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What changed in DOMO, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of DOMO, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+352 added−362 removedSource: 10-K (2023-03-27) vs 10-K (2022-03-23)

Top changes in DOMO, INC.'s 2023 10-K

352 paragraphs added · 362 removed · 285 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeFurthermore, existing and potential customers may choose to reduce or delay technology spending in response to the coronavirus outbreak, or attempt to renegotiate contracts and obtain concessions, which may materially and negatively impact our operating results, financial condition and prospects.
Biggest changeWe anticipate that we will continue to develop a select number of third-party relationships to help grow our business. In response to the macroeconomic uncertainty, existing and potential customers may choose to reduce or delay technology spending or attempt to renegotiate contracts and obtain concessions.
Content can be shared in portals, or web properties or even inside applications. Once embedded, any parameters applied to a card can be reflected in the embedded report. In addition, user access can be controlled by using Single Sign On and personal data permissions, or PDPs, to pass parameters back to Domo.
Content can be shared in portals, or web properties or even inside applications. Once embedded, any parameters applied to a card can be reflected in the embedded report. In addition, user access can be controlled by using Single Sign On and personal data permissions (PDPs) to pass parameters back to Domo.
We serve our customers from multiple data centers in the following geographies: North America, Western Europe, Canada and Australia. The data centers we use are designed to host mission-critical computer systems with fully redundant subsystems and compartmentalized security zones. Our platform runs within third-party data centers.
We serve our customers from multiple data centers in the following geographies: North America, Western Europe, Canada, Australia, and Japan. The data centers we use are designed to host mission-critical computer systems with fully redundant subsystems and compartmentalized security zones. Our platform runs within third-party data centers.
Intellectual Property We rely on a combination of trade secret, copyright, trademark, patent and other intellectual property laws, contractual arrangements, such as assignment, confidentiality and non-disclosure agreements, and confidentiality procedures and 18 technical measures to gain rights to and protect the technology and intellectual property used in our business.
Intellectual Property We rely on a combination of trade secret, copyright, trademark, patent and other intellectual property laws, contractual arrangements, such as assignment, confidentiality and non-disclosure agreements, and confidentiality procedures and technical measures to gain rights to and protect the technology and intellectual property used in our business.
For the fiscal years ended January 31, 2020, 2021 and 2022, no single customer represented more than 10% of our revenue, nor did any single organization when accounting for multiple subsidiaries or divisions which may have been invoiced separately.
For the fiscal years ended January 31, 2021, 2022 and 2023, no single customer represented more than 10% of our revenue, nor did any single organization when accounting for multiple subsidiaries or divisions which may have been invoiced separately.
Using Sandbox, users can build and test new visualizations in a separate testing environment and easily promote content once it’s ready for consumption, thereby avoiding disruptive downtime and maintenance. Customers As of January 31, 2022, we had over 2,300 customers. We have customers in a wide variety of industries, geographies, and sizes, ranging from small organizations to large enterprises.
Using Sandbox, users can build and test new visualizations in a separate testing environment and easily promote content once it’s ready for consumption, thereby avoiding disruptive downtime and maintenance. Customers As of January 31, 2023, we had over 2,500 customers. We have customers in a wide variety of industries, geographies, and sizes, ranging from small organizations to large enterprises.
The platform also is designed to help IT leaders deliver value rapidly to the business by seamlessly complementing their existing systems and infrastructure and unlocking value from their fragmented data and systems. While developing our platform, we have been focused on four key pillars.
The platform also is designed to help IT leaders deliver value rapidly to the business by seamlessly complementing their existing systems and infrastructure and unlocking value from their fragmented data and systems. While developing our platform, we have been focused on four key pillars as described below.
We believe this will be a meaningful source of future lead generation as application creation investment thresholds are high. As of January 31, 2022, we had more than 2,300 organizations as customers. We employ a land, expand, and retain business model and typically enter into enterprises within a specific division or for a specific use case.
We believe this will be a meaningful source of future lead generation as application creation investment thresholds are high. As of January 31, 2023, we had more than 2,500 organizations as customers. We employ a land, expand, and retain business model and typically enter into enterprises within a specific division or for a specific use case.
We derived 77% of our revenue for the year ended January 31, 2022 from customers in the United States. We define a customer at the end of any particular quarter as an entity that generated revenue greater than $2,500 during that quarter.
We derived 78% of our revenue for the year ended January 31, 2023 from customers in the United States. We define a customer at the end of any particular quarter as an entity that generated revenue greater than $2,500 during that quarter.
As of January 31, 2022, 62% of our customers were under multi-year contracts, compared to 60% and 56% of customers as of January 31, 2021 and 2020, respectively. This transition to a higher percentage of multi-year contracts, among both new and existing customers, has enhanced the predictability of our subscription revenue.
As of January 31, 2023, 65% of our customers were under multi-year contracts, compared to 62% and 60% of customers as of January 31, 2022 and 2021, respectively. This transition to a higher percentage of multi-year contracts, among both new and existing customers, has enhanced the predictability of our subscription revenue.
We actively pursue registration of our trademarks and service marks in the United States and abroad. As of January 31, 2022, we owned 119 issued U.S. patents and five pending U.S. patent applications.
We actively pursue registration of our trademarks and service marks in the United States and abroad. As of January 31, 2023, we owned 119 issued U.S. patents and two pending U.S. patent applications.
On a typical business day, our customers in the aggregate typically query several hundred trillion rows from uncached queries. Even with this volume of data, we maintain a subsecond average query response time. In aggregate, the data in Domo can be indexed anonymously.
On a typical business day, our customers in the aggregate typically query several hundred trillion rows from uncached queries. Even with this volume of data, we maintain a subsecond average query response time.
We believe that the principal competitive factors in our markets include the following: • user-centric design; • ease of adoption and use; • rapid time to value; • features and platform experience; • enterprise-grade performance, including scalability, reliability and query response time; • brand; • security, governance and privacy; • accessibility across mobile devices, operating systems, and applications; • breadth of data source connectivity through third-party integration; • customer support; 17 • continued innovation; and • pricing.
We believe that the principal competitive factors in our markets include the following: • user-centric design; • ease of adoption and use; • rapid time to value; • features and platform experience; • enterprise-grade performance, including scalability, reliability and query response time; • brand; • security, governance and privacy; • accessibility across mobile devices, operating systems, and applications; • breadth of data source connectivity through third-party integration; • customer support; • continued innovation; and • pricing. 17 We believe that we compete effectively on each of the factors listed above; however, we expect competition to intensify in the future.
We have invested significantly to broaden our platform capabilities and enhance security and scalability requirements for the enterprise. • Continuous Product Innovation. From inception through January 31, 2022, we have invested $628.7 million in research and development to create our comprehensive platform.
We have invested significantly to broaden our platform capabilities and enhance security and scalability requirements for the enterprise. • Continuous Product Innovation. From inception through January 31, 2023, we have invested $730.4 million in research and development to create our comprehensive platform.
Artificial Intelligence Algorithms Through Mr. Roboto, which leverages machine learning algorithms, artificial intelligence and predictive analytics, Domo creates alerts, detects anomalies, optimizes queries, and suggests areas of interest to help people focus on what matters most.
Artificial Intelligence Algorithms Through a suite of data science, which leverages machine learning algorithms, artificial intelligence and predictive analytics, Domo creates alerts, detects anomalies, optimizes queries, and suggests areas of interest to help people focus on what matters most.
Our architecture is designed to allow customers to maintain control of their data through various means including: multiple logical and physical security layers; least privilege and separation of duties access model; threat assessments of each new feature; transport layer encryption and encryption at rest that allows customers to manage their own encryption keys using Domo’s Bring Your Own Key, or BYOK; several self-service security controls offered within the Domo platform for customers to implement their own security policies, and extensive logging and monitoring of network, system and application events. 19 We voluntarily engage independent third-party security auditors to test our systems and controls at least annually against several widely recognized security standards and regulations.
Our architecture is designed to allow customers to maintain control of their data through various means including: multiple logical and physical security layers; least privilege and separation of duties access model; threat assessments of each new feature; transport layer encryption and encryption at rest that allows customers to manage their own encryption keys using Domo’s Bring Your Own Key, or BYOK; several self-service security controls offered within the Domo platform for customers to implement their own security policies, and extensive logging and monitoring of network, system and application events.
Roboto constantly scans incoming data to identify trends, anomalies and correlations, providing alerts and initiating business processes. • Partner Ecosystem : With the Domo Appstore, APIs and developer tool kits, Domo enables an ecosystem of partners to quickly build intelligent applications on the platform.
These machine learning and AI tools constantly scan incoming data to identify trends, anomalies and correlations, providing alerts and initiating business processes. • Partner Ecosystem : With the Domo Appstore, APIs and developer tool kits, Domo enables an ecosystem of partners to quickly build intelligent applications on the platform.
As of January 31, 2022, we used Amazon Web Services, or AWS, data center facilities located in Western Europe, North America and Australia. We committed to spend an aggregate of $60.0 million between January 2020 and December 2024 pursuant to our agreement with AWS.
As of January 31, 2023, we used Amazon Web Services, or AWS, data center facilities located in Western Europe, North America and Australia. We committed to spend an aggregate of $106.0 million between October 2022 and September 2027 pursuant to our agreement with AWS.
Research and development expenses were $69.2 million, $66.5 million and $81.0 million for the fiscal years ended January 31, 2020, 2021 and 2022, respectively.
Research and development expenses were $66.5 million, $81.0 million and $95.1 million for the fiscal years ended January 31, 2021, 2022 and 2023, respectively.
For the years ended January 31, 2020, 2021 and 2022, we had total revenue of $173.4 million, $210.2 million and $258.0 million, respectively, representing year-over-year growth of 21% and 23%, respectively. For the years ended January 31, 2020, 2021 and 2022, our net loss was $125.7 million, $84.6 million and $102.1 million, respectively.
For the years ended January 31, 2021, 2022 and 2023, we had total revenue of $210.2 million, $258.0 million and $308.6 million, respectively, representing year-over-year growth of 23% and 20%, respectively. For the years ended January 31, 2021, 2022 and 2023, our net loss was $84.6 million, $102.1 million and $105.6 million, respectively.
We have completed a SOC 1 and SOC 2 + HITRUST Common Security Framework, or CSF, examination. Service Organization Controls, or SOC, are standards established by the American Institute of Certified Public Accountants for reporting on internal control environments implemented within an organization. We have also been certified as compliant with ISO 27001 and ISO 27018 standards.
Service Organization Controls, or SOC, are standards established by the American Institute of Certified Public Accountants for reporting on internal control 19 environments implemented within an organization. We have also been certified as compliant with ISO 27001 and ISO 27018 standards.
We also owned ten patents in the European Union, five patents in the People's Republic of China, one patent in Australia, one patent in Canada and one patent in Japan. The issued U.S. patents that we own have expiration dates ranging from August 2022 to September 2035.
We also owned ten patents in the European Union, five patents in the People's Republic of China, three patents in Great Britain, one patent in 18 Australia, one patent in Canada and one patent in Japan. The issued U.S. patents that we own have expiration dates ranging from August 2023 to February 2040.
A majority of our annual recurring revenue is up for renewal during the fiscal year ending January 31, 2023. 16 We primarily generate sales through our direct sales team, which includes both inside sales and field sales personnel.
A majority of our annual recurring revenue is up for renewal during the fiscal year ending January 31, 2024. 16 We primarily generate sales through our direct sales team, which includes both inside sales and field sales personnel. Currently, most all of our sales and professional services activities are being conducted remotely.
If we fail to meet the minimum purchase commitment during any year, we are required to pay the difference. AWS may terminate the agreement upon written notice to us for cause, including any material breach by us.
If we fail to meet the minimum purchase commitment during any year, we are required to pay the difference. AWS may terminate the agreement upon written notice to us for cause, including any material breach by us. We also use Microsoft Azure data centers in the United States to host customer data.
Our datacenter facilities and services providers also regularly undergo ISO 27001 or SOC 1 or SOC 2 audits and numerous other audits to verify their security practices. We complete the two industry-leading information security questionnaires. This includes the Shared Assessments Standardized Information Gathering, or SIG, questionnaire, as well as the Cloud Security Alliance Consensus Assessments Initiative Questionnaire, or CSA CAIQ.
Our cloud hosting providers and services providers also regularly undergo ISO 27001 or SOC 1 or SOC 2 audits and numerous other audits to verify their security practices. We complete the two industry-leading information security questionnaires.
The SIG is composed of approximately 1,400 security questions spanning 17 domains. The CSA CAIQ is a set of security questions focused on cloud security controls, and it is mapped to numerous industry programs and standards including ISO 27001, NIST SP 800-53, and COBIT, amongst others.
The CSA CAIQ is a set of security questions focused on cloud security controls, and it is mapped to numerous industry programs and standards including ISO 27001, NIST SP 800-53, and COBIT, amongst others. Both of these information security industry questionnaires assist organizations in evaluating a cloud provider's operations and processes.
Both of these information security industry questionnaires assist organizations in evaluating a cloud provider's operations and processes. Employees As of January 31, 2022, we had 917 employees, of which 771 work in the United States. None of our employees are represented by a labor union, and we believe our employee relations are good.
Employees As of January 31, 2023, we had 967 employees, of which 773 work in the United States. None of our employees are represented by a labor union, and we believe our employee relations are good.
Our subscription net revenue retention rate, which compares the subscription revenue generated from a cohort of customers that generated subscription revenue at the beginning of the same period in consecutive fiscal years (excluding customers from the cohort who canceled during the initial period), has averaged over 105% for the years ended January 31, 2020, 2021 and 2022.
Our annual recurring revenue (ARR) net retention rate, which compares the ARR as of the measurement date to ARR from the same cohort as of the same period in consecutive fiscal years (excluding customers from the cohort who canceled during the initial period), was an average of 104%, 109%, and 106% for the years ended January 31, 2021, 2022 and 2023, respectively.
Chat, sharing, organizational charts, profiles, and project management all help foster an engaged and curious workforce, so that anyone in an organization can participate in improving the business. 6 • Artificial Intelligence Algorithms : Domo's Mr.
Chat, sharing, organizational charts, profiles, and project management all help foster an engaged and curious workforce, so that anyone in an organization can participate in improving the business. 6 • Artificial Intelligence Algorithms : Domo's suite of data science leverages machine learning algorithms, predictive analytics, and other artificial intelligence technologies to create alerts, detect anomalies, optimize queries, and suggest areas of interest to help people focus on what matters most.
