metric and is not intended to be combined with or to replace these items. For clarity, we use annualized invoiced amounts per solution SKU rather than revenue calculated in accordance with U.S. GAAP to calculate our ARR. Our invoiced amounts are not matched to transfer of control of the performance obligations associated with the underlying subscription licenses and maintenance and support obligations. This can result in timing differences between our GAAP revenue and ARR calculations. Our ARR calculation simply takes our invoiced amounts per solution SKU under a subscription license or maintenance agreement and divides that amount by the invoice term and multiplies by 365 days to derive the annualized value. In contrast, for our revenue calculated in accordance with GAAP, subscription licenses revenue derived from the sale of term-based licenses hosted on-premises is recognized at the point in time when the customer is able to use and benefit from our software, which is generally upon delivery to the customer or upon the commencement of the renewal term, and maintenance, support, and SaaS revenue is recognized ratably over the term of the arrangement. ARR is not a forecast of future revenue. Unlike ARR, future revenue can be impacted by contract start and end dates and duration. The timing of recognition of ARR is determined by contract billing structure, whereas billing structure will neither accelerate nor delay recognition of future revenue. For example, in a multi-year contract invoiced upfront, ARR is the annualized invoiced amount per solution SKU related to the final year of the contract, whereas revenue is determined by total contract value and timing of transfer of the underlying performance

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obligations. ARR does not include invoiced amounts associated with perpetual licenses or professional services. Investors should not place undue reliance on ARR as an indicator of our future or expected results. Moreover, our presentation of ARR may differ from similarly titled metrics presented by other companies and may not be comparable to such other metrics. For further information, see the section titled “Risk Factors—Risks Related to Our Business, Products, Operations, and Industry" included in Part I, Item 1A of this Annual Report on Form 10-K.

A summary of ARR-related data at January 31, 2023 and 2022 is as follows:

[[GREPCENT_TABLE]]
[["","At January 31,"],["","2023","","2022"],["","(dollars in thousands)"],["Annualized renewal run-rate (ARR)","$","1,203,845","","","$","925,276"],["Incremental ARR (1)","$","278,569","","","$","344,793"],["Customers with ARR \u2265 $1 million:"],["Number of customers","229","","","158"],["Percent of fiscal year revenue","43","%","","43","%"],["Customers with ARR \u2265 $100 thousand:"],["Number of customers","1,785","","","1,493"],["Percent of fiscal year revenue","81","%","","79","%"],["Dollar-based net retention rate","123","%","","145","%"],["(1) For the twelve months ended January 31, 2023 and 2022, respectively"]]
[[/GREPCENT_TABLE]]

Components of Results of Operations

Revenue

We derive revenue from the sale of: (1) software licenses for use of our proprietary software and related maintenance and support; (2) the right to access certain software products we host (i.e., SaaS); and (3) professional services.

In fiscal year 2023, we moved toward unifying our commercial offerings for products with both on-premise and cloud deployment options into a single offering that allows customers the choice of either deployment option throughout the term of the contract. These Flex Offerings replaced the hybrid offerings launched in fiscal year 2021. Flex Offerings are comprised of three types of performance obligations: term license, maintenance and support, and SaaS.

During the current fiscal year, we saw an increase in sales of our Flex Offerings compared to sales of our legacy offerings (primarily on-premise solutions sold as term-based licenses bundled with maintenance and support). We expect this trend to continue and, as a result, a greater portion of our revenue will be recognized over time as subscription services revenue rather than as license revenue, which is typically recognized at a point in time.

Licenses

We primarily sell term licenses (including the term license portion of Flex Offerings), which provide customers the right to use software for a specified period of time. Revenue for licenses is recognized at the point in time at which the customer is able to use and benefit from the software, which is generally upon delivery to the customer or upon commencement of the renewal term.

Subscription Services

We generate subscription services revenue through the provision of: (1) maintenance and support services, which include technical support and unspecified updates and upgrades on a when-and-if-available basis for our licenses, and (2) SaaS products, including those sold as part of our Flex Offerings. Maintenance and support and

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SaaS products represent stand-ready obligations for which revenue is recognized ratably over the term of the arrangements.

Professional Services and Other

Professional services and other revenue consists of fees associated with professional services for process automation, customer education, and training services. Our professional services contracts are structured on a time and materials or fixed price basis, and the related revenue is recognized as the services are rendered.

Cost of Revenue

Licenses

Cost of licenses revenue consists of all direct costs to deliver our licenses to customers, amortization of software development costs related to our licenses, and amortization of acquired developed technology.

