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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2021
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to               
Commission File Number 001-39502               
Sumo Logic, Inc.
(Exact name of registrant as specified in its charter)
Delaware
27-2234444
(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)
305 Main Street
Redwood City, California
94063
(Address of principal executive offices)(Zip Code)
(650) 810-8700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.0001 per shareSUMONasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes    No ☒
As of November 30, 2021, the number of outstanding shares of the registrant's common stock was 112,003,989 shares of common stock.


Table of Contents
Table of Contents
Page
Condensed Consolidated Balance Sheets as of October 31, 2021 and January 31, 2021
PART II. OTHER INFORMATION
1

Table of Contents
Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions.

Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about our expectations regarding:

our future financial performance, including our expectations regarding our revenue, cost of revenue, operating expenses, including changes in sales and marketing, research and development, and general and administrative expenses, and key business metrics, and our ability to achieve and maintain future profitability;
the impact of the COVID-19 pandemic, and the emergence of new variants of the virus, and any associated economic downturn on our business and results of operations;
our business model and our ability to effectively manage our growth and associated investments;
our beliefs about and objectives for future operations;
market acceptance of our platform;
our ability to maintain and expand our customer base, including by attracting new customers;
our ability to retain customers and expand their adoption of our platform, particularly our largest customers;
the effects of increased competition in our markets and our ability to compete effectively;
our ability to maintain the security and availability of our platform;
our ability to develop new platform features and functionality, or enhancements to our existing platform features and functionality, and bring them to market in a timely manner;
anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;
our relationships with third parties, including channel and technology partners;
our ability to successfully expand in our existing markets and into new markets, including internationally;
our ability to comply with laws and regulations that currently apply or become applicable to our business both in the United States and internationally, including with respect to privacy and data protection;
our expectations regarding our ability to obtain, maintain, enforce, defend, and enhance our intellectual property rights;
our ability to successfully defend litigation brought against us;
the sufficiency of our cash and cash equivalents to meet our liquidity needs;
our ability to attract and retain employees and key personnel;
future acquisitions or investments; and
economic and industry trends or trend analysis.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should
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not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Risk Factor Summary

Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors,” together with the other information in this Form 10-Q. If any of the following risks actually occurs (or if any of those listed elsewhere in this Form 10-Q occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.
Our revenue growth rate and financial performance in recent periods may not be indicative of future performance, and we expect our revenue growth rate to decline compared to prior fiscal years;
We have a history of net losses and we may not be able to achieve or maintain profitability in the future;
We face intense competition and could face pricing pressure from, and lose market share to, our competitors, which would adversely affect our business, financial condition, and results of operations;
The markets for our offerings are evolving, and our future success depends on the growth of these markets and our ability to adapt to keep pace, and respond effectively to evolving markets;
We may fail to cost-effectively acquire new customers or obtain renewals, upgrades or expansions from our existing customers, which would adversely affect our business, financial condition, and results of operations;
Changes to our packaging and licensing models could adversely affect our ability to attract or retain customers;
Our results of operations vary and are unpredictable from period to period, which could cause the market price of our common stock to decline;
The global COVID-19 pandemic has harmed and could continue to harm our business and results of operations;
Our sales cycle can be long and unpredictable, and our sales efforts require considerable time and expense;
The loss of, or a significant reduction in use of our platform by, our largest customers would result in lower revenue and harm to our results of operations;
We depend on our sales force, and we may fail to attract, retain, motivate, or train our sales force, which could adversely affect our business, financial condition, and results of operations;
We utilize free trials and other go-to-market strategies, and we may not be able to realize the benefits of these strategies;
