# Yext, Inc. (YEXT) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Yext, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1614178/000161417824000023/yext-20240131.htm
Accession: 0001614178-24-000023
Filing date: 2024-03-13
Report date: 2024-01-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/YEXT/
All MD&A years: /company/YEXT/mda/
Previous year: /company/YEXT/mda/fy2023/ (FY 2023)
Next year: /company/YEXT/mda/fy2025/ (FY 2025)

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. As discussed in the section titled "Special Note Regarding Forward Looking Statements," the following discussion and analysis contains forward looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in the section titled "Risk Factors" under Part I, Item 1A in this Annual Report on Form 10-K.

Overview

Yext empowers businesses to manage their knowledge so they can deliver relevant, actionable answers to consumer questions as well as consistent, accurate and engaging experiences to customers throughout the digital ecosystem. Our digital presence platform (also known as the Answers Platform) lets businesses structure and organize information about their brands in our knowledge graph, Yext Content (also known as the Knowledge Graph), which is then delivered across first-and third-party websites and applications through our network of over 200 service and application providers, which we refer to as our Publisher Network. These publishers include, among others, Amazon Alexa, Apple Maps, Bing, Cortana, Facebook, Google, Google Assistant, Google Maps, Siri and Yelp. Our platform powers all of our key products, including Listings, Reviews, Pages and Search, each with robust analytics capabilities for businesses to easily track performance across customer experiences. It is our mission to empower businesses to easily manage every aspect of their digital presence to make meaningful connections with their customers across every digital touchpoint.

We sell our platform throughout the world to customers of all sizes, including our enterprise, mid-size, and third-party reseller customers. In transactions with resellers, we are only party to the transaction with the reseller and are not a party to the reseller's transaction with its customer.

Revenue is a function of the number of customers, the number of licenses or capacity purchased by each customer, the package to which each customer subscribes, the price of the package and renewal rates. We offer subscriptions in a discrete range of packages, with pricing based on specified feature sets and the number of licenses managed by the customer as well as on a capacity-basis.

Fiscal Year

Our fiscal year ends on January 31st. References to fiscal 2024, for example, are to the fiscal year ended January 31, 2024.

Macroeconomic Conditions

Our results of operations have been and may continue to be influenced by general macroeconomic conditions, including, but not limited to, the impact of foreign currency fluctuations, interest rates, inflation, recession risks and public health emergencies, such as the COVID-19 pandemic. Fluctuations in foreign exchange rates and rising inflation have had, and may continue to have an adverse impact on our financial condition and operating results in future periods. The extent to which such disruptions will continue in future periods remains uncertain, which has had and may continue to have an adverse impact on our financial condition and operating results in future periods. We continue to be committed to our business, the strength of our platform, our ability to continue to execute on our strategy, and our efforts to support our customers.

Near-term revenues are relatively predictable as a result of our subscription-based business model. However, if the macroeconomic uncertainty continues or further increases, we may continue to experience a negative impact on existing and potential customers that may reduce, suspend or delay technology spending, request to renegotiate contracts to obtain concessions such as, extended billing and payment terms; shorten the duration of contracts; or elect not to renew their subscriptions which could materially adversely impact our business, financial condition and results of operations in future periods. Therefore, changes in our contracting activity in the near term may not be fully reflected in our results of operations and overall financial performance until future periods. See Part I Item 1A “Risk Factors” for further discussion of the possible impact of the current macroeconomic conditions on our business.

Key Metrics

We monitor the following key operational and financial metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.

Customer Count

Customer count is defined as the total number of customers with contracts executed as of the last day of the reporting period and a unique administrative account identifier on our platform. Generally, we assign unique administrative accounts to each separate and distinct entity (such as a company or government institution) or a business unit of a large corporation, that has its own separate contract with us to access our platform. We believe that customer count provides insight into our ability to grow our enterprise and mid-size customer base. As such, customer count excludes third-party reseller customers and small business customers as well as customers only receiving free trials. From time to time, some customers previously characterized as small business customers may

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transition to mid-size customers, and customer count includes these changes resulting from any recharacterization. As of January 31, 2024, customer count was approximately 3,000.

