COUCHBASE, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the sections titled "Special Note Regarding Forward-Looking Statements" and "Risk Factors" for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The last day of our fiscal year is
January 31. Our fiscal quarters end on April 30, July 31, October 31and January 31. Our fiscal years ended January 31, 2021and 2022 are referred to herein as fiscal 2021 and fiscal 2022, respectively.
Couchbaseprovides a leading modern database for enterprise applications. Our mission is to empower enterprises to build, manage and operate modern mission-critical applications. Enterprises rely on Couchbaseto power the core applications their businesses depend on, with the highest performance, reliability, scalability and agility requirements and for which there is no tolerance for disruption or downtime. Any compromise of these requirements could cause these applications to fail-stopping or delaying package delivery for shipping companies, interrupting reservations for travel companies or causing product shortages in stores for retailers. Our database is versatile and works in multiple configurations, from cloud to multi- or hybrid-cloud to on-premise environments to the edge in truly distributed environments with flexibility in and between those environments. We have architected our database to fuse the trusted strengths of relational databases with the flexibility, performance and scale of NoSQL in the cloud. Our cloud-native platform provides a powerful modern database that serves the needs of both enterprise architects and application developers. Combined with our performance at scale, we believe this power enables customers to run their most important applications with the effectiveness they require, with the efficiency they desire and in the modern infrastructure environments they demand. With nearly every aspect of our lives being transformed by digital innovation, enterprises are charged with building applications that enable delightful and meaningful customer experiences. Enterprises are increasingly reliant on applications, which in turn rely on databases to store, retrieve and operationalize data into action. Today, applications are operating at a scale, speed and dynamism unheard of just a decade ago. There is an increasing diversity of application types, modalities and delivery and consumption models, and the volume, velocity and variety of data on which they rely is growing at an exponential rate. Consequently, the demand on enterprises and their databases is growing exponentially. While legacy database technologies were built to the highest performance and reliability requirements of their generation, they are approaching the limits for which they were designed. The underlying architecture of these technologies has not changed significantly, while the requirements of the applications they need to support are changing dramatically. Legacy database technologies are buckling under the pressure of digital transformation, as they were not built to update and respond in microseconds, enable rich, customized user experiences and perform without latency. We designed Couchbaseto give enterprises a database for the modern cloud world. Our platform combines the best capabilities of a relational database, like SQL transactions and ACID guarantees, with the flexibility and scalability of a NoSQL database. This allows enterprises to confidently accelerate strategic initiatives such as more quickly moving business-critical applications into the cloud, improving application flexibility and increasing developer agility. For our customers, we facilitate a seamless transition from legacy relational databases to our modern database resulting in better application scalability, user experience and security at the pace that works for them. We deliver this modern database as both a customer-managed product and as a fully-managed DBaaS that is managed by Couchbase. Our DBaaS, called Couchbase Capella, supports a broad set of use cases, reducing a customer's need to buy, deploy and manage additional databases or supporting technologies. We sell our platform through our direct sales force and our growing ecosystem of partners. Our platform is broadly accessible to a wide range of enterprises, as well as governments and organizations. We have customers in a range of industries, including retail and e-commerce, travel and hospitality, financial services and insurance, software and technology, gaming, media and entertainment and industrials. We focus our selling efforts on the largest global enterprises with the most complex data requirements, and we have introduced a new cloud-based managed offering for enterprises looking for a turnkey version of our platform. 26
We have achieved significant growth over our operating history. For the three months ended
April 30, 2022and 2021, our revenue was $34.9 millionand $28.0 million, respectively, representing period-over-period growth of 25%. As of April 30, 2022and 2021, our ARR was $139.7 millionand $109.5 million, respectively, representing period-over-period growth of 27%. For the three months ended April 30, 2022and 2021, our net loss was $19.8 millionand $14.6 million, respectively, as we continued to invest in the growth of our business to capture the massive opportunity that we believe is available to us.
