UiPath, Inc. (PATH) FY 2025 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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, 2025 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. Readers 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 2025, 2024, and 2023 in this Annual Report on Form 10-K refer to our fiscal years ended January 31, 2025, 2024, and 2023, respectively. A discussion regarding our financial condition and our results of operations for fiscal year 2025 compared to fiscal year 2024 is presented below. For a discussion regarding our results of operations for fiscal year 2024 compared to fiscal year 2023 see the 2024 Form 10-K, under the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations," which is incorporated herein by reference.
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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 Platform™ leverages AI, ML, and NLP to empower automations 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 AI-powered 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, and pricing, and overall changes in our customers’ propensity to invest in automation;
•our ability to grow our partner base and execute on all aspects of partner relationships, 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 Part I, Item 1. Business of this Annual Report on Form 10-K.
Fiscal Year 2025 Highlights
•Revenue of $1,429.7 million increased 9% year-over-year.
•ARR of $1,666.1 million increased 14% year-over-year.
•Gross margin was 83% for fiscal year 2025, compared to 85% for fiscal year 2024.
•Cash and cash equivalents, restricted cash, and marketable securities were $1,724.1 million as of January 31, 2025, compared to $1,880.3 million as of January 31, 2024.
Macroeconomic Environment
As a corporation with a global presence, we are subject to risks and uncertainties caused by significant events with macroeconomic impacts, including, but not limited to, the impact of changes in geopolitical relationships, fluctuating inflation and interest rates, monetary and trade policy changes, government efficiency initiatives, and foreign currency fluctuations. Additionally, these macroeconomic impacts have generally disrupted the operations of our customers, prospective customers, and partners.
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Internationally, we price our platform in currencies that may not be the functional 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, comparison of results to prior periods, 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. Additionally, the return on our cash, cash equivalents, and marketable securities is sensitive to changes in interest rates. Volatility in the interest rate environment may impact the amount of interest and other income reported on our consolidated statements of operations, the comparability of these amounts to prior periods, and our ability to predict future profitability.
We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape.
Workforce Restructuring
On June 24, 2022, our board of directors approved the Fiscal Year 2023 Workforce Restructuring to manage our operating expenses by reducing our global workforce by approximately 5%. The workforce reduction aimed to simplify our go-to-market approach and improve sales productivity. In connection with these workforce reductions, we also ceased use of our office in Brooklyn, NY. On November 10, 2022, our board of directors approved further restructuring actions to reduce our global workforce across functions by an additional 6%. The Fiscal Year 2023 Workforce Restructuring was completed during the second quarter of fiscal year 2024.
On July 8, 2024, our board of directors approved the Fiscal Year 2025 Workforce Restructuring to reshape the organization by streamlining our structure, particularly in operational and corporate functions, to better prioritize our go-to-market investments and focus our research and development investments on AI and driving innovation across our platform. The Fiscal Year 2025 Workforce Restructuring is substantially completed, with any remaining actions now expected to be completed by end of the second quarter of fiscal year 2026.
Refer to Note 11, Commitments and Contingencies—Workforce Restructuring included in Part II, Item 8 of this Annual Report on Form 10-K for more information.
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.
We have a unified commercial offering for software products with both on-premises and cloud deployment options that allows customers the choice of either deployment option throughout the term of the contract. These Flex Offerings are comprised of three types of performance obligations: term license, maintenance and support, and SaaS.
Licenses
Our term licenses (typically sold as a portion of Flex Offerings) 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. As licenses revenue is recognized at a point in time, any shift in license start dates or duration will have a direct impact on our licenses revenue.
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 (typically sold as a portion of Flex Offerings). Maintenance and support and SaaS
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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, depreciation, and allocated overhead. Overhead is allocated 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 SaaS business grows. In the future, we expect further expansion of our cloud-based deployments. As more of our customer base deploys our products via SaaS, 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 subcontracted third-party services, depreciation, and allocated overhead. We recognize these expenses as they are incurred. We expect cost of professional services and other revenue to increase in absolute dollars for the foreseeable future.
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.
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. 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.
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
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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. 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 earned on our cash and cash equivalents and marketable securities.
Other Income, Net
Other income, net primarily consists of foreign exchange gains and losses. Other income, net also includes accretion of discounts and premiums on marketable securities.
