PAGERDUTY, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
The following discussion and analysis of our financial condition and results of operations together should be read in conjunction with our condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended
January 31, 2022, filed with the SECon March 17, 2022. You should review the sections titled "Special Note Regarding Forward-Looking Statements" above in this Quarterly Report on Form 10-Q for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Factors that could cause or contribute to such differences include, but are not limited to, impacts on our business and general economic conditions due to the current COVID-19 pandemic, those identified below, and those discussed in the section titled "Risk Factors" included in Part II, Item 1A below. The last day of our fiscal year is January 31. Our fiscal quarters end on April 30, July 31, October 31and January 31. Overview PagerDutyis a digital operations management platform that manages urgent and mission critical work for a modern, digital enterprise. We empower teams to respond rapidly to incidents to resolve or avoid customer issues, reduce noise, predict and avoid performance degradation, improve productivity, and accelerate digital transformation. Today, nearly every business is a digital business. As such, organizations are under pressure to enhance their digital operations in order to meet escalating customer expectations, resolve incidents proactively and free-up time for innovation projects. This means critical, time sensitive, and unpredictable work needs to be detected and orchestrated. We collect data and digital signals from virtually any software-enabled system or device and leverage powerful machine learning to correlate, process, and predict opportunities and issues. Using incident response, event management, and automation, we bring together the right people with the right information so they can resolve issues and act on opportunities in minutes or seconds from wherever they are. Since our founding in 2009, we have expanded our capabilities from a single product focused on on-call management for developers to a multi-product platform that crosses silos into IT operations, security, customer service, and executive stakeholder roles across the organization. We have evolved from an on-call tool into the platform for digital operations, which resides at the center of a company's technology ecosystem. We have spent more than a decade building deep product integrations to our platform, and our ecosystem now includes over 650 direct integrations to enable our customers to gather and correlate digital signals from virtually any software-enabled system or device. This allows technical teams to collect digital signals from any system or platform in their environment, and without the effects of context switching. Those same integrations connect with popular collaboration tools and business applications, as well as all types of technology stacks to drive automation of work. We generate revenue primarily from cloud-hosted subscription fees. We also generate revenue from term-license software subscription fees. We have a land-and-expand business model that leads to viral adoption of our products and subsequent expansion. Our online self-service model is the primary mechanism for landing new customers and enabling teams to get started without assistance. We complement our self-service model with high- 25
velocity inside sales focused on small and medium businesses, a commercial team focused on mid-market customers, and a field sales team focused on enterprise customers. Our mid-market and enterprise customers account for the majority of our revenue today. These teams drive expansion to additional users, new use cases, and add-on products, as well as upsell to higher value plans.
The COVID-19 pandemic continued during fiscal year 2023.While our revenues, billings, and earnings are relatively predictable as a result of our subscription-based business model and the majority of our revenues are generated from annual subscriptions, the effects of the COVID-19 pandemic may have a delayed impact on our results of operations. We continue to ascertain the long-term impact of the COVID-19 pandemic on our business. We continue to focus on supporting our employees, customers, and community. As our offices begin to reopen, we expect to incur incremental expenses as we resume onsite services and related in-office costs. However, the majority of our employees continue to work remotely in order to minimize the spread of COVID-19 among our employee base and comply with local regulations within
the United Statesand internationally. As we continue to monitor the local regulations related to COVID-19, we have begun to release travel restrictions on business-related travel, allowing certain employees to travel on a voluntary basis. We also continue to offer local employee assistance programs to employees if needed. These changes remain in effect and could extend into future quarters. The impact, if any, of these and any additional operational changes we may implement to facilitate remote work is uncertain, but changes we have implemented have not affected and are not expected to affect our ability to maintain operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures.
Refer to 1A, “Risk Factors” for a more in-depth discussion of the possible impact of the COVID-19 pandemic on our business.
We are closely monitoring the invasion of
Ukraineby Russiain February 2022and its global impacts. While the conflict is still unfolding and the outcome remains highly uncertain, we do not believe the Russia- Ukraineconflict will have a material impact on our business and results of operation. However, if the Russia- Ukraineconflict continues or worsens, leading to greater global economic disruptions and uncertainty, our business and results of operations could be materially impacted. Our customers in Russiarepresented an immaterial portion of our net assets and total consolidated revenue both as of and for the three months ended April 30, 2022and January 31, 2022. 26
Key business indicators
We review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
While these numbers are based on what we believe to be a reasonable representation of our customer base for the applicable period of measurement, we rely on a third party to validate legal entities, which uses the best available data at period end, and therefore is subject to change as new information becomes available. In addition, we are continually seeking to improve our methodology, which may result in future changes to our key metrics.