Subscription Services

Cost of subscription services revenue primarily consists of personnel-related expenses of our customer support and technical support teams, including salaries and bonuses, stock-based compensation expense, and employee benefit costs. Cost of subscription services revenue also includes third-party consulting services, hosting costs related to our SaaS products, amortization of acquired developed technology and capitalized software development costs related to SaaS products, and allocated overhead. Overhead is allocated to cost of subscription services revenue based on applicable headcount. We recognize these expenses as they are incurred. We expect cost of subscription services revenue to continue to increase in absolute dollars for the foreseeable future as our customer base grows. In the future, we expect further expansion of our cloud-based deployments. As sales of SaaS products become a larger percentage of our total revenue, we expect our gross margin to be impacted by increased hosting fees and cloud infrastructure costs.

Professional Services and Other

Cost of professional services and other revenue primarily consists of personnel-related expenses of our professional services team, including salaries and bonuses, stock-based compensation expense, and employee benefit costs. Cost of professional services and other revenue also includes expenses related to third-party consulting services and allocated overhead. We recognize these expenses as they are incurred. We expect cost of professional services and other revenue to continue to increase in absolute dollars for the foreseeable future as our customer base grows.

Operating Expenses

Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel-related expenses are the most significant component of operating expenses and consist of salaries and bonuses, stock-based compensation expense, and employee benefit costs. Operating expenses also include allocated overhead. During fiscal years 2022 and 2021, certain operating expenses, such as travel and entertainment, decreased, primarily as a result of the COVID-19 pandemic. During fiscal year 2023, we reinstated travel and in-person meetings and events, resulting in a resumption of these expenses.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related expenses associated with our sales and marketing teams and related sales support teams, including salaries and bonuses, stock-based compensation expense, and employee benefit costs. Sales and marketing expenses also include sales and partner commissions, marketing event costs, advertising costs, travel, trade shows, other marketing materials, and allocated overhead. Similar to travel and entertainment, trade show expenses also decreased in fiscal year 2021 and through the first half of fiscal year 2022, as a result of the COVID-19 pandemic. We have since seen trade show expenses resume. We expect that over the longer term our sales and marketing expenses will decrease as a percentage of revenue, although this percentage may fluctuate from period to period due to timing and extent of expenses.

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Research and Development

Research and development expenses consist primarily of personnel-related expenses, including salaries and bonuses, stock-based compensation expense, and employee benefits costs for our research and development employees, and allocated overhead. Research and development costs are expensed as incurred, with the exception of certain software development costs which are eligible for capitalization. We expect that our research and development expenses will increase in absolute dollars for the foreseeable future as we continue to invest in efforts to develop new technology and enhance the functionality and capabilities of our existing products and platform infrastructure. Our research and development expenses may fluctuate as a percentage of revenue from period to period due to the timing and extent of expenses.

General and Administrative

General and administrative expenses consist primarily of personnel-related expenses, including salaries and bonuses, stock-based compensation expense, and employee benefits costs associated with our finance, legal, human resources, compliance, and other administrative teams, as well as accounting and legal professional services fees, other corporate-related expenses, and allocated overhead. Following the completion of the IPO in April 2021, we have incurred and expect to continue to incur additional general and administrative expenses as a result of operating as a public company, including as a result of our transition from emerging growth company to large accelerated filer status at the end of fiscal year 2023. We expect that over the longer term our general and administrative expenses will decrease as a percentage of revenue, although this percentage may fluctuate from period to period due to timing and extent of expenses.

Interest Income

Interest income consists of interest income earned on our cash deposits, cash and cash equivalents balances, and marketable securities.

Other Income (Expense), Net

Other income (expense), net primarily consists of foreign exchange gains and losses. Other income (expense), net also includes gains and losses associated with foreign currency forward contracts for those periods in which such contracts were outstanding.

Provision For Income Taxes

Provision for income taxes consists of U.S. federal and state income taxes and income taxes in foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state, Romanian, and U.K. DTAs, as we have concluded that it is more likely than not that these DTAs will not be realized. Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as by non-deductible expenses as permanent differences and by changes in our valuation allowances.

Net Loss

Over the longer term, we seek to drive durable growth while improving profitability and aligning resources to maximize return on investment through operational efficiencies.