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Roboto leverages machine learning algorithms, predictive analytics, and other artificial intelligence technologies to create alerts, detect anomalies, optimize queries, and suggest areas of interest to help people focus on what matters most. Mr.
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We voluntarily engage independent third-party security auditors to test our systems and controls at least annually against several widely recognized security standards and regulations. We have completed a SOC 1 and SOC 2, and HITRUST risk-based attestation.
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We anticipate that we will continue to develop a select number of third-party relationships to help grow our business. Historically, a significant portion of field sales and professional services were conducted in person.
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This includes the Shared Assessments Standardized Information Gathering, or SIG, questionnaire, as well as the Cloud Security Alliance Consensus Assessments Initiative Questionnaire, or CSA CAIQ. The SIG is composed of approximately 1,400 security questions spanning 17 domains.
Removed
Currently, as a result of the work and travel restrictions related to the ongoing COVID-19 pandemic, a large portion of our sales and professional services activities are being conducted remotely. As of the date of this report, we do not yet know the extent of the negative impact on our ability to attract, serve, retain or upsell customers.
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We believe that we compete effectively on each of the factors listed above; however, we expect competition to intensify in the future.
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We also use Microsoft Azure data centers in the United States to host customer data and partner with a third-party provider to maintain Company owned physical servers at an Equinix data center in the United States.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

155 edited+36 added−48 removed277 unchanged
Biggest changeIf any unauthorized access to or security breach or security incident impacting our platform, our networks or systems, or any systems or networks of our service providers, occurs, or is believed to have occurred, whether as a result of third-party action, insider attacks, employee or service provider error or malfeasance, phishing attacks, ransomware or other malware, social engineering or otherwise, such an event or perceived event could result in unauthorized access to or use of our platform, disruptions to our platform or other aspects of our operations, the loss, alteration or unavailability of, or unauthorized access to or acquisition of, data or intellectual property of ourselves or our customers, loss of business, severe reputational or brand damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation or other demands, indemnity obligations, damages for contract breach, penalties for violation of applicable laws, regulations, or contractual obligations, and significant costs for remediation that may include liability for stolen assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach or other incident, and other liabilities.
Biggest changeAdditionally, any such event, or any perception that any such event has occurred, may result in a loss of business, severe reputational or brand damage adversely affecting customer, partner, or investor confidence, regulatory investigations, demands, and orders, litigation or other claims, demands, or proceedings by governmental authorities or private parties, indemnity obligations, damages for contract breach, penalties for violation of applicable laws, regulations, or contractual obligations, and significant costs for remediation that may include liability for stolen assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach or other incident, and other liabilities, as well as harm to our sales efforts and expansion into existing and new markets.
James has indicated that (1) he has substantial assets other than shares of our common stock and (2) if repayment of the loan is triggered there is a cure period to sell assets or restructure the loan. Although Mr.
Mr. James has indicated that (1) he has substantial assets other than shares of our common stock and (2) if repayment of the loan is triggered there is a cure period to sell assets or restructure the loan. Although Mr.
Expanding our international operations will subject us to a variety of risks and challenges, including: • the need to make significant investments in people, solutions and infrastructure, typically well in advance of revenue generation; • the need to localize and adapt our application for specific countries, including translation into foreign languages and associated expenses; • potential changes in public or customer sentiment regarding cloud-based services or the ability of non-local enterprises to provide adequate data protection, particularly in the European Union, or the E.U.; • technical or latency issues in delivering our platform; • dependence on certain third parties, including resellers with whom we do not have extensive experience; • the lack of reference customers and other marketing assets in regional markets that are new or developing for us, as well as other adaptations in our market generation efforts that we may be slow to identify and implement; • unexpected changes in regulatory requirements, taxes or trade laws; • differing labor regulations, especially in the E.U., where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations; • challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs; • difficulties in maintaining our company culture with a dispersed and distant workforce; 36 • difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems; • currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we choose to do so in the future; • limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; • limited or insufficient intellectual property protection, or the risk that our products may conflict with, infringe or otherwise violate foreign intellectual property; • political instability, terrorist activities or military conflicts, including Russia's invasion of Ukraine; • requirements to comply with foreign privacy, information security, and data protection laws and regulations and the risks and costs of non-compliance; • likelihood of potential or actual violations of domestic and international anticorruption laws, such as the U.S.
Expanding our international operations will subject us to a variety of risks and challenges, including: • the need to make significant investments in people, solutions and infrastructure, typically well in advance of revenue generation; • the need to localize and adapt our application for specific countries, including translation into foreign languages and associated expenses; • potential changes in public or customer sentiment regarding cloud-based services or the ability of non-local enterprises to provide adequate data protection, particularly in the European Union, or the E.U.; • technical or latency issues in delivering our platform; • dependence on certain third parties, including resellers with whom we do not have extensive experience; • the lack of reference customers and other marketing assets in regional markets that are new or developing for us, as well as other adaptations in our market generation efforts that we may be slow to identify and implement; • unexpected changes in regulatory requirements, taxes or trade laws; • differing labor regulations, especially in the E.U., where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations; • challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs; • difficulties in maintaining our company culture with a dispersed and distant workforce; • difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems; • currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we choose to do so in the future; • limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; • limited or insufficient intellectual property protection, or the risk that our products may conflict with, infringe or otherwise violate foreign intellectual property; • political instability, terrorist activities or military conflicts, including Russia's invasion of Ukraine; • requirements to comply with foreign privacy, information security, and data protection laws and regulations and the risks and costs of non-compliance; • likelihood of potential or actual violations of domestic and international anticorruption laws, such as the U.S.
Acquisitions involve many risks, including the following: • an acquisition may negatively affect our operating results, financial condition or cash flows because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; • we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products, personnel or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us; • an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management; • an acquisition may result in a delay or reduction of customer purchases for both us and the company we acquired due to customer uncertainty about continuity and effectiveness of service from either company; • we may encounter difficulties in, or may be unable to, successfully sell any acquired products; • an acquisition may involve the entry into geographic or business markets in which we have little or no prior experience or where competitors have stronger market positions; • the potential strain on our financial and managerial controls and reporting systems and procedures; • potential known and unknown liabilities associated with an acquired company; • if we incur debt to fund such acquisitions, such debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants; • the risk of impairment charges related to potential write-downs of acquired assets or goodwill in future acquisitions; • to the extent that we issue a significant amount of equity or convertible debt securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease; and • managing the varying intellectual property protection strategies and other activities of an acquired company.
Acquisitions involve many risks, including the following: • an acquisition may negatively affect our operating results, financial condition or cash flows because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; • we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products, personnel or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us; • an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management; • an acquisition may result in a delay or reduction of customer purchases for both us and the company we acquired due to customer uncertainty about continuity and effectiveness of service from either company; • we may encounter difficulties in, or may be unable to, successfully sell any acquired products; • an acquisition may involve the entry into geographic or business markets in which we have little or no prior experience or where competitors have stronger market positions; • the potential strain on our financial and managerial controls and reporting systems and procedures; • potential known and unknown liabilities associated with an acquired company; 37 • if we incur debt to fund such acquisitions, such debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants; • the risk of impairment charges related to potential write-downs of acquired assets or goodwill in future acquisitions; • to the extent that we issue a significant amount of equity or convertible debt securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease; and • managing the varying intellectual property protection strategies and other activities of an acquired company.
These provisions include the following: • our dual-class common stock structure, which provides our holders of Class A common stock with the ability to significantly influence the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A common stock and Class B common stock; • when the outstanding shares of Class A common stock represent less than a majority of the total combined voting power of our Class A and Class B common stock, or the voting threshold date, our board of directors will be classified into three classes of directors with staggered three-year terms, and directors will only be able to be removed from office for cause; • our amended and restated bylaws provide that, following the voting threshold date, approval of stockholders holding two-thirds of our outstanding voting power voting as a single class will be required for stockholders to amend or adopt any provision of our bylaws; • our stockholders are able to take action by written consent for any matter until the voting threshold date; • following the voting threshold date, vacancies on our board of directors will be able to be filled only by our board of directors and not by stockholders; • only the chairman of our board of directors, chief executive officer, a majority of our board of directors or, until the voting threshold date, a stockholder (or group of stockholders) holding at least 50% of the combined voting power of our Class A and Class B common stock are authorized to call a special meeting of stockholders; • certain litigation against us can only be brought in Delaware; • our amended and restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued, without the approval of the holders of common stock; and • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
These provisions include the following: • our dual-class common stock structure, which provides our holders of Class A common stock with the ability to significantly influence the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A common stock and Class B common stock; • when the outstanding shares of Class A common stock represent less than a majority of the total combined voting power of our Class A and Class B common stock, or the voting threshold date, our board of directors will be classified into three classes of directors with staggered three-year terms, and directors will only be able to be removed from office for cause; • our amended and restated bylaws provide that, following the voting threshold date, approval of stockholders holding two-thirds of our outstanding voting power voting as a single class will be required for stockholders to amend or adopt any provision of our bylaws; • our stockholders are able to take action by written consent for any matter until the voting threshold date; • following the voting threshold date, vacancies on our board of directors will be able to be filled only by our board of directors and not by stockholders; • only the chairman of our board of directors, chief executive officer, a majority of our board of directors or, until the voting threshold date, a stockholder (or group of stockholders) holding at least 50% of the combined voting power of our Class A and Class B common stock are authorized to call a special meeting of stockholders; • certain litigation against us can only be brought in Delaware; 49 • our amended and restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued, without the approval of the holders of common stock; and • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
Our success in this area will depend on a wide range of factors, some of which are beyond our control, including the following: • the efficacy of our marketing efforts; • our ability to maintain a high-quality, innovative and error- and bug-free platform; • our ability to obtain new customers and retain and increase usage by existing customers; • our ability to maintain high customer satisfaction; • the quality and perceived value of our platform; • our ability to obtain, maintain and enforce trademarks and other indicia of origin that are valuable to our brand; • our ability to successfully differentiate our platform from competitors’ products; • actions of competitors and other third parties; • our ability to provide customer support and professional services; • any actual or perceived security breach or data loss, or misuse or perceived misuse of our platform; • positive or negative publicity; • interruptions, delays or attacks on our platform; • challenges with customer adoption and use of our platform on mobile devices or problems encountered in developing or supporting enhancements to our mobile applications; and • litigation or regulatory related developments.
Our success in this area will depend on a wide range of factors, some of which are beyond our control, including the following: • the efficacy of our marketing efforts; • our ability to maintain a high-quality, innovative and error- and bug-free platform; 43 • our ability to obtain new customers and retain and increase usage by existing customers; • our ability to maintain high customer satisfaction; • the quality and perceived value of our platform; • our ability to obtain, maintain and enforce trademarks and other indicia of origin that are valuable to our brand; • our ability to successfully differentiate our platform from competitors’ products; • actions of competitors and other third parties; • our ability to provide customer support and professional services; • any actual or perceived security breach or data loss, or misuse or perceived misuse of our platform; • positive or negative publicity; • interruptions, delays or attacks on our platform; • challenges with customer adoption and use of our platform on mobile devices or problems encountered in developing or supporting enhancements to our mobile applications; and • litigation or regulatory related developments.
Enhancements and changes to our platform could fail to attain sufficient market acceptance for many reasons, including: • failure to predict market demand accurately in terms of platform functionality and capability or to supply features that meets this demand in a timely fashion; • inability to operate effectively with the technologies, systems or applications of existing or potential customers; • defects, errors or failures; • negative publicity about their performance or effectiveness; • delays in releasing new enhancements and additional features to our platform to the market; • the introduction or anticipated introduction of competing products; • an ineffective sales force; • poor business conditions for our end-customers, causing them to delay purchases; • challenges with customer adoption and use of our platform on mobile devices or problems encountered in developing or supporting enhancements to our mobile applications; and • the reluctance of customers to purchase subscriptions to software incorporating open source software.
Enhancements and changes to our platform could fail to attain sufficient market acceptance for many reasons, including: • failure to predict market demand accurately in terms of platform functionality and capability or to supply features that meets this demand in a timely fashion; • inability to operate effectively with the technologies, systems or applications of existing or potential customers; • defects, errors or failures; • negative publicity about their performance or effectiveness; • delays in releasing new enhancements and additional features to our platform to the market; • the introduction or anticipated introduction of competing products; 30 • an ineffective sales force; • poor business conditions for our end-customers, causing them to delay purchases; • challenges with customer adoption and use of our platform on mobile devices or problems encountered in developing or supporting enhancements to our mobile applications; and • the reluctance of customers to purchase subscriptions to software incorporating open source software.
The following factors, in addition to other risks described in this report, may have a significant effect on our Class B common stock price: • actual or anticipated fluctuations in revenue and other operating results, including as a result of the addition or loss of any number of customers; • announcements by us or competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of us, changes in ratings, key metrics and financial estimates and the publication of other news by any securities analysts who follow our company, or our failure to meet these analyst estimates or the expectations of investors; • changes in operating performance and stock market valuations of cloud-based software or other technology companies, or those in our industry in particular; • the size of our public float; • price and volume fluctuations in the trading of our Class B common stock and in the overall stock market, including as a result of trends in the economy as a whole or in the technology industry; • the impact of the COVID-19 pandemic, including on the global economy, our results of operations, enterprise software spending and business continuity; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business or industry, including those relating to data privacy and data security; • lawsuits threatened or filed against us for claims relating to intellectual property, employment issues or otherwise; • actual or perceived data breach or data loss, misuse or perceived misuse of our platform; • changes in our board of directors or management; • short sales, hedging and other derivative transactions involving our Class B common stock; 48 • sales of large blocks of our common stock including sales by our executive officers, directors and significant stockholders; and • other events or factors, including changes in general economic, industry and market conditions and trends, as well as any natural disasters that may affect our operations.
