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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2024
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                 
Commission File No. 001-38464
Smartsheet Inc.
(Exact name of Registrant as specified in its charter)
Washington20-2954357
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
500 108th Ave NE, Suite 200
Bellevue,WA98004
(Address of principal executive offices)(Zip Code)
(844)324-2360
Registrant’s telephone number, including area code
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, no par value per shareSMARThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒
As of August 30, 2024, there were 138,950,998 shares of the registrant’s Class A common stock outstanding.


SMARTSHEET INC.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended July 31, 2024
Table of ContentsPage

Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including but not limited to, statements regarding our future operating results and financial position, our business plan and strategy, and market positioning, are forward-looking statements. We based these forward-looking statements on current expectations, estimates, forecasts, and projections as well as the beliefs and assumptions of management. Words including, but not limited to, “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “likely,” and variations of these terms or the negative of these terms and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described under Part II, Item 1A, “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will be achieved or will occur. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations.

Table of Contents
Part I. Financial Information
Item 1. Financial Statements
SMARTSHEET INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

Three Months Ended July 31,Six Months Ended July 31,
2024202320242023
Revenue
Subscription$263,530 $221,522 $512,625 $427,523 
Professional services12,882 14,063 26,771 27,948 
Total revenue276,412 235,585 539,396 455,471 
Cost of revenue
Subscription37,999 33,584 73,771 66,751 
Professional services11,852 13,454 24,402 26,168 
Total cost of revenue49,851 47,038 98,173 92,919 
Gross profit226,561 188,547 441,223 362,552 
Operating expenses
Research and development63,600 58,358 126,037 114,548 
Sales and marketing130,222 129,813 255,461 244,765 
General and administrative41,219 36,523 79,334 71,501 
Total operating expenses235,041 224,694 460,832 430,814 
Loss from operations(8,480)(36,147)(19,609)(68,262)
Interest income8,836 5,847 16,662 11,064 
Other income (expense), net(263)(55)(640)(591)
Income (loss) before income tax provision (benefit)93 (30,355)(3,587)(57,789)
Income tax provision (benefit)(7,765)3,002 (2,587)5,438 
Net income (loss)$7,858 $(33,357)$(1,000)$(63,227)
Net income (loss) per share, basic$0.06 $(0.25)$(0.01)$(0.47)
Net income (loss) per share, diluted$0.06 $(0.25)$(0.01)$(0.47)
Weighted-average shares outstanding used to compute net income (loss) per share, basic138,408 133,829 137,923 133,196 
Weighted-average shares outstanding used to compute net income (loss) per share, diluted141,157 133,829 137,923 133,196 
See notes to condensed consolidated financial statements.
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SMARTSHEET INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)

Three Months Ended July 31,Six Months Ended July 31,
2024202320242023
Net income (loss)$7,858 $(33,357)$(1,000)$(63,227)
Other comprehensive income (loss)
Net unrealized gain (loss) on available-for-sale securities975 (209)(23)(20)
Foreign currency translation adjustments9 136 21 (510)
Total other comprehensive income (loss)984 (73)(2)(530)
Comprehensive income (loss)$8,842 $(33,430)$(1,002)$(63,757)
See notes to condensed consolidated financial statements.
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SMARTSHEET INC.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)

July 31, 2024January 31, 2024
Assets
Current assets:
Cash and cash equivalents$393,487 $282,094 
Short-term investments313,082 346,701 
Accounts receivable, net of allowances of $4,151 and $6,560, respectively
193,076 238,708 
Prepaid expenses and other current assets63,990 64,366 
Total current assets963,635 931,869 
Restricted cash18 19 
Deferred commissions155,696 148,867 
Property and equipment, net41,153 42,362 
Operating lease right-of-use assets32,102 39,480 
Intangible assets, net22,943 27,960 
Goodwill141,477 141,477 
Other long-term assets5,817 5,445 
Total assets$1,362,841 $1,337,479 
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable$6,076 $2,937 
Accrued compensation and related benefits61,496 77,453 
Other accrued liabilities30,743 30,534 
Operating lease liabilities, current15,981 16,040 
Finance lease liabilities, current280 216 
Deferred revenue547,995 568,670 
Total current liabilities662,571 695,850 
Operating lease liabilities, non-current26,643 33,100 
Finance lease liabilities, non-current339 455 
Deferred revenue, non-current1,859 1,785 
Other long-term liabilities538 434 
Total liabilities691,950 731,624 
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred stock, no par value; 10,000,000 shares authorized, no shares issued or outstanding as of July 31, 2024 and January 31, 2024
— — 
Class A common stock, no par value; 500,000,000 shares authorized, 138,533,780 shares issued and outstanding as of July 31, 2024; 500,000,000 shares authorized, 136,884,011 shares issued and outstanding as of January 31, 2024
— — 
Class B common stock, no par value; 500,000,000 shares authorized, no shares issued or outstanding as of July 31, 2024 and January 31, 2024
— — 
Additional paid-in capital1,575,180 1,468,805 
Accumulated other comprehensive income (loss)(148)(146)
Accumulated deficit(904,141)(862,804)
Total shareholders’ equity670,891 605,855 
Total liabilities and shareholders’ equity$1,362,841 $1,337,479 
See notes to condensed consolidated financial statements.
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SMARTSHEET INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(in thousands, except share data)
(unaudited)

Three Months Ended July 31, 2024
Common Stock (Class A and B)Additional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Shareholders’ Equity
SharesAmount
Balances as of April 30, 2024137,665,227 $— $1,507,602 $(1,132)$(871,662)$634,808 
Issuance of common stock under employee stock plans1,786,403 — 20,464 — — 20,464 
Taxes paid related to net share settlement of equity awards— — (870)— — (870)
Share-based compensation expense— — 47,984 — — 47,984 
Other comprehensive income— — — 984 — 984 
Net income— — — — 7,858 7,858 
Repurchases of Class A common stock and related costs(917,850)— — — (40,337)(40,337)
Balances as of July 31, 2024138,533,780 $— $1,575,180 $(148)$(904,141)$670,891 