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Results of Operations

The following table sets forth selected consolidated statement of operations data for each of the periods indicated (in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended January 31,"],["","2023","","2022"],["Revenue:"],["Licenses","$","497,836","","","$","481,427"],["Subscription services","508,823","","","369,867"],["Professional services and other","51,922","","","40,958"],["Total revenue","1,058,581","","","892,252"],["Cost of revenue:"],["Licenses (1)","10,421","","","11,888"],["Subscription services (1)(2)(3)(4)","87,366","","","60,565"],["Professional services and other (2)(3)(4)","82,264","","","96,415"],["Total cost of revenue","180,051","","","168,868"],["Gross profit","878,530","","","723,384"],["Operating expenses:"],["Sales and marketing(1)(2)(3)(4)","701,558","","","697,682"],["Research and development(2)(3)(4)","285,750","","","276,657"],["General and administrative(1)(2)(3)(4)","239,505","","","249,991"],["Total operating expenses","1,226,813","","","1,224,330"],["Operating loss","(348,283)","","","(500,946)"],["Interest income","27,955","","","3,551"],["Other income (expense), net","2,767","","","(13,488)"],["Loss before income taxes","(317,561)","","","(510,883)"],["Provision for income taxes","10,791","","","14,703"],["Net loss","$","(328,352)","","","$","(525,586)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1) Includes amortization of acquired intangible assets as follows (in thousands):","Year Ended January 31,"],["","2023","","2022"],["Cost of licenses revenue","$","2,754","","","$","2,521"],["Cost of subscription services revenue","1,811","","","1,100"],["Sales and marketing","2,153","","","1,397"],["General and administrative","178","","","101"],["Total amortization of acquired intangible assets","$","6,896","","","$","5,119"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2) Includes stock-based compensation expense as follows (in thousands):","Year Ended January 31,"],["","2023","","2022"],["Cost of subscription services revenue","$","11,894","","","$","12,232"],["Cost of professional services and other revenue","11,855","","","29,849"],["Sales and marketing","154,922","","","237,975"],["Research and development","102,546","","","135,713"],["General and administrative","88,623","","","99,814"],["Total stock-based compensation expense","$","369,840","","","$","515,583"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["(3) Includes employer payroll tax expense related to employee equity transactions as follows (in thousands):","Year Ended January 31,"],["","2023","","2022"],["Cost of subscription services revenue","$","272","","","$","1,142"],["Cost of professional services and other revenue","263","","","4,516"],["Sales and marketing","4,605","","","39,615"],["Research and development","1,692","","","5,810"],["General and administrative","930","","","3,001"],["Total employer payroll tax expense related to equity transactions","$","7,762","","","$","54,084"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4) Includes restructuring expense as follows (in thousands):","Year Ended January 31,"],["","2023","","2022"],["Cost of subscription services revenue","$","182","","","$","\u2014"],["Cost of professional services and other revenue","710","","","\u2014"],["Sales and marketing","19,491","","","\u2014"],["Research and development","494","","","\u2014"],["General and administrative","2,569","","","\u2014"],["Total restructuring expense","$","23,446","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

The following table sets forth our consolidated statement of operations data expressed as a percentage of revenue for the periods indicated:

[[GREPCENT_TABLE]]
[["","Year Ended January 31,"],["","2023","","2022"],["Revenue:"],["Licenses","47","%","","54","%"],["Subscription services","48","%","","41","%"],["Professional services and other","5","%","","5","%"],["Total revenue","100","%","","100","%"],["Cost of revenue:"],["Licenses","1","%","","1","%"],["Subscription services","8","%","","7","%"],["Professional services and other","8","%","","11","%"],["Total cost of revenue","17","%","","19","%"],["Gross profit","83","%","","81","%"],["Operating expenses:"],["Sales and marketing","66","%","","78","%"],["Research and development","27","%","","31","%"],["General and administrative","23","%","","28","%"],["Total operating expenses","116","%","","137","%"],["Operating loss","(33)","%","","(56)","%"],["Interest income","3","%","","\u2014","%"],["Other income (expense), net","\u2014","%","","(1)","%"],["Loss before income taxes","(30)","%","","(57)","%"],["Provision for income taxes","1","%","","2","%"],["Net loss","(31)","%","","(59)","%"]]
[[/GREPCENT_TABLE]]

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Comparison of Fiscal Year 2023 and Fiscal Year 2022

Revenue

[[GREPCENT_TABLE]]
[["","Year Ended January 31,"],["","2023","","2022","","Change","","% Change"],["","(dollars in thousands)"],["Licenses","$","497,836","","","$","481,427","","","$","16,409","","","3","%"],["Subscription services","508,823","","","369,867","","","138,956","","","38","%"],["Professional services and other","51,922","","","40,958","","","10,964","","","27","%"],["Total revenue","$","1,058,581","","","$","892,252","","","$","166,329","","","19","%"]]
[[/GREPCENT_TABLE]]

Total revenue increased by $166.3 million, or 19%, for fiscal year 2023 compared to fiscal year 2022, primarily due to a $139.0 million increase in subscription services revenue, related in part to the transition to our Flex Offerings, and a $16.4 million increase in licenses revenue. Approximately 34% of the increase in total revenue was from new customers and the remainder was attributable to existing customers. As we continued to expand our sales efforts in the U.S. and internationally, our revenue increased across all geographical regions.