Our key metrics include the results of Catalytic, to the extent applicable, from the date of acquisition of
Number of clients
We believe that the number of customers using our platform, particularly those that have subscription agreements for more than
$100,000in annual recurring revenue ("ARR"), are indicators of our market penetration, particularly within enterprise accounts, the growth of our business, and our potential future business opportunities. We define ARR as the annualized recurring value of all active contracts at the end of a reporting period. We define a customer as a separate legal entity, such as a company or an educational or government institution, that has an active subscription with us or one of our partners to access our platform. In situations where an organization has multiple subsidiaries or divisions, we treat the parent entity as the customer instead of treating each subsidiary or division as a separate customer. Increasing awareness of our platform and its broad range of capabilities, coupled with the fact that the world is always on and powered by increasingly complex technology, has expanded the diversity of our customer base to include organizations of all sizes across virtually all industries. Over time, enterprise and mid-market customers have constituted a greater share of our revenue. As of April 30, 2022 2021 Customers 15,040 13,918 Customers greater than $100,000in ARR 655 458
Net retention rate in dollars
We use dollar-based net retention rate to evaluate the long-term value of our customer relationships, since this metric reflects our ability to retain and expand the ARR from our existing customers. Our dollar-based net retention rate compares our ARR from the same set of customers across comparable periods. We calculate dollar-based net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period end, or Prior Period ARR. We then calculate the ARR from these same customers as of the current period end, or Current Period ARR. Current Period ARR includes any expansion and is net of downgrades or churn over the last 12 months but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the dollar-based net retention rate. The calculation of dollar-based net retention rate includes the Current Period ARR of Catalytic customers to the extent that they were
PagerDutycustomers as of 12 months prior to period end. Last 12
2022 2021 Dollar-based net retention rate for all customers 126 % 121 % 27
Components of operating results
We generate revenue primarily from cloud-hosted software subscription fees with the majority of our revenue from such arrangements. We also generate revenue from term-license software subscription fees. Our subscriptions are typically one year in duration but can range from monthly to multi-year. Subscription fees are driven primarily by the number of customers, the number of users per customer, and the level of subscription purchased. We generally invoice customers in advance in annual installments for subscriptions to our software. Revenue related to our cloud-hosted software subscriptions is recognized ratably over the related contractual term beginning on the date that our platform is made available to a customer. For our term-license software subscriptions, we recognize license revenue upon delivery and software maintenance revenue ratably, typically beginning on the start of the contractual term of the arrangement. Due to the low complexity of implementation and integration of our platform with our customers' existing infrastructure, revenue from professional services has been immaterial to date. Cost of Revenue Cost of revenue primarily consists of expenses related to providing our platform to customers, including personnel expenses for operations and global support, payments to our third-party cloud infrastructure providers for hosting our software, payment processing fees, amortization of capitalized internal-use software costs, amortization of acquired developed technology, and allocated overhead costs for facilities, information technology, and other allocated overhead costs. We will continue to invest additional resources in our platform infrastructure and our customer support and success organizations to expand the capability of our platform and ensure that our customers are realizing the full benefit of our offerings. The level and timing of investment in these areas could affect our cost of revenue in the future.
Gross profit and gross margin
Gross profit represents revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of the timing and amount of investments to expand the capacity of our third-party cloud infrastructure providers and our continued efforts to enhance our platform support and customer success teams.
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel expenses are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation expense, and sales commissions. Operating expenses also include amortization of acquired intangible assets, acquisition-related expenses, allocated overhead costs for facilities, shared IT related expenses, including depreciation expense, and certain company-wide events and functions.