(Benefit From) Provision For Income Taxes
(Benefit from) 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 currently maintain a full valuation allowance on our U.S. federal and state and Romania DTAs, as we have concluded as of January 31, 2025 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.
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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):
| Year Ended January 31, | ||||||
|---|---|---|---|---|---|---|
| 2025 | 2024 | |||||
| Revenue: | ||||||
| Licenses | $ | 587,162 | $ | 621,392 | ||
| Subscription services | 801,947 | 649,918 | ||||
| Professional services and other | 40,555 | 36,762 | ||||
| Total revenue | 1,429,664 | 1,308,072 | ||||
| Cost of revenue: | ||||||
| Licenses (1) | 8,565 | 10,469 | ||||
| Subscription services (1)(2)(3)(4) | 167,630 | 111,922 | ||||
| Professional services and other (2)(3)(4) | 70,747 | 73,533 | ||||
| Total cost of revenue | 246,942 | 195,924 | ||||
| Gross profit | 1,182,722 | 1,112,148 | ||||
| Operating expenses: | ||||||
| Sales and marketing(1)(2)(3)(4) | 738,493 | 713,130 | ||||
| Research and development(2)(3)(4) | 380,682 | 332,101 | ||||
| General and administrative(1)(2)(3)(4) | 226,116 | 231,637 | ||||
| Total operating expenses | 1,345,291 | 1,276,868 | ||||
| Operating loss | (162,569) | (164,720) | ||||
| Interest income | 49,422 | 57,130 | ||||
| Other income, net | 35,047 | 31,775 | ||||
| Loss before income taxes | (78,100) | (75,815) | ||||
| (Benefit from) provision for income taxes | (4,406) | 14,068 | ||||
| Net loss | $ | (73,694) | $ | (89,883) |
| (1) Includes amortization of acquired intangible assets as follows (in thousands): | Year Ended January 31, | |||||
|---|---|---|---|---|---|---|
| 2025 | 2024 | |||||
| Cost of licenses revenue | $ | 2,747 | $ | 3,371 | ||
| Cost of subscription services revenue | 2,382 | 2,359 | ||||
| Sales and marketing | 1,428 | 2,706 | ||||
| General and administrative | 154 | 164 | ||||
| Total amortization of acquired intangible assets | $ | 6,711 | $ | 8,600 |
| (2) Includes stock-based compensation expense as follows (in thousands): | Year Ended January 31, | |||||
|---|---|---|---|---|---|---|
| 2025 | 2024 | |||||
| Cost of subscription services revenue | $ | 19,401 | $ | 14,750 | ||
| Cost of professional services and other revenue | 11,386 | 10,958 | ||||
| Sales and marketing | 134,646 | 144,863 | ||||
| Research and development | 132,757 | 117,965 | ||||
| General and administrative | 59,961 | 83,419 | ||||
| Total stock-based compensation expense | $ | 358,151 | $ | 371,955 |
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| (3) Includes employer payroll tax expense related to employee equity transactions as follows (in thousands): | Year Ended January 31, | |||||
|---|---|---|---|---|---|---|
| 2025 | 2024 | |||||
| Cost of subscription services revenue | $ | 448 | $ | 434 | ||
| Cost of professional services and other revenue | 188 | 327 | ||||
| Sales and marketing | 3,069 | 4,176 | ||||
| Research and development | 2,188 | 3,027 | ||||
| General and administrative | 1,106 | 1,924 | ||||
| Total employer payroll tax expense related to employee equity transactions | $ | 6,999 | $ | 9,888 |
| (4) Includes restructuring expense as follows (in thousands): | Year Ended January 31, | |||||
|---|---|---|---|---|---|---|
| 2025 | 2024 | |||||
| Cost of subscription services revenue | $ | 2,745 | $ | 114 | ||
| Cost of professional services and other revenue | 105 | — | ||||
| Sales and marketing | 15,452 | 1,376 | ||||
| Research and development | 3,058 | 387 | ||||
| General and administrative | 3,366 | 749 | ||||
| Total restructuring expense | $ | 24,726 | $ | 2,626 |
The following table sets forth our consolidated statement of operations data expressed as a percentage of revenue for the periods indicated:
| Year Ended January 31, | |||||
|---|---|---|---|---|---|
| 2025 | 2024 | ||||
| Revenue: | |||||
| Licenses | 41 | % | 47 | % | |
| Subscription services | 56 | % | 50 | % | |
| Professional services and other | 3 | % | 3 | % | |
| Total revenue | 100 | % | 100 | % | |