Annual Recurring Revenue ("ARR")

Annual recurring revenue, or ARR, for Direct customers is defined as the annualized recurring amount of all contracts in our enterprise, mid-size and small business customer base as of the last day of the reporting period. The recurring amount of a contract is determined based upon the terms of a contract and is calculated by dividing the amount of a contract by the term of the contract and then annualizing such amount. The calculation assumes no subsequent changes to the existing subscription. Contracts include portions of professional services contracts that are recurring in nature.

ARR for Third-party Reseller customers is defined as the annualized recurring amount of all contracts with Third-party Reseller customers as of the last day of the reporting period. The recurring amount of a contract is determined based upon the terms of a contract and is calculated by dividing the amount of a contract by the term of the contract and then annualizing such amount. The calculation assumes no subsequent changes to the existing subscription. The calculation includes the annualized contractual minimum commitment and excludes amounts related to overages above the contractual minimum commitment. Contracts include portions of professional services contracts that are recurring in nature. See Part I Item 1A “Risk Factors" for further discussion of Third-party reseller customers.

Total ARR is defined as the annualized recurring amount of all contracts executed as of the last day of the reporting period. The recurring amount of a contract is determined based upon the terms of a contract and is calculated by dividing the amount of a contract by the term of the contract and then annualizing such amount. The calculation assumes no subsequent changes to the existing subscription, and where relevant, includes the annualized contractual minimum commitment and excludes amounts related to overages above the contractual minimum commitment. Contracts include portions of professional services contracts that are recurring in nature.

ARR is independent of historical revenue, unearned revenue, remaining performance obligations or any other accounting principles generally accepted in the United States of America, ("GAAP"), financial measure over any period. It should be considered in addition to, not as a substitute for, nor superior to or in isolation from, these measures and other measures prepared in accordance with GAAP. We believe ARR-based metrics provides insight into the performance of our recurring revenue business model while mitigating fluctuations in billing and contract terms.

[[GREPCENT_TABLE]]
[["","January 31,","","Variance"],["","2024","2023","","Dollars","Percent"],["Annual Recurring Revenue"],["Direct Customers(1)","$","315,594","","$","327,017","","","$","(11,423)","","(3)","%"],["Third-Party Reseller Customers","71,784","","73,343","","","(1,559)","","(2)","%"],["Total Annual Recurring Revenue","$","387,378","","$","400,360","","","$","(12,982)","","(3)","%"]]
[[/GREPCENT_TABLE]]

(1) ARR as of January 31, 2024 includes a decrease of $10.8 million related to the attrition of a large customer, which occurred during the three months ended January 31, 2024.

Dollar-Based Net Retention Rate

We believe that our ability to retain our customers and expand the ARR they generate for us over time is an important component of our growth strategy and reflects the long term value of our customer relationships. We assess our performance in this area using a metric we refer to as our dollar-based net retention rate, which compares the ARR from a set of subscription customers across comparable periods.

This metric is calculated first by determining the ARR generated 12 months prior to the end of the current period for a cohort of customers who had active contracts at that time. We then calculate ARR from the same cohort of customers at the end of the current period, which includes customer expansion, contraction and churn. The current period ARR is then divided by the prior period ARR to arrive at our dollar-based net retention rate. The cohorts of customers that we present dollar-based net retention rate for include direct, third-party reseller, and total customers. Direct customers include enterprise, mid-size and small business customers. The following table provides our dollar-based net retention rate for the fiscal years ended January 31, 2024 and 2023:

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[[GREPCENT_TABLE]]
[["","January 31,"],["","2024","2023"],["Dollar-Based Net Retention Rate (ARR)"],["Direct Customers (1)","91%","97%"],["Third-Party Reseller Customers","95%","92%"],["Total Customers","92%","96%"]]
[[/GREPCENT_TABLE]]

(1) Dollar-Based Net Retention Rate as of January 31, 2024 reflects the attrition of a large customer, which occurred during the three months ended January 31, 2024.

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Components of Results of Operations

Revenue

We derive our revenue primarily from subscription and associated support to our platform. Our contracts are typically one year in length, but may be up to three years or longer in length. Revenue is a function of the number of customers, the number of licenses or capacity purchased by each customer, the package to which each customer subscribes, the price of the package and renewal rates. Revenue is generally recognized ratably over the contract term beginning on the commencement date of each contract, which is the date our platform is made available to customers. At the beginning of each subscription term we invoice our customers, typically in annual installments, but also monthly, quarterly, and semi-annually. Amounts that have been invoiced for non-cancelable contracts are recorded in accounts receivable and unearned revenue. Unearned revenue is subsequently recognized as revenue when transfer of control to a customer has occurred.