Cost of Revenue and Gross Margin

[[GREPCENT_TABLE]]
[["","Year Ended January 31,"],["","2023","","2022","","Change","","% Change"],["","(dollars in thousands)"],["Licenses","$","10,421","","","$","11,888","","","$","(1,467)","","","(12)","%"],["Subscription services","87,366","","","60,565","","","26,801","","","44","%"],["Professional services and other","82,264","","","96,415","","","(14,151)","","","(15)","%"],["Total cost of revenue","$","180,051","","","$","168,868","","","$","11,183","","","7","%"],["Gross margin","83","%","","81","%"]]
[[/GREPCENT_TABLE]]

Total cost of revenue increased by $11.2 million, or 7%, for fiscal year 2023 compared to fiscal year 2022. Cost of licenses revenue decreased primarily due to a $1.9 million decrease in third-party software resale costs, partially offset by an increase in amortization of acquired intangible assets. Cost of subscription services revenue grew primarily due to a $15.4 million increase in personnel-related expenses as a result of higher headcount during fiscal year 2023. Cost of subscription services revenue was also impacted by a $7.2 million increase in hosting and software services expenses, a $1.6 million increase in third-party software resale costs, a $1.1 million increase in depreciation and amortization, and a $0.6 million increase in rent and other administrative costs. Cost of professional services and other revenue decreased primarily due to a $23.3 million decrease in personnel-related expenses, which included an $18.0 million decrease in stock-based compensation expense mostly resulting from the satisfaction of IPO-related performance conditions for RSUs during fiscal year 2022 and a $4.3 million decrease in employer payroll tax expense related to equity transactions, partially offset by a $0.6 million increase in employee termination benefits related to our restructuring actions beginning in the second quarter of fiscal year 2023, and the remainder of which was largely due to a decrease in headcount. Cost of professional services and other revenue was also impacted by an $8.1 million increase in costs associated with the use of third-party vendors to deliver professional services to our customers, a $0.6 million increase in software services expenses, and a $0.4 million increase in travel-related costs.

Our gross margin increased to 83% for fiscal year 2023 compared to 81% for fiscal year 2022, primarily as a result of higher stock-based compensation expense and employer payroll tax on settlement of equity awards recognized in fiscal year 2022 in connection with the satisfaction of IPO-related performance conditions for RSUs.

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Operating Expenses

Sales and Marketing

[[GREPCENT_TABLE]]
[["","Year Ended January 31,"],["","2023","","2022","","Change","","% Change"],["","(dollars in thousands)"],["Sales and marketing","$","701,558","","","$","697,682","","","$","3,876","","","1","%"],["Percentage of revenue","66","%","","78","%"]]
[[/GREPCENT_TABLE]]

Sales and marketing expense increased by $3.9 million, or 1%, for fiscal year 2023 compared to fiscal year 2022. This increase was primarily attributable to a $24.6 million increase in sales commissions, a $13.1 million increase in brand marketing and travel expenses due to the resumption of in-person events and user conferences (including our Forward 5 event), and an $8.2 million increase in software services costs used in sales support. Sales and marketing expense was also impacted by an $8.2 million increase in third-party consulting fees, a $3.2 million increase in rent, a $1.8 million increase in depreciation and amortization, and a $1.6 million increase in hosting costs. These increases were partially offset by a $57.0 million decrease in personnel-related expenses, which included an $83.1 million decrease in stock-based compensation mostly resulting from the satisfaction of IPO-related performance conditions for RSUs during fiscal 2022 and a $34.7 million decrease in employer payroll tax expense related to equity transactions, partially offset by a $38.0 million increase in salary-related expenses, a $19.0 million increase in employee termination benefits related to our restructuring actions beginning in the second quarter of fiscal year 2023, and a $3.8 million increase in general employee severance and other retirement benefits.