Our business model
We generate the substantial majority of our revenue from sales of subscriptions, which accounted for 92% and 95% for the three months ended
April 30, 2022and 2021, respectively. We derive substantially all of our subscription revenue from the Enterprise Edition of our Couchbaseplatform, which includes CouchbaseServer, our flagship product, and Couchbase Mobile. The Couchbaseplatform is generally licensed per node, which we define as an instance of Couchbaserunning on a server. Our subscription pricing is based on the computing power and memory per instance, as well as the chosen service level. We offer three different support levels: the Platinum level offers 24/7 support and the shortest response time of 30 minutes; the Gold level offers 24/7 support with a response time of 2 hours; and the Silver level offers 7am-5pmlocal time support, 5 days a week. These response times are for incidences of the highest severity level, which we identify as level P1. The initial response time for levels P2 and P3, which are less severe, are longer. The non-cancelable term of our subscription arrangements typically ranges from one to three years but may be longer or shorter in limited circumstances and is typically billed annually in advance. The timing and billing of large, multi-year contracts can create variability in revenue and deferred revenue between periods. We also derive subscription revenue from Couchbase Capella, our fully-managed DBaaS. Couchbase Capella is licensed using an on-demand consumption model or an annual credit model, which removes the need to license different node types separately. Couchbase Capella pricing delivers superior customer flexibility relative to other CSPs as on-demand pricing allows customers to pay only for what they use based on hourly pricing and the credits purchased through our annual credit model expire only at the end of a 12-month period, rather than ratably throughout the year. We also provide automatic conversion to on-demand consumption when credits expire or are exhausted. Couchbase Capella credits can be purchased upfront to provide cost savings with volume discounts available based on credit quantity. We offer three pricing levels for Couchbase Capella, based on the support response time. Revenue from Couchbase Capella was not material for the three months ended April 30, 2022and 2021. We also generate revenue from services, which represented 8% and 5% of our total revenue for the three months ended April 30, 2022and 2021, respectively. Our services revenue is derived from our professional services related to the implementation or configuration of our platform and training. We have invested in building our services organization because we believe it plays an important role in customer success, ensuring that our customers fulfill their digital transformation agendas while leveraging our platform, accelerating our customers' realization of the full benefits of our platform and driving increased adoption of our platform. Our go-to-market strategy is focused on large enterprises recognized as leaders in their respective industries who are attempting to solve complicated business problems by digitally transforming their operations. As a result, Couchbasepowers some of the largest and most complex enterprise applications worldwide. Through our highly instrumented "sell-to" go-to-market motion, we have built a direct sales organization that understands the strategic needs of enterprises as well as a marketing organization that emphasizes our enablement of digital transformation through our no-compromises approach to performance, resiliency, scalability, agility and TCO savings. We complement our "sell-to" go-to-market motion with a "buy-from" go-to-market motion, which is focused on targeting the application developer community to drive adoption of our platform. To accomplish this, we have and plan to continue to invest in Couchbase Capella, our fully-managed DBaaS offering, We also offer free Community Editions of some of our products, free trials of our Enterprise Edition of Couchbase Server and Couchbase Capella products and a web browser-based demonstration version of Couchbase Server to further accelerate application developer adoption. We believe these offerings lead to future purchases of the Enterprise Edition. While our Community Edition includes the core functionality of Couchbase Server, it is not suited for mission-critical deployments, as it offers only limited functionality around the scaled performance and security that enterprises require and no direct customer support from Couchbase.
We are also continuously developing and cultivating our ecosystem of cloud provider partners and technology providers. A significant portion of our revenue in the three months ended
We employ a land-and-expand model centered around our platform offerings, which have a rapid time to production and time to value for our customers, and our sales and customer success organizations, which proactively guide customers to realize strategic and transformative use cases and drive greater adoption of our platform and services. Our marketing organization is focused on building our brand reputation and awareness, which drive customer interest and demand for our platform. As part of these efforts, we host Couchbase Connect.ONLINE, a technical conference for application developers and enterprise architects, which showcases compelling customer testimonials and various use cases of our platform. Our Couchbase Connect offering also provides application developers with helpful resources to help them learn more about our platform, including access to on-demand instructional webinars. We also offer
Couchbase Playground, allowing application developers to access Couchbase's API and Couchbase Academy, which includes role-specific training courses. Application developers are also able to collaborate and discuss specific topics related to our platform on our forum. Impact of COVID-19 The ongoing COVID-19 pandemic and efforts to mitigate its impact have significantly curtailed the movement of people, goods and services worldwide, including in the geographic areas in which we conduct our business operations and from which we generate our revenue. It has also caused societal, economic and financial market volatility, resulting in business shutdowns and reduced business activity. In addition, inflation concerns in light of the economic recovery has impacted and may continue to impact business spending and the economy as a whole. We believe that the COVID-19 pandemic has previously had a negative impact on our business and results of operations. The COVID-19 pandemic may cause us to continue to experience challenges in our business in the future. Despite the impacts described above, we believe the COVID-19 pandemic has the longer term potential to accelerate the trend of enterprises seeking to modernize and re-architect their mission-critical applications and the building of new applications to allow them to function in the cloud. The constraining of IT budgets could also further accelerate the adoption and expansion of our platform, as it can effectively support mission-critical applications while providing significant TCO benefits.