Three Months Ended July 31, 2023
Common Stock (Class A and B)Additional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Shareholders’ Equity
SharesAmount
Balances as of April 30, 2023132,912,458 $— $1,296,364 $(356)$(788,043)$507,965 
Issuance of common stock under employee stock plans1,587,434 — 11,642 — — 11,642 
Taxes paid related to net share settlement of equity awards— — (529)— — (529)
Share-based compensation expense— — 53,374 — — 53,374 
Other comprehensive loss— — — (73)— (73)
Net loss— — — — (33,357)(33,357)
Balances as of July 31, 2023134,499,892 $— $1,360,851 $(429)$(821,400)$539,022 

See notes to condensed consolidated financial statements.

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SMARTSHEET INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(in thousands, except share data)
(unaudited)
Six Months Ended July 31, 2024
Common Stock (Class A and B)Additional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Shareholders’ Equity
SharesAmount
Balances as of January 31, 2024136,884,011 $— $1,468,805 $(146)$(862,804)$605,855 
Issuance of common stock under employee stock plans2,567,619 — 21,156 — — 21,156 
Taxes paid related to net share settlement of equity awards— — (13,925)— — (13,925)
Share-based compensation expense— — 99,144 — — 99,144 
Other comprehensive loss— — — (2)— (2)
Net loss— — — — (1,000)(1,000)
Repurchases of Class A common stock and related costs(917,850)— — — (40,337)(40,337)
Balances as of July 31, 2024138,533,780 $— $1,575,180 $(148)$(904,141)$670,891 
Six Months Ended July 31, 2023
Common Stock (Class A and B)Additional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Shareholders’ Equity
SharesAmount
Balances as of January 31, 2023131,845,028 $— $1,243,730 $101 $(758,173)$485,658 
Issuance of common stock under employee stock plans2,654,864 — 12,231 — — 12,231 
Taxes paid related to net share settlement of equity awards— — (1,150)— — (1,150)
Share-based compensation expense— — 106,040 — — 106,040 
Other comprehensive loss— — — (530)— (530)
Net loss— — — — (63,227)(63,227)
Balances as of July 31, 2023134,499,892 $— $1,360,851 $(429)$(821,400)$539,022 

See notes to condensed consolidated financial statements.
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SMARTSHEET INC.
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
Six Months Ended July 31,
20242023
Cash flows from operating activities
Net income (loss)$(1,000)$(63,227)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Share-based compensation expense97,289 103,802 
Depreciation and amortization13,625 13,191 
Net amortization of premiums (discounts) on investments(4,813)(4,845)
Amortization of deferred commission costs32,564 24,378 
Unrealized foreign currency (gain) loss(492)483 
Non-cash operating lease costs5,087 6,322 
Impairment of long-lived assets3,237 — 
Other, net3,985 1,674 
Changes in operating assets and liabilities:
Accounts receivable41,942 40,433 
Prepaid expenses and other current assets254 49 
Other long-term assets(761)(798)
Accounts payable3,116 (602)
Other accrued liabilities(3,291)8,000 
Accrued compensation and related benefits(14,784)(2,337)
Deferred commissions(39,393)(38,840)
Deferred revenue(20,385)3,183 
Other long-term liabilities104 216 
Operating lease liabilities(7,062)(8,052)
Net cash provided by operating activities109,222 83,030 
Cash flows from investing activities
Purchases of short-term investments(177,092)(248,480)
Maturities of short-term investments218,259 174,900 
Purchases of property and equipment(1,023)(1,395)
Proceeds from sale of property and equipment34 27 
Capitalized internal-use software development costs(5,317)(4,815)
Net cash provided by (used in) investing activities34,861 (79,763)
Cash flows from financing activities
Proceeds from exercise of stock options9,930 1,070 
Taxes paid related to net share settlement of restricted stock units(13,925)(1,150)
Proceeds from contributions to Employee Stock Purchase Plan10,774 10,846 
Principal payments of finance leases(52)— 
Repurchases of Class A Common Stock and related costs(39,588)— 
Net cash provided by (used in) financing activities(32,861)10,766 
Effects of changes in foreign currency exchange rates on cash, cash equivalents, and restricted cash(23)6 
Net increase in cash, cash equivalents, and restricted cash
111,199 14,039 
Cash, cash equivalents, and restricted cash at beginning of period282,442 223,757 
Cash, cash equivalents, and restricted cash at end of period$393,641 $237,796 
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Supplemental disclosures
Cash paid for interest$15 $— 
Cash paid for income tax3,917 6,186 
Accrued purchases of property and equipment, including internal-use software819 1,255 
Share-based compensation expense capitalized in internal-use software development costs1,807 2,065 
Right-of-use assets obtained in exchange for new operating lease liabilities541 — 
Right-of-use asset reductions related to operating leases2,832 1,033 
Repurchases of Class A Common Stock and related costs in accrued expenses749 — 
Short-term investment securities purchased but not settled 2,740 — 
See notes to condensed consolidated financial statements.
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Overview and Basis of Presentation
Description of business
Smartsheet Inc. (the “Company,” “we,” “our”) was incorporated in the State of Washington in 2005, and is headquartered in Bellevue, Washington. Smartsheet, the enterprise work management platform, empowers organizations to innovate and achieve results quickly, securely, and at scale through streamlined collaboration and effective workflow management. By uniting people, content, and work, Smartsheet provides powerful capabilities that revolutionize the way teams operate. Smartsheet makes outcomes reliable, keeps customer data safe, and ensures users are on the same page, making it ideal for organizations seeking efficient, impactful collaborative work management. The Company also offers professional services, which primarily consist of consulting and training services.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated balance sheet as of January 31, 2024 was derived from the audited consolidated financial statements as of that date but does not include all of the information and notes required by GAAP for complete financial statements. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended January 31, 2024, filed with the SEC on March 20, 2024.
The condensed consolidated financial statements include the results of Smartsheet Inc. and its wholly owned subsidiaries, including those located in the United States, the United Kingdom, Germany, Australia, Japan, and Costa Rica. All intercompany balances and transactions have been eliminated upon consolidation.
In the opinion of management, the information contained herein reflects all adjustments necessary for a fair presentation of our condensed consolidated financial statements. All such adjustments are of a normal, recurring nature. The results of operations for the three and six months ended July 31, 2024 are not necessarily indicative of results to be expected for the full year ending January 31, 2025, or for any other interim period, or for any future year.
Use of estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. The Company continuously evaluates its estimates, which are based on historical experience and other current assumptions that its management believes are reasonable under the circumstances. Actual results could differ from those estimates. The Company’s most significant estimates and judgments involve the measurement of fair values of share-based compensation awards; determination of the amortization period for capitalized sales commission costs; and revenue recognition with respect to the allocation of transaction consideration for the Company’s offerings, among others.