Cost of Revenue

Cost of revenue consists primarily of employee-related costs, including personnel-related costs, which mainly consist of salaries and wages, and stock-based compensation expense. Cost of revenue also includes fees associated with our Publisher Network application provider arrangements, the nature of which may be unpaid, fixed, or variable, and are unpaid with many of our larger providers, as well as the costs associated with our data centers. In addition, cost of revenue includes depreciation expense, which includes amounts allocated based on employee headcount, as well as amounts related to certain capitalized software development costs incurred in connection with additional functionality to our platform. Cost of revenue also includes lease expenses associated with our office spaces, which are allocated based on employee headcount. In addition, cost of revenue includes software expense, which relates to licenses, professional services, and other costs associated with software for use in the operations of our business, which is also allocated based on employee headcount.

Operating Expenses

Sales and marketing expenses. Sales and marketing expenses consist primarily of employee-related costs which are comprised of personnel-related costs and stock-based compensation expense. Personnel-related costs mainly consist of salaries and wages and costs of obtaining revenue contracts. Sales and marketing expenses also include lease expenses associated with our office spaces, as well as software expense, each of which are allocated based on employee headcount. In addition, sales and marketing expenses include costs related to advertising and conferences and brand awareness events.

Research and development expenses. Research and development expenses consist primarily of employee-related costs which are comprised of personnel-related costs and stock-based compensation expense. Personnel-related costs mainly consist of salaries and wages. Capitalized software development costs related to additional functionality to our platform are excluded from research and development expenses as they are capitalized as a component of property and equipment, net and depreciated to cost of revenue over the term of their useful life. Research and development expenses also include data centers costs associated with pre-production costs for testing and quality assurance, as well as lease expenses associated with our office spaces, and software expense, each of which are allocated based on employee headcount.

General and administrative expenses. General and administrative expenses consist primarily of employee-related costs which are comprised of personnel-related costs and stock-based compensation expense for our finance and accounting, human resources, information technology and legal support departments. Personnel-related costs mainly consist of salaries and wages. General and administrative expenses also include lease expenses associated with our office spaces, as well as software expense, each of which are allocated based on employee headcount, and other professional related costs.

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Results of Operations

In this section, we discuss the results of our operations for the fiscal year ended January 31, 2024 compared to the fiscal year ended January 31, 2023. For a discussion of our results of operations for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022, please refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023.

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

[[GREPCENT_TABLE]]
[["(in thousands)","Fiscal year ended January 31,"],["Statements of Operations Data:","2024","","2023"],["Revenue","$","404,322","","","$","400,850"],["Cost of revenue(1)","87,468","","","103,960"],["Gross profit","316,854","","","296,890"],["Operating expenses:"],["Sales and marketing(1)","178,830","","","211,479"],["Research and development(1)","72,040","","","70,903"],["General and administrative(1)","72,185","","","79,336"],["Total operating expenses","323,055","","","361,718"],["Loss from operations","(6,201)","","","(64,828)"],["Interest income","7,094","","","1,684"],["Interest expense","(470)","","","(589)"],["Other expense, net","(761)","","","(125)"],["Loss from operations before income taxes","(338)","","","(63,858)"],["Provision for income taxes","(2,292)","","","(2,080)"],["Net loss","$","(2,630)","","","$","(65,938)"]]
[[/GREPCENT_TABLE]]

(1) Amounts include stock-based compensation expense as follows:

[[GREPCENT_TABLE]]
[["","Fiscal year ended January 31,"],["(in thousands)","2024","","2023"],["Cost of revenue","$","2,900","","","$","5,042"],["Sales and marketing","15,067","","","22,961"],["Research and development","11,349","","","16,401"],["General and administrative","15,645","","","18,674"],["Total stock-based compensation expense","$","44,961","","","$","63,078"]]
[[/GREPCENT_TABLE]]

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The following table sets forth selected consolidated statements of operations data for each of the periods indicated as a percentage of total revenue:

[[GREPCENT_TABLE]]
[["","Fiscal year ended January 31,"],["","2024","","2023"],["Revenue","100","%","","100","%"],["Cost of revenue","22","","","26"],["Gross profit","78","","","74"],["Operating expenses:"],["Sales and marketing","44","","","53"],["Research and development","18","","","17"],["General and administrative","18","","","20"],["Total operating expenses","80","","","90"],["Loss from operations","(2)","","","(16)"],["Interest income","2","","","\u2014"],["Interest expense","\u2014","","","\u2014"],["Other expense, net","\u2014","","","\u2014"],["Loss from operations before income taxes","\u2014","","","(16)"],["Provision for income taxes","(1)","","","\u2014"],["Net loss","(1)","%","","(16)","%"]]
[[/GREPCENT_TABLE]]

Note: Numbers rounded for presentation purposes and may not sum.

Fiscal Year Ended January 31, 2024 Compared to Fiscal Year Ended January 31, 2023

Revenue

[[GREPCENT_TABLE]]
[["","Fiscal year ended January 31,","","Variance"],["(in thousands)","2024","","2023","","Dollars","","Percent"],["Revenue","$","404,322","","","$","400,850","","","$","3,472","","","1","%"],["Cost of revenue","87,468","","","103,960","","","$","(16,492)","","","(16)","%"],["Gross profit","$","316,854","","","$","296,890","","","$","19,964","","","7","%"],["Gross margin","78.4","%","","74.1","%"]]
[[/GREPCENT_TABLE]]

Total revenue was $404.3 million for the fiscal year ended January 31, 2024, compared to $400.9 million for the fiscal year ended January 31, 2023, an increase of $3.5 million or 1%, primarily driven by new customer subscriptions to our platform, expanded subscriptions for existing customers, and the impact of foreign currency exchange rates as discussed below. Revenue recognized from subscriptions and associated support to our platform was 92% and 91%, while revenue recognized from professional services was 8% and 9%, for the fiscal years ended January 31, 2024 and 2023, respectively.

Revenue for the fiscal year ended January 31, 2024 included a positive impact from foreign currency exchange rates of approximately $1.3 million, using a constant currency basis. We calculate constant currency by translating our current period results for entities reporting in currencies other than U.S. Dollars (“USD”) into USD at the average monthly exchange rates in effect during the comparative period, as opposed to the average monthly exchange rates in effect during the current period.

The following table summarizes our revenue by sales channel for the periods presented:

[[GREPCENT_TABLE]]
[["","Fiscal year ended January 31,","","Variance"],["","2024","2023","","Dollars","Percent"],["(in thousands)"],["Direct Customers","$","327,093","","$","318,032","","","$","9,061","","3","%"],["Third-Party Reseller Customers","77,229","","82,818","","","(5,589)","","(7)","%"],["Total Revenue","$","404,322","","$","400,850","","","$","3,472","","1","%"]]
[[/GREPCENT_TABLE]]

Revenue attributable to direct customers was $327.1 million for the fiscal year ended January 31, 2024, compared to $318.0 million for the fiscal year ended January 31, 2023, an increase of $9.1 million or 3%, primarily driven by new customer subscriptions to our platform, as well as expanded subscriptions for existing customers. While the attrition of a large direct customer occurred during the three months ended January 31, 2024, we expect that the corresponding absence of revenue from this customer

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will become more apparent in our quarterly results for the fiscal year ending January 31, 2025. Revenue attributable to third-party reseller customers was $77.2 million for the fiscal year ended January 31, 2024, compared to $82.8 million for the fiscal year ended January 31, 2023, a decrease of $5.6 million or 7% primarily due to customer attrition.

Cost of Revenue and Gross Margin

Cost of revenue was $87.5 million for the fiscal year ended January 31, 2024, compared to $104.0 million for the fiscal year ended January 31, 2023, a decrease of $16.5 million, or 16%. The decrease was primarily driven by employee related costs, as personnel-related costs decreased $11.3 million and stock-based compensation expense decreased $2.1 million, reflecting lower headcount. In addition, depreciation expense decreased $2.1 million as certain assets have fully depreciated.

Gross margin was 78.4% for the fiscal year ended January 31, 2024, compared to 74.1% for the fiscal year ended January 31, 2023 as reflected in the discussion above.