Research and Development

[[GREPCENT_TABLE]]
[["","Year Ended January 31,"],["","2023","","2022","","Change","","% Change"],["","(dollars in thousands)"],["Research and development","$","285,750","","","$","276,657","","","$","9,093","","","3","%"],["Percentage of revenue","27","%","","31","%"]]
[[/GREPCENT_TABLE]]

Research and development expense increased by $9.1 million, or 3%, for fiscal year 2023 compared to fiscal year 2022. The increase was primarily attributable to a $5.5 million increase in third-party software service and hosting costs, a $2.3 million increase in travel-related expenses, a $1.9 million increase in third-party consulting fees, and a $1.4 million increase in depreciation and amortization and other allocated office costs. Research and development expense was also impacted by a $2.2 million decrease in personnel-related expenses, which included a $33.2 million decrease in stock-based compensation mostly resulting from the satisfaction of IPO-related performance conditions for RSUs during fiscal 2022 and a $4.1 million decrease in employer payroll tax expense related to equity transactions, partially offset by a $26.6 million increase in salaries primarily resulting from increased headcount, a $7.5 million increase in bonuses and other employee benefits, and a $0.4 million increase in employee termination benefits related to our restructuring actions beginning in the second quarter of fiscal year 2023.

General and Administrative

[[GREPCENT_TABLE]]
[["","Year Ended January 31,"],["","2023","","2022","","Change","","% Change"],["","(dollars in thousands)"],["General and administrative","$","239,505","","","$","249,991","","","$","(10,486)","","","(4)","%"],["Percentage of revenue","23","%","","28","%"]]
[[/GREPCENT_TABLE]]

General and administrative expense decreased by $10.5 million, or 4%, for fiscal year 2023 compared to fiscal year 2022. This decrease was primarily attributable to a $6.7 million decrease in personnel-related expenses, which included an $11.2 million decrease in stock-based compensation mostly resulting from the satisfaction of IPO-related performance conditions for RSUs during fiscal 2022 and a $2.1 million decrease in employer payroll tax expense related to equity transactions, partially offset by a $4.2 million increase in salaries largely due to increased

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headcount, and a $2.2 million increase in employee termination benefits related to our restructuring actions beginning in the second quarter of fiscal year 2023. General and administrative expense was also impacted by a $6.7 million decrease in third-party consulting fees, a $5.1 million decrease in other tax expense, and a $2.9 million decrease in hosted business applications. These decreases were partially offset by a $4.4 million increase in charitable donations, mainly driven by our contribution of Class A common shares to a donor-advised fund during the second quarter of fiscal year 2023 in connection with our Pledge 1% commitment, a $3.0 million increase in insurance expense, a $1.6 million increase in travel-related costs, a $1.3 million increase in depreciation and amortization, and a $1.1 million increase in rent expense.

Interest Income

[[GREPCENT_TABLE]]
[["","Year Ended January 31,"],["","2023","","2022","","Change","","% Change"],["","(dollars in thousands)"],["Interest income","$","27,955","","","$","3,551","","","$","24,404","","","687","%"],["Percentage of revenue","3","%","","\u2014","%"]]
[[/GREPCENT_TABLE]]

Interest income increased by $24.4 million, or 687%, for fiscal year 2023 compared to fiscal year 2022 as a result of a period-over-period increase in our marketable securities and the associated impact of increased interest rates on these accounts.

Other Income (Expense), Net

[[GREPCENT_TABLE]]
[["","Year Ended January 31,"],["","2023","","2022","","Change","","% Change"],["","(dollars in thousands)"],["Other income (expense), net","$","2,767","","","$","(13,488)","","","$","16,255","","","121","%"],["Percentage of revenue","\u2014","%","","(1)","%"]]
[[/GREPCENT_TABLE]]

Other income, net increased by $16.3 million, or 121%, for fiscal year 2023 compared to fiscal year 2022. The change was primarily attributable to a period-over-period favorable impact from foreign exchange, a period-over-period favorable impact from amortization on marketable securities, and an increase in sublease income during the current year. These increases were partially offset by a nonrecurring benefit recognized in the prior period from foreign currency forward contracts which were terminated at the end of fiscal year 2022.

Provision For Income Taxes

[[GREPCENT_TABLE]]
[["","Year Ended January 31,"],["","2023","","2022","","Change","","% Change"],["","(dollars in thousands)"],["Provision for income taxes","$","10,791","","","$","14,703","","","$","(3,912)","","","(27)","%"],["Percentage of revenue","1","%","","2","%"]]
[[/GREPCENT_TABLE]]

Provision for income taxes decreased by $3.9 million, or 27%, for fiscal year 2023 compared to fiscal year 2022. The effective tax rate was (3.4)% and (2.9)% for fiscal years 2023 and 2022, respectively. The change was primarily driven by lower foreign tax expenses resulting from lower year-over-year earnings of our cost-plus margin entities, coupled with lower permanent differences in those jurisdictions.