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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
2. Summary of Significant Accounting Policies
For a summary of the Company’s significant accounting policies refer to Note 2, Summary of Significant Accounting Policies, of our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.
Segment information
The Company operates as one operating segment. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information for purposes of making operating decisions, assessing financial performance, and allocating resources.
Concentrations of risk and significant customers
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash, cash equivalents, short-term investments, and accounts receivable. The Company maintains its cash accounts with financial institutions where deposits, at times, exceed the Federal Deposit Insurance Corporation (“FDIC”) limits.
No individual customer represented more than 10% of accounts receivable as of July 31, 2024 or January 31, 2024. No individual customer represented more than 10% of revenue for the three and six months ended July 31, 2024 or 2023.
Share Repurchases
The Company elected to record the excess of the repurchase price over the par value of the repurchased shares of its Class A common stock to accumulated deficit, along with any associated transaction costs and excise taxes. The shares are immediately retired and returned to the status of authorized but unissued upon repurchase.
Net income (loss) per share
The Company calculates basic net income (loss) per share by dividing net income (loss) by the weighted-average number of the Company’s common stock shares outstanding during the respective period. For periods where we report net income, the Company will use the treasury stock method to calculate diluted net income per share by adjusting basic net income per share for the potential dilutive impacts of outstanding stock options, restricted stock units (“RSUs”), performance share units (“PSUs”), and shares issuable pursuant to our 2018 Employee Stock Purchase Plan (“ESPP”). For periods where we report a net loss, all potentially dilutive shares are antidilutive and therefore no adjustment to the denominator is made.
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Recent accounting pronouncements
There have been no recent accounting pronouncements, changes in accounting pronouncements, or recently adopted accounting guidance during the six months ended July 31, 2024 that have had a material impact on our condensed consolidated financial statements.
Recent accounting pronouncements not yet adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new guidance requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280, on an interim and annual basis. The standard is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact of adopting ASU 2023-07.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact of adopting ASU 2023-09.
3. Revenue from Contracts with Customers
During the three months ended July 31, 2024 and 2023, the Company recognized $230.6 million and $191.4 million of subscription revenue, respectively, and $5.3 million and $5.4 million of professional services revenue, respectively, which were included in the deferred revenue balance as of April 30, 2024 and 2023, respectively.
During the six months ended July 31, 2024 and 2023, the Company recognized $394.0 million and $315.5 million of subscription revenue, respectively, and $7.5 million and $7.0 million of professional services revenue, respectively, which were included in the deferred revenue balance as of January 31, 2024 and 2023, respectively.
As of July 31, 2024, approximately $765.1 million of revenue, including amounts already invoiced and amounts contracted but not yet invoiced, was expected to be recognized from remaining performance obligations, of which $757.3 million related to subscriptions and $7.9 million related to professional services. Approximately 82% of revenue related to remaining performance obligations is expected to be recognized in the next 12 months.
4. Deferred Commissions
Deferred commissions were $155.7 million as of July 31, 2024 and $148.9 million as of January 31, 2024.
Amortization expense for deferred commissions was $16.9 million and $12.9 million for the three months ended July 31, 2024 and 2023, respectively, and $32.6 million and $24.4 million for the six months ended July 31, 2024 and 2023, respectively. Deferred commissions are amortized over a period of four years. The amortization expense is recorded in sales and marketing on the Company’s condensed consolidated statements of operations.
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
5. Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of the Company’s common stock shares outstanding during the respective period. Diluted net income (loss) per share is computed by adjusting basic net income per share for the potential dilutive impacts of outstanding stock options, RSUs, PSUs, and shares issuable pursuant to our ESPP. We determine the dilutive effect of outstanding common stock awards using the treasury stock method.
The following table presents calculations for basic and diluted net income (loss) per share (in thousands, except per share data):
Three Months Ended July 31,Six Months Ended July 31,
2024202320242023
Numerator:
Net income (loss); basic and diluted
$7,858 $(33,357)$(1,000)$(63,227)
Denominator:
Weighted-average shares outstanding; basic
138,408 133,829 137,923 133,196 
Effect of dilutive securities:
Shares subject to outstanding common stock awards
2,749 — — — 
Weighted-average shares outstanding; diluted
141,157 133,829 137,923 133,196 
Net income (loss) per share:
Basic
$0.06 $(0.25)$(0.01)$(0.47)
Diluted
$0.06 $(0.25)$(0.01)$(0.47)