The following factors, in addition to other risks described in this report, may have a significant effect on our Class B common stock price: • actual or anticipated fluctuations in revenue and other operating results, including as a result of the addition or loss of any number of customers; • announcements by us or competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; 47 • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of us, changes in ratings, key metrics and financial estimates and the publication of other news by any securities analysts who follow our company, or our failure to meet these analyst estimates or the expectations of investors; • changes in operating performance and stock market valuations of cloud-based software or other technology companies, or those in our industry in particular; • the size of our public float; • price and volume fluctuations in the trading of our Class B common stock and in the overall stock market, including as a result of trends in the economy as a whole or in the technology industry; • the impact of the COVID-19 pandemic, including on the global economy, our results of operations, enterprise software spending and business continuity; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business or industry, including those relating to data privacy and data security; • lawsuits threatened or filed against us for claims relating to intellectual property, employment issues or otherwise; • actual or perceived data breach or data loss, misuse or perceived misuse of our platform; • changes in our board of directors or management; • short sales, hedging and other derivative transactions involving our Class B common stock; • sales of large blocks of our common stock including sales by our executive officers, directors and significant stockholders; and • other events or factors, including changes in general economic, industry and market conditions and trends, as well as any natural disasters that may affect our operations.
The full impact of the COVID-19 pandemic on our business is inherently uncertain at the time of this report, and is highly dependent on inherently uncertain future developments, including duration and scope of the pandemic (including any potential future waves of the pandemic as well as new and emerging variants) as well as governmental, business and individual actions that have been and continue to be taken in response to the pandemic (including the availability, adoption and effectiveness of COVID-19 vaccines).
The full impact of the COVID-19 pandemic on our business is inherently uncertain at the time of this report, and is highly dependent on inherently uncertain future developments, including duration and scope of the pandemic (including any potential future waves of the pandemic as well as new and emerging variants of the virus) as well as governmental, business and individual actions that have been and continue to be taken in response to the pandemic (including the availability, adoption and effectiveness of COVID-19 vaccines).
If any of these services becomes unavailable or otherwise is unable to serve our requirements due to extended outages, interruptions, facility closure, or because it is no longer available on commercially 28 reasonable terms, expenses could increase, our ability to manage finances could be interrupted and our operations otherwise could be disrupted or otherwise impacted until appropriate substitute services, if available, are identified, obtained, and implemented.
If any of these services becomes unavailable or otherwise is unable to serve our requirements due to extended outages, interruptions, facility closure, or because it is no longer available on commercially reasonable terms, expenses could increase, our ability to manage finances could be interrupted and our operations otherwise could be disrupted or otherwise impacted until appropriate substitute services, if available, are identified, obtained, and implemented.
As a result, we may be unable to attract new customers at rates or on terms that would be favorable or comparable to prior periods, which could negatively affect the growth of our revenue. Even if we do attract customers, the cost of new customer acquisition may prove so high as to prevent us from achieving or sustaining profitability.
As a result, we may be unable to attract new customers at rates or on terms that would be favorable or comparable to prior periods, which could negatively affect the growth of our revenue. 26 Even if we do attract customers, the cost of new customer acquisition may prove so high as to prevent us from achieving or sustaining profitability.
Any failure by us to compete successfully in any one of these or other areas may reduce the demand for our platform, as well as adversely affect our business, operating results and financial condition. Moreover, current and future competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with others.
Any failure by us to compete successfully in any one of these or other 29 areas may reduce the demand for our platform, as well as adversely affect our business, operating results and financial condition. Moreover, current and future competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with others.
There are no guarantees we will be able to do so. In particular, any failure to successfully implement systems enhancements and improvements will likely negatively impact our ability to manage our expected growth, ensure uninterrupted operation of key business systems and comply with the rules and regulations that are 23 applicable to public reporting companies.
There are no guarantees we will be able to do so. In particular, any failure to successfully implement systems enhancements and improvements will likely negatively impact our ability to manage our expected growth, ensure uninterrupted operation of key business systems and comply with the rules and regulations that are applicable to public reporting companies.
To the extent that our third-party service providers experience outages, disruptions, or other performance problems, or to the extent we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and 43 operating results may be adversely affected.
To the extent that our third-party service providers experience outages, disruptions, or other performance problems, or to the extent we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be adversely affected.
Noncompliance with laws and regulations relating to privacy and security of personal information, including HIPAA, or with contractual obligations under any business associate agreement may lead to significant fines, civil and criminal penalties, or liabilities. The U.S. Department of Health and Human Services, or HHS, audits the compliance of business associates and enforces HIPAA privacy and security standards.
Noncompliance with laws and regulations relating to privacy and security of personal information, including HIPAA, or with contractual obligations, including under any business associate agreement, may lead to significant fines, civil and criminal penalties, and other liabilities. The U.S. Department of Health and Human Services, or HHS, audits the compliance of business associates and enforces HIPAA privacy and security standards.
In July 2017, FTSE Russell announced that it plans to require new constituents of its indexes to have greater than 5% of the company's voting rights in the hands of public stockholders, and S&P Dow Jones announced that it will no longer admit companies with multiple-class share structures to certain of its indexes.
In July 2017, FTSE Russell announced that it plans to require new constituents of its indexes to have greater than 5% of the company's voting rights in the hands of public stockholders, and S&P Dow Jones announced that it will no longer admit companies with multiple-class share structures to 46 certain of its indexes.
James has also indicated to us that he may in the future from time to time refinance such indebtedness, enter into derivative transactions 49 based on the value of our Class B common stock, dispose of shares of common stock, otherwise monetize shares of his common stock and/or engage in other transactions relating to shares of our common stock and/or other securities of the company.
James has also indicated to us that he may in the future from time to time refinance such indebtedness, enter into derivative transactions based on the value of our Class B common stock, dispose of shares of common stock, otherwise monetize shares of his common stock and/or engage in other transactions relating to shares of our common stock and/or other securities of the company.
It is possible changes to these regulations and laws, as well as compliance challenges related to the 37 complexity of multiple, conflicting and changing sets of applicable regulations and laws, may impact our sales, operations, and future growth. Future acquisitions could disrupt our business and adversely affect our operating results, financial condition and cash flows.
It is possible changes to these regulations and laws, as well as compliance challenges related to the complexity of multiple, conflicting and changing sets of applicable regulations and laws, may impact our sales, operations, and future growth. Future acquisitions could disrupt our business and adversely affect our operating results, financial condition and cash flows.
Even if we are successful in defending against allegations of intellectual property infringement, litigation may be costly and may divert the time and other resources of our management. Additionally, customers may not purchase our platform if they are concerned that they may infringe or otherwise violate third-party intellectual property rights.
Even if we are successful in defending 44 against allegations of intellectual property infringement, litigation may be costly and may divert the time and other resources of our management. Additionally, customers may not purchase our platform if they are concerned that they may infringe or otherwise violate third-party intellectual property rights.
Risks Related to Our Corporate Governance The dual class structure of our common stock has the effect of concentrating voting control with Joshua G. James, our founder and former chief executive officer, which will limit your ability to influence the outcome of important transactions, including a change in control.
Risks Related to Our Corporate Governance The dual class structure of our common stock has the effect of concentrating voting control with Joshua G. James, our founder and chief executive officer, which will limit your ability to influence the outcome of important transactions, including a change in control.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of 50 business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.
There is no guarantee that we will be able to generate sufficient cash flow or sales to meet these financial covenants or pay the principal and interest on any such debt. Furthermore, there is no guarantee that future working capital, borrowings or equity financing will be available to repay or refinance any such debt.
There is no guarantee that we will be able to 24 generate sufficient cash flow or sales to meet these financial covenants or pay the principal and interest on any such debt. Furthermore, there is no guarantee that future working capital, borrowings or equity financing will be available to repay or refinance any such debt.
If any of these were to occur there would be a negative and potentially significant impact to our financial performance. Lastly, our ability to generate new applications, and improve our current solutions may be limited if and to the extent resources are necessarily allocated to address issues related to the performance of existing solutions.
If any of these were to occur there would be a negative and potentially significant impact to our financial 31 performance. Lastly, our ability to generate new applications, and improve our current solutions may be limited if and to the extent resources are necessarily allocated to address issues related to the performance of existing solutions.
For example, we currently have a securities class-action 34 complaint pending against us and certain of our current and former directors and officers, asserting violations of federal securities laws and seeking unspecified damages. We believe this lawsuit is without merit and intend to defend this case vigorously.
For example, we currently have a securities class-action complaint pending against us and certain of our current and former directors and officers, asserting violations of federal securities laws and seeking unspecified damages. We believe this lawsuit is without merit and intend to defend this case vigorously.
We could be required to expend significant capital and other resources to alleviate problems caused by such actual or perceived breaches or other incidents and to remediate our systems, we could be exposed to a risk of loss, litigation or regulatory action and possible liability, and our ability to operate our business may be impaired.
We could be required to expend significant capital and other resources to alleviate problems caused by such actual or perceived security breaches or other incidents and to remediate our systems, we could be exposed to a risk of loss, litigation or regulatory action and possible liability, and our ability to operate our business may be impaired.
Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation, could delay further sales or the implementation of our platform, impair the functionality of our platform, delay introductions of new features or enhancements, result in our substituting inferior or more costly technologies into our platform, or injure our reputation.
Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation, could delay further sales or the implementation of our platform, impair the 45 functionality of our platform, delay introductions of new features or enhancements, result in our substituting inferior or more costly technologies into our platform, or injure our reputation.
We may incur significant costs to attract and retain qualified personnel, including significant expenditures related to salaries and benefits and compensation expenses related to equity awards, and we may lose new employees to competitors or other companies before we realize the benefit of our investment in recruiting and training them.
We may incur significant costs to attract and retain qualified personnel, including significant expenditures related to salaries and benefits 34 and compensation expenses related to equity awards, and we may lose new employees to competitors or other companies before we realize the benefit of our investment in recruiting and training them.
Our tax expense may be impacted if our intercompany transactions, which are 26 required to be computed on an arm’s-length basis, are challenged and successfully disputed by tax authorities. Our policies governing transfer pricing may be determined to be inadequate and could result in additional tax assessments.
Our tax expense may be impacted if our intercompany transactions, which are required to be computed on an arm’s-length basis, are challenged and successfully disputed by tax authorities. Our policies governing transfer pricing may be determined to be inadequate and could result in additional tax assessments.
Increased customer demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on the ease of use of our services, on our reputation and 32 on positive recommendations from our existing customers.
Increased customer demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on the ease of use of our services, on our reputation and on positive recommendations from our existing customers.
On June 28, 2021, the European Commission announced a decision of “adequacy” concluding that the United Kingdom ensures an equivalent level of data protection to the GDPR, which provides some relief regarding the legality of continued personal data flows from the European Economic Area to the United Kingdom.
On June 28, 2021, the European Commission announced a decision of “adequacy” concluding that the United Kingdom ensures an equivalent level of data protection to the GDPR, which provides some relief regarding the legality of 39 continued personal data flows from the European Economic Area to the United Kingdom.
In addition, a significant majority of our costs are expensed as incurred, while revenue is generally recognized over the life of the customer agreement. As a result, increased growth in the number of our customers could result in our recognition of more costs than revenue in the earlier periods of the terms of our agreements.
In addition, a significant majority of our costs are expensed as incurred, while revenue is 23 generally recognized over the life of the customer agreement. As a result, increased growth in the number of our customers could result in our recognition of more costs than revenue in the earlier periods of the terms of our agreements.
We expect to continue to incur losses for the foreseeable future and we expect costs to increase in future periods as we expend substantial financial and other resources on, among other things: • sales and marketing, including any expansion of our direct sales organization, which will require time before these investments generate sales results; • technology and data center infrastructure, enhancements to cloud architecture, improved disaster recovery protection, increasing data security, compliance and operations expenses; • data center costs as customers increase the amount of data that is available to our platform and the number of users on our platform; • other software development, including enhancements and modifications related to our platform; • international expansion in an effort to increase our customer base and sales; • general and administration, including significantly increasing expenses in accounting and legal related to the increase in the sophistication and resources required for public company compliance and other work arising from the growth and maturity of the company; • competing with other companies, custom development efforts and open source initiatives that are currently in, or may in the future enter, the markets in which we compete; • maintaining high customer satisfaction and ensuring quality and timely releases of platform enhancements and applications; • developing our indirect sales channels and strategic partner network; • maintaining the quality of our cloud and data center infrastructure to minimize latency when using our platform; • increasing market awareness of our platform and enhancing our brand; • maintaining compliance with applicable governmental regulations and other legal obligations, including those related to intellectual property and international sales; and 22 • attracting and retaining top talent in a competitive market.
We expect to continue to incur losses for the foreseeable future and we expect costs to increase in future periods as we expend substantial financial and other resources on, among other things: • sales and marketing, including any expansion of our direct sales organization, which will require time before these investments generate sales results; • technology and data center infrastructure, enhancements to cloud architecture, improved disaster recovery protection, increasing data security, compliance and operations expenses; • data center costs as customers increase the amount of data that is available to our platform and usage on our platform; • other software development, including enhancements and modifications related to our platform; • international expansion in an effort to increase our customer base and sales; • general and administration, including significantly increasing expenses in accounting and legal related to the increase in the sophistication and resources required for public company compliance and other work arising from the growth and maturity of the company; • competing with other companies, custom development efforts and open source initiatives that are currently in, or may in the future enter, the markets in which we compete; • maintaining high customer satisfaction and ensuring quality and timely releases of platform enhancements and applications; • developing our indirect sales channels and strategic partner network; • maintaining the quality of our cloud and data center infrastructure to minimize latency when using our platform; • increasing market awareness of our platform and enhancing our brand; • maintaining compliance with applicable governmental regulations and other legal obligations, including those related to intellectual property and international sales; and • attracting and retaining top talent in a competitive market.
Typically, agreements with channel partners are non-exclusive, meaning our channel partners may offer customers the products of several different companies, including products that compete with our platform. They may also cease marketing our platform with limited or no notice and with little or no penalty.
Typically, agreements with channel partners are non-exclusive, meaning our channel partners may offer customers the products of several different companies, including products that compete with our platform. They may also cease marketing our platform with limited or no notice and with little or no 27 penalty.
Compliance with applicable regulatory requirements regarding the export of our platform, including with respect to new releases of our platform, may create delays in the introduction of our product releases in international markets, prevent customers with international operations from 38 deploying our platform or, in some cases, prevent the export of our platform to some countries altogether.
Compliance with applicable regulatory requirements regarding the export of our platform, including with respect to new releases of our platform, may create delays in the introduction of our product releases in international markets, prevent customers with international operations from deploying our platform or, in some cases, prevent the export of our platform to some countries altogether.
We also may be at risk of experiencing reluctance or refusal of European or multi-national customers to use our solutions and being subject to regulatory action or incurring penalties. Any of these developments may have an adverse effect on our business.