Research and development
Research and development expenses consist primarily of personnel costs for our engineering, product, and design teams. Additionally, research and development expenses include contractor fees, depreciation of equipment used in research and development activities, acquisition-related expenses, and allocated overhead costs. We expect that our research and development expenses will increase in dollar value as our business grows.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel costs, costs of general marketing activities and promotional activities, travel related expenses, amortization of acquired intangible assets, allocated overhead costs, and bad debt expense. Sales commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a subscription with a customer are deferred and amortized on a straight-line basis over the 28
expected period of benefit, which we have determined to be four years. We expect that our sales and marketing expenses will increase in dollar value and continue to be our largest operating expense for the foreseeable future as we expand our sales and marketing efforts. General and administrative General and administrative expenses consist primarily of personnel costs and contractor fees for finance, legal, human resources, information technology, and other administrative functions. In addition, general and administrative expenses include non-personnel costs, such as legal, accounting, and other professional fees, hardware and software costs, certain tax, license and insurance-related expenses, acquisition-related expenses, and allocated overhead costs. We expect that our general and administrative expenses will increase in dollar value as our business grows. However, we expect that our general and administrative expenses will decrease as a percentage of our revenue over the longer term as we expect our investments to allow for improved efficiency for future growth in the business. Interest Income Interest income consists of income earned on our cash and cash equivalents and interest earned on our short-term investments which consist of
U.S. Treasurysecurities, commercial paper, corporate debt securities, and U.S. Governmentagency securities. Interest Expense Interest expense consists primarily of contractual interest expense and amortization of debt issuance costs on our 1.25% Convertible Senior Notes (the "Notes") due 2025. Refer to Note 10, "Debt and Financing Arrangements" for additional details.
Other (expenses) income, net
Other (expense) income, net, primarily includes accretion income and amortization expense on our available-for-sale investments and gains and losses on foreign currency transactions.
Benefit from (provision for) income taxes
Benefit from (provision for) income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our net federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized. Benefit from (provision for) income taxes also includes the reduction in our valuation allowance from the increase in the deferred tax liability associated with acquired intangible assets from our acquisitions. 29
The following table sets forth our condensed consolidated statements of earnings for the periods indicated:
Three Months Ended April 30, 2022 2021 (in thousands) Revenue
$ 85,371 $ 63,591Cost of revenue(1) 15,716 10,418 Gross profit 69,655 53,173 Operating expenses: Research and development(1) 31,289 20,599 Sales and marketing(1) 45,552 37,234 General and administrative(1) 25,271 16,578 Total operating expenses 102,112 74,411 Loss from operations (32,457) (21,238) Interest income 548 818 Interest expense (1,325) (1,317) Other expense, net (790) (616) Loss before benefit from (provision for) income taxes (34,024) (22,353) Benefit from (provision for) income taxes 1,204 (205) Net loss $ (32,820) $ (22,558)______________
(1) Includes stock-based compensation expense as follows:
Three Months Ended April 30, 2022 2021 (in thousands) Cost of revenue $ 1,224
$ 676Research and development 8,675 4,440 Sales and marketing 6,381 3,954 General and administrative 8,629 4,542 Total $ 24,909 $ 13,61230
The following table presents the data of our condensed consolidated statements of results expressed as a percentage of sales:
Three Months Ended April 30, 2022 2021 Revenue 100 % 100 % Cost of revenue 18 16 Gross profit 82 % 84 % Operating expenses: Research and development 37 32 Sales and marketing 53 59 General and administrative 30 26 Total operating expenses 120 117 Loss from operations (38) (33) Interest income 1 1 Interest expense (2) (2) Other expense, net (1) (1) Loss before (provision for) benefit from income taxes (40) (35) (Provision for) benefit from income taxes 1 - Net loss (38) % (35) % __________
Note: Some numbers may not match due to rounding.
Comparison of the three months ended
Revenue Three Months Ended April 30, 2022 2021 Change % Change (dollars in thousands) Revenue
$ 85,371 $ 63,591 $ 21,78034 % Revenue increased by $21.8 million, or 34%, for the three months ended April 30, 2022compared to the three months ended April 30, 2021. The increase in revenue was attributable to a combination of growth from both new and existing customers. Growth from existing customers is attributable to both increases in the number of users and upsell of additional products and services.
Revenue Cost and Gross Margin
Three Months Ended April 30, 2022 2021 Change % Change (dollars in thousands) Cost of revenue
$ 15,716 $ 10,418 $ 5,29851 % Gross margin 82 % 84 %
Cost of sales increased by
continued growth of the business and related infrastructure, an increase of
$1.4 millionin personnel expenses as a result of increased headcount and salaries, and an increase of $0.9 millionin amortization of acquired intangible assets related to the acquisition of Catalytic.