| Cost of revenue: | |||||
| Licenses | — | % | 1 | % | |
| Subscription services | 12 | % | 8 | % | |
| Professional services and other | 5 | % | 6 | % | |
| Total cost of revenue | 17 | % | 15 | % | |
| Gross profit | 83 | % | 85 | % | |
| Operating expenses: | |||||
| Sales and marketing | 52 | % | 55 | % | |
| Research and development | 27 | % | 25 | % | |
| General and administrative | 15 | % | 18 | % | |
| Total operating expenses | 94 | % | 98 | % | |
| Operating loss | (11) | % | (13) | % | |
| Interest income | 3 | % | 4 | % | |
| Other income, net | 3 | % | 3 | % | |
| Loss before income taxes | (5) | % | (6) | % | |
| (Benefit from) provision for income taxes | — | % | 1 | % | |
| Net loss | (5) | % | (7) | % |
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Comparison of Fiscal Year 2025 and Fiscal Year 2024
Revenue
| Year Ended January 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | Change | % Change | |||||||||||
| (dollars in thousands) | ||||||||||||||
| Licenses | $ | 587,162 | $ | 621,392 | $ | (34,230) | (6) | % | ||||||
| Subscription services | 801,947 | 649,918 | 152,029 | 23 | % | |||||||||
| Professional services and other | 40,555 | 36,762 | 3,793 | 10 | % | |||||||||
| Total revenue | $ | 1,429,664 | $ | 1,308,072 | $ | 121,592 | 9 | % |
Total revenue increased by $121.6 million, or 9%, for fiscal year 2025 compared to fiscal year 2024, primarily due to a $152.0 million increase in subscription services revenue partially offset by a $34.2 million decrease in licenses revenue, related in part to the transition to our Flex Offerings. As we continued to expand our sales efforts in the U.S. and internationally, our revenue increased across all regions. Of the growth in total revenue, 24% was attributable to new customers and 76% was attributable to existing customers. Subscription services revenue is recognized ratably over the subscription term; therefore, the increase in subscription services revenue is driven both by sales in prior periods for which we continue to provide maintenance and support and SaaS and by new sales in the current period.
Cost of Revenue and Gross Margin
| Year Ended January 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | Change | % Change | |||||||||||
| (dollars in thousands) | ||||||||||||||
| Licenses | $ | 8,565 | $ | 10,469 | $ | (1,904) | (18) | % | ||||||
| Subscription services | 167,630 | 111,922 | 55,708 | 50 | % | |||||||||
| Professional services and other | 70,747 | 73,533 | (2,786) | (4) | % | |||||||||
| Total cost of revenue | $ | 246,942 | $ | 195,924 | $ | 51,018 | 26 | % | ||||||
| Gross margin | 83 | % | 85 | % |
Total cost of revenue increased by $51.0 million, or 26%, for fiscal year 2025 compared to fiscal year 2024, primarily due to a $55.7 million increase in cost of subscription services revenue, partially offset by a $2.8 million decrease in cost of professional services and other revenue. The increase in cost of subscription services revenue was primarily driven by a $25.1 million increase in third-party hosting and software services costs as a result of increased usage of our subscription services and a $23.1 million increase in personnel-related expenses, which included a $12.4 million increase in salary-related and bonus expenses associated with both increased average headcount and merit increases, a $4.7 million increase in stock-based compensation expense, a $3.1 million aggregate increase in employee insurance costs and employer payroll tax expense, and a $2.6 million increase in employee termination benefits related to our Fiscal Year 2025 Workforce Restructuring. Cost of subscription services revenue was also impacted by a $6.9 million increase in costs associated with the use of third-party vendors. The decrease in cost of professional services and other revenue was primarily driven by a $3.8 million decrease in personnel-related expenses, largely related to lower salary-related and bonus expenses, partially offset by a $1.5 million increase in costs associated with the use of third-party subcontractors to deliver professional services to our customers.