We may be at risk of experiencing reluctance or refusal of European or multi-national customers to use our solutions and being subject to regulatory action or incurring penalties. Any of these developments may have an adverse effect on our business.
An ownership change under Section 382 of the Code could affect our ability to utilize the NOLs to offset our income. Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to limitations.
An 25 ownership change under Section 382 of the Code could affect our ability to utilize the NOLs to offset our income. Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to limitations.
Changes to strategic or operating goals, which can often times occur with the appointment of new executives, can create uncertainty, may negatively impact our ability to execute quickly and effectively, and may ultimately be unsuccessful.
Changes to strategic or operating goals, which can often times occur with the appointment of new executives and directors, can create uncertainty, may negatively impact our ability to execute quickly and effectively, and may ultimately be unsuccessful.
The laws 45 of some foreign countries may not be as protective of intellectual property rights as those in the United States (in particular, some foreign jurisdictions do not permit patent protection for software), and mechanisms for enforcement of intellectual property rights may be inadequate.
The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States (in particular, some foreign jurisdictions do not permit patent protection for software), and mechanisms for enforcement of intellectual property rights may be inadequate.
In addition, our international subsidiaries may 25 accumulate assets and liabilities that are denominated in currencies other than the U.S. dollar, which is the functional reporting currency of these entities.
In addition, our international subsidiaries may accumulate assets and liabilities that are denominated in currencies other than the U.S. dollar, which is the functional reporting currency of these entities.
Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock.
Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to 22 those of our common stock.
We are currently subject to securities class-action and shareholder derivative litigation and may be subject to similar or other litigation in the future, all of which will require significant management attention, could result in significant legal expenses and may result in unfavorable outcomes, all or any of which could adversely affect our operating results, harm our reputation or otherwise negatively impact our business.
We are currently subject to securities class-action litigation and may be subject to similar or other litigation in the future, all of which will require significant management attention, could result in significant legal expenses and may result in unfavorable outcomes, all or any of which could adversely affect our operating results, harm our reputation or otherwise negatively impact our business.
We and our service providers may also face difficulties or delays in identifying, remediating and otherwise responding to cyberattacks and other security breaches and incidents.
We and our service providers may also face difficulties or delays in identifying, remediating, and 41 otherwise responding to cyberattacks and other security breaches and incidents.
Because our platform is designed to operate on and with a variety of systems, we will need to continuously modify and enhance our platform to keep pace with changes in technology, and we may fail to do so. In addition, issues in the use of artificial intelligence in our platform may result in reputational harm or liability. Domo’s Mr.
Because our platform is designed to operate on and with a variety of systems, we will need to continuously modify and enhance our platform to keep pace with changes in technology, and we may fail to do so. In addition, issues in the use of artificial intelligence in our platform may result in reputational harm or liability.
We and many other companies may need to implement different or additional measures to establish or maintain legitimate means for the transfer and receipt of personal data from the E.U., Switzerland and the United Kingdom to the U.S., and we may, in addition to other impacts, be required to engage in additional contractual negotiations and experience additional costs associated with increased compliance burdens, and we and our customers face the potential for regulators to apply different standards to the transfer of personal data from the E.U., Switzerland and the United Kingdom to the U.S., and to block, or require ad hoc verification of measures taken with respect to, certain data flows from the E.U., Switzerland and the United Kingdom to the U.S.
We and many other companies may need to implement different or additional measures to establish or maintain legitimate means for the transfer and receipt of personal data from the E.U., Switzerland, and the United Kingdom to the U.S., and we may, in addition to other impacts, be required to engage in additional contractual negotiations and experience additional costs associated with increased compliance burdens, and we and our customers face the potential for regulators to apply different standards to the transfer of personal data from the E.U., Switzerland and the United Kingdom to the U.S., and to block or require additional measures taken with respect to certain data flows from the E.U., Switzerland, and the United Kingdom to the U.S.
If customers believe that our platform does not provide adequate security for the 42 storage of personal or other sensitive information or its transmission over the internet, our business will be harmed. Customers’ concerns about security or privacy may deter them from using our platform for activities that involve personal or other sensitive information.
If customers or partners believe that our platform does not provide adequate security for the storage of personal or other sensitive information or its transmission over the internet, our business will be harmed. Customers’ concerns about security or privacy may deter them from using our platform for activities that involve personal or other sensitive information.
This adequacy determination must be renewed after four years, however, 40 and may be modified or revoked in the interim.
This adequacy determination must be renewed after four years, however, and may be modified or revoked in the interim.
We have begun to expand internationally and plan to continue to expand our international operations as part of our growth strategy.
We have begun to expand internationally and plan to continue to expand our 35 international operations as part of our growth strategy.
New hires require significant training and time before they achieve full productivity, particularly in new sales territories.
New hires require significant training and time before they achieve full productivity, particularly in new 33 sales territories.
Future laws, regulations, standards and other obligations or any changed interpretation of existing laws or regulations could impair our ability to develop and market new features and maintain and grow our customer base and increase revenue.
Future laws, regulations, standards, and other actual or asserted obligations, or any changed interpretation of existing laws or regulations could impair our ability to develop and market new features and maintain and grow our customer base and increase revenue.
In addition, executive leadership transition periods are often difficult as the new executives gain more detailed knowledge of our operations, and friction can result from changes in strategy and management style. Management turnover inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution.
In addition, executive leadership and director transition periods are often difficult as the new executives and directors gain more detailed knowledge of our operations, and friction can result from changes in strategy and management style. Management and board turnover inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution.
We target sales efforts at enterprise customers, which we define as companies with over $1 billion in revenue, and face long sales cycles, complex customer requirements, substantial upfront sales costs, and a relatively low and difficult to predict volume of sales on a quarter-by-quarter basis.
Our sales efforts to enterprise customers, which we define as companies with over $1 billion in revenue, face long sales cycles, complex customer requirements, substantial upfront sales costs, and a relatively low and difficult to predict volume of sales on a quarter-by-quarter basis.
We sign business associate agreements with our customers who require them in order to comply with the Health Insurance Portability and Accountability Act, or HIPAA, and the Health Information Technology for Economic and Clinical Health Act, and therefore we are directly subject to certain provisions of HIPAA applicable to business associates.
We enter into business associate agreements with our customers who require them in order to comply with the Health Insurance Portability and Accountability Act, or HIPAA, and the Health Information Technology for Economic and Clinical Health Act, and therefore we are directly subject to certain provisions of HIPAA applicable to business associates.
Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, political deadlock, natural catastrophes, pandemics, military conflict (including the Russian invasion of Ukraine) and terrorist attacks, whether in the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in business investments, including corporate spending on business intelligence software in general and negatively affect the rate of growth of our business.
Negative general macroeconomic conditions in both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, rising inflation, a recession, political deadlock, natural catastrophes, pandemics, military conflict (including the Russian invasion of Ukraine) and terrorist attacks, whether in the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in business investments, including corporate spending on business intelligence software in general and negatively affect the rate of growth of our business.
The United Kingdom has enacted a Data Protection Act and a version of the GDPR referred to as the UK GDPR that that, collectively, substantially implement the GDPR in the United Kingdom and provides for penalties of up to the greater of £17.5 million and 4% of total annual revenue.
Further, the United Kingdom has enacted a Data Protection Act and a version of the GDPR referred to as the UK GDPR that, collectively, substantially implement the GDPR in the United Kingdom and provide for penalties of up to the greater of £17.5 million and 4% of total annual revenue.
Furthermore, existing and potential customers may choose to reduce or delay technology spending in response to the coronavirus pandemic, or attempt to renegotiate contracts and obtain concessions, which may materially and negatively impact COVID-19 operating results, financial condition and prospects.
Furthermore, existing and potential customers may choose to reduce or delay technology spending in response to the coronavirus pandemic, or attempt to renegotiate contracts and obtain concessions, which may materially and negatively impact our operating results, financial condition and prospects.
The success of our business depends in part on our ability to protect and enforce our intellectual property rights. Our success is dependent, in part, upon protecting our proprietary technology. As of January 31, 2022, we had 119 issued U.S. patents covering our technology and five patent applications pending for examination in the United States.
The success of our business depends in part on our ability to protect and enforce our intellectual property rights. Our success is dependent, in part, upon protecting our proprietary technology. As of January 31, 2023, we had 119 issued U.S. patents covering our technology and two patent applications pending for examination in the United States.
Our errors and omissions insurance covering certain security and privacy damages and claim expenses may not be sufficient to compensate for all liability.
Our insurance covering certain security and privacy damages and claim expenses may not be sufficient to compensate for all liability.
We may collect and process protected health information as part of our HIPAA compliant service, which may subject us to a number of data protection, security, privacy and other government- and industry-specific requirements.
We may collect and process protected health information as part of our designated service, which may subject us to a number of data protection, security, privacy, and other government- and industry-specific requirements.
Our ability to monitor our third-party service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, misuse, disclosure, loss or destruction of our and our customers’ data, including sensitive and personal information.
Our ability to monitor our third-party service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in unavailability of, unauthorized access to, misuse, disclosure, loss, unavailability, destruction, or other processing of our and our customers’ data, including sensitive and personal information.
Moreover, large customers, which are the focus of our direct sales efforts, may demand greater price discounts. In an inflationary environment, our costs may increase and we may not be able to increase the pricing of our subscription contracts accordingly, which could adversely impact our financial performance.
Moreover, large customers, which are the focus of our direct sales efforts, may demand greater price discounts. In an inflationary environment, our costs may increase and we may not be able to adjust our pricing models accordingly, which could adversely impact our financial performance.
Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to meet our obligations, invest in future growth opportunities, or continue operations at anticipated levels, which could harm our business and operating results.
If adequate funds are not available on acceptable terms, we may be unable to meet our obligations, invest in future growth opportunities, or continue operations at anticipated levels, which could harm our business and operating results.
James, our founder and former chief executive officer, beneficially owns all of our outstanding shares of Class A common stock through Cocolalla, LLC, of which he is the managing member, and as of January 31, 2022, beneficially controlled approximately 82% of the voting power of our outstanding capital stock and therefore is able to control all matters submitted to our stockholders for approval.
James, our founder and chief executive officer, beneficially owns all of our outstanding shares of Class A common stock through Cocolalla, LLC, of which he is the managing member, and as of January 31, 2023, beneficially controlled approximately 81% of the voting power of our outstanding capital stock and therefore is able to control all matters submitted to our stockholders for approval.
We and our customers may face a risk of enforcement actions by data protection authorities in the E.U., Switzerland and the United Kingdom relating to personal data transfers. Any such enforcement actions could result in substantial costs and diversion of resources, distract management and technical personnel and negatively affect our business, operating results and financial condition.
We and our customers may face a risk of enforcement actions by data protection authorities in the E.U. and other jurisdictions relating to personal data transfers. Any such enforcement actions could result in substantial costs and diversion of resources, distract management and technical personnel and negatively affect our business, operating results, and financial condition.
Although we maintain insurance for liabilities incurred as a result of some security and privacy damages, we cannot be certain that our coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
Although we maintain insurance for liabilities incurred as a result of certain matters relating to privacy and information security, we cannot be certain that our coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
In addition, if the security measures of our customers are compromised, even without any actual compromise of our platform or systems, or any networks or systems of our service providers, we may face negative publicity or reputational harm if customers or anyone else incorrectly attributes the blame for such security breaches or other incidents to us, our platform, our systems or networks, or those of our service providers.
In addition, if the security measures of our customers are compromised, even without any actual compromise of our platform or systems, or any networks or systems of our service providers, we may face negative publicity or reputational harm if customers or others incorrectly attribute the blame for such security breaches or other incidents to us, our platform, our systems or networks, or those of our service providers.
The CCPA requires covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information. Additionally, a new privacy law, the California Privacy Rights Act, or CPRA, was approved by California voters in the November 3, 2020 election.
The CCPA requires covered companies to, among other things, provide disclosures to California consumers and afford such consumers new abilities to opt-out of certain sales of personal information. Additionally, the California Privacy Rights Act, or CPRA, was approved by California voters in the November 3, 2020 election.
While we have established a formal third party security risk assessment process to ensure security risks for our company relating to our key third party providers are appropriately addressed, our ability to monitor our service providers’ security measures is limited, and, in any event, third parties may be able to circumvent those security measures or our own security measures, resulting in the unauthorized access to, misuse, acquisition, disclosure, loss, alteration, or destruction of our and our customers’ data, including confidential, sensitive, and other information about individuals.
While we have established a formal third party security risk assessment process to address security risks for our company relating to our key third party service providers, our ability to monitor our service providers’ security measures is limited, and, in any event, third parties may be able to circumvent those security measures or our own security measures, resulting in unavailability of or unauthorized access to, misuse, acquisition, disclosure, loss, alteration, destruction, or other processing of our and our customers’ data, including confidential, sensitive, and other information about individuals.
Because our platform is offered as a subscription-based service, the effect of the pandemic may not be fully reflected in our operating results until future periods, if at all. Before the COVID-19 pandemic, a significant portion of field sales and professional services were conducted in person.
Because our platform is offered as a subscription-based service, the effect of the pandemic may not be fully reflected in our operating results until future periods, if at all. Before the COVID-19 pandemic, a significant portion of field sales and professional services were conducted in person. Currently, most all of our sales and professional services activities are being conducted remotely.
Additionally, if and to the extent work and travel restrictions related to COVID-19 are relaxed, we may begin shifting certain professional, sales and marketing activities from remote work to in-person or hybrid models, which could result in us incurring additional operating expenses associated with business travel, office space leases and other factors.
Additionally, if and to the extent work and travel restrictions related to COVID-19 are relaxed, we may begin shifting certain professional, sales and marketing activities from remote work to in-person or hybrid models, which could result in us incurring additional operating expenses associated with business travel, office space leases and other factors. 51 Item 1B. Unresolved Staff Comments None.
A majority of our annual recurring revenue is 27 up for renewal during the fiscal year ending January 31, 2023.
A majority of our annual recurring revenue is up for renewal during the fiscal year ending January 31, 2024.
Roboto leverages machine learning algorithms, predictive analytics, and other artificial intelligence technologies to identify trends, anomalies and correlations, provide alerts and initiate business processes. Artificial intelligence presents risks and challenges that could affect its adoption, and therefore our business. Artificial intelligence algorithms may be flawed. 31 Datasets may be insufficient or contain biased information.