Research and development
Three Months Ended
April 30, 20222021
Change % Change
(dollars in thousands) Research and development
$ 31,289 $ 20,599 $ 10,69052 % Percentage of revenue 37 % 32 % Research and development expenses increased by $10.7 million, or 52%, for the three months ended April 30, 2022compared to the three months ended April 30, 2021. The increase was primarily driven by an increase in personnel expenses of $8.3 millionas a result of increased headcount and salaries to support our continued investment in our platform, a $1.1 millionincrease in costs to support the growth of the business and related infrastructure, which includes allocated overhead costs, and a $0.7 millionacquisition-related impairment charge related to software development not placed in service. Sales and Marketing Three Months Ended April 30, 2022 2021 Change % Change (dollars in thousands) Sales and marketing $ 45,552 $ 37,234 $ 8,31822 % Percentage of revenue 53 % 59 % Sales and marketing expenses increased by $8.3 million, or 22%, for the three months ended April 30, 2022compared to the three months ended April 30, 2021. This increase was primarily due to an increase of $6.0 millionin personnel expenses driven by headcount growth, increased salaries, and amortization of deferred contract costs, an increase of $1.9 millionin costs to support the business and related infrastructure which includes allocated overhead costs, and an increase of $1.8 millionin travel and other program related costs as a result of increased travel due to reduced travel restrictions related to the COVID-19 pandemic. This was partially offset by a decrease in marketing expenses of $1.4 millionprimarily due to decreases in brand campaigns and digital marketing. General and Administrative Three Months Ended April 30, 2022 2021 Change % Change (dollars in thousands) General and administrative $ 25,271 $ 16,578 $ 8,69352 % Percentage of revenue 30 % 26 % General and administrative expenses increased by $8.7 million, or 52%, for the three months ended April 30, 2022compared to the three months ended April 30, 2021. The increase was driven by an increase of $6.8 millionin personnel expenses as a result of increased headcount and salaries, an increase of $1.9 millionin outside services related to transaction costs for the acquisition of Catalytic and increased costs for outside consultants, and an increase of $0.6 millionin travel related costs as a result of increased travel due to reduced travel restrictions related to the COVID-19 pandemic. This was partially offset by a decrease of $0.8 millionin costs to support the business and related infrastructure which includes allocated overhead costs.
Table of Contents Three Months Ended April 30, 2022 2021 Change % Change (dollars in thousands) Interest expense
$ 1,325 $ 1,317 $ 81 %
Interest expense was constant for the three months ended
compared to the three months ended
Interest and other (expense) income, net
Three Months Ended April 30, 2022 2021 Change % Change (dollars in thousands) Interest income $ 548
$ 818 $ (270)(33) % Other expense, net $ (790) $ (616) $ (174)28 % Interest income decreased by $0.3 millionand other expense, net increased by $0.2 millionfor the three months ended April 30, 2022compared to the three months ended April 30, 2021, primarily due to lower interest rates on our cash, cash equivalent and investment balances in the current year, and an increase in unrealized losses due to fluctuation in foreign currency exchange rates, respectively.