If our website fails to rank prominently in unpaid search results, traffic to our website could decline and our business, financial condition, and results of operations could be adversely affected;
We may be unable to build and maintain successful relationships with our channel partners or such channel partners may fail to perform, which could adversely affect our business, financial condition, results of operations, and growth prospects;
Our ability to increase sales depends, in part, on the quality of our customer support, and our failure to offer high quality support would harm our reputation and adversely affect our business and results of operations;
Our international operations and continued international expansion subject us to additional costs and risks, which could adversely affect our business, financial condition, and results of operations;
We may fail to effectively manage our growth, which would adversely affect our business, financial condition, and results of operations;
We depend on our management team and other highly skilled personnel, and we may fail to attract, retain, motivate, or integrate highly skilled personnel, which could adversely affect our business, financial condition, and results of operations;
We may be unable to make acquisitions and investments, successfully integrate acquired companies into our business, or our acquisitions and investments may not meet our expectations, any of which could adversely affect our business, financial condition, and results of operations;
Our reputation and brand are important to our success, and we may not be able to maintain and enhance our reputation and brand, which would adversely affect our business, financial condition, and results of operations;
We provide service level commitments under our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service, or face contract termination with refunds of prepaid amounts related to unused subscriptions, which could harm our business, financial condition, and results of operations;
A portion of our revenue is generated by sales to government entities, which subject us to a number of challenges and risks;
Our business could be adversely affected by economic downturns;
Our business could be adversely affected by pandemics, natural disasters, political crises, or other unexpected events;
We use certain third-party services to manage and operate our business, and any failure or interruption in the services provided by these third parties could adversely affect our business, financial condition, and results of operations;
We believe our long-term value as a company will be greater if we focus on growth, which may negatively impact our results of operations in the near term;
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Any actual or perceived security or privacy breach could interrupt our operations, harm our reputation and brand, result in financial exposure, and lead to loss of user confidence in us or decreased use of our platform, any of which could adversely affect our business, financial condition, and results of operations;
Real or perceived defects, errors, or vulnerabilities in our platform could harm our reputation and adversely affect our business, financial condition, and results of operations;
We rely on Amazon Web Services to deliver our platform to our customers, and any disruption of, or interference with, our use of Amazon Web Services could adversely affect our business, financial condition, and results of operations;
Any failure to obtain, maintain, protect, or enforce our intellectual property and proprietary rights, or claims by others that we infringed their proprietary technology or other intellectual property rights, could harm our business, financial condition, and results of operations;
Claims by others that we infringed their proprietary technology or other intellectual property rights would harm our business;
Our platform contains third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could restrict our ability to deliver our platform or subject us to litigation or other actions;
We license certain editions of our offerings under an open source licensing model, which may limit our ability to monetize certain of our offerings and present other challenges;
The rapidly evolving framework of privacy, data protection, data transfers, or other laws or regulations worldwide may limit the use and adoption of our services and adversely affect our business;
We incorporate technology from third parties into our platform, and our inability to maintain rights to such technology would harm our business and results of operations;
Our platform may not interoperate with our customers’ infrastructure or with third-party offerings, which would adversely affect our business and results of operations;
We may be subject to claims that we have wrongfully hired an employee from a competitor, or that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers;
Remaining performance obligations and calculated billings may not be accurate indicators of business activity within a period;
We recognize a substantial portion of our revenue ratably over the term of the relevant subscription period, and as a result, downturns or upturns in sales may not be immediately reflected in our results of operations;
Our metrics and estimates used to evaluate our performance are subject to inherent challenges in measurement, and real or perceived inaccuracies in those estimates may harm our reputation and negatively affect our business;