Domo’s suite of data science leverages machine learning algorithms, predictive analytics, and other artificial intelligence technologies to identify trends, anomalies and correlations, provide alerts and initiate business processes. Artificial intelligence presents risks and challenges that could affect its adoption, and therefore our business. Artificial intelligence algorithms may be flawed. Datasets may be insufficient or contain biased information.
Standard Contractual Clauses, or the SCCs, to protect data exports between the E.U. and the U.S. have been subject to legal challenges in the E.U, and on July 16, 2020, the European Court of Justice, Europe's highest court, held in the Schrems II case that the E.U.-U.S.
Standard Contractual Clauses, or the SCCs, to protect data exports between the E.U. and the U.S. have been subject to legal challenges in the E.U, and on July 16, 2020, the Court of Justice of the European Union, or CJEU, Europe's highest court, held in the “Schrems II” case that the E.U.-U.S.
Cyber-attacks and other malicious internet-based activity continue to increase generally, and cloud-based platform providers of software and services have been targeted. Many of our employees are working remotely, which may pose additional data security risks. Within cloud service delivery organizations, there is an increased threat from both targeted and non-targeted activities.
Cyber-attacks and other malicious internet-based activity continue to increase generally, and cloud-based platform providers of software and services have been targeted. Many of our employees work remotely at least part of the time, which may pose additional data security risks. Within cloud service delivery organizations, there is an increased threat from both targeted and non-targeted activities.
Historically, we have generated a substantial majority of our revenue from customers inside the United States. For example, approximately 75%, 76%, and 77% of our total revenue for the years ended January 31, 2020, 2021 and 2022, respectively, was derived from sales within the United States.
Historically, we have generated a substantial majority of our revenue from customers inside the United States. For example, approximately 77%, and 78% of our total revenue for the years ended January 31, 2022 and 2023, respectively, was derived from sales within the United States.
We cannot guarantee that our or our third-party vendors or other service providers’ systems and networks have not been breached or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our services.
We cannot guarantee that our systems and networks or those of our vendors or service providers have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our services.
Similarly, we may face reputational harm if any security breach is attributed to our employees, vendors or contractors as a result of inadvertent error, malfeasance, an insider attack or otherwise.
Similarly, we may face reputational harm if any security breach or incident is caused by or otherwise attributed to our employees, vendors, or service providers as a result of inadvertent error, malfeasance, an insider attack, or otherwise.
Bribery Act, or of U.S. and international export control and sanctions regulations, which likelihood may increase with an increase of sales or operations in foreign jurisdictions and operations in certain industries; • requirements to comply with U.S. export control and economic sanctions laws and regulations and other restrictions on international trade; • likelihood that the United States and other governments and their agencies impose sanctions and embargoes on certain countries, their governments and designated parties, which may prohibit the export of certain technology, products, and services to such persons; • adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash should we desire to do so; and • our ability to recruit and engage local channel and implementation partners.
Bribery Act, or of U.S. and international export control and sanctions regulations, which likelihood may increase with an increase of sales or operations in foreign jurisdictions and operations in certain industries; • requirements to comply with U.S. export control and economic sanctions laws and regulations and other restrictions on international trade; • likelihood that the United States and other governments and their agencies impose sanctions and embargoes on certain countries, their governments and designated parties, which may prohibit the export of certain technology, products, and services to such persons; • adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash should we desire to do so; and • our ability to recruit and engage local channel and implementation partners. 36 Any of these risks could adversely affect our international operations, reduce our international revenue or increase our operating costs, adversely affecting our business, operating results and financial condition and growth prospects.
We incurred net losses of $125.7 million, $84.6 million, and $102.1 million for the years ended January 31, 2020, 2021 and 2022, respectively, and had an accumulated deficit of $1,224.5 million at January 31, 2022. We may not be able to generate sufficient revenue to achieve or sustain profitability.
We incurred net losses of $84.6 million, $102.1 million and $105.6 million for the years ended January 31, 2021, 2022 and 2023, respectively, and had an accumulated deficit of $1,330.0 million at January 31, 2023. We may not be able to generate sufficient revenue to achieve or sustain profitability.
Uncertainty remains, however, regarding how aspects of data protection in the United Kingdom will be handled in the medium to long term.
Uncertainty remains, however, regarding how aspects of data protection in the United Kingdom will be handled in the medium to long term, and the United Kingdom is contemplating new data protection legislation.
If a court were to find this exclusive-forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our results of operations.
If a court were to find this exclusive-forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our results of operations. General Risk Factors Economic uncertainties or downturns could materially adversely affect our business.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our headquarters is located in American Fork, Utah. Our current facility has approximately 122,000 square feet under leases that expire between April 2022 and May 2027.
Biggest changeItem 2. Properties Our headquarters is located in American Fork, Utah. Our current facility has approximately 220,062 square feet under leases that expire between April 2023 and May 2027. We also lease space in various locations throughout the United States for sales and professional services personnel.
Removed
Excluded from this amount is approximately 152,000 square feet that is under construction and unoccupied as of January 31, 2022, which is part of a new lease agreement that commenced May 1, 2021. We also lease space in various locations throughout the United States for sales and professional services personnel.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision in this case. If an unfavorable outcome were to occur, it is possible that the impact could be material to the Company's results of operations in the period(s) in which any such outcome becomes probable and estimable.
Biggest changeIf an unfavorable outcome were to occur, it is possible that the impact could be material to the Company's results of operations in the period(s) in which any such outcome becomes probable and estimable. Delaware Shareholder Derivative Lawsuit In August 2021, a shareholder derivative complaint captioned Zalvin v.
James, et al ., Case No. 2021-0672-CM, purportedly brought on behalf of the Company, was filed in the Delaware Court of Chancery against the Company’s former CEO and certain current and former directors alleging that they breached their fiduciary duties by awarding the Company’s former CEO allegedly excessive equity awards in 2020 and 2021.
James, et al ., Case No. 2021-0672-KSJM, purportedly brought on behalf of the Company, was filed in the Delaware Court of Chancery against the Company’s CEO and certain current and former directors alleging that they breached their fiduciary duties by awarding the Company’s CEO allegedly excessive equity awards in 2020 and 2021.
Management believes that the outcome of these proceedings will not have a material impact on the Company's financial condition, results of operations, or liquidity. Item 4. Mine Safety Disclosures Not applicable. 52 PART II
Management believes that the outcome of these proceedings will not have a material impact on the Company's financial condition, results of operations, or liquidity.
On June 14, 2021, the plaintiff filed a notice of appeal. On October 14, 2021, the plaintiff/appellant filed his principal brief. The appeal was fully briefed as of January 20, 2022. The Company believes this lawsuit is without merit and intends to defend the case vigorously.
On June 14, 2021, the plaintiff filed a notice of appeal. On October 14, 2021, the plaintiff/appellant filed his principal brief in the Utah Court of Appeals (Appellate Case No. 20210399-CA). The appeal was fully briefed as of January 20, 2022, and the court heard oral argument from the parties on May 12, 2022.
On October 6, 2021, defendants and the Company, as nominal defendant, filed a motion to dismiss the Zalvin complaint. The motion was fully briefed as of February 4, 2022, and oral argument is scheduled for March 25, 2022. Other Litigation The Company is involved in other legal proceedings from time to time arising in the normal course of business.
On October 6, 2021, defendants and the Company, as nominal defendant, filed a motion to dismiss the Zalvin complaint. The motion was fully briefed as of February 4, 2022. On June 3, 2022, the parties filed a stipulation and agreement of compromise, settlement, and release.
Removed
Delaware Shareholder Derivative Lawsuit In August 2021, a shareholder derivative complaint captioned Zalvin v.
Added
On March 9, 2023, the court affirmed the district court's dismissal of the complaint. The Company believes this lawsuit is without merit and intends to defend the case vigorously. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision in this case.
Added
On September 21, 2022, the court entered an order providing final approval of the settlement, dismissing the claims with prejudice, and entering judgment. Other Litigation The Company is involved in other legal proceedings from time to time arising in the normal course of business.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class B common stock. 53 Comparison of Cumulative Total Return Company/Index Jun 29, 2018 (1) Jul 31, 2018 Jan 31, 2019 Jul 31, 2019 Jan 31, 2020 Jul 31, 2020 Jan 31, 2021 Jul 31, 2021 Jan 31, 2022 Domo, Inc. $ 100 $ 61 $ 99 $ 102 $ 89 $ 118 $ 232 $ 324 $ 172 S&P 500 100 104 101 112 122 125 144 171 177 S&P 500 Information Technology 100 102 96 118 141 164 193 230 244 (1) Base period Unregistered Sales of Equity Securities and Use of Proceeds Unregistered Sales of Equity Securities On May 25, 2021, we issued 100,000 shares of our Class B common stock to certain lenders pursuant to the cashless exercise of warrants.
Biggest changeThe comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class B common stock. 54 Comparison of Cumulative Total Return Company/Index Jan 31, 2019 Jan 31, 2020 Jan 31, 2021 Jan 31, 2022 Jan 31, 2023 Domo, Inc. $ 99 $ 89 $ 232 $ 172 $ 57 S&P 500 101 122 144 177 162 S&P 500 Information Technology 96 141 193 244 205 (1) Base period Unregistered Sales of Equity Securities and Use of Proceeds Unregistered Sales of Equity Securities None.
The graph set forth below compares the cumulative total return to stockholders on our Class B common stock relative to the cumulative total returns of the Standard & Poor’s 500 Index, or the S&P 500, and the S&P 500 Information Technology Index between June 29, 2018 (the date our Class B common stock commenced trading) through January 31, 2022.
The graph set forth below compares the cumulative total return to stockholders on our Class B common stock relative to the cumulative total returns of the Standard & Poor’s 500 Index, or the S&P 500, and the S&P 500 Information Technology Index between June 29, 2018 (the date our Class B common stock commenced trading) through January 31, 2023.
Our Class A common stock is not listed or traded on any stock exchange. Holders of Record As of January 31, 2022, there was one holder of record of our Class A common stock and 102 holders of record of our Class B common stock.
Our Class A common stock is not listed or traded on any stock exchange. Holders of Record As of January 31, 2023, there was one holder of record of our Class A common stock and 91 holders of record of our Class B common stock.
Removed
This issuance was not registered under the Securities Act and we relied on an exemption from registration provided by Section 3(a)(9) of the Securities Act in making such issuance. Issuer Purchases of Equity Securities None. 54 Item 6. Reserved
Added
Issuer Purchases of Equity Securities None. 55 Item 6. Reserved.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeBecause of the uncertainty of the realization of the deferred tax assets, we have a full valuation allowance for domestic net deferred tax assets, including net operating loss carryforwards and tax credits related primarily to research and development. 61 Results of Operations The following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenue for each of the periods indicated: Year Ended January 31, 2020 2021 2022 (in thousands) Revenue: Subscription $ 146,837 $ 183,645 $ 223,010 Professional services and other 26,558 26,535 34,951 Total revenue 173,395 210,180 257,961 Cost of revenue: Subscription (1) 35,366 36,656 40,907 Professional services and other (1) 20,564 20,092 26,239 Total cost of revenue 55,930 56,748 67,146 Gross profit 117,465 153,432 190,815 Operating expenses: Sales and marketing (1) 127,567 117,335 143,722 Research and development (1) 69,224 66,474 81,027 General and administrative (1)(2)(3) 35,941 42,708 54,536 Total operating expenses 232,732 226,517 279,285 Loss from operations (115,267) (73,085) (88,470) Other expense, net (1) (9,635) (11,140) (14,102) Loss before income taxes (124,902) (84,225) (102,572) Provision for (benefit from) income taxes 754 409 (461) Net loss $ (125,656) $ (84,634) $ (102,111) ________________ (1) Includes stock-based compensation expense as follows: Year Ended January 31, 2020 2021 2022 (in thousands) Cost of revenue: Subscription $ 507 $ 1,213 $ 2,819 Professional services and other 404 843 1,753 Sales and marketing 10,770 10,936 21,241 Research and development 6,339 9,095 15,853 General and administrative 5,637 11,218 18,155 Other expense, net 190 444 705 Total $ 23,847 $ 33,749 $ 60,526 (2) Includes amortization of certain intangible assets of $0.1 million , $0.1 million and $0.1 million for the years ended January 31, 2020, 2021 and 2022, respectively.
Biggest changeBecause of the uncertainty of the realization of the deferred tax assets, we have a full valuation allowance for domestic net deferred tax assets, including net operating loss carryforwards and tax credits related primarily to research and development. 61 Results of Operations The following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenue for each of the periods indicated: Year Ended January 31, 2021 2022 2023 (in thousands) Revenue: Subscription $ 183,645 $ 223,010 $ 271,290 Professional services and other 26,535 34,951 37,355 Total revenue 210,180 257,961 308,645 Cost of revenue: Subscription (1) 36,656 40,907 43,295 Professional services and other (1) 20,092 26,239 29,783 Total cost of revenue 56,748 67,146 73,078 Gross profit 153,432 190,815 235,567 Operating expenses: Sales and marketing (1) 117,335 143,722 173,300 Research and development (1) 66,474 81,027 95,093 General and administrative (1) 42,708 54,536 56,047 Total operating expenses 226,517 279,285 324,440 Loss from operations (73,085) (88,470) (88,873) Other expense, net (1) (11,140) (14,102) (15,499) Loss before income taxes (84,225) (102,572) (104,372) Provision for (benefit from) income taxes 409 (461) 1,179 Net loss $ (84,634) $ (102,111) $ (105,551) ________________ (1) Includes stock-based compensation expense as follows: Year Ended January 31, 2021 2022 2023 (in thousands) Cost of revenue: Subscription $ 1,213 $ 2,819 $ 2,676 Professional services and other 843 1,753 1,822 Sales and marketing 10,936 21,241 30,636 Research and development 9,095 15,853 24,335 General and administrative 11,218 18,155 23,680 Other expense, net 444 705 710 Total $ 33,749 $ 60,526 $ 83,859 62 Year Ended January 31, 2021 2022 2023 Revenue: Subscription 87 % 86 % 88 % Professional services and other 13 14 12 Total revenue 100 100 100 Cost of revenue: Subscription 17 16 14 Professional services and other 10 10 10 Total cost of revenue 27 26 24 Gross margin 73 74 76 Operating expenses: Sales and marketing 56 56 56 Research and development 32 31 31 General and administrative 20 21 18 Total operating expenses 108 108 105 Loss from operations (35) (34) (29) Other expense, net (5) (5) (5) Loss before income taxes (40) (39) (34) Provision for (benefit from) income taxes — — — Net loss (40) % (39) % (34) % Discussion of the Years Ended January 31, 2022 and 2023 Revenue Year Ended January 31, 2022 2023 $ Change % Change (in thousands) Revenue: Subscription $ 223,010 $ 271,290 $ 48,280 22 % Professional services and other 34,951 37,355 2,404 7 Total revenue $ 257,961 $ 308,645 $ 50,684 20 Percentage of revenue: Subscription 86 % 88 % Professional services and other 14 12 Total 100 % 100 % The increase in subscription revenue was primarily due to a $29.7 million increase from new customers and a $18.6 million net increase from existing customers.