The following outstanding shares of common stock awards were excluded from the computation of diluted net income (loss) per share for the periods presented because the impact of including them would have been anti-dilutive (in thousands):
Three Months Ended July 31,
Six Months Ended July 31,
2024202320242023
Shares subject to outstanding common stock awards2,788 12,861 10,060 12,861 
Shares issuable pursuant to the 2018 Employee Stock Purchase Plan229 326 229 326 
Total potentially dilutive shares3,017 13,187 10,289 13,187 
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
6. Investments
All cash equivalents and short-term investments were designated as available-for-sale securities as of July 31, 2024. The following tables present the amortized costs, unrealized gains and losses, and estimated fair values of the Company’s cash equivalents and short-term investments (in thousands):
July 31, 2024
Amortized Cost(1)
Unrealized GainsUnrealized LossesEstimated Fair Value
Cash equivalents:
Money market funds$139,935 $— $— $139,935 
Total cash equivalents139,935 — — 139,935 
Short-term investments:
Corporate bonds154,601 312 (59)154,854 
U.S. Treasury securities138,934 114 (129)138,919 
Commercial paper6,954 — — 6,954 
Agency securities12,324 31 — 12,355 
Total short-term investments312,813 457 (188)313,082 
Total$452,748 $457 $(188)$453,017 
(1) Excludes interest receivable of $3.6 million, which is included in Prepaid expenses and other current assets on the condensed consolidated balance sheets.

January 31, 2024
Amortized Cost(1)
Unrealized GainsUnrealized LossesEstimated Fair Value
Cash equivalents:
Money market funds$79,082 $— $— $79,082 
Commercial paper4,497 — — 4,497 
Total cash equivalents83,579 — — 83,579 
Short-term investments:
Corporate bonds99,547 158 (9)99,696 
U.S. Treasury securities169,825 123 — 169,948 
Commercial paper57,755 — — 57,755 
Agency securities19,282 21 (1)19,302 
Total short-term investments346,409 302 (10)346,701 
Total$429,988 $302 $(10)$430,280 
(1) Excludes interest receivable of $1.5 million, which is included in Prepaid expenses and other current assets on the condensed consolidated balance sheets.
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company does not intend to sell, nor is it more likely than not that we will be required to sell, any investments in unrealized loss positions before recovery of their amortized cost basis. We did not recognize any credit losses related to our investments during the three and six months ended July 31, 2024 or 2023. The unrealized gains and losses on our short-term investments were primarily due to changes in interest rates subsequent to the initial purchase. There were no material realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive income (loss) during the three and six months ended July 31, 2024 or 2023. None of the short-term investments held as of July 31, 2024 or January 31, 2024 were in a continuous unrealized loss position for greater than 12 months.
The following table presents the contractual maturities of the Company’s short-term investments (in thousands):
July 31, 2024
Amortized CostEstimated Fair Value
Due within one year$198,570 $198,517 
Due between one to five years114,243 114,565 
Total$312,813 $313,082 
7. Fair Value Measurements
Assets and liabilities recorded at fair value in the condensed consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The lowest level of significant input determines the placement of the fair value measurement within the following hierarchical levels:
•Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3: Unobservable inputs that are supported by little or no market activity.
Assets and liabilities measured at fair value on a recurring basis
The following tables present information about the Company’s financial assets and liabilities that are measured at fair value and indicate the fair value hierarchy of the valuation inputs used (in thousands):
July 31, 2024
Level 1Level 2Level 3Total
Assets
  Cash equivalents:
    Money market funds$139,935 $— $— $139,935 
Total cash equivalents139,935 — — 139,935 
  Short-term investments:
    Corporate bonds— 154,854 — 154,854 
    U.S. Treasury securities— 138,919 — 138,919 
    Commercial paper— 6,954 — 6,954 
    Agency securities— 12,355 — 12,355 
Total short-term investments— 313,082 — 313,082 
Total assets$139,935 $313,082 $— $453,017 
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