Our loan and security agreement provides our lender with a first-priority lien against substantially all of our assets and contains restrictive covenants which could limit our operational flexibility and otherwise adversely affect our financial condition; and
Our executive officers, directors, and holders of 5% or more of our common stock continue to have substantial control over us, which will limit your ability to influence the outcome of important transactions, including a change in control.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Sumo Logic, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
October 31,
2021
January 31,
2021
Assets
Current assets:
Cash and cash equivalents$78,288 $404,140 
Marketable securities, current210,633  
Accounts receivable, net43,404 44,761 
Prepaid expenses10,639 10,509 
Deferred sales commissions, current15,810 12,790 
Other current assets2,647 3,110 
Total current assets361,421 475,310 
Marketable securities, noncurrent73,153  
Property and equipment, net4,864 4,156 
Operating lease right-of-use assets7,162 — 
Goodwill95,815 50,672 
Acquired intangible assets, net30,421 10,656 
Deferred sales commissions, noncurrent29,736 27,857 
Other assets1,507 1,856 
Total assets$604,079 $570,507 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$9,338 $4,832 
Accrued expenses and other current liabilities25,839 23,316 
Operating lease liabilities, current4,612 — 
Deferred revenue, current118,668 102,625 
Total current liabilities158,457 130,773 
Operating lease liabilities, noncurrent3,514 — 
Deferred revenue, noncurrent5,594 4,076 
Other liabilities4,789 4,246 
Total liabilities172,354 139,095 
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock11 10 
Additional paid-in-capital921,710 829,238 
Accumulated other comprehensive loss(2,406)(45)
Accumulated deficit(487,590)(397,791)
Total stockholders’ equity431,725 431,412 
Total liabilities and stockholders’ equity$604,079 $570,507 
See Notes to Condensed Consolidated Financial Statements
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Sumo Logic, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except for per share data)
(unaudited)
Three Months Ended October 31,Nine Months Ended October 31,
2021202020212020
Revenue$62,016 $51,868 $175,076 $148,485 
Cost of revenue20,384 13,601 55,557 42,140 
Gross profit41,632 38,267 119,519 106,345 
Operating expenses:
Research and development25,464 18,753 69,768 51,756 
Sales and marketing33,565 26,904 95,300 80,534 
General and administrative14,015 15,507 45,258 32,096 
Total operating expenses73,044 61,164 210,326 164,386 
Loss from operations(31,412)(22,897)(90,807)(58,041)
Interest and other (expense) income, net(19)(322)34 (249)
Interest expense(44)(290)(133)(654)
Loss before provision for income taxes(31,475)(23,509)(90,906)(58,944)
Provision (benefit) for income taxes(639)417 (1,107)764 
Net loss$(30,836)$(23,926)$(89,799)$(59,708)
Net loss per share, basic and diluted$(0.28)$(0.43)$(0.84)$(1.92)
Weighted-average shares used to compute net loss per share, basic and diluted110,409 55,816 107,479 31,044 
See Notes to Condensed Consolidated Financial Statements
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Sumo Logic, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
Three Months Ended October 31,Nine Months Ended October 31,
2021202020212020
Net loss$(30,836)$(23,926)$(89,799)$(59,708)
Other comprehensive income (loss):
Foreign currency translation adjustments(2,077)(51)(2,154)(33)
Unrealized gain on available-for-sale marketable securities(218) (207) 
Total comprehensive loss$(33,131)$(23,977)$(92,160)$(59,741)
See Notes to Condensed Consolidated Financial Statements
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Sumo Logic, Inc.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity
(in thousands)
(unaudited)

Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance at July 31, 2021 $ 110,133 $11 $904,076 $(111)$(456,754)$447,222 
Issuance of common stock upon exercise of stock options— — 1,344 — 4,648 4,648 
Vesting of restricted stock units— — 370 — — — — — 
Vesting of early exercised stock options— — — — 49 — — 49 
Stock-based compensation— — — — 12,937 — — 12,937 
Other comprehensive income (loss)— — — — — (2,295)— (2,295)
Net loss— — — — — — (30,836)(30,836)
Balance at October 31, 2021 $ 111,847 $11 $921,710 $(2,406)$(487,590)$431,725 
Balance at July 31, 202063,762 $340,167 20,128 $2 $109,261 $(195)$(353,276)$(244,208)
Issuance of common stock upon initial public offering, net of underwriting discounts and issuance costs— — 17,020 2 342,683 — — 342,685 
Conversion of convertible redeemable preferred stock to common stock upon initial public offering(63,762)(340,167)63,762 6 340,161 — — 340,167 
Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital upon initial public offering— — — — 512 — — 512 
Issuance of common stock upon exercise of stock options— — 1,301 — 3,992 — — 3,992 
Vesting of early exercised stock options— — — — 49 — — 49 
Common stock issued in connection with acquisitions— — 33 — — — — — 
Stock-based compensation — — — — 19,077 — — 19,077 
Foreign currency translation adjustments— — — — — (51)— (51)
Net loss— — — — — — (23,926)(23,926)
Balance at October 31, 2020 $ 102,244 $10 $815,735 $(246)$(377,202)$438,297 
See Notes to Condensed Consolidated Financial Statements
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Sumo Logic, Inc.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity
(in thousands)
(unaudited)
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders’ Equity
Shares
Amount