Over the longer term, we plan to continue investing in, among other things, growth opportunities, product development, and sales and marketing. If available funds are insufficient to fund our future activities or execute on our strategy, we may raise additional capital through equity, equity-linked and debt financing, to the extent such funding sources are available.
Over the longer term, we plan to continue investing in, among other things, growth opportunities, 65 product development, and sales and marketing. If available funds are insufficient to fund our future activities or execute on our strategy, we may raise additional capital through equity, equity-linked and debt financing, to the extent such funding sources are available.
Each term loan requires that we pay only interest until the maturity date. A portion of the interest that accrues on the outstanding principal of each term loan is payable in cash on a monthly basis, which portion accrues at a floating rate equal to the greater of (1) 7% and (2) three-month LIBOR plus 5.5% per year.
Each term loan requires that we pay only interest until the maturity date. A portion of the interest that accrues on the outstanding principal of each term loan is payable in cash on a monthly basis, which portion accrues at a floating rate equal to the greater of (1) 7.0% and (2) three-month LIBOR plus 5.5% per year.
Our principal uses of cash have consisted of employee-related costs, marketing programs and events, payments related to hosting our cloud-based platform and purchases of short-term investments. 65 We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months.
Our principal uses of cash have consisted of employee-related costs, marketing programs and events, payments related to hosting our cloud-based platform and purchases of short-term investments. We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months.
Components of Results of Operations Revenue We offer subscriptions to our cloud-based platform. We derive our revenue primarily from subscriptions and professional services. Subscription revenue consists primarily of fees to provide our customers access to our cloud-based platform, which includes online customer support resources at no additional cost. Professional service fees include implementation services, optimization services, and training.
Components of Results of Operations Revenue We typically offer subscriptions to our cloud-based platform. We derive our revenue primarily from subscriptions and professional services. Subscription revenue consists primarily of fees to provide our customers access to our cloud-based platform, which includes online customer support resources at no additional cost. Professional service fees include implementation services, optimization services, and training.
We believe we are underpenetrated in the overall market and have significant opportunity to expand our customer base over time. Customer Upsell and Retention We employ a land, expand, and retain sales model, and our performance depends on our ability to retain customers and expand the use of our platform at existing customers over time.
We believe we are underpenetrated in the overall market and have significant opportunity to expand our customer base over time. 58 Customer Upsell and Retention We employ a land, expand, and retain sales model, and our performance depends on our ability to retain customers and expand the use of our platform at existing customers over time.
Allocated overhead includes items such as information technology infrastructure, rent, and certain employee benefit costs. Cost of professional services and other revenue consists primarily of employee-related costs directly associated with these services, third-party consultant fees, and allocated overhead. 60 Operating Expenses Sales and Marketing.
Allocated overhead includes items such as information technology infrastructure, rent, and certain employee benefit costs. Cost of professional services and other revenue consists primarily of employee-related costs directly associated with these services, third-party consultant fees, and allocated overhead. Operating Expenses Sales and Marketing.
Our contractual relationships with channel partners do not allow returns, rebates, or price concessions. The price of subscriptions is generally fixed at contract inception and therefore, our contracts do not contain a significant amount of variable consideration.
Our contractual relationships with channel partners do not allow returns, rebates, or price concessions. 68 The price of subscriptions is generally fixed at contract inception and therefore, our contracts do not contain a significant amount of variable consideration.
The majority of our subscription agreements have multi-year contractual terms and a smaller percentage have annual contractual terms. Revenue is recognized ratably over the related contractual term beginning on the date that the 68 platform is made available to a customer.
The majority of our subscription agreements have multi-year contractual terms and a smaller percentage have annual contractual terms. Revenue is recognized ratably over the related contractual term beginning on the date that the platform is made available to a customer.
Our sales strategy depends on our ability to continue to attract top talent, to increase our pipeline of business, and to enhance sales productivity. We focus on productivity per quota-carrying sales representative and the time it takes our sales representatives to reach full productivity.
Our sales strategy depends on our ability to continue to attract and retain top talent, to increase our pipeline of business, and to enhance sales productivity. We focus on productivity per quota-carrying sales representative and the time it takes our sales representatives to reach full productivity.
Over time, as customers recognize the value of our platform, we increasingly engage with CIOs and other executives to facilitate broad enterprise adoption. A majority of our customers subscribe to our services through multi-year contracts.
Over time, as customers recognize the value of our platform, we engage with CIOs and other executives to facilitate broad enterprise adoption. A majority of our customers subscribe to our services through multi-year contracts.
The maximum ratio is 0.600 on January 31, 2021 and April 30, 2021; 0.575 on July 31, 2021 and October 31, 2021; 0.550 on January 31, 2022 and April 30, 2022; 0.525 on July 31, 2022 and October 31, 2022; and 0.500 on January 31, 2023 through the maturity date.
The maximum ratio is 0.600 on January 31, 66 2021 and April 30, 2021; 0.575 on July 31, 2021 and October 31, 2021; 0.550 on January 31, 2022 and April 30, 2022; 0.525 on July 31, 2022 and October 31, 2022; and 0.500 on January 31, 2023 through the maturity date.
We typically invoice our customers annually in advance for subscriptions to our platform. A majority of our annual recurring revenue is up for renewal during the fiscal year ending January 31, 2023. Remaining performance obligations (RPO) represents the remaining amount of revenue we expect to recognize from existing non-cancelable contracts, whether billed or unbilled.
We typically invoice our customers annually in advance for subscriptions to our platform. A majority of our annual recurring revenue is up for renewal during the fiscal year ending January 31, 2024. Remaining performance obligations (RPO) represents the remaining amount of revenue we expect to recognize from existing non-cancelable contracts, whether billed or unbilled.
Overview We founded Domo in 2010 with the vision of digitally connecting everyone within the enterprise with real-time, rich, relevant data and then encouraging all employees to collaborate and act on that data. We realized that many organizations were unable to access the massive amounts of data that they were collecting in siloed cloud applications and on-premise databases.
Overview We founded Domo in 2010 with the vision of digitally connecting everyone within the enterprise with real-time, rich, relevant data and then enabling all employees to collaborate and act on that data. We realized that many organizations were unable to access the massive amounts of data that they were collecting in siloed cloud applications and on-premise databases.
You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. Our fiscal year ends on January 31. References to fiscal 2022, for example, refer to the fiscal year ended January 31, 2022.
You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. Our fiscal year ends on January 31. References to fiscal 2023, for example, refer to the fiscal year ended January 31, 2023.
This covenant is measured quarterly on a three-month trailing basis. Upon the occurrence of an event of default, such as non-compliance with covenants, any outstanding principal, interest and fees become due immediately. We were in compliance with the covenant terms of the credit facility at January 31, 2021 and January 31, 2022.
This covenant is measured quarterly on a three-month trailing basis. Upon the occurrence of an event of default, such as non-compliance with covenants, any outstanding principal, interest and fees become due immediately. We were in compliance with the covenant terms of the credit facility at January 31, 2022 and January 31, 2023.
The credit facility permits us to incur up to $100 million in term loan borrowings, all of which had been drawn as of January 31, 2022. The term loan maturity date is April 1, 2025 with a closing fee of $7.0 million, which is in addition to the $5.0 million amendment fee described above.
The credit facility permits us to incur up to $100 million in term loan borrowings, all of which had been drawn as of January 31, 2023. The term loan maturity date is April 1, 2025 with a closing fee of $7.0 million, which is in addition to the $5.0 million amendment fee described above.
Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to publicly 55 update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to publicly 56 update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
For the years ended January 31, 2020, 2021 and 2022, no single customer accounted for more than 10% of our total revenue, nor did any single organization when accounting for multiple subsidiaries or divisions which may have been invoiced separately.
For the years ended January 31, 2021, 2022 and 2023, no single customer accounted for more than 10% of our total revenue, nor did any single organization when accounting for multiple subsidiaries or divisions which may have been invoiced separately.
Discussion of the Years Ended January 31, 2020 and 2021 For a discussion of the year ended January 31, 2021 compared to the year ended January 31, 2020, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended January 31, 2021.
Discussion of the Years Ended January 31, 2021 and 2022 For a discussion of the year ended January 31, 2022 compared to the year ended January 31, 2021, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended January 31, 2022.
Sales and marketing expense as a percentage of total revenue remained flat in the year ended January 31, 2022 compared to the year ended January 31, 2021. We expect sales and 64 marketing expense to increase in the near term as we continue to invest in the growth of our business.
Sales and marketing expense as a percentage of total revenue remained flat in the year ended January 31, 2023 compared to the year ended January 31, 2022. We expect sales and 64 marketing expense to increase in the near term as we continue to invest in the growth of our business.
Net cash provided by financing activities for the year ended January 31, 2020 consisted primarily of $7.8 million of proceeds from our employee stock purchase plan and $1.6 million of proceeds received from stock option exercises, offset by $1.4 million used to repurchase shares for tax withholdings on release of restricted stock. 67 Net cash provided by financing activities for the year ended January 31, 2021 consisted primarily of $8.1 million of proceeds received from stock option exercises and $6.7 million of proceeds from our employee stock purchase plan, offset by $1.8 million used to repurchase shares for tax withholdings on release of restricted stock.
Net cash provided by financing activities for the year ended January 31, 2021 consisted primarily of $8.1 million of proceeds received from stock option exercises and $6.7 million of proceeds from our employee stock purchase plan, offset by $1.8 million used to repurchase shares for tax withholdings on release of restricted stock.
We offer our platform to our customers as a subscription-based service. Subscription fees are based upon the chosen Domo package which includes tier-based platform capabilities as well as users. Business leaders, department heads and managers are the typical initial subscribers to our platform, deploying Domo to solve a business problem or to enable departmental access.
We typically offer our platform to our customers as a subscription-based service. Subscription fees are based upon the chosen Domo package which includes tier-based platform capabilities or usage. Business leaders, department heads and managers are the typical initial subscribers to our platform, deploying Domo to solve a business problem or to enable departmental access.
As of January 31, 2022, 62% of our customers were under multi-year contracts on a dollar-weighted basis compared to 60% and 56% of customers as of January 31, 2021 and 2020, respectively. The high percentage revenue from multi-year contracts, among both new and existing customers, has enhanced the predictability of our subscription revenue.
As of January 31, 2023, 65% of our customers were under multi-year contracts on a dollar-weighted basis compared to 62% and 60% of customers as of January 31, 2022 and 2021, respectively. The high percentage revenue from multi-year contracts, among both new and existing customers, has enhanced the predictability of our subscription revenue.
Research and development expense as a percentage of revenue was 40% and 32% for the years ended January 31, 2020 and 2021, respectively, compared to 31% for the year ended January 31, 2022. 59 Key Business Metric Billings Billings represent our total revenue plus the change in deferred revenue in a period.
Research and development expense as a percentage of total revenue was 32% and 31% for the years ended January 31, 2021 and 2022, respectively, compared to 31% for the year ended January 31, 2023. Key Business Metric Billings Billings represent our total revenue plus the change in deferred revenue in a period.
Our customer count increased 14% from January 31, 2021 to January 31, 2022. For the purpose of this comparison, new customers are defined as those added since the end of the prior year quarter. Revenue from existing customers is presented net of churn.
Our customer count increased 11% from January 31, 2022 to January 31, 2023. For the purpose of this comparison, new customers are defined as those added since the end of the prior year quarter. Revenue from existing customers is presented net of churn.
Sales and marketing expense as a percentage of total revenue was 74% and 56% for the years ended January 31, 2020 and 2021, respectively, compared to 56% for the year ended January 31, 2022.
Sales and marketing expense as a percentage of total revenue was 56% and 56% for the years ended January 31, 2021 and 2022, respectively, compared to 56% for the year ended January 31, 2023.
Capitalized Internal-Use Software Costs We capitalize certain costs related to development of our platform incurred during the application development stage. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Maintenance and training costs are also expensed as incurred. Capitalized costs are included in property and equipment.
Capitalized Internal-Use Software Costs We capitalize certain costs related to development of our platform incurred during the application development stage. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Maintenance and training costs are also expensed as incurred.
The following table sets forth our ARR net retention rate for each of the eight quarters in the period ended January 31, 2022: Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 All Customers 101 % 103 % 105 % 106 % 109 % 109 % 108 % 110 % ARR net retention rate enables measurement of the progress of our business initiatives and is used by management to make operational decisions.
The following table sets forth our ARR net retention rate for each of the eight quarters in the period ended January 31, 2023: Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 All Customers 109 % 109 % 108 % 110 % 108 % 107 % 107 % 101 % ARR net retention rate enables measurement of the progress of our business initiatives and is used by management to make operational decisions.
The following table sets forth our billings for the years ended January 31, 2020, 2021 and 2022: Year Ended January 31, 2020 2021 2022 Billings (in thousands) $ 189,237 $ 232,688 $ 296,464 There is a disproportionate weighting toward annual billings in the fourth quarter, primarily as a result of large enterprise account buying patterns.
The following table sets forth our billings for the years ended January 31, 2021, 2022 and 2023: Year Ended January 31, 2021 2022 2023 Billings (in thousands) $ 232,688 $ 296,464 $ 323,772 There is a disproportionate weighting toward annual billings in the fourth quarter, primarily as a result of large enterprise account buying patterns.
Revenue from customers with billing addresses in the United States comprised 75%, 76% and 77% of our total revenue for the years ended January 31, 2020, 2021 and 2022, respectively.
Revenue from customers with billing addresses in the United States comprised 76%, 77% and 78% of our total revenue for the years ended January 31, 2021, 2022 and 2023, respectively.
We expect the gross margin for professional services and other to fluctuate from period to period due to changes in the proportion of services provided by third-party consultants, seasonality, as well as timing of projects with higher margins.