January 31, 2024
Level 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$79,082 $— $— $79,082 
Commercial paper— 4,497— 4,497
Total cash equivalents79,0824,497— 83,579
Short-term investments:
Corporate bonds— 99,696— 99,696
U.S. Treasury securities— 169,948— 169,948
Commercial paper— 57,755— 57,755
Agency securities— 19,302 — 19,302
Total short-term investments— 346,701 — 346,701 
Total assets$79,082 $351,198 $— $430,280 
The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, and accounts payable, approximate fair value due to their short-term maturities and are excluded from the fair value tables above.
It is the Company’s policy to recognize transfers of assets and liabilities between levels of the fair value hierarchy at the end of a reporting period. The Company does not transfer out of Level 3 and into Level 2 until observable inputs become available and reliable. There were no transfers between fair value measurement levels during the three and six months ended July 31, 2024 or 2023.
Assets and liabilities measured at fair value on a non-recurring basis
See Note 8, Goodwill and Net Intangible Assets, of these notes to our condensed consolidated financial statements for fair value measurements of certain assets and liabilities recorded at fair value on a non-recurring basis.
The Company’s long-lived assets are measured at fair value on a non-recurring basis and are reduced if the assets are determined to be impaired. The fair value of the operating lease right-of-use (“ROU”) assets and associated property and equipment was estimated as of the sublease execution date using an income approach by converting future sublease cash inflows and outflows to a single present value. Estimated cash flows were discounted at a rate commensurate with the inherent risks associated with the asset group to arrive at an estimate of fair value. See Note 11, Leases, of these notes to our condensed consolidated financial statements for further details on the impairment charges we recorded. As a result of the subjective nature of unobservable inputs used, these assets are classified within Level 3 of the fair value hierarchy.
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
8. Goodwill and Net Intangible Assets
There were no changes in the carrying amount of goodwill or measurement period adjustments during the six months ended July 31, 2024.
The following table presents the components of net intangible assets (in thousands):
July 31, 2024
January 31, 2024
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Software technology
$28,491 $(22,679)$5,812 $28,491 $(20,231)$8,260 
Customer relationships
34,072 (19,283)14,789 34,072 (16,941)17,131 
Trade names4,100 (1,823)2,277 4,100 (1,601)2,499 
Patents170 (149)21 170 (144)26 
Domain names
44 — 44 44 — 44 
Total$66,877 $(43,934)$22,943 $66,877 $(38,917)$27,960 
The following table presents the components of acquired intangible assets (dollars in thousands):
July 31, 2024
January 31, 2024
Net Carrying Amount
Weighted- Average Life (Years)
Net Carrying Amount
Weighted- Average Life (Years)
Software technology
$5,812 1.7$8,260 2.1
Customer relationships
14,789 3.217,131 3.7
Trade names2,277 5.12,499 5.6
Total$22,878 3.0$27,890 3.4
Amortization expense related to intangible assets was $2.3 million and $2.7 million for the three months ended July 31, 2024 and 2023, respectively, and $5.0 million and $5.4 million for the six months ended July 31, 2024 and 2023, respectively. As of July 31, 2024, estimated remaining amortization expense for the finite-lived intangible assets by fiscal year is as follows (in thousands):
Remainder of Fiscal 2025$4,617 
Fiscal 20267,916 
Fiscal 20275,750 
Fiscal 20283,454 
Fiscal 2029721 
Thereafter441 
Total$22,899 
9. Shareholders’ Equity
The Company has issued incentive and non-qualifying stock options to employees and non-employee directors under the 2005 Stock Option/Restricted Stock Plan, the 2015 Equity Incentive Plan (the “2015 Plan”), and the 2018 Equity Incentive Plan (the “2018 Plan”). Employee stock options are granted with exercise prices at the fair value of the underlying common stock on the grant date, generally vest, based on continuous employment, over three or four years, and expire 10 years from the date of grant.
The Company has also issued RSUs to employees and non-employee directors pursuant to the 2015 Plan and the 2018 Plan. Employee RSUs are measured based on the grant-date fair value of the awards and generally vest, based on continuous employment, over three or four years.
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company has also issued market-based PSUs to certain executives pursuant to the 2018 Plan. The number of shares that can be earned range from 0% to 200% of the target number of shares, based on the relative growth of the Company’s total shareholder return as compared to the total shareholder return of the Standard & Poor’s (“S&P”) Software and Services Select Index. PSUs vest over a three-year period, subject to continuous service with the Company. Share-based compensation expense for PSUs with market conditions is measured using a Monte Carlo simulation approach and recorded over the vesting period under the graded-vesting attribution method.
The target number of PSUs granted was 195,948 shares during the year ended January 31, 2024 and 194,624 shares during the three and six months ended July 31, 2024. These PSUs are measured over a two-year performance period ending in the fourth quarter of fiscal year 2026. PSU’s granted during the year ended January 31, 2023 have two separate performance periods. The first tranche of awards, which had a one-year performance period, vested during the year ended January 31, 2024. The second tranche of awards is measured over a two-year performance period starting on the date of grant and ending in the fourth quarter of fiscal year 2025.
Stock options
The following table includes a summary of the option activity during the six months ended July 31, 2024:
Number of Options
Weighted-Average Exercise Price
Outstanding at January 31, 20243,517,075 $24.77 
Granted— — 
Exercised(589,569)16.93 
Forfeited or canceled(110,601)60.09 
Outstanding at July 31, 20242,816,905 25.02 
Exercisable at July 31, 20242,581,674 22.22 
Restricted stock units
The following table includes a summary of the RSU activity during the six months ended July 31, 2024:
Number of Shares
Weighted-Average Grant-Date Fair Value
Outstanding at January 31, 20248,798,624 $45.41 
Granted848,024 40.96 
Vested(1,998,075)46.42 
Forfeited or canceled(875,405)44.66 
Outstanding at July 31, 20246,773,168 44.65 
Performance share units
The following table includes a summary of the PSU activity during the six months ended July 31, 2024:
Number of SharesWeighted-Average Grant-Date Fair Value
Outstanding at January 31, 2024321,463 $50.54 
Granted194,624 34.27 
Vested— — 
Forfeited or canceled(45,980)50.46 
Outstanding at July 31, 2024470,107 43.81 
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
2018 Employee Stock Purchase Plan
The Company adopted the ESPP on April 26, 2018, with the effective date of our Initial Public Offering. Under the ESPP, eligible employees are able to purchase shares of the Company’s Class A common stock at a discount through payroll deductions of up to 15% of their compensation, subject to plan limitations. Purchases are accomplished through participation in discrete offering periods. Each offering period is six months (commencing each January 1 and July 1), with a purchase date following the end of the period, unless otherwise determined by our board of directors or our compensation committee. Employees may purchase shares at 85% of the lesser of the fair market value of the Company’s Class A common stock on (i) the first trading day of the applicable offering period or (ii) the last trading day of the purchase period in the applicable offering period.