SharesAmount
Balance at January 31, 2021 $ 102,484 $10 $829,238 $(45)$(397,791)$431,412 
Issuance of common stock upon exercise of stock options — — 5,824 1 17,974 — — 17,975 
Exercise of common stock warrants— — 18 — — — — — 
Vesting of restricted stock units— — 1,567 — — — — — 
Vesting of early exercised stock options— — — — 147 — — 147 
Issuance of common stock in connection with employee stock purchase plan— — 280 — 4,725 — — 4,725 
Common stock issued in connection with acquisitions— — 1,674 — 30,499 — — 30,499 
Stock-based compensation — — — — 39,127 — — 39,127 
Other comprehensive income (loss)— — — — — (2,361)— (2,361)
Net loss— — — — — — (89,799)(89,799)
Balance at October 31, 2021 $ 111,847 $11 $921,710 $(2,406)$(487,590)$431,725 
Balance at January 31, 202063,762 $340,167 18,984 $2 $97,131 $(213)$(317,494)$(220,574)
Issuance of common stock upon initial public offering, net of underwriting discounts and issuance costs— — 17,020 2 342,683 — — 342,685 
Conversion of convertible redeemable preferred stock to common stock upon initial public offering(63,762)(340,167)63,762 6 340,161 — — 340,167 
Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital upon initial public offering— — — — 512 — — 512 
Issuance of common stock upon exercise of stock options — — 2,222 — 6,113 — — 6,113 
Vesting of early exercised stock options — — — — 148 — — 148 
Common stock issued in connection with acquisitions— — 256 — — — — — 
Stock-based compensation— — — — 28,987 — — 28,987 
Foreign currency translation adjustments — — — — — (33)— (33)
Net loss — — — — — — (59,708)(59,708)
Balance at October 31, 2020 $ 102,244 $10 $815,735 $(246)$(377,202)$438,297 
See Notes to Condensed Consolidated Financial Statements
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Sumo Logic, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended October 31,
20212020
Cash flows from operating activities
Net loss$(89,799)$(59,708)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization9,889 6,152 
Amortization of deferred sales commissions11,353 8,148 
Accretion (amortization) of marketable securities purchased at a premium (discount)2,156  
Stock-based compensation, net of amounts capitalized39,127 28,666 
Non-cash operating lease cost3,132  
Other(1,852)186 
Changes in operating assets and liabilities
Accounts receivable1,910 (14,717)
Prepaid expenses(133)(2,276)
Other assets1,104 (619)
Deferred sales commissions(16,252)(17,718)
Accounts payable4,283 (149)
Accrued expenses and other current liabilities1,806 1,781 
Deferred revenue16,436 1,695 
Operating lease liabilities(3,371) 
Other noncurrent liabilities265 2,354 
Net cash used in operating activities(19,946)(46,205)
Cash flows from investing activities
Purchases of marketable securities(359,587) 
Maturities of marketable securities57,958  
Sales of marketable securities15,480  
Purchases of property and equipment(1,799)(358)
Capitalized internal-use software costs (1,205)
Cash paid for acquisitions, net of cash and restricted cash acquired(40,340) 
Net cash used in investing activities(328,288)(1,563)
Cash flows from financing activities
Proceeds from initial public offering, net of underwriting discounts 349,166 
Proceeds from borrowings 24,250 
Repayment of borrowings (24,250)
Payments of deferred offering costs(93)(1,321)
Proceeds from employee stock purchase plan4,725  
Proceeds from exercise of common stock options17,974 6,113 
Cash paid for holdback consideration in connection with acquisitions (100)
Net cash provided by financing activities22,606 353,858 
Effect of exchange rate changes on cash and cash equivalents(174)(134)
Change in cash and cash equivalents and restricted cash(325,802)305,956 
Cash and cash equivalents and restricted cash:
Beginning of period404,440 101,813 
End of period$78,638 $407,769 
Supplemental disclosures of cash flow information
Cash paid for income taxes$831 $846 
Cash paid for interest63 706 
Supplemental non-cash investing and financing information
Conversion of redeemable convertible preferred stock to common stock$ $340,161 
Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital 512 
Vesting of early exercised options148 148 
Common stock and assumed awards issued as consideration for acquisitions30,499  
Unpaid cash consideration for acquisitions456  
Stock-based compensation capitalized as internal-use software costs 321 
Deferred offering costs accrued but not yet paid 3,140 
Property and equipment accrued but not yet paid40 130 
Reconciliation of cash, cash equivalents, and restricted cash to consolidated balance sheets
Cash and cash equivalents$78,288 $407,469 
Restricted cash included in other current assets350 300 
Total cash, cash equivalents, and restricted cash$78,638 $407,769 
See Notes to Condensed Consolidated Financial Statements
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Sumo Logic, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)



1. Description of Business and Basis of Presentation
Organization and Nature of Operations
Sumo Logic, Inc. (the “Company”) was incorporated in Delaware in March 2010. The Company provides, on a cloud-native software-as-a-service (“SaaS”) delivery model, a software platform that enables organizations of all sizes to address the challenges and opportunities presented by digital transformation, modern applications, and cloud computing. The platform enables organizations to automate the collection, ingestion, and analysis of application, infrastructure, security, and IoT data to derive actionable insights.