The COVID-19 pandemic has also resulted in cost savings for our business. We experienced slower growth in certain operating expenses due to reduced business travel, postponement of hiring for certain positions, and virtualization or cancellation of customer and employee events.
Following the challenges that we experienced due in large part to the COVID-19 pandemic, we have seen continued growth in our business. For example, our customers in COVID-19 impacted industries showed signs of recovery as spending increased across this cohort after a challenging period and our sales productivity continues to improve. More broadly, we believe this growth may accelerate as businesses begin to reopen, as our investments in
CouchbaseCapella continue to gain traction and as our sales and marketing organization is able to operate at full capacity, and as existing and prospective COVID-19 impacted customers continue to recover. The impact of the COVID-19 pandemic on our industry continues to evolve, and the full impact on our financial condition and results of operations and the broader economic recovery remains uncertain, including as a result of outbreaks and variants. See the section titled "Risk Factors-Risks Related to Our Industry and Business-The global COVID-19 pandemic has harmed and could continue to harm our business and results of operations" for more information regarding risks related to the COVID-19 pandemic.
Factors affecting our performance
Continue to acquire new customers
We grow our subscription revenue by acquiring new customers. The size of our customer base may vary from period to period for several reasons, including the length of our sales cycle, the effectiveness of our sales and marketing efforts, enterprise application development cycles and the corresponding adoption rates of modern applications that require database solutions like ours. Additionally, our revenue has and will vary as new customers purchase our products due to the fact that we recognize a portion of such subscription revenue upfront. As digital transformation continues to accelerate, we believe that
CouchbaseCapella, our fully-managed DBaaS offering, will become increasingly popular as a result of its compelling pricing model, ease of operation, lower TCO, time to market and flexibility. We will continue to offer Couchbase Capella and provide flexible, highly available and differentiated economical options to capture new customers. 28
Continue to grow among existing customers
A significant part of our growth has been, and we expect will continue to be, driven by expansion within our existing customer base. Growth of our revenue from our existing customers results from increases in the scale of their deployment for existing use cases, or when customers utilize our platform to address new use cases. In addition, our professional services organization helps customers deploy new use cases and optimize their existing implementations. Our revenue from our subscription offerings varies depending on the scale and performance requirements of our customers' deployments. We are focusing on growing our subscription revenue, particularly from enterprises, while delivering professional services and training to support this growth. We have been successful in expanding our existing customers' adoption of our platform as demonstrated by our dollar-based net retention rate of over 115% in seven of the past eight quarters. Our dollar-based net retention rate for any period equals the simple arithmetic average of our quarterly dollar-based net retention rate for the four quarters ending with the most recent fiscal quarter. To calculate our dollar-based net retention rate for a given quarter, we start with the ARR, or Base ARR, attributable to our customers, or Base Customers, as of the end of the same quarter of the prior fiscal year. We then determine the ARR attributable to the Base Customers as of the end of the most recent quarter and divide that amount by the Base ARR.
Continue to invest in growth
We expect to continue to invest in our offerings, personnel, geographic presence and infrastructure in order to drive future growth, as well as to pursue adjacent opportunities. We expend research and development resources to drive innovation in our proprietary software to constantly improve the functionality and performance of our platform and to increase the deployment models available to our customers. We anticipate continuing to increase our headcount to ensure that our product development organization drives improvements in our product offerings, our sales and marketing organization can maximize opportunities for growing our business and revenue and our general and administrative organization efficiently supports the growth of our business as well as our effective operation as a public company.