Liquidity and Capital Resources

We have financed operations since our inception primarily through customer payments and net proceeds from sales of equity securities. Our principal uses of cash in recent periods have been to fund our operations, invest in capital expenditures, and engage in various business acquisitions. As of January 31, 2023 and 2022, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $1,759.8 million and $1,884.7 million, respectively, and we had an accumulated deficit of $1,824.3 million and $1,495.9 million, respectively. During the fiscal years ended January 31, 2023 and 2022, we reported net losses of $328.4 million and $525.6 million, respectively, and net cash used in operations of $10.0 million and $55.0 million, respectively.

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In April 2021, we completed our IPO, which resulted in the issuance of 13.0 million shares of our Class A common stock at a public offering price of $56.00 per share, including 3.6 million shares pursuant to the exercise in full of the underwriters’ option to purchase additional shares. Net proceeds were $687.9 million after deducting underwriting discounts and commissions of $35.6 million and offering expenses of $4.5 million.

In February 2021, we completed our Series F preferred stock financing with gross proceeds totaling $750.0 million. In July 2020, we completed our Series E preferred stock financing with gross proceeds totaling $225.9 million. In connection with our IPO, all shares of convertible preferred stock then outstanding automatically converted into shares of Class A common stock.

In October 2020, we entered into the Credit Facility (described further below) with an available borrowing capacity of $200.0 million.

In January 2020, we entered into an Amended and Restated Loan and Security Agreement with HSBC Bank USA, N.A, HSBC Ventures USA Inc., and Silicon Valley Bank, which provided a $100.0 million senior secured revolving credit facility, and which we repaid in full in July 2020.

Our future capital requirements will depend on many factors, including our revenue growth rate, sales of our products and services, license renewal activity, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, the continuing market adoption of our products, expenses associated with our international expansion, and the timing and extent of capital expenditures to invest in existing and new office spaces. We may in the future enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.

We believe that our existing cash, cash equivalents, marketable securities, payments from customers, and borrowing capacity will be sufficient to fund our anticipated cash requirements for the next twelve months and the long term.

Credit Facility

In October 2020, we entered into the Credit Facility with HSBC Ventures USA Inc., Silicon Valley Bank, Sumitomo Mitsui Banking Corporation, and Mizuho Bank, LTD. Our obligations under the Credit Facility are secured by substantially all of our assets, except for our intellectual property. The Credit Facility contains certain customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions. We may use the proceeds of future borrowings under the Credit Facility for refinancing other indebtedness, working capital, capital expenditures, and other general corporate purposes, including permitted business acquisitions.

Borrowings under the Credit Facility bear interest at a base rate, as defined in the Credit Facility, plus a margin of 2.0% or 3.0% depending on the base rate. The Credit Facility is subject to customary fees for loan facilities of this type, including ongoing commitment fees at a rate of 0.25% per annum on the daily amount available to be drawn. As of January 31, 2023, we had no outstanding debt under the Credit Facility.

Although we had a banking relationship with Silicon Valley Bank as of its closure on March 10, 2023, we did not experience any adverse impact to our liquidity or to our current or projected business operations, financial condition, or results of operations as a result such closure. However, uncertainty remains over liquidity concerns in the broader financial services industry, and there may be additional impacts to our business and our industry that we cannot predict at this time.

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Cash Flows

The following table summarizes our cash flows for the periods presented:

[[GREPCENT_TABLE]]
[["","Year Ended January 31,"],["","2023","","2022"],["","(dollars in thousands)"],["Net cash used in operating activities(1)","$","(9,981)","","","$","(54,963)"],["Net cash used in investing activities","(289,143)","","","(35,442)"],["Net cash (used in) provided by financing activities","(60,669)","","","1,469,673"],["(1) Inclusive of:"],["Cash paid for employer payroll taxes related to employee equity transactions","$","(9,112)","","","$","(51,693)"],["Net (payments) receipts of employee tax withholdings on stock option exercises","(5,394)","","","6,382"],["Cash paid for restructuring costs","(19,339)","","","\u2014"]]
[[/GREPCENT_TABLE]]

Operating Activities

Our largest source of operating cash is cash generation from sales to our customers. Our primary uses of cash from operating activities are for personnel-related expenses, direct costs to deliver licenses and provide subscription and professional services, and marketing expenses. To date, our operating cash flows have generally been negative and we have supplemented working capital requirements primarily through net proceeds from the sale of equity securities.