Basis of Presentation and Principles of Consolidation
The Company’s condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission, (“SEC”), regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the balance sheet as of January 31, 2021, and related disclosures, have been derived from the audited consolidated financial statements at that date but do not include all of the information required by GAAP for complete consolidated financial statements.
The accompanying interim unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes contained in the Company’s Annual Report on Form 10-K for the year ended January 31, 2021, as filed with the SEC on March 12, 2021.
The Company’s condensed consolidated financial statements and accompanying notes include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments that are necessary for the fair statement of the Company’s condensed consolidated financial information. The results of operations for the three and nine months ended October 31, 2021 are not necessarily indicative of the results to be expected for the year ending January 31, 2022 or for any other interim period or for any other future year.
Fiscal Year
The Company’s fiscal year ends on January 31. Unless otherwise stated, references to year in these condensed consolidated financial statements relate to the above described fiscal year rather than calendar year.
2. Summary of Significant Accounting Policies
Use of Estimates and Judgments
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, as of the date of the financial statements, and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements and may involve subjective or significant judgment by the Company; therefore, actual results could differ from the Company’s estimates. The Company’s accounting policies that involve judgment include revenue recognition, period of benefit for deferred sales commissions, assumptions used for estimating the fair value of common stock to calculate stock-based compensation (prior to the closing of the Company’s initial public offering (“IPO”)), capitalization of internal-use software costs, valuation of goodwill and intangible assets, estimate of credit losses for accounts receivable and marketable securities, and valuation allowances associated with income taxes.
COVID-19
While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the duration and spread of the outbreak, the emergence of variants of the virus, the extent and effectiveness of containment actions, and the effectiveness of vaccination efforts, it has already had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown. The Company may experience customer losses,
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including due to bankruptcy or customers ceasing operations, which may result in delays in collections or an inability to collect accounts receivable from these customers. The extent to which the COVID-19 pandemic, including the emergence of variants of the virus, may continue to impact the Company’s financial condition, results of operations, or liquidity continues to remain uncertain, and as of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or an adjustment to the carrying value of the Company’s assets or liabilities. These estimates may change, as new events occur and additional information is obtained, which will be recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s financial statements.
In May 2020, as part of the Company’s efforts to respond to the COVID-19 pandemic and ensure longer-term financial stability, the Company initiated cost reduction measures, including a headcount reduction. The headcount reduction resulted in $1.2 million of severance and benefits expense and $0.1 million in stock-based compensation expense for the year ended January 31, 2021.
Significant Accounting Policies
Other than those described below, there have been no changes to the Company’s significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended January 31, 2021, that have had a material impact on its condensed consolidated financial statements and related notes.
Marketable Securities
Marketable securities consist of U.S. Treasury securities, corporate debt securities, commercial paper, foreign government obligations, supranational securities, and certificates of deposits. The Company classifies marketable securities as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date. Interest receivable on these securities is presented in other current assets on the condensed consolidated balance sheets. All marketable securities are recorded at their estimated fair values. When the fair value of a marketable security declines below its amortized cost basis, the carrying value of the security will be reduced to its fair value if it is more likely than not that management is required to sell the impaired security before recovery of its amortized basis, or management has the intention to sell the security. If neither of these conditions are met, the Company determines whether any portion of the decline is due to credit losses. Any portion of that decline attributable to credit losses, to the extent expected to be nonrecoverable before the sale of the security, is recognized in the Company’s condensed consolidated statement of operations. When the fair value of the security declines below its amortized cost basis due to changes in interest rates, such amounts are recorded in accumulated other comprehensive income (loss) and are recognized in the Company’s condensed consolidated statement of operations only if the Company sells or intends to sell the security before recovery of its cost basis. Realized gains and losses are determined based on the specific identification method and are reported in interest and other (expense) income, net in the Company’s condensed consolidated statements of operations.
Leases
The Company enters into operating lease arrangements for real estate assets related to office space. The Company determines if an arrangement is or contains a lease at commencement by evaluating various factors, including whether a vendor’s right to substitute an identified asset is substantive. Lease classification is determined at the lease commencement date, which is the date the leased assets are made available for use. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current, and operating lease liabilities, noncurrent in the condensed consolidated balance sheets. The Company did not have any financing leases in any of the periods presented.