Non-GAAP Financial Measures
In addition to our results determined in accordance with
U.S.GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance. We use the below referenced non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their U.S.GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with U.S.GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses that are required by U.S.GAAP to be recorded in our financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by our management about which expenses are excluded or included in determining these non-GAAP financial measures. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S.GAAP.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit as gross profit adjusted for stock-based compensation expense and related employer taxes, and amortization of acquired intangible assets. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of revenue. 33
Table of Contents Three Months Ended April 30, 2022 2021 (in thousands) Gross profit
$ 69,655 $ 53,173Add: Stock-based compensation 1,224 676 Employer taxes related to employee stock transactions 7 26 Amortization of acquired intangible assets 1,209 280 Non-GAAP gross profit $ 72,095 $ 54,155Gross margin 82 % 84 % Non-GAAP gross margin 84 % 85 %
Non-GAAP operating loss and non-GAAP operating margin
We define non-GAAP operating loss as loss from operations plus our stock-based compensation expense and related employer taxes, amortization of acquired intangible assets, and acquisition-related expenses, which include transaction costs, acquisition-related retention payments and acquisition-related asset impairment, which are not necessarily reflective of operational performance during a given period. We define non-GAAP operating margin as non-GAAP operating loss as a percentage of revenue. Three Months Ended April 30, 2022 2021 (in thousands) Loss from operations
$ (32,457) $ (21,238)Add: Stock-based compensation 24,909 13,612 Employer taxes related to employee stock transactions 652 681 Amortization of acquired intangible assets 1,842 875 Acquisition-related expenses 2,753 459 Non-GAAP operating loss $
Operating margin (38) % (33) % Non-GAAP operating margin (3) % (9) % Non-GAAP Net Loss We define non-GAAP net loss as net loss plus our stock-based compensation expense and related employer taxes, amortization of debt issuance costs, amortization of acquired intangible assets, acquisition-related expenses, which include transaction costs, acquisition-related retention payments and an acquisition-related asset impairment, which are not necessarily reflective of operational performance during a given period, and acquisition-related tax benefit. 34
Three months completed
2022 2021 (in thousands) Net loss
$ (32,820) $ (22,558)Add (Less): Stock-based compensation 24,909 13,612 Amortization of debt discount and issuance costs 447 438 Employer taxes related to employee stock transactions 652 681 Amortization of acquired intangibles assets 1,842 875 Acquisition-related expenses 2,753 459 Acquisition-related tax benefit (1,330) - Non-GAAP net loss $ (3,547) $ (6,493)Free Cash Flow We define free cash flow as net cash (used in) provided by operating activities, less cash used for purchases of property and equipment and capitalization of internal-use software costs. In addition to the reasons stated above, we believe that free cash flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash in excess of our capital investments in property and equipment in order to enhance the strength of our balance sheet and further invest in our business and potential strategic initiatives. A limitation of the utility of free cash flow as a measure of our liquidity is that it does not represent the total increase or decrease in our cash balance for the period. We use free cash flow in conjunction with traditional U.S.GAAP measures as part of our overall assessment of our liquidity, including the preparation of our annual operating budget and quarterly forecasts and to evaluate the effectiveness of our business strategies. Three Months Ended April 30, 2022 2021 (in thousands) Net cash (used in) provided by operating activities $ (2,985) $ 1,579Less: Purchases of property and equipment (2,078) (927) Capitalization of internal-use software costs (772) (1,002) Free cash flow $ (5,835) $ (350)Net cash used in investing activities $ (70,357) $ (12,616)Net cash used in financing activities $
Cash and capital resources
Since its inception, we have funded our business primarily through the sale of our cloud-hosted software subscriptions, the net proceeds we have received from the sale of equity securities, and the issuance of our notes.
June 25, 2020, we issued $287.5 millionaggregate principal amount of convertible senior notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The total net proceeds from the sale of the Notes, after deducting the initial purchasers' discounts and debt issuance costs of $9.3 million, and purchases of the Capped Calls of $35.7 million, were $242.5 million.
sales of our subscriptions will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations, through a combination of cash flows from operating activities and available cash and short-term investment balances. Our future capital requirements will depend on many factors, including the effects of the COVID-19 pandemic, our subscription growth rate, subscription renewal activity, including the timing and the amount of cash received from customers, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, and the continuing market adoption of our platform. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations, and financial condition. A significant majority of our customers pay in advance for our cloud-hosted and term-license software subscriptions. Therefore, a substantial source of our cash is from our deferred revenue, which is included in the liabilities section of our condensed consolidated balance sheet. Deferred revenue consists of the unearned portion of customer billings, which is recognized as revenue in accordance with our revenue recognition policy. As of
April 30, 2022, we had deferred revenue of $167.3 million, of which $162.9 millionwas recorded as a current liability and expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
The following table shows a summary of our cash flows for the periods presented: Three Months Ended April 30, 2022 2021 (in thousands) Net cash (used in) provided by operating activities
$ (2,985) $ 1,579Net cash used in investing activities $ (70,357) $ (12,616)Net cash used in financing activities $ (2,584) $ (2,096)Operating Activities Our largest source of operating cash is cash collection from sales of our cloud-hosted and term license software subscriptions to our customers. Our primary uses of cash from operating activities are for personnel expenses, marketing expenses and hosting and software expenses. In the last several years, we have had periods in which we generated negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from both private and public sales of equity securities and issuance of the Notes. Cash used in operating activities for the three months ended April 30, 2022of $3.0 millionprimarily related to our net loss of $32.8 million, adjusted for non-cash charges of $35.0 millionand net cash outflows of $5.1 milliondue to changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $24.9 million, amortization of our deferred contract costs of $4.5 million, depreciation and amortization of property and equipment, capitalized implementation costs, and acquired intangible assets of $3.6 million, other charges of $1.8 million, which consist primarily of the acquisition-related asset impairment and bad debt expense, a tax benefit related to the release of our valuation allowance of $1.3 million, and non-cash lease expense of $1.1 million. Changes in operating assets and liabilities reflected cash outflows from a $7.7 milliondecrease in accrued compensation and related benefits, a $5.0 millionincrease in deferred contract costs due to commissions paid on new bookings in line with revenue growth, a $3.8 milliondecrease in deferred revenue resulting primarily due to timing of renewals, a $2.0 millionincrease in prepaid expenses and other assets related to timing of payments made in advance for future services, and $1.4 millionin payments for operating lease liabilities. 36
These amounts were partially offset by cash inflows from a
decrease in accounts receivable due to timing of collections.