Our gross margin decreased to 83% for fiscal year 2025 compared to 85% for fiscal year 2024, due to decrease in the proportion of higher-margin license revenue and the aforementioned increase in cost of subscription services revenue driven by increased hosting and personnel costs.
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Operating Expenses
Sales and Marketing
| Year Ended January 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | Change | % Change | |||||||||||
| (dollars in thousands) | ||||||||||||||
| Sales and marketing | $ | 738,493 | $ | 713,130 | $ | 25,363 | 4 | % | ||||||
| Percentage of revenue | 52 | % | 55 | % |
Sales and marketing expense increased by $25.4 million, or 4%, for fiscal year 2025 compared to fiscal year 2024. This increase was primarily attributable to a $15.0 million increase in personnel-related expenses, which included a $14.1 million increase in employee termination benefits related to our Fiscal Year 2025 Workforce Restructuring, a $9.1 million increase in salary-related and bonus expenses, a $2.5 million aggregate increase in employee insurance costs and employer payroll taxes, and a $0.5 million increase in general employee severance, partially offset by a $10.2 million decrease in stock-based compensation expense and a $1.1 million decrease in employer payroll tax expense related to employee equity transactions. Sales and marketing was also impacted by a $10.7 million increase in sales commissions as a result of higher amortization of capitalized contract acquisition costs and a $4.7 million increase in marketing expenses largely related to our Forward VII user conference. These increases were partially offset by a $2.8 million decrease in depreciation and amortization expense and a $1.1 million decrease in sales-related software expenses.
Research and Development
| Year Ended January 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | Change | % Change | |||||||||||
| (dollars in thousands) | ||||||||||||||
| Research and development | $ | 380,682 | $ | 332,101 | $ | 48,581 | 15 | % | ||||||
| Percentage of revenue | 27 | % | 25 | % |
Research and development expense increased by $48.6 million, or 15%, for fiscal year 2025 compared to fiscal year 2024. The increase was primarily attributable to a $26.1 million increase in personnel-related costs, which included a $14.8 million increase in stock-based compensation expense, an $8.5 million increase in salary-related and bonus expenses, and a $2.7 million increase in employee termination benefits related to our Fiscal Year 2025 Workforce Restructuring. Research and development expense was also impacted by an $18.7 million increase in hosting and software services costs, a $1.7 million increase in third-party consulting fees, and a $1.6 million increase in rent expense.
General and Administrative
| Year Ended January 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | Change | % Change | |||||||||||
| (dollars in thousands) | ||||||||||||||
| General and administrative | $ | 226,116 | $ | 231,637 | $ | (5,521) | (2) | % | ||||||
| Percentage of revenue | 15 | % | 18 | % |
General and administrative expense decreased by $5.5 million, or 2%, for fiscal year 2025 compared to fiscal year 2024. This decrease was primarily attributable to a $19.7 million decrease in personnel-related expenses, which included a $23.5 million decrease in stock-based compensation expense and a $0.8 million decrease in employer payroll tax expense related to employee equity transactions, partially offset by a $2.6 million increase in employee termination benefits related to our Fiscal Year 2025 Workforce Restructuring and a $1.9 million increase in employee insurance costs. General and administrative expense was also impacted an $11.1 million increase in software service and implementation costs, a $2.7 million increase due to a credit loss recovery recorded in the prior comparable period, a $2.3 million increase in charitable donations mainly driven by the increased fair value of our Class A common shares contributed to a donor-advised fund in the current year, and a $1.9 million increase in third-party consulting fees, partially offset by a $3.9 million decrease in commercial insurance costs.
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Interest Income
| Year Ended January 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | Change | % Change | |||||||||||
| (dollars in thousands) | ||||||||||||||
| Interest income | $ | 49,422 | $ | 57,130 | $ | (7,708) | (13) | % | ||||||
| Percentage of revenue | 3 | % | 4 | % |
Interest income decreased by $7.7 million, or 13%, for fiscal year 2025 compared to fiscal year 2024 as a result of a period-over-period decrease in our aggregate balance of cash and cash equivalents and marketable securities, as well as decreased interest rates.