Shares available for issuance
The following table includes a summary of the activity of shares available for issuance under the 2018 Plan and the ESPP during the six months ended July 31, 2024:
2018 Plan
ESPP
Balance at January 31, 202418,985,254 5,572,546 
Authorized6,844,200 1,368,840 
Granted(1,042,648)(298,236)
Forfeited or canceled1,031,986 — 
Balance at July 31, 202425,818,792 6,643,150 
The aggregate number of shares reserved for issuance under the ESPP will increase automatically on February 1 of each of the first 10 calendar years after the first offering date. The increase of shares is equal to 1% of the total outstanding shares of the Company’s Class A and Class B common stock as of the immediately preceding January 31 (rounded to the nearest whole share), or such lesser number of shares as may be determined by our board of directors. The aggregate number of shares issued under the ESPP, subject to stock-splits, recapitalizations or similar events, may not exceed 20,400,000 shares of the Company’s common stock.
As of July 31, 2024, $2.2 million has been withheld on behalf of our employees for a future purchase under the ESPP and is recorded in accrued compensation and related benefits in the condensed consolidated balance sheets.
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Share-based compensation expense
Share-based compensation expense included in the condensed consolidated statements of operations was as follows (in thousands):
Three Months Ended July 31,Six Months Ended July 31,
2024202320242023
Cost of subscription revenue$3,020 $3,357 $6,072 $6,816 
Cost of professional services revenue1,511 1,915 3,249 3,825 
Research and development18,217 17,611 36,273 35,043 
Sales and marketing14,424 18,989 31,019 38,043 
General and administrative10,197 10,151 20,676 20,075 
Total share-based compensation expense$47,369 $52,023 $97,289 $103,802 
The Company has excluded $0.6 million and $1.4 million of capitalized software development costs from share-based compensation expense for the three months ended July 31, 2024 and 2023, respectively, and $1.9 million and $2.2 million of capitalized software development costs from share-based compensation expense for the six months ended July 31, 2024 and 2023, respectively.
As of July 31, 2024, there was a total of $283.4 million of unrecognized share-based compensation expense, which is expected to be recognized over a weighted-average period of 1.8 years.
Share Repurchase Program
In April 2024, the Company’s Board of Directors authorized the repurchase of up to $150.0 million of the Company’s outstanding Class A common stock. During the three and six months ended July 31, 2024, we repurchased and retired 0.9 million shares of our Class A common stock at an average price of $43.95 per share, for an aggregate repurchase amount of $40.3 million.
10. Income Taxes
The provision for income taxes for interim tax periods is generally determined using an estimate of the Company’s annual effective tax rate, excluding jurisdictions for which no tax benefit can be recognized due to valuation allowances, and adjusted for discrete tax items in the period. Each quarter the Company updates its estimate of the annual effective tax rate and makes a cumulative adjustment if the estimated annual tax rate has changed.
 The Company’s effective tax rate generally differs from the U.S. federal statutory tax rate primarily due to valuation allowances on deferred tax assets, U.S. Base Erosion and Anti-Abuse Tax (“BEAT”), state taxes, and non-deductible share-based compensation offset by tax credits and Foreign Derived Intangible Income (“FDII”) deductions.
The Company recorded a provision (benefit) for income taxes of $(7.8) million and $3.0 million for the three months ended July 31, 2024 and 2023, respectively, and $(2.6) million and $5.4 million for the six months ended July 31, 2024 and 2023, respectively. The benefit for each of the periods ended July 31, 2024 primarily relates to pre-tax losses recognized year to date relative to the forecasted results for the full fiscal year 2025. The provision for each of the periods ended July 31, 2023 is primarily attributable to BEAT, income taxes in foreign jurisdictions, and state income taxes.
The Tax Cuts and Jobs Act of 2017 amended Internal Revenue Code Section 174 to require that specific research and experimental expenditures be capitalized and amortized over five years for U.S. activities and fifteen years for foreign activities beginning in fiscal year 2023. As a result, the Company has been utilizing some of its federal and state tax attributes and incurring cash taxes due to this provision.
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
11. Leases
The Company has operating leases primarily related to corporate offices and finance leases related to computer equipment. Our finance lease ROU assets are included in property and equipment, net in the condensed consolidated balance sheets. Our leases have remaining lease terms of less than one year to five years, some of which include options to extend the leases for up to five years.
The components of lease expense recorded in the condensed consolidated statements of operations were as follows (in thousands):
Three Months Ended July 31,Six Months Ended July 31,
2024202320242023
Operating lease cost$3,212 $3,948 $6,519 $7,929 
Finance lease cost:
Amortization of assets54 — 109 — 
Interest on lease liabilities14 — 30 — 
Short-term lease cost181 141 295 321 
Variable lease cost663 822 1,374 1,673 
Sublease income(912)(547)(1,539)(1,094)
Total lease costs$3,212 $4,364 $6,788 $8,829 
Other information related to leases was as follows (dollars in thousands):
Six Months Ended July 31,
20242023
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$8,431 $9,667 
Operating cash flows from finance leases30 — 
Financing cash flows from finance leases52 — 
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases541 — 
Right-of-use asset reductions related to operating leases2,832 1,033 
Weighted-average remaining lease term (in years)
Operating leases3.54.2
Finance leases2.20.0
Weighted-average discount rate
Operating leases5.5%5.4%
Finance leases9.9%—%
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of July 31, 2024, remaining maturities of lease liabilities were as follows (in thousands):
Operating LeasesFinance Leases
Remainder of Fiscal 2025$8,178 $135 
Fiscal 202614,908 270 
Fiscal 202710,963 226 
Fiscal 20286,493 — 
Fiscal 20295,301 — 
Thereafter1,357 — 
Total lease payments47,200 631 
Less: imputed interest(4,576)(12)
Total$42,624 $619 
As of July 31, 2024, the future total minimum sublease payments to be received were as follows (in thousands):
Sublease Receipts
Remainder of Fiscal 2025$1,971 
Fiscal 20263,428 
Fiscal 20271,559 
Fiscal 2028— 
Fiscal 2029— 
Thereafter— 
Total$6,958 
The Company has vacated certain of its previous corporate offices and entered into sublease agreements for certain fully furnished floors. We evaluated the associated asset groups for impairment, which included the ROU assets and underlying property and equipment on each subleased floor. We compared the expected future undiscounted cash flows to the carrying value and determined that the respective asset groups were not recoverable. We then calculated the fair value based on the present value of the estimated cash flows from each sublease for the remaining lease term and compared it to the carrying value, which resulted in a $3.2 million impairment charge for the three and six months ended July 31, 2024. The impairment charge was included in general and administrative expenses in the condensed consolidated statements of operations.