Operating lease right-of-use assets (“RoU”) and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease payments consist of the fixed payments under the arrangement, less any lease incentives, such as tenant improvement allowances. The Company elected the practical expedient which allows the Company to not allocate consideration between lease and non-lease components. Variable costs, such as maintenance and utilities based on actual usage, are not included in the measurement of right-to-use assets and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs. The interest rate implicit in our operating leases is not readily determinable, and therefore an incremental borrowing rate (“IBR”) is estimated to determine the present value of future payments. The estimated IBR factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments. Lease expenses are recognized on a straight-line basis over the lease term.
The Company generally uses the non-cancelable lease term when recognizing the right-of-use assets and lease liabilities, unless it is reasonably certain that a renewal or termination option will be exercised. The Company accounts for lease components and non-lease components as a single lease component.
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Leases with a term of 12 months or less are not recognized on the condensed consolidated balance sheets but are recognized as expense on a straight-line basis over the term of the lease.
Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. Land is not depreciated. Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation and amortization are removed from the Company’s consolidated balance sheet and the resulting gain or loss is reflected in the Company’s consolidated statement of operations.
The following table presents the estimated useful lives of the Company’s property and equipment:
Useful Life
Computer and hardware equipment3 years
Furniture and fixtures5 years
Leasehold improvementsShorter of lease term or estimated useful life
Capitalized internal-use software3 years
Building
10 - 22 years
Related Party Transactions
Certain members of the Company’s board of directors serve as directors of, or are executive officers of, and in some cases are investors in, companies that are customers or vendors of the Company. The Company received cash payments of $1.5 million from a related party for the year ended January 31, 2021. Related party transactions were not material as of October 31, 2021, or for the nine months ended October 31, 2021 or 2020.
Recently Adopted Accounting Pronouncements
The Company assesses the adoption impacts of recently issued accounting pronouncements by the Financial Accounting Standards Board (“FASB”) on its condensed consolidated financial statements. The sections below describe impacts from newly adopted pronouncements.
In February 2016, the FASB issued Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842). This guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about lease arrangements. In June 2020, the FASB issued ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, which amended the effective date of the new guidance. The Company adopted this guidance using a modified retrospective approach as of February 1, 2021. The Company has elected to use the optional transition method which allows the Company to apply the guidance of ASC 840, including disclosure requirements, in the comparative periods presented. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification related to agreements entered prior to adoption.
The adoption of the new standard resulted in recognition of operating lease RoU assets and operating lease liabilities of $10.3 million and $11.5 million, respectively, as of February 1, 2021. There was no cumulative impact of transition to the Company’s accumulated deficit balance as of the adoption date.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and has since issued various amendments including ASU No. 2018-19, ASU No. 2019-04, and ASU No. 2019-05. The guidance and related amendments modify the accounting for credit losses for most financial assets and require the use of an expected loss model, replacing the currently used incurred loss method. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. The Company adopted this guidance as of February 1, 2021, and the adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.
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Recently Issued Accounting Pronouncements
Under the JOBS Act, the Company meets the definition of an emerging growth company and can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the Company is no longer an emerging growth company or until the Company affirmatively and irrevocably opts out of the extended transition period. The Company will cease to be an emerging growth company and, therefore, will no longer be able to take advantage of this extended transition period as of January 31, 2022.
3. Fair Value Measurements
The Company measures its financial assets and liabilities at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value, as follows:
Level 1    Observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2    Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3    Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company uses the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
The carrying amounts of the Company’s financial instruments, which include cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short maturity of those instruments.
The following tables present the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis, based on the three-tier fair value hierarchy (in thousands):
As of October 31, 2021
Level 1Level 2Level 3Total
Cash equivalents:
Money market funds$69,155 $ $ $69,155 
Corporate debt securities 644  644 
Marketable securities:
U.S. Treasury securities 78,340  78,340 
Corporate debt securities 134,888  134,888 
Commercial paper 29,272  29,272 
Foreign government obligations 6,211  6,211 
Supranational securities 30,455  30,455 
Certificates of deposit 4,620  4,620 
Total financial assets$69,155 $284,430 $ $353,585 
As of January 31, 2021
Level 1Level 2Level 3Total
Cash equivalents:
Money market funds$397,200 $ $ $397,200 
The Company had $0.4 million and $0.3 million of restricted cash invested in money market funds that is not included in the tables above as of October 31, 2021 and January 31, 2021, respectively.