Other Income, Net
| Year Ended January 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | Change | % Change | |||||||||||
| (dollars in thousands) | ||||||||||||||
| Other income, net | $ | 35,047 | $ | 31,775 | $ | 3,272 | 10 | % | ||||||
| Percentage of revenue | 3 | % | 3 | % |
Other income, net increased by $3.3 million, or 10%, for fiscal year 2025 compared to fiscal year 2024, primarily due to a $6.6 million increase in foreign currency transaction gains and a $1.9 million increase in accretion of discounts on marketable securities, partially offset by a $3.9 million decrease in legal expense related to shareholder litigation and a $1.6 million decrease in sublease income.
(Benefit From) Provision For Income Taxes
| Year Ended January 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | Change | % Change | ||||||||||
| (dollars in thousands) | |||||||||||||
| (Benefit from) provision for income taxes | $ | (4,406) | $ | 14,068 | $ | (18,474) | NM(1) | ||||||
| Percentage of revenue | 0 | % | 1 | % | |||||||||
| (1) Not meaningful |
Provision for income taxes decreased by $18.5 million for fiscal year 2025 compared to fiscal year 2024, mainly driven by the tax benefit related to release of valuation allowance associated with our U.K. DTA, partially offset by tax expenses recognized related to the changing of our intent with respect to permanent reinvestment of foreign earnings.
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. ARR also does not reflect nonrecurring rebates payable to partners (upon establishing sufficient history of their nonrecurring nature), the impact of nonrecurring incentives (such as one-time discounts provided under sales promotional programs), and any actual or anticipated reductions in invoiced value due to contract non-renewals or service cancellations other than for certain reserves (for example those for credit losses or disputed amounts). At January 31, 2025 and 2024, our ARR was $1,666.1 million and $1,463.7 million, respectively, representing a growth rate of 14%. Approximately 21% of this growth rate was due to new customers and 79% 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 110% and 119% as of January 31, 2025 and 2024, respectively. We calculate dollar-based net retention rate as of a period end by starting with Prior Period ARR, the ARR from the
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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 U.S. GAAP revenue and ARR calculations. Generally speaking, our ARR calculation simply takes our invoiced amounts per solution SKU under a subscription license or maintenance agreement as of the end of an invoiced period and divides that amount by the corresponding term and multiplies by 365 days to derive the annualized renewal value. In contrast, for our revenue calculated in accordance with U.S. 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, revenue is 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 assuming no reserve is applied, whereas revenue is determined by total contract value and timing of satisfaction of the underlying performance 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, 2025 and 2024 is as follows:
| At January 31, | ||||||
|---|---|---|---|---|---|---|
| 2025 | 2024 | |||||
| (dollars in thousands) | ||||||
| ARR | $ | 1,666,136 | $ | 1,463,698 | ||
| Incremental ARR (1) | $ | 202,438 | $ | 259,853 | ||
| Customers with ARR ≥ $1 million: | ||||||
| Number of customers | 317 | 288 | ||||
| Percent of fiscal year revenue | 51 | % | 52 | % | ||
| Customers with ARR ≥ $100 thousand: | ||||||
| Number of customers | 2,292 | 2,054 | ||||
| Percent of fiscal year revenue | 87 | % | 86 | % | ||
| Dollar-based net retention rate | 110 | % | 119 | % | ||
| (1) For the fiscal years ended January 31, 2025 and 2024, respectively |
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, engage in various business acquisitions, and, more recently, repurchase shares of our Class A common stock. As of January 31, 2025 and 2024, our principal sources of liquidity were cash, cash equivalents, and
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marketable securities totaling $1,723.6 million and $1,879.8 million, respectively, and we had an accumulated deficit of $1,987.9 million and $1,914.2 million, respectively. During the fiscal years ended January 31, 2025 and 2024, we reported net losses of $73.7 million and $89.9 million, respectively, and net cash provided by operations of $320.6 million and $299.1 million, respectively.
In October 2020, we entered into the Credit Facility with an available borrowing capacity of $200.0 million. We did not borrow under the Credit Facility at any time, and it was terminated in September 2023, shortly prior to its scheduled maturity date. Refer to Note 10, Credit Facility for further details.
