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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, 2022
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 28, 2022, the number of outstanding shares of the registrant's common stock was 120,012,539 shares of common stock.


Table of Contents
Table of Contents
Page
Condensed Consolidated Balance Sheets as of October 31, 2022 and January 31, 2022
PART II. OTHER INFORMATION
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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 macroeconomic environment, including inflation and rising interest rates, industry trends or trend analysis, and the war in Ukraine;
the impact of the COVID-19 pandemic, including 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; and
future acquisitions or investments.
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 Factors 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 Quarterly Report on Form 10-Q. If any of the following risks actually occurs (or if any of those listed elsewhere in this Quarterly Report on 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;
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, 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 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 and results of operations are subject to the effects of a rising rate of inflation;
Our business could be adversely affected by unexpected events such as pandemics, natural disasters, political crises, or social instability;
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 (“AWS”) to deliver our platform to our customers, and any disruption of, or interference with, our use of AWS 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 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 substantially all 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,
2022
January 31,
2022
Assets
Current assets:
Cash and cash equivalents$91,662 $79,986 
Marketable securities, current230,482 210,645 
Accounts receivable, net56,280 49,451 
Prepaid expenses9,791 9,792 
Deferred sales commissions, current18,790 17,110 
Other current assets2,526 2,865 
Total current assets409,531 369,849 
Marketable securities, noncurrent19,917 65,866 
Property and equipment, net4,848 4,960 
Operating lease right-of-use assets2,327 6,110 
Goodwill92,298 94,967 
Acquired intangible assets, net14,220 26,221 
Deferred sales commissions, noncurrent31,165 32,689 
Other assets1,773 1,469 
Total assets$576,079 $602,131 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$17,970 $7,755 
Accrued expenses and other current liabilities21,726 25,425 
Operating lease liabilities, current2,551 4,619 
Deferred revenue, current144,641 131,329 
Total current liabilities186,888 169,128 
Operating lease liabilities, noncurrent168 2,346 
Deferred revenue, noncurrent3,396 5,944 
Other liabilities5,654 5,744 
Total liabilities196,106 183,162 
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock12 11 
Additional paid-in-capital1,009,058 944,447 
Accumulated other comprehensive loss(11,022)(4,333)
Accumulated deficit(618,075)(521,156)
Total stockholders’ equity379,973 418,969 
Total liabilities and stockholders’ equity$576,079 $602,131 
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,
2022202120222021
Revenue$78,952 $62,016 $220,915 $175,076 
Cost of revenue25,114 20,384 75,222 55,557 
Gross profit53,838 41,632 145,693 119,519 
Operating expenses:
Research and development26,462 25,464 80,351 69,768 
Sales and marketing38,787 33,565 113,613 95,300 
General and administrative15,906 14,015 50,454 45,258 
Total operating expenses81,155 73,044 244,418 210,326 
Loss from operations(27,317)(31,412)(98,725)(90,807)
Interest and other income (expense), net1,635 (19)3,415 34 
Interest expense(79)(44)(114)(133)
Loss before provision for income taxes(25,761)(31,475)(95,424)(90,906)
Provision (benefit) for income taxes528 (639)1,495 (1,107)
Net loss$(26,289)$(30,836)$(96,919)$(89,799)
Net loss per share, basic and diluted$(0.22)$(0.28)$(0.83)$(0.84)
Weighted-average shares used to compute net loss per share, basic and diluted119,124 110,409 116,712 107,479 
See Notes to Condensed Consolidated Financial Statements
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Sumo Logic, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
Three Months Ended October 31,Nine Months Ended October 31,
2022202120222021
Net loss$(26,289)$(30,836)$(96,919)$(89,799)
Other comprehensive loss:
Foreign currency translation adjustments(1,353)(2,077)(4,964)(2,154)
Unrealized loss on available-for-sale marketable securities(488)(218)(1,725)(207)
Total comprehensive loss$(28,130)$(33,131)$(103,608)$(92,160)
See Notes to Condensed Consolidated Financial Statements