In connection with the Loan and Security agreement, discussed in Note 7, the Company issued 32,276 warrants to purchase shares of the Company’s redeemable convertible preferred stock. The Company used a Black-Scholes option valuation model to value its redeemable convertible preferred stock warrant liability at inception and on subsequent valuation dates. Changes in the fair values
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of the redeemable convertible preferred stock warrant liability were recorded as interest and other (expense) income, net in the Company’s condensed consolidated statements of operations. All 32,276 warrants to purchase shares of redeemable convertible preferred stock converted into warrants to purchase common stock upon the closing of the Company’s IPO and the related liability was reclassified to additional-paid in capital in the Company’s condensed consolidated balance sheet. During the nine months ended October 31, 2021, 21,746 warrants were exercised. There were no transfers out of level 3 during the nine months ended October 31, 2021 and 2020.
The following is a summary of available-for sale marketable securities, excluding those securities classified within cash and cash equivalents on the condensed consolidated balance sheet as of October 31, 2021 (in thousands):
As of October 31, 2021
Amortized CostUnrealized GainUnrealized LossFair Value
U.S. Treasury securities$78,401 $1 $(62)$78,340 
Corporate debt securities135,019 4 (135)134,888 
Commercial paper29,276  (4)29,272 
Foreign government obligations6,221  (10)6,211 
Supranational securities30,454 3 (2)30,455 
Certificates of deposit4,622  (2)4,620 
Total marketable securities$283,993 $8 $(215)$283,786 
The Company does not believe that any unrealized losses are attributable to credit-related factors based on its evaluation of available evidence. To determine whether a decline in value is related to credit loss, the Company evaluates, among other factors: the extent to which the fair value is less than the amortized cost basis, changes to the rating of the security by a rating agency and any adverse conditions specifically related to an issuer of a security or its industry. No impairment loss has been recorded on the securities included in the table above, as the Company believes that the decrease in fair value of these securities is temporary.
The following table presents the contractual maturities of the Company’s marketable securities (in thousands):
October 31,
2021
Due in one year or less$210,633 
Due after one year and within five years73,153 
Total marketable securities$283,786 
The Company had no marketable securities as of January 31, 2021.
4. Property and Equipment, Net
Property and equipment, net, consisted of the following (in thousands):
October 31,
2021
January 31,
2021
Computer and hardware equipment$3,147 $2,206 
Furniture and fixtures2,003 1,773 
Leasehold improvements2,990 2,416 
Capitalized internal-use software3,386 3,386 
Building322  
Land90  
Gross property and equipment(a)
11,938 9,781 
Accumulated depreciation and amortization(7,074)(5,625)
Property and equipment, net$4,864 $4,156 
______________
(a)Gross property and equipment includes construction-in-progress of $0.1 million and $0.6 million that had not yet been placed in service as of October 31, 2021 and January 31, 2021, respectively. The costs associated with construction-in-progress are not amortized until placed in service.
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Depreciation and amortization expense of property and equipment was $0.5 million and $0.4 million for the three months ended October 31, 2021 and 2020, respectively, and $1.5 million and $1.0 million for the nine months ended October 31, 2021 and 2020, respectively.
The following table presents the Company’s long-lived assets by geographic region for the periods indicated (in thousands):
October 31,
2021
January 31,
2021
United States$3,933 $3,381 
International931 775 
Total long-lived assets$4,864 $4,156 
The Company did not capitalize any internal-use software costs for the nine months ended October 31, 2021. The Company capitalized $0.4 million and $1.5 million of internal-use software costs during the three and nine months ended October 31, 2020, respectively. Amortization of internal-use software costs was $0.1 million and $0.2 million during the three months ended October 31, 2021 and 2020, respectively and $0.6 million and $0.5 million during the nine months ended October 31, 2021 and 2020, respectively. There were no impairments of capitalized internal-use software costs during the nine months ended October 31, 2021 or 2020.
Fully amortized capitalized internal-use software was written off in the amount of $8.0 million during the nine months ended October 31, 2020.
5. Acquisitions, Intangible Assets and Goodwill
Sensu, Inc.
On June 10, 2021, the Company completed the acquisition of Sensu, Inc. (“Sensu”) a privately-held software company that is a leader in open source monitoring. The addition of Sensu is expected to accelerate the Company's observability strategy by providing customers with an affordable and scalable end-to-end solution for infrastructure and application monitoring.

The aggregate amount recorded as purchase consideration was $32.7 million, of which $8.6 million was paid or to be paid in cash, and $24.1 million was comprised of 1,123,697 shares of the Company’s common stock. The value of consideration assigned to such shares of common stock was based on the closing price of the Company’s common stock on the date of acquisition, or $21.49 per share.