Operating Expenses

[[GREPCENT_TABLE]]
[["","Fiscal year ended January 31,","","Variance"],["(in thousands)","2024","","2023","","Dollars","","Percent"],["Sales and marketing","$","178,830","","","$","211,479","","","$","(32,649)","","","(15)","%"],["Research and development","$","72,040","","","$","70,903","","","$","1,137","","","2","%"],["General and administrative","$","72,185","","","$","79,336","","","$","(7,151)","","","(9)","%"]]
[[/GREPCENT_TABLE]]

Sales and marketing expense was $178.8 million for the fiscal year ended January 31, 2024, compared to $211.5 million for the fiscal year ended January 31, 2023, a decrease of $32.6 million, or 15%. The decrease was primarily driven by employee-related costs, as personnel-related costs decreased $20.2 million and stock-based compensation expense decreased $7.9 million, reflecting lower headcount. In addition, conferences and events decreased $1.3 million.

Research and development expense was $72.0 million for the fiscal year ended January 31, 2024, compared to $70.9 million for the fiscal year ended January 31, 2023, an increase of $1.1 million, or 2%. The increase was primarily driven by a $4.3 million increase in personnel-related costs, as well as smaller increases in depreciation expense, among others. These increases were partially offset by a $5.1 million decrease in stock-based compensation expense, largely due to decreases in the fair value of awards granted.

General and administrative expense was $72.2 million for the fiscal year ended January 31, 2024, compared to $79.3 million for the fiscal year ended January 31, 2023, a decrease of $7.2 million or 9%. The decrease was primarily driven by employee-related costs, as stock-based compensation expense decreased $3.0 million and personnel-related costs decreased $1.8 million, reflecting lower headcount. In addition, professional related costs decreased $2.8 million. These decreases were partially offset by smaller increases in bad debt expense, among others.

Net Loss

Net loss was $2.6 million and $65.9 million for the fiscal years ended January 31, 2024 and 2023, respectively.

Non-GAAP Financial Measures

In addition to our financial results determined in accordance with GAAP, we believe that certain non-GAAP financial measures are useful in evaluating our operating performance and our business.

Non-GAAP net income (loss) is a financial measure that is not calculated in accordance with GAAP. We define non-GAAP net income (loss) as our GAAP net income (loss) as adjusted to exclude the effects of stock-based compensation expense. We believe non-GAAP net income (loss) provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of our results of operations. We also believe non-GAAP net income (loss) is useful in evaluating our operating performance compared to that of other companies in our industry, as it eliminates the effects of stock-based compensation, which may vary for reasons unrelated to overall operating performance.

We use non-GAAP net income (loss) in conjunction with traditional GAAP net income (loss) as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, and to evaluate the effectiveness of our business strategies.

Adjusted EBITDA is a non-GAAP financial measure that we believe offers a useful view of overall operations used to assess the performance of core business operations and for planning purposes. We define Adjusted EBITDA as GAAP net income (loss) before (1) interest income (expense), net, (2) provision for income taxes, (3) depreciation and amortization, (4) other income (expense), net, and (5) stock-based compensation expense. The most directly comparable GAAP financial measure to Adjusted EBITDA is GAAP net income (loss). Users should consider the limitations of using Adjusted EBITDA, including the fact that this measure does not provide a complete measure of our operating performance. Adjusted EBITDA is not intended to purport to be an alternate to GAAP net income (loss) as a measure of operating performance.

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The definitions of our non-GAAP financial measures may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish this or similar metrics. Thus, our non-GAAP financial measures should be considered in addition to, not as a substitute for, nor superior to or in isolation from, measures prepared in accordance with GAAP.

Our non-GAAP financial measures may be limited in their usefulness because they do not present the full economic effect of the expenses mentioned above. We compensate for these limitations by providing a reconciliation of our non-GAAP financial measures to the most closely related GAAP financial measures. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view non-GAAP net income (loss) and Adjusted EBITDA in conjunction with GAAP net income (loss).