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Sumo Logic, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)

Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity
SharesAmount
Balance at July 31, 2022118,333 $12 $989,459 $(9,181)$(591,786)$388,504 
Issuance of common stock upon exercise of stock options655 — 1,732 1,732 
Vesting of restricted stock units884 — — — — — 
Cancellation of common stock held(28)— — — — — 
Stock-based compensation— — 17,867 — — 17,867 
Other comprehensive loss— — — (1,841)— (1,841)
Net loss— — — — (26,289)(26,289)
Balance at October 31, 2022119,844 $12 $1,009,058 $(11,022)$(618,075)$379,973 
Balance at July 31, 2021110,133 $11 $904,076 $(111)$(456,754)$447,222 
Issuance of common stock upon exercise of stock options1,344 — 4,648 — — 4,648 
Vesting of restricted stock units370 — — — — — 
Vesting of early exercised stock options— — 49 — — 49 
Stock-based compensation — — 12,937 — — 12,937 
Other comprehensive loss— — — (2,295)— (2,295)
Net loss— — — — (30,836)(30,836)
Balance at October 31, 2021111,847 $11 $921,710 $(2,406)$(487,590)$431,725 
See Notes to Condensed Consolidated Financial Statements
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Sumo Logic, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity
SharesAmount
Balance at January 31, 2022113,813 $11 $944,447 $(4,333)$(521,156)$418,969 
Issuance of common stock upon exercise of stock options 3,236 1 11,478 — — 11,479 
Vesting of restricted stock units2,369 — — — — — 
Vesting of early exercised stock options— — 33 — — 33 
Issuance of common stock in connection with employee stock purchase plan454 — 2,831 — — 2,831 
Cancellation of common stock held(28)— — — — — 
Stock-based compensation — — 50,269 — — 50,269 
Other comprehensive loss— — — (6,689)— (6,689)
Net loss— — — — (96,919)(96,919)
Balance at October 31, 2022119,844 $12 $1,009,058 $(11,022)$(618,075)$379,973 
Balance at January 31, 2021102,484 $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 warrants18 — — — — — 
Vesting of restricted stock units1,567 — — — — — 
Vesting of early exercised stock options — — 147 — — 147 
Issuance of common stock in connection with employee stock purchase plan280 — 4,725 — — 4,725 
Common stock issued in connection with acquisitions1,674 — 30,499 — — 30,499 
Stock-based compensation— — 39,127 — — 39,127 
Other comprehensive loss— — — (2,361)— (2,361)
Net loss — — — — (89,799)(89,799)
Balance at October 31, 2021111,847 $11 $921,710 $(2,406)$(487,590)$431,725 
See Notes to Condensed Consolidated Financial Statements
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Sumo Logic, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended October 31,
20222021
Cash flows from operating activities
Net loss$(96,919)$(89,799)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization12,567 9,889 
Amortization of deferred sales commissions14,819 11,353 
Amortization (accretion) of marketable securities purchased at a premium (discount)1,415 2,156 
Stock-based compensation, net of amounts capitalized49,933 39,127 
Non-cash operating lease cost2,998 3,132 
Other(217)(1,852)
Changes in operating assets and liabilities
Accounts receivable(6,922)1,910 
Prepaid expenses(18)(133)
Other assets(538)1,104 
Deferred sales commissions(14,975)(16,252)
Accounts payable10,256 4,283 
Accrued expenses and other current liabilities(2,594)1,806 
Deferred revenue10,764 16,436 
Operating lease liabilities(3,328)(3,371)
Other liabilities594 265 
Net cash used in operating activities(22,165)(19,946)
Cash flows from investing activities
Purchases of marketable securities(184,996)(359,587)
Maturities of marketable securities182,563 57,958 
Sales of marketable securities25,102 15,480 
Purchases of property and equipment(386)(1,799)
Capitalized internal-use software costs(986) 
Cash paid for acquisitions, net of cash and restricted cash acquired (40,340)
Net cash provided by (used in) investing activities21,297 (328,288)
Cash flows from financing activities
Payments of deferred offering costs (93)
Proceeds from employee stock purchase plan2,831 4,725 
Proceeds from exercise of common stock options11,479 17,974 
Cash paid for holdback consideration in connection with acquisitions(456) 
Net cash provided by financing activities13,854 22,606 
Effect of exchange rate changes on cash and cash equivalents(1,310)(174)
Change in cash and cash equivalents and restricted cash11,676 (325,802)
Cash and cash equivalents and restricted cash:
Beginning of period80,286 404,440 
End of period$91,962 $78,638 
Supplemental disclosures of cash flow information
Cash paid for income taxes$1,804 $831 
Cash paid for interest68 63 
Supplemental non-cash investing and financing information
Vesting of early exercised options33 148 