12. Commitments and Contingencies
Legal matters
From time to time, in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings. Although management currently believes that resolution of such matters, individually and in the aggregate, will not have a material impact on our financial position, results of operations, or cash flows, these matters are subject to inherent uncertainties, and management’s view of these matters may change in the future.
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
13. Geographic Information
Revenue
Revenue by geographic location is determined by the location of the Company’s customers. The following table sets forth revenue by geographic area (in thousands):
Three Months Ended July 31,Six Months Ended July 31,
2024202320242023
United States$234,347 $199,222 $457,174 $384,817 
EMEA22,097 18,758 43,303 36,482 
APJ
9,530 8,666 18,534 16,873 
Americas other than the United States10,438 8,939 20,385 17,299 
Total$276,412 $235,585 $539,396 $455,471 
No individual country other than the United States contributed more than 10% of total revenue during the three and six months ended July 31, 2024 or 2023.
Long-lived assets
Long-lived assets by geographic location is based on the location of the legal entity that owns the asset. The following table sets forth long-lived assets by geographic area (in thousands):
July 31, 2024January 31, 2024
United States$36,143 $45,743 
EMEA2,140 2,266 
APJ
3,369 3,793 
Americas other than the United States1,104 573 
Total$42,756 $52,375 
The table above includes property and equipment, net and operating lease ROU assets and excludes capitalized internal-use software costs and intangible assets.
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SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
14. Supplemental Condensed Consolidated Financial Statement Information
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following (in thousands):
July 31, 2024January 31, 2024
Prepaid expenses51,021 $57,685 
Other current assets12,969 6,681 
Total prepaid expenses and other current assets
$63,990 $64,366 
Restricted cash
Restricted cash was $0.2 million and $0.3 million as of July 31, 2024 and January 31, 2024, respectively, primarily related to Australian employee contributions to the ESPP.
Cash as reported on the condensed consolidated statements of cash flows includes the aggregate amounts of cash and cash equivalents and restricted cash as shown on the condensed consolidated balance sheets. Cash as reported on the condensed consolidated statements of cash flows consisted of the following (in thousands):
July 31,
20242023
Cash and cash equivalents$393,487 $237,278 
Restricted cash included in prepaid expenses and other current assets136 325 
Restricted cash18 193 
Total cash, cash equivalents, and restricted cash
$393,641 $237,796 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended January 31, 2024. In addition to historical financial information, the following discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. These statements are often identified by the use of words including, but not limited to, “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including but not limited to those discussed in the section titled “Risk Factors” and in other parts of this Quarterly Report on Form 10-Q. Our fiscal year ends January 31.
Overview
Smartsheet, the enterprise work management platform, empowers organizations to innovate and achieve results quickly and securely at scale through effective collaboration and streamlined workflows. By uniting people, content, and work, Smartsheet provides powerful capabilities that revolutionize the way teams operate. Smartsheet makes outcomes reliable, keeps customer data safe, and ensures users are aligned, making it ideal for organizations seeking efficient, impactful collaborative work management.
We generate revenue primarily from the sale of subscriptions to our cloud-based platform for work management. For subscriptions, customers select the plan that meets their needs and can begin using Smartsheet within minutes. We offer three paid subscription levels to new customers: Pro, Business, and Enterprise, the pricing for which varies by the features provided. Customers can also purchase capabilities a la carte or in a bundle through our Smartsheet Advance package options for Enterprise subscriptions, which provide capabilities that enable customers to implement solutions for a specific use case or for large scale projects, initiatives, or processes. These capabilities include Connectors, Control Center, Dynamic View, Data Shuttle, Bridge, Calendar App, Pivot App, and Data Mesh. Customers with additional security and governance needs can purchase Smartsheet Safeguard, which provides capabilities to support oversight, security, and ongoing policy management. Safeguard is available as an add-on to Enterprise plans and as a part of Smartsheet Advance Platinum level. Additional subscriptions that can be integrated with our cloud-based platform include Resource Management, a resource planning solution that helps businesses plan and allocate resources across their programs, track and manage time, and forecast hiring needs; and Brandfolder, a digital asset management platform that enables users to easily organize, discover, control, distribute, and share digital assets. Professional services are offered to help customers create and administer work management solutions for specific use cases and for training purposes.
Customers can begin using our platform by purchasing a subscription directly from our website, through our sales force, starting a free trial, or working as a collaborator on a project.
Macroeconomic Conditions and Other Factors
Our results of operations may be significantly influenced by general macroeconomic conditions, including, but not limited to, the impact of interest rate fluctuations, inflation, geopolitical conflicts, instability in the global banking sector, and foreign currency exchange rate fluctuations. Inflationary factors, such as increases in our operating expenses, may adversely affect our results of operations, as our customers primarily purchase products and services from us on a subscription basis over a period of time. We monitor the direct and indirect impacts of these circumstances on our business and financial results. The implications of these macroeconomic events on our business, results of operations and overall financial outlook remain uncertain over the long term and may have an adverse impact in future periods. Refer to Part II, Item 1A, “Risk Factors” for further discussion of the potential impact of these general macroeconomic factors and other risks on our business.
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Key Business Metrics
We review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
The following table summarizes our key business metrics:
July 31,
20242023
Annualized recurring revenue ("ARR") (in millions)$1,093 $933 
Average ARR per domain-based customer$10,291 $8,863 
Dollar-based net retention rate for all customers (trailing 12 months)113 %121 %
Customers with ARR of $100 thousand or more2,056 1,665 
Customers with ARR of $50 thousand or more4,140 3,552 