The following table reconciles our GAAP net loss to non-GAAP net income (loss):

[[GREPCENT_TABLE]]
[["","Fiscal year ended January 31,"],["(in thousands)","2024","","2023"],["GAAP net loss","$","(2,630)","","","$","(65,938)"],["Plus: Stock-based compensation expense","44,961","","","63,078"],["Non-GAAP net income (loss)","$","42,331","","","$","(2,860)"]]
[[/GREPCENT_TABLE]]

The following table reconciles our GAAP net loss to Adjusted EBITDA:

[[GREPCENT_TABLE]]
[["","","","Fiscal year ended January 31,"],["","","","","","2024","","2023"],["(in thousands)"],["GAAP net loss","","","","","$","(2,630)","","","$","(65,938)"],["Interest (income) expense, net","","","","","(6,624)","","","(1,095)"],["Provision for income taxes","","","","","2,292","","","2,080"],["Depreciation and amortization","","","","","15,805","","","17,583"],["Other expense (income), net","","","","","761","","","125"],["Stock-based compensation expense","","","","","44,961","","","63,078"],["Adjusted EBITDA","","","","","$","54,565","","","$","15,833"]]
[[/GREPCENT_TABLE]]

Constant Currency

We provide revenue, including year-over-year growth rates, adjusted to remove the impact of foreign currency rate fluctuations, which we refer to as constant currency. We believe providing revenue on a constant currency basis helps our investors to better understand our underlying performance, given the current macroeconomic environment. We calculate constant currency by using the current period results for entities reporting in currencies other than USD, which are then converted into USD at the average monthly exchange rates in effect during the comparative period, as opposed to the average monthly exchange rates in effect during the current period. Our definition may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our revenue on a constant currency basis should be considered in addition to, not as a substitute for, nor superior to or in isolation from, measures prepared in accordance with GAAP. We provide a reconciliation of revenue on a constant currency basis to the most closely related GAAP financial measure. We encourage investors and others to review our financial information in its entirety and to view revenue on a constant currency basis in conjunction with revenue on a GAAP basis.

The following table provides a reconciliation of revenue on a GAAP basis to revenue on a constant currency basis:

[[GREPCENT_TABLE]]
[["","Fiscal year ended January 31,"],["(in thousands)","2024","","2023","","Growth Rates"],["Revenue (GAAP)","$","404,322","","","$","400,850","","","1","%"],["Effects of foreign currency rate fluctuations","(1,305)"],["Revenue on a constant currency basis (Non-GAAP)","$","403,017","","","","","1","%"]]
[[/GREPCENT_TABLE]]

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Liquidity and Capital Resources

As of January 31, 2024, our principal sources of liquidity were cash and cash equivalents of $210.2 million. We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months. Our cash flows, including net cash used in or provided by operating activities, may vary significantly from quarter to quarter, due to the timing of billings, cash collections and lease payments, significant marketing events and related expenses, and other factors.

Our future capital requirements will depend on many factors, including those set forth under "Risk Factors." We may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies, and intellectual property rights. In addition, we may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected.

Credit Arrangements

On March 11, 2020, we entered into a credit agreement (the “Credit Agreement”) with Silicon Valley Bank (“SVB”). In January 2021, we amended the Credit Agreement which modified the conditions pursuant to which subsidiaries are required to become guarantors. On December 22, 2022, we entered into a second amendment (“Amendment No. 2”) to the Credit Agreement, dated March 11, 2020, collectively referred to as the Credit Facility. No significant debt issuance costs were incurred in association with the December 2022 Credit Facility.

Amendment No. 2 amends the Credit Facility to, among other things (i) extend the maturity date of the Credit Facility to December 22, 2025, (ii) amend the interest rate provisions to replace LIBOR with SOFR as the interest rate benchmark, and (iii) amend the recurring revenue growth rate financial covenant.

The Credit Facility provides for a senior secured revolving loan facility of up to $50.0 million that matures three years after the effective date, with the right subject to certain conditions to add an incremental revolving loan facility of up to $50.0 million in the aggregate. The three-year revolving loan facility provides for borrowings up to the amount of the facility with sub-limits of up to (i) $30.0 million to be available for the issuance of letters of credit and (ii) $10.0 million to be available for swingline loans.