Common stock and assumed awards issued as consideration for acquisitions 30,499 
Unpaid cash consideration for acquisitions 456 
Stock-based compensation capitalized as internal-use software costs336  
Property and equipment accrued but not yet paid 40 
Reconciliation of cash, cash equivalents, and restricted cash to consolidated balance sheets
Cash and cash equivalents$91,662 $78,288 
Restricted cash included in other current assets300 350 
Total cash, cash equivalents, and restricted cash$91,962 $78,638 
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 analytics platform for reliable and secure cloud-native applications to address the challenges and opportunities presented by digital transformation, modern applications, and cloud computing. The platform helps customers ensure application reliability, secure and protect against modern security threats, and gain insights into their cloud infrastructure.
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, 2022, 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, 2022, as filed with the SEC on March 14, 2022.
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, 2022 are not necessarily indicative of the results to be expected for the year ending January 31, 2023 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, useful lives of acquired intangible assets and property and equipment, stock-based compensation expense including the assumptions used for estimating the fair value of common stock (prior to the closing of the Company’s initial public offering (“IPO”)), capitalization of internal-use software costs, fair value of assets acquired and liabilities assumed from business combinations, incremental borrowing rate for operating leases, estimate of credit losses for accounts receivable and marketable securities, and valuation allowances associated with income taxes.
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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, 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.
Significant Accounting Policies
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, 2022, that have had a material impact on its condensed consolidated financial statements and related notes.
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. Related party transactions were not material as of October 31, 2022 or January 31, 2022, or for the nine months ended October 31, 2022 or 2021.
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 section below describes the impact from newly adopted pronouncements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. The adoption of the standard will impact future business combinations. The Company has elected to early adopt this guidance as of February 1, 2022. The adoption of this guidance did not have an impact on the Company’s condensed consolidated financial statements for the nine months ended October 31, 2022 as no business combination activities occurred during this period.
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.
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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 measured at fair value on a recurring basis, based on the three-tier fair value hierarchy (in thousands):
As of October 31, 2022
Level 1Level 2Level 3Total
Cash equivalents:
Money market funds$77,275 $ $ $77,275 
Corporate debt securities 1,405  1,405 
Marketable securities:
U.S. Treasury securities 51,780  51,780 
Corporate debt securities 148,508  148,508 
Commercial paper 36,856  36,856 
Foreign government obligations 4,736  4,736 
Certificates of deposit 8,519  8,519 
Total financial assets$77,275 $251,804 $ $329,079 
As of January 31, 2022
Level 1Level 2Level 3Total
Cash equivalents:
Money market funds$70,742 $ $ $70,742 
Marketable securities:
U.S. Treasury securities 67,476  67,476 
Corporate debt securities 167,160  167,160 
Commercial paper 19,033  19,033 
Foreign government obligations 7,607  7,607 
Supranational securities 12,922  12,922 
Certificates of deposit 2,313  2,313 
Total financial assets$70,742 $276,511 $ $347,253 
The Company had $0.3 million of restricted cash invested in money market funds that is not included in the tables above as of October 31, 2022 and January 31, 2022, respectively.
In connection with the Loan and Security agreement, discussed in Note 6, 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 of the redeemable convertible preferred stock warrant liability were recorded as interest and other income (expense), 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, 2022, no warrants were exercised. During the nine months ended October 31, 2021, 21,746 warrants were exercised. There were no transfers between levels of the fair value hierarchy during the nine months ended October 31, 2022 and 2021, respectively.