Cash provided by operating activities for the three months ended
April 30, 2021of $1.6 millionprimarily related to our net loss of $22.6 million, adjusted for non-cash charges of $21.2 millionand net cash inflows of $3.0 milliondue to changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $13.6 million, amortization of our deferred contract costs of $3.3 million, depreciation and amortization of property and equipment, capitalized implementation costs, and acquired intangible assets of $2.0 million, and non-cash lease expense of $1.1 million. Changes in operating assets and liabilities reflected cash inflows from a $17.4 milliondecrease in accounts receivable due to timing of cash collections. This was partially offset by outflows from a $4.4 milliondecrease in accrued compensation and related benefits, a $3.9 milliondecrease in deferred revenue due to timing of renewals, a $3.7 millionincrease in deferred contract costs due to commissions paid on new bookings in line with revenue growth, a $1.6 millionincrease in prepaid expenses and other assets related to timing of payments made in advance for future services, and $1.1 millionin payments for operating lease liabilities. Investing Activities Cash used in investing activities for the three months ended April 30, 2022of $70.4 millionconsisted primarily cash paid for the Catalytic acquisition, net of cash acquired, of $66.3 million, purchases of available-for-sale investments of $41.7 million, purchases of property and equipment of $2.1 millionprimarily for purchases of computers for new employees and to support office space for our San Franciscooffice, and capitalization of internal-use software of $0.8 million. This was offset by proceeds from sales and maturities of investments of $40.4 million. Cash used in investing activities for the three months ended April 30, 2021of $12.6 millionconsisted of purchases of available-for-sale investments of $77.5 million, capitalization of internal-use software of $1.0 million, and purchases of property and equipment of $0.9 millionprimarily to support additional office space for our San Franciscooffice. This was partially offset by proceeds from maturities and sales of investments of $67.0 million.
Cash used in financing activities for the three months ended
April 30, 2022of $2.6 millionconsisted of $6.2 millionin employee payroll taxes paid related to vesting of restricted stock units, partially offset by proceeds of $3.6 millionfrom the exercise of stock options. Cash provided by financing activities for the three months ended April 30, 2021of $2.1 millionconsisted $4.9 millionin employee payroll taxes paid related to vesting of restricted stock units. These outflows were partially offset by proceeds of $2.8 millionfrom the exercise of stock options.
Contractual obligations and commitments
There were no material changes during the three months ended
April 30, 2022to our contractual obligations and other commitments, as disclosed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SECon March 17, 2022. For further information on our commitments and contingencies, refer to Note 11, "Commitments and Contingencies" in the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.
In the ordinary course of business, we may agree to indemnify customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. As permitted under
Delawarelaw, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon 37
us to provide indemnification under such agreements, and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.
Off-balance sheet arrangements
We do not currently have and, from
Significant Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with
U.S.GAAP. In the preparation of these condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates. There have been no significant changes to our critical accounting policies described in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SECon March 17, 2022, that had a material impact on our condensed consolidated financial statements and related notes.
Recent accounting pronouncements
For further information on our recently adopted accounting pronouncements, refer to Note 2, "Summary of Significant Accounting Policies" in the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.
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