As amended, the revolving loans bear interest, at our election, at an annual rate based on SOFR or a base rate. Loans based on SOFR shall bear interest at a rate between SOFR plus 2.50% and SOFR plus 3.00%, depending on our average daily usage of the revolving loan facility and subject to a SOFR floor of 1.00%. Loans based on the base rate shall bear interest at a rate between the base rate minus 0.50% and the base rate plus 0.00%, depending on our average daily usage of the revolving loan facility. We are also obligated to pay a commitment fee on the unused portion of the facility at a rate of 0.25% per annum.

The obligations under the Credit Facility are secured by a lien on substantially all of our tangible and intangible property and by a pledge of all of our equity interests of material direct and indirect domestic subsidiaries and 66% of each class of capital stock of any material first-tier foreign subsidiaries, subject to limited exceptions.

The Credit Facility contains customary affirmative and negative covenants and restrictions, as well as financial covenants that require us to maintain the year-over-year growth rate of its recurring revenue for a trailing four fiscal quarter period above specified rates when certain liquidity thresholds are not met and to maintain a consolidated quick ratio of at least 1.50 to 1.00 tested on a monthly basis.

As of January 31, 2024, we were in compliance with all debt covenants. As of such date, the $50.0 million revolving loan facility had $36.4 million available and $13.6 million in letters of credit allocated as security in connection with office space.

Following the closure of SVB by the California Department of Financial Protection and Innovation on March 10, 2023, and its subsequent receivership by the Federal Deposit Insurance Corporation (“FDIC”), the FDIC announced that all of SVB’s deposits and substantially all of its assets had been transferred to a newly created, full-service FDIC-operated bridge bank, Silicon Valley Bridge Bank N.A. (“SVBB”). On March 27, 2023, First Citizens Bank & Trust Company (“First Citizens”) acquired substantially all of the loans and certain other assets of SVBB, and assumed all customer deposits and certain other liabilities of SVBB. As such, First Citizens assumed SVB’s obligations under the Credit Facility.

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Share Repurchase Program

In March 2022, our Board of Directors authorized a $100.0 million share repurchase program of our common stock. In September 2023, our Board of Directors authorized an additional $50.0 million to the share repurchase program. During the fiscal year ended January 31, 2024, 2,980,641 shares were purchased for a total cost of $22.9 million, inclusive of broker commissions. As of January 31, 2024, a total of 16,824,920 shares have been purchased for a total cost of $100.3 million since the commencement of the program, inclusive of broker commissions, and approximately $49.7 million remains available for future purchases.

Cash Flows

In this section, we discuss our cash flows for the fiscal years ended January 31, 2024 and 2023. For a discussion of our cash flows for the fiscal year ended January 31, 2022, please refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Liquidity and Capital Resources" in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023.

The following table summarizes our cash flows:

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[[/GREPCENT_TABLE]]

Operating Activities

Net cash provided by operating activities of $46.2 million for the fiscal year ended January 31, 2024 reflected our net loss of $2.6 million, adjusted by non-cash charges including stock-based compensation expense of $45.0 million, depreciation and amortization expense of $15.8 million and amortization of operating lease right-of-use assets of $8.8 million. In addition, there were positive adjustments resulting from changes in costs to obtain revenue contracts of $8.8 million, prepaid expenses and other current assets of $0.8 million and accounts receivable of $0.5 million, mainly due to timing of billing and cash collections during the period. These increases were partially offset by changes in operating lease liabilities of $11.7 million, unearned revenue of $11.3 million and accounts payable, accrued expenses and other current liabilities of $10.2 million.

Net cash provided by operating activities of $17.9 million for the fiscal year ended January 31, 2023 reflected our net loss of $65.9 million, adjusted by non-cash charges including stock-based compensation expense of $63.1 million, depreciation and amortization expense of $17.6 million and amortization of operating lease right-of-use assets of $8.8 million. In addition, there were positive adjustments resulting from changes in costs to obtain revenue contracts of $8.0 million, unearned revenue of $3.5 million and accounts payable, accrued expenses and other current liabilities of $2.7 million. These increases were partially offset by changes in operating lease liabilities of $11.0 million, accounts receivable of $10.1 million, mainly due to timing of billing and cash collections during the period, and changes in prepaid expenses and other current assets of $2.3 million.

Investing Activities

Net cash used in investing activities of $2.7 million for the fiscal year ended January 31, 2024 reflected capital expenditures.