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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, 2022 and January 31, 2022, respectively (in thousands):
As of October 31, 2022
Amortized CostUnrealized GainUnrealized LossFair Value
U.S. Treasury securities$52,424 $ $(644)$51,780 
Corporate debt securities150,200 4 (1,696)148,508 
Commercial paper36,977  (121)36,856 
Foreign government obligations4,790  (54)4,736 
Certificates of deposit8,617  (98)8,519 
Total marketable securities$253,008 $4 $(2,613)$250,399 
As of January 31, 2022
Amortized CostUnrealized GainUnrealized LossFair Value
U.S. Treasury securities$67,770 $ $(294)$67,476 
Corporate debt securities167,693 3 (536)167,160 
Commercial paper19,052  (19)19,033 
Foreign government obligations7,640  (33)7,607 
Supranational securities12,923  (1)12,922 
Certificates of deposit2,319  (6)2,313 
Total marketable securities$277,397 $3 $(889)$276,511 
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,
2022
Due in one year or less$230,482 
Due after one year and within five years19,917 
Total marketable securities$250,399 
4. 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 expense. These shares are subject to risk of forfeiture which lapse 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
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$0.2 million during the nine months ended October 31, 2022, and $0.3 million and $0.4 million during the three and nine months ended October 31, 2021, respectively. The Company recorded a credit to stock-based compensation expense for the three months ended October 31, 2022 of $0.3 million primarily due to the reversal of unvested restricted common stock recognized in prior periods. As of October 31, 2022, the remaining unrecognized stock-based compensation expense was $0.1 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 to be released 12 months after the acquisition date, subject to reduction for any indemnification claims. The $0.5 million of consideration held back was released during the second quarter of fiscal 2023.
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 expense over the remaining service period. See Note 9 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 following table presents the 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.
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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 lapse 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 $1.0 million during the three and nine months ended October 31, 2022, respectively, and $0.3 million and $0.6 million during the three and nine months ended October 31, 2021, respectively. As of October 31, 2022, the remaining unrecognized stock-based compensation expense was $0.8 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 to be released 12 months after the acquisition date, subject to reduction for any indemnification claims. The Company released the consideration placed in escrow during the third quarter of fiscal 2023.
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 following table presents the 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
435 
Acquired intangible assets
17,200 
Goodwill
26,623 
Other assets
178 
Accounts payable
(262)
Deferred revenue, current
(340)
Accrued expenses and other current liabilities
(788)
Deferred revenue, noncurrent
(38)
Other liabilities
(2,654)
Total acquisition consideration
$41,677 
Acquired intangible assets consist of developed technology with an estimated useful life of 3 years.
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 of DFLabs and synergies expected to be achieved from the integration of DFLabs. 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 DFLabs 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 DFLabs are not material to the Company’s condensed consolidated financial statements in any period presented.
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Acquisition-Related Expenses
The Company incurred acquisition-related expenses primarily for professional services of $3.8 million during the year ended January 31, 2022, which were recorded as general and administrative expenses in the consolidated statement of operations.
Acquired Intangible Assets
Acquired intangible assets, net consisted of the following (in thousands):
October 31, 2022
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountWeighted Average Remaining Useful Life
(in years)
Developed technology$41,926 $(29,872)$12,054 1.6
Customer relationships3,000 (834)2,166 3.7
Total$44,926 $(30,706)$14,220 
January 31, 2022
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountWeighted Average Remaining Useful Life
(in years)
Developed technology$43,650 $(20,046)$23,604 2.1
Customer relationships3,000 (383)2,617 4.4
Total$46,650 $(20,429)$26,221 
The Company recorded amortization expense of $3.5 million and $3.8 million during the three months ended October 31, 2022 and 2021, respectively, and $10.8 million and $8.4 million during the nine months ended October 31, 2022 and 2021, respectively. There was no impairment of intangible assets recorded for the nine months ended October 31, 2022 or 2021. There was no fully amortized intangible assets written off during the nine months ended October 31, 2022. Fully amortized intangible assets were written off in the amount of $1.0 million during the year ended January 31, 2022.
As of October 31, 2022, future amortization expense related to acquired intangible assets was as follows (in thousands):
Amortization Expense
Remainder of fiscal 2023