Customers with ARR of $5 thousand or more20,198 19,031 
Annualized recurring revenue
We define annualized recurring revenue, or ARR, as the annualized recurring value of all active subscription contracts at the end of a reporting period. We exclude the value of non-recurring revenue streams, such as our professional services revenue, that are recognized at a point in time. We use ARR as one of our operating measures to assess the strength of the Company’s subscription services. ARR is a performance metric and should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items. Both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplying by 12. Annualizing contracts with terms less than one year results in amounts being included in our ARR calculation that are in excess of the total contract value for those contracts at the end of the reporting period. The value of subscription contracts that are sold through third-party resellers, wherein we do not have visibility into the pricing provided, is based on the list price.
As of July 31, 2024, we had customers with ARR ranging from less than $200 to over $10.0 million.
Average ARR per domain-based customer
We use average ARR per domain-based customer to measure customer commitment to our platform and sales force productivity. We define average ARR per domain-based customer as total outstanding ARR for domain-based subscriptions as of the end of the reporting period divided by the number of domain-based customers as of the same date. We define domain-based customers as organizations with a unique email domain name.
Dollar-based net retention rate
We calculate dollar-based net retention rate as of a period end by starting with the ARR from the cohort of all customers as of the 12 months prior to such period end (“Prior Period ARR”). We then calculate the ARR from these same customers as of the current period end (“Current Period ARR”). Current Period ARR includes any upsells and is net of contraction or attrition over the trailing 12 months, but excludes subscription revenue from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the dollar-based net retention rate. Any ARR obtained through merger and acquisition transactions does not affect the dollar-based net retention rate until one year from the date on which the transaction closed.
The dollar-based net retention rate is used by us to evaluate the long-term value of our customer relationships and is driven by our ability to retain and expand the subscription revenue generated from our existing customers.
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Components of Results of Operations
Revenue
Subscription revenue
Subscription revenue primarily consists of fees from customers for access to our cloud-based platform. We recognize subscription revenue ratably over the subscription contract term beginning on the date access to our platform is provided, as no implementation work is required, assuming all other revenue recognition criteria have been met.
Professional services revenue
Professional services revenue primarily includes fees for consulting and training services. Our consulting services typically consist of platform configuration and use case optimization, and are primarily invoiced on a time and materials basis, with some smaller engagements being provided for a fixed fee. We recognize revenue for our consulting services as those services are delivered. Our training services are delivered either remotely or at the customer site. Training services are charged for on a fixed-fee basis and we recognize revenue as the training program is delivered. Our consulting and training services are generally considered to be distinct, for accounting purposes, and we recognize revenue as services are performed or upon completion of work.
Cost of revenue and gross margin
Cost of subscription revenue
Cost of subscription revenue primarily consists of expenses related to hosting our platform and providing support. These expenses consist of employee-related costs and share-based compensation, as well as third-party hosting fees, software-related costs, amortization of capitalized software, amortization of acquisition-related intangibles, and payment processing fees.
Cost of professional services revenue
Cost of professional services revenue consists primarily of employee-related costs and share-based compensation for our consulting and training teams, costs of outside services used to supplement our internal teams, allocated overhead, software-related costs, travel-related costs, and billable expenses.
Gross margin
Gross margin is calculated as gross profit expressed as a percentage of total revenue. Our gross margin may fluctuate from period to period as we continue to invest in and optimize our technology and infrastructure.
Operating expenses
Research and development
Research and development expenses consist primarily of employee-related costs and share-based compensation, software-related costs, allocated overhead, and costs of outside services used to supplement our internal staff. We consider continued investment in our development talent and our platform to be important for our growth.
Sales and marketing
Sales and marketing expenses consist primarily of employee-related costs and share-based compensation, brand awareness and demand generation costs, costs related to Engage, our customer conference, allocated overhead, costs of outside services used to supplement our internal staff, travel-related costs, software-related costs, and amortization of acquisition-related intangibles. Commissions earned by our sales force that are incremental to each customer contract, along with related fringe benefits and taxes, are capitalized and amortized over an estimated useful life of four years.
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General and administrative
General and administrative expenses consist primarily of employee-related costs and share-based compensation for accounting, finance, legal, IT, and human resources personnel. In addition, general and administrative expenses include costs of outside services used to supplement our internal staff and other professional services, software-related costs, allocated overhead, certain tax, license, and insurance-related expenses, bank charges, impairment expense, and bad debt expense.
Operating margin
We expect our operating expenses to increase in absolute dollars as our business grows and to decrease over the long-term as a percentage of total revenue due to economies of scale.
Interest income
Interest income primarily consists of interest income from our investment holdings.
Other income (expense), net
Other income (expense), net consists of foreign currency exchange gains and losses, interest expense, and other non-operating income and expenses.
Income tax provision (benefit)
Income tax provision (benefit) consists primarily of U.S. federal and state income taxes as well as foreign income taxes. We maintain a valuation allowance on our U.S. federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred assets will be realized.
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Results of Operations
The following table sets forth our results of operations for the periods presented:
Three Months Ended July 31,Six Months Ended July 31,
2024202320242023
(in thousands)
Revenue
Subscription$263,530 $221,522 $512,625 $427,523 
Professional services12,882 14,063 26,771 27,948 
Total revenue276,412 235,585 539,396 455,471 
Cost of revenue
Subscription(1)
37,999 33,584 73,771 66,751 
Professional services(1)