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 international expansion, the timing and extent of capital expenditures to invest in existing and new office spaces, and the timing and extent of stock repurchases. 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 and cash equivalents, marketable securities, and payments from customers will be sufficient to fund our anticipated cash requirements for the next twelve months and the long term.
Stock Repurchase Program
On September 1, 2023, our board of directors authorized a stock repurchase program, pursuant to which we may repurchase from time to time up to $500.0 million of our outstanding shares of Class A common stock. On August 30, 2024, our board of directors authorized the repurchase of an additional $500.0 million of our outstanding shares of Class A common stock. Refer to Note 12, Stockholders' Equity—Stock Repurchase Program for further details.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| Year Ended January 31, | ||||||
|---|---|---|---|---|---|---|
| 2025 | 2024 | |||||
| (dollars in thousands) | ||||||
| Net cash provided by operating activities(1) | $ | 320,565 | $ | 299,082 | ||
| Net cash used in investing activities | (45,503) | (439,569) | ||||
| Net cash used in financing activities | (450,515) | (196,895) | ||||
| (1) Inclusive of: | ||||||
| Cash paid for employer payroll taxes related to employee equity transactions | $ | (6,907) | $ | (10,483) | ||
| Net receipts (payments) of employee tax withholdings on stock option exercises | 3 | (980) | ||||
| Cash paid for restructuring costs | (15,283) | (6,180) |
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.
Net cash provided by operating activities for fiscal year 2025 of $320.6 million was driven by cash collections from our customers, which were approximately 7% higher than in the prior year, and interest income on our marketable securities. These cash inflows were partially offset by cash payments for operating expenditures, primarily associated with the compensation of our teams, including fiscal year 2024 bonuses paid in the first quarter
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of fiscal year 2025 and employer payroll taxes related to employee equity transactions. Other cash operating expenditures included payments related to our Fiscal Year 2025 Workforce Restructuring, and payments for professional service, software and office rent.
Net cash provided by operating activities for fiscal year 2024 of $299.1 million was driven by cash collections from our customers and interest income on our marketable securities, partially offset by cash payments for operating expenditures, primarily associated with the compensation of our teams, including fiscal year 2023 bonuses paid in the first quarter of fiscal year 2024 and employer payroll taxes related to employee equity transactions. Other cash operating expenditures included payments related to our Fiscal Year 2023 Workforce Restructuring, which was concluded during the second quarter of fiscal year 2024, and payments for professional services, software, and office rent.
Investing Activities
Net cash used in investing activities for fiscal year 2025 of $45.5 million was primarily driven by a $35.8 million investment in the H company and $14.9 million in capital expenditures, partially offset by $5.2 million in net maturities of marketable securities.
Net cash used in investing activities for fiscal year 2024 of $439.6 million was primarily driven by $435.0 million in net purchases of marketable securities and $7.3 million in capital expenditures.
Financing Activities
Net cash used in financing activities for fiscal year 2025 of $450.5 million was primarily driven by $390.8 million in repurchases of Class A common stock under our stock repurchase program, $77.9 million in payments of tax withholdings on net settlement of equity awards, and $5.6 million loan note payment on the second anniversary of the acquisition of Re:infer, partially offset by $15.6 million in proceeds from ESPP contributions and $8.0 million in proceeds from stock option exercises.
Net cash used in financing activities for fiscal year 2024 of $196.9 million was primarily driven by $112.1 million in payments of tax withholdings on net settlement of equity awards, $102.6 million in repurchases of Class A common stock under our stock repurchase program, and $5.9 million loan note payment on the first anniversary of the acquisition of Re:infer, partially offset by $17.6 million in proceeds from ESPP contributions and $6.7 million in proceeds from stock option exercises.
Material Cash Requirements
Our material cash requirements predominantly relate to working capital requirements, including employee compensation and payment of employee tax withholdings on net settlement of equity awards, and material contractual obligations, including leases and purchase commitments.
As of January 31, 2025, accrued compensation and benefits of $112.4 million are included in current liabilities on our consolidated balance sheet. Refer to Note 9, Consolidated Balance Sheet Components—Accrued Expenses and Other Current Liabilities for details of additional short-term payroll-related obligations included in accrued expenses and other current liabilities as of January 31, 2025.