We expect the gross margin for professional services and other to fluctuate from period to period due to changes in the proportion of services provided by third-party consultants and their respective rates, seasonality, and timing of projects with higher margins.
Over the long term, we expect sales and marketing expense to decrease as a percentage of revenue. Research and development expenses increased primarily due to a $13.5 million increase in employee-related costs, attributable to higher headcount and stock-based compensation, of which $7.4 million related to stock-based compensation. Contract labor increased by $1.5 million.
Over the long term, we expect sales and marketing expense to decrease as a percentage of revenue. Research and development expenses increased primarily due to a $11.3 million increase in employee-related costs, attributable to higher headcount and stock-based compensation, of which $8.8 million related to stock-based compensation. Contract labor increased by $1.1 million.
Capitalized internal-use software is amortized mostly as subscription cost of revenue, with a smaller portion related to operations amortized as research and development within operating expenses. All capitalized internal-use software is amortized on a straight-line basis over its estimated useful life, which is generally three years.
Capitalized costs are included in property and equipment. 69 Capitalized internal-use software is amortized mostly as subscription cost of revenue, with a smaller portion related to operations amortized as research and development within operating expenses. All capitalized internal-use software is amortized on a straight-line basis over its estimated useful life, which is generally three years.
Subscription revenue is a function of the number of customers, platform tier, and number of users at each customer, and the price per user. Subscription revenue is recognized ratably over the related contractual term beginning on the date the platform is made available to the customer.
Subscription revenue is a function of the number of customers, platform tier, number of users, price per user, and transaction and data volumes. Subscription revenue is recognized ratably over the related contractual term beginning on the 60 date the platform is made available to the customer.
We also have non-cancelable commitments related to our cloud infrastructure. As of January 31, 2022, we had contractual commitments of $34.7 million related to these services, $10.7 million of which is due in the next 12 months and the remaining balance due thereafter.
We also have non-cancelable commitments related to our cloud infrastructure. As of January 31, 2023, we had contractual commitments of $100.5 million related to these services, $15.7 million of which is due in the next 12 months and the remaining balance due thereafter.
The remaining amount consisted primarily of $6.0 million of capitalized development costs related to internal-use software and $0.5 million of purchased property and equipment. Net cash provided by investing activities during the year ended January 31, 2021 consisted primarily of $29.2 million of maturities of short-term investments, offset by $11.1 million of purchases of short-term investments.
Investing Activities Our investing activities consisted primarily of property and equipment purchases, which include capitalized development costs related to internal-use software. 67 Net cash provided by investing activities during the year ended January 31, 2021 consisted primarily of $29.2 million of maturities of short-term investments, offset by $11.1 million of purchases of short-term investments.
We have incurred significant net losses since our inception, including net losses of $125.7 million, $84.6 million and $102.1 million for the years ended January 31, 2020, 2021 and 2022, respectively, and had an accumulated deficit of $1,224.5 million at January 31, 2022.
We have incurred significant net losses since our inception, including net losses of $84.6 million, $102.1 million and $105.6 million for the years ended January 31, 2021, 2022 and 2023, respectively, and had an accumulated deficit of $1,330.0 million at January 31, 2023.
We periodically reevaluate our business and have determined that it continues to operate in one segment, which is also considered the sole reporting unit.
We periodically reevaluate our business and have determined that it continues to operate in one segment, which is also considered the sole reporting unit. Therefore, goodwill is tested for impairment at the consolidated level.
Significant components of cash outflows included $148.4 million for personnel costs and $57.7 million for marketing programs and events, third-party costs to provide our platform and outsourced professional services. Net cash used in operating activities during the year ended January 31, 2021 consisted of cash outflows of $252.6 million exceeding the $236.7 million of cash collected from customers.
Significant components of cash outflows included $171.0 million for personnel costs and $55.0 million for marketing programs and events, third-party costs to provide our platform and outsourced professional services. Net cash used in operating activities during the year ended January 31, 2023 consisted of cash collected from customers of $314.4 million exceeding the $325.3 million of cash outflows.
Recoverability of these assets is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated. If the carrying amount exceeds the undiscounted cash flows, the assets are determined to be impaired and an impairment charge is recognized as the amount by which the carrying amount exceeds fair value.
If the carrying amount exceeds the undiscounted cash flows, the assets are determined to be impaired and an impairment charge is recognized as the amount by which the carrying amount exceeds fair value.
As of the date of this report, we do not yet know the full extent of the pandemic's impact on our ability to attract, serve, retain or upsell customers. We serve customers in a wide variety of industries including travel and hospitality, sports and leisure, and retail which have been severely impacted by the COVID-19 pandemic.
In addition, the COVID-19 pandemic may impact on our ability to attract, serve, retain or upsell customers. We serve customers in a wide variety of industries including travel and hospitality, sports and leisure, and retail which have been severely impacted by the COVID-19 pandemic.
As of January 31, 2021 and 2022, total RPO was $282.3 million and $339.0 million, respectively, representing year-over-year growth of 20%. The amount of RPO expected to be recognized as revenue in the next twelve months was $178.2 million and $221.7 million as of January 31, 2021 and 2022, respectively, representing year-over-year growth of 24%.
As of January 31, 2022 and 2023, total RPO was $339.0 million and $378.2 million, respectively, representing year-over-year growth of 12%. The amount of RPO expected to be recognized as revenue in the next twelve months was $221.7 million and $243.8 million as of January 31, 2022 and 2023, respectively, representing year-over-year growth of 10%.
These outflows are partially offset by the amount and timing of payments received from our customers. Net cash used in operating activities during the year ended January 31, 2020 consisted of cash outflows of $274.5 million exceeding the $194.3 million of cash collected from customers.
These outflows were partially offset by the amount and timing of payments received from our customers. Net cash used in operating activities during the year ended January 31, 2021 consisted of cash outflows of $252.6 million exceeding the $236.7 million of cash collected from customers.
Since inception, we have financed operations primarily from cash collected from customers for our subscriptions and services, periodic sales of convertible preferred stock, our initial public offering and to a lesser extent, debt financing.
We have a $100 million credit facility, all of which had been drawn as of January 31, 2023. Since inception, we have financed operations primarily from cash collected from customers for our subscriptions and services, periodic sales of convertible preferred stock, our initial public offering and to a lesser extent, debt financing.
The credit facility is secured by substantially all of our assets. 66 Historical Cash Flow Trends Year Ended January 31, 2020 2021 2022 (in thousands) Net cash (used in) provided by operating activities $ (80,219) $ (15,872) $ 379 Net cash (used in) provided by investing activities (23,815) 12,240 (6,517) Net cash provided by (used in) financing activities 7,984 13,095 (561) Operating Activities Net cash used in operating activities is significantly influenced by the amount of cash we invest in our personnel, timing and amounts we use to fund marketing programs and events to expand our customer base, and the costs to provide our cloud-based platform and related outsourced professional services to our customers.
Historical Cash Flow Trends Year Ended January 31, 2021 2022 2023 (in thousands) Net cash (used in) provided by operating activities $ (15,872) $ 379 $ (10,890) Net cash provided by (used in) investing activities 12,240 (6,517) (7,996) Net cash provided by (used in) financing activities 13,095 (561) 2,424 Operating Activities Net cash used in operating activities consisted primarily of cash we invest in our personnel, timing and amounts we use to fund marketing programs and events to expand our customer base, the costs to provide our cloud-based platform and related outsourced professional services to our customers.
The cohort is established based on customers who had greater than $10,000 of ARR as of the end of the prior year period. ARR net retention rate is the quotient obtained by dividing the ARR of that cohort as of the measurement date by the ARR of that same cohort as of the corresponding prior year period.
Our ARR net retention rate compares the ARR from a cohort of customers as of the measurement date to ARR from that same cohort as of the same period in the prior fiscal year. The cohort is established based on customers who had greater than $10,000 of ARR as of the end of the prior year period.
Our enterprise customers generated revenue of $93.3 million, $115.1 million, and $137.0 million for the years ended January 31, 2020, 2021 and 2022, respectively, or year-over-year growth of 23% and 19%, respectively.
Our enterprise customers generated revenue of $115.4 million, $137.5 million, and $152.4 million for the years ended January 31, 2021, 2022 and 2023, respectively, or year-over-year growth of 19% and 11%, respectively.
In addition, a portion of the interest that accrues on the outstanding principal of each term loan is capitalized and added to the principal amount of the outstanding term loan on a monthly basis, which portion accrues at a fixed rate equal to 2.5% per year.
As of January 31, 2023, the interest rate was approximately 10.3%. In addition to the 10.3%, a fixed rate equal to 2.5% per year accrues on the outstanding principal of each term loan and is added to the principal amount of the outstanding term loan on a monthly basis.
The increase in cost of professional services and other revenue is primarily due to a $3.3 million increase in outsourced services resulting from a higher volume of services provided by third-party consultants related to implementation and a $2.9 million increase in employee-related costs attributable to higher headcount and stock-based compensation, of which $0.9 million related to stock-based compensation.
The increase in cost of professional services and other revenue is primarily due to a $3.2 million increase in outsourced services resulting from a higher volume of services delivered by partners and a $0.4 million increase in employee-related costs.
Subscription gross margin improved due to economies of scale driven by increased subscription revenue and cost improvements from continued proactive management and optimization of our third-party hosting services. Services gross margin improved due to timing of projects with higher margins.
Subscription gross margin improved due to economies of scale driven by increased subscription revenue and cost improvements from continued proactive management and optimization of our third-party hosting services. Services gross margin declined due to a lower average revenue rate per hour and a higher volume of hours delivered by partners at a higher cost per hour.
In the event that LIBOR is unavailable, interest will accrue at a floating rate equal to the greater of (1) 7% and (2) the U.S. prime rate plus 2.75% per year. As of January 31, 2022, the interest rate was approximately 7%.
In the event that LIBOR is unavailable, interest will accrue at a floating rate equal to the greater of (1) 7.0% and (2) the U.S. prime rate plus 2.75% per year. LIBOR is expected to be replaced as an index rate in financial transactions by an alternative benchmark rate in the near future.
Income Taxes Year Ended January 31, 2021 2022 $ Change % Change (in thousands) Provision for (benefit from) income taxes $ 409 $ (461) $ (870) (213) % Provision for income taxes decreased due to larger allowable deductions during the year ended January 31, 2022.
Income Taxes Year Ended January 31, 2022 2023 $ Change % Change (in thousands) (Benefit from) provision for income taxes $ (461) $ 1,179 $ 1,640 (356) % Income taxes increased due to smaller allowable deductions during the year ended January 31, 2023.
For the years ended January 31, 2020, 2021 and 2022, our enterprise customers accounted for 54%, 55% and 53% of our revenue, respectively. In order to accelerate customer growth, we intend to further develop our partner ecosystem by establishing agreements with more software resellers, systems integrators and other partners to provide broader customer and geographic coverage.
In order to accelerate customer growth, we intend to further develop our partner ecosystem by establishing agreements with more software resellers, systems integrators and other partners to provide broader customer and geographic coverage.
In the near term, we expect research and development expense to increase, but expect that it will decline as a percentage of total revenue in the long term as we leverage our research and development organization.
Research and development expense as a percentage of revenue remained flat in the year ended January 31, 2023 compared to the year ended January 31, 2022. In the long term, we expect that research and development expense to decline as a percentage of total revenue as we leverage our research and development organization.
Therefore, goodwill is tested for impairment at the consolidated level. 69 We review our long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever an event or change in facts and circumstances indicates that their carrying amounts may not be recoverable.
We review our long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever an event or change in facts and circumstances indicates that their carrying amounts may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated.
The subscription net revenue retention rate is the quotient obtained by dividing the subscription revenue generated from that cohort in a period, by the subscription revenue generated from that same cohort in the corresponding prior year period.
ARR net retention rate is the quotient obtained by dividing the ARR of that cohort as of the measurement date by the ARR of that same cohort as of the corresponding prior year period.
In order to maintain comparability, companies who become customers with revenue below $1 billion and subsequently exceed that threshold are considered enterprise customers for all periods presented. As of January 31, 2022, we had over 2,300 customers. We focus our sales and marketing resources on obtaining customers with over $100 million in revenue.
We define enterprise customers as companies with over $1 billion in revenue, and companies with less than $1 billion in revenue are corporate customers. In order to maintain comparability, companies who become customers with revenue below $1 billion and subsequently exceed that threshold are considered enterprise customers for all periods presented.
Furthermore, existing and potential customers may choose to reduce or delay technology spending in response to the COVID-19 pandemic. In addition, certain customers have pursued concessions such as lengthened payment terms or reduced contract length, and these concessions may materially and negatively impact our operating results, financial condition and prospects.
The COVID-19 pandemic, coupled with macroeconomic uncertainty, has resulted and may continue to result in certain customers pursuing concessions such as lengthened payment terms or reduced contract length, and these concessions may materially and negatively impact our operating results, financial condition and prospects.
Liquidity and Capital Resources As of January 31, 2022, we had $83.6 million of cash and cash equivalents, which were held for working capital purposes. Our cash and cash equivalents consist primarily of cash, money market funds, and certificates of deposit. We also have a $100 million credit facility, all of which had been drawn as of January 31, 2022.
Liquidity and Capital Resources As of January 31, 2023, we had $66.5 million of cash, cash equivalents, and restricted cash which were held for working capital purposes, of which $3.7 million was restricted cash. Our cash and cash equivalents consist primarily of cash, money market funds, and certificates of deposit.
Our corporate customers generated revenue of $80.1 million, $95.1 million, and $121.0 million for the years ended January 31, 2020, 2021 and 2022, respectively, or year-over-year growth of 19% and 27%, respectively.
Our corporate 57 customers generated revenue of $94.8 million, $120.5 million, and $156.2 million for the years ended January 31, 2021, 2022 and 2023, respectively, or year-over-year growth of 27% and 30%, respectively.
In the near term, we expect general and administrative expense to fluctuate from period to period, but expect that it will decline as a percentage of total revenue in the long term as we leverage previous investments in our general and administrative organization.
General and administrative expenses as a percent of revenue decreased from 21% in the year ended January 31, 2022 to 18% in the year ended January 31, 2023. In the long term, we expect general and administrative expense to decline as a percentage of total revenue as we leverage previous investments in our general and administrative organization.
Significant components of cash outflows included $171.0 million for personnel costs and $55.0 million for marketing programs and events, third-party costs to provide our platform and outsourced professional services. Investing Activities Our investing activities have consisted primarily of purchases of short-term investments and property and equipment purchases.