Key business indicators
Recurring annual income
We define ARR as of a given date as the annualized recurring revenue that we would contractually receive from our customers in the month ending 12 months following such date. Based on historical experience with customers, we assume all contracts will be automatically renewed at the same levels unless we receive notification of non-renewal and are no longer in negotiations prior to the measurement date. ARR also includes revenue from consumption-based cloud credits of Couchbase Capella products. ARR for Couchbase Capella products is calculated by annualizing the prior 90 days of actual consumption, assuming no increases or reductions in usage. ARR excludes revenue derived from the use of cloud products only based on on-demand arrangements and services revenue. ARR should be viewed independently of revenue, and does not represent our revenue under
U.S.GAAP on an annualized basis, as it is an operating metric that can be impacted by contract start and end dates and renewal dates. ARR is not intended to be a replacement for forecasts of revenue. Although we seek to increase ARR as part of our strategy of targeting large enterprise customers, this metric may fluctuate from period to period based on our ability to acquire new customers and expand within our existing customers. We believe that our ARR is an important indicator of the growth and performance of our business. We updated our definition of ARR beginning in the first quarter of fiscal 2023 to include revenue from consumption-based cloud credits of Couchbase Capella products by annualizing the prior 90 days of actual consumption, assuming no increases or reductions in usage. The reason for this change is to better reflect the ARR for Couchbase Capella products following the launch of Couchbase Capella in fiscal 2022. ARR for periods prior to the first quarter of fiscal 2023 has not been adjusted to reflect this change as it is not material to any period previously presented. As of April 30, 2022 2021 (in millions) ARR $ 139.7 $ 109.529
We calculate our total number of customers at the end of each period. We include in this calculation each customer account that has an active subscription contract with us or with which we are negotiating a renewal contract at the end of a given period. Each party with which we enter into a subscription contract is considered a unique customer and, in some cases, a single organization may be counted as more than one customer. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs and other market activity. We believe that our number of customers is an important indicator of the growth of our business and future revenue trends. As of April 30, 2022 2021 Customers 614 549
Non-GAAP Financial Measures
In addition to our financial information presented in accordance with GAAP, we believe certain non-GAAP financial measures are useful to investors in evaluating our operating performance. We use certain non-GAAP financial measures, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, may be helpful to investors because they provide consistency and comparability with past financial performance and meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook. Non-GAAP financial measures are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP and may be different from similarly-titled non-GAAP financial measures used by other companies. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures (provided in the financial statement tables included in this press release), and not to rely on any single financial measure to evaluate our business. We define the non-GAAP financial measures below as their respective GAAP measures, excluding expenses related to stock-based compensation expense and employer taxes on employee stock transactions. We use these non-GAAP financial measures in conjunction with GAAP measures to assess our performance, including in the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. Beginning with the first quarter of fiscal 2023, we have excluded employer payroll taxes on employee stock transactions, which is a cash expense, from our non-GAAP results. These payroll taxes have been excluded from our non-GAAP results because they are tied to the timing and size of the exercise or vesting of the underlying equity awards, and the price of our common stock at the time of vesting or exercise may vary from period to period independent of the operating performance of our business. Prior period non-GAAP financial measures have not been adjusted to reflect this change, and the effect of this change is not material for any period previously presented. 30
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit and non-GAAP gross margin as gross profit and gross margin, respectively, excluding stock-based compensation expense and employer taxes on employee stock transactions recorded to cost of revenue. We use non-GAAP gross profit and non-GAAP gross margin in conjunction with GAAP financial measures to assess our performance, including in the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. Three Months Ended April 30, 2022 2021 (dollars in thousands) Total revenue
$ 34,853$ 27,955 Gross profit $ 30,202$ 24,563 Add: Stock-based compensation expense 216 49 Add: Employer taxes on employee stock transactions 2 - Non-GAAP gross profit $ 30,420$ 24,612 Gross margin 86.7% 87.9% Non-GAAP gross margin 87.3% 88.0%
Non-GAAP operating loss and non-GAAP operating margin
We define non-GAAP operating loss and non-GAAP operating margin as loss from operations and operating margin, respectively, excluding stock-based compensation expense and employer taxes on employee stock transactions. We use non-GAAP operating loss and non-GAAP operating margin in conjunction with GAAP measures to assess our performance, including in the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. Three Months Ended April 30, 2022 2021 (dollars in thousands) Total revenue $ 34,853
$ 27,955Loss from operations $ (18,988) $ (14,109)Add: Stock-based compensation expense 5,450 1,829 Add: Employer taxes on employee stock transactions 133 - Non-GAAP operating loss $ (13,405) $ (12,280)Operating margin (54) % (50) % Non-GAAP operating margin (38) % (44) % 31
Non-GAAP net loss and non-GAAP net loss per share
We define non-GAAP net loss attributable to common stockholders as net loss attributable to common stockholders excluding stock-based compensation expense and employer taxes on employee stock transactions. We use non-GAAP net loss attributable to common stockholders and non-GAAP net loss per share attributable to common stockholders in conjunction with GAAP measures to assess our performance, including in the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. Three Months Ended April 30, 2022 2021 (in thousands, except per share data) Net loss attributable to common stockholders
$ (19,834)$ (16,078) Add: Stock-based compensation expense 5,450 1,829 Add: Employer taxes on employee stock transactions 133 -
Non-GAAP net loss attributable to common shares
$ (14,251)$ (14,249) GAAP net loss per share attributable to common stockholders $ (0.45)$ (2.55)
Non-GAAP net loss per share attributable to common stock