Net cash used in operating activities for fiscal year 2023 of $10.0 million was driven by cash payments for operating expenditures, primarily associated with the compensation of our teams, including bonuses paid in the first quarter of fiscal year 2023 and employer payroll taxes related to employee equity transactions. Other cash operating expenditures included payments related to our workforce restructuring, and payments for professional services, software, and office rent. These outflows were partially offset by cash collections from our customers, which were approximately 26% higher than in the prior year.

Net cash used in operating activities for fiscal year 2022 of $55.0 million was driven by cash payments for operating expenditures, primarily associated with the compensation of our teams, including increased year-end fiscal 2021 sales commissions and bonuses paid in the first quarter of fiscal 2022 and employer payroll taxes related to employee equity transactions. Other cash operating expenditures included payments for professional services, software, and office rent.

Investing Activities

Net cash used in investing activities for fiscal year 2023 of $289.1 million was primarily driven by $237.0 million in net purchases of marketable securities, $29.5 million in cash consideration associated with the acquisition of Re:Infer, which is presented net of cash acquired, and $23.8 million in capital expenditures.

Net cash used in investing activities for fiscal year 2022 of $35.4 million was driven by $15.4 million in net purchases of marketable securities, capital expenditures of $8.9 million, payments related to business acquisitions of $5.5 million, capitalized software development costs of $3.0 million, and $2.7 million in other investing activities.

Financing Activities

Net cash used in financing activities for fiscal year 2023 of $60.7 million was primarily driven by payments of tax withholdings on net settlement of equity awards of $73.1 million, net payments of tax withholdings on sell-to-cover equity award transactions of $9.5 million, and $1.5 million in repurchases of unvested early exercised stock options, partially offset by proceeds from ESPP contributions of $15.0 million and proceeds from stock option exercises of $8.4 million.

Net cash provided by financing activities for fiscal year 2022 of $1,469.7 million was primarily driven by $749.8 million in net proceeds from issuance of Series F convertible preferred stock, $692.4 million in net proceeds from our IPO after deducting underwriting expenses and commissions, proceeds from ESPP contributions of $19.0

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million, proceeds from stock option exercises of $12.2 million, and net receipts of tax withholdings on sell-to-cover equity award transactions of $10.4 million, partially offset by payments of tax withholdings on net settlement of equity awards of $10.5 million, and payments of IPO-related costs of $3.7 million.

Material Cash Requirements

In the normal course of business, we enter into non-cancelable purchase commitments with various parties, mainly for hosting services and software products and services. During fiscal year 2023, we made commitments to purchase $138.1 million of cloud infrastructure services from a third-party vendor and $82.5 million of service credits toward professional services from third-party alliance partners, which together constitute the majority of the increase in our non-cancelable purchase commitments during the fiscal year.

The following table summarizes the aggregate effect that our material contractual obligations as of January 31, 2023 are expected to have on our cash flows in the periods indicated (in thousands):

[[GREPCENT_TABLE]]
[["","Payments Due by Period"],["","Total","","Less Than 1 Year","","1-3 Years","","3-5 Years","","More Than 5 Years"],["","(dollars in thousands)"],["Operating lease commitments","$","93,413","","","$","11,950","","","$","17,816","","","$","14,919","","","$","48,728"],["Purchase commitments","214,654","","","66,846","","","135,677","","","12,131","","","\u2014"],["Total contractual obligations","$","308,067","","","$","78,796","","","$","153,493","","","$","27,050","","","$","48,728"]]
[[/GREPCENT_TABLE]]

The amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the amounts of assets and liabilities at the date of the consolidated financial statements and amounts of revenue and expenses reported during the period. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, and we evaluate our estimates on an ongoing basis. The following are the accounting estimates that we believe have the most significant impact on our consolidated financial statements.

Revenue Recognition

We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. ASC 606 requires recognition of revenue when control of promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. Revenue recognition is inherently judgmental, particularly for complex arrangements that include multiple performance obligations, which are common for us. Our most significant judgment relates to allocation of the transaction price, specifically determining the SSP for each performance obligation, which impacts the pattern and timing of revenue recognition.

At the inception of a contract with a customer, we assess the goods or services promised to identify distinct performance obligations. The distinct performance obligations identified in our typical contracts include, but are not limited to, software licenses, SaaS, maintenance and support, and professional services. The pattern and timing of revenue recognition for each of these performance obligations varies. Specifically, revenue from licenses is recognized at the point in time at which the customer is able to use and benefit from the software, which is generally upon delivery to the customer or upon commencement of the renewal term; revenue from SaaS and maintenance and support services is recognized ratably over the contract term; and revenue from professional services is recognized over time as the services are performed.