Significant components of cash outflows included $193.9 million for personnel costs and $67.5 million for marketing programs and events, third-party costs to provide our platform and outsourced professional services.
Recent Accounting Pronouncements See Note 2 "Summary of Significant Accounting Policies" to the consolidated financial statements in Item 8 of Part II for more information regarding recent accounting pronouncements. 70
Consequently, we use an expected dividend yield of zero. 70 Recent Accounting Pronouncements See Note 2 "Summary of Significant Accounting Policies" of our consolidated financial statements in Item 8 of Part II of this Annual Report on Form 10-K for more information regarding recent accounting pronouncements. 71
Operating Expenses Year Ended January 31, 2021 2022 $ Change % Change (in thousands) Operating expenses: Sales and marketing $ 117,335 $ 143,722 $ 26,387 22 % Research and development 66,474 81,027 14,553 22 General and administrative 42,708 54,536 11,828 28 Total operating expenses $ 226,517 $ 279,285 $ 52,768 23 Percentage of revenue: Sales and marketing 56 % 56 % Research and development 32 31 General and administrative 20 21 The increase in sales and marketing expenses was primarily due to a $20.0 million increase in employee-related costs and allocated overhead, attributable to higher headcount and stock-based compensation, of which $10.3 million related to stock-based compensation.
Operating Expenses Year Ended January 31, 2022 2023 $ Change % Change (in thousands) Operating expenses: Sales and marketing $ 143,722 $ 173,300 $ 29,578 21 % Research and development 81,027 95,093 14,066 17 General and administrative 54,536 56,047 1,511 3 Total operating expenses $ 279,285 $ 324,440 $ 45,155 16 Percentage of revenue: Sales and marketing 56 % 56 % Research and development 31 31 General and administrative 21 18 The increase in sales and marketing expenses was primarily due to a $17.6 million increase in employee-related costs and allocated overhead, attributable to higher headcount and stock-based compensation, of which $9.4 million related to stock-based compensation.
However, these costs, as a percentage of revenue, are significantly less than those initially incurred to acquire the customer. As a result, the profitability of a customer to our business in any particular period depends in part upon how long a customer has been a subscriber and the degree to which it has expanded its usage of our platform.
As a result, the profitability of a customer to our business in any particular period depends in part upon how long a customer has been a subscriber and the degree to which it has expanded its usage of our platform. From inception through January 31, 2023, we have invested $730.4 million in the development of our platform.
We define a customer at the end of any particular quarter as an entity that generated revenue greater than $2,500 during that quarter. In situations where an organization has multiple subsidiaries or divisions, each entity that is invoiced at a separate billing address is treated as a separate customer.
In situations where an organization has multiple subsidiaries or divisions, each entity that is invoiced at a separate billing address is treated as a separate customer. In cases where customers purchase through a reseller, each end customer is counted separately.
Commission expense increased by $3.1 million due to higher sales. Marketing expenses increased by $1.1 million primarily due to marketing events. Other increases included $0.8 million in software subscription, $0.7 million in contract labor, and $0.6 million in travel expenses.
Marketing expenses increased by $3.7 million primarily due to digital marketing and marketing events. Commission expense increased by $2.4 million. Travel expenses increased by $1.5 million, allocated overhead increased by $1.2 million, and contract labor increased by $0.9 million.
General and administrative expenses increased primarily due to a $8.8 million increase in employee-related costs driven by stock-based compensation, which made up $6.9 million of the increase. Recruiting fees increased by $1.4 million and professional and legal expenses increased by $1.1 million.
General and administrative expenses increased primarily due to a $2.0 million increase in employee-related costs. This increase to employee-related costs included a $5.5 million increase to stock-based compensation, partially offset by a $4.0 million decrease in bonus expense. Legal and professional expenses decreased by $1.0 million.
In general, customer acquisition costs and other upfront costs associated with new customers are higher in the first year than the aggregate revenue we recognize from those new customers in the first year. Over the lifetime of the customer relationship, we also incur sales and marketing costs to renew or increase usage per customer.
In general, customer acquisition costs and other upfront costs associated with new customers are higher in the first year than the aggregate revenue we recognize from those new customers in the first year. Certain contract acquisitions costs are capitalized and then amortized over a period of four years for initial contracts.
Significant components of purchased property and equipment include capitalized development costs related to internal-use software and computer equipment and software for our data center. Net cash used in investing activities during the year ended January 31, 2020 consisted primarily of $102.1 million of purchases of short-term investments, offset by $84.8 million from maturities of short-term investments.
Net cash used in investing activities during the year ended January 31, 2023 consisted primarily of $6.6 million of capitalized development costs related to internal-use software and $1.3 million of purchased property and equipment. Financing Activities Our financing activities have consisted primarily of proceeds received from stock option exercises and our employee stock purchase plan.
Because our platform is offered as a subscription-based service, the effect of the pandemic may not be fully reflected in our operating results until future periods, if at all. Before the COVID-19 pandemic, a significant portion of field sales and professional services were conducted in person.
Because our platform is offered as a subscription-based service, the effect of the pandemic may not be fully reflected in our operating results until future periods, if at all.. See Item 1A “Risk Factors” in Part I of this Annual Report on Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business.
The increase in professional services and other revenue was primarily due to a higher volume of billable hours delivered. 63 Cost of Revenue, Gross Profit and Gross Margin Year Ended January 31, 2021 2022 $ Change % Change (in thousands) Cost of revenue: Subscription $ 36,656 $ 40,907 $ 4,251 12 % Professional services and other 20,092 26,239 6,147 31 Total cost of revenue $ 56,748 $ 67,146 $ 10,398 18 Gross profit $ 153,432 $ 190,815 $ 37,383 24 Gross margin: Subscription 80 % 82 % Professional services and other 24 25 Total gross margin 73 74 The increase in cost of subscription revenue was primarily due to a $4.3 million increase in employee-related costs attributable to higher headcount in our support organization and stock-based compensation, of which $1.6 million related to stock-based compensation.
The increase in professional services and other revenue was primarily due to a higher volume of billable hours delivered. 63 Cost of Revenue, Gross Profit and Gross Margin Year Ended January 31, 2022 2023 $ Change % Change (in thousands) Cost of revenue: Subscription $ 40,907 $ 43,295 $ 2,388 6 % Professional services and other 26,239 29,783 3,544 14 Total cost of revenue $ 67,146 $ 73,078 $ 5,932 9 Gross profit $ 190,815 $ 235,567 $ 44,752 23 Gross margin: Subscription 82 % 84 % Professional services and other 25 20 Total gross margin 74 76 The increase in cost of subscription revenue was primarily due to a $4.0 million increase in our third-party web hosting services, partially offset by a $1.3 million decrease in employee-related costs and a $0.2 million decrease in data center costs.
While we expect to continue to invest in research and development, we anticipate that these expenses will decrease as a percentage of revenue over time. 56 For the years ended January 31, 2020, 2021 and 2022, we had total revenue of $173.4 million, $210.2 million and $258.0 million, respectively, representing year-over-year growth of 21% and 23% for the years ended January 31, 2021 and 2022, respectively.
As of January 31, 2023, we had 263 employees in our research and development organization. While we expect to continue to invest in research and development, we anticipate that these expenses will decrease as a percentage of revenue over time.
Interest expense increased by $0.8 million. We expect foreign currency gains and losses could become more pronounced due to currency market volatility and as we continue to expand our foreign operations. We expect interest expense to increase modestly due to an increasing principal balance and anticipated higher market interest rates.
We expect interest expense to increase modestly due to an increasing principal balance and anticipated higher market interest rates.
The risk-free interest rate is determined using U.S. Treasury rates with a similar term as the expected term of the option. • Expected Dividend Yield . We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero.
We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.
The following table sets forth our subscription net revenue retention rate for each of the eight quarters in the period ended January 31, 2022: Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 All Customers 105 % 106 % 106 % 106 % 106 % 107 % 106 % 105 % 58 The primary metric that we use to monitor customer retention and growth is annual recurring revenue (ARR) net retention rate.
Our gross retention rate was 88%, 90% and 89% for the 12 months ended January 31, 2021, 2022 and 2023, respectively. The primary metric that we use to monitor customer retention and growth is annual recurring revenue (ARR) net retention rate. ARR represents the total annualized contract value of active customer subscription contracts as of the measurement date.
See Item 1A “Risk Factors” in Part I of this Annual Report on Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business. 57 Factors Affecting Performance Continue to Attract New Customers We believe that our ability to expand our customer base is an important indicator of market penetration, the growth of our business, and future business opportunities.
Factors Affecting Performance Continue to Attract New Customers We believe that our ability to expand our customer base is an important indicator of market penetration, the growth of our business, and future business opportunities. We define a customer at the end of any particular quarter as an entity that generated revenue greater than $2,500 during that quarter.
Since a public market for our common stock did not exist prior to the IPO and, therefore, we do not have a sufficient trading history of our common stock, expected volatility is estimated based on a weighted average of the volatility of similar publicly held companies and the Company's common stock over a period equivalent to the expected term of the awards. • Risk-free Interest Rate .
The expected volatility is estimated based on the volatility of the Company's common stock over a period equivalent to the expected term of the awards. • Risk-free Interest Rate . The risk-free interest rate is determined using U.S. Treasury rates with a similar term as the expected term of the option. • Expected Dividend Yield .
We have experienced improvements in net losses over the periods presented; however, we expect to incur losses for the foreseeable future and may not be able to achieve or sustain profitability. COVID-19 Impact A novel strain of coronavirus, COVID-19, emerged in China in December 2019 and began to spread globally, including to the United States.
We expect to incur losses for the foreseeable future and may not be able to achieve or sustain profitability.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures about Market Risk We are exposed to certain market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities as follows: Interest Rate Risk As of January 31, 2022, we had $83.6 million of cash and cash equivalents, which were held for working capital purposes.
Biggest changeThese risks primarily include interest rate sensitivities as follows: Interest Rate Risk As of January 31, 2023, we had $66.5 million of cash, cash equivalents, and restricted cash, which were held for working capital purposes, of which $3.7 million was restricted cash. Our cash and cash equivalents consist primarily of cash, money market funds, and certificates of deposit.
A portion of the interest that accrues on outstanding principal of each term loan is payable in cash on a monthly basis, which portion accrues at a floating rate equal to the greater of (1) 7% and (2) three-month LIBOR plus 5.5% per year.
A portion of the interest that accrues on outstanding principal of each term loan is payable in cash on a monthly basis, which portion accrues at a floating rate equal to the greater of (1) 7.0% and (2) three-month LIBOR plus 5.5% per year.
We have not engaged in the hedging of foreign currency transactions to date. We are considering the costs and benefits of initiating such a program and may in the future hedge balances and transactions denominated in currencies other than the U.S. dollar as we expand international operations. 71
We have not engaged in the hedging of foreign currency transactions to date. We are considering the costs and benefits of initiating such a program and may in the future hedge balances and transactions denominated in currencies other than the U.S. dollar as we expand international operations.
We have a credit facility that permits us to incur up to $100 million in term loan borrowings, all of which had been drawn as of January 31, 2022. The term loans mature on April 1, 2025.
We have a credit facility that permits us to incur up to $100 million in term loan borrowings, all of which had been drawn as of January 31, 2023. The term loans mature on April 1, 2025.
A hypothetical change in interest rates of 100 basis points after January 31, 2022 would not have a material impact on the fair value of our outstanding debt, even at the borrowing limit, or in the returns on our cash.
A hypothetical change in interest rates of 100 basis points after January 31, 2023 would not have a material impact on the fair value of our outstanding debt, even at the borrowing limit, or in the returns on our cash.
In addition, a portion of operating expenses are incurred outside the United States and are denominated in foreign currencies. Decreases in the relative value of the U.S. dollar to other currencies may negatively affect revenue and other operating results as expressed in U.S. dollars.
In addition, a portion of operating expenses are incurred outside the United States and are denominated in foreign currencies. Changes in the relative value of the U.S. dollar to other currencies may negatively affect revenue and other operating results as expressed in U.S. dollars.
Interest rate risk also reflects our exposure to movements in interest rates associated with our borrowings. At January 31, 2022, we had total debt outstanding with a carrying amount of $104.0 million, which approximates fair value.
Interest rate risk also reflects our exposure to movements in interest rates associated with our borrowings. At January 31, 2023, we had total debt outstanding with a carrying amount of $108.6 million, which approximates fair value.
Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Decreases in interest rates, however, would reduce future interest income.
We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Decreases in interest rates, however, would reduce future interest income.
In addition, a portion of the interest that accrues on the outstanding principal of each term loan is capitalized and added to the principal amount of the outstanding term loan on a monthly basis, which portion accrues at a fixed rate equal to 2.5% per year.
As of January 31, 2023, the interest rate was approximately 10.3%. In addition to the 10.3%, a fixed rate equal to 2.5% per year accrues on the outstanding principal of each term loan and is added to the principal amount of the outstanding term loan on a monthly basis.
In the event that LIBOR is unavailable, interest will accrue at a floating rate equal to the greater of (1) 7.0% and (2) the U.S. prime rate plus 2.75% per year. As of January 31, 2022, the interest rate was approximately 7%.
In the event that LIBOR is unavailable, interest will accrue at a floating rate equal to the greater of (1) 7.0% and (2) the U.S. prime rate plus 2.75% per year. LIBOR is expected to be replaced as an index rate in financial transactions by an alternative benchmark rate in the near future.
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Our cash and cash equivalents consist primarily of cash, money market funds, and certificates of deposit. We do not enter into investments for trading or speculative purposes.
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk We are exposed to certain market risks in the ordinary course of our business.
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While our loan agreement currently provides for a fallback from LIBOR to the U.S. prime rate, it is possible that we may amend our loan agreement to provide for a methodology to effect a transition from LIBOR to a new benchmark rate.
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It is not possible to predict the effect or timing of any establishment of a successor benchmark rate or its effect on our loan agreement or our business generally. The transition from LIBOR could result in our interest costs increasing and our access to capital could change, which could adversely affect our results of operations and cash flows.
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Inflation Risk We do not believe that inflation has had a material effect on our business, financial condition or results of operations to date. For example, our subscription contracts often contain pricing terms that are tied to the Consumer Price Index, and our pricing policy for renewals not tied to CPI is designed to approximate changes in CPI.
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If our costs were to become subject to significant inflationary pressure, we may not be able to fully offset these higher costs with price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations. 72

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