$ (0.32)$ (2.26) Weighted average shares outstanding, basic and diluted 44,265 6,302 Free Cash Flow We define free cash flow as cash used in operating activities less purchases of property and equipment, which includes capitalized internal-use software costs. We believe free cash flow is a useful indicator of liquidity that provides our management, board of directors and investors with information about our future ability to generate or use cash to enhance the strength of our balance sheet and further invest in our business and pursue potential strategic initiatives. For the three months ended April 30, 2022and 2021, our free cash flow included cash paid for our unused Credit Facility and interest on our long-term debt of less than $0.1 millionand $0.2 million, respectively. Three Months Ended April 30, 2022 2021 ( in thousands) Net cash used in operating activities $ (8,607) $ (3,189)Less: Purchases of property and equipment (799) (230) Free cash flow $ (9,406) $ (3,419)Net cash provided by (used in) investing activities (44,829) 3,234 Net cash provided by financing activities 6,139 8
Components of operating results
We derive revenue from sales of subscriptions and services. Our subscription revenue is primarily derived from term-based software licenses to our platform sold in conjunction with post-contract support, or PCS. PCS bundled with software licenses includes internet, email and phone support, bug fixes and the right to receive unspecified software updates and upgrades released when and if available during the subscription term. The software license and PCS revenue is presented as "License" and "Support and other," respectively, in our condensed consolidated statements of operations. License revenue is recognized upon transfer when our customer has received access to our software. PCS revenue, or "Support," is recognized ratably over the term of the arrangement beginning on the date when access to the subscription is made available to our customer. The non-cancelable term of our subscription arrangements typically ranges from one to three years but may be longer or shorter in limited circumstances. "Other" revenue was not material for the periods presented. Our services revenue is derived from our professional services related to the implementation or configuration of our platform and training. Services revenue is recognized over time based on input measures for professional services and upon delivery for training. 32
We expect our revenue may vary from period to period based on, among other things, the timing and size of new subscriptions, the proportion of term license contracts that commence within the period, the rate of customer renewals and expansions and timing and delivery of professional services and training.
Cost of subscription revenue primarily consists of personnel-related costs associated with our customer support organization, including salaries, bonuses, benefits and stock-based compensation, expenses associated with software and subscription services dedicated for use by our customer support organization, third-party cloud infrastructure expenses, amortization of costs associated with capitalized internal-use software related to Couchbase Capella and allocated overhead. There is no cost of revenue associated with our license revenue. We expect our cost of subscription revenue to increase in absolute dollars as our subscription revenue increases and as we continue to amortize capitalized internal-use software costs related to Couchbase Capella. Cost of services revenue primarily consists of personnel-related costs associated with our professional services and training organization, including salaries, bonuses, benefits and stock-based compensation, costs of contracted third-party partners for professional services, expenses associated with software and subscription services dedicated for use by our professional services and training organization, travel-related expenses and allocated overhead. We expect our cost of services revenue to increase in absolute dollars as our services revenue increases.
Gross profit and gross margin
Our gross profit and gross margin have been and will continue to be affected by various factors, including the average sales price of our subscriptions and services, the mix of subscriptions and services we sell and the associated revenue, the mix of geographies into which we sell and transaction volume growth. We expect our gross profit and gross margin to fluctuate in the near term depending on the interplay of these factors, and for gross margin to decline modestly in the long term as we introduce additional platform capabilities and product offerings and continue to expand our client base outside of
the United States.
Our operating expenses consist of research and development, sales and marketing and general and administrative expenses. Personnel-related costs are the most significant component of operating expenses and consist of salaries, bonuses, benefits, sales commissions and stock-based compensation expenses.
Research and development
Research and development expenses consist primarily of personnel-related costs, expenses associated with software and subscription services dedicated for use by our research and development organization, depreciation and amortization of property and equipment and allocated overhead. We expect that our research and development expenses will increase in absolute dollars as we continue to invest in the features and functionalities of our platform. We expect research and development expenses to fluctuate as a percentage of revenue in the near term, but to decrease as a percentage of revenue over the long term as we achieve greater scale in our business.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related costs, expenses associated with software and subscription services dedicated for use by our sales and marketing organization, costs of general marketing and promotional activities, amortization of deferred commissions, fees for professional services related to sales and marketing, travel-related expenses and allocated overhead. We expect that our sales and marketing expenses will increase in absolute dollars as we continue to expand our sales and marketing efforts to attract new customers and deepen our engagement with existing customers. We expect sales and marketing expenses to fluctuate as a percentage of revenue in the near term as we continue to invest in growing the reach of our platform through our sales and marketing efforts, but to decrease as a percentage of revenue over the long term as we achieve greater scale in our business. 33
General and administrative
General and administrative expenses consist primarily of personnel-related costs associated with our finance, legal, human resources and other administrative personnel. In addition, general and administrative expenses include non-personnel costs, such as fees for professional services such as external legal, accounting and other professional services, expenses associated with software and subscription services dedicated for use by our general and administrative organization, certain taxes other than income taxes and allocated overhead. We expect to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations and increased expenses for insurance, investor relations and professional services. We expect that our general and administrative expenses will increase in absolute dollars as we continue to invest in the growth of our business and operate as a publicly-traded company. We expect general and administrative expenses to fluctuate as a percentage of revenue in the near term, but to decrease as a percentage of revenue over the long term as we achieve greater scale in our business.