Most of our contracts contain multiple of these performance obligations. In such arrangements, the transaction price is allocated to the separate performance obligations on a relative SSP basis. Since the performance obligations have different revenue recognition models, SSP estimates directly affect the timing and amount of revenue recognized during a particular period. For example, if the SSP of a license delivered in one

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period is greater than the SSP of professional services that are sold with that license but delivered in future periods, a greater portion of the transaction price will be recognized at contract inception in the current period versus over time as the services are performed in later periods.

Whenever possible, we allocate the transaction price based on observable SSP, which is the price of the same good or service in standalone sales to similar customers in similar circumstances. If observable SSP is not available, we estimate the SSP using data that may include historical prices, discounting practices, list prices, cost data and other observable inputs. We may have more than one SSP for individual performance obligations when our data population indicates that pricing practices vary by class of customer (for example, based on the customer’s geographic region). We update our SSPs at least annually.

For further information about our revenue recognition, refer to Note 2, Summary of Significant Accounting Policies—Revenue Recognition and Note 3, Revenue Recognition, included in Item 8 of this Annual Report on Form 10-K.

Stock-Based Compensation

We recognize stock-based compensation expense in accordance with the provisions of ASC 718, Compensation—Stock Compensation. ASC 718 requires the measurement and recognition of compensation expense for all stock-based awards made to employees, directors, and non-employees based on the grant date fair value of the awards.

During fiscal year 2023, we granted 30.0 million RSUs and 5.0 million stock options, and issued 1.2 million shares under our ESPP.

RSUs

The fair values of these 30.0 million RSUs were determined based on the closing price of our publicly traded Class A common stock on the respective grant dates (with grant date being the date of approval by the compensation committee of our board or directors or its delegates), and as such were not subject to estimation uncertainty.

Stock Options

The fair values of stock options were determined using the Black-Scholes pricing model, which considers the value of our Class A common stock, exercise price, expected term, expected volatility, risk-free interest rate, and expected dividend yield.

Of the 5.0 million stock options granted, 2.9 million were granted in-the-money with an exercise price of $0.10, which is our current broad-based granting practice in certain non-U.S. jurisdictions; given their immaterial exercise price, the fair values of these in-the-money stock options closely approximated the closing price of our publicly traded Class A common stock on the respective grant dates and were not sensitive to the other inputs to the Black-Scholes pricing model.

The remaining 2.1 million stock options were U.S. executive-level grants with an at-the-money exercise price, the fair values of which were sensitive to the other inputs of the Black-Scholes pricing model. The most subjective of these inputs are as follows:

•Expected term. We do not yet have sufficient relevant historical exercise data to provide a reasonable basis for estimation of expected term post-IPO; we presently use the simplified method permitted under Staff Accounting Bulletin 14, which deems the expected term to be the average of the time-to-vest and the contractual life. The expected term for the aforementioned 2.1 million stock options ranged from 5.3 to 6.1 years.

•Expected volatility. As a public market for our common stock did not exist prior to the IPO, we have limited trading history on which to base expectations of volatility; we presently estimate expected volatility based on the volatility of a group of similar publicly held entities, referred to as “guideline companies,” over a look-back period equivalent to the expected term. In evaluating the similarity of guideline companies, we consider factors such as industry, stage of life cycle, size, and degree of financial leverage. The expected volatility for the aforementioned 2.1 million stock options ranged from 59.4% to 61.8%. Beginning in fiscal year 2024, we will include our own stock price volatility within the group and will continue to increase the weighting of our own volatility over time as sufficient trading history is established.

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A ten percent change in the Black-Scholes values of these 2.1 million stock options would have impacted our fiscal year 2023 stock-based compensation expense by $0.4 million.

ESPP

The fair values of ESPP awards were determined using the Black-Scholes pricing model, with the most subjective input being expected volatility. As a public market for our common stock did not exist prior to the IPO, we have limited trading history on which to base expectations of volatility; until late fiscal year 2023, we estimated expected volatility based on the volatility of the same group of guideline companies used for our stock options, over a look-back period equal to the six-month term of our ESPP offering periods. Beginning with our most recent offering period in the fourth quarter of fiscal year 2023, having established sufficient trading history, we estimated expected volatility using the volatility of our own Class A common stock over the look-back period. The expected volatility used in valuing ESPP offering periods outstanding during fiscal year 2023 ranged from 47.4% to 84.2%. A ten percent change in the Black-Scholes values of these ESPP awards would have impacted our fiscal year 2023 stock-based compensation expense by $0.8 million.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements, included in Part II, Item 8 of this Annual Report on Form 10-K for more information.