The following table summarizes the aggregate effect that our material contractual obligations as of January 31, 2025 are expected to have on our cash flows in the periods indicated (in thousands):
| 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(1) | $ | 111,886 | $ | 8,481 | $ | 27,837 | $ | 18,688 | $ | 56,880 | ||||||||
| Purchase commitments | 170,168 | 78,613 | 89,181 | 2,374 | — | |||||||||||||
| Total contractual obligations | $ | 282,054 | $ | 87,094 | $ | 117,018 | $ | 21,062 | $ | 56,880 | ||||||||
| (1) Inclusive of $0.2 million of commitments related to operating leases which have not yet commenced. |
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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.
Refer to Note 8, Operating Leases for more detailed information regarding timing of future lease payments, and to Note 11, Commitments and Contingencies—Non-Cancelable Purchase Commitments for more detailed information regarding timing of purchase commitments.
Additionally, our stock repurchase program may represent a material use of cash depending upon the number of shares repurchased, which is ultimately discretionary. As of January 31, 2025, approximately $507.4 million remained of the $1,000.0 million authorized by our board of directors. The current authorization may be suspended or discontinued at any time and does not have a specified expiration date. Refer to Note 12, Stockholders' Equity—Stock Repurchase Program for further details.
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 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 Part II, Item 8 of this Annual Report on Form 10-K.
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Income Taxes
We are subject to income taxes in the U.S and in a number of foreign jurisdictions. We apply significant judgment in determining our provision for (benefit from) income taxes, particularly with regard to assessment of DTAs and evaluation of tax positions.
Pursuant to ASC 740, Income Taxes, we account for income taxes using the asset and liability method, whereby DTAs and DTLs are recognized to represent the expected future tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities, and for NOL and tax credit carryforwards. DTAs and DTLs are measured using the currently enacted tax rates and laws that are expected to apply in the years in which we expect to realize or settle them. In the case of DTAs, we regularly assess the realizability of future associated tax benefits by considering both positive and negative evidence, such as the adequacy of expected future taxable income on a jurisdictional basis (including forecasted income and whether a sustained trend of profitability exists historically), any carryforward periods available, and prudent and feasible tax planning strategies. The evaluation of this evidence requires judgment. If we determine that it is more likely than not that all or a portion of a DTA will not be realized in the future, a valuation allowance is provided. If and when sufficient positive evidence becomes available to indicate that it is more likely than not at all or a portion of a DTA will be realized, we may release all or a portion of a valuation allowance accordingly. For example, during fiscal year 2025, based on the available positive and negative evidence including the amount of taxable income in the U.K. in recent years and our expectations of future profits in the U.K., we determined it to be more likely than not that our U.K. DTA is realizable and released the $24.7 million valuation allowance associated with the U.K. DTA. However, we continue to maintain full valuation allowances against our U.S. and Romania DTAs because we believe that it is more likely than not that these DTAs will not be realized, with our valuation allowances totaling $406.3 million as of January 31, 2025. We may release some or all of these valuation allowances in future periods if objective negative evidence of cumulative losses is no longer present and if positive evidence of sustained profitability is established to support the realization of the related DTAs. Such release would result in a decrease in the provision for income taxes in the period of the release.
Similarly, significant judgement is required in evaluating our tax positions. In the ordinary course of business, there exist many transactions and calculations for which the ultimate tax settlement is uncertain. ASC 740 prescribes a two-step approach to recognizing and measuring uncertain tax positions: (1) evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon audit, based on the technical merits of the tax position, and including resolution of related appeals or litigation processes, if any; and (2) measure the tax benefit as the largest amount which is more likely than not of being realized and effectively settled. We consider a number of factors when evaluating tax positions and estimating tax benefits, including changes in facts and circumstances, changes in tax law, tax audit status, and communications with tax authorities. Any changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our provision for income taxes in the period in which the change is made. In particular, if a tax position is not sustained upon audit and we are required to pay amounts in excess of the associated accrual, or if no accrual has been made, our provision for income taxes will increase.
For further information about our income taxes, including DTAs and associated valuation allowances and tax positions, refer to Note 14. Income Taxes, included in Part II, Item 8 of this Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements and —Recently Issued Accounting Pronouncements, included in Part II, Item 8 of this Annual Report on Form 10-K for more information.