Interest expense consists primarily of interest on borrowings and unused credit facility fees related to our credit facility.
Other income (expenses), net
Other income (expense), net consists primarily of foreign currency gains and losses related to the impact of transactions denominated in a foreign currency and interest income. Provision for Income Taxes Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. We recorded a full valuation allowance against our
U.S.deferred tax assets as we have determined that it is not more likely than not that the deferred tax assets will be realized. The cash tax expenses are impacted by each jurisdiction's individual tax rates, laws on the timing of recognition of income and deductions and availability of NOLs and tax credits. Our effective tax rate could be adversely affected to the extent earnings are lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates. 34
The following table sets forth our condensed consolidated statements of earnings for the periods indicated (in thousands):
Three Months Ended April 30, 2022 2021 Revenue: License $ 5,007
$ 4,278Support and other 26,974 22,187 Total subscription revenue 31,981 26,465 Services 2,872 1,490 Total revenue 34,853 27,955 Cost of revenue: Subscription(1) 2,396 2,052 Services(1) 2,255 1,340 Total cost of revenue 4,651 3,392 Gross profit 30,202 24,563 Operating expenses: Research and development(1) 14,421 12,541 Sales and marketing(1) 26,843 20,634 General and administrative(1) 7,926 5,497 Total operating expenses 49,190 38,672 Loss from operations (18,988) (14,109) Interest expense (25) (245) Other income (expense), net (556) 84 Loss before income taxes (19,569) (14,270) Provision for income taxes 265 329 Net loss $ (19,834) $ (14,599)
(1)Includes stock-based compensation expense as follows:
Three Months Ended April 30, 2022 2021 (in thousands) Cost of revenue-subscription $ 122
$ 27Cost of revenue-services 94 22 Research and development 1,899 570 Sales and marketing 1,987 541 General and administrative 1,348 669 Total stock-based compensation expense $ 5,450
The following table presents data from our condensed consolidated statements of earnings expressed as a percentage of sales:
Table of Contents Three Months Ended April 30, 2022 2021 Revenue: License 14 % 15 % Support and other 77 79 Total subscription revenue 92 95 Services 8 5 Total revenue 100 100 Cost of revenue: Subscription 7 7 Services 6 5 Total cost of revenue 13 12 Gross profit 87 88 Operating expenses: Research and development 41 45 Sales and marketing 77 74 General and administrative 23 20 Total operating expenses 141 138 Loss from operations (54) (50) Interest expense * (1) Other income (expense), net (2) * Loss before income taxes (56) (51) Provision for income taxes 1 1 Net loss (57) % (52) % * Represents less than 1% Note: Certain figures may not sum due to rounding.
Comparison of the three months ended
Revenue Three Months Ended April 30, 2022 2021 $ Change % Change (dollars in thousands) Revenue License $ 5,007
$ 4,278 $ 72917 % Support and other 26,974 22,187 4,787 22 % Total subscription revenue 31,981 26,465 5,516 21 % Services 2,872 1,490 1,382 93 % Total revenue $ 34,853 $ 27,955 $ 6,89825 % Subscription revenue increased by $5.5 million, or 21%, during the three months ended April 30, 2022compared to the three months ended April 30, 2021. The increase in subscription revenue was due to an increase in revenue from existing customers and new customers, as we increased our customer base from 549 customers as of April 30, 2021to 614 customers as of April 30, 2022. Approximately 93% of the increase in revenue was attributable to growth from existing customers, and the remaining increase was attributable to new customers.