Net cash used in investing activities of $6.2 million for the fiscal year ended January 31, 2023 reflected capital expenditures.

Financing Activities

Net cash used in financing activities of $23.3 million for the fiscal year ended January 31, 2024 was primarily related to $23.1 million in cash outflows associated with repurchases of common stock as part of our share repurchase program, as well as payments for taxes related to the net share settlement of stock-based compensation awards of $13.0 million and payments of deferred financing costs of $0.5 million. This was partially offset by proceeds from exercise of stock options of $9.4 million and net proceeds from employee stock purchase plan withholdings of $3.9 million.

Net cash used in financing activities of $79.0 million for the fiscal year ended January 31, 2023 was primarily related to $77.3 million in cash outflows associated with repurchases of common stock as part of our share repurchase program, as well as payments for taxes related to the net share settlement of stock-based compensation awards of $5.1 million and payments of deferred financing costs of $0.5 million. This was partially offset by net proceeds from employee stock purchase plan withholdings of $3.2 million and proceeds from exercise of stock options of $0.7 million.

Contractual Obligations

See Note 14 "Commitments and Contingencies", to the consolidated financial statements for our discussion on contractual obligations.

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Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

See Note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements for further discussion on our accounting policies. Our most critical accounting policies and estimates, based on the degree of judgment and complexity, are discussed below.

Revenue Recognition

We derive our revenue primarily from our subscriptions and associated support to our platform. Our subscriptions do not provide customers with the right to take possession of the software supporting the applications and, as a result, are accounted for as service contracts. Our subscription and associated support performance obligation is distinct because a customer's use of our platform is fully functional upon access, does not require any additional development, modification or customization, and is often sold separately. In certain instances, we enter into a contract that includes a promise to provide certain technical or customized professional services, in addition to a promise to provide its subscription and associated support. Our professional services performance obligation is distinct as it does not significantly change or enhance the functionality of our platform.

In instances when a contract includes more than one performance obligation, we must allocate the transaction price to the performance obligations on a relative standalone selling price basis ("SSP"). SSP represents the price at which a company would sell a promised product or service separately to a customer. We determine the SSP based on a series of complex factors. Our selling prices associated with our subscription and associated support are considered highly variable based on discounting practices, customer geography, customer size, and other such factors. In contrast, our selling prices associated with our professional services are more observable, predictable and consistent. Accordingly, we use the residual method to determine SSP.

The recognition of revenue is determined through application of the five-step model in accordance with ASC 606. Revenue is recognized upon transfer of control of services to our customers, including third-party reseller customers, in an amount that reflects the consideration we expect to receive in exchange for those services. In transactions with resellers, we contract only with the reseller, in which pricing and length of subscription and support services are agreed upon. The reseller negotiates the price charged and length of subscription and support service directly with its customer. We do not pay separate fees to third-party reseller customers in association with these transactions, and do not have direct interactions with the reseller’s customer.

Revenue is generally recognized ratably over the contract term beginning on the commencement date of each contract, which is the date our platform is made available to our customers. Amounts that have been invoiced for non-cancelable contracts are recorded in accounts receivable and unearned revenue or revenue. See Note 2 "Summary of Significant Accounting Policies" and Note 3 "Revenue" to our consolidated financial statements for further discussion on our revenue recognition.

Income Taxes

We account for income taxes in accordance with ASC Topic 740, “Income Taxes,” under which deferred income taxes are provided for temporary differences between the financial reporting and tax basis of our assets and liabilities. We classify all deferred tax assets and liabilities as non-current on the consolidated balance sheet. The effect of a change in tax rates on deferred tax assets and liabilities is recognized within the provision for income taxes on the consolidated statement of operations and comprehensive loss in the period that includes the enactment date.

We reduce deferred tax assets, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all of our deferred tax assets. In making such a determination, we consider all available positive and negative evidence, including results of operations, future reversals of existing taxable temporary differences, projected future taxable income and tax-planning strategies.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. We recognize interest and penalties related to uncertain tax positions within the provision for income taxes on our consolidated statement of operations and comprehensive loss.

Recent Accounting Pronouncements

See Note 2 "Summary of Significant Accounting Policies- Recent Accounting Pronouncements", to the consolidated financial statements for our discussion about adopted and pending recent accounting pronouncements.

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