Additionally, 71,644 shares of common stock were issued with a fair value of $21.49 per share at the time of grant and will be recorded as stock-based compensation. These shares are subject to risk of forfeiture which lapses in full 1.5 years after the acquisition date. The Company recorded stock-based compensation expense related to the vesting of the restricted common stock of $0.3 million and $0.4 million during the three and nine months ended October 31, 2021, respectively. As of October 31, 2021, the remaining unrecognized stock-based compensation expense was $1.1 million, and will be recognized over the remaining vesting period.
A portion of the consideration otherwise payable was held back by the Company as partial security for certain indemnification obligations. The consideration held back will be released 12 months after the acquisition date, subject to reduction for any indemnification claims.
Certain stock options held by Sensu employees were assumed by the Company with a total fair value of $0.6 million and will be recognized as stock-based compensation over the remaining service period. See Note 10 for more details on the Sensu options assumed.
The acquisition was accounted for as a business combination and the total purchase consideration was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date and the excess was recorded as goodwill. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the issuance date of these condensed consolidated financial statements and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. As of October 31, 2021, the primary area that remains preliminary relates to the valuation of certain tax-related items.
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The following table presents the preliminary purchase consideration allocation recorded in the Company’s condensed consolidated balance sheet as of the acquisition date (in thousands):
Amount
Cash and cash equivalents
$2,270 
Accounts receivable
409 
Other current assets50 
Acquired intangible assets
11,800 
Goodwill
19,889 
Accounts payable
(49)
Deferred revenue, current
(658)
Accrued expenses and other current liabilities
(143)
Deferred revenue, noncurrent
(99)
Other liabilities
(747)
Total acquisition consideration
$32,722 
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands):
TotalUseful Life
(in years)
Developed technology$8,800 3
Customer relationships3,000 5
Intangible assets$11,800 
Goodwill represents the future economic benefits arising from other assets that could not be individually identified and separately recognized, such as the acquired assembled workforce and synergies expected to be achieved from the integration of Sensu. In addition, goodwill represents the future benefits as a result of the acquisition that management expects to enhance the Company’s product available to both new and existing customers and increase the Company’s market position. Goodwill is not deductible for tax purposes.
The results of operations of Sensu from the date of acquisition have been included in the Company’s condensed consolidated financial statements. Pro forma revenue and results of operations have not been presented because the historical results of Sensu are not material to the Company’s condensed consolidated financial statements in any period presented.
DF Labs S.p.A.
On May 24, 2021, the Company completed the acquisition of DF Labs S.p.A. (“DFLabs”), a privately-held Italian corporation and a leader in security orchestration, automation and response (“SOAR”) technology. The combination of the Company’s Cloud SIEM and DFLabs' solution will provide customers with comprehensive cloud-native security intelligence solutions.
The aggregate amount recorded as purchase consideration was $41.7 million, of which $35.3 million was paid in cash, and $6.4 million was comprised of 334,815 shares of the Company’s common stock. The value of consideration assigned to such shares of common stock was based on the closing price of the Company’s common stock on the date of acquisition, or $18.97 per share.
Additionally, 143,492 shares of common stock were issued with a fair value of $18.97 per share at the time of grant and will be recorded as stock-based compensation. These shares are subject to risk of forfeiture, which lapses in full 2.0 years after the acquisition date. The Company recorded stock-based compensation expense related to the vesting of the restricted common stock of $0.3 million and $0.6 million during the three and nine months ended October 31, 2021, respectively. As of October 31, 2021, the remaining unrecognized stock-based compensation expense was $2.1 million and will be recognized over the remaining vesting period.
A portion of the consideration otherwise payable was placed into escrow as partial security for certain indemnification obligations. The escrow fund will be released 12 months after the acquisition date, subject to reduction for any indemnification claims.
The acquisition was accounted for as a business combination and the total purchase consideration was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date and the excess was recorded as goodwill. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the
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issuance date of these condensed consolidated financial statements and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. As of October 31, 2021, the primary area that remains preliminary relates to the valuation of certain tax-related items.
The following table presents the preliminary purchase consideration allocation recorded in the Company’s condensed consolidated balance sheet as of the acquisition date (in thousands):
Amount
Cash and cash equivalents
$782 
Accounts receivable
430 
Other current assets
111 
Property and equipment