Services revenue increased by
Cost of revenue, gross profit and gross margin
Three Months Ended April 30, 2022 2021 $ Change % Change (dollars in thousands) Cost of revenue: Subscription
$ 2,396 $ 2,052 $ 34417 % Services 2,255 1,340 915 68 % Total cost of revenue $ 4,651 $ 3,392 $ 1,25937 % Gross profit $ 30,202 $ 24,563Gross margin 86.7 % 87.9 % Headcount (at period end) 57 57 Cost of subscription revenue increased by $0.3 millionor 17%, during the three months ended April 30, 2022compared to the three months ended April 30, 2021. The increase in cost of subscription revenue was primarily due to an increase of $0.3 millionrelated to the computing infrastructure costs related to CouchbaseCapella. Cost of services revenue increased by $0.9 million, or 68%, during the three months ended April 30, 2022compared to the three months ended April 30, 2021. The increase in cost of services revenue was primarily due to an increase of $0.5 millionin contracted third-party professional services and an increase of $0.3 millionin personnel-related costs associated with headcount growth. Gross margin decreased during the three months ended April 30, 2022compared to the three months ended April 30, 2021, primarily due to the mix of subscriptions and services we sell and the associated revenue. Research and Development Three Months Ended April 30, 2022 2021 $ Change % Change (dollars in thousands) Research and development $ 14,421 $ 12,541 $ 1,88015 % Percentage of revenue 41 % 45 % Headcount (at period end) 249 233 Research and development increased by $1.9 million, or 15%, during the three months ended April 30, 2022compared to the three months ended April 30, 2021. The increase in research and development expenses was primarily due to an increase of $1.6 millionin personnel-related costs associated with increased headcount and an increase of $0.3 millionassociated with computing infrastructure costs dedicated for use by our research and development organization, which was partially offset by a decrease of $0.2 millionin contracted third-party professional services. Sales and Marketing Three Months Ended April 30, 2022 2021 $ Change % Change (dollars in thousands) Sales and marketing $ 26,843 $ 20,634 $ 6,20930 % Percentage of revenue 77 % 74 % Headcount (at period end) 283 253 Sales and marketing increased by $6.2 million, or 30%, during the three months ended April 30, 2022compared to the three months ended April 30, 2021. The increase in sales and marketing expenses was primarily due to an increase of $3.7 millionin personnel-related costs associated with increased headcount and an increase of $1.0 millionin travel-related costs. There was an additional increase of $0.5 millionin sales and marketing program expenses primarily associated with costs of general marketing and promotional activities as we continue to expand our sales and marketing efforts to attract new customers and deepen our engagement with existing customers. 37
Table of Contents General and Administrative Three Months Ended April 30, 2022 2021 $ Change % Change (dollars in thousands) General and administrative
$ 7,926 $ 5,497 $ 2,42944 % Percentage of revenue 23 % 20 % Headcount (at period end) 70 54 General and administrative increased by $2.4 million, or 44%, during the three months ended April 30, 2022compared to the three months ended April 30, 2021. The increase in general and administrative expenses was primarily due to an increase of $1.5 millionin personnel-related costs associated with increased headcount and an increase of $0.7 millionin additional professional fees and other corporate expenses associated with being a publicly traded company. Interest Expense Three Months Ended April 30, 2022 2021 $ Change % Change (dollars in thousands) Interest expense $ (25) $ (245) $ 220(90) %
Interest expense decreased by
Other Income (Expense), Net Three Months Ended April 30, 2022 2021 $ Change % Change (dollars in thousands) Other income (expense), net
$ (556) $ 84 $ (640)(762) % Other income (expense), net decreased by $0.6 millionduring the three months ended April 30, 2022compared to the three months ended April 30, 2021. The decrease in other income (expense), net was primarily driven by an increase of $0.8 millionin unrealized and realized foreign currency losses due to remeasurement of monetary assets denominated in non-functional currencies. This was partially offset by an increase of $0.2 millionin interest income primarily driven by higher cash and cash equivalent and short-term investment balances and higher yield in the current period.
Provision for income taxes
Three Months Ended April 30, 2022 2021 $ Change % Change (dollars in thousands) Loss before income taxes
$ (19,569) $ (14,270) $ (5,299)37 % Provision for income taxes 265 329 $ (64)(19) % Effective tax rate (1.4) % (2.3) %
Changes in the provision for income taxes during the three months ended
Cash and capital resources
We have financed our operations through subscription revenue from customers accessing our platform and services revenue, and in
July 2021, we completed our initial public offering, or IPO, with net proceeds totaling $214.9 million. We also have a Credit Facility to obtain up to $40.0 millionin debt financing. We have incurred losses and 38
generated negative operating cash flow for the past several years, including fiscal years 2021 and 2022 and the three months ended
April 30, 2022, we had $201.1 millionin cash, cash equivalents and short-term investments. We believe our existing cash, cash equivalents and short-term investments, availability under the Credit Facility, which is described in Note 7 of our notes to the condensed consolidated financial statements, and cash provided by sales of subscriptions to our platform and sales of our services will be sufficient to meet our projected operating requirements and cash expenditures for at least the next 12 months. As a result of our revenue growth plans, both domestically and internationally, we expect that losses and negative cash flows from operations may continue in the future. Our future cash requirements will depend on many factors, including our subscription revenue growth rate, subscription renewals, billing timing and frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced platform features and functionality and the continued market adoption of our platform. We may in the future pursue acquisitions of businesses, technologies, assets and talent. 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 or generate cash flows necessary to expand our operations and invest in new technologies, our competitive position could weaken, and our business, financial condition and results of operations could be adversely affected. We typically invoice our subscription customers annually in advance. Therefore, a substantial source of our cash is from such prepayments, which are included on our condensed consolidated balance sheets as deferred revenue. Deferred revenue consists of billed fees for our subscriptions, prior to satisfying the criteria for revenue recognition, which are subsequently recognized as revenue in accordance with our revenue recognition policy. As of April 30, 2022, remaining performance obligations, including both deferred revenue and non-cancelable contracted amounts, were $169.0 million. We expect to recognize revenue of $100.7 millionon these remaining performance obligations over the next 12 months, with the remaining balance recognized thereafter.
The following table shows a summary of our cash flows for the periods presented: Three Months Ended April 30, 2022 2021 (in thousands) Net cash provided by (used in): Operating activities $ (8,607)
$ (3,189)Investing activities $ (44,829) $ 3,234Financing activities $ 6,139 $ 8Operating Activities Cash used in operating activities for the three months ended April 30, 2022, of $8.6 millionprimarily consisted of our net loss of $19.8 million, adjusted for non-cash charges of $12.0 millionand net cash outflows of $0.8 millionfrom changes in our operating assets and liabilities. Changes in operating assets and liabilities primarily reflected a $11.8 milliondecrease in accounts receivable related to timing of billings and collections and a $1.0 milliondecrease in deferred revenue due to timing of billings. Additionally, there was a $8.1decrease in accrued compensation primarily due to the timing of bonus payments and purchases under our employee stock purchase plan and a $3.8 millionincrease in deferred commissions related to increased sales during the period. Cash used in operating activities for the three months ended April 30, 2021of $3.2 millionprimarily consisted of our net loss of $14.6 million, adjusted for non-cash charges of $5.5 millionand net cash inflows of $6.0 millionfrom changes in our operating assets and liabilities. Changes in operating assets and liabilities primarily reflected an $18.6 milliondecrease in accounts receivable related to timing of billings and collections and a $5.1 milliondecrease in deferred revenue due to timing of billings. Additionally, there was a $3.3 milliondecrease in accrued compensation and benefits related to the timing of accruals paid during the period and a $2.7 millionincrease in deferred commissions related to increased sales during the period. 39
Cash used in investing activities for the three months ended
April 30, 2022, of $44.8 millionconsisted of purchases of short-term investments net of maturities and sales of $44.0 millionand purchases of property and equipment of $0.8 million. Cash provided by investing activities for the three months ended April 30, 2021of $3.2 millionconsisted of net maturities of short-term investments of $3.5 millionand cash paid for purchases of property and equipment of $0.2 million.
Cash provided by financing activities for the three months ended
April 30, 2022of $6.1 millionwas primarily due to $3.5 millionin proceeds from the issuance of common stock under our employee stock purchase plan, and $2.6 millionin proceeds from the issuance of common stock upon exercises of stock options. Cash provided by financing activities for the three months ended April 30, 2021consisted of proceeds from stock option exercises of $1.4 million, which was offset by payments of deferred offering costs of $1.4 million.
Contractual obligations and commitments
Our contractual obligations consist of purchase obligations and operating lease commitments. Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions and the approximate timing of the transaction. These obligations relate to third-party cloud infrastructure agreements and subscription arrangements. Our operating lease commitments relate primarily to our office facilities. For further information on our commitments and contingencies, refer to Note 9 in our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. There has been no material change in our contractual obligations and commitments other than in the ordinary course of business since our fiscal year ended
January 31, 2022. See our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, which was filed with the SECon March 31, 2022, for additional information regarding our contractual obligations.
In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors and other business partners with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. Additionally, we entered into indemnification agreements with our directors and officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. As of
May 31, 2022, no demands have been made upon us to provide indemnification under such agreements, and there are no claims that we are aware of that could reasonably be expected to have a material effect on our financial condition, results of operations or cash flows.
Significant Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with
U.S.generally accepted accounting principles (GAAP). The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. There have been no significant changes to our critical accounting policies and estimates as compared to those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, which was filed with the SECon March 31, 2022.
Recent accounting pronouncements
See Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
Accounting election of the JOBS law
We are an "emerging growth company," as defined in the JOBS Act. The JOBS Act provides that an "emerging growth company" can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an "emerging growth company" to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an "emerging growth company" or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. 41
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